Transcript Document

Bank’s
Logo
Check 21 and
Image Exchange
Agenda
Payments System
 Check 21
 What the Check 21 Does Not Cover
 Implementation of the Check 21

11/19/03
2
Check Payment System Today
Branches
Depository
Bank
Paying
Bank
USPS
Issues
 Expensive
 Labor Intensive
 Inefficient
 Unreliable
11/19/03
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Potential Impact of Check 21
Remote Branches
Branches
WEB
Depository
Bank
Paying
Bank
Remote Tellers
ATMs
Processing
Centers
Statement
Image
Archive
Exchange Data
and Images
Image Statement
Image
Archive
Substitute Checks
Lockbox
11/19/03
If necessary!
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Bank’s
Logo
Check 21/
Check Clearing for the
st
for the 21 Century Act
Catalyst for Change
Federal Reserve’s Objectives
To facilitate truncation
 To foster innovation in check collection
systems without mandating receipt of
checks in electronic format
 To improve the overall efficiency of the
nation’s payments systems

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6
Legislation

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
Encourages check truncation by allowing unilateral decisions to
truncate checks
 Unlike current environment with requirement to obtain
agreements from all the parties
Creates a new legal instrument - Substitute Check - that replaces
the original paper check
 For those customers that have not agreed to check truncation
 For those banks that have not agreed to receive electronic
files
Use and Acceptance
 Use of substitute checks does not require an agreement
between any of the parties
 The substitute check must be accepted by any party
 This includes forward collection and returns processes
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Legislation


Check 21 only applies to “Substitute Checks”
 Image reprints of original paper checks
 Use of substitute checks does not require agreement between
the parties
Excluded from the Check 21 are:
 Check safekeeping products
 Other check truncation or conversion products
 ECP & image exchanges
Products and services under other agreements
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Substitute Checks

Substitute Check is legal equivalent of original check for all
purposes, if:




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

11/19/03
Contains image of front and back of check
Conforms to industry standards
 MICR
 Physical characteristics of check
Suitable for automated processing
Must accurately represent all information on original check
This is a legal copy of your
Bears legend check. You can use it the
same way you would use
Includes all endorsements
the original check.
Includes identification of party creating it
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Back
Front
Substitute Check
11/19/03
Source: Accredited Standards Committee X9, Inc
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Expedited Recredit Consumer


Consumers that receive a substitute check, may
make a claim under the Act that the substitute check
was not properly charged or for warranty claim
If a consumer has:
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

The Bank must:
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11/19/03
Suffered loss that they would not have suffered if
they had received the original check or
The original check or a better copy is necessary to
determine validity of the check
The Bank has 10 day to determine the validity of the
claim or
Recredit up to $2,500 per check
The remainder by the 45th calendar day
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Expedited Recredit Consumer

Bank may withhold availability for
exception situations (similar to Reg. CC)

New accounts
 Excessive ODs
 Cause to believe fraud
 Emergency conditions

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Bank may withhold availability for 45 days
Bank must notify consumer of delay in availability
Bank can not charge overdraft fees for 5 days
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Check 21 Expedited Recredit - Banks

Banks may make claims

When consumer makes claim or bank
makes warranty claim
 Bank has suffered a loss
 Original check or substitute check
necessary to determine validity of
charge

A claim must be made within 120
days of transaction
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Check 21 Expedited Recredit
Consumer
Statement 40 DAYS
120 DAYS
CLAIM
CLAIM
10 DAYS
$$$
10 DAYS
substitute check
1)
2)
3)
4)
Paying Bank
Check, Better Copy
or
$$$
Reconverting
Bank
Paying bank must provide consumer with original check, substitute check or Recredit within 10 days of claim up to $2,500 per check
Amounts > $2,500 must be recredited to consumer within 45 days
Paying bank must make claim to reconverting bank within 120 days of
transaction that gave rise to claim
Reconverting bank must provide recredit, original check or substitute check
within 10 days of paying bank claim
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Notice to Consumers


Banks must notify consumers of:
 Check substitution process and how it
differs from original check process
 Expedited recredit rights
Fed has provided “Substitute Check Policy
Disclosure”
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Bank’s
Logo
What the Check 21
Does Not Cover
Image Exchange
Check 21 & Rules
IMAGE
IMAGE
Exchange
Network
Branch
Check
Truncated
IMAGE
DP / Image
Capture Site
of a bank
Paying
Bank
IMAGE
OR
IRD
Reconverting Bank
11/19/03
Paying
Bank
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Check 21 & Rules
IMAGE
IMAGE
Exchange
Network
Branch
Check
Truncated
IMAGE
DP / Image
Capture Site
of a bank
Paying
Bank
IMAGE
OR
Check 21
covers this
relationship
IRD
Reconverting Bank
11/19/03
Paying
Bank
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Check 21 & Rules
IMAGE
IMAGE
Exchange
Network
Branch
Check
Truncated
IMAGE
DP / Image
Capture Site
of a bank
Paying
Bank
IMAGE
OR
IRD
Rules are needed for these relationships
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Reconverting Bank
Paying
Bank
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Check 21 & Rules

Image rules are needed to support the Check
21 because:
 Check
21 is image based
 Image exchanges are not covered by the Check 21
 All depository financial institutions must have a
common national set of image exchange rules for
image exchange to work.
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Bank’s
Logo
Implementation of
the Check 21
What Banks Must Do!
Multiple Step Process
 Prepare for Check 21 and the
Substitute check
 Customers
 Contact
Staff
 Operations
 Develop
strategic plan for image
exchange
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Bank’s Role with Consumers

Customer Awareness
 Advance
notice to customer of substitute checks
 Check
21 notice to consumers beginning
October 28, 2004

Substitute Check Policy Disclosure from Fed rules
 Consumer
 Education

education
of business customers
Training
 All contact staff should be trained on substitute check
and expedited recrediting
Q & A for Staff
 Expedited Refund procedures
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Check 21 Ops Minimum

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Expedited recredit procedures
Qualified returns of substitute check – change to MICR
line
Identifying duplicate checks
Determine how substitute checks look on image
statements
Procedures to detect fraud with substitute checks
Deposit Agreement change to move liability to a
customer that deposits a substitute check.
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Conclusion
Consumers have rights under bill
 Bill drafted to minimize potential fraud and
consumer inconvenience
 Prepare customers and public
 Plan for the future of check processing

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Bank’s
Logo
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Questions? ?