CUNA Comment Letter

Revision of Regulations Governing the Endorsement and Payment of Checks Drawn on the Treasury

June 23, 2003

Mr. Ronald Brooks
Senior Program Analyst
Financial Processing Division
Financial Management Service
Prince Georges Center II Building
3700 East-West Highway, Room 725-D
Hyattsville, MD 20782

Dear Mr. Brooks:

CUNA appreciates the opportunity to respond to the Department of Treasury (Treasury) proposal that would revise regulations governing the endorsement and payment of checks drawn on Treasury. The proposal limits the time Treasury has to reverse final payments; allocates losses for forgeries and counterfeits; and clarifies protest procedures against Treasury decisions. CUNA is a national association that represents more than 90 percent of the state and federal credit unions in the nation.

The proposed rule by Treasury would accomplish the following:

Summary of CUNA's Position

Discussion

CUNA supports Treasury's proposal to establish a definitive time frame for first examinations and believes that a 90-day timeframe is appropriate to investigate most situations. The current rule states that Treasury has a "reasonable amount of time" to conduct examinations. Establishing a 90-day timeframe would allow financial institutions to proceed under a more predictable and stable set of expectations that the current rules, which provide no limit, allow. However, CUNA encourages Treasury to reduce the time it needs for an examination and reduce the period accordingly because Treasury allows itself much more time than is provided by the Uniform Commercial Code. Ultimately, it should seek parity with that statute's deadline.

Treasury should be allowed to request reimbursement beyond the 90-day timeframe for final payment, when a presentment guarantee has been breached. This appears reasonable.

Within its rule, Treasury should provide explicit, published guidance as to the factors that constitute a "reasonable effort" before assigning liability for the improper presentment of a counterfeit Treasury check. Appropriate guidance should include specific criteria for establishing the validity of a Treasury check and should be issued as part of a proposed rule to solicit comment from interested and affected parties. Moreover, Treasury should include within the broader rule either a cross-reference to more specific guidance or an appendix that provides guidance. Treasury could also provide a brochure and training video or an interactive website and a telephone number to ask for additional assistance. More information from Treasury would be to the benefit of all participants in the payment system by providing quicker detection of counterfeit checks.

The one -year deadline for Treasury checks is reasonable and is common within check processing. Under the UCC, checks are "stale" after six months and financial institutions do not have to honor them. However, if this timeframe is to be enforced, then the deadline should be stated on the check.

Treasury clarifies it policies regarding protest procedures. Since Treasury mandates completion of these protest procedures before a financial institution may litigate, Treasury should promise to review and answer a protest within 60 days of receipt of the protest. According to credit unions, Treasury already often completes investigations within 30 days.

CUNA supports the proposed changes regarding the exercise of the power of attorney that allow entities other than financial institutions to exercise the power of attorney and to use forms other than the one Treasury creates. However, since Treasury has specific requirements regarding these forms it should continue to make its version of these forms available to the public as a convenience to the public. Finally, Treasury may want to reorganize this part of its rules because credit unions found this section confusing. In particular, a more thorough explanation of the power of attorney would be helpful.

Conclusion

CUNA commends Treasury for reviewing the liability rules for processing Treasury checks. If you have any questions regarding this comment, then please contact Senior Vice President and Associate General Counsel Mary Dunn or me at 202/ 638-5777.

Sincerely,

Michelle Profit