Should We Require Restrictive Endorsements on Remote Business Deposits?

Q I have a question about the remote deposit capture provisions of the newly revised Regulation CC. Under revised §229.34(f), a depositary bank that receives a remotely deposited check generally indemnifies a second depositary bank that has accepted the original paper check. However, the bank accepting the paper check is not protected if the original paper check has a restrictive endorsement consistent with the means of deposit, such as “for mobile deposit only to XYZ Bank.”

My bank contacted a vendor inquiring about the endorsement capabilities of scanners to ensure that its commercial customers apply the restrictive endorsement when using remote deposit capture. The vendor responded that Reg CC only applies to mobile remote deposit capture; it does not apply to commercial remote deposit capture.

My understanding is that this provision applies to any type of remote deposit capture (including non-mobile) and that Reg CC applies not only to consumer accounts, but also to business deposit accounts. Thus, a bank should review remote deposit capture (including non-mobile remote deposit capture) agreements with businesses and consider adding a requirement to include a restrictive endorsement to protect the bank and limit its potential liability. Am I correct or does this provision only apply to mobile deposits?

A You are correct. Section 229.34(f), as amended, spells out the new indemnity provisions for duplicate deposits involving remote deposit capture. It does not differentiate between mobile and non-mobile remote deposit capture or between business and consumer customers. Thus, technically, to protect itself, the bank might want to require the restrictive endorsement. However, as a practical matter, this may not be necessary.

The practice of depositing a check using remote deposit capture and then cashing it elsewhere (e.g., at a check casher) is typically associated with consumer accounts. It would be unusual and risky for business customers, who are subject to stricter due diligence, to be deliberately depositing checks electronically and then cashing those checks elsewhere. Indeed, such fraudulent customers pose risks to the bank beyond any Reg CC claim. Thus, it will not make a huge amount of difference for business accounts—as they are unlikely to be the ones to deposit checks and then cash them elsewhere.

It is also worth noting that the restrictive endorsement protects the bank in the event its customer deposited the check using remote deposit capture and then cashed the check elsewhere. However, it is not required. It is still up to the bank whether it wants to require an endorsement or not. (Response provided Dec. 2018)

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Q If a home equity line of credit has matured, may the bank modify it after the maturity date?

A No. Once a HELOC has matured, a new HELOC with new disclosures is required. See comment 2 to Regulation Z §1026.40 which states in part: “A new plan results, however, if the plan is renewed (with or without changes to the terms) after the scheduled expiration. The new plan is subject to all open-end credit rules, including §§1026.6, 1026.15, and 1026.40.” (Response provided Dec. 2018.)

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Q Does the Equal Credit Opportunity Act and Regulation B permit lenders to decline a commercial real estate loan based on an appraisal prior to completing the underwriting process?

A Yes, lenders may decline a credit request based on inadequate collateral even if they have not yet completed the underwriting process. The statute and regulation prohibit discrimination on an enumerated prohibited basis, such as race, sex or marital status. They do not prohibit decisions based on the value of collateral or require that underwriting be completed before denying a loan application. Another option is to counteroffer for a lesser loan amount. (Response provided Dec. 2018)

Answers are provided by Leslie Callaway, CRCM, CAFP, director of compliance outreach and development; Mark Kruhm, CRCM, CAFP, senior compliance analyst; and Rhonda Castaneda, CRCM, senior compliance analyst, ABA Center for Regulatory Compliance. Answers do not provide, nor are they intended to substitute for, professional legal advice. Answers were current as of the response date shown at the end of each item.