Transcript Test Master Look

NCP 2014 Exam
ECCHO Training Series
Session 11
April 10, 2014
2:00 pm ET (1:00 pm CT; 11:00 am PT)
All sessions 90-min.
National Check Payments Certification
Series Review #2
Copyright© 2013 by the Electronic Check Clearing House Organization
NOTICES
This training course may provide an introduction to or summary of various aspects of check
payments and the legal and rules framework for check image exchange. Responsibility for
compliance with image exchange rules, and/or the legal, operational and regulatory
requirements applicable to check image exchange, remains at all times with the financial
institution participating in check image exchange and/or the individual or company using a
check image exchange service.
This presentation and the information contained herein is not intended as legal or compliance
advice or recommendation to any person or company. This document could include technical
inaccuracies or typographical errors and individual users are responsible for verifying any
information found in this presentation and related “live” webinar or webinar playback.
Financial institutions should consult with their legal counsel regarding legal and operational
requirements applicable to any check image exchange program they may offer or in which they
participate.
These program training materials may not be reproduced or published, in whole or in part,
without the express permission of ECCHO.
Copyright© 2013 by the Electronic Check Clearing House Organization
(Certain contributed content subject to third party copyrights)
National Check Payments Certification
2
Session Overview
• Your Questions?
• Session Reviews
– Exceptions – Returns and Adjustments
– Standards and Formats
– Check Products
– Fraud, Risk and Risk Mitigation
National Check Payments Certification
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Your Questions
UCC Transfer Warranties
Makes a
purchase / Pays
with a Check
Image
Image
Image
Scans & Deposits
Consumer
Customer
Company /
RDC Customer
Bank A /
BOFD
Bank B /
Intermediary/
Collecting Bank
Paying
Bank
• Transfer warranties:
– No forged endorsements
– No alterations
– No unauthorized signatures
ARE THESE MADE TO THE PAYING BANK?
5
UCC Presentment Warranties
Bank B /
Intermediary/
Collecting Bank
Bank A /
BOFD
Company /
RDC Customer
Makes a
purchase /
Pays with a
Check
Scans
&
Deposits
Image
Image
Paying Bank
Image
Customer
• Presentment warranties:
– No forged endorsements
– No alterations
– No knowledge of any unauthorized signatures
TO WHICH PARTY IS THE PRESENTMENT WARRANTY MADE?
6
Altered vs. Counterfeit
• Why is this more difficult to determine in an
all image environment?
• Original items imaged and destroyed
– Banks may retain only digitized electronic copy
– Image may not retain traditional check security
features
– Difficult to determine if original item “altered vs.
counterfeit” if only electronic image is available
National Check Payments Certification
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Rule 8 – or – Rule 9?
Rule 8
Rule 9
Remotely created check – Unsigned draft
Forged or Counterfeit check – Fraudulent signature item
Source of Warranty: ECCHO Rules
Source of Warranty: Reg CC
Opt-out Option?
Exchanges in Which Warranties Arise?
• Private sector exchange (ECCHO Rules)
Exchanges in Which Warranties Arise?
• Federal Reserve Bank exchange,
• Private sector exchange (ECCHO Rules)
• Correspondent exchanges (non-ECCHO)
National Check Payments Certification
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Rule 8 – or – Rule 9?
Rule 8
Remotely created check – Unsigned draft



Forged or Counterfeit check – Fraudulent signature item
Source of Warranty: ECCHO Rules
Source of Warranty: Reg CC



Opt-out Option?
Exchanges in Which Warranties Arise?
• Private sector exchange (ECCHO Rules)
Exchanges in Which Warranties Arise?
• Federal Reserve Bank exchange,
• Private sector exchange (ECCHO Rules)
• Correspondent exchanges (non-ECCHO)
National Check Payments Certification
Rule 9

9
ECCHO Rules – Rule 9 Claim Process
-orDisclaim – Back to
Available $ to Cover
Warranty Claim?
Paying Bank
YES, BOFD
May Charge Customer
Statement
IMAGE
Deposited
Check
IMAGE
Bank X
BOFD
Depositing
Customer
BOFD Requests Copy of WSUPP
Within 15 Business Days
of receipt of claim
Sub Check orPaper Copy
or
Drawer
Customer
Paying
Bank
IMAGE
Warranty Claim made directly to Depositary Bank
Banks are all ECCHO Members
Within 15 Business Days of receipt of WSUPP - Image, Paper Copy (front/back) or Sub Check
10
ECCHO Rules: Claim Process Rule 8 or Rule 9
60*
Customer files
statement within 60
calendar days
75
90
105
110
BOFD
Deadline to file disclaimer or request for
copy of customer statement
15 Business Days after receipt of claim
Or
Claim
Deadline to
provide copy 15
Business Days
Deadline for receipt of
BOFD disclaimer
or request for copy - 15
Business Days
Request Copy
Deadline for breach of warranty claim 15
Business Days after receipt of customer
statement. Settlement within 2 Business
Days of claim
Send Copy
Claim
Disclaimer
Paying
Bank
Drawing
Customer
1
Deadline to file
disclaimer may be
extended 5 Business
Days.
Depositing
Customer
If not received
1
Dr customer’s account – Rule 8
Dr customer’s account if account balance equals or
exceeds amount of check – Rule 9
60*
*60 days from availability of customer’s statement
75
Dr customer’s account
(Rule 8) if balance
sufficient (Rule 9)
90
Time in Days 11
105
110
ECCHO Rules: Claim Process Rule 8 or Rule 9
60*
Customer files
statement within 60
calendar days
75
90
105
110
BOFD
Deadline to file disclaimer or request for
copy of customer statement
15 Business Days after receipt of claim
Or
Claim
Deadline to
provide copy 15
Business Days
Deadline for receipt of
BOFD disclaimer
or request for copy - 15
Business Days
Request Copy
Deadline for breach of warranty claim 15
Business Days after receipt of customer
statement. Settlement within 2 Business
Days of claim
Send Copy
Claim
Disclaimer
Paying
Bank
Drawing
Customer
1
Deadline to file
disclaimer may be
extended 5 Business
Days.
Depositing
Customer
If not received
1
Dr customer’s account – Rule 8
Dr customer’s account if account balance equals or
exceeds amount of check – Rule 9
60*
*60 days from availability of customer’s statement
75
Dr customer’s account
(Rule 8) if balance
sufficient (Rule 9)
90
Time in Days 12
105
110
Exceptions – Returns and Adjustments
• What Regulations Govern Check Returns?
– Statutory:UCC midnight deadline (UCC 4-301)
– Regulatory: Reg CC expeditious returns (229.30)
• What Regulations Govern Check
Adjustments?
– None! Handled “by agreement” of the parties
– Federal Reserve Operating Circular (OC 3)
– Clearing house rules (ECCHO Rules)
– Third party providers for operational procedures
and settlement
National Check Payments Certification
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Exceptions and Timing
• An item presented on one of your customer’s
accounts is not able to be paid. As the Paying Bank
your return clocks have started. . .
WHAT SHOULD YOU DO?
• UCC Requirement: Make determination to pay or
dishonor item by midnight of the day following
presentment
• Reg CC requirement: If item will be returned, the
return (or notice of return) must be handled
expeditiously
– Return must be received at depositary bank by 4:00 pm
(local time of depositary bank) 2nd business day following
banking day of presentment
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ECCHO Rules – Return Routing
Use Hierarchy – Determine Return Location
#1
#2
#3
#4
National Check Payments Certification
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ECCHO Rules – Return Routing
Use Hierarchy – Determine Return Location
National Check Payments Certification
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Types of Image Returns - Examples
Customer Return
• Distinguished as dishonored item under check
law / Attempted to be charged/posted to
customer account
– Example: NSF
Administrative Reason for Return
• Distinguished as a return for reason other than
dishonored item / Handled internally rather than
charged to customer; May be handled as an
adjustment
– Example: Duplicate Presentment
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Adjustments
• When is a “PAID” adjustment used (Fed ITYP)?
– Used when duplicate checks have been
presented to an account
• When is a “DUP” adjustment used (Fed ITYP)?
– Used when a duplicate adjustment entry has
been charged to the financial institution for the
same error
National Check Payments Certification
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Options – Duplicates in Private Sector
Note: Banks are all members of same clearinghouse
Scans and deposits
image
IMAGE
Agreement
Statement
Bank A
IMAGE (ICL)
Statement
RDC Customer
Bank B
National Check Payments Certification
Adjust
or
Return
Paying
Bank
Drawer
Customer
19
Options – Duplicates in Private Sector
• Timing Considerations?
• Return: Administrative Reason Code
– Must meet UCC and Reg CC timing for return
– Provider must accept administrative reason in
electronic record
• Adjustment Process: “Duplicate – Item”
– Timing
180 calendar days with entry
Up to 1 year without entry
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Adjustments
• Breach of warranty adjustment claim
through the Fed
– Claim is received and Fed makes provisional
entry based on case as submitted
• Further review shows claim does not meet
all requirements for specific adjustment type
– Entry is reversed
– Requestor advised to resubmit
– Requesting institution’s Fed account is adjusted
What might cause this to occur?
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Adjustments
• Based on the type of adjustment, could be:
– Timing to resolve this adjustment elapsed
– Timing to provide required documents to follow
(DTFs) has elapsed
– Documentation provided was incorrect or
incomplete/insufficient to support the claim as
submitted
National Check Payments Certification
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Standards and Formats
Three Key X9 Standards
• X9.100-140?
• X9.100-160?
• X9.100-187?
National Check Payments Certification
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Three Key Standards
• X9.100-140
– Specifications for an Image Replacement
Document – IRD
• X9.100-160
– Magnetic Ink Printing (MICR)
Part 1: Placement and Location
Part 2: EPC Field Use
• X9.100-187
– Specifications for Electronic Exchange of Check
and Image Data-Domestic
National Check Payments Certification
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X9.100-187
Selected Record Views
Cash Letter Hierarchy Diagram
What are the Required Records types?
(1)
Forward
Presentment
Bundle
(xx)
(3)
LEGEND
M
(xx)
Mandatory
Record
(xx)
Cash Letter
Forward presentment bundles
and/or return bundles
Return
Bundle
(2)
(xx)
(4)
Multiple
Logical
Entities
National Check Payments Certification
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X9.100-187
Selected Record Views
(1)
(3)
Cash Letter
Header
(10)
LEGEND
M
Mandatory
Record
Cash Letter Hierarchy Diagram
File
Header
(01)
Forward
Presentment
Bundle
File
Control
(99)
Cash Letter
Forward presentment bundles
and/or return bundles
Return
Bundle
(2)
Cash Letter
Control
(90)
(4)
Multiple
Logical
Entities
National Check Payments Certification
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X9.100-187
Selected Record Views Forward Presentment Bundle Diagram
What are the Required /Conditional Records types?
Forward
Presentment
Bundle
M
Mandatory
Record
C
(1)
(XX)
Logical
Entity
LEGEND
(XX)
Item(s)
Conditional
Record
(2)
Multiple
Logical
Entities
C
Multiple
Conditional
Records
Addenda
Records
(XX)
(3)
(XX)
(XX)
(4)
Image View
(5)
(6)
National Check Payments Certification
(XX)
(7)
(XX)
28
X9.100-187
Selected Record Views
Forward Presentment Bundle Diagram
Forward
Presentment
Bundle
M
Mandatory
Record
C
(1)
Bundle
Header
(20)
Check
Detail
“25” Record
(3)
“25” record
contains check
MICR DATA
Check Detail
Add. A
“26” Record
(4)
One ”26” record to
identify return
location
National Check Payments Certification
Bundle
Control
(70)
Item(s)
Addenda
Records
Logical
Entity
LEGEND
Check Detail
Add. C
“28” Record
Multiple
Logical
Entities
C
Conditional
Record
(2)
Multiple
Conditional
Records
Image View
(5)
One “28” record
to identify each
subsequent
endorser
(6)
Image View
Detail
(50)
(7)
Image View
Data
(52)
Record Types 50 and 52 occur together for each Image View
Pair of 50/52 records for front view
Pair of 50/52 records back view
29
X9.100-187
Selected Record Views
Return Bundle Diagram
What are the Required /Conditional Records types?
Logical
Entity
LEGEND
Return
Bundle
M
Mandatory
Record
C
Multiple
Logical
Entities
C
Conditional
Record
(1)
(3)
(4)
Bundle
Header
(20)
Bundle
Control
(70)
Return
Item(s)
(5)
Image View
(6)
(7)
National Check Payments Certification
(2)
Multiple
Conditional
Records
(8)
30
X9.100-187
Selected Record Views
Return Bundle Diagram
Return
Bundle
M
Mandatory
Record
C
“31” and “33” records
contain MICR data
Multiple
Logical
Entities
C
Multiple
Conditional
Records
Conditional
Record
(1)
Return
Detail
“31” Record
(3)
Logical
Entity
LEGEND
Bundle
Header
(20)
Return Detail
Add. B
“33” Record
Return Detail
Add. A
“32” Record
(4)
One ”32” record to
identify return
location
National Check Payments Certification
Bundle
Control
(70)
Return
Item(s)
(5)
Return Detail
Add. D
“35” Record
(2)
Image View
(6)
One “35” record
to identify each
subsequent
endorser
(7)
Image View
Detail
(50)
Image View
Data
(52)
(8)
Record Types 50 and 52 occur together for each Image View
Pair of 50/52 records for front view
Pair of 50/52 records back view
31
Build the Electronic Records
• BOFD A may represent item
automatically
– What indorsement records would
be required on the representment?
• BOFD A may provide substitute
check to their customer and
customer re-deposits sub check
via different bank - BOFD B
– What indorsement records would
be required on the representment?
• X9 records:
–
–
–
–
–
(1) Initial forward presentment:
(2) Image Return
(3) Second Presentment
(4) Image return
(5) Sub Check Re-deposit – at second BOFD
[see next slide for answers]
National Check Payments Certification
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Build the Electronic Records
National Check Payments Certification
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Check Products
Remotely Created Checks
• What is it?
– Holder of account authorizes Payee to draw check
on account but does not sign check
RCC does not bear account holder’s signature
(unsigned draft)
Must first exist in paper form
• If unauthorized, how are these handled?
– Fed: Adjustment – WIC – Unauthorized RCC
– ECCHO: Adjustment – Unauthorized RCC
– “Rule 8” Breach of Warranty Claim
National Check Payments Certification
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Controlled Disbursement
• What is it? What’s the benefit?
• Provides customer information early each
day of total amount of checks that will clear
– Customer can fund account for total checks
posted
• Key benefits
– Early notification of day’s funding requirement
– Know what items will be posted today against
your account
Customer can keep funds invested
Obtain additional funds as needed
36
Positive Pay
• What is it? Different Types? What’s the benefit?
• Positive Pay: Matches each check presented
against issue file listing
• Payee Positive Pay: Matches payee name from
issue file to payee name on check
• Reverse Positive Pay: Bank sends file to the
company and company matches posting
information to its internal records
• Key Benefit: Fraud deterrent
National Check Payments Certification
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Remote Deposit Capture (RDC)
• Key reason for RDC Agreement as outlined in
FFIEC Guidance?
• RDC is a deposit transaction delivery system
– Detailed agreements required to pass back risks to
the customer that are out of financial institution’s
control
• Examples:
– Retention/Destruction of checks
– Warranty claims (encoding errors)
– Indemnity claims (better image or original item)
National Check Payments Certification
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Fraud, Risk and Risk Mitigation
Image-survivable Check Security Features
• What is it? What is the Benefit?
• Cryptographic techniques and security marks
on checks that can be automatically
validated for selected fields
– Example: Commercial check issued with ICSF
information printed for payee and/or amount
fields
Check exchanged and information validated
• Benefit: Features remain effective after imaging
for fraud prevention
40
Business Continuity Planning
• What is a BCP?
• Business Continuity Planning (BCP):
Establishes basis for financial institution to
recover/resume business processes when
operations unexpectedly disrupted
National Check Payments Certification
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Business Continuity Planning
• According to the FFIEC, what are the 4 main
steps to developing a comprehensive BCP?
•
•
•
•
Step #1: Business Impact Analysis (BIA)
Step #2: Risk Assessment
Step #3: Risk Management
Step #4: Risk Monitoring and Testing
National Check Payments Certification
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Next Session – Final Review
• Session #12: April 17
– 2:00 pm ET (1:00 pm CT / 11:00 am PT)
– All sessions – 90-minutes
• Topic: “2014 Exam Review”
– Will discuss key points covered in all prior sessions
– Review of Multiple-Choice Exam answers
Exam assigned following today’s session
– Interactive Q&A
National Check Payments Certification
43
Ellen Heffner, NCP
Director and Education Manager
Phyllis Meyerson, AAP, CCM
Executive Vice President
[email protected]
214-273-3211
pmeyerson@ eccho.org
214-273-3202
Series Review #2
Thank You!
Electronic Check Clearing House Organization
3710 Rawlins Street; Suite 1075
Dallas, Texas 75219
NOTICE
This NCPC Program document contains copyrighted materials of its publisher.
These program training materials may not be reproduced or published, in whole or in part, without the express permission of ECCHO.
Appendix
Cash Letter Hierarchy Diagram
• File Header Record (Type 01)
– First record of file containing:
Origin / Destination Routing Numbers and Names
Creation Date and Time
• File Control Record (Type 99)
– Contains file control information such as:
Cash Letter count
Item count
Total amount
• File Header Record (Type 01) is associated with
File Control Record (Type 99)
National Check Payments Certification
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Cash Letter Records
• Cash Letter Header Record (Type 10)
– First record of cash letter containing:
Destination and ECE Institution Routing Numbers
Various dates and time
– Codes to indicate
Forward or return cash letter
Inclusion or “to follow” image records
Type of returns
• Cash Letter Control Record (Type 90)
– Provides control totals for cash letter such as:
Bundle Count
Item Count
Total Amount
• Cash Letter Header Record (Type 10) associated with
Cash Letter Control Record (Type 90)
National Check Payments Certification
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Bundle Records
• Bundle Header Record (Type 20)
– First record of bundle containing:
Destination and ECE Institution Routing Numbers
Various dates
Bundle ID
Bundle Sequence Number
Cycle Number
– Code to indicate forward or return bundle
• Bundle Control Record (Type 70)
– Provides control totals in bundle for:
Item count
Total amount
Images within Bundle count
• Bundle Header Record (Type 20) associated with
Bundle Control Record (Type 70)
National Check Payments Certification
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Selected Cash Letter Records – Forward
• Check Detail Record (Type 25)
– One record for each check containing:
Information from MICR line of check
ECE Institution Item Sequence Number
– Codes to indicate:
Type of Documentation associated with this check
Type of returns accepted
Archive available
Whether and how MICR line was repaired
• Check Detail Addendum A Record (Type 26)
– Associated with previous Check Detail Record
– May contain multiple records when check re-presented
– Identifies/provides info on return location for customer returns
Typically BOFD
Fields conform to Reg CC requirements
– Codes indicate institution that truncated original check
Not truncated IRD
– Codes indicated whether / how MICR line was repaired
National Check Payments Certification
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Selected Cash Letter Records – Forward
• Check Detail Addendum C Record (Type 28)
– Associated with previous Check Detail Record
– May contain multiple records for subsequent
indorsers
– Identifies and provides information for each
indorsing institution
Fields conform to Reg CC and other indorsement
requirements
– Codes to indicate
Institution that truncated original check
o Not truncated IRD
Whether and how MICR line was repaired
Return Reason
Bank’s role in collection process
National Check Payments Certification
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Selected Cash Letter Records – Return
• Return Record (Type 31)
– One record for each return
– Created by Paying Bank or returning institution containing:
Information from Check Detail Record or original check
Forward Bundle Date
ECE Institution Item Sequence Number
– Codes to indicate:
Return Reason
Archive available
Number of Times Returned
• Return Addendum B Record (Type 33)
– Contains Aux-On-Us field for business-sized checks
• Return Addendum A Record (Type 32)
– Record mirrors Check Detail Addendum A Record (Type 26)
• Return Addendum D Record (Type 35)
– Record mirrors Check Detail Addendum C Record (Type 28)
National Check Payments Certification
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Selected Cash Letter Records – Image
• Image View Detail (Type 50) / Image View Data (Type 52) Records
– Convey image data and image on forward collection for Check Detail
Record (Type 25) or Return Record (Type 31) on return side
– Records occur together – Must have:
Pair of 50/52 records for front view and
Pair of 50/52 records back view of each check
• Type 50 record contains codes about Image view including:
– Format
– Compression
– View side (front or rear)
– View descriptor (full or partial view)
– Digital signature and security information, if included
• Type 52 record contains:
– Image Data
– Reference Key information
– Security information
– Clipping information
– Digital signature, if included
National Check Payments Certification
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Fed Adjustment Form
Adjustment claim entry types:
CR/DB Entry Request or an
Information Request
53