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#8230 - 12/26/01 06:56 PM Electronic Check Conversion
Anonymous
Unregistered

Effective January 1, 2002 we are required to provide new account customers with information regarding electronic check conversion-types of transfers.
My question, are we required to notify existing customers as well?

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General Discussion
#8231 - 12/26/01 09:24 PM Re: Electronic Check Conversion
Bear Collector, CRCM Offline
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Posts: 1,830
District of Columbia
John,
Could you please tell me where it is stated that we need to provide customers with this specific information? I read through the information provided by the Fed, and while I see changes to the commentary and additional clarification, I do not see either in the commentary or in the Reg. where we must give the customer specific information pertaining to electronic check conversions. Maybe I'm missing something, so please let me know if I am.
In answer to your question, Reg. E only requires a change in terms notice (§205.8) when there are increased fees for the consumer, increased liability for the consumer, fewer types of available electronic fund transfers, or stricter limitations on the frequency or dollar amount of transfers. None of the changes in the new rules appear to fall under any of these. In fact, if anyone has increased liablitiy, it is the banks! therefore, I would not think a change in terms notice would be necessary. However you may need to change your new customer disclosures if, for example, you are defining your business day as ending at 3PM, because the new commentary makes it clear that a business day ends at 11:59PM.
Leslie

OPINIONS ARE MINE, AND ARE NOT INTENDED AS LEGAL ADVICE. (I WAS WRONG ONCE ... THAT WAS THE TIME I THOUGHT I WAS WRONG, BUT I WASN'T!!)

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#8232 - 12/26/01 09:47 PM Re: Electronic Check Conversion
David Dickinson Offline
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Central City, NE
Good question Leslie. This is kind of a trick. If you read setion 205.7(a) - the Initial disclosure requirement - it states:
A financial institution shall make the disclosures required by this section at the time a consumer contracts for an electronic fund transfer service or before the first electronic fund transfer is made involving the consumer’s account.

If I add ATM services, I have to give you a new EFT disclosure (or at least some new amendments) that disclose the ATM as a type of electronic funds transfer, fees, limitations, etc.

The new e-check is a new type of of electronic transfer. Therefore, we must update the EFT disclosure to reference this type.

Now to John's question. I don't think so (or hope not). At first I thought that you would have to notify all customers before anyone could use it (but they already are!). I seem to remember some discussion on this that changed my mind. Does anyone have more specific info?

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#8233 - 12/26/01 09:50 PM Re: Electronic Check Conversion
Anonymous
Unregistered

On 3/15/01, changes to the Official Staff Commentary for Reg E were published in the federal register and the commentary stated that an electronic check conversion (e-check)is an elecronic funds transfer. Mandatory effective date 1/1/02.
The Reg E initial disclosures must inform customers if an institution accommodates electronic check conversions (we do) and any fees or limitations related to such transactions. The commentary also discusses the coverage of a re-presented check entry.
By the way, thank you for your prompt and detailed response! You provided the answer to my question.

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#8234 - 12/27/01 01:14 PM Re: Electronic Check Conversion
Bear Collector, CRCM Offline
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District of Columbia
John and David,
Our current disclosures define "transaction" as "all electronic funds transactions performed through ATMs, POS Terminals,electronic direct deposits and debits Telephones, PCs Web Banking and any other electronic means." Because this definition is so broad, do we have to specifically name electronic check conversions? If we do not say electronic check conversions are excluded, wouldn't our current disclosure be sufficient?
Leslie
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#8235 - 12/27/01 03:18 PM Re: Electronic Check Conversion
BankerMama Offline
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We use Bankers Systems disclosures and it includes a section on check conversions, however, I am confused. Did we decide that we must also notify our existing customers?

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#8236 - 12/27/01 03:28 PM Re: Electronic Check Conversion
complyguy Offline
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Posts: 494
PA
Could someone tell me where "electronic check conversion" is defined, so I can determine whether this is a new EFT for us? When I look at 12 CFR 205.4(c)(1), it seems that what I understand to be an electronic check conversion is excluded from coverage. I know this section probably meant, for example, making a loan payment by check at an ATM, but its wording could equally apply to a situation where a consumer gives a check to a merchant who uses the information to generate an ACH item. Or am I completely misunderstanding "electronic check conversion"?

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#8237 - 12/27/01 08:15 PM Re: Electronic Check Conversion
John Burnett Offline
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Cape Cod
Here are two examples of electronic check conversions in which Reg E covers the transaction as an EFT. Take a look at Reg E Commentary to 205.3(b), added 3/16/01 [66 FR 15193]:

  • Customer tenders a check at the point of purchase, and merchant scans the MICR line to capture the account and bank info. May or may not give the customer back the check marked "void." Provides the customer with an EFT receipt, and initiates an EFT using the check data. Check never goes forward. Just the EFT (with check number in it). Merchant must provide a notice at the point of purchase that the customer, by completing the transaction, agrees to the EFT. Notice that the customer does not need to sign anything to authorize the EFT because it's a one-time authorization.
  • Customer sends a check in payment of a bill. It goes to a lock box or similar process. The bill included a notice that checks might be converted to EFTs. Customer's payment of the bill constitutes authorization. MICR line is captured and EFT initiated. In this case, the check stays with the processor/payee.

[This message has been edited by John Burnett (edited 12-28-2001).]

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#8238 - 12/27/01 08:20 PM Re: Electronic Check Conversion
Bear Collector, CRCM Offline
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District of Columbia
complyguy,
The commentary to §205.3(b)1 v. defines an electronic funds transfer to include a "transfer via ACH where a consumer has provided a check to enable the merchant or other payee to capture the routing, account and serial numbers to initiate a transfer, whether the check is blank, partially completed, or fully completed and signed ..." Also,paragraph 3 of the same section talks about the authorization of a one-time EFT by providing a check to a merchant or other payee for the MICR encoding) where the consumer receives notice that the transaction will be processed as an EFT. This is an electronic check conversion. I'm sorry, but I can't find the §205.4(c)(1)that you mentioned in my copy of Reg. E.

bwest,
I think the issue of a change in terms notice depends on what you are currently doing and what you are not going to do any longer. §205.8 of Reg. E defines the reasons that a change in terms notice would be required. For example, our disclosure defines a transaction very broadly. However, in discussing this issue with my EFT department, we decided that a change in terms notice would be necessary, because the commentary allows us to exclude NSF checks from coverage under Reg E that are re-presented electronically. Because we currently state that "all" electronic debits are covered, we think we will need to send a change in terms notice to clarify that this particular transaction is excluded.
Leslie

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#8239 - 12/27/01 09:47 PM Re: Electronic Check Conversion
Ann Online
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Joined: Jul 2001
Posts: 564
South Carolina
bwest - do you use the BankersSystems e-form, ETM-2-LAZ? If so, will you share with me how you filled in the blanks for the e-check disclosures? I realize it is according to your institution's policies, but I would appreciate some guidance.

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#8240 - 12/28/01 01:50 PM Re: Electronic Check Conversion
complyguy Offline
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PA
Leslie - thanks for the details. I finally tracked down a copy of the Federal Register for the date in question. And sorry, my cite should have been 12 CFR 205.3(c)(1). Another question: has anyone seen any model language for including electronic check conversions?

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#8241 - 12/28/01 03:06 PM Re: Electronic Check Conversion
John Burnett Offline
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Cape Cod
It hasn't been "blessed" by the issuance of a staff interpretation, but how about (in a list of EFTs that a customer can make):
quote:

You may make a purchase or pay a bill using a check that is converted by the payee into an electronic fund transfer

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#8242 - 12/28/01 07:12 PM Re: Electronic Check Conversion
BankerMama Offline
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Ann.....yes we use the ETM-2-LAZ Bankers Systems form. I am not aware of any bank policies restricting or limiting these conversions but I am currently double checking this with management.

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#8243 - 12/31/01 09:22 PM Re: Electronic Check Conversion
SMQ, CRCM Offline
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Between the lines
Ann & Bwest,

Thought you might be interested in knowing that Bankers Systems has dropped the ETM-2-LAZ form. I was checking to see if I had the most current version and was informed that this is now a customized form depending on the worksheet completed by the institution.

BTW, is anyone else having problems getting into the Bankers Systems Online Catelog?


Have a Happy/Safe (oxymoron?) New Year!!!

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#8244 - 01/02/02 11:16 PM Re: Electronic Check Conversion
KimC Offline
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Joined: Jul 2001
Posts: 145
Minnesota
Did anyone answer the question about whether we need to disclose to our existing customers?
The latest UMACHA newsletter says "It's clear that the Fed does consider the new POP transactions and the Accounts Receivable Check entries as new products so we are recommending that you update your initial disclosure. These should be given to any individual opening a new account AND should be distributed to your existing customer base sometime in the near future. The Fed has informed us that all a financial institution nedd do is include a line in their disclosure that effectively states, ["we (the F.I.) allow electronic check transactions to post to your (the consumers)checking account."]" What if this statement was printed on the message center of customer statements? Would this be sufficient disclosure for existing customers?

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#8245 - 01/14/02 11:19 PM Re: Electronic Check Conversion
John Burnett Offline
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Back to the original question --

Reg E requires a change in terms notice if your bank is cutting back on the types of EFTs the customer can do. But it does not appear to require a change in terms notice to current customers when you're adding a service. You do, as mentioned several times above, have to update your initial disclosures, however.

There is the requirement in section 205.7(a) that you make initial disclosures "at the time a consumer contracts for an electronic fund transfer service or before the first electronic fund transfer is made involving the consumer’s account." However, you could argue pretty convincingly that the customer is not contracting with the bank for the service of check conversion. He or she is authorizing the merchant to do the EFT on a one-time basis.

Summing up -- I'd make sure you include the check conversion transaction in your initial disclosures, and not worry about current accounts. If your bank does a customer newsletter, try to get some space there to explain this type of EFT.

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#8246 - 01/15/02 03:56 PM Re: Electronic Check Conversion
BrendaC Offline
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Sweet Home AL
John - I like your description of the electronic check conversion. Simplify my life--how would you disclose the electronic check re-presentment? THANKS!

EDIT - In reading over the rule, it appears to me that the RCK entry is excluded from Reg E coverage because it is the "continuation of a transactrion originated by check". The fee, if presented electronically, is covered by Reg E. Therefore, it follows that we do not have to include the re-presented check in our Reg E disclosure. So, unless I'm wrong, we'll pretend I didn't post this reply.

[This message has been edited by Brenda Canterbury (edited 01-15-2002).]

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#8247 - 03/21/02 06:22 PM Re: Electronic Check Conversion
William J. Ludwig Offline
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New York, New York USA
The FRB today released a consumer guide on electronic check conversion. The press release is at: http://www.federalreserve.gov/boarddocs/press/general/2002/20020321/default.htm It contains the link to the 4 page consumer guide.
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#8248 - 03/21/02 07:22 PM Re: Electronic Check Conversion
John Burnett Offline
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Your last post is on the money, Brenda. RCK entries are not subject to Reg E.
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#8249 - 03/21/02 08:05 PM Re: Electronic Check Conversion
PABanker Offline
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Blue Ball, PA 17506
Our platform forms' vendor placed the Re-presented check and the Electronic check conversion on our deposit agreement. The Electronic check does statement in the description that is governed by Electronic Funds Transfer Act if you are a consumer and refers the consumer to the REG E disclosure. Where as the fee asssociated with the Re-presented check is governed under REG E. That is what is so misleading in all the changes...NACHA ran a teleseminar on these changes which was very good resource in understanding the changes.

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#8250 - 03/21/02 10:14 PM Re: Electronic Check Conversion
Anonymous
Unregistered

We have updated our Reg E disclosure to include the three new type of EFTs. New customers will get the revised one. We chose not to do mass mailing to our customers because they are not adverselt affected by this change. There is actually an increase in the type of EFT they can do, so no change in terms is required. Not till, the regulators come up with something otherwise.


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#8251 - 03/22/02 06:52 PM Re: Electronic Check Conversion
Anonymous
Unregistered

Can anyone assist me with what type of wording you placed in your Reg E disclosure to cover the check conversions? I just read the FR and found also that the new account guideline is tracking Reg CC. Did you make mention of this in your disclosures as we do in the Reg CC disclosure?

Tina A Sweet-Williams
AVP/Compliance Officer
Gold Country Bank, NA
mailto:tsweet@goldcountrynb.com
530-740-7248

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#8252 - 05/21/02 07:01 PM Re: Electronic Check Conversion
PAconsultant Offline
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Posts: 5
I've been researching electronic check conversions and read the thread that appears hear about the wording of disclosures and when a new disclosure was necessary. Something caught my eye right away in a posting from Leslie. She states:

... However you may need to change your new customer disclosures if, for example, you are defining your business day as ending at 3PM, because the new commentary makes it clear that a business day ends at 11:59PM.

Is this change in the business day actually required? If so, does it apply to all retail transactions or just those that are being converted?

Also, I have been trying to find information about the savings associated with converting checks in lockbox. Does anyone know of any sites where I can get valid cost savings information on this subject? Thanks.

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#8253 - 05/22/02 07:15 PM Re: Electronic Check Conversion
John Burnett Offline
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The reference to 11:59 p.m. has nothing at all to do with defining your business day. It's only concerned with determining when the 2-business-day period for notification of lost or stolen access devices ends.

Customer learns of the loss or theft of customer's card at 8:57 a.m. on Monday. By when does the customer have to have notified the issuer of the loss or theft in order to cap customer's liability at $50 under Regulation E.

In this case, the 2-day period ends at a minute before midnight on Wednesday, not at 8:57 a.m. on Wednesday. But this doesn't really mean the customer should be able to notify you at any time up to midnight. [More on this thought below.] What it really means is that any unauthorized transaction that occurs before 11:59 p.m. on Wednesday will be subject to the $50 "cap."

What the Fed did not say in its March 6, 2001 (66 FR 15187) issuance is whose time zone applies. If you're in New York and your customer is in St. Louis, and the $500 unauthorized transaction is at an ATM on Fisherman's Wharf in San Francisco, at 10:30 p.m. PT Wednesday, that's 1:30 a.m. Thursday your time, and you could have a definitional problem as to whether the $50 cap will apply. I'm assuming the transaction is not handled by either Visa or MasterCard so we can avoid any discussion of their unique rules.

But back to the point raised two paragraphs above. If you haven't told customers not to notify you my e-mail of a lost or stolen access device, will an e-mail sent before 11:59 p.m. on Wednesday suffice to notify the bank within 2 days? Not sure of the answer here, folks? Well neither am I.
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#8254 - 05/24/02 06:10 PM Re: Electronic Check Conversion
Tina A Sweet Offline
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Tina A Sweet
Joined: Aug 2001
Posts: 1,033
Marysville, Ca.
bwest,

I have information I have received from BankersSystem on the echeck verbage. Can you contact me so we may discuss.

Thanks

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Tina A Sweet-Williams
AVP Special Assets
mailto:tsweet@goldcountrynb.com

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