What Is Regulation J?

Regulation J provides the legal framework that allows for depository institutions to collect checks and other items, and to settle balances through the Federal Reserve System (FRS).

Regulation J is supplemented by occasional memos issued by the regional Reserve Banks, which detail more specific terms and conditions under which they will handle checks and other cash items, noncash items, and wire transfers of funds.

Key Takeaways

  • Regulation J establishes rules under which banks and other depository institutions may collect and return unpaid checks through Federal Reserve Banks.
  • The regulation also specifies terms and conditions under which Reserve Banks will receive and deliver transfers of funds over Fedwire, the Federal Reserve's wire transfer system, from and to depository institutions.
  • Subpart A of Regulation J deals with guidelines for the handling and collection of checks and other non-cash items by Federal Reserve Banks.
  • Subpart B of Regulation J covers funds transferred through the Federal Reserve’s wire transfer system, Fedwire.

Understanding Regulation J

Regulation J is set forth by the Federal Reserve and establishes the core guidelines for the processing of checks and other cash instruments for Federal Reserve Banks, senders and payers of checks, and recipients and senders of Fedwire funds. It also allows for these items to be settled on a net basis.

Regulation J also stipulates the collection framework for sent checks for banks or depository institutions. It describes the procedure for presentation to a paying bank as well as the return of items that are unpaid. Member banks of the Federal Reserve also periodically publish operating circulars that serve as supplements to the Regulation.

Regulation J specifies the terms under which the Federal Reserve Banks will accept checks and other items for collection and present them for collection to the institutions upon which they are drawn. It also establishes guidelines for the return of unpaid checks, and the receipt and delivery of funds via Fedwire.

Regulation J Subparts

Subpart A of Regulation J deals with guidelines for the handling and collection of checks and other non-cash items by Federal Reserve Banks. The provisions also govern the handling of foreign items by the U.S. government. Section 210.4 states that a non-Reserve Bank may send any item to the Federal Reserve Bank for collection, and identifies parties that can be deemed to have handled an item. This section further describes the order in which such an item should be handled in order to meet regulations. Other sections of Subpart A govern the rights and responsibilities of senders in sending items to the Reserve Bank, and the Reserve Bank itself in receiving and handling them.

Subpart B of Regulation J covers funds transferred through the Federal Reserve’s wire transfer system, Fedwire. It establishes rules governing these transfers, and authorizes the Federal Reserve to debit a sender’s account in order to obtain payment for a transfer sent over the Fedwire system. Subpart B further elaborates on the procedure for handling overdrafts that result due to Fedwire payments, the receipt of said payments from the Reserve Bank, and the handling of payment orders by Reserve Banks.