Hello, are checks created using a bill payment type application governed under Reg E or Reg CC and are they RCC. I read the definition of an RCC in Reg CC 229.2 (fff) and the first sentence states that an RCC is a check that is not created by the paying bank. The items were confirmed to be created by the paying bank and their banking software. Given that start I would think that these checks are not RCC but would apprecicate input/opinion.

If these items are not RCC then are they governed under Reg E? See the checks were created supposedly by someone who illegally accessed the paying bank customer's account through a computer and created these checks using the bank's internet solution product. Customers apparently sign in, create checks payable to whoever they want and then provide an address where the checks are mailed. The checks were used to buy electronic equipment from a customer from our bank,the BOFD. The paying bank, months later, is requesting the money from us under the new amendment to Reg CC regarding RCC.They provided the usual affadavits stating the items were counterfeit which is technically wrong because the items are authentic bank checks. I do not believe the claim holds meritt, these items are not RCC because they were created by the paying bank therefore the midnight deadline applies, IMHO. The checks totaled over $25,000 so this is kinda important to us.<g>

I read Reg E and it seems as if this falls under an electronic transfer, a person with an access device (the user code and pw) used a computer to transfer funds by debiting their account to make a purchase. Anyway I just wanted to know if Reg E does cover these items. Seems like the line between what is a check and what is an electronic transaction is getting blurrier and blurrier. Anyway any opinion regarding my educated guess regarding this matter is appreciated.

Okay, this one sounds a bit murky to me, too, but it grabbed my attention because our own online banking includes exactly this kind of bill-pay procedure, which can even be used to send checks to private individuals (such as to pay a babysitter or send a birthday present to a grandchild).

Sounds to me like it's the paying bank that was in the best position to prevent the fraud, in that it was their own online security that was breached to create these items. If they'd caught it by midnight, fine, but now, I would think they'd have to decide whether to pay their customer or try to argue that the customer was in some way negligent (for example, by sharing a password with someone who then used it to make the drafts).

That's my best guess at this time, but I'd love to hear others weigh in.

A bill payment transaction by check that is issued on the bank's own account and charged electronically to its customer's account is subject to Regulation E, and it is most definitely not an RCC. The piece of the transaction that is subject to E is the transfer from the customer's account. The check itself remains subject to the UCC. If the bank's customer did not authorize the electronic transfer, the bank may be liable to its customer for reimbursement. However, the bank is long past its deadline for dishonoring the checks.

John,

In this case the customer used a personal computer to create the payment to our customer, a paper check was created by the bank based on the instructions received through the internet banking software of the paying bank. The check was then received by our customer and deposited in their account with our bank. 4 months later the paying bank is requesting us to return the funds by debiting our customer's account stating the checks were counterfeit and they would hold us harmless. The drawee account was charged when the check posted, the drawee account was not charged by an electronic transfer. The piece that appears to be covered under Reg E is when the customer issued the payment through the online system. I mean this entire transaction began as an electronic order which is why I believe Reg E applies. I just wanted confirmation that the item is not an RCC because then it needs to be returned by the midnight deadline.

Regards,
C Dodson

Depending on the disclosures provided by the paying bank to its customer, this type of check may not be subject to Regulation E. If the disclosures identified the types of payments that would be completed by a check drawn on the customer's account, and this check was included in that description, it's not a Reg. E transaction at all.

It most definitely is not an RCC. IMO, it is a check, and the paying bank's customer may be able to claim its issuance was not authorized, but the loss is on the paying bank or its customer, not on you.