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Check Imaging & Reg E Compliance Issues

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Question: 
I am the Electronic Banking Specialist for [Bank Name Withheld]. We are having a debate among ourselves and our Legal Department regarding whether or not check imaging is covered by Reg E. One opinion has to do with whether the check image is truncated or not; another has to do with the intent for imaging, whether as a tool for the merchant to recover funds on a returned item, or as a bank tool to pacify clients who want their checks back. I would appreciate any input that you might offer as you have a more industry-wide view available, as well as experience in compliance and Reg E issues.
Answer: 

The reach of Reg E is fairly-well described in http://www.bankersonline.com/regs/205/205-3.html section 205.3 of the regulation. Transactions that enter the payment system in paper form (except debit card drafts) are simply not included. Certain transactions begin electronically -- debit card purchases, ATM withdrawals and transfers, ACH entries, check conversion entries (in which the check provides information for the transaction but is never introduced into the payment stream itself), direct deposit of payroll and benefits payments and electronic collection of fees for bounced checks are all examples.

An ACH entry, for example, that is a re-presentment of a check that was presented in paper form and bounced is not an EFT subject to Reg E, because it originated with a paper entry that was processed as a paper entry. Check image exchanges, while completed electronically, are not EFTs as defined by Reg E. They continue to be checks subject to the UCC and may be affected by Check 21 and Reg CC to the extent they are reconverted to paper form. That won't change whether or not the check appears as an image on the drawer's bank statement.

First published on BankersOnline.com 2/12/07

First published on 02/12/2007

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