National Check Payments Certification. Copyright 2013 by the Electronic Check Clearing House Organization NOTICES

Transcription

1 NCP 2014 Exam ECCHO Training Series Session 7 March 20, :00 pm ET (1:00 pm CT; 11:00 am PT) All sessions 90 min. Exceptions Returns and Adjustments Copyright 2013 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 or in which they participate. These program training materials may not be reproduced or published, in whole or in part, without the express permission of ECCHO. Copyright 2013 by the Electronic Check Clearing House Organization (Certain contributed content subject to third party copyrights) 2 Copyright 2013 by the ECCHO (Certain contributed content subject to third party copyrights) 1

2 Session Overview Exceptions Overview Returns Return Reason Codes Adjustments Federal Reserve Bank Adjustments ECCHO Rules Adjustments 3 Exceptions Overview Copyright 2013 by the ECCHO (Certain contributed content subject to third party copyrights) 2

3 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 May involve research to resolve multiple errors Examples: Mis encoding, mis routing, incorrect posting, etc. 5 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 6 Copyright 2013 by the ECCHO (Certain contributed content subject to third party copyrights) 3

4 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 if the item is to be returned, the return (or notice or return) be handled expeditiously Return must reach depositary bank by 4:00 p.m. (local time of depositary bank) two days after presentment Do you return the item? Do you adjust the item? What are your options? 7 Return vs. Adjustment Adjustments Considerations Duplicates IMAGE Deposit Chk Sub Chk Return IMAGE Sub Chk Depositing Customer BOFD or Image Adjustment Image Return Paying Bank Drawer Customer Made to appropriate party Minimizes negative impact to customers Handled within banking system Adjustment areas familiar with process Can be less efficient than return Settlement timing; Additional documentation May lose right to return item (missed deadlines for timely return) Significant issue if item is counterfeit or forged and not duplicate 8 Copyright 2013 by the ECCHO (Certain contributed content subject to third party copyrights) 4

5 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 Faster Timely Settlement Do not lose right of return In remote capture environment (RDC), speed is a consideration if unsure of cause of duplicate May have negative customer impacts Depositing customer and/or drawer customer 9 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 10 Copyright 2013 by the ECCHO (Certain contributed content subject to third party copyrights) 5

6 Types of Image Returns Customer and Administrative Returns Customer Returns May be called monetary returns Distinguishes a dishonored item under check law Usually attempted to be charged/posted to customer account Administrative Returns/Administrative reasons May be called non monetary returns Distinguishes return for reason other than dishonored item Usually handled internally rather than charged to customer o Can also be handled through adjustment process If handled as return, must adhere to legal requirements for return item All Returns Carry Monetary Value 11 Reasons for Return Common Return Reason Codes may include: Common Customer Return Reasons NSF Not Sufficient Funds Stop Payment Closed Account Warranty Breach Common Administrative Reasons for return Image Missing Ineligible Unusable Image Duplicate Presentment 12 Copyright 2013 by the ECCHO (Certain contributed content subject to third party copyrights) 6

7 Return Reason Codes / Duplicates Need to use return reasons in electronic indorsement records Helps identify represented items Helps prevent false positives in duplicate checking Following slides illustrate flipping of forward / return indorsement records 13 Forward Presentment 25 Bank of First Deposit (BOFD) Legend: BOFD Lt. Green* Paying Bank Red 26* Paying Bank Check Detail Record (Type 25) Check Detail Addendum A Record (Type 26) 14 Copyright 2013 by the ECCHO (Certain contributed content subject to third party copyrights) 7

8 X Flows Return Return Record/ Return Addendum B 31/33 26 * Bank of First Deposit (BOFD) Legend: BOFD Lt. Green* Paying Bank Red 35 New 35 record added by Paying Bank Paying Bank 26 becomes 32 record Return Reason in Type 31 & 35 records 15 ECCHO Rules Return Routing Hierarchy 16 Copyright 2013 by the ECCHO (Certain contributed content subject to third party copyrights) 8

9 Represented Items Depositary Bank may represent items Automatically Represents 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 Chk (2) Image Presentment (1) Image Return (2) Depositor/ Customer Sub Chk Re deposit (3) BOFD Represented Item (3) Paying Bank 17 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: Item in cash letter file did not contain both front and back of image Item rejects in IQA Not considered to be presented Returned for administrative reason (Ineligible item) Cash letter file is processed; duplicate detection process flags several items Image cash letter file was presented Items that are duplicates returned for administrative reason (Duplicate item) 18 Copyright 2013 by the ECCHO (Certain contributed content subject to third party copyrights) 9

10 Presentment and Returns Proper use of return code critical for timely returns and proper handling Refer to paper on CheckImageCentral website on proper use of return reason codes for additional information mageexchange.pdf 19 Adjustments Copyright 2013 by the ECCHO (Certain contributed content subject to third party copyrights) 10

11 Adjustments By Agreement Federal Reserve Operating Circular 3 (OC3) FRBs Check Adjustments Services Operations Resources provide: Reporting timeframe Requirements for adjustment request through FRB Outlines specific adjustment types, related timing, documentation (DTF) requirements, etc. ECCHO Adjustment Rules and Matrix Apply to Members for image exchange/return activities Whether or not forward or return item exchanged under ECCHO Rules 21 Check Adjustments Adjustment types to be reviewed today: PAID ENC NCH PEA WIC/URCC Other Adjustments under both Fed rules and ECCHO Rules: ENL/LNE Enclosed Not Listed and Listed Not Enclosed Informational Adjustments OSCR Original or Sufficient Copy SOR Source of Receipt DISP Disposition INFO Information Requested Others For more information refer to: Federal Reserve online Check adjustments at: ECCHO Adjustment Rules and Matrix (Exhibits II) 22 Copyright 2013 by the ECCHO (Certain contributed content subject to third party copyrights) 11

12 Top Five FRB Adjustment Types Based on recent statistics: 85% 90% of adjustment cases received in 2013 PAID: Request for credit when both items have been paid ENC: Encoding error Amount different than legal (written) amount; or Written amount differs from the stated cash letter / return letter amount NCH: Noncash item Includes MICR Mismatch and NCI PEA: Pricing Error Adjustment Reserved for FRB use WIC/URCC: Unauthorized Remotely Created Check 23 Fed OC 3 Overview For cash item 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 OC3 and Fed s requirements for adjustments 24 Copyright 2013 by the ECCHO (Certain contributed content subject to third party copyrights) 12

13 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 25 Fed OC 3 Overview Fed does not: Process adjustments of $25.00 of less Unless for PAID item claim or Not Our Item (NOI) claim Review forms to verify correct information Handle forgeries See sample 2013 Check Adjustment Request form on following slide 26 Copyright 2013 by the ECCHO (Certain contributed content subject to third party copyrights) 13

14 FRB Check Adjustment Request Updated : Sept 30, 2013 Do not submit errors of $25 or less unless request is for a: Paid Item (PAID) or Not our Item (NOI). Four new fields for PAID item claims: FCL1 From Cash Letter TCL1 To Cash Letter CLD1 Cash Letter Date SEQ1 Seq Number 27 FRB Check Adjustment Updates Changes effective 9/30/13 for PAID adjustment requests handled through FRB New fields and documentation requirements associated with Paid Item (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 28 Copyright 2013 by the ECCHO (Certain contributed content subject to third party copyrights) 14

15 FRB Adjustments: PAID ITYP Photocopied and Original Paid (PAID) Within six calendar months of the 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 and advise requesting institution to deal direct 29 PAID versus DUP PAID vs. DUP PAID = Same item presented and paid twice DUP = Duplicate adjustment entry PAID adjustment Used when duplicate checks have been presented to an account DUP adjustment Used when a duplicate adjustment entry has been charged to the financial institution for the same error 30 Copyright 2013 by the ECCHO (Certain contributed content subject to third party copyrights) 15

16 FRB Adjustments: ENC ITYP Encoding Error (ENC) 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 31 FRB Adjustment Types NCH Noncash Item Covers both MICR Mismatch and NCI errors Process: Within 20 business days of cash letter date Give immediate provisional entry After 20 business days / Within six months of cash letter date Entry made after approval of offsetting institution After six months Advised to deal direct Non Conforming Image (NCI) Applicable only for FedForward and FedReturn depositors Can only can come from the Fed Bank cannot report NCI to Fed Use NCH (see above) 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 32 Copyright 2013 by the ECCHO (Certain contributed content subject to third party copyrights) 16

17 FRB Adjustments 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 33 FRB Adjustments 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 Process: Within 90 calendar days cash letter date o Same day entry After 90 calendar days o No entry o Advise requesting institution to deal direct 34 Copyright 2013 by the ECCHO (Certain contributed content subject to third party copyrights) 17

18 ECCHO Rules Adjustments ECCHO Adjustment Rules Agreements Agreements Adjustment Claim Adjustment Claim Member Sending Adjustment Adjustment Provider Example of Adjustment flow Illustrates both Members and Provider Adjustments types Listed in matrix (ECCHO Rules Exhibits II) Member Receiving Adjustment 36 Copyright 2013 by the ECCHO (Certain contributed content subject to third party copyrights) 18

19 ECCHO Adjustment Rules Must comply with requirements of Adjustment Matrix Type of Adjustment Time periods, dollar amount or other requirements Documentation Settlement and rejection Members may make Claim directly or through Provider Adjustments may come from: Forward or return under ECCHO Rules or From exchange outside ECCHO Rules but members have agreed to adjust under Rules Members must determine to: Bring claim under rules or Return, represent or make claim through other channel Except for Group Adjustment each claim relates to only one image or return 37 ECCHO Adjustment Rules Notification Must notify Sending Member of receipt of claim by end of next banking day after receipt Notice in format and manner as agreed or established by provider Documentation May be sent various ways Can include Electronic Image or Electronic/Image Return by sending: Image Substitute Check Print out, photocopy, other physical representation of item Settlement Members agree to process If claim through provider, settlement of provider used Compensation Not covered under these Rules If provider allows, may make claim through provider Optionally may make claim outside these Rules under other law or other rules 38 Copyright 2013 by the ECCHO (Certain contributed content subject to third party copyrights) 19

20 ECCHO Adjustment Rules Settlement Timing (unless Members agree otherwise) With entry Settle by close of banking day following banking day claim was received Without entry Settle by agreement of members or time period established by provider Reject Claim May reject or initiate claim to reverse settlement if claim: Did not comply with Rules or Matrix Did not relate to item handled by Member Claim was duplicate of another claim Member previously initiated claim relating to same matter Member has not established factual basis for claim Rules do not establish liability for members with respect to claim Rules do not alter Member s obligation under UCC, Reg CC, or Rules 39 ECCHO Check Adjustments Common Adjustment Types supported under ECCHO Adjustment Rules and Matrix Duplicate Item Entry in Error Amount Error Non Conforming Image (NCI) Unauthorized Remotely Created Check Not Our Item (NOI) Mis matched MICR Pricing Error Adjustment (PEA) 40 Copyright 2013 by the ECCHO (Certain contributed content subject to third party copyrights) 20

21 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 41 Duplicates in the Private Sector Two options to resolve duplicates: Adjustment process: Duplicate Item Timing o 180 calendar days with entry o Up to 1 year without entry Commonly used to report item previously paid o Both sources required o Adjustment typically goes to last institution to present item Return process Used under administrative reason for returns at some institutions Provider must agree to accept administrative reason for returns 42 Copyright 2013 by the ECCHO (Certain contributed content subject to third party copyrights) 21

22 ECCHO Rules Adjustments Entry in Error Includes Adjusting Errors and Settlement Timing 20 business days with entry Up to 1 year without entry Amount Error Legal amount Includes Encoding error or Misread Timing 180 calendar days with entry Up to 1 year without entry Non conforming image (NCI) Includes image missing, ineligible item, and invalid RT Timing 20 business days with entry Up to 1 year without entry 43 ECCHO Rules Adjustments Unauthorized Remotely Created Check Two options under the ECCHO Rules Rule 8 Warranty claim Send through returns process Form required Specific timings to be followed Warranty under Reg CC o Moves liability from paying bank to the bank of first deposit (BOFD) Adjustment Process Original could have been exchanged under ECCHO Rules or outside of ECCHO Rules and members agree to adjust under the rules o 90 calendar days with entry o Up to 1 year without entry 44 Copyright 2013 by the ECCHO (Certain contributed content subject to third party copyrights) 22

23 ECCHO Rules Adjustments Not Our Item (NOI) Timing 90 calendar days with entry Up to 1 year without entry Mis matched MICR Timing 180 calendar days with entry Up to 1 year without entry 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 45 Questions 46 Copyright 2013 by the ECCHO (Certain contributed content subject to third party copyrights) 23

24 Quiz Questions Available online with session handouts Review each question carefully Answer based on what s been presented Use additional recommended resources as needed P.R.E.P. Guide Question of the Day Other online exam resources Answer Key included Will review at start of next session Save weekly Quiz Handouts Review Questions and answers Will reference in Series Review sessions 47 Recommended Resources ECCHO Operating Rules and Commentary Adjustments Matrix Exhibits II Proper Use of Return Codes in Image Exchange : FRB Operating Circular No. 3 (OC3) Collection of Cash Items and Returned Checks FRB Check Adjustments 48 Copyright 2013 by the ECCHO (Certain contributed content subject to third party copyrights) 24

25 Next Session Session #8: March 25 2:00 pm ET (1:00 pm CT / 11:00 am PT) All sessions 90 minutes Topic: Standards and Formats Will cover: Three Key ANSI X9 standards with primary focus on the X image exchange standard: o X o X o X Universal Companion Document (UCD) to the image exchange standard 49 Ellen Heffner, NCP Director and Education Manager eheffner@eccho.org Phyllis Meyerson, AAP, CCM Executive Vice President pmeyerson@ eccho.org Exceptions Returns and Adjustments Thank You! Electronic Check Clearing House Organization 3710 Rawlins Street; Suite 1075 Dallas, Texas NOTICE This NCPC Program document contains copyrighted materials of its publisher. These program training materials may not be reproduced or published, in whole or in part, without the express permission of ECCHO. Copyright 2013 by the ECCHO (Certain contributed content subject to third party copyrights) 25