Life with Reg CC (1989)

Life with Reg CC From the start, many industry fortune tellers predicted that Regulation CC would disrupt check processing operations. And since the regulation became effective--Sept. 1, 1988--their tea leaves have proven to be accurate. One example is checks returned to depositary banks due to insufficient funds or other reasons. It can now take longer for a paying bank to process such checks if it elects to qualify them with data that permits less-expensive processing by the Fed or by an intermediary bank involved in the return process. Other predictions about the costs of Reg CC were often right on the mark. Here are some examples: * Education has been costly. Banks have had to spend to educate consumers about changes in funds availability policies. A Federal Reserve Board survey revealed that one large bank spent 32.6 cents per customer for printing and distributing disclosure information. Businesses have had to be taught the proper place to put endorsements. In addition, many banks have bought materials to educate tellers and customer service representatives. Some are quite expensive--one consulting firm charges as much as $10,000 for an educational personal computer diskette and an accompanying videotape. Other banks have sent employees to Fed and other seminars. Educating employees and customers has been a big-ticket item, says Vern Canfield, senior vice-president and cashier, First Interstate Bank of Washington. * Some correspondent banks have seen a decline in income for returned check service. * In March, the Fed sharply increased fees for handling return items. Fortunately, some predictions have not come true--to date. For example, bankers generally have not seen any increase in fraud that can be attributed specifically to the regulation. Background. Reg CC represents the Fed's implementation of the Expedited Funds Availability Act. The law includes two stages. The first, temporary stage became effective Sept. 1, 1988. In that stage a depositary bank (the institution in which a check is first deposited) must generally make the proceeds of local checks available for withdrawal by the third business day following deposit. So, for example, the proceeds of local checks deposited on a Monday must be available for withdrawal by the following Thursday. The depositary bank must make the proceeds of nonlocal checks available for withdrawal by the seventh business day following deposit. Thus, a Monday deposit must be available for withdrawal by Wednesday of the following week. On Sept. 1, 1990, those time periods are reduced to the second business day for local checks and the fifth business day for local checks and the fifth business day for nonlocal checks. (Numerous other rules and various exceptions also apply.) Under the regulation, a local check is one deposited in a depositary situated in the same Federal Reserve district as the paying bank. A nonlocal check is a check deposited in an institution that is not in the same check processing region as the paying bank. Endorsement demands. Meeting the objectives of the new regulation meant that uniform placements of endorsements would be essential. Previously, there generally were no specific standards concerning their placement, which often resulted in overlapping endorsements. In addition, many endorsements did not include the depositary bank's routing number. Reg CC specifies the locations of different endorsements. For example, the customer's signature area must be within 1.5 inches from a check's trailing edge. (The trailing edge corresponds to the left edge of the face of a check). The depositary bank's endorsement area begins at the end of the customer space and extends to within 3 inches of the leading edge. The depositary bank must include the 9-digit routing number, its name and location, and the endorsement date. …