PREP Guide - Rules and Agreements

Question 1

ECCHO Operating Rules and Commentary

What is ECCHO?

Answer 1

ECCHO is a check clearinghouse service of The Clearing House Payments Company L.L.C.

ECCHO’s membership consists solely of U.S. depository institutions.

Question 2

ECCHO Operating Rules and Commentary

What do the ECCHO Operating Rules and Commentary govern?

Answer 2

The ECCHO Rules govern electronic check and electronic returned check transactions between Members.

The Rules may vary provisions of the UCC with respect to a person interested in a check processed under these Rules.

Question 3

ECCHO Operating Rules and Commentary

Who are the Members of ECCHO?

Answer 3

Members of ECCHO are U.S. depository institutions.

Only Members can use the ECCHO Rules for transactions.

Question 4

ECCHO Operating Rules and Commentary

Can ECCHO Rules govern transactions between a Member and a non-Member?

Answer 4

No, ECCHO Rules do not govern transactions between a Member and a non-Member entity.

This includes any private agreements that attempt to use the ECCHO Rules.

Question 5

ECCHO Operating Rules and Commentary

What is the purpose of the Commentary section in ECCHO Rules?

Answer 5

The Commentary describes the intended purpose of the Rule and additional implementation issues.

It also addresses possible applications of the Rule to various hypothetical situations.

Question 6

ECCHO Operating Rules and Commentary

Who approves changes to the ECCHO Rules?

Answer 6

Changes are approved by the ECCHO Business Committee.

The Committee considers input from the Operations Committee, Working Groups, individual Members, and Sponsoring Organizations.

Question 7

ECCHO Operating Rules and Commentary

What happens once changes to the ECCHO Rules are approved?

Answer 7

Changes become binding on all Members as of the effective date established by the Business Committee.

Members must comply with the updated Rules.

Question 8

ECCHO Operating Rules and Commentary

Where can one review or download a complete copy of the ECCHO Rules?

Answer 8

The complete copy of the Rules is available on the ECCHO website.

It is freely available to the public.

Question 9

ECCHO Operating Rules and Commentary

What do the ECCHO Rules recognize and build upon?

Answer 9

The ECCHO Rules recognize and build upon existing check law, such as the UCC and Regulation CC.

Regulation CC is a federal regulation that governs the availability of funds and the collection of checks.

Question 10

ECCHO Operating Rules and Commentary

What is the main goal of ECCHO as a national clearinghouse?

Answer 10

To facilitate the exchange of electronic check transactions between depository institutions of all sizes throughout the United States.

Question 11

FRB OC3 - Collection of Cash Items and Returned Checks

What is the purpose of Operating Circular 3 (OC 3)?

Answer 11

To handle all cash items sent or received by the Federal Reserve Bank for forward collection and returned checks

OC 3 is issued along with Subpart A of Regulation J and Subparts C and D of Regulation CC.

Question 12

FRB OC3 - Collection of Cash Items and Returned Checks

Which regulations and acts is OC 3 issued pursuant to?

Answer 12

Federal Reserve Act, Expedited Funds Availability Act, Check Clearing for the 21st Century Act (Check 21 Act)

Also conforms with Regulation J and Regulation CC.

Question 13

FRB OC3 - Collection of Cash Items and Returned Checks

What types of items does OC 3 cover?

Answer 13

Cash items and returned checks

It includes instructions for paying, collecting, returning, and depositary banks.

Question 14

FRB OC3 - Collection of Cash Items and Returned Checks

Who is bound by the provisions of OC 3?

Answer 14

All parties interested in an item handled by the FRB

Provisions may vary by agreement with certain sections of Check 21 Act, the Uniform Commercial Code, or Regulation CC.

Question 15

FRB OC3 - Collection of Cash Items and Returned Checks

What are some key provisions outlined in OC 3?

Answer 15

• Items We Handle as Cash Items
• Items We Do Not Handle as Cash Items
• Definitive Securities; Noncash Items; Electronically-Created Items
• Preparation and Handling of Items
• Image Cash Letters and Image Return Letters
• Paper Cash Letter and Return Letters
• Time Schedules and Availability of Credit
• Routing Number; Records
• Shipment and Presentment
• Settlement for Cash Letters
• Designation of Settlement Account
• Missent Cash Items
• Returned Checks
• Notice of Nonpayment Service
• Charges
• Exceptions and Adjustments
• Missing or Destroyed Cash Items and Returned Checks
• Cut-Off Hour
• Electronic Access to FRB’s Check Services
• Claims Against the FRB

This list is not exhaustive.

Question 16

FRB OC3 - Collection of Cash Items and Returned Checks

What is included in Appendix A of OC 3?

Answer 16

Government Checks

Appendices include various types of cash items and services.

Question 17

FRB OC3 - Collection of Cash Items and Returned Checks

What recent changes were made to OC 3 regarding Treasury checks?

Answer 17

It includes notice to financial institutions when Treasury has stopped payment on a check

The Federal Reserve Bank will adjust or return government checks per U.S. Treasury instructions.

Question 18

FRB OC3 - Collection of Cash Items and Returned Checks

Fill in the blank: OC 3 was amended to include recent changes that the _______ made to regulations governing Treasury checks.

Answer 18

Treasury Department’s Bureau of Fiscal Service

This amendment ensures compliance with updated regulations.

Question 19

FRB OC3 - Collection of Cash Items and Returned Checks

What governs and controls the terms related to Treasury checks as per OC 3?

Answer 19

31 CFR Part 240

This regulation outlines the definitions and terms applicable to Treasury checks.

Question 20

FRB OC3 - Collection of Cash Items and Returned Checks

True or False: OC 3 applies only to cash items and does not include returned checks.

Answer 20

False

OC 3 explicitly includes both cash items and returned checks.

Question 21

Nacha – Automated Clearing House (ACH) Rules

What are the ACH Operating Rules and Guidelines produced by?

Answer 21

Nacha

Nacha serves as the definitive source of information governing the exchange and settlement of electronic funds transfers through the ACH network.

Question 22

Nacha – Automated Clearing House (ACH) Rules

What do the ACH Operating Rules provide users with?

Answer 22

The legal framework

Guidelines provide guidance on implementing the rules.

Question 23

Nacha – Automated Clearing House (ACH) Rules

What is the purpose of the Nacha Operating Rules?

Answer 23

To standardize the roles and responsibilities of all parties using the ACH Network

This includes consumers, businesses, credit unions, banks, and government entities.

Question 24

Nacha – Automated Clearing House (ACH) Rules

What is one of the benefits of the ACH Rules?

Answer 24

They help manage risk and create certainty for all participants.

Question 25

# Nacha – Automated Clearing House (ACH) Rules List the articles included in the Nacha Operating Rules and Guidelines.

Answer 25

* General Rules * Rights and Responsibilities of ODFIs, their Originators and Third-Party Senders * Rights and Responsibilities of RDFIs and their Receivers * Rights and Responsibilities of ACH Operators * Rights and Responsibilities of Gateways for IAT Entries * Rights and Responsibilities of the National Association * Settlement * Definition of Terms Used in the Rules

Question 26

# Nacha – Automated Clearing House (ACH) Rules What are some appendices found in the Nacha Rules?

Answer 26

* ACH File Exchange Specification * Specifications for Data Acceptance by ACH Operators * ACH Record Format Specifications * Return Entries * Notifications of Change * Acknowledgment Entries * Compensation Rules * Rule Compliance Audit Requirements * Arbitration Procedures * Rules Enforcement * Determination and Review of Same Day Entry Fee

Question 27

# Nacha – Automated Clearing House (ACH) Rules What happens when a paper check is converted to an ACH transaction?

Answer 27

The check is no longer under check law but is covered by the Nacha rules with consumer coverage under Reg E.

Question 28

# Nacha – Automated Clearing House (ACH) Rules Define ARC in the context of ACH check conversion.

Answer 28

Accounts Receivable Entry ## Footnote Check provided to biller for payment by mailing a check or at a staffed bill pay location.

Question 29

# Nacha – Automated Clearing House (ACH) Rules Define POP in the context of ACH check conversion.

Answer 29

Point-of-Purchase Entry ## Footnote Made at point of purchase with check voided by merchant and returned to consumer.

Question 30

# Nacha – Automated Clearing House (ACH) Rules Define BOC in the context of ACH check conversion.

Answer 30

Back Office Conversion Entry ## Footnote Made at the point-of-purchase or at a staffed bill pay location for subsequent conversion during back-office processing.

Question 31

# Nacha – Automated Clearing House (ACH) Rules What does TEL stand for in ACH transactions?

Answer 31

Telephone-Initiated Entry ## Footnote A single or recurring entry consumer debit transaction made upon oral authorization obtained over the telephone.

Question 32

# Nacha – Automated Clearing House (ACH) Rules What does WEB stand for in ACH transactions?

Answer 32

Internet-Initiated/Mobile Entry ## Footnote Transaction authorized on the Internet or wireless network.

Question 33

# Nacha – Automated Clearing House (ACH) Rules What does RCK stand for in ACH transactions?

Answer 33

Re-presented Check Entry ## Footnote Returned check due to insufficient or uncollected funds re-presented electronically through the ACH.

Question 34

# Nacha – Automated Clearing House (ACH) Rules What does XCK stand for in ACH transactions?

Answer 34

Destroyed Check Entry ## Footnote Used to collect certain checks that have been lost, destroyed, or are otherwise unavailable for check processing.

Question 35

# Nacha – Automated Clearing House (ACH) Rules True or False: Most POP entries need to be returned by the RDFI by the opening of business on the banking day following the Settlement Date.

Answer 35

True

Question 36

# Nacha – Automated Clearing House (ACH) Rules What are the circumstances under which an RDFI may return a POP entry after sixty calendar days?

Answer 36

* No notice was provided to the Receiver about the conversion * The source document was not an eligible source document * The source document was presented for payment as a check through the check collection system.

Question 37

# Nacha – Automated Clearing House (ACH) Rules What is required from the Receiver prior to being re-credited for an unauthorized debit?

Answer 37

A written statement of unauthorized debit.

Question 38

# Nacha – Automated Clearing House (ACH) Rules For specific usage and requirements for entries within the ACH network, what should be reviewed?

Answer 38

The Nacha Operating Rules and Guidelines.

Question 39

# Agreements What is the purpose of operational agreements in the exchange process?

Answer 39

To address the logistics of a specific exchange

Question 40

# Agreements Name one type of operational agreement mentioned.

Answer 40

Banking Practice Agreement (BPA)

Question 41

# Agreements What do agreements specify in relation to image exchanges?

Answer 41

Processing and logistical aspects

Question 42

# Agreements What is one item that may be included in an agreement?

Answer 42

Start date(s) for exchanges

Question 43

# Agreements Fill in the blank: An agreement may state that the parties agree to the exchange under the _______.

Answer 43

rules

Question 44

# Agreements What does the routing number identification pertain to?

Answer 44

File Header Records

Question 45

# Agreements What are Bank-to-Bank Agreements?

Answer 45

Agreements covering private sector exchanges between banks

Question 46

# Agreements True or False: Bank-to-Bank Agreements can only be bi-lateral.

Answer 46

False

Question 47

# Agreements What type of agreements cover Customer-to-Bank exchanges?

Answer 47

Deposit account agreements

Question 48

# Agreements What should banks review when developing the RDC customer agreement?

Answer 48

Guidance from the FFIEC regarding risk mitigation and reporting requirements

Question 49

# Agreements What is the purpose of Bank-to-Vendor Agreements?

Answer 49

To address liabilities and responsibilities of a third-party agent in check processing

Question 50

# Agreements Name a consideration for Vendor Agreements.

Answer 50

Compliance with check laws

Question 51

# Agreements Fill in the blank: Banks have the ability to close the _______ account.

Answer 51

processor

Question 52

# Agreements What does Check 21 relate to in terms of vendor liability?

Answer 52

Potential for consequential damages for reconverting banks

Question 53

# Agreements What is a potential liability concern mentioned for vendors?

Answer 53

Liability for duplicate check images

Question 54

# Agreements What is one aspect that the vendor's indemnity/liability must cover?

Answer 54

Warranties made by the bank to other parties in the check collection system

Question 55

# Agreements What may be included in the scope of an agreement regarding adjustments?

Answer 55

Adjustments Process or Organization

Question 56

# Agreements What is the Image Ledger Cut-off Time?

Answer 56

A deadline for processing image exchanges

Question 57

# Agreements What type of agreements can be oral or written in nature?

Answer 57

Bank-to-Bank Agreements

Question 58

# Agreements What is a key point to ensure when developing agreements for image-enabled services?

Answer 58

Coverage of all points in the guidance from the FFIEC

Question 59

What does Operating Circular 3 (OC 3) apply to?

Answer 59

Handling of all cash items accepted for forward collection and all returned checks accepted for return by the Federal Reserve ## Footnote OC 3 outlines the procedures and regulations for cash items and returned checks processed by the Federal Reserve Bank.

Question 60

What role does the Federal Reserve Bank (FRB) play under Operating Circular 3?

Answer 60

The FRB is a party to the sending and receiving of items under these rules ## Footnote The FRB facilitates check processing by incorporating both federal and state regulations.

Question 61

Which federal and state regulations are incorporated under Operating Circular 3?

Answer 61

Reg J, Reg CC, and UCC ## Footnote These regulations govern various aspects of check processing and handling.

Question 62

What are the Private Sector Image Exchange Rules?

Answer 62

Rules that apply to the forward collection and/or return of electronic checks/electronic returned checks between ECCHO members ## Footnote ECCHO stands for Electronic Check Clearing House Organization.

Question 63

Is participation in ECCHO Rules mandatory?

Answer 63

No, participation is voluntary ## Footnote However, once agreed upon, members must conform to the provisions of the ECCHO Rules.

Question 64

What regulations do ECCHO Rules incorporate?

Answer 64

Federal and State regulations (Reg CC and UCC) regarding check processing ## Footnote These regulations ensure compliance and standardization in electronic check exchanges.

Question 65

What are Bi-lateral or Multi-lateral Agreements?

Answer 65

Unique rules for exchanging images between two or more parties, outlining specific areas of interest for that exchange ## Footnote These agreements are tailored to the needs of the involved parties.

Question 66

What is required for Bi-lateral or Multi-lateral Agreements when adding new relationships?

Answer 66

Must be renegotiated for each new relationship added ## Footnote This ensures that all parties are aligned on the rules and expectations for the exchange.

Question 67

ECCHO Rules may be used to cover the exchange of a check image via remote deposit capture from a merchant to a depositary bank. True or False?

Answer 67

False ## Footnote ECCHO Rules may only be used to cover image exchanges between members that have agreed to exchange under the rules and ECCHO members may only be U.S. depositary financial institutions.

Question 68

Who can use ECCHO Rules for image exchanges?

Answer 68

Only U.S. depositary financial institutions that are members of ECCHO ## Footnote ECCHO members must have agreed to exchange under the rules.

Question 69

What type of agreement covers images sent via remote deposit capture?

Answer 69

An agreement between the customer and their depositary bank ## Footnote This is separate from ECCHO Rules which do not apply to such exchanges.

Question 70

What is ECCHO?

Answer 70

ECCHO is a check clearinghouse whose membership consists solely of U.S. depository institutions. ## Footnote ECCHO stands for Electronic Check Clearing House Organization.

Question 71

What do ECCHO Rules govern?

Answer 71

ECCHO Rules govern electronic check/electronic returned check exchanges between two Members. ## Footnote These rules are under the UCC (Uniform Commercial Code).

Question 72

Who can use ECCHO Rules?

Answer 72

Only members of the clearinghouse can use ECCHO Rules. ## Footnote Non-Members cannot be governed by these rules.

Question 73

Can ECCHO members use the rules for transactions with non-Members?

Answer 73

No, ECCHO members may not use the ECCHO Rules to govern transactions with non-Members. ## Footnote This includes private agreements between parties.

Question 74

Fill in the blank: ECCHO Rules apply only to _______.

Answer 74

Members of the clearinghouse.

Question 75

True or False: ECCHO is applicable to transactions involving non-Member entities.

Answer 75

False.

Question 76

What is a Banking Practice Agreement?

Answer 76

Agreements that outline specific operational aspects for image exchanges ## Footnote Sometimes referred to as BPA. They work in conjunction with the rules and specify certain processing and logistical aspects.

Question 77

What aspects do Banking Practice Agreements specify?

Answer 77

Processing and logistical aspects for image exchanges ## Footnote They may be incorporated with other network or clearing house rules.

Question 78

True or False: Banking Practice Agreements are standalone documents.

Answer 78

False ## Footnote They work in conjunction with the rules and may be incorporated with other network or clearing house rules.

Question 79

Fill in the blank: Banking Practice Agreements sometimes are called _______.

Answer 79

BPA ## Footnote BPA stands for Banking Practice Agreement.