The Bureau of the Fiscal Service of the U.S. Department of the Treasury requested comment on its proposal to modify the regulations governing the payment of checks drawn on Treasury. The proposal would require all financial institutions to use the Treasury Check Verification System (TCVS) in an effort to prevent checks drawn on Treasury from being negotiated after cancellation. The Clearing House Association L.L.C. (TCH) and the Bank Policy Institute (BPI) support the enhancements to TCVS that have been proposed, as well as additional improvements to help reduce fraud. TCH and BPI argue, however, that using TCVS should remain optional. Treasury’s proposal raises several issues:
- Preventing Treasury checks from being deposited and presented for payment might be impractical or impossible for financial institutions because doing so would represent a significant departure from how they currently handle Treasury and other checks.
- Treasury has underestimated the burdens the proposal would place on financial institutions. Every financial institution in the country would be required to make changes to their systems, processes, and procedures. Even if such changes were possible, it would take financial institutions significantly longer than the 30 days’ notice Treasury proposed.
The letter suggests an alternative solution. Treasury should provide the Federal Reserve Banks with up-to-date information about the validity of Treasury checks to prevent improper payments. The Reserve Banks should be required to return canceled Treasury checks expeditiously so they are promptly received by depositary banks, consistent with return timeframes and processes that apply to commercial depository institutions under Regulation CC and the Uniform Commercial Code.
To read the full comment letter click here.