olluted floodwaters resulting from Hurricane Katrina created the potential for paper checks stored in ATMs, banks, operations centers and retail locations in affected areas to become contaminated or even damaged. The checks might pose a health risk to anyone handling them in the near future, the Federal Reserve Banks warned. They offered guidance on ways to remove contaminated paper checks from the check processing system.

On Sept. 19, 2005 Federal Reserve Check Services published a two-page manual entitled "Contaminated Check Procedures for Depository Financial Institutions (DFIs) Impacted by Hurricane Katrina." Checks "subjected to floodwater ... may have come into contact with sewage, chemicals or human matter that makes the items unsuitable for handling and personal contact ... and could create health issues for any party involved in the collection process," the guide states.

The manual provides check collection procedures for institutions using the automated clearing house (ACH) system and procedures for those using regular paper check processing channels.

According to ACH rules, destroyed checks may be re-created and collected using the ACH system under the Destroyed Check Entry (XCK) format; however, there are some restrictions. The ACH collection alternative is used for forward items only. In addition, the check usually must be for less than $2,500, but given the extenuating circumstances, through Oct. 31, 2005 NACHA - The Electronic Payments Association will not impose penalties when compliance with XCK restrictions is not practical.

The Federal Reserve advised DFIs using paper check processing channels to use a recordak film machine or a copier to create a copy of the check in lieu of the original. If Check 21 software is available, they should convert the item for electronic collection.

Check 21, which became law in October 2004, modernizes check processing through the facilitation of check truncation by allowing banks to create substitute checks (legal equivalents of original checks) and process check information electronically. The law is a result of what happened in the days following Sept. 11, 2001. Flights were grounded across the country and the check processing system came to a standstill. Check 21, banks are finding, also comes in handy in the event of natural disasters.