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#2272311 - 06/30/22 02:18 PM Reg. CC Returned Check - Depositary Bank
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I've never really worked deposit operations in a Bank before, so please excuse my stupidity on this. I am reading the part of Reg. CC about Returned Checks and I am really confused. It would seem that the Depository Bank is the one that takes check for the customers account.

[Depositary bank means the first bank to which a check is transferred even though it is also the paying bank or the payee. A check deposited in an account is deemed to be transferred to the bank holding the account into which the check is deposited, even though the check is physically received and indorsed first by another bank.]

So, Joe Smith walks into Chase and deposits a check into his account at said bank from Jane Farmer who has a PNC account. Seems like Chase would be the Depositary bank based on the definition above. But, then in the Returned Check section it keeps mentioning you return the check to the Depositary bank. If the check was deposited into the Chase account, then how/why would the PNC check be returned to Chase? Chase already has it.

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#2272331 - 06/30/22 05:49 PM Re: Reg. CC Returned Check - Depositary Bank Compliance NABW
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I think I figured it out, but people can let me know if I'm correct. There seems to be a nuance with Returned check vs. Return of check in the Regulation. So, the Depositary bank (Chase) receives a returned check, which I guess is saying they accepted a check for deposit that they ended up needing to return (to PNC). So, because of the fact it needed to be returned to the paying back (PNC), then what Chase received is labeled a "returned" check in Subpart C.

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#2272614 - 07/11/22 02:22 PM Re: Reg. CC Returned Check - Depositary Bank Compliance NABW
John Burnett Offline
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No. When a check drawn on an account at PNC is deposited in an account at Chase, PNC is the drawee bank and paying bank. Chase is the depositary bank. Once deposited at Chase, the check is routed to PNC to be paid (or not). If PNC doesn't pay the check (insufficient funds/overdraft, account closed, etc.), it has until its midnight deadline (midnight of the banking day following the banking day the check was presented for payment at PNC) to return the check to Chase, with its reason for non-payment. It's now a returned check, because it was returned to the depositary bank unpaid.
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Chase then charges the check back to its depositor's account.
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#2272687 - 07/12/22 06:24 PM Re: Reg. CC Returned Check - Depositary Bank John Burnett
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Thank you for your response. I ended up being very close, but not quite right. Thanks again!

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#2272690 - 07/12/22 06:58 PM Re: Reg. CC Returned Check - Depositary Bank John Burnett
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Originally Posted by John Burnett
No. When a check drawn on an account at PNC is deposited in an account at Chase, PNC is the drawee bank and paying bank. Chase is the depositary bank. Once deposited at Chase, the check is routed to PNC to be paid (or not). If PNC doesn't pay the check (insufficient funds/overdraft, account closed, etc.), it has until its midnight deadline (midnight of the banking day following the banking day the check was presented for payment at PNC) to return the check to Chase, with its reason for non-payment. It's now a returned check, because it was returned to the depositary bank unpaid.
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Chase then charges the check back to its depositor's account.

So, if PNC returns the check to Chase because of insufficient funds, then what is the practical applicability of 12 CFR 229.33(e)? Why would Chase have to send over a payment to PNC when PNC never paid anything to Chase? Seems like Chase gets a double whammy - once for giving funds to their customer (which perhaps they can take back) and then again for sending a payment to PNC.

Payment.

(1) A depositary bank shall pay the returning bank or paying bank returning the check to it for the amount of the check prior to the close of business on the depositary bank's banking day on which it received the check (“payment date”) by -

(i) Debit to an account of the depositary bank on the books of the returning bank or paying bank;

(ii) Cash;

(iii) Wire transfer; or

(iv) Any other form of payment acceptable to the returning bank or paying bank.

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#2273424 - 07/26/22 09:04 PM Re: Reg. CC Returned Check - Depositary Bank Compliance NABW
John Burnett Offline
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Settlement of payment of checks and the undoing of settlements for checks returned unpaid is handled on a daily basis using the Federal Reserve, which debits and credits the reserve accounts of the banks or their correspondent banks. It is rarely done on an individual check basis.
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#2274579 - 08/23/22 05:25 PM Re: Reg. CC Returned Check - Depositary Bank John Burnett
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Originally Posted by John Burnett
Settlement of payment of checks and the undoing of settlements for checks returned unpaid is handled on a daily basis using the Federal Reserve, which debits and credits the reserve accounts of the banks or their correspondent banks. It is rarely done on an individual check basis.

So, is there no real practical application then for 229.33(e)? It's just some "on the books" Regulation that doesn't have any relevance to the modern word?

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#2274597 - 08/23/22 07:32 PM Re: Reg. CC Returned Check - Depositary Bank Compliance NABW
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John was describing the process by which 229.33(e) plays out. Read the Official Staff Comments to this section. (If you use BOL's "read a reg" feature, the OSC is conveniently located just beneath the text of the reg.) Here's official comment 1:

1. As discussed in the commentary to §229.32(e), under this regulation a paying bank or returning bank does not obtain credit for a returned check by charge-back but by, in effect, “presenting” the returned check to the depositary bank. This paragraph imposes an obligation to “pay” a returned check that is similar to the obligation to pay a forward collection check by a paying bank, except that the depositary bank may not return a returned check for which it is the depositary bank. Also, certain means of payment, such as remittance drafts, may be used only by agreement.
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#2274656 - 08/24/22 06:30 PM Re: Reg. CC Returned Check - Depositary Bank Compliance NABW
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Yeah, I read that and thought it may be useful, but, again, I don't understand why the paying bank would even get a credit by
"presenting" the returned check. It doesn't make sense for the depositary bank to have to pay or credit anything here. I don't get the reference to the obligation to pay a forward collection check, as, similarly, it is some operational check stuff that I have no experience in.

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#2274665 - 08/24/22 08:55 PM Re: Reg. CC Returned Check - Depositary Bank Compliance NABW
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I think you need to take a course on check processing and the settlement processes. I am sure the ABA probably offers one.
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#2274670 - 08/24/22 09:45 PM Re: Reg. CC Returned Check - Depositary Bank rlcarey
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Originally Posted by rlcarey
I think you need to take a course on check processing and the settlement processes. I am sure the ABA probably offers one.

Sounds good! In the meantime though, if anybody can explain 229.33(e) to me, I'd appreciate it, lol.

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#2274671 - 08/24/22 09:48 PM Re: Reg. CC Returned Check - Depositary Bank Compliance NABW
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If the answer is there is no real practical application because of the way checks are currently settled and handled, then that would be fine. Just trying to figure out what responsibility the depositary bank has and don't want to violate Reg. CC in any way. If the responsibility is basically just settle checks how you normally do via the Fed, then that sounds like an easy answer.

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#2274673 - 08/24/22 10:10 PM Re: Reg. CC Returned Check - Depositary Bank Compliance NABW
rlcarey Online
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OK let us go back to your original post:

So, Joe Smith walks into Chase and deposits a check into his account at said bank from Jane Farmer who has a PNC account. Seems like Chase would be the Depositary bank based on the definition above. But, then in the Returned Check section it keeps mentioning you return the check to the Depositary bank. If the check was deposited into the Chase account, then how/why would the PNC check be returned to Chase? Chase already has it.

What do you mean by "Chase already has it"?

A PNC check was deposited at Chase Bank. Chase Bank processed the check and sends it through the Fed to PNC and due to this presentment, PNC credits Chase Bank for the amount of the check through their Fed accounts

PNC then determines the check is NSF by their midnight deadline. PNC then returns the check to Chase and debits Chase back for the amount of the check through their Fed accounts.

Nowadays, this involves the transfer of images and electronic entries. Do not get caught up in visualizing the physical check as those days are gone. However, the underlying process remains the same.
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#2274678 - 08/24/22 11:54 PM Re: Reg. CC Returned Check - Depositary Bank Compliance NABW
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As Randy notes, you should look for a course or a primer on the check settlement process through the FRB. You might start with Reg. J; though it's written as a regulation, it describes how the process works. You'll see that it makes a distinction between "settlement" for a check and "final payment" for the check. To go back to your example, Chase sends the deposited check to the Fed for transmission to PNC. Chase settles with the Fed (gets credit from the Fed) when it transmits the check to the Fed. The Fed presents the check to PNC and settles with PNC (gets credit from PNC) when it transmits the check to PNC.

When PNC returns the check, the Fed again settles with PNC, and sends the check to Chase. Chase is then obligated pay the Fed for the check (which happens through the settlement process between the Fed and Chase).

That's a crude description and of course it all happens electronically now, but that's the idea.
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#2275769 - 09/20/22 01:45 PM Re: Reg. CC Returned Check - Depositary Bank Compliance NABW
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Thank you @Rainman and @RLCarey and @John! It all makes sense to me now. I was missing the step where certain things automatically take place as far as settling with the Fed. Because the PNC credit to Chase was already provided, then Chase has to give it back. I was missing that it (that step) already takes place and wondering why Chase would have to send funds if PNC already denied for NSF (thinking PNC did not send a credit over because of this).

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