Getting into Remote Capture? Don't Forget Compliance

Article excerpt

In many ways, remote deposit capture service is about the removal of burdens, through technology. Bank customers save time, gas, and checking delays. Banks, on the other hand, face a collection of compliance considerations in the course of offering RDC.

These responsibilities fall into four broad areas: implications based on the form of remote capture the bank selects; data protection issues; disclosure issues; and the impact on availability and potential issues with overdrafts and overdraft protection.

A general overview, to raise awareness of these issues, was presented in March at an ABA Banking Journal-sponsored briefing by Nessa E. Feddis, senior federal counsel in ABA's Government Relations Group.

How RDC is offered matters

Remote deposit capture comes in two "flavors," each with different compliance implications: 1. The check can be captured and processed as an imaged check under Check 21 rules. 2. Once scanned, a check can be converted into an automated clearinghouse transaction.

A check that is converted to an image and processed under Check 21 is subject to Regulation CC and other applicable checking laws and regulations, according to Feddis. On the other hand, it is not subject to Regulation E duties and disclosures.

A check that is converted to an ACH transaction is not covered by Check 21 and the checking laws and rules, but it is subject to Regulation E. In addition, the check converted to ACH is also subject to the rules of the National Automated Clearinghouse Association. Both the merchant and their depository bank have responsibilities.

Furthermore, the requirements vary somewhat depending on what form the ACH conversion takes. As of March 16, "back office conversion" rules have been effective, permitting merchants to centralize and handle conversion there, rather than at the point of purchase (NACHA rules on POP conversions first became effective in September 2000). Essentially, businesses can take checks written at the checkout counter and convert them into ACH transactions in the back office, rather than right in front of the customer. Additional conversions of checks to ACH transactions have also been possible under rules governing accounts receivable conversion (ARC) since March 2002. The back office conversion (BOC) rules differ from POP and ARC transactions, although rules for the latter two types have changed since their introduction, according to Feddis.

Feddis noted highlights of BOC rules:

* No signature required. This is a shift from the typical point of purchase requirement, according to Feddis. However, she told listeners that it is likely that many merchants--especially professional offices--would continue to collect signatures for their own comfort. Feddis said they would want to be certain that customers understood what would happen with their checks, so there wouldn't be confusion and complaint calls later on.

* Phone number required. A contact number must appear on the printed notice required for the customer whose check will be captured under BOC. Whoever is at the other end of the line must be able to answer questions about the conversion process. (Businesses can download free marketing materials, including disclosure statements, at www.electronicpayments.org.)

* No time requirement on saving of checks. Feddis noted that, prior to recent changes, POP and ARC rules required that checks be held for 30 days and then destroyed. "Now, it's at the discretion of the institution and its customer," she said.

* Secure storage required. The BOC rules do require that checks be securely stored while in the merchant's possession, and that banking data on the checks be protected.

"Data protection is a big issue, these days," Feddis remarked. …