Reg CC Modernization: Will It Help Credit Unions Address Check Fraud?
- America's Credit Unions is an industry group
- Regulation CC is under discussion
- FIs & credit unions have tools available to reduce check fraud attempts and losses
The America's Credit Unions group is advocating for updates to Regulation CC in order to better combat persistent check fraud risks.
Regulation CC is, of course, a key federal regulation governing how quickly banks and credit unions in the United States must make deposited funds—especially checks—available to customers. It also sets standards for the collection and return of checks, and mandates clear disclosure of funds availability policies to consumers
In a letter to the Treasury, the organization's Director of Innovation and Technology, Andrew Morris, outlined several suggested changes, including:
Allowing credit unions to hold funds deposited by check for longer periods based on an assessment of risk; and a longer, optional hold period that financial institutions can use to guard against the risk of loss when handling potentially fraudulent checks.
These modifications would empower credit unions to more effectively mitigate check fraud -- which has, of course, become a serious and ongoing challenge. The Treasury recently issued a request for information on reforming the federal disbursement process, in response to an executive order.
Goal: Loss Prevention
America's Credit Unions plans to submit comments on this Request for Information and continue providing input to the government as it updates policies around check processing and electronic payments. The organization believes these Reg CC updates are crucial to enable credit unions to better protect their members from check fraud.
As noted in their letter:
Narrow amendments to Regulation CC’s exception hold provisions would give credit unions more time to investigate whether a check is counterfeit or fraudulently presented. Similarly, changes to rules regarding financial institution’s ability to exercise additional caution with respect to certain classes of high risk checks may be appropriate to guard against exploitation of funds availability rules for items such as cashier’s checks.
And:
The ability to hold funds for a longer period of time, under Regulation CC’s reasonable cause to doubt collectability exception, when those funds are deposited using a class of check associated with fraudulent activity, would allow credit unions to better guard against losses. As member owned cooperatives, credit union losses are ultimately borne by individual members, and check fraud can cause serious damage to the availability and quality of services. While credit unions invest significantly in staff and technology to prevent fraud, the very design of Regulation CC and the EFA can frustrate anti-fraud efforts.
Technology Not Enough?
While we agree with the argument that Reg CC needs to be updated, we also believe that FIs and credit unions have available to them the tools necessary to reduce check fraud attempts and losses. As we've noted, many banks are deploying a multi-layered technology approach to check fraud detection.
Which particular technologies to deploy is dependent upon each individual FI's needs. However, it's recommended that FIs look at on-us and deposit fraud as two distinct fraud types and approaches. While each still utilize similar tools -- transactional analytics, image forensic AI, rules engines, and a fraud review queue -- deposit fraud requires additional layers, like check field validations and incorporation of consortium data.
This layered approach enables banks to achieve the 95%+ detection rate goal. In fact, one OrboGraph client -- a community FI with $8B+ in assets -- has reported a stunning 100% detection rate, effectively eliminating check fraud losses.
While we applaud the efforts of banking associations and others who advocate for necessary adjustments, we believe that FIs of any size can effectively detect a majority of check fraud attempts -- mitigating risks and losses -- without the need for regulation changes.