CUNA Comment Letter

Proposed Rule Regarding the Amendment of Subpart C of Regulation CC

August 27, 1999

Louise L. Roseman
Division of Reserve Bank Operations
And Payment Systems
Board of Governors of the
Federal Reserve System
20th and C Streets, N.W.
Washington, D.C. 20551

Re: Docket No. R-1034, Proposed Rule Regarding the Amendment of Subpart C of Regulation CC

Dear Ms. Roseman:

The Credit Union National Association (CUNA) appreciates the opportunity to comment on a proposed amendment to Regulation CC that the Federal Reserve System (Board) provided by meeting with CUNA on July 26, 1999 and accepting supplemental comments. As a national trade association, CUNA represents more than 90 percent of the nation's 11,000 state and federal credit unions and solicits the opinion of these credit unions on relevant matters. The following comments were developed by CUNA with input from the Subcommittee on Payment Systems, led by Mr. Stan Hollen, President and CEO of The Golden 1 Credit Union in Sacramento, California.

In a Federal Register notice published February 24, 1999, the Board requested comments on two options for amending Regulation CC. The Board received comments on those two options and decided to hold a meeting on July 26, 1999 to discuss the issues raised by those comments.

After careful consideration of the discussion at the July meeting and comments previously received by the Board, CUNA has decided to support a modified version of option two discussed at the July meeting. Initially, option two was to delete Regulation CC Commentary language that states a truncated check is available for return, when it is dishonored. This Commentary currently places a burden on truncated checks, so that if they are returned, the original paper check must be returned, instead of a notice in place of the check. Deleting this language would give credit unions the ability to return a notice instead of returning the original paper check. In addition, under the amendment, credit unions would not have to follow the forward collection chain when returning an item, but they would have to accept return notices from financial institutions with whom they may have no established relationship. The modified option two would add that a credit union would have to agree to accept images or other notices of dishonored checks, before that credit union could receive those notices instead of the original checks.

This modified option two addresses some of the concerns raised by CUNA and other commenters because it would allow credit unions to control whether they receive images from other financial institutions. It would allow a credit union that believes electronic returns are insufficient for its customers to decide not to accept electronic returns. For example, some financial institutions may feel that an image will not capture the information that would be necessary for the payee on a dishonored check to collect. A modified option two, therefore, is an improvement because it would allow credit unions and other financial institutions to decide independently whether they want to participate in image-return pilots. While we support this option, CUNA also supports the California and Nevada Credit Union Leagues' position that more comment on the proposal is warranted.

If you or your colleagues have any questions about this letter, or if CUNA can be of any further assistance, please contact Michelle Profit, Assistance General Counsel of CUNA, at (202) 218-7766.

Michelle Q. Profit
Assistant General Counsel