What is Positive Pay?

Class action settlement distribution results in the dispersal of potentially thousands of checks to eligible class members. However, it is important to safeguard your settlement checks from potential fraud. Positive Pay and Reverse Positive Pay are two methods issuers can use to reduce the risk of liability for checks that have been obtained fraudulently.

What Is Positive Pay?

Check Positive Pay is a fraud mitigation service that provides early detection of fraudulent, altered, or counterfeit checks. Banks that offer Positive Pay match all checks presented for payment against a check issue file daily. Any “suspect” check is sent back to the issuer with an image of the check for closer examination. Upon final review, the issuer gives final approval to the bank to cash the check or not. The default decision is to withhold cashing the check if express clearance is not given. Some banks offer Positive Pay free of charge, while others may charge a monthly fee for the service.

What Is Reverse Positive Pay?

Reverse Positive Pay is a variation of the system, where the issuer is primarily in charge of monitoring their own checks. The bank notifies the company daily about all checks presented, and the company alerts the bank to decline a check when necessary. If the company fails to respond in a timely manner (24 hours in most cases), the check may still be cashed. Banks that charge for this service generally charge a lower fee, as it requires less work on their end.

Which Is Better in the Class Action Settlement Process?

Claims administrators prefer traditional Positive Pay for the following reasons:

• It is widely considered to be the most reliable and effective method of verification. When you’re dealing in bulk checks, as you are during the class action settlement process, you want to go with the verification method that has the highest track record of success. The Social Security Administration, which also processes a large number of checks, recommends Positive Pay.
• It’s a lot less work! With Positive Pay, only about 1 percent of potentially fraudulent checks require review, versus 100 percent of the checks with Reverse Positive Pay.
• There is less risk involved. The sheer volume of checks distributed in class action settlements puts companies at risk. If a company fails to respond within a day for any reason, the Reverse Positive Pay system allows banks to process the checks, which could trigger a series of problems. The company may suffer an over-drafted account — incurring additional bank fees and angering legitimate payees with dishonored checks.

Though the occasional upset payee may complain about a check that did not cash as quickly as he or she may have wanted, in our experience, Positive Pay is the safer bet