Quality vs. Deception in Managing IRDs

When it comes to preparing for the Check Clearing for the 21st Century Act (Check 21), financial institutions are concerned that fraud and quality issues might cancel out the benefits of the faster clearing of checks that accompanies the use of image replacement documents (IRDs) and the exchange of these documents. Because the check process is moving slowly onto an electronic path, many bank executives worry that the road ahead may lead to a digital dilemma of possible fraud losses and image-quality issues.

However, if banks pay close attention to the quality of the check once it is first imaged, the issues of bad or unacceptable checks can be avoided, according to David Walker, president and CEO of the Electronic Check Clearing House Organization (ECCHO, Dallas). Walker says that banks are dealing with the same types of fraud and quality issues being faced now with paper check processing, prior to Check 21 legislation.

He points out that, regardless of whether they are involved in paper or electronic check processing, financial institutions have to be aware of check quality the same way they did before Check 21 legislation. Check 21 does not change or increase the threat of fraud, Walker stresses. "The fraudsters have the ability to make copies of checks, and they do," he says. "That problem doesn't go away. It was there pre-Check 21. Banks have to realize when a duplicate debit goes through, no matter what form."

The good news, according to Walker, is that because Check 21 allows for faster processing of checks via electronic transmission, with the exchange of substitute checks, the chance of fraud is dramatically reduced.

"The other consideration on fraud is, the longer it takes to clear the item, the longer it takes to commit fraud," says Walker. "We anticipate there will be positive impact. By using electronics we should be able to shorten the time it takes to collect and return checks. It leaves less time for fraud to be committed."