Liability of Paying and Returning Banks

D

The liability of paying and returning banks when processing checks is governed by Regulation CC, which sets forth rules for the handling of substitute checks and electronic representations of checks. These rules aim to ensure that banks that handle checks bear responsibility for any losses that result from errors, fraud, or other problems with the check.

The question asks which of the following conditions and limitations do not apply to the liability of paying and returning banks under Regulation CC.

A. The paying or returning bank that sends an original check that is returned as a substitute check or paper or electronic representation thereof will not be responsible for amounts the Reserve Bank pays under Regulation CC absent the paying bank's or returning bank's agreement to the contrary.

This condition means that if a bank sends an original check that is converted into a substitute check or an electronic representation, the bank is not liable for any losses resulting from the Reserve Bank's payment of the substitute check or electronic representation unless the bank has agreed to be responsible. This condition is a limitation on the liability of the paying or returning bank and is subject to Regulation CC.

B. Regulation CC governs the paying and returning banks' liabilities when returning a substitute check or paper or electronic representation thereof.

This condition is a statement of fact and is true. Regulation CC governs the liability of banks that handle checks, including their liability for errors or fraud involving substitute checks or electronic representations of checks. This condition is not a limitation or condition on the liability of paying and returning banks.

C. The paying or returning bank that sends an electronic item that is not a representation of a substitute check will not be liable for losses attributable to the Reserve Bank's own lack of good faith or failure to exercise ordinary care.

This condition means that if a bank sends an electronic representation of a check that is not a substitute check, the bank will not be liable for losses resulting from the Reserve Bank's lack of good faith or failure to exercise ordinary care. This condition is a limitation on the liability of the paying or returning bank and is subject to Regulation CC.

D. Paying and returning banks agree to indemnify each Reserve Bank for any loss or expense resulting from the paying or returning bank's lack of authorization or any action by a Reserve Bank within the scope of its authority related to the return of the check or any warranty made by the Reserve Bank.

This condition means that paying and returning banks must indemnify each Reserve Bank for any loss or expense resulting from the bank's lack of authorization or any action by the Reserve Bank related to the return of the check or any warranty made by the Reserve Bank. This condition is a limitation on the liability of the paying and returning banks and is subject to Regulation CC.

Therefore, the answer to the question is B, as this statement is a statement of fact and not a limitation or condition on the liability of paying and returning banks under Regulation CC.