CUNA Mutual Releases Risk Alert Regarding Remote Deposit Capture

CUNA Mutual recently sent a Risk Alert to its bond holders that discussed the potential increased risk that credit unions offering Remote Deposit Capture may face with the Regulation CC Proposed Amendment.

The Federal Reserve Board issued proposed amendments to Reg CC , including one that increases the risk for credit unions that offer Remote Deposit Capture. Reg CC currently does not apply to deposits made via RDC, since the deposits are considered to have not been made in person with branch personal or through an ATM.

Because RDC creates the risk of duplicate presentments, the Fed is proposing a new indemnity that would protect depositary institutions that receive a deposit of an original check that is returned unpaid because it was previously deposited via RDC and paid by the paying institution.

CUNA Mutual provided a couple examples of how this new indemnity would apply:

  • Depositary Bank A offers its customers a remote deposit capture service that permits customers to take pictures of the front and back of their checks and send the image to the bank for deposit. Depositary Bank A accepts an image of the check from its customer and sends an electronic check for collection to Paying Bank. Paying Bank, in turn, pays the check. Depositary Bank A receives settlement for the check. The same customer who sent Depositary Bank A the electronic image of the check then deposits the original check in Depositary Bank B. Depositary Bank B sends the original check (or a substitute check or electronic check) for collection and makes funds from the deposited check available to its customer. The customer withdraws the funds. Paying Bank returns the check to Depositary Bank B indicating that the check already had been paid. Depositary Bank B may be unable to charge back funds from its customer’s account. Depositary Bank B may make an indemnity claim against Depositary Bank A for the amount of the funds Depositary Bank B is unable to recover from its customer.
  • The facts are the same as above with respect to Depositary Bank A; however, Depositary Bank B also offers a remote deposit capture service to its customer. The customer uses Depositary Bank B’s remote deposit capture service to send an electronic image of the front and back of the check, after sending the same image to Depositary Bank A. The customer also deposits the original check into Depositary Bank C. Paying Bank pays the check based on the image presented by Depositary Bank A, and Depositary Bank A receives settlement for the check without the check being returned unpaid to it. Paying Bank returns the checks presented by Depositary Bank B and Depositary Bank C. Neither Depositary Bank B nor Depositary Bank C can recover the funds from the deposited check from the customer. Depositary Bank B does not have an indemnity claim against Depositary Bank A because Depositary Bank B did not receive the original check for deposit. Depositary Bank C, however, would be able to bring an indemnity claim against Depositary Bank A or Depositary Bank B.

In light of the increased risks posed by offering RDC, credit unions will want to review their risk analysis and look at what risk-mitigation steps are available. These steps could include enhanced member due diligence, or only offering RDC to well-established members.


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Posted in Compliance News.