[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[S. 1334 Reported in Senate (RS)]






                                                       Calendar No. 168
108th CONGRESS
  1st Session
                                S. 1334

                          [Report No. 108-79]

  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

                             June 25, 2003

Mr. Shelby, from the Committee on Banking, Housing, and Urban Affairs, 
 reported the following original bill; which was read twice and placed 
                            on the calendar

_______________________________________________________________________

                                 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; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Check Truncation 
Act of 2003''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Findings and purposes.
Sec. 3. Definitions.
Sec. 4. General provisions governing substitute checks.
Sec. 5. Substitute check warranties.
Sec. 6. Indemnity.
Sec. 7. Expedited recredit for consumers.
Sec. 8. Expedited recredit procedures for banks.
Sec. 9. Delays in an emergency.
Sec. 10. Measure of damages.
Sec. 11. Statute of limitations and notice of claim.
Sec. 12. Consumer awareness.
Sec. 13. Effect on other law.
Sec. 14. Regulations.
Sec. 15. Study and report on funds availability.
Sec. 16. Evaluation and report by the Comptroller General.
Sec. 17. Variation by agreement.
Sec. 18. Effective date.

SEC. 2. FINDINGS AND PURPOSES.

    (a) 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 2003 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.
    (b) 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. 3. 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; 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 terms.--
                    (A) Collecting bank.--The term ``collecting bank'' 
                means any bank handling a check for collection except 
                the paying bank.
                    (B) 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; or
                            (ii) a bank to which a check is transferred 
                        for deposit in an account at such bank, even if 
                        the check is physically received and endorsed 
                        first by another bank.
                    (C) Depository institution.--The term ``depository 
                institution'' has the same meaning as in section 
                19(b)(1)(A) of the Federal Reserve Act (12 U.S.C. 
                461(b)(1)(A)).
                    (D) Paying bank.--The term ``paying bank'' means--
                            (i) the bank by which a check is payable, 
                        unless the check is payable at or through 
                        another bank and is sent to the other bank for 
                        payment or collection; or
                            (ii) the bank at or through which a check 
                        is payable 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.
            (4) Board.--The term ``Board'' means the Board of Governors 
        of the Federal Reserve System.
            (5) 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)).
            (6) 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 
                a travelers check; and
                    (B) does not include a noncash item or an item 
                payable in a medium other than United States dollars.
            (7) 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; or
                    (B) with respect to a check handled for return, 
                deposits the check into, or cashes the check against, a 
                consumer account.
            (8) 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)).
            (9) Customer.--The term ``customer'' means a person having 
        an account with a bank.
            (10) 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.
            (11) Indemnifying bank.--The term ``indemnifying bank'' 
        means a bank that is providing an indemnity under section 6 
        with respect to a substitute check.
            (12) MICR line.--The term ``MICR line'' or ``magnetic ink 
        character recognition line'' means the numbers, which may 
        include the bank routing number, account number, check number, 
        check amount, and other information, that are printed near the 
        bottom of a check in magnetic ink in accordance with generally 
        applicable industry standards.
            (13) 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)).
            (14) Person.--The term ``person'' means a natural person, 
        corporation, unincorporated company, partnership, government 
        unit or instrumentality, trust, or any other entity or 
        organization.
            (15) Reconverting bank.--The term ``reconverting bank'' 
        means--
                    (A) the bank that creates a substitute check; or
                    (B) if a substitute check is created by a person 
                other than a bank, the first bank that transfers or 
                presents such substitute check.
            (16) 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 a MICR line containing all the 
                information appearing on the MICR line of the original 
                check, except as provided under generally applicable 
                industry standards for substitute checks to facilitate 
                the processing of 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.
            (17) 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)).
            (18) 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.
            (19) Uniform commercial code.--The term ``Uniform 
        Commercial Code'' means the Uniform Commercial Code in effect 
        in a State.
            (20) 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)).
            (21) 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. 4. 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 has made the warranties 
described in section 5 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 at which 
        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 for which the bank is the reconverting 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 for 
which the bank is a reconverting bank, 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, including any provision relating to the protection of 
consumers, of part 229 of title 12, Code of Federal Regulations (or any 
successor thereto), 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. 5. SUBSTITUTE CHECK WARRANTIES.

    A bank that transfers, presents, or returns a substitute check and 
receives consideration for the check warrants 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 4(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. 6. INDEMNITY.

    (a) Indemnity.--A reconverting bank and each bank that subsequently 
transfers, presents, or returns a substitute check in any electronic or 
paper form, and receives consideration for such transfer, presentment, 
or return shall indemnify 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 5.
            (2) Amount in absence of breach of warranty.--In the 
        absence of a breach of a warranty established under section 5, 
        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.--
            (1) In general.--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 the 
        indemnification of that party under this section shall be 
        reduced in proportion to the amount of negligence or bad faith 
        attributable to that party.
            (2) Rule of construction.--Nothing in this subsection 
        reduces the rights of a consumer or any other person under the 
        Uniform Commercial Code or other applicable provision of 
        Federal or State law.
    (d) Effect of Producing Original Check or Substitute Check.--
            (1) In general.--If the indemnifying bank produces the 
        original check or a copy of the original check (including an 
        image or a substitute check) that accurately represents all of 
        the information on the front and back of the original check (as 
        of the time at which the original check was truncated), or is 
        otherwise sufficient to determine whether or not a claim is 
        valid, 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 copy 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, substitute check, or copy 
        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. 7. 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 
                        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 a 
                better copy of the original check is necessary to 
                determine the validity of any claim described in 
                subparagraph (B).
            (2) 40-day period.--Any claim under paragraph (1) with 
        respect to a consumer account may be submitted by a consumer 
        before the end of the 40-day period beginning on the later of--
                    (A) the date on which the financial institution 
                mails or delivers, by a means agreed to by the 
                consumer, the periodic statement of account for such 
                account which contains information concerning the 
                transaction giving rise to the claim; or
                    (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 40-day 
        period under paragraph (2) is delayed due to extenuating 
        circumstances, including extended travel or the illness of the 
        consumer, the 40-day period shall be extended by a reasonable 
        amount of time.
    (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 the subject 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 a better copy of the original check is necessary to 
                determine the validity of the charge to the subject 
                consumer account or the warranty claim; and
                    (D) sufficient information to identify the 
                substitute check and to investigate the claim.
            (2) Claim in writing.--
                    (A) In general.--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 the consumer to submit the information 
                required under paragraph (1) in writing.
                    (B) Means of submission.--A bank that requires a 
                submission of information under subparagraph (A) may 
                permit the consumer to make the submission 
                electronically, if the consumer has agreed to 
                communicate with the bank in that manner.
    (c) Recredit to Consumer.--
            (1) Conditions for recredit.--The bank shall recredit a 
        consumer account in accordance with paragraph (2) for the 
        amount of a substitute check that was charged against the 
        consumer account, if--
                    (A) a consumer submits a claim to the bank with 
                respect to that substitute check that meets the 
                requirement of subsection (b); and
                    (B) the bank has not--
                            (i) provided to the consumer--
                                    (I) the original check; or
                                    (II) a copy of the original check 
                                (including an image or a substitute 
                                check) that accurately represents all 
                                of the information on the front and 
                                back of the original check, as of the 
                                time at which the original check was 
                                truncated; and
                            (ii) demonstrated to the consumer that the 
                        substitute check was properly charged to the 
                        consumer account.
            (2) Timing of recredit.--
                    (A) In general.--The bank shall recredit the 
                subject consumer account for the amount described in 
                paragraph (1) not later than the end of the business 
                day following the business day on which the bank 
                determines the claim of the consumer is valid.
                    (B) Recredit pending investigation.--If the bank 
                has not determined that the claim of the consumer is 
                valid before the end of the 10th business day after the 
                business day on which the consumer submitted the claim, 
                the bank shall recredit the subject consumer account 
                for--
                            (i) the lesser of the amount of the 
                        substitute check that was charged against the 
                        consumer account, or $2,500, together with 
                        interest if the account is an interest-bearing 
                        account, not later than the end of such 10th 
                        business day; and
                            (ii) the remaining amount of the substitute 
                        check that was charged against the consumer 
                        account, if any, together with interest if the 
                        account is an interest-bearing account, not 
                        later than the 45th calendar day following the 
                        business day on which the consumer submits the 
                        claim.
    (d) Availability of Recredit.--
            (1) Next business day availability.--Except as provided in 
        paragraph (2), 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 on which the bank 
        recredits the consumer account under subsection (c).
            (2) Safeguard exceptions.--A bank may delay availability to 
        a consumer of a recredit provided under subsection (c)(2)(B)(i) 
        until the start of either the business day following the 
        business day on which the bank determines that the claim of the 
        consumer is valid, or the 45th calendar day following the 
        business day on which the consumer submits a claim for such 
        recredit in accordance with subsection (b), whichever is 
        earlier, in any of the following circumstances:
                    (A) New accounts.--The claim is made during the 30-
                day period beginning on the business day on which the 
                consumer 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 business days during the 
                        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 business days during such 
                        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.
                    (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 consumer 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) Overdraft fees.--No bank that, in accordance with 
        paragraph (2), delays the availability of a recredit under 
        subsection (c) to any consumer account may impose any overdraft 
        fees with respect to drafts drawn by the consumer on such 
        recredited amount before the end of the 5-day period beginning 
        on the date on which notice of the delay in the availability of 
        such amount is sent by the bank to the consumer.
    (e) Reversal of Recredit.--A bank may reverse a recredit to a 
consumer account if the bank--
            (1) 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; and
            (2) notifies the consumer in accordance with subsection 
        (f)(3).
    (f) Notice to Consumer.--
            (1) Notice if consumer claim not valid.--If a bank 
        determines that a substitute check subject to the claim of a 
        consumer under this section was in fact properly charged to the 
        consumer account, the bank shall send to the consumer, not 
        later than the business day following the business day on which 
        the bank makes the determination--
                    (A) the original check or a copy of the original 
                check (including an image or a substitute check) that--
                            (i) accurately represents all of the 
                        information on the front and back of the 
                        original check (as of the time at which the 
                        original check was truncated); or
                            (ii) is otherwise sufficient to determine 
                        whether or not the claim of the consumer is 
                        valid; and
                    (B) an explanation of the basis for the 
                determination by the bank that the substitute check was 
                properly charged, including a statement that the 
                consumer may request copies of any information or 
                documents on which the bank relied in making the 
                determination.
            (2) Notice of recredit.--If a bank recredits a consumer 
        account under subsection (c), the bank shall send to the 
        consumer, not later than the business day following the 
        business day on which the bank makes the recredit, a notice 
        of--
                    (A) the amount of the recredit; and
                    (B) the date on which the recredited funds will be 
                available for withdrawal.
            (3) Notice of reversal of recredit.--In addition to the 
        notice required under paragraph (1), if a bank reverses a 
        recredited amount under subsection (e), the bank shall send to 
        the consumer, not later than the business day following the 
        business day on which the bank reverses the recredit, a notice 
        of--
                    (A) the amount of the reversal; and
                    (B) the date on which the recredit was reversed.
            (4) Mode of delivery.--A notice described in this 
        subsection shall be delivered by United States mail or by any 
        other means through which the consumer has agreed to receive 
        account information.
    (g) Other Claims Not Affected.--Providing a recredit in accordance 
with this section shall not absolve the bank from liability for a claim 
made under any other provision of law, such as a claim for wrongful 
dishonor under the Uniform Commercial Code, or from liability for 
additional damages under section 6 or 10.
    (h) Scope of Application.--This section shall only apply to 
customers who are consumers.

SEC. 8. 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 the claimant 
                bank has indemnified) has received a claim for 
                expedited recredit from a consumer under section 7 with 
                respect to a substitute check, or would have been 
                subject to such a claim had the subject consumer 
                account been charged;
                    (B) the claimant bank has suffered a resulting loss 
                or is obligated to recredit the consumer account under 
                section 7 with respect to such substitute check; and
                    (C) production of the original check or a better 
                copy of the original check is necessary to determine 
                the validity of the charge to the consumer 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 period 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 send to the indemnifying bank--
                    (A) a description 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 subject consumer 
                account under section 7, together with an estimate of 
                the amount of the loss or recredit;
                    (C) the reason why production of the original check 
                or a better copy of the original 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 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 4(b); or
                    (B) sent or handled by any bank, including the 
                indemnifying bank, as a forward collection or returned 
                check.
            (3) Claim in writing.--
                    (A) In general.--An indemnifying bank may, in the 
                discretion of the bank, require the claimant bank to 
                submit the information required by paragraph (1) in 
                writing, including a copy of the written or 
                electronically submitted claim, if any, that the 
                consumer provided in accordance with section 7(b).
                    (B) Means of submission.--An indemnifying bank that 
                requires a submission of information under subparagraph 
                (A) may permit the claimant bank to make the submission 
                electronically, if the claimant bank has agreed to 
                communicate with the indemnifying bank in that manner.
    (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 a substitute check, the indemnifying bank shall--
                    (A) provide, to the claimant bank, the original 
                check (with respect to such substitute check) or a copy 
                of the original check (including an image or a 
                substitute check) that--
                            (i) accurately represents all of the 
                        information on the front and back of the 
                        original check (as of the time at which the 
                        original check was truncated); or
                            (ii) is otherwise sufficient to determine 
                        that the claim of the bank is not valid;
                    (B) recredit the claimant bank for the amount of 
                the claim up to the amount of the substitute check, 
                plus interest if applicable; or
                    (C) provide information to the claimant bank as to 
                why the indemnifying bank is not obligated to comply 
                with 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 liability for claims brought under any 
        other law or from additional damages under section 6 or 10 with 
        respect to such check.
            (3) Refund to indemnifying bank.--If a claimant bank 
        reverses, in accordance with section 7(e), a recredit 
        previously made to a consumer account under section 7(c), 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 a Sufficient Copy Governed by 
Section 6(d).--If the indemnifying bank provides the claimant bank with 
the original check or a copy of the original check (including an image 
or a substitute check) under subsection (c)(1)(A) of this section, 
section 6(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. 9. DELAYS IN AN EMERGENCY.

    Delay by a bank beyond the time limits prescribed or permitted by 
this Act is excused if the delay is caused by interruption of 
communication or computer facilities, suspension of payments by another 
bank, war, emergency conditions, failure of equipment, or other 
circumstances beyond the control of a bank, and if the bank uses such 
diligence as the circumstances require.

SEC. 10. MEASURE OF DAMAGES.

    (a) Liability.--
            (1) In general.--Except as provided in section 6, 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.--The amount of damages that any 
        person receives under paragraph (1), if any, shall be reduced 
        by the amount that the claimant receives and retains as a 
        recredit under section 7 or 8, if any.
    (b) Comparative Negligence.--
            (1) In general.--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.
            (2) Rule of construction.--Nothing in this subsection 
        reduces the rights of a consumer or any other person under the 
        Uniform Commercial Code or other applicable provision of 
        Federal or State law.

SEC. 11. 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) Notice of Claims Required.--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 7 for expedited recredit constitutes timely notice of a 
claim by the consumer for purposes of subsection (b).

SEC. 12. CONSUMER AWARENESS.

    (a) In General.--During the 3-year period beginning on the 
effective date of this Act, each bank shall provide to each consumer 
that is a customer of the bank, in accordance with subsection (b), a 
brief notice about substitute checks that describes--
            (1) how a substitute check is 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--
                    (A) accurately represents all of the information on 
                the front and back of the original check as of the time 
                at which the original check was truncated; and
                    (B) bears the legend: ``This is a legal copy of 
                your check. You can use it in the same way you would 
                use the original check.''; and
            (2) the consumer recredit rights established under section 
        7 when a consumer believes in good faith that a substitute 
        check was not properly charged to the account of the consumer.
    (b) Distribution.--
            (1) In general.--The notice required by subsection (a) 
        shall be provided--
                    (A) to each consumer that is a customer of the bank 
                as of the effective date of this Act, and that receives 
                original checks or substitute checks along with 
                periodic account statements, not later than together 
                with the first regularly scheduled communication with 
                the customer after the effective date of this Act;
                    (B) at the time at which a customer relationship is 
                initiated, if such relationship is initiated on or 
                after the effective date of this Act and such customer 
                will receive original checks or substitute checks along 
                with periodic account statements; and
                    (C) to each customer of the bank that requests a 
                copy of a check and receives a substitute check, at the 
                time of the request.
            (2) Mode of delivery.--A bank may provide the notices 
        required by this subsection by United States mail, or by any 
        other means through which the consumer has agreed to receive 
        account information.
    (c) Model Language.--
            (1) In general.--Not later than 9 months after the date of 
        enactment of this Act, the Board shall publish model forms and 
        clauses that a depository institution may use to describe each 
        of the elements required by subsection (a).
            (2) Safe harbor.--A bank shall be treated as being in 
        compliance with the requirements of subsection (a) if the 
        substitute check notice of the bank uses a model form or clause 
        published by the Board, and such model form or clause 
        accurately describes the policies and practices of the bank. A 
        bank may delete any information in the model form or clause 
        that is not required by this Act, or rearrange the format of 
        such form.
            (3) Use of model language not required.--This section shall 
        not be construed as requiring any bank to use a model form or 
        clause that the Board prepares under this subsection.

SEC. 13. 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. 14. REGULATIONS.

    The Board may prescribe such regulations as it deems necessary to 
implement, prevent circumvention or evasion of, or facilitate 
compliance with the provisions of this Act.

SEC. 15. STUDY AND REPORT ON FUNDS AVAILABILITY.

    (a) Study.--In order to evaluate the implementation and the impact 
of this Act, the Board shall conduct a study of--
            (1) the percentage of total checks cleared in which the 
        paper check is not returned to the paying bank;
            (2) the extent to which financial institutions make funds 
        available to consumers for local and nonlocal checks prior to 
        the expiration of maximum hold periods;
            (3) the length of time within which depositary banks learn 
        of the nonpayment of local and nonlocal checks;
            (4) the increase or decrease in check-related losses over 
        the study period; and
            (5) the appropriateness of the time periods and amount 
        limits applicable under sections 603 and 604 of the Expedited 
        Funds Availability Act, as in effect on the date of enactment 
        of this Act.
    (b) Report to Congress.--Not later than 30 months after the 
effective date of this Act, the Board shall submit a report to Congress 
concerning the results of the study conducted under this section, 
together with any recommendations for legislative action.

SEC. 16. EVALUATION AND REPORT BY THE COMPTROLLER GENERAL.

    (a) Study.--Not later than 5 years after the date of enactment of 
this Act, the Comptroller General of the United States shall evaluate 
the implementation and administration of this Act, including--
            (1) an estimate of the gains in economic efficiency made 
        possible from check truncation;
            (2) an evaluation of the benefits accruing to consumers and 
        financial institutions from reduced transportation costs, 
        longer hours for accepting deposits for credit within 1 
        business day, the impact of fraud losses, and an estimate of 
        consumers' share of the total benefits derived from this Act; 
        and
            (3) an assessment of consumer acceptance of the check 
        truncation process resulting from this Act, as well as any new 
        costs incurred by consumers who had their original checks 
        returned with their regular monthly statements prior to the 
        date of enactment of this Act.
    (b) Report to Congress.--Not later than 5 years after the date of 
enactment of this Act, the Comptroller General shall submit a report to 
Congress concerning the findings and conclusions of the Comptroller 
General in connection with the evaluation conducted pursuant to 
subsection (a), together with such recommendations for legislative and 
administrative action as the Comptroller General may determine to be 
appropriate.

SEC. 17. VARIATION BY AGREEMENT.

    (a) Section  8.--Any provision of section 8 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. 18. EFFECTIVE DATE.

    Except as otherwise specifically provided in this Act, this Act 
shall become effective 12 months after the date of enactment of this 
Act.




                                                       Calendar No. 168

108th CONGRESS

  1st Session

                                S. 1334

                          [Report No. 108-79]

_______________________________________________________________________

                                 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.

_______________________________________________________________________

                             June 25, 2003

                 Read twice and placed on the calendar