Remote Deposits: Risk and Reward

By:  Chad J. Cochran

Yesterday at lunch, a woman ahead of me in line asked to pay for her sandwich with a check.  The deli worker looked a bit startled and then replied, “I’ve been working here three months and this is the first check I’ve seen.”  The cashier did not win any points for customer service, but his premise was spot on – We don’t use checks like we used to.

Americans are increasingly using electronic banking.  We set-up automatic withdrawals for our bills.  We check our bank accounts online to make sure our paychecks are electronically deposited.  We pay for our $6 lunches with credit cards.  Remote check deposits are a logical next step.

Although consumer check payments are increasingly rare, checks are still the norm for business-to-business transactions.    Banks are adjusting.  The vast majority of banking institutions have adjusted to the electronic trend and allow some form of remote check deposits.

All of this electronic traffic means that trips to our local banks are becoming much less frequent.    Depositing a check from your business computer or smart phone can save a significant amount of time and energy.  Remote deposits allow businesses to reduce transportation costs and employee time away from work, allowing employees to focus on revenue positive activities.

Remote deposits are certainly convenient, but the traditional paper check carried with it a sense of security.  Bank encryption software has prevented a large amount of fraud issues, but risks still exist.  Criminals have concocted double dipping schemes wherein a check is first cashed electronically and then the physical check is  turned into cash at a check cashing facility.

The Check Clearing for the 21 Century Act (2004) allocates responsibility when a distribution is made following a wrongfully deposited check. The law’s indemnification provisions allow a paying bank to pursue an indemnification claim against the bank who presented the false check under certain circumstances.  Customer agreements oftentimes allow the bank who suffered indemnification claims to “pass back” that responsibility to its customers.

Businesses who remotely deposit checks can minimize their risks by taking certain procedural precautions: (1) Physical copies of checks should be stored in a secure location; (2) Upon confirmation of deposit, physical checks should be noted as “Paid”; and (3) Physical checks should typically be destroyed 90 days after deposit.  Finally, technological precautions can also minimize a company’s risks: (1) Deposit funds from devices with active anti-virus software; (2) Maintain software and/or hardware firewalls; and (3) Beware impostor Android software which mirrors your bank’s remote deposit applications.