With Less Than 6 Mos. to Go, What to Do About Check 21
Credit unions and other financial institutions are trying to gear up for the implementation of the Check Clearing for the 21st Century Act-better known as Check 21-but there's just one problem: the actual details of how to make the law a reality are still unknown.
Check 21 facilitates the opportunity to move to electronic presentment of checks by giving legal status to substitute checks. For many consumers it will mean no longer having their original items returned to them.
"Right now we're sort of in a holding pattern because the Fed still hasn't released the final rule," said Kimberly Dewey, associate director of regulatory affairs at NAFCU. "I would hesitate on putting too much information out to credit union members since the final rule isn't out. There are some things that are concrete because they are written directly into the statute, but you can't get too specific without the final rule."
The Federal Reserve has until July 28 to issue the final Check 21 rule, but that doesn't mean there aren't things CUs can be doing right now to lay the groundwork for Check 21, several experts agreed.
"They can definitely come out with a plan. The staff needs to be familiar with substitute checks and expedited recredit, for example," noted Michelle Profit, assistant general counsel at CUNA. "They can determine if they're going to be more passive and just train staff around the minimum of what they have to do, or aggressively move towards an image environment."
Dewey listed three things credit unions should be doing right now:
- Be aware that the final rule will be issued shortly.
- Educate employees and members about the law, with an emphasis on educating the staff so they will be able to field members' questions about it.
- Prepare to make a decision on how to handle disclosures.
Because credit unions, in most cases, already are truncating checks and not returning items to their members, they will not be required to do some of the blanket disclosures other financial institutions must do and can instead do disclosure on a "case-by-case basis" when a member is going to receive a substitute check. But many credit unions may want to opt for the blanket disclosure anyway, Dewey noted."Most will probably just decide to revise their account agreements," she offered. "That way it's essentially a one-time disclosure across the board."
But there is still some question about to what degree credit unions will be considered responsible for some of these disclosures, particularly for those credit unions that do not process checks in house, according to Mike Fenton, vice president of Parascript, which offers automated recognition and imaging technology related to Check 21.
"For those credit unions that still use a payable-through-bank, they may not have any ties or responsibilities related to Check 21 because it is the responsibility of the truncating entity, and that would be the payable-through-bank, not the credit union," Fenton advised, noting that the same could be true for credit unions that use a corporate credit union for their check processing.
Even so, both Dewey and Profit suggested credit unions must understand how Check 21 affects their members, because whether the CU processes checks in house or not, it's the credit union that holds the member's checking account that the member is going to call to ask questions about this new law.
A potential issue unique to credit unions is shared branching, and how that affects who is responsible for what when a member uses a shared branch to transact business related to Check 21, Fenton added.
While the Fed continues to work on the final rule, it has already issued some general guidelines and announcements that help begin to paint the picture of the Check 21 environment. For one thing, Fenton noted, the Fed recently announced that it will use black and white images as a means of capturing images, instead of grayscale-something most industry observers were expecting but hadn't been officially decided.
Similarly, the Fed has announced that it will be printing Image Replacement Documents, which is significant since it lifts the burden of printing IRDs off the backs of credit unions and other financial institutions that process checks through the Fed.
Fenton and other experts have noted that the amount of consumer education that credit unions will have to do could be significantly less than for most other financial institutions, because CU members are already used to not receiving their checks back from the credit union after they have cleared. But that doesn't mean such consumer education isn't important.
Further Ahead, But...
"Credit unions are further ahead of the curve on check imaging and truncation, but what I'm fearful of is that senior management isn't taking the time to ensure that the marketing department isn't involved in this process from the beginning," offered Mark DeBellis, president of the financial services division of PSB The Marketing Super Source. "There is very little awareness of Check 21 on the marketing front. There is going to be information going to members in a different way, and that could create pinchpoints for members. This is a real service opportunity to make sure they are at the front of the pack in providing this information, and also a real marketing opportunity."
DeBellis suggested there are several different levels of communication to CU members that have to take place:
1) A pre-notification letting members know that this is coming. "This could be a newsletter article or a statement stuffer," he commented. "Staff needs to be educated on this before this information goes out so they're ready to take questions, and my sense is that few credit unions have done this."
2) Notification phase. The industry is still waiting for the final rule to outline what the formal language is going to be, but DeBellis said the notification will probably be very similar to privacy statements and other notices CUs already have to provide. "CUs may want to take a defensive posture and be sure to explain that this isn't something that's just happening at the credit union, it's a national initiative that all financial institutions must comply with," he said. "Offer explanations and Q&A."
3) The morning after. "This is what happens after the new processes are firmly in place," he noted. "You have to be ready to help your members deal with the new environment."
One issue credit unions should be thinking about right now is how the decrease in float time could affect certain members.
"You'll have members who are really stunned by this process," DeBellis predicted. "Your low-balance members, members who have come to rely on the float, these are your members who are most at risk. Talk to them about courtesy pay programs or short-term loans to help them get through this as they get used to the new float time. Consider granting a grace period for November and December and see who may need your help and consult with them and steer them into a program that's appropriate for them."
Of course, there's a huge technology component to Check 21, as well. "Corporate credit unions or credit unions that do their own check processing may need to work with their software vendors to make sure that the images they capture are of good quality and are usable," Fenton noted. "We've always said that images are better than microfilm, so we considered that to mean images were always of good quality, but just being better than microfilm may not be enough. Quality has become a bigger issue."
Both NAFCU and CUNA said they will be holding webinars once the final rule is issued. For info: