View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

Federal Reserve Bank
of Dallas

l l★K



November 7, 2000
Notice 2000-56

TO: The Chief Operating Officer of each
financial institution and others concerned
in the Eleventh Federal Reserve District
Steps to Remove Barriers to the
Development of Electronic Check Presentment
in the United States
The Board of Governors of the Federal Reserve System has announced a series of
cooperative steps the Federal Reserve and the private sector can take to remove barriers to the
development of electronic check presentment in the United States.
The steps were identified at a workshop conducted by the Payments System Development Committee on June 29 at the Federal Reserve Bank of Boston. The actions, described in a
short paper distributed to workshop participants, include the following:

Further consideration of legal changes that would reduce legal barriers to the
electronic collection or return of checks, while protecting the rights of consumers
or others who wish to receive paper checks;


Further efforts to develop and implement technical standards for exchanging
electronic or paper substitutes for checks;


Follow-up discussions between the Federal Reserve and the banking industry on
the business case for electronic check presentment;


Discussions of new operational concepts involving electronic check presentment
and check imaging and of potential ways to test the concepts; and

For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal
Reserve Bank of Dallas: Dallas Office (800) 333-4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012;
Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.



Preparation of educational materials to inform depository institutions and the
public about electronic check presentment.

Some of the ideas will be refined further as the initiatives proceed.
The committee’s paper is attached.
For more information, please contact Diane Holloway, (214) 922-5470, at the Dallas
Office; Annette Rivas, (915) 521-8244, at the El Paso Branch; Ed Peters, (713) 652-1669, at the
Houston Branch; or Betty Gallegos, (210) 978-1651, at the San Antonio Branch.
For additional copies of this Bank’s notice, contact the Public Affairs Department by
e-mail or phone (214) 922-5254. You may also obtain copies of notices by accessing District
Notices on our web site at

September 2000
On June 29 the Federal Reserve’s Payments System Development
Committee hosted a workshop at the Federal Reserve Bank of Boston to help identify
significant barriers to the greater use of electronic check presentment (ECP) in the United
States. Participants in the workshop were asked not only to help identify significant
barriers to the greater use of ECP but also to suggest potential steps that the Federal
Reserve and the private sector might take to address these barriers. Knowledgeable
private- and public-sector representatives from a variety of organizations participated in
the discussions. In their remarks to the workshop, Roger Ferguson and Cathy Minehan,
on behalf of the Payments System Development Committee, promised to follow up with
participants to describe the next steps the Committee and the Federal Reserve will take to
help address barriers to ECP. The key focus of this document is on near-term actions the
Federal Reserve and the private sector can take cooperatively to help address these
Key action areas
The Payments System Development Committee has reviewed the ideas
put forward at the workshop and believes that there are several promising areas for nearterm action. These include:

Further consideration of legal changes that would foster the use of check
truncation, ECP, and digital imaging by permitting the collection or return of a
substitute check when necessary instead of the original check.


Further efforts to develop and implement standards for exchanging electronic
images of checks, where needed, and for creating and using substitute paper


Facilitation of follow up discussions with the banking industry about the
mature ECP environment and the business case for depository institution
participation in ECP.


Discussions with the banking industry about tests of new operational concepts
involving ECP and check imaging, potentially including additional tests of
concepts by either the banking industry or the Federal Reserve.


Work on educational materials that could be used to help inform depository
institutions and the general public about check truncation, ECP, check
imaging, and related topics.


Next steps
The following paragraphs provide additional information on the next steps
for cooperative work. Several of these steps will need further refinement as the Federal
Reserve and the private sector continue to evaluate how best to take forward specific
Default check truncation rules. As discussed at the workshop, one way to
facilitate the truncation of checks is to modify check law to remove the requirement that a
bank must collect or return the original check unless it obtains agreement to do so
electronically. One concept would treat a digital image of a paper check or a machinereadable paper copy of the check (a “substitute check”) as the legal equivalent of the
original check. If a bank did not agree to accept electronic presentment or return, a bank
could collect or return a substitute check instead of the original check. Preliminary work
by the Federal Reserve, depository institutions, consumer representatives, and the legal
community on this concept shows promise. Further work to explore possible changes to
current check law, along with potential operational changes, remains to be done. To
follow up on the discussions at the workshop, a meeting to examine these ideas in greater
detail will be held at the Federal Reserve Board on September 7.
Standards. Participants at the workshop noted that standards for image
replacement checks will need to be developed to complement efforts in the legal and
operational areas. The topic of standards for image replacement checks has now been
suggested for the agenda of the September meeting of the ANSI X9B5 check images
standards group. 1 Some further work on standards involving the interchange and storage
of digital check images, as well as educational work involving existing standards, may
also be needed. The Federal Reserve will work with the banking industry to follow up on
these issues and will sponsor a workshop on the standards issue in 2001. Additionally,
workshop participants emphasized that broader participation by depository institutions in
existing standards setting groups is needed.
Long term ECP environment and near term business case. Workshop
participants talked about the need for a common definition of ECP, common language,
and a broader understanding of the business case for various types and sizes of depository
institutions to participate in check truncation, ECP, and check imaging. Some individual
institutions and banking associations have already undertaken important work on these
topics. The development of a business case to engage in particular operations or offer
particular products and services is ultimately a matter for the individual institutions
involved. As a facilitator of further discussions, the Federal Reserve will contact
representatives from the banking industry to discuss their ideas on how to approach these


A Federal Reserve staff member currently serves as the chair of the ANSI X9B5 group.


Additional tests of ECP concepts. The Federal Reserve currently presents
electronically 25 percent of the checks it collects. Nearly 10 percent of these
presentments now involve check truncation. The Federal Reserve is also actively
conducting a pilot project involving ECP and digital imaging concepts through the
Helena Branch of the Federal Reserve Bank of Minneapolis (Montana Project) and is
leading a joint effort with the industry to re-engineer the check return process using
digitized images. Likewise, private organizations have been undertaking significant
efforts to increase the use of ECP in the near term. The Federal Reserve has been
discussing ECP concepts with the banking industry for some time and will reemphasize
the policy that new concepts for ECP are welcome and that the Federal Reserve is open to
suggestions for the cooperative investigation of responsible ideas. Additionally, as
suggested at the Workshop, the Federal Reserve will continue to review its own products
and deadlines involving ECP and related services in light of the growing interest of the
banking industry in ECP.
Educational efforts. The banking industry has the central role in educating
bank customers and the general public about check products, account services, and
related issues, including truncation, ECP, and digital imaging. Some participants in the
workshop suggested that there is a need for additional educational materials that would
help support these efforts. To help supplement the work of other organizations, the
Federal Reserve will explore with the industry the development of relevant and
informative educational materials related to ECP and truncation for targeted audiences.
Finally, the Payments System Development Committee will continue to
seek forums for dialogue with the private sector regarding ECP and other emerging retail
payment system issues. The Committee continues to believe that dialogue, along with
well-focused efforts by the private sector and the Federal Reserve, hold significant
promise for improving the long-run efficiency of the U.S. retail payment system.