ECCHO | Check Image

ECCHO Rules Compliance FAQ

These questions are commonly received by ECCHO and serve as a general guidance only; the applications of a Rule may vary based on specific facts and circumstances. These questions and responses are not part of the ECCHO Rules; in the event of any conflict between these FAQs and the ECCHO Rules, the ECCHO Rules govern. Where applicable, the specific ECCHO Rule is cited within the responses. Contact us at ecchoinfo@eccho.org or 214-273-3200 if you have questions not addressed below.

Copy and Sufficient Copy
Definitions
Dispute Resolution

ECCHO Rules vs Check Law
Eligible Items

Fully Qualified Items

Indorsements
Mis-Matched MICR Item
Not Our Item

Presentment
Quality
Repair

Retention Requirements
Returns
Rule 8

Rule 9
Rules Coverage
Statute of Limitations

Copy and Sufficient Copy

What is a Copy?

According to Regulation CC 229.2(bbb), “A copy of an original check means—(i) Any paper reproduction of an original check, including a paper printout of an electronic image of the check, a photocopy of the original check, or a substitute check; or (ii) Any electronic reproduction of a check that a recipient has agreed to receive from the sender instead of a paper reproduction.” Note that Regulation CC has expanded the definition of copy to include an electronic reproduction.

What is a Sufficient Copy?

According to Regulation CC 229.2(bbb), “A sufficient copy is a copy of an original check that accurately represents all of the information on the front and back of the original check as of the time the original check was truncated or is otherwise sufficient to determine whether or not a claim is valid.” Note that Regulation CC clarified the commentary to the definition to clarify that “sufficient copy”, which is used to resolve claims related to the receipt of a substitute check, must be a copy of the original check (and not the substitute check).

When are the terms Copy and Sufficient Copy used?

These terms are used in the context of Check 21 within Regulation CC for Expedited re-credit for consumers claim process (Regulation CC, Section 229.54) and Expedited re-credit for banks (Regulation CC, Section 229.55).

When would a Sufficient Copy be used?

A Sufficient Copy may be useful to a bank in responding to or validating an Expedited Re-credit claim, which may be made if the substitute check was not properly charged (Regulation CC, Section 229.54). If the copy is not accurate in the area needed to satisfy the claim, it would not be a considered a Sufficient Copy. A copy of an original check does not have to accurately represent all the information on the original check to be a Sufficient Copy if such copy contained all the information necessary to determine the validity of the relevant claim. If a claim is made disputing the dollar amount of the check, but the dollar amount on the copy is legible enough to identify the correct amount even if the front of the check on the copy was blurry, the copy would be a Sufficient Copy since it would resolve the claim. (See Commentary to Regulation CC, Section 229.2(bbb)).

Definitions

What is a Depositary Bank?

The first depository institution to take an item for collection other than the Paying Bank (See Section I(R) and Section 229.1(o) of Regulation CC). It is also known as Bank of First Deposit or BOFD.

What is the difference between a Depositary Bank and a return location bank?

Depositary Bank has a legal definition (see question 1), while return location is identified in the ANSI X9.100-187 standard as the location to which returns shall be sent. Regulation CC allows a Depositary Bank to arrange with another bank to apply that other bank’s indorsement for purposes of return processing. (See Section 229.35(d) of Regulation CC).

Dispute Resolution

If another ECCHO Member is not following the ECCHO Rules, what should my bank do?

ECCHO Rules Dispute Resolution Escalation Policies and Procedures are found in Section XIV. These procedures identify and provide an avenue for Members to escalate issues before using the Dispute Resolution Procedures as defined in the Rules, or initiating litigation for alleged violation of the Rules. If the requirements of this section are met an ECCHO Member may file a dispute. If an ECCHO Member is not following the Rules, and the ECCHO Member has not responded to requests from your bank to address compliance, a bank can discontinue exchanging with that member.

If my bank is a Sponsored Member, how does it escalate a dispute?

Sponsored Members should, if appropriate, generally work through their Sponsoring Organizations. A complaint may be filed with ECCHO who will then escalate the dispute depending on the type of member in accordance with the procedures (See ECCHO Rules Dispute Resolution Policies and Procedures).

Does ECCHO have a system of fines, similar to NACHA?

No.

ECCHO Rules Vs Check Law

Why is there a need for the ECCHO Rules?

As the exchange of checks, whether by paper or image is not assigned by State or Federal regulations, Financial Institutions must exchange paper or check images by agreement. For financial institutions that choose to exchange check images directly between themselves or through a private clearinghouse rather than the through the Federal Reserve Bank, a Rule set must establish the means and methods of exchange. ECCHO Rules incorporate the provisions of Regulation CC and UCC Articles 3 & 4, and provide the structure and governance for image exchange by agreement between financial institutions, such as where/how/when electronic checks are delivered, whether banks will act as intermediary banks for exchange/return, exceptions and variations to Reg CC rules (example: as-read MICR), eligibility rules for checks (example: ECIs are not eligible), limits on presentments (ECCHO: 3 presentments / Fed OC3: 2 presentments), terms for dealing with exceptions and adjustments (ECCHO Adjustment Matrix) and more.

Regulation CC and UCC Articles 3 & 4 specify numerous warranties, liabilities and responsibilities regarding paper checks, with Regulation CC now addressing electronic check and electronic returned check (229.2 (ggg)). Regulation CC defines an Electronic Check and Electronic Returned Check as “an electronic image of, and electronic information derived from, a paper check or paper returned check, respectively, that (1) Is sent to a receiving bank pursuant to an agreement between the sender and the receiving bank; and (2) Conforms with ANS X9.100-187, unless the Board by rule or order determines that a different standard applies or the parties otherwise agree.

Regulation CC and UCC specify numerous liabilities and responsibilities regarding paper checks; how are those liabilities and responsibilities addressed in the ECCHO Rules?

The ECCHO Rules incorporate warranties and indemnities provided in UCC 3 and 4 and Regulation CC. The Rules deem an Electronic Image and Electronic/Image Return as an “item” for purposes of the UCC and an “Electronic Check” for purposes of Regulation CC. This establishes that the Electronic Image and Electronic/Image Return is subject to and governed by the UCC and Regulation CC (See Sections XIX(F) and XX(E)).

What are some of the significant differences between the ECCHO Rules and UCC/Regulation CC with respect to a bank’s liability for the images exchanged?

There are a number of operational differences due to the difference in media. For example, under the UCC a Sending Bank is responsible to deliver the paper checks to a Receiving Bank. Under the ECCHO Rules the Sending Bank is responsible for the delivery of the images, but there is a requirement for the Receiving Bank to manage its electronic connection (See Sections XIX(G)(1) and XX(F)(3)). Since the media of exchange is different, certain warranties regarding images have been added to the ECCHO Rules, for example a warranty that the image is an acceptable copy of the original item. (See Section XIX(L) for complete list of warranties.)

One of the most significant differences is the incorporation of Rule 9 into the ECCHO Rules. (See FAQs on Rule 9 for more information on Rule 9). Under the UCC, the Paying Bank is responsible for validating the signature of the drawer on the check. If that check is forged or counterfeit, the Paying Bank must make this determination within the midnight deadline and return it. Rule 9, under certain circumstances, shifts this liability to the Depositary Bank if the Depositary Bank will suffer no loss.

Is there a difference in the liability to the Depositary Bank for the drawer signature under the ECCHO Rules versus the UCC?

Yes. Under the ECCHO Rules the Depositary Bank warrants that “the signature of the purported drawer of the Related Physical Check is not forged or otherwise unauthorized” (Section XIX (O)(2)). Under the UCC the Depositary Bank presentment warranty states that “it has no knowledge that the signature of the purported drawer of the draft is unauthorized” (UCC 3-417, 4-208)

My bank received a check image and the bank identified as the return location is a return consolidator bank and not the actual Depositary Bank who received the deposit from its customer. Can I make a UCC warranty claim (i.e. forged indorsement) to the actual Depositary Bank?

Yes. The Depositary Bank who exchanged the image made the UCC warranties under the ECCHO rules (See Section XIX(L), XX(J) and XX(K)). The claim should be made to that bank (See UCC 4-207)

I am the paying bank and my customer tells me that the person to whom he wrote the check claims the indorsement is a forgery or is missing and the payee never received value. Can I make a Rule 9 claim on the item and if not what recourse do I have?

This item contains a forged/missing indorsement. Rule 9 claims are for a forged drawer signature and not forged or missing indorsements. As a result, there is no Rule 9 claim in this situation. However, the paying may have a claim under the UCC transfer and presentment warranties. (See UCC 4-207, UCC 4-208).

Eligible Items

What items are eligible to be exchanged under the ECCHO Rules?

Items eligible for exchange under the ECCHO Rules must be defined as a “check” under Section 229.2(k) of Regulation CC and “electronic check” and “electronic returned check” under Section 229.34(ggg) must be Fully Qualified (unless agreed otherwise). The Members also must have entered into an agreement and the item is eligible for imaging under that agreement (See Sections XIX(C)(1) and XX(C)(1)).

Can U.S. Savings Bonds be imaged and transmitted under the ECCHO Rules?

Yes. Even though U.S. Savings Bonds are not checks as defined under Regulation CC, certain Bonds can be imaged and transmitted under the ECCHO Rules (See Section XVII). To determine which U.S. Savings Bonds are eligible, click here.

Can foreign checks be imaged and exchanged under the ECCHO Rules?

No. Under Reg CC an item payable in a medium other than United States money is not a check (See Regulation CC Section 229.2(k)) A check must be drawn off a U.S. bank and contain a U.S. routing number.

Can a business check be imaged and exchanged under the ECCHO Rules?

Yes. There is no distinction in Regulation CC and therefore under the ECCHO Rules of business versus consumer checks (See Regulation CC Section 229.2(k))

Can state warrants be imaged and exchanged under the ECCHO Rules?

Yes. In most cases state warrants are demand instruments and can be exchanged (See Regulation CC Section 229.2(k)).

Can registered warrants be imaged and exchanged under the ECCHO Rules?

No. Registered warrants are typically debt instruments (IOUs) and are not a check eligible for exchange (See Regulation CC Section 229.2(k)).

If my bank or my customer created an image on an electronic device (i.e. computer), but does not print it, is that image eligible for exchange under the ECCHO Rules?

No. For an item to be eligible under the ECCHO Rules it must be a “check” as defined in Regulation CC (See Section 229.2(k)). A check is defined in Regulation CC as “negotiable demand draft”; Section 229.2(hhh) further defines an “electronically created item: as “an electronic image that has all the attributes of an electronic check or electronic returned check but was created electronically and not derived from a paper checkSection 229.34(g) imposes an indemnity on each bank that transfers or presents an “electronically created item” against any losses that result from the fact that the electronic image or information is not derived from a paper check. Under UCC (Section 3-104) a “negotiable instrument” means an “unconditional promise or order”. An “order” under UCC means a written instruction to pay and a “writing” includes printing, typewriting or any other intentional reduction to tangible form (See UCC Sections 3-103 and 1-201).

Does the original check from which an image is created have to have magnetic ink in the MICR line to be eligible for exchange?

Yes. Under Regulation CC a noncash item includes an item that has not been pre-printed or post-encoded in magnetic ink with the routing number of the Paying Bank. For an item to be eligible for image exchange under the ECCHO Rules it must have magnetic ink in the Paying Bank routing number field. A bank sending an item without magnetic ink in the paying bank routing number field may be liable under the warranty to comply with the requirements of the ECCHO Rules. The Sending Bank would only be liable to the extent that the loss at the Receiving Bank was suffered as a result of the breach of warranty. The Receiving Bank would have to establish that the lack of magnetic ink on the paper item was the cause of the loss at the Receiving Bank (See Section XIX(C) Commentary).

Fully Qualified Items

Does a paper item have to have full MICR line information in order to be eligible for conversion to an Electronic Image for exchange under the ECCHO Rules?

Yes. According to the ECCHO Rules an item must be a “Fully Qualified Item” in order to be eligible for image exchange (See Section XIX(C)(1)(b.i)). This means it must have full field MICR encoding in routing transit number, and when encoded amount field, on-us field, auxiliary on-us field and EPC field (See Section I(Z)). Fully qualified items do not have missing information or asterisks. If anywhere in the MICR line is unreadable then the item is not Fully Qualified. Normally the original check is encoded with the routing transit number, on-us field consisting of the account number and check number and on business size checks the auxiliary on-us field. If the original check does not contain all these fields the item may still be considered Fully Qualified; a Fully Qualified item includes all characters that are encoded on the original check.

Below are pictures of examples of checks and their associated data records of fully qualified and non-fully qualified items.

Example 1 – Fully Qualified Item with Aux On-Us, EPC, RTN and On-Us fields

EX1

Example 2 – Fully Qualified Item with Aux On-Us, EPC, RTN, On-Us and Amount fields

EX2

Example 3 – Fully Qualified Item with RTN field only

EX3

Example 4 – Non-Fully Qualified Item with On-Us field only – Not eligible for exchange

EX4

What information is required in the electronic MICR information in the related Presentment Notice?

The ECCHO Rules require all MICR line information from the Fully Qualified Item. Banks must use acceptable industry practices to interrogate all fields of the check or image. The Sending Bank cannot include any character not contained in the MICR line (See Section XIX(C)(1)(a.ii)-(c.ii)).

Does the original check have to have the amount field encoded on the MICR line?

No. The amount field is typically not encoded on an original check prior to imaging. There is no requirement in the ECCHO Rules for this field to be encoded. However the ECCHO Rules do require members to follow applicable industry standards (See Section V), which requires the amount in the image exchange file.

If my bank chooses to accept items without full field encoding, can we still receive Image Exchange files under the ECCHO Rules?

Yes. By separate agreement (outside of the ECCHO Rules) there are two provisions for non-fully qualified item exchanges under the ECCHO Rules, Section XIX(C)(3) and (4):

As-Read MICR – items containing asterisks in place of unreadable characters for any locations in the MICR line other than the Routing Transit and Amount fields.

RNA Partial MICR – only information populated in the Routing Number and Amount fields.

What is the difference between “full field encoding” and “Fully Qualified Items?

Full field encoding and Fully Qualified Items are synonymous under the Rules. The term “full field MICR encoding” is used to define a Fully Qualified Item (See Section I(CC)).

Does the original check from which an image is created have to have magnetic ink in the MICR line?

What are the requirements for the MICR line on an IRD (Substitute Check)?

The requirements for the MICR line on an IRD are not covered by the ECCHO Rules, but by Regulation CC and the ANSI X9.100-140 standard. Regulation CC says that a Substitute check must bear the MICR line that, except as provided under ANSI X9.100-140, contains all the information appearing on the MICR line of the original check at the time that the original check was issued and any additional information that was encoded on the original check’s MICR line before an image of the original check was captured (See Reg CC Section 229.2(aaa)). ANSI X9.100-140 allows the creator of an IRD to correct the fields that have MICR data in error either from a correction strip or on the original item. If the amount field was not present on the original check, the IRD creator shall include the amount field on the IRD unless other agreements allow omission of the amount. The standard also says blank spaces on the original code line within a MICR field do not have to be reproduced but other symbols including the dash or On-Us symbols needs to be reproduced on the IRD MICR line (See ANSI X9.100-140 clause 6.1.5.2).

Indorsements

For more information about the technical usage of indorsements click here.

Is there a difference between indorsement and endorsement?

No. For purposes of the ECCHO Rules there is no difference. In UCC and Regulation CC indorsement is spelled with an “I”; ECCHO incorporates UCC and Reg CC within the ECCHO Rules (See Sections XIX(F) and XX(E)) and therefore maintains that spelling. Endorsement with an “E” is the generally used term outside of banking laws and regulations.

What is the difference between an electronic indorsement and addendum record?

An electronic indorsement is an addendum record. The ECCHO Rules define an Electronic Indorsement (See Section I(X)) as an electronic record associated with the Electronic Image or Electronic Image/Return that identifies the routing number of the bank that handled the Electronic Image or Electronic Image/Return and conforms to applicable industry standards (See ANSI X9.100-187) for the use of electronic indorsements in check image collection. In the ANSI X9.100-187 file, the Check Detail Addendum A Record (Type 26), Return Addendum A Record (Type 32), Check Detail Addendum C Record (Type 28) and Return Addendum D Record (Type 35) carry the electronic indorsements. Electronic indorsements should not be confused with physical indorsements which are printed, stamped or written on the back of a check or overlay indorsements which are electronically placed on the image. Electronic indorsement records are not part of the physical check, do not appear on the image of the check and are not visual in the image of the check.

Are there technical limitations on the number of addendum (indorsement) records allowed and, if so, what are they?

Yes, there are technical limitations on the number of addendum (indorsement) records per transaction that can be used in image exchange and on an IRD. See ANSI X9.100-187 standard for image exchange (See clauses 10.13, 11.2, 13.2, 14.7, 15.2 and 18.2) and ANSI X9.100-140 standard for creation of IRDs (See clauses 6.2.1.3.2 and 6.2.1.3.4) for a full explanation of the addendum records and the technical limitations on the number of addendum records.

Is the Sending Bank required to provide an Electronic Indorsement for all Electronic Images?

Yes. The Rules require the Sending Bank to provide an Electronic Indorsement that indicates whether it is the Depositary Bank or a Collecting Bank. Each Sending Bank must provide an Electronic indorsement (See Section XIX(E)(2)). A Sending Bank that is the Depositary Bank is required to include in its Electronic Indorsement the routing number for the return of the Electronic Image (See Section XIX(E)(3)) and Regulation CC Section 229.35(a).

If my bank is the Depositary Bank, but my customer wants the returns sent to a different bank as a Returns Consolidator, what indorsements need to be included with the item?

The Sending Bank may identify a different bank as the Depositary Bank, provided that the bank identified is the bank to which the returned item is to be routed. If the Sending Bank identifies a different bank as the Depositary Bank, the Sending Bank shall also include its own Electronic Indorsement indicating it is a Collecting Bank (See Section XIX(E)(3)).

Is a Payee Indorsement required on the physical item for all Electronic Images?

The ECCHO Rules are silent on Payee Indorsements. Click here for a white paper on the need and/or requirements for a payee indorsement.

When exchanging images of items under the ECCHO rules, are physical bank indorsements required on the image or can the electronic data record representing the electronic indorsement that accompanies the image satisfy the Reg CC and UCC indorsement requirements?

Physical bank indorsements are not required on the image exchanged under ECCHO Rules. Electronic Indorsements are defined in the Rules (Section I(X)) which is an electronic record associated with the Electronic Image that identifies the routing number of the bank that handled the Image. Section XIX(E)(1) makes an electronic indorsement the legal equivalent of a written indorsement on a physical check for exchanges under the ECCHO rules. This Section also states that the electronic indorsement is an “indorsement” for all purposes including purposes of the Code and Reg CC. Finally, Regulation CC Section 229.35(b) recognizes that banks use electronic indorsements by stating that a reconverting bank may create a substitute check (the legal equivalent of the original check) using indorsements that were applied electronically.

Mis-Matched MICR Item

What is a mis-matched MICR item?

The Electronic Image does not match the MICR information in the related presentment notice (See Section I(C)(5)).

What should be done if I receive a mis-matched MICR item?

The mis-matched MICR item can be adjusted back to the bank that sent you the item. (See Exhibit I Mis-Matched MICR ). Under some exchange models an administrative reason return can be used (See Section I(C)).

How is presentment defined for a Mis-matched MICR item in the ECCHO Rules?

Presentment could still occur on the Electronic Image even if the Presentment Notice (MICR data) does not contain all or any of the MICR line information from the Electronic Image. For example during the creation of the Presentment Notice, the MICR line information was placed within the Presentment Notice that does not match the MICR line information reflected in the Electronic Image. This Presentment Notice may refer to a different Electronic Image. Although presentment may have occurred, the Sending Bank would have breached warranties under the Rules or applicable law (See Section XIX(H) Commentary). For example there may be an encoding error with the mis-matched MICR item or a breach of the warranty that says the Electronic Image accurately corresponds to an item described in a Presentment Notice (See Section XIX(L)).

Not Our Item

What is a Not Our Item (NOI)?

For forward presentment of an Electronic Image, that Electronic Image contains a routing transit number that does not belong to the Receiving Bank or an institution authorized to process the item for the Receiving Bank (See Section I(LL)).

Can a Not Our Item apply to return items?

Yes. For an Electronic Image/Return, the Electronic Image/Return was returned and charged to an entity other than the Depositary Bank, the Depositary Bank’s agent or any subsequent Collecting Bank (See Section I(LL)).

What should a bank do if they receive a Not Our Item Electronic Image?

The ECCHO Rules do not impose any unique obligations on Banks handling of a NOI in a check image exchange (See Section I(LL)Commentary). Banks are however required to act reasonable when they receive an item.

What should a bank do if they receive a Not Our Item Electronic Image/Return?

If a Member receives an Electronic/Image Return for which it is not the Depositary Bank or has not agreed to act as returning bank, the Member shall return the Electronic/Image Return to the Depositary Bank (or a bank agreeing to act as a returning bank) according to the return routing hierarchy as established under the Rules. However if there is insufficient information to correctly route the return, the Electronic/Image Return should be sent to the Returning Member via an adjustment process indicating the return was mis-routed (See Section XX(D)(9)).

Does a bank that forwards an Electronic Image/Return to the Depositary Bank have any liability?

As long as the bank acts in accordance with the responsibilities of a collecting bank under the UCC, it is not liable for any loss incurred due to the handling of the misdirected item (See Section XX(D)(9)).

Presentment

How is presentment defined in the ECCHO Rules?

An Electronic Image is presented to the Paying Bank when both the Presentment Notice (MICR data) and Electronic Image are received or made available to the Paying Bank at its designated locations (See Section XIX(H)(1)).

How is the Presentment Notice associated with the Electronic Image?

A Presentment Notice is associated with a particular Electronic Image if the Presentment Notice contains a record number or control number that cross references the notice to a particular Electronic Image. A Presentment Notice is also associated with a particular Electronic Image if the image exchange system or computer recordkeeping system that stores or transmits the Electronic Image and the Presentment Notice logically correlates the Presentment Notice with the Electronic Image (See Section XIX(H) Commentary).

Why is presentment important?

Under the UCC (Section 4-401) a bank can post a check to its customer’s account once presentment occurs. For returns both the UCC return midnight deadline (Section 4-301) and the Regulation CC (Section 229.31(b)) expeditious return times are based on when presentment occurred.

How is presentment defined for a Mis-matched MICR item in the ECCHO Rules?

Is an item returned with an administrative reason code considered to have been presented?

In certain cases the Electronic Image will not be deemed presented because it did not meet the requirements for presentment. For example, the cash letter file does not contain an Electronic Image. In other cases, presentment will occur. For example a duplicate Electronic Image or an Electronic Image with mismatched MICR (drawn on the Paying Bank identified in the MICR line) (See Section I Commentary). Presentment may also depend on the network and/or exchange used.

Quality

Is there an Electronic Image Quality Standard?

No. Developing and following an objective definition of image quality has proved elusive. In addition, the jargon to describe image quality has not been precise and is frequently not helpful. It has been determined that the ability to use the image, is more important than the appearance of the image. The FSTC study (FSTC’s final report Phase 2 “Image Quality and Usability Assurance”) did identify certain characteristics that may identify an unusable image and the measurements of the image could also serve to indicate the usability of the image. A discussion on Image Quality Standards and these measurements can be found in Exhibit III.

Isn’t a bank required to send a quality image?

Yes. A Sending Bank warrants that the Electronic Image is an Acceptable Copy of the Related Physical Check. This is the quality warranty. (See Section XIX(L) Commentary).

What is an Acceptable Copy of the Related Physical Check?

It is an accurate representation of the information contained on the front and back of the check that allows usability consistent with the usability of the check. Usability is the presence and legibility of the information in a digital representation of a check necessary to perform a specific function. An Acceptable Copy of Related Physical Check may be an image, photocopy, microfilm or other reproduction copy. (See Regulation CC 229.2(bbb)).

Repair

If the capture device was unable to read and identify a field or character on the MICR line, is a repair (full field repair) of the item required before sending it through image exchange for collection?

The ECCHO Rules do not require a Sending Bank to repair an item (See Section III(C)). The Rules do require that in order for an item to be eligible for exchange it must be Fully Qualified (See Fully Qualified Items B1). An allowable repair under the Rules would be to repair a 4-4 routing number to a 9-digit routing number by eliminating the dash and calculating the check digit in accordance with industry standards (See Section XIX(C) Commentary).

If my bank chooses to repair an item what is my bank’s liability?

This will depend on the type of repair performed. A Sending Bank repairing the routing number and amount information warrants that the item is correctly repaired and damages for a breach of this warranty shall not exceed the consideration received by the Sending Bank for the repaired item (the amount of the item), plus interest compensation and expenses related to the item. A Sending Bank repairing other fields is indemnified by the Receiving Bank for any liability which arises from the repair, that exceeds the consideration (amount of the item) received by the Sending Bank for the repaired item (plus interest compensation and expenses) provided the Sending Bank exercises ordinary care when conducting the repair (See Sections III(C)(1) and (2)).

Retention Requirements

As a Sending Bank who truncated the original paper check, how long must I retain that original paper check?

The Sending Bank shall determine a time period for the retention of the Related Physical Check after the Electronic Images are sent to the Receiving Bank. There is no obligation on the Sending Bank to retain the original paper check (Related Physical Check) for any period and the Sending Bank may, if it so chooses, destroy the check at the time of truncation. A Sending Bank may determine to retain the check for a period of time to determine if the Electronic Image is returned for any reason that may require access to the original check. For exchanges involving a Collecting Bank, the Sending Bank may want to consider the additional time for presentment and return in subsequent exchanges and establish a retention period sufficiently long to address these exchanges. A Sending Bank may also determine to retain certain classes (i.e. based on dollar amount or product type) of checks for different retention periods. However a Sending Bank may be legally obligated to retain a check, notwithstanding the requirements in the Rules (See Section XIX(K)(1) and its Commentary).

As a Sending Bank that transmitted an Electronic Image file to the Receiving Bank, how long must the Sending Bank retain a copy of the Image file?

The Sending Bank should maintain the Image file or be able to recreate the Image file within four Business Days. Section XIX(G)(4)(a) allows the Receiving Bank four Business Days from the date of settlement to request from the Sending Bank a second (replacement) file.

As a Sending Bank that transmitted an Electronic Image to the Receiving Bank, how long must the Sending Bank retain a copy of the Image?

The ECCHO Rules are silent to any requirement for the Sending Bank to retain a copy of the check or the Electronic Image of the check (See Section XIX(K)(5) and Commentary). There are other applicable laws that impose obligations for retention of items or copies of items on banks that include, but are not limited to: UCC, Bank Secrecy Act and state law (also see below Check Retention Matrix).

This chart compares the legal retention requirements of check transactions, based on various banking laws. Retention means the retention of the original check or a copy of the front and back of the original check in a manner such that it can be retrieved within a reasonable period of time. For more detailed information on this topic, please refer to the actual laws referenced. This chart is for informational purposes only, and does not constitute legal advice. Each bank should consult its own counsel to determine the check retention/retrieval laws applicable to it and its compliance with those laws.

Entity	Uniform Commercial Code (UCC)	Bank Secrecy Act (BSA)	Other State Laws	Other Considerations
Depositary Bank	For truncated checks, 7 years or have arrangements to obtain copy (UCC4-406) For non-truncated checks, 3 years (or longer period) to defend against lawsuits under UCC (UCC4-111) or other law	5 years or arrange for third party to retain checks greater than $100 deposited in demand deposits; however, this requirement may be satisfied by other records maintained in the ordinary course of business enabling reconstruction and tracing of or describing check deposit (31 CFR 103.34(b)(10)) 5 years or arrange for third party to retain copies of certain large dollar (over $10,000) international checks or suspicious transactions (31 C.F.R. 103.34(b) and 103.18(d))	May require longer retention	Bank may determine to retain copies for longer period for depositor customer service purposes
Collecting Bank (Not Paying Bank)	For truncated checks, 7 years or have arrangements to obtain copy (UCC4-406) For non-truncated checks, 3 years (or longer period) to defend against lawsuits under UCC (UCC4-111) or other law	5 years or arrange for third party to retain copies of certain large dollar (over $10,000) international checks or suspicious transactions (31 C.F.R. 103.34(b) and 103.18(d))	May require longer retention
Returning Bank (Not Paying Bank)	For truncated checks, 7 years or have arrangements to obtain copy (UCC4-406) For non-truncated checks, 3 years (or longer period) to defend against lawsuits under UCC (UCC4-111) or other law	5 years or arrange for third party to retain copies of certain large dollar (over $10,000) international checks or suspicious transactions (31 C.F.R. 103.34(b) and 103.18(d))	May require longer retention
Paying Bank	If checks not returned to drawer, 7 years or have arrangements to obtain copy (UCC 4-406) If checks returned to drawer, 3 years (or longer period) to defend against lawsuits under UCC (UCC 4-111) or other law	5 years or arrange for third party to retain, except for checks of less than $100, checks drawn on accounts with average of 100 or more checks per month, and certain types of checks 5 years or arrange for third party to retain copies of certain large dollar (over $10,000) international checks or suspicious transactions (31 C.F.R. 103.34(b) and 103.18(d))	May require longer retention	Bank may determine to retain copies for longer period for drawer customer service purposes

As a Paying Bank who received an Electronic Image, how long must I retain a copy of the Image?

The Paying Bank must maintain the Electronic Image, or a copy of the Electronic Image, for at least seven (7) years (or such longer period as required under applicable law) from the date on which the Electronic Image was presented to the Paying Bank. This 7 year period conforms to applicable recordkeeping requirements and current bank practices (See Section XIX(K)(5) and its Commentary).

Is there any requirement to retain the electronic addendum (indorsement) records and, if so, for how long?

There are no ECCHO Rules requiring the retention of the electronic indorsements or addendum records. However, ECCHO Commentary provides advice and recommendations on the retention of addendum records. Section XIX(E) requires the Sending Bank to send along to the Receiving Bank all Electronic Indorsement(s) that the Sending Bank receives from prior banks in order to assist members in the proper return routing of the item. However it does not establish retention requirements for the Sending Banks’ indorsement information. The Section XIX(K)(5) Commentary, advises that the Paying Bank should consider whether it should store and retrieve addendum records and other data associated with the image and whether that information would be useful to the Paying Bank for audit and other recordkeeping purposes. The Commentary to Section XX(D) says that in the event the Returning Member is returning an image that it received in a forward image exchange, it is recommended that the Returning Member use reasonable efforts to retain and include with the Electronic/Image Return all prior electronic indorsements that were included with the image in the forward exchange. This Commentary goes on to say that these indorsements will assist returning banks and the BOFD with the processing of the return and possible creation as a substitute check. This Commentary also says the Members should consider whether or not there are any requirements under applicable law or standards to retain these records for returns, claims, disputes or representments. The retention of the indorsement records containing the truncating institution or return location may aid in the creation of an ANSI X9.100-187 file. Finally in Commentary to Section XX(I) it is recommended that a represented item indicate any indorsements relating to prior presentments of exchange to assist the Paying Bank in tracking, research and claims resolution. The Returnee Member is also advised to consider whether there are any requirements under applicable laws to retain electronic indorsements or if it may need the information for claims or dispute resolution.

Are there Regulation CC requirements that would impact the retention of the electronic addendum (indorsement) records under the ECCHO Rules?

Regulation CC Section 229.51 requires a Substitute Check bear all indorsements applied by parties that previously handled the check in any form for forward collection or return. The ECCHO Rules Section XIX(Q) and Section XX(L) moves the liability incurred by a Reconverting Bank under Check 21 that converts an image into a substitute check back to the ECCHO Member that exchanged (transferred, sends, presents, returns etc.) the image to the Reconverting Bank. Commentary to Section XX(D) also identifies the potential legal risk to a Member that does not include the appropriate electronic indorsements, in the event another Member cannot create an effective substitute check per X9.100-140 in compliance with Check 21 Act.

Returns

What is a customer return?

The term “Customer Return” (also known as Monetary Return) is not referenced in the ECCHO Rules. In ANSI X9.100-187 it is defined as a dishonored item that is usually charged to a customer account. Examples are NSF, stop payment and closed account returns (See 3.14 in X9.100-187).

What is an administrative return?

The ECCHO Rules do not define an “Administrative Return”. The ECCHO Rules define an “Administrative Reason” to mean certain reasons for the return or adjustment by a Paying Bank or Receiving Bank of an Electronic Image previously exchanged under the Rules. These reasons include: poor quality image, Not Our Item, ineligible item, blank or missing image, mismatched MICR and duplicate item (See Section I(C)).These returns are sometimes identified by the Paying Bank prior to posting.

Does an administrative return carry value?

All returns carry value. Settlement for items sent in accordance with the Electronic/Image Return section is made by appropriate crediting or debiting of certain accounts, or by Fed wire transfer (See Section VI).

Is an item returned with an administrative reason code considered to have been presented?

In certain cases the Electronic Image will not be deemed presented because it did not meet the requirements for presentment. For example, the cash letter file does not contain an Electronic Image. In other cases, presentment will occur. For example a duplicate Electronic Image or an Electronic Image with mismatched MICR (drawn on the Paying Bank identified in the MICR line) (See Section I(D) Commentary). Presentment may also depend on the network and/or exchange used.

Is an administrative reason return a return or adjustment?

The facts and circumstances will determine the handling of the item. If the Electronic Image does not qualify for return under the UCC midnight deadline or Regulation CC timely return requirements, the Electronic Image should be handled as an adjustment (See Section I(D) Commentary).

If my bank did not receive an Electronic Indorsement that identified the Depositary Bank, can my bank return the Electronic Image to a bank identified in another Electronic Indorsement?

This depends on the facts of the situation and the information provided with and on the Electronic Image. If the Depositary Bank (Return Location) is not identified in the Electronic Indorsement, the Returning Member shall return the item to the Depositary Bank identified in the Depositary Bank’s indorsement on the back of the Electronic Image. If the Depositary Bank’s indorsement is not on the back of the Electronic Image or that indorsement is illegible, then the Returning Member can return the item to the oldest Electronic Indorsement of a Collecting Bank identified in an Electronic Indorsement (See Section XX(D)(5)). See ECCHO’s Return Hierarchy here.

My bank received a check image and the bank identified as the return location is a return consolidator bank and not the actual Depositary Bank who received the deposit from its customer. Can I make a UCC warranty claim (i.e. forged indorsement) to the actual Depositary Bank?

Yes. The Depositary Bank who exchanged the image made the UCC warranties under the ECCHO rules (See Section XIX(F), XIX(L), XX(E) and XX(K)). The claim should be made to that bank (See UCC 4-207).

As the Depositary Bank, I received a return that conformed to all the legal requirements for returns (i.e. time frames, etc.). However the depositing customer’s account did not have sufficient available funds to cover this return. Do the ECCHO Rules provide the Depositary Bank with a right to reject a timely returned item due to lack of funds in the depositing customer’s account?

No. The ECCHO Rules do not provide the Depositary Bank with the right to reject a timely returned item on the basis of insufficient available funds in the depositing customer’s account to cover the return. (See Section 229.34 of Regulation CC and Section XX of the ECCHO Rules).

Are there any situations under the ECCHO rules in which a Depositary Bank can reject an item received in the return process due to a lack of sufficient available funds in the depositing customer’s account at the time of the return?

Under Rule 9 warranty claims (under Section XIX(O)), which are processed through the return channel, the Depositary Bank is authorized to reject a Rule 9 warranty claim in the event of insufficient funds in the depositing customer’s account. This warranty disclaimer right only arises for Rule 9 warranty claims, and not for returns of items (such as NSF returns) within the UCC/Regulation CC timeframes.

A Paying Bank returned an item with a return reason of “breach of warranty” (Rule 9), which was an incorrect return reason. The Paying Bank otherwise conformed to all legal requirements for the return of the item (e.g., the Paying Bank met UCC and Regulation CC time frames for return of the item). The depositing customer’s account was closed at the time of the return. Because of the incorrect return reason, the Depositary Bank handled the return as a Rule 9 warranty claim and rejected the warranty claim because the depositing customer did not have funds in the account. What provisions of the Rules should be considered in resolving a dispute between the two banks over responsibility for the item?

The Paying Bank complied with all requirements for returning the presented item, except that the Paying Bank included the wrong return reason code on the returned item. Section 229.31(E) of Regulation CC obligates the Paying Bank to indicate the reason for the return of the check on the face of the item. Similarly, the ECCHO Rules obligate the Paying Bank to indicate the reason for the return with the Electronic/Image Return. (See Section XX(D)(1)). The failure of a Paying Bank to comply with these rules can result in a breach of the ECCHO warranties under Section XX(J). To the extent that the Depositary Bank incurred a loss due to these rules violations, the Depositary Bank may have a claim for damages against the Paying Bank. However, it would need to be determined from the particular facts and circumstances whether or not the Depositary Bank’s reliance on the incorrect return reason gave rise to a loss at the Depositary Bank (i.e. would the Depositary Bank’s loss have arisen had the correct return code been provided by the Paying Bank). Because the depositing customer’s account was closed at the time of the return, the Depositary Bank would have incurred the same loss had the Paying Bank provided the correct return code. Accordingly, the Depositary Bank would not be entitled to recover this loss from the Paying Bank because of the incorrect return code provided by the Paying Bank.

As the Paying Bank I received an item that I identified as a forgery. I will return the item within the UCC and Regulation CC timeframes for returns. Should I use the Rule 9 return reason code?

No. This is not a Rule 9 warranty claim, but a return of the item. Since the Paying Bank is returning the item within the timeframes under UCC and Regulation CC for return of the item, the item should be returned for another return reason rather than Rule 9. Generally, forged items are returned with reason code ‘L’ “Signature(s) Irregular, Suspected Forgery” or possibly ‘N’ “Altered/Fictitious Item/Suspected Counterfeit/Counterfeit”. In comparison, in order to make a Rule 9 claim certain provisions must be met, including customer notification and execution of a Written Statement Under Penalty of Perjury (WSUPP). A Rule 9 claim while using the return mechanism is actually a warranty claim. (See Section XIX(O)).

When should I use return reason code “3” or “5”?

Return Reason Codes “3” or “5” is a return reason for a general Warranty Breach. If returning an item for a Rule 9 claim, the specific return reason code “5” should be used to send the correct return message to the BOFD. A Rule 9 claim is made through the return mechanism but is actually a warranty claim. In order to make a valid Rule 9 claim, the Paying Bank’s customer must provide a Written Statement Under Penalty of Perjury (WSUPP) within 60 days from its bank statement. These return codes are typically used after the UCC/Regulation CC return timeframes. (See Section XIX(O)).

I am a Depositary Bank and my customer uses a return consolidator. That return consolidator’s RT is populated in the Check Detail Addendum A (Type 26) Record. Is there a place in the file to populate the RT of the bank that accepted the deposit (my bank)?

Yes. The X9.100-187 standard allows for the Depositary Bank RT to be populated in the Check Detail Addendum C (Type 28) Record. The Endorsing Bank Identifier which identifies the bank’s role in the collection process must be set to ‘0’, which means “Depositary Bank (BOFD)”. (See X9.100-187, clause 13.11).

Rule 8

Why is this Rule provision called Rule 8 when it is not numbered as 8?

This Rule was originally developed in local clearing houses and at that time was numbered 8. Many in the industry still refer to it as Rule 8. Under the ECCHO Rules, Rule 8 is in Section XIX(N).

What is Rule 8?

Section XIX(N) (Rule 8), is a process to make a claim for an unauthorized RCC through a return process. Rule 8 as originally written included a warranty from the Depositary Bank to the Paying Bank that a Remotely Created Check (RCC) was authorized along with a process to make a claim for an unauthorized RCC. This warranty and the definition of an RCC have since been incorporated into Regulation CC and Section XIX(N) no longer imposes a warranty obligation on the Depositary Bank.

What is the difference between a Rule 8 claim and an Unauthorized RCC (Remotely Created Check) Warranty Claim Adjustment under the ECCHO Rules?

Under the ECCHO Rules there are two ways for a paying bank to make a warranty claim for an unauthorized RCC. The first is known as a Rule 8 warranty claim made through a return process which is set forth in Section XIX(N) of the Rules. The second way is a warranty claim made through the ECCHO adjustment rules in Section XII and Exhibit I – Adjustment Matrix.

Rule 8 mirrors a process that was developed in local paper clearing houses. Under Section XIX(N) (Rule 8) of the Rules, the Paying Bank has 90 calendar days after presentment of the electronic image to file a warranty claim with the Depositary Bank for an unauthorized RCC by means of a return of the RCC to the Depositary Bank. Section XIX(N) has other provisions regarding requests for the written statement from the customer. The Section requires the Rule 8 warranty claim to be delivered to any location of the Depositary Bank that receives return checks or images in the normal course of collection. These transactions are not eligible for return or processing through the Federal Reserve since the Fed does not recognize these Rule 8 warranty claims as valid items for processing through the return channel.

The second process to make a warranty claim for an unauthorized RCC is outlined in the ECCHO adjustment rules (See Section XII and Exhibit I – Adjustment Matrix). By using this section of the Rules, the warranty claim can be made through the adjustment process. A bank has 90 calendar days after the day of presentment or receipt to make the warranty claim and a customer affidavit is required with the claim. This process is similar to the Federal Reserve’s timing and process for this type of adjustment. This adjustment claim can be made through any adjustment channel in which the two banks participate. The provisions and deadlines in Section XIX(N) do not apply to adjustment claims.

If my bank makes a Rule 8 claim through the Electronic Returns mechanism what return reason code should be used?

In the ANSI X9.100-187 standard, return reason code “3” is defined as Warranty Breach (includes Rule 8 & 9 claims) and “4” is defined RCC Warranty Breach (Rule 8). To send the appropriate return reason message to the BOFD, use return reason “4”.

Can a Depositary Bank disclaim a Rule 8 warranty claim or an Unauthorized RCC warranty claim based on evidence it (or its customer) has that the paying bank’s customer authorized the RCC; for example a recorded conversation of the customer authorization.

No. Under both Section XIX(N) (Rule 8) or Section XII (Adjustment Claims) the Depositary Bank cannot disclaim the claim based on evidence that the payor customer authorized the RCC (See Section XII(E)(3) and XIX((N)(4)). The ECCHO Rules places the ultimate liability for a disputed unauthorized RCC on the Depositary Bank.

Rule 9

Why is this Rule provision called Rule 9 when it is not numbered as 9?

This Rule was originally developed in local clearing houses and at that time was numbered 9. Many in the industry still refer to it as Rule 9. Under the ECCHO Rules, Rule 9 is in Section XIX(O).

What is Rule 9?

Under the ECCHO Rules, Section XIX(O) (also referred to as Rule 9), the Depositary Bank warrants to the Paying Bank that the signature of the drawer of the Related Physical Check is not forged or otherwise unauthorized and/or the Related Physical Check is not a counterfeit item. Typically, under check law the Paying Bank would be liable for a forged drawer’s signature or counterfeit item if not returned within the midnight deadline. Rule 9 allows a Paying Bank to make a claim to the Depositary Bank after a customer has made a claim that the item is forged or counterfeit.

What is the difference between Rule 8 and Rule 9?

Rule 8 only deals with Remotely Created Checks (RCC); checks that have not been signed by the drawer customer. The definition and warranty for Rule 8 are included in Regulation CC and therefore covered by Federal law. Rule 9 deals with forged drawer’s signature and counterfeit items. Rule 9 is included in the ECCHO Rules, and is not set forth in any Federal or State law. The process for claims and disclaims for Rule 8 and Rule 9 are similar under the ECCHO Rules.

How do I go about making a Rule 9 claim?

The customer of the Paying Bank must file a “Written Statement Under Penalty of Perjury” (WSUPP) within 60 calendar days from when they received their statement that reflected the transaction. The Paying Bank then has 15 business days from receipt of the customer’s claim to make the claim to the Depositary Bank. At the Depositary Bank’s option, it can request a copy of the WSUPP within 15 business days and the Paying Bank must respond within 15 business days (See Sections XIX(O)(3) – (5)). The Rule requires the warranty claim to be delivered to any location of the Depositary Bank that receives return checks or images in the normal course of collection (See Section XIX(O)(8)), and the warranty claim is typically handled as a return. The Depositary Bank can disclaim the warranty claim for various reasons including but not limited to: timeliness of the claim, lack of funds in the depositing customer’s account, the Bank has an Opt-out of Rule 9 in place. If the warranty claim is disclaimed, the loss remains with the Paying Bank as it would have under other check law.

What is the sufficiency of funds provision?

Under the Rule (See Section XIX(O)(3)(c)), if the Depositary Bank’s customer does not have the full amount of the claim in its available balance, the Depositary Bank can disclaim.

Is a bank required to check the balances in their customer’s account to determine if there are sufficient balances to cover the claim every day of the 15 day claim period?

No. The Depositary Bank is only required to review the balance in its depositing customer’s account once during the 15 day claim period. The Depositary Bank is not required to review the balance each day and can make a single balance inquiry in the period. It is not required to determine if additional funds are subsequently deposited into the account (See Section XIX(O) Commentary). The Rules also require the disclaim to be made up to 15 Business Days following the receipt of the claim by the Depositary Bank and, if it was checking balances every day, it would not be able to make this deadline (See Section XIX(O)(3)(c)).

Is the Depositary Bank liable to the Paying Bank, if it chooses not to charge its customer?

Yes. The Depositary Bank must pay the claim, if its customer has funds in the customer’s account to cover the claim. If the funds are available and the Depositary Bank chooses not to charge the customer or is unable to charge the customer for legal reasons, it cannot disclaim and remains liable for the amount of the claim (See Section XIX(O)(3)(c) and its Commentary).

My bank is a correspondent bank. Under the Rules do I make this warranty on behalf of my financial institution customers?

No. Under the Rule the Sending Bank does not make the Rule 9 warranty on items that were first deposited into another financial institution. The warranty is only made by a Sending Bank that is also a Depositary Bank (See Section XIX(O)(2) and its Commentary).

My bank is an international correspondent bank. Am I required under the Rules to make this warranty on behalf of my foreign bank customers?

No. Under the Rule, the Sending Bank does not make the Rule 9 warranty on U.S. dollar items that were first deposited into, or received by, a foreign office of a non-U.S. bank or foreign office of a U.S. bank. This excludes the warranty for items received at a foreign office of a bank and transferred to a correspondent Sending Bank in the U.S for collection (See Section XIX(O)(1)(c)).

I am the Paying Bank and an ECCHO member and the Depositary Bank is also an ECCHO member. I received a check image through the Federal Reserve can I still make a Rule 9 claim?

No. The forward exchange through the Federal Reserve was governed by OC3 and Regulation J, which do not have Rule 9 provisions. The Depositary Bank only makes the Rule 9 warranties in an exchange between members under the ECCHO Rules and therefore you do not have a claim (See Section XIX(O)(2)).

I received the check image through an ECCHO governed exchange. However all my returns are sent through the Federal Reserve. Can I still make a Rule 9 claim through the Federal Reserve?

No. A Rule 9 claim is typically made through a return process but the delivery of the claim is not a return for purposes of the ECCHO Rules or other applicable check law. Under the Federal Reserve’s Rules, this would be a late return since it was sent past the midnight deadline and did not meet the expeditious return requirement (See Section XIX(O)(2) Commentary).

Is there any other way to make a Rule 9 claim other than through a return process?

Yes. A bank may attempt to make a Rule 9 claim by sending the warranty claim by letter to the return location of the Depositary Bank. The letter does not carry monetary value, so the banks have to determine how they will settle for the transaction. The ECCHO Rules do not preclude the use of a letter to deliver the warranty claim to a return location of the Depositary Bank. However, the Rules are clear about the process, which must be followed even with the use of a letter. Some important aspects of the process is the warranty had to have been made through an ECCHO exchange, timing of the claim and the claim must be made to any location the Depositary Bank receives return checks in the normal course of check collection (See Sections XIX(O)(2), XIX(O)(3) and XIX(O)(8)).

Is Rule 9 mandatory under the ECCHO Rules?

No. Under the ECCHO Rules the default is that all members are subject to Rule 9. Members can opt out of Section XIX(O)/Rule 9 coverage for their ECCHO image exchanges unless the member is subject to another agreement (i.e. another clearing house Rule) that makes the Rule mandatory for exchanges through that clearing house (See Section XIX(O)(1)(b)).

What does opt-out mean?

An ECCHO member that has opted out is not subject to Section XIX(O) of the Rules. The opt-out member does not make the warranties in Section XIX(O) and cannot make a Rule 9 claim to another member. Other members cannot make a Rule 9 claim to the opted-out member, and if a Rule 9 claim is made the member can disclaim it (See Section XIX(O)(1)(a) and its Commentary).

How do I go about opting out?

If an ECCHO member is seeking to opt-out, the election must be made by an Authorized Representative that is an officer of the Financial Institution. The Authorized Representative must notify ECCHO by email or in writing. For Sponsored Members that notification must be made by an Authorized Representative of the Sponsoring Organization. ECCHO will send a confirmation via email or in writing of receipt of the decision to opt out and the effective date of the opt-out (or cancel opt-out) along with any other essential information. If a member cancels the opt-out, it cannot elect to opt-out again for 6 months. The effective date of an opt-out decision submitted between the 21st of any given month and the 20th of the following month is effective the first day of the next following month. See opt-out listing and the Rule itself (See Section XIX(O)(1)(a)-(b)) for more information.

When can the Depositary Bank disclaim Rule 9?

A Depositary Bank can disclaim Rule 9 for the following reasons: account closed, claim amount exceeds funds in account, claim was not made timely, Depositary Bank is not the first bank to which the check was transferred, Depositary Bank had in place an opt-out and other defenses as provide by applicable law (See Exhibit VIII – Disclaimer Form for Section XIX(O)).

If my bank makes a Rule 9 claim through the Electronic Returns mechanism what return reason code should be used?

In the ANSI X9.100-187 standard, return reason code “3” is defined as Warranty Breach (includes Rule 8 & 9 claims) and “5” is defined Forged and Counterfeit Warranty Breach (Rule 9). It is recommended that retunrn reason code “5”be used to send the appropriate return reason to the BOFD.

My bank does not have a return relationship with the Depositary Bank; can my bank send the return through the Correspondent bank from which my bank received the forward item?

No. The Rules require that the warranty claim be delivered to a location of the Depositary Bank that receives returns of checks or Electronic Images from the Paying Bank in the normal course of collection.

Can a Rule 9 claim be made through the Adjustment process?

No. Under the ECCHO Rules the Rule 9 warranty claim must be delivered to a location of the Depositary Bank that receives returns of checks or Electronic Images from the Paying Bank in the normal course of collection (See Section XIX(O)(8)). Some adjustment providers may allow for Rule 9 claims to be made through their process, check with your adjustment provider.

A forward exchange Electronic Image was sent from an intermediary bank that is an ECCHO Member to a Paying Bank that is also an ECCHO Member, but the Depositary Bank is not an ECCHO member or is not exchanging under the ECCHO Rules, can the Rule 9 claim be made to the intermediary bank?

No. The Rule 9 warranty is only made under the ECCHO Rules by a Sending Bank that is also the Depositary Bank (See Section XIX(O)(2)). An intermediary bank does not make the Rule 9 warranty. Since the Depositary Bank is not under the ECCHO Rules, no warranty was made and therefore there is no claim.

I am an ECCHO Member and I received an item in which the Depositary Bank is also an ECCHO member who has not opted out of Rule 9. I received that item through an intermediary that was an ECCHO member and in which we exchanged under the ECCHO Rules. The Depositary Bank is not accepting the claim saying they did not exchange the item under the ECCHO rules. Is this possible?

Yes. Participation and exchange by banks under the ECCHO rules are voluntary. Members can decide in which exchange programs they will participate. (Introduction, Section XIX(C) and XIX(D)). Some ECCHO member exchanges are not governed under the ECCHO rules, but rather under another agreement (i.e. correspondent agreement, bi-lateral agreement, deposit agreement, etc.).

My bank participates in an exchange governed by the ECCHO Rules through a provider that does not allow an opt-out of Rule 9 (see Section XIX(O)(1)(b). I received an item in which the Depositary Bank is an ECCHO member who has opted out of Rule 9 and did not exchange this item through my provider. Can I make a Rule 9 claim to the Depositary Bank?

No. Since the ECCHO Depositary Bank did not exchange this item through the provider that does not allow an opt-out, that Member does not have to accept a Rule 9 claim. The Depositary Bank exchange was made outside of your provider and therefore the opt-out was allowed.

I am the paying bank and my customer claims that the person to whom he wrote the check did not indorse the check. Can I make a Rule 9 claim on the item and if not what recourse do I have?

This item contains a forged indorsement. Rule 9 claims are for a forged drawer signature and not forged indorsements. As a result, there is no Rule 9 claim in this situation. However, the paying may have a claim under the UCC transfer and presentment warranties. (See UCC 4-207, UCC 4-208).

My depositing customer uses a return consolidator whose routing number appears in the Check Detail Addendum A Record (Type 26), which identifies the return location. An ECCHO Member has made a Rule 9 warranty claim to me. Shouldn’t that claim be made to the return consolidator bank?

No. As the Depositary Bank, your bank made the Rule 9 warranty under Section XIX(O) and the paying bank’s warranty breach claim should be made to your bank. If your bank desires the return consolidator bank to be responsible for any of your obligations under the ECCHO Rules, such as the Rule 9 warranty in Section XIX(O), your bank should enter into an appropriate agreement with the return consolidator bank.

My bank received a check image through an ECCHO exchange and needs to make a Rule 9 claim. The bank identified as the return location which is typically the Depositary Bank is not an ECCHO member, but the bank identified as the Depositary Bank is an ECCHO member. Can I make a Rule 9 Claim and to which bank?

Yes. The Depositary Bank who exchanged the check image under the ECCHO rules made the Rule 9 warranty. The claim should be made to that bank (See Commentary to XIX(L)).

My bank received a check image through an ECCHO exchange and needs to make a Rule 9 claim. The bank identified as the return location, which is typically the Depositary Bank, is an ECCHO member, but is an opt-out bank. The bank identified as the Depositary Bank associated with the check image is an ECCHO member and not an opt-out bank. Can I make a Rule 9 Claim and to which bank?

Yes. The Depositary Bank who exchanged the check image under the ECCHO rules and did not opt-out made the Rule 9 warranty. The claim should be made to that bank. (See Commentary to XIX(L)).

The Paying Bank receives a check image that identifies a bank as the return location and identifies a different bank as the Depositary Bank. The Paying Bank sends the Rule 9 claim to the return location who is a return consolidator, who then rejects the claim. Does the Paying Bank have 15 days from the disclaim to then make the claim to the actual Depositary Bank?

No. The timeframe in the rules (See Section XIX(O)(3)(b)) is based on when the Paying Bank received the claim from its customer. The Paying Bank has 15 Business Days to make the claim to the Depositary Bank. If the disclaim is not received within 15 days, the Paying Bank would be late in making the claim to the Depositary Bank. However if the actual Depositary Bank is not identified there may be other claims under the rules for failing to properly identify the Depositary

Are there any situations under the ECCHO rules in which a Depositary Bank can reject an item received in the return process due to a lack of sufficient available funds in the depositing customer’s account at the time of the return?

No. Under Rule 9, if warranty claims (under Section XIX(O)), are processed through the return channel, the Depositary Bank is authorized to reject a Rule 9 warranty claim in the event of insufficient funds in the depositing customer’s account. This warranty disclaimer right only arises for Rule 9 warranty claims, and not for returns of items (such as NSF returns) within the UCC/Regulation CC timeframes.

A Paying Bank returned an item with a return reason of “breach of warranty” (Rule 9), which was an incorrect return reason. The Paying Bank otherwise conformed to all legal requirements for the return of the item (e.g., the Paying Bank met UCC and Regulation CC time frames for return of the item). The depositing customer’s account was closed at the time of the return. Because of the incorrect return reason, the Depositary Bank handled the return as a Rule 9 warranty claim and rejected the warranty claim because the depositing customer did not have funds in the account. What provisions of the Rules should be considered in resolving a dispute between the two banks over responsibility for the item?

The Paying Bank complied with all requirements for returning the presented item, except that the Paying Bank included the wrong return reason code on the returned item. Section 229.31(E) of Regulation CC obligates the Paying Bank to indicate the reason for the return of the check on the face of the item. Similarly, the ECCHO Rules obligate the Paying Bank to indicate the reason for the return with the Electronic/Image Return. (See Section XX(D)(1)). The failure of the Paying Bank to comply with these rules can result in a breach of the ECCHO warranties under Section XX(J)(1). To the extent that the Depositary Bank incurred a loss due to these rules violations, the Depositary Bank may have a claim for damages against the Paying Bank. However, it would need to be determined from the particular facts and circumstances whether or not the Depositary Bank’s reliance on the incorrect return reason gave rise to a loss at the Depositary Bank (i.e. would the Depositary Bank’s loss have arisen had the correct return code been provided by the Paying Bank). Because the depositing customer’s account was closed at the time of the return, the Depositary Bank would have incurred the same loss had the Paying Bank provided the correct return code. Accordingly, the Depositary Bank would not be entitled to recover this loss from the Paying Bank because of the incorrect return code provided by the Paying Bank.

As the Paying Bank I received an item that I identified as a forgery. I will return the item within the UCC and Regulation CC timeframes for returns. Should I use the Rule 9 return reason code?

When should I use return reason code “3” or “5”?

Return Reason Code “3” is for a general Warranty Breach; return reason “5” is specific to a Rule 9 claim and is the appropriate return reason code to use to send the appropriate message to the BOFD. A Rule 9 claim is made through the return mechanism but is actually a warranty claim. In order for a valid Rule 9 claim, the Paying Bank’s customer must provide a Written Statement Under Penalty of Perjury (WSUPP) within 60 days from its bank statement. These return codes are typically used after the UCC/Regulation CC return timeframes. (See Section XIX(O)).

If a customer cashes a check at a bank, rather than deposit it into an account at the depositary bank, can the depositary bank disclaim a Rule 9 warranty claim on the basis that the check was not deposited into an account?

Yes. The rule says the check “was deposited” (see Section XIX(O)(3)(c)), since the check was cashed and not deposited, the Rule 9 warranty can be disclaimed.

If a customer has a split deposit (deposits part/cashes part of a check) at a depositary bank, can the depositary bank disclaim a Rule 9 warranty claim [on the basis that the check was not deposited into an account]?

No, the Rule 9 warranty claim cannot be disclaimed. The partial check deposit transaction met the terms of the rule since the check was included in a deposit. Rule 9 says “was deposited” (see Section XIX(O)(3)(c)).

Rules Coverage

If my bank is an ECCHO Member and my exchange partner is an ECCHO Member, but we exchange through the Fed, do the ECCHO Rules apply?

No. Exchanges through the Federal Reserve are governed by Subpart A of Regulation J and Operating Circular 3.

If my bank as an ECCHO Member sends a check image to another ECCHO Member and we have agreed to follow the ECCHO Rules, but then that bank sends the check image through the Federal Reserve to the Paying Bank, how does my bank figure out what Rules govern the exchange?

Each exchange can be governed by different Rule sets. The first exchange between two ECCHO members will be under the ECCHO Rules (See Sections XIX(C)(1) and XX(C)(1)). The exchange through the Federal Reserve will be governed by Regulation J and OC3. See below graphic.

If two banks exchanging check images are both ECCHO members does that automatically mean the ECCHO Rules apply?

No. There must be an agreement to subject the exchange to the ECCHO Rules. Members are encouraged to state in their agreement that the ECCHO Rules apply to their image exchanges, and to make it clear that the banks want the exchange governed under the ECCHO Rules (See Section XIX(C) Commentary). Members should review their exchange agreements to determine the application of the ECCHO Rules.

Statute of Limitations

Is there a specific statute of limitations provided in the ECCHO Rules for breach of warranties?

No. There is no specific statute of limitations in the ECCHO Rules. Commentary to Section II(B) states that a participating bank may bring an action under the rules as long as permitted by applicable law. The applicable law is typically state law or Federal Regulation.