The Problems Facing Remotely Created Checks

By: Latoya Irby

Why Processing Remotely Created Checks Is Bad for Your Business.

Remotely created checks are a relatively convenient way to take payments from customers – and for years, RCCs or telechecks were a preferred method for consumers to pay bills and merchants to accept payments. However, RCCs have become so risky in recent years that merchants are better off eliminating them as a payment option.

What is an RCC?

A remotely created check is a type of check that was not created by the account holder’s bank and doesn’t include the signature of the person who owns the account. The check instead includes a statement of authorization or the account holder’s printed name on the signature line. Merchants create an RCC by taking the customer’s bank and routing number over the phone or via a web form then printing a check and processing the check normally.

High Risk of Fraud

It is very easy to debit a customer’s bank account without their consent. A person only needs the bank account and routing information, which may be obtained from another legitimate transaction, gleaned from the customer’s check, or scammed from an unsuspecting consumer. RCCs are widely used by online scammers. Just last week The Federal Trade Commission announced a hefty fine to scammers creating and depositing remotely created checks.

Because RCCs move through the check clearing system with other non-RCC checks, it’s harder to detect and control fraudulent transactions. This leads to a high return rate, which as sometimes as high as 70%. A large number of returned RCCs which not only affects your cash flow and increases your collection efforts, it could also threaten your relationship with your bank.

Expenses Related to RCCs

RCCs lack processing fees, so they appear less expensive than electronic payments, however, you must also consider the printing costs. Printing checks requires the purchase of MICR ink and paper, a cost you could forgo by eliminating RCCs and telechecks as a payment method.

Legal Implications

Lawmakers have considered banning remotely created checks and, for years, have been urged to do so by consumer groups like the Consumer Federation of America and the Center for Responsible Lending. While there are some well-intending businesses who use RCCs only under expressed authorization from their customers, there are countless other high-risk businesses, like payday lenders, who frequently post unauthorized RCCs against consumer accounts.

The FTC is serious about taking action against companies (and payment processors) that abuse RCCs. For instance, in 2012, the FTC banned Landmark Clearing, Inc. from using remotely created payment orders – an electronic version of the RCC – after the payment processor was accused of debiting millions of dollars from consumer bank accounts. As part of the lawsuit, Landmark Clearing had to pay a hefty fine and refund fees to consumers whose bank accounts were accessed without consent.

In 2013, A Florida Court ordered a $9.6 million judgment against Direct Benefits Group for illegally debiting consumer bank accounts – with the help remotely created payment orders and processed by Landmark Clearing, Inc.

The FTC continues to crack down on companies who use RCCs and the institutions who process these payments. Some companies are fined millions of dollars and others are banned from doing business altogether.

The Consumer Financial Protection Bureau (CFPB), the newest consumer watchdog, is closely monitoring industries that take unfair advantage of consumers and considering rules to help protect consumers against remotely created checks. The bureau has already taken action against dozens companies in the finance industry for shady business practices. Eliminating remotely created checks can reduce the likelihood that your business will be among those targeted by the CFPB.

Better Electronic Payment Options

RCCs come with a lot of risks that you don’t have to accept since there are other payment options. Making the transition away from RCCs puts you in a better position.

Processing payments via ACH allows you to accept consumer payments using their bank information, but drastically reduces the risk of fraud and return. Debit card payments are another viable alternative, since most consumer checking accounts come with debit cards. HealPay enables you to accept both types of payments, in addition to credit cards, and makes it easy for you to get rid of RCCs for good!

HealPay, LaToya Irby and Erick Bzovi