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WASHINGTON-CUNA has followed up on a May 3 meeting with the Federal Reserve regarding MICR line errors, reiterating the organization’s strong opposition to the concept of a “purported substitute check” in the event of errors in a check’s MICR line. “Instead,” CUNA recommended, “the Federal Reserve should provide a substitute check with legal equivalence if an unrepaired MICR read or print error created by the reconverting bank causes the MICR line on the substitute check to vary from the MICR line on the original check.” Though the Fed has expressed concern over its ability to do this, CUNA’s comment letter, written by Assistant General Counsel Michelle Q. Profit, stated that the believe the Fed does have the authority under the Check 21 Act. “Section 15 of the Act gives the Federal Reserve authority to prescribe regulations that the Board determines is necessary to “facilitate compliance with the provisions of the Act,” she wrote. CUNA’s letter also notes that the Fed is concerned this may encourage a reconverting bank to intentionally send incomplete reproductions of the MICR line. According to Profit, the Fed can give the paying bank the option of “administrative” return of a non-compliant substitute check. The trade association supported allowing a paying bank the option to return checks with incorrect MICR information or manually post a check to an account without becoming the reconverting bank and taking on the associated liabilities. CUNA also suggested that the Fed’s final rule clarify that paying banks can print substitute checks without MICR ink for their accountholders and it qualify as a legal equivalent. CUNA said the expense would be unjustified because the checks will not go through automated processing.

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