Allocation of Check Kiting Losses Under the UCC, Regulation CC, and the Bankruptcy Code: Reconciling the Standards

59 Pages Posted: 24 Sep 2008 Last revised: 27 Sep 2008

Date Written: September 23, 2008

Abstract

Depositary institutions have significant exposure to losses due to check kiting by their depositors. This article examines in detail the allocation of kiting losses under the UCC, under Regulation CC of the Board of Governors of the Federal Reserve System, and under section 547 of the Bankruptcy Code. The article identifies the potential conflicts among the three liability schemes as currently interpreted by the courts. The article concludes by advocating for a reexamination of Regulation CC due to the Regulation's operation in kiting cases, and also argues that a limited number of payments made in the course of a kite are properly the subject of preference attack under section 547 by a kiting debtor's trustee in bankruptcy.

Keywords: Check Kiting, Payment Systems, Preferences, Regulation CC, Bank Fraud

JEL Classification: K20

Suggested Citation

Overby (deceased), A. Brooke, Allocation of Check Kiting Losses Under the UCC, Regulation CC, and the Bankruptcy Code: Reconciling the Standards (September 23, 2008). Wake Forest Law Review, Vol. 44, No. 1, 2009; Tulane Public Law Research Paper No. 08-09. Available at SSRN: https://ssrn.com/abstract=1272587

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