1. Check 21 Implementation ICBA Check 21 Audio Conference Series Viveca Y. Ware ICBA February 17, 2004

2. 2 Today’s Agenda Check 21 Implementation –Regulations –Expedited Recredit Procedures –Check Retention Policies –Consumer Awareness –Staff Training –Advice

3. 3 Check 21: Implementation Banks should: –Become familiar with the new law and regulations –Understand minimum implementation requirements Plan for customer education Plan for staff training Develop internal expedited recredit procedures Develop check retention policies if migrating to imaging

4. 4 Check 21: Regulations Proposed regulations will amend Reg CC and its commentary by adding a new Subpart D -- Comments due 03/12/04 Proposed regs cover: –Substitute check requirements –Reconverting bank duties –Warranties & Indemnities –Expedited Recredit Procedures –Liability for violations –Interaction between subpart D & existing federal and state laws –Consumer awareness disclosures –Other notices

5. 5 Check 21: Regulations Remotely-created demand drafts –Fed seeking comments on revising Reg CC to incorporate new warranties similar to existing UCC warranties –Defined by the UCC as “an item drawn on a consumer account, which is not created by the payor bank and does not bear a handwritten signature purporting to be the signature of the drawer” –If adopted, would require a person transferring the draft to warrant that it is authorized by the drawer –Paying bank could use this warranty claim to absolve itself of responsibility for honoring an unauthorized item

6. 6 Check 21: Consumer Awareness Banks must provide consumers with a notice: –Substitute check is the legal equivalent of the original check –Consumer recredit rights if consumer believes substitute check was not properly charged Notices must be given to consumers who: –Routinely receive paid checks with their account statements –Receive substitute checks only on a case-by- case basis

7. 7 Check 21: Consumer Awareness Notice Distribution –To all existing customers, no later than first-regularly scheduled communication after 10/28/04 –Accounts opened after 10/28/04 –Case-by-case basis Substitute check copy request Returned substitute check –Communication – may be written or electronic

8. 8 Check 21: Consumer Awareness Reg CC Commentary Model Language –Use of model language is optional –Use of model language complies with disclosure content requirements if disclosure accurately describes bank policies and protections –May include additional information related to substitute checks –Model language will be finalized by July 28, 2004

9. 9 Check 21: Expedited Recredit Consumers may obtain expedited recredit in cases where presentment of a substitute check created a loss and producing the original check or sufficient copy is necessary to resolve the claim Consumer does not need to physically possess substitute check

10. 10 Check 21: Expedited Recredit Final Reg CC commentary will include model language for notices for expedited recredit claims: –Full Refund Notice –Within 10/45 days –Partial Refund Notice –Denial of a Claim –Reversal of Refund

11. 11 Check 21: Expedited Credit Procedures Banks must establish internal procedures that comply with regulatory requirements Internal procedures should require consumer to: –Provide an explanation of why a loss occurred/claim description –Estimate amount of loss –Explain why production of the original check or substitute check is necessary –Provide information to identify the check

12. 12 Check 21: Expedited Credit Procedures Account-holding bank must decide whether to: –Require claim to be made in writing –Date and time stamp claim upon receipt –Produce the original check or sufficient copy of the substitute check to determine if the substitute check was properly payable Account-holding bank must identify bank personnel authorized to make decisions regarding claims –Validity, Refunds, Denials, Funds Availability

13. 13 Check 21: Expedited Credit Procedures Account-holding bank should have tracking system to ensure that consumer’s account is credited within the required time frames if bank determines that consumer incurred a loss or if producing the original check or sufficient copy is necessary to resolve the claim –Substitute check amount up to $2,500 plus interest within 10 business days –Amounts over $2,500 must be recredited as soon as the bank determines a claim is valid, but no later than 45 calendar days from the claim date

14. 14 Check 21: Expedited Recredit Procedures Procedures should incorporate: –Ability to delay funds availability up to 45 calendar days if: Claim is made within 30 calendar days of account opening Account has repeated overdrafts Claim is believed fraudulent –Prohibition on overdraft fees caused by delayed availability of recredited funds until the 5 th calendar day on which bank provided required notice

15. 15 Check 21: Expedited Recredit Procedures Procedures should also address: –Recredited reversals if claim was not valid: Must notify consumer Provide original check or sufficient copy to consumer Provide reversal amount and date of reversal –Denial of Claim –General Ledger Entries

16. 16 Check 21: Expedited Recredit Procedures -- Banks Claimant bank should have tracking system to ensure that: –Claims against indemnifying bank are filed within 120 calendar days of the transaction date that gave rise to the claim –Indemnifying bank Return funds within 10 days, or Provides original check or sufficient copy of substitute check

17. 17 Check 21: Expedited Recredit Procedures -- Banks Claimant bank must ensure that claim to indemnifying bank includes: –An explanation of why substitute check was not properly charged to consumer account –Statement that claimant bank is obligated to recredit a consumer account or has suffered a loss –Amount of loss –Why production of the original check or sufficient copy is need –Information to identify the substitute check

18. 18 Check 21: Check Retention Policies Law and proposed regs are silent regarding retention requirements for original paper checks Each bank has the flexibility to develop and implement its own retention policy –Risk tolerance –Comfort with imaging and truncation – Demarcate small vs. large dollar items Parallel signature verification dollar thresholds

19. 19 Check 21: Staff Training Train tellers, customer service representatives, branch personnel, check processing staff to: –Recognize substitute checks –Answer customer questions regarding substitute checks –Understand expedited recredit provisions –Understand substitute check warranties

20. 20 Check 21: Implementation Minimum Actions –Staff Training –Customer Awareness –Expedited Recredit Procedures –Substitute Check Qualified Returns Place “5” in position 44 instead of “2”

21. 21 Check 21: Advice Check 21 will affect all FIs over time whether changes are made to existing check operations Premature to make any technology, hardware, or processing decisions Understand the opportunities and challenges before taking action

22. Contact Information Viveca Y. Ware 800/422-8439, ext. 2414 viveca.ware@icba.org