The Check Clearing for the 21st Century Act, more commonly known as Check 21, has and will continue to influence the banking industry for years to come. In short, the Act allows financial institutions to return digital reproductions of original checks to clients and\or consumers (substitute checks). Check 21 paves the way for eliminating much of the transportation and back office labor required for check processing today.

Many check processing vendors are still negotiating solutions for image exchange, making it a challenge for financial institutions to currently take advantage of the benefits afforded them by Check 21.

This is not the case at CATCH21.  In fact image exchange, capturing at presentment AND integration with existing infrastructure is the basis of CATCH21’s Checknology™ solution.

Below are some of CATCH21’s suggestions for your institution’s preparation for taking advantage of Check 21.

Understanding the Check 21 Act

Much of what has been written about Check 21 concerns opportunities rather than requirements. For the purpose of preparing for Check 21 processing, it is important to understand the difference. CATCH21’s understanding of Check 21 brings us to the following requirements for financial institutions:

• Ability to receive and process substitute checks.
• Provide notification to customers who receive substitute checks. This notification material must describe a substitute check and the consumer’s expedited re-credit rights. The notification must be delivered no later than the first time a substitute check is returned to a customer in any form.
• Procedures must be in place to support the expedited re-credit process. This process requires that your institution re-credit a customer similar to that in other electronic debit transactions against a consumers account. If a consumer experiences a loss due to a substitute check being charged incorrectly the customer has a pre-determined amount of time to notify their financial institution and upon notification the financial institution must re-credit the customers account while the dispute is researched.

To prepare for the requirements of Check 21 it is recommended that financial institutions:

1.     Perform a thorough review of current check processing functions. Not only for compliance of Check 21 but also to make sure appropriate procedures and policies are in place to thwart the new age of fraud that will accompany this new environment

2.    If not already in an image capture environment it will be necessary to immediately consider this as the new standard in check processing. This is not merely producing image statements, but having the archive of record for the check archive in an image format, and in most cases posting to your host application from an image system.

3.    If check processing is outsourced to a third party, make sure that the entity is doing everything in their power to expedite the migration to a Check 21 environment.  Also, it is important to make sure that the third party is constantly seeking new relationships to exchange check images with other archives.  This will allow your institution to take maximum advantage of the increased revenue afforded to institutions in this modern era.  Knowing your processor’s plans will be critical to your institution’s compliance with the published regulation as well.

4.    Review call center procedures to make sure any questions concerning Check 21 are answered with the view of the institution as a whole. This could also require re-training of not only call center but all positions in the institution that might have contact with customers.

5.    Make sure that your financial institution’s views and procedures regarding Check 21 are published in a form that will allow quick dissemination to any customer that might pose questions at branch locations.

Capitalize on the Opportunities

Check 21 has the opportunity to not only save costs for the financial industry, but also brings additional possibility for the industry to increase revenue in some instances. The savings are centered primarily in electronic exchange of checks, which moves digital images of original checks rather than transporting physical items from one bank to another (or many others) to receive credit for items deposited into customers accounts. Image exchange has the potential to:

• Lessen interest expense paid on interest bearing accounts as checks or debits will clear accounts faster after they have been created.
• Reduce handling costs as the physical item no longer needs to be returned to the bank the item(s) are drawn on.
• Improve availability to funds as conventional processing systems take days to collect funds on outlying banks.
• Overdraft privileges are exercised more often due to checks moving through the payment system more quickly.
• Could provide less exposure to fraud opportunities as items will move through electronic systems faster and identified as fraudulent quicker than in conventional processing environments.

While CATCH21 is willing to help all institutions with our Checknology™ solution many of the larger institutions are already working on these solutions in-house.  In many cases these in-house institutions are already relying on CATCH21’s expertise to provide consultation on the correct way to implement these solutions.

If your institution is classified as a community type financial company (typically under $4 billion in assets), outsourcing your check processing may be the best option to take advantage of the Check 21 environment.

CATCH21 has worked out many of the hurdles confronting other providers and large institutions by building a best of breed system that would take years for others to develop. Checknology™ was designed with Check 21 in mind.  By aggregating many institution’s check images through many different exchanges, Checknology™ allows community institutions to reap the same advantages that were only afforded by larger institutions.

To begin gaining the most benefit from Check 21, CATCH21 recommends that financial institutions:

1.     Call or email CATCH21 today and request an analysis of your current Check 21 plan to identify areas that you could be taking advantage of currently without changing your current environment or providers.

2.     Call or email CATCH21 on the possibility of joining the Checknology™ revolution.

3.     If you are not already in a 100% truncated environment (you currently return originals to customers), contact CATCH21 and let us help you create a plan.  This is the initial step in preparing for the maximum benefit.

Whatever your current plan might be for Check 21 Act, CATCH21 is your source for maximum benefit. Whether you are merely needing guidance and consultation, or are looking for an outsourced solution that will always provide the latest advances in the industry, contact CATCH21 today!