Check Truncation Law and Legal Definition

For fast and efficient payment, paper checks are replaced with digital images. Checks are transferred electronically through a system called check truncation. Truncation is made after a check enters the processing system. Cancelled checks are not returned to customers. A digital image is formatted in a piece of paper. Next to the image the bank will provide attestation. Truncated image of a check is regarded as an official record. Check truncation improves national payment system. Federal Reserve Bank, Clearing house and member banks can exchange the images.

Through check truncation commercial and central banks can:

  • reduce overall payment system operational costs;
  • speed up the clearing cycle;
  • reduce unproductive float from the country's check clearing system; and
  • check fraud.