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CHECK 21 REMOTE DEPOSIT CAPTURE/ OFFICE TELLER

LOCKBOX or ACCOUNTS RECEIVABLE CONVERSION (ARC)  DESCRIPTION: ARC or Check 21 is the term used by NACHA & the Federal Reserve to describe the process of converting a paper check into an Electronic Funds Transfer (EFT) and transmitting it through the Automated Clearing House* (ACH).  In an ARC Check 21 application, the check is used as a source document to initiate a one-time ACH debit against the check writer's bank account.  ARC Check 21 can be used for payment items remitted by a customer through the US mail or via a drop box.  ARC Check 21 can also be used in satellite payment locations where the payments are batched daily for processing. * The ACH is a federally regulated electronic payment network used by 95% of the banks and financial institutions in the US. Consumers continue to enjoy the convenience of mailing their bill payments to companies, along with the advantages of mail and collection float associated with such payments.  For merchants, the cost of collecting and processing these checks is high.  ARC Check 21 focuses on methods that may be used by merchants to increase processing efficiencies within the lockbox setting, by reducing collection float and other check collection costs, through the truncation and conservation of paper checks to electronic entries. NACHA's (National Automated Clearing House Association) ARC rule went into effect on March 15, 2002, establishing a new Standard Entry Class Code, allowing the implementation of this form of check conversion.       Benefits Funds are Transferred Electronically. Client or Bank Does Not Need to Process a Single Piece of Paper. Centralized Bank Deposits for Multiple Location Companies. Low Transaction Fees. Low NSF Fees. Files Can be Exported to Update Your In-House Accounts Receivable System. No Lost or Stolen Checks to Worry About. No Bank Runs to Make. No Bank Deposit Fees. Never an NSF Processing Fee From the Bank to the Client. NSF Checks Will be Reported Within Three (3) Business Days.  Client can Redeposit Immediately and Keep All Fees. 24/7 Monitoring of Your Account via our Secure Website. Software can be Customized to Supply Additional Information, Reports, etc. Less Risk of Identity Theft. EFC's unique patent pending Image Replacement Document (IRD) system allows businesses to proces consumer checks as well as checks from businesses, money orders etc. WHAT ARE IMAGE REPLACEMENT DOCUMENTS? With the recent approval of the Check Clearing Act for the 21st Century (Check 21), this legislation sets a new standard for the check clearing industry.  Check 21 enables banks to accept paper checks which have been imaged and recreated as a substitute check.  EFC, a leading provider of ACH and electronic check services, has already deployed a product aimed to alleviate the gridlock of traditional check clearing, payment and processing.   By utilizing EFC's Image Replacement Document (IRD) System in conjuction with our Accounts Receivable Conversion (ARC) product, a user can maintain the integrity of their processing of checks recieved through Back Office Conversion.  There is no need to manually sort through all checks to identify convertible and non-convertable items.  All items can be handled exclusively through our online software. While convertable items (consumer checks) sent through the ACH for processing, non-convertable items (corporate checks, money orders, etc.) are imaged and then deposited via the bank processing center or a third party processor. Check 21 opens doors for banks to accept these substitute check items or IRDs in the banking system.  The use of IRDs will significantl reduce the risk of fraud and lost checks. HOW DO IRDs WORK? Originator receives check for payment of goods or services via mail or at a payment center. Check is scanned into the software, and data is transferred into the ARC software. Check data is batched and transmitted to EFT Network for processing for presentment through the ACH. Receiver's account is debited, and cleared funds are deposited into the Originator's account. Files are made available on our secure website for export into your in-house accounts receivable system.  SCANNER OPTIONS: We are currently offering a low - medium volume check imaging option with the Magtek scanner, and a large volume option with the DigitalCheck scanner.  We also have the ability to configure our software to interface with your in-house check imaging hardware. COMPANIES ELIGIBLE TO PARTICIPATE: ARC is designed for companies that bill customers and receive check payments via mail or at one or more locations (lockboxes), where the payments are handled in batch processing mode. Some Billers (the companies receiving and processing the checks) may also allow the customer to pay bills in person.  These bills are batched daily for processing and are eligible for lockbox truncation. Companies that typically fulfill these requirements are retailers, financial institutions, credit card issuers, service providers (such as cable TV), utilities, and professional offices. PROVISION FOR ORIGINAL COPY OF CHECK: Billers shall retain the original check for a period of fourteen days from the settlement date of the ACH entry.* Originator must be able to obtain reproducible, legible, image, microfilm, or copy of the front and back of a check for a period of two (2) years from the settlement date of the original entry. * Our scanner/imagers will automatically store the checks image to a writable CD.  The image is also transmitted to us and stored as a backup for later retrieval. CONSUMER NOTIFICATION/AUTHORIZATION. Prior to the receipt of each check that will be used as the basis of origination of an electronic ARC entry, The Originator is required by the NACHA Operating Rules to provide notice to the Receiver that receipt of the Receiver's check will be deemed to be the Receiver's authorization for an electronic ACH debit entry to the Receiver's account.  After notification to the Receiver that checks will be used to initiate an electronic ARC entry, the Receiver must be given the opportunity to Opt-out. A notification may be provided to a receiver via a note on Biller's statement / invoice, notifying them that if they choose to Opt-out, they MUST provide an alternate means of payment, i.e. Cash or Credit Card. EFC TRUNCATION - HOW IT WORKS: Biller receives check for payment of goods or services.  Biller transfers the check MICR data into the EFC software (Windows or NT based PC or Network):  Check is imaged using a check imager.  The check can also be scanned by a check imager.  In addition to sending the proper information into the software the imager will also save the image to a CD where it must  be maintained for 2 years.  Our unique system transmits not only the MICR information and dollar amount to our processing center, it also transmits the image of the check which is kept for 2 years.  This provides our customers with a unique image retrievable backup system. The data can also be imported via ASCII comma delimited file.  Check data is batched by the software and transmitted to EFC processing center for processing through the ACH.  EFC translates the data into a NACHA file format and sends the files through to the ACH.  Payment is made to merchant in 24 hours provided that the merchant transmits to EFC processing center before the daily cutoff time.  In 2 - 4 business days all results files (paid and unpaid items) are transmitted back to the biller via the software.  All NSF checks can be immediately resubmitted by clicking on them.  SOFTWARE FEATURES: EFC's software includes some very important features to facilitate the handling of checks. The most important feature is the ability to recall previously entered check account and routing numbers.  The first time a check is entered via an imager the Biller must enter the account name, customer account or unique id#, and  dollar amount of the check.  On the following payment periods all of the customer information will appear as soon as a check with the same routing and account number is entered. EFC's software features unique reporting capabilities which enables the Biller to receive all returned check files through the software so that the Biller can view, print, or export the files.  In addition, the Biller can automatically resubmit NSF returns by clicking on them and then transmitting them to the processing center. Return fees may also be automatically submitted with our special fee collection feature.  Fees can be submitted for any item that has been returned as long as the Biller has a separate written authorization for such fee collection. WHAT ARE THE BENEFITS? Payment is made in 24 hours - essentially the next day regardless of where payor bank is located (Just transmit before our cutoff time).  Remote locations can deposit the money to a central bank location.  NSF checks will show up in 2-3 days giving you an early warning system.  NSF checks can be represented again immediately along with a NSF fee - you keep all the fees (separate written authorization is necessary to collect the fees).  All result files are transmitted back to the software showing any returned checks and giving you the exact reason for the return.  Software produces ASCII files to export to accounts receivables or for other reporting scenarios.  Software can be customized to supply additional information, reports, etc.  No deposit slips, etc.  Reduced handling costs.  Low deposit fees.  Low NSF fees.    TYPES OF CUSTOMER PAYMENTS   Nature of Payment  Examples of Payments Fixed Amount, regularly recurring payments Auto and other loans, mortgage payments, rent payments Variable amount, regularly recurring payments Utility bills, state and local taxes, credit card bills Variable amount, variable frequency payments Mail order purchases, television home shopping purchases, donations Variable amount, variable frequency payments received in person but held until the end of the day for batch processing Department store payments, recreational facility fees, property management rent collections CHECKS ELIGIBLE FOR ARC: Check must contain a pre-printed serial number. Check must be completed and signed by the customer. Dated 180 days or less from the date the entry is being transmitted to the RDFI.  CHECKS NOT ELIGIBLE FOR ARC: By utilizing the EFC's Patent Pending Image Replacement Document (IRD) System in conjunction with our Accounts Receivable Conversion (ARC) product, a user can maintain the integrity of their back office processing of checks received through a lockbox location. There is no need to manually sort through all checks to identify convertible and non-convertible items.  All items can be handled exclusively through the EFT online software.   While convertible items (consumer checks) sent through the ACH for processing, non-convertible items (corporate checks, money orders, etc.) are imaged and then sent to a remote location for processing.  These substitute check items, or IRDs, can then be deposited via the bank processing center or a third party processor. Check 21 opens doors for banks to accept these substitute check items or IRDs in the banking system.  The use of IRDs will significantly reduce the risk of fraud and lost checks. TYPES OF IMAGE REPLACEMENT DOCUMENT (IRD's): Cashier’s checks and treasurer’s checks Travelers’ checks Convenience checks drawn on credit card accounts. Money orders. Third party items. Corporate checks. Drafts drawn on federal, state, or local governments. Items payable in a foreign currency. Unsigned items. ARC / LOCKBOX COMPONENTS: The major components of Lockbox Truncation are: CHECKREP Software - to interpret and transmit the data for processing.  Check Imager - (used in place of a Check Reader) to image the check and store the image for 2 years per NACHA requirement - this also reads the MICR data and sends the information into the software.  A desktop check imager can be used.  This imager will image the check and send the image into a data base or writable CD Rom.  It will also send the MICR data into the software eliminating the need for a check reader.  A high speed imager can be used at the beginning of the process as a separate procedure and export an ASCII file into the lockbox software.  ASCII File Generator - produced by the software to export check information into receivables.  Data Transmission - the software transmits the check data to our processing center.  ACH Processing - the processing center formats the data into NACHA files and transmits the files through the ACH.  Funds Deposit - In 24 hours the funds are deposited into the merchant bank account.  Reporting - all results files are transmitted back through the software to the operations centers.  Representment of Returned Items - the results files will indicate NSF or other returned checks that may be resubmitted - these will normally be made known to the merchant in 2-3 days. Items returned for R01 (insufficient funds) or R09 (uncollected funds), the Biller may resubmit the entry. Items returned for R03 (no account/unable to locate account) or R04 (invalid account number), the Biller may do research and correct and then resubmit the item. Fees For "Bounced" Entries - If the merchant imposes a collection fee for returned items and submits the amount of the fee via the ACH Network, the NACHA Operating Rules for electronic representment of checks requires that the customer authorizes the ACH entry for the collection fee separately and that the collection fee entry be originated as a separate entry. Billing:  You are billed on or about the 15th of each month and the billing amount is debited from your account 5 days later.