The procedure for returning an RCC processed through the check collection system is no different than for returning any other unauthorized check. If you discover that an RCC was unauthorized before the midnight deadline has passed (midnight on the next banking day following the banking day on which the check is presented), your bank may return the check to the depository bank.

Your should look to your agreements for processing checks for the correct return codes, whether you are using a Federal Reserve bank or a clearinghouse, such as the Electronic Check Clearing House Organization (ECCHO). Also, the American National Standards Institute (ANSI) publishes standard return codes for electronic check exchanges. If your bank uses the ANSI return codes, we would recommend reviewing the definitions for codes Q, 3, and 4, which are copied in the resources below.

If you discover that an RCC was unauthorized after the midnight deadline has passed, returning the check will not be an option. Instead, in such cases, your bank may make a claim for breach of warranty under Regulation CC's transfer warranties, in which a transferring bank warrants that an RCC is authorized. Under Regulation CC, your bank would have up to one year to make a breach of warranty claim, subject to certain notice requirements. However, if the RCC was processed through a Federal Reserve bank, your bank would have ninety days after the date on which the Reserve bank transferred or presented the check to request an adjustment.

In some cases, an affidavit from your customer will be necessary to make a breach of warranty claim. Federal Reserve or clearinghouse rules may require an affidavit as part of the claim documentation. For example, Federal Reserve Operating Circular No. 3 requires “a statement in a format we prescribe from a person on whose account the check is drawn in which that person asserts under oath that issuance of the check was not authorized,” among other documentation for RCC warranty claims. The UCC and Regulation CC do not require affidavits, and we do not believe that affidavits are required when returning a check before the midnight deadline.

As we understand the terms “Rule 8” and “Rule 9,” they generally refer to claims made through a clearinghouse for warranty breaches for unsigned and signed items, respectively (“Rule 8” is a reference to a claim process developed in the 1990s by a California clearinghouse).  Because an RCC is unsigned, we think Rule 8 could apply to an unauthorized RCC.

If your bank is a member of a clearinghouse such as ECCHO, we recommend checking its operating rules for more information on breach of warranty claims and requirements. Also, for more information on remotely created checks, we recommend reading the IBA article Regulation CC and Remotely-Created Checks (January 2006).

For resources related to our guidance, please see:

• Regulation CC, 12 CFR 229.2(fff) (“Remotely created check means a check that is not created by the paying bank and that does not bear a signature applied, or purported to be applied, by the person on whose account the check is drawn. . . .”)

• UCC, 810 ILCS 5/4-302(a) (“If an item is presented to and received by a payor bank, the bank is accountable for the amount of: (1) a demand item . . . whether properly payable or not, if the bank, . . . does not pay or return the item or send notice of dishonor until after its midnight deadline.”)

• UCC, 810 ILCS 5/4-104(a)(10) (“‘Midnight deadline’ with respect to a bank is midnight on its next banking day following the banking day on which hit receives the relevant item . . . .”)

• ANSI X9.100-188, Return Reasons for Check Image Exchange and IRDs (May 6, 2016), printed page 10 (Code ‘Q’ description: “Not Authorized (Includes Drafts) — This code can be used when an unsigned draft (also known as a Remotely Created Check or RCC) was not authorized by the drawer. The code should only be used within the legal return timeframes. It is important to differentiate the appropriate use of this code from code ‘L’ which is used for signature items, and codes ‘3’, ‘4’, and ‘5’ which are limited to specific warranty breaches under certain rule sets such as the Forged and Counterfeit Warranty Breach (Rule 9) under the ECCHO Rules. This code has a different meaning under Administrative Return.”)

• ANSI X9.100-188, Return Reasons for Check Image Exchange and IRDs (May 6, 2016), printed page 11 (Code ‘3’ description: “Warranty Breach (includes Rule 8 & 9 claims) — This code can be used for various warranty breaches including Rules 8 and 9 claims. Rules 8 and 9 claims are specific warranty breaches and banks using these claims processes need to be under an agreement (e.g., ECCHO rules) that provides for these warranties and claims. This code should not be used for Rules 8 and 9 claims through the Federal Reserve. This code is different than ‘Q’ – Not Authorized (Includes Drafts), which can be used without a specific rule set. Other warranty breaches can occur besides Rules 8 and 9, however use of this code for them is discouraged except where specific codes (e.g., codes ‘L’, ‘Q’, ‘Z’ etc.) are not appropriate. Code ‘4’ can also be used for Rule 8 claims and code ‘5’ can also be used for Rule 9 claims.”)

• ANSI X9.100-188, Return Reasons for Check Image Exchange and IRDs (May 6, 2016), printed page 11 (Code ‘4’ description: “RCC Warranty Breach (Rule 8) — This code can only be used for Rule 8 claims. Rule 8 is a claim process for unauthorized RCCs (Remotely Created Checks) that uses the return mechanism. Banks using this claim process need to be under an agreement (e.g., ECCHO rules) that provides for this claim. This code should not be used for returns through the Federal Reserve. This code is different than ‘Q’– Not Authorized (Includes Drafts), which can be used without a specific rule set. Code ‘3’ – Warranty Breach can also be used for a Rule 8 claim.”)

• Regulation CC, 12 CFR 229.34(d)(1) (“A bank that transfers or presents a remotely created check and receives a settlement or other consideration warrants to . . . the paying bank that the person on whose account the remotely created check is drawn authorized the issuance of the check in the amount stated on the check and to the payee stated on the check.”)

• Regulation CC, 12 CFR 229.56(c) (“A person may bring an action to enforce a claim under this subpart in any United States district court or in any other court of competent jurisdiction. Such claim shall be brought within one year of the date on which the person's cause of action accrues. For purposes of this paragraph, a cause of action accrues as of the date on which the injured person first learns, or by which such person reasonably should have learned, of the facts and circumstances giving rise to the cause of action, including the identity of the warranting or indemnifying bank against which the action is brought.”)

• Regulation CC, 12 CFR 229.34(g) (“Unless a claimant gives notice of a claim for breach of warranty under this section to the bank that made the warranty within 30 days after the claimant has reason to know of the breach and the identity of the warranting bank, the warranting bank is discharged to the extent of any loss caused by the delay in giving notice of the claim.”)

• Regulation J, 12 CFR 210.5(a)(3)  (“The Reserve Bank . . . makes the warranties set forth in and subject to the terms of § 229.34(c) and (d) of this chapter for an electronic item as if it were a check subject to that section.”)

• FRB Operating Circular No. 3, Collection of Cash Items and Returned Checks, Section 20.10, printed page 30 (July 23, 2015) (“Warranty Claims Regarding Remotely Created Checks Transferred or Presented by the Reserve Bank . . . (c) The requesting bank must submit . . . (3) a statement in a format we prescribe from a person on whose account the check is drawn in which that person asserts under oath that issuance of the check was not authorized with regard to one or both of the following: (i) the amount stated on the check, (ii) the payee stated on the check.”)