Objective of Subcommittee is to investigate and make recommendations for Returns and Adjustment issues, resolution and rules changes or updates

Transcription

1 ECCHO Returns and Adjustment Subcommittee October 19, :00 p.m. ET (2:00 p.m. CT, 1:00 p.m. MT and 12:00 noon PT) (866) with pass code of I. Topics and objectives for today s call Subcommittee Objectives In-person Returns and Adjustment meeting 2015 Return Reasons Explanation of Adjustment Reasons MICR mis-match Return Rate Survey Timeframes Reject due to NSF Duplicate Suggestion Paper Update Exceptions Going Forward II. III. Subcommittee Objectives Objective of Subcommittee is to investigate and make recommendations for Returns and Adjustment issues, resolution and rules changes or updates In-person ECCHO Returns and Adjustment Meeting conducted on September 16 and Adjustment Matrix Timeframes Agreed to change timeframe for Return Adjustment from 180 to 60 days Present to Board this week Reviewed comparison of SVPCO timeframes to ECCHO timeframes Agreed to ECCHO timeframes Decided to revisit certain adjustment types see below Wrong Payee Credit Reviewed new matrix reason Discussed need for an indemnification between the banks with no support Discussed possible adjustment/warranty claim when customer determines item was incorrectly indorsed 1

2 Handled through letter and felt it should continue to be Duplicates Living Power Point Check out new version on ECCHO website Returns vs Adjustment Survey Requested to poll members to determine whether banks handle duplicates as returns vs adjustments Developed survey and distributed via Survey Monkey Survey results reviewed at meeting and is attached Legal Aspects Suggestion Paper Recommendations Re-presented Duplicates Suggestion Paper exceptions General agreement to always make claim to BOFD A Fed Update Presentation distributed and available upon request Other Topics Deal Direct Late Return Claims No action MICR Mis-Match Reject due to NSF Issues identified for this Subcommittee Timeframes for NCI with entry and duplicate without entry MICR MIs-Match Using this adjustment type when one character issue which is not traditional MICR mis-match definition Some support for allowing, since no other adjustment type for encoding errors Reject due to NSF Was some support for commentary in Rules when returns can be rejected Explanation of Adjustment Reasons Has not been finalized needs more work Suggestion Paper to be updated with more explanation of the recommendations rather than just the decision tree structure Continue documentation of Exceptions related to Holder in Due Course scenarios Ability to return item after return window use return as adjustment process Concept previously discussed and abandoned 2

3 Was called Rule 10 and/or Hybrid Adjustment process Return Survey was discussed during Roundtable Survey needs work before being conducted Network opportunities throughout meeting IV. Return Reasons Members questioned when electronic return reason may be different than physical return reason on item Rules do not address Rules Subcommittee requested this Subcommittee also review this Rules require item to clearly indicate it is return and reason for return Per Regulation CC Was support that electronic return reason code could be relied upon over physical return reason code when both appear Return reason code in detail record Rules Subcommittee had significant discussion Still being worked on V. Explanation of Adjustment Reasons Document previously developed and approved by Subcommittee (updated version attached) Internal ECCHO review resulted in some questions Used document at meeting for certain explanations and it was felt it may need some changes Discussion of possible use of MICR mis-match for encoding error Explanation used during meeting that may need changes Adjustment Reversal - Ability to adjust an item that was incorrectly adjusted. Can only be used when Institution making claim has reference number for adjustment to reverse. Entry in Error - An accounting entry was incorrectly made, either for the wrong amount or to the wrong party. MICR Mis-Match rather than a misread of a character or characters on the same item. An encoding error of amount only and/or incorrect character(s) in MICR field is not a mis-match MICR Should MICR Mis-Match be used for mis encoded item 3

4 Not Our Item for return reads in part an item that was not indorsed, either physically or electronically, by the institution that receives the return item What if institution that receives item was source of forward exchange but did not indorse item? Image Cash Letter Difference Adding Institution, is that correct Investigate cash/return letter credit for which the institution or depositor believes was functioned for an incorrect amount Should Depositor be referenced here Claim of Damages due to Under encoding Was - Paying Bank disclaims item in which BOFD under encoded item to protect Paying Bank from loss. Seems contradictory of title and explanation Possible Change Paying Bank makes claim for item in which BOFD under encoded item to protect Paying Bank from loss Return Adjustment - Institution seeks to adjust a return item that was incorrectly returned. When would this be used NOI item used when item is returned to wrong BOFD Would it be re-presentment of returned item Should there be limitation on use of adjustment reason VI. VII. VIII. Return Rate Survey Member requested membership complete survey attached Discussed at meeting with general agreement but survey may need to be updated Work through survey, if interest Timeframe Updates During discussion on SVPCO Timeframe, two timeframes suggested for further discussion NCI with entry is currently 20 business days with entry Duplicate without entry is one year Duplicates do not have a statute of limitations Reject Due to NSF Been hearing situations in which BOFDs dishonor/reject claims and/or returns when depositing customer account is NSF Returns As long as return is made within proper timeframe, Paying Bank cannot disclaim due to NSF 4

5 Adjustments NSF or other problems with customer account is not valid rejection reason under ECCHO Rules Reasons for Reject include Does not comply with Section XII and Adjustment Matrix Claim does not relate to item handled by receiving Member Adjustment claim is a duplicate Receiving Member previously initiated adjustment for same matter Has not established factual basis for claim, except for RCCs Only Rule 9 claims can be disclaimed for NSF or closed accounts Discussion and some support at meeting to develop Commentary for when returns can be rejected IX. Duplicate Adjustment Suggestion Paper Improving Duplicate Payment Adjustment Resolution - An ECCHO Suggestion Document July 2014 Posted to ECCHO website Need Purpose of This Paper Disclaimer Background Adjustment Objectives Assumptions Decision Trees Generic Pictorial Scenario Exception s Useful Links Paper addresses possible adjustment actions for most common scenario of when deposit made through RDC and then deposit of physical check Exceptions and intermediary processing would be worked on later Agreed to update document to explain decision trees and direction New section after Adjustment Objectives Overview of Suggestions Need for pictures The below Decision Tables are designed to encourage banks to obtain reimbursement for the duplicate item from BOFD A as quickly as possible and avoid possible Holder In 5

6 Due Course claims to the Drawer. The rationale is that since BOFD A introduced the risk of multiple deposits by offering the RDC product to its customer, it should bear the losses associated with duplicates. BOFD A receives the benefit of its customer s use of RDC should internalize any risk or cost to other banks and is in a better position to minimize those costs and risk through its contract with its customer. This is supported in the Federal Reserve s 2013 RFC for Reg CC. Specific scenarios outlined below: Claim to BOFD A Paying Bank makes claim to BOFD in which the item was deposited through RDC, which is typically BOFD A. BOFD B Rejects Claim from Paying Bank The Paying chose to make the duplicate claim to BOFD B, which it has a right to do. BOFD B or its customer is a Holder in Due Course (HIDC) and will make a claim to the drawer (customer of the Paying Bank). BOFD B asks the Paying Bank to take the claim back and make the claim to BOFD A. There is no reject reason for BOFD B, but if a HIDC claim is made then BOFD A will likely eventually get the claim from the Paying Bank. BOFD B Requests Resolution from BOFD A - The Paying chose to make the duplicate claim to BOFD B, which is has a right to do. BOFD B or its customer is a Holder in Due Course (HIDC) and will make a claim to the drawer (customer of the Paying Bank). BOFD B contacts and asks resolution from BOFD A. There is no claim between BOFD B and BOFD A. But if a HIDC claim is made then BOFD A will likely eventually get the claim from the Paying Bank. Exceptions for Duplicate Suggestion paper In development of paper it was felt there would be need to deal with exceptions, like stolen or counterfeit checks Initially addressed BOFD and Paying banks with intermediaries to be addressed later Agreed at meeting that all claims should be made to BOFD A, since it was BOFD A s customer who did not secure original item Possible Exceptions to all claims made to BOFD A Stale Dated Items Means item over 6 months old there was general agreement on this 6

7 Altered checks Item should be adjusted to BOFD B who s customer or itself should not have taken stale dated check and is not HIDC Cashier s check cannot be stale dated so BOFD A should take adjustment Claim should be made to bank that sent altered item as altered not duplicate Intermediary Duplicate Processing claim made to BOFD A, if known Represented checks Do not represent original check, only use IRD If original is presented BOFD who presented should take adjustment All other exceptions situations claim made to BOFD A If agreement on some of above will start documenting in Suggestion paper X. Going Forward Continue work, as needed, on Explanation of Adjustment Reasons Return Rate Survey Timeframes for NCI and Duplicates Reject due to NSF Commentary Continue work on Duplicate Adjustment Suggestion Paper Updates Exceptions Other topics this Subcommittee may want to discuss Administrative Reasons Other issues Next meetings Wednesday December 2, 2015 at 11:00 a.m. ET (10:00 a.m. CT, 9:00 a.m. MT and 8:00 a.m. PT) Thursday January 7, 2016 at 2:00 p.m. ET (1:00 p.m. CT, 12:00 noon MT and 11:00 a.m. PT) Friday February 19, 2016 at 11:00 a.m. ET (10:00 a.m. CT, 9:00 a.m. MT and 8:00 a.m. PT). Calendar entries were sent 7

8 Returns vs Adjustment Survey Results 25 Responses included All responders did not answer all questions Bank of America Bank of the West Bankers Bank NE BB & T BNY Mellon Capital One Catalyst Corp CU Citizens Bank Comerica Fifth Third First National BB First Tennessee HSBC JP Morgan Chase Key Bank Members Driven Tech MoneyGram Regions Bank Stafford Savings SunTrust U.S. Bank UBB Union Bank Volunteer Corp CU Wells Fargo Bank As Paying Bank Q1: When your organization receives a duplicate item and it is within the return windows (UCC midnight deadline, Regulation CC two day expeditious return), does your bank usually: (check one) Q2: If your response to Question 1 is "Return": What return reason code do you use? 3 said Y or Duplicate Presentment 8

9 One response was Currently when return, Refer to Maker, after Q3 will use Y Q3: If your response to Question 1 is "Return": Are you handling the Return as: Q4: If your response to Question 1 is It Depends please provide details that support your decision (i.e. dollar amount, sending bank, etc.). Majority of dups are adjusted back. We have handful of AR accounts that are bypassed in detection, client should return with dup code. We do not typically receive return items as we are a processing bank and not BOFD Not all duplicates are caught in our dup detection within 2 days If BOFD = Same, we open case with Adjustments If BOFD = Different, we Return If it's true duplicate we adjust so consumer is not charged back. Would return any duplicate where there appears to be fraudulent intent. Mode of Detection Bank is currently handling majority of these items as adjustments but are transitioning to returning as duplicate presentment (customer monetary return). Q5: Does your bank perform duplicate detection? 9

10 Q6: If your response to Question 5 is Yes, when is the duplicate detected? 6: If your response to Question 5 is Yes, when is the duplicate detected? Other (please specify) Assuming this is only about checks drawn on us, and not transit items, we do not do dup detect upon initially receiving the items. There are exception processes in place after the item posts to the client's account that would identify a previously paid item. Both prior to and after posting to customer's account. As Intermediary Bank Q7: Do you perform duplicate detection on your transit items? 10

11 Q8: If response to Question 7 is Yes does your bank If response to Question 8 is It Depends please provide details that support your decision (i.e. dollar amount, sending bank, etc.). Due to systems, if within 2 days our system picks it up and it is done as an adjustment. If it hits our returns system then we do return through that system. Dollar amount, sending bank, point at which duplicate is identified. We have a new system that does detect, but not all phases has been implemented As BOFD Q10: If you receive a return of a duplicate how do you handle it? 11

12 Q10: If you receive a return of a duplicate how do you handle it? Other (please specify) We are typically not the BOFD If we are aware of a duplicate being processed due to an error, we monitor the incoming returns each day for about 7 days. If the check comes in as a return, we debit the account that is holding the credit, which could be an internal GL or the client's account. If we are not aware of a duplicate being processed, and it comes back as a return, we will automatically debit the client's account. NA-we are not a BOFD Q11 - Please provide any additional comments concerning your organization s handling of duplicates. Have reduced number of intermediary banks we process for. As a processing agent, if/when we see duplicates they are usually presented to us as adjustments and are adjusted back to BOFD Since we are not a Retail bank, majority of duplicates we see are due to error, and not due to a depositor s depositing same check twice. Our Bank tries to handle majority of our duplicates as Adjustments. Regarding question #7 above, we have started duplicate detect review of transit items but we are still ramping up and have not yet started duplicate review of Correspondent Bank transit items 12

13 Additional observation is there is extensive use of "Refer to Maker" as generic/default return reason code (by customers and banks) that disguise true return code (NSF, Duplicate, etc.). In all cases we handle dups as day 2 adjustments. If bank receives duplicate from FRB and we are a collecting bank, we will pass adjustment onto source indicated on charge Bank will not hold charge or attempt to have it reversed. 13

14 Explanation of Adjustment Reasons This document is intended to be used in conjunction with the Adjustment Matrix which is Exhibit II in the ECCHO rules. See for access to the complete ECCHO rules or the Matrix as a standalone document. These explanations of adjustment reasons serve an informational guide to assist adjustment processing. These explanations do not represent a complete summary of all legal rights or claims that may arise under applicable law or the ECCHO Rules and for which a Member may seek an adjustment under the ECCHO Rules. Adjustment Reason Non Conforming Image (NCI) Image Missing Ineligible item Invalid RT Mis-matched MICR Not our Item Non-negotiable item/non Cash Item Duplicate Explanation 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. Item in which the MICR information associated with the item does not match the MICR information reflected on the image of the item. An example includes where the full MICR line of one item or multiple items has been misaligned with the image of another item or a sequence of items rather than a misread of a character or characters on the same item. An encoding error of amount only and/or incorrect character(s) in MICR field is not a mis-match MICR. In forward collection process, an item that contains routing transit number that does not belong to the institution that receives item or the institution authorized to process the item. In return collection process, an item that was not indorsed, either physically or electronically, by the institution that receives the return item. Negotiability is defined in the UCC (see UCC) and Non- Cash Item is defined in Reg CC (See Reg CC). Examples on non-cash items include items that enters collection stream in error such as empty carrier, control document, deposit/withdrawal ticket, pay stub or mutilated item, item not encoded with magnetic ink. An institution received an item which it was asked to pay based on an item that it already has paid. This is for claims arising under duplicate warranty provision under applicable law and the ECCHO Rules. 14

15 Amount Error Legal amount Encoding Error Misread Entry in Error Adjusting Errors Settlement Warranty Indemnity Claims Rule 8 & 9 Claim Disclaim Rule 8 & 9 Unauthorized RCC Warranty Claim Late Return Claim Late Return Disclaim Request for Information Request for original or sufficient copy Other Disposition of Item Source of Receipt Image Cash Letter Difference Missing Out of Balance Expedited Recredit Adjustment Reversal An item was encoded for an amount different than the legal (written) amount or the written amount differs from the stated amount in the ANSI X image cash/return letter. An accounting entry was incorrectly made, either for the wrong amount or to the wrong party. A claim for any breach of warranty under ECCHO, UCC or Reg CC See ECCHO rules for explanation. See ECCHO rules for explanation Person on whose account RCC is drawn did not authorize the issuance of the check in the amount or payee stated on the check. Item was returned late. Dispute of a late return claim. Requesting information regarding a forward, return or adjustment. Request for information to assist in determining whether a Check 21 claim is valid. Adjustment reason not specifically identified Request to identify where an item was presented/returned, including the routing number, and the associated cash/return letter information (date, total, bundle and sequence number). Request to identify the source of receipt of an item, including the routing number, and the associated cash/return letter information (date, total, bundle and sequence number). Investigate cash/return letter credit for which the institution or depositor believes was functioned for an incorrect amount. Check 21 expedited recredit claim (see Reg CC). Ability to adjust an item that was incorrectly adjusted. Can only be used when Institution making claim has reference number for adjustment to reverse. Paying Bank disclaims item in which BOFD under encoded item to protect Paying Bank from loss. Claim of Damage due to Under-encoding Pricing Error Adjustment Initiated by Federal Reserve at request Bureau of Public Debt (BPD) when it determines bond was redeemed for incorrect amount or was processed for incorrect amount. Wrong Payee Credit Return Adjustment BOFD seeks to pass credit to maker s account to correct error in payee processing/credit. Institution seeks to adjust a return item that was incorrectly returned. 15

16 A Member is interested in surveying the ECCHO membership about returns. Returns Questionnaire If you do not know, leave blank. If you sort of know, fill in Returns o Return Count per Typical Monday On Us Off Us o Days to Clear Returns per Typical Monday o Total Checks Processed (Percent) Personal Business Drafts (Convenience, etc.) RCC o Return Rates (Percent) Personal Business Drafts 16

17 (Convenience, etc.) RCC o Number of Department Handling Returns Managements Biggest Concerns (Rank 1, 2, 3, etc.) Float Fraud Liability Inaccurate Processing Liability Missed Window Liability Personnel Costs Obsolescence Effects of Mergers Item Processing Cost Other Current System (OK to select more than one) External Service Part of Core System Combination of Core and Separate Process In house developed software Paper based component Other 17