The Federal Reserve banks last week warned financial institutions that they will hold them liable for deposits of so-called remotely created checks if accountholders later dispute those transactions as fraudulent or unfair. Richard Oliver, Fed retail payments product manager, tells CardLine that "certain vendors," which Oliver would not name, commonly offer remotely created check services to Web-based merchants or telemarketers engaged in deceptive or unfair sales practices. To initiate remotely created check transactions, the payment services vendors use consumer check routing numbers to create what are called image replacement documents that clear electronically under rules of the Check Clearing for the 21st Century Act ("Check 21"). But because merchants in these cases never had possession of consumers' paper checks, or at least digital images of those checks, the transactions do not technically meet Check 21 rules. "We're not saying that this practice is illegal or that everyone that uses this practice is fraudulent," Oliver says. "We're saying that, as a financial institution, you really need to know your customers and your customers' customers." Most merchants accepting check routing information via telephone or Web interactions with customers process payments through the ACH network, Oliver notes. But some dishonest merchants prefer remotely created checks as a way to avoid clearing transactions under ACH rules, he says. ACH clearing is quicker and carries less-complicated processes for resolving disputed transactions than do electronic checks.

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