Full text of Federal Reserve Bank of New York Circulars : 10605. Check Collection: Supplement to Operating Circular No. 4

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FEDERAL RESERVE BANK
OF NEW YORK

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Circular No. 10605
December 29, 1992

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CHECK COLLECTION: SUPPLEMENT TO OPERATING CIRCULAR NO. 4
— Collection of Canadian Checks
— Adjustments and Other Matters

To A ll Depository Institutions in the Second
Federal Reserve District, and Others Concerned:

Enclosed is a copy of the Fourth Supplement, effective January 1, 1993, to this Bank’s
Operating Circular No. 4, “Collection of Cash Items and Returned Checks.” The changes effected
by the Supplement relate to the collection of foreign checks, check adjustments, and other matters.
Collection of C anadian Checks

This Bank will offer to depository institutions in the Buffalo Branch territory a Canadian check
collection service. The service is targeted for im plem entation on F ebruary 1, 1993.
The amendments to the Operating Circular specify the provisions in the Operating Circular
that apply to this service and describe how credit will be made available for these items. The Buffalo
Branch is preparing a “Guide to Canadian Check Services” that will provide more details about the
service. Initially, the service will only be available for items deposited with the Buffalo Branch, but
the service may be expanded to other offices at a later time if circumstances warrant.
Questions about the service may be directed to Robert J. McDonnell of the Buffalo Branch at
(716) 849-5022.
A djustm ents and O th er M atters

Other amendments in this Supplement clarify the procedures for handling photocopies of
checks, returned checks for which the depositary bank is unknown, and returned checks that qualify
for automated processing. These changes do not involve any substantial impact on depository in­
stitutions and are largely clarifying in nature.
This Supplement also removes from Operating Circular No. 4 the list of mandatory nonstandard
holidays previously contained in paragraph 80. The list of holidays changes from time to time and
is published in the Interdistrict Check Manual which is distributed twice yearly. Copies of the
Interdistrict Check Manual are available from an account manager in the Bank Services Office
at (212) 720-6600, or in Buffalo at (716) 849-5085.




(OVER)

Questions regarding the Fourth Supplement may be directed to one of the following Check
officers at your local Federal Reserve Office:




New York Head Office

Matthew J. Puglisi, Manager
Check Services Department
(212) 720-6551
Buffalo Branch

Robert J. McDonnell,
Operations Officer
(716) 849-5022
E ast R utherford O perations C enter (E R O C )
(Form erly the C ranford Office)

Fred A. Denesevich,
Regional Manager
(201) 531-3430
Jericho Office

Anthony N. Sagliano,
Regional Manager
(516) 997-4569
Utica Office

Angus J. Kennedy,
Regional Manager
(315) 768-2220
E.

G

erald

C o r r ig a n ,

President.

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Federal Reserve Bank
of New York

Fourth Supplement to
Operating Circular No. 4
(Revised effective Sept. 4, 1988)

Effective January 1, 1993

C O L L E C T IO N O F C A SH IT E M S
AND R ETU R N ED C H ECK S
To All Depository Institutions in the Second
Federal Reserve District, and Others Concerned:

Effective January 1, 1993, this Bank’s Operating Circular No. 4 is
amended as follows:
I. Amendments Regarding Foreign Cash Items
1. Paragraph 1 is amended by redesignating the existing paragraph as
“l.(a )” and adding the following:
(b ) T h is circular, however, is not binding ou tsid e o f a State on a bank,
actin g as a su bsequent co llectin g bank or paying bank, to w h ich a cash item
payable ou tsid e a State (a “foreign cash item ”) is presented or sent. For
exam p le, paragraphs 2 3 through 2 8 regarding delivery, presen tm en t, and
paym ent for cash letters, paragraph 3 0 regarding d ifferen ces w ith a paying
bank, paragraph 3 4 regarding return by a paying bank, and paragraph 3 8
regarding id en tification o f a returned ch eck are not binding on a p aying bank
o u tsid e a State w ith resp ect to a foreign cash item . In addition, the d isputed
return procedure d escrib ed in paragraphs 4 8 - 5 0 , the ru les on n otice o f
nonpaym ent in paragraphs 5 1 - 6 3 , and the handling o f p h otocop ies as cash
item s and returned ch eck s d escrib ed in paragraphs 6 9 - 7 3 and 7 6 d o not apply
to and are not available for a foreign cash item . A R eserve Bank m ay further
m o d ify the ap plication o f this circular to a foreign cash item in an agreem ent
w ith a subsequent co llectin g bank.

2. Paragraph 5 is amended by deleting the word “and” at the end of
subparagraph b., by deleting the period at the end of subparagraph c. and
replacing it with and” and by adding the following subparagraph:
d.

D em an d item s payable in Canada, co llectib le at par in funds accep tab le to
the last c o llectin g R eserve Bank, that w e are w illin g to accep t as cash item s.
D etailed inform ation on C anadian item s is con tained in our “G u id e to

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C anadian C h eck S erv ices” w h ich is available on request.
[Enc. Cir. No. 10605]




3. Paragraph 7, subparagraph d., is amended by inserting the following
immediately prior to the semicolon: “or if the item is a foreign cash item that
we are willing to handle as a cash item”.
4. Paragraph 7, subparagraph e., is revised to read as follows:
e. The item, other than a foreign cash item that we are willing to handle as
a cash item, does not set forth on its face the name of the paying bank and
a city and state address of the bank that is located in (1) the same Reserve
Bank check processing region as, and (2) a Reserve Bank availability zone
that provides the same (or slower) availability than, the address associated
with the routing number in magnetic ink on the item; or
5. Paragraph 7, subparagraph f., is amended by inserting the following
immediately prior to the period: “or when the item is a foreign cash item that
we are willing to handle as a cash item”.
6. Paragraph 13 is amended by inserting the following sentence prior to
the last sentence: “We also reserve the right to require that foreign cash items
payable in U.S. funds be separately sorted from foreign cash items payable in
other than U.S. funds.”
7. Paragraph 19 is amended by adding the following new subparagraph:
Credit fo r Foreign Cash Items

W give credit for a foreign cash item in U.S. funds. For an item payable
e
in U.S. funds, we give deferred credit for a forward item, and we charge for
a return item, the full face amount of the item. For an item payable in other
than U.S. funds, we give deferred credit for a forward item at the exchange
rate applicable on the date that we, or another Reserve Bank, deliver the item
to a foreign subsequent collecting bank, and we charge for a return item at
the exchange rate applicable at the time of return. We defer credit in
accordance with our availability schedule and may further defer credit
because of transportation, weather, or other delays, and because of differing
holiday schedules in the United States and the country in which the item is
payable. In handling a foreign cash item, we act solely as agent for collection.
Our sender bears all risk of loss arising from changes in exchange rates
during the processing of a foreign cash item or return item. Our agreements
with foreign subsequent collecting banks are available on request. Senders
should recognize that foreign cash items may take substantially longer to
return than items payable in the United States because of the arrangements
we have made to collect the items and because foreign law may permit later
return.
8. Paragraph 34 is amended by adding the following sentence at the end
of that paragraph:




A bank may return to us a foreign cash item received from us; and we, any
subsequent returning bank, and the depositary bank shall handle the item as
a returned check under Regulation CC, Regulation J, and this circular.

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C IR C U L A R N O - } Q ( p & \

II. Amendments Regarding Adjustments and Other Matters
1. Paragraph 28 is amended by deleting the second sentence and
substituting the following in its place:
A list of standard Reserve Bank holidays is set forth in paragraph 79 of this
circular. A list of other holidays that are not considered voluntary (“mandatory
nonstandard holidays”) is published separately from time to time.
2. Paragraph 37A is added following paragraph 37 as follows:
37A. A paying or returning bank that is unable to identify the depositary
bank on a returned check may send the check to us as provided in Sections
229.30(b) or 229.31(b) of Regulation CC. The check must not be sent as a
qualified returned check.
3. Paragraph 39 is revised to read as follows:
39. We may rely on:
(a) the amount of a qualified returned check encoded in magnetic ink;
(b) the identification of an item as a qualified returned check by a “2”
properly encoded in magnetic ink in position 44 of the MICR line;
(c) the identification of the depositary bank by nine-digit routing number
in magnetic ink on a qualified returned check; and
(d) the identification of the depositary bank by routing number on the
face of a returned check received in a separate sort of items requiring
such identification; whether or not the amount or identification is
consistent with any other information on the returned check. We
reserve the right to test whether an item represented to be a qualified
returned check is properly machine readable, and to handle a nonmachineable item as a raw return or to return it to our transferor. The
paying or returning bank from which we receive the check agrees to
indemnify us for any loss or expense incurred by us (including
attorneys’ fees and expenses of litigation) as a result of our reliance
on such amount or identification or as a result of any delay in handling
an item represented to be a qualified returned check that is not able
to be processed on our automated check processing equipment or that
does not pass our testing procedures.
4. Paragraph 70 is revised to read as follows:
70. If a cash letter is lost or destroyed in transit to the first processing
Reserve Bank, we handle correctly prepared photocopies of the items as cash
items in a photocopy cash letter qualified for automated handling if (a) the
photocopy cash letter is identified as containing photocopies of items from a
lost or destroyed shipment, and (b) we (or a prior collecting Reserve Bank)
receive the photocopy cash letter within six (6) calendar months after the date
of the lost or destroyed cash letter. A sender should not send a photocopy cash
letter to us unless the sender has determined, after making good faith
inquiries, that a substantial number of the cash items in the lost or destroyed
cash letter remain unpaid.




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5. Paragraph 73 is revised by deleting the third sentence and revising the
fourth sentence to read as follows:
We handle without entry a report of a missing or destroyed cash item received
after the time set forth in paragraph 67.
6. Paragraph 73A is added following paragraph 73 as follows:
73A. If a paying or depositary bank has paid an original item and
subsequently receives from us and pays a photocopy of the item, or has paid
a photocopy and subsequently receives from us and pays the original item,
that bank may send to us, within six months of the date of our charge and on
a without entry basis, the photocopy or the original item, whichever was paid
later. The photocopy must be sent with a photocopy of the front and back of
the original item and the source of receipt information specified in paragraph
71(b) for both items. The original item must be sent with a photocopy of the
paid photocopy and the source of receipt information specified in paragraph
71 (b) for both items.
7. Paragraph 76 is amended by revising the fourth sentence as follows:
“The copy or notice shall clearly state that it is a ‘Notice in Lieu of Return,’
and should not contain the legend set forth in paragraph 72.”
8. Paragraph 76A is added following paragraph 76 as follows:
76A. If a returned check letter is lost or destroyed in transit to the first
processing Reserve Bank, we handle legible photocopies or notices of
nonpayment, identified as Notices in Lieu of Return, in a photocopy returned
check letter qualified for automated handling if (a) the photocopy returned
check letter is identified as containing photocopies or notices of items from
a lost or destroyed shipment, and (b) we (or a prior returning Reserve Bank)
receive the photocopy returned check letter within six (6) calendar months
after the date of the lost or destroyed returned check letter. A returning bank
should not send a photocopy returned check letter to us unless it has
determined, after making good faith inquiries, that a substantial number of
the returned checks in the lost or destroyed returned check letter have not been
returned to the depositary bank.
9. Paragraph 80 is amended to read as follows:
80. As provided in Section 210.9(a)(2) of Regulation J and Paragraph 28
of our Operating Circular No. 4, we charge paying banks for cash items made
available on a day on which the paying bank closes voluntarily, unless banks
compensate us for the value of the float associated with such items. We publish
separately from time to time a list of mandatory nonstandard holidays (i.e.,
holidays, other than standard Reserve Bank holidays, observed by banks in
various States but not considered voluntary.)




E.

G e r a l d C o r r ig a n ,

President.

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