Image Rules and Agreements Flashcards
Uniform
Commercial Code
State Law
Article 3: Negotiable Instruments: Requirements for negotiation, transfer and endorsement.
Article 4: Bank deposits & Collections,
- check collection
- liabilities
- timeframes
- responsibilities.
Regulation CC
Subpart A - Definitions, purpose,
Subpart B - Funds availability
Subpart C - Check Collection - expeditious returns
Subpart D - Substitute checks.
Regulation J
References Reg CC and UCC
Supplements OC
Provides rules for collecting and returning items in conjunction with REG CC.
Subpart B: Funds Transfers through Fedwire
Clearinghouse
(ECCHO) Rules
Governs electronic checks exchanged between ECCHO members, by agreement
Built on foundation of UCC and Reg CC
Provisions for
- forward presentment,
- returns,
- adjustments
Federal Reserve Operating Circulars (OC)
Governing exchanges to/from FRBs
Items handled as cash items and noncash items
Provisions for
- forward
- returns
- adjustments
What relationship do Regulation J and OC have?
OC covers exchanges within FRB and references Regulation J for warranties and indemnities.
- To FRB, by parties sending items to FRB for collection/return
- By FRB, in connection with the items they handle.
What does OC3 include that Regulation J does not?
OC 3 includes:
* Definitions (not included in Reg CC and/or Reg J);
* Adjustments for claims related to ECIs;
* Adjustments for claims related to RDC duplicates;
* Technical/operational specifics to reference current X9 standards
What items does FRB NOT handle as cash items?
- more than 2 presentments
- retired routing numbers
- Includes passbook, certificate or other attached document
- Has special instructions, reqest special advice of payment or dishonor
- Does not qualify for handling by high-speed check processing equipment
- Has not been preprinted or post-encoded in magnetic ink
- Does not include paying bank routing number in fractional form
- $100,000,000 or more
- Note: Items structured to be more than 100,000,000 can be returned
- Any item that FRB judges should not be handled as cash item
Items FRB Handles as Cash Items
Checks (other than one classified as noncash item) including:
▪ Government check and postal money orders;
▪ Postdated check, payable in a state;
▪ Other demand items, acceptable to paying bank’s Administrative FRB;
▪ Demand items payable outside of a state acceptable to the last collecting FRB;
What will the FRB not handle?
Definitive Securities; Noncash Items; Electronically-Created Items
- Senders must not send any of these items unless there is an agreement. For definitive securities, senders must contact the issuer.
What does the sender warrant to the FRB?
Sender warrants only the following will be sent to a FRB, and the FRB warrants that only the following will be sent to each bank to which it will transfer or present:
▪ Items defined in Circular; and
▪ Noncash items FRB has agreed to handle
− Bank indemnifies FRB against any damage, loss, or claim that results from fact the bank sent to the FRB any document in a cash letter that is not an item or a noncash item FRB agreed to handle
What is the FRB’s retention of image cash letters?
2 DAYS
What are some of the most common Fed adjustments?
DUP, ENC, ERR, LC, NCH, NOI, PAID, and various WIC adjustments.
What does Subpart A of Regulation J govern?
Subpart A governs
- collection of checks and other items by Federal Reserve banks
- warranties and indemnities given to FRBs by parties that send items for collection and return via FRBs
- warranties and indemnities FRBs give in connection with the items they handle
What will the FRB accept in a special cash letter?
Noncash items
Carrier documents
Food coupons
Foreign items
Photo-in-Lieu (PIL)
What does OC3 reference?
Reg J – Subpart A
Reg CC – Subparts C and D
Operating Circular 3 appendices
Operating Circular 5 – Electronic Access
Adjustments Quick Reference Guide
Product/services time and fee schedules
Agreements required
Check Adjustments Services
FedForward® Image Deposit Services
FedReturn® Services
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Define Item per OC3
- Includes cash item
and returned check - Does not include
ECI - Cash item is a
forward collection
item
Define Returned Check per OC3
Cash item and any
other check defined
in Reg CC that is
returned by Paying
Bank
Define electronic item per OC3
An electronic check
or electronic
returned check
* Identified as items
FRB will handle as
cash items
Define Participating Bank in OC3
Bank using electronic
access to FRB check
services
What is considered a Cash Item in OC3?
Checks, including postdated checks
Government checks, postal money orders
Other demand items acceptable to Paying Bank’s FRB
Demand items payable outside of a State, acceptable to the last collecting FRB, that are accepted as cash items (foreign cash items)
Electronic checks that conform to OC 3 and FRB technical requirements
Substitute checks
Certain redeemed savings bonds (see Appendix C)
Noncash items FRB has agreed to handle
Agreement or authorization required before sending noncash items
Items not handled as cash items
Bank on which it is drawn has declined to pay two or more times;
Includes a retired routing number in the MICR line;
Passbook, certificate, or other document attached;
Accompanied by special instructions (e.g., request for notice of payment/dishonor);
Consists of more than a single thickness of paper; or has been physically damaged and does not qualify for handling by high-speed check processing equipment;
Not preprinted or post-encoded with routing number of the Paying Bank and amount of the item in accordance with ANSI standards;
Does not include Paying Bank routing number in fractional form in upper right corner;
Does not conform to current ANSI standards for placement and location of MICR printing
ECI as defined in Reg CC
What does OC3 say about indorsements?
All cash items and returned checks must be indorsed in accordance with Reg CC requirements
However, for items not indorsed FRB may
- present item as if it was
- add missing indorsement and date
- return item for proper indorsement
When does presentment occurs per OC3?
Transmitted to Paying Bank, or
o Written on FRB’s data storage device
* Must be in a form that is available for retrieval by Paying
Bank
How long does the FRB retain cash letters?
2 days
When does return occur in the FRB?
Return occurs when image return
is written on FRB’s data storage
device and available for review
or retrieval by Depositary Bank
or prior Collecting Bank
May the FRB resend a file?
FRB may resend file 2 days after
original image cash letter (ICL)
file sent, based upon Paying
Bank’s request
Can can go in a SPECIAL cash letter and not in an IMAGE cash letter?
Noncash items
Item derived from item in a carrier envelope
Foreign items
Photo-in-Lieu (PIL) – photocopy of missing/destroyed item
Notice in lieu of return
What do FRB and ECCHO have in common?
Reliance on regulations for electronic check and electronic returned check definitions and warranties
No double debit warranty
Backup indemnity for Check 21
Protection for Check 21 liability arising from exchanged image that later turned into substitute check
Defense for comparative negligence
How do FRB and ECCHO differ regarding indemnities and RCC?
Indemnities
- FRB: When FRB sends item to paying bank, no indemnity is provided other than Check 21-related indemnity.
- ECCHO: Members provide full indemnity for breach of image rules warranties.
RCC Claims
- FRB: Handled only through adjustment process. Can only be for items sent forward through FRB
- ECCHO: Handled either as a breach of warranty through return process or as a adjustment and can be an item sent through FRB
How do FRB and ECCHO differ regarding presentments, MICR line information, and Adjustments?
Presentments:
- FRB: 2 - Only 1 representment
- ECCHO 3 - 2 represetnments
MICR Line
- FRB: MICR line required
- ECCHO : Fulls allow partial MICR by agreement and are defined as “As-Read MICR (RNA)
Adjustments:
FRB: items to be adjusted must have been exchanged through FRB
ECCHO: Rules allow items o be adjusted between members that may or may not have been exchanged under ECCHO.
