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Legal Implications of Imaging

Our bank has a fully operational imaging system. Since this system is in place, are we still required to hold physical copies of items? For example, instead of holding official checks the required 6 years, could we determine our own timeline for retaining physical copies and use the digital images to meet statutory requirement?

Depending upon the type of documents you plan to image, there are a number of issues you will need to consider.

BOL Guru D. Trent Fleming says, "We've always told our banks that the grey area is relative to the need for a physical document in a forgery or alteration. However, the UCC makes it clear that the customer has 30 days (some banks make this longer via verbiage on their statements) to review the statement and notify the bank of any situations. Since most of our imaging banks keep checks for 60-90 days, they can and will produce the original if there is a criminal issue."

Consider what is the relationship between the bank and the party that may be requesting a copy of the item. For a checking account customer, Section 406 of Article 4 of the UCC provides that if a bank does not return items, it must retain them or maintain the capacity to furnish a legible copy for seven years after the receipt of the item. The bank’s loan agreement, funds transfer agreement, safe deposit box rental agreement and similar documents may contain language regarding the ability of the bank to provide imaged items in response to other types of document requests from customers.

If the other party is a bank, the provisions of Reg J and Reg CC may come into play. Section 210.12 of Reg J provides that the items are to be returned pursuant to the provisions of 12 CRF 229, the UCC, or the applicable Reserve Bank’s operating circulars. Reg CC Sections 229.30(f) and 2229.31(f) each provide that if a check is unavailable for return, a copy of the front and back of the check may be substituted by either the paying or returning bank.

In addition, the OCC issued a 1994 Bulletin that is still applicable today which, in part, addressed the legal implications of utilization of digital images in lieu of physical copies.

The Bulletin stated: Legal Issues. Case law on the admissibility of electronic image as evidence has not yet been established by the courts. Although precedent has been established on related electronic documents such as facsimile, microfilm, and photocopies, the courts have not addressed the authenticity of electronic images of original documents. Institutions installing imaging systems should carefully evaluate the legal implications of converting original documents to image, and the subsequent destruction of the original documents.

This potential problem arises if the item is forged and the imaging bank is required to present the item in response to a court order. Some jurisdictions may not allow digital items to legally replace original items. However, many states have adopted a statute that allows an imaged document to replace an original document.

Prior to the destruction of the originals, you need to check the law of your state to determine if there is caselaw or a state statute that allows digital images to legally replace or substitute for original physical copies.

Finally, if the items are required pursuant an IRS inquiry, the agency has come out with guidance on when imaged copies are acceptable for their purposes. There's a great thread on this issue in Bankers' Threads.

First published on 6/17/02. Updated 12/21/02

First published on 06/17/2002

Last updated on 12/21/2002

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