Payment technology

St. Louis Fed seeks comment on returned check processing alternatives

126px-US-FederalReserveSystem-Seal.svgThe Federal Reserve Bank of St. Louis is currently seeking comment on two alternative solutions designed to encourage banks to send and receive returned checks electronically.

In an effort to expedite the check return process and save costs, the St. Louis Fed proposed rules in 2011 to require paying banks to return unpaid checks in an “expeditious manner”—known as the expeditious-return rule—meaning within two business days for local checks and four banking days for non-local checks.

Under the first alternative consideration, the expeditious-return rule would be eliminated, and a paying bank returning a check would be required to give notice of nonpayment to the depositary bank, regardless of the amount of the check, if the paying bank sends the returned check back in paper form.

The second alternative, however, maintains the two-day test for checks being returned electronically through another bank but would not require notice of nonpayment.

Additionally, the board has proposed to maintain current same-day settlement rules under the new rules. It has also requested comment on applying existing check warranties to checks collected electronically.

Comments on the proposals are due by May 2. More information can be found in the Federal Register.

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