Fed considers changes to check services

In yet another sign that checks have fallen out of favor with most Americans, the Federal Reserve voted to ask the public whether it should consider reducing the scope of check services the Reserve Banks provide to banks and credit unions.

The news comes as the federal government accelerates efforts to reduce reliance on paper checks. The Bureau of the Fiscal Service has been directed to stop issuing most paper checks beginning Sept. 30, 2025.

"With paper checks over 16 times more likely to get lost, stolen, altered, or delayed, we encourage those still receiving paper checks to make the switch [to electronic payments] today," said Linda Chero, assistant commissioner of disbursing and debt management and chief disbursing officer for the Treasury Department's Bureau of the Fiscal Service. "Electronic payments such as direct deposit are safer than checks, allow quicker access to funds, and have less risk of fraud."

The Federal Reserve reported that fewer than 3 billion checks cleared between banks in 2024, down from 16 billion in 2018. (The actual number of checks written was higher, although no one can say with certainty how much higher since the Fed's data collection doesn't include on-us checks.)

Is it worth investing in upgrades?

Check clearing has long been a stalwart of Reserve Bank payment services. For many years that involved the processing and exchange of paper checks. Today, however, most, if not all of the work involves electronic images generated by financial institutions' remote deposit capture services.

The Reserve Banks are required by law to recoup the cost of these services through the assessment of fees.

In memo to the Fed Board describing a request for information (RFI) to be published in the Federal Register, the Fed Board staff noted that much has changed in the payments space since the last major upgrade of check clearing services, including the increased usage of alternatives to checks and rising levels of check fraud.

The Reserve Banks will need to make "substantial investments in their check infrastructure to continue providing the same level of check services going forward," the staff wrote. The Board voted to request public input on steps that should be taken.

Potential courses of action include making no new investments in check clearing operations, which would result in service degradation over time; significantly simplifying services to reduce operating costs; substantially winding down services in order to eliminate significant operating costs; and investing "heavily" to maintain and potentially improve services, which would result in higher fees.

Vote for RFI not unanimous

"The RFI is not a proposal for any specific action but rather seeks input from different stakeholders," staff wrote. For example, the RFI includes questions about current uses of check services, the impact of potential changes to those services, the expected evolution of check usage over time, and the willingness to continue spending money to support check usage.

The vote in favor of publishing the RFI was not unanimous. Michelle Bowman, the Board vice chair for supervision, was the lone dissenter. She noted that while checks account for just 5 percent of the non-cash payments that clear through the Reserve Banks, they represent 21 percent of the value.

And Bowman added that while fraud is "a critical issue in the U.S. payment system," cutting back on the Reserve Bank's check services is not "an efficient solution…particularly in light of the ongoing role of checks in the payment system."

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