WASHINGTON, D. C. — The Committee will come to order. This morning the Committee meets to consider the Federal Reserve Board proposal on check truncation. We are very pleased to have as our first witness Vice Chairman Roger Ferguson of the Federal Reserve System who will discuss the proposal and its benefits in some detail.
For our second panel today, we welcome three witnesses: Ms. Lindsay Alexander, President and Chief Executive Officer of the NIH Federal Credit Union, representing the Credit Union National Association; Ms. Janell Mayo Duncan, Legislative and Regulatory Counsel from Consumers Union; and Mr. Danne Buchanan, Executive Vice President from Zions Bankcorporation, testifying on behalf of several banking trade associations.
Long before credit cards and debit cards came along, the paper check served as a convenient and safe means for consumers to make purchases and pay bills. Despite the growing popularity of these newer payment instruments, checks remain a significant part of the American payment system. The Federal Reserve System estimates that over 40 billion checks are written annually, accounting for $39.3 trillion in payments.
I doubt that many of us have given great thought to what happens after when we write a check to a merchant or put one in the mail to pay a bill. Today's hearing provides us an opportunity to highlight how the existing check clearing process works and how little that process has changed to fully incorporate advances in technology. I truly believe that most Americans would be surprised at how dependent our system remains on the physical transportation of paper checks.
Under current law, banks must physically present and return original checks to receive payment unless the bank has an agreement with another bank to do so by electronic means. Some banks have such agreements and have been able to take advantage of electronic processing using advanced imaging technology. However, since there are over fifteen thousand banks, thrifts, and credit unions, negotiating such agreements with each individual institution would be impossible. As a result, we continue to have billions of checks – literally tons of checks – either trucked or flown across the country ever night. Given the availability of inexpensive electronic transmissions media, this enormous dependence on ground and air transportation systems makes very little sense. Truncation could be used to make the process less expensive over the long term.
The Fed's proposal would end the requirement to move paper by allowing banks to transfer electronic images of checks rather than the originals. In cases where a hard copy of a check was needed, a legally equivalent substitute could be downloaded from the electronic image and delivered to the bank. The end result is considerable savings in time and money through the elimination of an outdated law. We can learn from the experience of the credit union industry which has used a truncation process for many years. We will hear more about that later this morning.
I look forward hearing the testimony of the witnesses today. Vice Chairman Ferguson, we are pleased to have you with us this morning. Modernizing the check clearing process would provide benefits to consumers and financial institutions and to our economy as a whole. I intend to work with my colleagues on both sides of the aisle to develop legislation that accomplishes this task.