2018 IBA Compliance Conference

Transcription

1 2018 IBA Compliance Conference Updated Reg CC Nessa Feddis Senior Vice President, ABA 1

2 Agenda Background of Reg CC Changes and Additional RFC Electronic Check Defined and Recognized Expeditious Returns Remote Deposit Capture (RDC) Indemnity Electronically-created items (ECI) Indemnity Additional Issues and Definitional Changes Wrap-Up Purpose of Reg CC amendments Update, e.g., recognize single Fed processing center Encourage electronic acceptance of returns for few remaining Recognize image exchange (currently not covered by Reg CC) Establish a framework to address duplicate deposits that involve RDC Define electronically created images to provide protection against banks that receive them 2

3 History of Amendments 2011 and 2014 Requests for public comment to all subparts May 2017 Final rule released, published Jun 15, 2017 FR Subparts C and D only July 1, 2018 Mandatory effective date???? Subpart B re availability schedules/notices Bureau has joint authority with Fed Consistently on Bureau s regulatory agenda UNTIL May 11 only DFA inflation adjustments Electronic Checks Current Reg CC does not address electronic check image exchange Amended Reg CC defines electronic check and electronic returned check (229.2(ggg)): An electronic image of, and electronic information derived from, a paper check or paper returned check that Is sent to a receiving bank pursuant to an agreement between the sending and the receiving bank Conforms with ANS X (unless otherwise agreed) Treats electronic checks as paper check unless otherwise specified 3

4 Electronic Checks Banks that transfer or present an electronic check or returned check warrant to all in the collection/return chain: Image accurately represents front and back of original check at time of truncation and contained accurate record of all MICR line information required for substitute check and amount of check No person/bank asked to make payment on a check it has already paid Must receive settlement/consideration to make warranty Expeditious Return Rule Electronic and paper returned checks must comply with modified two-day test for expeditious return (229.31(b)) Paper and electronic checks must be returned to depositary bank so depositary bank would normally receive them no later than 2:00 p.m. (depositary bank local time) on 2nd business day following banking day on which check was presented to paying bank Previously was 4:00 p.m. New Comment: To determine normally, paying bank may rely on returning bank s return deadlines and availability schedules for electronic return 4

5 Expeditious Return Rule No liability to paying bank for failure of expeditious return for certain non-electronic return arrangements (229.33(a)) Paying/returning bank liable to depositary bank for failing to meet requirement only if depositary bank has arrangements for return of checks to depositary bank electronically by commercially reasonable means. Does not require direct return arrangement Burden of proof on depositary bank Purpose is to encourage depositary bank to accept electronic return checks Notice of Non-payment Notice of non-payment requirement applies to electronic & paper checks (229.31(c)) Changes Dollar threshold increased from $2,500 to $5,000 Time for receipt by depositary bank shortened from 4:00 p.m. to 2:00 p.m. New exception from notice requirement if depositary bank is unidentifiable Change in notice content requirements 5

6 Notice of Non-payment Contents of notice simplified: 1. Name of payee 2. Amount 3. Date of depositary bank s endorsement 4. Bank name, RT number, (new for non-written notices) and trace or sequence number associated with depositary bank endorsement 5. Reason for nonpayment No longer required: Name and RT number of paying bank Account number of customer of depositary bank Branch name or number of depositary bank from endorsement Notice in Lieu of Return Notice in Lieu of Return retained (229.31(f)) Only if check is unavailable for return New Comment: Notice in lieu of return permitted only when a bank does not have sufficient electronic information/image to create a substitute check 6

7 Refer to Maker Proposed elimination of refer to maker return reason Instruction, not reason for return (e.g. insufficient funds) Final rule, suggest appropriate use of refer to maker ( )) Do not use refer to maker for duplicates May be appropriate when Altered item Unauthorized item Drawer with positive pay arrangement instructs bank to return check RDC Indemnity (229.34(f)) New indemnity Indemnity to 2nd depositary bank (paper bank) that has accepted for deposit a paper check that was returned unpaid because it was previously paid to a bank that accepted the item using RDC Issue addressing: Duplicate deposit when customer deposit by RDC then either intentionally or mistakenly deposits the paper check 7

8 Conditions for RDC Indemnity IF: Paper deposit bank Has accepted the original check for deposit Has suffered a loss (unable to recover the funds from its customer) The original check has no restrictive indorsements inconsistent with the means of deposit (e.g., for mobile deposit at Bank X only ) THEN It has an indemnity claim against the RDC deposit bank if the RDC deposit bank Does not receive the paper check Does not receive return of check unpaid Making RDC Indemnity Claim May be made against any RDC bank that accepted the deposit Not effective until July 1, 2018 Liability for amount of loss, interest and expenses (including legal) but no consequential damages RDC may use comparative negligence defense 8

9 Going Forward Process Regulation does not provide a process for the paper bank to identify or route the claim to the RDC bank Can paying bank identify RDC banks? Through paying bank? How? How prove paper deposit How validate restrictive endorsements inconsistent with deposit means? What is process to get to the RDC bank? Banks need to develop process ECCHO developing indemnity claims, rejection of claim forms RDC Risks Federal bank regulators have issued supervisory guidance on a range of RDC risks: FFIEC: Risk Management of Remote Deposit Capture (January 14, 2009) FFIEC Information Technology Examination Handbook (IT Handbook). Appendix E: Mobile Financial Services (April 29, 2016) 9

10 Indemnity for Electronically Created Items Issue being addressed New term Electronically Created Item ( 229.2(hhh)) Electronic image/information that has check attributes But created electronically and not derived from paper check ECI -- not a check or Electronic Check under Amended Reg CC Does not create legal status for ECI as check under: UCC Regulation CC Check image exchange rules Account agreement ECI may be subject to other non-check laws (such as Regulation E) Indemnity for Electronically Created Items Any bank (including depositary bank, collecting and presenting banks) that transfers an ECI and receives consideration indemnifies any bank receiving the ECI from losses because the item: Was unauthorized Is a duplicate payment is not derived from a paper check ( (g)) Loss recovery limited to amount of settlement plus interest and expenses of indemnified bank 10

11 Additional Changes Changes to indorsement obligation ( )) Substitute check from rejected deposit ( (a)(2)) and 53(a)(2)) Bank that rejects a deposited check (e.g., at ATM) may return a substitute check to customer Bank that rejects a deposited check and returns to its customer a substitution check shall indemnify the recipient regardless of whether the bank received consideration Definitions Routing Number ( 229.2(dd)) Indemnifying Bank ( 229.2(uu)) MICR Line Section ( 229.2(vv)) Copy and Sufficient Copy ( 229.2(bb)) Check Disputes September 17, 2018 further amendments Disputes as to whether check altered or issued with unauthorized signature and check unavailable Rule presumes alternation See ABA staff analysis 11

12 Further Rulemaking? Bureau included in semi-annual rulemaking agenda: Inflation adjustments required under DFA Consideration of whether and how to proceed regarding issues raised in 2011 Federal Reserve request for comment on Subpart B, the consumer facing provisions Session Takeaways 1. Reg. CC coverage of electronic checks 2. Faster check returns 3. Framework for multiple RDCs 4. Electronically created items indemnity 12