News You Can Use!

News You Can Use!

July 25, 2008

The Check 21 Act creates the opportunity for banks to truncate checks without the agreement of all parties. This is accomplished through the creation of a new legal instrument, the substitute check, which is the legal equivalent of an original check. The substitute check provides an important transitional vehicle between original paper checks and image exchange. The introduction of substitute checks into the collection process sometimes results in duplicate payments. Duplicates can occur in both the forward and return processes. Duplicate prevention is performed by an institution that truncates the original check and creates either an electronic representation or substitute check. Banks creating image exchange files or substitute checks must examine every aspect of the process, from capture to file creation and/or printing. This is to help ensure that the creation system and operating procedures provide the appropriate safety and soundness so that the account holder is not subject to a loss as a result of a duplicate presentment.

Methods of prevention include:

• Validation of output control totals - file and cash letter level
• Duplicate file checking - check across multiple days within a five business day minimum to be considered
• Validation of first/last substitute check - typical bundle wrapping procedure of checking first and last item of the bundle to that printed on the listing
• Physical count of substitute checks - software counters in print manager can compare to input file
• Prior to submission for collection - collecting bank
• Transit warehouse - implies a repository of all items presented for collection in electronic or substitute check form during the current day as well as from prior days, such as a five business day period
• Additional processes in the collection process add the potential to impede the expedient collection of items due to the timing of search

For additional information about duplicate item prevention, refer to A Guideline Document on Duplicate Image/IRD Prevention and Detection, at www.checkimagecentral.org/operationalPractices.