Our nation's payments system is complex, encompassing myriad payment options ranging from good old-fashioned cash to more recent innovations such as online bill payment. Check 21, while just a small part of that larger payments story, has received a lot of attention. Unfortunately, some of the Check 21 information has been incomplete or inaccurate, leading to concern and confusion on the part of consumers. So I'd like to tell those consumers what Check 21 is ... and what it isn't.

Ted Crow, Post-Gazette Click illustration for larger image. Write us To submit a letter or an essay for consideration for The Private Sector, please send it via e-mail to Business@Post-gazette.com or via regular mail to Post-Gazette Business Section, Private Sector, 34 Blvd. of the Allies, Pittsburgh, Pa. 15222. Please include your telephone number, municipality and return address for verification.

Check 21, formally known as the Check Clearing for the 21st Century Act, became effective Oct. 28. The act authorized the creation of a new instrument, called a "substitute check," which is the legal equivalent of an original check.

Check 21 is more evolutionary than revolutionary. It does not make the check-clearing process all electronic. What it does do is require banks to accept substitute checks (which are essentially machine-readable photocopies of the original check) as part of the check-clearing process. The net result is that banks will have the ability to clear certain checks faster and more efficiently.

You'll notice I said "certain" checks. Check 21 has been described as faster check clearing, which equals no more float, which equals lots of bounced checks. But Check 21 will not speed up the collection of all checks.

Right now, with this technology in its infancy, it is more expensive to process the average check via Check 21 than the old fashioned way of moving the paper. So banks are likely to use Check 21 primarily to help speed up the collection of those checks that are written for a large dollar amount, and only when they have to send the check a long distance to collect it.

Almost all of the checks consumers write are local checks, such as to the grocery store in the same town where they bank, and local checks already clear overnight. So the vast majority of consumers will not see any "revolution" in how their checks are cleared. Of course, regardless of how long a check floats, both banks and consumer advocates agree that consumers should always make sure they have enough money in their accounts to cover the checks they write.

Some have questioned why Check 21 doesn't provide consumers with quicker access to their funds when they deposit a check. The simple answer is that a check is nothing more than an "IOU," and the bank has to collect on the "IOU" before it can credit the depositor.

As I indicated, most consumer checks, whether written or deposited, won't clear any faster under Check 21. Banks place holds on checks because it can take 4-7 days to find out if a check is "good" -- whether there are sufficient funds in the check writer's account. The Expedited Funds Availability Act specifies the maximum times by which banks must make funds available to their customers. If, over the longer term, Check 21 and electronic image exchange sufficiently increase the speed of check processing, the Federal Reserve Board (which writes the regulations that implement the EFAA) may reduce maximum hold times.

Check 21 is designed to facilitate the transition to electronic check clearing, which will foster innovation and enhance efficiency in the U.S. payments system.

The United States has the most check-intensive payments system among all of the world's large developed countries. Handling checks multiple times and transporting them by plane and courier across the country is very costly.

The use of "substitute checks" will reduce transportation and handling costs, since the original check does not have to move from depositing bank to paying bank. Over time, increasing use of electronic payments will lower the cost of the payments system to society and free up, for more productive uses, money that was once used to buy check sorting equipment and jet fuel.

For much of our nation's history, cash and checks were our primary means of making payments. Today, consumers have many more payment options, including credit cards, debit cards and online bill payment. In fact, a recent study by the Federal Reserve confirmed that electronic payments now exceed payments by check (see www.federalreserve.gov). Check 21 is one small step in the ongoing evolution of our payments system.