Fed Finalizes Check Processing Amendments

CUNA
November 2, 2004

The Federal Reserve Board has announced the final amendments to Regulation J, which governs Reserve Banks' collection of checks and other cash items. The final amendments ensure that Regulation J covers the entire range of check-processing services that the Reserve Banks will offer after the Check Clearing for the 21st Century Act takes effect on Oct. 28.

The Check 21 Act permits banks to use substitute checks in place of original checks in the check collection or return process. This law does not require any bank to accept checks electronically, although it facilitates the use of electronic transmission between banks that choose to do so.

According to the Fed, "In light of the Check 21 Act, the Reserve Banks plan to offer a wider range of electronic check processing services, including accepting items in electronic form for collection and return.”

The final amendments therefore bring electronic items within the coverage of Regulation J. They also establish new warranties and indemnities that apply to electronic items handled by a Reserve Bank and that are not subject to warranties and indemnities under other law.