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2016-2017

Copyright© 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 1

Exceptions – Returns and Adjustments

National Check Payments Certification


Copyright© 2016 by the Electronic Check Clearing House Organization

NCP 2017 Exam CycleCore Training Series

Session 8

NOTICES

This training course may provide an introduction to or summary of various aspects of checkpayments and the legal and rules framework for check image exchange. Responsibility forcompliance with image exchange rules, and/or the legal, operational and regulatoryrequirements applicable to check image exchange, remains at all times with the financialinstitution participating in check image exchange and/or the individual or company using acheck image exchange service.

This presentation and the information contained herein is not intended as legal or complianceadvice or recommendation to any person or company. This document could include technicalinaccuracies or typographical errors and individual users are responsible for verifying anyinformation found in this presentation and related “live” webinar or webinar playback.

Financial institutions should consult with their legal counsel regarding legal and operationalrequirements applicable to any check image exchange program they may offer or in which theyparticipate.

These materials may not be reproduced or published, in whole or in part, without the express permission of ECCHO.

Copyright© 2016 by the Electronic Check Clearing House Organization(Certain contributed content subject to third party copyrights)

National Check Payments Certification 2

2016-2017



NCP Exam Registration Reminder

• Free ECCHO / NCP study aids upon registration!– JumpStart Reading ProgramLinks to all program resources

– NCP RoadmapDirection on establishing a personalized study plan

– P.R.E.P. GuideTraining guide, glossary of terms, sample exam

– Question of the Day & Summary New daily question & detailed answer to prior day’s question

• Exam Fees: $400 ECCHO member$500 non‐ECCHO member

– Not sure about membership?Check current status at: www.eccho.org/memberships

o Enter financial institution name in search box on left


Topics – This Session

• Exceptions Overview–Returns vs. Adjustments

• Adjustments–Current Snapshot – Adjustment Cases

• Federal Reserve Bank–Operating Circular 3 (OC 3) Adjustment Rules

• ECCHO Rules–Adjustment Rules & Exhibit II (Matrix)

• Appendix – Adjustments Comparison–Selection of ECCHO & Fed Adjustments


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Exceptions Overview

General Definition

• Exceptions: Any transaction in the form of a paper, image or electronic item that requires further investigation before final disposition of item can be determined–Returns and adjustments are exceptions

• Return – Item that is dishonored by Paying Bank–Must have specific return reason

• Adjustment – Correction for error(s) generally caused during item processing–Specific adjustment type for each errorMay differ depending on adjustment provider

–Generally involves some research to resolve errorsEx: Mis‐encoding, mis‐routing, incorrect posting, etc.

6National Check Payments Certification

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Governing Rules & Regulations

• Returns – Governed by statutory and regulatory requirements–UCC midnight deadline (UCC 4‐301)–Reg CC expeditious return requirement (§ 229.30)

• Adjustments – Handled “by agreement” of the parties–Fed OC 3 rules–Clearing house rules–Third party providers for operational procedures and settlement


Return or Adjust?

• An error has occurred! As the Paying Bank your return clocks are ticking– UCC requires you make the determination to pay or dishonor the item by midnight of the day following presentment

– Reg CC requires items to be returned, to be handled expeditiouslyReturn must reach depositary bank by 4:00 p.m. (local time of depositary bank) two days after presentment

• What should you do?– Do you return the item? Do you adjust the item?

–What are your options?8National Check Payments Certification

2016-2017



Return vs. Adjustment

Adjustments Considerations

• System error? Adjustment to bank is made to appropriate party– Minimizes negative impact to customers– Handled within banking system– Adjustment areas familiar with process

• But, can be less efficient than return– Research and settlement timing– Additional documentation may be needed

• May lose right to return item (missed deadlines for timely return)– Significant issue if item is counterfeit or forged and not duplicate

Paying BankBOFD

IMAGE

Deposit Chk

Image Adjustment

Image Return

or

Sub Chk

Drawer Customer

Duplicates

Sub Chk Return

IMAGE

Depositing Customer


Return vs. Adjustment

Returns Considerations

• Not sure cause of error? Return is faster– Timely settlement – Do not lose right of return (can make the deadline for a timely return)– In remote capture (RDC) environment, speed is a consideration if unsure of

cause of duplicate• But, may have negative customer impacts

– Depositing customer and/or drawer customer


Paying BankBOFD

IMAGE

Deposit Chk

Image Adjustment

Image Return

and

or

Sub Chk

Drawer Customer

Duplicates

IMAGE

Depositing Customer

Sub Chk Return

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Exceptions – Returns

• Return items may be directed back to:– BOFD, or – Prior collecting or presenting bank

• Returns processes dependent on channel used and agreements in place–Must still follow regulatory requirementsFor expeditious return, check must be received at depositary bank by 4:00 pm 2nd business day following banking day of presentment

• Reg CC requires Paying Bank:– Identify return and reason for returnClearly indicate reason for returnIf substitute check, place information within image on front of substitute check


Types of Image Returns

• Customer and Administrative Returns–Customer ReturnsDishonored item under check lawUsually attempt charge to customer account

–Administrative Returns/Administrative reasonsReturn for reason other than dishonored itemUsually handled internally rather than charged to customerCan also be handled through adjustment process

o If handled as return, must still adhere to legal requirements for return item

Generally admin reasons for return are exchanged by agreement


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Common Return Reason Codes

• For complete listing of current Return Reason Codes, see new standard X9.100‐188‐2016 or the NCP P.R.E.P. Guide (Exhibit 9)

13

Customer Return Reasons Return CodeNSF – Not Sufficient Funds A'

Stop Payment C'

Closed Account D'

Endorsement Missing I'

Not Authorized Q'

Warranty Breach 3'

Duplicate Presentment Y'

Administrative Reasons Return CodeImage Missing I'

Ineligible Q'

Unusable Image U'

Duplicate Presentment Y'

RCC Warranty Breach (Rule 8) 4'

Forged & Counterfeit Warranty Breach (Rule 9) 5'

Retired/Ineligible Routing Number 6'

All other return codes that are shared by Customer and Administrative

returns have same meaning

Note on Return Codes ’I‘ and ’Q’: Can be used in both Customer and

Administrative returns with different meanings

Source: www.x9.org

Return Reason Codes and Duplicates

• Use return reasons in electronic indorsement records– Identifies reason for the return– Helps identify re‐presented items– Helps prevent false “positives” in duplicate checking

• Following slides offer simple review of the forward presentment and return process with “flipping” of indorsement records– “Flipping” the records simply means taking the data found in the forward collection (20‐series) records and using it to populate the return (30‐series) recordsThis is a review of information covered in the “Standards and Formats” session


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Bank of First Deposit

(BOFD)

25

26*

Two financial institutions in this example – BOFD and Paying Bank

X9 records illustrated for Forward Presentment are:• Check Detail Record (Type 25)• Check Detail Addendum A Record (Type 26)


Legend:• BOFD – Lt. Green*• Paying Bank – Red

Paying Bank

Forward Presentment Records

31/33

26 * 32

Return Records

Return

“26” becomes “32” record

Return Record/Return Addendum B

35

New “35” record added

by Paying Bank

Bank of First Deposit

(BOFD)

Legend:• BOFD – Lt. Green*• Paying Bank – Red

Paying Bank


Paying Bank returns directly to the BOFD in this exampleX9 records illustrated for Return are:• Return Record (Type 31)• Return Addendum B Record (Type 33)

o Only if image of business check – for aux on‐us data • Return Addendum A Record (Type 32) (populated from Type 26 record)• Return Addendum D Record (Type 35) (new record added by the Paying BankNote: Return reason code is included in both 31 and the last (most recent) 35 record

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• Return Routing Hierarchy

ECCHO Rules


Re‐presented Items

• Depositary Bank may re‐present items–Automatically re‐presents items based on agreement with depositors

–Provide items back to depositing customer Customer subsequently re‐depositsRedeposit can be through original BOFD or 2nd BOFD


Paying BankBOFD

Image Presentment

(1)

Image Return(2)

Sub Check Re‐deposit

(3)

Re‐presented Item(3)

Depositor/Customer

Deposit Original

(1)

Sub Check(2)

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Presentment and Returns

• Item must first be presented in order to be dishonored– Image may not to be presented if it did not meet eligibility requirementsCould have ICL containing item(s) that reject due to administrative reasonsItems may/may not have been presented

– Examples:Example #1: Item in cash letter file did not contain both a front and back view of the image

o Item rejects in IQA – Not considered to be presentedo Item returned for administrative reason (Ineligible item)

Example #2: Cash letter file is processedo Duplicate detection process flags several itemso Image cash letter file was presentedo Duplicates returned for administrative reason (Duplicate item)


Summary

• Proper use of return code critical for timely returns and proper handling–Refer to paper on CheckImageCentral website on “Proper Use of Return Codes in Image Exchange” For this paper and other technical and operational information, visit CheckImageCentral website at: http://www.checkimagecentral.org


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Adjustments

Adjustments – By Agreement

• Current statutory and regulatory provisions do not cover the adjustment process–Adjustment agreements provide:Guidelines for adjustment claimsSpecific adjustment types that are acceptedDefinitionsRelated timingMinimum dollar amount permittedDocumentation requirementsEtc.


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Adjustments – By Agreement

• Federal Reserve Banks or Private Sector–Federal Reserve Operating Circular 3 (OC3)Section 14.0 and Appendix H; and online “Check Adjustment Quick Reference Guide” govern the handling of electronic adjustment requestsEligible for adjustment?

o Forward or return item must have been exchanged via the Fed–ECCHO Adjustment Rules and MatrixApply only to Members using the ECCHO RulesGovern the handling of electronic adjustment requests through various providers such as Viewpointe and The Clearing HouseEligible for adjustment?

o May adjust item under ECCHO Rules whether or not forward or return item was exchanged under the Rules


Top Incoming Fed Adjustments

• Six Adjustment Types account for 95% of cases received for first six months of 2016– PAID (37%)– ENC (34%)– NCH/NCI (17%)– ERR (3%)– LC (2%)–WIC/URCC (2%)

• Each is discussed in this section Source: Federal Reserve Retail Payments Office (2016)


PAID,37%

ENC34%

NCH17%

ERR3%

LC2%

WIC/URCC2%

All Other5%

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Top Six Adjustment Types

• PAID: Duplicate paid item– Request for credit when both items have been paid

• ENC: Encoding error– Item was encoded for an amount different than the legal (written)

amount; or– Written amount differs from stated amount in ICL/ICLR

• NCH: Noncash item– Includes MICR‐Mismatch and NCI

• ERR: Entry in Error– Request to investigate either a forward or return entry that is believed

to be in error• LC: Late Return Claim

– Depositary bank makes claim when believes an item was returned lateAmount must be $100 or more (same for both ECCHO and Fed rules)

• WIC/URCC – Unauthorized Remotely Created Check claim– WIC claim can also be a Warranty Indemnity Claim for a Check 21 item


Check Adjustments

• Other Adjustments found in both Fed rules and private sector rules (ECCHO Rules):– Informational AdjustmentsOSCR – Original or Sufficient CopySOR – Source of ReceiptDISP – DispositionINFO – Information Requested

– Others• For more information on adjustment types, timing, and other related requirements, refer to:– Federal Reserve online “Check Adjustment Quick Reference Guide” at: www.frbservices.org

– ECCHO Adjustment Rules (Section XII) and Matrix (Exhibits II)www.eccho.org/rules


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Operating Circular 3 (OC3) – Adjustments

Fed OC 3 – Overview

• For cash item sent forward through the Fed or returned check received from the Fed:–FRB may adjust bank’s account if bank has a claim

• FRB does not perform adjustments with respect to every type of claim–Bank may need to pursue certain claims directly

• Bank seeking adjustment via Fed must adhere to:–OC 3 and Appendix H; and –Online “Check Adjustment Quick Reference Guide”


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• Timing–Fed undertakes to handle adjustment claims and make entries within a reasonable time after receipt

• Fed assumes no responsibility for:–Determining whether the statements in forms submitted are correct

–Arbitrating disputes between banks• Bank may be subject to criminal penalties under Federal and/or State law for knowingly making false statements to influence action of FRB



• Fed does not process adjustments of $25.00 of less unless it is for:–PAID item claim;–Not Our Item (NOI) claim; or–Entry in Error (ERR) claim See sample 2013 ”Check Adjustment Request” form on following slide

• Fed also does not:–Review forms to verify correct information, or–Handle forgeries


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FRB – Check Adjustment Request

Fields for PAID item claims:• FCL1 – From Cash Letter• TCL1 – To Cash Letter• CLD1 – Cash Letter Date• SEQ1 – Seq Number

Do not submit errors of $25 or less unless request is for:

• Paid Item (PAID);• Not our Item (NOI); or • Entry in Error (ERR)

ERR update: Changed min. from $25.01 min to $.01‐ Jun‐2014 update

Last updated:June 23, 2014

FRB – Check Adjustment Request

• Check Adjustment Request–Fields and documentation requirements associated with PAID investigation type (ITYP)Four additional fields added to CA1000 (case open) message on FedLine and paper adjustment form (see form/prior slide)Certification form no longer required for single or multiple PAID itemsDTFs for single PAID item optionalDTFs for multiple PAID items still required

• Verify compliance with timing, current forms, all documentation requirements


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FRB Adjustments: PAID ITYP

• PAID: Paid Item– Most prevalent adjustment type– Duplicate image(s) and/or substitute check(s)– Receiver has choice on which item to report as duplicate (1st or 2nd

presentment)• Recent Fed estimates of PAID adjustment requests received:

– 71% show both items are from same depositor– 29% show items are from two different depositors– 13% go back to 1st presentment; 42% go back to 2nd presentment Note: 45% of these claims go back on the same day so can’t tell if these went to the 1st/ or 2nd presentment

• Timing:– Within six calendar months of cash letter or return letter dateSame day entry

– After six months but within one year of cash letter or return letter dateProvide information; Advise requesting institution to deal direct


PAID versus DUP

• PAID = Same item presented and paid twice• PAID adjustment type used when duplicate items have been presented

• DUP = Duplicate adjustment entry–Used when a duplicate adjustment entry has been charged to financial institution for the same error


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FRB Adjustments: ENC ITYP

• Encoding Error (ENC):–Amount different than legal (written) amount or differs from the stated cash letter / return letter amount

• Timing: –Within six calendar months of cash letter or return letter dateSame day entry

–After six calendar months of cash letter or return letter dateNo entryProvide SOR/DISP and advise requesting institution to deal direct


FRB Adjustments: NCH ITYP

• NCH – Noncash Item (Covers both MICR Mismatch and NCI errors)– Request for credit for a non‐valid item included in forward or return cash letter

– Examples include:An empty carrierA control documentMutilated itemsItem that does not meet legal equivalence for Check 21

• Timing:– Within 20 business days of cash letter dateGive immediate provisional entry

– After 20 business days / Within six months of cash letter dateEntry made after approval of offsetting institution

– After six months – advised to deal direct


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FRB Adjustments: NCI ITYP

• Non‐Conforming Item (NCI): Used to adjust items that fail Fed standards for image clearing–Applicable only for FedForward, FedReturn depositorsNCI can only can come from the FedBank cannot report NCI to Fed but use NCH as discussed on prior slide

• Timing–Fed will charge‐back items in cash letter that:Do not conform to Fed standard for qualityIneligible for image clearing Contains invalid routing number


FRB Adjustments: PEA ITYP

• Pricing Error Adjustment (PEA): For FRB use only – Initiated by the Fed at request of Bureau of Public Debt (BPD)

–When BPD determines bond was:Redeemed or processed for incorrect amount

– Subject to standard adjustment minimumBPD will not initiate adjustments for errors of $25 or less

• Disputes Regarding PEA Adjustment– Use Entry in Error (ERR) Institutions disputing BPD determination submit ERR adjustment request to FedFed will contact BPD on institution’s behalfWill respond with correcting adjustment entry or additional information

– Further disputes, institutions will deal direct with BPD


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FRB Adjustments: WIC/URCC ITYP

• Warranty/Indemnity Claim (WIC) Associated with Unauthorized Remotely Created Checks (URCCs)–Paying institution alleges RCC not authorized in amount stated on check to payee on check

• Timing–Within 90 calendar days cash letter date Same day entry

–After 90 calendar daysNo entryAdvise requesting institution to deal direct


Retiring Adjustment Types

• Fed has plans to retire eleven (11) ITYPs in 2017 (see next slide)

• Of 28 ITYPs, only 6 show significant volume– Those 6 ITYPs account for 95% of all incoming adjustments volume (see earlier graphic)

–Other 22 ITYPs together account for just 5% of total adjustment volumesMany are paper‐related investigation typesOthers are rarely used – very minimal volumes

• Other changes will include:– Removal of 3 related fields on FedLine– 2 Message Types to be dropped– Update to cut‐off time for adjustment requestsMoving to 5:00 pm Eastern


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Fed Plans – Retiring Adjustment Types

• Changes may require back‐end systems updates– Fed will announce changes in advance of planned 2017 updates

• Changes to include retirement of the following 11 ITYPs:– Advice Request (AREQ)– Enclosed Not Listed (ENL)– Expedited Re‐Credit (EXRC)– Extra Bundle (EBDL)– Extra Cash Letter (ECL)– Extra Cash Letter Credit (ECLC)– Free Item (FREE) – Incorrect Cash Letter Credit (ICLC)– Late Cash Letter Credit (LCLC)– List (LST)– Missing Bundle (MBDL)


ECCHO Rules – Adjustments

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ECCHO Adjustment Rules – Overview

• ECCHO Adjustment Rules and Matrix–Approved 2009 – “Adjustment Claims” (Section XII)–Adjustments types and claim requirementsListed in matrix to rules (Exhibits II)

• Apply to Members for image exchange/return activities–Whether or not forward or return item exchanged under ECCHO Rules

• Next few slides discuss the ECCHO Rules and illustrate the adjustments flow–Showing which party is sending/receiving– Illustrates both Members and Provider


ECCHO Adjustment Rules

Rule Considerations1. Must comply with requirements of Adjustment Matrix in Exhibit II

a. Type of Adjustment ‐ Section XII(A)b. Time periods, dollar amount or other requirements ‐ Section XII(B)c. Documentation ‐ Section XII(C)d. Settlement and rejection – Section XII(E)

2. Liability of Adjustment Claim – Section XII(H)a. Rules do not establish liability between membersb. Failure to comply does not constitute breach of any ECCHO warranty

3. Presume “altered” unless preponderance of evidence to contrary – Section XIX(P)


Member Receiving Adjustment

Adjustment Claim

Adjustment Provider

Member Sending Adjustment

Agreements

Adjustment Claim

Agreements

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Rule Considerations4. Member may make claim ‐ Section XII(A)

a. To other ECCHO Member or through Adjustment Provider Members have agreed to use

b. Arises from forward or return exchange under Rules or Members agree to adjust under Rules

c. Participation voluntary‐ Claim under rules, return, represent or other claim

5. Time Periods/Processing Requirements – Section XII(B)a. Claim for single item unless Group Adjustmentb. Calculation of time period, first day is day after presentment

or receipt or adjustment

6. Documentation for Claims – Section XII(C)a. Documentation may be sent via

‐ Email with PDF or image file attached‐ FAX or US mail‐ System used by Adjustment Provider

b. If Electronic Image/Electronic Image Return is required, can send:‐ Electronic Image/Electronic Image Return as received, or‐ Substitute check, or‐ Print‐out, photocopy, or other physical representation of

item

Adjustment Claim


Sending Adjustment Claims



Rule Considerations7. Settlement – Section XII(E)

a. Members agree to settlement process or use process of Adjustment Provider

b. Settlement timing‐ “With entry” – By close of banking day following banking day claim received

‐ “Without entry” – Agreement of Members or time period established by Adjustment Provider

8. Compensation – Section XII(F)a. Not covered under this Sectionb. Member may make claim for compensation if permitted

by Adjustment Providerc. May bring claim under Section VII or applicable law

9. Savings Bonds subject to correction/adjustment from Treasury – Section XVII(F)


46

Adjustment Claim


Sending Adjustment Claims


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Rule Considerations

10. Adjustment Provider Relationship – Section XII(I)a. Rules do not impose liability or responsibility on

Adjustment Providerb. Members may agree to use one or more Adjustment

Providersc. Adjustment Provider may:

‐ Map adjustment types in Adjustment Matrix to types they currently process

‐ Establish effective date for application of Section XII(I)

Adjustment Claim

Adjustment Provider

Adjustment Claim

or Adjustment

ClaimReject

or Adjustment

ClaimReject


47

Adjustment Provider


Rule Considerations11. Notification of Receipt – Section XII(D)

a. Reasonable effort to notify by end of banking day following banking day adjustment received‐ Notice may be through Adjustment Provider

b. Notice in form and manner as established by Adjustment Provider or agreed upon

c. Notice does not constitute agreement

12. Settlement and Settlement Timing – Section XII(E)a. Same as Member sending adjustment

13. Rejection of Claim / Notification – Section XII(E); XII(G)a. May reject claim if:

‐ Does not comply with Adjustment Matrix‐ Does not relate to item handled by Member receiving claim‐ Is duplicate of previous claim or pending or one Member already initiated

‐ Factual basis for claim is not established‐ May not reject RCC claim on alleged authorization

b. If rejecting claim, must provide notification and reason(s) for rejection by close of banking day following banking day claim rejected

c. Notice by various means or via Adjustment Provider’s system14. Required use of adjustment “with entry” for Savings Bonds – Section

XVII(F)

Receiving Adjustment Claims

Member Receiving Adjustment

Adjustment Claim

or Adjustment

ClaimReject



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ECCHO Adjustment Types

• Examples: Adjustment Types supported under ECCHO Adjustment Rules and Matrix (not all inclusive):– Adjustment Reversal– Amount Error– Claim of Damage Due To Under Encoding – Duplicate Item– Entry in Error– Late Return Claim – Mis‐matched MICR– Non Conforming Image (NCI)– Non‐negotiable item/Non Cash Item– Not Our Item (NOI)– Pricing Error Adjustment (PEA)– Return Adjustment– Rule 8 & 9 Claim– Unauthorized Remotely Created Check– Warranty Indemnity Claims– Wrong Payee Credit

• Selected adjustments from this list are described in more detail on the next few slides



• Duplicate Item: Item presented twice –An institution received an item which it was asked to pay based on an item that it already had paidFor claims arising under duplicate warranty provision under applicable law and ECCHO Rules

–Regardless of form – may be two images, image and original check, image and IRD, etc.If created from same original physical item and asked to pay the same item again, it is a duplicate

–Timing: 180 calendar days with entryUp to 1 year without entry

o Both sources requiredo Adjustment typically goes to last institution to present item


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IMAGE

Bank D

Paying Bank P

Agreement

RDCCustomer

Payments Galore

Statement

Electronic EndorsementRT # of Bank D

IMAGE (ICL)

IMAGE (ICL)

IMAGE (ICL)

Statement

Federal ReserveBank E

Physical and/or Electronic Endorsement

RT # of Bank E

Electronic EndorsementRT # of FRB

Note: Banks are all members of same clearinghouse

Duplicate Item Example


Duplicates in the Private Sector

• Two options to resolve duplicates depending on timing:–Return process: Return as customer return reason “Y” – Duplicate PresentmentIf sent as an Administrative reason for return, use same return reason “Y”

oParties must agree to accept admin returns

–Adjustment process: Duplicate – ItemTo report item previously paidCan go back to either 1st or 2nd presentment

oBoth made the same “no double debit” warranty


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• Amount Error – Legal amount– Item was encoded for an amount different than the legal (written) amount; or the written amount differs from the stated amount in the X9.100‐187 image cash/return letterOnly applies to amount encoding errors

– Timing: 180 calendar days with entryUp to 1 year without entry

• Entry in Error– Incorrect accounting entry was made, either for the wrong amount or to the wrong partyIncludes Adjusting Errors and Settlement

– Timing: 20 business days with entryUp to 1 year without entry

• Late Return Claim– Receiving Party can claim item was returned lateFollows Fed minimum ‐ $100 or more

– Timing: 60 calendar days with entry53National Check Payments Certification


• Claim of Damage Due to Under‐encoding–Sending Bank warrants the encoding after issue under Reg CC warrantiesPaying Bank can disclaim item that was under‐encoded by the BOFD to protect themselves from a lossFederal Reserve minimum $ amount

–Timing: 20 business days with entryUp to 1 year without entry


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Paying Bank

BOFD

Deposit Check

Encoding Adjustment

Claim of Damage Due to Under‐encoding

• Check for $295.45 – Encoded as $95.45 (under‐encoded for $200)– Paying Bank unable to collect the additional $200

Has claim back to BOFD

55

Depositing Customer

Under Encoded

BOFD Warrants Correct Amount

Claim of Damage Due to Under‐encoding Adjustment

Customer

Statement

Account Closed or

Insufficient Funds

Customer Received Credit for the

Correct Amount ($295.45)

IMAGE

Statement



• Mis‐matched MICR– Error when MICR information associated with an item does not match MICR information reflected on image of that itemTraditional example is where full MICR line of one or more checks has been misaligned with image of another check or sequence of checks (see example on next slide)

o Generally more common than a misread of character(s) on same itemNote: Sender warrants physical item, image of physical item and MICR data record all match (“chain of warranties”)

– Adjustment type can be used when: Code line in the Check Detail Record (Type 25) does not exactly match code line on original checkAny encoding errors other than an error in amount

o For an encoding error of amount only use “Amount Error” adjustment– Timing: 90 calendar days with entry (updated Dec‐2016)Up to 1 year without entry

o Note: Fed handles this as a Non‐Cash Item (NCH) adjustment


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MICR Mis‐match

0000678941234555501450000047621

Presentment Notice (MICR Data File)

Image

Does Not Equal

Mis‐matched MICR


Note: Banks are all ECCHO members

Paying BankBank A

IMAGE


• Non‐conforming image (NCI)– Includes image missing, ineligible item, and invalid RTItem fails to meet image quality standards, item is missing, or item contains an invalid or undefined routing number or invalid data for specific file type or the item is ineligible for image clearing

– Timing: 20 business days with entry• Not Our Item (NOI)

– Forward collection process: Item that contains RT number that does not belong to the institution that receives item (or that is authorized to process the item)

– Return collection process: Item that was not indorsed/handled, either physically or electronically, by the institution that receives the return item

– Timing: 90 calendar days with entryNational Check Payments Certification 58

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• Pricing Error Adjustment (PEA)–ECCHO implemented PEA adjustment for use between members

–TimingDeadline not applicable since ECCHO Member did not receive forward or return item

–Information requiredSame as if process through Federal Reserve



• Unauthorized Remotely Created Check • Two Options

– Adjustment Process [Section XII)]Mirror Fed process and timingBOFD can not disclaim by stating Paying Bank’s customer authorized RCC

o Original could have been exchanged under ECCHO Rules oro Outside of ECCHO Rules and members agree to adjust under the rules

Timing: o 90 calendar days with entryo Up to 1 year without entry

– Rule 8 Warranty claim [Section XIX(N)]Warranty under Reg CC

o Moves liability from Paying bank to BOFD Send through returns process to location BOFD receives returns

o Form required; Specific timings to be followed

• See session “Image Exchange: Rules and Agreements–Part I” for more details on Rule 8


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• Adjustments in ECCHO Rules – not offered in Fed adjustments:–Adjustment ReversalAbility to adjust (correct) an item that was incorrectly adjusted

o Can only be used when Institution making claim has reference number for adjustment to reverse

– Return AdjustmentInstitution seeks to adjust a return item that was incorrectly returned

–Wrong Payee CreditBOFD seeks to pass credit to drawer/maker’s account to correct error in payee processing/credit


Summary

• Various adjustments permitted via Federal Reserve or private sector– Adjustment Types: may/may not have similar names, $ min., documentation

requirements, etc. for same type of adjustment• Timing for with entry claim may/may not be the same for same type of adj

(some examples are shown below)– Note: Appendix at the end of this session lists a more complete comparison


Timing

Same Day Entry

Fed

Adjustment

ITYP

ECCHO

Adjustment

ReasonTiming

With Entry

6 months PAID Duplicate‐Item 180 calendar days

6 months ENC Amount Error‐Legal Amount 180 calendar days

20 business days NCH/NCI Non‐negotiatable Item / Non Cash Item 90 calendar days

Initiated at behest of

BPD when it

determines a bond

was redeemed /

processed for an

incorrect amount

PEA Pricing Error Adjustment

N/A *Deadline not

applicable since

ECCHO Member did

not receive forward

or return item

90 calendar days WIC/URCC Unauthorized RCC Warranty Claim 90 calendar days

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Questions


Recommended Resources

• ECCHO Operating Rules and Commentary www.eccho.org/rules– Adjustments Matrix – Exhibits II

• “Proper Use of Return Codes in Image Exchange”: http://www.checkimagecentral.org/wp‐content/uploads/2015/10/Proper‐Use‐of‐Return‐Codes‐Version‐2‐Final‐122014.pdf

• FRB Operating Circular No. 3 (OC3) – Collection of Cash Items and Returned Checks www.frbservices.org/regulations/operating_circulars.html

• FRB Check Adjustments http://www.frbservices.org/operations/checkadjustments/quick_reference_guide.html


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Thank You!


NOTICEThis NCPC Program document contains copyrighted materials of its publisher.

These materials may not be reproduced or published, in whole or in part, without the express permission of ECCHO

Copyright© 2016 by the Electronic Check Clearing House Organization

Appendix – Adjustments Comparison

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Fed & ECCHO Adjustments Comparison


Fed Adj

ITYPDescription

Timing

(Same

Day

Entry)

ECCHO Adj

ReasonDescription

Timing

(With

Entry)

ENC Encoding Error: Item was clearly encoded for amount

different than the legal (written) amount or the written

amount differs from the stated amount in image

cash/return letter.

6 months Amount Error‐ Legal Amount

‐ Encoding Error

‐ Misread

Item encoded for amount different than the legal

(written) amount or written amount differs from stated

amount in the image cash/return letter Only applies to

amount encoding errors

180

calendar

days

ERR Entry in Error: Request to reverse/investigate an entry

made in error

20

business

days

Entry in Error

‐ Adjusting Errors

‐ Settlement

An accounting entry was incorrectly made, either for the

wrong amount or to the wrong party.

20

business

days

Entry in Error (Claim of Damage Due to Underencoding

Adjustment): Request for credit for an underencoded

item charged and for which you are unable to collect the

funds.

Claim of Damage due to

Under‐encoding

Paying Bank disclaims item in which BOFD under

encoded item to protect Paying Bank from loss.

Note: Handled by Fed as ERR

20

business

days

EXRC Expedited Recredit: Request for expedited recredit

associated with an eligible substitute check

presented/returned in a cash/return letter

120

Calendar

days

Expedited Recredit Check 21 expedited recredit claim

Note: See Regulation CC; Subpart D

120

calendar

days

LC Late Return Claim: Depository institution alleges an item

was returned late

2 months Late Return Claim Item was returned late 60

calendar

days

LR Late Return Disclaimer: Drawee disputes the claim of

late return

20

business

days

Late Return Disclaim Dispute of a late return claim 20

business

days

MCL Missing Cash/Return Letter: Request to investigate an

image cash/return letter that was charged but not

received

As soon as

error is

discovered

Image Cash Letter

Difference

‐ Missing

‐ Out of Balance

Investigate cash/return letter credit for which the

institution believes was functioned for an incorrect

amount

20

business

days



Fed Adj

ITYPDescription

Timing

(Same

Day

Entry)

ECCHO Adj

ReasonDescription

Timing

(With

Entry)

NCH Non‐Cash Item: Request for credit for a non‐valid item

(zero‐value) that was included in the cash/return letter

total or an item that does not meet legal equivalence

requirements for Check 21.

20

business

days

Non‐negotiable Item / Non

Cash Item

Examples: Items that enter collection stream in error

such as empty carrier, control document,

deposit/withdrawal ticket, pay stub or mutilated item;

Item not encoded with magnetic ink

Note: “Negotiability” is defined in UCC; “Non‐Cash

Item” defined in Reg CC

90

calendar

days

Examples: An empty carrier, a control document, a

deposit/withdrawal ticket, or a mutilated item. Check 21‐

related Non‐Cash Items include situations in which the

image on the substitute check does not match the MICR

line on the substitute check (mismatched items), the

substitute check has more than one legal legend (or no

legal legend), or the substitute check is an image of

image. These examples are not all inclusive.

Mis‐Matched MICR

Note: Changes 180 cal. days to

90 cal. days: eff Dec‐2016

release of ECCHO Rules

Item in which MICR information associated with the item

does not match MICR information reflected on image of

the item Example: Full MICR line of one item or multiple

items has been misaligned with the image of another

item/sequence of item rather than a misread of a

character or characters on the same item.

Reason used when code line in Check Detail Record

(Type 25) does not exactly match code line on original

check.

Used for any encoding errors other than error in amount.

For an encoding error of amount only use Amount Error.

90

calendar

days

NCI Non‐Conforming Item: Used by the Fed to adjust for

items that failed to meet standards for image clearing.

Items may be charged back to depositors if they do not

conform to Fed's quality standards, if they are ineligible

for image clearing, or if they are qualified to an invalid

routing number.

Only

made by

the Fed

Non Conforming Image

(NCI)

‐ Image Missing

‐ Ineligible item

‐ Invalid RT

Item fails to meet image quality standards, item is

missing, or item contains an invalid or undefined routing

number or invalid data for specific file type or the item is

ineligible for image clearing.

20

business

days

2016-2017





Fed Adj

ITYPDescription

Timing

(Same

Day

Entry)

ECCHO Adj

ReasonDescription

Timing

(With

Entry)

NOI Not Our Item: Item was charged in cash/return letter

which does not bear receiving institution’s routing

number in MICR line (Forward Collection) or

endorsement area (Return) of physical item or image or

in the associated endorsement records for items

received electronically.

Note: NOI ITYP does not apply to “mismatched items”

20

business

days

Not our item Forward collection process: Item that contains RTN that

does not belong to the institution that receives item or

the institution authorized to process the item

90

calendar

days

PAID Paid Item: Request for credit for an item that is being

refused either because it is the original (or the legal

equivalent, (i.e. a substitute check) or image received in

cash/return letter) or a photocopy and the other item has

already paid

6 months Duplicate Item Institution received item which it was asked to pay based

on an item that it already had paid

For claims arising under duplicate warranty provision

under applicable law and ECCHO Rules

180

calendar

days

PEA Pricing Error Adjustment: Initiated by the Fed at the

behest of the Bureau of Public Debt (BPD) when BPD

determines a bond was redeemed for the incorrect

amount or processed for the incorrect amount,subject to

standard adj min amount.

Two

weeks

after cash

letter date

Pricing Error Adjustment Follows Fed and BPD requirements

Note: Should not submit PEA adj to Fed within first 2

weeks after deposit to avoid crossing adj's with those

initiated by BPD. Investigation type is reserved for

Federal Reserve Bank use only.

N/A

WIC /

URCC

Warranty/Indemnity Claim Associated with Unauthorized

Remotely Created Checks: Paying institution alleges

remotely created check not authorized in the amount

stated on the check to the payee indicated on the check

90

calendar

days

Unauthorized RCC Warranty

Claim

Person on whose account RCC is drawn did not authorize

the issuance of the check in the amount or payee stated

on the check

90

calendar

days

WIC Warranty/Indemnity Claim Associated with Check 21

Items: Depository institution alleges breach of a Check 21

warranty or indemnity

1 year Warranty Indemnity Claims A claim of a Breach of Warranty and/or Indemnity

associated with receipt of a Substitute Check or Imaged

item.

1 year



Fed Adj

ITYPDescription

Timing

(Same

Day

Entry)

ECCHO Adj

ReasonDescription

Timing

(With

Entry)

n/a Not specified by Fed

Adjustment Reversal Ability to adjust an item that was incorrectly adjusted.

Can only be used when Institution making claim has

reference number for adjustment to reverse.

90

calendar

days


Return Adjustment Institution seeks to adjust a return item that was

incorrectly returned.

60

calendar

days


Wrong Payee Credit BOFD seeks to pass credit to maker’s account to correct

error in payee processing/credit.

60

calendar

days

Documents

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