The New York Clearing House Association has joined an effort to create a national data base that would help banks and merchants fight check fraud.
The clearing house group plans to link its checking account data base with that of Primary Payments Inc., San Diego.
Primary Payments is a bank-run company formed specifically to help banks reduce check fraud losses.
The company, formed by Star System Inc., a San Diego-based electronic banking network, has 26 participating banks that furnish it with information on millions of checking accounts.
The data base from the New York group would add significantly to that data base by bringing in more account information from East Coast banks.
By the end of this year, Primary Payments executives said the data base could contain information on as many as 60 million checking accounts.
When a consumer tries to pass a check at a merchant or bank, the item can be compared against the data base to make sure the account on which it is drawn is active and does not have a history of fraud.
"We are building a national data base," said Henry C. Farrar, senior vice president at the clearing house group.
Checks deposited virtually anywhere in the country can be run against it, he added.
This effort is a reaction to mushrooming check fraud losses. The American Bankers Association estimates banks lose around $1 billion per year to check fraud. Merchants lose around $11 billion, experts said.
Both estimates are considered conservative, as few businesses are eager to disclose when they have been burned.
Primary Payments maintains a data base of about 30 million accounts based in the western and southwestern regions of the nation.
Banks can get access to the data base by linking directly with Primary Payments or the Clearing House.
Most merchants would get into the data base through check authorization companies, which provide merchants with point-of-sale terminals that can be used to query the data base.
Getting merchants involved in the effort is important, since nearly one- third of all checks written each year originate at the point of sale.
Primary Payments operates the Deposit Chek service, a funds availability system used by banks and check acceptance companies. The Clearing House offers its member banks its Funds Availability Notification System, or Fans.
Lawrence Spooner, president of Primary Payments, said linking the two organizations' check files creates much-needed momentum for anti-fraud efforts.
"Financial institutions participating in Deposit Chek or Fans will reduce losses by accelerating the notification of check returns," he said.
The two organizations are developing software that would provide the data base with the most up-to-date information about newly closed checking accounts.
With the new software, the data base would be notified of changes to an account's status as soon as a participating bank makes the changes on its own systems.
"We are trying to get massive geographic coverage," which means getting "as many of the banks as we can to participate," Mr. Farrar said.
Though there are some fees associated with participating in the anti- fraud effort, bankers said they make back their investments by reducing fraud losses.
The software for the service costs about $20,000 for a regional bank, Primary Payments said.
Banks using the software report saving ten times what they spent software.
In addition to the agreement with New York Clearing House, Primary Payments also is trying to enlist banking organizations in the Midwest to contribute to the data base.