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Federal R eserve Bank OF DALLAS W IL L IA M H. W ALLACE DALLAS, T EXA S 7 5 2 2 2 FIRST V IC E PR E S ID E N T AND C H IE F O PER A TIN G O FFIC ER May 25, 1990 Circular 90-29 TO: The Chief Operations Officer of each financial institution in the Eleventh Federal Reserve District SUBJECT Return Item S trip Guidelines DETAILS To promote the efficient handling of return items that have been qualified through the use of a strip attached to the bottom of the item, the Federal Reserve has developed the enclosed "Return Item Strip Guidelines." The Strip Guidelines serve as a companion to the Return Item Carrier Envelope Guidelines (Circular 89-35) issued by the Federal Reserve last year. Together, the two Guidelines address major operational problems associated with processing qualified return checks (QRCs). Adherence to the enclosed Strip Guidelines by financial institutions will increase the likelihood that stripped returns will be efficiently processed by automated check sorting equipment and meet Reserve Bank reject rate standards for QRC items. The Guidelines are intended as an aid in achieving a more efficient return process, which will benefit paying, returning, and depository banks. They were developed with the assistance of strip manufacturers, check equipment vendors, and various banking groups as an interim step pending the adoption of a longer-term standard by the Accredited Standards Committee. The Reserve Banks do not recommend or approve particular strips or strip equipment. In general, a strip that meets the Guidelines will provide a surface conducive to the application of MICR encoding; will be the same length (within narrow tolerances) as the item; will be accurately aligned at the leading and trailing edges of the item; will be applied by machine; and will use an effective adhesive that extends the entire length of the strip so that the strip is fully bonded to the bottom of the check for its entire length. In Guidelines, depository procedures addition to meeting the technical characteristics of strips and stripping equipment must be properly used institution. In this regard, it is recommended that be established to periodically inspect stripped items the by the daily operating to ensure For additional copies of any circular please contact the Public A ffairs Departm ent at (214) 651 -6 2 8 9 . Banks and others are encouraged to use the follow ing incoming W A TS numbers in contacting this Bank (800) 4 4 2 -7 1 4 0 (in trastate) and (800) 5 2 7 -9 2 0 0 (interstate). This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) strips are of the appropriate length, are properly aligned, and are securely bonded to the item. It is also recommended that stripping equipment have a regularly scheduled maintenance program to ensure proper operation. If you use strips to qualify your returns, your use of the Guidelines, supplemented by daily inspection procedures, will make a significant improvement in the speed and efficiency of the return item process. ENCLOSURES Enclosed are the Return Item Strip Guidelines. M ORE INFORMATION For additional information, please contact Robert L. Whitman (214) 698-4357 at the Dallas Office, Eloise J. Guinn at (915) 544-4730 at the El Paso Branch, Luke E. Richards (713) 652-1544 at the Houston Branch, or Herb Barbee (512) 224-2141 at the San Antonio Branch. For additional copies of this circular please contact the Public Affairs Department at (214) 651-6289. Sincerely yours, RETURN ITEM STRIP GUIDELINES Federal Reserve System May 1990 TABLE OF CONTENTS 1.0 Background 1 2.0 Purpose/Scope 1 2.1 2.2 3.0 Definition Referenced 2 Standards 2 Strip Characteristics 3.1 2 Size and Alignment 2 3.1.1. Length 3 3.1.2. Height 3 3.1.3. Thickness 3 3.1.4. Alignment 3 3.2 3.3 Adhesive 3.4 4.0 Paper Specifications Color Preprinted information 3 4 4 on the Strip 4.1 Preprinted "2" in MICR Position 44 4.2 4 4 Other Preprinting 5 Appendix Paper Strip Specifications 6 RETURN ITEM STRIP GUIDELINES 1.0 BACKGROUND On September 1, 1988, the Federal Reserve instituted several changes to expedite the return of unpaid checks. These changes provided incentives for depository institutions to qualify returned checks for automated handling. This process entails putting the item in a carrier envelope or attaching a strip to the item and encoding the envelope or strip with the depositary b a n k ’s routing number, the dollar amount of the item, and a "2" in MICR Position 44. This enables subsequent processors, including Federal Reserve Banks, to accept deposits of qualified return checks (QRCs), process them on existing high speed check sorter equipment, and thereby process returned checks more expeditiously and efficiently than previously possible. Initially, the QRC process did not work as effectively as anticipated due, in part, to problems experienced when processing the wide variety of carrier envelopes and checks with strips from various manufacturers. Of these problems, those related to carrier envelopes were most severe, and an effort was immediately undertaken to identify those characteristics that would improve the "machinability" of the envelope. The study, conducted by the Federal Reserve, various banking groups, check equipment manufacturers, and carrier envelope vendors, resulted in the "Return Item Carrier Envelope Guidelines" published in May 1989. Since their implementation, the Envelope Guidelines have been instrumental in improving the effectiveness of return item processing. It should be noted the Envelope Guidelines are considered a short term bridge to a longer-term Accredited Standards Committee (ASC) standard currently under development. Attention was then turned to those problems encountered when processing checks with strips. Those problems included high reject rates, low throughput rates, and high jam rates related to handling stripped items. Additional problems involved were strips that come off during high speed processing, strips that are longer or shorter than the check, and strips that are difficult to remove without causing significant damage to the original item. The Federal Reserve System, with the assistance of various banking groups, check equipment manufacturers, and check-stripping equipment makers, reviewed ways to reduce those problems by identifying strip characteristics that improve the "machinability" of stripped items. This document is a result of that review process. 2 .0 PURPOSE/SCOPE The Return Item Strip Guidelines (Guidelines) have been designed to immediately address the most pressing operational problems in the current return environment related to handling of stripped return items. Adherence to these Guidelines will increase, but not guarantee, the likelihood that stripped returns will be processed efficiently by automated check sorting equipment and meet Reserve Bank reject rate standards for QRC items. Similarly, failure to adhere to these Guidelines would not necessarily result in stripped checks that will not meet Reserve Bank reject rate standards for QRC items. The Reserve 1 Banks do not approve or endorse particular brands of check-stripping equipment or paper strips. It should be noted that these Guidelines are expected to serve as a short-term bridge to a longer-term ASC standard that will be developed for return item strips. 2.1 DEFINITION A check repair strip ("strip") is a narrow piece of paper attached along the entire bottom edge of a check. Magnetic Ink Character Recognition (MICR) information is encoded on the strip, and the combined check and strip are sorted and transported as a single document through the check collection system. To achieve reliable document processing, the combined check and strip should be free of tears, dog ears, and cutouts. (A cutout, a tear, or dog ears may cause a problem. Dog ears other than on the lower leading corner of the code line area are not as likely to create operational difficulties). There should be no staples, holes, clips, and so forth in or on the combined check and strip. Labels used to correct encoding should not be applied to strips. Rather, the incorrect strip should be removed and a new strip applied to the check. Finally, multiple strips should not be applied to a check without removing a previous strip, and strips should not be used on carrier envelopes that are greater than 3.375 inches in height. 2.2 REFERENCED STANDARDS These Guidelines utilize standards established by the Accredited Standards Committee. These include: o ANSI X9.13 Specifications for the Placement and Printing of Magnetic Ink Character Recognition (MICR) Printing o ANSI X9.18 Paper Specifications for Checks o ANSI X9.27 Specifications for Magnetic Ink Characters 3 .0 STRIP CHARACTERISTICS In general, the strip must have certain characteristics to promote efficient, automated handling. These characteristics are broadly divided into four categories: size and alignment, paper specifications, adhesive, and color. 3.1 SIZE AND ALIGNMENT A primary requirement for the effective processing of the document is 2 that the size and alignment of the strip placed on a check be correct. 3.1.1 LENGTH Generally, the length of the strip should be the same as the length of the document to which the strip is attached. 3.1.2 HEIGHT The height of the entire strip (prior to being attached to the check) should be no more than 0.8125 inches. The height of the attached strip should be 0.6250 plus or minus 0.030 inches from the bottom of the check to the bottom of the strip for the full length of the check. This measurement defines the MICR clear band area. 3.1.3 THICKNESS The thickness of the strip in the MICR clear band area should be between 0.0035 and 0.0060 inches. The combined glue and paper should not exceed 0.0060 inches in thickness. At the point of overlap, the strip should not add more than 0.0045 inches to the thickness of the check. 3.1.4 ALIGNMENT The strip must be located parallel to the bottom of the check. The leading edge of the strip must be aligned within plus or minus 0.0625 inches of the leading edge of the check. That is to say, the leading edge of the strip cannot extend more than 0.0625 inches beyond the leading edge of the check, and the leading edge of the check cannot extend more than 0.0625 inches beyond the leading edge of the strip. Similarly, the trailing edge of the strip should be aligned within plus or minus 0.0625 inches of the trailing edge of the check. Given these stringent alignment requirements, it is believed that only through machine-application can strips consistently be attached properly. Therefore, it is recommended that hand-applied strips not be utilized for returns. Rather, it is suggested that machine-applied strips or carrier envelopes be used instead. 3.2 PAPER SPECIFICATIONS The paper used for the MICR clear band area of the strip must meet certain porosity, smoothness, opacity, and reflectance requirements to ensure quality MICR characters can be encoded onto the strip. These are defined in technical detail in the Appendix, "Paper Strip Specifications," and are based on previously published ANSI X9.18 standards. 3 The bottom 5/8 inch of the strip is reserved for MICR printing and must be clear of extraneous magnetic ink and extraneous adhesives. 3 .3 ADHESIVE The adhesive used to secure the strip to the check is an important element of an effective strip. In general, the adhesive seal must be strong enough to ensure the strip will stay on during multiple machine handlings but must not be so strong as to significantly damage the original check when the strip needs to be removed. In addition, the adhesive should have the following characteristics: o o The adhesive process should not leave any residual adhesive on the exposed surfaces of the combined check and strip document that can cause other checks to stick to it (i.e., cause items to piggyback). o 3 .4 The adhesive should extend the entire length of the strip so that the strip is fully bonded to the bottom of the check for its entire length. If a strip needs to be removed, the adhesive should not leave a residue on the check that will cause the check to adhere to other items. COLOR While no specific color is mandatory, it is preferred that the strip be white or a light pastel color. The color must have a reflectance of 75% or greater. 4 .0 PREPRINTED INFORMATION O THE STRIP N Preprinting of certain information on a strip may be desirable. To ensure that preprinting promotes efficient handling and does not interfere with reading or microfilming needs, certain guidelines must be met. 4.1 PREPRINTED "2" IN MICR POSITION 44 Since the strip length on a particular check is dependent on the length of the check, it is impossible to determine the proper location of position 44 prior to the completed application of the strip to the check. Therefore, preprinting of the "2" in position 44 is discouraged. Rather, it is recommended that the "2" be printed at the same time the routing field is printed. 4 4.2 OTHER PREPRINTING Preprinted material relevant to the handling of the item should appear on the bottom 0.1875 inches of the front of the strip or any place on the back of the strip so that this preprinted material is legible after the strip is affixed to the check. It is encouraged that a printed or hand-stamped name and address or routing number of the financial institution qualifying the return item be placed in either of these locations on the strip. Any other preprinted information not related to the handling of the item, such as strip supplier name, address, form number, etc., should not appear on any visible part of the strip after it has been placed on the check. All preprinting and/or hand stamping must be in nonmagnetic, OCR blind ink so that it will not interfere with the optical or magnetic reading of the MICR characters which are to be printed in the MICR clear band area of the strip. 5 APPENDIX: PAPER STRIP SPECIFICATIONS The minimum weight document refers to safety type and/or bond type paper. Feature Minimum Thic k n e s s 1 Maximum .0035" Porosity (Gurley)2 12 seconds Smoothness^ (Sheffield units) both sides 50 units .0060" Opacity^ 200 units 83% Reflectance^ 75% NOTES 1 Measured in accord with TAPPI method T 411 OM-84. 2 Measured in accord with TAPPI method T 460 OM-88. 3 Measured in accord with TAPPI method T 538 OM-88. 4 Measured in accord with TAPPI method an effective wavelength of 572 nm. T 425 OM-86 using a light source with 5 See Section 6.1 and Appendix I of ANSI X 9 . 18-1986 Paper Specifications for Checks for an explanation of reflectance. 6