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Positive Pay vs. Reverse Positive Pay in Class Action Settlement Administration

The Pros and Cons of each and which method is recommended

Contributing Authors: Edward J. Radetich, Jr., CPA, Senior Director of Heffler Claims Group, and Chris Ritchie, Senior Vice President – National Settlement Team, Huntington Bank

According to a recent publication from the Federal Reserve, check fraud, which has been termed “a growth crime,” affects every financial institution, every business and every individual throughout the country, and some places cost upwards of $10 billion per year. Further, the FBI estimates that this cost could be as much as $12 billion per year.

With the usage of smartphones and mobile devices now being the norm in both our personal and professional lives, we’re using these devices for just about everything from online shopping and keeping up with friends and family on social media, to hosting corporate conference calls and even mobile banking.

The Check Clearing for the 21st Century Act (Check 21) of 2004 was designed to enable banks to handle more checks electronically to make check processing faster and more efficient.  Check 21 legalized the creation of digital versions of paper checks for processing and outlines a variety of rules required for check-imaging.  For mobile depositing, there is one very notable difference, the consumer holds onto the check.

As we’ve seen with most new technology, fraudsters inevitably find ways to game the system. With the ease of consumers now being able to scan checks with their mobile devices, and simultaneously deposit checks into their bank accounts without ever having to step foot in a bank or visit an ATM, we’ve seen an uptick in both fraud and unintentional errors.  Fraudsters have found ways to double-cash – and sometimes even triple cash – a check, leaving the check issuer liable to make good on all transactions.

More recently, this has become a bigger concern within the class action industry and we’ve received many questions about the best methods to mitigate the risks of fraudulent check cashing.  The two most common banking practices are Positive Pay and Reverse Positive Pay. We’ve noticed there seems to be a lot of confusion around each method so we decided to catch up with Chris Ritchie, Senior Vice President of Huntington Bank, to help us provide more clarity around both options.

Before jumping in, it’s important that we first share our professional recommendation, which is to ensure that some added level of protection is implemented on each and every distribution.  Since the majority of class action settlements require the distribution of thousands, if not millions, of checks throughout the United States – and in some cases, all over the world – we recommend adding additional safeguards, whether it’s Positive Pay or Reverse Positive Pay.  To help you determine which method is best, we’ve provided more details on each below.

Positive Pay Defined

Check Positive Pay is a fraud mitigation service that provides early detection of fraudulent, altered or counterfeit checks through a daily verification of checks presented for payment against a check issue file.

How it Works

As soon as the customer issues checks, they simply provide their bank with a check-issue file that contains the details of the checks they want to post to their account. When checks are presented for payment, the bank will systemically compare the dollar amount and check number to the check-issue file ensuring that the information matches. If the checks presented do not match, the bank will notify the customer of the exception. Using the check information as well as a digital image of the check, the customer will need to review and decide whether they want the exception items to Pay or Return.

Teller Positive Pay

Teller Positive Pay identifies potentially fraudulent, altered or counterfeit check items presented at bank branches by comparing them in real-time with the check-issue file. If the information does not match, the check will not be cashed.

Reverse Positive Pay Defined

Reverse Positive Pay provides early detection of fraudulent, altered, or counterfeit checks by allowing the customer to review all prior day checks that were presented for payment. If any of the presented checks do not match the issued checks, the customer can investigate further by viewing an image of the check. Each business day, the customer will be responsible for reviewing the report to determine if any items should be returned or paid within a 24 hour period.

How it Works

The day after checks are presented for payment, the bank will post a report of all items (except teller cashed items) for the customer to review. The report will contain check information such as the dollar amount and check number as well as digital images of the checks. The customer will then need to review and decide if any of the items should be returned. All items without a decision will be Pay once the decision period ends.


So which option is best for Class Actions Settlement Administration? 

“I recommend traditional Positive Pay because it’s more effective for the claims administrator,” said Chris Ritchie, Senior Vice President – National Settlement Team, Huntington Bank. “With Positive Pay, you only have to review the exceptions (approximately 1% of checks), instead of 100% of the checks with Reverse Positive Pay.”

Ritchie also warned that with Reverse Positive Pay, there is a default decision to ‘pay’ any items that haven’t been decided by the cut-off deadline.

“This is risky and cannot be changed,” said Ritchie.  “For traditional Positive Pay, the default decision is ‘return’ which is safer. In addition, when working with Huntington, traditional Positive Pay allows the administrator to screen for fraud at the Huntington teller window.  Reverse Positive Pay doesn’t provide check issuance data to Huntington’s tellers who are at the front line of fraud defense. Over the last 15 years, our National Settlement Team has processed more than 130 million checks for $50 billion, and our clients who use Positive Pay haven’t lost a dime through this service,” added Ritchie.

Heffler agrees with Ritchie’s recommendation of using the Positive Pay method for Class Action Settlement Administration.

“With the sheer volume of checks being distributed in class action settlements – some matters having 100s of thousands of checks – the stringent deadlines of having to respond within 24 hours pose a greater risk,” said Edward J. Radetich, Jr. CPA, Senior Director of Heffler Claims Group.

“The chances of error or of a fraudulent check slipping through the cracks are significantly greater with Reverse Positive Pay and when you weigh this against the cost associated with each method, which is approximately the same, we believe the benefits of the Positive Pay method are a more optimal solution,” added Radetich. For more information, contact us

Heffler Claims Group
Heffler Claims Group (Heffler) is a national leader in class action settlement administration, having specialized in the notice and administration of complex legal matters for more than 50 years.


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