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The Green Sheet

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Technology Exists to Validate Restrictive Endorsements; FIs Need to Use It

Thursday, November 01, 2018 (RemoteDepositCapture.com / Patti Murphy)

Many financial institutions aren’t validating restrictive endorsements on mobile RDC items even though there are technology tools available that can automate the process.
Most financial institutions that offer mobile remote deposit capture have tools in place that support automated verification of endorsements on deposited items. Yet, industry research suggests that fewer than 10% are using automated tools that intelligently read endorsements.
 
Mitek Systems, the California firm that developed the mobile image capture engine that drives most mRDC solutions, has been continuously enhancing that engine to support automated and intelligent endorsement verification, explained Matt Kriegsfeld, Senior Manager, Mobile Payment & Document Solutions at Mitek. He said the enhancements have been available with new mobile deposit releases for the last 6 years; FIs just need to ask solution providers to activate. “These are great features,” Kriegsfeld said. But, he added, “There are a great number of financial institutions that have it and don’t realize it.”
 
The need for FIs to verify endorsements on RDC items has taken on added importance in the wake of recent changes to Federal Reserve Regulation CC that establish restrictive endorsements as a first line of defense against losses from duplicate deposits. The changes, which took effect July 1, require an FI receiving a deposit through the RDC channel to indemnify any other FI that subsequently receives the original (paper) check against losses because the check had already been paid. The indemnity doesn’t apply, however, if the item contains a restrictive endorsement, such as “for mobile deposit to bank A.”
 
“The practical purpose of these changes to Reg CC is to put FIs on notice that a check has been accepted already for deposit” using RDC, explained Scott Jones, a partner in the law firm Adams & Reese LLP.
 
Despite the potential liabilities that can arise from accepting RDC items without restrictive endorsements, a survey recently conducted by RemoteDepositCapture.com indicates that 17% of FIs are not looking for or validating restrictive endorsements on RDC items, said John Leekley, Founder and CEO of RemoteDepositCapture.com. The survey also found that just 13% of FIs use automated tools that can detect the presence of endorsements; 9% of FIs use automated tools that can intelligently read endorsements.

 
The Reg CC Industry Action Survey – was conducted in October by RemoteDepositCapture.com and elicited responses from over 100 FIs of all sizes.
 
Kriegsfeld, Jones and Leekley were featured presenters in a webinar – Reg CC & Restrictive Endorsements: A New Approach for Remote Deposit Capture Risk Management – presented earlier this week by RemoteDepositCapture.com and sponsored by Harland Clarke.
 
Mitek has been leveraging advances in artificial intelligence and neural network technologies to support verification of restrictive endorsements on mobile deposits, Kriegsfeld explained. The company also has been working with Harland Clarke to support recognition of security features on checks printed by Harland Clarke. Features like ImageMatch, which prints MICR line and other pertinent information on both sides of checks, and MobileMark, which allows depositors to identify items as mobile deposits. During his webinar presentation Kriegsfeld illustrated how these features are being used by FIs.
 
Reg CC & Restrictive Endorsements: A New Approach for Remote Deposit Capture Risk Management offers a deep dive into what FIs can and are doing around restrictive endorsements to support RDC risk management policies. And it offers tips for successfully implementing restrictive endorsement policies. The webinar is available for viewing, free and on demand. Click here now to access Reg CC & Restrictive Endorsements: A New Approach for Remote Deposit Capture Risk Management.
 


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