[Congressional Record (Bound Edition), Volume 149 (2003), Part 10]
[House]
[Pages 13862-13872]
[From the U.S. 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.

                              {time}  1215

  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

[[Page 13863]]

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.
  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

[[Page 13864]]

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. Frank) mentioned 
would be 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

[[Page 13865]]

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. Chairman, 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 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. 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

[[Page 13866]]

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.
  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.

[[Page 13867]]

  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 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

[[Page 13868]]

     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 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.

[[Page 13869]]

       (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 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--

[[Page 13870]]

       (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 (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.

[[Page 13871]]

       (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.

     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.

[[Page 13872]]

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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