Regulation J

Question 1

What does Regulation J govern?

Answer 1

Collection of checks and other items by Federal Reserve banks and funds transfers through Fedwire

Issued by the Board of Governors of the Federal System pursuant to the Federal Reserve Act and other laws.

Question 2

What is Subpart A of Regulation J focused on?

Answer 2

Collection of checks and other items by Federal Reserve banks

Includes warranties and indemnities given to FRBs by parties that send items for collection.

Question 3

What does Subpart A include regarding FRBs?

Answer 3

Warranties and indemnities given to FRBs and by FRBs

Covers losses associated with their collection of items.

Question 4

What is the purpose of operating circulars under Regulation J?

Answer 4

Govern details of the collection of checks and other items

These have a binding effect on all parties with an interest in the item.

Question 5

What is Operating Circular 3 related to?

Answer 5

Collection of Cash Items and Returned Checks

It provides specific rules regarding the collection process.

Question 6

What does Subpart B of Regulation J govern?

Answer 6

Funds transfers through the FRB’s Fedwire Funds Service

Also governed by FRBs Operating Circular No. 6.

Question 7

What is included in the overview of Regulation J?

Answer 7

Authority, purpose, and scope of Regulation J

Not all-inclusive details are provided in Subpart A.

Question 8

Fill in the blank: Regulation J is issued by the _______.

Answer 8

Board of Governors of the Federal System

Question 9

True or False: Regulation J includes provisions for indemnities related to item handling.

Answer 9

True

Question 10

What is the primary function of the Federal Reserve Bank (FRB) regarding items?

Answer 10

Receive and handle items in accordance with this subpart

This includes issuing operating circulars governing details of handling items.

Question 11

What do operating circulars (‘Circulars’) issued by the FRB govern?

Answer 11

Details of handling of items

Circulars may classify cash/noncash items, require separate sorts, and establish adjustment procedures.

Question 12

What is the binding effect of Reg J and Subparts C and D of Reg CC?

Answer 12

They are binding on all parties with interest in items handled by any FRB

This includes both the sender and the FRB.

Question 13

Who may send items to the Federal Reserve Banks (FRBs)?

Answer 13

Any sender other than a FRB

This implies that individuals or entities can send items to any FRB.

Question 14

What includes the handling of items by parties involved?

Answer 14

Initial sender, initial sender’s administrative FRB, and FRB that receives the item

This highlights the chain of handling items through different parties.

Question 15

What warranties does the sender provide when sending an item to a FRB?

Answer 15

Entitlement to enforce the item, item has not been altered

The sender’s agreement includes warranties and authorizations that cannot be disclaimed.

Question 16

Fill in the blank: By sending an item to a FRB, the sender _______.

Answer 16

Authorizes FRB and any other FRB or collecting bank to handle the item for collection

This includes warranties regarding the sender’s authority.

Question 17

True or False: The sender’s warranties can be disclaimed if the item does not bear an indorsement of the sender.

Answer 17

False

Warranties made by the sender are binding regardless of indorsement.

Question 18

What does an item bear from parties that previously handled it?

Answer 18

All indorsements for forward collection or return

Question 19

What warranties and indemnities does an item make in relation to Reg CC Subparts C and D?

Answer 19

To each FRB that handles the item

Question 20

What does the FRB’s operating circulars require regarding warranties and indemnities?

Answer 20

Makes warranties and indemnities as set forth in FRB’s operating circulars

Question 21

What is the status of the FRB that handles an item?

Answer 21

Acts as agent or subagent of the owner until final payment is received

Question 22

What is the limitation of FRB liability?

Answer 22

Assumes no liability except for lack of good faith or failure to exercise ordinary care

Question 23

What does the sender agree to indemnify each FRB for?

Answer 23

Any loss or expense due to sender’s lack of authority or breach of warranties or indemnities

Question 24

What does the FRB rely on for presenting items?

Answer 24

Routing designation of the paying bank or nonbank payor appearing in any form on the item

Question 25

What can the FRB or subsequent collecting bank do with items?

Answer 25

* Present item for payment * Send for presentment and payment * Send to a subsequent collecting bank with authority to present it

Question 26

How shall the paying bank settle for an item?

Answer 26

With its Administrative FRB, regardless of whether it received the item from that FRB

Question 27

What form of settlement may be made with the FRB?

Answer 27

Debit to an account on the FRB's books or another form agreed upon

Question 28

What can a paying bank send if a cash item is unavailable for return?

Answer 28

A notice in lieu of return as provided in Regulation CC

Question 29

What may the FRB require regarding noncash items?

Answer 29

Paying or collecting bank to pay for that item by debit to an account on the FRB's books

Question 30

What must the FRB publish regarding cash items and returned checks?

Answer 30

A time schedule for when amounts are counted toward reserve balance requirements

Question 31

What type of credit may the FRB give to a sender or bank?

Answer 31

Immediate or deferred credit

Question 32

What is the role of the FRB regarding noncash items?

Answer 32

The FRB shall give credit to the sender for proceeds of a noncash item when it receives payment in actually and finally collected funds ## Footnote This ensures that the sender is credited only upon confirmation of payment.

Question 33

What can a paying bank do with a cash item before it has finally paid the item?

Answer 33

Return the item to any FRB in accordance with regulation and operating circulars ## Footnote This action is subject to the rules or practices of a clearinghouse or special collection agreements.

Question 34

How does the FRB handle returned checks or notices of nonpayment?

Answer 34

In accordance with Subpart C of Regulation CC and operating circulars ## Footnote This ensures compliance with federal regulations.

Question 35

What happens if the FRB does not receive payment in actually and finally collected funds for an item?

Answer 35

The FRB shall recover by charge-back the amount of the item from the sender, prior collecting bank, paying bank, or returning bank ## Footnote This recovery occurs regardless of whether the item itself can be sent back.

Question 36

What does Subpart B govern?

Answer 36

Funds transfers through FRB wire and the rights and obligations of: * FRB sending and receiving payment orders * Senders that send payment orders directly to a FRB * Receiving banks that receive payment orders directly from a FRB * Beneficiaries that received payment for payment orders sent to a Federal FRB * Other parties to a funds transfer through Fedwire ## Footnote Subpart B incorporates provisions of Article 4A of the UCC.

Question 37

What is the legal basis for Subpart C governing funds transfers through the FedNow Service?

Answer 37

Issued pursuant to the Federal Reserve Act and has the force and effect of Federal law ## Footnote This includes references to specific sections of the U.S. Code.

Question 38

True or False: Subpart C is considered a funds-transfer system rule as defined in Section 4A-§501(b) of Article 4A.

Answer 38

False ## Footnote Subpart C is not defined as a funds-transfer system rule.