Abstract
Consider the following hypothetical scenario (and a typical scam involving mobile check deposits) in which an employer (the “Company”) issues a paper check to one of its employees (the “Employee”). The Employee remotely deposits the check with his or her bank (“Bank A”) by snapping an image of it with his or her smartphone and using Bank A’s mobile deposit app. Bank A either forwards the electronic image of the check itself or uses it to create a substitute check that is then presented to the Company’s Bank (“Bank B”) for payment. Meanwhile, the Employee retains the original paper check and later cashes that original check at a check-cashing store (or at another bank or currency exchange).1 The check-cashing store then deposits the original paper check with its depositary bank (“Bank C”). Bank C converts that check to an electronic item and presents it to Bank B (that is, the Company’s bank), through an electronic forward-collection cash letter.2 Bank B may identify the check as a suspected duplicate, because the electronic image or substitute check has already been presented for payment.3 If so, Bank B may dishonor the check as a suspected duplicate, and the check will then “bounce” back to Bank C, which will charge the item back to its customer’s (the check-cashing store’s) deposit account. The duplicate deposit might have been an accident, or it might be the result of fraudulent intent. Either way, the Employee is double-depositing a check, thereby begging the question: who is left to make good on these multiple transactions, especially if the parties are unable to recover directly from the Employee? The check-cashing store is likely to assert that it is entitled to payment from the “drawer” (in this scenario, the Company) as a holder in due course. Does the Company have any defense to the check-cashing store’s holder-in-due-course claim? Furthermore, does the Company or its bank (the “drawee” or “payor bank”) have any recourse against Bank A, which created the substitute check (the “reconverting bank”4 )?
Table of Contents
I. Introduction
II. Uniform Commercial Code
III. Check 21 Act and Electronic Check Clearing House Organization Rules
IV. Proposed Amendments to Regulation CC
V. Mitigation Strategies
VI. Conclusion
I. Introduction
Since the 2004 introduction of the Check Clearing for the 21st Century Act (“Check 21 Act”),5 mobile deposits of checks have become increasingly popular. The Check 21 Act authorized the use of a negotiable instrument called a “substitute check”—an electronically created version and legal equivalent of an original check—paving the way for electronic check presentment by retail bank customers. Electronic check presentment has two major benets: rst, presentment occurs more quickly than if the physical check had to be transported for presentment; and second, the process is less costly.6 However, with the increasing use of mobile check deposit technology comes an increasing risk of checks being deposited more than once (“duplicate presentment”). The loss resulting from duplicate presentment is one of the principal risks posed by mobile check deposits.
Prior to the introduction of mobile-deposit technology, the existence of a single, unique paper check meant that only one “holder” was capable of possessing a check. The existence of a digitized check—indeed, one that can be replicated multiple times—results in a situation where multiple parties can claim to be “holders in due course,” each with a claim of entitlement to payment of the same instrument.
The “holder-in-due-course” doctrine governs negotiable instruments such as checks.7 Under this doctrine, a party acquiring a negotiable instrument takes the instrument free of competing claims of ownership8 and most defenses to payment9 when the party acquires the instrument in good faith, for value, and without notice of certain facts.10 The underlying premise is that a party acquiring a check should be free of concerns that the creator of the check or anyone else who owns the instrument will have particular grounds for refusing to pay.
This Article provides an overview of the legal framework governing mobile check deposits, focusing on duplicate deposits where one party holds the original paper check; reviews proposed amendments to Regulation CC, the set of regulations implementing the Check 21 Act; and suggests strategies for mitigating the risk of duplicate presentment.
II. Uniform Commercial Code
The provisions in Articles 3 and 4 of the Uniform Commercial Code (“UCC”) provide some answers to the questions posed above, although revisions are sorely needed in the face of technological advances in check collection and payment practices, particularly given that the current provisions were designed for a paper-based system.
The current presentment and transfer warranties in Articles 3 and 4 of the UCC depend upon the transfer or presentment of a physical piece of paper.11 Thus, a transferor or presenter does not make these warranties if the item being transferred or presented is an electronic image of a check. Importantly, the UCC imposes no warranty obligation for potential double deposits such as the one outlined in the hypothetical scenario presented above, with payments on both the electronic image and the original paper check. The UCC simply does not address the possibility that a single instrument could be presented for payment multiple times—likely because, prior to mobile-deposit technology, presentment or negotiation of an instrument required physical possession of the original instrument.12
In the hypothetical scenario above, the payor bank (that is, Bank B) will be required to credit its customer’s (the Company’s/drawer’s) account for one of the payments, as only one was properly payable. Thus, if the payor bank returns the suspected duplicate item and refuses to pay either the reconverting bank (that is, Bank A) or the checkcashing store, the drawer of the original check (its customer, the Company) will then likely face a holder-in-due-course claim.
Traditionally, the holder of an instrument has been endowed with the right to enforce that instrument,13 with the holder dened as the person in physical possession of the instrument.14 The entity that retains the original check, such as the hypothetical check-cashing store, might have a holderin-due-course claim and, thus, might demand payment from the drawee—such as the hypothetical Company. The checkcashing store has a strong argument for holder-in-due-course status if it took the check by proper endorsement, in good faith, for value, and without notice that it was a duplicate,15 which will, in all likelihood, be the case.
As detailed below, with a “substitute check” treated as a legal equivalent to a paper check under the Check 21 Act, a person in possession of the substitute check is entitled to enforce it. Thus, if the reconverting bank (such as, Bank A) creates such a check, it might also obtain holder-in-duecourse status.
However, even if the reconverting bank creates a substitute check, the bank might not qualify as a holder in due course if the electronic image created by its customer and transmitted to the bank does not satisfy the applicable requirements for such a check. Furthermore, the payor bank (such as, Bank B) will likely be able to pursue a claim against the reconverting bank under the Check 21 Act’s warranty provisions.
III. Check 21 Act and Electronic Check Clearing House Organization Rules
Prior to passage of the Check 21 Act, banks and other nancial institutions were required to physically present an original paper check (an act known as “presentment”) in order to receive payment as described on the check.16 The Check 21 Act, however, encouraged and facilitated the use of electronic image exchanges to process checks. Banks that do not want to accept an electronic image of a check must accept a “substitute check”—a reproduction of the front and back of the original check.17 Under the Check 21 Act, a substitute check is the legal equivalent of the original check, provided that it accurately represents the original and bears the legend: “This is a legal copy of your check. You can use it the same way you would use the original check.”18 As a result, a bank may permit its customers to scan physical checks and deposit them electronically using the bank’s mobile deposit app, thereby enabling the bank to use the scanned image to create a substitute check or, where possible, to simply use the electronic image to conduct its business. Like an original paper check, a substitute check is also subject to all provisions of the UCC or applicable federal or state law, but only to the extent that such provisions are not inconsistent with the Check 21 Act.19
Because the Check 21 Act applies only in instances involving substitute checks and because the use of substitute checks is declining, the Act currently has a relatively limited practical scope.20 Banks wishing to participate in a fully electronic check conversion and payment system, in which no substitute check is created and in which only images of checks are exchanged,21 are free to do so.22 Many banks enter into bilateral or interbank agreements governing such check exchanges or otherwise exchange such electronic images pursuant to Federal Reserve Bank operating circulars or the rules of electronic image clearing houses,23 with many such agreements often including warranties for electronic checks similar to those made for substitute checks under the Check 21 Act.24 For example, because these fully electronic exchanges remain outside the purview of the Check 21 Act and Regulation CC provisions governing the use of substitute checks,25 some of the most common and widely adopted clearing house rules are those promulgated by the Electronic Check Clearing House Organization (“ECCHO”). ECCHO rules, while similar to Check 21 requirements in many respects, are actually more extensive than Check 21 Act warranties and include warranties under the UCC.26 Because many banks use the electronic check process rather than the substitute check process, ECCHO rules or similar rules would govern these transactions rather than the Check 21 Act. Nonetheless, because of the similarity between the rules and policies, the hypothetical and other results described in this Article would likely be the same or similar under both the ECCHO rules and the Check 21 Act.
Notably, the Check 21 Act does not require the destruction of the original paper check after the creation of a substitute check.27 By permitting a customer to retain the original check and converting the image of the original check into a substitute check, a bank oering mobile deposits eectively cedes control of a portion of its back-oce operations to the customer. Thus, the scenario presented above, in which a customer deposits an original check after depositing the “same” check electronically, is a creature of the Check 21 Act.
The Check 21 Act imposes warranty and indemnity obligations upon a bank issuing a substitute check. A bank creating a substitute check—that is, the reconverting bank—assumes the risk that arises from the creation of multiple legally enforceable copies of the same item. The reconverting bank warrants to each subsequent handler of the check that it will not receive multiple presentments of the check such that the handler will be asked to make a payment based on a check it has already paid.28 Specically, “no depositary bank, drawee, drawer, or endorser will receive presentment or return of, or otherwise be charged for, the substitute check, the original check, or a paper or electronic version of the substitute check or original check such that the bank, drawee, drawer, or endorser has already paid.”29 ECCHO Rules, governing electronic checks, are substantively similar and provide that such a bank will not receive “a transfer, presentment or return of, or otherwise be charged for,” an electronic check, the original check, another electronic check based on the original check, or a substitute check based on the original check.30
Thus, if the Employee in the hypothetical above electronically deposits a check using Bank A’s mobile deposit app and then later cashes the original check at a check-cashing store, and if Bank B, as the bank on which the check is drawn, pays both the original check and the substitute check created by Bank A, Bank B, as the payor bank, has recourse against Bank A for its overpayment based on Bank A’s Check 21 Act warranty.31 Liability for the loss falls to the bank that allowed a customer to use its mobile deposit app—Bank A. As the reconverting bank, Bank A may, in turn, charge the loss against its customer, the Employee.32 The key point, however, is that the warranties described in the Check 21 Act dictate that the acts of accepting the mobile deposit and creating the substitute check place responsibility for any subsequent multiple payments on the bank creating the substitute check.
IV. Proposed Amendments to Regulation CC
The Check 21 Act warranty and indemnity provisions described above are only applicable to paper checks and are thus limited to mobile-deposit cases in which banks reconvert a customer-submitted electronic image into a substitute check.33 In an eort to resolve the treatment of electronic check images, the Federal Reserve Board (the “Board”) has proposed to amend Regulation CC,34 implementing the Check 21 Act. The Board’s proposed amendment would implement a new Regulation CC indemnity provision, 12 C.F.R. § 229.34(g), relating to mobile check deposits.35 As the Board has explained, the proposed provision covers depositary banks that receive deposit of an original paper check that is returned unpaid because it was previously deposited (and paid) using a mobile-deposit service.36 The Board’s proposal is timely, particularly in light of the declining use of substitute checks37 and the banking industry’s rapid transition to fully electronic check processing.
The existing provisions of Regulation CC presume that banks generally handle checks in paper form—either as the original physical check or as a substitute check.38 The proposed revisions to Regulation CC are intended to apply to situations where a depositary bank qualifying as a “truncating bank”—because its customer created an image of the front and back of a check and deposited the check through a mobile deposit app—accepts consideration for such a check without receiving the original check or an unpaid return of the check.39 The revisions would allow a bank that accepts the deposit of the original check to recover directly from the truncating bank that accepted the mobile check deposit made by its customer.40 The Board’s stated rationale for this provision is that the depositary bank introducing the risk of multiple deposits of the same check by accepting mobile deposits should bear the losses associated with the duplicate presentment.41 The Board has also emphasized its belief that the original depositary bank is in the best position to minimize the costs and risks of mobile check deposits through the terms of its contract with its customer.42
The Board’s proposal was open to public comment until May of 2014 and received generally mixed-to-positive reviews, although smaller nancial institutions such as credit unions have expressed concerns about the proposed indemnity requirement’s impact on their mobile check deposit programs.
One commentator, on behalf of a large national banking institution, suggested two additions to the proposed rule: rst, that the nal rule include a set period within which an indemnied depositary bank must make a claim for indemni- cation as to the truncating bank; and second, that the indemnication only be applicable if the second depositary bank qualies as a “holder in due course” under the UCC and retains possession of or access to the original item.43 Representatives of other national banking institutions also supported the primary indemnity provision while requesting additional provisions, such as an obligation on the part of the depositary bank to provide timely notice of its claim against the truncating bank.44 Commenters also requested: (1) that a paying bank be obligated to provide certain identifying information to a depositary bank regarding the truncating bank, and (2) that a truncating bank be entitled to a limited defense in instances where a depositary bank fails to assert its indemnication claim against the truncating bank within thirty days after obtaining information regarding the breach of warranty and identity of the truncating bank.45
Importantly, a “Working Group” comprised of the American Bankers Association, The Clearing House Payments Co., the Electronic Check Clearing House Organization, the Financial Services Roundtable, and the Independent Community Bankers of America (the “Working Group”) strongly supported the proposed indemnication procedures, calling the proposed regulation a “step forward in the right direction.”46 The Working Group’s recommendations concluded that the nal rule should clarify that the second depositary bank, which receives the original paper check, is able to assert a claim for indemnication against the truncating bank without rst seeking to charge the item to its depositing customer, and that the nal rule specify a time period within which the second depositary bank must make its indemnication claim to the truncating bank.47 The goal of the latter proposal is to assist the truncating bank in obtaining funds from the depositary customer causing or participating in the duplicate presentment. The Working Group’s comment also proposed that, where evidence on the check suggests it may have been previously deposited by mobile or other means, the loss from duplicate presentment is more appropriately allocated to the second depositary bank and its depositing customer.48
Other commenters—largely representatives of credit unions—have argued, however, that the proposed indemnity provision would discourage banks from oering mobile check deposit services.49 Indeed, one credit union representative argued that the proposed liability shift would “have a significant chilling eect on a desirable service for consumers.”50 Some commentators have oered alternative suggestions, such as limiting access to mobile check deposit services to certain customers51 or including a restrictive endorsement clearly stating that a check is “For Mobile Deposit Only”— with nancial institutions that elect not to require such endorsement absorbing all liability from a duplicate presentment.52 Others have suggested that, in the event of a duplicate presentment, responsibility should lie with “the nancial institution taking the loss to recover said loss from the depositor who was unjustly enriched,” as opposed to the institution accepting the mobile check deposit.53 One commentator has ambitiously proposed the creation of a national registration database of paid check information, similar to the UCC lien ling system—institutions accepting an item would check this registration database and be able to reject checks that had previously been paid.54 In the event that a check is unregistered and presented multiple times, the party accepting the original paper check would prevail.55
V. Mitigation Strategies
The proposed Regulation CC provisions currently remain in the proposed rulemaking stage. Until such time as new regulations are adopted, banks can undertake certain mitigation strategies to minimize the risks and losses associated with mobile check deposits. The lack of a comprehensive cross-bank, real-time duplicate detection system is one of the key reasons that consumers are able to double deposit checks by initially making a mobile deposit with one institution and subsequently making a “paper” deposit at another institution. Thus, one way banks may protect themselves from duplicate presentment is to place a longer hold on deposited funds, ensuring that they are not made available sooner than necessary to conrm that there has been no duplicate presentment. This would allow banks to clear each check through the drawer’s nancial institution, verifying it as a legitimate instrument. However, this concept is contrary to the business model of the check-cashing store and could lead to lost business for banks where certain institutions adopt the model and others do not, allowing nonadopting institutions to lure in customers needing immediate access to deposited funds.
Alternatively, as is already the case with many nancial institutions,56 prior to mobile-deposit scans, all banks could require customers to endorse each original check with language indicating that the item is “For Mobile Check Deposit Only,” along with the deposit account number, thus making it less likely that the original check could later be deposited at another bank or check-cashing store. Clearly, the presence of such language—or spots indicating that such language has been erased, covered, or otherwise removed— would, or at least should, provide notice to a subsequent institution that the check has already been deposited and should not be deposited again.57
Another key way for banks to shield themselves from losses caused by duplicate presentment is by building certain protections into the agreement between the bank and its customers using the mobile check deposit functions. All mobile-deposit service agreements could, and should, include warranties from customers to banks that track the Check 21 Act’s warranties given to subsequent handlers of the check. Banks could also require mobile-deposit customers to indemnify the banks against any loss suered as a result of duplicate presentment, with such requirements easily effectuated through modication of banks’ demand-deposit account agreements and agreement forms for current and future accounts, respectively. Banks could require acknowledgement of such terms in conjunction with downloading, or continued use of, their respective mobile apps.58
VI. Conclusion
icant risks of loss in the form of duplicate presentment. While some duplicate deposits are customer errors, others involve potentially fraudulent behavior. The proper allocation of the loss from such deposits depends upon the rules and interpretation of the UCC, the ECCHO rules, and the Check 21 Act. Currently, there is minimal case law interpreting these rules in mobile-deposit cases, and the UCC has not yet been revised to account for the advances in technology evidenced by such cases. Until such time as the UCC is revised, other statutes or regulations—such as the Board’s proposed regulation—are enacted, or case law is decided to clarify these issues, banks, employers, and general consumers should be aware of the risks of duplicate presentment when issuing or depositing paper checks and, in the case of nancial institutions, should promulgate policies to protect against such risks.
*John R. Gardner, Partner, K&L Gates LLP; Matthew T. Houston, Associate, K&L Gates LLP; Haniya Mir, J.D. 2015, Duke University School of Law. An earlier version of this Article was previously published in part as an alert for K&L Gates LLP and is available at http://www.klga tes.com/mobile-check-deposits-with-soaring-use-increasing-risks-07-31- 2014/
.1 Because of funds-availability rules, there are often several days between the date of deposit and the date the funds are actually received by the depositary bank. Thus, the customer depositing the check for the second time has access to the funds represented by the check before the check has been honored by the payor bank. Of course, where the second deposit was at a check-cashing store, the funds availability window is not a factor because the check is being cashed, rather than deposited.
2 A “cash letter” is a group of checks packaged and sent by a bank (that is, . . . any depositary nancial institution) to another bank, clearing house, or a Federal Reserve oce. A cash letter is accompanied by a list containing the dollar amount of each check, the total amount of the checks, and the number of checks in the cash letter. “Forward collection” refers to the transfer of a check by a bank to a “payor bank” for payment. That is, the bank forwards the check to another bank directly or through an intermediary. For a description of the three basic models used by banks involving electronic forward-collection cash letters, see Stephanie Heller, An Endangered Species: The Increasing Irrelevance of Article 4 of the UCC in an Electronics-Based Payments System, 40 Loy. L.A. L. Rev. 513, 527–28 (2006).
3 Certain nancial institutions employ duplicate screening processes, while others do not. In certain instances, a nancial institution may honor a check even when it suspects a duplicate instrument, and then order a manual review prior to charging the customer’s account.
4 12 U.S.C.A. § 5002(15) (2006).
5 Check Clearing for the 21st Century Act, Pub. L. No. 108-100 (2003), codied at 12 U.S.C. § 5001 et seq. (2004). The Check 21 Act is implemented by a collection of regulations adopted by the Federal Reserve Board, known as Regulation CC. 12 C.F.R. § 229.1.
6 Electronic check presentment reduces expensive air- and landcourier transportation costs, as well as costs associated with storage of physical checks. See Peter J. Mucklestone, The Journey of a Check, Prof. Lawyer, 2006, at 40; see also David B. Humphrey & Robert Hunt, Getting Rid of Paper: Savings from Check 21 10–15 (Research Dep’t, Fed. Reserve Bank of Phila., Working Paper No. 12-12) (estimating that the Federal Reserve reduced its per-item check processing costs by over seventy percent (70%) by shifting to electronic presentment).
7 U.C.C. § 3-104(a) (dening negotiable instrument, in part, as “an unconditional promise or order to pay a xed amount of money” that is payable to bearer or identied person).
8 U.C.C. § 3-306.
9 See U.C.C. § 3-305(b) (making certain defenses inapplicable to holder-in-due-course claims).
10Section 3-302(a)(2) of the U.C.C. denes a “holder in due course” as one who takes an instrument: (i) for value, (ii) in good faith, (iii) without notice that the check is overdue or has been dishonored or that there is an uncured default with respect to payment of another instrument issued as part of the same series, (iv) without notice that the instrument contains an unauthorized signature or has been altered, (v) without notice of any claim to the instrument described in Section 3-306, and (vi) without notice that any party has a defense or claim in recoupment described in Section 3-305(a). U.C.C. § 3-302(a)(2).
11See U.C.C. §§ 3-416, 3-417, 4-207, 4-208. A transfer warranty is given if a transferor transfers an instrument for consideration to a transferee and if the transfer is by endorsement to all future transferees. Transfer warranties can be enforced against all transferors for consideration by all transferees. U.C.C. §§ 3-416, 4-207. When used in relation to an instrument, a presentment warranty refers to an implied promise as to the title and credibility of the instrument (such as, . . . a promise that the check has not been altered) given to the drawee by the person presenting a draft and receiving payment. Presentment warranties can be enforced against the presenter and all transferors by the payor bank and only the payor bank. U.C.C. §§ 3-417, 4-208.
12The Check 21 warranty against double payment, see infra pp. 185- 187, applies only if a substitute check is created and would not apply to double presentment involving the original paper check.
13See U.C.C. § 3-301 (dening a person entitled to enforce the instrument as the “holder” of an instrument).
14U.C.C. § 1-201(b)(21).
15See U.C.C. § 3-302.
16S. Rep. No. 108-79, at 1 (2003).
17A substitute check is dened in Section 3(16) of the Check 21 Act as: A paper reproduction of the original check that (A) contains an image of the front and back of the original check; (B) bears a MICR line containing all the information appearing on the MICR line of the original check, except as provided under generally applicable industry standards for substitute checks to facilitate the processing of substitute checks; (C) conforms, in paper stock, dimension, and otherwise, with generally applicable industry standards for substitute checks; and (D) is suitable for automatic processing in the same manner as the original check.
1812 U.S.C.A. § 5003(b).
1912 C.F.R. § 229.51(c).
20Ronald J. Mann, Payment Systems and Other Financial Transactions 141 (5th ed. 2011). As Mann has recognized: The most important thing to understand about Check 21 is its limited scope. The purpose of the statute is to make a “substitute check” the legal equivalent of the original check. Check 21 does not authorize electronic check processing: A bank can collect or present an electronic check only by means of a contractual agreement with the bank to which the check is being transferred or presented. Similarly, because Check 21 does not require banks to accept electronic images, it imposes no obligations on those that create them. Nor does Check 21 even alter whatever rights customers currently have to the return of their original checks. Rather, all of the provisions of the Act relate to the intermediate practical questions described above: facilitating truncation by depository banks through the creation of reliable mechanism for making an acceptable substitute of the original check in the few cases in which a substitute is necessary. Thus, the process contemplated by Check 21 is that banks will agree among themselves to present and accept electronic images of checks; the statute will facilitate the reconversion of those images to paper documents. 12 C.F.R. § 229.51(c).
21See Bd. of Governors of the Fed. Reserve Sys., report to the Congress on the Check Clearing for the 21st Century Act of 2003, at 12 (2007) (recognizing that the use of substitute checks will decrease with increased use of electronic imaging transactions).
22Jane K. Winn and Benjamin Wright, The Law of Electronic Commerce, § 7.06 Check and Automated Clearing House Payments (2014).
2312 C.F.R. § 229.51(c).
24See, e.g., 79 Fed. Reg. 6681.
25See generally supra note 6.
26See ECCHO Rules Dispute Resolution Escalation Policies and Procedures, ECCHO (May 2012), https://www.eccho.org/cc/rules/ECCHO%20Rul es%20Dispute%20Resolution%20Escalation%20Policies%20and%20Proced ures%20May%202012.pdf.
27See McGlinn, Check Clearing for the 21st Century Act: The Impact on Consumers, 9 N.C. Banking Inst. 179, 182 (2005); see generally 12 U.S.C.A. §§ 5001 et seq.
28See 12 U.S.C.A. §§ 5004 to 5005. In terms of indemnity, the Check 21 Act provides that the reconverting bank and any bank subsequently transferring, presenting, or returning a substitute check must indemnify all involved parties, including the drawer, for any loss incurred due to the receipt of a substitute check rather than the original check. 12 U.S.C.A. § 5005(a).
2912 U.S.C.A. § 5004.
30ECCHO Rules § XIX(L)(7), available at https://www.eccho.org.pdf.
31The indemnity is “to the extent of any loss incurred . . . due to the receipt of a substitute check instead of the original check.” 12 U.S.C.A. § 5004.
32This assumes that recourse is available against the Employee. Many times, in the case of fraud, recourse is limited against the party making the duplicate deposits either due to the employee being terminated, or otherwise.
33The current denition of “check” in Regulation CC does not include an electronic image of a check. 12 C.F.R. § 229.2(k). 3412 C.F.R. § 229.1 (describing authority and purpose of Regulation CC).
3579 Fed. Reg. 6684.
3679 Fed. Reg. at 6683.
37See supra note 22.
38See generally infra.
39See 12 C.F.R. § 229.2(eee)(2) (dening “truncating bank”). The depositary bank would be considered a truncating bank as dened in § 229.2(eee)(2) because a person other than the bank truncates the original check.
40See 79 Fed. Reg. 6684 to 6685 (explaining purpose of proposed revisions).
4179 Fed. Reg. 6684 to 6685.
4279 Fed. Reg. 6684 to 6685.
43John W. King, Comment on Proposed Revisions of 12 C.F.R. pt. 229 (May 1, 2014).
44Janice M. Havens, Comment on Proposed Revisions of C.F.R. pt. 229 (May 1, 2014).
45Janice M. Havens, Comment on Proposed Revisions of C.F.R. pt. 229 (May 1, 2014).
46American Bankers Association et al., Comment on Proposed Revisions of 12 C.F.R. pt. 229 (May 2, 2014).
47American Bankers Association et al., Comment on Proposed Revisions of 12 C.F.R. pt. 229 (May 2, 2014).
48American Bankers Association et al., Comment on Proposed Revisions of 12 C.F.R. pt. 229 (May 2, 2014).
49See, e.g., Mary Carrozza, Mass Bay Credit Union, Comment on Proposed Revisions of 12 C.F.R. pt. 229 (Mar. 27, 2014); Todd J. Link, Dupaco Community Credit Union, Comment on Proposed Revisions of 12 C.F.R. pt. 229 (Mar. 27, 2014) (arguing that a change in the liability will have an immediate and permanent impact on the future growth potential of remote deposit capture); Charles Pickering, Ingo Money, Inc., Comment on Proposed Revisions of 12 C.F.R. pt. 229 (May 1, 2014) (stating that the proposed amendment threatens to undermine the growth and viability of RDC).
50Mich. Credit Union League & Aliates, Comment on Proposed Revisions of 12 C.F.R. pt. 229 (May 2, 2014).
51James Krob, Cal. Credit Union, Comment on Proposed Revisions of 12 C.F.R. 9 (Apr. 17, 2014).
52See Nat’l Assoc. Fed. Credit Unions, Comment on Proposed Revisions of 12 C.F.R. pt. 229 (May 2, 2014); Link, supra note 50.
53Carol Rosas, Eagle Comty. Credit Union, Comment on Proposed Revisions of 12 C.F.R. pt. 229 (Apr. 23, 2014).
54See Pickering, supra note 50.
55See Pickering, supra note 50. While several commentators have pointed out that the proposed § 229.34(g) does not address a scenario in which multiple mobile deposits are created from one original paper check—an altogether likely scenario in light of the ease with which such mobile deposits may be made—it is not clear that such a provision is necessary, and this Article does not address the issue.
56See, e.g., Mobile Deposit, Mechanic’s Bank, https://www.mechanicsb ank.com/mechbank/MBwebsite.nsf/onlineservices/mobiledeposit (last visited July 28, 2014) (requiring “For Mobile Deposit Only” language for endorsement prior to mobile deposit); Mobile Deposit, S&T Bank, https://w ww.stbank.com/Content/Personal/Online-Banking/Mobile-Deposit.aspx (last visited July 28, 2014) (same).
57Indeed, such evidence could likely be used in support of an argument that a subsequent holder of the instrument may not be a holder in due course.
58Subject to applicable state and federal law, employers (and by extension, banks) might protect themselves by utilizing direct-deposit technology, thus eliminating the need for paper checks.