Answer:
The Check Truncation Act (CTA) is a proposed federal law drafted by the Federal Reserve Board and proposed to Congress. A version of it was introduced in the House of Representatives in September, 2002 as H.R. 5414. The goal of the legislation is to increase efficiency of the nation's payment system by removing certain legal impediments to check truncation so that banks would be able to easily present and return checks electronically. It would not mandate the receipt of checks in electronic form, but would facilitate it. A new instrument called a "substitute check" created from an electronic check image would be the legal equivalent of the original check and could be processed by receiving banks just as original paper checks are.
Among the benefits touted by the Federal Reserve:
- quicker collection and return of checks;
- reduction of the industry's reliance on the physical transportation of checks;
- reduction of infrastructure costs;
- benefit to customers if the changes enable banks to offer broader deposit options, later cutoff hours, more timely information, and faster check collection and return.
The FRB prepared a section by section analysis of the proposed law: http://www.federalreserve.gov/paymentsystems/truncation/proposed.htm
Financial institutions that are not currently imaging checks will want to review the potential benefits.
First published on BankersOnline.com 10/21/02
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