CUNA Rarin' to Run with Check 21; Will Consumers Warm Up to Substitute Checks?

WASHINGTON-CUNA is chomping at the bit to help the Federal Reserve develop its regulation implementing the Check Truncation Act-signed into law this year-and disseminate relevant information to its members. “This has been a process that’s been years in the making really,” CUNA Assistant General Counsel Michelle Profit said. “CUNA met with the Fed and suggested truncation innovation years ago.” She added that the trade group had also met with the Fed as the bill was progressing and provided input during the creation of the model check truncation bill sent by the Fed to Congress. “Now that Check 21 is here,” she continued, “it’s going to have kind of a massive impact on credit unions and all financial institutions really because it’s going to affect share draft processing and check processing for everyone. All credit unions, just like every other financial institution, will need to do some basic minimal things to comply with Check 21.” First, credit unions and others will have to provide consumer awareness notices to customers/members. The Fed plans to have model language in its regulations, Profit explained. Second, financial institutions will have to alert staff as to how to deal with consumer claims resulting from a substitute check, such as the expedited re-credit rights for accidental double presentment. If a member suffered a loss because of a substitute check, the institution has 10 days to investigate and, if the complaint is valid, re-credit the account up to $2,500. If the claim is larger, the institution has up to 45 days later under the statute. Finally, financial institutions will have to make a business decision regarding how it will process deposited share drafts or checks. To help get the word out and also get insight into what credit unions are thinking about, CUNA will be holding an audio conference in December on Check 21. The trade is also posting information on its E-Guide. Essentially, Check 21 allows financial institutions to share electronic images of checks without a prior bilateral agreement. In the long run, check truncation will be a more efficient, cost-effective manner of handling checks but initially there will be an outlay of funds. CUNA’s Payment Systems Subcommittee Chairman Terry West, president and CEO of Vystar Credit Union, explained, “We know that there’ll be some software changes that financial institutions, whether it’s credit unions or banks, are going to have to address to be able to receive and send some of this information. If it’s a substitute check.you have to make sure there’s certain pieces of information that are there.in one area there’s a statement that has to say this is a substitute for the original check. So there’s going to be some software changes that probably most institutions are going to have to deal with.That’s probably the bigger cost that I see.” There will also likely be expenditures in member education as well. “On the education level, it will probably come with talking to members when they get these, explaining what they are and making them feel comfortable that it’s as good as the regular check in the rare occasions that they would need one,” West said. He gave an example of an elderly member at Vystar who felt it was crucial that he receive his cancelled check back. West had to tell him-in an hour-long conversation-that Vystar had been truncating share drafts since credit unions received the authority to and the credit union would not be able to do that for him. Vystar does offer online check imaging going back six months to a year, he said. While Vystar truncates all checks, West said he did know of some credit unions that do give original checks back to their members at their request. Clarity on disclosures regarding consumer notices in this scenario will have to wait for regulation, Profit said. “In the law, it’s murky but there are some things that are pretty clear. If you return original checks or substitute checks.they’re going to have to provide a notice to all their existing members,” she said. “The Fed said there are also some cases, even from credit unions like Terry’s that truncate, where even though they are not required to provide the notice to all their existing membership, they still might want to because they’re still going to have to provide a notice to those members who have a substitute check returned to them.” For example, if a member deposits a bad check from someone. But, CUNA is not sitting idly by while the Fed is working on clarifications in the regulations. West’s subcommittee will be working with the Fed throughout the process and the Fed has been very receptive to credit unions’ input on the process since they have been involved in it for so long. He added that the Fed has asked whether a general disclosure should go out to the entire membership or each time a substitute check is used, of which CUNA is supporting the former. Profit said the Fed has set a goal of putting a proposed rule out for a 60-day comment period by the end of 2003. A final rule is expected around mid-year and the law takes effect in October. “The act itself is designed to move people more toward electronic funds and also improve the process for it. The whole concept is very positive. It’s just working through the change, the transition from how it has been to what it may become,” Profit said. Whether Check 21 will live up to the hype will depend upon corporate and public acceptance. “It depends how willing people are to jump in,” she said. “As long as people aren’t holding back and credit unions and other financial institutions have to maintain an infrastructure for a declining check base and also for electronic checks, then the benefits aren’t going to come as quickly.” As for the member, West said the only changes they might see is faster check clearance and a slimmer statement. It’s yet to be proven, but Profit said an added bonus of the system could be to reduce fraud. “Making the process electronic should reduce all those hands that actually touch the physical check as it’s transported,” she said. [email protected]