WASHINGTON – Federal Reserve Board Chairman Alan Greenspan sent Congress a proposed "Check Truncation Act" designed to "improve the overall efficiency of the nation's payments systems," including making it easier for banks to process checks and to encourage innovation in the check collection system without requiring the receipt of checks in electronic form..

"While there might be substantial payments system benefits if most or all checks were truncated, certain payments system participants may not be able to achieve sufficient benefits to justify expending the resources required to modify their current processes. As a result, the proposed Act promotes payments system improvements without mandating greater use of electronic processing," Greenspan wrote in an analysis of the proposed Act.

Under the provisions of the proposed Act, banks could use electronics to streamline the check collection and return process even in cases where they don't have electronic exchange agreements. The Act creates a new type of paper document, called a "substitute check" that can be created from an electronic check image and that would be the legal equivalent of the original check.