by. Henry Meier
Just as good fences make good neighbors, clearly written laws make for good business practices by clearly defining each party’s obligations. Credit unions and banks are acutely aware of this since every time they process a check, they are relying on warranties developed and refined over hundreds of years. However, technology is evolving much faster than the law of check negotiation.
No where are the potential problems with this trend better exemplified than with the recent emergence of remote deposit capture that allows members to take a picture of the front and back of their drafts and send the electronic images into the payment stream.
First, some real basic stuff. When your credit union receives a paper check for deposit and converts it into a substitute check, it presumably has a process in place to ensure that the duplicated original paper check is not mistakenly put into the payment pipeline.
But what happens when one of your members uses her mobile phone to create a substitute check and then forgets to destroy the original? What happens when that original check mistakenly, or in some cases, intentionally, is deposited into another depository institution, which, unaware that a substitute check has been made, honors the paper draft? What institution should ultimately bear the cost for this mishap? Believe it or not this extremely basic question has not been addressed by either the courts or regulators.continue reading »