[Congressional Record Volume 149, Number 82 (Thursday, June 5, 2003)]
[House]
[Pages H4996-H5005]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
CHECK CLEARING FOR THE 21ST CENTURY ACT
The SPEAKER pro tempore. Pursuant to House Resolution 256 and rule
XVIII, the Chair declares the House in the Committee of the Whole House
on the State of the Union for the consideration of the bill, H.R. 1474.
{time} 1210
In the Committee of the Whole
Accordingly, the House resolved itself into the Committee of the
Whole House on the State of the Union for the consideration of the bill
(H.R. 1474) 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, with Mr. LaHood in the chair.
The Clerk read the title of the bill.
The CHAIRMAN. Pursuant to the rule, the bill is considered as having
been read the first time.
Under the rule, the gentleman from Alabama (Mr. Bachus) and the
gentleman from Massachusetts (Mr. Frank) each will control 30 minutes.
The Chair recognizes the gentleman from Alabama (Mr. Bachus).
Mr. BACHUS. Mr. Chairman, I yield such time as she may consume to the
gentlewoman from Pennsylvania (Ms. Hart).
(Ms. HART asked and was given permission to revise and extend her
remarks.)
Ms. HART. Mr. Chairman, I rise in support of H.R. 1474.
A lot of people are not familiar with the legislation. We have been
calling it ``check truncation.'' The official title is Check Clearing
for the 21st Century Act. Our truncated name is Check 21.
This legislation holds the promise of a more efficient check
collection system by removing legal barriers to the full utilization of
new technologies. It is a win for consumers. It is a win for the
financial services industry. It will empower banks to help prevent
fraud. It will empower consumers to have more control over their
accounts and more efficiency in the transfer of their funds.
Our current check system's legal framework has not kept up with
technological advances and has constrained the efforts of many banks to
use innovations like digital check imaging to improve check processing
efficiency, providing improved service to customers and substantial
reductions in transportation and other check processing costs.
This digital check imaging looks like a check. It simply is a copy
that is transferable digitally, transferable more quickly, than a paper
check. It also can be copied and utilized just like a canceled check.
It is important to implement the technological advances made in the
field of payment systems so that we provide customers with expedited
access to capital, to credit, yet they will be ensured that they are
protected from fraud.
This legislation permits banks, credit unions and other financial
institutions to truncate checks, just simply not have to transport that
canceled check. It allows them to process and clear checks
electronically, without moving those paper checks to clearinghouses and
returning the original cancelled checks to customers.
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The problem with the current system is that over and over these
checks are processed, and it takes a lot of time. It requires physical
delivery of the check from the institution of deposit through an
intermediary, such as clearinghouses or the Federal Reserve Bank, to
the bank of the customer who wrote the check before it can be paid.
Each step of this inefficient process relies on the physical
transportation of that check, resulting in billions of checks being
driven or flown across the country every day.
The problem with this legal framework was highlighted in the days
following the September 11 attacks when the Nation's planes were
grounded, and the flow of checks transported by air came to a complete
stop. During that time, the Federal Reserve's daily check float grew
from its normal few hundred million dollars to over $47 billion.
Under current law, banks, credit unions, and other financial
institutions are unable to truncate checks. They are only able to
truncate checks if they have special arrangements with other
institutions that are part of the transaction. There are over 15,000
banks, thrifts, and credit unions, and they are all negotiating
separate agreements among themselves, so it is impossible to follow and
keep in touch with all of those, even for the most diligent financial
institution.
The way this bill would work, a Pennsylvania bank would no longer
have to ship a check drawn on a California bank all the way across the
country in order for it to clear, for it to be processed, and for the
actual payment of the check. This is done by creating a new negotiable
instrument called a substitute check.
Again, the substitute check would permit banks to truncate the
original check; and it would process the information electronically,
immediately, and print and deliver the substitute checks to banks and
bank customers. So the customer who wishes to retain that record, such
as a canceled check, would have something that looks just like it.
This shows exactly what that substitute check looks like. It looks
familiar, does it not? It is just an identical copy of a canceled
check.
This is the legal equivalent of the original check under our
legislation. It would include all the information contained on the
original check and the image of the front and back of the original
check, as well as the machine-readable numbers which appear on the
bottom of the check. And because the substitute check can be processed
just like an original check, a bank would not need to invest in any new
technology or otherwise change its current check processing operation,
unless the bank chooses to update its technology.
Consumers benefit, and this is the most important part of the
legislation. Customers maintain the same protections that they have
with this law as they have with their original check. Reducing
processing costs will result in efficiency gains and expedited services
for customers. Accessing images of checks will take a fraction of the
time that it currently takes to access microfilm or the physical
archives or the canceled check itself. Customers will no longer have to
wait for a copy of the check to be obtained from a central processing
facility or the microfilm library.
Institutions that have already implemented this check imaging
technology offer their customers a wide variety of ways to access these
images, including in person at branches as they would today, or through
the mail but also over the Internet and in image statements and
advanced ATMs. So, for the customer, this is just a wonderful boost.
Customers will also benefit from the availability of check imaging to
help combat fraud and the problems associated with bad checks. The
ability to access check images on the Internet helps consumers to
quickly and conveniently verify their transactions. They can identify
potential errors. They can detect fraudulent transactions sooner,
rather than waiting until the end of the month when they receive their
traditional statement.
[[Page H4997]]
Identifying errors and potential fraud as soon as possible helps
everyone. It helps the banks minimize customer inconvenience and cost.
It helps control potential losses. It helps give law enforcement an
advantage in tracking down the perpetrators of fraud.
Promoting this image technology can help speed processing and
encourage banks to provide new and improved products and services to
consumers. Financial institutions will be able to establish branches or
ATMs in remote locations to further service their customers, provide
more cost-effective service, provide customers with later deposit and
cut-off times, and provide printed copies of checks deposited at ATMs
on ATM receipts. Such changes could result in a check being credited a
day earlier and interest accruing a day earlier on interest-bearing
accounts. Obviously, that will make customers quite happy.
In conclusion, this is a win-win for everyone. It is a win for the
industry, but it is especially a win for consumers. I encourage my
colleagues to support H.R. 1474 and significantly increase the
efficiency of the Nation's check clearing process.
Mr. FRANK of Massachusetts. Mr. Chairman, I yield myself such time as
I may consume.
Mr. Chairman, I think this is a very good idea. It is efficient. We
make sure consumers are fully protected. I agree with just about
everything everybody else is going to say today.
Mr. Chairman, I yield such time as he may consume to the gentleman
from New York (Mr. Weiner).
Mr. WEINER. Mr. Chairman, I thank the gentleman for yielding time to
me, and I thank the sponsors for giving me an opportunity to speak.
This is clearly a bill, as the previous speaker outlined, that
improves efficiency and hopefully reduces costs to banks. One thing
that was not addressed in this legislation, though, is a remaining area
of patent unfairness to consumers.
We all know that a check is essentially an article of faith. It is a
contract between two people. From time to time, people write checks
that they simply do not have the money to cover. They are penalized.
They pay a fine by their bank, anywhere in the neighborhood of $15 to
$25.
But what continues to be the case in this country, in many banks, in
the neighborhood of about 85 percent of the big banks and about 75
percent of smaller banks, is someone who receives the check, who is
already out the amount of money that they were supposed to be given, is
also charged a fee, a fine. This is patently unfair. It is
counterintuitive; and, frankly, it is indefensible. I think we should
address this in this House.
Some of the arguments that are raised to defend the idea that the
person who gets the check should be fined when someone bounces a check
say that there is an added cost to banks when someone bounces a check.
This is true. It is estimated that that cost is in the neighborhood
of 48 to 65 cents, depending on what study we see. It is clear that
someone should be penalized for that. Frankly, we can argue it is too
high, but the person who wrote the check is already getting a $20-some-
odd-dollar fine.
Also, there is a relationship between all banks in the system that
when there is a bounced check, if the credit union has a bounced check
that they have to return to CitiBank, there is a relationship there
that they exchange a few dimes to make up for that cost.
The net of all of this is the banking business makes about $6.1
billion of profits, according to 1999 numbers, just on these
transactions. They cover the costs, and then industry-wide they make
about $6.1 billion. So the idea that the costs are not getting covered
is certainly not the case.
Secondly, some have argued that we need to have a disincentive for a
merchant who is going to get a bad check. We have to incentivize them,
checking vigorously to make sure they are getting it from a legitimate
person.
Well, this is the silliest argument. They already have the greatest
incentive of all. If they get a bad check, they are out the money or
they are out the service or they are out the product that they exchange
in exchange for that. That is why we all go to our local diners and we
see the checks up, notices up, ``we do not accept checks from this
person,'' because they definitely do not want to get snookered a second
time. So the idea that they should get a $20, a $15 or $10 fine,
somehow creates a disincentive is simply not the case.
A third argument made is that, well, when we are receiving a check,
we should be extra vigilant. We should call up to make sure the person
has the money in their account. Well, I have news, because of excellent
legislation passed by the gentleman from Ohio (Mr. Oxley) and others,
we cannot do that. We cannot receive a check for $100 and call up the
bank and say, listen, I have account number 1751. Do they have $100 in
their account? They cannot even exchange that information, so there is
no way you as the person receiving the check can avoid that fee.
Some people have said, well, the receiving banks have costs just like
the issuing bank has costs. As I mentioned, those costs are already
covered.
Then, finally, after we cut through all of it, I have found in my one
experience with this, and some industry leaders have said, do you know
what, at the end of the day if you make a stink about it, we do not
charge. That is not any way to run a railroad.
Frankly, this fee, this fine, this penalty is indefensible. It does
not penalize someone who does something wrong, it does not
disincentivize activity in any way, and it does not encourage any type
of activity that a person can protect.
One of the things we are doing here is making this transaction more
efficient. The gentleman from Alabama (Mr. Bachus) said it in the
debate on the rule, do we want to improve the efficiency here? That is
the rationale. But I think we also have to restore a sense of fairness.
This is one open fissure in the law that I look for opportunities to
address.
Now, I know that we are here under an open rule and I have the
opportunity, but I would ask the gentleman from Massachusetts if
perhaps there might be other opportunities to address this inequity.
Mr. FRANK of Massachusetts. Mr. Chairman, will the gentleman yield?
Mr. WEINER. I yield to the gentleman from Massachusetts.
Mr. FRANK of Massachusetts. The gentleman is right, we are trying in
everything we have done, and I think we have accomplished that in our
committee so far. The chairman has been very cooperative in promoting
efficiency while protecting consumers. This bill, as I said, does do
that with regard to your ability to get the check if you actually need
it.
The gentleman raises a point that had not previously occurred to me
that I think is a good one. I think it ought to be addressed. I would
be obviously, as I have told him, very reluctant to do it now without a
chance to examine it and have some hearings.
We do have pending in the process a more comprehensive bill called
the Regulatory Relief Bill into which I believe this would fit. The
bill passed our committee. It is being sequentially referred to the
Committee on the Judiciary.
There are some important issues there, particularly including the
industrial loan corporations, where we have given assurances that we
are going to try and work some compromises out. So I can guarantee to
the gentleman from New York (Mr. Weiner), who has raised this very
important issue, that further work remains to be done on regulatory
relief. I have spoken to the chairman of both the full committee and
the subcommittee, and we agree that this is an issue worthy of
consideration.
I would say this, whether or not we would all ultimately agree on a
solution cannot be predicted. Certainly the gentleman will, I believe,
have an opportunity if not to offer it today to offer it later, and I
hope then to be able to offer it with a good deal more agreement.
Mr. OXLEY. Mr. Chairman, will the gentleman yield?
Mr. WEINER. I yield to the gentleman from Ohio.
Mr. OXLEY. I thank the gentleman for yielding, Mr. Chairman.
Mr. Chairman, the gentleman from New York makes an excellent point.
This is an issue that needs to be addressed. I think, indeed, the
avenue that the gentleman from Massachusetts (Mr. Franks) mentioned
would be
[[Page H4998]]
the most appropriate, as opposed to this check truncation bill. So I
appreciate the gentleman's withholding the amendment until we have an
opportunity to find out where it fits.
Indeed, as the regulatory relief bill works its way through the
process, the gentleman would have adequate opportunity to work his
amendment in that particular venue. So I appreciate the gentleman for
yielding and look forward to working with him.
Mr. WEINER. Mr. Chairman, I thank the chairman and the ranking member
for those words. Perhaps in the interim we could also inform some of
the small business groups and advocates, who are probably the primary
victims of these fees, small businesses who are in good faith accepting
these things. The larger businesses, the Wal-Marts of the world,
probably say to their banks, we refuse to pay them.
But this will be an opportunity. I appreciate the gentleman's
willingness to give me another bite at this apple at the appropriate
time.
Mr. FRANK of Massachusetts. Mr. Chairman, I ask unanimous consent
that the gentleman from Tennessee (Mr. Ford) be allowed to manage the
remainder of our time on this bill.
The CHAIRMAN. Is there objection to the request of the gentleman from
Massachusetts?
There was no objection.
Mr. BACHUS. Mr. Chairman, I yield 2 minutes to the gentleman from
Ohio (Mr. Oxley), the chairman of the full committee.
Mr. OXLEY. Mr. Chairman, I rise today to encourage my colleagues to
support this important legislation.
I want to particularly pay my highest regards and admiration to the
gentleman from Alabama (Chairman Bachus) for working so well in a
bipartisan way on this legislation; to our good friend, the gentlewoman
from Pennsylvania (Ms. Hart); my good friend, the gentleman from
Tennessee (Mr. Ford), for being the lead Democrat to sponsor on this
legislation; and the gentleman from New Jersey (Mr. Ferguson).
This is a very important piece of legislation that modernizes the
system. Just think about it. We are in many ways operating in kind of a
Pony Express system today in moving checks around. Admittedly, instead
of ponies, we do it by airplane.
We have found in our hearings, in our deliberations on this
legislation, that the 4 days after 9/11/01 were 4 days in which nobody
was flying. The checks were piling up. We process 42 billion checks in
this economy every year, and the system was badly in need of
modernization. I think that 4-day period pointed that out so well.
So this is really recognizing the technology that is out there.
I had an opportunity to visit NCR headquarters in Dayton, just south
of my congressional district, last year. I got an eyewitness look at
the new technology that is out there that allows this bill to come to
fruition. It allows us to move a step forward in the check-clearing
process and at the same time making us more efficient as we proceed.
That is an amazing effort that can bring about a great deal of change.
So I want to encourage my colleagues to support this legislation. It
is long overdue. I again thank the leaders, particularly the
gentlewoman from Pennsylvania (Ms. Hart) and the gentleman from
Tennessee (Mr. Ford), for their leadership on this issue.
Mr. FORD. Mr. Chairman, I yield myself such time as I may consume.
Mr. Chairman, I thank the gentleman from Ohio (Mr. Oxley) and the
gentleman from Alabama (Mr. Bachus) for his leadership, as well as the
gentlewoman from Pennsylvania (Ms. Hart) and the gentleman from New
Jersey (Mr. Ferguson), and all my friends on the committee and all my
friends on the Democrat side.
The rule kind of got heated and spirited over another issue that
probably deserves some heat and spirit, but I think this issue here is
one that should enjoy relative ease as we move forward.
I thank the gentleman from Ohio (Mr. Oxley) (for working with the
gentleman from New York (Mr. Weiner) and the gentleman from
Massachusetts (Mr. Frank) in addressing what also is an important issue
in how people's checks are cashed and how they may be penalized for
someone else wronging them.
{time} 1230
That being said, the gentlewoman from Pennsylvania (Ms. Hart) has
walked through in pretty good detail what this bill seeks to do. In a
lot of ways, Check 21 is pretty simple in what it does. It just
modernizes the Nation's check payment system and tries to keep up with
all the new technologies in the 21st century.
The gentleman from Alabama (Mr. Bachus) mentioned how many millions
of dollars can flow across the continents and across the oceans with
the click of a mouse and the challenge we faced 2 years ago after the
tragedies of 9/11 and how this bill really tries to respond. I know
some people suggested, my good friend, the gentleman from Texas (Mr.
Sessions), suggested earlier somehow or another this would really help
to decrease oil costs. I hope we are not overstating the impact of the
bill, and this will help in our fight against terrorism. Perhaps it
will.
But one thing can be said, it is pro-consumer. It is pro-business in
a lot of ways, not only pro-business for the banks but pro-business for
those institutions who electronically transfer monies and those who
depend heavily on checks.
My good friend, the gentleman from Vermont (Mr. Sanders), who
deserves some thanks also on our side of the aisle for working with the
gentleman from Alabama (Mr. Bachus), in particular raised some
legitimate concerns throughout the debate about checks and whether or
not these substitute checks that have now been introduced as a legal
equivalent will somehow or another diminish the rights of those who
rely on checks heavily, particularly seniors.
Perhaps the opposite is true. Not only does this legislation not
affect arrangements between banks and customers moving forward, but it
will probably also allow for a cheaper, more efficient way for checks
to be used. I say that because banks will actually save money on the
process and will actually be able to provide a greater array of
services to all of its customers, particularly those customers who may
rely more on checks.
The year upwards of 60 billion checks will be written in the United
States; and although, more and more people are relying on forms of
electronic pavements, the Fed makes clear that checks will remain an
indispensable part of our financial system.
Mr. Speaker, I could go on and on about the bill, but I take 30 more
seconds before yielding to the gentlewoman from New York (Mrs. Maloney)
for some comments on the bill.
We talked about check truncation, and just to be real simple about
what this is, we wanted to find a way to sort of foster innovation
without mandating the receipt of checks in electronic form. It is
important for banks and businesses, consumers to continue to have that
option of accepting checks in paper form.
Essentially, what truncation is is when information on the paper
check is captured off the check and delivered electronically, instead
of the paper check being presented physically. Through check
truncation, paper checks are rendered into zeros and one digital
signals which can move through the payment system at digital speeds.
Check 21 accomplishes this by establishing this new negotiable
instrument, a substitute check which has the same legal status as
original checks. The substitute checks would contain the two-face image
of the original check. They would include the magnetic code at the
bottom so that any bank could process them using existing equipment.
They would conform to standards for size, paper stock and the like.
The substitute checks can then be used by banks and consumers in the
same way as original checks.
I make one last comment about my friend from North Carolina (Mr.
Watt). He and the gentleman from Alabama (Mr. Davis) both contributed
heavily to this bill ending up as good as it has, largely because of
concerns they raised about the language. But for the gentleman from
North Carolina (Mr. Watt) bringing to our attention how there might
have been some ambiguity regarding coverage of the Uniform Commercial
Code as it relates to certain disputes between banks, we might not have
tightened the language. And but for the work of the gentleman from
Alabama (Mr. Davis), who will speak in a few minutes, the language
regarding
[[Page H4999]]
the recredit provision, which actually is a new protection for
consumers, might not have been included.
Mr. Chairman, I yield 2 minutes to the gentlewoman from New York
(Mrs. Maloney).
(Mrs. MALONEY asked and was given permission to revise and extend her
remarks.)
Mrs. MALONEY. Mr. Chairman, I thank the gentleman for yielding me
time.
Mr. Chairman, I rise in support of the Check 21 legislation that will
modernize the Nation's check clearing system and benefit our
constituents across the country. I thank the ranking member, the
gentleman from Massachusetts (Mr. Frank) and the gentleman from
Tennessee (Mr. Ford) and the gentleman from Vermont (Mr. Sanders),
along with the gentleman from Ohio (Mr. Oxley) and the gentleman from
Alabama (Mr. Bachus) for their hard work on this bill.
This legislation will increase electronic check presentment and lower
the cost of check clearing, and it will make it easier for the payments
system to proceed without breakdown in the event of another terrorist
attack.
Today, the technology exists to allow customers to view images of
checks on their own home computers so they do not have to wait until
the end of the month to get their checks. This legislation complements
this technology and will spur more financial institutions to offer
these services to consumers.
As a practical matter, the ability of a consumer to see an electronic
imagine of a check will allow them to more easily resolve disputed
checks and combat fraud. The legislation also includes important
consumer provisions that will allow customers to retrieve and properly
debit funds.
Check truncation legislation will help prevent another post-9/11
situation where the grounding of the Nation's airplanes prevented
checks from being cleared. Currently, checks that are not truncated
have to be physically flown to their paying bank. With the planes
grounded, massive float built up in the payment system after the terror
attack and could have threatened a widespread economic interruption had
flights not resumed.
Not only was this a problem after 9/11, but there is a long history
of inefficiency in the transfer of checks by airplane, especially with
respect to check-clearing services provided by the Federal Reserve. I
have had a long interest in this issue, and I thank the sponsors of
this legislation for including language in the bill that adds check
transportation services to the Monetary Control Act.
I have had an interest in this issue and I thank the sponsors of the
legislation for including language in the bill that adds check
transportation services to the Monetary Control Act.
This provision will require the Federal Reserve the disclosure of
costs related to check transportation and prevent further inefficiency.
This legislation is the product of years of work by the Federal
Reserve and the Financial Services Committee. It represents
contributions from many Members over the course of countless hearings.
I urge my colleagues to support the underlying bill.
Mr. BACHUS. Mr. Chairman, I yield 2 minutes to the gentleman from New
Jersey (Mr. Ferguson), who is last year's sponsor of the bill and is an
original cosponsor this year.
Mr. FERGUSON. Mr. Chairman, I am pleased to be here. I certainly
appreciate the chairman of the subcommittee and the chairman of the
full committee for their work on this, and the ranking member of the
full committee and the subcommittee and certainly my friend, the
gentlewoman from Pennsylvania (Ms. Hart), my friend, the gentleman from
Tennessee (Mr. Ford), for their great work in sponsoring this
legislation in this Congress.
I rise in support of this important legislation. It is common-sense
legislation. It has garnered overwhelming support from financial
institutions, from technology companies, from various trade
associations, and from the Federal Reserve.
The way in which banks currently handle check transfers is totally
outdated. Currently, banks are required to physically present and
return original paper checks. It is a tedious process that is
inefficient. It is expensive, and it is rife with potential for fraud.
As a result, millions of paper checks are physically transported
between banks every day. The system relies solely on uninterrupted air
and ground traffic in order to ensure that checks are presented to
paying banks in a timely manner.
When the horrific events of September 11 grounded all air traffic in
the United States, hundreds of millions of checks did not move and the
U.S. payment system was stalled, creating a situation that severely
threatened our economic security. That is why the Federal Reserve,
after consulting with the banking industry, technology companies, and
consumer groups, submitted a proposal to Congress that would reduce the
need for physical transportation of checks through increased electronic
truncation.
Last Congress, I sponsored Check 21, a bill which builds on the
Federal Reserves proposal and modernizes the Nation's check payments
system by allowing banks to exchange checks electronically. This
Congress, I am proud to be a co-sponsor of the gentlewoman from
Pennsylvania's (Ms. Hart) and the gentleman from Tennessee's (Mr. Ford)
legislation.
Check 21 strengthens our economic security by capitalizing on
existing technology to make the collection process faster and more
efficient while improving customer service, access to funds, and any
fraud protections. Check 21 is simply a better, more efficient way of
transferring checks that takes advantage of the technology that we have
at hand.
Mr. Chairman, I am pleased that we were poised to pass this
legislation.
Mr. FORD. Mr. Chairman, I yield 4 minutes to the gentleman from
Alabama (Mr. Davis), a new colleague but one who has already
distinguished himself in the Congress.
Mr. DAVIS of Alabama. Mr. Chairman, I want to thank the gentleman for
yielding me time.
This is somewhat of a departure from the debate of the morning and
from the debate that we may have this afternoon on some issues, but it
is something of a welcome departure I suspect for some of us.
The way this institution works when it is at its best is we find a
way to work with the best interests of the business community and we
find a way to work with the best interests of the consumer community;
and if we get some efficiency out of the process, well, all the better.
This legislation is a good bill. It is outstanding legislation, and I
want to compliment the leadership of this committee. I want to
compliment our very able colleague, the gentlewoman from Pennsylvania
(Ms. Hart), as well as my good friend, my very able colleague, the
gentleman from Tennessee (Mr. Ford), as well as a number of members of
this committee who have contributed to taking what was a good bill and
getting it to the point that it is an excellent piece of legislation.
A number of people have extolled the virtues of this bill as far as
efficiencies are concerned. A number of people have extolled its
virtues as far as making a system that has been something of a maze a
much more comprehensible process.
I want to dwell for a minute on an act of simplification that this
bill creates with respect to consumers. Right now, a good many of the
people who are watching this or who are part of our districts have had
the experience of looking at their bank ledgers and finding out that
they have been credited for something that they did not think they
wrote. A lot of people regularly run into these kinds of very small
issues with the banking community, and those of us who went to law
school can recall the portions of our bar books that summarize the UCC
and the various protections, and they have been something of an
imponderable maze.
This bill improves that. The expedited recredit provision has a
number of very simple but very important features.
The first one is that if it is determined that a bank has falsely
credited someone's account, within 1 day of that determination the bank
must recredit the account. And there is a very specific window of time
that is set to resolve a dispute. If a bank has not determined that a
claim is valid within 10 business days, the bank has two options:
either recrediting the lesser of the amount charged or $25 with
interest being recredited and any remaining amount within 45 calendar
days. That is an important act of simplification.
[[Page H5000]]
Another important act is that if there is an invalid claim or notice
of recredit, the consumer must receive it no later than the day after
the bank makes the determination. Why is that maze of words important?
Because a lot of banks, Mr. Chairman, have not necessarily had the
clearest or best guidance from the UCC on what to do in the very simple
instance someone comes into a bank and wants to straighten out their
account. This bill helps.
Another instance, we had a question during the committee process
about the substitute check and a number of valid questions were raised
about the meaning of the substitute check. In working with our
colleagues on the other side of the aisle, we managed to clear up a lot
of these ambiguities. It is now very clear that someone who may not
have a substitute check in hand, that individual can still take
advantage of the expedited recredit provisions. That is important in a
world where paper sometimes gets lost in the mail.
So I will conclude, Mr. Chairman, by saying that this bill reflects
what we can do when we are able to step outside of our partisan boxes
and what we can do when we bring a little bit of common sense to the
process. Again, I want to thank the leadership of the committee for
bringing this to place.
Mr. BACHUS. Mr. Chairman, I yield 2 minutes to the gentleman from
Texas (Mr. Hensarling).
Mr. HENSARLING. Mr. Chairman, I rise today in support of H.R. 1474,
the Check Clearing for the 21st Century Act.
This bill, which modernizes check-clearing transactions, is a win-win
for both consumers and financial institutions. Check 21 will result in
fewer errors in check transactions while providing consumers with more
choices.
Because of increased on-line access, consumers can now have more
confidence when inquiring about the status of their personal checks,
and they can receive a much quicker response from their bank.
Consumers will further benefit by the reduced cost associated with
modernization of check clearing, and Check 21 ensures that banks remain
fully accountable to the consumers they serve.
Mr. Chairman, the act will make banking more efficient, reduce
transactional cost, provide consumers with more choices, and help our
financial services industry remain preeminent in the world.
I want to thank the gentleman from Alabama (Mr. Bachus) and my
friends, the gentlewoman from Pennsylvania (Ms. Hart) and the gentleman
from Tennessee (Mr. Ford), for their leadership on this important
legislation. I urge all of my colleagues to vote yes on H.R. 1474.
Mr. BACHUS. Mr. Chairman, I yield 2 minutes to the gentlewoman from
Florida (Ms. Harris).
Ms. HARRIS. Mr. Chairman, I rise in support of H.R. 1474, the Check
Clearing for the 21st Century Act.
Every day banks assume enormous risks in order to create jobs and
build opportunities. They have infused our economy with its lifeblood
of capital and credit, while maintaining the health of our global
economy's circulatory arteries. Nevertheless, banks still must cope
with costly and antiquated laws and regulations that do not accurately
reflect the realities, demands, and opportunities of today's cyber
economy.
Under the current law that governs the check-clearing process, banks
must physically transport checks to a recipient bank, unless an
electronic exchange agreement is in place with that recipient bank.
{time} 1245
This requirement is costly, time-consuming and completely unnecessary
in light of the safeguards and security available through digital
imaging and electronic transmission.
H.R. 1474 helps us bring our banking system into the 21st century by
granting full legal standing to substitute checks which can be digital
images of the front and back of the original check that contain all of
the information in readable form.
This bill modernizes the check collection process enabling banks to
provide customers with faster and less expensive service. Moreover,
H.R. 1474 retains and enhances all of the legal protections against
fraud and errors that consumers enjoy under the current system while
preserving the flexibility of recipient banks to process an
electronically received check in the same way they would process the
original.
Mr. Chairman, I urge my colleagues to support this long overdue
legislation which will play a critical role in preserving the health of
our financial system and revitalizing our economy, and I applaud the
leadership and the sponsors this bill.
Mr. FORD. Mr. Chairman, I yield myself the remaining time. I will
consume the shortest period of time as I possibly can, Mr. Chairman.
The gentleman from New Jersey (Mr. Ferguson), who walked off the
floor, deserves a lot of credit for this, and forgive me for not
mentioning him more, and obviously the gentlewoman from Pennsylvania
(Ms. Hart), it is her bill this go around; but the gentleman from New
Jersey (Mr. Ferguson) brought my attention to the bill, and I thank him
for that.
I think all the merits of the bill have been talked about pretty
extensively and maybe the more we talk we may lose what unanimous
support we have. So I am not going to talk much longer other than to
thank a few people.
I want to thank Roger Ferguson at the Federal Reserve, the vice
chair. I want to thank Ed Hill and Grant Cole at Bank of America. I
want to thank Janelle Duncan with the Consumers Union, as well as the
Consumer Federation of America and the United States Public Interest
Research Group, for all of their hard work. As the gentleman from
Alabama (Mr. Davis) said, this is one bill that I think in a lot of
ways can be accurately described as pro-business and pro-consumer.
I want to thank Brant Imperatore with O'Conner and Hannan, and of
course, the committee staff on both sides, Erika Jeffers, who is a law
school classmate, and Ken Swab and Jaime Lizarraga; as well as the
gentleman from Ohio's (Mr. Oxley) staff, Kevin MacMillan, Deena Ellis,
Jim Clinger, Carter McDowell.
There were a number of groups outside of here, the Independent
Community Bankers, America's Community Bankers, Credit Union National
Association and many others, who contributed to making this final
product as good as it is.
I ask my colleagues to support the bill.
Mr. Chairman, I yield back the balance of my time.
Mr. BACHUS. Mr. Chairman, I yield myself such time as may consume.
Mr. Chairman, present law requires that checks be returned to the
bank where they were originally drawn, and that way of doing business
has basically been the law and the procedure in this country for over
100 years. We have technology now that makes something else possible,
and that is electronic transfer, as opposed to transfer of the paper
check.
What we have in our country today is an antiquated process, which is
also a tedious process, which each day involves as many as 10 to 12,000
cars, trucks and airplanes returning checks when none of this is
necessary.
The credit unions some 20 years ago went away from this process. They
have had zero consumer complaints. The largest banks have made
agreements between banks, and they have gone away from this process;
but today, two-thirds of the checks still are processed in this
outdated manner.
What this House has done in a bipartisan way is take a bill that has
been cosponsored by two of our most able Members, the gentlewoman from
Pennsylvania (Ms. Hart) and the gentleman from Tennessee (Mr. Ford),
very aware of this issue, very knowledgeable on the issue, they have
drafted this bill. The committee has looked at the bill. We have made
changes to protect the consumer, slight changes. The bill as it exists
today has been endorsed by the Federal Reserve, all the regulators, all
the financial institutions involved, all the trade groups, consumer
groups. It is a model for what this House can do when it puts aside its
differences and works together for the good of the Nation as a whole.
This bill is good for customers. This bill is good for consumers.
This bill is good for the economy.
We have talked about little things such as airport congestion, how
this will help address that, congestion on the roadway, our energy
dependence.
I want to commend, in closing, the gentleman from Ohio (Mr. Oxley),
who
[[Page H5001]]
has made this one of his three goals for this year to move this
legislation; the gentleman from Massachusetts (Mr. Frank), the ranking
member, who identified this as necessary legislation.
My colleagues may say, well, this ought to be simple. For 20 years we
tried to reform our check-clearing process. We have not been able to do
it until this moment. This House today I think will take a historic
step in making us more competitive in the world economy by bringing our
check-clearing system up to a model for the world.
Mr. Chairman, I commend the gentleman from Tennessee (Mr. Ford) and
the gentlewoman from Pennsylvania (Ms. Hart).
Mr. FORD. Mr. Chairman, will the gentleman yield?
Mr. BACHUS. I yield to the gentleman from Tennessee.
Mr. FORD. Mr. Chairman, before the gentleman yields back, Jim Worth,
I forgot to mention him, the legislative counsel. I thank him as well.
Mr. BACHUS. That is absolutely true. Our staff worked together very
closely and in a very bipartisan spirit.
Mr. HINOJOSA. Mr. Chairman, I rise today in strong support of H.R.
1474, the Check Clearing for the 21st Century Act. I commend
Representatives Melissa Hart and Harold Ford for introducing the
legislation and for tenaciously working to ensure the legislation came
to the House floor today.
I also want to thank Chairman Oxley, Chairman Bachus, Ranking Member
Frank and Ranking Member Sanders for bringing this legislation to the
floor today.
H.R. 1474 will modernize the nation's check payment system by
allowing, but not mandating, banks to exchange checks electronically.
Recognizing that not all banks have the ability to accept electronic
transmission of a check, H.R. 1474 authorizes the creation of
substitute checks for payment.
This substitute check would be used in place of the original paper
check, and it would be a negotiable instrument. Banks that create an
electronic check will be able to create a substitute check and use that
for presentment to a bank that has not upgraded its system to accept
electronic checks.
This legislation capitalizes on existing technology to make the
current process faster and more efficient, while increasing customer
service, improving access to funds and increasing antifraud measures
that ensure our economic security. H.R. 1474 will decrease our check
payment system's financial dependence on physically transporting
checks, thus avoiding any types of delays or paralysis in the U.S.
payment system that might be created by another September 11th
terrorist attack.
I believe that the Committee successfully crafted very difficult and
complicated recredit provisions in the legislation that address the
concerns of consumer groups.
This legislation is a well-crafted bill that will provide the
structure for an efficient financial payments framework to enable
financial institutions to provide better customer service. I encourage
my colleagues to support this legislation.
Mr. OXLEY. Mr. Chairman. I wanted to take this opportunity to thank
the gentleman from Wisconsin (Mr. Sensenbrenner), the Chairman of the
Judiciary Committee, for his assistance in bringing this important
measure to the floor. I am inserting for the Record an exchange of
correspondence regarding his committee's jurisdiction over the measure.
House of Representatives,
Committee on the Judiciary,
Washington, DC, May 22, 2003.
Hon. Michael Oxley,
Chairman, Committee on Financial Services, House of
Representatives, Washington, DC.
Dear Chairman Oxley: In recognition of the desire to
expedite floor consideration of H.R. 1474, the ``Check
Clearing for the 21st Century Act,'' the Committee on the
Judiciary hereby waives consideration of the bill. Certain
provisions of the bill relating to the litigation of claims
relating to check clearing fall within the Committee on the
Judiciary's Rule X jurisdiction. However, given the need to
expedite this legislation, I will not seek a sequential
referral based on their inclusion.
The Committee on the Judiciary takes this action with the
understanding that the Committee's jurisdiction over these
provisions is in no way diminished or altered. I would
appreciate your including this letter in your committee
report on H.R. 1474 and in the Congressional Record during
consideration of H.R. 1474 on the House floor.
Sincerely,
F. James Sensenbrenner, Jr.,
Chairman.
____
House of Representatives,
Committee on Financial Services,
Washington, DC, May 22, 2003.
Hon. F. James Sensenbrenner, Jr.,
Committee on the Judiciary, Rayburn House Office Building,
Washington, DC.
Dear Chairman Sensenbrenner: Thank you for your letter
regarding your Committee's jurisdictional interest in H.R.
1474, the Check Clearing for the 21st Century Act.
I acknowledge your committee's jurisdictional interest in
this legislation and appreciate your cooperation in moving
the bill to the House floor expeditiously. I agree that your
decision to forego further action on the bill will not
prejudice the Committee on the Judiciary with respect to its
jurisdictional prerogatives on this or similar legislation. I
will include a copy of your letter and this response in the
Committee's report on the bill and the Congressional Record
when the legislation is considered by the House.
Thank you again for your assistance.
Sincerely,
Michael G. Oxley,
Chairman.
____
Mr. BACHUS. Mr. Chairman, I yield back the balance of my time.
The CHAIRMAN. All time for general debate has expired.
Pursuant to the rule, the committee amendment in the nature of a
substitute printed in the bill shall be considered by sections as an
original bill for the purpose of amendment, and each section is
considered read.
During consideration of the bill for amendment, the Chair may accord
priority in recognition to a Member offering an amendment that he has
printed in the designated place in the Congressional Record. Those
amendments will be considered read.
The Clerk will designate section 1.
The text of section 1 is as follows:
H.R. 1474
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; FINDINGS; PURPOSES.
(a) Short Title.--This Act may be cited as the ``Check
Clearing for the 21st Century Act''.
(b) Findings.--The Congress finds as follows:
(1) In the Expedited Funds Availability Act, enacted on
August 10, 1987, the Congress directed the Board of Governors
of the Federal Reserve System to consider establishing
regulations requiring Federal reserve banks and depository
institutions to provide for check truncation, in order to
improve the check processing system.
(2) In that same Act, the Congress--
(A) provided the Board of Governors of the Federal Reserve
System with full authority to regulate all aspects of the
payment system, including the receipt, payment, collection,
and clearing of checks, and related functions of the payment
system pertaining to checks; and
(B) directed that the exercise of such authority by the
Board superseded any State law, including the Uniform
Commercial Code, as in effect in any State.
(3) Check truncation is no less desirable today for both
financial service customers and the financial services
industry, to reduce costs, improve efficiency in check
collections, and expedite funds availability for customers
than it was over 15 years ago when Congress first directed
the Board to consider establishing such a process.
(c) Purposes.--The purposes of this Act are as follows:
(1) To facilitate check truncation by authorizing
substitute checks.
(2) To foster innovation in the check collection system
without mandating receipt of checks in electronic form.
(3) To improve the overall efficiency of the Nation's
payments system.
The CHAIRMAN. Are there any amendments to section 1?
amendment no. 1 offered by ms. hart
Ms. HART. Mr. Chairman, I offer an amendment.
The CHAIRMAN. The Clerk will designate the amendment.
The text of the amendment is as follows:
Amendment No. 1 offered by Ms. Hart:
In section 1, insert ``or the `Check 21 Act' '' before the
period at the end.
Ms. HART. Mr. Chairman, this amendment is actually very brief. It is
one line. It is very simple; and it is, as far as I can tell,
completely noncontroversial.
The amendment simply adds another name to this legislation to the
title of the bill. It will be, by this amendment, also referred to as
the Check 21 Act. Everyone who has been familiar with this bill has
commonly referred to it as Check-21, and this amendment simply brings
clarity to that issue.
I would urge my colleagues to support the amendment.
Also, I would like to add to the thanks for the cooperation on a
bipartisan basis for the bill itself as well. I would like to thank the
gentleman from Ohio (Mr. Oxley), the gentleman from Alabama (Mr.
Bachus), the ranking member as well, and also my fellow sponsors, the
gentleman from Tennessee (Mr. Ford) and the gentleman from New Jersey
(Mr. Ferguson).
Everyone's cooperated well and explained this issue; but those who
have not been mentioned today, those in the private sector who will be
affected by this legislation have also been extremely supportive and
very cooperative in working out differences that
[[Page H5002]]
they had during the process of moving this legislation forward, and I
wish to recognize them as well. When we as the sponsors had asked them
to sit down and iron some issues out, they did so and they did so very
efficiently.
Mr. Chairman, I simply offer my amendment and ask for its approval,
very simply adding the name Check 21 Act.
The CHAIRMAN. Does any other Member wish to speak on this amendment?
The question is on the amendment offered by the gentlewoman from
Pennsylvania (Ms. Hart).
The amendment was agreed to.
Mr. BACHUS. Mr. Chairman, I ask unanimous consent that the remainder
of the committee amendment in the nature of a substitute be printed in
the Record and open to amendment at any point.
The CHAIRMAN. Is there objection to the request of the gentleman from
Alabama?
There was no objection.
The text of the remainder of the committee amendment in the nature of
a substitute is as follows:
SEC. 2. DEFINITIONS.
For purposes of this Act, the following definitions shall
apply:
(1) Account.--The term ``account'' means a deposit account
at a bank.
(2) Bank.--The term ``bank'' means any person that is
located in a State and engaged in the business of banking and
includes--
(A) any depository institution (as defined in section
19(b)(1)(A) of the Federal Reserve Act);
(B) any Federal reserve bank;
(C) any Federal home loan bank; or
(D) to the extent it acts as a payor--
(i) the Treasury of the United States;
(ii) the United States Postal Service;
(iii) a State government; or
(iv) a unit of general local government (as defined in
section 602(24) of the Expedited Funds Availability Act).
(3) 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; 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 indorsed first by another bank.
(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.
(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.
(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 5
with respect to a substitute check.
(12) 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, 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.
(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)(3) of the Federal Deposit Insurance Act.
(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) Other terms.--Unless the context requires otherwise,
the terms not defined in this section shall have the same
meanings as in the Uniform Commercial Code.
SEC. 3. GENERAL PROVISIONS GOVERNING SUBSTITUTE CHECKS.
(a) No Agreement Required.--A person may deposit, present,
or send for collection or return a substitute check without
an agreement with the recipient, so long as a bank has made
the warranties in section 4 with respect to such substitute
check.
(b) Legal Equivalence.--A substitute check shall be the
legal equivalent of the original check for all purposes,
including any provision of any Federal or State law, and for
all persons if the substitute check--
(1) accurately represents all of the information on the
front and back of the original check as of the time the
original check was truncated; and
(2) bears the legend: ``This is a legal copy of your check.
You can use it the same way you would use the original
check.''.
(c) Endorsements.--A 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 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 customers, of part 229 of title 12 of
the Code of Federal Regulations, the Uniform Commercial Code,
and any other applicable Federal or State law as if such
substitute check were the original check, to the extent such
provision of law is not inconsistent with this Act.
SEC. 4. SUBSTITUTE CHECK WARRANTIES.
A bank that transfers, presents, or returns a substitute
check and receives consideration for the check warrants, as a
matter of law, 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
check 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
the bank, drawee, drawer, or endorser will be asked to make a
payment based on a check that the bank, drawee, drawer, or
endorser has already paid.
SEC. 5. 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 amount
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
[[Page H5003]]
due to the receipt of a substitute check instead of the
original check.
(b) Indemnity Amount.--
(1) Amount in event of breach of warranty.--The amount of
the indemnity under subsection (a) shall be the amount of any
loss (including costs and reasonable attorney's fees and
other expenses of representation) proximately caused by a
breach of a warranty provided under section 4.
(2) Amount in absence of breach of warranty.--In the
absence of a breach of a warranty provided 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's fees and other expenses of representation).
(c) Comparative Negligence.--If a loss described in
subsection (a) results in whole or in part from the
negligence or failure to act in good faith on the part of an
indemnified party, then that party's indemnification under
this section shall be reduced in proportion to the amount of
negligence or bad faith attributable to that party.
(d) Effect of Producing Original Check or Copy.--
(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 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 the original
check or such copy is provided to the indemnified party; and
(B) have a right to the return of any funds the bank has
paid under the indemnity in excess of those losses.
(2) Coordination of indemnity with implied warranty.--The
production of the original check, a substitute check, or a
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 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's account for a
substitute check that was provided to the consumer;
(B) either--
(i) the check was not properly charged to the consumer's
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) 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; or
(B) the date the substitute check is made available to the
consumer.
(3) Extension under extenuating circumstances.--If the
consumer's ability 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 shall be extended for a total
not to exceed 30 additional days.
(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 consumer's 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 consumer's 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
the consumer to submit the information required under
paragraph (1) in writing.
(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 provided to the consumer the original
check, a substitute check, or a copy of the original check
and demonstrates that the substitute check was properly
charged to the consumer's account.
(2) Timing of recredit.--
(A) In general.--The bank shall recredit the consumer's
account for the amount described in paragraph (1) no later
than the end of the business day following the business day
on which the bank determines the consumer's claim is valid.
(B) Recredit pending investigation.--If the bank has not
yet determined that the consumer's claim 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
consumer's 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,
no 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's 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 consumer's claim 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 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 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 consumer's
claim was in fact properly charged to the consumer's account,
the bank shall send to the consumer, no later than the
business day following the business day on which the bank
makes a 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 the
original check was truncated); or
(ii) is otherwise sufficient to determine whether or not
the consumer's claim is valid; and
(B) 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.
(2) Notice of recredit.--If a bank recredits a consumer
account under subsection (c), the bank shall send to the
consumer, no 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 the recredited funds will be available for
withdrawal.
(3) Notice of reversal of recredit.--In addition to the
notice required under paragraph
[[Page H5004]]
(1), if a bank reverses a recredited amount under subsection
(e), the bank shall send to the consumer, no 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 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 law, such as a
claim for wrongful dishonor under the Uniform Commercial
Code, or from liability for additional damages under section
5 or 9.
(h) Clarification Concerning Consumer Possession.--A
consumer who was provided a substitute check may make a claim
for an expedited recredit under this section with regard to a
transaction involving the substitute check whether or not the
consumer is in possession of the substitute check.
(i) Scope of Application.--This section shall only apply to
customers who are consumers.
SEC. 7. EXPEDITED RECREDIT PROCEDURES FOR BANKS.
(a) Recredit Claims.--
(1) In general.--A bank may make a claim against an
indemnifying bank for expedited recredit for which that bank
is indemnified if--
(A) the claimant bank (or a bank that the claimant bank has
indemnified) has received a claim for expedited recredit from
a consumer under section 6 with respect to a substitute check
or would have been subject to such a claim had the consumer's
account 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 such substitute check; and
(C) production of the original check, another substitute
check, or a better copy of the original check is necessary to
determine the validity of the charge to the customer account
or any warranty claim connected with such substitute check.
(2) 120-day period.--Any claim under paragraph (1) may be
submitted by the claimant bank to an indemnifying bank before
the end of the 120-day beginning on the date of the
transaction that gave rise to the claim.
(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 consumer's account under
section 6, together with an estimate of the amount of the
loss or recredit;
(C) the reason why production of the original check,
another substitute 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 3(b); or
(B) sent or handled by any bank, including the indemnifying
bank, as a forward collection or returned check.
(3) Claim in writing.--An indemnifying bank may, in the
bank's discretion, require the claimant bank to submit in
writing the information required by paragraph (1), including
a copy of the written claim, if any, that the consumer
submitted in accordance with section 6(b).
(c) Recredit by Indemnifying Bank.--
(1) Prompt action required.--No 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 the
original check was truncated); or
(ii) is otherwise sufficient to determine the bank's claim
is not valid; and
(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 5 or 9
with respect to such check.
(3) Refund to indemnifying bank.--If a claimant bank
reverses, in accordance with section 6(e), a recredit
previously made to a consumer account under section 6(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 5(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), section 5(d) shall govern any
right of the indemnifying bank to any repayment of any funds
the indemnifying bank has recredited to the claimant bank
pursuant to subsection (c).
SEC. 8. 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. 9. 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's fees and other expenses of representation) related
to the substitute check.
(2) Offset of recredits.--The amount of damages any person
receives under paragraph (1), if any, shall be reduced by the
amount, if any, that the claimant receives and retains as a
recredit under section 6 or 7.
(b) Comparative Negligence.--If a 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. 10. STATUTE OF LIMITATIONS AND NOTICE OF CLAIM.
(a) Actions Under This Act.--
(1) In general.--An action to enforce a claim under this
Act may be brought in any United States district court, or in
any other court of competent jurisdiction, before the end of
the 1-year period beginning on the date the cause of action
accrues.
(2) Accrual.--A cause of action accrues as of the date the
injured party first learns, or by which such person
reasonably should have learned, of the facts and
circumstances giving rise to the cause of action.
(b) Discharge of Claims.--Except as provided in subsection
(c), unless a person gives notice of a claim to the
indemnifying or warranting bank within 30 days after the
person has reason to know of the claim and the identity of
the indemnifying or warranting bank, the indemnifying or
warranting bank is discharged to the extent of any loss
caused by the delay in giving notice of the claim.
(c) Notice of Claim by 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. 11. CONSUMER AWARENESS.
(a) In General.--Each bank shall provide, in accordance
with subsection (b), a brief notice about substitute checks
that describes--
(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; and
(2) a description of the consumer recredit rights
established under section 6 when a consumer believes in good
faith that a substitute check was not properly charged to the
consumer's account.
(b) Distribution.--
(1) Existing customers.--With respect to consumers that are
customers of a bank on the effective date of this Act, a bank
shall provide the notice described in subsection (a) to each
such consumer no later than the first regularly scheduled
communication with the consumer after the effective date of
this Act.
(2) New account holders.--A bank shall provide the notice
described in subsection (a) to each consumer, other than
existing customers referred to in paragraph (1), at the time
at which the customer relationship is initiated.
(3) Mode of delivery.--A bank may send 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.--No later than 1 year 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
bank's substitute check notice uses a model form or clause
published by the Board and such model form or clause
accurately describes the bank's policies and practices. A
bank may delete any information in the model form or clause
that is not required by this Act or rearrange the format.
(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. 12. 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.
[[Page H5005]]
SEC. 13. 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. 14. REGULATIONS.
(a) In General.--The Board may, by regulation, clarify or
otherwise implement the provisions of this Act or may modify
the requirements imposed by this Act with respect to
substitute checks to further the purposes of this Act,
including reducing risk, accommodating technological or other
developments, and alleviating undue compliance burdens.
(b) Board Monitoring of Check Collection and Return
Process; Adjustment of Time Periods.--
(1) Monitoring of check collection and return process.--The
Board shall monitor the extent to which--
(A) original checks are converted to substitute checks in
the check collection and return process, and
(B) checks are collected and returned electronically rather
than in paper form.
(2) Adjustment of time periods.--The Board shall exercise
the Board's authority under section 603(d)(1) of the
Expedited Funds Availability Act to reduce the time periods
applicable under subsections (b) and (e) of section 603 of
such Act for making funds available for withdrawal, when
warranted.
(c) Publication of Schedule by Board for Check
Transportation Services.--Section 11A(b) of the Federal
Reserve Act (12 U.S.C. 248a(b)) is amended--
(1) by striking ``and'' at the end of paragraph (7);
(2) by redesignating paragraph (8) as paragraph (9); and
(3) by inserting after paragraph (7) the following new
paragraph:
``(8) check transportation services; and''.
SEC. 15. EFFECTIVE DATE.
This Act shall take effect at the end of the 18-month
period beginning on the date of the enactment of this Act,
except as otherwise specifically provided in this Act.
The CHAIRMAN. Are there any further amendments?
The question is on the amendment in the nature of a substitute, as
amended.
The amendment in the nature of a substitute, as amended, was agreed
to.
The CHAIRMAN. Under the rule, the Committee rises.
Accordingly, the Committee rose; and the Speaker pro tempore (Mr.
Aderholt) having assumed the chair, Mr. LaHood, Chairman of the
Committee of the Whole House on the State of the Union, reported that
that Committee, having had under consideration the bill (H.R. 1474) 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, pursuant to House
Resolution 256, he reported the bill back to the House with an
amendment adopted by the Committee of the Whole.
The SPEAKER pro tempore. Under the rule, the previous question is
ordered.
Is a separate vote demanded on the amendment to the committee
amendment in the nature of a substitute adopted by the Committee of the
Whole? If not, the question is on the committee amendment in the nature
of a substitute.
The committee amendment in the nature of a substitute was agreed to.
The SPEAKER pro tempore. The question is on the engrossment and third
reading of the bill.
The bill was ordered to be engrossed and read a third time, and was
read the third time.
The SPEAKER pro tempore. The question is on passage of the bill.
The question was taken; and the Speaker pro tempore announced that
the ayes appeared to have it.
Mr. BACHUS. Mr. Speaker, on that I demand the yeas and nays.
The SPEAKER pro tempore. Pursuant to clause 8 of rule XX, further
proceedings on this question will be postponed.
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