Fed Reg CC revisions clarify burden of proof in bank disputes over checks in doubt

Final rule includes rebuttable presumption of alteration for substitute, electronic checks

The Federal Reserve Board released a final rule Wednesday that revises the liability provisions of Regulation CC (Expedited Funds Availability Act), clarifying the burden of proof in disputes between banks over substitute or electronic checks in the absence of the original check. The rule changes take effect Jan. 1, 2019.

“When the original check is not available, the final amendments update Regulation CC to include a presumption that a substitute or electronic check was altered in certain cases of doubt,” the Fed said in a press release. “The presumption applies only to disputes between banks and only when one bank has transferred an electronic or substitute check to the other bank. As with existing rules under Regulation CC, the parties may, by mutual agreement, vary the effect of the amendments’ provisions.”

The final rule also clarifies that the preemption does not apply if it is contrary to another federal statute or regulation, such as Treasury Department rules regarding U.S. Treasury checks, it said.

The final rule is modified in some places from the proposal the Fed Board issued in June 2017. For example, based on comments received, the Fed Board modified the presumption in the final rule so that the term “alteration” is used as defined in the Uniform Commercial Code (UCC).

In its notice for the Federal Register, the Fed also noted that:

  • The presumption of alteration applies to a dispute between banks where an electronic check or a substitute check was transferred between those banks – regardless of where in the chain, or by whom, the original check was truncated. However, as noted in the commentary to the final rule, the presumption does not apply to a dispute between banks where the original check was transferred between those banks, even if that check is subsequently truncated and destroyed.
  • The Fed Board adopted provisions on the rebuttal of the presumption in § 229.38(i)(2) substantially as proposed.
  • Language was substituted for the term “forgery,” which appeared in the proposed rule. Based on a comment from a Federal Reserve Bank, the presumption will apply to disputes as to whether a substitute check or electronic check contains an alteration or is derived from an original check that was issued with an unauthorized signature of the drawer.

Other clarifications are noted in the Fed notice.

Federal Reserve Board approves final amendments to liability provisions of Regulation CC