Session 9 OC 3 Flashcards
What is the purpose of ECCHO?
ECCHO is a check clearinghouse that facilitates the exchange of electronic check transactions between U.S. depository institutions.
What do the ECCHO Operating Rules and Commentary (Rules) represent?
They are clearinghouse rules under the Uniform Commercial Code (UCC).
Who can be a member of ECCHO?
Only U.S. depository institutions.
What do the ECCHO Rules govern?
Electronic check and electronic returned check transactions between two Members.
Can ECCHO Rules govern transactions between a Member and a non-Member?
No, Members cannot use ECCHO Rules for transactions with non-Member entities.
What does the Commentary section of the ECCHO Rules provide?
It describes the intended purpose of the Rule, possible applications, and implementation issues.
Who approves changes to the ECCHO Rules?
The ECCHO Business Committee.
What is required for changes to the ECCHO Rules to be binding?
Approval by the ECCHO Business Committee and an established effective date.
Where can one find a complete copy of the ECCHO Rules?
On the ECCHO website.
What existing laws do the ECCHO Rules build upon?
The Uniform Commercial Code (UCC) and Regulation CC of the Federal Reserve Board.
Fill in the blank: ECCHO seeks to facilitate the exchange of _______ transactions.
[electronic check]
True or False: Changes to the ECCHO Rules can be made without input from Members.
False.
What is the role of the Operations Committee of ECCHO regarding rule changes?
They provide input on suggested changes to the Business Committee.
What is the relationship between ECCHO and the Federal Reserve banks?
ECCHO has rules that govern image exchange, which can be compared to the rules of the Federal Reserve banks.
What is the purpose of Federal Reserve Banks Operating Circular No. 3 (OC 3)?
OC 3 governs the handling of cash items and returned checks sent or received by the FRB
OC 3 is issued pursuant to various acts including the Federal Reserve Act and the Check Clearing for the 21st Century Act
What types of items does OC 3 handle?
OC 3 handles cash items and outlines items not handled as cash items.
This includes definitive securities, noncash items, and electronically-created items.
What are some key provisions in OC 3?
- Items We Handle as Cash Items
- Preparation and Handling of Items
- Time Schedules and Availability of Credit
- Returned Checks
- Electronic Access to FRB’s Check Services
Which appendices are included in OC 3?
- Appendix A: Government Checks
- Appendix B: Postal Money Orders
- Appendix C: Redeemed Savings Bonds
- Appendix D: Foreign Cash Items
- Appendix E: Truncation Services
What recent changes were made to OC 3 regarding Treasury checks?
OC 3 was amended to include notice to financial institutions when Treasury has stopped payment on a check
Adjustments or returns of government checks will follow U.S. Treasury instructions.
What governs the exchange and settlement of electronic funds transfers through the ACH network?
The ACH Operating Rules and Guidelines produced by Nacha govern these processes
These rules provide a legal framework and guidance for implementation.
What are the three check conversion Standard Entry Class (SEC) codes?
- ARC – Accounts Receivable Entry
- POP – Point-of-Purchase Entry
- BOC – Back Office Conversion Entry
What is the difference between a POP entry and an ARC entry?
A POP entry is made at the point of purchase with the check voided, while an ARC entry involves a check provided to a biller via mail or drop-box
ARC entries require the check to be physically received by the biller.
What conditions allow an RDFI to return a POP entry after the standard timeframe?
- No notice was provided to the Receiver
- The source document was not an eligible document
- The source document was presented as a check through the check collection system
What is required for a transaction to be re-credited after a POP entry return?
The Receiver must sign or authenticate a written statement of unauthorized debit
This is necessary before re-crediting the transaction.
What is the purpose of operational agreements in the exchange process?
Operational agreements specify logistics for exchanges, such as processing and delivery details
Examples include Banking Practice Agreements (BPA) or network services agreements.
What types of agreements exist between banks and customers?
- Bank-to-Bank Agreements
- Bank-to-Customer Agreements
- Bank-to-Vendor Agreements
What considerations should be included in a vendor agreement for check processing?
- Compliance with check laws
- Liability for duplicate check images
- Scope of indemnity/liability for the vendor
Such agreements ensure clarity on responsibilities and liabilities when using third-party services.
True or False: Nacha’s Rules provide a framework that is fair and equitable for all ACH participants.
True
Fill in the blank: The _______ governs the handling of cash items by the Federal Reserve Banks.
Operating Circular No. 3
What does the term ‘Nacha’ refer to in the context of ACH?
Nacha refers to the organization that produces the ACH Operating Rules and Guidelines.
What role do the Nacha Operating Rules play in the ACH network?
They standardize the roles and responsibilities of all parties using the ACH Network.
What is a Back Office Conversion Entry (BOC)?
A BOC is a check conversion made at a point-of-purchase or bill pay location for subsequent processing.
What is the significance of the Check 21 Act in relation to OC 3?
The Check 21 Act facilitates electronic check processing and is referenced in OC 3.
