National Check Payments Certification. Exceptions Returns and Adjustments. Copyright 2016 by the Electronic Check Clearing House Organization NOTICES

Transcription

1 NCP 2017 Exam Cycle Core Training Series Session 8 Exceptions Returns and Adjustments Copyright 2016 by the Electronic Check Clearing House Organization NOTICES This training course may provide an introduction to or summary of various aspects of check payments and the legal and rules framework for check image exchange. Responsibility for compliance with image exchange rules, and/or the legal, operational and regulatory requirements applicable to check image exchange, remains at all times with the financial institution participating in check image exchange and/or the individual or company using a check image exchange service. This presentation and the information contained herein is not intended as legal or compliance advice or recommendation to any person or company. This document could include technical inaccuracies or typographical errors and individual users are responsible for verifying any information found in this presentation and related live webinar or webinar playback. Financial institutions should consult with their legal counsel regarding legal and operational requirements applicable to any check image exchange program they may offer orinwhichthey participate. These materials may not be reproduced or published, in whole or in part, without the express permission of ECCHO. Copyright 2016 by the Electronic Check Clearing House Organization (Certain contributed content subject to third party copyrights) 2 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 1

2 NCP Exam Registration Reminder Free ECCHO / NCP study aids upon registration! JumpStart Reading Program Links to all program resources NCP Roadmap Direction on establishing a personalized study plan P.R.E.P. Guide Training guide, glossary of terms, sample exam Question of the Day & Summary New daily question & detailed answer to prior day s question Exam Fees: $400 ECCHO member $500 non ECCHO member Not sure about membership? Check current status at: o Enter financial institution name in search box on left 3 Topics This Session Exceptions Overview Returns vs. Adjustments Adjustments Current Snapshot Adjustment Cases Federal Reserve Bank Operating Circular 3 (OC 3) Adjustment Rules ECCHO Rules Adjustment Rules & Exhibit II (Matrix) Appendix Adjustments Comparison Selection of ECCHO & Fed Adjustments 4 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 2

3 Exceptions Overview General Definition Exceptions: Any transaction in the form of a paper, image or electronic item that requires further investigation before final disposition of item can be determined Returns and adjustments are exceptions Return Item that is dishonored by Paying Bank Must have specific return reason Adjustment Correction for error(s) generally caused during item processing Specific adjustment type for each error May differ depending on adjustment provider Generally involves some research to resolve errors Ex: Mis encoding, mis routing, incorrect posting, etc. 6 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 3

4 Governing Rules & Regulations Returns Governed by statutory and regulatory requirements UCC midnight deadline (UCC 4 301) Reg CC expeditious return requirement ( ) Adjustments Handled by agreement of the parties Fed OC 3 rules Clearing house rules Third party providers for operational procedures and settlement 7 Return or Adjust? An error has occurred! As the Paying Bank your return clocks are ticking UCC requires you make the determination to pay or dishonor the item by midnight of the day following presentment Reg CC requires items to be returned, to be handled expeditiously Return must reach depositary bank by 4:00 p.m. (local time of depositary bank) two after presentment What should you do? Do you return the item? Do you adjust the item? What are your options? 8 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 4

5 Return vs. Adjustment Adjustments Considerations Duplicates IMAGE Deposit Chk Sub Chk Return IMAGE Sub Chk Depositing Customer BOFD Image Adjustment Image Return Paying Bank System error? Adjustment to bank is made to appropriate party Minimizes negative impact to customers Handled within banking system Adjustment areas familiar with process But, can be less efficient than return Research and settlement timing Additional documentation may be needed May lose right to return item (missed deadlines for timely return) Significant issue if item is counterfeit or forged and not duplicate or Drawer Customer 9 Return vs. Adjustment Returns Considerations Duplicates and IMAGE Deposit Chk IMAGE Sub Chk Sub Chk Return Depositing Customer or Image Adjustment Drawer Customer BOFD Image Return Paying Bank Not sure cause of error? Return is faster Timely settlement Do not lose right of return (can make the deadline for a timely return) In remote capture (RDC) environment, speed is a consideration if unsure of cause of duplicate But, may have negative customer impacts Depositing customer and/or drawer customer 10 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 5

6 Exceptions Returns Return items may be directed back to: BOFD, or Prior collecting or presenting bank Returns processes dependent on channel used and agreements in place Must still follow regulatory requirements For expeditious return, check must be received at depositary bank by 4:00 pm 2nd business day following banking day of presentment Reg CC requires Paying Bank: Identify return and reason for return Clearly indicate reason for return If substitute check, place information within image on front of substitute check 11 Types of Image Returns Customer and Administrative Returns Customer Returns Dishonored item under check law Usually attempt charge to customer account Administrative Returns/Administrative reasons Return for reason other than dishonored item Usually handled internally rather than charged to customer Can also be handled through adjustment process o If handled as return, must still adhere to legal requirements for return item Generally admin reasons for return are exchanged by agreement 12 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 6

7 Common Return Reason Codes Customer Return Reasons Return Code NSF Not Sufficient Funds A' Stop Payment C' Closed Account D' Endorsement Missing I' Not Authorized Q' Warranty Breach 3' Duplicate Presentment Y' Administrative Reasons Return Code Image Missing I' Ineligible Q' Unusable Image U' Duplicate Presentment Y' RCC Warranty Breach (Rule 8) 4' Forged & Counterfeit Warranty Breach (Rule 9) 5' Retired/Ineligible Routing Number 6' For complete listing of current Return Reason Codes, see new standard X or the NCP P.R.E.P. Guide (Exhibit 9) Note on Return Codes I and Q : Can be used in both Customer and Administrative returns with different meanings All other return codes that are shared by Customer and Administrative returns have same meaning Source: 13 Return Reason Codes and Duplicates Use return reasons in electronic indorsement records Identifies reason for the return Helps identify re presented items Helps prevent false positives in duplicate checking Following slides offer simple review of the forward presentment and return process with flipping of indorsement records Flipping the records simply means taking the data found in the forward collection (20 series) records and using it to populate the return (30 series) records This is a review of information covered in the Standards and Formats session 14 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 7

8 Forward Presentment Records 25 26* Bank of First Deposit (BOFD) Paying Bank Legend: BOFD Lt. Green* Paying Bank Red Two financial institutions in this example BOFD and Paying Bank X9 records illustrated for Forward Presentment are: Check Detail Record (Type 25) Check Detail Addendum A Record (Type 26) 15 Return Records Return Return Record/ Return Addendum B 31/33 26 * Bank of First Deposit (BOFD) New 35 record added by Paying Bank Paying Bank 26 becomes 32 record Paying Bank returns directly to the BOFD in this example Legend: X9 records illustrated for Return are: Return Record (Type 31) BOFD Lt. Green* Return Addendum B Record (Type 33) Paying Bank Red o Only if image of business check for aux on us data Return Addendum A Record (Type 32) (populated from Type 26 record) Return Addendum D Record (Type 35) (new record added by the Paying Bank Note: Return reason code is included in both 31 and the last (most recent) 35 record 16 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 8

9 ECCHO Rules Return Routing Hierarchy 17 Re presented Items Depositary Bank may re present items Automatically re presents items based on agreement with depositors Provide items back to depositing customer Customer subsequently re deposits Redeposit can be through original BOFD or 2nd BOFD Deposit Original (1) Sub Check (2) Image Presentment (1) Image Return (2) Depositor/ Customer Sub Check Re deposit (3) BOFD Re presented Item (3) Paying Bank 18 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 9

10 Presentment and Returns Item must first be presented in order to be dishonored Image may not to be presented if it did not meet eligibility requirements Could have ICL containing item(s) that reject due to administrative reasons Items may/may not have been presented Examples: Example #1: Item in cash letter file did not contain both a front and back view of the image o Item rejects in IQA Not considered to be presented o Item returned for administrative reason (Ineligible item) Example #2: Cash letter file is processed o Duplicate detection process flags several items o Image cash letter file was presented o Duplicates returned for administrative reason (Duplicate item) 19 Summary Proper use of return code critical for timely returns and proper handling Refer to paper on CheckImageCentral website on Proper Use of Return Codes in Image Exchange For this paper and other technical and operational information, visit CheckImageCentral website at: 20 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 10

11 Adjustments Adjustments By Agreement Current statutory and regulatory provisions do not cover the adjustment process Adjustment agreements provide: Guidelines for adjustment claims Specific adjustment types that are accepted Definitions Related timing Minimum dollar amount permitted Documentation requirements Etc. 22 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 11

12 Adjustments By Agreement Federal Reserve Banks or Private Sector Federal Reserve Operating Circular 3 (OC3) Section 14.0 and Appendix H; and online Check Adjustment Quick Reference Guide govern the handling of electronic adjustment requests Eligible for adjustment? o Forward or return item must have been exchanged via the Fed ECCHO Adjustment Rules and Matrix Apply only to Members using the ECCHO Rules Govern the handling of electronic adjustment requests through various providers such as Viewpointe and The Clearing House Eligible for adjustment? o May adjust item under ECCHO Rules whether or not forward or return item was exchanged under the Rules 23 Top Incoming Fed Adjustments Six Adjustment Types account for 95% of cases received for first six months of 2016 PAID (37%) ENC (34%) NCH/NCI (17%) ERR (3%) LC (2%) WIC/URCC (2%) Each is discussed in this ERR 3% LC 2% NCH 17% WIC/ URCC 2% ENC 34% All Other 5% PAID, 37% section Source: Federal Reserve Retail Payments Office (2016) 24 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 12

13 Top Six Adjustment Types PAID: Duplicate paid item Request for credit when both items have been paid ENC: Encoding error Item was encoded for an amount different than the legal (written) amount; or Written amount differs from stated amount in ICL/ICLR NCH: Noncash item Includes MICR Mismatch and NCI ERR: Entry in Error Request to investigate either a forward or return entry that is believed to be in error LC: Late Return Claim Depositary bank makes claim when believes an item was returned late Amount must be $100 or more (same for both ECCHO and Fed rules) WIC/URCC Unauthorized Remotely Created Check claim WIC claim can also be a Warranty Indemnity Claim for a Check 21 item 25 Check Adjustments Other Adjustments found in both Fed rules and private sector rules (ECCHO Rules): Informational Adjustments OSCR Original or Sufficient Copy SOR Source of Receipt DISP Disposition INFO Information Requested Others For more information on adjustment types, timing, and other related requirements, refer to: Federal Reserve online Check Adjustment Quick Reference Guide at: ECCHO Adjustment Rules (Section XII) and Matrix (Exhibits II) 26 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 13

14 Operating Circular 3 (OC3) Adjustments Fed OC 3 Overview For cash item sent forward through the Fed or returned check received from the Fed: FRB may adjust bank s account if bank has a claim FRB does not perform adjustments with respect to every type of claim Bank may need to pursue certain claims directly Bank seeking adjustment via Fed must adhere to: OC 3 and Appendix H; and Online Check Adjustment Quick Reference Guide 28 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 14

15 Fed OC 3 Overview Timing Fed undertakes to handle adjustment claims and make entries within a reasonable time after receipt Fed assumes no responsibility for: Determining whether the statements in forms submitted are correct Arbitrating disputes between banks Bank may be subject to criminal penalties under Federal and/or State law for knowingly making false statements to influence action of FRB 29 Fed OC 3 Overview Fed does not process adjustments of $25.00 of less unless it is for: PAID item claim; Not Our Item (NOI) claim; or Entry in Error (ERR) claim See sample 2013 Check Adjustment Request form on following slide Fed also does not: Review forms to verify correct information, or Handle forgeries 30 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 15

16 FRB Check Adjustment Request Last updated: June 23, 2014 Do not submit errors of $25 or less unless request is for: Paid Item (PAID); Not our Item (NOI); or Entry in Error (ERR) ERR update: Changed min. from $25.01 min to $.01 Jun 2014 update Fields for PAID item claims: FCL1 From Cash Letter TCL1 To Cash Letter CLD1 Cash Letter Date SEQ1 Seq Number FRB Check Adjustment Request Check Adjustment Request Fields and documentation requirements associated with PAID investigation type (ITYP) Four additional fields added to CA1000 (case open) message on FedLine and paper adjustment form (see form/prior slide) Certification form no longer required for single or multiple PAID items DTFs for single PAID item optional DTFs for multiple PAID items still required Verify compliance with timing, current forms, all documentation requirements 32 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 16

17 FRB Adjustments: PAID ITYP PAID: Paid Item Most prevalent adjustment type Duplicate image(s) and/or substitute check(s) Receiver has choice on which item to report as duplicate (1st or 2nd presentment) Recent Fed estimates of PAID adjustment requests received: 71% show both items are from same depositor 29% show items are from two different depositors 13% go back to 1st presentment; 42% go back to 2nd presentment Note: 45% of these claims go back on the same day so can t tell if these went to the 1st/ or 2nd presentment Timing: Within six calendar months of cash letter or return letter date Same day entry After six months but within one year of cash letter or return letter date Provide information; Advise requesting institution to deal direct 33 PAID versus DUP PAID = Same item presented and paid twice PAID adjustment type used when duplicate items have been presented DUP = Duplicate adjustment entry Used when a duplicate adjustment entry has been charged to financial institution for the same error 34 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 17

18 FRB Adjustments: ENC ITYP Encoding Error (ENC): Amount different than legal (written) amount or differs from the stated cash letter / return letter amount Timing: Within six calendar months of cash letter or return letter date Same day entry After six calendar months of cash letter or return letter date No entry Provide SOR/DISP and advise requesting institution to deal direct 35 FRB Adjustments: NCH ITYP NCH Noncash Item (Covers both MICR Mismatch and NCI errors) Request for credit for a non valid item included in forward or return cash letter Examples include: An empty carrier A control document Mutilated items Item that does not meet legal equivalence for Check 21 Timing: Within 20 business of cash letter date Give immediate provisional entry After 20 business / Within six months of cash letter date Entry made after approval of offsetting institution After six months advised to deal direct 36 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 18

19 FRB Adjustments: NCI ITYP Non Conforming Item (NCI): Used to adjust items that fail Fed standards for image clearing Applicable only for FedForward, FedReturn depositors NCI can only can come from the Fed Bank cannot report NCI to Fed but use NCH as discussed on prior slide Timing Fed will charge back items in cash letter that: Do not conform to Fed standard for quality Ineligible for image clearing Contains invalid routing number 37 FRB Adjustments: PEA ITYP Pricing Error Adjustment (PEA): For FRB use only Initiated by the Fed at request of Bureau of Public Debt (BPD) When BPD determines bond was: Redeemed or processed for incorrect amount Subject to standard adjustment minimum BPD will not initiate adjustments for errors of $25 or less Disputes Regarding PEA Adjustment Use Entry in Error (ERR) Institutions disputing BPD determination submit ERR adjustment request to Fed Fed will contact BPD on institution s behalf Will respond with correcting adjustment entry or additional information Further disputes, institutions will deal direct with BPD 38 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 19

20 FRB Adjustments: WIC/URCC ITYP Warranty/Indemnity Claim (WIC) Associated with Unauthorized Remotely Created Checks (URCCs) Paying institution alleges RCC not authorized in amount stated on check to payee on check Timing Within 90 calendar cash letter date Same day entry After 90 calendar No entry Advise requesting institution to deal direct 39 Retiring Adjustment Types Fed has plans to retire eleven (11) ITYPs in 2017 (see next slide) Of 28 ITYPs, only 6 show significant volume Those 6 ITYPs account for 95% of all incoming adjustments volume (see earlier graphic) Other 22 ITYPs together account for just 5% of total adjustment volumes Many are paper related investigation types Others are rarely used very minimal volumes Other changes will include: Removal of 3 related fields on FedLine 2 Message Types to be dropped Update to cut off time for adjustment requests Moving to 5:00 pm Eastern 40 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 20

21 Fed Plans Retiring Adjustment Types Changes may require back end systems updates Fed will announce changes in advance of planned 2017 updates Changes to include retirement of the following 11 ITYPs: Advice Request (AREQ) Enclosed Not Listed (ENL) Expedited Re Credit (EXRC) Extra Bundle (EBDL) Extra Cash Letter (ECL) Extra Cash Letter Credit (ECLC) Free Item (FREE) Incorrect Cash Letter Credit (ICLC) Late Cash Letter Credit (LCLC) List (LST) Missing Bundle (MBDL) 41 ECCHO Rules Adjustments Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 21

22 ECCHO Adjustment Rules Overview ECCHO Adjustment Rules and Matrix Approved 2009 Adjustment Claims (Section XII) Adjustments types and claim requirements Listed in matrix to rules (Exhibits II) Apply to Members for image exchange/return activities Whether or not forward or return item exchanged under ECCHO Rules Next few slides discuss the ECCHO Rules and illustrate the adjustments flow Showing which party is sending/receiving Illustrates both Members and Provider 43 ECCHO Adjustment Rules Agreements Agreements Adjustment Claim Adjustment Claim Member Sending Adjustment Adjustment Provider Member Receiving Adjustment Rule Considerations 1. Must comply with requirements of Adjustment Matrix in Exhibit II a. Type of Adjustment Section XII(A) b. Time periods, dollar amount or other requirements Section XII(B) c. Documentation Section XII(C) d. Settlement and rejection Section XII(E) 2. Liability of Adjustment Claim Section XII(H) a. Rules do not establish liability between members b. Failure to comply does not constitute breach of any ECCHO warranty 3. Presume altered unless preponderance of evidence to contrary Section XIX(P) 44 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 22

23 ECCHO Adjustment Rules Sending Adjustment Claims Member Sending Adjustment Adjustment Claim Rule Considerations 4. Member may make claim Section XII(A) a. To other ECCHO Member or through Adjustment Provider Members have agreed to use b. Arises from forward or return exchange under Rules or Members agree to adjust under Rules c. Participation voluntary Claim under rules, return, represent or other claim 5. Time Periods/Processing Requirements Section XII(B) a. Claim for single item unless Group Adjustment b. Calculation of time period, first day is day after presentment or receipt or adjustment 6. Documentation for Claims Section XII(C) a. Documentation may be sent via with PDF or image file attached FAX or US mail System used by Adjustment Provider b. If Electronic Image/Electronic Image Return is required, can send: Electronic Image/Electronic Image Return as received, or Substitute check, or Print out, photocopy, or other physical representation of item ECCHO Adjustment Rules Sending Adjustment Claims Member Sending Adjustment Adjustment Claim Rule Considerations 7. Settlement Section XII(E) a. Members agree to settlement process or use process of Adjustment Provider b. Settlement timing With entry By close of banking day following banking day claim received Without entry Agreement of Members or time period established by Adjustment Provider 8. Compensation Section XII(F) a. Not covered under this Section b. Member may make claim for compensation if permitted by Adjustment Provider c. May bring claim under Section VII or applicable law 9. Savings Bonds subject to correction/adjustment from Treasury Section XVII(F) 46 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 23

24 ECCHO Adjustment Rules Adjustment Provider Adjustment Claim or Adjustment Claim Reject Adjustment Provider Adjustment Claim or Adjustment Claim Reject Rule Considerations 10. Adjustment Provider Relationship Section XII(I) a. Rules do not impose liability or responsibility on Adjustment Provider b. Members may agree to use one or more Adjustment Providers c. Adjustment Provider may: Map adjustment types in Adjustment Matrix to types they currently process Establish effective date for application of Section XII(I) 47 ECCHO Adjustment Rules Receiving Adjustment Claims Adjustment Claim or Adjustment Claim Reject Member Receiving Adjustment Rule Considerations 11. Notification of Receipt Section XII(D) a. Reasonable effort to notify by end of banking day following banking day adjustment received Notice may be through Adjustment Provider b. Notice in form and manner as established by Adjustment Provider or agreed upon c. Notice does not constitute agreement 12. Settlement and Settlement Timing Section XII(E) a. Same as Member sending adjustment 13. Rejection of Claim / Notification Section XII(E); XII(G) a. May reject claim if: Does not comply with Adjustment Matrix Does not relate to item handled by Member receiving claim Is duplicate of previous claim or pending or one Member already initiated Factual basis for claim is not established May not reject RCC claim on alleged authorization b. If rejecting claim, must provide notification and reason(s) for rejection by close of banking day following banking day claim rejected c. Notice by various means or via Adjustment Provider s system 14. Required use of adjustment with entry for Savings Bonds Section XVII(F) 48 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 24

25 ECCHO Adjustment Types Examples: Adjustment Types supported under ECCHO Adjustment Rules and Matrix (not all inclusive): Adjustment Reversal Amount Error Claim of Damage Due To Under Encoding Duplicate Item Entry in Error Late Return Claim Mis matched MICR Non Conforming Image (NCI) Non negotiable item/non Cash Item Not Our Item (NOI) Pricing Error Adjustment (PEA) Return Adjustment Rule 8 & 9 Claim Unauthorized Remotely Created Check Warranty Indemnity Claims Wrong Payee Credit Selected adjustments from this list are described in more detail on the next few slides 49 ECCHO Adjustment Types Duplicate Item: Item presented twice An institution received an item which it was asked to pay based on an item that it already had paid For claims arising under duplicate warranty provision under applicable law and ECCHO Rules Regardless of form may be two images, image and original check, image and IRD, etc. If created from same original physical item and asked to pay the same item again, it is a duplicate Timing: 180 calendar with entry Up to 1 year without entry o Both sources required o Adjustment typically goes to last institution to present item 50 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 25

26 Duplicate Item Example Note: Banks are all members of same clearinghouse Electronic Endorsement RT # of Bank D RDC Customer IMAGE IMAGE (ICL) Statement Agreement Bank D Statement IMAGE (ICL) IMAGE (ICL) Payments Galore Bank E Federal Reserve Paying Bank P Physical and/or Electronic Endorsement RT # of Bank E Electronic Endorsement RT # of FRB 51 Duplicates in the Private Sector Two options to resolve duplicates depending on timing: Return process: Return as customer return reason Y Duplicate Presentment If sent as an Administrative reason for return, use same return reason Y o Parties must agree to accept admin returns Adjustment process: Duplicate Item To report item previously paid Can go back to either 1 st or 2 nd presentment o Both made the same no double debit warranty 52 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 26

27 ECCHO Adjustment Types Amount Error Legal amount Item was encoded for an amount different than the legal (written) amount; or the written amount differs from the stated amount in the X image cash/return letter Only applies to amount encoding errors Timing: 180 calendar with entry Up to 1 year without entry Entry in Error Incorrect accounting entry was made, either for the wrong amount or to the wrong party Includes Adjusting Errors and Settlement Timing: 20 business with entry Up to 1 year without entry Late Return Claim Receiving Party can claim item was returned late Follows Fed minimum $100 or more Timing: 60 calendar with entry 53 ECCHO Adjustment Types Claim of Damage Due to Under encoding Sending Bank warrants the encoding after issue under Reg CC warranties Paying Bank can disclaim item that was underencoded by the BOFD to protect themselves from a loss Federal Reserve minimum $ amount Timing: 20 business with entry Up to 1 year without entry 54 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 27

28 Claim of Damage Due to Under encoding Check for $ Encoded as $95.45 (under encoded for $200) Paying Bank unable to collect the additional $200 Has claim back to BOFD IMAGE Deposit Check Customer Received Credit for the Correct Amount ($295.45) Under Encoded BOFD Warrants Correct Amount Encoding Adjustment Statement Statement Depositing Customer BOFD Claim of Damage Due to Under encoding Adjustment Paying Bank Account Closed or Insufficient Funds Customer 55 ECCHO Adjustment Types Mis matched MICR Error when MICR information associated with an item does not match MICR information reflected on image of that item Traditional example is where full MICR line of one or more checks has been misaligned with image of another check or sequence of checks (see example on next slide) o Generally more common than a misread of character(s) on same item Note: Sender warrants physical item, image of physical item and MICR data record all match ( chain of warranties ) Adjustment type can be used when: Code line in the Check Detail Record (Type 25) does not exactly match code line on original check Any encoding errors other than an error in amount o For an encoding error of amount only use Amount Error adjustment Timing: 90 calendar with entry (updated Dec 2016) Up to 1 year without entry o Note: Fed handles this as a Non Cash Item (NCH) adjustment 56 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 28

29 Mis matched MICR Note: Banks are all ECCHO members Image IMAGE Does Not Equal Bank A Paying Bank Presentment Notice (MICR Data File) MICR Mis match 57 ECCHO Adjustment Types Non conforming image (NCI) Includes image missing, ineligible item, and invalid RT Item fails to meet image quality standards, item is missing, or item contains an invalid or undefined routing number or invalid data for specific file type or the item is ineligible for image clearing Timing: 20 business with entry Not Our Item (NOI) Forward collection process: Item that contains RT number that does not belong to the institution that receives item (or that is authorized to process the item) Return collection process: Item that was not indorsed/handled, either physically or electronically, by the institution that receives the return item Timing: 90 calendar with entry 58 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 29

30 ECCHO Adjustment Types Pricing Error Adjustment (PEA) ECCHO implemented PEA adjustment for use between members Timing Deadline not applicable since ECCHO Member did not receive forward or return item Information required Same as if process through Federal Reserve 59 ECCHO Adjustment Types Unauthorized Remotely Created Check Two Options Adjustment Process [Section XII)] Mirror Fed process and timing BOFD can not disclaim by stating Paying Bank s customer authorized RCC o Original could have been exchanged under ECCHO Rules or o Outside of ECCHO Rules and members agree to adjust under the rules Timing: o 90 calendar with entry o Up to 1 year without entry Rule 8 Warranty claim [Section XIX(N)] Warranty under Reg CC o Moves liability from Paying bank to BOFD Send through returns process to location BOFD receives returns o Form required; Specific timings to be followed See session Image Exchange: Rules and Agreements Part I for more details on Rule 8 60 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 30

31 ECCHO Adjustment Types Adjustments in ECCHO Rules not offered in Fed adjustments: Adjustment Reversal Ability to adjust (correct) an item that was incorrectly adjusted o Can only be used when Institution making claim has reference number for adjustment to reverse Return Adjustment Institution seeks to adjust a return item that was incorrectly returned Wrong Payee Credit BOFD seeks to pass credit to drawer/maker s account to correct error in payee processing/credit 61 Summary Various adjustments permitted via Federal Reserve or private sector Adjustment Types: may/may not have similar names, $ min., documentation requirements, etc. for same type of adjustment Timing for with entry claim may/may not be the same for same type of adj (some examples are shown below) Note: Appendix at the end of this session lists a more complete comparison Timing Same Day Entry Fed Adjustment ITYP ECCHO Adjustment Reason Timing With Entry 6 months PAID Duplicate Item 180 calendar 6 months ENC Amount Error Legal Amount 180 calendar 20 business NCH/NCI Non negotiatable Item / Non Cash Item 90 calendar Initiated at behest of BPD when it determines a bond was redeemed / processed for an incorrect amount PEA Pricing Error Adjustment N/A *Deadline not applicable since ECCHO Member did not receive forward or return item 90 calendar WIC/URCC Unauthorized RCC Warranty Claim 90 calendar 62 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 31

32 Questions 63 Recommended Resources ECCHO Operating Rules and Commentary Adjustments Matrix Exhibits II Proper Use of Return Codes in Image Exchange : content/uploads/2015/10/proper Use of Return Codes Version 2 Final pdf FRB Operating Circular No. 3 (OC3) Collection of Cash Items and Returned Checks FRB Check Adjustments 64 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 32

33 Exceptions Returns and Adjustments Thank You! NOTICE This NCPC Program document contains copyrighted materials of its publisher. These materials may not be reproduced or published, in whole or in part, without the express permission of ECCHO Copyright 2016 by the Electronic Check Clearing House Organization Appendix Adjustments Comparison Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 33

34 Fed & ECCHO Adjustments Comparison Fed Adj ITYP ENC ERR EXRC LC LR MCL Description Encoding Error: Item was clearly encoded for amount different than the legal (written) amount or the written amount differs from the stated amount in image cash/return letter. Entry in Error: Request to reverse/investigate an entry made in error Entry in Error (Claim of Damage Due to Underencoding Adjustment): Request for credit for an underencoded item charged and for which you are unable to collect the funds. Expedited Recredit: Request for expedited recredit associated with an eligible substitute check presented/returned in a cash/return letter Late Return Claim: Depository institution alleges an item was returned late Late Return Disclaimer: Drawee disputes the claim of late return Missing Cash/Return Letter: Request to investigate an image cash/return letter that was charged but not received Timing (Same Day Entry) ECCHO Adj Reason Description 6 months Amount Error Legal Amount Item encoded for amount different than the legal Encoding Error (written) amount or written amount differs from stated Misread amount in the image cash/return letter Only applies to amount encoding errors 20 business 120 Calendar Entry in Error Adjusting Errors Settlement Claim of Damage due to Under encoding Expedited Recredit An accounting entry was incorrectly made, either for the wrong amount or to the wrong party. Paying Bank disclaims item in which BOFD under encoded item to protect Paying Bank from loss. Note: Handled by Fed as ERR Check 21 expedited recredit claim Timing (With Entry) 180 calendar 20 business 20 business 120 calendar Note: See Regulation CC; Subpart D 2 months Late Return Claim Item was returned late 60 calendar 20 business Late Return Disclaim Dispute of a late return claim 20 business As soon as Image Cash Letter error is Difference discovered Missing Out of Balance Investigate cash/return letter credit for which the institution believes was functioned for an incorrect amount 20 business 67 Fed & ECCHO Adjustments Comparison Fed Adj ITYP NCH Description Non Cash Item: Request for credit for a non valid item (zero value) that was included in the cash/return letter total or an item that does not meet legal equivalence requirements for Check 21. Timing (Same Day Entry) 20 business ECCHO Adj Reason Non negotiable Item / Non Cash Item Description Examples: Items that enter collection stream in error such as empty carrier, control document, deposit/withdrawal ticket, pay stub or mutilated item; Item not encoded with magnetic ink Timing (With Entry) 90 calendar Examples: An empty carrier, a control document, a deposit/withdrawal ticket, or a mutilated item. Check 21 related Non Cash Items include situations in which the image on the substitute check does not match the MICR line on the substitute check (mismatched items), the substitute check has more than one legal legend (or no legal legend), or the substitute check is an image of image. These examples are not all inclusive. Mis Matched MICR Note: Changes 180 cal. to 90 cal. : eff Dec 2016 release of ECCHO Rules Note: Negotiability is defined in UCC; Non Cash Item defined in Reg CC Item in which MICR information associated with the item does not match MICR information reflected on image of the item Example: Full MICR line of one item or multiple items has been misaligned with the image of another item/sequence of item rather than a misread of a character or characters on the same item. Reason used when code line in Check Detail Record (Type 25) does not exactly match code line on original check. Used for any encoding errors other than error in amount. For an encoding error of amount only use Amount Error. 90 calendar NCI Non Conforming Item: Used by the Fed to adjust for items that failed to meet standards for image clearing. Items may be charged back to depositors if they do not conform to Fed's quality standards, if they are ineligible for image clearing, or if they are qualified to an invalid routing number. Only made by the Fed Non Conforming Image (NCI) Image Missing Ineligible item Invalid RT Item fails to meet image quality standards, item is missing, or item contains an invalid or undefined routing number or invalid data for specific file type or the item is ineligible for image clearing. 20 business 68 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 34

35 Fed & ECCHO Adjustments Comparison Fed Adj ITYP NOI PAID PEA WIC / URCC Description Not Our Item: Item was charged in cash/return letter which does not bear receiving institution s routing number in MICR line (Forward Collection) or endorsement area (Return) of physical item or image or in the associated endorsement records for items received electronically. Note: NOI ITYP does not apply to mismatched items Paid Item: Request for credit for an item that is being refused either because it is the original (or the legal equivalent, (i.e. a substitute check) or image received in cash/return letter) or a photocopy and the other item has already paid Timing (Same Day Entry) 20 business Not our item ECCHO Adj Reason Pricing Error Adjustment: Initiated by the Fed at the behest of the Bureau of Public Debt (BPD) when BPD determines a bond was redeemed for the incorrect Two weeks after cash Pricing Error Adjustment amount or processed for the incorrect amount,subject to letter date standard adj min amount. Warranty/Indemnity Claim Associated with Unauthorized Remotely Created Checks: Paying institution alleges remotely created check not authorized in the amount stated on the check to the payee indicated on the check WIC Warranty/Indemnity Claim Associated with Check 21 Items: Depository institution alleges breach of a Check 21 warranty or indemnity Description Forward collection process: Item that contains RTN that does not belong to the institution that receives item or the institution authorized to process the item 6 months Duplicate Item Institution received item which it was asked to pay based on an item that it already had paid For claims arising under duplicate warranty provision under applicable law and ECCHO Rules 90 calendar Unauthorized RCC Warranty Claim Follows Fed and BPD requirements Note: Should not submit PEA adj to Fed within first 2 weeks after deposit to avoid crossing adj's with those initiated by BPD. Investigation type is reserved for Federal Reserve Bank use only. Person on whose account RCC is drawn did not authorize the issuance of the check in the amount or payee stated on the check 1 year Warranty Indemnity Claims A claim of a Breach of Warranty and/or Indemnity associated with receipt of a Substitute Check or Imaged item. Timing (With Entry) 90 calendar 180 calendar N/A 90 calendar 1 year 69 Fed & ECCHO Adjustments Comparison Fed Adj ITYP n/a n/a n/a Not specified by Fed Not specified by Fed Not specified by Fed Description Timing (Same Day Entry) ECCHO Adj Reason Adjustment Reversal Return Adjustment Wrong Payee Credit Description Ability to adjust an item that was incorrectly adjusted. Can only be used when Institution making claim has reference number for adjustment to reverse. Institution seeks to adjust a return item that was incorrectly returned. BOFD seeks to pass credit to maker s account to correct error in payee processing/credit. Timing (With Entry) 90 calendar 60 calendar 60 calendar 70 Copyright 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 35