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Federal Reserve Banks Make Check 21-related Announcements - Mary Beth Guard and John Burnett

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Federal Reserve Banks Make Check 21-related Announcements
By Mary Beth Guard and John Burnett, BOL Gurus

The Federal Reserve Banks have announced a policy change regarding the use of check carrier documents, the launch of a trio of check processing solutions, price ranges for Check 21-related services, the adoption by the Federal Reserve of DSTU X9.37-2003 (Image Cash Letter Customer Documentation), the image format they will adopt for imaged checks, and what image quality checks they will employ.

Here is our BOL summary of the highlights from the various announcements:

Use of Check Carrier Documents

  • Effective 10/28/04 (the effective date of Check 21), Reserve Banks will no longer accept items in carrier documents in high-speed forward and return cash letters.
  • This new policy includes carriers containing photocopies in lieu, notices in lieu of return and foreign or mutilated items.
  • As of 10/28/04, these types of items must be deposited in a separately sorted cash letter for forward collection, or a raw return cash letter for returns processing.
  • If an institution mistakenly includes items in carrier documents in high-speed forward and return cash letters, the institution will assume all Check 21 liability for losses.
  • Revisions to Operating Circular 3 will be made to reflect the policy change.

Miscellaneous Matters

  • List of Electronic Endpoints. The Federal Reserve plans to frequently publish a list of electronic receipt endpoints. This will aid institutions not only in creating a sorted cash letter that includes only items destined for electronic endpoints, but will also help institutions determine what volume of their in-clearing and outgoing items involve institutions willing to accept electronic images, which is an important consideration in performing a cost/benefit analysis of check truncation.
  • Eastern time. The time deadlines for FedForward Image Cash Letter Deposit are later than the time deadlines for paper, but it should be noted, when looking at the time deadlines, that all are based on eastern time.
  • Fees Based on Value of Item. An institution using a paper cash letter may elect to have items above a certain dollar threshold (presumably one set by the institution) culled from their deposit, then cleared using the most expedient methods. Note, however, that checks culled for expedited clearing will incur a per-item fee based on the value of the item.

Image Format, Standards, Quality

  • If you're planning to utilize the Fed for processing image cash letters, you'll need to make sure your equipment is capable of producing images that meet their format requirements and quality standards.
  • To meet the newly articulated Federal Reserve standards, your images will need to be in TIFF format.
  • The resolution on the images needs to be between 200 dpi (dots per inch) and 240 dpi. Lower resolution images will not be accepted in image cash letter files.
  • Only black and white images are acceptable. Gray-scale images are not.
  • All images in image cash letters deposited with the Federal Reserve will be subjected to a quality check that will include checks for document length, height, validity, missing or torn corners, document skew, image brightness and compressed image size.
  • Images that fail the quality check will be charged back to the depositor through the check adjustments process.


  • FedForward offers three different ways for an institution to take advantage of Check 21 efficiencies. The suite of products includes FedForward Image Cash Letter Deposit, Electronic Endpoint Group Sort, and paper deposit cull services.
  • On the FedForward Image Cash Letter Deposit, later deadlines encourage use of image cash letters. They refer to them as "later than paper deadlines".
  • Pricing for processing image cash letter deposits is tied to the deadline by which the image cash letter is submitted, with time deadlines staggered from 8:00 p.m. to noon (all eastern time). Same day availability from city clearinghouse endpoints in Mountain and Pacific time zones is available with a deadline as late as noon (eastern) in some cases.
  • Want the best pricing? Keep the Fed folks busy between 8:00 p.m. and 4:00 a.m. Cheapest pricing is available for the 8:00 p.m. deadline; prices rise after that, peaking at 10:00 a.m. with costs that are five times the rate applied to 8:00 p.m. deadline transactions to electronic endpoints, and approximately 3-4 times the 8:00 p.m. cost for substitute check endpoints. Pricing for the 10:00 a.m. and noon deadlines are identical, and pricing for 7:00 a.m. is the same as 10 a.m. and noon, with the exception of a ten cent difference on the high end of the price range for electronic endpoint items.
  • Even later deadlines (by one hour) are available for a FedForward Electronic Endpoint Group Sort Deposit, with the same pricing. In this type of deposit, the items have been sorted to ensure that all are going to endpoints that have agreed to accept electronic images.
  • Later deadlines command premium fees due to enhanced availability.
  • In general, higher fee per item (about double) if drawn on substitute check endpoint. This answers the question of who pays for creation of the substitute check - it's the bank of deposit in the Fed model. Ouch! Some will say that is a big disincentive to transmitting a mixed image cash letter (one that contains both items going to electronic endpoints and items that must be converted to substitute checks).
  • The most favorable pricing is for the first cut-off deadline. The range is 1 1/2 cents to 6 cents if there is an electronic endpoint; 3 1/2 cents to 12 cents if the item is going to a substitute check endpoint. At the high end (the noon deadline), the price ranges are 6 1/2 cents to 30 cents for an electronic endpoint; 13 cents to 50 cents for a substitute check endpoint.
  • There will be three pricing tiers for electronic and three for substitute check endpoints, but there is no indication of the basis for tiering. (Dollar amount of check?)


  • FedReturn is the product suite for inbound and outbound returns. It is designed to encourage use of image return item letters, eliminating the need to strip returns. (As noted above, Fed has announced it will not accept carrier documents in high-speed cash letters beginning October 28.)
  • They have established pricing for the FedReturn Image Cash Letter Deposits. They employ a similar pricing strategy (higher for substitute check endpoints, higher for later deadlines, three tiers), but there are only four deadline "windows" for the returns.
  • As with the forward collection process, return item processing pricing ranges are higher for substitute check endpoints than electronic endpoints. Price ranges on the low end (earliest deadline, electronic endpoint) are 15 cents to 40 cents. On the high end (latest deadline -- which is 2:00 a.m. eastern) for electronic endpoints, the pricing range is 25 cents to 50 cents. Substitute check pricing ranges go from 25 cents to $1.00, depending on which deadline is used.

Future Services

  • Derived Returns: Later, Fed will provide service for banks who receive paper items from the Fed but use certain Fed services (MICR Presentment Plus, Fed Image Archive, Truncation) to send electronic file of items for return; Fed will pull images from its archives and send qualified image return letter or substitute checks to bank of first deposit.
  • BOFD Return Info Service: This service allows banks who don't accept image returns to receive early information about items being returned in image cash letters. The bank receives an electronic file, followed by substitute check return items.

FedReceipt and FedReceipt Plus

  • FedReceipt: Provides image presentment cash letters from image cash letters deposited with Fed. Fed presents a separate paper cash letter of items deposited with Fed as paper. No fee, and provides discount on forward collection it.
  • FedReceipt Plus: Same as FedReceipt, but paper items are truncated by the Fed and included in the image cash letter. Fed charges fee for truncation, but provides discounts on forward collection items and "selected payor bank services."

The Federal Reserve Banks also announced their plan to use the Accredited Standards Committee X9's Specifications for Electronic Exchange of Check and Image Data (the DSTUX9.37-2003 standard). The forty-two page standards reference document is available online, if your inner geek desires to read all the details.

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First published on 05/20/2004

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