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Reg CC Amendments Address Remotely Created Checks

Saturday, January 1, 2005

On Nov. 21, the Federal Reserve Board approved amendments to Regulation CC that define remotely created checks and shift liability for unauthorized remotely created checks to the institution holding the account for the person who created and deposited the item. The amendments are effective July 1, 2006.

Currently, the law in most states specifies that a paying bank must bear the loss when it pays a check that was not authorized by the accountholder. A remotely created check typically is created when a checking accountholder authorizes a payee to draw a check on the account but does not actually sign the check; thus, remotely created checks do not bear handwritten signatures of the accountholder that can be verified by the paying bank before the midnight deadline.

In recognition of the particular vulnerabilities of remotely created checks, the amendments to Regulation CC create warranties that would apply only to banks and would ultimately shift liability for the loss created by an unauthorized remotely created check to the depositary bank. The amendments do not affect the rights of checking account customers, because they are not liable for unauthorized checks drawn on their accounts.