Portals & Rails
January 06, 2014
When It Comes to RCCs, Can We Make the Invisible Visible?
In May 2013, the Federal Trade Commission (FTC) issued a proposal for public comment to amend the telemarketing sales rule to prohibit telemarketers from using certain payment types, including remotely created checks (RCCs). The proposal addressed attributes of RCCs that make their use susceptible to abuse. RCCs, sometimes referred to as demand drafts, are checks that payees issue rather than the consumer or the consumer’s bank, and are not signed by the consumer. The attributes the proposal addresses include the difficulty of distinguishing RCCs from check images, the absence of reliable data on the volume of RCCs and returns, and the lack of centralized fraud monitoring. Together, these attributes make RCCs relatively invisible.
RCCs usually garner attention only when a law enforcement case uncovers their use in fraud, typically when consumers are victimized by unfair and deceptive practices. Still, RCCs are not just a tool for committing fraud—they are used for legitimate purposes and are frequently authorized by consumers as payments for credit cards, charitable donations, and insurance premiums. At times, banks originate the RCCs themselves or on behalf of the payee, so in these instances, the bank monitors returns, identifies issues, and manages them.
In other payment methods, including ACH transactions and cards, the ability to recognize the payment, track volume and returns, and monitor fraud centrally have proven to be beneficial in addressing fraud. For example, ACH operators have data on forward entries and returns for ACH transactions that enable ACH participants to identify and address issues proactively. Adding these layers of data to enable identification and monitoring of RCCs would prove equally beneficial to the depository and paying banks, as well as regulators and law enforcement to potentially identify and address RCC fraud more directly.
How can the industry improve the identification and tracking of RCCs? One option could be to develop some kind of technology that would distinguish between RCCs and check images with a high degree of accuracy. Another option could be to approve a standard for an identifier in the MICR (short for magnetic ink character recognition) line to indicate that this document is an RCC.
Some industry participants have pursued the MICR line identifier in the past, but these efforts did not gain traction within the industry. However, it may be an idea whose time has come given the concerns that regulators and law enforcement officials are raising about the "invisibility" of RCCs. A MICR line identifier would also allow for centralized fraud monitoring. For instance, depository banks could report periodically to their primary regulator on RCC returns. This reporting would provide information to regulators and law enforcement on possible fraud and support banks in their efforts to mitigate improper RCC usage.
Does your institution see value in making RCCs visible in the processing stream and quantifying their use?
By Deborah Shaw, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed
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