The Problems Facing Remotely Created Checks

By: LaToya Irby

Remotely created checks are a relatively convenient way to take payments from customers. 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 a Remotely Created Check?

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.

Earlier in 2018, the Federal Reserve Board considered narrowing the definition of an RCC to include only checks that were created by the payee vs. any check that isn’t created by the bank. Ultimately, the definition for a remotely created check remains the same. This prevents banks from having to go through an additional step to figure out whether an RCC was created by the payee or another party.

Remotely Created Checks and a 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.

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 affects your cash flow and increases your collection efforts. Returned RCCs could also threaten your relationship with your bank since the bank of first deposit bears the liability for these types of checks. Having your account terminated makes it more difficult to get another merchant account in the future.

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.

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 Federal Trade Commission 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.

In 2015, the FTC banned telemarketers from using RCCs to prevent con artists from stealing money from consumers. Unfortunately, this means that some legitimate companies are unable to use RCCs to process companies.

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.

Also in 2015, the CFPB took action against Integrity Advance, LLC, an online payday lender, and the CEO for using remotely created checks to debit consumer accounts without their authorization. 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. Transitioning away from RCCs reduces the risk of fraud and return and protects you from bank account termination and legal action.

Processing payments via ACH allows you to accept consumer payments using their bank information, without the risks associated with RCCs. Debit card payments are another viable