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Copyright© 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 1
Exceptions – Returns and Adjustments
National Check Payments Certification
Exceptions – Returns and Adjustments
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)
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Exceptions – Returns and Adjustments
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
National Check Payments Certification 3
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 – Returns and Adjustments
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.
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Exceptions – Returns and Adjustments
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
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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
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Exceptions – Returns and Adjustments
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
9National Check Payments Certification
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
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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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Copyright© 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 6
Exceptions – Returns and Adjustments
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
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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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Exceptions – Returns and Adjustments
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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Exceptions – Returns and Adjustments
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)
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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
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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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Exceptions – Returns and Adjustments
• Return Routing Hierarchy
ECCHO Rules
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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
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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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Exceptions – Returns and Adjustments
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)
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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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Exceptions – Returns and Adjustments
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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Exceptions – Returns and Adjustments
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
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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)
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PAID,37%
ENC34%
NCH17%
ERR3%
LC2%
WIC/URCC2%
All Other5%
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Copyright© 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 13
Exceptions – Returns and Adjustments
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
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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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Exceptions – Returns and Adjustments
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”
28National Check Payments Certification
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Exceptions – Returns and Adjustments
Fed OC 3 – Overview
• 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
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Fed OC 3 – Overview
• 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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Exceptions – Returns and Adjustments
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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Exceptions – Returns and Adjustments
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
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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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Exceptions – Returns and Adjustments
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
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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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Exceptions – Returns and Adjustments
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
37National Check Payments Certification
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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Exceptions – Returns and Adjustments
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
National Check Payments Certification 39
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
40National Check Payments Certification
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Exceptions – Returns and Adjustments
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)
41National Check Payments Certification
ECCHO Rules – Adjustments
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Exceptions – Returns and Adjustments
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
43National Check Payments Certification
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)
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Member Receiving Adjustment
Adjustment Claim
Adjustment Provider
Member Sending Adjustment
Agreements
Adjustment Claim
Agreements
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Exceptions – Returns and Adjustments
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
Member Sending Adjustment
Sending Adjustment Claims
ECCHO Adjustment Rules
National Check Payments Certification
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)
ECCHO Adjustment Rules
46
Adjustment Claim
Member Sending Adjustment
Sending Adjustment Claims
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Exceptions – Returns and Adjustments
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
ECCHO Adjustment Rules
47
Adjustment Provider
National Check Payments Certification
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
ECCHO Adjustment Rules
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Exceptions – Returns and Adjustments
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
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ECCHO Adjustment Types
• 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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Exceptions – Returns and Adjustments
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
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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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Exceptions – Returns and Adjustments
ECCHO Adjustment Types
• 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
ECCHO Adjustment Types
• 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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Exceptions – Returns and Adjustments
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
National Check Payments Certification
ECCHO Adjustment Types
• 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
56National Check Payments Certification
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Exceptions – Returns and Adjustments
MICR Mis‐match
0000678941234555501450000047621
Presentment Notice (MICR Data File)
Image
Does Not Equal
Mis‐matched MICR
National Check Payments Certification 57
Note: Banks are all ECCHO members
Paying BankBank A
IMAGE
ECCHO Adjustment Types
• 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
2016-2017
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Exceptions – Returns and Adjustments
ECCHO Adjustment Types
• 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
National Check Payments Certification 59
ECCHO Adjustment Types
• 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
60National Check Payments Certification
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Exceptions – Returns and Adjustments
ECCHO Adjustment Types
• 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
61National Check Payments Certification
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
62National Check Payments Certification
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
2016-2017
Copyright© 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 32
Exceptions – Returns and Adjustments
Questions
National Check Payments Certification 63
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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Exceptions – Returns and Adjustments
Thank You!
Exceptions – Returns and Adjustments
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
2016-2017
Copyright© 2016 by the ECCHO (Certain contributed content subject to third party copyrights) 34
Exceptions – Returns and Adjustments
Fed & ECCHO Adjustments Comparison
67National Check Payments Certification
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 & ECCHO Adjustments Comparison
68National Check Payments Certification
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
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Exceptions – Returns and Adjustments
Fed & ECCHO Adjustments Comparison
69National Check Payments Certification
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 & ECCHO Adjustments Comparison
70National Check Payments Certification
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
n/a Not specified by Fed
Return Adjustment Institution seeks to adjust a return item that was
incorrectly returned.
60
calendar
days
n/a Not specified by Fed
Wrong Payee Credit BOFD seeks to pass credit to maker’s account to correct
error in payee processing/credit.
60
calendar
days
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