The implementation of the Electronic Check Clearing Law, which yesterday passed its second and third readings in the Knesset, will advance the clearing of checks in Israel and will bring it in line with common practice around the world.
The law will enable a transition from physical clearing of checks to electronic clearance. In other words, the physical checks will remain at the bank at which they are deposited, and image files of the checks, rather than the checks themselves, will be sent to the bank from which the money is withdrawn (check truncation).
In the existing check clearing process, the customer must physically deposit the check in a bank branch, and the check is sent from the bank where it is deposited to the bank from which the money is paid. If the check is returned, it must be returned from the bank from which the money is paid to the bank where it was originally deposited, and from there to the customer so that the customer may deposit the check again or collect the funds through the Enforcement and Collection Authority or through the courts. The Electronic Check Clearing Law will make it possible to streamline and accelerate the process. From the moment the check is deposited at the presenting bank (whether physically or as an image file via cellular application), the check that was presented is no longer relevant to the clearing process or, where necessary, for collection through the Enforcement and Collection Authority.
Beyond the advancement, digitization and speed of settlement, the law will streamline the check clearing process between clearing house members, improve customer convenience in terms of both presenting the check and handling returned checks, enable the final guarantee of transactions more rapidly (instead of the three days that it takes to ensure finality of a check), improve enforcement and collection processes, and make it possible to lower fees due to the transition from physical banking activity to electronic banking activity.
Bank of Israel Governor Dr. Karnit Flug said:
“The Electronic Clearing Law will significantly advance the means of payment market in general and the check clearing process in particular. The law is another step in adopting the positive effects of technology and its implementation will provide bank customers with the benefits of improved settlement services that are more advanced, more convenient, and more inexpensive.”
The main points and ramifications of electronic clearance are:
ü Streamlining the check clearing process—cancelling the need to physically ship checks back and forth, store and retrieve checks.
ü Regulation of the return of checks that are not honored—Should a deposited check not be honored (for instance due to insufficient funds), the customer will, at his request, receive a printout of the digitized check in order to continue the collections process through the Enforcement and Collection Authority.
ü Regulating the admissibility of the digitized check in judicial proceedings—A printout of a digitized check will be considered a check for all intents and purposes, and will constitute admissible evidence to prove the veracity of its contents in any judicial proceeding.
ü Improved customer convenience and savings in costs to the customer—The imaging of the checks will enable the banks to offer advanced technological services such as check deposits via mobile devices (currently, checks can only be deposited via mobile device if they are drawn on the same bank). In other words, the customer will not be required to come to the bank branch in order to deposit the check for payment. As a result, the cost of depositing a check will be lowered by about 75 percent (depositing a check by customer-executed transaction vs. by teller-executed transaction).
ü Ensuring transactions more rapidly—The law will help by providing the ability to shorten the length of time that will elapse from the time the check is deposited for payment until the customer’s account is credited. (The credit from a check is currently final only at the end of 3 business days.)
ü Enabling continued use of checks during emergencies—In a situation where it is not possible to deposit checks at bank branches (for instance if roads are blocked), it will still be possible to continue making payments by check.
ü Warranty against damage caused by not keeping the check—The bank will be responsible toward the customer for damage caused due to the bank not keeping the check.
ü Applicability of the law—The law will be applicable six months from the date of its publication. For a period of up to 18 months from the date of its applicability, it will be possible to clear checks both physically and electronically. Thereafter, it will be possible to clear checks only electronically.