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From Banking and Finance Law Daily, September 12, 2018

Fed amends check processing liability provisions

By Andrew A. Turner, J.D.

The Federal Reserve Board has amended the liability provisions of Reg. CC—Availability of Funds and Collection of Checks (12 CFR Part 229) to address situations where there is a dispute as to whether a check has been altered or was issued with an unauthorized signature, and the original paper check is not available for inspection. The Fed has adopted a presumption of alteration for disputes between banks over whether a substitute check or electronic check contains an alteration or is derived from an original check that was issued with an unauthorized signature of the drawer.

In today's check collection environment, original paper checks may be unavailable for inspection in certain disputes between banks. Unlike in prior court cases, where the paying bank received and destroyed the original check, the original check is typically truncated by the depositary bank or a collecting bank before it reaches the paying bank.

Presumption. The presumption of alteration applies to a dispute between banks where an electronic check or a substitute check was transferred between those banks. The Fed does not believe that limiting the application of the presumption to the transfer of electronic checks or substitute checks will create a material incentive for depositary banks or collecting banks to bypass the check imaging process and send forward a substantial number of original checks merely to preserve the presumption of alteration.

By mutual agreement, banks may vary the effect of the amendments' provisions. The presumption does not apply if it is contrary to another federal statute or regulation, such as the Treasury Department’s rules regarding U.S. Treasury checks.

The amendments become effective January 1, 2019.

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