What Are Remotely Created Checks and How Do They Work?

Remotely created checks (RCCs) represent a distinct method of payment in the financial system. They are payment orders generated by the payee, the entity receiving funds, rather than the payer, the account holder. A defining characteristic of an RCC is the absence of the payer’s original, physical signature on the check document itself. This payment instrument facilitates transactions where a traditional handwritten check is impractical or impossible to obtain.

How Remotely Created Checks Are Authorized and Created

The creation of an RCC begins with payer authorization to the payee. Authorization is provided remotely, such as verbally over the phone or electronically online. The payer provides banking details, including account and routing numbers, often from a valid check.

Once authorized, the payee uses this information to create the check document. Instead, the check bears a printed notation in the signature area, indicating authorization without a physical signature. Common phrases include “Authorized by Drawer,” “Signature Not Required,” “Signature on File,” or “Authorized by Depositor.”

The payee or a third-party processor then prints the check, often on blank stock, including all standard banking details. While RCCs can originate as electronic images, federal regulations require them to exist as a paper document for processing through the check-clearing system. This physical representation allows it to function within banking infrastructure.

Key Characteristics and Processing by Financial Institutions

A primary distinguishing feature of remotely created checks is the conspicuous absence of the payer’s handwritten signature, replaced by a printed authorization statement. This unique characteristic differentiates them from conventional checks and necessitates specific handling protocols within the banking system. Some RCCs are further identified by an External Processing Code (EPC) of ‘6’ positioned next to the routing number in the MICR (Magnetic Ink Character Recognition) line, a machine-readable code at the bottom of the check.

Financial institutions generally process RCCs through the same check-clearing systems used for other paper checks. Despite this similarity in processing, the distinct creation method of RCCs means they operate under particular regulatory considerations. Their handling is influenced by federal regulations, including provisions found within the Uniform Commercial Code (UCC) and Regulation CC. These frameworks establish guidelines for check collection, presentment, and the allocation of liability.

A significant aspect of the regulatory framework for RCCs involves the allocation of liability for unauthorized transactions. Historically, the bank on which a check is drawn (the paying bank) bore the primary risk for unauthorized items. However, federal amendments to Regulation CC shifted this liability for unauthorized remotely created checks to the depositary bank, which is the bank that first accepts the check for deposit. This shift provides an incentive for depositary banks to implement robust procedures for verifying the authorization of RCCs before accepting them.

Common Uses of Remotely Created Checks

Remotely created checks serve various practical purposes, particularly in situations where obtaining a physical signature from the payer is inconvenient or impossible. They offer a flexible payment solution for a range of transactions. Businesses frequently use RCCs for payments initiated over the phone, such as utility bills, credit card balances, or loan payments.

Another common application is for setting up recurring payments, where a customer provides a one-time authorization for a business to debit their account at regular intervals. This streamlines processes for services like subscriptions or recurring memberships. RCCs can also be employed in situations requiring rapid payment, such as emergency transactions, or by debt collection agencies seeking to settle outstanding balances efficiently.