So, if I get my statement and I do not believe I wrote a check which has been converted to a substitute check, I am entitled to the expedited recredit rights, yes?

How are banks going to limit the potential for fraud? Without a readily available signature on original item, how are you going to prevent your customers from making fraudulent or improper claims?

Matt, First, you will have had to received the substitute check physically in your statement to be eligible to file a claim under the Expedited Recredit. An image of a substitute check on an image statement is not eligible for Expedited Recredit. It does have its remedy under normal UCC. Second, you must prove that you suffered a loss as a result of the payment of the substitute check that was enclosed in your statement.
As far as fraud is concerned, there is speculation that new types of fraud can be perpetrated. I am not sure what you mean by a readily available signature on the item. The image of the check will contain the signature. Expedited Recredit is only available to consumer accounts and typically a consumer check is 6 inches wide and when compressed into a substittue check, it is displayed at 95% its actual size. Therefore, signature recognition both by human inspection as well as technology, is expected to be highly successful. I hope this helps answer your question.

I understand that Check 21 expedited recrediting applies only to consumer accounts. But, if I am the typical check-writer -- say I write 30 checks per month -- and I receive a bunch of substitute checks (not images) in my statement, if I don't recognize a check can I make a claim under Check 21? If I were to say, i.e., that I didn't visit "Tom's Bar" on 4/20/04 and that check was charged to the wrong account (my account), am I entitled to expedited recredit? That's the question that I have.

It seems that I would be entitled to the expedited recrediting and as a bank, we'd have ten days to make a determination of the claim, right? If we don't do this, we'd have to provide provisional credit and then resolve the claim within 45 days.

I guess what I am getting at is under the previous system, these claims were governed by check law and the UCC. No provisional credit occurred for check fraud claims. Will Check 21 replace that system or will it only apply when a substitute check is paid after the original item had been presented and paid?

Matt, the whole key to this is that the consumer account holder had to suffer a loss. I think you can argue that an item charged to an account incorretly is a loss, in that monies were taken erroneously. If this situation was the result of a substitue check and it was enclosed in the statement, the Expedited Recredit would apply. As the paying bank, after providing provisional credit to your customer. you then have 120 days to exercise the Expedited Recredit claim against the reconverting bank. To your last point, Check 21 Expedited recredit will apply when the claimant can justtify that a loss was suffered. I hope that helps.

Quote:

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...if I don't recognize a check

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Matt1,
Are you saying the customer is claiming a forged drawer's signature or that the substitute check is unreadable?

If it is a forged drawer's signature, you handle it the way you have in the past, according to the UCC. The fact that a forgery or counterfeit got turned into a substitute check does not automatically enhance the customers rights/remedies.

If I receive my statement and it has thirty checks in it and I don't think I wrote the check that has been converted to a substitute check, do I have a claim under expedited recredit rules of Check 21?

I have a substitute check;
I assert that the check was not properly charged to my account;
I have suffered a loss;
The original check is needed to determine whether the check was improperly charged.

The first three are easy to meet (as clearly I have a substitute check, I claim the check was not properly charged to my account and I have suffered a loss). The fourth prong of this law is trickier. My claim is that I didn't write this check and as such my bank should not have paid it. Will an original check clarify my claim? Probably not, since it's based on fraud. A consumer can argue, though, that by seeing the original check bank would not have paid the item and consumer would not have suffered the loss. Is there any merit to this allegation?

I know that I am making a big deal about this, but it is mostly because my business lines are making a big deal about it, too.

To trigger any required response, the consumer is going to have to make a clear claim; if the consumer is equivocal, there is no claim. If the consumer plainly says he did not write the check, then that translates to a forged drawer's signature. As always, the bank would require a forgery affidavit before evaluating that claim. If it accepts the consumer's allegation that the signature is forged, the expedited recrediting procedures are not triggered.

If a better copy of the substitute check might help in resolving the forgery issue, the proposed regulations indicate the expedited recrediting provisions may be triggered. In effect, if the bank indicates it does not believe the signature is forged and the consumer thinks a "better copy" of the check would help in proving his claim, then Check 21's consumer protection provisions may be applicable:

4. A consumer's claim must include the reason why the consumer believes that his or her account was charged improperly or why he or she has a warranty claim. A charge could be improper, for example, if the bank charged the consumer's account for an amount different than the consumer believes he or she authorized or charged the consumer more than once for the same check, or if the check in question was a forgery or otherwise fraudulent.
5. A consumer also must provide a reason why production of the original check or a sufficient copy is necessary to determine the validity of the claim identified by the consumer. For example, if the consumer believed that the bank charged his or her account for the wrong amount, the original check might be necessary to prove this claim if the amount of the substitute check were illegible. Similarly, if the consumer believed that his or her signature had been forged, the original check might be necessary to confirm the forgery if, for example, pen pressure or similar analysis were necessary to determine the genuineness of the signature.

In essence, to trigger expedited recrediting, there must be an allegation that the problem is tied to the substitute check - not the original check.

Quote:

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First, you will have had to received the substitute check physically in your statement to be eligible to file a claim under the Expedited Recredit. An image of a substitute check on an image statement is not eligible for Expedited Recredit.

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I realize I am behind the boat on this one, but where in the act does it state you must have the SC in your statement to fall under Expedited Recredit?

SEC. 7. EXPEDITED RECREDIT FOR CONSUMERS.
(a) RECREDIT CLAIMS.—
(1) IN GENERAL.—A consumer may make a claim for expedited
recredit from the bank that holds the account of the
consumer with respect to a substitute check, if the consumer
asserts in good faith that—
(A) the bank charged the consumer’s account for a
substitute check that was provided to the consumer ;.

Every aspect of the Check 21's consumer protection provisions is intended to protect the consumer from the "vagueries" of the substitute check. If the consumer does not receive a substitute check (piece of paper) the consumer protection provisions; e.g. expedited recrediting, do not attach.

Thanks Ken. This thing is becoming clear as mud.

The following is from page 19 of the FRB Request for Comment document on Check 21:

1. Circumstances Giving Rise to a Claim.
Section 229.54(a) of the proposed rule provides that a consumer may make an expedited recredit claim under that section for a recredit with respect to a substitute check if the consumer asserts in good faith that
(1) the bank holding the consumer’s account charged that account for a substitute check that was provided to the consumer (although the consumer need not be in possession of the substitute check at the time he or she submits a claim);
(2) the substitute check was not properly charged to the consumer account or the consumer has a warranty claim with respect to the substitute check;
(3) the consumer suffered a resulting loss; and
(4) production of the original check or a sufficient copy of the original check is necessary to determine whether or not the substitute check in fact was improperly charged or whether the consumer’s warranty claim is valid.

This section implements sections 7(a)(1) and 7(h) of the Check 21 Act with some organizational changes. The proposed commentary on the circumstances giving rise to a claim provides additional detail concerning when a consumer would and would not meet the criteria for bringing an expedited recredit claim under § 229.54. For example, the commentary clarifies that a consumer who receives only an image statement that contains an image of a substitute check cannot make a claim because he or she has not actually received a substitute check, although such a consumer would have redress for an improper charge associated with the substitute check under the U.C.C. and might have a claim for breach of a substitute check warranty. The commentary also notes that the warranty giving rise to a § 229.54 claim could be a substitute check warranty or any other warranty provided to the consumer in connection with the substitute check. The commentary further notes that recovery under § 229.54 is limited to the amount of the substitute check, plus interest if the consumer has an interest-bearing account, although a consumer may be able to recover additional amounts under other law, including §§ 229.52 and 229.53 of the proposed rule.

Hope this helps.

the saga continues !!

Under the UCC, how long does a bank have to recredit an account once they receive a forgery affidavit and determine that it was indeed a forgery? I'm not talking about Check 21 necessarily, just what the current status of the law is on this.

The UCC does not spell out a specific time frame in which a bank must recredit a customer's account for a forgery. It merely imposes a requirement that all parties be "fair" and act in "good faith." In your example, when a bank has the affidavit and agrees that a forgery took place, its only reason for delaying reimbursement would be that it was actively investigating whether the customer contributed to the forgery or whether some other defense was available to the bank.

It is Check 21 that sets customer service standards in this regard, establishing a specific time frame for curing a problem derived from a substitute check.

Thanks, that is what I always thought, but I was being questioned. My rule of thumb answer is that you should take no more time than you would if it were your own mother who filed the forgery affidavit.

Talk about "clear as mud" Is the reason for expedited recredit provision because of time that original checks will be kept? What is the timeframe? When/why would a customer receive a substitute check?

Thanks Ken! That's probably the best explanation I've seen on this topic so far.