CUNA Comment Letter
Indorsement and Payment of Checks Drawn on the United States Treasury
January 18, 2005
Financial Management Service
Attn: Ronald Brooks
3700 East West Highway
Hyattsville, MD 20782
Re: Indorsement and Payment of Checks
Drawn on the United States Treasury
Dear Mr. Brooks:
On behalf of the Credit Union National Association, we appreciate the opportunity to file comments regarding the Financial Management Service's (FMS) interim rule regarding the presentment of Treasury checks. CUNA is the nation's largest trade organization representing the over 9,300 state and federal credit unions in this country.
The FMS issued for comment an interim rule that would permit financial institutions to present Treasury checks for payment by providing an electronic image of the check in lieu of a paper check. The interim rule, which took effect October 29, 2004, addresses the rights and obligations of financial institutions that present electronic images to Treasury.
It also provides a legal framework to support the presentment of electronic images of Treasury checks without the need for subsequent delivery of original or substitute checks. Such framework is consistent with the terms and conditions established by the Check 21 Act regarding the use of substitute checks.
As appropriate, the FMS interim rule establishes the legal equivalence of electronic checks only between Treasury and the financial institution that presents an electronic image of a Treasury check to Treasury for payment.
More specifically, the rule establishes certain procedures if there is a breach of one of the warranties a financial institution makes when transferring, presenting, or returning a substitute check under Check 21. In addition, the rule mandates that financial institutions that create a substitute Treasury check or electronic image of a Treasury check prevent unauthorized access to the paper check that was truncated and retained.
The interim rule revises the definition of "reasonable efforts" to determine whether a Treasury check is counterfeit. The interim rule clarifies that "reasonable efforts" do not include verifying the existence of the Treasury watermark in the case of a substitute check or electronic image. The rule also addresses procedures in the event the Federal government incurs a loss because it received a substitute check rather than the original check.
CUNA generally supports these changes as reasonable and appropriate in light of the implementation of the Check 21 Act.
The FMS specifically requests comments on whether a safekeeping provision specific to truncated Treasury checks is necessary. We believe that is not warranted and agree with assessment that financial institutions would routinely apply existing member/customer information security procedures to all truncated checks, including those issued by the Treasury.
The FMS also seeks comments on whether additional rules are needed to require financial institutions to protect truncated Treasury checks. In particular, the FMS questions whether steps should be taken to restrict the use of information appearing on truncated checks.
CUNA strongly supports protecting consumers interests, including proper protection of the financial information of the members of credit unions as well as for customers of other financial institutions. However, in our view, current requirements and guidelines for financial institutions regarding the financial information of member/customers already provide sufficient protection. There is no need for further regulation to address problems the agency is only at this point speculating might occur.
Nonetheless, we believe Treasury should monitor this situation, and if the agency determines, after a reasonable period of time, that problems warranting additional regulations have occurred, it should then develop, and publish for public comment, a separate proposal.
Thank you for the opportunity to express our views on the interim regulation.
Mary Mitchell Dunn
Associate General Counsel and Senior Vice President