CHECK 21s Affect on Cash Management Services

1
CHECK 21s Affect on Cash Management Services
JOHN GANNON VICE PRESIDENT GLOBAL PAYMENT
SERVICES PRODUCT MANAGEMENT
2
Introduction

• The Check Clearing for the 21st Century Act
  (Check21 Act) facilitates significant change in
  the way checks are processed in the United
  States.
• All US banks will be affected by this law even if
  they do nothing to change their current check
  processing operations.
• All customers (consumers, businesses, global
  correspondents) are affected by Check21 Act in
  that they have the potential to receive a
  substitute check.

3
Substitute Checks

• After October 28 checks can be presented as
  substitute checks between banks and returned in
  statements to customers
• Minimal impact until
• Widespread truncation of original checks
• Likely dependent on adoption rate of image
  exchange

2004
2005
2006
2007
2008
4
Important Provisions of Check 21

• Warranties
• Substitute check meets all requirements for legal
  equivalency
• No double debit
• Indemnification
• Against claim resulting from breach of warranty
• Expedited Recredit Process - Consumers
• The bank has 10 days to credit the consumers
  account for check amounts up to 2,500 per check.
• The remaining amount, if any, plus interest will
  be refunded by the 45th calendar day after the
  claim is submitted.
• Expedited Recredit Process Banks
• The claim must be made within 120 days of the
  initial transaction date.
• The indemnifying bank has 10 days to produce the
  original, a copy of the original, re-credit the
  claimant bank, or provide response as to why the
  indemnifying bank is not obligated to do so.

5
U.S. Check Transformation Check 21
Over the next 5 years check processing moves from
paper based clearing process to electronic image
exchange

• U.S. Federal Law effective October 28, 2004
• Purpose to make check clearing system more
  efficient by encouraging check truncation and
  image exchange
• Image Exchange to revolutionize check processing
• Banks exchange check images and electronic data
  in lieu of original check
• Operational cost savings
• New Product Opportunities
• Banks unable to accept checks electronically must
  accept substitute check (paper)

6
Check 21 Legislation vs. Check 21 Industry Event

• Opportunities abound new service offerings and
  cost reductions
• Strategy Reaffirmed image enable all aspects of
  item processing
• The Check 21 legislation it is all about the
  Substitute Checks..but more importantly
• The industry event Check 21 It is all about
  Images and Image Exchange

7
Check 21 - Impact to Existing Services -
Disbursements

• Controlled Disbursement minimal/no impact in
  near term
• Positive Pay becomes more important
• ARP (Account Reconciliation Plan) enhanced by
  imaging investment
• Online access / cd-rom no impact
• Statements truncation and image statements
• Proof of Payment copies/images accepted for
  years
• Float reduction in transportation float and
  eventually clearing float
• Check Security / Fraud loss of physical
  features likely offset by expedited clearing and
  new automated detection systems

8
Check 21 - Impact to Existing Services Deposit
/ Collections

• Potential for more NSF consumer checks
• Lockbox
• Availability
• New product opportunities Remote Check Deposit

9
Check 21 Preparing Your Company

• Meet with fraud prevention personnel
• Evaluate need for physical check return
• Familiarize staff with substitute checks
• Examine check stock to ensure high quality images
• Monitor your disbursement and collection float

10
Check 21 vs. ACH ARC

• Check 21 Substitute Checks
• Image of check
• UCC or Reg CC rights
• No agreement required
• Comes with Check 21

• ACH ARC (Accounts Receivable Conversion)
• Check info from MICR line only
• NACHA Rules Reg E rights
• Around for years
• Requires notification with opt-out provision
• Primarily used in lockbox with recurring consumer
  payments

11
Remote Check Deposit

• Pushing Truncation to the Point of Negotiation
• Deposit Acceleration
• Reduced Courier Costs
• Reduced Bank Fees
• More Efficient Processing

12
Check 21 Information Resources

• The Electronic Check Clearing House Organization
  (ECCHO) www.eccho.org
• The Bank Administration Institute (BAI) Check 21
  Resource Center www.bai.org/check21
• The American Bankers Association (ABA) Check 21
  Resource Center http//www.aba.com/AboutABA/Che
  ckTruncationAct.htm
• John Gannon jrgannon_at_bankofny.com
• Dennis Simon dsimon_at_bankofny.com