The Federal Reserve has published a final rule amending subpart C of Regulation CC (Availability of Funds and Collection of Checks) to address check alteration disputes when the paper check is unavailable for inspection.
The rule adopts a presumption of alteration for disputes between financial institutions over 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.
The final rule recognizes that, in today’s check collection environment, original paper checks may be unavailable for inspection in disputes between financial institutions.
Currently, In the case of an altered check under the Uniform Commercial Code, the institutions that received the check during forward collection, including the paying institution, have warranty claims against the banks that transferred the check.
In the case of a forged check, the USS places the responsibility on the paying institution for identifying the forgery.
Therefore, this generally leads to the depositary institution bearing the loss related to an altered check, whereas the paying institution bears the loss related to a forged check.
The amendments to Regulation CC include a presumption of alteration in certain cases of doubt, such as disputes between institutions, but only when one has transferred an electronic or substitute check to the other.
The amendments also clarify that the presumption does not apply if its contrary to another statute or regulation, such as the Treasury’s rules regarding U.S. Treasury checks.
The rule becomes effective Jan. 1, 2019.