Magazine article Independent Banker

Check Image Exchange: Covering Legal Bases

Magazine article Independent Banker

Check Image Exchange: Covering Legal Bases

Article excerpt

Check image exchange has opened new check clearing options for community banks. While banks can send and receive their check image files through the Federal Reserve, now they can quickly and inexpensively add clearing options through their bankers' bank, other correspondent or processor. But these options also present potential risk, which can and should be minimized.

When banks send and receive images via the Federal Reserve, they operate under the Federal Reserve's rules (Operating Circular 3 and Regulation J) and don't need private-sector rules. When banks exchange outside of the Fed, however, the agency's rules don't apply. To maximize image-exchange opportunities, many banks will find it advantageous to have rules to cover both private- and public-sector image exchanges.

Private-sector paper check exchange is governed by the Uniform Commercial Code (UCC), clearinghouse rules, the Expedited Funds Availability Act, Regulation CC (Availability of Funds and Collection of Checks) and large volumes of case law. There is no similar legal and regulatory framework to govern the private exchange of check images. Check 21 and Regulation CC do not provide rules for check image exchange, a common misconception. Actually, the goal of this landmark legislation was to encourage check truncation and image exchange, but only when a paper check can be replaced with the new check equivalent-the substitute check. It is also important to note that image exchange is not covered elsewhere in check law, thus creating the need for agreements between exchanging partners.

Check Image Exchange Rules

The Electronic Check Clearing House Organization, or ECCHO, was created in 1990 and is a national clearinghouse and the rules provider for check image exchange. The ECCHO Rules for check image exchange fill the legal gaps by using UCC provisions granting clearinghouses the ability to modify certain aspects of the UCC to create and maintain rules binding all transaction parties. ICBA has supported and recognized the ECCHO Rules since 2002.

Most community banks that join ECCHO do so through a sponsoring organization such as a processor, a bankers' bank, a correspondent or a clearinghouse. Annual fees, based on total deposits of the financial institution, can be as little as $100. Currently, ECCHO has relationships with 71 sponsoring organizations. Each sponsoring organization is eligible to participate in the ECCHO Operations Committee- a group comprised of payments systems experts from across the industry. The rules and other key industry initiatives are discussed at this forum, and sponsoring organizations contribute their collective voices to the rulemaking process. Input from community banks is welcomed and encouraged through their sponsors' participation on the Operations Committee, where developing industry consensus positions is a key objective. …

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