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Here are two suggestions for how to protect your credit union.
This is adapted from an original post on The Payments Review.
Remote deposit capture allows members to take a picture of a check for deposit rather than presenting the paper check. But every once in a while—3.5 times for every 10,000 checks deposited, according to the 2017 Mobile Remote Deposit Capture Industry Report—that member (or a fraudster) will also present the paper check for a “second” deposit for the same amount.
On July 1, 2018, changes to Regulation CC shifted the liability for double presentment of a check to the financial institution that accepts a deposit via mobile remote deposit capture. Under the revision, a credit union that accepted the images of the front and back of a check is known as the “truncating bank” and, as such, indemnifies any other depositary institution, including check-cashing businesses, for losses incurred due to accepting a check that was previously deposited.
After July, if a member deposits a check into his or her credit union account (the “truncating bank”), then goes to Norton’s Check-Cashing Service to “cash out,” Norton’s Check Cashing Service can recover directly from the credit union the full amount of the check plus legal fees and other associated expenses.
There is one exception to this shift. If the check has a “restrictive endorsement”—for example “For mobile deposit only at ABC Credit Union”—and a second institution accepts that check, that second institution is not eligible for reimbursement from the truncating bank.
Making it mandatory for members to endorse their checks eliminates the indemnification to any FI that later receives the original (paper) check for losses from paying the check. But it also brings two drawbacks. First, this is a point of confusion for some members, and adds friction to a service that better image recognition has made fairly smooth. Second, this must be enforced for all checks, meaning that the credit union must ask its remote deposit capture vendor to enable optical scanning to look for the endorsement. Given all of the variabilities of handwriting, more checks may be rejected, causing member dissatisfaction.
CUs should determine if their mobile remote deposit capture process is capable of scanning handwritten endorsements. They should also update their mobile banking user client agreements to require that both sides of the check be scanned (via phone for example), a restrictive endorsement ("for mobile deposit only") be placed on back and clarify that if the customer fails to properly endorse and scan the check, the CU will hold the customer responsible for any and all resulting losses.
CUs will certainly want to weigh the cost of the additional technology, and potential for increased member dissatisfaction with the liabilities involved in duplicate check presentment. Given that the widely rumored death of checks doesn’t look like it is happening anytime soon, remote deposit capture is here to stay. Making it convenient for honest members is a defining goal.
Lou Grilli is director of payments strategy at Trellance, Tampa, Fla., and is responsible for providing leadership to the organization on emerging payments and industry trends, as well as managing the product portfolio.
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