Joint Trades Letter to the Treasury on Indorsement and Payment of Checks

Bureau of the Fiscal Service
U.S. Department of the Treasury
Attn: Gary Swasey, Director
Post Payment Modernization Division
13000 Townsend Rd.
Philadelphia, PA 19154

Dear Mr. Swasey,

Thank you for the opportunity for our trade association group to comment on the proposed rulemaking regarding the indorsement and payment of checks drawn on the United States Treasury (Treasury). We appreciate your concern regarding Treasury checks being negotiated after being canceled. We strongly support all reasonable measures to process checks efficiently while mitigating losses associated with canceled or counterfeit checks. All of the undersigned groups are working to create a faster and safer payment system and include the American Bankers Association (ABA), the Consumer Bankers Association (CBA), the Credit Union National Association, and the National Association of Federally-Insured Credit Unions (NAFCU).

The Treasury Check Verification System (TCVS) is a system used to verify the authenticity of a Treasury check using the check symbol and serial number, as well as the check number, check date and payment amount. The proposed rule would require all financial institutions to use TCVS (or other similar authorized system) to validate all Treasury checks to ensure that they have not been previously negotiated or canceled. The proposed rule mandates that financial institutions that do not use TCVS would assume liability associated with depositing a Treasury check that has been canceled. Currently, federal agencies that authorize check payments that are later canceled but still processed, known as a payment over cancellation, assume the loss.

The proposal notes that TCVS is being upgraded beyond its current capabilities so that it will be updated daily, instead of having a one-day lag. However, even once upgraded, TCVS will continue to rely on agencies to update the "stopped check" information, and that information may not be provided in a timely manner. The proposal would go into effect 30 days following TCVS being upgraded to same-day functionality.

This proposal would amend 31 CFR Part 240 (Indorsement and Payment of Checks Drawn on the United States Treasury) regarding a financial institution's "reasonable efforts" to ensure that a check has not been previously negotiated or canceled. Currently, financial institutions must use their reasonable efforts only to ensure that a check is an authentic Treasury check, not a counterfeit check. The proposal would expand the definition of "reasonable efforts" to require the use of TCVS or a similar authorized system to ensure not only that a Treasury check is authentic and not counterfeit, but to validate that it has not been previously negotiated or canceled. The proposed rule would also create three other definitions for "cancellation or canceled," "stop payment or check stop," and "validity or valid check."

The net result of the proposal is a mandate that financial institutions accepting Treasury checks must use TCVS to validate that the checks have not been previously negotiated or canceled to avoid liability by being subject to a potential reclamation for up to one year after the cancelled check was paid by the Treasury.

The associations are supportive of reasonable efforts to improve TCVS and reduce losses to federal agencies. However, this proposal falls short of meeting this goal in several ways. In light of these issues, the associations offer an alternative recommendation to achieve the important goals of the proposed rule.

Download the letter to read the full text.