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With the new legislation, many questions arise. We recommend that you attend conferences and investigate the ramifications of Check 21 on your institution. A few of the most pressing questions are: |
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For what purpose was this legislation presented and put into law? |
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- To foster innovation in the US check collection system
- To improve the efficiency of the nation's payment system
- To avoid disruption in the banking system, large capital expenditures, or major impact on consumers
- To facilitate check truncation by authorizing the use of substitute checks without the authorization of the recipient.
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What will happen to the original paper check? |
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The original check may be destroyed but a digital copy will be used in transit. The copy will likely be made available by the issuing bank as a part of the monthly statement. The digital image of the check will be used to expedite the clearing process. |
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When do I need to take action? |
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The law will go into effect 12 months from the signing - October 28 th , 2004 . You need to take action now (if you haven't started) by reading and understanding the law and the ramifications. Further, you should begin discussions with software vendors who have the technology to put Check 21 into action. Diebold Eras would be a good place to start. |
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How big are the images and will I have to upgrade my telecommunications network ? |
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Images are typically 10-20KB depending on the background and technology used in the scanning process. A more important question has to do with the way that the managing software is designed. Diebold Eras' iPOD and iCheck suite of products utilize a compression technology and traffic management system that minimize the impact on your network. It would also be wise to examine your infrastructure to ensure that it can handle the digital image traffic. Diebold Eras offers a 60 day free trial that will allow you to evaluate your network to determine readiness. |
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Will the check copy be an exact duplicate ? |
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No, the substitute check (referred to as the Image Replacement Document or IRD) will be a photographically accurate, reduced size check (front and back) with the MICR line reproduced in MICR ink. There will also be wording on the IRD that states it is a legal equivalent of the check. The IRD is suitable for processing in the same manner as the original and will have a tear-off stub for reference. |
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Is this system really going to work ? |
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Yes, as a matter of fact, Mexico is currently using Diebold Eras software to do essentially the same function as Check 21. Other vendors have been running similar software in a test mode for many months. The technology is sound and already proven to be effective and secure. It will take some time for the financial industry to get all the pieces in place but there is every reason to believe it will produce tremendous savings through reduced transportation costs, assistance in fraud protection plus a major deterrent to financial disruption in times such as we experienced with 9-11. |
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Is the FED going to be routing the images as they have done with the physical checks ? |
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No, the FED may be involved in the regulation but the actual routing will be handled by end-point exchanges and clearinghouses. The bank can make arrangements for forward presentment, settlement and returns with any of them. The Diebold Eras solution will be linked to the major clearinghouses and negotiations are underway to ensure coverage for all the major banks. |
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As a bank, must we participate ? |
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Yes, to the extent that you will be required to honor the IRD. You must comply with re-credit requirements of Check 21, i.e. consumer credit of $2,500 within 10 days. You will not be required to produce or accept check images for clearing but if you don't, you will be at a distinct disadvantage in that your competition WILL be using images for a whole variety of services. If you haven't converted to check imaging; now is the time to do so. |
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Will I be able to use my present equipment ? |
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If you have an image camera on your existing sorter, you should be able to continue using it but you will likely want to investigate smaller, low cost scanners for branch capture. Diebold Eras has located and tested a variety of equipment suitable for this purpose and will be happy to assist with recommendations. |
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That's a Start
The law contains disclosure/notice requirements, and the Federal Reserve Board has been given nine months to publish model forms and clauses for an institution to use to describe the required notice items.
Will your customers come up with more questions? No doubt. But with good customer education, the process should move forward smoothly. Good luck! |
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