Check 21 Changing How Banking is Done Today Presented by: Kimberly Feeney, Vice President Government Treasury Services Bank of America

2 Agenda Overview of Check 21 Legislation Check Transformation: Conversion vs. Truncation Payment Trends A Check 21 Solution for Deposits Questions

3 Check Truncation: The Check Clearing for the 21st Century Act Purpose of Act  To facilitate check truncation  To improve efficiency in the U.S. banking system by eliminating the need to transport paper checks for presentment between banks  To facilitate broader use of electronic check processing without mandating any bank to change its current check collection process

4 Requirements of Act  Banks must process substitute checks if received  Banks must notify customers that they may not be able to receive their original check  Banks must abide by a new set of rules for re- crediting consumer’s accounts under certain circumstances, on an expedited basis  Check 21 was signed into law on October 28, 2003 and became effective October 28, 2004 Check Truncation: The Check Clearing for the 21st Century Act

5 Check 21: A Closer Look Check 21 is designed to encourage innovation in the payment system by removing key barriers to check truncation Check 21 allows banks to provide a substitute check, also known as an Image Replacement Document (IRD), in lieu of an original check  If you receive your paid checks with your statement, you may now get IRDs instead Check 21 does require that banks accept a substitute checkgenerated from an image (IRD) Check 21 does not force all banks to accept images

6 Once a check is truncated and turned into a substitute check, its legal standing does not change  The item is still considered to be a check and continues to be governed by the Uniform Commercial Code (UCC) Check truncation applies to all checks, both corporate and consumer  This includes travelers checks, money orders and cashiers’ checks Check truncation has no dollar limits Check 21: Fundamentals

7 When is it a Legal Equivalent?  Contains image of front and back of the check  Conforms to industry standards: MICR and physical characteristics of check  Accurately represents all information on original check Substitute Check (IRD)  Is suitable for automated processing  Bears legend  Includes all endorsements  Includes identification of party creating it

8 Check Transformation: Defined Check Conversion transforms a check to electronic settlement  Converting a paper check mid-life cycle to something other than a paper check  Example: conversion of returned checks to ACH transactions Check Truncation transforms a check to image- enabled electronic or paper settlement  Using electronics to improve the existing check payment system  Example: electronic check presentment and the Check 21 Act

9 Check Conversion and Check Truncation Sound Similar… Check Conversion:  Changes the check’s legal standing  Once converted, the transaction is no longer governed by UCC, but by Reg E  Some transaction types have dollar limits (POP and RCK)  Requires customer authorization (except for RCK)  Applies to consumer transactions only  Is available today Check Truncation:  Does not change the check’s legal standing  When check is truncated and turned into an image, it is still considered a check and continues to be governed by the UCC  Has no dollar limits  Requires no additional customer authorization  Applies to all checks  Is available today …However, there are differences

10 What are the benefits to your school district? Check Transformation: Benefits? Faster access to funds Expedited check processing Reduced transportation costs Faster notification of returned items, based on faster deposit time Frees up resources

11 Payment Trends

12 Payment Trends ACH Annual Growth: +15% Debit Annual Growth: +12% Credit Annual Growth: +8% Stored Value Annual Growth: +8% Wires Annual Growth: +5% Cash Annual Growth: +2% Check Annual Decline: -5%

13 Payment Trends Why is Check Volume Declining? Changes in Consumer Behavior  Credit/Debit Cards  ACH  Electronic Bill Payment Changes in Corporate/Government Behavior  ACH  Credit Cards

14 A Check 21 Solution for Deposits Features of a typical bank deposit Processed daily Time to prepare: 20 – 60 minutes Usually hand-delivered to banking center by local staff (not armored carrier)

15 What if…. You didn’t have to take your checks to the bank You could speed the time to deposit (good funds) You could reduce risk through faster notice of returned checks You could enjoy the benefits of efficient paperless processing

16 Remote Deposit – a Real Solution Remote Deposit can replace your current process of accepting and processing checks with a more efficient and cost-effective process Remote Deposit  Gets your deposits to the bank faster  Can reduce risk since checks are presented sooner  Allows each location to make deposits to a central account  Eliminates the paper check at the earlier point in the cycle for most efficient paperless processing

17 How Electronic/Remote Deposit Works Depository Bank You scan checks, transmit to bank Depository Bank captures image and MICR information Software determines if check is ARC-eligible (option) or not, and determines optimal clearing route, ARC or Image Paying Bank Paying Bank processes ARC, IRD or check image You receive checks Item routed through payment system: ARC – to Fed or Clearing House IRD or Image– to Paying Bank Consumers receive information on their statement: ACH (ARC) IRD Check truncated

18 Electronic/Remote Deposits What do you need to implement this service? Check Scanner Software to store the images and create the deposit Fast and secure transmission method Partner with a financial institution that will accept electronic deposits

19 Electronic/Remote Deposit Benefits: All checks are eligible Eliminates transportation costs Reduces encoding errors and deposit adjustments Customer service research requests are expedited by providing access and search capabilities of the deposited item images.

20 Things to Consider Remote Deposit is an emerging service Bank needs to be capable of accepting an imaged check deposit Opportunity to re-engineer your deposit process Scanning equipment and software for each location To your customer, the check truncation option is almost transparent ACH rules and regulations apply for ARC option

Thank You Presented by: Kimberly Feeney, Vice President Bank of America 231 S. LaSalle Street Mail Code: Il Chicago, IL (312)