Bank’s Logo

Check 21 and Image Exchange

211/19/03

Agenda

Payments System Check 21 What the Check 21 Does Not Cover Implementation of the Check 21

311/19/03

Paying Paying BankBank

Depository Depository BankBank

ExpensiveExpensive Labor IntensiveLabor Intensive InefficientInefficient UnreliableUnreliable

BrancheBranchess

USPS

IssuesIssues

Check Payment System Today

411/19/03

Potential Impact of Check 21

Paying

Bank

Processing

Centers Image Statement

Statement

Exchange Data and Images

Image Archi

ve

WEB

Remote Branches

Depository Bank

Image Archi

ve

Remote Tellers

ATMs

Branches

Substitute Checks

Lockbox If necessary

!

Bank’s Logo

Check 21/Check Clearing for the for the 21st Century Act

Catalyst for Change

611/19/03

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

711/19/03

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

811/19/03

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

Products and services under other agreements

911/19/03

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 yourcheck. You can use it the same way you would usethe original check.

1011/19/03

Substitute Check

Fro

nt

Back

Source: Accredited Standards Committee X9, Inc

1111/19/03

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 45th calendar day

1211/19/03

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

1311/19/03

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

1411/19/03

Check 21 Expedited Recredit

Paying Bank

Reconverting Bank

substitute check

CLAIM CLAIM

40 DAYS

$$$10 DAYS

10 DAYS

ConsumerStatemen

t

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 $$$

1511/19/03

Notice to Consumers

Banks must notify consumers of:Check substitution process and how it

differs from original check processExpedited recredit rights

Fed has provided “Substitute Check Policy Disclosure”

Bank’s Logo

What the Check 21 Does Not Cover

Image Exchange

1711/19/03

Branch

Check Truncated

DP / Image Capture Site

of a bankPaying Bank

Exchange

Network

Paying Bank

IRD

OR

IMAGE

IMAGE

IMAGE

Reconverting Bank

IMAGE

Check 21 & Rules

1811/19/03

Check 21 covers this relationship

Branch

Check Truncated

DP / Image Capture Site

of a bankPaying Bank

Exchange

Network

Paying Bank

IRD

OR

IMAGE

IMAGE

IMAGE

Reconverting Bank

IMAGE

Check 21 & Rules

1911/19/03

Rules are needed for these Rules are needed for these relationshipsrelationships

Branch

Check Truncated

DP / Image Capture Site

of a bankPaying Bank

Exchange

Network

Paying Bank

IRD

OR

IMAGE

IMAGE

IMAGE

Reconverting Bank

IMAGE

Check 21 & Rules

2011/19/03

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!

2211/19/03

Multiple Step Process Prepare for Check 21 and the

Substitute checkCustomersContact StaffOperations

Develop strategic plan for image exchange

2311/19/03

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

2411/19/03

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.

2511/19/03

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

Bank’s Logo

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Questions?