The U.S. Department of the Treasury wants banks to verify Treasury checks using its check verification system or another, similar one.
The proposal, announced last week, would also require that a Federal Reserve bank decline payment of a Treasury check if there has already been a prior cancellation on the payment. Currently, when the Treasury or a payment certifying agency places a “stop payment” note on a Treasury check, the payment could still be negotiated, leading to a payment over cancellation. Resolving those negotiations reportedly costs the federal government $1.3 million per year.
According to the Treasury, the verification system will also help banks prevent chargebacks “by allowing the financial institution to verify that the Treasury check is not counterfeit, that the amount has not been altered, and that the check is not stale-dated.” Though the system will initially be limited to verifying check symbols, serial numbers, payment status and the negotiation status of the check, it could eventually enable the optional verification of the name and ZIP code of the payee.
The 200 largest FDIC-insured banks and credit unions with less than $600 million in assets accepted about 3,100 Treasury checks on average in 2020. That was historically high due to the deposits of millions of pandemic-era stimulus checks. According to the Treasury, less than a miniscule number of small financial institutions could be significantly impacted by the new rule.
“Use of Treasury’s check verification system will also help financial institutions avoid liability by reducing instances where a financial institution accepts a Treasury check that has been previously negotiated,” the Treasury noted. “However, because Treasury often is not informed immediately that a Treasury check has been negotiated, the enhanced check verification system will not eliminate acceptance of duplicate presentations entirely.”
Comments on the proposal are being accepted through April 3.