he House Committee on Financial Services approved by voice vote on May 20, 2003 the Check Clearing for the 21st Century Act (H.R. 1474) - legislation that would allow banks to exchange checks electronically.

The purpose of H.R. 1474 is "to facilitate check truncation by authorizing substitute checks, to foster innovation in the check collection system without mandating receipt of checks in electronic form, and to improve the overall efficiency of the nation's payments system."

Check truncation removes an original paper check from the check collection or return process and sends to a recipient a substitute check, which could include data taken from the MICR line of the original check or an electronic image of that check.

If banks lack existing agreements with each other for accepting electronic payments, current law requires them to physically present and return original checks. Many have complained this is a slow and outdated process that also increases opportunities for fraud.

When airplanes were grounded on September 11, 2001 and the days following, paper check payments were delayed, and banks had to take drastic steps to ensure the shipment of checks from bank to bank.

Think about it: Trillions of dollars in U.S. payments are moving across the country via airplane and U.S. highway. Isn't this the 21st century?

Rep. Melissa Hart (R-Pa.) introduced legislation resulting from these issues in order to prevent similar future problems with check payments. The bill updates bank laws to give electronic checks the same legal authority as traditional paper checks.

Banks stand to benefit from improved efficiencies and reduced processing costs. Customers of banks would benefit from faster check clearance and more control over their funds.

For the payment industry, it's an opportunity like no other - banks will have to update their back-office functions, branches, check imaging/archiving systems, ATMs and POS systems, the Bank Administration Institute suggests.

The bill is expected to proceed to the full House before July 4, 2003.