Fed Seeks to Improve the Quality of Return Items

One of the Fed's major goals is to improve the efficiency and effectiveness of the payments system and to reduce risks to payments system participants.

Late last year, the Federal Reserve System announced its intention to implement several pricing strategies designed to achieve this goal. A letter was mailed recently to all Eighth District check customers announcing that, effective June 1, 2001, Reserve Banks will implement the following fees in addition to regular forward and return item processing fees:

Not-Our-Item (NOI)
$10 Surcharge

A misqualified return item deposited in a qualified return cash letter and then presented by a Reserve Bank to that institution will be charged a fee for each misqualified item. The bank that improperly qualified the item will be assessed the surcharge, not the bank submitting the NOI request.

No "2" in Position 44
$10 Surcharge

Reg. CC requires that the paying or returning bank fully encode the MICR line of the Qualified Returned Check (QRC) with the dollar amount of the item, the routing number of the bank of first deposit (BOFD) and the digit "2" in position 44 indicating the item is a QRC--rather than a forward item. Items lacking a present and readable "2" in position 44 require exception handling to assure the items are in fact return items and not forward items being processed in error.

FRB as Bank of First Deposit
$10 Surcharge

Returning banks often qualify return items inappropriately by encoding an FRB as the BOFD. Regulation CC requires that if the BOFD cannot be determined, the item should be deposited in a new cash letter.

Invalid Routing Transit Number
$10 Surcharge

Return items deposited in qualified return cash letters, that are qualified to nonexistent routing transit numbers, will be charged a fee for each misqualified item.

Check Digit Failure Exceptions
$10 Surcharge

Return items deposited in qualified return cash letters, that do not pass check digit verifications, will also be charged a fee for each misqualified item.

In addition, effective July 1, 2001, Reserve Banks will implement the following fee:

Large-Dollar-Value Checks
$50 Surcharge

Financial institutions depositing forward and return checks exceeding $10 million will be charged $50 to cover the cost of special handling that the large-dollar checks require. Most of these checks are walked through the processing stream to ensure timely handling.

Through the joint cooperation of payments system participants, the quality of return items can be greatly improved, thereby reducing processing delays and financial losses.

For more information about the guidelines for depositing qualified return items, please refer to the Federal Reserve Operating Circular No. 3. If you have questions about these processing fees, please contact your account executive.

The Qualified Return Check (QRC) process was initiated in October 1988 in response to Regulation CC, which implemented the Expedited Funds Availability Act. This process converts unqualified return items into items that can be automatically processed, sorted and cleared in a manner consistent with forward collection items.