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| ## Comptroller of the Currency                                        |
|                                                                       |
| > Administrator of National Banks                                     |
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Washington, DC 20219

August 10, 2005 **Interpretive Letter #1036**

##### August 2005

##### 12 USC 36

Subject: Remote Deposit Capture Terminals

Dear \[ \]:

This is in response to your letter of June 2, 2005 on behalf of \[
***National Bank*** \], requesting confirmation of our earlier telephone
discussion as to whether a check scanning terminal at a nonbank
location, used by a bank customer to transmit electronic images of
checks to the bank for deposit, is a branch within the meaning of the
McFadden Act, 12 U.S.C. § 36. This will confirm my opinion expressed
during that call that such terminals are not branches under federal law
regardless of whether they are owned by the customer or the bank.

#### Facts

According to your letter, it is now possible for a corporate customer of
a bank to use a check scanning terminal, located on the customer's
premises, to make deposits. The customer scans a check and an electronic
image of the check is then transmitted to the bank to effect a deposit.
This can be done even when the depositary bank is located in another
state and does not have a branch in the customer's state. In some cases
the scanning terminal may be owned by the bank, while in other cases the
customer or a third party may own the terminal.

This process, known as "remote deposit capture,"[^1] has been made
possible by the Check Clearing for the 21st Century Act ("Check 21
Act"),[^2] which was enacted in 2003 and took effect on October 28,
2004. Briefly, the Check 21 Act authorizes the use of a "substitute
check," which is a paper reproduction of an original check that contains
an image of the front and back of the original check. When a bank
customer deposits a check, the depositary bank may choose to send a
substitute check to the collecting bank instead of sending it the actual
check. Alternatively, if agreeable to both banks, the depositary and
collecting banks can engage in electronic check presentment where data
and images captured from the original check are provided in lieu of the
original check. The collecting bank then may use or generate a
substitute check for presentment to the paying bank or, by agreement,
these banks can engage in electronic check presentment. The original
check is retained at the depositary bank, *i.e.,* it is truncated.
Provided that certain requirements are met, a substitute check is the
legal equivalent of the original check. Thus, the Check 21 Act is
intended to facilitate the check collection process by eliminating the
need to transport original checks around the country.

The original depositor may also truncate the check if the depositary
bank has agreed to permit it.[^3] As discussed above, instead of taking
the original check to the bank for deposit, the bank's customer can scan
the check on a terminal at the customer's location and simply transmit
electronic images and data from the check to the bank in order to effect
the deposit.

#### Analysis

Under the McFadden Act, 12 U.S.C. § 36, a "branch" is a location
established (*i.e.*, owned or rented) by a national bank at which
deposits are received, or checks paid, or money lent.[^4] However, it
does not include an automated teller machine or a remote service
unit.[^5] The OCC has issued a regulation defining a "remote service
unit:"

> A remote service unit (RSU) is an automated facility, operated by a
> customer of a bank, that conducts banking functions, such as receiving
> deposits, paying withdrawals, or lending money. A national bank may
> establish and operate an RSU pursuant to 12 U.S.C. 24(Seventh). An RSU
> includes an automated teller machine, automated loan machine, and
> automated device for receiving deposits. An RSU may be equipped with a
> telephone or televideo device that allows contact with bank personnel.
> An RSU is not a "branch" within the meaning of 12 U.S.C. 36(j), and is
> not subject to state geographic or operational restrictions or
> licensing laws.[^6]

We conclude that a remote deposit capture terminal is not a "branch" for
purposes of section 36. If, on one hand, the terminal performs the
banking function of "receiving deposits," then it falls within the
definition of a "remote service unit." It is "automated" in the sense
that it is operated by the customer rather than a bank employee and can
be used by the customer to effect a banking transaction without the
involvement of bank personnel. On the other hand, if the terminal does
not "receive deposits," then it is not a "branch" because it does not
engage in a core banking function.

Therefore, we conclude that a remote deposit capture terminal as
described in your letter is a not branch within the meaning of the
McFadden Act, even if such a terminal is established (owned or rented)
by a national bank. If the terminal instead is owned or rented by the
customer, then it still is not a branch because it is not established by
a bank**,** whether it is considered to "receive deposits" or not. Since
the terminal is not a branch, the customer's location where the terminal
is deployed also is not a branch. Therefore, it does not matter for
branching purposes where the electronic deposit is considered to be
"made" or "received," and so we express no opinion on those questions.

I trust that this has been responsive to your inquiry. If you have
further questions, please feel free to contact me at (202) 874-5300.

Sincerely,

**signed**

Christopher C. Manthey

Special Counsel

Bank Activities & Structure Division

[^1]: *See, e.g.,* Bonnie McGeer, *Remote Deposit Boosts Service, Cuts
    Costs*, American Banker, Jan. 18, 2005.

[^2]: Pub. L. No. 108-100, 117 Stat. 1177 (2003), *codified at* 12
    U.S.C. §§ 5001-5018. The Board of Governors of the Federal Reserve
    System has issued implementing regulations that are primarily
    codified as Subpart D of Regulation CC, 12 C.F.R. §§ 229.51 *et
    seq.* 

[^3]: Customers have no right to provide electronic images for deposit
    without the consent of the depositary bank. Banks that permit
    customers to submit deposits based on self-generated, truncated
    check images and data will need to consider adopting risk control
    measures such as appropriate technical standards, exposure limits,
    and indemnification from the customer. Some banks are also using
    image inspection tools to review the images received from customers
    for quality. The bank that accepts the images and data from the
    truncating customer may be liable for warranty and indemnification
    claims that result under the Check 21 Act if the substitute checks
    based on those images and data prove inadequate.

[^4]: The leading case explaining these terms is *Independent Bankers
    Ass'n of America v. Smith*, 534 F.2d 921 (D.C. Cir.), *cert.
    denied*, 429 U.S. 862 (1976).

[^5]: 12 U.S.C. § 36(j).

[^6]: 12 C.F.R. § 7.4003.