Reg CC RDC Indemnity:Liability and Timing

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Question:

For the Reg CC RDC indemnity, it states; "(2) A bank described in paragraph (f)(1) of this section shall indemnify, as set forth in § 229.34(i), a depositary bank that accepts the original check for deposit for losses incurred by that depositary bank if the loss is due to the check having already been paid." We have a customer which is a business offering check cashing and it makes deposits via remote deposit capture. I am confused over the liability and timing of paper vs. electronic deposits, duplicate items and will restrictive endorsements influence liability?

Answer:

If your bank receives those checks in image form via RDC, and your business customer fails to secure one of the checks and it is later deposited in paper form at another bank, your bank indemnifies the other depositary bank if the paying bank returns the check unpaid to the other depositary bank because it was previously paid and that bank is unable to recover from its depositor.

However, if the check was restrictively indorsed "Remote Deposit only" when taken for deposit by the other depositary bank, it would have been on notice that the check is likely to have been deposited already, and it would not have a right to make the indemnity claim.

So these conditions would have to exist before your bank could be responsible to indemnify another bank under the Reg CC provision in question:

1. You obtained an image of the check for deposit to your customer's account
2. The check would have to have been paid by the paying bank when that image was presented for payment
3. The other depositary bank must have taken the physical (paper) check for deposit
4. When deposited with the other depositary bank, the check could not have a restrictive indorsement conflicting with the paper deposit of the check at that depositary -- It could not be indorsed "Remote deposit" or "mobile deposit".
5. When the paper check was presented for payment, it must have been returned unpaid due to "duplicate payment" or "duplicate presentment" or other reason indicating the check or an image of the check had already been honored by the paying bank.
6. When the other depositary bank gets the check back unpaid, it can't recover some or all of the check amount from its depositor, and thus sustains a loss.
7. The other depositary bank makes an indemnity claim to recover the amount of its loss -- no more than the check amount.