Check Products Flashcards
What is an Image Cash Letter (ICL)?
An electronic representation of a paper cash letter used to transmit check transaction data, including check images, between organizations’ systems for the purposes of clearing check payments.
ICLs are structured with file headers, cash letter headers, bundle headers, and detail records representing physical checks.
What information does an Image Cash Letter (ICL) structure include?
- File header and control
- Cash letter header and control
- Bundle header and control
- Detail records with check information (i.e., MICR data), indorsement information, and images of checks (front and back)
ICLs are typically batch files sent to banks or processors.
How does an Image Cash Letter (ICL) differ from a Remote Deposit Capture (RDC)?
ICLs handle significant volumes of checks, while RDC typically sends smaller volumes of checks.
ICLs are designed for electronic processing of large batches.
What industry standard is used for formatting Image Cash Letters (ICLs)?
The accepted industry standard created by X9 and its associated companion document.
This standard ensures consistency in the electronic representation of checks.
What data do Image Cash Letters (ICLs) transport?
The image and MICR data captured from paper check transactions.
This data is essential for the electronic processing of checks.
Who uses Image Cash Letters (ICLs)?
Customers and their banks, as well as between banks and/or Federal Reserve banks.
ICL products are offered by many banks to their corporate and correspondent bank customers.
What is the general purpose of an Image Cash Letter (ICL)?
To facilitate the clearing of check payments by transmitting check transaction data electronically.
This process improves efficiency and reduces the time required for check processing.
What do corporate and correspondent bank customers use ICs for?
Delivery of check deposits to their banks
ICks are ideal for which types of companies?
Companies with centralized in-house receipt processing
Provide an example of a company that might use an in-house lockbox.
A utility company
What must customers be able to capture and transmit?
MICR data and check images
What may banks require customers to create for IC files?
A properly formatted IC file in the X9 standard
What may a bank provide to help customers with data formatting?
Software to reformat their data into the X9 file format
What is one benefit of using ICLs for customers?
Reduced transportation costs
What does the use of ICLs reduce or eliminate?
Trips to the bank to deposit checks
How do ICLs improve back-office processing?
More efficient back-office processing
What is a benefit of later deposit cutoff times?
More checks deposited on the same day as receipt
How does faster return processing occur with ICLs?
Due to faster initial deposits and clearing
What type of connections do ICLs provide with banks?
Secure, private, and safe electronic connections
List one cost-saving benefit associated with ICLs.
Consolidation of operations
What is a check defined as in Regulation CC and the UCC?
A negotiable instrument
What type of check is a cashier’s check?
Drawn on a bank
Who is both the drawer and drawee in a cashier’s check?
The bank
Who signs the cashier’s check on behalf of the bank?
An officer or employee of the bank
What must be filed if a cashier’s check is lost or stolen?
A declaration of loss
Who can file a claim for a lost cashier’s check?
The remitter or payee of the check
What condition must be met for the loss of a cashier’s check?
Loss not a result of transfer or lawful seizure
When is a filed claim for a lost check enforceable?
At the later of the time the claim is asserted or as a negotiable instrument
What is the earliest date a claim on a cashier’s check becomes enforceable?
90th day after issue date
What is the purpose of waiting 90 days after issuing a cashier’s check?
To protect the financial institution that holds the liability to pay the check
Who holds the obligation to pay once a cashier’s check is issued?
The financial institution
What are HIDC rights?
Rights of a holder in due course, which could apply if a cashier’s check is returned unpaid within the first 90 days
What is the UCC statute of limitations for claims on a cashier’s check?
Three years
What are the three conditions required for a claimant to make a claim on a cashier’s check?
- The claimant must be the payee or remitter
- The claim must include a declaration of loss
- The claim must be received in time for the paying bank to act
What does ‘declaration of loss’ mean in the context of a cashier’s check?
A statement made under penalty of perjury that the cashier’s check was lost, not transferred or seized
What must the declaration of loss include regarding the check’s condition?
The claimant cannot reasonably obtain possession of the check
Can an alteration claim be made on a cashier’s check under the UCC?
No
What is the basic reason presentment warranties do not cover cashier’s checks?
Because cashier’s checks are accepted drafts and do not flow to the paying bank
Can a financial institution stop payment on a cashier’s check?
Generally no, but may be able to under certain circumstances
What section of the UCC deals with transfer warranties?
UCC §3-416 and §4-207
What is the significance of the paying bank in relation to a cashier’s check?
It is the issuer of the cashier’s check and may still pay until the claim is enforceable
Fill in the blank: A claim on a cashier’s check cannot be made after _______.
90 days
What does UCC $3-411 allow for?
Penalties for wrongful refusal to pay a cashier’s check that can include consequential damages
UCC stands for Uniform Commercial Code, which governs commercial transactions in the United States.
What is a Certified Check?
An ordinary check presented by the drawer to the paying bank for certification, with a signature from an authorized bank employee verifying the drawer’s signature and funds availability
Certified checks are not frequently used today.
What is a Government Check?
Instruments payable on demand and drawn by the U.S. government on the government itself, generally regarded as checks
These checks are not drawn on a bank.
What is a Money Order?
A draft that a person may purchase from a financial institution, post office, or sales agent to pay a debt or transfer funds
Money orders are a secure method for transferring funds.
What defines a Traveler’s Check?
Payable on demand, drawn on or payable at a bank, and requires a countersignature from the person whose signature appears on the instrument
Traveler’s checks are designed for safe travel and international use.
What is a Payable-Through Draft?
Drawn on the issuer, not the bank, and merely designates a bank to present the draft to the drawee for payment
It is not an order on the payable-through bank to pay the instrument.
What is a Warrant?
Issued by state or local government agencies, treated as checks if payable on demand, many are actually payable-through drafts
Registered warrants are not checks; they are considered IOUs.
What is a Remotely Created Check (RCC)?
A check authorized by the holder of a checking account that does not bear a signature from the account holder
RCCs are also known as unsigned drafts and must exist in paper form to be valid.
What is the warranty established by the BOFD depositary bank?
Established in Reg CC, which governs the claim process for unauthorized RCCs
BOFD stands for Bank of First Deposit.
Fill in the blank: A Remotely Created Check must exist in _______.
paper form
What are legitimate commercial uses of RCCs?
Includes:
* Pre-authorized drafts to pay a creditor
* Utilize a bill payment service
* ACH administrative returns
* Purchase items via telephone or internet
* Collect return check fees
ACH stands for Automated Clearing House.
What is Remote Deposit Capture (RDC)?
A system that allows customers to truncate the paper check, scan it remotely, and transmit check images to the depositary bank for account credit.
RDC typically uses an encrypted Internet connection for transmission.
How does the depositary bank process the check image in RDC?
The depositary bank receives the check image, posts the deposit to the customer’s account, and makes the funds available based on the customer’s availability schedule.
This process is defined by the customer’s agreement with the bank.
What are some alternative names for Remote Deposit Capture?
RDC may also be referred to as:
* Corporate capture/merchant capture
* Image deposit
* Mobile deposit
These terms relate to the type of capture and source of the items.
True or False: RDC allows customers to deposit paper checks in person at the bank.
False
RDC enables remote processing of checks without the need for physical bank visits.
Fill in the blank: Remote Deposit Capture transmits check images to the _______.
depositary bank
The depositary bank is responsible for crediting the customer’s account.
What benefits does RDC provide for corporate customers and merchants?
- Accelerated clearings and better deposit availability
- Convenience and reduced transportation time/costs
- Enhanced cash flow
- Reduced return item risk
- Processing efficiencies
- Potential for consolidating banking relationships
None
What are some benefits of RDC for financial institutions?
- Reduced transportation costs
- Opportunities to expand customer footprint and increase/consolidate existing customers’ business
- Ability to offer new products
- Increased processing efficiencies
None
What are the basic requirements for a customer to utilize RDC?
- PC
- Internet connection
- Check scanner and/or access via a service provider
- Deposit account with a depository bank
None
What does mobile RDC (mRDC) typically require?
An approved app on a mobile device
mRDC may be a standalone application or integrated into existing mobile banking applications
True or False: The risk scenarios associated with mRDC are different from those with deposits made through a branch or ATM.
False
Risk scenarios are generally similar, although mRDC allows the depositor to retain possession of the original paper check.
What potential risk is associated with mobile RDC due to the depositor retaining the original check?
Potential for duplicate presentment of the same check
This can lead to financial loss for the depositor.
What does Figure 2.23 illustrate in the context of RDC?
A basic remote deposit capture and transmission process from a consumer to the depositary bank
This involves scanning a check and making a mobile deposit.
What is the largest risk associated with Remote Deposit Capture (RDC)?
The potential for presenting duplicate items when the original check is subsequently deposited or cashed
This risk arises because the same check may be scanned and deposited multiple times.
Which warranties protect against duplicates in RDC?
- ECHO Operating Rules
- Regulation CC
- Federal Reserve Operating Circular 3 (OC 3)
- Regulation J
These warranties are designed to ensure that checks are not deposited more than once.
What should financial institutions have to mitigate RDC risks?
Specific RDC customer agreements following the latest FFIEC guidance
These agreements help clarify responsibilities and risks between the bank and the customer.
What do RDC agreements allow banks to do?
Pass back risks to the customer that are outside of the financial institution’s control
This means customers may be held accountable for certain risks associated with their deposits.
What guidelines should be followed to mitigate RDC risks?
- Know Your Customer guidelines
- Establish teller procedures to examine checks for:
- Stale dates
- Stamps or other information indicating an item was previously franked or indorsed for deposit
- Utilize technology for duplicate detection
These measures help in identifying and preventing potential fraudulent activities.
Fill in the blank: The largest risk of RDC is the potential for presenting _______.
[duplicate items]
True or False: RDC agreements are designed to protect financial institutions from all risks associated with remote deposits.
False
RDC agreements allow for the transfer of certain risks to the customer.
What does ACH Check Conversion offer?
Products that a bank can offer their customers such as converting eligible checks to ACH SEC codes
Includes ARC, POP, and BOC codes
What does the SEC code ARC stand for?
Accounts Receivable Entry
A code used in ACH Check Conversion
What does the SEC code POP stand for?
Point-of-Purchase Entry
A code used in ACH Check Conversion
What does the SEC code BOC stand for?
Back Office Conversion Entry
A code used in ACH Check Conversion
What is Balance Reporting?
Secure, internet-based reporting of account and transaction information at a customer’s lead bank
May include balances in foreign currencies and cash positions
What is Zero Balance Accounting (ZBA)?
Designed for customers who fund decentralized accounts from a central main account
Funds automatically transfer to cover debits and bring sub-account balance to zero
What is a Lockbox in cash management?
A service offered by banks to expedite receivables processing
Involves setting up a post office box and depositing checks received on behalf of customers
What is a Retail Lockbox?
A Lockbox service for companies that receive a high volume of payments via checks in the mail
May include a check and remit advice processed in an automated process
What is a Wholesale Lockbox?
A Lockbox service for companies with small numbers of payments and detailed processing requirements
Examples include doctor’s or dentist’s offices
What are ACH Disbursements?
Scheduling recurring payments through the ACH system for payments like dividends, interest, pensions, or direct payroll deposit
Facilitates automated disbursement of funds
What is the goal of ARP services?
Increase amount of information and decrease amount of work in company’s accounting
ARP stands for Automated Reconciliation Processes.
What are the two types of reconciliation provided by ARP services?
- Full Reconciliation
- Partial Reconciliation
Full Reconciliation involves matching issued checks against cleared checks, while Partial Reconciliation provides a report of paid items sorted by customer instructions.
How does Full Reconciliation work?
Customer provides data on checks issued; bank matches it against cleared checks
Customer receives reconciliation reports including checks paid, outstanding items, and exceptions.
What is Deposit Reconciliation?
Allows customer to maintain one account but have deposits from multiple business locations
This service simplifies the management of deposits across various locations.
What is Positive Pay?
Service where the bank matches each check presented against amount and check number on listing of checks issued
It helps prevent check fraud by ensuring only authorized checks are paid.
What is Payee Positive Pay?
Service that matches the payee name from the issue file to the payee name on the check
This adds an additional layer of verification to prevent fraud.
What is Reverse Positive Pay?
Service where bank sends information on checks to be posted to the customer for comparison
The customer decides whether to pay or reject checks based on this information.
What is Controlled Disbursement?
Daily report detailing the amount of disbursements that will be charged to the account
This helps corporations manage funds from various operating accounts.
What types of disbursements do corporations typically settle?
- Trade payments
- Payrolls
- Dividends
- Other disbursements
Controlled Disbursement services streamline the management of these payments.
True or False: ARP services are only offered for single accounts.
False
ARP services can be offered for multiple accounts on a defined schedule.
Fill in the blank: The bank reviews and flags checks that may be fraudulent through _______.
[Positive Pay]
This helps alert the customer for a decision to pay or not.
What is the lag of days between the initiation of a payment and the actual debit to the customer’s bank account called?
Float
Name two types of float.
- Mail float
- Clearing float
What advantage does the float provide to customers regarding funding their accounts?
Customers can fund their account only when the check posts, rather than when the check is written
What does early notification of the day’s funding requirement help eliminate?
Idle balances
What can customers do with surplus funds due to early notification?
- Invest surplus funds
- Obtain additional funds if needed
When are money markets active and investment rates typically attractive?
In the morning
What generally happens to short-term investment rates late in the morning?
They move downward
What act required the Federal Reserve Bank (FRB) to reduce or charge for float?
Monetary Control Act of 1980
What are RCPCs in the context of payment systems?
Regional Check Processing Centers
What does HDGS stand for?
High Dollar Group Sort
What is the benefit of same-day settlement?
Allows for quicker access to funds
What is Day Light Overdraft pricing?
Pricing structure for overdrafts during the day
What is the purpose of ECP and MICR line presentment?
Facilitates electronic check processing
How has the speed of clearing checks affected the use of Controlled Disbursement services?
Customers buy Controlled Disbursement services now for the control of knowing the amount to fund on each day
List three benefits of Controlled Disbursement.
- Timely notification of daily funds needed
- Reporting of funds that are transferred
- Reduction of idle balances
What financial advantage does Controlled Disbursement provide in terms of interest?
Increased interest income from short-term borrowing
True or False: Controlled Disbursement services help in reducing borrowing costs.
True
