Regulation CC Subpart C Flashcards
Regulation CC Subpart C - Collection of Checks 229.30
Electronic checks and electronic information
Regulation CC Subpart C - Collection of Checks 229.31
Paying bank’s responsibility for return of checks and notices of nonpayment
Regulation CC Subpart C - Collection of Checks 229.32
Returning bank’s responsibility for return of checks
Regulation CC Subpart C - Collection of Checks 229.33
Depositary bank’s responsibility for returned checks and notices of nonpayment
Regulation CC Subpart C - Collection of Checks 229.34
Warranties and indemnities
Regulation CC Subpart C - Collection of Checks 229.35
Indorsements
Regulation CC Subpart C - Collection of Checks 229.36
Presentment and issuance of checks
Regulation CC Subpart C - Collection of Checks 229.37
Variation by agreement
Regulation CC Subpart C - Collection of Checks 229.38
Liability
Regulation CC Subpart C - Collection of Checks 229.39
Insolvency of bank
Regulation CC Subpart C - Collection of Checks 229.40
Effect of merger transaction
Regulation CC Subpart C - Collection of Checks 229.41
Relation to State law
Regulation CC Subpart C - Collection of Checks 229.42
Exclusions
Regulation CC Subpart C - Collection of Checks 229.43
Reserved
What is the paying bank’s responsibility in regard to returning an item?
If bank determines not to pay a check, must return check or provide notice in an expeditious manner. Note: Even if a bank provides notice, it must still return the item expeditiously.
What is an expeditious return?
Bank must return the check so that it would be received by the depository bank
- No later than 2PM local time
- Second BUSINESS DAY following BANKING day when check was presented.
Describe the UCC and Reg CC return deadline process.
Example:
Monday: Check deposited
Tuesday: Paying bank is presented with check and posts
Wednesday: Paying bank decisions items, Returns before Midnight (UCC deadline)
Thursday: Depository bank must receive check or notice before 2 PM.
NOTE: Both notice and check must be received by 2PM. No need to send notice. The return itself service as the notice.
What if the paying bank is unable to identify the depository bank?
May send returned check
to any bank that handled
check for forward collection
Must advise bank to which check is sent
that the Paying Bank is unable to identify
Depositary Bank
Expeditious return requirements still apply unless the paying bank absolutely cannot identify BOFD in which case, expeditious return does not apply to Paying Bank’s return of check
What must a paying bank provide on a returned check?
Clearly indicate on the front of check or in
return image file that:
IT IS A RETURN
REASON FOR RETURN
What may a paying bank rely on to determine BOFD?
May return check based on any routing
number that designates the Depositary Bank
That appears on returned
check in the Depositary
Bank’s indorsement
- May be printed with inward facing arrows
on back of physical check; and/or - Included In the electronic records
- Type 26 record: return location
What is a notice of nonpayment?
If a paying bank is returning a check of $5000 or more:
- provide notice of nonpayment to BOFD by 2PM local time on SECOND BUSINESS DAY following the BANKING DAY of presentment
- Through any reasonable means such as Fedline for Web, Feline Avantrage, etc and notice must include:
MICR line information, name of payee, amount, depository bank indorsement date, bank name, routing number, seq associated with indorsement, reason for nonpayment
What is in Lieu of Return ?
Check unavailable for return.
- can send copy of front/back of check, but must include NIL.
- Example is when bank can’t create a substitute check because it lacks the necessary information. A reconverting bank is liable for creating a Substitute check.
Per REG CC, define “Returning Bank”
Bank other than Paying Bank or Depositary Bank, that handles a returned check or notice in lieu of return.
What is a requirement for the Bank of First deposit upon receiving a returned item?
The BOFD is required to NOTIFY ITS CUSTOEMR of nonpayment upon receipt of returned check or notice of nonpayment (regardless of amount of the check or notice)
How must a BOFD notify its customer of nonpayment for a returned check?
Though whatever method in agreement, but customer must be notified.
What is the risk of mailing a life IRD item back to the customer for a returned check?
When a BOFD deposit mails an IRD to its customer, that IRD is floating around out there. If this check gets lost, there is a liability that the BOFD takes. The institution that creates the item has a warranty on it.
When must notice to the customer be provided for a returned check?
For returned check or notice of nonpayment received, must send item or notice to its customer:
o By MIDNIGHT of the BANKING day following the BANKING day on which it received the returned check or
notice; or
o Within a longer reasonable time - (this was left in here for FI’s that use mailing system)
How s hould a BOFD handle an item returned to it, that is not their item?
Returned check/ written notice of nonpayment received in error
o Expeditiously send the returned check or notice:
* Directly to Depositary Bank;
* To Returning Bank agreeing to handle returned check; or
* To bank from which it was received
What happens if paying bank doesn’t meet return timeframe?
What limited liability may a paying bank have?
Check must be returned within REG CC timeframe, but the burden of prof falls on BOFD asserting late return claim.
There is a limited liability for paying bank: BOFD cannot claim a late return if its own return process causes a late return. Example: You don’t accept electronic returns/ or BOFD using correspondent bank.
Define Warranty
Assurance or promise about a certain condition or fact.
Ex: BOFD A provides a warranty to the Paying Bank that it will not be asked to pay the same item
again (no double debit warranty)
Define Indemnity
Promise of protection, promise to reimburse a person for loss they suffer.
Ex: ECI indemnity states a bank that transfers an ECI indemnifies each transferee bank from
losses arising from fact that
Reg CC CC 229.34(a)(1)(ii))
No double debit warranty. BOFD sends an image to Paying Bank and provides warranty stating Paying Bank will not be asked to make payment on that item again.
What if a BOFD submits an image for payment twice, to the paying bank?
BOFD is in breach of double debit warranty:
Paying bank can return if caught within return window.
Paying bank can process an adjustment - SIX MONTHS Fed ECCHO 180 days - OR bring a breach of warranty claim through other means (deal direct).
Note, timeframe for customer to report discrepancy is based on agreement, typically 30-60 days - but the longer an FI gives a customer the higher the risk.
Electronic check/electronic returned check warranties
Subpart D - REG CC (229.34(d))
warranties under REG CC of electronic checks
Each bank that transfers or presents and receives settlement or other consideration warrants:
o Electronic image ACCURATELY REPRESENT all information on FRONT AND BACK of original check (at time check was truncated); and
o Electronic information includes accurate record of all MICR line information (required for substitute check) and amount of the check; and
o NO DOUBLE DEBIT: No person will receive transfer, presentment, return or otherwise be charged for an electronic check/electronic returned check, original check, a substitute check, or a paper or electronic representation of a substitute check such that the person will be asked to make payment based on a check it has already paid (no duplicate payment a lnguage)
Notice of nonpayment 229.34 (e) warranties.
Paying Bank returning a check of $5,000 or greater must provide notice, and warrants:
o Check is returned or will be returned within the UCC midnight deadline
o Authorized to send the notice; and
o Check has not been materially altered
If sending In Leu of Return - original check wil not be returned.
check warranty returns 229.34(d)
Each Paying Bank or Returning Bank
warrants:
o Returned within UCC midnight deadline
o Authorized to return check
o Check not materially altered
o For notice in lieu of return, original check has not and will not be returned
What exceptions are there to return warranties:
Note: These warranties are not made for
checks if:
o Drawn on the U.S. Treasury
o U.S. Postal Service money orders, or
o Drawn on a state or a unit of general local
government that are not payable through or at
a bank
223.34 (b) Bank that transfers or presents a remotely created check warrants that the person on whose account the check is drawn warrants:
Authorized issuance of the check;
✓In amount stated on check; and
✓To payee stated on check
* Warranties given only by banks and only to
subsequent banks
Settlement Amount, Encoding, and Offset 229.34 (c ) warrants that:
o Total amount of checks presented EQUAL to total
SETTLEMENT demanded
o Accompanying information accurately indicates
total amount of checks transferred
o Information encoded after issue in magnetic ink is
correct
✓Includes any information placed in MICR line of
substitute check
o If amount exceeding the total amount of the
checks is settled, bank may SET OFF the excess
settlement amount against subsequent
settlements
BOFD A
1st Bank of First Deposit in RDC duplicate presentment scenario
BOFD B
2nd Bank Of First Deposit in RDC duplicate presentment scenario
Paper Deposit Bank
Bank accepting original paper check for deposit in RDC indemnity scenario
RDC Bank
Bank that allows customer to truncate a check and deposit via remote deposit capture
RDC Indemnity
Provides protection in certain conditions for paper Deposit Bank that took original paper check for deposit and then experienced a loss
Restrictive indorsement
(from Reg CC Commentary):For mobile deposit at Depositary Bank A only [and the customer’s account number] at Depositary Bank A
229.34 (f)
RDC Indemnity
RDC Indemnity 229.34 (f)
Provides some level of protection to 2nd Depositary Bank that:
The RDC indemnity is between which backs?
RDC and paper depository bank. The payee banks not involved.
What are the mandatory conditions for RDC Indemnity for each bank?
RDC Bank 4 conditions:
1.Truncating Bank: accepted deposit of electronic image/information related to original check;
2. Did not receive original check;
3. Received settlement/consideration for electronic check/substitute check related to original check; and
4. Did not receive return of check unpaid
Paper Deposit Bank 3 conditions:
o Must have received original paper check for deposit
o Incurred a loss due to duplicate item
o Original check must not have a restrictive indorsement inconsistent with the paper deposit
How may a paper depository bank make a RDC indemnity claim against the RDC bank in Fed?
RDC Indemnity claim may be made against any RDC Depositary Bank
Claim can be made to any one RDC Bank, even if multiple RDC banks are subject to the conditions of the indemnity RDC WIC.
For FRB exchanges, use RDC items with RDC form
*Within 90 calendar days of the PAID adjustment or return letter date (after 90calendar days deal direct)
*Both PAID items must have been processed by FRB
*Check with FRB to ensure conforming with all requirements
How may a paper depository bank make a RDC indemnity claim against the RDC bank in ECCHO?
ECCHO exchanges, use Warranty/Indemnity Claim (WIC) for RDC Indemnity claim within 1 YEAR according to ECCHO Adjustment Matrix
- Use sample RDC Indemnity claim letter to provide
necessary information
(Note: 1 year for RDC vs 90 calendar days of PAID under FED one of differences between Fed and ECCHO.
What is the difference for processing an RDCI indemnity between FED and ECCHO
FEE - within 90 valendar days of the PAID adjustments and both PAID items must have been processed by FRB.
ECCHO - 1 Year - use sample RDC indemnity claim letter to provide necessary information
How do you identify the RDC bank to file an RDC indemnity?
FED:
INFO - ITYP - FRB will review, research and provide the BOFD endorsement if the endorsement was electronic
SOR – FRB workflows are automated, and the system will only provide who deposited at the FRB. It will not provide BOFD endorsement
ECCHO: Submit Source of Receipt Item adjustment to Paying Bank
What do you do if you’re the RDC bank, and the check has a restrictive endorsement?
Really doesn’t know without looking at check. RDC bank warrants check accurate representation.
But assuming check does have restrictive endorsement.
RDC bank must meet all requirements: Truncating Bank, did not receive original check, received settlement for electronic/substitute check, did not receive return of unpaid check.
Indemnity is negated:
paper Deposit Bank makes a claim, RDC Bank may disclaim:
FRB OC 3: Entry in Error (ERR) adjustment ITYP
ECCHO Rules: May use sample RDC Indemnity disclaim form
RDC Restrictive
Indorsement
indorsement on the image of the deposited check the RDC Depositary Bank received NOT on the image.
What is not considered in RDC Indemnity?
Depositing Customer Relationship - RDC indemnity does not cover agreement between bank and customer.
Paying Bank - BOFD Relationships - Does not alter duplicate warranty protection, duplicate decisioning.
Liability between two RDC Banks -
ECI Deposits - Not considered checks under REG CC
Define Electronically-Created Item (ECI) 229.34 (g)
Electronic image that has all attributes of an electronic check or electronic returned check but
was created electronically and not derived from a paper check” (see 229.2(hhh))
Always start with the BOFD
EDCI Indemnity
Each bank that transfers an ECI indemnifies each transferee bank from losses arising from fact that:
o Electronic image/electronic information not derived from paper check;
o Person on whose account ECI is drawn did not authorize item in amount stated or to the payee stated
o Person that receives or is otherwise charged for electronically-created item is
not asked to make payment on an item or check it has already paid (no duplicates)
Who makes the ECI indemnity?
Interbank only - made by each back that transfers or presents ECI.
What is a paying bank identifies an ECI?
May return as ineligible item, not considered a check so no expeditious return of ECI required. ECCHO process has a warranty indemnity claim wic for ECI. Fed has WIC/Associated with unauthorized ECI.
How do ECI’s inter the check network?
Corporate customer electronically creates an image that looks like an image of corporate customer’s paper checks and emails the image to the payee
* Consumer uses a smart-phone application to electronically create and send check image to payee
* Consumer provides his/her account information to utility which then uses information to create and deposit ECI with its bank to obtain consumer payment
a bank that allows a corporate customer to create RCC items, should consider in their agreement that all RCC items have a 6 in the ECP code so that they can be recognized as such.
What is the presumption of alteration?
Addresses who is responsible for an altered check when we don’t have the paper item. When the original check not available not for review, presumption is check is altered, and liability falls on paying bank per UCC.
What does Presumption of Alteration not cover?
Does not alter the transfer/presentment warranties under
UCC that allocate liability among the parties
How does (UCC 3-407) and (UCC 1-201 & UCC 3-403) relate to REG CC?
Presumption of Alteration does not alter transfer/presentment warranties under UCC>
Alteration
(UCC 3-407)
- An unauthorized change in check that purports to
modify in any respect the obligation of a party, and
- An unauthorized addition of words/numbers/other
change to incomplete check relating to obligation of a
party
- UCC places responsibility for altered item on BOFD
Unauthorized signature
(UCC 1-201 & UCC 3-403)
- Signature made without actual, implied, or apparent
authority (includes a forgery)
- UCC places responsibility for forged item on the
Paying Bank
Damages -229.34 (h)
Shall not exceed amount of item plus interest compensation and expenses
Tender of defense – 229.34 (j)
May give prior bank in collection or return chain written notice of litigation
Notice of claim 229.34 (k)
Must be made within 30 days after claimant has reason to know of breach and identity of warranting bank
*Warranting bank discharged to the extent of any loss caused by the delay in giving notice of the claim
What is the statute of Limitations under REG CC?
1 year Statute of Limitations
Reg CC (229.38) (Note UCC is 3 years)
