Pub. 7 2017-2018 Issue 2

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S September • October 2017 17 Silvia Garcia Maggio serves as an Associate General Counsel for Compliance Alliance. After graduating from The University of Tex- as School of Law in 2011, Silvia began her career in real property and foreclosure law. Employed by a national mortgage servicer since 2012, Silvia worked on the OCC independent foreclosure audit and in compliance for Enterprise RiskManagement, gaining a multitude of experience dealing with multi-state and federal banking regulations. Silvia started with Compliance Alliance in March of 2014. Silvia is part of our team of attorneys who assist CA members with a wide-range of regulatory and compliance inquiries. Definitions added In addition, the final rule adds definitions for “electronic check” and “electronic returned check” to clarify how they are different, not just from paper checks, but also from substitute checks. Electronic checks are defined in the final rules as an image or information derived froma paper check that is sent to a bank pursuant to an agreement between the sender and receiving bank (like your mobile deposit agreement) that conforms to industry standards for checks (ANS X9.100-187). Electronically created items are going to be defined as an electronic image of all the information on an electronic check, but the information was never derived from a paper check. Thus, Regulation CC will cover the full scope of electronic items and not just set the scope at paper checks and items derived from paper checks. Check return times One of the most important changes relates to check re- turn times. The final rule requires returns to be done by 2 p.m. on the second business day so that check returns will be more expeditious. However, the depositary bank must have a system in place to receive check returns in a “commercially reasonable” way. The depositary bank is the one that has the burden of proof to show its system for returns is “commercially reasonable.” In addition, the final rule also requires the paying bank to give the large-item notice of nonpayment within the two-day at 2 p.m. time period. Currently, the large-item threshold is set at checks over $2,500 but that amount will be bumped up to $5,000 with this final rule. As with most of the changes, the purpose of this new rule is to try to encourage acceptance of electronic returns in order to make returns, in general, faster and more in line with the prevalent electronic process. Similarly, the final rule retains the same-day settlement rule that the regulation currently has for paper checks and applies them to electronic checks. The purpose of extending this requirement is to encourage banks to work out the terms of electronic presentment via agreements between each other. New warranties and indemnities The final rule creates new warranties and indemni- ties specifically for electronic checks to conform to the current Regulation CC line of warranties wherein each party in the chain indemnifies each subsequent party in that chain. This is very similar to the current Check 21 indemnity that exists currently. The difference here, of course, is that electronically created items will have never existed in a paper format whereas a substitute check would have. The rule adds indemnities for losses related to situations in which the electronic check was never authorized by the customer and where a subsequent bank in the chain pays a check that has already been paid. The final rule also extends Check 21-like warranties to remotely deposited checks. This means that the bank that received the imaged check indemnifies a bank that receives the actual paper check. This is an important codification for RDCs that explicitly states that a bank that receives the paper check in good faith isn’t liable. It also requires that the elec- tronic check contain all the information required to create a substitute check. Importantly, there is an exception if a bank accepts a paper check that clearly indicates via the endorsement that it was already remote deposited and, therefore, would not fall under this indemnity rule. Thus, if the bank doesn’t already, it would be best practice to require that customers endorse their remotely deposited items with “for mobile deposit only” to have some risk mitigation under this final rule. As with all new rules, it’s best practice to ensure that the bank is familiar with all the requirements and nuances, up- dates policies and procedures and prepares to train affected staff. For any additional questions, make sure to contact the Compliance Alliance hotline and check out the Regulation CC toolkit for helpful tools. n The rule adds indemnities for losses related to situations in which the electronic check was never authorized by the customer and where a subsequent bank in the chain pays a check that has already been paid.