Race to the Finish: Keeping up with technology and the expedited funds availability act

by. Jane Pannier

As anyone who has lived since the invention of the Atari knows, technology is changing at a rapid pace. Because of this, financial institutions have been thrust into the race to update their technology. Winning this race is crucial to maintaining and increasing customer size and satisfaction. This is especially true of interbank collection and return processes.

For years the federal reserve board has been trying to encourage the banking industry to move to fully electronic interbank check collection and return processes. Following on the heels of an advanced notice of proposed rulemaking issued by the Fed in March 2011, the Fed has finally issued a proposed rule concerning the forward collection and return of checks. Subpart C of Regulation CC addresses the timing of the collection and return of checks, including expeditious return responsibilities for paying and returning banks, the authorization to send returns directly to depository banks, the notification of nonpayment of large-dollar returned items, the standards for check endorsements, and the specifications for same-day settlement of checks presented to the paying bank.

This proposed rule request comments on two routes for processing electronic check returns. Alternative 1 would eliminate the current expeditious-return requirement imposed on paying banks. A paying bank returning a check would be required to provide the depository bank with a notice of nonpayment regardless of the amount of the check, but only if the paying bank sends the check in paper format. Under Alternative 2, the current two-day test for expeditious returns would be retained for checks being returned to a depository bank electronically through another bank, but the notice of nonpayment requirement would be eliminated. The same-day settlement rule for paper checks would not change. Lastly, the Fed is requesting comments on whether the existing Reg. CC warranties should be applied to electronically collected checks, as well as seeking comments on new warranties and indemnities for electronically collected checks and electronically created items.

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