Financial losses from returned checks are a persistent problem facing credit unions and cutting RDI losses can be an immediate way for credit unions to improve the bottom line. RDIs account for 33% of fraud losses at community financial institutions, according to the 2011 ABA Deposit Account Fraud Survey Report. Recent changes to Expedited Funds Availability Act (commonly called Reg CC) have further increased same-day funds availability requirements as well as shrinking statutory hold periods.
Credit unions are now required to make faster pay or no-pay decisions and must process returned items as quickly as possible in order to avoid losses from RDIs. The cost of RDIs to credit unions can be exceptionally problematic, especially for smaller credit unions that are less able to absorb even marginal dollar losses. Frequently, these losses are looked at as a cost of doing business and are accepted as a burden that cannot be significantly reduced.
However, by using the latest solutions that combine teller capture with sophisticated screening against a national shared database of checking accounts, credit unions can now curtail these losses.
Begin processing at the teller line.
Credit unions need to start processing at the teller line to allow time for processing with educated and intelligent return decisions. Converting the paper check to an image and performing a real-time screening for high likelihood of return can give tellers the relevant information they need to place an extended hold on a particular item. Those moves can also give the credit union more time to process the check in the event it’s returned by the paying financial institution. Screening items at the teller line is essential for identifying deposits with suspicious account status or stop-payment warnings.
Continuously monitor for RDIs until the item is paid.
Credit unions need to monitoring deposits after they have been released in outgoing cashletters to receive advance notification of return deposit items. Advance return notifications can alert the credit union up to five times a day that specific deposit items are likely to be returned by the paying institution. These notifications are delivered before the item is received in the inclearing file. This gives the credit union additional time to place a hold on those funds, notify the member of the potential return, and prevent a loss to both the credit union and the member. Conducting screening during the check clearing process is critical in reducing check losses.
Try to identify and extend holds high-risk items.
There are several instances in which a teller should always perform checks for fraud and, whenever possible, apply extended Reg CC holds. These cases include when the depositor is requesting a substantial amount of cash-back, deposits by non-members, substitute check (IRDs) deposits, deposits outside the usual pattern for a particular member, or suspicious checks that appear they could have been washed or damaged.
Financial institutions that have sophisticated risk management and hold strategies are able to achieve a hold/return rate of 75% - 80% on items that are flagged for extended holds and are subsequently returned, according to a recent survey conducted by Early Warning Services. So, the effective use of extended Reg CC holds can help protect your credit union from losses on return items.
Use analytics to identify preventable losses, and adjust accordingly.
Expanding the use of extended holds can help mitigate more preventable losses. The best way to reduce these losses is to frequently analyze, evaluate, and adjust your credit union’s policy for placing extended Reg CC holds. Regulations frequently change, as do the tactics used by fraudsters, so keeping abreast of these changes is a critical way to make sure that your credit union is doing all it can to keep RDI losses to a minimum.
For more information on best practices in check loss reduction and check fraud prevention, view Bluepoint Solutions’ on-demand webcast, “Driving the Cost Out of Checks.”