AMENDED RULES ISSUED REGULATING “REMOTELY CREATED CHECKS”
On Monday, November 28, 2005, the Board of Governors of the Federal Reserve System adopted a final rule amending Regulation CC to define the term “remotely created check” and to create transfer and presentment warranties for such checks. 70 Fed. Reg. 71,218 (2005). The Board also adopted conforming cross-references to the new warranties in Regulation J.
Remotely created checks are used as payment devices. For example, a debtor may make a payment on his or her credit card account by calling his or her credit card company and authorizing the company to create remotely (e.g., at the company’s service center) a paper draft drawn against the cardholder’s checking account which the company may deposit to pay the cardholder’s bill.
Under the final rule, “remotely created check” will be defined as a check that is not created by the paying bank and that does not bear a signature applied, or purported to be applied, by the person on whose account the check is drawn. The Board indicated that this definition encompasses remotely created checks drawn on both consumer and nonconsumer accounts. The commentary to the final rule explains that “applied by” refers to the physical act of placing the signature on the check.
The new transfer and presentment warranties with respect to a remotely created check provide that the depositary bank (generally the bank for the person that initially created and deposited the check) will be liable for unauthorized remotely created checks. Currently under the Uniform Commercial Code and common law, a paying bank is held liable for the loss associated with an unauthorized check, including a remotely created check. The Board indicated that the new warranties are appropriate because the bank whose customer deposited the remotely created check is in the best position to ensure authorization of the remotely created check and to detect fraud. The final rule is effective July 1, 2006.
Mike Tomkies and Chuck Gall