DALLAS – Downtime has been elusive for Brad Ganey the past two years. As Southwest Corporate Federal Credit Union's Director of Item Processing, he stands at the helm of the organization's Check 21 member education efforts. Labeled "Mr. Check 21″ by some colleagues, Ganey now has addressed more than 2,500 people in numerous presentations concerning implications of the new Check Clearing for the 21st Century Act. With implementation only days away, Ganey took time to reflect on his interactions with credit unions as they prepare for the introduction of substitute checks. "In five Webcasts and 14 regional clinics for Southwest Corporate, the content has migrated from breaking down confusion about the Act itself to taking advantage of opportunities presented by the Act, namely image exchange," Ganey said. "After we got past the comment period on Reg CC, we started getting a lot more questions about image exchange. "Initially, we emphasized terminology and regulations. You do a disservice, though, if you only talk about compliance, because you've got to get at the Fed's intent. The big picture is all about eliminating paper. At a Federal Reserve presentation I attended, they said they've adopted `aggressive electronification' as their approach going forward. They're asking the question, `Can the Federal Reserve play a role in pushing industry toward this?' "Actions speak louder than words," continued Ganey. "When the Fed closes 13 facilities and announces another nine closures by early 2006, when they announce all these new imaging products, that's where their focus is. The Fed has never proposed a law before – this is a first. Regulations are a part of it, but understand, this is going to change your world. If we only talk about compliance, you're missing the boat." The greatest source of confusion among credit unions, according to Ganey, has been the notification "curveball" thrown in the Regulation CC final rule. In the original proposal, financial institutions could provide a one-time notice to members explaining substitute checks and expedited refund rights. The final regulation requires disclosure notices in two circumstances: 1) credit unions that return paid original or substitute checks with periodic account statements are required to provide disclosures no later than the first periodic statement mailing after Oct. 28, 2004; and 2) credit unions will have to provide disclosures each time a member receives a substitute check "on an occasional basis," such as when a member requests an original check and instead receives a substitute check, or when a bad check is returned in the form of a substitute check to the member who deposited the check. "They changed the rules on us where notifications were concerned. You can't do a blanket disclosure and say you've covered all the bases now. We have encouraged proactive notification to members, but credit unions should make sure staff is trained first – know where to channel questions when they come in," said Ganey. "Your members are going to get educated by someone, shouldn't it be you? It's important credit unions understand that consumer rights organizations are very much in tune with this, and they're going to be looking for abuses. It's critical that everyone is upfront in educating their members, so there is no question on motives." Credit unions also have been concerned about acceleration of check processing – the impact on credit union balances and on members used to working the "float" – and the direction fraud will take when Check 21 is implemented. Substitute checks will be fraud targets, Ganey said, because people are unfamiliar with them. "A fake substitute check is easier to create than a corporate check. It's nave to think people aren't out there licking their chops waiting to take advantage of this." While Ganey said credit unions will not see a large number of returned IRDs (image replacement documents, or substitute checks) starting Oct. 28, they need to have procedures in place when problems do arise. Ganey advises, "Identify your Check 21 guru. Will it be a single person at each branch, one centralized person for all branches, or a call center? Have a written `cheat sheet' with instructions at each branch. Know logistics, because timeframes are in place, and you have to meet those obligations." Although Check 21 does not mandate image exchange, it is the wave of the future and credit unions are ideally positioned to transition to the system ahead of their banking counterparts, Ganey said. Branch capture enables a teller with a special capture device to scan and immediately transfer to the processor images of transactions as they take place. Factors to consider, Ganey said, when building a business case for branch capture include funds availability, transportation costs and timing, fraud exposure and interest rates. "The reality is that credit unions should be able to take advantage of branch capture sooner than large banks. A real generic formula for branch capture is the more you're getting beat up today, the sooner branch capture will make sense for you," he joked. "Unfortunately, a lot of credit unions are getting beat up pretty badly." Credit unions are paying sizeable transportation costs on small volumes, he said. Most are getting non-preferred availability of funds and with a prevalence of credit unions sitting on their deposits for a day or more, they're facing fraud issues and increased costs in a rising interest rate environment. Electronic image exchange opens new doors for Southwest Corporate. It is the first multi-institutional processor to complete the circle of capturing and truncating check transactions at credit union branches with electronic clearing settlement via check image exchange. Southwest Corporate currently is discussing branch capture services with 40 credit unions. The organization offers an analysis tool to help determine feasibility. "With branch capture, we can start servicing members we could never even strike up a conversation with in the past because of logistics. They're the members who have said they want to get everything in one place. They're not big enough to get preferred treatment or bring a big stick to the table and negotiate great pricing elsewhere," Ganey said. Branch capture should be evaluated case by case. "There's no Betty Crocker recipe. For credit unions with multiple branches, it may make sense to implement branch capture in a couple of branches now – for example, in those located far from the processor – and in others later. Although vendors want to sell software and equipment to all branches at one time, I would never recommend that. It's a big change," Ganey said. A majority of Southwest Corporate's 1200 member credit unions have had some level of Check 21 education, and Ganey is hopeful his travel schedule will slow after Check 21 implementation, but perhaps only briefly until branch capture gains additional speed. -

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