Regulation CC Subpart C

Question 1

Regulation CC Subpart C - Collection of Checks 229.30

Answer 1

Electronic checks and electronic information

Question 2

Regulation CC Subpart C - Collection of Checks 229.31

Answer 2

Paying bank’s responsibility for return of checks and notices of nonpayment

Question 3

Regulation CC Subpart C - Collection of Checks 229.32

Answer 3

Returning bank’s responsibility for return of checks

Question 4

Regulation CC Subpart C - Collection of Checks 229.33

Answer 4

Depositary bank’s responsibility for returned checks and notices of nonpayment

Question 5

Regulation CC Subpart C - Collection of Checks 229.34

Answer 5

Warranties and indemnities

Question 6

Regulation CC Subpart C - Collection of Checks 229.35

Answer 6

Indorsements

Question 7

Regulation CC Subpart C - Collection of Checks 229.36

Answer 7

Presentment and issuance of checks

Question 8

Regulation CC Subpart C - Collection of Checks 229.37

Answer 8

Variation by agreement

Question 9

Regulation CC Subpart C - Collection of Checks 229.38

Answer 9

Liability

Question 10

Regulation CC Subpart C - Collection of Checks 229.39

Answer 10

Insolvency of bank

Question 11

Regulation CC Subpart C - Collection of Checks 229.40

Answer 11

Effect of merger transaction

Question 12

Regulation CC Subpart C - Collection of Checks 229.41

Answer 12

Relation to State law

Question 13

Regulation CC Subpart C - Collection of Checks 229.42

Answer 13

Exclusions

Question 14

Regulation CC Subpart C - Collection of Checks 229.43

Answer 14

Reserved

Question 15

What is the paying bank’s responsibility in regard to returning an item?

Answer 15

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.

Question 16

What is an expeditious return?

Answer 16

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.

Question 17

Describe the UCC and Reg CC return deadline process.

Answer 17

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.

Question 18

What if the paying bank is unable to identify the depository bank?

Answer 18

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

Question 19

What must a paying bank provide on a returned check?

Answer 19

Clearly indicate on the front of check or in
return image file that:

IT IS A RETURN
REASON FOR RETURN

Question 20

What may a paying bank rely on to determine BOFD?

Answer 20

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

Question 21

What is a notice of nonpayment?

Answer 21

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

Question 22

What is in Lieu of Return ?

Answer 22

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.

Question 23

Per REG CC, define “Returning Bank”

Answer 23

Bank other than Paying Bank or Depositary Bank, that handles a returned check or notice in lieu of return.

Question 24

What is a requirement for the Bank of First deposit upon receiving a returned item?

Answer 24

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)

Question 25

How must a BOFD notify its customer of nonpayment for a returned check?

Answer 25

Though whatever method in agreement, but customer must be notified.

Question 26

What is the risk of mailing a life IRD item back to the customer for a returned check?

Answer 26

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.

Question 27

When must notice to the customer be provided for a returned check?

Answer 27

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)

Question 28

How s hould a BOFD handle an item returned to it, that is not their item?

Answer 28

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

Question 29

What happens if paying bank doesn't meet return timeframe? What limited liability may a paying bank have?

Answer 29

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.

Question 30

Define Warranty

Answer 30

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)

Question 31

Define Indemnity

Answer 31

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

Question 32

Reg CC CC 229.34(a)(1)(ii))

Answer 32

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.

Question 33

What if a BOFD submits an image for payment twice, to the paying bank?

Answer 33

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.

Question 34

Electronic check/electronic returned check warranties

Answer 34

Subpart D - REG CC (229.34(d))

Question 35

warranties under REG CC of electronic checks

Answer 35

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)

Question 36

Notice of nonpayment 229.34 (e) warranties.

Answer 36

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.

Question 37

check warranty returns 229.34(d)

Answer 37

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

Question 38

What exceptions are there to return warranties:

Answer 38

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

Question 39

223.34 (b) Bank that transfers or presents a remotely created check warrants that the person on whose account the check is drawn warrants:

Answer 39

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

Question 40

Settlement Amount, Encoding, and Offset 229.34 (c ) warrants that:

Answer 40

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

Question 41

BOFD A

Answer 41

1st Bank of First Deposit in RDC duplicate presentment scenario

Question 42

BOFD B

Answer 42

2nd Bank Of First Deposit in RDC duplicate presentment scenario

Question 43

Paper Deposit Bank

Answer 43

Bank accepting original paper check for deposit in RDC indemnity scenario

Question 44

RDC Bank

Answer 44

Bank that allows customer to truncate a check and deposit via remote deposit capture

Question 45

RDC Indemnity

Answer 45

Provides protection in certain conditions for paper Deposit Bank that took original paper check for deposit and then experienced a loss

Question 46

Restrictive indorsement

Answer 46

(from Reg CC Commentary):For mobile deposit at Depositary Bank A only [and the customer’s account number] at Depositary Bank A

Question 47

229.34 (f)

Answer 47

RDC Indemnity

Question 48

RDC Indemnity 229.34 (f)

Answer 48

Provides some level of protection to 2nd Depositary Bank that:

Question 49

The RDC indemnity is between which backs?

Answer 49

RDC and paper depository bank. The payee banks not involved.

Question 50

What are the mandatory conditions for RDC Indemnity for each bank?

Answer 50

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

Question 51

How may a paper depository bank make a RDC indemnity claim against the RDC bank in Fed?

Answer 51

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

Question 52

How may a paper depository bank make a RDC indemnity claim against the RDC bank in ECCHO?

Answer 52

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.

Question 53

What is the difference for processing an RDCI indemnity between FED and ECCHO

Answer 53

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

Question 54

How do you identify the RDC bank to file an RDC indemnity?

Answer 54

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

Question 55

What do you do if you're the RDC bank, and the check has a restrictive endorsement?

Answer 55

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

Question 56

RDC Restrictive Indorsement

Answer 56

indorsement on the image of the deposited check the RDC Depositary Bank received NOT on the image.

Question 57

What is not considered in RDC Indemnity?

Answer 57

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

Question 58

Define Electronically-Created Item (ECI) 229.34 (g)

Answer 58

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

Question 59

EDCI Indemnity

Answer 59

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)

Question 60

Who makes the ECI indemnity?

Answer 60

Interbank only - made by each back that transfers or presents ECI.

Question 61

What is a paying bank identifies an ECI?

Answer 61

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.

Question 62

How do ECI's inter the check network?

Answer 62

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.

Question 63

What is the presumption of alteration?

Answer 63

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.

Question 64

What does Presumption of Alteration not cover?

Answer 64

Does not alter the transfer/presentment warranties under UCC that allocate liability among the parties

Question 65

How does (UCC 3-407) and (UCC 1-201 & UCC 3-403) relate to REG CC?

Answer 65

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

Question 66

Damages -229.34 (h)

Answer 66

Shall not exceed amount of item plus interest compensation and expenses

Question 67

Tender of defense – 229.34 (j)

Answer 67

May give prior bank in collection or return chain written notice of litigation

Question 68

Notice of claim 229.34 (k)

Answer 68

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

Question 69

What is the statute of Limitations under REG CC?

Answer 69

1 year Statute of Limitations Reg CC (229.38) (Note UCC is 3 years)