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Attorney Warns About Remote Deposit Capture Risk
Banks plunging into the world of remote deposit capture (RDC) must realize that there are potential legal as well as operational pitfalls, according to an attorney specializing in banking law. “There is too much at stake here for a bank to try to cut corners and save a few pennies,” said Paul Carrubba, special counsel at the Jackson, Miss., office of Adams and Reese LLP. Carrubba spoke on “Legal Issues in Remote Deposit Capture” Wednesday at the BAI TransPay Conference & Expo in Las Vegas. He said the Check 21 law helped usher in electronic image exchange, but at the same time created new operational and risk issues for financial institutions. Who bears liability for an electronic image transaction is a top issue, Carrubba said, since Check 21 says nothing about the responsibility of a bank’s customer. In fact, he said, it is the bank that ends up assuming most of the liability. |
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All too often, Carrubba said, banks resort to grabbing a boilerplate agreement off the Internet, or using one from another bank. Many of these contracts don’t offer the protection a bank needs with RDC, potentially opening it up to big losses, he added. Since image quality will be determined by the type of scanner used, customers should not be allowed to purchase the least expensive scanner in the marketplace, Carrubba added. This is likely to happen if the agreement fails to require the customer to use hardware that’s certified by the solutions provider, he said. The agreement should also define the point when a bank acknowledges receipt of a file from a customer, Carrubba said. But such acknowledgement should not mean that a bank acknowledges that the file contains no errors or that the bank is responsible for the information in the file, he added. The agreement should state that credit given for the file is provisional and that the customer secures the bank for any loss sustained by the bank for acceptance of the file, he said. Carrubba also advised banks to gird their systems for fraud. “A financial institution should not offer RDC to every customer that wants it,” he said. “There needs to be some type of due diligence on that customer to make sure they qualify for the service.” (For more on RDC, see “Making the Case for Remote Deposit Capture” in the May/June 2006 issue of BAI Payments Strategies.) |
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More Articles in This Issue » BANK COALITION PROPOSAL WOULD REDUCE NEED FOR SUBSTITUTE CHECKS » OFFSHORING THE BACK OFFICE » DON'T UNDERESTIMATE THE POTENTIAL OF CONTACTLESS PAYMENT SYSTEMS » FOCUS ON CUSTOMER ACQUISITION, CHECKFREE ADVISES » SURVEY RESULTS: ATTENDEES EXPECT NON-BANKS TO BE TOUGHEST PAYMENTS COMPETITOR » WE'RE BRINGING IT ALL TOGETHER
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