Effective December 1, 2023, per a final rule issued by the Department of the Treasury (Treasury), credit unions and other financial institutions will be liable if they pay a canceled Treasury check without waiting to receive the return information that would enable them to know the check has been canceled. The Federal Reserve Banks (FRB) will transmit this information through existing communication channels before the expiration of the funds availability rules as prescribed by Regulation CC. The rule change coincides with the rollout of the Treasury’s new check post payment processing system, which will provide financial institutions with faster notice about Treasury check returns. A summary of the changes is below.
Indorsement and Payments of Checks Drawn on the United States Treasury
Definitions: The final rule amends and adds certain definitions to Section 240.2 as follows:
Reasonable efforts: The final rule amends this definition to add the requirement of verifying not only the Treasury check’s authenticity, but also the check’s validity, by requiring a financial institution to receive the check return information before making funds from a Treasury check available for withdrawal to ensure that the check has not been canceled.
Exception: The financial institution would not be held liable for releasing the funds associated with the Treasury check if it results in a POC if the check’s return is not transmitted to the financial institution prior to the appropriate funds availability.
Validity or Valid Check: The final rule adds this definition as proposed. The definition describes a valid Treasury check as a payable instrument (i.e., not a counterfeit check) that has not been previously negotiated or canceled.
Cancellation or Canceled: The final rule adds this definition as proposed. This definition describes a canceled Treasury check as one that was once a valid and negotiable instrument but is no longer due to a reason other than the Treasury check’s negotiation.
Stop Payment: The final rule adds this definition as proposed. This definition describes the situation where Treasury or the certifying agency has indicated in its systems that an authentic Treasury check should not be paid.
Presentment Guarantees: The final rule amends the presentment guarantees in Section 240.4 to include a guarantee that the guarantor has made reasonable efforts to ensure that the check is an authentic Treasury check and that it is valid at the time of acceptance.
Provisional Credit; First Examination; Declination; Final Payment: The final rule amends the reasons in Section 240.6 that Treasury will decline a Treasury check upon first examination to include the fact that the check has been canceled, in addition to when the check has already been paid.
Processing of Checks: The final rule adds a fourth circumstance to Section 240.12 in which an FRB must refuse to pay a Treasury check: when Treasury has notified the FRB that a Treasury check is not valid. Under this definition, a Treasury check is invalid if the Treasury check is counterfeit, previously negotiated, or canceled.
Treasury Check Verification System tool not required–
The final rule removed the requirement that a financial institution use the Treasury Check Verification System (TCVS) to verify that a Treasury check has not been canceled to avoid liability for a POC. Although the use of TCVS is not required under the final rule, TCVS will still be available for financial institutions to voluntarily obtain information regarding the status of a Treasury check. Credit unions are encouraged to use the TCVS to catch canceled, duplicate, or other problematic checks at the time of presentment.
For further information about items in this L & T Bulletin, please contact ICUL’s Compliance & Advocacy Office:
| Joni Senkpeil | [email protected] | 630-983-2723 |
| Kari Osier | [email protected] | 630-983-3412 |
| Shannon Basile | [email protected] | 630-983-3407 |
| Ashley Sharp | [email protected] | 217-744-1803 |
| Patrick Smith | [email protected] | 217-744-1802 |
| Stephen R Olson | [email protected] | 630-712-9378 |