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FEDERAL RESERVE BANK OF MEW YORK [ Circular No. 10163 1 April 16, 1987 J REDEPOSIT SERVICE FOR SMALL DISHONORED CHECKS To All Depository Institutions, and Others Concerned, in the Second Federal Reserve District: Following is the text of a statement issued by the Board of Governors of the Federal Reserve System: The Federal Reserve Board has approved a proposal to allow Federal Reserve Banks to offer a redeposit service for low-dollar checks that have been returned unpaid. Beginning in July 1984, the Reserve Banks conducted several pilot programs to test the feasibility of reclearing lowdollar return items. The dollar cutoffs used to select the recleared checks eligible for the test programs ranged from $ 100 to $900. Based on encouraging results from the pilot programs and requests from the banking industry, in November 1986 the Board issued for public comment a proposal to adopt this program on an optional Systemwide basis. The Reserve Banks may now offer this service to financial institutions that send checks to the Bank for collection (sender). In addition, the Reserve Banks may add other features to the basic service. For example, the sender may 1) select its own dollar cutoff for eligible returns, 2) specify eligible returns by account number rather than by having a blanket redeposit policy, or 3) designate the redeposit service for local area checks only. If Reserve Banks opt to provide this service, they will use a two-part fee structure. The fee structure will include a fixed daily fee for reclearing items up to a specified volume level and a per item fee for any additional volume. The Board’s action also allows the Director of the Board’s Division of Federal Reserve Bank Operations to approve additional service features under delegated authority. Printed below is the text of the Board’s notice in this matter, which has been reprinted from the Federal Register of April 3. Questions thereon may be directed to John F. Sobala, Vice President, Check Processing Function. E. G e r a l d C o r r ig a n , President. items that are being returned unpaid.1 This proposal was initiated as a result of [Docket No. R-0582] requests form the banking industry. Anne M. DeBeer, Assistant Director Many collecting institutions routinely (202/452-3879), or Gayle Thompson, Fees for Federal Reserve Bank; Check redeposit for collection low-dollar cash Senior Analyst (202452-2934), Division Collection Services of Federal Reserve Bank Operations; or, items returned to them for insufficient funds, because a large proportion of for the hearing impaired only: AGENCY: Board of Governors of the these items are paid on their second Earnestine Hill or Dorothea Thompson, Federal Reserve System. Telecommunication Device for the Deaf presentment. The collecting institutions a c tio n : Notice. find this practice to be simpler and less (TDD) (202/452-3544), Board of expensive than returning the items to su m m a r y : The Board has approved a Governors of the Federal Reserve their depositing customers. Federal Reserve Bank redeposit service System, Washington, DC 20551. In order to test the feasibility of for low-dollar cash items that are SUPPLEMENTARY INFORMATION: accelerating the reclearing of certain returned unpaid. Reserve Banks offering Background low-dollar return items, the Federal the service will, if their senders so Reserve Bank of St. Louis was instruct, intercept low-dollar cash items On November 4,1986, the Board being returned for insufficient or issued for public comment a proposal to authorized to conduct a pilot, which uncollected funds, and redeposit the allow Federal Reserve Banks to offer a commenced in July, 1984, which was items for collection. redeposit service for low-dollar cash 1 51 FR 40516 (Nov. 7,1986). FEDERAL RESERVE SYSTEM EFFECTIVE ©ATE: March 30,1987. FOR FURTOEK INFORMATION CONTACT: PRINTED IN NEW YORK, FROM FEDERAL REGISTER, VOL. 52, NO. 64, pp. 10812-10813 (OVER) designed to determine what benefits could be provided to collecting institutions and the payments mechanism if Reserve Banks were to intercept and redeposit low-dollar return items on behalf of their senders.2 In May, 1985, based on encouraging results from the St. Louis program, the Atlanta and Cleveland Reserve Banks were authorized to provide a similar service so that comparative data on the benefits of the return item reclearing service could be obtained.34 Results of the pilot program indicated that the reclearing service can benefit collecting institutions by reducing the costs associated with low-dollar return items and by accelerating collection times. Depositors of all sizes indicated cost savings due to the pilot, and large depositors in the St. Louis District were found to experience monthly savings of as much as $1,000. The pilot found that between 57 and 64 per cent of the redeposited checks were collected on the second presentment. Comments A total of 225 public comments 13were received on the Board’s proposal to offer a redeposit service. Of these, 176 commenters, or 78 per cent, were in favor of the proposal; 25 commenters, or 11 per cent, were opposed; and 24 [11 per cent) did not indicate whether they were for or against the proposal. The conimenters that favored the proposal indicated that the potential for reduced in-house costs and the potential 2 A “sender" is an entity that sends items to a Federal Reserve Bank. A sender may be a depository institution, an international organization, a foreign correspondent, a branch or agency of a foreign bank, or another Reserve Bank. 12 CFR 210.2(k). As Reserve Banks will not be reclearing items for other Reserve Banks, they will be excluded from the meaning of the term “sender” when it is used in this notice. 8 The dollar cutoff for the reclearing service is $100 in St. Louis; items for amounts over $100 are not eligible for the reclearing service. Atlanta and Cleveland allow the sender to choose its own dollar cutoff. Experience in Cleveland indicates that $100 is favored by the majority of senders. In Atlanta, however, one sender elected to use a dollar cutoff of $900. 4 Comments were also received from nine Federal Reserve Banks. The Reserve Banks’ comments are not included in the totals discussed in this notice. Based on the comments and the for faster payment of the redeposited continuing evidence from the pilot items were the primary factors in their decision to support the proposal. In programs, the Board believes that the addition, several commenters reported proposed low-dollar reclearing service that it is their current practice to meets all of these criteria: (1) Reserve redeposit low-dollar items. The Banks will recover ell costs associated experience reported by six of these with the service. (2) The service will commenters comports with the pilot yield clear public benefits by improving results which show that a large the efficiency of the return item process percentage of unpaid items are paid on and reducing the amount of real the second presentment. resources expended by collecting Those opposing the proposal did so institutions in the return item process. primarily out of a concern that a sender (3) For cash items that are collected could incur liability if it redeposits an through the Federal Reserve, Reserve item without providing prompt notice of Banks alone can provide the service to the redeposit to its depositor. The Board their senders. Thus, while other notes, however, that senders need not collecting institutions can and do incur such liability. The redeposit provide reclearing services for service will be an option offered by institutions that send items to them for Reserve Banks; any sender concerned collection, the Federal Reserve must that potential liability may outweigh the provide this service for it to be available benefits of using the service need not to institutions that choose to collect participate. some or all of their cash items through a Several commenters suggested Reserve Bank. enhancements to the service as Accordingly, the Board has approved proposed by the Board. These the proposal to allow all Federal enhancements include allowing the Reserve Banks to offer as an option to sender to select its own dollar cutoff for their senders a basic redeposit service eligible returns; allowing the sender to for low-dollar cash items being returned specify eligible returns by account unpaid for insufficient or uncollected number rather than requiring a blanket funds. Reserve Banks offering the redeposit policy; and allowing the service will use a two-part fee structure sender to select the redeposit service consisting of a fixed daily fee for only for items payable within the local reclearing items up to a number of items area, but not for non-local items. specified by the Reserve Bank and a per item fee for any additional volume. Board Action The Board has also approved to the basic service, In its policy statement, ‘The Federal enhancements permitting the sender to Reserve in the Payment System,” 70 Fed. including choose the dollar cut-off for return items Res. Bull. 707 (1984), the Board to be redeposited, allowing the sender to established a policy that before the specify eligible return items by account Federal Reserve introduces a new rather than requiring a blanket service or a major service enhancement, number policy, and permitting the all of the following criteria must be met: redeposit sender to select the redeposit service (1) The Federal Reserve must expect only items payable within the local to achieve full recovery of costs over the area. for Reserve Bank proposals to offer long run. and other service enhancements (2) The Federal Reserve must expect these will be approved by the Director of the its provision of the service to yield a Division of Federal Reserve Bank clear public benefit, including, for under delegated authority example . . . improving the efficiency of Operations the payment mechanism or reducing the from the Board. Board of Governors of the Federal Reserve use of real resources.. , . System, March 30,1987. (3) The service should be one that William W. Wiles, other providers alone cannot be expected to provide with reasonable Secretary of the Board effectiveness, scope, and equity. [FR Doc. 87-7380 Filed 4-2-87; 8:45 am] 70 Fed. Res. Bull, at 710. BILLING CODE S210-01-S8
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