According to the Board of Governors of the Federal Reserve System, a remotely created check (RCC), also called a "telecheck," a "demand draft," or a "preauthorized draft," is "a check that is drawn on a customer account at a bank, is created by a person other than the paying bank and does not bear a signature applied by or purported to be applied by the person on whose account the check is drawn."

This definition includes "payable through" or "payable at" checks (checks that are drawn at a nonbank, such as a mutual fund, but are payable through or at a bank), checks created by bill payment services, checks that the drawer created but neglected to sign, checks drawn on consumer and nonconsumer accounts, and RCCs that have been reconverted to substitute checks under the Check 21 Act. An RCC may contain a statement of customer authorization, the customer's name printed or typed on the check, or the statement "No signature required," or "Signature on file."

RCCs make it possible for an account holder to make faster, simpler payments electronically. Most commonly, consumers use this method to pay bills or make payments if they don't have a debit or credit card. An account holder can authorize a vendor to draw a check on their account for payment for goods or services, or they can authorize their credit card company to draw a check to make a payment on their credit card. RCCs were originally designed for legitimate telemarketers who received authorization from customers to withdraw money from their accounts. Insurance, mortgage and other credible companies also use RCCs to collect payments from their customers directly through their checking accounts.

However, since RCCs have no signature or verifiable authorization, they are very vulnerable to fraud. Most banks don't recognize an unauthorized RCC until it is brought to their attention by the account holder. Previously, under articles 3 & 4 of the Uniform Commercial Code (UCC), paying banks (banks from which an RCC is drawn) were liable for unauthorized RCCs and were responsible for recrediting the customer's account for the amount of the unauthorized check. However, in 2006, the Federal Reserve Board issued a final ruling stating that depository banks (banks where an RCC is deposited) are liable for unauthorized RCCs as an incentive to the depository banks to better monitor RCC deposits and to limit the amount of unauthorized RCCs.

RCC fraud is a growing problem. All a fraudster needs is an account number and bank routing number to create an RCC, and since check processing is highly automated, RCCs clear the same way that regular checks do and they are completely legitimate. According to the National Association of Attorneys General, one community bank found that 73 percent of their RCCs were fraudulent. The Federal Trade Commission (FTC) believes that consumer lack of awareness enables more RCC fraud to take place because account holders don't know that money can be taken from their accounts without their written authorization.

Currently, only 14 states have adopted statutes regulating remotely created checks, but none have adopted articles 3 & 4 of the UCC in their entirety. This means that liability is hard to determine when unauthorized checks are drawn across state lines. The Board decided to continue to monitor state laws regarding RCCs and may require a nationwide, uniform regulation to be implemented at a later date.