CBA Publications >> CBA Regulatory Compliance Bulletin >> Vol 2000 No.20 October 18, 2004

Vol 2004 No.20 October 18, 2004

Check 21 Considerations For Non-Reconverting Banks

The following is a checklist for non-reconverting banks on preparing for Check 21. Early adopters will have already developed or acquired systems to migrate to substitute checks and electronic presentment, and have otherwise made preparations to implement Check 21. This guidance is directed at banks that are not implementing Check 21. This is the sixth in an occasional series of CBA Regulatory Compliance Bulletins on Check 21.

Introduction

Most banks will not begin to produce substitute checks as of October 28, when Check 21 becomes effective. These banks will nevertheless handle substitute checks in in-clearings and as returned items. Customers will see substitute checks mixed in with originals in monthly statements or as images with image statements. They may also obtain substitute checks upon request or as returned items, if your bank decides to return them instead of a copy. If a customer makes a claim based on the use of a substitute check, the bank must comply with new claims resolution procedures.

Thus, even a bank that takes a wait-and-see approach to Check 21 must be mindful of what the requirements are and how the new law affects their business. Consider making a presentation to your board on Check 21. You are also encouraged to study the previous CBA Regulatory Compliance Bulletins on Check 21, including CBA's Check 21 consumer questions and answers.

Customer Education

• Provide the Regulation CC model Check 21 disclosure to each a consumer customer who:

  • receives substitute checks with statements (at first regularly scheduled communication with the consumer after October 28)

  • receives a substitute check as a returned item (must be given upon each receipt)

  • receives substitute check upon request (must be given upon each receipt)

  • opens an account after October 28 (at account opening).

• Consider providing additional information regarding other aspects of Check 21, ensuring that a consistent message is conveyed throughout the organization. Proactive measures could save your staff and call centers from answering the same questions.

• Don't forget your business customers. They are not entitled to expedited recredit procedures. However, they can make warranty and indemnity claims on errors involving substitute checks.

• Consider whether your business customers can benefit from Check 21 (e.g., from company-wide electronic deposit into one bank, enhanced float management), and whether they might find those services elsewhere if not provided by your bank.

Training

• Train all front line personnel and call centers on customer aspects of Check 21 and ensure they are familiar with the information the bank has provided to customers.

• Train operations and back office personnel on handling customer and bank-to-bank expedited recredit claims and warranty and indemnity claims.

Policies and Procedures

• Establish policies and procedures on:

  • handling customer-bank and bank-to-bank expedited recredit claims, and warranty and indemnity claims

  • how a customer must make expedited recredit claim (e.g., writing required?)

  • providing the mandatory Check 21 consumer disclosure and various expedited recredit disclosures

  • preventing corporate customers from depositing substitute checks without authorization

  • permitting non-bank agents/service providers to produce substitute checks

  • on bank's behalf (and thereby becoming a reconverting bank)

  • returning substitute checks

  • suspending overdraft fees on accounts subject to expedited recredit claim where recredit is delayed pursuant to a permitted exception (e.g., new account, suspected fraud, accounts with excessive overdrafts).

• Consider necessary changes in deposit agreements to reflect Check 21 requirements.

Operational Issues

• Consider effect of faster clearing times on:

  • account overdrafts (customers relying on disappearing float)

  • Regulation CC hold policies

• Review security features on the bank's checks to assess risks associated with imaging and paper reproduction.

• Consider modifying or adding fraud detection procedures.

• Ensure that investigations personnel are familiar with substitute checks.

If you have any questions, you may direct them to Leland Chan, CBA General Counsel, at lchan@calbankers.com

The information contained in this CBA Regulatory Compliance Bulletin is not intended to constitute, and should not be received as, legal advice. Please consult with your counsel for more detailed information applicable to your institution.