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#260287 - 10/22/04 03:47 PM image exchange agreements
Anonymous
Unregistered

I'm still a little confused. If we choose to image and the other bank(s) with which we are exchanging checks also image, if we are not going thru the FED, do we need a separate agreement with each of these banks. Or do we only need a separate agreement with the bank if the other bank does not image and we have to create a subsitute check? Also, if we DO go thru the FED for imaging and substitute checks do we need any separate agreements with other banks and/or do we need an additional agreement with the FED? What if we are using an outside processor, NOT item processsing in house??

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#260288 - 10/22/04 05:38 PM Re: image exchange agreements
Jill W Offline
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Jill W
Joined: Jun 2002
Posts: 66
River Town
I'll give your questions a shot
If you are exchanging directly with another bank you need agreements regardless of whether or not you will be sending images. With that said, whenever you change your method of sending information directly to another bank, your agreement with that bank should reflect what you are doing. If you go through the Fed, you will need an agreement with the Fed that says how you will be sending information (paper, image). The Fed will then present the checks to the other banks in the manner those banks want the information presented. Of course there will be different charges from the Fed to your bank based on what you choose.

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#260289 - 10/22/04 06:09 PM Re: image exchange agreements
Anonymous
Unregistered

I thought one of the benefits of Check 21 was that it allowed (not mandated) all banks to now image, thus eliminating this agreement requirement, since banks could always image, even before Check 21, as long as they had an agreement. I assume if Substitute Checks are involved that might be a different story. ???

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#260290 - 10/22/04 06:14 PM Re: image exchange agreements
John Burnett Offline
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John Burnett
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Cape Cod
There has always been a requirement for an agreement for image exchange, and that won't change. What is unique about Check 21 is that once the images have been created, they can be reconverted back to a new form of paper negotiable instrument, the substitute check, which must be accepted by banks for presentment just as original checks are. Banks cannot refuse to accept presentment of a substitute check, but can refuse images.

As for image exchange agreements, banks will either contract directly (probably not common in the long run except with correspondents), with the Fed, or with a network supporting image interchange (the e-version of a clearinghouse).
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#260291 - 10/23/04 03:58 PM Re: image exchange agreements
Bill Saffici Offline
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Bill Saffici
Joined: Dec 2003
Posts: 155
Philadelphia
I agree with both Jill and John and would just like at add a little clarity. If a bank elects to exchange with banks that particiapte in Endpoint Exchange, they will become a memeber of EE and their agreement (multi-lateral) will be with NCHA using their rules and settlement; if a bank elects to exchange with SVPCO banks, they will become a memebr of SVPCO and their agreement (multi-lateral) will be with SVPCO using ECCHO rules and settlement through The Clearing House; agreement for imge presentment to the FRB and/or image receipt with the FRB will be through their Operating Circular #3. Other exchange organizations or direct (bi-lateral) exchanges will elect their own rules/settlement or possibly use one of the above. Until their is interoperability among the exchange organizations, participation with more than one will be a challenge for most banks.

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#260292 - 10/25/04 05:38 PM Re: image exchange agreements
Anonymous
Unregistered

Thanks so much to each of you who responded to my question. I now understand a lot better how things are going to work regarding image exchange.

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#260293 - 10/25/04 06:34 PM Re: image exchange agreements
Anonymous
Unregistered

Hello,

I am still a little confused about the whole issue of agreements. I logged on to the website for Compliance Information for Examiners and Industry (www.ffiec.gov/exam/check21/default.htm)and find this quote on the second page (under "The Substitute Check Clearing Process):

"Check 21 enables banks to clear checks electronically without having pre-existing agreements between the bank of first deposit and the paying bank."

This is a direct quote from the examiner's website and appears to contradict what I'm reading in this thread concerning the topic of agreements. Is there any way to clearly get to the bottom of this?

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#260294 - 10/25/04 08:34 PM Re: image exchange agreements
John Burnett Offline
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John Burnett
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Cape Cod
Sure. It allows the first bank that touches the check to convert it into an image format and let it go into the electronic mode for presentation up to the time it's ready for presentment to the paying bank. If the paying bank doesn't accept images, it gets reconverted to paper (substitute check) first.

Without Check 21, the first bank touching the check would need to have an agreement with the paying bank before it could convert the check to image. With Check 21, there need not be an agreement, so the check can go "electronic" right up to the door of the paying bank.
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#260295 - 10/26/04 04:57 AM Re: image exchange agreements
Bill Saffici Offline
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Bill Saffici
Joined: Dec 2003
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Philadelphia
John, allow me to add. If the depositary bank or any subsequent bank elects to truncate an item and present it electronically to another bank, an agreement must exist. A receiving bank does not ever have to accept an electronic presentment and be forced to convert it into a substitute check.
John, I am not sure if I am correcting what you stated or have misread what you stated.

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#260296 - 10/26/04 01:44 PM Re: image exchange agreements
John Burnett Offline
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John Burnett
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Cape Cod
I really think we're saying the same thing. Before October 28, 2004, if there was not in place an agreement for image exchange the included every person to touch the check image, the exchange could not take place. That includes the payor bank, since its insistence upon a paper check means that the original check has to make the entire trip from depository bank to payor bank.

But on October 28 and thereafter, any bank handling the check on its way toward the payor bank can convert paper to image, knowing that if any bank further along the presentment trip requires paper, it will have to accept a reconverted check (substitute check). So the imaging bank doesn't need to know whether the paying bank will demand paper or will accept image. The only person that truly needs that information is the bank or party that will present the check to the paying bank for payment.
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#260297 - 10/27/04 03:52 AM Re: image exchange agreements
Bill Saffici Offline
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Bill Saffici
Joined: Dec 2003
Posts: 155
Philadelphia
Hi John, I believe we are saying the same thing as long as the readers understand that even on and after October 28 any exchange of an image requires an agreement between the parties. The only agreement not required is the creation of a substitute check.

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#260298 - 10/27/04 11:37 AM Re: image exchange agreements
Jill W Offline
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Jill W
Joined: Jun 2002
Posts: 66
River Town
I think I will give this a try. Say the BOFD received a check for paying Bank C. Prior to Check 21, the BOFD was required to have an agreement with Bank C if the BOFD wanted to send an image file to Bank C. Also, assume the same BOFD also received a check for paying Bank H. The BOFD also had to have an agreement to send an image file to Bank H. So the BOFD had to have 2 separate agreements.

After Check 21 the BOFD receives the same checks. BOFD has an image agreement with the Fed (or an exchange), so they send an image file to the Fed (or the exchange) which contains checks for both Bank C & H + other checks for other banks. The Fed (or exchange) will have agreements with C, H, + others which stipulate how they want to receive their items. Check 21 has reduced the number of agreements the BOFD is required to have.

The same logic would apply if the BOFD used a correspondent and not the Fed or an Exchange.

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#260299 - 10/27/04 03:23 PM Re: image exchange agreements
SJB Offline
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SJB
Joined: Jun 2002
Posts: 1,210
California
Jill - only one little clarification to add; if the Fed (or exchange) is sending substitute checks to banks C & H or others, they do not need any agreement(s), the substitute checks are the same as sending the original checks.
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#260300 - 10/27/04 04:36 PM Re: image exchange agreements
Jill W Offline
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Jill W
Joined: Jun 2002
Posts: 66
River Town
SJB - Thank you for the clarification.

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#260301 - 10/28/04 04:31 AM Re: image exchange agreements
Bill Saffici Offline
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Bill Saffici
Joined: Dec 2003
Posts: 155
Philadelphia
Even if the output is SC, BOFD still had to have an agreement to send the image cash letter to the FRB or correspondent or exchange.

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#260302 - 10/29/04 06:36 PM Re: image exchange agreements
Anonymous
Unregistered

Hello,

I am the person who wrote the reply quoting the Examiner's website with this item:

"Check 21 enables banks to clear checks electronically without having pre-existing agreements between the bank of first deposit and the paying bank."

My thanks to everyone who has taken the time to repond to this, but I hope you can imagine, from the litany of responses that indicate "yes" to agreements and "no" to agreements, that this discussion is getting more and more cloudy. The quote from the compliance website still says no pre-existing agreements are necessary. I am still confused and I work in the industry. Imagine what the public must think. The numerous sources on this site continue to disagree with one another on this issue.

To me, it sounds like banks do not need pre-existing agreements as they did prior to October 28. (I'm not referring to any agreements for substitute checks - I am well aware that agreements do not apply to them - only to the electronic images.) A BOFD can truncate as they wish (without knowledge of a paying bank's electronic capabilities) and only need convert to a substitute check if the paying bank requires paper rather than an electronic image. That kind of system sound like it would make agreements unnecessary. After all, if a BOFD is allowed, by federal legislation, to truncate and go electronic, you've abolished the need for an agreement, haven't you? The electronic image is already created. You either transmit the electronic image or convert to a substitute check, if necessary. The big question seems to be, how does a BOFD know if the paying can receive an electronic image or requires paper?

To summarize, my questions are:

Why does the Examiner's website emphatically state "no pre-existing agreements" are necessary?
Why is there confusion about this statement?
How does a BOFD know if a paying bank can accept electronic images or requires paper?

Many thanks for all of your time.

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#260303 - 10/31/04 05:13 AM Re: image exchange agreements
Bill Saffici Offline
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Bill Saffici
Joined: Dec 2003
Posts: 155
Philadelphia
Q. Why does the Examiner's website emphatically state "no pre-existing agreements" are necessary?

A. I did not watch all the modules but I did watch and listen to module 2. This CLEARLY identifies that agreements are required for image exchange. I suspect the point about no pre-existing agreement is required relates to presentment of a SC.

Q. Why is there confusion about this statement?

A. Unfortunately, I don't know why there is confusion about when agreements are required and I tried to state that in previous responses.

Q. How does a BOFD know if a paying bank can accept electronic images or requires paper?

A. Before a bank can attempt to truncate an item, it must know how it can present it to the paying bank. Options include: 1) send electronic file to FRB and they will determine, however, be aware of the cost if SC are created; 2) join an exchange network where you can electronically exchange with the other members; 3) call individual banks and see if they are willing to enter into bi-lateral agreement.

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#260304 - 11/18/04 10:10 PM Re: image exchange agreements
Anonymous
Unregistered

Again, on the Compliance Information for Examiners and Industry website (see address in previous thread), it states, "Check 21 enables banks to clear checks electronically without having pre-existing agreements between the bank of first deposit and the paying bank."

I fail to see how this can mean that agreements are necessary. Check 21 has been an example of how a federal regulation has not been properly executed - in my opinion, it has not been completely thought through, nor have the necessary efforts to communicate it effectively been afforded to banks. I do not believe it is a bank's responsibility to inform the public (of course we make an effort to keep our customers informed)- the issuer of the regulation should bear the responsibility, with the banks following through as a secondary communication party.

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#260305 - 11/18/04 10:22 PM Re: image exchange agreements
kfridge Offline
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Joined: May 2004
Posts: 165
Quote:

Again, on the Compliance Information for Examiners and Industry website (see address in previous thread), it states, "Check 21 enables banks to clear checks electronically without having pre-existing agreements between the bank of first deposit and the paying bank."

I fail to see how this can mean that agreements are necessary.




Just because there is no pre-existing agreement between the bank of first deposit and the paying bank doesn't mean that there aren't agreements between the intermediary clearing agents. Most items probably are not cleared directly from BOFD to Paying bank without some sort of intermediary. Let's make it simple. Let's say a check drawn on bank A is deposited at bank B and both banks are image enabled, but have no image exchange agreements with each other. If both banks engange in image exchange with the Fed or some other common intermediary, that check could easily arrive in image form at the bank A without an exclusive agreement between A and B. No substitute checks involved, whatsoever. Make sense?
Last edited by John Burnett; 11/19/04 04:17 PM.
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#260306 - 11/19/04 04:22 PM Re: image exchange agreements
John Burnett Offline
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John Burnett
Joined: Oct 2000
Posts: 40,086
Cape Cod
Another way to look at this is to say that the depository bank can convert a check to an image and send the image to any bank with which it has an image exchange agreement without worrying whether the paying bank accepts images.

That's because banks that present to the paying bank will know whether to send an image file (payor accepts images from presenter) or original and substitute checks (payor does not accept images or presenting bank has paper and doesn't wish to convert them to image first).
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