2018 Reg CC Change Alert: Are You RDC Ready?

A new bundle of Reg CC changes on July 1, 2018 will, among other things, affect FIs’ responsibility for checks accepted by remote deposit capture (RDC).

RDC has become an essential banking innovation, by putting the ability to deposit checks in the hands of any business or consumer.  But RDC by its nature lends itself to duplicate deposits—intentional or unintentional—and creates risks for both the receiving and paying FIs.

According to the most recent AFP study of payments fraud, 75% of organizations dealt with check fraud in 2016—up from 71% in 2015. This reverses the declining trend in check fraud since 2010. And a 2016 Guardian Analytics research survey found that a “whopping” 72% of all fraud involving mobile banking apps were attributable to mRDC and fraudulent checks.

Under Reg CC, the liability for duplicate check losses belongs to the bank or credit union that accepts the deposit via RDC.  In other words, the physical check has the right of way, and the RDC acceptor is liable regardless of the order of deposit presentation.

After July 1, however, a Reg CC change allows you to protect yourself by making sure to obtain a “restrictive endorsement,” such as “For mobile deposit only at XYZ.” This endorsement is seen in the new regulatory language as an intent to deposit, which indemnifies the bank accepting the remote deposit from subsequent claims by the acceptor of the physical deposit.

To clarify how restrictive endorsement will help under the new regulation, here are two examples:

Scenario 1: Back of check is endorsed with “for mobile deposit only at Alpha Bank”

1. Check is deposited via RDC to Alpha Bank, which receives a paid settlement.
2. Check is then presented and accepted at a Bravo Bank branch, which receives an unpaid settlement.

Result: Bravo Bank cannot claim indemnity, because Alpha Bank obtained the restrictive endorsement.

Scenario 2: Back of check not endorsed with a restrictive endorsement

1. Check is deposited via RDC to Alpha Bank, which receives a paid settlement, as in Scenario
2. Check is cashed at Charlie’s Check-Cashing, which banks at Bravo Bank.
3. Check is then presented and accepted at a Bravo Bank branch, which receives an unpaid settlement.

Result: Bravo Bank can claim indemnity, because Alpha Bank did not obtain the restrictive endorsement.

Technology and regulations both march forward to provide efficiency and convenience—but not necessarily on the same timetable. That’s why Alogent and our technology partners work to keep our technology ahead of the regulatory curve. Four years ago, our partner Mitek® introduced a proactive solution that directly supports this new Reg CC change. Alogent incorporated this Restrictive Endorsement feature for mRDC at the time, and since then has added functionality to reduce rejections. 

Current Alogent ImagePoint users already enjoy the convenience and protection from cross-channel, real-time detection of duplicates and counterfeits, and the Restrictive Endorsement feature provides a way to automatically detect the presence of the right endorsement and make sure it is added before deposit acceptance. Staying ahead of the curve is always the best solution.