Hey Reg CC – Where Oh Where Do the Remote Deposit Capture and Mobile Deposit Items Fit?

Blog, May 23, 2018

Cindy LeBlanc – Senior Compliance Advisor

Regulation CC finally has been amended… but is everything covered? After the final rule publication, the most frequent questions we have received from our clients revolve around Remote Deposit Capture (RDC); which also includes Mobile Deposit items.

Although RDC items are addressed in Subpart C with regards to definitions and indemnities of these deposited items, they are not addressed in Subpart B of Regulation CC. Subpart B addresses the Availability of Funds and the disclosure of the institution’s funds availability policy. Even with the changes, there is still a gap between those two subparts in relation to RDC items. So, where does funds availability apply to RDC? Your institution’s RDC and Mobile Deposit Agreements should include the funds availability policies for RDC and Mobile Deposit items.

Now within the July 1, 2018 Regulation CC changes, there is a new indemnity allowed for RDC items that you want to further consider if you offer Mobile Deposit or RDC in your institution. This new indemnity will indemnify a depositary bank that received a deposit of an original paper check that was returned unpaid because the check had previously been deposited by way of remote deposit capture (or mobile deposit) and was already paid by that means. However, there is an exception to this indemnity. If there is a restrictive endorsement on the deposited item that states “For Mobile Deposit Only,” then the exception will prevent an indemnified bank from making the indemnity claim if it accepted a paper check containing that restrictive endorsement that doesn’t coincide with the means in which it was deposited. Many institutions already require this restrictive endorsement and include verbiage that addresses this requirement within the RDC or Mobile Deposit Agreement. In addition, many institutions also refuse to accept a deposit via RDC or Mobile Banking unless the endorsement is provided by the depositor. Those are proactive steps that can bring a positive outcome.

Here is a quick look at a summary of some of the other major changes in Regulation CC listed in the Final Rule that is effective July 1, 2018.

1. All returned items must be returned in an expeditious manner. “All returned checks, both paper and electronic, to satisfy a modified version of the ‘two-day test’.” This requires that the check would normally be received by the depositary bank not later than 2 p.m. (local time of the depositary bank) on the second business day following the banking day on which the check was presented to the paying bank.
2. There is a condition for expeditious-return liability; specifically that a paying bank and returning bank may be liable to a depositary bank for failing to return a check in an expeditious manner only if the depositary bank has arrangements in place such that the paying bank or returning bank could return a returned check electronically, directly or indirectly, by commercially reasonable means. Of course the burden of proof rests on the depositary bank to show, “its arrangements are commercially reasonable.”
3. Notice of nonpayment for items $5,000 and above must be provided to the depositary bank so the notice “would normally be received” by 2:00 p.m. The amount triggering the notice increased from the previous requirement of $2,500.
4. “Electronic check” and “electronic returned check” are now defined as an electronic image and electronic information derived from a check or returned check. Finally, a remotely deposited item (includes both remote deposit capture and mobile deposited item) has been defined in Regulation CC.
5. An “electronically-created item” is defined as an electronic image that has all the attributes of an electronic check or electronic returned check but was created electronically and not from a paper check.
6. There are indemnities set forth for electronically-created items. The new indemnities for losses caused by the fact that (1) the electronically-created item was not authorized by the account holder and (2) a subsequent bank pays an item that has already been paid.

For insight on additional technical changes within the Final Rule, and if you are in the mood for some “light” nighttime reading, I recommend the 232 page Final Rule available for your reading pleasure. Just follow this link… and happy reading!