PREP Guide - Regulatory Environment - Reg CC: Subpart B and Subpart C Flashcards
Subpart B - Funds Availability: Next Day
What is the general rule for next day availability of funds deposited at a depositary bank?
Funds deposited shall be made available for withdrawal not later than the business day after the banking day of deposit
This applies to cash deposits made in person, electronic payments, and certain check deposits.
Subpart B - Funds Availability: Next Day
What types of deposits qualify for next day availability?
- Cash deposits made in person at the depositary bank
- Electronic payments
- Certain check deposits including:
- Check drawn on the Treasury of the United States
- U.S. Postal Service money order
- Check drawn on a Federal Reserve bank or Federal Home Loan bank
- Check drawn by a state or a unit of general local government
- Cashier’s, certified, or teller’s check
For detailed dollar amounts, refer to the Federal Register.
Subpart B - Funds Availability: Next Day
What is the lesser amount for checks deposited at the same depositary bank that are not subject to next-day availability?
The lesser of:
* $225 (or adjusted for inflation every 5 years, rounded to nearest multiple of $25)
* Aggregate amount deposited on one banking day to all accounts by check not subject to next-day availability
Effective July 1, 2025, the amount will be $275.
Subpart B - Funds Availability: Next Day
What will impact all depository institutions according to Subpart B?
Adjustments to dollar amounts and changes to related disclosures
These changes will affect institutions of all asset sizes.
Subpart B - Funds Availability: Next Day
How often will updates regarding Subpart B be posted?
At least one (1) year before the effective date
This ensures that institutions have time to comply with the new requirements.
Subpart B - Funds Availability
What is the maximum time for funds availability after depositing checks in person?
Funds must be available for withdrawal no later than the second business day after deposit.
Subpart B - Funds Availability
What type of bank is responsible for making funds available?
Depositary bank.
Subpart B - Funds Availability
Fill in the blank: For checks deposited in person, the depositary bank shall make funds available for withdrawal no later than _______.
second business day after the banking day on which checks deposited in person.
Subpart B - Funds Availability
True or False: Funds are available for withdrawal immediately after depositing checks in person.
False.
Subpart B - Funds Availability: EFA - Extension of Schedule
What is the maximum time frame for a deposit at nonproprietary ATMs to have funds available for withdrawal?
No later than the fifth business day after the banking day on which checks were deposited.
Subpart B - Funds Availability: EFA - Extension of Schedule
Which territories are included under the mandated extension of the EFA Act?
American Samoa, The Commonwealth of the Northern Mariana Islands, Guam.
Subpart B - Funds Availability: EFA - Extension of Schedule
What do the defined terms ‘state’ and ‘United States’ include according to Reg CC?
They include Hawaii, American Samoa, The Commonwealth of the Northern Mariana Islands, and Guam.
Subpart B - Funds Availability: EFA - Extension of Schedule
What is the significance of §229.12(e) of Reg CC?
It lists locations eligible for a one-day extension of the availability schedules.
Subpart B - Funds Availability: Non-Proprietary ATMs
Fill in the blank: The depositary bank shall make funds available for withdrawal no later than ______.
fifth business day after the banking day on which checks deposited.
Subpart B - Funds Availability
True or False: Reg CC applies only to financial institutions in the continental United States.
False.
What does Reg CC Subpart B primarily address?
Funds availability.
Subpart B - Funds Availability: Disclosures
What form must disclosures be in according to Reg CC Subpart B?
Clear and conspicuous in writing, in a form that the customer may keep
Subpart B - Funds Availability: Disclosures
Disclosures must be in a form that customers may keep, except for where?
Locations where employees accept consumer deposits, ATMs, and preprinted deposit slips
Subpart B - Funds Availability: Disclosures
What is the requirement for grouping disclosures under Reg CC Subpart B?
Disclosures must be grouped together and not contain unrelated information
Subpart B - Funds Availability: Disclosures
How many days before implementing changes to funds-availability policy (when times increase and cause later availability) must written notice be sent?
At least 30 days before
Subpart B - Funds Availability: Disclosures
What should happen if a change expedites the availability of funds for the customer?
Notice should be sent no later than 30 days after implementation
Only when availability is sooner than before.
Subpart B - Funds Availability: Disclosures
What triggers the notice requirement when it comes to changes in funds-availability policy?
Changes to dollar amounts
Subpart B - Funds Availability: Disclosures
Fill in the blank: Depository institutions may provide required notice updates _______.
[electronically, with monthly account statement, etc.]
Subpart B - Funds Availability: Exceptions to next day/two day
What are exceptions to next-day or two-day availability under Reg CC Subpart B?
Exceptions may include:
* Deposits to new accounts during first 30 days
* Large deposits
* Certain redeposited checks
* Accounts with repeated overdrafts
* Reasonable cause to doubt collectability
* Emergency conditions
Subpart B - Funds Availability: Exceptions to next day/two day
What is the time frame for new account deposits to be considered under exceptions?
During the first 30 days after account established
Subpart B - Funds Availability: Exceptions to next day/two day
True or False: Conditions defining large deposits under Reg CC Subpart B exceptions include all deposits made for a clients account in a single banking day.
True
May apply to aggregate deposits to all customer accounts
Subpart B - Funds Availability: Exceptions to next day/two day
What characterizes an account with repeated overdrafts?
Repeatedly overdrawn for a period of six months
* Negative 2 days of $5,525 or more
OR
* Negative any amount 6 days
Subpart B - Funds Availability: Exceptions to next day/two day
What are the criteria for an account to be considered repeatedly overdrawn?
Either:
* Six or more banking days with negative balance in six months
* Two or more banking days with negative balance of $5,525 or more in six months
Subpart B - Funds Availability: Exceptions to next day/two day
What is the updated threshold for negative balances effective July 1, 2025?
$6,725
May not need to know this for the test
Subpart B - Funds Availability: Exceptions to next day/two day
What does ‘reasonable cause to doubt collectability’ refer to?
Facts that would cause a reasonable person to believe check is uncollectible
Subpart B - Funds Availability: Exceptions to next day/two day
What are some examples of emergency conditions that may affect funds availability?
Examples include:
* Interruption of communications, computers, other equipment
* Suspension of payments by another bank
* War or other emergency conditions beyond bank’s control
Subpart B - Funds Availability: Exceptions to next day/two day
What aspect of funds availability is not addressed in Subpart B?
RDC deposits are governed under agreement(s) with the depository institution: customer, account, and/or RDC agreements
What does Subpart C cover?
Collection of Checks including requirements for each bank in the collection process and specific warranties
Subpart C – Collection of Checks
Are electronic checks subject to Subpart C?
Yes, electronic checks and electronic returned checks are subject to this subpart as if they were checks or returned checks, unless specified otherwise
Subpart C – Collection of Checks
How can a bank satisfy the requirement to provide information in writing?
By providing the information electronically if the receiving bank agrees
Subpart C – Collection of Checks
What can a paying bank do if it needs to return a check?
May send a returned check to depositary bank or to any other bank agreeing to handle the returned check
Subpart C – Collection of Checks
What happens if a paying bank cannot identify the depositary bank?
May send the returned check to any bank that handled the check for forward collection.
Must advise that it is unable to identify the depositary bank
Subpart C – Collection of Checks
Do expeditious return requirements apply if the paying bank cannot identify the depositary bank?
No, expeditious return requirements do not apply in this case
Subpart C – Collection of Checks
What must a paying bank do if it determines not to pay a check?
Expeditious manner: Not later than 2:00 p.m. on the 2nd business day following the banking day on which the check was presented
Such that check would normally be received by depositary bank
Subpart C – Collection of Checks
What must be indicated on the front of a returned check?
That it is a return and the reason for return
Subpart C – Collection of Checks
What additional information must be included when returning a substitute check or an electronic returned check?
Information such that it would be retained on any subsequent substitute check
Subpart C – Collection of Checks: Notice In Lieu Of Return
What is a Notice In Lieu Of Return?
A notice sent by the paying bank if the check is unavailable for return.
Subpart C – Collection of Checks: Notice In Lieu Of Return
What may the paying bank send if the check is unavailable for return?
- Sufficient copy of the front and back of the returned check.
- Written notice of nonpayment containing the information
Subpart C – Collection of Checks: Notice In Lieu Of Return
What must a sufficient copy or notice clearly state?
It constitutes notice in lieu of return.
Subpart C – Collection of Checks: Notice In Lieu Of Return
How is a notice in lieu of return treated in regards to expeditious return requirements?
Treated as a returned check subject to the expeditious return requirements.
Subpart C – Collection of Checks: Notice In Lieu Of Return
What is a common term used to refer to a notice in lieu of return?
May be referred to as a ‘sorry’ document.
Subpart C – Collection of Checks: Notice In Lieu Of Return
What does the paying bank warrant when sending a notice in lieu of return?
That the check has not and will not be returned.
Subpart C – Collection of Checks: Reliance on Routing Number
When a paying bank needs to return a check can they rely solely on the routing number on the endorsement on the back of the check provided by the depositary bank?
Yes, no further investigation is needed if the routing number is provided by the depositary bank.
Simplifies the process for the paying bank
Subpart C – Collection of Checks: Notice of Non-Payment
When must a paying bank provide a notice of non-payment?
Must provide notice of nonpayment to depositary bank by 2:00 p.m. (local time) on 2nd business day following the banking day on which check was presented.
Subpart C – Collection of Checks: Notice of Non-Payment
By what means may a paying bank provide notice of nonpayment?
By any reasonable means including the returned check, phone, electronic communication as long as it meets the timing requirement.
Subpart C – Collection of Checks: Notice of Non-Payment
What information must be included in the notice of nonpayment?
- Information from check’s MICR line when check was received by paying bank
- Name of the payee(s)
- Amount
- Date of depositary bank indorsement
- Bank name
- Routing number
- Trace or sequence number associated with depositary bank’s indorsement
- Reason for nonpayment
Subpart C – Collection of Checks: Notice of Non-Payment
What information is missing from the list below that must be included in the notice of nonpayment?
- Information from check’s MICR line when check was received by paying bank
- Name of the payee(s)
- Amount
- Date of depositary bank indorsement
- Trace or sequence number associated with depositary bank’s indorsement
- Reason for nonpayment
- Bank name
- Routing number
Subpart C – Collection of Checks: Notice of Non-Payment
What is a Notice of Non-Payment?
Requirement for paying banks when they decide not to honor a check of $5,000 or more that informs the depositary bank that the check will not be paid, allowing the depositary bank to notify its customer (the depositor) and take appropriate action.
Subpart C – Collection of Checks: Notice of Non-Payment
What dollar amount on a check requires a paying bank to provide a Notice of Non-Payment if they decide not to honor that check?
$5,000 or more
Subpart C – Collection of Checks: Notice of Non-Payment
True or False: The Date of depositary bank indorsement is not required in a notice of non-payment.
False
Subpart C – Collection of Checks: Notice of Non-Payment
True or False: The reason for non-payment is required on a notice of non-payment.
True
Subpart C – Collection of Checks: Warranties and Indemnities
What does each bank warrant when transferring or presenting an electronic check?
Each bank warrants that:
* Electronic image accurately represents all information on front and back of original check at time of truncation
* Electronic information includes an accurate record of all MICR line information required for substitute check and amount of the check
* No person will be charged for an electronic check or electronic returned check in a way that leads to double payment.
Subpart C – Collection of Checks: Warranties and Indemnities
What is the no double-debit warranty?
It is a warranty that ensures no person will be asked to make payment based on a check it has already paid.
Subpart C – Collection of Checks: Warranties and Indemnities
To whom do the warranties extend if the transfer is for collection or presentment?
Warranties extend to:
* Transferee bank
* Any subsequent collecting bank
* Paying bank
* Drawer
Subpart C – Collection of Checks: Warranties and Indemnities
To whom do the warranties extend if the transfer is for return?
Warranties extend to:
* Transferee returning bank
* Any subsequent returning bank
* Depositary bank
* Owner
Subpart C – Collection of Checks: Warranties and Indemnities
Fill in the blank: Each bank that transfers or presents an electronic check warrants that the electronic image accurately represents all information on the _______ and _______ of the original check at time of truncation.
[front] and [back]
Subpart C – Collection of Checks: Warranties and Indemnities
True or False: The warranties provided by banks only apply to the original check.
False
Subpart C – Collection of Checks: Warranties and Indemnities
What information must the electronic record include for it to be valid?
An accurate record of all MICR line information required for substitute check and amount of the check.
Subpart C – Collection of Checks: Warranties RCCs
What does the bank that transfers or presents a remotely created check warrant?
The bank warrants to the transferee bank, any subsequent collecting bank, and the paying bank that the person on whose account the check is drawn:
* Authorized issuance of the check
* In amount stated on check and to payee stated on check
This warranty ensures that the check is valid and can be processed without issues.
Subpart C – Collection of Checks: Warranties RCCs
What can the warranting bank do if the paying bank asserts a claim for breach of warranty?
The warranting bank may defend by proving the paying bank’s customer is precluded from asserting the claim under UCC §4–406.
UCC §4–406 outlines the customer’s duty to discover and report unauthorized signatures or alterations.
Subpart C – Collection of Checks: Warranties RCCs
Fill in the blank: The bank that transfers or presents a remotely created check warrants that the check is in the amount stated on the check and to the _______.
[payee stated on check]
Subpart C – Collection of Checks: Warranties RCCs
True or False: The paying bank can assert a claim for breach of warranty without any limitations.
False
The paying bank’s ability to assert a claim is subject to the provisions of UCC §4–406.
Subpart C – Collection of Checks: Warranties RCCs
What section of the UCC outlines the customer’s duty to discover and report unauthorized signatures or alterations?
UCC §4–406
This section is crucial for understanding the responsibilities of customers regarding unauthorized checks.
Subpart C – Collection of Checks: Warranties RCCs
UCC §4–406
CUSTOMER’s DUTY TO DISCOVER AND REPORT UNAUTHORIZED SIGNATURE OR ALTERATION
Subpart C – Collection of Checks: UCC §4–406
What is a bank’s responsibility regarding account statements?
Banks must provide a statement of account showing items paid and sufficient details for identification.
Details include item number, amount, and payment date.
Subpart C – Collection of Checks: UCC §4–406
For how long must banks retain items or make legible copies available?
Up to seven years.
Subpart C – Collection of Checks: UCC §4–406
What is the customer’s duty regarding unauthorized payments?
Customers must promptly review the statement or items for unauthorized payments.
Subpart C – Collection of Checks: UCC §4–406
What must customers do if they discover unauthorized payments?
Notify the bank promptly.
Subpart C – Collection of Checks: UCC §4–406
What are the consequences of failing to notify the bank about unauthorized signatures?
Customers lose the right to contest unauthorized signatures or alterations.
Subpart C – Collection of Checks: UCC §4–406
True or False: Customers can contest unauthorized payments if they fail to notify the bank.
False.
Subpart C – Collection of Checks: UCC §4–406
What happens if a customer fails to report unauthorized payments within a reasonable time?
They may lose the right to contest subsequent unauthorized payments by the same wrongdoer.
Subpart C – Collection of Checks: UCC §4–406
What is the maximum time customers have to review their statements?
Up to 30 days.
Subpart C – Collection of Checks: UCC §4–406
What may happen if a bank fails to exercise ordinary care?
Liability may be allocated between the customer and the bank.
Subpart C – Collection of Checks: UCC §4–406
Can a customer assert claims if the bank acted without good faith?
Yes.
Subpart C – Collection of Checks: UCC §4–406
Within what time frame must customers report unauthorized signatures or alterations?
Within one year of receiving their statement or items.
Subpart C – Collection of Checks: UCC §4–406
Failure to report unauthorized signatures within one year results in what consequence?
Bars any claims against the bank.
Subpart C – Collection of Checks: Settlement Warranties
What must banks guarantee regarding the Settlement Amount?
The total value of checks must match the settlement amount they demand
This ensures that the bank is accountable for the accuracy of the transaction amount.
Subpart C – Collection of Checks: Settlement Warranties
What must accompany the checks in relation to the Settlement Amount?
Accompanying information must precisely reflect the total value of checks or returned checks transferred
This ensures transparency and accuracy in the transaction.
Subpart C – Collection of Checks: Settlement Warranties
What does the Encoding Warranty ensure?
Banks ensure that any information encoded after the check’s issuance is accurate
This includes data encoded on substitute checks.
Subpart C – Collection of Checks: Settlement Warranties
True or False: The Encoding Warranty applies only to original checks.
False
It also applies to substitute checks.
Subpart C – Collection of Checks: Settlement Warranties
What right does a bank have if it settles for an amount greater than the checks’ total value?
It has the right to offset the excess amount against future settlements
This allows the bank to recover excess payments in subsequent transactions.
Subpart C – Collection of Checks: Returned Check Warranties
What is the midnight deadline for returning a check according to the UCC?
The check must be returned within the Uniform Commercial Code (UCC) midnight deadline.
Subpart C – Collection of Checks: Returned Check Warranties
What is one responsibility of the paying bank regarding returned checks?
The paying bank is authorized to return the check.
Subpart C – Collection of Checks: Returned Check Warranties
What warranty must the paying bank ensure about the check?
The check was not materially altered.
Subpart C – Collection of Checks: Returned Check Warranties
True or False: A notice of nonpayment can be sent even if the check is not physically returned.
True
Subpart C – Collection of Checks: Returned Check Warranties
What is a requirement for the check in cases of notice in lieu of return?
The check has not and will not be physically returned.
Subpart C – Collection of Checks: Returned Check Warranties
What must the paying bank guarantee about the check regarding the UCC midnight deadline?
The check is returned (or will be returned) within the UCC midnight deadline.
Subpart C – Collection of Checks: Returned Check Warranties
What authorization must the paying bank have to send a notice of nonpayment?
Authorized to send the notice of nonpayment.
Subpart C – Collection of Checks: Returned Check Warranties
What must the paying bank ensure about the check when sending a notice of nonpayment?
The check has not been materially altered.
Subpart C – Collection of Checks: Returned Check Warranties
What type of money orders are excluded from Returned check/ notice of non-payment warranties?
- U.S. Postal Service money orders.
- Checks drawn on US Treasury
- Govt. checks that are not drawn on a bank
SubpartC – Collection of Checks: Remote deposit capture (RDC) Indemnity
What is indemnity in the context of Remote Deposit Capture (RDC)?
Indemnity is provided by a depositary bank that accepts deposit of an electronic image or other electronic information related to the original check.
SubpartC – Collection of Checks: Remote deposit capture (RDC) Indemnity
What type of bank is considered a truncating bank?
A truncating bank is one that accepts deposit of an electronic image or other electronic information related to the original check and does not receive the original check.
SubpartC – Collection of Checks: Remote deposit capture (RDC) Indemnity
What must a depositary bank receive to provide indemnity?
Settlement or other consideration for an electronic check or substitute check related to the original check.
SubpartC – Collection of Checks: Remote deposit capture (RDC) Indemnity
Can a depositary bank that does not receive a return of the check unpaid provide indemnity?
Yes, it can provide indemnity.
SubpartC – Collection of Checks: Remote deposit capture (RDC) Indemnity
Who receives indemnity from the depositary bank?
The depositary bank that accepted the original check.
SubpartC – Collection of Checks: Remote deposit capture (RDC) Indemnity
Under what condition does a depositary bank incur a loss?
If the loss is due to the check having already been paid.
SubpartC – Collection of Checks: Remote deposit capture (RDC) Indemnity
What is a requirement for the original check regarding restrictive indorsement?
The original check must not have a restrictive indorsement that is inconsistent with the means of deposit.
SubpartC – Collection of Checks: Remote deposit capture (RDC) Indemnity
Fill in the blank: A paper deposit bank may not make an indemnity claim if the original check it accepted for deposit bore a _______ inconsistent with the means of deposit.
restrictive indorsement
SubpartC – Collection of Checks: Indemnity for ECI
What is indemnity in the context of electronically-created items (ECI)?
Indemnity is provided by each bank that transfers or presents an ECI and receives a settlement or consideration for it.
This indemnity protects against specific losses related to ECIs.
SubpartC – Collection of Checks: Indemnity for ECI
Who receives indemnity in the case of ECI transactions?
Indemnity is provided to:
* Transferee bank(s)
* Any subsequent collecting bank
* The paying bank
* Any subsequent returning bank
These parties are protected against losses due to issues with the ECI.
SubpartC – Collection of Checks: Indemnity for ECI
What type of losses does the indemnity for ECI cover?
Indemnity covers losses that result from the following facts:
* Electronic image or electronic information is not derived from a paper check
* Person on whose account the ECI is drawn did not authorize the issuance of the item in the amount or to payee stated on the item
* Person receives a transfer, presentment, or return of, or otherwise is charged for an ECI based on an item or check it has already paid.
These points highlight the specific situations where indemnity applies.
SubpartC – Collection of Checks: Indemnity for ECI
True or False: Indemnity for ECI applies only to the paying bank.
False
Indemnity applies to multiple banks involved in the ECI transaction, not just the paying bank.
SubpartC – Collection of Checks: Indemnity for ECI
Fill in the blank: Indemnity is provided by each bank that transfers or presents an ECI and receives a _______.
settlement or consideration
This highlights the financial transaction aspect of the ECI process.
If a tree didn’t die,
it’s an ECI
(Electronically Created Item)
