As part of the Federal Reserve's restructuring and cost reduction initiative, the Detroit and Houston Federal Reserve offices will stop processing checks beginning on April16 and April 23, 2005, respectively. As a result, all items with bank routing numbers assigned to the Detroit branch will be rerouted to the Federal Reserve Bank of Cleveland's head office. Items drawn against the Houston branch will be rerouted to Dallas' head office. Outlined below are some impacts and considerations following these changes.
How will this impact check availability schedules?
As a result of this change, items that were previously non-local will become local items under Regulation CC and be subject to faster availability schedules. More specifically, since Cleveland will now support check processing for two Fed districts, banks will no longer have the ability to determine if a check is non-local based on the fact the item is drawn against another Federal Reserve district. For example, a check deposited into a bank in Detroit and drawn against a Cleveland routing number that was previously a non-local item will now become a local item and be subject to faster availability based on Reg. CC
What do I need to do as a bank?
All banks in these locations should review their current availability schedules and update them based on the new guidelines published by the Federal Reserve, which amend the routing and transit symbols assigned to the Chicago, Dallas and Cleveland Fed districts. Banks should also review their customer disclosures, and if necessary, contact their customers impacted by this change.
Will there be other changes?
According to the Federal Reserve Board's final rule published in the Federal Register on September 28, 2004, additional reductions in check processing locations are planned. The Board of Governors intends to issue similar closure notices with a minimum of 60 days notice.
How will this impact check fraud?
While it is still too early to determine how actual losses or fraud attempts might be impacted by these changes, fraudsters may try to take advantage of the new availability schedules and increase the number of bad items deposited that cross Fed districts. Banks should pay particular attention to new accounts, as fraud against them is exponentially higher.
What deposit fraud solutions are available to help mitigate the increased loss exposure?
According to the recent ABA Deposit Account Fraud Survey Report, accessing account and item-level information from shared databases ranked among the most effective strategies for reducing deposit fraud losses. The most notable example of this strategy in practice comes from the National Shared Databases. With current information on over 90 percent of the country's open and active checking accounts, financial institutions receive notification of bad deposited items including transactions drawn against new, closed, NSF accounts or items matching a stop payment or returned check.
Where can I get more information?
For more information on the upcoming Fed check processing site closures or the ABA Survey Report, please select from the following links:
- www.chicagofed.org/
- www.aba.com
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