As a reminder, the Regulation CC rule changes are effective July 1, 2018. The bulk of the changes are to Subpart C and are a much-needed update by the Federal Reserve to acknowledge that the check collection process is virtually electronic. There are no changes to the regulation’s availability schedules or disclosure requirements as the rule does not affect Subpart B.
The rule extends coverage of Subpart C to electronic items and contains a new incentive for banks to process returned items electronically. The Federal Reserve believes this new expeditious return rule will incentivize depository banks to receive electronic returns to preserve their ability to make claims that certain checks were not returned expeditiously. The rule amends the two-day test time frame to expire at 2:00 p.m. of the second business day (previously 4:00 p.m.) and increases the threshold for notice of nonpayment to $5,000 (previously $2,500).
The rule provides much needed clarity for instances where a check is deposited in both paper and electronic form. A depository institution should pay close attention to the new rule even when it does not have a mobile or remote deposit capture service for its customers as there is potentially liability for accepting a check that has already been deposited at another institution through a mobile deposit. A depositary bank that receives a paper check is indemnified against loss if the check was previously paid through a remote deposit capture service or mobile deposit platform unless there is a restrictive endorsement, such as “for mobile deposit only.”
Tellers and front-line staff should be aware of the restrictive endorsement requirement to ensure paper items deposited do not include the restrictive language. Each check received for deposit should be reviewed to ensure the “for mobile deposit only” box is not checked. A financial institution will lose its protection if it takes an item for deposit with the restrictive endorsement. It is recommended that periodic internal audits are conducted of deposited checks at the teller line on an ongoing basis to ensure checks were not deposited with the restrictive endorsement.
In addition, institutions offering mobile deposit or remote deposit capture should ensure agreements have been updated to include the restrictive endorsement at the time of deposit. Internal audits of deposit activity from mobile deposit and remote deposit capture customers should be conducted on a regular basis to ensure the restrictive endorsement is made as required. Some institutions will be conducting these internal audits at random or at a specific dollar threshold.