[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5414 Introduced in House (IH)]






107th CONGRESS
  2d Session
                                H. R. 5414

  To facilitate check truncation by authorizing substitute checks, to 
  foster innovation in the check collection system without mandating 
   receipt of checks in electronic form, and to improve the overall 
  efficiency of the Nation's payments system, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           September 19, 2002

Mr. Ferguson (for himself and Mr. Ford) introduced the following bill; 
       which was referred to the Committee on Financial Services

_______________________________________________________________________

                                 A BILL


 
  To facilitate check truncation by authorizing substitute checks, to 
  foster innovation in the check collection system without mandating 
   receipt of checks in electronic form, and to improve the overall 
  efficiency of the Nation's payments system, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; FINDINGS; PURPOSES.

    (a) Short Title.--This Act may be cited as the ``Check Clearing for 
the 21st Century Act''.
    (b) Findings.--The Congress finds as follows:
            (1) In the Expedited Funds Availability Act, enacted on 
        August 10, 1987, the Congress directed the Board of Governors 
        of the Federal Reserve System to consider establishing 
        regulations requiring Federal reserve banks and depository 
        institutions to provide for check truncation, in order to 
        improve the check processing system.
            (2) In that same Act, the Congress--
                    (A) provided the Board of Governors of the Federal 
                Reserve System with full authority to regulate all 
                aspects of the payment system, including the receipt, 
                payment, collection, and clearing of checks, and 
                related functions of the payment system pertaining to 
                checks, and
                    (B) directed that the exercise of such authority by 
                the Board superseded any State law, including the 
                Uniform Commercial Code, as in effect in any State.
            (3) Check truncation is no less desirable today for both 
        financial service customers and the financial services 
        industry, to reduce costs, improve efficiency in check 
        collections, and expedite funds availability for customers than 
        it was over 15 years ago when Congress first directed the Board 
        to consider establishing such a process.
    (c) Purposes.--The purposes of this Act are as follows:
            (1) To facilitate check truncation by authorizing 
        substitute checks.
            (2) To foster innovation in the check collection system 
        without mandating receipt of checks in electronic form.
            (3) To improve the overall efficiency of the Nation's 
        payments system.

SEC. 2. DEFINITIONS.

     For purposes of this Act, the following definitions shall apply:
            (1) Account.--The term ``account'' means a deposit account 
        at a bank.
            (2) Bank.--The term ``bank''--
                    (A) means any person located in a State engaged in 
                the business of banking, including any depository 
                institution (as defined in section 19(b)(1)(A) of the 
                Federal Reserve Act); and
                    (B) includes--
                            (i) any Federal reserve bank;
                            (ii) any Federal home loan bank; and
                            (iii) to the extent it acts as a payor--
                                    (I) the Treasury of the United 
                                States;
                                    (II) the United States Postal 
                                Service;
                                    (III) a State government; and
                                    (IV) a unit of general local 
                                government.
            (3) Banking day.--The term ``banking day'' means that part 
        of any business day during which an office of a bank is open to 
        the public for carrying on substantially all of the banking 
        business of the bank.
            (4) Banking terms.--
                    (A) Collecting bank.--The term ``collecting bank'' 
                means any bank handling a check for collection except 
                the paying bank.
                    (B) Depositary bank.--
                            (i) In general.--The term ``depositary 
                        bank'' means the first bank to which a check is 
                        transferred even though it is also the paying 
                        bank or the payee.
                            (ii) Treated as depositary bank in case of 
                        check deposit.--A bank shall be treated as the 
                        depository bank, for purposes of this Act, if a 
                        check is transferred for deposit in a customer 
                        account at such bank, even though the check is 
                        physically received and indorsed first by 
                        another bank.
                    (C) Paying bank.--The term ``paying bank'' means--
                            (i) the bank by which a check is payable, 
                        unless the check is payable at another bank and 
                        is sent to the other bank for payment or 
                        collection;
                            (ii) the bank at which a check is payable 
                        and to which it is sent for payment or 
                        collection;
                            (iii) the Federal reserve bank or Federal 
                        home loan bank by which a check is payable;
                            (iv) the bank through which a check is 
                        payable and to which it is sent for payment or 
                        collection, if the check is not payable by a 
                        bank;
                            (v) the State or unit of general local 
                        government on which a check is drawn and to 
                        which it is sent for payment or collection;
                            (vi) the bank through which a check is 
                        payable and to which the check is sent for 
                        payment or collection, regardless of whether 
                        the check is payable by another bank; and
                            (vii) the bank whose routing number appears 
                        on a check in fractional form or in the MICR 
                        line and to which the check is sent for payment 
                        or collection.
                    (D) Returning bank.--
                            (i) In general.--The term ``returning 
                        bank'' means a bank (other than the paying or 
                        depositary bank) handling a returned check or 
                        notice in lieu of return.
                            (ii) Treatment as collecting bank.--No 
                        provision of this Act shall be construed as 
                        affecting the treatment of a returning bank as 
                        a collecting bank for purposes of section 4-
                        202(b) of the Uniform Commercial Code.
            (5) Board.--The term ``Board'' means the Board of Governors 
        of the Federal Reserve System.
            (6) Business day.--The term ``business day'' has the same 
        meaning as in section 602(3) of the Expedited Funds 
        Availability Act.
            (7) Check.--The term ``check''--
                    (A) means a draft, payable on demand and drawn on 
                or payable through or at an office of a bank, whether 
                or not negotiable, that is handled for forward 
                collection or return, including a substitute check; and
                    (B) does not include a noncash item or an item 
                payable in a medium other than United States dollars.
            (8) Consumer.--The term ``consumer'' means an individual 
        who--
                    (A) with respect to a check handled for forward 
                collection, draws the check on a consumer account; and
                    (B) with respect to a check handled for return, 
                deposits the check into, or cashes the check against, a 
                consumer account.
            (9) Consumer account.--The term ``consumer account'' has 
        the same meaning as in section 602(10) of the Expedited Funds 
        Availability Act.
            (10) Customer.--
            (11) Forward collection.--The term ``forward collection'' 
        means the transfer by a bank of a check to a collecting bank 
        for settlement or the paying bank for payment.
            (12) Indemnifying bank.--The term ``indemnifying bank'' 
        means a bank that is providing an indemnity under section 5 
        with respect to a substitute check.
            (13) MICR line.--The terms ``MICR line'' and ``magnetic ink 
        character recognition line'' mean the numbers, which may 
        include the bank routing number, account number, check number, 
        check amount, and other information printed near the bottom of 
        a check in magnetic ink in accordance with generally applicable 
        industry standards.
            (14) Noncash item.--The term ``noncash item'' has the same 
        meaning as in section 602(14) of the Expedited Funds 
        Availability Act.
            (15) Person.--The term ``person'' includes a government 
        unit or instrumentality.
            (16) Reconverting bank.--
                    (A) In general.--The term ``reconverting bank'' 
                means the bank that creates a substitute check.
                    (B) If substitute check is not created by a bank.--
                If a substitute check is created by a person other than 
                a bank, the term ``reconverting bank'' means the first 
                bank that transfers or presents such substitute check.
            (17) Substitute check.--The term ``substitute check'' means 
        a paper reproduction of the original check that--
                    (A) contains an image of the front and back of the 
                original check;
                    (B) bears an MICR line containing all information 
                required under generally applicable industry standards 
                for substitute checks;
                    (C) conforms, in paper stock, dimension, and 
                otherwise, with generally applicable industry standards 
                for substitute checks; and
                    (D) is suitable for automated processing in the 
                same manner as the original check.
            (18) State.--The term ``State'' has the same meaning as in 
        section 3(a)(3) of the Federal Deposit Insurance Act.
            (19) Truncate.--The term ``truncate'' means to remove an 
        original paper check from the check collection or return 
        process and send to a recipient, in lieu of such original paper 
        check, a substitute check or, by agreement, information 
        relating to the original check (including data taken from the 
        MICR line of the original check or an electronic image of the 
        original check), whether with or without subsequent delivery of 
        the original paper check.
            (20) Uniform commercial code.--The term ``Uniform 
        Commercial Code'' means the Uniform Commercial Code in effect 
        in a State.
            (21) Unit of general local government.--The term ``unit of 
        general local government'' has the same meaning as in section 
        602(24) of the Expedited Funds Availability Act.
            (22) Other terms.--Unless the context requires otherwise, 
        the terms not defined in this section shall have the same 
        meanings as in the Uniform Commercial Code.

SEC. 3. GENERAL PROVISIONS GOVERNING SUBSTITUTE CHECKS.

    (a) No Agreement Required.--A person may deposit, present, or send 
for collection or return a substitute check without an agreement with 
the recipient, to the extent the bank is treated as having made the 
warranties in section 4 as a matter of law with respect to such 
substitute check.
    (b) Legal Equivalence.--A substitute check shall be the legal 
equivalent of the original check for all purposes, including any 
provision of any Federal or State law, and for all persons if the 
substitute check--
            (1) accurately represents all of the information on the 
        front and back of the original check as of the time the 
        original check was truncated; and
            (2) bears the legend: ``This is a legal copy of your check. 
        You can use it the same way you would use the original 
        check.''.
    (c) Endorsements.--A reconverting bank shall ensure that the 
substitute check that is created by the bank bears all endorsements 
applied by parties that previously handled the check (whether in 
electronic form or in the form of the original paper check or a 
substitute check) for forward collection or return.
    (d) Identification of Reconverting Bank.--A reconverting bank shall 
identify itself as a reconverting bank on any substitute check such 
bank creates so as to preserve any previous reconverting bank 
identifications in conformance with generally applicable industry 
standards.
    (e) Applicable Law.--A substitute check that is the legal 
equivalent of the original check under subsection (b) shall be subject 
to any provision of part 229 of title 12 of the Code of Federal 
Regulations (as in effect on the date of the enactment of this Act), 
the Uniform Commercial Code, and any other applicable Federal or State 
law that would apply if such substitute check were the original check, 
to the extent such provision of law is not inconsistent with this Act.

SEC. 4. SUBSTITUTE CHECK WARRANTIES.

    A bank that transfers, presents, or returns a substitute check and 
receives consideration for the check shall be deemed to have warranted 
to the transferee, any subsequent collecting or returning bank, the 
depositary bank, the drawee, the drawer, the payee, the depositor, and 
any endorser (regardless of whether the warrantee receives the 
substitute check or another paper or electronic form of the substitute 
or original check) that--
            (1) the substitute check meets all the requirements for 
        legal equivalence under section 3(b); and
            (2) no depositary bank, drawee, drawer, or endorser will 
        receive presentment or return of the substitute check, the 
        original check, or a copy or other paper or electronic version 
        of the substitute check or original check such that it will be 
        asked to make a payment based on a check it has already paid.

SEC. 5. INDEMNITY.

    (a) Indemnity.--A reconverting bank that creates a substitute 
check, and each bank that subsequently transfers, presents, or returns 
that substitute check in any electronic or paper form, and receives 
consideration for such transfer, presentment, or return shall be deemed 
to have indemnified the transferee, any subsequent collecting or 
returning bank, the depositary bank, the drawee, the drawer, the payee, 
the depositor, and any endorser, up to the amount described in 
subsections (b) and (c), to the extent of any loss incurred by any 
recipient of a substitute check if that loss occurred due to the 
receipt of a substitute check instead of the original check.
    (b) Indemnity Amount.--
            (1) Amount in event of breach of warranty.--The amount of 
        the indemnity under subsection (a) shall be the amount of any 
        loss (including costs and reasonable attorney's fees and other 
        expenses of representation) proximately caused by a breach of a 
        warranty established by operation of section 4.
            (2) Amount in absence of breach of warranty.--In the 
        absence of a breach of a warranty established by operation of 
        section 4, the amount of the indemnity shall be the sum of--
                    (A) the amount of any loss, up to the amount of the 
                substitute check; and
                    (B) interest and expenses (including costs and 
                reasonable attorney's fees and other expenses of 
                representation).
    (c) Comparative Negligence.--If a loss described in subsection (a) 
results in whole or in part from the negligence or failure to act in 
good faith on the part of an indemnified party, then that party's 
indemnification under this section shall be reduced in proportion to 
the amount of negligence or bad faith attributable to that party.
    (d) Effect of Producing Original Check or Substitute Check.--
            (1) In general.--If the indemnifying bank produces the 
        original check or substitute check, the indemnifying bank 
        shall--
                    (A) be liable only for losses covered by the 
                indemnity that are incurred up to the time the original 
                check or substitute check is provided to the 
                indemnified party; and
                    (B) have a right to the return of any funds it has 
                paid under the indemnity in excess of those losses.
            (2) Coordination of indemnity with implied warranty.--The 
        production of the original check or substitute check in 
        accordance with paragraph (1) by an indemnifying bank shall not 
        absolve the bank from any liability on a warranty established 
        under this Act or any other provision of law.
    (e) Subrogation of Rights.--
            (1) In general.--Each indemnifying bank shall be subrogated 
        to the rights of any indemnified party to the extent of the 
        indemnity.
            (2) Recovery under warranty.--A bank that indemnifies a 
        party under this section may attempt to recover from another 
        party based on a warranty or other claim.
            (3) Duty of indemnified party.--Each indemnified party 
        shall have a duty to comply with all reasonable requests for 
        assistance from an indemnifying bank in connection with any 
        claim the indemnifying bank brings against a warrantor or other 
        party related to a check that forms the basis for the 
        indemnification.

SEC. 6. EXPEDITED RECREDIT FOR CONSUMERS.

    (a) Recredit Claims.--
            (1) In general.--Subject to subsection (f), a customer who 
        is a consumer may make a claim for expedited recredit from the 
        bank that holds the customer's account with respect to a 
        substitute check if the customer asserts in good faith that--
                    (A) the bank charged the customer's account for a 
                substitute check that was provided to the customer;
                    (B) either--
                            (i) the check was not properly charged to, 
                        or chargeable against, such account; or
                            (ii) the customer has a warranty claim with 
                        respect to such substitute check;
                    (C) the customer suffered a resulting loss; and
                    (D) the production of the original check or 
                substitute check is necessary to determine the validity 
                of any claim described in subparagraph (B).
            (2) 30-day period.--Any claim under paragraph (1) with 
        respect to a customer account may be submitted by a customer 
        before the end of the 30-day period beginning on the later of--
                    (A) the date on which the customer receives the 
                periodic statement of account for such account which 
                contains information concerning the transaction giving 
                rise to the claim; or
                    (B) the date the substitute check is made available 
                to the customer.
            (3) Extension under extenuating circumstances.--If the 
        customer's ability to submit the claim within the 30-day period 
        referred to in paragraph (2) is delayed due to extenuating 
        circumstances, including extended travel or the illness of the 
        customer, the 30-day period may be extended for a total of not 
        to exceed 30 additional days, in accordance with regulations 
        prescribed by the Board.
    (b) Procedures for Claims.--
            (1) In general.--To make a claim for an expedited recredit 
        under subsection (a) with respect to a substitute check, the 
        customer shall provide to the bank that holds the customer 
        account of such customer the following:
                    (A) A description of the claim, including an 
                explanation of--
                            (i) why the substitute check was not 
                        properly charged to, or chargeable against, the 
                        customer's account; or
                            (ii) the warranty claim with respect to 
                        such check.
                    (B) A statement that the customer suffered a loss 
                and an estimate of the amount of the loss.
                    (C) The reason why production of the original check 
                or substitute check is necessary to determine the 
                validity of the charge to the customer's account or the 
                warranty claim.
                    (D) Sufficient information to identify the 
                substitute check and to investigate the claim.
            (2) Claim in writing.--The bank holding the customer 
        account that is the subject of a claim by the customer under 
        subsection (a) may, in the discretion of the bank, require the 
        customer to submit the information required under paragraph (1) 
        in writing.
    (c) Recredit to Customer.--
            (1) Prompt action required.--If a customer submits a claim 
        to a bank under subsection (a) (with respect to a substitute 
        check) that meets the requirements of subsection (b), the bank 
        shall, by the end of the 10th business day following the 
        banking day on which the customer submits such claim to the 
        bank--
                    (A) produce the original or substitute check and 
                demonstrate to the customer that the substitute check 
                was properly charged to the customer account of the 
                customer; or
                    (B) recredit the customer account of the customer 
                in an amount equal to the sum of--
                            (i) an amount not to exceed the lesser of--
                                    (I) the amount of the substitute 
                                check that was improperly charged 
                                against the customer account; or
                                    (II) $2,500; and
                            (ii) interest on the amount recredited 
                        under clause (i).
            (2) Recredit of amounts in excess of $2,500.--If, in 
        connection with a claim by a customer under subsection (a) with 
        respect to a substitute check, the bank determines that an 
        amount in excess of any amount recredited to the customer 
        account of the customer under paragraph (1) was improperly 
        charged against the customer account in connection with such 
        check, the bank shall credit the customer account for such 
        excess amount, plus interest, before the end of the business 
        day following the banking day on which the bank makes such 
        determination.
            (3) Period for determination.--A bank shall make a 
        determination with respect to the validity of a claim by a 
        customer under subsection (a) for purposes of paragraph (2) no 
        later than 45 calendar days after the banking day on which the 
        customer submits the claim in accordance with subsection (b).
    (d) Availability of Recredit.--
            (1) Next business day availability.--Except as provided in 
        paragraphs (2) and (3), a bank that provides a recredit to a 
        customer account under subsection (c) shall make the recredited 
        funds available for withdrawal by the customer by the start of 
        the next business day after the business day by which the bank 
        is required to recredit the customer under subsection (c).
            (2) Safeguard exceptions.--Subject to paragraph (4), a bank 
        may delay availability to a customer of a recredit provided to 
        a customer account under subsection (c) until the start of the 
        45th business day following the banking day on which the 
        customer submits a claim for such recredit in accordance with 
        subsection (b) in any of the following cases:
                    (A) New accounts.--The claim is made during the 30-
                day period beginning on the banking day the customer 
                account was established.
                    (B) Repeated overdrafts.--Without regard to the 
                charge that is the subject of the claim for which the 
                recredit was made--
                            (i) on 6 or more banking days during the 6-
                        month period ending on the date the customer 
submits the claim, the balance in the customer account was negative or 
would have become negative if checks or other charges to the account 
had been paid, or
                            (ii) on 2 or more banking days during such 
                        6-month period, the balance in the customer 
                        account was negative or would have become 
                        negative in the amount of $5,000 or more if 
                        checks or other charges to the account had been 
                        paid.
                    (C) Prevention of fraud losses.--The bank has 
                reasonable cause to believe that the claim is 
                fraudulent, based on facts (other than the fact that 
                the check in question or the customer is of a 
                particular class) that would cause a well-grounded 
                belief in the mind of a reasonable person that the 
                claim is fraudulent.
            (3) Emergency conditions.--If there has been an 
        interruption of communications, computer, or equipment 
        facilities, or other emergency condition beyond the control of 
        the bank, the bank may delay availability of a recredit 
        provided to a customer account under subsection (c) until a 
        reasonable period after the emergency has ceased, to the extent 
        the bank exercises such diligence as the circumstances require 
        and complies with paragraph (4).
            (4) Notice to customer.--
                    (A) Prompt notice of delay in availability.--A bank 
                that, in accordance with paragraph (2) or (3), delays 
                the availability of a recredit under subsection (c) to 
                any customer account shall notify the customer of such 
                delay--
                            (i) at the time of the recredit; or
                            (ii) if the determination is made after the 
                        recredit, in as expeditious a manner as 
                        possible after the delay is put into effect.
                    (B) Overdraft fees.--No bank that, in accordance 
                with paragraph (2) or (3), delays the availability of a 
                recredit under subsection (c) to any customer account 
                may impose any overdraft fees with respect to drafts 
                drawn by the customer on such recredited amount before 
                the end of the 5-day period beginning on the date the 
                notice under subparagraph (A) with respect to the 
                availability of such amount was sent by the bank to the 
                customer.
    (e) Reversal of Recredit.--If a bank determines that a substitute 
check for which the bank recredited a customer account under subsection 
(c) was in fact properly charged to the customer account, the bank may 
reverse the recredit to the customer account if, upon reversing the 
recredited amount, the bank--
            (1) notifies the customer of the date and the amount of the 
        reversal;
            (2) provides the original check or the substitute check to 
        the customer; and
            (3) provides the customer with an explanation of the basis 
        for the determination by the bank that the substitute check had 
        been properly charged, including copies of any information or 
        documents on which the bank relied in making such 
        determination.
    (f) Preservation of Rights.--In any case described in subparagraph 
(A) and (B) of subsection (a)(1) involving a substitute check, the 
customer shall have the rights and protections provided under part 229 
of title 12 of the Code of Federal Regulations, as in effect on the 
date of the enactment of this Act, the Uniform Commercial Code, and any 
other applicable Federal or State law that would apply in such case had 
the customer been provided the original check.
    (g) Scope of Application.--This section shall only apply to 
customers who are consumers.

SEC. 7. EXPEDITED RECREDIT PROCEDURES FOR BANKS.

    (a) Recredit Claims.--
            (1) In general.--A bank may make a claim against an 
        indemnifying bank for expedited recredit for which that bank is 
        indemnified if--
                    (A) the claimant bank (or a bank it has 
                indemnified) has received a claim for expedited 
                recredit from a customer under section 6 with respect 
                to such substitute check or would have been subject to 
                such a claim had the customer's account been charged;
                    (B) the claimant bank has suffered a resulting loss 
                or is obligated to recredit a customer account under 
                section 6 with respect to such check; and
                    (C) production of the original check or substitute 
                check is necessary to determine the validity of the 
                charge to the customer account or any warranty claim 
                connected with such substitute check.
            (2) 120-day period.--Any claim under paragraph (1) may be 
        submitted by the claimant bank to an indemnifying bank before 
        the end of the 120-day beginning on the date of the transaction 
        that gave rise to the claim.
            (3) Claimant bank defined.--For purposes of this section, 
        the term ``claimant bank'' means a bank which submits a claim 
        under this subsection to an indemnifying bank.
    (b) Procedures for Claims.--
            (1) In general.--To make a claim under subsection (a) for 
        an expedited recredit relating to a substitute check, the 
        claimant bank shall provide to the indemnifying bank the 
        following:
                    (A) A description--
                            (i) of the claim, including an explanation 
                        of why the substitute check cannot be properly 
                        charged to the customer account; or
                            (ii) a description of the warranty claim.
                    (B) A statement that the claimant bank has suffered 
                a loss or is obligated to recredit a customer's account 
                under section 6, together with an estimate of the 
                amount of the loss or recredit.
                    (C) The reason why production of the original check 
                or substitute check is necessary to determine the 
                validity of the charge to the customer account or the 
                warranty claim.
                    (D) Information sufficient for the indemnifying 
                bank to identify the substitute check and to 
                investigate the claim.
            (2) Requirements relating to copies of substitute checks.--
        If the information submitted by a claimant bank pursuant to 
        paragraph (1) in connection with a claim for an expedited 
        recredit includes a copy of any substitute check for which any 
        such claim is made, the claimant bank shall take reasonable 
        steps to ensure that any such copy cannot be--
                    (A) mistaken for the legal equivalent of the check 
                under section 3(b); or
                    (B) sent or handled by any bank, including the 
                indemnifying bank, as forward collection or returned 
                checks.
            (3) Claim in writing.--At the request of the indemnifying 
        bank, the claimant bank shall provide a copy of any written 
        claim submitted by a customer in accordance with section 6(b), 
        if the claimant bank has obtained such customer's claim in 
        writing.
    (c) Recredit by Indemnifying Bank.--
            (1) Prompt action required.--No later than 10 business days 
        after the business day an indemnifying bank receives a claim 
        under subsection (a) from a claimant bank with respect to a 
        substitute check, the indemnifying bank shall--
                    (A) provide the original check (with respect to 
                such substitute check) or another substitute check to 
                the claimant bank;
                    (B) recredit the claimant bank for the amount of 
                the claim up to the amount of the substitute check, 
                plus interest; or
                    (C) provide information to the claimant bank as to 
                why the indemnifying bank is not obligated to perform 
                the service described in subparagraph (A) or (B).
            (2) Recredit does not abrogate other liabilities.--
        Providing a recredit under this subsection to a claimant bank 
        with respect to a substitute check shall not absolve the 
        indemnifying bank from any liability for additional damages 
        under section 5 or 8 with respect to such check.
            (3) Refund to indemnifying bank.--If a claimant bank 
        reverses, in accordance with section 6(e), a recredit 
        previously made to a customer account under section 6(c) in 
        connection with a substitute check or otherwise receives a 
        credit or recredit with regard to such substitute check, the 
        claimant bank shall promptly refund to any indemnifying bank 
        any amount previously advanced by the indemnifying bank in 
        connection with such substitute check.
    (d) Production of Original Check or Substitute Check Governed by 
Section 5(d).--If the indemnifying bank provides the claimant bank with 
the original check or substitute check, section 5(d) shall govern any 
right of the indemnifying bank to any repayment of any funds the 
indemnifying bank has recredited to the claimant bank pursuant to 
subsection (c).

SEC. 8. MEASURE OF DAMAGES.

    (a) Liability.--
            (1) In general.--Except as provided in section 5, any 
        person who, in connection with a substitute check, breaches any 
        warranty under this Act or fails to comply with any requirement 
        imposed under this Act, or any regulation prescribed pursuant 
        to this Act, with respect to any other person shall be liable 
        to such person in an amount equal to the sum of--
                    (A) the lesser of--
                            (i) the amount of the loss suffered by the 
                        other person as a result of the breach or 
                        failure; or
                            (ii) the amount of the substitute check;
                    (B) interest and expenses (including costs and 
                reasonable attorney's fees and other expenses of 
                representation) related to the substitute check.
            (2) Offset of recredits.--The amount of damages any person 
        receives under paragraph (1), if any, shall be reduced by the 
        amount, if any, that the claimant receives and retains as a 
        recredit under section 6 or 7.
    (b) Comparative Negligence.--If a party incurs damages that 
resulted in whole or in part from that party's negligence or failure to 
act in good faith, then the amount of any liability due to that party 
under subsection (a) shall be reduced in proportion to the amount of 
negligence or bad faith attributable to that party.

SEC. 9. STATUTE OF LIMITATIONS AND NOTICE OF CLAIM.

    (a) Actions Under This Act.--
            (1) In general.--An action to enforce a claim under this 
        Act may be brought in any United States district court, or in 
        any other court of competent jurisdiction, before the end of 
        the 1-year period beginning on the date the cause of action 
        accrues.
            (2) Accrual.--A cause of action accrues as of the date the 
        injured party first learns, or by which such person reasonably 
        should have learned, of the facts and circumstances giving rise 
        to the cause of action.
    (b) Discharge of Claims.--Except as provided in subsection (c), 
unless a person gives notice of a claim to the indemnifying or 
warranting bank within 30 days after the person has reason to know of 
the claim and the identity of the indemnifying or warranting bank, the 
indemnifying or warranting bank is discharged to the extent of any loss 
caused by the delay in giving notice of the claim.
    (c) Notice of Claim by Customer.--A timely claim by a customer 
under section 6 for expedited recredit also constitutes timely notice 
of a claim by the customer for purposes of subsection (b).

SEC. 10. CONSUMER AWARENESS.

    (a) In General.--The Board shall develop and prepare a brief 
document on substitute checks for distribution by banks to customers 
which contains--
            (1) a description of the process of check substitution and 
        how the process may be different than the check clearing 
        process the customer is familiar with;
            (2) a description of the benefits of check substitution, 
        including expedited funds availability for the customer, and a 
        notice that shorter check processing times, through check 
        substitution, will reduce the float a consumer may currently be 
        taking advantage of, however ill-advised such a practice may 
        be; and
            (3) a description of the claim for recredit process 
        established under section 6 when the customer believes in good 
        faith that a substitute check was not properly charged to, or 
        chargeable against, the customer's account.
    (b) Distribution.--
            (1) In general.--Each bank shall distribute to each 
        existing and potential customer of the bank, after the 
        effective date of this Act, the document prepared by the Board 
        pursuant to subsection (a).
            (2) 1st mailing.--With respect to existing customers of the 
        bank as of the effective date of this Act, the bank shall meet 
        the requirements of paragraph (1) by including the document 
        prepared by the Board in the first regularly scheduled mailing 
        to such customers after such effective date.

SEC. 11. EFFECT ON OTHER LAW.

     This Act shall supersede any provision of Federal or State law, 
including the Uniform Commercial Code, that is inconsistent with this 
Act, but only to the extent of the inconsistency.

SEC. 12. VARIATION BY AGREEMENT.

    (a) Section 7.--Any provision of section 7 may be varied by 
agreement of the banks involved.
    (b) No Other Provisions May Be Varied.--No provision of this Act 
other than a provision of section 7 may be varied by agreement of any 
person.

SEC. 13. REGULATIONS.

    The Board may, by regulation clarify or otherwise implement the 
provisions of this Act and may modify the requirements imposed by this 
Act with respect to substitute checks generally to further the purposes 
of this Act, including reducing risk, accommodating technological or 
other developments, and alleviating undue compliance burdens.

SEC. 14. EFFECTIVE DATE.

    This Act shall take effect on January 1, 2006.
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