On March 15, the Federal Reserve Board published proposed amendments to Regulation J, which covers the collection of checks and other items by Federal Reserve Banks and funds transfers through Fedwire. The proposed amendments are intended to clarify and simplify certain provisions of Regulation J, remove obsolete provisions, and align the rights and obligations of sending banks, paying banks, and Federal Reserve Banks with the Board’s recent amendments to Regulation CC. The Board also proposes to amend Regulation J to clarify that terms used in financial messaging standards for Fedwire funds transfers do not confer or connote legal status or responsibilities.
In 2017, the Board published a final rule amending Regulation CC to reflect today’s virtually all-electronic check collection and return environment. Among other things, the amendments created a regulatory framework for the collection and return of electronic items (i.e., electronic images and electronic information derived from paper items). The Board is now proposing amendments to align Regulation J with the Board’s 2017 amendments to Regulation CC and incorporate certain provisions, including the Regulation CC warranties and indemnities, by reference.
The Board’s 2017 amendments to Regulation CC addressed the return requirements and indemnities that apply to “electronically-created items” (ECIs), which are check-like items created in electronic form that never existed in paper form. While the Regulation J amendments generally align with the Regulation CC amendments, they create an interesting disparity as it relates to electronically-created items. The Board proposes to clarify that electronically-created items are not “items” under Regulation J, meaning that ECIs cannot be processed by the Reserve Banks. According to the Board, this proposed clarification would not prevent parties that desire to exchange ECIs from doing so by agreement using direct exchange relationships or other methods not involving the Reserve Banks. Despite the availability of such alternative methods, the proposal would certainly affect the creation and acceptance of ECIs.
In addition, the Board is requesting comments on whether and to what extent it should consider amending Regulation J in the future to permit the Reserve Banks to accept ECIs. Thus, there remains some uncertainty about the nature of ECIs and the legal framework that applies to them.
The proposed rule is available here. Comments on the proposed rule must be submitted by May 14, 2018.