Regulation CC Flashcards
What federal regulations are implemented by regulation CC?
Expedited funds availability Act (EFA)
Check clearing for the 21st century Act (Check 21 Act)
What are the four subparts of Regulation CC?
Support A: definitions and purpose
Subpart B: funds availability and disclosure requirements
Subpart C: electronic checks / electronic returns of checks
- responsibilities of banks
- agreements
- returns
- endorsements
- warranties and liabilities
Sub part D: substitute checks (IRD)
What Federal Regulations does Reg CC apply to?
12 CFR 229 - Availability of Funds and Collection of Checks
Part of the Federal Code of Regulations (CFR) which contains 50 titles.
Title 12 regulates banks and banking
Chapter 2 (part 2 of 12) covers the Federal Reserve System and recognizes today’s electronic nature of the check environment.
Issued by Board of Governors of the Federal reserve System
Subpart B animal joint jurisdiction with the CFPB
How often are updates required to Subpart B to keep up with inflation?
5 years
What’s Reg CC CFR code?
12 CFR 229
Subpart B of Regulation CC is co-owned with who?
Consumer Financial Protection Bureau CFPB
What two laws does Regulation CC (12 CFR 229) implement?
Expedited Funds Availability Act (EFAA), which was enacted in August 1987 and became effective in September 1988, and the Check Clearing for the 21st Century Act (Check 21), which was enacted in October 2003 and became effective on October 28, 2004.
Does regulation CC mandate electronic processing of checks?
No.
What does Regulation CC Subpart C address and not address?
It addresses the interbank electronic Check Exchange. The forward and return process for clearing of electronic checks.
Does not address the HOW to, which it defers to:
Interbank rules and agreements such as ECCHO and FRB OC3 address the where/when/and how.
There are also agreements between FI’s and account holders.
Definition of Bank per Reg CC
Insured bank, mutual savings Bank and savings Bank, insured credit Union, member as defined in Federal Loan(FHLB) Act, Savings association, agency or a branch of a foreign Bank as defined in section International banking Act.
Definition of Collecting Bank per Reg CC.
Any Bank handling a check for forward collection,
EXCEPT the Paying Bank.
Definition of Depository Bank per Reg CC.
First Bank ( Depository FII) to which a check is transferred even though it may also be the paying Bank.
BOFD Bank of first deposit.
Definition of Indemnifying Bank per Reg CC
Bank that provides an indemnity under 229.34 with respect to REMOTE DEPOSIT capture or an electronically created item, or
Bank that provides an indemnity under 229.53 with respect to a SUBSTITUTE check.
Definition of Paying Bank per Regulation CC.
Bank by which a check is payable, and to which it is sent for payment or collection;
Federal Reserve Bank or Federal Home Loan Bank by which check is payable;
Bank through which a check is payable, if check is not payable by a bank; or
State or unit of general local government on which a check is drawn and to which it is sent for payment or collection
Definition of Returning Bank per Reg CC
A bank (other than Paying or Depository Bank) handling a return check or notice of Liu of return.
Also a collecting bank for purposes of UCC 202 (b)
Definition of Reconverting Bank regulation CC.
Think that creates substitute check. CONVERTS IMAGE BACK TO PAPER.
For substitute check created by non-bank, First Bank to transfer, present, or return a substitute check.
Definition of Truncating Bank per reg CC
Bank that removes the original check from the check collection process. Example: RDC
Or if non-Bank removes original check from the check collection process, then First Bank that transfers, presents, or returns a substitute check in lieu of original check, or by agreement.
Definition of Account per Reg CC
Deposit accounts at a bank from which account holder makes transfers or withdrawals by negotiable instrument or other similar means to make payments or transfer funds to third persons
Ex: DDA or share draft accounts
Definition of Availability per Reg CC
Time from day of deposit until funds are available to account holder for withdrawal or other use
- Could include funds from a line of credit product as well as funds classified as available balance from cleared and existing deposits
Definition of Available for Withdrawal per Reg CC.
Funds deposited available for all uses generally permitted to customer under bank’s account agreement or policies
Definition of Banking Day per Reg CC.
Business day on which office of Bank is open to public for substantially all banking functions.
Definition of Business Day per Reg CC.
Calendar day other than a Saturday or a Sunday or FRB legal holidays.
Definition of Cashier’s Check per Reg CC.
Check that is:
- drawn on a bank
- Signed by an officer or employee of the bank on behalf of the bank ass drawer
- Direct obligation of the bank
- provided to a bank’s customer required from the bank for remittance purposes.
Definition of Check for regulation CC.
Negotiable demand draft
- Drawn on or payable through or at, an office of a bank;
- Drawn on FRB or FHLB;
- Drawn on U.S. Treasury;
Demand draft drawn on:
+ State or unit of general local government not payable through or at a bank;
U.S. Postal Service money order;
Traveler’s check; and
An original check and a substitute check
Definition of Electronic Check and Electronic Return Checks per regulation CC
Electronic image and electronic information derived from check or the paper returned check that; (…was exchanged between two institutions and confirms to x9 187)
- Sent in pursuant to the agreement between sender and receiving Bank
- conforms with X9 .100-187
Must have both the image of the item and the MICR information
Does NOT include non-cash items
Definition of electronically created items per Reg CC.
• Check-like items created in electronic form that never existed in paper form
• Does NOT meet definition of electronic check and Subpart C does not apply
• Creates new indemnity
✓ Bank that transfers an image or information that is not derived from a paper check indemnifies each transferee bank, any subsequent bank, the paying bank and any returning bank against any loss, claim, or damage that results from the fact that the image or information was not derived from a paper check
(Because it is not defined as a check per Reg CC does not meet the same return timeframes. )
Is an Electronically created item considered a check in Regulation CC?
No
Because it never existed as a check, it does not meet the definition of a check or an electronic check per sub part C.
Not subject to the same return time frames because it is not considered an item for reg CC.
What is the difference between an RCC and an ECI?
RCC (Remotely Created Check): A paper check not signed by the account holder but authorized by them. It exists in physical form before imaging and may say “signature on file” on the signature line.
ECI (Electronically Created Item): A digital check created electronically, printed by the recipient on non-MICR paper, and never existed in physical form before.
What does MICR stand for?
Magnetic Ink Character Recognition
What does the MICR line include?
It may include routing number account number check number check amount and other information. (7 fields per standards notes)
Regulation CC how must a MICR line be printed?
You’re the bottom of the check in magnetic ink 5/8_ clear band area bottom of check)
Must be in accordance with ANS standards.
- 160 for original check
- 140 for substitute check
- 187 for an electronic check /electronic return check for purposes of subpart C in sub part D..
Does Regulation CC require magnetic ink on the MICR line?
In order to be considered a cash item, must be encoded in magnetic ink.
All checks including substitute checks must have routing number of the paying Bank reprinted or post encoded in magnetic ink.
EXCEPTION: (if not eligible for re-presentment does not need to be on magnetic ink) not required if an IRD is created for a PAID item returned to the issuing fi’s customer as properly paid item.
- MICR characters still in E-13B font maybe reprinted in non-magnetic ink per x9 140
- must confirm you’ll other xp140
What X9 standards apply to the MICR line?
X9.100.160 for original check
X9.100.140 for substitute check
X9.100.187 for electronic checks
Definition of noncash item per regulation CC
Would otherwise be a check except that
Passbook certificate or other document is attached
Accompanied by special instructions such as requests for special advice of payment or dishonor
Consists of more than a single thickness of paper except a check that qualifies for handling by automated check processing equipment
Not pre-printed or post-encoded in magnetic ink with the routing number of the pain Bank.
Definition of Remotely Created Check (RCC) per Reg CC
• Check not created by the paying bank
• Does not bear a signature applied, or purported to be applied, by person on whose account check is drawn
• May say “signature on file” of other similar language on the signature line
• May be referred to as an unsigned draft
• Valid RCC must have existed in paper (physical) form prior to imaging
What is one way to identify an RCC to determine whether it’s an RCC or an ECI?
Check to see if the EPC field has a 6..
However this is not mandatory and it may not be there.
What does regulation CC require with indorsements?
Requirement for any bank, other than the paying bank, that touches the check in processing whether for forward processing or return item.
If a bank fails to indorse an item, it still has liability for the item.
Must endorse in accordance with standards.
- X9 111 - paper check
- X9 140 - substitute checks
- X9 187 for electronic check
Note: the more institutions more returns, more indorsements.
What does regulation CC say regarding indorsements and holder?
- After check indorsed by bank, only another bank may acquire rights of a holder until
- Check has been returned to person initiating collection; or
- Check has been indorsed by the bank to a person who is not a bank
- Example: Bank is holding the item but is unable to charge back; may assign the check to a debt collection service
What does Regulation CC say about depository Bank indorsement?
- May arrange with another bank to apply other bank’s indorsement as Depositary Bank indorsement
- Used in a centralized return environment
- Must avoid area reserved for depositary bank indorsement as specified in indorsement standard
- Applicable to check under paragraph (a) of this section
- Physical check, substitute check, electronic check
NOTE: if a bank uses a third party return location, on the back of a check, there is a section reserved for the actual BOFD below the payee indorsement, and the return location as a BOFD indorsement would be below the indorsement of the actual BOFD.)
How to identify the depository Bank?
Depository Bank indorsement includes
ABA routing number bracketed WITH arrow points
Banks name and location
X9187 electronic record image
How to identify a subsequent collecting bank?
Subsequent Bank indorsement(s) must include
- ABA routing number WITHOUT Arrow points
- x9187 record (Image)
(Far right on the back of a substitute check. The very top of the check is vertical per image..?
Hot to identify the reconverting bank?
The ABA reconverting Bank ondorsement is based on x9.100- 140 standard
Must include
- routing number (without arrows )and ASTERISK at each end, front of check outside the image
- ABA routing number (without Arrow points) and asterisk at each end; back of check
- truncating Bank ABA number (without arrow points) and bracket end of front of check outside image.
Reconverting Bank identified by?
Asterisks 123456689
on front (top left) and back (far right below subsequent Bank) of forward substitute check
Depository bank indorsement identified by?
Inward facing arrows.
Truncating Bank indorsement identified by?
Brackets [ ] on the FRONT of IRD only,
What does Reg CC say about presentment and issuance of checks?
Electronic Checks: Governed by agreements between presenting and paying banks.
Paper Checks: Considered received when delivered to a specified location, an address linked to the routing number, or any branch/ head office if no address is listed.
Paying banks can require separation of presented and returned checks.
Regulation CC on Same-Day Settlement
Governed by agreement of the parties
What does Reg CC say about Same-Day Settlement?
Governs settlement for paper checks; electronic check settlement is based on agreements.
A paper check requires same-day settlement if:
a. Delivered to the location designated by the paying bank.
b. Delivered by 8 a.m. (local time) on a business day.
Paying bank can require separation of same-day settlement checks.
Paying bank must settle or return the check by the close of Fedwire on the day of receipt.
Regulation CC Subpart B - 229.10
Next-day availability
Regulation CC Subpart B - 229.11
Adjustment of dollar amounts
Regulation CC Subpart B - 229.12
Availability schedule
Regulation CC Subpart B 229.13
Exceptions
Regulation CC Subpart B 229.14
Payment of interest
Regulation CC Subpart B 229.15
General disclosure requirements
Regulation CC Subpart B 229.16
Specific availability policy disclosure
Regulation CC Subpart B 229.17
Initial disclosures
Regulation CC Subpart B 229.18
Additional disclosure requirements
Regulation CC Subpart B 229.19
Miscellaneous
Regulation CC Subpart B 229.20
Relation to state law
Regulation CC Subpart B 229.21
Civil liability
Regulation CC Next-Day Availability (229.10)
depositary bank makes funds available NEXT BUSINESS day after the BANKING day on which the funds are deposited for:
Check drawn on the Treasury of the United
States
US Postal Service money order
Check drawn on Federal Reserve Bank or
Federal Home Loan Bank
Check drawn by a state or local government
Cashier’s, certified, or teller’s check
First $275 of any other check - aggregate amount across multiple accounts.
Regulation CC Subpart B (229.11) - Adjustments of Dollar Amounts
Inflation updates every 5 years
Economic Growth Regulatory Relief, and Consumer Protection Act expanded to American territories (EGRRCPA)
Joint rulemaking authority of FRB and CFPB over certain provisions REG CC 229.1(a)).
What does Regulation CC Subpart B - Availability schedule (229.12) say about local checks?
Applies to all local checks.
But all checks are now considered local due to restructuring of Federal Reserve Bank’s check processing operations.
Atlanta remaining FRB check processing location.
Regulation CC Subpart B - Availability schedule (229.12)
Two-day Availability
Two-Day Availability: bank shall make funds available for withdrawal no later than SECOND BUSINESS day after the BANKING day on which checks were deposited in person
Regulation CC Subpart B - Availability schedule (229.12)
Extension of Schedule
Depositary Bank may add one business day for deposits that are:
✓Deposited in an account at a branch of a depositary bank if the branch is located in Alaska, Hawaii,
Puerto Rico, or the U.S. Virgin Islands; and
✓Deposited by a check drawn on a paying bank not located in the same state as the depositary bank
Regulation CC Subpart B - Availability schedule (229.12)
Nonproprietary ATMs
Deposits at nonproprietary ATMs, depositary bank must make funds available no later than FIFTH BUSINESS day after the banking day on which check was deposited
o Example: Deposit is made at a nonproprietary ATM on a Monday, including any deposit by cash or
checks otherwise be subject to next-day (or 2nd-day) availability;
o Funds must be made available for withdrawal not later than Monday of the following week
What has Reg CC done in regard to Economic Growth Regulatory Relief, and Consumer Protection Act (EGRRCPA)
EGRRCPA extends Reg CC funds availability, payment of interest, and disclosure requirements to financial institutions in:
– American Samoa
– Commonwealth of the Northern Mariana Islands
– Guam
- defined terms “state” and “United States” includes these territories in 229.2(ff) and 229.2(jj)
- territories lists of locations that are eligible for one-day extension of the availability schedules under 229.12(e) of Reg CC and EFAA
Per Regulation CC Subpart B (229.13) what are the Exceptions Eligible for extended holds?
New Accounts - Open less than 30 days
Large deposits (Greater than $6725) - First $6,725 covered under normal availability requirements. Remainder may be held for extended period.
Re-Deposited Checks - May be held unless the check was returned because of missing endorsement or postdating.
Repeated Overdrafts - If during the previous 6-months, account was negative: Six or more banking days.
Reasonable cause to doubt the collectability: Must have legitimate reasons
Emergency Conditions: Beyond the control of financial institution; Example Natural disasters or communications malfunctions.
What is the timeframe for an extended hold per Regulation CC?
Timing of reasonable period beyond the 2-day availability generally will be:
One (1) additional buisness day for on-us (3 TOTAL DAYS)
up to five (5) additional business days for non-on=-us: (7 TOTAL DAYS)
If a U.S Treasury check in the amount of $8500 is deposited on Monday the 19th, to a new account, what is the Reg CC funds availability schedule?
Day 1: Monday: $8,500 Treasury Check Deposit
Day 2: Tuesday: $6,725 - Next Day Availability for U.S Treasury Checks
Day 3: Wednesday: Hold in amount of $1,775 - Extended hold
Day 4: Thursday: Hold in amount of $1,775 - Extended hold
Day 5: Friday: $1,775 released
Note in this example: U.S Treasury check used to open a new account. Next day availability applies because of U.S Treasury check, but because it’s a new account AND large deposit the $6725 limit applies to the availability amount. Remaining balance subject to extended hold.
How much REG CC Disclosures appear?
Clear, conspicuous, and in writing.
In a form that the customer may keep, other than those posted at:
- locations where employees accept consumer deposits
- ATMs
- preprinted deposit slips
Cannot contain information not related.
Must disclosures follow the bank’s availability policy?
in most cases, yes, even though in some cases banks make funds available sooner or impose a longer delay.
List the 2025 inflation adjustments
229.10(c)(1)(vii): Minimum amount = $275
229.12(d): Cash withdrawal amount = $550
229.13(a): New account amount = $6,725
229.13(b): Large deposit threshold = $6,725
229.13(d): Repeatedly overdrawn threshold = $6,725
229.21(a): Civil liability amounts for failing to comply with EFAA’s
- requirements: $125, $1,350 and $672,950
How many days’ notice must a bank provide, prior to implementing changes to their funds availability policy?
30 Days
What’s an example of a change in a banks REG CC policy that would require notice?
Changes to the availability dollar amounts
How many days notice must a bank provide if the change is favorable to the customer?
If change expedites the availability of funds (favorable to customer), notice should be sent no later than 30 days after implementation.
Are RDC deposits covered by Subpart B of Regulation CC?
No. But they must be governed by agreement.
Define Substitute per REG CC 229.2 (Check 21 and Substitute checks)
Paper reproduction of an original check that:
- Legal equivalent of original check for all purposes and must accurately represent all information on the original checks.
- Must bear legal legend and must include all indorsements.
- Contains image of front and back of original check
- Bears a MICR line that contains all information appearing in MICR line of original check as issued
- Conforms to industry standards (X9.100-140)
- Suitable for automated processing same as original
According to Subpart D provisions for substitute checks, what must a substitute check include?
Legal equivalent of original check for all purposes – must accurately represents all information on original check; bear legal legend and must include all indorsements
* Identifies both the Reconverting Bank and Truncating Bank
A Financial institution that transfers, presents, or returns a substitute check (or paper copy or image or substitute check) warrants that:
Meets all requirements for legal equivalency
Accurately represents the information from the front and back of the original check and includes the required legend identifying it as legal copy of original check
No double debit (warranty against duplicates)
Are there double debit warranties for Substitute checks per Reg CC?
No
In the front facing position view of a forward presentment Substitute check, what information is contained on the far left of the check (outside of the actual check image) in a horizontal view?
Creating Institution, Routing Number, Creation Date & Sequence, Number and Legal Legend below.
In the front facing position view of a forward presentment Substitute check, what information is contained to the left but on the outside of the actual check image, displayed in a vertical position?
Original Truncating
Institution Routing
Number, Date &
Sequence
What is the EPC code that identifies a Substitute check and where is it located?
4, located to the left of the routing number on the MICR line of the Substitute check, copied from the original check image.
Is the bank that creates a substitute check going to be the same as the truncating bank, or the BOFD?
No.
Describe the back of a forward substitute check?
When viewing horizontally, far left (top) of check, outside of the image: Subsequent endorsements on original substitute check, with last 4 endorsement printed in oldest to newest sequence. Creator endorsement is most recent.
Image of check on the IRD will have the BOFD endorsement area for Original IRD printed on Original Substitute check - located in vertal formant relative to horizontal view, below of standard BOFD endorsement line of the original deposit and, BOFD endorsment areas for subsequent IRDs
What’s the difference between Substitute Check and IRD?
None. Image Replacement Document (IRD) technically defined in standard x9.100-140. Substitute check is defined in Reg CC which references the x9.100.10 standard.
What is the definition of an IRD / Substitute Check?
Definition for substitute check (229.2(aaa)):
– Legal equivalent of original check for all purposes
– Contains image of front and back of check
– Conforms to industry standards
– Suitable for automated processing
– Accurately represents all information on original check
– Bears the required legal legend
– Includes all indorsements and includes identification of party creating it (reconverting bank)
Define Copy of an original check per Regulation CC
Copy of an original check means any:
– Paper reproduction of an original check, including a paper printout of an electronic image of the check, a photocopy of the original check, or substitute check; or
– Electronic reproduction of a check that a recipient has agreed to receive from the sender instead of a paper reproduction
Define Sufficient copy of an original check per Regulation CC
Sufficient copy: Copy of an original check that:
– Accurately represents all of the information on the front and back of the original check as of the time the original check was truncated; or
– Is otherwise sufficient to determine whether or not a claim is valid
What is Check 21 Act: Expedited Recredit
Expedited recredit refers to a consumer making a claim on a substitute check not properly paid. Example:
- Consumer receives statement notices IRD is not properly charged or consumer has a warranty claim.
- Consumer must make a claim within 40 calendar days from statement date
- Paying Bank must provide consumer with the original check or sufficient copies of the original check OR must re-credit them within 10 business days after banking day claim was received.
- Note: If it takes longer than 10 banking days, they must recredit the customer up to $2500
Paying bank must make a claim with the Reconverting bank within 120 calendar days from the date of transaction.
- Reconverting Bank must provide paying bank check copy or re-credit within 10 BUSINESS days after BANKING day claim was received. This determines whether there is a valid claim or not.
What are the timeframes for expedited recredit?
40 days for consumer to make claim
10 BUSINESS days after BANKING day claim was received from customer
120 CALENDAR days for paying bank to make claim with Reconverting bank
10 BUSINESS days after BANKING Day for Reconverting bank to recredit paying bank
How must a consumer be made aware of expedited recredit protections?
Through Disclosures which must:
Describe substitute check is legal equivalent of original check and recredit rights/how they apply if consumer believes substitute check not properly charged to account
Disclosure required to consumers who:
– Receive paid checks with periodic statements or on occasional basis
– Provide disclosure to consumer customer who requests original or copy, or receives a substitute check at the time of request
* Example: FI returns a substitute check to depositing customer (return item for NSF item)
Does a bank that creates a substitute provide indemnities?
Bank that creates substitute check, or other representation, provides indemnity (if loss is due to a result of the IRD, reconverting bank is liable)
- Indemnifies all parties for loss, if loss is due to receipt of substitute check instead of original item
- Consequential damages rest with financial institution that creates substitute check
How can a reconverting bank limit its liability?
If the original item or copy can be reproduced
Also, by comparative negligence. When an issue occurs the fault and and/or negligence of each party involved is based on their respective contribution to the issue.
What is Comparative Negligence>
When an issue occurs the fault and and/or negligence of each party involved is based on their respective contribution to the issue.
