[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 3034 Introduced in Senate (IS)]







107th CONGRESS
  2d Session
                                S. 3034

  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 SENATE OF THE UNITED STATES

                            October 2, 2002

Mr. Johnson (for himself and Mr. Carper) introduced the following bill; 
which was read twice and referred to the Committee on Banking, Housing, 
                           and Urban Affairs

_______________________________________________________________________

                                 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 Truncation 
Act''.
    (b) Findings.--Congress finds that--
            (1) the Expedited Funds Availability Act (12 U.S.C. 4001 et 
        seq.)--
                    (A) directs the Board to consider establishing 
                regulations requiring Federal reserve banks and 
                depository institutions to provide for check 
                truncation, in order to improve the check processing 
                system;
                    (B) authorizes the Board 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
                    (C) directs that the exercise of such authority by 
                the Board shall supersede any State law, including the 
                Uniform Commercial Code, as in effect in any State; and
            (2) check truncation is no less desirable in 2002 for both 
        financial service customers and the financial services 
        industry, to reduce costs, improve efficiency in check 
        collections, and expedite funds availability for account 
        holders than it was in 1987, when Congress first directed the 
        Board to consider establishing such a process.
    (c) Purposes.--The purposes of this Act are--
            (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; and
            (3) to improve the overall efficiency of the Nation's 
        payments system.

SEC. 2. DEFINITIONS.

    In 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 (12 U.S.C. 461(b)(1)(A)); and
                    (B) includes--
                            (i) any Federal reserve bank;
                            (ii) any Federal home loan bank; and
                            (iii) to the extent that 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) Claimant bank.--The term ``claimant bank'' 
                means a bank that submits a claim for recredit under 
                section 7 to an indemnifying bank.
                    (B) Collecting bank.--The term ``collecting bank'' 
                means any bank handling a check for collection except 
                the paying bank.
                    (C) Depositary bank.--The term ``depositary bank'' 
                means--
                            (i) the first bank to which a check is 
                        transferred, even if such bank is also the 
                        paying bank or the payee; and
                            (ii) a bank to which a check is transferred 
                        for deposit in a consumer account, even if the 
                        check is physically received and endorsed first 
                        by another bank.
                    (D) Paying bank.--The term ``paying bank'' means, 
                as applicable--
                            (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 the routing number of which 
                        appears on a check in fractional form or in the 
                        MICR line and to which the check is sent for 
                        payment or collection.
                    (E) 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 (or any 
                        successor thereto).
            (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 (12 U.S.C. 4001(3)).
            (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 (12 U.S.C. 4001(10)).
            (10) Customer.--The term ``customer'' means a person having 
        an account with a bank or for whom a bank has agreed to collect 
        items, including a bank that maintains an account at another 
        bank.
            (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 (12 U.S.C. 4001(14)).
            (15) Person.--The term ``person'' includes a government 
        unit or instrumentality.
            (16) Reconverting bank.--The term ``reconverting bank'' 
        means--
                    (A) the bank that creates a substitute check; and
                    (B) if a substitute check is created by a person 
                other than a 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) of the Federal Deposit Insurance Act (12 U.S.C. 
        1813(a)).
            (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 (12 U.S.C. 
        4001(24)).
            (22) Other terms.--Unless the context requires otherwise, 
        terms used in this Act that are 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 that the bank is treated as having made 
the warranties described in section 4 with respect to the substitute 
check.
    (b) Legal Equivalence.--A substitute check shall be the legal 
equivalent of an 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 that the 
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 enactment of this Act), the 
Uniform Commercial Code, and any other applicable Federal or State law 
that would apply if the substitute check were the original check, to 
the extent that 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 amounts described in 
subsections (b) and (c), as applicable, 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 fees and other 
        expenses of representation) proximately caused by a breach of a 
        warranty established under section 4.
            (2) Amount in absence of breach of warranty.--In the 
        absence of a breach of a warranty established under section 4, 
        the amount of the indemnity under subsection (a) 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 fees and other expenses of 
                representation).
    (c) Comparative Negligence.--If a loss under 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 under this section only for losses 
                covered by the indemnity that are incurred up to the 
                time that 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 under 
        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 that 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.--A consumer may make a claim for expedited 
        recredit from the bank that holds the account of the consumer 
        with respect to a substitute check, if the consumer asserts in 
        good faith that--
                    (A) the bank charged the consumer account for a 
                substitute check that was provided to the consumer;
                    (B) either--
                            (i) the check was not properly charged to, 
                        or chargeable against, the consumer account; or
                            (ii) the consumer has a warranty claim with 
                        respect to such substitute check;
                    (C) the consumer suffered a resulting loss; and
                    (D) the production of the original check or 
                substitute check is necessary to determine the validity 
                of any claim under subparagraph (B).
            (2) 30-day period.--Any claim under paragraph (1) with 
        respect to a consumer account may be submitted by a consumer 
        before the end of the 30-day period beginning on the later of--
                    (A) the date on which the consumer receives the 
                periodic statement of account for such account which 
                contains information concerning the transaction giving 
                rise to the claim; and
                    (B) the date on which the substitute check is made 
                available to the consumer.
            (3) Extension under extenuating circumstances.--If the 
        ability of the consumer to submit the claim within the 30-day 
        period under paragraph (2) is delayed due to extenuating 
        circumstances, including extended travel or the illness of the 
        consumer, 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 
        consumer shall provide to the bank that holds the account of 
        such consumer--
                    (A) a description of the claim, including an 
                explanation of--
                            (i) why the substitute check was not 
                        properly charged to, or chargeable against, the 
                        consumer account; or
                            (ii) the warranty claim with respect to 
                        such check;
                    (B) a statement that the consumer 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 consumer account or the 
                warranty claim; and
                    (D) sufficient information to identify the 
                substitute check and to investigate the claim.
            (2) Claim in writing.--The bank holding the consumer 
        account that is the subject of a claim by the consumer under 
        subsection (a) may, in the discretion of the bank, require that 
        the consumer submit, in writing, the information required under 
        paragraph (1).
    (c) Recredit to Consumer.--
            (1) Prompt action required.--If a consumer 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--
                    (A) produce the original or substitute check and 
                demonstrate to the consumer that the substitute check 
                was properly charged to the consumer account; or
                    (B) recredit the consumer account 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 consumer account; or
                                    (II) $2,500; and
                            (ii) interest on the amount recredited 
                        under clause (i).
            (2) Timing.--A bank shall take the action required under 
        paragraph (1) not later than the earlier of--
                    (A) the end of the business day on which the bank 
                determines that it will take such action; or
                    (B) the end of the 10th business day following the 
                submission of a claim by the consumer under subsection 
                (a).
            (3) Notice to consumer.--
                    (A) In general.--If a bank does not provide the 
                original check or a substitute check under paragraph 
                (1)(A), the bank shall send to the consumer, by the end 
                of the business day on which the bank makes its 
                determination regarding a claim for recredit, a notice 
                stating that--
                            (i) the bank will recredit the consumer 
                        account; and
                            (ii) the date on which the bank will make 
                        the recredited funds available for withdrawal.
                    (B) Mode of delivery.--The notice under 
                subparagraph (A) shall be delivered by United States 
                mail, or by any other means through which the consumer 
                has agreed to receive account information.
            (4) Recredit of amounts in excess of $2,500.--
                    (A) In general.--If, in connection with a claim by 
                a consumer under subsection (a), the bank determines 
                that an amount in excess of any amount recredited to 
                the consumer account under paragraph (1) was improperly 
                charged against the consumer account in connection with 
                a substitute check, the bank shall credit the consumer 
                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.
                    (B) Period for determination.--A bank shall make a 
                determination with respect to the validity of a claim 
                by a consumer under subsection (a) for purposes of this 
                paragraph not later than 45 calendar days after the 
                banking day on which the consumer 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 
        consumer account under subsection (c) shall make the recredited 
        funds available for withdrawal by the consumer by the start of 
        the next business day after the business day by which the bank 
        is required to recredit the consumer under subsection (c).
            (2) Safeguard exceptions.--A bank may delay availability to 
        a consumer of a recredit provided to a consumer account under 
        subsection (c) until the start of the 45th business day 
        following the banking day on which the consumer submits a claim 
        for such recredit in accordance with subsection (b), if--
                    (A) the claim is made during the 30-day period 
                beginning on the banking day the consumer account was 
                established;
                    (B) 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 that 
                        6-month period ending on the date on which the 
                        consumer submits the claim, the balance in the 
                        consumer 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 that 
                        6-month period, the balance in the consumer 
                        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; or
                    (C) the bank has reasonable cause to believe that 
                the claim is fraudulent, based on facts 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 
        a bank, the bank may delay availability of a recredit provided 
        to a consumer account under subsection (c) until a reasonable 
        period after the emergency has ceased, to the extent that the 
bank exercises such diligence as the circumstances require and complies 
with paragraph (4).
            (4) Notice to consumer.--
                    (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 consumer account shall notify the consumer 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 consumer account 
                may impose any overdraft fee with respect to any draft 
                drawn by the consumer on such recredited amount before 
                the end of the 5-day period beginning on the date on 
                which the notice under subparagraph (A) with respect to 
                the availability of such amount was sent by the bank to 
                the consumer.
    (e) Reversal of Recredit.--If a bank determines that a substitute 
check for which the bank recredited a consumer account under subsection 
(c) was in fact properly charged to the consumer account, the bank may 
reverse the recredit to the consumer account if, upon reversing the 
recredited amount, the bank--
            (1) notifies the consumer of the date and the amount of the 
        reversal;
            (2) provides the original check or the substitute check to 
        the consumer; and
            (3) provides to the consumer an explanation of the basis 
        for the determination by the bank that the substitute check was 
        properly charged, including copies of any information or 
        documents on which the bank relied in making the determination.

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 that it has 
                indemnified) has received a claim for expedited 
                recredit from a consumer under section 6 with respect 
                to the substitute check, or would have been subject to 
                such a claim had the account of the consumer been 
                charged;
                    (B) the claimant bank has suffered a resulting loss 
                or is obligated to recredit a consumer account under 
                section 6 with respect to the substitute check; and
                    (C) production of the original check or substitute 
                check is necessary to determine the validity of the 
                charge to the consumer account or any warranty claim 
                connected with the substitute check.
            (2) 120-day period.--Any claim under paragraph (1) shall 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.
    (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--
                    (A) a description, as applicable, of--
                            (i) the claim, including an explanation of 
                        why the substitute check cannot be properly 
                        charged to the consumer account; or
                            (ii) the warranty claim;
                    (B) a statement that the claimant bank has suffered 
                a loss or is obligated to recredit the account of a 
                consumer 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 consumer account or the 
                warranty claim; and
                    (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 under 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 consumer in accordance with section 6(b), 
        if the claimant bank has obtained such claim in writing.
    (c) Recredit by Indemnifying Bank.--
            (1) Prompt action required.--Not later than 10 business 
        days after the business day on which an indemnifying bank 
        receives a claim under subsection (a) from a claimant bank with 
        respect to the substitute check, the indemnifying bank shall--
                    (A) provide the original check (with respect to the 
                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 comply 
                with (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 the check.
            (3) Refund to indemnifying bank.--If a claimant bank 
        reverses, in accordance with section 6(e), a recredit 
        previously made to a consumer account under section 6(c), 
        otherwise receives a credit or recredit with regard to a 
        substitute check, the claimant bank shall promptly refund to 
        any indemnifying bank any amount previously advanced by the 
        indemnifying bank in connection with the 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 that 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 by or 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; 
                        and
                    (B) interest and expenses (including costs and 
                reasonable attorney fees and other expenses of 
                representation) related to the substitute check.
            (2) Offset of recredits.--Any amount of damages that any 
        person receives under paragraph (1) 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 person incurs damages that 
resulted in whole or in part from the negligence or failure of that 
person to act in good faith, then the amount of any liability due to 
that person under subsection (a) shall be reduced in proportion to the 
amount of negligence or bad faith attributable to that person.

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 on which the cause of 
        action accrues.
            (2) Accrual.--For purposes of paragraph (1), a cause of 
        action accrues as of the date on which 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, not later than 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 from liability 
in an action to enforce a claim under this Act, to the extent of any 
loss caused by the delay in giving notice of the claim.
    (c) Notice of Claim by Consumer.--A timely claim by a consumer 
under section 6 for expedited recredit constitutes timely notice of a 
claim by the consumer for purposes of subsection (b).

SEC. 10. CONSUMER AWARENESS.

    (a) In General.--Not later than 1 year after the date of enactment 
of this Act, the Board shall prepare and make available a brief 
document on substitute checks, for distribution by banks to consumers, 
which contains a description of--
            (1) the process of check substitution and how the process 
        may be different than the check clearing process with which the 
        consumer may be familiar;
            (2) the benefits, if any, of check substitution, including 
        expedited funds availability, for the consumer and a notice 
        that shorter check processing times, through check 
        substitution, will reduce the float that may be available to a 
        consumer; and
            (3) the process for a claim for recredit established under 
        section 6 when a consumer believes in good faith that a 
        substitute check was not properly charged to, or chargeable 
        against, the consumer account.
    (b) Distribution.--
            (1) In general.--Each bank shall distribute the document 
        prepared by the Board pursuant to subsection (a) to each 
        consumer that is a customer of that bank.
            (2) Existing customers.--With respect to consumers that are 
        customers of a bank on the effective date of this Act, a bank 
        meets the requirements of paragraph (1) by distributing the 
        document prepared by the Board to each such consumer--
                    (A) in the first regularly scheduled mailing to 
                such consumer after the effective date of this Act; or
                    (B) through other means through which the consumer 
                has agreed to receive account information.
            (3) New account holders.--With respect to any consumer that 
        becomes a customer of a bank after the effective date of this 
        Act, a bank meets the requirements of paragraph (1) by 
        distributing the document prepared by the Board to each such 
        consumer at the time at which the customer relationship is 
        initiated.

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.--Except as provided in 
subsection (a), no provision of this Act may be varied by agreement of 
any person or persons.

SEC. 13. REGULATIONS.

    (a) Required Regulations.--Not later than 1 year after the date of 
enactment of this Act, the Board shall promulgate final regulations 
required by this Act.
    (b) Other Authority.--The Board may, in addition to regulations 
described in subsection (a)--
            (1) issue such other regulations as may be necessary to 
        implement this Act; and
            (2) by regulation, exempt any person from any provision of 
        this Act relating to substitute checks, as may be necessary 
        to--
                    (A) reduce risk;
                    (B) accommodate technological or other 
                developments; or
                    (C) alleviate undue compliance burdens.

SEC. 14. EFFECTIVE DATE.

    This Act shall take effect 18 months after the date of enactment of 
this Act, except as otherwise specifically provided in this Act.
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