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One of the fastest-growing tech trends has been remote deposit capture, the practice that enables a customer to snap a picture of a check and deposit it to an account using a mobile device. This technology has been billed as the most important development in the banking industry in recent years.
The benefits of RDC to customers include convenience, improved deposit availability and reduced transportation cost, making it attractive to individuals and businesses alike. The benefits to community banks are innumerable — from increasing operational efficiencies and creating eco-friendly processes to eliminating geographic boundaries.
Check 21 legislation passed in 2004 cleared the way to create digital copies of paper checks for processing. However, regulations may not be keeping up with mobile technology that leaves the check in the hands of the consumer, enabling a check to be deposited repeatedly, whether intentionally or by accident.
A study by industry group RemoteDepositCapture.com found 20 percent of financial institutions using mobile RDC have reported losses. Earlier this year, the Federal Reserve Board proposed amendments requesting comment on a proposed change to its Regulation CC, governing the availability of funds and collection of checks, noting that “there are no longer any nonlocal checks.”
The proposal would allow a depositary financial institution that accepts deposit of an original check to recover directly from a financial institution that permitted the deposit of the check via RDC. Additionally, the depositary financial institution that accepts an original paper check would not bear the loss if that check is deposited multiple times. The proposal also provides for a new indemnity relating to RDC to cover depositary financial institutions that receive deposit of an original paper check returned unpaid because it was previously deposited (and paid) using remote deposit capture.
The comment period on this proposal has closed, and a decision is expected in December.
In the meantime, banks can be mindful of ways to minimize risk, says John Leekley, CEO and founder of RemoteDepositCapture.com.
“The most straightforward advice is a commonsense approach,” says Leekley. “Know your customers.”
Leekley recommends banks take a customized approach when setting policies for RDC, as well as for broader banking activities. For example, a student new to banking will present more risks than an established high net-worth customer, and thus would have more restrictive standards.
Additionally, the RDC group points to things criminals look for when targeting institutions:
Leekley notes that banks he has worked with have found that the more familiar they have become with the product, the more they have been able to customize policies, diminishing risk. “Anytime there’s something new there are risks,” says Leekley, “but also opportunities.”