Why is this Rule provision called Rule 9 when it is not numbered as 9? This Rule was originally developed in local clearing houses and at that time was numbered 9. Many in the industry still refer to it as Rule 9. Under the ECCHO Rules, Rule 9 is in Section XIX(O).
What is Rule 9? Under the ECCHO Rules, Section XIX(O) (also referred to as Rule 9), the Depositary Bank warrants to the Paying Bank that the signature of the drawer of the Related Physical Check is not forged or otherwise unauthorized and/or the Related Physical Check is not a counterfeit item. Typically, under check law the Paying Bank would be liable for a forged drawer's signature or counterfeit item if not returned within the midnight deadline. Rule 9 allows a Paying Bank to make a claim to the Depositary Bank after a customer has made a claim that the item is forged or counterfeit.
What is the difference between Rule 8 and Rule 9? Rule 8 only deals with Remotely Created Checks (RCC); checks that have not been signed by the drawer customer. The definition and warranty for Rule 8 are included in Regulation CC and therefore covered by Federal law. Rule 9 deals with forged drawer's signature and counterfeit items. Rule 9 is included in the ECCHO Rules, and is not set forth in any Federal or State law. The process for claims and disclaims for Rule 8 and Rule 9 are similar under the ECCHO Rules.
How do I go about making a Rule 9 claim? The customer of the Paying Bank must file a "Written Statement Under Penalty of Perjury" (WSUPP) within 60 calendar days from when they received their statement that reflected the transaction. The Paying Bank then has 15 business days from receipt of the customer's claim to make the claim to the Depositary Bank. At the Depositary Bank's option, it can request a copy of the WSUPP within 15 business days and the Paying Bank must respond within 15 business days (See Sections XIX(O)(3) - (5)). The Rule requires the warranty claim to be delivered to any location of the Depositary Bank that receives return checks or images in the normal course of collection (See Section XIX(O)(8)), and the warranty claim is typically handled as a return. The Depositary Bank can disclaim the warranty claim for various reasons including but not limited to: timeliness of the claim, lack of funds in the depositing customer's account, the Bank has an Opt-out of Rule 9 in place. If the warranty claim is disclaimed, the loss remains with the Paying Bank as it would have under other check law.
What is the sufficiency of funds provision? Under the Rule (See Section XIX(O)(3)(c)), if the Depositary Bank's customer does not have the full amount of the claim in its available balance, the Depositary Bank can disclaim.
Is a bank required to check the balances in their customer's account to determine if there are sufficient balances to cover the claim every day of the 15 day claim period? No. The Depositary Bank is only required to review the balance in its depositing customer's account once during the 15 day claim period. The Depositary Bank is not required to review the balance each day and can make a single balance inquiry in the period. It is not required to determine if additional funds are subsequently deposited into the account (See Section XIX(O) Commentary). The Rules also require the disclaim to be made up to 15 Business Days following the receipt of the claim by the Depositary Bank and, if it was checking balances every day, it would not be able to make this deadline (See Section XIX(O)(3)(c)).
Is the Depositary Bank liable to the Paying Bank, if it chooses not to charge its customer? Yes. The Depositary Bank must pay the claim, if its customer has funds in the customer's account to cover the claim. If the funds are available and the Depositary Bank chooses not to charge the customer or is unable to charge the customer for legal reasons, it cannot disclaim and remains liable for the amount of the claim (See Section XIX(O)(3)(c) and its Commentary).
My bank is a correspondent bank. Under the Rules do I make this warranty on behalf of my financial institution customers? No. Under the Rule the Sending Bank does not make the Rule 9 warranty on items that were first deposited into another financial institution. The warranty is only made by a Sending Bank that is also a Depositary Bank (See Section XIX(O)(2) and its Commentary).
My bank is an international correspondent bank. Am I required under the Rules to make this warranty on behalf of my foreign bank customers? No. Under the Rule, the Sending Bank does not make the Rule 9 warranty on U.S. dollar items that were first deposited into, or received by, a foreign office of a non-U.S. bank or foreign office of a U.S. bank. This excludes the warranty for items received at a foreign office of a bank and transferred to a correspondent Sending Bank in the U.S for collection (See Section XIX(O)(1)(c)).
I am the Paying Bank and an ECCHO member and the Depositary Bank is also an ECCHO member. I received a check image through the Federal Reserve can I still make a Rule 9 claim? No. The forward exchange through the Federal Reserve was governed by OC3 and Regulation J, which do not have Rule 9 provisions. The Depositary Bank only makes the Rule 9 warranties in an exchange between members under the ECCHO Rules and therefore you do not have a claim (See Section XIX(O)(2)).
I received the check image through an ECCHO governed exchange. However all my returns are sent through the Federal Reserve. Can I still make a Rule 9 claim through the Federal Reserve? No. A Rule 9 claim is typically made through a return process but the delivery of the claim is not a return for purposes of the ECCHO Rules or other applicable check law. Under the Federal Reserve's Rules, this would be a late return since it was sent past the midnight deadline and did not meet the expeditious return requirement (See Section XIX(O)(2) Commentary).
Is there any other way to make a Rule 9 claim other than through a return process? Yes. A bank may attempt to make a Rule 9 claim by sending the warranty claim by letter to the return location of the Depositary Bank. The letter does not carry monetary value, so the banks have to determine how they will settle for the transaction. The ECCHO Rules do not preclude the use of a letter to deliver the warranty claim to a return location of the Depositary Bank. However, the Rules are clear about the process, which must be followed even with the use of a letter. Some important aspects of the process is the warranty had to have been made through an ECCHO exchange, timing of the claim and the claim must be made to any location the Depositary Bank receives return checks in the normal course of check collection (See Sections XIX(O)(2), XIX(O)(3) and XIX(O)(8)).
Is Rule 9 mandatory under the ECCHO Rules? No. Under the ECCHO Rules the default is that all members are subject to Rule 9. Members can opt out of Section XIX(O)/Rule 9 coverage for their ECCHO image exchanges unless the member is subject to another agreement (i.e. another clearing house Rule) that makes the Rule mandatory for exchanges through that clearing house (See Section XIX(O)(1)(b)).
What does opt-out mean? An ECCHO member that has opted out is not subject to Section XIX(O) of the Rules. The opt-out member does not make the warranties in Section XIX(O) and cannot make a Rule 9 claim to another member. Other members cannot make a Rule 9 claim to the opted-out member, and if a Rule 9 claim is made the member can disclaim it (See Section XIX(O)(1)(a) and its Commentary).
How do I go about opting out? If an ECCHO member is seeking to opt-out, the election must be made by an Authorized Representative that is an officer of the Financial Institution. The Authorized Representative must notify ECCHO by email or in writing. For Sponsored Members that notification must be made by an Authorized Representative of the Sponsoring Organization. ECCHO will send a confirmation via email or in writing of receipt of the decision to opt out and the effective date of the opt-out (or cancel opt-out) along with any other essential information. If a member cancels the opt-out, it cannot elect to opt-out again for 6 months. The effective date of an opt-out decision submitted between the 21st of any given month and the 20th of the following month is effective the first day of the next following month. See opt-out listing and the Rule itself (See Section XIX(O)(1)(a)-(b)) for more information.
When can the Depositary Bank disclaim Rule 9? A Depositary Bank can disclaim Rule 9 for the following reasons: account closed, claim amount exceeds funds in account, claim was not made timely, Depositary Bank is not the first bank to which the check was transferred, Depositary Bank had in place an opt-out and other defenses as provide by applicable law (See Exhibit VIII - Disclaimer Form for Section XIX(O)).
If my bank makes a Rule 9 claim through the Electronic Returns mechanism what return reason code should be used? In the ANSI X9.100-187 standard, return reason code "3" is defined as Warranty Breach (includes Rule 8 & 9 claims) and "5" is defined Forged and Counterfeit Warranty Breach (Rule 9). It is recommended that return reason code "5"be used to send the appropriate return reason to the BOFD.
My bank does not have a return relationship with the Depositary Bank; can my bank send the return through the Correspondent bank from which my bank received the forward item? No. The Rules require that the warranty claim be delivered to a location of the Depositary Bank that receives returns of checks or Electronic Images from the Paying Bank in the normal course of collection.
Can a Rule 9 claim be made through the Adjustment process? No. Under the ECCHO Rules the Rule 9 warranty claim must be delivered to a location of the Depositary Bank that receives returns of checks or Electronic Images from the Paying Bank in the normal course of collection (See Section XIX(O)(8)). Some adjustment providers may allow for Rule 9 claims to be made through their process, check with your adjustment provider.
A forward exchange Electronic Image was sent from an intermediary bank that is an ECCHO Member to a Paying Bank that is also an ECCHO Member, but the Depositary Bank is not an ECCHO member or is not exchanging under the ECCHO Rules, can the Rule 9 claim be made to the intermediary bank? No. The Rule 9 warranty is only made under the ECCHO Rules by a Sending Bank that is also the Depositary Bank (See Section XIX(O)(2)). An intermediary bank does not make the Rule 9 warranty. Since the Depositary Bank is not under the ECCHO Rules, no warranty was made and therefore there is no claim.
I am an ECCHO Member and I received an item in which the Depositary Bank is also an ECCHO member who has not opted out of Rule 9. I received that item through an intermediary that was an ECCHO member and in which we exchanged under the ECCHO Rules. The Depositary Bank is not accepting the claim saying they did not exchange the item under the ECCHO rules. Is this possible? Yes. Participation and exchange by banks under the ECCHO rules are voluntary. Members can decide in which exchange programs they will participate. (Introduction, Section XIX(C) and XIX(D)). Some ECCHO member exchanges are not governed under the ECCHO rules, but rather under another agreement (i.e. correspondent agreement, bi-lateral agreement, deposit agreement, etc.).
My bank participates in an exchange governed by the ECCHO Rules through a provider that does not allow an opt-out of Rule 9 (see Section XIX(O)(1)(b). I received an item in which the Depositary Bank is an ECCHO member who has opted out of Rule 9 and did not exchange this item through my provider. Can I make a Rule 9 claim to the Depositary Bank? No. Since the ECCHO Depositary Bank did not exchange this item through the provider that does not allow an opt-out, that Member does not have to accept a Rule 9 claim. The Depositary Bank exchange was made outside of your provider and therefore the opt-out was allowed.
I am the paying bank and my customer claims that the person to whom he wrote the check did not indorse the check. Can I make a Rule 9 claim on the item and if not what recourse do I have? This item contains a forged indorsement. Rule 9 claims are for a forged drawer signature and not forged indorsements. As a result, there is no Rule 9 claim in this situation. However, the paying may have a claim under the UCC transfer and presentment warranties. (See UCC 4-207, UCC 4-208).
My depositing customer uses a return consolidator whose routing number appears in the Check Detail Addendum A Record (Type 26), which identifies the return location. An ECCHO Member has made a Rule 9 warranty claim to me. Shouldn't that claim be made to the return consolidator bank? No. As the Depositary Bank, your bank made the Rule 9 warranty under Section XIX(O) and the paying bank's warranty breach claim should be made to your bank. If your bank desires the return consolidator bank to be responsible for any of your obligations under the ECCHO Rules, such as the Rule 9 warranty in Section XIX(O), your bank should enter into an appropriate agreement with the return consolidator bank.
My bank received a check image through an ECCHO exchange and needs to make a Rule 9 claim. The bank identified as the return location which is typically the Depositary Bank is not an ECCHO member, but the bank identified as the Depositary Bank is an ECCHO member. Can I make a Rule 9 Claim and to which bank? Yes. The Depositary Bank who exchanged the check image under the ECCHO rules made the Rule 9 warranty. The claim should be made to that bank (See Commentary to XIX(L)).
My bank received a check image through an ECCHO exchange and needs to make a Rule 9 claim. The bank identified as the return location, which is typically the Depositary Bank, is an ECCHO member, but is an opt-out bank. The bank identified as the Depositary Bank associated with the check image is an ECCHO member and not an opt-out bank. Can I make a Rule 9 Claim and to which bank? Yes. The Depositary Bank who exchanged the check image under the ECCHO rules and did not opt-out made the Rule 9 warranty. The claim should be made to that bank. (See Commentary to XIX(L)).
The Paying Bank receives a check image that identifies a bank as the return location and identifies a different bank as the Depositary Bank. The Paying Bank sends the Rule 9 claim to the return location who is a return consolidator, who then rejects the claim. Does the Paying Bank have 15 days from the disclaim to then make the claim to the actual Depositary Bank? No. The timeframe in the rules (See Section XIX(O)(3)(b)) is based on when the Paying Bank received the claim from its customer. The Paying Bank has 15 Business Days to make the claim to the Depositary Bank. If the disclaim is not received within 15 days, the Paying Bank would be late in making the claim to the Depositary Bank. However if the actual Depositary Bank is not identified there may be other claims under the rules for failing to properly identify the Depositary
Are there any situations under the ECCHO rules in which a Depositary Bank can reject an item received in the return process due to a lack of sufficient available funds in the depositing customer's account at the time of the return? No. Under Rule 9, if warranty claims (under Section XIX(O)), are processed through the return channel, the Depositary Bank is authorized to reject a Rule 9 warranty claim in the event of insufficient funds in the depositing customer's account. This warranty disclaimer right only arises for Rule 9 warranty claims, and not for returns of items (such as NSF returns) within the UCC/Regulation CC timeframes.
A Paying Bank returned an item with a return reason of "breach of warranty" (Rule 9), which was an incorrect return reason. The Paying Bank otherwise conformed to all legal requirements for the return of the item (e.g., the Paying Bank met UCC and Regulation CC time frames for return of the item). The depositing customer's account was closed at the time of the return. Because of the incorrect return reason, the Depositary Bank handled the return as a Rule 9 warranty claim and rejected the warranty claim because the depositing customer did not have funds in the account. What provisions of the Rules should be considered in resolving a dispute between the two banks over responsibility for the item? The Paying Bank complied with all requirements for returning the presented item, except that the Paying Bank included the wrong return reason code on the returned item. Section 229.31(E) of Regulation CC obligates the Paying Bank to indicate the reason for the return of the check on the face of the item. Similarly, the ECCHO Rules obligate the Paying Bank to indicate the reason for the return with the Electronic/Image Return. (See Section XX(D)(1)). The failure of the Paying Bank to comply with these rules can result in a breach of the ECCHO warranties under Section XX(J)(1). To the extent that the Depositary Bank incurred a loss due to these rules violations, the Depositary Bank may have a claim for damages against the Paying Bank. However, it would need to be determined from the particular facts and circumstances whether or not the Depositary Bank's reliance on the incorrect return reason gave rise to a loss at the Depositary Bank (i.e. would the Depositary Bank's loss have arisen had the correct return code been provided by the Paying Bank). Because the depositing customer's account was closed at the time of the return, the Depositary Bank would have incurred the same loss had the Paying Bank provided the correct return code. Accordingly, the Depositary Bank would not be entitled to recover this loss from the Paying Bank because of the incorrect return code provided by the Paying Bank.
As the Paying Bank I received an item that I identified as a forgery. I will return the item within the UCC and Regulation CC timeframes for returns. Should I use the Rule 9 return reason code? No. This is not a Rule 9 warranty claim, but a return of the item. Since the Paying Bank is returning the item within the timeframes under UCC and Regulation CC for return of the item, the item should be returned for another return reason rather than Rule 9. Generally, forged items are returned with reason code 'L' "Signature(s) Irregular, Suspected Forgery" or possibly 'N' "Altered/Fictitious Item/Suspected Counterfeit/Counterfeit". In comparison, in order to make a Rule 9 claim certain provisions must be met, including customer notification and execution of a Written Statement Under Penalty of Perjury (WSUPP). A Rule 9 claim while using the return mechanism is actually a warranty claim. (See Section XIX(O)).
When should I use return reason code "3" or "5"? Return Reason Code "3" is for a general Warranty Breach; return reason "5" is specific to a Rule 9 claim and is the appropriate return reason code to use to send the appropriate message to the BOFD. A Rule 9 claim is made through the return mechanism but is actually a warranty claim. In order for a valid Rule 9 claim, the Paying Bank's customer must provide a Written Statement Under Penalty of Perjury (WSUPP) within 60 days from its bank statement. These return codes are typically used after the UCC/Regulation CC return timeframes. (See Section XIX(O)).
If a customer cashes a check at a bank, rather than deposit it into an account at the depositary bank, can the depositary bank disclaim a Rule 9 warranty claim on the basis that the check was not deposited into an account? Yes. The rule says the check "was deposited" (see Section XIX(O)(3)(c)), since the check was cashed and not deposited, the Rule 9 warranty can be disclaimed.
If a customer has a split deposit (deposits part/cashes part of a check) at a depositary bank, can the depositary bank disclaim a Rule 9 warranty claim [on the basis that the check was not deposited into an account]? No, the Rule 9 warranty claim cannot be disclaimed. The partial check deposit transaction met the terms of the rule since the check was included in a deposit. Rule 9 says "was deposited" (see Section XIX(O)(3)(c)).