As not all states have adopted the exact language of the model UCC, a credit union may want to check its state's law to determine the applicable requirements for restrictive indorsements. Find the latest developments and resources on our website. For an overview of the newly added warranty and indemnity provisions for electronic checks, see this blog. If Bank B had still accepted the check, Bank A would have the right to file an indemnity claim against Bank B. This significantly shifts the liability toward banks issuing RDC or mRDC as a service. To summarize, a credit union that accepts remotely deposited checks can be liable to another financial institution if the original check is deposited in that financial institution and the check does not bear the appropriate restrictive indorsement. (i.e.

However, in determining what to require for the restrictive indorsement, it is important to note that only institutions that receive the original check can seek indemnity. Members of NAFCU can access it here. The commentary provides another example: "for mobile deposit at Depositary Bank A only." This new regulation allows financial institutions that offer RDC or mRDC services to protect themselves by requiring specific endorsements on their customers’ deposited items. The Federal Reserve Board finalized a new indemnity to address the allocation of liability when a depository bank accepts a check deposit through remote deposit capture—that is, when the depositor sends the bank electronic information about a check, such as a photographic image—which the bank uses to create an electronic check or substitute check for collection.

So what exactly constitutes a “restrictive endorsement?” Although Regulation CC does not give exact language on what should be used, certain portions of the official regulation use the examples of “for mobile deposit only” and “for mobile deposit at Depository Bank A only.” COVID-19 UPDATE: NAFCU is meeting daily to discuss the impact of coronavirus on our industry. Steve Shoulta, CSI Director of Regulatory Compliance. RDC and mRDC will only grow in popularity, and the potential benefits these services bring to your customers certainly offset the risk this regulation brings. The check has been cashed twice, once by RDC and once via traditional deposit.

Though this might not discourage banks from implementing RDC, it will take an effort to enforce the standard with their customers that use RDC or mRDC.

Good afternoon peers! Because the rule did not specify the exact phrase a credit union should use, it seems that from a Regulation CC perspective, the wording the credit union chooses for its restrictive indorsement requirement will be a risk-based decision for the credit union. Stephanie Lyon, NCCO, NCRM, NCBSO, CAMS, was named regulatory compliance counsel in May 2016 and became a senior regulatory compliance counsel in June 2018.


Note that Regulation CC is not the only rule that applies to checks; there may be some applicable state law that provides additional guidance on what constitutes a restrictive indorsement. This means that, among other things, credit unions offering remote deposit capture (RDC) technology should have finalized any changes made to their RDC agreements, policies and procedures to ensure the correct restrictive indorsements are placed on these remotely deposited checks. Finally, NAFCU created a redline of the changes to Regulation CC that may be helpful to understand everything that is now different in the rule. And with a due date of July 1, 2018, adherence to this new regulation is coming up fast. Regulation CC's compliance deadline was yesterday, July 1st. For example, if a credit union and a bank both accept a check via RDC, neither the credit union nor the bank may seek indemnity because neither received the original check. For an indemnity claim to go forward, section 229.34(f)(2) essentially requires the original check to be presented. The answer to this question is twofold as checks are regulated by federal and state laws. Regulation CC's compliance deadline was yesterday, July 1st. For those reasons, credit union that are unsure whether their current RDC agreements, policies and procedures protect the credit union from liability, may want to consider reaching out to a local attorney for an opinion on what the restrictive indorsement must include in your state. The new ruling states: “a bank that transfers a substitute check indemnifies any subsequent recipient against any loss the recipient incurs due to the receipt of a substitute check instead of the original check.”. In honor of Independence Day, NAFCU's offices will close at noon tomorrow and reopen Thursday, July 5. Steve Shoulta serves as CSI’s director of regulatory compliance. Restrictive Endorsements a Big Part of Regulation CC Changes Image: WikiHow The Expedited Funds Availability Act (EFAA) and the Check Clearing for the 21st Century Act (Check 21 Act), announced in 2014, will have amendments effective July 1, 2018. It may be possible that some states requires "for mobile deposit only at [Credit Union's Name]” to meet the definition of a restrictive indorsement, but it may also be possible that stating that this is "for remote deposit only" or "RDC deposit" should signal to a financial institution the item being deposited in person is not supported by the restrictive indorsement. The vendor responded that Reg CC only applies to mobile remote deposit capture; it does not apply to commercial remote deposit capture. As these are just examples, other indorsements may also be sufficient so long as it shows the member's intent to deposit the check remotely and not physically. With the effective date for the Reg CC changes quickly approaching, would anyone be willing to share whether or not your bank is going to require a restrictive endorsement for checks that are being deposited through RDC or mRDC. CSI is a full-service technology and compliance partner. But what exactly is the correct restrictive phrase to use for a remotely deposited check?

In this role, Lyon helps credit unions with a variety of compliance issues and also writes articles for NAFCU publ, Providing credit unions with the best federal advocacy, education and compliance assistance in the industry, © 2020 National Association of Federally-Insured Credit Unions, Restrictive Indorsement Requirements for RDC Checks; Closed for Independence Day, CECL Study: Alternatives, Impacts, Accuracy, and Complexity, Stephanie Lyon, NCCO, NCRM, NCBSO, CAMS, Senior Regulatory Compliance Counsel, NAFCU, FDCPA Series Part II: CU Impact, Communications & Future Bureau Interpretations, http://www.youtube.com/user/NAFCUtv?feature=g-all-u. There won't be a blog on the 4th of July but we'll be back to blogging on Friday. For example, the model UCC defines a restrictive indorsement as "an indorsement limiting payment to a particular person…" and bears a signature. Curious what verbiage you plan to or have added/updated to your mobile banking agreements regarding restrictive endorsements.

We'd like to reject all deposits that are not endorsed correctly, and I'm playing around with language - has anyone already worked this out?

Added* (Trying to understand what your contract/agreement will say, not the endorsement … However, Joe then proceeds to deposit the physical check at Bank B. CSI is a full-service technology and compliance partner. This seems to indicate that the credit union's name should be listed in the indorsement to meet the definition of a "restrictive indorsement" under the UCC. In this scenario, Bank A offers RDC as a service to its customers, while Bank B does not. Joe receives a check for $1,000, which he initially sends via RDC to Bank A for deposit. In the preamble to the final rule, the Federal Reserve Board explains that "for mobile deposit only" is an example of a restrictive indorsement that should raise a red flag to the financial institution accepting the original check. If the original check presented bears a restrictive indorsement, this should alert the financial institution accepting this check that it may have been presented for payment already by other means. Programming Note. Let’s use this example: a single customer (Joe) holds accounts at both Bank A and Bank B. A new regulation has surfaced that will directly affect banks providing RDC (remote deposit capture) and mRDC (mobile remote deposit capture) as a service to their customers. Are you looking for the edge to outperform the competition?
Using our previous example, Bank A should’ve required a restrictive endorsement on its RDC check, which specified it as “for mobile deposit only.” If it had, the trained teller at Bank B would have seen the restrictive endorsement and wouldn’t have accepted the check for deposit. This special endorsement—known as a restrictive endorsement—is physically written on the check by the customer and indicates that the check in question is for RDC or mRDC deposit only. My bank contacted a vendor inquiring about the endorsement capabilities of scanners to ensure that its commercial customers apply the restrictive endorsement when using remote deposit capture. Learn more, Written By Stephanie Lyon, Senior Regulatory Compliance Counsel, NAFCU.