What is Reg CC?
Regulation CC issued by the Federal Reserve deals with the availability of funds and collection of checks and was enacted to ensure that banks make deposited funds available to customers in a timely manner. The regulation provides several timelines which specify the allowable time between when a deposit is made and when the deposited funds must be available for withdrawal. The regulation also addresses the expeditious return of unpaid checks, the responsibilities of paying and returning banks and check endorsement standards.
This regulation directly affects banks providing RDC (remote deposit capture) and mRDC (mobile remote deposit capture) as a service to their customers. Reg CC requires that deposited checks be timely processed and unpaid checks immediately returned to the paying bank.
The Federal Reserve and Consumer Financial Protection Bureau (CFPB) are amending Reg CC in 2024 to adjust for inflation dollar amount relating to the availability of funds.
Reg CC’s Indemnity Claim
In 2017, the Federal Reserve Board finalized an indemnity to address the allocation of liability when a depository bank accepts a check deposit through remote deposit capture—that is, when the depositor sends the bank electronic information about a check, such as a photographic image—which the bank uses to create an electronic check or substitute check for collection.
This ruling states: “a bank that transfers a substitute check indemnifies any subsequent recipient against any loss the recipient incurs due to the receipt of a substitute check instead of the original check.” For many institutions, this Reg CC amendment was a concern because it harbors potential liability for a check that isn’t endorsed properly.
Reg CC was enacted by the Federal Reserve to ensure that deposited funds are available to customers in a timely manner.
Reg CC’s Indemnity Claim in Action: A Real-World Example
Let’s use this example: a single customer (Joe) holds accounts at both Bank A and Bank B. In this scenario, Bank A offers RDC as a service to its customers, while Bank B does not. Joe receives a check for $1,000, which he initially sends via RDC to Bank A for deposit. However, Joe then proceeds to deposit the physical check at Bank B. The check has been cashed twice, once by RDC and once via traditional deposit.
Under this rule, Bank B can file an indemnity claim against Bank A because Bank B may be unable to charge back funds from Joe’s account. This significantly shifts the liability toward banks issuing RDC or mRDC as a service.
Require Restrictive Endorsements for Reg CC Compliance
This regulation allows financial institutions that offer RDC or mRDC services to protect themselves by requiring specific endorsements on their customers’ deposited items.
This special endorsement—known as a restrictive endorsement—is physically written on the check by the customer and indicates that the check in question is for RDC or mRDC deposit only.
Using our previous example, Bank A should’ve required a restrictive endorsement on its RDC check, which specified it as “for mobile deposit only.” If it had, the trained teller at Bank B would have seen the restrictive endorsement and wouldn’t have accepted the check for deposit. If Bank B had still accepted the check, Bank A would have the right to file an indemnity claim against Bank B.
A restrictive endorsement is written on a check by the customer to indicate that the specific check is for RDC or mRDC only.
Benefits of Reg CC’s Indemnity Claim
RDC and mRDC have grown in popularity, helping institutions deliver a better customer experience through convenience and faster access to funds. And the benefits of these services certainly offset the risk this regulation brings. Banks must remain aware of the liability this regulation brings and take steps to mitigate that risk by ensuring their RDC or mRDC agreements require restrictive endorsements.
Ultimately, Reg CC helps banks deliver an enhanced customer experience to account holders by specifying the time funds become available for withdrawal and improving the process for electronic check deposit.
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Amber Goodrich, Senior Compliance Analyst
Amber Goodrich has more than 15 years of financial industry experience. She is a Certified Anti-Money Laundering Specialist (CAMS) and a Certified Regulatory Compliance Manager (CRCM).