Conclusion: Reg CC: Check Return Procedures

Subpart C establishes separate responsibilities for depositary banks, paying banks, and returning banks.

Depositary banks must meet indorsement standards, accept return checks at specified locations, pay for return checks within given time limits, notify customers of return checks, promptly handle misrouted return checks, and accept notices of nonpayment.

Paying banks must handle all return checks expeditiously by either meeting the two-day test. They must also meet the midnight deadline, identify return checks, and send notices in lieu of return when necessary. Paying banks

can return a check directly to the depositary bank and can rely on the routing number that appears in the depositary bank’s indorsement. Certain rules must be followed if the

paying bank cannot identify the depositary bank. If the paying bank chooses to indorse the return check, it must follow certain guidelines. Paying banks must also meet requirements intended to give the depositary bank early notice of the return of checks in the amount of $5,000 or more. Paying banks must be ready to receive checks for payment at locations specified in Regulation CC. Finally, paying banks that issue “payable through” checks must label them as such.

Returning banks also must handle return checks expeditiously by meeting the two-day test. Returning banks are also subject to certain rules which apply in the event they are unable to identify the depositary bank. They are also obligated to settle for return checks within a limited amount of time. Returning banks must indorse the return check and must meet certain specifications in doing so. Returning banks are permitted to charge for handling return checks.

Finally, any banks handling return checks can be liable to other banks and to those banks’ customers for failing to exercise ordinary care and failing to act in good faith in handling the return check, and there are indemnification issues related to duplicate presentment of RDC deposits.

Subpart C of Regulation CC can be found beginning with Section 229.30 of the Regulation (12 CFR 229.30 et seq.). Definitions applying to Subpart C are at 229.2 (12 CFR 229.2).

We did not deal in this chapter with a few of the topics included in Subpart C because we felt that they were so rarely encountered in daily operations that including them in this manual would merely clutter it up. However, they are: warranties made by paying and returning banks when returning a check [12 CFR 229.34]; the insolvency of a bank in the check-collection process [12 CFR 229.39]; and the effect on the check-collection rules of a merger transaction between two banks [12 CFR 229.40].