Dealing with Duplicates 3-Part Session Series -Session #2- Operational Considerations

Transcription

1 ealing with uplicates 3-Part Session Series -Session #2- Operational Considerations Phyllis Meyerson, AAP, CCM Executive Vice President, ECCHO Ellen Heffner, NCP irector, Product Management, ECCHO John Leekley Founder & CEO, RemoteepositCapture.com May, 2013

2 uplicates A Growing Concern Webinar #1: ealing with uplicates: Legal Aspects, Warranties & Recourse April 30, 2013, 2:00 3:00 PM ET Register / View Now Webinar #2: ealing With uplicates: Cause, Effect & Management May 17, 2013, 2:00 3:00 PM ET Register / View Now Session at the RC Summit: Industry Update, Case Studies & iscussion September 25, 2013, 1:00 2:30 PM In-Person Session at the RC Summit Register Now Industry iscussion & Resources on RemoteepositCapture.com ECCHO Resource ocuments Open Industry iscussion Click Here.

3 ealing with UPLICATES May 17, 2013 Session 2 Operational Considerations Prepared for: RemoteepositCapture.com Copyright 2013 by the Electronic Check Clearing House Organization

4 Session Overview Importance of Prevention and etection Prevention Considerations etection Considerations Returning vs. Adjusting uplicates Intermediary uplicate Checking Represented Item & uplicates Reference Information 4 Q&A

5 Why Worry? 5 Concern over duplicate presentment of the same item where s the risk? Warranty provided under check law No double debit warranty under Reg CC For substitute checks No double debit warranty under image exchange rules such as ECCHO Rules, OC3 and Reg J For images exchanged Warranties and related indemnification intended to protect Receiving Bank regardless of form of duplicate item

6 Warranty Review With minor variations warranty language is similar (ECCHO RulesSection XIX(L)(7)) Sending Bank warrants to Receiving Bank with respect to each Electronic Image sent to the Receiving Bank that: (7) the Receiving Bank and any other person will not receive a transfer, presentment or return of, or otherwise be charged for, the Electronic Image, the Related Physical Check of that Electronic Image, or a paper or electronic representation of the Related Physical Check such that the person will be asked to make a payment based on an item that it already paid; 6

7 Risks of uplicates To banks, the system and the industry Financial loss to bank and/or customer Expense of resolving duplicates Customer dissatisfaction/lost customer relationship(s) Reputational risk to FIs, exchange system(network) and banking industry Perception of high risk in RC/check/image exchange 7

8 Risk Mitigation 8 New legislation and technologies have changed payments collection Substitute checks after Check 21 Rapid growth in image exchange RC and mobile payments Number of different payment channels and providers istributed Capture Branch capture, front/back counter Image-enabled ATMs Remote eposit Capture Corporate and/or consumer Third party service providers Proper controls critical Financial institutions assess risks etermine level of prevention / detection needed

9 Importance of Prevention and etection

10 uplicate Example Paying Bank receives image from two different BOFs (A & B) Both images purported to be from same original paper check Paying Bank charges both to their Company customer Mobile RC IMAGE Statement RC Agreement BOF A Statement IMAGE Customer BOF B Paying Bank Company 10

11 Initial Causes of uplicates uplicates included original check, IRs, images and ACH all combinations 11 uplicates today more likely from: Two images Image and Original Paper Image and Substitute Check ACH Check Conversion and Substitute Checks, Image or Original Substitute Check and Original Paper

12 Causes of uplicates Today Errors (Sammy Stupid) Image cash letter file sent 2nd time Accidental reimaging of physical checks Imaged check erroneously included in physical cash letter 12 Fraud (Sammy Shyster) Checks mishandled Check imaged and deposited (RC) Original subsequently cashed or deposited Checks stolen

13 Sources of uplication 13 Point of Capture: Increased number of capture points in distributed capture environment ATM Paper truncated at ATM RC Customer duplicates due to fraud or mistake (Sammy Shyster vs. Sammy Stupid) ACH Check conversion Point of Purchase (POP) Accounts Receivable Conversion (ARC) Back Office Conversion (BOC) Branch (Teller / Back counter capture) Reader Sorter Improper jam handling resulting in duplicates Reject Reentry Incorrect codeline match / correction

14 Indorsement Implications Banks offering RC consider indorsement language Help identify status of item already truncated NCP Continuing Ed Workshop (Nov-2012) on this topic Surveyed several banks and reviewed RC agreements Most surveyed banks required some form of restrictive endorsement on original check such as: For eposit only or For Mobile eposit, and/or eposit to name of BOF, and/or specific account number Restrictive indorsement puts subsequent holder(s) of paper check on notice that item has been previously deposited None of agreements reviewed required depositor to frank the item or mark as VOI at time of deposit Banks may want to process the original paper check if image collection fails 14

15 Software Sources of uplication Processing image files Resending file, batch or individual items more than once Printer problems (substitute check printing) Restarts Jams (not such an issue today) Substitute check volumes declining For example: 2005 volume = Approx 239 million sub chks recv d 2007 peak volume = Approx 3.5 billion sub chks recv d 2012 volume = Approx 6 million sub chks recv d 15

16 Processes and Controls With larger volumes and frequency of transmissions comes need for better detection and prevention controls: By multiple parties Across multiple days Across multiple Channels Internal agreement on area responsible for detection and prevention of duplicates 16

17 Prevention/etection Prevention performed by institution that truncates check and creates image or IR BOF or other collecting/returning bank Truncating institution should prevent duplicates Capture earlier in process (customer, teller or branch) means tighter prevention methods due to various skill levels etection performed by institution receiving image or IR 17

18 Prevention/etection Overview Mobile RC IMAGE IMAGE ATM or or Branch P/ eposit Channels IMAGE P BOF P Sub Chk P/ Intermediary P/ Sub Chk Paying Bank Sub Chk Customer uplicate etection/prevention 18

19 Prevention Considerations Mobile RC ATM Branch P/ eposit Channels IMAGE P BOF P P / P / Intermediary Validation of input / output control totals File and cash letter level uplicate file checking Across multiple days 5 business day minimum Substitute checks Validation of first/last substitute check Physical count of substitute checks Collecting Bank Transit warehouse (if applicable) Compare for current and prior days Consider timing 19

20 Prevention Tools 20 Mobile RC ATM Branch P/ eposit Channels IMAGE P BOF P P / P / Intermediary Physical item handling procedures Storage & estruction Explicit process for paper management Capture to destruction Includes item retrieval IQA failure recovery procedures Minimize IQA rescanning to item that matches previously captured item (not initial capture of item) Operator training for staff Training & controls regarding: IRs/image exchange Sorter Reject / Reentry Reconcilement Printer

21 Prevention Controls 21 Mobile RC ATM Branch P/ eposit Channels IMAGE P BOF P P / P / Intermediary Prevent creation of duplicate Proper due diligence Follow FFIEC guidance Know your customer (KYC) Prevent entry of duplicate into collection system Teller procedures to examine checks Stale date Indorsed / franked Verify on-us item not been paid Cost-effective technological solutions uplicate detection of outgoing items, incoming items At teller line At other processes Software/procedures for managing ICL file delivery

22 etection 22 Where Prior to posting Paying Bank File Receipt After posting Exception item pull Fraud system Prior to submission for collection Collecting Bank What Methods of detection File Level Cash Letter Item level When Across multiple days Consider processing time

23 etection Tools Software controls File delivery system Warehouse Point of introduction Process Controls 23 Operating procedures Adjustments Point of introduction Suspect review Avoid false positives Representments Previous indorsements and/or return reasons Trained Staff Knowledge Exception procedures Can be legitimate duplicates Represented items Rebate Checks Counter Checks P/ P/ Intermediary IMAGE or Sub Chk Paying Bank Sub Chk

24 Prevention/etection Mobile RC IMAGE IMAGE ATM or or Branch P/ eposit Channels IMAGE P BOF P Sub Chk P/ Intermediary P/ Sub Chk Paying Bank Sub Chk Customer uplicate etection/prevention 24 Goal Protect Customer from Unintended Impact

25 etection Implications 25 What happens if duplicates go undetected? Customer account posting Customer Os, wrongful dishonor Accounting issues Misstated balances Interest not applied Customer Reporting issues Intra-day reporting incorrect Overfunding of accounts Customer Notification May need to provide timely notification to customers of duplicates posted to account

26 We Have A uplicate! Prevention and detection failed and you ve posted a duplicate item to your customer s account now what? As the Paying Bank your return clocks are ticking UCC midnight deadline and Reg CC two-day deadline for timely return o you return the item? What is the correct return reason code? o you adjust the item? o you return or adjust first or second item? What are your options? 26

27 Return vs. Adjustment uplicates IMAGE eposit Chk IMAGE Sub Chk Sub Chk Return epositing Customer or Image Adjustment rawer Customer BOF Image Return Paying Bank uplicates and IMAGE eposit Chk IMAGE Sub Chk Sub Chk Return epositing Customer or Image Adjustment rawer Customer 27 uplicate etection BOF Image Return Paying Bank

28 Returns vs. Adjustments Returns Pros/Cons Pros: Faster timely Settlement on t lose your right to return Cons: May have negative impact on innocent parties (depositing customer and drawer customer) Personnel not familiar with process Adjustments Pros/Cons Pros: Correction is made to appropriate party No negative impact to customers Handled within banking system by personnel familiar with process who historically resolve these issues Cons: Less efficient than returns Slower Less timely settlement ue to timing can lose right to return More paperwork May have dollar limits and/or fees associated with certain adjustments 28

29 Resolutions Recommendations ecision to return or adjust at discretion of bank As long as timing still within return deadlines can send as a return Bank performs its own risk analysis Encouraged to seek legal counsel on potential legal risks Known operational duplicates generally should be resolved as adjustments When cause unknown, often fraud may be involved, return would protect bank s legal rights 29

30 Intermediary uplicate Checking

31 Intermediary uplicate Checking Some intermediary banks do duplicate checking May cause issues for a represented item For discussion on indorsements and flipping electronic X9 records see: matted_2011_mar_09.pdf 31

32 Intermediary uplicate Checking Return Processing 31/33 31/ Bank of First eposit (BOF) Return Reason in 31 & 35 records Intermediary New 35 record added Return Reason in 31 & 35 records Paying Bank/ Returning Bank 26 becomes 32 record 28 becomes 35 record 32

33 Intermediary uplicate Checking Process Representment Bank of First eposit (BOF) / Representing Bank 26 record added for Representing Bank RR = RR = 35 Intermediary 32 becomes 26 record 35 becomes 28 records 33

34 Electronic Records Return Reason Code Paying Bank should add return reason to its Type 35 Record Match Return Reason in Type 31 Record Other institutions in return collection chain When adding own Type 35 record should propagate return reason from Type 31 Record Or last Type 35 Record received Should be the same Type 28 Record should only have return reason, if created (flipped) from Type 35 Record that had return reason Why is this critical to the collection process? Without return reason, item may be flagged as duplicate Especially Intermediary Bank with no knowledge that item was returned 34

35 Represented Item & uplicates (1) eposit Ck Image Image (2) (3) Sub Ck Return NSF Image Return Original Ck Representment Image Redeposit (4) Adjust as uplicate BOF Intermediary Bank Paying Bank 35

36 Represented Item & uplicates 36 Proper Handling of Represented Item Avoid incorrect identification as duplicate Proper use of return reason codes on representment in file o not re-image original item Use IR Example: Using original item incorrectly RC customer pulls original for representment Item returned needs some physical correction such as: Payee Indorsement; or WIC stamp

37 Represented Item & uplicates 37 o not use original No longer has previous indorsements and/or return reason Not required to use original Check 21 language says Substitute check is accurate representation of original at time item was truncated Original item already truncated Very difficult to use original and properly populate return codes in file Use IR Put indorsement / required stamps on IR

38 RC Summit RC Summit Review of Legal Considerations Review of Operational Considerations Prevention and etection Adjustment process for uplicates Industry duplicate detection Scenarios of Common uplicates September 25, 2013 at 1:00 p.m. ET 38 on t miss this session It will be fun!

39 Additional Information For additional information please see the following Avoid uplicates! A Guideline ocument on uplicate Image/IR Prevention and etection 39 Resolving uplicates as Adjustments versus Returns VersusReturns.pdf FIs offering RC should review and implement FFIEC guidance on RC which addresses FI responsibility to identify and control risks White Paper: Additional Issues Regarding Possible uplicate Payment of Check items ion011711(1).pdf Coming soon updated white paper to include HIC considerations

40 Phyllis Meyerson Ellen Heffner Thank You May 17, 2013 Electronic Check Clearing House Organization 3710 Rawlins Street; Suite 1075 allas, Texas Copyright 2013 by the Electronic Check Clearing House Organization

41 uplicates Session Series Webinar #1: ealing with uplicates: Legal Aspects, Warranties & Recourse April 30, 2013, 2:00 3:00 PM ET Register / View Now Webinar #2: ealing With uplicates: Cause, Effect & Management May 17, 2013, 2:00 3:00 PM ET Register / View Now Session at the RC Summit: Industry Update, Case Studies & iscussion September 25, 2013, 1:00 2:30 PM In-Person Session at the RC Summit Register Now Industry iscussion & Resources on RemoteepositCapture.com ECCHO Resource ocuments Open Industry iscussion Click Here.

42 A Unique Perspective RemoteepositCapture.com is the leading news, information, products and services portal for the RC Industry. We are NOT a reseller, solution provider, etc. We ARE experts in, and an open resource for the industry. We work with the vast majority of leading solution providers, FIs, processors. Thousands of FIs, corporations, businesses and consumers visit the site each month. We are supported by many industry-leading organizations. We were involved in the formulation of the FFIEC RC Risk Management guidance and training of over 1,200 auditors. Services News & Research The RC Solution Finder The RC Marketplace Solution Provider irectories RC Overviews White Paper Central FREE Webinars and much, much more. Contact us: Info@RemoteepositCapture.com Copyright 2013, RemoteepositCapture.com 42

43 Additional Takeaways Interested in Mobile eposit? A Mobile eposit Conference, freely available to view on-demand: The Big Bang : Explosive Mobile RC Success for Early Adopters Using mrc to Your Advantage: It s Now or Never Mobile RC: "You Go First" is No Longer an Option Mobile RC: A Game Changer for Financial Institutions Over 20 webinars available covering all aspects of RC: Click Here. Use the Business RC Calculator for free: Quickly & Easily find the Right RC Solution Provider via the RC Solution Finder (When RC Solution Providers Compete, you win): Compare RC Check Scanners Terminals, visit RC s Scanner Matrix Almost anything & everything RC Continue the discussion in the RC Community Forums! 43 Copyright 2013, RemoteepositCapture.com