Check truncation

Checks traditionally are returned to the writer by the bank and often represent the only receipt for a payment. Check writers frequently are careless about filling out stubs, and rely on returned checks for a record of their transactions to support tax returns and for other purposes. But check handling and return are a costly burden for financial institutions, especially with the rising cost of postage.

With electronic funds transfer, checks can be truncated when deposited or at the clearinghouse, i.e., they can be recorded on magnetic tape. Checks may also be retained by the institution holding the account against which they are drawn. The account holder then gets back only a periodic statement.

Since the Bank Security Act requires that all checks over $100 be recorded, no additional data needs to be recorded by banks other than a check reference number for easy location of the cancelled check. The account holder, however, has to maintain accurate records so that a copy of a check may be requested in case proof of payment is required.