2 11/19/03 Agenda Payments System Check 21 What the Check 21 Does Not Cover Implementation of the Check 21
3 11/19/03 Paying Bank Depository Bank Expensive Labor Intensive Inefficient Unreliable Branches USPS Issues Check Payment System Today
4 11/19/03 Potential Impact of Check 21 Paying Bank Processing Centers Image Statement Statement Exchange Data and Images Image Archive WEB Remote Branches Depository Bank Image Archive Remote Tellers ATMs Branches Substitute Checks Lockbox If necessary!
Bank’s Logo Check 21/ Check Clearing for the for the 21 st Century Act Catalyst for Change
6 11/19/03 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
7 11/19/03 Legislation 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
8 11/19/03 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
9 11/19/03 Substitute Checks Substitute Check is legal equivalent of original check for all purposes, if: 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 Bears legend - Includes all endorsements Includes identification of party creating it This is a legal copy of your check. You can use it the same way you would use the original check.
10 11/19/03 Substitute Check Front Back Source: Accredited Standards Committee X9, Inc
11 11/19/03 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: 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 must: The Bank has 10 day to determine the validity of the claim or Recredit up to $2,500 per check The remainder by the 45 th calendar day
12 11/19/03 Expedited Recredit Consumer Bank may withhold availability for exception situations (similar to Reg. CC) New accounts Excessive ODs Cause to believe fraud Emergency conditions Bank may withhold availability for 45 days Bank must notify consumer of delay in availability Bank can not charge overdraft fees for 5 days
13 11/19/03 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
14 11/19/03 Check 21 Expedited Recredit Paying Bank Reconverting Bank substitute check CLAIM 40 DAYS $$$ 10 DAYS Consumer Statement 1)Paying bank must provide consumer with original check, substitute check or Re- credit within 10 days of claim up to $2,500 per check 2)Amounts > $2,500 must be recredited to consumer within 45 days 3)Paying bank must make claim to reconverting bank within 120 days of transaction that gave rise to claim 4)Reconverting bank must provide recredit, original check or substitute check within 10 days of paying bank claim 120 DAYS Check, Better Copy or $$$
15 11/19/03 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”
Bank’s Logo What the Check 21 Does Not Cover Image Exchange
17 11/19/03 Branch Check Truncated DP / Image Capture Site of a bank Paying Bank Exchange Network Paying Bank IRD OR IMAGE Reconverting Bank IMAGE Check 21 & Rules
18 11/19/03 Check 21 covers this relationship Branch Check Truncated DP / Image Capture Site of a bank Paying Bank Exchange Network Paying Bank IRD OR IMAGE Reconverting Bank IMAGE Check 21 & Rules
19 11/19/03 Rules are needed for these relationships Branch Check Truncated DP / Image Capture Site of a bank Paying Bank Exchange Network Paying Bank IRD OR IMAGE Reconverting Bank IMAGE Check 21 & Rules
20 11/19/03 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.
Bank’s Logo Implementation of the Check 21 What Banks Must Do!
22 11/19/03 Multiple Step Process Prepare for Check 21 and the Substitute check Customers Contact Staff Operations Develop strategic plan for image exchange
23 11/19/03 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
24 11/19/03 Check 21 Ops Minimum 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.
25 11/19/03 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