Federal Reserve reveals it might be killing off paper checks for good

Months after the federal government stopped issuing and accepting paper checks for most of its business, the Federal Reserve announced it’s considering a slowdown of those services as well. In a notice issued last week seeking public comment, the Federal Reserve Board said it’s considering a handful options regarding the future of how paper checks will be handled.

Among the options are to “significantly reducing check services, or alternatively, substantially winding them down,” according to the notice.

While nothing is close to being decided, the notice shows that the independent government agency is at least considering a major change in how paper checks are handled.

Currently, the Reserve Banks provide several check collection and processing services to banks and credit unions for a fee. In order to keep up and improve those services, the Federal Reserve will need to make infrastructure investments. That would also come with higher operating costs.

The Reserve is also considering continuing to operate the system as it currently functions without making new infrastructure investments. While that would keep operating costs at existing levels, over time there would be reduced reliability of check services.

By reducing and “winding down” check services, the Federal Reserve would see much lower operating costs for the programs.

While there would be a cost savings in ending paper checks, Michelle Bowman, the Fed’s vice chair for supervision, spoke out against the suggestion.

“The materials note that in 2021, about 11 billion checks were written, and while they accounted for approximately 5 percent of the overall noncash payments, they represented about 21 percent of noncash payments value,” Bowman said. “Checks remain important payment mechanisms for consumers and businesses.”

The notice made it clear that no decisions are close to happening, but public comment is being sought to better understand the needs of consumers and businesses. If the Board’s analysis supports a shift that could have significant effects on the nation’s payments system, the Board says it would seek additional public comment prior to making a decision.