Tell us
what you think
Our Sponsors
 |
Our Sponsors
|
Pitfalls of Customer-Printed Checks
by Mary Beth Guard, Esq.
What kind of safeguards do we need to take into consideration to open an account for a customer who has started to use computer generated checks for his business? And also the checks bear printed signatures put on by his computer? We don't have a facsimile agreement for this account. Can you tell me if we are assuming additional liability by honoring his checks issued this way? What should we do to protect ourselves?
First of all, you need a facsimile signature agreement on the account ASAP. The customer needs to understand and agree that your institution will not be able to discern the difference between a legitimately printed check and one that is fraudulently printed out after-hours by the cleaning crew. The purpose of a facsimile signature agreement is to shift the risks associated with using a facsimile signature to the customer.
Second, it is a wise idea to spell out for the customer, preferably in writing (with a copy retained for your files), the potential pitfalls of using this system. Your letter to the customer should stress the need to control physical access to the computer, control remote access to the computer (such as via modem), and to control access to the check stock and the computer program that produces the checks. There should be password protection on the computer and, if possible, on the program itself. No one should have access to it other than authorized individuals. If you offer online banking, the customer should be urged to review check postings on a daily basis in order to spot fraudulent items at the earliest possible time. The use of a positive pay system would also be recommended. This would allow the customer to transmit a list of checks issued, along with amounts. Your institution would then utilize the list in determining which items to pay.
Finally, don't overlook the need to educate the customer about the need to use the proper ink for printing the MICR line on the checks. If the customer fails to use magnetic ink, the checks will require more work to process.
The American Bankers Association recently addressed this problem, passing on a warning by the Bank Fraud Committee on the improper desktop publishing of checks. They warned that some questionable makers of check-publishing software are causing problems for consumers and businesses by not recommending the proper ink required to process checks in high-speed equipment. Special magnetic ink enables machines to process checks at speeds of more than 60 miles per hour. Improper ink slows down the system for all check writers and can cause consumers and business customers ill will, as well as serious delays in clearing and posting. When this magnetic ink is not used, banks must pull the item out of the system, inspect the check for possible fraud and manually alter it for proper processing.
Many retail stores now use magnetic ink as part of their check acceptance process. Consumers presenting checks that do not contain magnetic ink may experience situations where a retailer may question the validity of their check because it contains improper ink.
In order to avoid costly and embarrassing delays for consumers, businesses and their customers, the Deposit Account Fraud Committee of the American Bankers Association and the American Standards Committee X9 offer the following tips when purchasing desktop publishing software for printing checks:
- Beware of any check printing software that says you don't need magnetic ink;
- Consult your bank before making any change to your check design;
- Ask your bank for its check printing requirements;
- Check the references of any desktop publishing company you deal with;
- Ask your bank for its recommendations of software companies, paper check stock and magnetic ink toner; and
- Use the American national check standards developed by ASC-X9. See www.X9.org for more information. The Accredited Standards Committee X9-Financial Services is the only industry-wide forum that addresses technical problems, finds the solutions and codifies them as nationally accepted standards.
For additional details, see the ABA's press release: http://www.aba.com/Press+Room/checks082301.htm
Copyright © 2002 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 12, No. 2, 2/02
|