PREP Guide - Regulatory Environment - Reg CC: General and Subpart A Flashcards
What is the purpose of Regulation CC?
To implement the Expedited Funds Availability Act and the Check Clearing for the 21st Century Act
Who issued Regulation CC?
The Board of Governors of the Federal Reserve System
How many subparts does Regulation CC contain?
Four subparts
What does Subpart A of Regulation CC cover?
General authority and purpose of the regulation, organization, definitions, and administrative enforcement provisions
What are the key topics addressed in Subpart B of Regulation CC?
Availability of funds and disclosure of funds availability policies
What is the joint authority responsible for Subpart B?
Federal Reserve Board and the Consumer Financial Protection Bureau (CFPB)
What does Subpart C of Regulation CC focus on?
Collection of checks and electronic checks
What are some rules established in Subpart C?
Direct return of checks, manner of returning checks, notification of nonpayment, indorsement and presentment, same-day settlement for certain checks
What is the focus of Subpart D of Regulation CC?
Substitute checks, their creation, legal status, warranties, indemnity, and expedited recredit procedures
What is defined as an electronic check?
An electronic image and electronic information derived from a paper item
Fill in the blank: Regulation CC creates warranties for _______ and electronic returned checks.
electronic checks
True or False: Regulation CC applies only to paper checks.
False
What kind of policies does Subpart B require banks to disclose?
Funds availability policies
What must banks provide regarding substitute checks according to Subpart D?
Disclosure requirements and notices
What is the purpose of expedited recredit procedures in Subpart D?
To resolve improper charges and warranty claims associated with substitute checks
What is the regulatory framework created by Regulation CC primarily aimed at?
The collection and return of electronic items
Subpart A—General
What does Subpart A of the regulation outline?
The authority and purpose of the regulation issued by the Board of Governors of the Federal Reserve System to implement the Expedited Funds Availability Act and the Check Clearing for the 21st Century Act.
Subpart A—General
What acts are implemented by the regulation outlined in Subpart A?
- Expedited Funds Availability Act (EFA Act)
- Check Clearing for the 21st Century Act (Check 21 Act)
Subpart A—General
What type of definitions are included in Subpart A?
Definitions listed alphabetically and not in order as updated in Reg CC.
Subpart A—General
Is the list of definitions in Subpart A all-inclusive?
No, it is not an all-inclusive list.
Subpart A—General
What is the purpose of Regulation CC Subpart A?
To ensure clear regulatory guidance for banks, consumers, and stakeholders regarding funds availability and check processing rules.
This section lays the groundwork for understanding the regulations that govern how quickly banks must make deposited funds available.
Subpart A—General
Who issues Regulation CC?
The Board of Governors of the Federal Reserve System.
This regulation is part of the implementation of specific Acts related to funds availability.
Subpart A—General
What Acts does Regulation CC implement?
- The Expedited Funds Availability Act (EFA Act) (12 U.S.C. 4001-4010)
- The Check Clearing for the 21st Century Act (Check 21 Act) (12 U.S.C. 5001-5018)
These Acts establish the framework for how banks handle check processing and funds availability.
Subpart A—General
Which authority issues some sections of the EFA Act regulations jointly?
The Board and the Bureau of Consumer Financial Protection.
This joint authority ensures consumer protection in the regulations.
Subpart A—General
What does Subpart A of Regulation CC provide?
- General information
- Definitions of terms
- Authority for administrative enforcement
This subpart lays the groundwork for the understanding of the entire regulation.
Subpart A—General
What is included in Appendix A of Regulation CC?
Routing number guide for next-day availability checks.
This appendix helps identify which routing numbers can be used for quicker check processing.
Subpart A—General
What type of examples does Appendix C provide?
Model funds-availability and substitute-check disclosure examples.
These examples help banks communicate effectively with consumers about their rights and responsibilities.
Subpart A—General
What does Appendix E contain?
Official Board commentary with background explanations and practical examples.
This appendix provides additional context and clarifications on the regulation.
Subpart A—General
What is the status of Appendices B and D?
Currently reserved.
This indicates that these appendices may be used for future regulations or guidelines.
Subpart A—General
What does Appendix F address?
Preemption of state laws under the EFA Act and Regulation CC.
This appendix clarifies how federal regulations interact with state laws regarding funds availability.
Subpart A § 229.2 - Definitions
What is the definition of an Account according to § 229.2?
Refers to transaction accounts where account holders can perform transfers or withdrawals via checks, debit cards, or electronic methods.
Includes demand deposit accounts, negotiable order withdrawal accounts, and other similar accounts, but excludes certain savings deposits.
Subpart A § 229.2 - Definitions
What types of accounts are included in the definition of Account in § 229.2?
- Demand deposit accounts
- Negotiable order withdrawal accounts
- Other similar accounts
Excludes certain savings deposits.
Subpart A § 229.2 - Definitions
What accounts are excluded from the definition of Account in Subpart B?
Bank accounts held by financial institutions or the U.S. Treasury.
Different definitions of accounts apply in Subpart B.
Subpart A § 229.2 - Definitions
What accounts are included in the definition of Account in Subpart D?
All deposit types, including savings deposits.
This is different from the definitions in Subpart A and Subpart B.
Subpart A § 229.2 - Definitions
What is an Automated Clearinghouse (ACH)?
A network for processing debit and credit transfers, regulated under Federal Reserve rules or ACH association rules.
ACH is commonly used for direct deposits and bill payments.
Subpart A § 229.2 - Definitions
Define ATM.
An electronic device in the U.S. allowing deposits and other account transactions by natural persons.
ATMs provide access to banking services outside of traditional bank hours.
Subpart A § 229.2 - Definitions
What does ‘Available for Withdrawal’ mean?
Funds that are finally collected and usable according to the bank’s policies for checks, electronic payments, cash withdrawals, or transfers.
This term indicates that the funds are no longer subject to holds or restrictions.
Subpart A § 229.2 - Definitions
What institutions are included under the term ‘Bank’?
Includes various financial institutions like:
* insured banks
* mutual savings banks
* credit unions
* foreign banks operating in the U.S.
In certain contexts, it also includes entities like the Federal Reserve Banks and state governments.
Subpart A § 229.2 - Definitions
What constitutes a Banking Day?
The portion of a business day when a bank office is open to the public for most banking functions.
Banking days may vary based on the institution’s hours of operation.
Subpart A § 229.2 - Definitions
Define Business Day.
A calendar day excluding weekends and holidays like New Year’s Day, Independence Day, and others.
If these holidays fall on a Sunday, the following Monday is also excluded.
Subpart A § 229.2 - Definitions
What is the definition of Cash?
Refers to United States coins and currency.
Cash is a fundamental form of payment in transactions.
Subpart A § 229.2 - Definitions
What is a Cashier’s Check?
A check that:
* Is drawn on a bank.
* Is signed by an officer or employee of the bank as the drawer.
* Represents a direct obligation of the bank.
* Is provided to a customer or acquired for remittance purposes.
Cashier’s checks are often used for large transactions due to their guaranteed nature.
Subpart A § 229.2 - Definitions
What is a Certified Check?
A check where the drawee bank certifies that:
* The drawer’s signature is genuine.
* Funds equal to the check amount are set aside to pay it or the bank agrees to pay it upon presentment.
Certified checks provide assurance to the payee that the funds are available.
Subpart A § 229.2 - Definitions
True or False: A Cashier’s Check is drawn on the individual’s personal account.
False
A Cashier’s Check is drawn on the bank’s account, not an individual’s.
Subpart A § 229.2 - Definitions
Fill in the blank: A __________ Check certifies that the drawer’s signature is genuine and that funds are set aside to pay the check amount.
Certified
Certified checks are typically used for secure transactions.
Subpart A § 229.2 - Definitions
What is meant by Check Processing Region?
The geographical area served by a Federal Reserve Bank for check processing activities
This region defines where checks are processed and settled.
Subpart A § 229.2 - Definitions
Define a Consumer Account.
An account primarily used for personal, family, or household purposes
This type of account is distinct from business or commercial accounts.
Subpart A § 229.2 - Definitions
What is a Depositary Bank?
The first bank to which a check is transferred, even if it also serves as the paying bank or payee
It is the initial point of deposit for a check.
Subpart A § 229.2 - Definitions
What does Electronic Payment refer to?
Payments made via wire transfer or ACH credit transfer
This form of payment is increasingly used for transactions.
Subpart A § 229.2 - Definitions
What is Forward Collection?
The process of sending a check to a collecting or paying bank for settlement or payment
This is a key step in the check clearing process.
Subpart A § 229.2 - Definitions
Define a Local Check.
A check drawn on a local paying bank, meaning one in the same check-processing region as the depositary bank
Local checks generally clear faster due to proximity.
Subpart A § 229.2 - Definitions
What is a Local Paying Bank?
A bank located in the same processing region as the depositary bank or its ATM/branch where the check was deposited
This location is crucial for check processing efficiency.
Subpart A § 229.2 - Definitions
What does a Merger Transaction cover?
Mergers or consolidations between two or more banks and transfer of substantial assets and liabilities from one bank to another
This can significantly impact the banking landscape.
Subpart A § 229.2 - Definitions
What is a check?
A negotiable demand draft drawn on or payable through or at an office of a bank
A check can be different forms as described in the definitions.
Subpart A § 229.2 - Definitions
What is a negotiable demand draft drawn on a Federal Reserve Bank or a Federal Home Loan Bank considered?
A check
This is one of the forms that qualifies as a check.
Subpart A § 229.2 - Definitions
Which type of demand draft is considered a check when drawn on the Treasury of the United States?
A negotiable demand draft
This type of draft is included in the definition of a check.
Subpart A § 229.2 - Definitions
What qualifies as a check when drawn on a state government or local government?
A demand draft that is not payable through or at a bank
This is included in the definition of a check.
Subpart A § 229.2 - Definitions
What is a United States Postal Service money order classified as?
A check
This form of payment qualifies under the check definition.
Subpart A § 229.2 - Definitions
What is a traveler’s check drawn on or payable through or at a bank classified as?
A check
This is included in the definitions of checks.
Subpart A § 229.2 - Definitions
What does the term ‘check’ include?
An original check and a substitute check
This reflects the broader definition of what constitutes a check.
Subpart A § 229.2 - Definitions
Does the term check include noncash items?
No
A check must be a negotiable instrument and not a noncash item.
Subpart A § 229.2 - Definitions
Can a draft be a check if it is described by another term, such as money order?
Yes
The nature of the instrument defines it, not the terminology used.
Subpart A § 229.2 - Definitions
What additional type of draft is included in the definition of a check for subparts C and D?
A nonnegotiable demand draft of the type described above
This extends the definition of check in specific contexts.
Subpart A § 229.2 - Definitions
What is a Noncash Item?
An item that would be considered a check except for specific reasons such as:
* A passbook, certificate, or other document is attached
* It includes special instructions (e.g., requesting payment confirmation or dishonor notice)
* It consists of more than a single thickness of paper (unless compatible with automated check processing equipment)
* It has not been preprinted or encoded in magnetic ink with the paying bank’s routing number
Noncash items do not follow the standard check format due to these exceptions.
Subpart A § 229.2 - Definitions
Define a Nonlocal Check
A check that is payable by, through, or at a nonlocal paying bank.
Nonlocal checks are typically processed differently than local checks.
Subpart A § 229.2 - Definitions
What is a Nonlocal Paying Bank?
A bank that is not a local paying bank in relation to the depositary bank.
This distinction affects how checks are processed and cleared.
Subpart A § 229.2 - Definitions
What is a Nonproprietary ATM?
An ATM that is not owned or exclusively operated by the depositary bank.
Nonproprietary ATMs can be accessed by customers of different banks.
Subpart A § 229.2 - Definitions
Who is the Paying Bank?
The bank responsible for paying a check, which includes:
* The bank where the check is payable, unless sent elsewhere for payment
* Federal Reserve Banks or Federal Home Loan Banks paying checks
* A government entity (state or local) on which a check is drawn
The paying bank can vary based on how the check is processed.
Subpart A § 229.2 - Definitions
For subparts C and D, what additional entities are considered a Paying Bank?
For certain subparts (C and D), it includes:
* Banks through which checks are payable
* Banks identified by routing numbers where checks are sent for collection/payment
This expands the definition to include banks directly involved in processing checks.
Subpart A § 229.2 - Definitions
Fill in the blank: A paying bank includes any bank responsible for _______ a check, even if the check is formally payable by another bank.
[processing]
Subpart A § 229.2 - Definitions
True or False: A paying bank only includes the bank where the check is formally payable.
False
The definition includes any bank involved in the processing or payment of a check.
Subpart A § 229.2 - Definitions
What does the inclusion of banks identified by routing numbers imply for the definition of a Paying Bank?
It indicates that any bank whose routing number appears on a check is considered a paying bank if the check is sent for payment or collection through that bank.
This ensures comprehensive coverage of all banks involved in check processing.
Subpart A § 229.2 - Definitions
What is a proprietary ATM?
An ATM owned or operated by the depositary bank or located on its premises or within 50 feet of it and not identified as operated by another entity.
If multiple banks qualify under ownership criteria, the ATM is proprietary to the bank that operates it.
Subpart A § 229.2 - Definitions
What is a qualified returned check?
A returned check prepared for automated return to the depositary bank, typically placed in a carrier envelope or attached with a strip and encoded in magnetic ink.
It does not require additional check elements, such as the depositary bank’s name.
Subpart A § 229.2 - Definitions
Who is considered a returning bank?
A bank, other than the paying or depositary bank, that handles a returned check or a notice in lieu of return.
It is also considered a collecting bank under UCC 4-202(b).
Subpart A § 229.2 - Definitions
What is a routing number?
The number printed on a check in fractional or nine-digit form, appearing in a bank’s indorsement or as part of an electronic check’s bank-identification number.
Examples include routing numbers under subparts C and D.
Subpart A § 229.2 - Definitions
What defines a similarly situated bank?
A bank of comparable size, located in the same community, with similar check-handling activities as the paying or returning bank.
Subpart A § 229.2 - Definitions
What does ‘State’ refer to in this context?
U.S. states, District of Columbia, Puerto Rico, American territories, and additional U.S. territories for certain subparts.
Subpart A § 229.2 - Definitions
What is a teller’s check?
A check drawn by a bank, provided to a customer, and drawn on or payable through another bank, typically used for remittance purposes.
Subpart A § 229.2 - Definitions
Fill in the blank: A traveler’s check is an instrument for the payment of money that is drawn on or payable through or at a _______.
bank
Subpart A § 229.2 - Definitions
What are the key characteristics of a traveler’s check?
- Drawn on or payable through or at a bank
- Designated on its face by the term traveler’s check or similar
- Provides for a specimen signature of the purchaser at purchase
- Provides for a countersignature of the purchaser at negotiation.
Subpart A § 229.2 - Definitions
What is a Unit of General Local Government?
Refers to general-purpose political subdivisions such as cities, towns, or counties, but excludes special-purpose entities like school or water districts.
Subpart A § 229.2 - Definitions
Define Wire Transfer.
An electronic order to pay a fixed amount, processed through networks like Fedwire or CHIPS. It excludes electronic fund transfers defined under the Electronic Fund Transfer Act.
Subpart A § 229.2 - Definitions
What is Fedwire?
Defined as per § 210.26(e), referring to the Federal Reserve Bank’s funds transfer system.
Subpart A § 229.2 - Definitions
What does Good Faith mean?
Means honesty and adherence to reasonable commercial standards of fair dealing.
Subpart A § 229.2 - Definitions
How is Interest Compensation calculated?
Calculated using the Federal Funds rate averaged over applicable days and divided by 360.
Subpart A § 229.2 - Definitions
What is a Contractual Branch?
A branch of one bank that accepts deposits on behalf of another bank.
Subpart A § 229.2 - Definitions
Define Claimant Bank.
A bank claiming recredit from an indemnifying bank for substitute check-related issues.
Subpart A § 229.2 - Definitions
What is a Collecting Bank?
A bank involved in forwarding a check for collection, excluding the paying bank.
Subpart A § 229.2 - Definitions
Who is considered a Consumer?
A natural person dealing with checks from or for a consumer account.
Subpart A § 229.2 - Definitions
Define Customer in the context of banking.
A person holding an account with a bank.
* Subpart A § 229.2 - Definitions
What is an Indemnifying Bank?
A bank providing indemnity for remote deposit capture or electronically-created items and substitute checks.
* Subpart A § 229.2 - Definitions
What does the MICR line consist of?
Key information printed near the bottom of a check in magnetic ink, including:
* Routing number
* Account number
* Check number
* Check amount (in some cases)
* Other relevant data
The MICR line is designed to enable automated processing of checks.
* Subpart A § 229.2 - Definitions
What standard must original checks comply with for MICR printing?
ANS X9.13
This standard specifies the proper placement and location of MICR printing on original checks.
* Subpart A § 229.2 - Definitions
What is the standard for substitute checks?
ANS X9.100-140
This standard governs the requirements for an Image Replacement Document (IRD).
* Subpart A § 229.2 - Definitions
What standard applies to electronic checks or returned checks?
ANS X9.100-187
This standard applies to the use of MICR data in electronic image exchanges.
* Subpart A § 229.2 - Definitions
True or False: The MICR line is designed to enable manual processing of checks.
False
The MICR line is specifically designed for automated processing.
* Subpart A § 229.2 - Definitions
Fill in the blank: The MICR line includes the _______.
[key learning term]
Possible answers include routing number, account number, check number, check amount, or other relevant data.
* Subpart A § 229.2 - Definitions
What is the purpose of the MICR line?
To enable automated processing of checks and ensure compatibility with automated check processing systems.
This facilitates seamless forward collection, clearing, and return processes.
* Subpart A § 229.2 - Definitions
What is a Copy of an Original Check?
A paper reproduction (e.g., a printout, photocopy, or substitute check) or an electronic reproduction agreed upon by the recipient instead of a paper copy.
This includes any format that accurately represents the original check.
* Subpart A § 229.2 - Definitions
What defines a Sufficient Copy?
A copy that accurately represents all information on the original check’s front and back at the time of truncation or is adequate to verify a claim’s validity.
This ensures that the copy can be used to validate the original transaction.
* Subpart A § 229.2 - Definitions
Define Transfer in the context of checks.
Delivery of a substitute check or its representation from a bank to a person (not another bank).
This process involves the physical or electronic movement of check information.
* Subpart A § 229.2 - Definitions
What is meant by Consideration in check transactions?
The bank is compensated if it charges the recipient’s account or receives value for the substitute check, original check, or representation.
This is a key element in the exchange of checks, ensuring that banks receive value for their services.
* Subpart A § 229.2 - Definitions
What does it mean to Truncate a check?
Removing the original check from the process and sending either a substitute check or agreed information (e.g., MICR data or an electronic image) in place of the original check.
Truncation streamlines the check processing system.
* Subpart A § 229.2 - Definitions
Who is considered the Truncating Bank?
The bank that truncates the original check. If the check is truncated by a person (not a bank), the first bank to transfer, present, or return the substitute check or related information becomes the truncating bank.
This definition is important for identifying the responsible party in check processing.
* Subpart A § 229.2 - Definitions
What is a Remotely Created Check?
A check that is not created by the paying bank and does not bear a signature physically or electronically applied by the account holder.
* Subpart A § 229.2 - Definitions
What types of accounts can a Remotely Created Check apply to?
Any account, including credit arrangements, that allows checks payable by, through, or at a bank.
* Subpart A § 229.2 - Definitions
What is an Electronic Check?
An electronic image and related information derived from a paper check.
* Subpart A § 229.2 - Definitions
What are the requirements for an Electronic Check?
Must be sent to a receiving bank under an agreement and comply with ANS X9.100-187 standards unless otherwise specified.
* Subpart A § 229.2 - Definitions
What is an Electronically-Created Item?
An electronic image with all the attributes of an electronic check but created digitally rather than derived from a paper check.
* Subpart A § 229.2 - Definitions
True or False: A Remotely Created Check can bear a signature applied by the account holder.
False.
* Subpart A § 229.2 - Definitions
Fill in the blank: An Electronic Check must comply with _______ standards unless otherwise specified.
ANS X9.100-187
What is an Indemnifying Bank?
A bank that provides an indemnity with respect to:
* Remote deposit capture
* An electronically-created item
* A substitute check
Indemnity refers to a security or protection against loss or damage.
* Subpart A § 229.2 - Definitions
What is a noncash item?
An item that would otherwise be a check, except for certain conditions such as being accompanied by special instructions, consisting of more than a single thickness of paper, or not containing a routing number in magnetic ink.
Conditions include: passbook or certificate attached, special advice requests, and checks not preprinted in magnetic ink.
* Subpart A § 229.2 - Definitions
What defines a paying bank?
A bank by which a check is payable and to which it is sent for payment or collection.
This may include Federal Reserve banks, Federal Home Loan Banks, and state or local governments on which the check is drawn.
* Subpart A § 229.2 - Definitions
What is a reconverting bank?
A bank that creates a substitute check or handles a substitute check created by a non-bank.
It is the first bank that transfers, presents, or returns that substitute check.
* Subpart A § 229.2 - Definitions
Define a remotely created check.
A check not created by the paying bank that does not bear a signature applied by the person on whose account the check is drawn.
* Subpart A § 229.2 - Definitions
What is the role of a returning bank?
A bank (other than paying or depositary bank) that handles a returned check or notice in lieu of return.
It may also act as a collecting bank for purposes of UCC §4–202(b).
* Subpart A § 229.2 - Definitions
What is a routing number?
A number printed on the face of a check in fractional form or nine-digit form, used to identify the paying bank.
This may also include the bank-identification number in electronic checks.
Substitute check is legal equivalent of original check for all purposes,
including any provision of federal or state law if it:
✓ Accurately represents all information on original check; and
✓ Contains the legal legend that reads, “This is a legal copy of your check.”
You can use it the same way you would use the original check
