LLOYD HAMM
Eastern making plans

Despite all the hype surrounding Check 21 for most of last year, most Bay State banks report that things are going smoothly in the first few months since the law became effective. Meanwhile, technology companies are cashing in on Check 21 by offering streamlined check imaging solutions for local banks.

The Check Clearing for the 21st Century Act, or Check 21, received a lot of press prior to becoming effective on Oct 28. However, very little has happened so far.

“Just as we predicted, it is going to be very slow and gradual,” said John Hall, spokesman for the American Bankers Association in Washington, D.C. “Most should not see anything for quite a while.”

Daniel J. Forte, president and chief executive officer of the Massachusetts Bankers Association, said he has not heard of any problems from local banks.

“It has been a pretty smooth implementation,” Forte said.

Independent Community Bankers of America also testified in early December to members of the House Committee on Financial Services that concerns over the implementation of Check 21 are premature. Committee members called for the banking industry to shorten the hold periods for deposited checks as check clearing times shorten while more banks implement Check 21.

“Check 21 has been in effect for only six weeks,” Viveca Y. Ware, director of payments policy for ICBA, said on Dec. 7. “It’s a bit premature to say that checks are clearing faster overall. While Check 21 provides the legal framework to eventually speed up the check processing time, the technological infrastructure is still developing.”

‘A Non-Event’

According to Salvatore Grasso, senior vice president of payment services at Banknorth Massachusetts, the institution is in the planning stages of image exchange. He said he expects that some image exchange will start in 2005. The bank expects to be receiving images by 2006, Grasso said.

Citizens Bank of Massachusetts is accepting images from other banks, but customers will receive paper checks in their statements until March. At that point, customers can then choose to receive images of their checks instead of paper. Cathy Schmidt, retail banking director and executive vice president at Citizens, said Check 21 has “been a non-event.”

Chuck Bower, executive vice president and chief technology officer at Natick-based Middlesex Savings Bank, compared the hype surrounding Check 21 to the publicity that the year 2000 received.

“All [the] preparation … then nothing,” Bower said. “There was a lot of publicity early on.”

Check 21 requires that as of Oct. 28, 2004, everyone must accept substitute checks. Grasso said Banknorth Massachusetts receives approximately 500 substitute checks a day.

Middlesex Savings has been processing substitute checks, but Bower said he has not seen that many come through. Middlesex Savings is not receiving images yet.

Forte said few banks are currently creating substitute checks.

Ware told the House Committee that substitute checks clearing electronically currently account for a “miniscule” amount of checks processed in the United States.

“Right now the industry is slowly adopting Check 21,” Ware said. “The cost of implementation is high, and many banks that have purchased the technology are implementing it slowly to fully understand the impact it will have on their operations and customers. Currently, banks give next-day availability on most deposited checks, even though the minimum required by law is two days.”

Eastern Bank Chief Information Officer and Executive Vice President for Corporate Services Lloyd Hamm said the bank is in discussions with another institution to begin image exchange.

Grasso pointed out that setting up the hardware and software to exchange images is expensive, which is why the process will be gradual for many banks.

Bower said in order for Middlesex Savings to benefit, the bank needs to update its imaging system. The bank hopes to have imaging in place in about a year.

One New England company is hoping to provide the necessary technology to banks, but with a more organized approach.

Connecticut-based COCC, a provider of next-generation technology services for community banks and credit unions, has created an “end-to-end” image solution for banks. The image processing created by COCC encompasses the entire check image process, from initial check deposit to statement delivery.

COCC, which also serves Massachusetts, agreed to purchase software components from various vendors to create the complete package. The service includes branch image capture, remote image encoding and proof, outgoing image cash letters, image exchange plus incoming image cash letter processing, reconciliation and archiving.

According to information released by COCC, banks generally must purchase components from various vendors and the financial institution must assemble a complete solution.

Betsy Didan, document processing manager at COCC, described COCC’s package as “all-inclusive.”

Didan said banks are interested in the end-to-end image processing solution, but there is one obstacle.

“One hurdle that they have to get over is [that] they have internal legislation,” Didan said, referring to customers who can still request receiving their checks in their statements.

Didan said she hears frustration from banks because getting the benefits of check imaging is defeated when customers still receive paper checks.

However, Didan said some banks in Connecticut have been able convince their customers to move to check images on their statements.

“You can try to go out and campaign your customers,” said Didan.

Grasso said approximately 39 percent of Banknorth’s customers currently receive images in their statements.

Other concerns surrounding Check 21 was the impact on bank customers. Local banks have said customers have had few questions.

“It’s the law, so everyone understands it is not just Banknorth,” said Grasso.

Banknorth, like the other banks, distributed educational information about Check 21 to customers before the law became effective.

At Middlesex, Bower said some customers have asked to opt out of Check 21, which is not possible. Customers can opt out of receiving images in their statement.

According to Forte, the MBA distributed close to 1 million brochures about Check 21 for local banks’ use. For now, banks are trying to be flexible with their policies until customers get acclimated to any changes, Forte said.

Jennifer Jope may be reached at jjope@thewarrengroup.com.