Remote Deposit Agreement Reminder
By: BEAU J. HURTIG
March 2008
The National Automated Clearing House Association’s (“NACHA”) back office conversion (“BOC”) rules, combined with the previously issued Check Clearing for the 21st Century Act, more commonly known as “Check 21,” and amendments to the Federal Reserve Board’s Regulation CC provided banks the ability to offer remote deposit products. Remote deposit products can generate enormous benefits for bank commercial customers because they allow the deposit of electronic check images, thus eliminating the trip to the bank. As we approach the first anniversary of NACHA’s implementation of the BOC rules, numerous banking institutions are offering remote deposit products. Bank managers whose banks offer such products are probably aware that their bank should enter into some form of contract with customers prior to providing a remote deposit option. However, management may not be aware of all of the important provisions this contract should contain.
Simply operating under the previously existing general ACH agreement or some modified version is not recommended because the use of remote deposit products involve several legal issues unique to the products. For instance, under Regulation CC, the depository bank warrants that the check image contains all information required for legal equivalency and that receiving banks will not receive duplicate presentments of the checks. These factors are generally beyond the bank’s control in the remote deposit context since the customer will create and scan the check images and will generally be responsible for destroying original checks. In addition, Regulation CC allows banks to vary these warranties only through agreements with other banks, not through agreements with its customers. Under Regulation CC, the bank of first deposit will be liable to receiving banks if the customer scans a poor image or scans a check for deposit and later brings the physical check to the bank for duplicate deposit. Therefore, it is essential that the remote deposit agreement requires the customer to indemnify the bank for breach of these warranties. Similarly, the NACHA rules governing BOC require the depository institution to warrant the accuracy of the check routing number, account number, check serial number, and dollar amount of the payment, and that the customer will not deposit the original check once it has been scanned for BOC processing.
The need to clearly establish indemnification for a breach of these bank warranties represents one contractual provision unique to remote deposit products, but many more exist.
Takeaway
As part of a good risk management process, ensure the adequacy of your remote deposit agreement before offering remote deposit products.