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Earlier today, CUNA joined a number financial trade associations in sending a comment letter to the Board of Governors of the Federal Reserve System in support of a proposal to amend Regulation CC – Availability of Funds and Collection of Check.
The proposed rule is a revision to Regulation CC which seeks to create a presumption of alteration for any dispute over whether the dollar amount or the payee on a substitute check or electronic check has been altered or whether the substitute check or electronic check is derived from an original check that is a forgery.
The letter responds to questions the Federal Reserve requested be answered and gave insight as to how the proposed regulation will affect the financial services sector. As the Federal Reserve reviews Regulation CC and any other regulation affecting credit unions, CUNA will continue to advocate on behalf of America’s credit unions and their 110 million members.
Support for Adoption of the Presumption of Alteration Rule The alteration of a legitimate check is the more common type of check fraud today in which disputes arise between banks, and therefore a presumption of alteration in those disputes where the evidence is lacking is appropriate.
Application of the Presumption to Altered Date Fields The Commenters are not opposed to the application of the presumption of alteration to the date field of an electronic check or a substitute check. However, based on an informal survey of participating financial institutions, the Commenters lack sufficient information on which to conclude that there is a strong legal or business need to include the date field in the presumption.
Application of Presumption of Alteration to the Paying Bank With respect to banks other than the paying bank, the Commenters believe that the presumption of alteration should be available in situations where a bank (other than the paying bank) claiming the presumption received and destroyed the original check. To promote check electronification, Regulation CC should encourage truncation of the original check and therefore should not establish a legal detriment to the destruction of the check by such banks. Any such legal detriment might have the unintended consequence of incenting these depositary or collecting banks to retain the original check, increasing the cost of check collection and creating a risk of the original check being subsequently redeposited.
Alteration of the Check Image Itself The letter requests that the Board clarify in the final rule that the presumption of alteration also applies to the alteration of the electronic check image itself, and not just to alteration of the original check. As currently drafted, the Proposed Rule is unclear as to whether the presumption applies to an allegation of alteration of the electronic check image itself, or whether the presumption only applies to an allegation of alteration of the original check.
Scope of Presumption - Type of Covered Disputes The letter also urges that the Board provide additional clarification in the final rule as to the types of disputes which would be subject to the presumption. As drafted, the Proposed Rule states that the presumption applies to “any dispute” arising under federal or state law. This reference to “any dispute” would clearly cover disputes relating to loss allocation under the UCC and Regulation CC warranties and the paying bank’s legal responsibility for determining the drawer’s authorized signature on a check.
Authority of Parties to Vary the Presumption Rule The Commenters have considered that scenarios may arise in the future in which it may be necessary or helpful to modify, by agreement of the parties, certain aspects of the presumption rule in Regulation CC. These modifications by agreement could address unique or currently unknown scenarios that could develop in the future as the industry gains experience with the application of the presumption rule. Accordingly, the Commenters believe that parties should have the ability to vary the presumption to the maximum extent permitted under Section 229.37 of Regulation CC, which permits variation by agreement of the parties.
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ADA Compliance Notice & Legal