X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.

FORT WORTH, Texas – Requirements for the Check Clearing for the 21st Century Act which goes into effect October 28, 2004, have been the subject of much credit union discussion. This initiative, started by the Federal Reserve Bank to streamline check processing, has sparked tremendous debate over the timeline and readiness of all financial institutions. A TechMecca 2004 panel examined “Check 21″ regulations and their implementation. “The Fed has strong interest in limiting reliance on paper,” said David Schneider, PULSE EFT Association’s EVP-Chief Corporate Development Officer and General Counsel. “The 9/11 tragedy grounded airplanes, which slowed or halted the transportation of paper items. Truncation is expected to remove that type of inefficiency.” “Check 21 is a limited statute that focuses on substitute checks, not image exchange. Everyone will be required to accept a substitute check if presented, but the Act does not mandate the receipt of electronic checks,” Schneider said. Two issues anticipated for customer recredit claims, Schneider said, are: the double posting of an item; and challenging the legal equivalence of a substitute check because either it has been altered or is illegible because of poor image quality. The regulation fails to answer some questions, he said, including what financial institutions do with original paper checks and how they need to be retained. How difficult will Check 21 implementation be for financial institutions? Cliff McCauley, Frost National Bank, said monitoring expenses and finding a good partner that will deliver quality substitute checks are areas to which financial institutions need to pay attention. “It’s still about the movement of funds,” said Cliff McCauley, Frost National Bank. “Customers don’t really care as long as money is handled timely and efficiently. The only impact on them is the substitute check they get back.” Financial institutions should be concerned about using capital expenditure dollars wisely, he said. “Make sure you don’t spend more on your technical capabilities than what you are able to do operationally.” McCauley noted that clearing costs will be more expensive with electronic checks (IRDs) than with paper checks. “You must closely monitor to keep a lid on expenses. Pricing is one of biggest issues for smaller financial institutions. How do we keep costs down for consumers?” McCauley told financial institutions that the check clearing process will no longer be static; decisioning will need to be dynamic. “You can’t cost justify transferring all images electronically.” McCauley also urged institutions to exercise caution in selecting a substitute check processor. “Liability falls on the financial institution that created the truncated item. If your processor generates a poor quality item, it will fall back on you. A word to the wise – be careful who you partner with.” It will take time for financial institutions to “catch up” to all of the provisions of the Check 21 Act, but financial institutions should be able to meet several minimum requirements the first day Check 21 goes into effect, Don Jackson of the Dallas Federal Reserve Bank told TechMecca participants. His recommendations include: 1) know how you will collect checks as well as method of acceptance for payment; 2) accept substitute checks; 3) train and educate staff, because phones will start ringing, with members wanting to know what the substitute check is; 4) provide customer awareness notices addressing legal equivalence and recredit procedures; 5) establish a recredit process for customer claims; 6) ensure “4″ in position 44 on substitute check causes no operational (hardware or software) problems; 7) consider amending deposit agreements to incorporate customer awareness notice; and 8) consider operational implications of size of substitute check. (same size as corporate checks, may present issues with rendering equipment). The comment period on the Check 21 regulations ends March 12. Jackson said the Fed is particularly interested in receiving comment on how the regs will impact smaller financial institutions.

Complete your profile to continue reading and get FREE access to CUTimes.com, part of your ALM digital membership.

Your access to unlimited CUTimes.com content isn’t changing.
Once you are an ALM digital member, you’ll receive:

  • Critical CUTimes.com information including comprehensive product and service provider listings via the Marketplace Directory, CU Careers, resources from industry leaders, webcasts, and breaking news, analysis and more with our informative Newsletters.
  • Exclusive discounts on ALM and CU Times events.
  • Access to other award-winning ALM websites including Law.com and GlobeSt.com.

Already have an account?

Credit Union Times

Join Credit Union Times

Don’t miss crucial strategic and tactical information necessary to run your institution and better serve your members. Join Credit Union Times now!

  • Free unlimited access to Credit Union Times' trusted and independent team of experts for extensive industry news, conference coverage, people features, statistical analysis, and regulation and technology updates.
  • Exclusive discounts on ALM and Credit Union Times events.
  • Access to other award-winning ALM websites including TreasuryandRisk.com and Law.com.

Already have an account? Sign In Now
Join Credit Union Times

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.