But before considering those strategies, it is helpful to understand the legal precedent that resulted in this significant change to Reg CC. There are strategies for rebutting this new evidentiary presumption. Although the presumption is rebuttable, this gives the drawee a decisive advantage in pursuing a warranty claim against the upstream depository institution. Effective January 1, 2019, when a dispute arises between financial institutions over liability for a check, and the original is no longer available, there will be a presumption that the check is altered and not a counterfeit item. In September 2018, the Board of Governors of the Federal Reserve System attempted to resolve this uncertainty by approving an amendment to Subpart C of Regulation CC. This gap in payments law has created uncertainty for financial institutions. Without the original item, it can be difficult, if not impossible, to determine whether the check bears a forged maker’s signature (as in the case of a counterfeit item) or instead has an altered payee or amount. One example of the tension between legacy payments law and modern-day payment systems is how to allocate liability for negotiable instruments under the Price final payment rule when an original negotiable instrument has been truncated and all that remains is a substitute check or electronic copy of the original. But as technological innovation produces changes to payment systems and process, the law has struggled to keep pace. This rule, which places the loss on the drawee (or payor bank) for checks not authorized by the drawer, has been codified in the Uniform Commercial Code (“UCC”). In 1762 the Court of King’s Bench in England articulated the “final payment rule” in the case of Price v. Modern payments law has centuries-old roots.
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