[Federal Register Volume 60, Number 191 (Tuesday, October 3, 1995)]
[Rules and Regulations]
[Pages 51669-51703]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-23755]



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FEDERAL RESERVE SYSTEM

12 CFR Part 229

[Regulation CC; Docket No. R-0895]


Availability of Funds and Collection of Checks

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule; technical amendment.

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SUMMARY: The Board is publishing technical amendments to Regulation CC 
to correct errors, delete obsolete provisions, and facilitate the 
usefulness of the commentary. The Board's Regulation CC implements the 
Expedited Funds Availability Act and requires banks to make funds 
deposited into transaction accounts available for withdrawal within 
specified time frames.

EFFECTIVE DATE: November 2, 1995.

FOR FURTHER INFORMATION CONTACT: Louise Roseman, Associate Director 
(202/452-2789), Division of Reserve Bank Operations and Payment 
Systems; Stephanie Martin, Senior Attorney (202/452-3198), Legal 
Division; Manley Williams, Staff Attorney, (202/736-5565), Division of 
Consumer and Community Affairs. For the hearing impaired only, contact 
Dorothea Thompson, Telecommunications Device for the Deaf (TDD) (202/
452-3544), Board of Governors of the Federal Reserve System, 20th and C 
Streets, N.W., Washington, DC 20551.

SUPPLEMENTARY INFORMATION: The Board's Regulation CC (12 CFR part 229) 
implements the Expedited Funds Availability Act (12 U.S.C. 4001 et 
seq.) and requires banks1 to make funds deposited into transaction 
accounts available for withdrawal within specified time frames. 
Regulation CC also contains disclosure requirements, as well as rules 
governing the check collection and return process.

    \1\The term bank refers to any depository institution, including 
commercial banks, savings institutions, and credit unions.
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    The Board is publishing technical amendments to Regulation CC to 
correct minor errors, delete obsolete provisions, and facilitate use of 
the Commentary by adding headings and paragraph numbers.

References to Temporary Schedule

    Regulation CC provided temporary availability schedules that 
applied to checks deposited during the period from September 1, 1988, 
through August 31, 1990. The permanent availability schedule became 
effective on September 1, 1990. These technical amendments update the 
regulation, commentary, and model forms to remove obsolete references 
to the temporary schedule. For example, the definitions of ``check 
clearing association'' (Sec. 229.2(l)) and ``participant'' 
(Sec. 229.2(y)) were required only under the temporary schedule. 
Accordingly, the Board has removed those sections from the regulation 
and Commentary. The Commentary to Sec. 229.12, discussing the permanent 
schedule, often referred back to the Commentary to Sec. 229.11. As the 
Board is removing the Commentary to Sec. 229.11, major portions of that 
Commentary have been incorporated into the Commentary to Sec. 229.12. 
Throughout the regulation and appendices, the Board has removed 
references to the temporary availability schedule, and deleted the word 


[[Page 51670]]
``permanent'' as a modifier of ``availability schedule.''

Transitional Provisions

    The Board has removed references to the effective date of 
Sec. 229.36(e), regarding labeling of payable-through checks. Those 
references were in the Commentary to Secs. 229.2(r) and 229.36(e). 
Section 229.36(e) became effective on February 1, 1991.
    The Board has also removed Sec. 229.17(b) of the regulation and 
Commentary, as well as a sentence in the Commentary to Sec. 229.18(a), 
which provided special disclosure rules for accounts in existence on 
the effective date of the regulation. These provisions are now 
obsolete.

Statutory Amendments

    The definition of bank in Regulation CC is based on the definition 
of depository institution in section 19 of the Federal Reserve Act (12 
U.S.C. 461(b)(1)(A)). Congress, in the Financial Institutions Reform, 
Recovery, and Enforcement Act of 1989 (``FIRREA,'' Pub. L. No. 101-73, 
Title VII, section 744(i)(2), 103 Stat. 439 (1989)), amended the 
definition of depository institution. The Board has amended Regulation 
CC accordingly. In addition, in the Commentary to Sec. 229.2(t), the 
Board is removing a reference to section 408 of the National Housing 
Act, which was repealed in FIRREA.
    In 1991, the Expedited Funds Availability Act was amended to treat 
all deposits to nonproprietary automated teller machines as nonlocal 
(see the Federal Deposit Insurance Corporation Improvement Act, Pub. L. 
No. 102-242, section 227, 105 Stat. 2236 (1991)). The Board amended 
Regulation CC and revised the Commentary accordingly (57 FR 36599, Aug. 
14, 1992). As published, the revisions to the Commentary to 
Sec. 229.12(f) contain an error, which the Board has corrected. In 
addition, the Board has amended the definition of local paying bank in 
Sec. 229.2(s) and the corresponding Commentary, as well as the 
Commentary to Sec. 229.10, to reflect this statutory amendment.
    The Uniform Commercial Code, section 4-202(b), was amended in 1990 
to refer to a bank's duty to exercise ordinary care and timeliness 
rather than a duty to act ``seasonably.'' The Board has amended the 
Commentary to Secs. 229.2(cc) and 229.31(a) accordingly.
    The New Mexico funds availability law was repealed, effective June 
16, 1989. The Board is removing the preemption determination for New 
Mexico in Appendix F.

Citations

    The Board amended Regulation J (12 CFR part 210, 55 FR 4079, 
October 5, 1990) effective in 1991, rendering the citation to 
Regulation J in the Commentary to Sec. 229.10(b) incorrect. In 
addition, the Commentary to Sec. 229.36(b) contains an incorrect cite 
in the second sentence. The Board has corrected those Commentary 
citations, as well as an incorrect citation in Sec. 229.2(11) of the 
regulation.
    Thomson Financial Publishing Inc. now publishes the guide referred 
to in the Commentary to Secs. 229.2(dd), 229.32(a), and 229.36(b) and 
in Appendix A. The Board has revised those provisions accordingly.

Commentary Reformat

    The Board has revised the Commentary (Appendix E) by numbering each 
paragraph and adding headings where appropriate. These revisions will 
provide a consistent format within the Commentary and should make the 
Commentary easier to use.

Public Comment Waiver

    The amendments to Regulation CC and its Commentary are not 
substantive, but rather remove obsolete provisions, correct minor 
errors, conform the regulation to statutory changes, and reorganize 
existing provisions. The Board finds that public comment on these 
changes is unnecessary and contrary to the public interest. Thus, the 
Board has determined that there is good cause for not following the 
provisions of 5 U.S.C. 553(b) relating to notice and public 
participation in connection with the adoption of these amendments.

List of Subjects in 12 CFR Part 229

    Banks, banking, Federal Reserve System, Reporting and recordkeeping 
requirements.

    For the reasons set forth in the preamble, 12 CFR Part 229 is 
amended as set forth below:

PART 229--AVAILABILITY OF FUNDS AND COLLECTION OF CHECKS 
(REGULATION CC)

    1. The authority citation for Part 229 continues to read as 
follows:

    Authority: 12 U.S.C. 4001 et seq. 

    2. In Sec. 229.1, paragraph (b)(2) is revised to read as follows:


Sec. 229.1  Authority and purpose; organization.

* * * * *
    (b) * * *
    (2) Subpart B of this part contains rules regarding the duty of 
banks to make funds deposited into accounts available for withdrawal, 
including availability schedules. Subpart B of this part also contains 
rules regarding exceptions to the schedules, disclosure of funds 
availability policies, payment of interest, liability of banks for 
failure to comply with Subpart B of this part, and other matters.
* * * * *
    3. In Sec. 229.2,
    a. Paragraph (e)(6) is revised;
    b. Paragraph (l) is removed and reserved;
    c. Paragraph (s) is revised;
    d. Paragraph (y) is removed and reserved; and
    e. Paragraph (ll) is revised.
    The revisions read as follows:


Sec. 229.2  Definitions.

* * * * *
    (e) * * *
    (6) A savings association as defined in section 3 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813) that is an insured depository 
institution as defined in section 3 of that Act (12 U.S.C. 1813(c)(2)) 
or that is eligible to apply to become an insured depository 
institution under section 5 of that Act (12 U.S.C. 1815); or
* * * * *
    (l) [Reserved]
* * * * *
    (s) Local paying bank means a paying bank that is located in the 
same check processing region as the physical location of the branch or 
proprietary ATM of the depositary bank in which that check was 
deposited.
* * * * *
    (y) [Reserved]
* * * * *
    (ll) Wire transfer means an unconditional order to a bank to pay a 
fixed or determinable amount of money to a beneficiary upon receipt or 
on a day stated in the order, that is transmitted by electronic or 
other means through Fedwire, the Clearing House Interbank Payments 
System, other similar network, between banks, or on the books of a 
bank. Wire transfer does not include an electronic fund transfer as 
defined in section 903(6) of the Electronic Fund Transfer Act (15 
U.S.C. 1693a(6)).
* * * * *
    4. In Sec. 229.12, the section heading and paragraph (a) are 
revised to read as follows:


Sec. 229.12  Availability schedule.

    (a) Effective date. The availability schedule contained in this 
section is effective September 1, 1990.
* * * * * 

[[Page 51671]]

    5. In Sec. 229.13,
    a. Introductory text is added to paragraph (a);
    b. Paragraph (a)(1)(iii) is revised; and
    c. The undesignated text after paragraph (a)(1)(iii) is removed.
    The addition and revision read as follows:


Sec. 229.13  Exceptions.

    (a) New accounts. For purposes of this paragraph, checks subject to 
Sec. 229.10(c)(1)(v) include traveler's checks.
    (1) * * *
    (iii) Is not subject to the availability requirements of 
Secs. 229.10(c)(1)(vi) and (vii) and 229.12.
* * * * *
    6. In Sec. 229.16, footnote 1 in paragraph (b)(2) is revised to 
read as follows:


Sec. 229.16  Specific availability policy disclosure.

* * * * *
    (b) * * *
    (2) * * *1

    \1\ A bank that distinguishes in its disclosure between local 
and nonlocal checks based on the routing number on the check must 
disclose that certain checks, such as some credit union share drafts 
that are payable by one bank but payable through another bank, will 
be treated as local or nonlocal checks based upon the location of 
the bank by which they are payable and not on the basis of the 
location of the bank whose routing number appears on the check. A 
bank that makes funds from nonlocal checks available for withdrawal 
within the time periods required for local checks under Secs. 229.12 
and 229.13 is not required to provide this disclosure on payable-
through checks to its customers. The statement concerning payable-
through checks must describe how the customer can determine whether 
these checks will be treated as local or nonlocal, or state that 
special rules apply to such checks and that the customer may ask 
about the availability of these checks.
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* * * * *
    7. Section 229.17 is revised to read as follows:


Sec. 229.17  Initial disclosures.

    Before opening a new account, a bank shall provide a potential 
customer with the applicable specific availability policy disclosure 
described in Sec. 229.16.
    8. In Sec. 229.19, paragraphs (b) introductory text, (c)(4)(i), 
(e)(1)(ii) and (e)(2)(ii) are revised to read as follows:


Sec. 229.19  Miscellaneous.

* * * * *
    (b) Availability at start of business day. Except as otherwise 
provided in Sec. 229.12(d), if any provision of this subpart requires 
that funds be made available for withdrawal on any business day, the 
funds shall be available for withdrawal by the later of:
* * * * *
    (c) * * *
    (4) * * *
    (i) Is not dependent on the time the funds have been deposited in 
the account, as long as the funds have been on deposit for the time 
period specified in Secs. 229.10, 229.12, or 229.13; and
* * * * *
    (e) * * *
    (1) * * *
    (ii) The funds are not made available for withdrawal within the 
times specified in Secs. 229.10, 229.12, and 229.13.
    (2) * * *
    (ii) The funds are not made available for withdrawal within the 
times specified in Secs. 229.10, 229.12, and 229.13.
* * * * *
    9. In Sec. 229.36, paragraph (e) is revised and the undesignated 
paragraph following paragraph (e)(2) is removed. The revision reads as 
follows:


Sec. 229.36  Presentment and issuance of checks.

* * * * *
    (e) Issuance of payable-through checks. (1) A bank that arranges 
for checks payable by it to be payable through another bank shall 
require that the following information be printed conspicuously on the 
face of each check:
    (i) The name, location, and first four digits of the nine-digit 
routing number of the bank by which the check is payable; and
    (ii) The words ``payable through'' followed by the name and 
location of the payable-through bank.
    (2) A bank is responsible for damages under Sec. 229.38 to the 
extent that a check payable by it and not payable through another bank 
is labelled as provided in this section.
* * * * *
    10. In Appendix A to Part 229:
    a. The appendix heading is revised;
    b. The first and second undesignated paragraphs are revised;
    c. Under the heading SECOND FEDERAL RESERVE DISTRICT and the 
subheading East Rutherford Office, the number ``0270'' is removed; and
    d. Under the heading FEDERAL HOME LOAN BANKS the numbers ``0215 
0212 1'' and ``0530 1174 5'' are removed. The revisions read as 
follows:

Appendix A to Part 229--Routing Number Guide to Next-Day Availability 
Checks and Local Checks

    A. Each bank is assigned a routing number by Thomson Financial 
Publishing Inc., as agent for the American Bankers Association. The 
routing number takes two forms: A fractional form and a nine-digit 
form. A paying bank generally is identified on the face of a check 
by its routing number in both the fractional form (which generally 
appears in the upper right-hand corner of the check) and the nine-
digit form (which is printed in magnetic ink in a strip along the 
bottom of the check). Where a check is payable by one bank but 
payable through another bank, the routing number appearing on the 
check is that of the payable-through bank, not the payor bank.
    B. The first four digits of the nine-digit routing number and 
the denominator of the fractional routing number form the ``Federal 
Reserve routing symbol,'' which identifies the Federal Reserve 
District, the Federal Reserve office, and the clearing arrangements 
used by the paying bank.
* * * * *

Appendix B-1 to Part 229 [Removed]

    11. Appendix B-1 to Part 229 is removed.
    12. Appendix B-2 to Part 229 is redesignated Appendix B and the 
appendix heading is revised to read as follows:

Appendix B to Part 229--Reduction of Schedules for Certain Nonlocal 
Checks

* * * * *
    13. In Appendix C to Part 229,
    a. The appendix heading is revised;
    b. The contents listing following the introductory text is revised;
    c. Model Forms C-4 and C-6 and Model Clauses C-11 and C-11A are 
removed;
    d. Model Forms, Clauses, and Notices are redesignated as indicated 
in the following table:

------------------------------------------------------------------------
                              Old                                  New  
------------------------------------------------------------------------
C-5...........................................................  C-4     
C-7...........................................................  C-5     
C-8...........................................................  C-6     
C-8A..........................................................  C-7     
C-9...........................................................  C-8     
C-10..........................................................  C-9     
C-11B.........................................................  C-10    
C-12..........................................................  C-11    
C-13..........................................................  C-12    
C-13A.........................................................  C-13    
C-13B.........................................................  C-14    
C-13C.........................................................  C-15    
C-14..........................................................  C-16    
C-15..........................................................  C-17    
C-15A.........................................................  C-18    
C-16..........................................................  C-19    
C-17..........................................................  C-20    
C-18..........................................................  C-21    
------------------------------------------------------------------------

    e. The words ``(permanent schedule)'', ``permanent schedule,'', 
``(Permanent Schedule)'', and ``Permanent Schedule,'' are removed each 
place they appear.
    The revisions read as follows:

Appendix C to Part 229--Model Forms, Clauses, and Notices

* * * * * 

[[Page 51672]]


Model Specific Policy Disclosure Forms

C-1  Next-day availability
C-2  Next-day availability and Sec. 229.13 exceptions
C-3  Next-day availability, case-by-case holds to statutory limits, 
and Sec. 229.13 exceptions
C-4  Holds to statutory limits on all deposits (includes chart)
C-5  Holds to statutory limits on all deposits

Model Clauses

C-6  Holds on other funds (check cashing)
C-7  Holds on other funds (other account)
C-8  Appendix B availability (nonlocal checks)
C-9  Automated teller machine deposits (extended hold)
C-10  Cash withdrawal limitation
C-11  Credit union interest payment policy

Model Notices

C-12  Exception hold notice
C-13  Reasonable cause hold notice
C-14 One-time notice for large deposit and redeposited check 
exception holds
C-15  One-time notice for repeated overdraft exception holds
C-16  Case-by-case hold notice
C-17  Notice at locations where employees accept consumer deposits
C-18  Notice at locations where employees accept consumer deposits 
(case-by-case holds)
C-19  Notice at automated teller machines
C-20  Notice at automated teller machines (delayed receipt)
C-21  Deposit slip notice
* * * * *
    14. Appendix E to Part 229 is revised to read as follows:

Appendix E to Part 229--Commentary

I. Introduction

A. Background

    1. The Board interpretations, which are labeled ``Commentary'' 
and follow each section of Regulation CC (12 CFR Part 229), provide 
background material to explain the Board's intent in adopting a 
particular part of the regulation; the Commentary also provides 
examples to aid in understanding how a particular requirement is to 
work. Under section 611(e) of the Expedited Funds Availability Act 
(12 U.S.C. 4010(e)), no provision of section 611 imposing any 
liability shall apply to any act done or omitted in good faith 
conformity with any rule, regulation, or interpretation thereof by 
the Board of Governors of the Federal Reserve System, 
notwithstanding the fact that after such act or omission has 
occurred, such rule, regulation, or interpretation is amended, 
rescinded, or determined by judicial or other authority to be 
invalid for any reason. The Commentary is an ``interpretation'' of a 
regulation by the Board within the meaning of section 611.

II. Section 229.2  Definitions

A. Background

    1. Section 229.2 defines the terms used in the regulation. For 
the most part, terms are defined as they are in section 602 of the 
Expedited Funds Availability Act (12 U.S.C. 4001). The Board has 
made a number of changes for the sake of clarity, to conform the 
terminology to that which is familiar to the banking industry, to 
define terms that are not defined in the Act, and to carry out the 
purposes of the Act. The Board also has incorporated by reference 
the definitions of the Uniform Commercial Code where appropriate. 
Some of Regulation CC's definitions are self-explanatory and 
therefore are not discussed in this Commentary.

B. 229.2(a)  Account

    1. The Act defines account to mean ``a demand deposit account or 
similar transaction account at a depository institution.'' The 
regulation defines account in terms of the definition of transaction 
account in the Board's Regulation D (12 CFR part 204). The 
definition of account in Regulation CC, however, excludes certain 
deposits, such as nondocumentary obligations (see 12 CFR 
204.2(a)(1)(vii)), that are covered under the definition of 
transaction account in Regulation D. The definition applies to 
accounts with general third party payment powers but does not cover 
time deposits or savings deposits, including money market deposit 
accounts, even though they may have limited third party payment 
powers. The Board believes that it is appropriate to exclude these 
accounts because of the reference to demand deposits in the Act, 
which suggests that the Act is intended to apply only to accounts 
that permit unlimited third party transfers.
    2. The term account also differs from the definition of 
transaction account in Regulation D because the term account refers 
to accounts held at banks. Under Subparts A and C, the term bank 
includes not only any depository institution, as defined in the Act, 
but also any person engaged in the business of banking, such as a 
Federal Reserve Bank, a Federal Home Loan Bank, or a private banker 
that is not subject to Regulation D. Thus, accounts at these 
institutions benefit from the expeditious return requirements of 
Subpart C.
    3. Interbank deposits, including accounts of offices of domestic 
banks or foreign banks located outside the United States, and direct 
and indirect accounts of the United States Treasury (including 
Treasury General Accounts and Treasury Tax and Loan Deposit 
Accounts) are exempt from Regulation CC.

C. 229.2(b)  Automated Clearinghouse (ACH)

    1. The Board has defined automated clearinghouse as a facility 
that processes debit and credit transfers under rules established by 
a Federal Reserve Bank operating circular governing automated 
clearinghouse items or the rules of an ACH association. ACH credit 
transfers are included in the definition of electronic payment.
    2. The reference to ``debit and credit transfers'' does not 
refer to the corresponding debit and credit entries that are part of 
the same transaction, but to different kinds of ACH payments. In an 
ACH credit transfer, the originator orders that its account be 
debited and another account credited. In an ACH debit transfer, the 
originator, with prior authorization, orders another account to be 
debited and the originator's account to be credited.
    3. A facility that handles only wire transfers (defined 
elsewhere) is not an ACH.

D. 229.2(c) Automated Teller Machine (ATM)

    1. ATM is not defined in the Act. The regulation defines an ATM 
as an electronic device at which a natural person may make deposits 
to an account by cash or check and perform other account 
transactions. Point-of-sale terminals, machines that only dispense 
cash, night depositories, and lobby deposit boxes are not ATMs 
within the meaning of the definition, either because they do not 
accept deposits of cash or checks (e.g., point-of-sale terminals and 
cash dispensers) or because they only accept deposits (e.g., night 
depositories and lobby boxes) and cannot perform other transactions. 
A lobby deposit box or similar receptacle in which written payment 
orders or deposits may be placed is not an ATM.
    2. A facility may be an ATM within this definition even if it is 
a branch under state or federal law, although an ATM is not a branch 
as that term is used in this regulation.

E. 229.2(d) Available for Withdrawal

    1. Under this definition, when funds become available for 
withdrawal, the funds may be put to all uses for which the customer 
may use actually and finally collected funds in the customer's 
account under the customer's account agreement with the bank. 
Examples of such uses include payment of checks drawn on the 
account, certification of checks, electronic payments, and cash 
withdrawals. Funds are available for these uses notwithstanding 
provisions of other law that may restrict the use of uncollected 
funds (e.g., 18 U.S.C. 1004; 12 U.S.C. 331).
    2. If a bank makes funds available to a customer for a specific 
purpose (such as paying checks that would otherwise overdraw the 
customer's account and be returned for insufficient funds) before 
the funds must be made available under the bank's policy or this 
regulation, it may nevertheless apply a hold consistent with this 
regulation to those funds for other purposes (such as cash 
withdrawals). For purposes of this regulation, funds are considered 
available for withdrawal even though they are being held by the bank 
to satisfy an obligation of the customer other than the customer's 
potential liability for the return of the check. For example, funds 
are available for withdrawal even though they are being held by a 
bank to satisfy a garnishment, tax levy, or court order restricting 
disbursements from the account, or to satisfy the customer's 
liability arising from the certification of a check, sale of a 
cashier's or teller's check, guaranty or acceptance of a check, or 
similar transaction.

F. 229.2(e) Bank

    1. The Act uses the term depository institution, which it 
defines by reference to section 19(b)(1)(A)(i) through (vi) of the 
Federal Reserve Act (12 U.S.C. 461(b)(1)(A)(i) through (vi)). This 
regulation uses the term bank, a term that conforms to the usage the 
Board has previously adopted in Regulation J. Bank is also used in 
Articles 4 and 4A of the Uniform Commercial Code. 

[[Page 51673]]

    2. Bank is defined to include depository institutions, such as 
commercial banks, savings banks, savings and loan associations, and 
credit unions as defined in the Act, and U.S. branches and agencies 
of foreign banks. For purposes of Subpart B, the term does not 
include corporations organized under section 25A of the Federal 
Reserve Act, 12 U.S.C. 611-631 (Edge corporations) or corporations 
having an agreement or undertaking with the Board under section 25 
of the Federal Reserve Act, 12 U.S.C. 601-604a (agreement 
corporations). For purposes of Subpart C, and in connection 
therewith, Subpart A, any Federal Reserve Bank, Federal Home Loan 
Bank, or any other person engaged in the business of banking is 
regarded as a bank. The phrase ``any other person engaged in the 
business of banking'' is derived from U.C.C. 1-201(4), and is 
intended to cover entities that handle checks for collection and 
payment, such as Edge and agreement corporations, commercial lending 
companies under 12 U.S.C. 3101, certain industrial banks, and 
private bankers, so that virtually all checks will be covered by the 
same rules for forward collection and return, even though they may 
not be covered by the requirements of Subpart B. For the purposes of 
Subpart C, and in connection therewith, Subpart A, the term also may 
include a state or a unit of general local government to the extent 
that it pays warrants or other drafts drawn directly on the state or 
local government itself, and the warrants or other drafts are sent 
to the state or local government for payment or collection.
    3. Unless otherwise specified, the term bank includes all of a 
bank's offices in the United States. The regulation does not cover 
foreign offices of U.S. banks.

G. 229.2(f) Banking Day and (g) Business Day

    1. The Act defines business day as any day excluding Saturdays, 
Sundays, and legal holidays. Legal holiday, however, is not defined, 
and the variety of local holidays, together with the practice of 
some banks to close midweek, makes the Act's definition difficult to 
apply. The Board believes that two kinds of business days are 
relevant. First, when determining the day when funds are deposited 
or when a bank must perform certain actions (such as returning a 
check), the focus should be on a day that the bank is actually open 
for business. Second, when counting days for purposes of determining 
when funds must be available under the regulation or when notice of 
nonpayment must be received by the depositary bank, there would be 
confusion and uncertainty in trying to follow the schedule of a 
particular bank, and there is less need to identify a day when a 
particular bank is open. Most banks that act as intermediaries 
(large correspondents and Federal Reserve Banks) follow the same 
holiday schedule. Accordingly, the regulation has two definitions: 
Business day generally follows the standard Federal Reserve Bank 
holiday schedule (which is followed by most large banks), and 
banking day is defined to mean that part of a business day on which 
a bank is open for substantially all of its banking activities.
    2. The definition of banking day corresponds to the definition 
of banking day in U.C.C. 4-104(a)(3), except that a banking day is 
defined in terms of a business day. Thus, if a bank is open on 
Saturday, Saturday might be a banking day for purposes of the 
U.C.C., but it would not be a banking day for purposes of Regulation 
CC because Saturday is never a business day under the regulation.
    3. The definition of banking day is phrased in terms of when 
``an office of a bank is open'' to indicate that a bank may observe 
a banking day on a per-branch basis. A deposit made at an ATM or 
off-premise facility (such as a remote depository or a lock box) is 
considered made at the branch holding the account into which the 
deposit is made for the purpose of determining the day of deposit. 
All other deposits are considered made at the branch at which the 
deposit is received. For example, under Sec. 229.19(a)(1), funds 
deposited at an ATM are considered deposited at the time they are 
received at the ATM. On a calendar day that is a banking day for the 
branch or other location of the depositary bank at which the account 
is maintained, a deposit received at an ATM before the ATM's cut-off 
hour is considered deposited on that banking day, and a deposit 
received at an ATM after the ATM's cut-off hour is considered 
deposited on the next banking day of the branch or other location 
where the account is maintained. On a calendar day that is not a 
banking day for the account-holding location, all ATM deposits are 
considered deposited on that location's next banking day. This rule 
for determining the day of deposit also would apply to a deposit to 
an off-premise facility, such as a night depository or lock box, 
which is considered deposited when removed from the facility and 
available for processing under Sec. 229.19(a)(3). If an unstaffed 
facility, such as a night depository or lock box, is on branch 
premises, the day of deposit is determined by the banking day at the 
branch at which the deposit is received, whether or not it is the 
branch at which the account is maintained.

H. 229.2(h) Cash

    1. Cash means U.S. coins and currency. The phrase in the Act 
``including Federal Reserve notes'' has been deleted as unnecessary. 
(See 31 U.S.C. 5103.)

I. 229.2(i) Cashier's Check

    1. The regulation adds to the second item in the Act's 
definition of cashier's check the phrase, ``on behalf of the bank as 
drawer,'' to clarify that the term cashier's check is intended to 
cover only checks that a bank draws on itself. The definition of 
cashier's check includes checks provided to a customer of the bank 
in connection with customer deposit account activity, such as 
account disbursements and interest payments. The definition also 
includes checks acquired from a bank by noncustomers for remittance 
purposes, such as certain loan disbursement checks. Cashier's checks 
provided to customers or others are often labeled as ``cashier's 
check,'' ``officer's check,'' or ``official check.'' The definition 
excludes checks that a bank draws on itself for other purposes, such 
as to pay employees and vendors, and checks issued by the bank in 
connection with a payment service, such as a payroll or a bill-
paying service. Cashier's checks generally are sold by banks to 
substitute the bank's credit for the customer's credit and thereby 
enhance the collectibility of the checks. A check issued in 
connection with a payment service generally is provided as a 
convenience to the customer rather than as a guarantee of the 
check's collectibility. In addition, such checks are often more 
difficult to distinguish from other types of checks than are 
cashier's checks as defined by this regulation.

J. 229.2(j) Certified Check

    1. The Act defines a certified check as one to which a bank has 
certified that the drawer's signature is genuine and that the bank 
has set aside funds to pay the check. Under the Uniform Commercial 
Code, certification of a check means the bank's signed agreement 
that it will honor the check as presented (U.C.C. 3-409). The 
regulation defines certified check to include both the Act's and 
U.C.C.'s definitions.

K. 229.2(k) Check

    1. Check is defined in section 602(7) of the Act as a negotiable 
demand draft drawn on or payable through an office of a depository 
institution located in the United States, excluding noncash items. 
The regulation includes six categories of instruments within the 
definition of check.
    2. The first category is negotiable demand drafts drawn on, or 
payable through or at, an office of a bank. As the definition of 
bank includes only offices located in the United States, this 
category is limited to checks drawn on, or payable through or at, a 
banking office located in the United States.
    3. The Act treats drafts payable through a bank as checks, even 
though under the U.C.C. the payable-through bank is a collecting 
bank to make presentment and generally is not authorized to make 
payment (U.C.C. 4-106(a)). The Act does not expressly address items 
that are payable at a bank. This regulation treats both payable-
through and payable-at demand drafts as checks. The Board believes 
that treating demand drafts payable at a bank as checks will not 
have a substantial effect on the operations of payable-at banks--by 
far the largest proportion of payable-at items are not negotiable 
demand drafts, but time items, such as commercial paper, bonds, 
notes, bankers' acceptances, and securities. These time items are 
not covered by the requirements of the Act or this regulation. (The 
treatment of payable-through drafts is discussed in greater detail 
in connection with the definitions of local check and paying bank.)
    4. The second category is checks drawn on Federal Reserve Banks 
and Federal Home Loan Banks. Principal and interest payments on 
federal debt instruments often are paid with checks drawn on a 
Federal Reserve Bank as fiscal agent of the United States, and these 
fiscal agency checks are indistinguishable from other checks drawn 
on Federal Reserve Banks. (See 31 CFR Part 355.) Federal Reserve 
Bank checks also are used by some banks as substitutes for cashier's 
or teller's checks. Similarly, savings and loan associations often 
use checks drawn on Federal Home Loan Banks as teller's checks. The 
definition of check includes 

[[Page 51674]]
checks drawn on Federal Home Loan Banks and Federal Reserve Banks 
because in many cases they are the functional equivalent of Treasury 
checks or teller's checks.
    5. The third and fourth categories of instrument included in the 
definition of check refer to government checks. The Act refers to 
checks drawn on the U.S. Treasury, even though these instruments are 
not drawn on or payable through an office of a depository 
institution, and checks drawn by state and local governments. The 
Act also gives the Board authority to define functionally equivalent 
instruments as depository checks.\1\ Thus, the Act is intended to 
apply to instruments other than those that meet the strict 
definition of check in section 602(7) of the Act. Checks and 
warrants drawn by states and local governments often are used for 
the purposes of making unemployment compensation payments and other 
payments that are important to the recipients. Consequently, the 
Board has expressly defined check to include drafts drawn on the 
U.S. Treasury and drafts or warrants drawn by a state or a unit of 
general local government on itself.

    \1\Section 602(11) of the Act (12 U.S.C. 4001(11)) defines 
``depository check'' as ``any cashier's check, certified check, 
teller's check, and any other functionally equivalent instrument as 
determined by the Board.''
---------------------------------------------------------------------------

    6. The fifth category of instrument included in the definition 
of check is U.S. Postal Service money orders. These instruments are 
defined as checks because they often are used as a substitute for 
checks by consumers, even though money orders are not negotiable 
under Postal Service regulations. The Board has not provided 
specific rules for other types of money orders; these instruments 
generally are drawn on or payable through or payable at banks and 
are treated as checks on that basis.
    7. The sixth and final category of instrument included in the 
definition of check is traveler's checks drawn on or payable through 
or at a bank. Traveler's check is defined in paragraph (hh) of this 
section.
    8. Finally, for the purposes of Subpart C, and in connection 
therewith, Subpart A, the definition of check includes nonnegotiable 
demand drafts because these instruments are often handled as cash 
items in the forward collection process.
    9. The definition of check does not include an instrument 
payable in a foreign currency (i.e., other than in United States 
money as defined in 31 U.S.C. 5101) or a credit card draft (i.e., a 
sales draft used by a merchant or a draft generated by a bank as a 
result of a cash advance), or an ACH debit transfer. The definition 
of check includes a check that a bank may supply to a customer as a 
means of accessing a credit line without the use of a credit card.

L. 229.2(l) [Reserved]

M. 229.2(m) Check Processing Region

    1. The Act defines this term as ``the geographic area served by 
a Federal Reserve bank check processing center or such larger area 
as the Board may prescribe by regulations.'' The Board has defined 
check processing region as the territory served by one of the 46 
Federal Reserve head offices, branches, or regional check processing 
centers. Appendix A includes a list of routing numbers arranged by 
Federal Reserve Bank office. The definition of check processing 
region is key to determining whether a check is considered local or 
nonlocal.

N. 229.2(n) Consumer Account

    1. Consumer account is defined as an account used primarily for 
personal, family, or household purposes. An account that does not 
meet the definition of consumer account is a nonconsumer account. 
Both consumer and nonconsumer accounts are subject to the 
requirements of this regulation, including the requirement that 
funds be made available according to specific schedules and that the 
bank make specified disclosures of its availability policies. 
Section 229.18(b) (notices at branch locations) and Sec. 229.18(e) 
(notice of changes in policy) apply only to consumer accounts. 
Section 229.13(g)(2) (one-time exception notice) and Sec. 229.19(d) 
(use of calculated availability) apply only to nonconsumer accounts.

O. 229.2(o) Depositary Bank

    1. The regulation uses the term depositary bank rather than the 
term receiving depository institution. Receiving depository 
institution is a term unique to the Act, while depositary bank is 
the term used in Article 4 of the U.C.C. and Regulation J.
    2. A depositary bank includes the bank in which the check is 
first deposited. If a foreign office of a U.S. or foreign bank sends 
checks to its U.S. correspondent bank for forward collection, the 
U.S. correspondent is the depositary bank because foreign offices of 
banks are not included in the definition of bank.
    3. If a customer deposits a check in its account at a bank, the 
customer's bank is the depositary bank with respect to the check. 
For example, if a person deposits a check into an account at a 
nonproprietary ATM, the bank holding the account into which the 
check is deposited is the depositary bank even though another bank 
may service the nonproprietary ATM and send the check for 
collection. (Under Sec. 229.35 the depositary bank may agree with 
the bank servicing the nonproprietary ATM to have the servicing bank 
place its own indorsement on the check as the depositary bank. For 
the purposes of Subpart C, the bank applying its indorsement as the 
depositary bank indorsement on the check is the depositary bank.)
    4. For purposes of Subpart B, a bank may act as both the 
depositary bank and the paying bank with respect to a check, if the 
check is payable by the bank in which it was deposited, or if the 
check is payable by a nonbank payor and payable through or at the 
bank in which it was deposited. A bank also is considered a 
depositary bank with respect to checks it receives as payee. For 
example, a bank is a depositary bank with respect to checks it 
receives for loan repayment, even though these checks are not 
deposited in an account at the bank. Because these checks would not 
be ``deposited to accounts,'' they would not be subject to the 
availability or disclosure requirements of Subpart B.

P. 229.2(p) Electronic Payment

    1. Electronic payment is defined to mean a wire transfer as 
defined in Sec. 229.2(11) or an ACH credit transfer. The Act 
requires that funds deposited by wire transfer be made available for 
withdrawal on the business day following deposit but expressly 
leaves the definition of the term wire transfer to the Board. 
Because ACH credit transfers frequently involve important consumer 
payments, such as wages, the regulation requires that funds 
deposited by ACH credit transfers be available for withdrawal on the 
business day following deposit.
    2. ACH debit transfers, even though they may be transmitted 
electronically, are not defined as electronic payments because the 
receiver of an ACH debit transfer has the right to return the 
transfer, which would reverse the credit given to the originator. 
Thus, ACH debit transfers are more like checks than wire transfers. 
Further, bank customers that receive funds by originating ACH debit 
transfers are primarily large corporations, which generally would be 
able to negotiate with their banks for prompt availability.
    3. A point-of-sale transaction would not be considered an 
electronic payment unless the transaction was effected by means of 
an ACH credit transfer or wire transfer.

Q. 229.2(q) Forward Collection

    1. Forward collection is defined to mean the process by which a 
bank sends a check to the paying bank for payment as distinguished 
from the process by which the check is returned after nonpayment. 
Noncash collections are not included in the term forward collection.

R. 229.2(r) Local Check

    1. Local check is defined as a check payable by or at a local 
paying bank, or, in the case of nonbank payors, payable through a 
local paying bank. A check payable by a local bank but payable 
through a nonlocal bank is a local check. Conversely, a check 
payable through a local bank but payable by a nonlocal bank is a 
nonlocal check. Where two banks are named on a check and neither is 
designated as a payable-through bank, the check is considered 
payable by either bank and may be considered local or nonlocal 
depending on the bank to which it is sent for payment. Generally, 
the depositary bank may rely on the routing number to determine 
whether a check is local or nonlocal. Appendix A includes a list of 
routing numbers arranged by Federal Reserve Bank Office to assist 
persons in determining whether or not such a check is local. If, 
however, a check is payable by one bank but payable through another 
bank, the routing number appearing on the check will be that of the 
payable-through bank, not the paying bank. Many credit union share 
drafts and certain other checks payable by banks are payable through 
other banks. In such cases, the routing number cannot be relied on 
to determine whether the check is local or nonlocal. For payable-
through checks that meet the labeling requirements of 
Sec. 229.36(e), the depositary bank may rely on the four-digit 
routing symbol of the paying bank that is printed on the face of the 
check as required by that section, e.g., in the title plate, but not 


[[Page 51675]]
on the first four digits of the payable-through bank's routing number 
printed in magnetic ink in the MICR line or in fractional form, to 
determine whether the check is local or nonlocal.

S. 229.2(s) Local Paying Bank

    1. Local paying bank is defined as a paying bank located in the 
same check processing region as the branch or proprietary ATM of the 
depositary bank.
    2. Examples.
    a. If a check that is payable by a bank that is located in the 
same check processing region as the depositary bank is payable 
through a bank located in another check processing region, the check 
is considered local or nonlocal depending on the location of the 
bank by which it is payable even if the check is sent to the 
nonlocal bank for collection.
    b. The location of the depositary bank is determined by the 
physical location of the branch or proprietary ATM at which a check 
is deposited. If the branch of the depositary bank located in one 
check processing region sends a check to the depositary bank's 
central facility in another check processing region, and the central 
facility is in the same check processing region as the paying bank, 
the check is still considered nonlocal. (See Commentary on 
definition of paying bank.)

T. 229.2(t) Merger Transaction

    1. Merger transaction is a term used in Subparts B and C in 
connection with transition rules for merged banks. It encompasses 
mergers, consolidations, and purchase/assumption transactions of the 
type that usually must be approved under the Bank Merger Act (12 
U.S.C. 1828(c)) or similar statutes; it does not encompass 
acquisitions of a bank under the Bank Holding Company Act (12 U.S.C. 
1842) where an acquired bank maintains its separate corporate 
existence.
    2. Regulation CC adopts a one-year transition period for banks 
that are party to a merger transaction during which the merged banks 
will continue to be treated as separate entities. (See 
Secs. 229.19(g) and 229.40.)

U. 229.2(u) Noncash Item

    1. The Act defines the term check to exclude noncash items, and 
defines noncash items to include checks to which another document is 
attached, checks accompanied by special instructions, or any similar 
item classified as a noncash item in the Board's regulation. To 
qualify as a noncash item, an item must be handled as such and may 
not be handled as a cash item by the depositary bank.
    2. The regulation's definition of noncash item also includes 
checks that consist of more than a single thickness of paper (except 
checks that qualify for handling by automated check processing 
equipment, e.g. those placed in carrier envelopes) and checks that 
have not been preprinted or post-encoded in magnetic ink with the 
paying bank's routing number, as well as checks with documents 
attached or accompanied by special instructions. (In the context of 
this definition, paying bank refers to the paying bank as defined 
for purposes of Subpart C.)
    3. A check that has been preprinted or post-encoded with a 
routing number that has been retired (e.g., because of a merger) for 
at least three years is a noncash item unless the current number is 
added for processing purposes by placing the check in an encoded 
carrier envelope or adding a strip to the check.
    4. Checks that are accompanied by special instructions are also 
noncash items. For example, a person concerned about whether a check 
will be paid may request the depositary bank to send a check for 
collection as a noncash item with an instruction to the paying bank 
to notify the depositary bank promptly when the check is paid or 
dishonored.
    5. For purposes of forward collection, a copy of a check is 
neither a check nor a noncash item, but may be treated as either. 
For purposes of return, a copy is generally a notice in lieu of 
return. (See Secs. 229.30(f) and 229.31(f).)

V. 229.2(v) [Reserved]

W. 229.2(w) [Reserved]

X. 229.2(x) [Reserved]

Y. 229.2(y) [Reserved]

Z. 229.2(z) Paying Bank

    1. The regulation uses this term in lieu of the Act's 
``originating depository institution.'' For purposes of Subpart B, 
the term paying bank includes the payor bank, the payable-at bank to 
which a check is sent, or, if the check is payable by a nonbank 
payor, the bank through which the check is payable and to which it 
is sent for payment or collection. For purposes of Subpart C, the 
term includes the payable-through bank and the bank whose routing 
number appears on the check regardless of whether the check is 
payable by a different bank, provided that the check is sent for 
payment or collection to the payable-through bank or the bank whose 
routing number appears on the check.
    2. Under Secs. 229.30 and 229.36(a), a bank designated as a 
payable-through bank or payable-at bank and to which the check is 
sent for payment or collection is responsible for the expedited 
return of checks and notice of nonpayment requirements of Subpart C. 
The payable-through or payable-at bank may contract with the payor 
with respect to its liability in discharging these responsibilities. 
The Board believes that the Act makes a clear connection between 
availability and the time it takes for checks to be cleared and 
returned. Allowing the payable-through bank additional time to 
forward checks to the payor and await return or pay instructions 
from the payor would delay the return of these checks, increasing 
the risks to depositary banks. Subpart C places on payable-through 
and payable-at banks the requirements of expeditious return based on 
the time the payable-through or payable-at bank received the check 
for forward collection.
    3. If a check is sent for forward collection based on the 
routing number, the bank associated with the routing number is a 
paying bank for the purposes of Subpart C requirements, including 
notice of nonpayment, even if the check is not drawn by a customer 
of that bank or the check is fraudulent.
    4. The phrase ``and to which [the check] is sent for payment or 
collection'' includes sending not only the physical check, but 
information regarding the check under a truncation arrangement.
    5. Federal Reserve Banks and Federal Home Loan Banks are also 
paying banks under all subparts of the regulation with respect to 
checks payable by them, even though such banks are not defined as 
banks for purposes of Subpart B.

AA. 229.2(aa) Proprietary ATM

    1. All deposits at nonproprietary ATMs are treated as deposits 
of nonlocal checks, and deposits at proprietary ATMs generally are 
treated as deposits at banking offices. The Conference Report on the 
Act indicates that the special availability rules for deposits 
received through nonproprietary ATMs are provided because 
``nonproprietary ATMs today do not distinguish among check deposits 
or between check and cash deposits'' (H.R. Rep. No. 261, 100th 
Cong., 1st Sess. at 179 (1987)). Thus, a deposit of any combination 
of cash and checks at a nonproprietary ATM may be treated as if it 
were a deposit of nonlocal checks, because the depositary bank does 
not know the makeup of the deposit and consequently is unable to 
place different holds on cash, local check, and nonlocal check 
deposits made at the ATM.
    2. A colloquy between Senators Proxmire and Dodd during the 
floor debate on the Competitive Equality Banking Act (133 Cong. Rec. 
S11289 (Aug. 4, 1987)) indicates that whether a bank operates the 
ATM is the primary criterion in determining whether the ATM is 
proprietary to that bank. Because a bank should be capable of 
ascertaining the composition of deposits made to an ATM operated by 
that bank, an exception to the availability schedules is not 
warranted for these deposits. If more than one bank meets the ``owns 
or operates'' criterion, the ATM is considered proprietary to the 
bank that operates it. For the purpose of this definition, the bank 
that operates an ATM is the bank that puts checks deposited into the 
ATM into the forward collection stream. An ATM owned by one or more 
banks, but operated by a nonbank servicer, is considered proprietary 
to the bank or banks that own it.
    3. The Act also includes location as a factor in determining 
whether an ATM that is either owned or operated by a bank is 
proprietary to that bank. The definition of proprietary ATM includes 
an ATM located on the premises of the bank, either inside the branch 
or on its outside wall, regardless of whether the ATM is owned or 
operated by that bank. Because the Act also defines a proprietary 
ATM as one that is ``in close proximity'' to the bank, the 
regulation defines an ATM located within 50 feet of a bank to be 
proprietary to that bank unless it is identified as being owned or 
operated by another entity. The Board believes that the statutory 
proximity test was designed to apply to situations where it would 
appear to the depositor that the ATM is run by his or her bank, 
because of the proximity of the ATM to the bank. The Board believes 
that an ATM located within 50 feet of a banking office 

[[Page 51676]]
would be presumed proprietary to that bank unless it is clearly 
identified as being owned or operated by another entity.

BB. 229.2(bb) Qualified Returned Check

    1. Subpart C requires the paying bank and returning bank(s) to 
return checks in an expeditious manner. The banks may meet this 
responsibility by returning a check to the depositary bank by the 
same general means used for forward collection of a check from the 
depositary bank to the paying bank. One way to speed the return 
process is to prepare the returned check for automated processing. 
Returned checks can be automated by either the paying bank or a 
returning bank by placing the returned check in a carrier envelope 
or by placing a strip on the bottom of the returned check and 
encoding the envelope or strip with the routing number of the 
depositary bank, the amount of the check, and a special return 
identifier. Returned checks are identified by placing a ``2'' in 
position 44 of the MICR line. (See American National Standards 
Committee on Financial Services, Specification for the Placement and 
Location of MICR Printing, X9.13 (Sept. 8, 1983) hereinafter 
referred to as ``ANSI X9.13-1983.'')
    2. Generally, under the standard of care imposed by Sec. 229.38, 
a paying or returning bank would be liable for any damages incurred 
due to misencoding of the routing number, the amount of the check, 
or return identifier on a qualified returned check unless the error 
was due to problems with the depositary bank's indorsement. (See 
also discussion of Sec. 229.38(c).) A qualified returned check that 
contains an encoding error would still be a qualified returned check 
for purposes of the regulation.
    3. A qualified returned check need not contain the elements of a 
check drawn on the depositary bank, such as the name of the 
depositary bank. Because indorsements and other information on 
carrier envelopes or strips will not appear on a returned check 
itself, banks will wish to retain carrier envelopes and/or microfilm 
or other records of carrier envelopes or strips with their check 
records.

CC. 229.2(cc) Returning Bank

    1. Returning bank is defined to mean any bank (excluding the 
paying bank and the depositary bank) handling a returned check. A 
returning bank may or may not be a bank that handled the returned 
check in the forward collection process. A returning bank includes a 
bank that agrees to handle a returned check for expeditious return 
to the depositary bank under Sec. 229.31(a). A returning bank is 
also a collecting bank for the purpose of a collecting bank's duty 
to exercise ordinary care under U.C.C. 4-202(b) and is analogous to 
a collecting bank for purposes of final settlement. (See Commentary 
to Sec. 229.35(b).)

DD. 229.2(dd) Routing Number

    1. Each bank is assigned a routing number by Thomson Financial 
Publishing Inc., as agent for the American Bankers Association. The 
routing number takes two forms--a fractional form and a nine-digit 
form. A paying bank is identified by both the fractional form 
routing number (which normally appears in the upper right hand 
corner of the check) and the nine-digit form. The nine-digit routing 
number of the paying bank generally is printed in magnetic ink near 
the bottom of the check (the MICR strip; see ANSI X9.13-1983). 
Subpart C requires depositary banks and subsequent collecting banks 
to place their routing numbers in nine-digit form in their 
indorsements.

EE. 229.2(ee) [Reserved]

FF. 229.2(ff) [Reserved]

GG. 229.2(gg) Teller's Check

    1. Teller's check is defined in the Act to mean a check issued 
by a depository institution and drawn on another depository 
institution. The definition in the regulation includes not only 
checks drawn by a bank on another bank, but also checks payable 
through or at a bank. This would include checks drawn on a nonbank, 
as long as the check is payable through or at a bank. The definition 
does not include checks that are drawn by a nonbank on a nonbank 
even if payable through or at a bank. The definition includes checks 
provided to a customer of the bank in connection with customer 
deposit account activity, such as account disbursements and interest 
payments. The definition also includes checks acquired from a bank 
by a noncustomer for remittance purposes, such as certain loan 
disbursement checks. The definition excludes checks used by the bank 
to pay employees or vendors and checks issued by the bank in 
connection with a payment service, such as a payroll or a bill-
paying service. Teller's checks generally are sold by banks to 
substitute the bank's credit for the customer's credit and thereby 
enhance the collectibility of the checks. A check issued in 
connection with a payment service generally is provided as a 
convenience to the customer rather than as a guarantee of the 
check's collectibility. In addition, such checks are often more 
difficult to distinguish from other types of checks than are 
teller's checks as defined by this regulation.

HH. 229.2(hh) Traveler's Check

    1. The Act and regulation require that traveler's checks be 
treated as cashier's, teller's, or certified checks when a new 
depositor opens an account. (See Sec. 229.13(a); 12 U.S.C. 
4003(a)(1)(C).) The Act does not define traveler's check.
    2. One element of the definition states that a traveler's check 
is ``drawn on or payable through or at a bank.'' Traveler's checks 
that are not issued by banks may not have any words on them 
identifying a bank as drawee or paying agent, but may bear unique 
routing numbers with an 8000 prefix that identifies a bank as paying 
agent.
    3. Because a traveler's check is payable by, at, or through a 
bank, it is also a check for purposes of this regulation. When not 
subject to the next-day availability requirement for new accounts, a 
traveler's check should be treated as a local or nonlocal check 
depending on the location of the paying bank. The depositary bank 
may rely on the designation of the paying bank by the routing number 
to determine whether local or nonlocal treatment is required.

II. 229.2(ii) Uniform Commercial Code

    1. Uniform Commercial Code is defined as the version of the Code 
adopted by the individual states. For purposes of uniform citation, 
all citations to the U.C.C. in this part refer to the Official Text 
as approved by the American Law Institute and the National 
Conference of Commissioners on Uniform State Laws.

JJ. 229.2(jj) [Reserved]

KK. 229.2(kk) Unit of General Local Government

    1. Unit of general local government is defined to include a 
city, county, parish, town, township, village, or other general 
purpose political subdivision of a state. The term does not include 
special purpose units, such as school districts, water districts, or 
Indian nations.

LL. 229.2(ll) Wire Transfer

    1. The Act delegates to the Board the authority to define the 
term wire transfer. The regulation defines wire transfer as an 
unconditional order to a bank to pay a fixed or determinable amount 
of money to a beneficiary, upon receipt or on a day stated in the 
order, that is transmitted by electronic or other means over certain 
networks or on the books of banks and that is used primarily to 
transfer funds between commercial accounts. ``Unconditional'' means 
that no condition, such as presentation of documents, must be met 
before the bank receiving the order is to make payment. A wire 
transfer may be transmitted by electronic or other means. 
``Electronic means'' include computer-to-computer links, on-line 
terminals, telegrams (including TWX, TELEX, or similar methods of 
communication), telephone calls, or other similar methods. Fedwire 
(the Federal Reserve's wire transfer network), CHIPS (Clearing House 
Interbank Payments System, operated by the New York Clearing House), 
and book transfers among banks or within one bank are covered by 
this definition. Credits for credit and debit card transactions are 
not wire transfers. The term wire transfer excludes electronic fund 
transfers as that term is defined by the Electronic Fund Transfer 
Act.

MM. 229.2(mm) [Reserved]

NN. 229.2(nn) Good Faith

    1. This definition of good faith derives from U.C.C. 3-
103(a)(4).

OO. 229.2(oo) Interest Compensation

    1. This calculation of interest compensation derives from U.C.C. 
4A-506(b). (See Secs. 229.34(d) and 229.36(f).)

III. Section 229.3 Administrative Enforcement [Reserved]

IV. Section 229.10 Next-Day Availability

A. Business Days and Banking Days

    1. This section, as well as other provisions of this subpart 
governing the availability of funds, provides that funds must be 
made available for withdrawal not later than a specified number of 
business days following the banking day on which the funds are 
deposited. Thus, a deposit is considered 

[[Page 51677]]
made only on a banking day, i.e., a day that the bank is open to the 
public for carrying on substantially all of its banking functions. 
For example, if a deposit is made at an ATM on a Saturday, Sunday, 
or other day on which the bank is closed to the public, the deposit 
is considered received on that bank's next banking day.
    2. Nevertheless, business days are used to determine the number 
of days following the banking day of deposit that funds must be 
available for withdrawal. For example, if a deposit of a local check 
were made on a Monday, the availability schedule requires that funds 
be available for withdrawal on the second business day after 
deposit. Therefore, funds must be made available on Wednesday 
regardless of whether the bank was closed on Tuesday for other than 
a standard legal holiday as specified in the definition of business 
day.

B. 229.10(a) Cash Deposits

    1. This paragraph implements the Act's requirement for next-day 
availability for cash deposits to accounts at a depositary bank 
``staffed by individuals employed by such institution.''2 Under 
this paragraph, cash deposited in an account at a staffed teller 
station on a Monday must become available for withdrawal by the 
start of business on Tuesday. It must become available for 
withdrawal by the start of business on Wednesday if it is deposited 
by mail, at a proprietary ATM, or by other means other than at a 
staffed teller station.

    \2\Nothing in the Act or this regulation affects terms of 
account arrangements, such as negotiable order of withdrawal 
accounts, which may require prior notice of withdrawal. (See 12 CFR 
204.2(e)(2).)
---------------------------------------------------------------------------

C. 229.10(b) Electronic Payments

    1. The Act provides next-day availability for funds received for 
deposit by wire transfer. The regulation uses the term electronic 
payment, rather than wire transfer, to include both wire transfers 
and ACH credit transfers under the next-day availability 
requirement. (See discussion of definitions of automated 
clearinghouse, electronic payment, and wire transfer in Sec. 229.2.)
    2. The Act requires that funds received by wire transfer be 
available for withdrawal not later than the business day following 
the day a wire transfer is received. This paragraph clarifies what 
constitutes receipt of an electronic payment. For the purposes of 
this paragraph, a bank receives an electronic payment when the bank 
receives both payment in finally collected funds and the payment 
instructions indicating the customer accounts to be credited and the 
amount to be credited to each account. For example, in the case of 
Fedwire, the bank receives finally collected funds at the time the 
payment is made. (See 12 CFR 210.31.) Finally collected funds 
generally are received for an ACH credit transfer when they are 
posted to the receiving bank's account on the settlement day. In 
certain cases, the bank receiving ACH credit payments will not 
receive the specific payment instructions indicating which accounts 
to credit until after settlement day. In these cases, the payments 
are not considered received until the information on the account and 
amount to be credited is received.
    3. This paragraph also establishes the extent to which an 
electronic payment is considered made. Thus, if a participant on a 
private network fails to settle and the receiving bank receives 
finally settled funds representing only a partial amount of the 
payment, it must make only the amount that it actually received 
available for withdrawal.
    4. The availability requirements of this regulation do not 
preempt or invalidate other rules, regulations, or agreements which 
require funds to be made available on a more prompt basis. For 
example, the next-day availability requirement for ACH credits in 
this section does not preempt ACH association rules and Treasury 
regulations (31 CFR part 210), which provide that the proceeds of 
these credit payments be available to the recipient for withdrawal 
on the day the bank receives the funds.

D. 229.10(c) Certain Check Deposits

    1. The Act generally requires that funds be made available on 
the business day following the banking day of deposit for Treasury 
checks, state and local government checks, cashier's checks, 
certified checks, teller's checks, and ``on us'' checks, under 
specified conditions. (Treasury checks are checks drawn on the 
Treasury of the United States and have a routing number beginning 
with the digits ``0000.'') This section also requires next-day 
availability for additional types of checks not addressed in the 
Act. Checks drawn on a Federal Reserve Bank or a Federal Home Loan 
Bank and U.S. Postal Service money orders also must be made 
available on the first business day following the day of deposit 
under specified conditions. For the purposes of this section, all 
checks drawn on a Federal Reserve Bank or a Federal Home Loan Bank 
that contain in the MICR line a routing number that is listed in 
Appendix A are subject to the next-day availability requirement if 
they are deposited in an account held by a payee of the check and in 
person to an employee of the depositary bank, regardless of the 
purposes for which the checks were issued. For all new accounts, 
even if the new account exception is not invoked, traveler's checks 
must be included in the $5,000 aggregation of checks deposited on 
any one banking day that are subject to the next-day availability 
requirement. (See Sec. 229.13(a).)
    2. Deposit in Account of Payee. One statutory condition to 
receipt of next-day availability of Treasury checks, state and local 
government checks, cashier's checks, certified checks, and teller's 
checks is that the check must be ``endorsed only by the person to 
whom it was issued.'' The Act could be interpreted to include a 
check that has been indorsed in blank and deposited into an account 
of a third party that is not named as payee. The Board believes that 
such a check presents greater risks than a check deposited by the 
payee and that Congress did not intend to require next-day 
availability for such checks. The regulation, therefore, provides 
that funds must be available on the business day following deposit 
only if the check is deposited in an account held by a payee of the 
check. For the purposes of this section, payee does not include 
transferees other than named payees. The regulation also applies 
this condition to Postal Service money orders and checks drawn on 
Federal Reserve Banks and Federal Home Loan Banks.
    3. Deposits Made to an Employee of the Depositary Bank.
    a. In most cases, next-day availability of the proceeds of 
checks subject to this section is conditioned on the deposit of 
these checks in person to an employee of the depositary bank. If the 
deposit is not made to an employee of the depositary bank on the 
premises of such bank, the proceeds of the deposit must be made 
available for withdrawal by the start of business on the second 
business day after deposit, under paragraph (c)(2) of this section. 
For example, second-day availability rather than next-day 
availability would be allowed for deposits of checks subject to this 
section made at a proprietary ATM, night depository, through the 
mail or a lock box, or at a teller station staffed by a person who 
is not an employee of the depositary bank. Second-day availability 
also may be allowed for deposits picked up by an employee of the 
depositary bank at the customer's premises; such deposits would be 
considered made upon receipt at the branch or other location of the 
depositary bank.
    b. In the case of Treasury checks, the Act and regulation do not 
condition the receipt of next-day availability to deposits at 
staffed teller stations. Therefore, Treasury checks deposited at a 
proprietary ATM must be accorded next-day availability, if the check 
is deposited to an account of a payee of the check.
    4. ``On Us'' Checks. The Act and regulation require next-day 
availability for ``on us'' checks, i.e., checks deposited in a 
branch of the depositary bank and drawn on the same or another 
branch of the same bank, if both branches are located in the same 
state or check processing region. Thus, checks deposited in one 
branch of a bank and drawn on another branch of the same bank must 
receive next-day availability even if the branch on which the checks 
are drawn is located in another check processing region but in the 
same state as the branch in which the check is deposited. For the 
purposes of this requirement, deposits at facilities that are not 
located on the premises of a brick-and-mortar branch of the bank, 
such as off-premise ATMs and remote depositories, are not considered 
deposits made at branches of the depositary bank.
    5. First $100.
    a. The Act and regulation also require that up to $100 of the 
aggregate deposit by check or checks not subject to next-day 
availability on any one banking day be made available on the next 
business day. For example, if $70 were deposited in an account by 
check(s) on a Monday, the entire $70 must be available for 
withdrawal at the start of business on Tuesday. If $200 were 
deposited by check(s) on a Monday, this section requires that $100 
of the funds be available for withdrawal at the start of business on 
Tuesday. The portion of the customer's deposit to which the $100 
must be applied is at the discretion of the depositary bank, as long 
as it is not applied to any checks subject to next-day availability. 
The $100 next-day availability rule does not apply to deposits at 
nonproprietary ATMs. 

[[Page 51678]]

    b. The $100 that must be made available under this rule is in 
addition to the amount that must be made available for withdrawal on 
the business day after deposit under other provisions of this 
section. For example, if a customer deposits a $1,000 Treasury 
check, and a $1,000 local check in its account on Monday, $1,100 
must be made available for withdrawal on Tuesday--the proceeds of 
the $1,000 Treasury check, as well as the first $100 of the local 
check.
    c. A depositary bank may aggregate all local and nonlocal check 
deposits made by the customer on a given banking day for the 
purposes of the $100 next-day availability rule. Thus, if a customer 
has two accounts at the depositary bank, and on a particular banking 
day makes deposits to each account, $100 of the total deposited to 
the two accounts must be made available on the business day after 
deposit. Banks may aggregate deposits to individual and joint 
accounts for the purposes of this provision.
    d. If the customer deposits a $500 local check, and gets $100 
cash back at the time of deposit, the bank need not make an 
additional $100 available for withdrawal on the following day. 
Similarly, if the customer depositing the local check has a negative 
book balance, or negative available balance in its account at the 
time of deposit, the $100 that must be available on the next 
business day may be made available by applying the $100 to the 
negative balance, rather than making the $100 available for 
withdrawal by cash or check on the following day.
    6. Special Deposit Slips.
    a. Under the Act, a depositary bank may require the use of a 
special deposit slip as a condition to providing next-day 
availability for certain types of checks. This condition was 
included in the Act because many banks determine the availability of 
their customers' check deposits in an automated manner by reading 
the MICR-encoded routing number on the deposited checks. Using these 
procedures, a bank can determine whether a check is a local or 
nonlocal check, a check drawn on the Treasury, a Federal Reserve 
Bank, a Federal Home Loan Bank, or a branch of the depositary bank, 
or a U.S. Postal Service money order. Appendix A includes the 
routing numbers of certain categories of checks that are subject to 
next-day availability. The bank cannot require a special deposit 
slip for these checks.
    b. A bank cannot distinguish whether the check is a state or 
local government check, cashier's check, certified check, or 
teller's check by reading the MICR-encoded routing number, because 
these checks bear the same routing number as other checks drawn on 
the same bank that are not accorded next-day availability. 
Therefore, a bank may require a special deposit slip for these 
checks.
    c. The regulation specifies that if a bank decides to require 
the use of a special deposit slip (or a special deposit envelope in 
the case of a deposit at an ATM or other unstaffed facility) as a 
condition to granting next-day availability under paragraphs 
(c)(1)(iv) or (c)(1)(v) of this section or second-day availability 
under paragraph (c)(2) of this section, and if the deposit slip that 
must be used is different from the bank's regular deposit slips, the 
bank must either provide the special slips to its customers or 
inform its customers how such slips may be obtained and make the 
slips reasonably available to the customers.
    d. A bank may meet this requirement by providing customers with 
an order form for the special deposit slips and allowing sufficient 
time for the customer to order and receive the slips before this 
condition is imposed. If a bank provides deposit slips in its 
branches for use by its customers, it also must provide the special 
deposit slips in the branches. If special deposit envelopes are 
required for deposits at an ATM, the bank must provide such 
envelopes at the ATM.
    e. Generally, a teller is not required to advise depositors of 
the availability of special deposit slips merely because checks 
requiring special deposit slips for next-day availability are 
deposited without such slips. If a bank provides the special deposit 
slips only upon the request of a depositor, however, the teller must 
advise the depositor of the availability of the special deposit 
slips, or the bank must post a notice advising customers that the 
slips are available upon request. If a bank prepares a deposit for a 
depositor, it must use a special deposit slip where appropriate. A 
bank may require the customer to segregate the checks subject to 
next-day availability for which special deposit slips could be 
required, and to indicate on a regular deposit slip that such checks 
are being deposited, if the bank so instructs its customers in its 
initial disclosure.

V. Section 229.11  [Reserved]

VI. Section 229.12  Availability Schedule

A. 229.12(a)  Effective Date

    1. The availability schedule set forth in this section 
supersedes the temporary schedule that was effective September 1, 
1988, through August 31, 1990.

B. 229.12(b)  Local Checks and Certain Other Checks

    1. Local checks must be made available for withdrawal not later 
than the second business day following the banking day on which the 
checks were deposited.
    2. In addition, the proceeds of Treasury checks and U.S. Postal 
Service money orders not subject to next-day (or second-day) 
availability under Sec. 229.10(c), checks drawn on Federal Reserve 
Banks and Federal Home Loan Banks, checks drawn by a state or unit 
of general local government, cashier's checks, certified checks, and 
teller's checks not subject to next-day (or second-day) availability 
under Sec. 229.10(c) and payable in the same check processing region 
as the depositary bank, must be made available for withdrawal by the 
second business day following deposit.
    3. Exceptions are made for withdrawals by cash or similar means 
and for deposits in banks located outside the 48 contiguous states. 
Thus, the proceeds of a local check deposited on a Monday generally 
must be made available for withdrawal on Wednesday.

C. 229.12(c)  Nonlocal Checks

    1. Nonlocal checks must be made available for withdrawal not 
later than the fifth business day following deposit, i.e., proceeds 
of a nonlocal check deposited on a Monday must be made available for 
withdrawal on the following Monday. In addition, a check described 
in Sec. 229.10(c) that does not meet the conditions for next-day 
availability (or second-day availability) is treated as a nonlocal 
check, if the check is drawn on or payable through or at a nonlocal 
paying bank. Adjustments are made to the schedule for withdrawals by 
cash or similar means and deposits in banks located outside the 48 
contiguous states.
    2. Reduction in Schedules.
    a. Section 603(d)(1) of the Act (12 U.S.C. 4002(d)(1)) requires 
the Board to reduce the statutory schedules for any category of 
checks where most of those checks would be returned in a shorter 
period of time than provided in the schedules. The conferees 
indicated that ``if the new system makes it possible for two-thirds 
of the items of a category of checks to meet this test in a shorter 
period of time, then the Federal Reserve must shorten the schedules 
accordingly.'' H.R. Rep. No. 261, 100th Cong., 1st Sess. at 179 
(1987).
    b. Reduced schedules are provided for certain nonlocal checks 
where significant improvements can be made to the Act's schedules 
due to transportation arrangements or proximity between the check 
processing regions of the depositary bank and the paying bank, 
allowing for faster collection and return. Appendix B sets forth the 
specific reduction of schedules applicable to banks located in 
certain check processing regions.
    c. A reduction in schedules may apply even in those cases where 
the determination that the check is nonlocal cannot be made based on 
the routing number on the check. For example, a nonlocal credit 
union payable-through share draft may be subject to a reduction in 
schedules if the routing number of the payable-through bank that 
appears on the draft is included in Appendix B, even though the 
determination that the payable-through share draft is nonlocal is 
based on the location of the credit union and not the routing number 
on the draft.

D. 229.12(d)  Time Period Adjustment for Withdrawal by Cash or Similar 
Means

    1. The Act provides an adjustment to the availability rules for 
cash withdrawals. Funds from local and nonlocal checks need not be 
available for cash withdrawal until 5:00 p.m. on the day specified 
in the schedule. At 5:00 p.m., $400 of the deposit must be made 
available for cash withdrawal. This $400 is in addition to the first 
$100 of a day's deposit, which must be made available for withdrawal 
at the start of business on the first business day following the 
banking day of deposit. If the proceeds of local and nonlocal checks 
become available for withdrawal on the same business day, the $400 
withdrawal limitation applies to the aggregate amount of the funds 
that became available for withdrawal on that day. The remainder of 
the funds must be available for cash withdrawal at the start of 
business on the business day following the business day specified in 
the schedule.
    2. The Act recognizes that the $400 that must be provided on the 
day specified in the schedule may exceed a bank's daily ATM 

[[Page 51679]]
cash withdrawal limit, and explicitly provides that the Act does not 
supersede the bank's policy in this regard. The Board believes that 
the rationale for accommodating a bank's ATM withdrawal limit also 
applies to other cash withdrawal limits established by that bank. 
Section 229.19(c)(4) of the regulation addresses the relation 
between a bank's cash withdrawal limit (for over-the-counter cash 
withdrawals as well as ATM cash withdrawals) and the requirements of 
this subpart.
    3. The Board believes that the Congress included this special 
cash withdrawal rule to provide a depositary bank with additional 
time to learn of the nonpayment of a check before it must make funds 
available to its customer. If a customer deposits a local check on a 
Monday, and that check is returned by the paying bank, the 
depositary bank may not receive the returned check until Thursday, 
the day after funds for a local check ordinarily must be made 
available for withdrawal. The intent of the special cash withdrawal 
rule is to minimize this risk to the depositary bank. For this rule 
to minimize the depositary bank's risk, it must apply not only to 
cash withdrawals, but also to withdrawals by other means that result 
in an irrevocable debit to the customer's account or commitment to 
pay by the bank on the customer's behalf during the day. Thus, the 
cash withdrawal rule also includes withdrawals by electronic 
payment, issuance of a cashier's or teller's check, certification of 
a check, or other irrevocable commitment to pay, such as 
authorization of an on-line point-of-sale debit. The rule also would 
apply to checks presented over the counter for payment on the day of 
presentment by the depositor or another person. Such checks could 
not be dishonored for insufficient funds if an amount sufficient to 
cover the check had became available for cash withdrawal under this 
rule; however, payment of such checks would be subject to the bank's 
cut-off hour established under U.C.C. 4-108. The cash withdrawal 
rule does not apply to checks and other provisional debits presented 
to the bank for payment that the bank has the right to return.

E. 229.12(e)  Extension of Schedule for Certain Deposits in Alaska, 
Hawaii, Puerto Rico, and the U.S. Virgin Islands

    1. The Act and regulation provide an extension of the 
availability schedules for check deposits at a branch of a bank if 
the branch is located in Alaska, Hawaii, Puerto Rico, or the U.S. 
Virgin Islands. The schedules for local checks, nonlocal checks 
(including nonlocal checks subject to the reduced schedules of 
Appendix B), and deposits at nonproprietary ATMs are extended by one 
business day for checks deposited to accounts in banks located in 
these jurisdictions that are drawn on or payable at or through a 
paying bank not located in the same jurisdiction as the depositary 
bank. For example, a check deposited in a bank in Hawaii and drawn 
on a San Francisco paying bank must be made available for withdrawal 
not later than the third business day following deposit. This 
extension does not apply to deposits that must be made available for 
withdrawal on the next business day.
    2. The Congress did not provide this extension of the schedules 
to checks drawn on a paying bank located in Alaska, Hawaii, Puerto 
Rico, or the U.S. Virgin Islands and deposited in an account at a 
depositary bank in the 48 contiguous states. Therefore, a check 
deposited in a San Francisco bank drawn on a Hawaii paying bank must 
be made available for withdrawal not later than the second rather 
than the third business day following deposit.

F. 229.12(f)  Deposits at Nonproprietary ATMs

    1. The Act and regulation provide a special rule for deposits 
made at nonproprietary ATMs. This paragraph does not apply to 
deposits made at proprietary ATMs. All deposits at a nonproprietary 
ATM must be made available for withdrawal by the fifth business day 
following the banking day of deposit. For example, a deposit made at 
a nonproprietary ATM on a Monday, including any deposit by cash or 
checks that would otherwise be subject to next-day (or second-day) 
availability, must be made available for withdrawal not later than 
Monday of the following week. The provisions of 
Sec. 229.10(c)(1)(vii) requiring a depositary bank to make up to 
$100 of an aggregate daily deposit available for withdrawal on the 
first business day after the banking day of deposit do not apply to 
deposits at a nonproprietary ATM.

VII. Section 229.13  Exceptions

A. Introduction

    1. While certain safeguard exceptions (such as those for new 
accounts and checks the bank has reasonable cause to believe are 
uncollectible) are established in the Act, the Congress gave the 
Board the discretion to determine whether certain other exceptions 
should be included in its regulations. Specifically, the Act gives 
the Board the authority to establish exceptions to the schedules for 
large or redeposited checks and for accounts that have been 
repeatedly overdrawn. These exceptions apply to local and nonlocal 
checks as well as to checks that must otherwise be accorded next-day 
(or second-day) availability under Sec. 229.10(c).
    2. Many checks will not be returned to the depositary bank by 
the time funds must be made available for withdrawal under the next-
day (or second-day), local, and nonlocal schedules. In order to 
reduce risk to depositary banks, the Board has exercised its 
statutory authority to adopt these exceptions to the schedules in 
the regulation to allow the depositary bank to extend the time 
within which it is required to make funds available.
    3. The Act also gives the Board the authority to suspend the 
schedules for any classification of checks, if the schedules result 
in an unacceptable level of fraud losses. The Board will adopt 
regulations or issue orders to implement this statutory authority if 
and when circumstances requiring its implementation arise.

B. 229.13(a)  New Accounts

    1. Definition of New Account.
    a. The Act provides an exception to the availability schedule 
for new accounts. An account is defined as a new account during the 
first 30 calendar days after the account is opened. An account is 
opened when the first deposit is made to the account. An account is 
not considered a new account, however, if each customer on the 
account has a transaction account relationship with the depositary 
bank, including a dormant account, that is at least 30 calendar days 
old or if each customer has had an established transaction account 
with the depositary bank within the 30 calendar days prior to 
opening the second account.
    b. The following are examples of what constitutes, and does not 
constitute, a new account:
    i. If the customer has an established account with a bank and 
opens a second account with the bank, the second account is not 
subject to the new account exception.
    ii. If a customer's account were closed and another account 
opened as a successor to the original account (due, for example, to 
the theft of checks or a debit card used to access the original 
account), the successor account is not subject to the new account 
exception, assuming the previous account relationship is at least 30 
days old. Similarly, if a customer closes an established account and 
opens a separate account within 30 days, the new account is not 
subject to the new account exception.
    iii. If a customer has a savings deposit or other deposit that 
is not an account (as that term is defined in Sec. 229.2(a)) at the 
bank, and opens an account, the account is subject to the new 
account exception.
    iv. If a person that is authorized to sign on a corporate 
account (but has no other relationship with the bank) opens a 
personal account, the personal account is subject to the new account 
exception.
    v. If a customer has an established joint account at a bank, and 
subsequently opens an individual account with that bank, the 
individual account is not subject to the new account exception.
    vi. If two customers that each have an established individual 
account with the bank open a joint account, the joint account is not 
subject to the new account exception. If one of the customers on the 
account has no current or recent established account relationship 
with the bank, however, the joint account is subject to the new 
account exception, even if the other individual on the account has 
an established account relationship with the bank.
    2. Rules Applicable to New Accounts.
    a. During the new account exception period, the schedules for 
local and nonlocal checks do not apply, and, unlike the other 
exceptions provided in this section, the regulation provides no 
maximum time frames within which the proceeds of these deposits must 
be made available for withdrawal. Maximum times within which funds 
must be available for withdrawal during the new account period are 
provided, however, for certain other deposits. Deposits received by 
cash and electronic payments must be made available for withdrawal 
in accordance with Sec. 229.10.
    b. Special rules also apply to deposits of Treasury checks, U.S. 
Postal Service money orders, checks drawn on Federal Reserve Banks 
and Federal Home Loan Banks, state and local government checks, 
cashier's 

[[Page 51680]]
checks, certified checks, teller's checks, and, for the purposes of the 
new account exception only, traveler's checks. The first $5,000 of 
funds deposited to a new account on any one banking day by these 
check deposits must be made available for withdrawal in accordance 
with Sec. 229.10(c). Thus, the first $5,000 of the proceeds of these 
check deposits must be made available on the first business day 
following deposit, if the deposit is made in person to an employee 
of the depositary bank and the other conditions of next-day 
availability are met. Funds must be made available on the second 
business day after deposit for deposits that are not made over the 
counter, in accordance with Sec. 229.10(c)(2). (Proceeds of Treasury 
check deposits must be made available on the first business day 
after deposit, even if the check is not deposited in person to an 
employee of the depositary bank.) Funds in excess of the first 
$5,000 deposited by these types of checks on a banking day must be 
available for withdrawal not later than the ninth business day 
following the banking day of deposit. The requirements of 
Sec. 229.10(c)(1)(vi) and (vii) that ``on us'' checks and the first 
$100 of a day's deposit be made available for withdrawal on the next 
business day do not apply during the new account period.
    3. Representation by Customer. The depositary bank may rely on 
the representation of the customer that the customer has no 
established account relationship with the bank, and has not had any 
such account relationship within the past 30 days, to determine 
whether an account is subject to the new account exception.

C. 229.13(b)  Large Deposits

    1. Under the large deposit exception, a depositary bank may 
extend the hold placed on check deposits to the extent that the 
amount of the aggregate deposit on any banking day exceeds $5,000. 
This exception applies to local and nonlocal checks, as well as to 
checks that otherwise would be made available on the next (or 
second) business day after the day of deposit under Sec. 229.10(c). 
Although the first $5,000 of a day's deposit is subject to the 
availability otherwise provided for checks, the amount in excess of 
$5,000 may be held for an additional period of time as provided in 
Sec. 229.13(h). When the large deposit exception is applied to 
deposits composed of a mix of checks that would otherwise be subject 
to differing availability schedules, the depositary bank has the 
discretion to choose the portion of the deposit to which it applies 
the exception. Deposits by cash or electronic payment are not 
subject to this exception for large deposits.
    2. The following example illustrates the operation of the large 
deposit exception. If a customer deposits $2,000 in cash and a 
$9,000 local check on a Monday, $2,100 (the proceeds of the cash 
deposit and $100 from the local check deposit) must be made 
available for withdrawal on Tuesday. An additional $4,900 of the 
proceeds of the local check must be available for withdrawal on 
Wednesday in accordance with the local schedule, and the remaining 
$4,000 may be held for an additional period of time under the large 
deposit exception.
    3. Where a customer has multiple accounts with a depositary 
bank, the bank may apply the large deposit exception to the 
aggregate deposits to all of the customer's accounts, even if the 
customer is not the sole holder of the accounts and not all of the 
holders of the customer's accounts are the same. Thus, a depositary 
bank may aggregate the deposits made to two individual accounts in 
the same name, to an individual and a joint account with one common 
name, or to two joint accounts with at least one common name for the 
purpose of applying the large deposit exception. Aggregation of 
deposits to multiple accounts is permitted because the Board 
believes that the risk to the depositary bank associated with large 
deposits is similar regardless of how the deposits are allocated 
among the customer's accounts.

D. 229.13(c)  Redeposited Checks

    1. The Act gives the Board the authority to promulgate an 
exception to the schedule for checks that have been returned unpaid 
and redeposited. Section 229.13(c) provides such an exception for 
checks that have been returned unpaid and redeposited by the 
customer or the depositary bank. This exception applies to local and 
nonlocal checks, as well as to checks that would otherwise be made 
available on the next (or second) business day after the day of 
deposit under Sec. 229.10(c).
    2. This exception addresses the increased risk to the depositary 
bank that checks that have been returned once will be uncollectible 
when they are presented to the paying bank a second time. The Board, 
however, does not believe that this increased risk is present for 
checks that have been returned due to a missing indorsement. Thus, 
the exception does not apply to checks returned unpaid due to 
missing indorsements and redeposited after the missing indorsement 
has been obtained, if the reason for return indicated on the check 
(see Sec. 229.30(d)) states that it was returned due to a missing 
indorsement. For the same reason, this exception does not apply to a 
check returned because it was postdated (future dated), if the 
reason for return indicated on the check states that it was returned 
because it was postdated, and if it is no longer postdated when 
redeposited.
    3. To determine when funds must be made available for 
withdrawal, the banking day on which the check is redeposited is 
considered to be the day of deposit. A depositary bank that made 
$100 of a check available for withdrawal under 
Sec. 229.10(c)(1)(vii) can charge back the full amount of the check, 
including the $100, if the check is returned unpaid, and the $100 
need not be made available again if the check is redeposited.

E. 229.13(d)  Repeated Overdrafts

    1. The Act gives the Board the authority to establish an 
exception for ``deposit accounts which have been overdrawn 
repeatedly.'' This paragraph provides two tests to determine what 
constitutes repeated overdrafts. Under the first test, a customer's 
accounts are considered repeatedly overdrawn if, on six banking days 
within the preceding six months, the available balance in any 
account held by the customer is negative, or the balance would have 
become negative if checks or other charges to the account had been 
paid, rather than returned. This test can be met based on separate 
occurrences (e.g., checks that are returned for insufficient funds 
on six different days), or based on one occurrence (e.g., a negative 
balance that remains on the customer's account for six banking 
days). If the bank dishonors a check that otherwise would have 
created a negative balance, however, the incident is considered an 
overdraft only on that day.
    2. The second test addresses substantial overdrafts. Such 
overdrafts increase the risk to the depositary bank of dealing with 
the repeated overdrafter. Under this test, a customer incurs 
repeated overdrafts if, on two banking days within the preceding six 
months, the available balance in any account held by the customer is 
negative in an amount of $5,000 or more, or would have become 
negative in an amount of $5,000 or more if checks or other charges 
to the account had been paid.
    3. The exception relates not only to overdrafts caused by checks 
drawn on the account, but also overdrafts caused by other debit 
charges (e.g. ACH debits, point-of-sale transactions, returned 
checks, account fees, etc.). If the potential debit is in excess of 
available funds, the exception applies regardless of whether the 
items were paid or returned unpaid. An overdraft resulting from an 
error on the part of the depositary bank, or from the imposition of 
overdraft charges for which the customer is entitled to a refund 
under Secs. 229.13(e) or 229.16(c), cannot be considered in 
determining whether the customer is a repeated overdrafter. The 
exception excludes accounts with overdraft lines of credit, unless 
the credit line has been exceeded or would have been exceeded if the 
checks or other charges to the account had been paid.
    4. This exception applies to local and nonlocal checks, as well 
as to checks that otherwise would be made available on the next (or 
second) business day after the day of deposit under Sec. 229.10(c). 
When a bank places or extends a hold under this exception, it need 
not make the first $100 of a deposit available for withdrawal on the 
next business day, as otherwise would be required by 
Sec. 229.10(c)(1)(vii).

F. 229.13(e)  Reasonable Cause To Doubt Collectibility

    1. In the case of certain check deposits, if the bank has 
reasonable cause to believe the check is uncollectible, it may 
extend the time funds must be made available for withdrawal. This 
exception applies to local and nonlocal checks, as well as to checks 
that would otherwise be made available on the next (or second) 
business day after the day of deposit under Sec. 229.10(c). When a 
bank places or extends a hold under this exception, it need not make 
the first $100 of a deposit available for withdrawal on the next 
business day, as otherwise would be required by 
Sec. 229.10(c)(1)(vii). If the reasonable cause exception is 
invoked, the bank must include in the notice to its customer, 
required by Sec. 229.13(g), the reason that the bank believes that 
the check is uncollectible. 

[[Page 51681]]

    2. The following are several examples of circumstances under 
which the reasonable cause exception may be invoked:
    a. If a bank received a notice from the paying bank that a check 
was not paid and is being returned to the depositary bank, the 
depositary bank could place a hold on the check or extend a hold 
previously placed on that check, and notify the customer that the 
bank had received notice that the check is being returned. The 
exception could be invoked even if the notice were incomplete, if 
the bank had reasonable cause to believe that the notice applied to 
that particular check.
    b. The depositary bank may have received information from the 
paying bank, prior to the presentment of the check, that gives the 
bank reasonable cause to believe that the check is uncollectible. 
For example, the paying bank may have indicated that payment has 
been stopped on the check, or that the drawer's account does not 
currently have sufficient funds to honor the check. Such information 
may provide sufficient basis to invoke this exception. In these 
cases, the depositary bank could invoke the exception and disclose 
as the reason the exception is being invoked the fact that 
information from the paying bank indicates that the check may not be 
paid.
    c. The fact that a check is deposited more than six months after 
the date on the check (i.e. a stale check) is a reasonable 
indication that the check may be uncollectible, because under U.C.C. 
4-404 a bank has no duty to its customer to pay a check that is more 
than six months old. Similarly, if a check being deposited is 
postdated (future dated), the bank may have a reasonable cause to 
believe the check is uncollectible, because the check may not be 
properly payable under U.C.C. 4-401. The bank, in its notice, should 
specify that the check is stale-dated or postdated.
    d. There are reasons that may cause a bank to believe that a 
check is uncollectible that are based on confidential information. 
For example, a bank could conclude that a check being deposited is 
uncollectible based on its reasonable belief that the depositor is 
engaging in kiting activity. Reasonable belief as to the insolvency 
or pending insolvency of the drawer of the check or the drawee bank 
and that the checks will not be paid also may justify invoking this 
exception. In these cases, the bank may indicate, as the reason it 
is invoking the exception, that the bank has confidential 
information that indicates that the check might not be paid.
    3. The Board has included a reasonable cause exception notice as 
a model notice in Appendix C (C-13). The model notice includes 
several reasons for which this exception may be invoked. The Board 
does not intend to provide a comprehensive list of reasons for which 
this exception may be invoked; another reason that does not appear 
on the model notice may be used as the basis for extending a hold, 
if the reason satisfies the conditions for invoking this exception. 
A depositary bank may invoke the reasonable cause exception based on 
a combination of factors that give rise to a reasonable cause to 
doubt the collectibility of a check. In these cases, the bank should 
disclose the primary reasons for which the exception was invoked in 
accordance with paragraph (g) of this section.
    4. The regulation provides that the determination that a check 
is uncollectible shall not be based on a class of checks or persons. 
For example, a depositary bank cannot invoke this exception simply 
because the check is drawn on a paying bank in a rural area and the 
depositary bank knows it will not have the opportunity to learn of 
nonpayment of that check before funds must be made available under 
the availability schedules. Similarly, a depositary bank cannot 
invoke the reasonable cause exception based on the race or national 
origin of the depositor.
    5. If a depositary bank invokes this exception with respect to a 
particular check and does not provide a written notice to the 
depositor at the time of deposit, the depositary bank may not assess 
any overdraft fee (such as an ``NSF'' charge) or charge interest for 
use of overdraft credit, if the check is paid by the paying bank and 
these charges would not have occurred had the exception not been 
invoked. A bank may assess an overdraft fee under these 
circumstances, however, if it provides notice to the customer, in 
the notice of exception required by paragraph (g) of this section, 
that the fee may be subject to refund, and refunds the charges upon 
the request of the customer. The notice must state that the customer 
may be entitled to a refund of any overdraft fees that are assessed 
if the check being held is paid, and indicate where such requests 
for a refund of overdraft fees should be directed.

G. 229.13(f)  Emergency Conditions

    1. Certain emergency conditions may arise that delay the 
collection or return of checks, or delay the processing and updating 
of customer accounts. In the circumstances specified in this 
paragraph, the depositary bank may extend the holds that are placed 
on deposits of checks that are affected by such delays, if the bank 
exercises such diligence as the circumstances require. For example, 
if a bank learns that a check has been delayed in the process of 
collection due to severe weather conditions or other causes beyond 
its control, an emergency condition covered by this section may 
exist and the bank may place a hold on the check to reflect the 
delay. This exception applies to local and nonlocal checks, as well 
as checks that would otherwise be made available on the next (or 
second) business day after the day of deposit under Sec. 229.10(c). 
When a bank places or extends a hold under this exception, it need 
not make the first $100 of a deposit available for withdrawal on the 
next business day, as otherwise would be required by 
Sec. 229.10(c)(1)(vii). In cases where the emergency conditions 
exception does not apply, as in the case of deposits of cash or 
electronic payments under Sec. 229.10 (a) and (b), the depositary 
bank may not be liable for a delay in making funds available for 
withdrawal if the delay is due to a bona fide error such as an 
unavoidable computer malfunction.

H. 229.13(g)  Notice of Exception

    1. In general.
    a. If a depositary bank invokes any of the safeguard exceptions 
to the schedules listed above, other than the new account exception, 
and extends the hold on a deposit beyond the time periods permitted 
in Secs. 229.10(c) and 229.12, it must provide a notice to its 
customer. Except in the cases described in paragraphs (g)(2) and 
(g)(3) of this section, notices must be given each time an exception 
hold is invoked and must state the customer's account number, the 
date of deposit, the reason the exception was invoked, and the time 
period within which funds will be available for withdrawal.
    b. With respect to paragraph (g)(1), the requirement that the 
notice state the time period within which the funds shall be made 
available may be satisfied if the notice identifies the date the 
deposit is received and information sufficient to indicate when 
funds will be available and the amounts that will be available at 
those times. For example, for a deposit involving more than one 
check, the bank need not provide a notice that discloses when funds 
from each individual check in the deposit will be available for 
withdrawal; instead, the bank may provide a total dollar amount for 
each of the time periods when funds will be available, or provide 
the customer with an explanation of how to determine the amount of 
the deposit that will be held and when the funds will be available 
for deposit. Appendix C (C-12) contains a model notice.
    c. For deposits made in person to an employee of the depositary 
bank, the notice generally must be given to the person making the 
deposit, i.e., the ``depositor'', at the time of deposit. The 
depositor need not be the customer holding the account. For other 
deposits, such as deposits received at an ATM, lobby deposit box, 
night depository, or through the mail, notice must be mailed to the 
customer not later than the close of the business day following the 
banking day on which the deposit was made.
    d. Notice to the customer also may be provided at a later time, 
if the facts upon which the determination to invoke the exception do 
not become known to the depositary bank until after notice would 
otherwise have to be given. In these cases, the bank must mail the 
notice to the customer as soon as practicable, but not later than 
the business day following the day the facts become known. A bank is 
deemed to have knowledge when the facts are brought to the attention 
of the person or persons in the bank responsible for making the 
determination, or when the facts would have been brought to their 
attention if the bank had exercised due diligence.
    e. If the depositary bank extends the hold placed on a deposit 
due to an emergency condition, the notice requirement generally 
applies; however, the regulation provides that the bank need not 
provide a notice if the funds would be available for withdrawal 
before the notice must be sent. For example, if on the last day of a 
hold period the depositary bank experiences a computer failure and 
customer accounts cannot be updated in a timely fashion to reflect 
the funds as available balances, notices are not required if the 
funds are made available before the notices must be sent.
    f. In those cases described in paragraphs (g)(2) and (g)(3), the 
depositary bank need not 

[[Page 51682]]
provide a notice every time an exception hold is applied to a deposit. 
When paragraph (g)(2) or (g)(3) requires disclosure of the time 
period within which deposits subject to the exception generally will 
be available for withdrawal, the requirement may be satisfied if the 
one-time notice states when ``on us,'' local, and nonlocal checks 
will be available for withdrawal if an exception is invoked.
    2. One-time exception notice.
    a. Under paragraph (g)(2), if a nonconsumer account (see 
Commentary to Sec. 229.2(n)) is subject to the large deposit or 
redeposited check exception, the depositary bank may give its 
customer a single notice at or prior to the time notice must be 
provided under paragraph (g)(1). Notices provided under paragraph 
(g)(2) must contain the reason the exception may be invoked and the 
time period within which deposits subject to the exception will be 
available for withdrawal (see Model Notice C-14). A depositary bank 
may provide a one-time notice to a nonconsumer customer under 
paragraph (g)(2) only if each exception cited in the notice (the 
large deposit and/or the redeposited check exception) will be 
invoked for most check deposits to the customer's account to which 
the exception could apply. A one-time notice may state that the 
depositary bank will apply exception holds to certain subsets of 
deposits to which the large deposit or redeposited check exception 
may apply, and the notice should identify such subsets. For example, 
the depositary bank may apply the redeposited check exception only 
to checks that were redeposited automatically by the depositary bank 
in accordance with an agreement with the customer, rather than to 
all redeposited checks. In lieu of sending the one-time notice, a 
depositary bank may send individual hold notices for each deposit 
subject to the large deposit or redeposited check exception in 
accordance with Sec. 229.13(g)(1) (see Model Notice C-12).
    b. In the case of a deposit of multiple checks, the depositary 
bank has the discretion to place an exception hold on any 
combination of checks in excess of $5,000. The notice should enable 
a customer to determine the availability of the deposit in the case 
of a deposit of multiple checks. For example, if a customer deposits 
a $5,000 local check and a $5,000 nonlocal check, under the large 
deposit exception, the depositary bank may make funds available in 
the amount of (1) $100 on the first business day after deposit, 
$4,900 on the second business day after deposit (local check), and 
$5,000 on the eleventh business day after deposit (nonlocal check 
with 6-day exception hold), or (2) $100 on the first business day 
after deposit, $4,900 on the fifth business day after deposit 
(nonlocal check), and $5,000 on the seventh business day after 
deposit (local check with 5-day exception hold). The notice should 
reflect the bank's priorities in placing exception holds on next-day 
(or second-day), local, and nonlocal checks.
    3. Notice of repeated overdraft exception. Under paragraph 
(g)(3), if an account is subject to the repeated overdraft 
exception, the depositary bank may provide one notice to its 
customer for each time period during which the exception will apply. 
Notices sent pursuant to paragraph (g)(3) must state the customer's 
account number, the fact the exception was invoked under the 
repeated overdraft exception, the time period within which deposits 
subject to the exception will be made available for withdrawal, and 
the time period during which the exception will apply (see Model 
Notice C-15). A depositary bank may provide a one-time notice to a 
customer under paragraph (g)(3) only if the repeated overdraft 
exception will be invoked for most check deposits to the customer's 
account.
    4. Record retention. A depositary bank must retain a record of 
each notice of a reasonable cause exception for a period of two 
years, or such longer time as provided in the record retention 
requirements of Sec. 229.21. This record must contain a brief 
description of the facts on which the depositary bank based its 
judgment that there was reasonable cause to doubt the collectibility 
of a check. In many cases, such as where the exception was invoked 
on the basis of a notice of nonpayment received, the record 
requirement may be met by retaining a copy of the notice sent to the 
customer. In other cases, such as where the exception was invoked on 
the basis of confidential information, a further description to the 
facts, such as insolvency of drawer, should be included in the 
record.

I. 229.13(h)  Availability of Deposits Subject to Exceptions

    1. If a depositary bank invokes any exception other than the new 
account exception, the bank may extend the time within which funds 
must be made available under the schedule by a reasonable period of 
time. This provision establishes that an extension of up to one 
business day for ``on us'' checks, five business days for local 
checks, and six business days for nonlocal checks is reasonable. 
Under certain circumstances, however, a longer extension of the 
schedules may be reasonable. In these cases, the burden is placed on 
the depositary bank to establish that a longer period is reasonable.
    2. For example, assume a bank extended the hold on a local check 
deposit by five business days based on its reasonable cause to 
believe that the check is uncollectible. If, on the day before the 
extended hold is scheduled to expire, the bank receives a 
notification from the paying bank that the check is being returned 
unpaid, the bank may determine that a longer hold is warranted, if 
it decides not to charge back the customer's account based on the 
notification. If the bank decides to extend the hold, the bank must 
send a second notice, in accordance with paragraph (g) of this 
section, indicating the new date that the funds will be available 
for withdrawal.
    3. With respect to Treasury checks, U.S. Postal Service money 
orders, checks drawn on Federal Reserve Banks or Federal Home Loan 
Banks, state and local government checks, cashier's checks, 
certified checks, and teller's checks subject to the next-day (or 
second-day) availability requirement, the depositary bank may extend 
the time funds must be made available for withdrawal under the large 
deposit, redeposited check, repeated overdraft, or reasonable cause 
exception by a reasonable period beyond the delay that would have 
been permitted under the regulation had the checks not been subject 
to the next-day (or second-day) availability requirement. The 
additional hold is added to the local or nonlocal schedule that 
would apply based on the location of the paying bank.
    4. One business day for ``on us'' checks, five business days for 
local checks, and six business days for nonlocal checks, in addition 
to the time period provided in the schedule, should provide adequate 
time for the depositary bank to learn of the nonpayment of virtually 
all checks that are returned. For example, if a customer deposits a 
$7,000 cashier's check drawn on a nonlocal bank, and the depositary 
bank applies the large deposit exception to that check, $5,000 must 
be available for withdrawal on the first business day after the day 
of deposit and the remaining $2,000 must be available for withdrawal 
on the eleventh business day following the day of deposit (six 
business days added to the five-day schedule for nonlocal checks), 
unless the depositary bank establishes that a longer hold is 
reasonable.
    5. In the case of the application of the emergency conditions 
exception, the depositary bank may extend the hold placed on a check 
by not more than a reasonable period following the end of the 
emergency or the time funds must be available for withdrawal under 
Secs. 229.10(c) or 229.12, whichever is later.
    6. This provision does not apply to holds imposed under the new 
account exception. Under that exception, the maximum time period 
within which funds must be made available for withdrawal is 
specified for deposits that generally must be accorded next-day 
availability under Sec. 229.10. This subpart does not specify the 
maximum time period within which the proceeds of local and nonlocal 
checks must be made available for withdrawal during the new account 
period.

VIII. Section 229.14  Payment of Interest

A. 229.14(a)  In General

    1. This section requires that a depositary bank begin accruing 
interest on interest-bearing accounts not later than the day on 
which the depositary bank receives credit for the funds 
deposited.3 A depositary bank 

[[Page 51683]]
generally receives credit on checks within one or two days following 
deposit. A bank receives credit on a cash deposit, an electronic 
payment, and the deposit of a check that is drawn on the depositary 
bank itself on the day the cash, electronic payment, or check is 
received. In the case of a deposit at a nonproprietary ATM, credit 
generally is received on the day the bank that operates the ATM 
credits the depositary bank for the amount of the deposit.

    \3\This section implements section 606 of the Act (12 U.S.C. 
4005). The Act keys the requirement to pay interest to the time the 
depositary bank receives provisional credit for a check. Provisional 
credit is a term used in the U.C.C. that is derived from the Code's 
concept of provisional settlement. (See U.C.C. 4-214 and 4-215.) 
Provisional credit is credit that is subject to charge-back if the 
check is returned unpaid; once the check is finally paid, the right 
to charge back expires and the provisional credit becomes final. 
Under Subpart C, a paying bank no longer has an automatic right to 
charge back credits given in settlement of a check, and the concept 
of provisional settlement is no longer useful and has been 
eliminated by the regulation. Accordingly, this section uses the 
term credit rather than provisional credit, and this section applies 
regardless of whether a credit would be provisional or final under 
the U.C.C. Credit does not include a bookkeeping entry (sometimes 
referred to as deferred credit) that does not represent funds 
actually available for the bank's use.
---------------------------------------------------------------------------

    2. Because account includes only transaction accounts, other 
interest-bearing accounts of the depositary bank, such as money 
market deposit accounts, savings deposits, and time deposits, are 
not subject to this requirement; however, a bank may accrue interest 
on such deposits in the same way that it accrues interest under this 
paragraph for simplicity of operation. The Board intends the term 
interest to refer to payments to or for the account of any customer 
as compensation for the use of funds, but to exclude the absorption 
of expenses incident to providing a normal banking function or a 
bank's forbearance from charging a fee in connection with such a 
service. (See 12 CFR 217.2(d).) Thus, earnings credits often applied 
to corporate accounts are not interest payments for the purposes of 
this section.
    3. It may be difficult for a depositary bank to track which day 
the depositary bank receives credit for specific checks in order to 
accrue interest properly on the account to which the check is 
deposited. This difficulty may be pronounced if the bank uses 
different means of collecting checks based on the time of day the 
check is received, the dollar amount of the check, and/or the paying 
bank to which it must be sent. Thus, for the purpose of the interest 
accrual requirement, a bank may rely on an availability schedule 
from its Federal Reserve Bank, Federal Home Loan Bank, or 
correspondent to determine when the depositary bank receives credit. 
If availability is delayed beyond that specified in the availability 
schedule, a bank may charge back interest erroneously accrued or 
paid on the basis of that schedule.
    4. This paragraph also permits a depositary bank to accrue 
interest on checks deposited to all of its interest-bearing accounts 
based on when the bank receives credit on all checks sent for 
payment or collection. For example, if a bank receives credit on 20 
percent of the funds deposited in the bank by check as of the 
business day of deposit (e.g., ``on us'' checks), 70 percent as of 
the business day following deposit, and 10 percent on the second 
business day following deposit, the bank can apply these percentages 
to determine the day interest must begin to accrue on check deposits 
to all interest-bearing accounts, regardless of when the bank 
received credit on the funds deposited in any particular account. 
Thus, a bank may begin accruing interest on a uniform basis for all 
interest-bearing accounts, without the need to track the type of 
check deposited to each account.
    5. This section is not intended to limit a policy of a 
depositary bank that provides that interest accrues only on balances 
that exceed a specified amount, or on the minimum balance maintained 
in the account during a given period, provided that the balance is 
determined based on the date that the depositary bank receives 
credit for the funds. This section also is not intended to limit any 
policy providing that interest accrues sooner than required by this 
paragraph.

B. 229.14(b)  Special Rule for Credit Unions

    1. This provision implements a requirement in section 606(b) of 
the Act, and provides an exemption from the payment-of-interest 
requirements for credit unions that do not begin to accrue interest 
or dividends on their customer accounts until a later date than the 
day the credit union receives credit for those deposits, including 
cash deposits. These credit unions are exempt from the payment-of-
interest requirements, as long as they provide notice of their 
interest accrual policies in accordance with Sec. 229.16(d). For 
example, if a credit union has a policy of computing interest on all 
deposits received by the 10th of the month from the first of that 
month, and on all deposits received after the 10th of the month from 
the first of the next month, that policy is not superseded by this 
regulation, if the credit union provides proper disclosure of this 
policy to its customers.
    2. The Act limits this exemption to credit unions; other types 
of banks must comply with the payment-of-interest requirements. In 
addition, credit unions that compute interest from the day of 
deposit or day of credit should not change their existing practices 
in order to avoid compliance with the requirement that interest 
accrue from the day the credit union receives credit.

C. 229.14(c)  Exception for Checks Returned Unpaid

    1. This provision is based on section 606(c) of the Act (12 
U.S.C. 4005(c)) and provides that interest need not be paid on funds 
deposited in an interest-bearing account by check that has been 
returned unpaid, regardless of the reason for return.

IX. Section 229.15  General Disclosure Requirements

A. 229.15(a)  Form of Disclosures

    1. This paragraph sets forth the general requirements for the 
disclosures required under Subpart B. All of the disclosures must be 
given in a clear and conspicuous manner, must be in writing, and, in 
most cases, must be in a form the customer may keep. Disclosures 
posted at locations where employees accept consumer deposits, at 
ATMs, and on preprinted deposit slips need not be in a form that the 
customer may keep. Appendix C of the regulation contains model 
forms, clauses, and notices to assist banks in preparing 
disclosures.
    2. Disclosures concerning availability must be grouped together 
and may not contain any information that is not related to the 
disclosures required by this subpart. Therefore, banks may not 
intersperse the required disclosures with other account disclosures, 
and may not include other account information that is not related to 
their availability policy within the text of the required 
disclosures. Banks may, however, include information that is related 
to their availability policies. For example, a bank may inform its 
customers that, even when the bank has already made funds available 
for withdrawal, the customer is responsible for any problem with the 
deposit, such as the return of a deposited check.
    3. The regulation does not require that the disclosures be 
segregated from other account terms and conditions. For example, 
banks may include the disclosure of their specific availability 
policy in a booklet or pamphlet that sets out all of the terms and 
conditions of the bank's accounts. The required disclosures must, 
however, be grouped together and highlighted or identified in some 
manner, for example, by use of a separate heading for the 
disclosures, such as ``When Deposits are Available for Withdrawal.''

B. 229.15(b)  Uniform Reference to Day of Availability

    1. This paragraph requires banks to disclose in a uniform manner 
when deposited funds will be available for withdrawal. Banks must 
disclose when deposited funds are available for withdrawal by 
stating the business day on which the customer may begin to withdraw 
funds. The business day funds will be available must be disclosed as 
``the ________________ business day after'' the day of deposit, or 
substantially similar language. The business day of availability is 
determined by counting the number of business days starting with the 
business day following the banking day on which the deposit is 
received, as determined under Sec. 229.19(a), and ending with the 
business day on which the customer may begin to withdraw funds. For 
example, a bank that imposes delays of four intervening business 
days for nonlocal checks must describe those checks as being 
available on ``the fifth business day after'' the day of the 
deposit.

C. 229.15(c) Multiple Accounts and Multiple Account Holders

    1. This paragraph clarifies that banks need not provide multiple 
disclosures under the regulation. A single disclosure to a customer 
that holds multiple accounts, or a single disclosure to one of the 
account holders of a jointly held account, satisfies the disclosure 
requirements of the regulation.

D. 229.15(d) Dormant or Inactive Accounts

    1. This paragraph makes clear that banks need not provide 
disclosure of their specific availability policies to customers that 
hold accounts that are either dormant or inactive. The determination 
that certain accounts are dormant or inactive must be made by the 
bank. If a bank considers an account dormant or inactive for 
purposes other than this regulation and no longer provides 
statements and other mailings to an account for this reason, such an 
account is considered dormant or inactive for purposes of this 
regulation.

X. Section 229.16 Specific Availability Policy Disclosure

A. 229.16(a)  General

    1. This section describes the information that must be disclosed 
by banks to comply with Secs. 229.17 and 229.18(d), which require 
that banks furnish notices of their specific policy regarding 
availability of deposited 

[[Page 51684]]
funds. The disclosure provided by a bank must reflect the availability 
policy followed by the bank in most cases, even though a bank may in 
some cases make funds available sooner or impose a longer delay.
    2. The disclosure must reflect the policy and practice of the 
bank regarding availability as to most accounts and most deposits 
into those accounts. In disclosing the availability policy that it 
follows in most cases, a bank may provide a single disclosure that 
reflects one policy to all its transaction account customers, even 
though some of its customers may receive faster availability than 
that reflected in the policy disclosure. Thus, a bank need not 
disclose to some customers that they receive faster availability 
than indicated in the disclosure. If, however, a bank has a policy 
of imposing delays in availability on any customers longer than 
those specified in its disclosure, those customers must receive 
disclosures that reflect the longer applicable availability periods.
    3. A bank may disclose that funds are available for withdrawal 
on a given day notwithstanding the fact that the bank uses the funds 
to pay checks received before that day. For example, a bank may 
disclose that its policy is to make funds available from deposits of 
local checks on the second business day following the day of 
deposit, even though it may use the deposited funds to pay checks 
prior to the second business day; the funds used to pay checks in 
this example are not available for withdrawal until the second 
business day after deposit because the funds are not available for 
all uses until the second business day. (See the definition of 
available for withdrawal in Sec. 229.2(d).)

B. 229.16(b)  Content of Specific Policy Disclosure

    1. This paragraph sets forth the items that must be included, as 
applicable, in a bank's specific availability policy disclosure. The 
information that must be disclosed by a particular bank will vary 
considerably depending upon the bank's availability policy. For 
example, a bank that makes deposited funds available for withdrawal 
on the business day following the day of deposit need simply 
disclose that deposited funds will be available for withdrawal on 
the first business day after the day of deposit, the bank's business 
days, and when deposits are considered received.
    2. On the other hand, a bank that has a policy of routinely 
delaying on a blanket basis the time when deposited funds are 
available for withdrawal would have a more detailed disclosure. Such 
blanket hold policies might be for the maximum time allowed under 
the federal law or might be for shorter periods. These banks must 
disclose the types of deposits that will be subject to delays, how 
the customer can determine the type of deposit being made, and the 
day that funds from each type of deposit will be available for 
withdrawal.
    3. Some banks may have a combination of next-day availability 
and blanket delays. For example, a bank may provide next-day 
availability for all deposits except for one or two categories, such 
as deposits at nonproprietary ATMs and nonlocal personal checks over 
a specified dollar amount. The bank would describe the categories 
that are subject to delays in availability and tell the customer 
when each category would be available for withdrawal, and state that 
other deposits will be available for withdrawal on the first 
business day after the day of deposit. Similarly, a bank that 
provides availability on the second business day for most of its 
deposits would need to identify the categories of deposits which, 
under the regulation, are subject to next-day availability and state 
that all other deposits will be available on the second business 
day.
    4. Because many banks' availability policies may be complex, a 
bank must give a brief summary of its policy at the beginning of the 
disclosure. In addition, the bank must describe any circumstances 
when actual availability may be longer than the schedules disclosed. 
Such circumstances would arise, for example, when the bank invokes 
one of the exceptions set forth in Sec. 229.13 of the regulation, or 
when the bank delays or extends the time when deposited funds are 
available for withdrawal up to the time periods allowed by the 
regulation on a case-by-case basis. Also, a bank that must make 
certain checks available faster under Appendix B (reduction of 
schedules for certain nonlocal checks) must state that some check 
deposits will be available for withdrawal sooner because of special 
rules and that a list of the pertinent routing numbers is available 
upon request.
    5. Generally, a bank that distinguishes in its disclosure 
between local and nonlocal checks based on the routing number on the 
check must disclose to its customers that certain checks, such as 
some credit union payable-through drafts, will be treated as local 
or nonlocal based on the location of the bank by which they are 
payable (e.g., the credit union), and not on the basis of the 
location of the bank whose routing number appears on the check. A 
bank is not required to provide this disclosure, however, if it 
makes the proceeds of both local and nonlocal checks available for 
withdrawal within the time periods required for local checks in 
Secs. 229.12 and 229.13.
    6. The business day cut-off time used by the bank must be 
disclosed and if some locations have different cut-off times the 
bank must note this in the disclosure and state the earliest time 
that might apply. A bank need not list all of the different cut-off 
times that might apply.
    7. A bank taking advantage of the extended time period for 
making deposits at nonproprietary ATMs available for withdrawal 
under Sec. 229.12(f) must explain this in the initial disclosure. In 
addition, the bank must provide a list (on or with the initial 
disclosure) of either the bank's proprietary ATMs or those ATMs that 
are nonproprietary at which customers may make deposits. As an 
alternative to providing such a list, the bank may label all of its 
proprietary ATMs with the bank's name and state in the initial 
disclosure that this has been done. Similarly, a bank taking 
advantage of the cash withdrawal limitations of Sec. 229.12(d), or 
the provision in Sec. 229.19(e) allowing holds to be placed on other 
deposits when a deposit is made or a check is cashed, must explain 
this in the initial disclosure.
    8. A bank that provides availability based on when the bank 
generally receives credit for deposited checks need not disclose the 
time when a check drawn on a specific bank will be available for 
withdrawal. Instead, the bank may disclose the categories of 
deposits that must be available on the first business day after the 
day of deposit (deposits subject to Sec. 229.10) and state the other 
categories of deposits and the time periods that will be applicable 
to those deposits. For example, a bank might disclose the four-digit 
Federal Reserve routing symbol for local checks and indicate that 
such checks as well as certain nonlocal checks will be available for 
withdrawal on the first or second business day following the day of 
deposit, depending on the location of the particular bank on which 
the check is drawn, and disclose that funds from all other checks 
will be available on the second or third business day. The bank must 
also disclose that the customer may request a copy of the bank's 
detailed schedule that would enable the customer to determine the 
availability of any check and must provide such schedule upon 
request. A change in the bank's detailed schedule would not trigger 
the change in policy disclosure requirement of Sec. 229.18(e).

C. 229.16(c)  Longer Delays on a Case-by-Case Basis

    1. Notice in specific policy disclosure.
    a. Banks that make deposited funds available for withdrawal 
sooner than required by the regulation--for example, providing their 
customers with immediate or next-day availability for deposited 
funds--and delay the time when funds are available for withdrawal 
only from time to time determined on a case-by-case basis, must 
provide notice of this in their specific availability policy 
disclosure. This paragraph outlines the requirements for that 
notice.
    b. In addition to stating what their specific availability 
policy is in most cases, banks that may delay or extend the time 
when deposits are available on a case-by-case basis must: state that 
from time to time funds may be available for withdrawal later than 
the time periods in their specific policy disclosure, disclose the 
latest time that a customer may have to wait for deposited funds to 
be available for withdrawal when a case-by-case hold is placed, 
state that customers will be notified when availability of a deposit 
is delayed on a case-by-case basis, and advise customers to ask if 
they need to be sure of the availability of a particular deposit.
    c. A bank that imposes delays on a case-by-case basis is still 
subject to the availability requirements of this regulation. If the 
bank imposes a delay on a particular deposit that is not longer than 
the availability required by Sec. 229.12 for local and nonlocal 
checks, the reason for the delay need not be based on the exceptions 
provided in Sec. 229.13. If the delay exceeds the time periods 
permitted under Sec. 229.12, however, then it must be based on an 
exception provided in Sec. 229.13, and the bank must comply with the 
Sec. 229.13 notice requirements. A bank that imposes delays on a 
case-by-case basis may avail itself of the one-time notice 
provisions in Sec. 229.13(g)(2) and (3) for deposits to which those 
provisions apply. 

[[Page 51685]]

    2. Notice at time of case-by-case delay.
    a. In addition to including the disclosures required by 
paragraph (c)(1) of this section in their specific availability 
policy disclosure, banks that delay or extend the time period when 
funds are available for withdrawal on a case-by-case basis must give 
customers a notice when availability of funds from a particular 
deposit will be delayed or extended beyond the time when deposited 
funds are generally available for withdrawal. The notice must state 
that a delay is being imposed and indicate when the funds will be 
available. In addition, the notice must include the account number, 
the date and amount of the deposit, and the amount of the deposit 
being delayed.
    b. If notice of the delay was not given at the time the deposit 
was made and the bank assesses overdraft or returned check fees on 
accounts when a case-by-case hold has been placed, the case-by-case 
hold notice provided to the customer must include a notice 
concerning overdraft or returned check fees. The notice must state 
that the customer may be entitled to a refund of any overdraft or 
returned check fees that result from the deposited funds not being 
available if the check that was deposited was in fact paid by the 
payor bank, and explain how to request a refund of any fees. (See 
Sec. 229.16(c)(3).)
    c. The requirement that the case-by-case hold notice state the 
day that funds will be made available for withdrawal may be met by 
stating the date or the number of business days after deposit that 
the funds will be made available. This requirement is satisfied if 
the notice provides information sufficient to indicate when funds 
will be available and the amounts that will be available at those 
times. For example, for a deposit involving more than one check, the 
bank need not provide a notice that discloses when funds from each 
individual item in the deposit will be available for withdrawal. 
Instead, the bank may provide a total dollar amount for each of the 
time periods when funds will be available, or provide the customer 
with an explanation of how to determine the amount of the deposit 
that will be held and when the held funds will be available for 
withdrawal.
    d. For deposits made in person to an employee of the depositary 
bank, the notice generally must be given at the time of the deposit. 
The notice at the time of the deposit must be given to the person 
making the deposit, that is, the ``depositor.'' The depositor need 
not be the customer holding the account. For other deposits, such as 
deposits received at an ATM, lobby deposit box, night depository, 
through the mail, or by armored car, notice must be mailed to the 
customer not later than the close of the business day following the 
banking day on which the deposit was made. Notice to the customer 
also may be provided not later than the close of the business day 
following the banking day on which the deposit was made if the 
decision to delay availability is made after the time of the 
deposit.
    3. Overdraft and returned check fees. If a depositary bank 
delays or extends the time when funds from a deposited check are 
available for withdrawal on a case-by-case basis and does not 
provide a written notice to its depositor at the time of deposit, 
the depositary bank may not assess any overdraft or returned check 
fees (such as an insufficient funds charge) or charge interest for 
use of an overdraft line of credit, if the deposited check is paid 
by the paying bank and these fees would not have occurred had the 
additional case-by-case delay not been imposed. A bank may assess an 
overdraft or returned check fee under these circumstances, however, 
if it provides notice to the customer in the notice required by 
paragraph (c)(2) of this section that the fee may be subject to 
refund, and refunds the fee upon the request of the customer when 
required to do so. The notice must state that the customer may be 
entitled to a refund of any overdraft or returned check fees that 
are assessed if the deposited check is paid, and indicate where such 
requests for a refund of overdraft fees should be directed. 
Paragraph (c)(3) applies when a bank provides a case-by-case notice 
in accordance with paragraph (c)(2) and does not apply if the bank 
has provided an exception hold notice in accordance with 
Sec. 229.13.

D. 229.16(d)  Credit Union Notice of Interest Payment Policy

    1. This paragraph sets forth the special disclosure requirement 
for credit unions that delay accrual of interest or dividends for 
all cash and check deposits beyond the date of receiving provisional 
credit for checks being deposited. (The interest payment requirement 
is set forth in Sec. 229.14(a).) Such credit unions are required to 
describe their policy with respect to accrual of interest or 
dividends on deposits in their specific availability policy 
disclosure.

XI. Section 229.17  Initial Disclosures

    A. This paragraph requires banks to provide a notice of their 
availability policy to all potential customers prior to opening an 
account. The requirement of a notice prior to opening an account 
requires banks to provide disclosures prior to accepting a deposit 
to open an account. Disclosures must be given at the time the bank 
accepts an initial deposit regardless of whether the bank has opened 
the account yet for the customer. If a bank, however, receives a 
written request by mail from a person asking that an account be 
opened and the request includes an initial deposit, the bank may 
open the account with the deposit, provided the bank mails the 
required disclosures to the customer not later than the business day 
following the banking day on which the bank receives the deposit. 
Similarly, if a bank receives a telephone request from a customer 
asking that an account be opened with a transfer from a separate 
account of the customer's at the bank, the disclosure may be mailed 
not later than the business day following the banking day of the 
request.

XII. Section 229.18  Additional Disclosure Requirements

A. 229.18(a)  Deposit Slips

    1. This paragraph requires banks to include a notice on all 
preprinted deposit slips. The deposit slip notice need only state, 
somewhere on the front of the deposit slip, that deposits may not be 
available for immediate withdrawal. The notice is required only on 
preprinted deposit slips--those printed with the customer's account 
number and name and furnished by the bank in response to a 
customer's order to the bank. A bank need not include the notice on 
deposit slips that are not preprinted and supplied to the customer--
such as counter deposit slips--or on those special deposit slips 
provided to the customer under Sec. 229.10(c). A bank is not 
responsible for ensuring that the notice appear on deposit slips 
that the customer does not obtain from or through the bank. This 
paragraph applies to preprinted deposit slips furnished to customers 
on or after September 1, 1988.

B. 229.18(b)  Locations Where Employees Accept Consumer Deposits

    1. This paragraph describes the statutory requirement that a 
bank post in each location where its employees accept consumer 
deposits a notice of its availability policy pertaining to consumer 
accounts. The notice that is required must specifically state the 
availability periods for the various deposits that may be made to 
consumer accounts. The notice need not be posted at each teller 
window, but the notice must be posted in a place where consumers 
seeking to make deposits are likely to see it before making their 
deposits. For example, the notice might be posted at the point where 
the line forms for teller service in the lobby. The notice is not 
required at any drive-through teller windows nor is it required at 
night depository locations, or at locations where consumer deposits 
are not accepted.

C. 229.18(c)  Automated Teller Machines

    1. This paragraph sets forth the required notices for ATMs. 
Paragraph (c)(1) provides that the depositary bank is responsible 
for posting a notice on all ATMs at which deposits can be made to 
accounts at the depositary bank. The depositary bank may arrange for 
a third party, such as the owner or operator of the ATM, to post the 
notice and indemnify the depositary bank from liability if the 
depositary bank is liable under Sec. 229.21 for the owner or 
operator failing to provide the required notice.
    2. The notice may be posted on a sign, shown on the screen, or 
included on deposit envelopes provided at the ATM. This disclosure 
must be given before the customer has made the deposit. Therefore, a 
notice provided on the customer's deposit receipt or appearing on 
the ATM's screen after the customer has made the deposit would not 
satisfy this requirement.
    3. Paragraph (c)(2) requires a depositary bank that operates an 
off-premise ATM from which deposits are removed not more than two 
times a week to make a disclosure of this fact on the off-premise 
ATM. The notice must disclose to the customer the days on which 
deposits made at the ATM will be considered received.

D. 229.18(d)  Upon Request

    1. This paragraph requires banks to provide written notice of 
their specific availability policy to any person upon that person's 
oral or written request. The notice must be sent within a reasonable 
period of time following receipt of the request. 

[[Page 51686]]


E. 229.18(e)  Changes in Policy

    1. This paragraph requires banks to send notices to their 
customers when the banks change their availability policies with 
regard to consumer accounts. A notice may be given in any form as 
long as it is clear and conspicuous. If the bank gives notice of a 
change by sending the customer a complete new availability 
disclosure, the bank must direct the customer to the changed terms 
in the disclosure by use of a letter or insert, or by highlighting 
the changed terms in the disclosure.
    2. Generally, a bank must send a notice at least 30 calendar 
days before implementing any change in its availability policy. If 
the change results in faster availability of deposits--for example, 
if the bank changes its availability for nonlocal checks from the 
fifth business day after deposit to the fourth business day after 
deposit--the bank need not send advance notice. The bank must, 
however, send notice of the change no later than 30 calendar days 
after the change is implemented. A bank is not required to give a 
notice when there is a change in Appendix B (reduction of schedules 
for certain nonlocal checks).
    3. A bank that has provided its customers with a list of ATMs 
under Sec. 229.16(b)(5) shall provide its customers with an updated 
list of ATMs once a year if there are changes in the list of ATMs 
previously disclosed to the customers.

XIII. Section 229.19  Miscellaneous

A. 229.19(a)  When Funds Are Considered Deposited

    1. The time funds must be made available for withdrawal under 
this subpart is determined by the day the deposit is made. This 
paragraph provides rules to determine the day funds are considered 
deposited in various circumstances.
    2. Staffed facilities and ATMs. Funds received at a staffed 
teller station or ATM are considered deposited when received by the 
teller or placed in the ATM. Funds deposited to a deposit box in a 
bank lobby that is accessible to customers only during regular 
business hours generally are considered deposited when placed in the 
lobby box; a bank may, however, treat deposits to lobby boxes the 
same as deposits to night depositories (as provided in 
Sec. 229.19(a)(3)), provided a notice appears on the lobby box 
informing the customer when such funds will be considered deposited.
    3. Mail. Funds mailed to the depositary bank are considered 
deposited on the banking day they are received by the depositary 
bank. The funds are received by the depositary bank at the time the 
mail is delivered to the bank, even if it is initially delivered to 
a mail room, rather than the check processing area.
    4. Other facilities.
    a. In addition to deposits at staffed facilities, at ATMs, and 
by mail, funds may be deposited at a facility such as a night 
depository or a lock box. A night depository is a receptacle for 
receipt of deposits, typically used by corporate depositors when the 
branch is closed. Funds deposited at a night depository are 
considered deposited on the banking day the deposit is removed, and 
the contents of the deposit are accessible to the depositary bank 
for processing. For example, some businesses deposit their funds in 
a locked bag at the night depository late in the evening, and return 
to the bank the following day to open the bag. Other depositors may 
have an agreement with their bank that the deposit bag must be 
opened under the dual control of the bank and the depositor. In 
these cases, the funds are considered deposited when the customer 
returns to the bank and opens the deposit bag.
    b. A lock box is a post office box used by a corporation for the 
collection of bill payments or other check receipts. The depositary 
bank generally assumes the responsibility for collecting the mail 
from the lock box, processing the checks, and crediting the 
corporation for the amount of the deposit. Funds deposited through a 
lock box arrangement are considered deposited on the day the deposit 
is removed from the lock box and are accessible to the depositary 
bank for processing.
    5. Certain off-premise ATMs. A special provision is made for 
certain off-premise ATMs that are not serviced daily. Funds 
deposited at such an ATM are considered deposited on the day they 
are removed from the ATM, if the ATM is not serviced more than two 
times each week. This provision is intended to address the practices 
of some banks of servicing certain remote ATMs infrequently. If a 
depositary bank applies this provision with respect to an ATM, a 
notice must be posted at the ATM informing depositors that funds 
deposited at the ATM may not be considered deposited until a future 
day, in accordance with Sec. 229.18.
    6. Banking day of deposit.
    a. This paragraph also provides that a deposit received on a day 
that the depositary bank is closed, or after the bank's cut-off 
hour, may be considered made on the next banking day. Generally, for 
purposes of the availability schedules of this subpart, a bank may 
establish a cut-off hour of 2 p.m. or later for receipt of deposits 
at its head office or branch offices. For receipt of deposits at 
ATMs or off-premise facilities, such as night depositories or lock 
boxes, the depositary bank may establish a cut-off hour of 12 noon 
or later (either local time of the branch or other location of the 
depositary bank at which the account is maintained or local time of 
the ATM or off-premise facility). The depositary bank must use the 
same timing method for establishing the cut-off hour for all ATMs 
and off-premise facilities used by its customers. The choice of cut-
off hour must be reflected in the bank's internal procedures, and 
the bank must inform its customers of the cut-off hour upon request. 
This earlier cut-off for ATM or off-premise deposits is intended to 
provide greater flexibility in the servicing of ATMs and other off-
premise facilities.
    b. Different cut-off hours may be established for different 
types of deposits. For example, a bank may establish a 2 p.m. cut-
off for the receipt of check deposits, but a later cut-off for the 
receipt of wire transfers. Different cut-off hours also may be 
established for deposits received at different locations. For 
example, a different cut-off may be established for ATM deposits 
than for over-the-counter deposits, or for different teller stations 
at the same branch. With the exception of the 12 noon cut-off for 
deposits at ATMs and off-premise facilities, no cut-off hour for 
receipt of deposits for purposes of this subpart can be established 
earlier than 2 p.m.
    c. A bank is not required to remain open until 2 p.m. If a bank 
closes before 2 p.m., deposits received after the closing may be 
considered deposited on the next banking day. Further, as 
Sec. 229.2(f) defines the term banking day as the portion of a 
business day on which a bank is open to the public for substantially 
all of its banking functions, a day, or a portion of a day, is not 
necessarily a banking day merely because the bank is open for only 
limited functions, such as keeping drive-in or walk-up teller 
windows open, when the rest of the bank is closed to the public. For 
example, a banking office that usually provides a full range of 
banking services may close at 12 noon but leave a drive-in teller 
window open for the limited purpose of receiving deposits and making 
cash withdrawals. Under those circumstances, the bank is considered 
closed and may consider deposits received after 12 noon as having 
been received on the next banking day. The fact that a bank may 
reopen for substantially all of its banking functions after 2 p.m., 
or that it continues its back office operations throughout the day, 
would not affect this result. A bank may not, however, close 
individual teller stations and reopen them for next-day's business 
before 2 p.m. during a banking day.

B. 229.19(b)  Availability at Start of Business Day

    1. If funds must be made available for withdrawal on a business 
day, the funds must be available for withdrawal by the later of 9 
a.m. or the time the depositary bank's teller facilities, including 
ATMs, are available for customer account withdrawals, except under 
the special rule for cash withdrawals set forth in Sec. 229.12(d). 
Thus, if a bank has no ATMs and its branch facilities are available 
for customer transactions beginning at 10 a.m., funds must be 
available for customer withdrawal beginning at 10 a.m. If the bank 
has ATMs that are available 24 hours a day, rather than establishing 
12:01 a.m. as the start of the business day, this paragraph sets 9 
a.m. as the start of the day with respect to ATM withdrawals. The 
Board believes that this rule provides banks with sufficient time to 
update their accounting systems to reflect the available funds in 
customer accounts for that day.
    2. The start of business is determined by the local time of the 
branch or other location of the depositary bank at which the account 
is maintained. For example, if funds in a customer's account at a 
west coast bank are first made available for withdrawal at the start 
of business on a given day, and the customer attempts to withdraw 
the funds at an east coast ATM, the depositary bank is not required 
to make the funds available until 9 a.m. west coast time (12 noon 
east coast time). 

[[Page 51687]]


C. 229.19(c)  Effect on Policies of Depositary Bank

    1. This subpart establishes the maximum hold that may be placed 
on customer deposits. A depositary bank may provide availability to 
its customers in a shorter time than prescribed in this subpart. A 
depositary bank also may adopt different funds availability policies 
for different segments of its customer base, as long as each policy 
meets the schedules in the regulation. For example, a bank may 
differentiate between its corporate and consumer customers, or may 
adopt different policies for its consumer customers based on whether 
a customer has an overdraft line of credit associated with the 
account.
    2. This regulation does not affect a depositary bank's right to 
accept or reject a check for deposit, to charge back the customer's 
account based on a returned check or notice of nonpayment, or to 
claim a refund for any credit provided to the customer. For example, 
even if a check is returned or a notice of nonpayment is received 
after the time by which funds must be made available for withdrawal 
in accordance with this regulation, the depositary bank may charge 
back the customer's account for the full amount of the check. (See 
Sec. 229.33(d) and Commentary.)
    3. Nothing in the regulation requires a depositary bank to have 
facilities open for customers to make withdrawals at specified times 
or on specified days. For example, even though the special cash 
withdrawal rule set forth in Sec. 229.12(d) states that a bank must 
make up to $400 available for cash withdrawals no later than 5 p.m. 
on specific business days, if a bank does not participate in an ATM 
system and does not have any teller windows open at or after 5 p.m., 
the bank need not join an ATM system or keep offices open. In this 
case, the bank complies with this rule if the funds that are 
required to be available for cash withdrawal at 5 p.m. on a 
particular day are available for withdrawal at the start of business 
on the following day. Similarly, if a depositary bank is closed for 
customer transactions, including ATMs, on a day funds must be made 
available for withdrawal, the regulation does not require the bank 
to open.
    4. The special cash withdrawal rule in the Act recognizes that 
the $400 that must be made available for cash withdrawal by 5 p.m. 
on the day specified in the schedule may exceed a bank's daily ATM 
cash withdrawal limit and explicitly provides that the Act does not 
supersede a bank's policy in this regard. As a result, if a bank has 
a policy of limiting cash withdrawals from automated teller machines 
to $250 per day, the regulation would not require that the bank 
dispense $400 of the proceeds of the customer's deposit that must be 
made available for cash withdrawal on that day.
    5. Even though the Act clearly provides that the bank's ATM 
withdrawal limit is not superseded by the federal availability rules 
on the day funds must first be made available, the Act does not 
specifically permit banks to limit cash withdrawals at ATMs on 
subsequent days when the entire amount of the deposit must be made 
available for withdrawal. The Board believes that the rationale 
behind the Act's provision that a bank's ATM withdrawal limit is not 
superseded by the requirement that funds be made available for cash 
withdrawal applies on subsequent days. Nothing in the regulation 
prohibits a depositary bank from establishing ATM cash withdrawal 
limits that vary among customers of the bank, as long as the limit 
is not dependent on the length of time funds have been in the 
customer's account (provided that the permissible hold has expired).
    6. Some small banks, particularly credit unions, due to lack of 
secure facilities, keep no cash on their premises and hence offer no 
cash withdrawal capability to their customers. Other banks limit the 
amount of cash on their premises due to bonding requirements or cost 
factors, and consequently reserve the right to limit the amount of 
cash each customer can withdraw over-the-counter on a given day. For 
example, some banks require advance notice for large cash 
withdrawals in order to limit the amount of cash needed to be 
maintained on hand at any time.
    7. Nothing in the regulation is intended to prohibit a bank from 
limiting the amount of cash that may be withdrawn at a staffed 
teller station if the bank has a policy limiting the amount of cash 
that may be withdrawn, and if that policy is applied equally to all 
customers of the bank, is based on security, operating, or bonding 
requirements, and is not dependent on the length of time the funds 
have been in the customer's account (as long as the permissible hold 
has expired). The regulation, however, does not authorize such 
policies if they are otherwise prohibited by statutory, regulatory, 
or common law.

D. 229.19(d)  Use of Calculated Availability

    1. A depositary bank may provide availability to its nonconsumer 
accounts on a calculated availability basis. Under calculated 
availability, a specified percentage of funds from check deposits 
may be made available to the customer on the next business day, with 
the remaining percentage deferred until subsequent days. The 
determination of the percentage of deposited funds that will be made 
available each day is based on the customer's typical deposit mix as 
determined by a sample of the customer's deposits. Use of calculated 
availability is permitted only if, on average, the availability 
terms that result from the sample are equivalent to or more prompt 
than the requirements of this subpart.

E. 229.19(e)  Holds on Other Funds

    1. Section 607(d) of the Act (12 U.S.C. 4006(d)) provides that 
once funds are available for withdrawal under the Act, such funds 
shall not be frozen solely due to the subsequent deposit of 
additional checks that are not yet available for withdrawal. This 
provision of the Act is designed to prevent evasion of the Act's 
availability requirements.
    2. This paragraph clarifies that if a customer deposits a check 
in an account (as defined in Sec. 229.2(a)), the bank may not place 
a hold on any of the customer's funds so that the funds that are 
held exceed the amount of the check deposited or the total amount of 
funds held are not made available for withdrawal within the times 
required in this subpart. For example, if a bank places a hold on 
funds in a customer's non transaction account, rather than a 
transaction account, for deposits made to the customer's transaction 
account, the bank may place such a hold only to the extent that the 
funds held do not exceed the amount of the deposit and the length of 
the hold does not exceed the time periods permitted by this 
regulation.
    3. These restrictions also apply to holds placed on funds in a 
customer's account (as defined in Sec. 229.2(a)) if a customer 
cashes a check at a bank (other than a check drawn on that bank) 
over the counter. The regulation does not prohibit holds that may be 
placed on other funds of the customer for checks cashed over the 
counter, to the extent that the transaction does not involve a 
deposit to an account. A bank may not, however, place a hold on any 
account when an ``on us'' check is cashed over the counter. ``On 
us'' checks are considered finally paid when cashed (see U.C.C. 4-
215(a)(1)).

F. 229.19(f)  Employee Training and Compliance

    1. The Act requires banks to take such actions as may be 
necessary to inform fully each employee that performs duties subject 
to the Act of the requirements of the Act, and to establish and 
maintain procedures reasonably designed to assure and monitor 
employee compliance with such requirements.
    2. This paragraph requires a bank to establish procedures to 
ensure compliance with these requirements and provide these 
procedures to the employees responsible for carrying them out.

G. 229.19(g)  Effect of Merger Transaction

    1. After banks merge, there is often a period of adjustment 
before their operations are consolidated. This paragraph 
accommodates this adjustment period by allowing merged banks to be 
treated as separate banks for purposes of this subpart for a period 
of up to one year after consummation of the merger transaction, 
except that a customer of any bank that is a party to the 
transaction that has an established account with that bank may not 
be treated as a new account holder for any other party to the 
transaction for purposes of the new account exception of 
Sec. 229.13(a), and a deposit in any branch of the merged bank is 
considered deposited in the bank for purposes of the availability 
schedules in accordance with Sec. 229.19(a).
    2. This rule affects the status of the combined entity in 
several areas. For example, this rule would affect when an ATM is a 
proprietary ATM (Sec. 229.2(aa) and Sec. 229.12(b)) and when a check 
is considered drawn on a branch of the depositary bank 
(Sec. 229.10(c)(1)(vi)).
    3. Merger transaction is defined in Sec. 229.2(t).

XIV. Section 229.20  Relation to State Law

A. 229.20(a)  In General

    1. Several states have enacted laws that govern when banks in 
those states must make funds available to their customers. The Act 
provides that any state law in effect on September 1, 1989, that 
provides that funds 

[[Page 51688]]
be made available in a shorter period of time than provided in this 
regulation, will supersede the time periods in the Act and the 
regulation. The Conference Report on the Act clarifies this 
provision by stating that any state law enacted on or before 
September 1, 1989, may supersede federal law to the extent that the 
law relates to the time funds must be made available for withdrawal. 
H.R. Rep. No. 261, 100th Cong. 1st Sess. at 182 (1987).
    2. Thus, if a state had wished to adopt a law governing funds 
availability, it had to have made that law effective on or before 
September 1, 1989. Laws adopted after that date do not supersede 
federal law, even if they provide for shorter availability periods 
than are provided under federal law. If a state that had a law 
governing funds availability in effect before September 1, 1989, 
amended its law after that date, the amendment would not supersede 
federal law, but an amendment deleting a state requirement would be 
effective.
    3. If a state provides for a shorter hold for a certain category 
of checks than is provided for under federal law, that state 
requirement will supersede the federal provision. For example, most 
state laws base some hold periods on whether the check being 
deposited is drawn on an in-state or out-of-state bank. If a state 
contains more than one check processing region, the state's hold 
period for in-state checks may be shorter than the federal maximum 
hold period for nonlocal checks. Thus, the state schedule would 
supersede the federal schedule to the extent that it applies to in-
state, nonlocal checks.
    4. The Act also provides that any state law that provides for 
availability in a shorter period of time than required by federal 
law is applicable to all federally insured institutions in that 
state, including federally chartered institutions. If a state law 
provides shorter availability only for deposits in accounts in 
certain categories of banks, such as commercial banks, the 
superseding state law continues to apply only to those categories of 
banks, rather than to all federally insured banks in the state.

B. 229.20(b)  Preemption of Inconsistent Law

    1. This paragraph reflects the statutory provision that other 
provisions of state law that are inconsistent with federal law are 
preempted. Preemption does not require a determination by the Board 
to be effective.

C. 229.20(c)  Standards for Preemption

    1. This section describes the standards the Board uses in making 
determinations on whether federal law will preempt state laws 
governing funds availability. A provision of state law is considered 
inconsistent with federal law if it permits a depositary bank to 
make funds available to a customer in a longer period of time than 
the maximum period permitted by the Act and this regulation. For 
example, a state law that permits a hold of four business days or 
longer for local checks permits a hold that is longer than that 
permitted under the Act and this regulation, and therefore is 
inconsistent and preempted. State availability schedules that 
provide for availability in a shorter period of time than required 
under Regulation CC supersede the federal schedule.
    2. Under a state law, some categories of deposits could be 
available for withdrawal sooner or later than the time required by 
this subpart, depending on the composition of the deposit. For 
example, the Act and this regulation (Sec. 229.10(c)(1)(vii)) 
require next-day availability for the first $100 of the aggregate 
deposit of local or nonlocal checks on any day, and a state law 
could require next-day availability for any check of $100 or less 
that is deposited. Under the Act and this regulation, if either one 
$150 check or three $50 checks are deposited on a given day, $100 
must be made available for withdrawal on the next business day, and 
$50 must be made available in accordance with the local or nonlocal 
schedule. Under the state law, however, the two deposits would be 
subject to different availability rules. In the first case, none of 
the proceeds of the deposit would be subject to next-day 
availability; in the second case, the entire proceeds of the deposit 
would be subject to next-day availability. In this example, because 
the state law would, in some situations, permit a hold longer than 
the maximum permitted by the Act, this provision of state law is 
inconsistent and preempted in its entirety.
    3. In addition to the differences between state and federal 
availability schedules, a number of state laws contain exceptions to 
the state availability schedules that are different from those 
provided under the Act and this regulation. The state exceptions 
continue to apply only in those cases where the state schedule is 
shorter than or equal to the federal schedule, and then only up to 
the limit permitted by the Regulation CC schedule. Where a deposit 
is subject to a state exception under a state schedule that is not 
preempted by Regulation CC and is also subject to a federal 
exception, the hold on the deposit cannot exceed the hold 
permissible under the federal exception in accordance with 
Regulation CC. In such cases, only one exception notice is required, 
in accordance with Sec. 229.13(g). This notice need only include the 
applicable federal exception as the reason the exception was 
invoked. For those categories of checks for which the state schedule 
is preempted by the federal schedule, only the federal exceptions 
may be used.
    4. State laws that provide maximum availability periods for 
categories of deposits that are not covered by the Act would not be 
preempted. Thus, state funds availability laws that apply to funds 
in time and savings deposits are not affected by the Act or this 
regulation. In addition, the availability schedules of several 
states apply to ``items'' deposited to an account. The term items 
may encompass deposits, such as nonnegotiable instruments, that are 
not subject to the Regulation CC availability schedules. Deposits 
that are not covered by Regulation CC continue to be subject to the 
state availability schedules. State laws that provide maximum 
availability periods for categories of institutions that are not 
covered by the Act also would not be preempted. For example, a state 
law that governs money market mutual funds would not be affected by 
the Act or this regulation.
    5. Generally, state rules governing the disclosure or notice of 
availability policies applicable to accounts also are preempted, if 
they are different from the federal rules. Nevertheless, a state law 
requiring disclosure of funds availability policies that apply to 
deposits other than ``accounts,'' such as savings or time deposits, 
are not inconsistent with the Act and this subpart. Banks in these 
states would have to follow the state disclosure rules for these 
deposits.

D. 229.20(d)  Preemption Determinations

    1. The Board may issue preemption determinations upon the 
request of an interested party in a state. The determinations will 
relate only to the provisions of Subparts A and B; generally the 
Board will not issue individual preemption determinations regarding 
the relation of state U.C.C. provisions to the requirements of 
Subpart C.

E. 229.20(e)  Procedures for Preemption Determinations

    1. This provision sets forth the information that must be 
included in a request by an interested party for a preemption 
determination by the Board.

XV. Section 229.21  Civil Liability

A. 229.21(a)  Civil Liability

    1. This paragraph sets forth the statutory penalties for failure 
to comply with the requirements of this subpart. These penalties 
apply to provisions of state law that supersede provisions of this 
regulation, such as requirements that funds deposited in accounts at 
banks be made available more promptly than required by this 
regulation, but they do not apply to other provisions of state law. 
(See Commentary to Sec. 229.20.)

B. 229.21(b)  Class Action Awards

    1. This paragraph sets forth the provision in the Act concerning 
the factors that should be considered by the court in establishing 
the amount of a class action award.

C. 229.21(c)  Bona Fide Errors

    1. A bank is shielded from liability under this section for a 
violation of a requirement of this subpart if it can demonstrate, by 
a preponderance of the evidence, that the violation resulted from a 
bona fide error and that it maintains procedures designed to avoid 
such errors. For example, a bank may make a bona fide error if it 
fails to give next-day availability on a check drawn on the Treasury 
because the bank's computer system malfunctions in a way that 
prevents the bank from updating its customer's account; or if it 
fails to identify whether a payable-through check is a local or 
nonlocal check despite procedures designed to make this 
determination accurately.

D. 229.21(d) Jurisdiction

    1. The Act confers subject matter jurisdiction on courts of 
competent jurisdiction and provides a time limit for civil actions 
for violations of this subpart.

E. 229.21(e)  Reliance on Board Rulings

    1. This provision shields banks from civil liability if they act 
in good faith in reliance on any rule, regulation, model form, 
notice, or clause (if the disclosure actually corresponds to the 
bank's availability policy), or interpretation of the Board, even if 
it were 

[[Page 51689]]
subsequently determined to be invalid. Banks may rely on this 
Commentary, which is issued as an official Board interpretation, as 
well as on the regulation itself.

F. 229.21(f)  Exclusions

    1. This provision clarifies that liability under this section 
does not apply to violations of the requirements of Subpart C of 
this regulation, or to actions for wrongful dishonor of a check by a 
paying bank's customer.

G. 229.21(g)  Record Retention

    1. Banks must keep records to show compliance with the 
requirements of this subpart for at least two years. This record 
retention period is extended in the case of civil actions and 
enforcement proceedings. Generally, a bank is not required to retain 
records showing that it actually has given disclosures or notices 
required by this subpart to each customer, but it must retain 
evidence demonstrating that its procedures reasonably ensure the 
customers' receipt of the required disclosures and notices. A bank 
must, however, retain a copy of each notice provided pursuant to its 
use of the reasonable cause exception under Sec. 229.13(g) as well 
as a brief description of the facts giving rise to the availability 
of that exception.

XVI. Section 229.30 Paying Bank's Responsibility for Return of 
Checks

A. 229.30(a)  Return of Checks

    1. This section requires a paying bank (which, for purposes of 
Subpart C, may include a payable-through and payable-at bank; see 
Sec. 229.2(z)) that determines not to pay a check to return the 
check expeditiously. Generally, a check is returned expeditiously if 
the return process is as fast as the forward collection process. 
This paragraph provides two standards for expeditious return, the 
``two-day/four-day'' test, and the ``forward collection'' test.
    2. Under the ``two-day/four-day'' test, if a check is returned 
such that it would normally be received by the depositary bank two 
business days after presentment where both the paying and depositary 
banks are located in the same check processing region or four 
business days after presentment where the paying and depositary 
banks are not located in the same check processing region, the check 
is considered returned expeditiously. In certain limited cases, 
however, these times are shorter than the time it would normally 
take a forward collection check deposited in the paying bank and 
payable by the depositary bank to be collected. Therefore, the Board 
has included a ``forward collection'' test, whereby a check is 
nonetheless considered to be returned expeditiously if the paying 
bank uses transportation methods and banks for return comparable to 
those used for forward collection checks, even if the check is not 
received by the depositary banks within the two-day or four-day 
period.
    3. Two-day/four-day test.
    a. Under the first test, a paying bank must return the check so 
that the check would normally be received by the depositary bank 
within specified times, depending on whether or not the paying and 
depositary banks are located in the same check processing region.
    b. Where both banks are located in the same check processing 
region, a check is returned expeditiously if it is returned to the 
depositary bank by 4:00 p.m. (local time of the depositary bank) of 
the second business day after the banking day on which the check was 
presented to the paying bank. For example, a check presented on 
Monday to a paying bank must be returned to a depositary bank 
located in the same check processing region by 4 p.m. on Wednesday. 
For a paying bank that is located in a different check processing 
region than the depositary bank, the deadline to complete return is 
4 p.m. (local time of the depositary bank) of the fourth business 
day after the banking day on which the check was presented to the 
paying bank. For example, a check presented to such a paying bank on 
Monday must be returned to the depositary bank by 4:00 p.m. on 
Friday.
    c. This two-day/four-day test does not necessarily require 
actual receipt of the check by the depositary bank within these 
times. Rather, the paying bank must send the check so that the check 
would normally be received by the depositary bank within the 
specified time. Thus, the paying bank is not responsible for 
unforeseeable delays in the return of the check, such as 
transportation delays.
    d. Often, returned checks will be delivered to the depositary 
bank together with forward collection checks. Where the last day on 
which a check could be delivered to a depositary bank under this 
two-day/four-day test is not a banking day for the depositary bank, 
a returning bank might not schedule delivery of forward collection 
checks to the depositary bank on that day. Further, the depositary 
bank may not process checks on that day. Consequently, if the last 
day of the time limit is not a banking day for the depositary bank, 
the check may be delivered to the depositary bank before the close 
of the depositary bank's next banking day and the return will still 
be considered expeditious. Ordinarily, this extension of time will 
allow the returned checks to be delivered with the next shipment of 
forward collection checks destined for the depositary bank.
    e. The times specified in this two-day/four-day test are based 
on estimated forward collection times, but take into account the 
particular difficulties that may be encountered in handling returned 
checks. It is anticipated that the normal process for forward 
collection of a check coupled with these return requirements will 
frequently result in the return of checks before the proceeds of 
nonlocal checks, other than those covered by Sec. 229.10(c), must be 
made available for withdrawal.
    f. Under this two-day/four-day test, no particular means of 
returning checks is required, thus providing flexibility to paying 
banks in selecting means of return. The Board anticipates that 
paying banks will often use returning banks (see Sec. 229.31) as 
their agents to return checks to depositary banks. A paying bank may 
rely on the availability schedule of the returning bank it uses in 
determining whether the returned check would ``normally'' be 
returned within the required time under this two-day/four-day test, 
unless the paying bank has reason to believe that these schedules do 
not reflect the actual time for return of a check.
    4. Forward collection test.
    a. Under the second, ``forward collection,'' test, a paying bank 
returns a check expeditiously if it returns a check by means as 
swift as the means similarly situated banks would use for the 
forward collection of a check drawn on the depositary bank.
    b. Generally, the paying bank would satisfy the ``forward 
collection'' test if it uses a transportation method and collection 
path for return comparable to that used for forward collection, 
provided that the returning bank selected to process the return 
agrees to handle the returned check under the standards for 
expeditious return for returning banks under Sec. 229.31(a). This 
test allows many paying banks a simple means of expeditious return 
of checks and takes into account the longer time for return that 
will be required by banks that do not have ready access to direct 
courier transportation.
    c. The paying bank's normal method of sending a check for 
forward collection would not be expeditious, however, if it is 
materially slower than that of other banks of similar size and with 
similar check handling activity in its community.
    d. Under the ``forward collection'' test, a paying bank must 
handle, route, and transport a returned check in a manner designed 
to be at least as fast as a similarly situated bank would collect a 
forward collection check (1) of similar amount, (2) drawn on the 
depositary bank, and (3) received for deposit by a branch of the 
paying bank or a similarly situated bank by noon on the banking day 
following the banking day of presentment of the returned check.
    e. This test refers to similarly situated banks to indicate a 
general community standard. In the case of a paying bank (other than 
a Federal Reserve Bank), a similarly situated bank is a bank of 
similar asset size, in the same community, and with similar check 
handling activity as the paying bank. (See Sec. 229.2(ee).) A paying 
bank has similar check handling activity to other banks that handle 
similar volumes of checks for collection.
    f. Under the forward collection test, banks that use means of 
handling returned checks that are less efficient than the means used 
by similarly situated banks must improve their procedures. On the 
other hand, a bank with highly efficient means of collecting checks 
drawn on a particular bank, such as a direct presentment of checks 
to a bank in a remote community, is not required to use that means 
for returned checks, i.e. direct return, if similarly situated banks 
do not present checks directly to that depositary bank.
    5. Examples.
    a. If a check is presented to a paying bank on Monday and the 
depositary bank and the paying bank are participants in the same 
clearinghouse, the paying bank should arrange to have the returned 
check received by the depositary bank by Wednesday. This would be 
the same day the paying bank would deliver a forward collection 
check to the depositary bank if the paying bank received the deposit 
by noon on Tuesday.

[[Page 51690]]

    b. i. If a check is presented to a paying bank on Monday and the 
paying bank would normally collect checks drawn on the depositary 
bank by sending them to a correspondent or a Federal Reserve Bank by 
courier, the paying bank could send the returned check to its 
correspondent or Federal Reserve Bank, provided that the 
correspondent has agreed to handle returned checks expeditiously 
under Sec. 229.31(a). (All Federal Reserve Banks agree to handle 
returned checks expeditiously.)
    ii. The paying bank must deliver the returned check to the 
correspondent or Federal Reserve Bank by the correspondent's or 
Federal Reserve Bank's appropriate cut-off hour. The appropriate 
cut-off hour is the cut-off hour for returned checks that 
corresponds to the cut-off hour for forward collection checks drawn 
on the depositary bank that would normally be used by the paying 
bank or a similarly situated bank. A returned check cut-off hour 
corresponds to a forward collection cut-off hour if it provides for 
the same or faster availability for checks destined for the same 
depositary banks.
    iii. In this example, delivery to the correspondent or a Federal 
Reserve Bank by the appropriate cut-off hour satisfies the paying 
bank's duty, even if use of the correspondent or Federal Reserve 
Bank is not the most expeditious means of returning the check. Thus, 
a paying bank may send a local returned check to a correspondent 
instead of a Federal Reserve Bank, even if the correspondent then 
sends the returned check to a Federal Reserve Bank the following day 
as a qualified returned check. Where the paying bank delivers 
forward collection checks by courier to the correspondent or the 
Federal Reserve Bank, mailing returned checks to the correspondent 
or Federal Reserve Bank would not satisfy the forward collection 
test.
    iv. If a paying bank ordinarily mails its forward collection 
checks to its correspondent or Federal Reserve Bank in order to 
avoid the costs of a courier delivery, but similarly situated banks 
use a courier to deliver forward collection checks to their 
correspondent or Federal Reserve Bank, the paying bank must send its 
returned checks by courier to meet the forward collection test.
    c. If a paying bank normally sends its forward collection checks 
directly to the depositary bank, which is located in another 
community, but similarly situated banks send forward collection 
checks drawn on the depositary bank to a correspondent or a Federal 
Reserve Bank, the paying bank would not have to send returned checks 
directly to the depositary bank, but could send them to a 
correspondent or a Federal Reserve Bank.
    d. The dollar amount of the returned check has a bearing on how 
it must be returned. If the paying bank and similarly situated banks 
present large-dollar checks drawn on the depositary bank directly to 
the depositary bank, but use a Federal Reserve Bank or a 
correspondent to collect small-dollar checks, generally the paying 
bank would be required to send its large-dollar returns directly to 
the depositary bank (or through a returning bank, if the checks are 
returned as quickly), but could use a Federal Reserve Bank or a 
correspondent for its small-dollar returns.
    6. Choice of returning bank. In meeting the requirements of the 
forward collection test, the paying bank is responsible for its own 
actions, but not for those of the depositary bank or returning 
banks. (This is analogous to the responsibility of collecting banks 
under U.C.C. 4-202(c).) For example, if the paying bank starts the 
return of the check in a timely manner but return is delayed by a 
returning bank (including delay to create a qualified returned 
check), generally the paying bank has met its requirements. (See 
Sec. 229.38.) If, however, the paying bank selects a returning bank 
that the paying bank should know is not capable of meeting its 
return requirements, the paying bank will not have met its 
obligation of exercising ordinary care in selecting intermediaries 
to return the check. The paying bank is free to use a method of 
return, other than its method of forward collection, as long as the 
alternate method results in delivery of the returned check to the 
depositary bank as quickly as the forward collection of a check 
drawn on the depositary bank or, where the returning bank takes a 
day to create a qualified returned check under Sec. 229.31(a), one 
day later than the forward collection time. If a paying bank returns 
a check on its banking day of receipt without settling for the 
check, as permitted under U.C.C. 4-302(a), and receives settlement 
for the returned check from a returning bank, it must promptly pay 
the amount of the check to the collecting bank from which it 
received the check.
    7. Qualified returned checks. Although paying banks may wish to 
prepare qualified returned checks because they will be handled at a 
lower cost by returning banks, the one business day extension 
provided to returning banks is not available to paying banks because 
of the longer time that a paying bank has to dispatch the check. 
Normally, paying banks will be able to convert a check to a 
qualified returned check at any time after the determination is made 
to return the check until late in the day following presentment, 
while a returning bank may receive returned checks late on one day 
and be expected to dispatch them early the next morning.
    8. Routing of returned checks.
    a. In effect, under either test, the paying bank acts as an 
agent or subagent of the depositary bank in selecting a means of 
return. Under Sec. 229.30(a), a paying bank is authorized to route 
the returned check in a variety of ways:
    i. It may send the returned check directly to the depositary 
bank by courier or other means of delivery, bypassing returning 
banks; or
    ii. It may send the returned check to any returning bank 
agreeing to handle the returned check for expeditious return to the 
depositary bank under Sec. 229.31(a), regardless of whether or not 
the returning bank handled the check for forward collection.
    b. If the paying bank elects to return the check directly to the 
depositary bank, it is not necessarily required to return the check 
to the branch of first deposit. The check may be returned to the 
depositary bank at any location permitted under Sec. 229.32(a).
    9. Midnight deadline.
    a. Except for the extension permitted by Sec. 229.30(c), 
discussed below, this section does not relieve a paying bank from 
the requirement for timely return (i.e., midnight deadline) under 
U.C.C. 4-301 and 4-302, which continue to apply. Under U.C.C. 4-302, 
a paying bank is ``accountable'' for the amount of a demand item, 
other than a documentary draft, if it does not pay or return the 
item or send notice of dishonor by its midnight deadline. Under 
U.C.C. 3-418(c) and 4-215(a), late return constitutes payment and 
would be final in favor of a holder in due course or a person who 
has in good faith changed his position in reliance on the payment. 
Thus, retaining this requirement gives the paying bank an additional 
incentive to make a prompt return.
    b. The expeditious return requirement applies to a paying bank 
that determines not to pay a check. This requirement applies to a 
payable-through or a payable-at bank that is defined as a paying 
bank (see Sec. 229.2(z)) and that returns a check. This requirement 
begins when the payable-through or payable-at bank receives the 
check during forward collection, not when the payor returns the 
check to the payable-through or payable-at bank. Nevertheless, a 
check sent for payment or collection to a payable-through or 
payable-at bank is not considered to be drawn on that bank for 
purposes of the midnight deadline provision of U.C.C. 4-301. (See 
discussion of Sec. 229.36(a).)
    c. The liability section of this subpart (Sec. 229.38) provides 
that a paying bank is not subject to both ``accountability'' for 
missing the midnight deadline under the U.C.C. and liability for 
missing the timeliness requirements of this regulation. Also, a 
paying bank is not responsible for failure to make expeditious 
return to a party that has breached a presentment warranty under 
U.C.C. 4-208, notwithstanding that the paying bank has returned the 
check. (See Commentary to Sec. 229.33(a).)
    10. U.C.C. provisions affected. This paragraph directly affects 
the following provisions of the U.C.C., and may affect other 
sections or provisions:
    a. Section 4-301(d), in that instead of returning a check 
through a clearinghouse or to the presenting bank, a paying bank may 
send a returned check to the depositary bank or to a returning bank.
    b. Section 4-301(a), in that time limits specified in that 
section may be affected by the additional requirement to make an 
expeditious return and in that settlement for returned checks is 
made under Sec. 229.31(c), not by revocation of settlement.

B. 229.30(b)  Unidentifiable Depositary Bank

    1. In some cases, a paying bank will be unable to identify the 
depositary bank through the use of ordinary care and good faith. The 
Board expects that these cases will be unusual as skilled return 
clerks will readily identify the depositary bank from the depositary 
bank indorsement required under Sec. 229.35 and Appendix D. In cases 
where the paying bank is unable to identify the depositary bank, the 
paying bank may, in accordance with Sec. 229.30(a), send the 
returned check to a returning bank that agrees to handle the 
returned check for expeditious return to the depositary bank under 
Sec. 229.31(a). The returning bank may be better able to identify 
the depositary bank. 

[[Page 51691]]

    2. In the alternative, the paying bank may send the check back 
up the path used for forward collection of the check. The presenting 
bank and prior collecting banks normally will be able to trace the 
collection path of the check through the use of their internal 
records in conjunction with the indorsements on the returned check. 
In these limited cases, the paying bank may send such a returned 
check to any bank that handled the check for forward collection, 
even if that bank does not agree to handle the returned check for 
expeditious return to the depositary bank under Sec. 229.31(a). A 
paying bank returning a check under this paragraph to a bank that 
has not agreed to handle the check expeditiously must advise that 
bank that it is unable to identify the depositary bank. This advice 
must be conspicuous, such as a stamp on each check for which the 
depositary bank is unknown if such checks are commingled with other 
returned checks, or, if such checks are sent in a separate cash 
letter, by one notice on the cash letter. This information will warn 
the bank that this check will require special research and handling 
in accordance with Sec. 229.31(b). The returned check may not be 
prepared for automated return. The return of a check to a bank that 
handled the check for forward collection is consistent with 
Sec. 229.35(b), which requires a bank handling a check to take up 
the check it is has not been paid.
    3. The sending of a check to a bank that handled the check for 
forward collection under this paragraph is not subject to the 
requirements for expeditious return by the paying bank. Often, the 
paying bank will not have courier or other expeditious means of 
transportation to the collecting or presenting bank. Although the 
lack of a requirement of expeditious return will create risks for 
the depositary bank, in many cases the inability to identify the 
depositary bank will be due to the depositary bank's, or a 
collecting bank's, failure to use the indorsement required by 
Sec. 229.35(a) and Appendix D. If the depositary bank failed to use 
the proper indorsement, it should bear the risks of less than 
expeditious return. Similarly, where the inability to identify the 
depositary bank is due to indorsements or other information placed 
on the back of the check by the depositary bank's customer or other 
prior indorser, the depositary bank should bear the risk that it 
cannot charge a returned check back to that customer. Where the 
inability to identify the depositary bank is due to subsequent 
indorsements of collecting banks, these collecting banks may be 
liable for a loss incurred by the depositary bank due to less than 
expeditious return of a check; those banks therefore have an 
incentive to return checks sent to them under this paragraph 
quickly.
    4. This paragraph does not relieve a paying bank from the 
liability for the lack of expeditious return in cases where the 
paying bank is itself responsible for the inability to identify the 
depositary bank, such as when the paying bank's customer has used a 
check with printing or other material on the back in the area 
reserved for the depositary bank's indorsement, making the 
indorsement unreadable. (See Sec. 229.38(d).)
    5. A paying bank's return under this paragraph is also subject 
to its midnight deadline under U.C.C. 4-301, Regulation J (if the 
check is returned through a Federal Reserve Bank), and the exception 
provided in Sec. 229.30(c). A paying bank also may send a check to a 
prior collecting bank to make a claim against that bank under 
Sec. 229.35(b) where the depositary bank is insolvent or in other 
cases as provided in Sec. 229.35(b). Finally, a paying bank may make 
a claim against a prior collecting bank based on a breach of 
warranty under U.C.C. 4-208.

C. 229.30(c)  Extension of Deadline

    1. This paragraph permits extension of the deadlines for 
returning a check for which the paying bank previously has settled 
(generally midnight of the banking day following the banking day on 
which the check is received by the paying bank) and for returning a 
check without settling for it (generally midnight of the banking day 
on which the check is received by the paying bank, or such other 
time provided by Sec. 210.9 of Regulation J (12 CFR part 210) or 
Sec. 229.36(f)(2) of this part), but not of the duty of expeditious 
return, in two circumstances:
    a. A paying bank may have a courier that leaves after midnight 
(or after any other applicable deadline) to deliver its forward 
collection checks. This paragraph removes the constraint of the 
deadline for returned checks if the returned check reaches either 
the depositary bank or the returning bank to which it is sent on 
that bank's banking day following the expiration of the applicable 
deadline. The extension also applies if the check reaches the bank 
to which it is sent later than the close of that bank's banking day, 
if highly expeditious means of transportation are used. For example, 
a West Coast paying bank may use this further extension to ship a 
returned check by air courier directly to an East Coast depositary 
bank even if the check arrives after the close of the depositary 
bank's banking day.
    b. A paying bank may observe a banking day, as defined in the 
applicable U.C.C., on a Saturday, which is not a business day and 
therefore not a banking day under Regulation CC. In such a case, the 
U.C.C. deadline for returning checks received and settled for on 
Friday, or for returning checks received on Saturday without 
settling for them, might require the bank to return the checks by 
midnight Saturday. However, the bank may not have couriers leaving 
on Saturday to carry returned checks, and even if it did, the 
returning or depositary bank to which the returned checks were sent 
might not be open until Sunday night or Monday morning to receive 
and process the checks. This paragraph extends the midnight deadline 
if the returned checks reach the returning bank by a cut-off hour 
(usually on Sunday night or Monday morning) that permits processing 
during its next processing cycle or reach the depositary bank by the 
cut-off hour on its next banking day following the Saturday midnight 
deadline.
    2. The time limits that are extended in each case are the paying 
bank's midnight deadline for returning a check for which it has 
already settled and the paying bank's deadline for returning a check 
without settling for it in U.C.C. 4-301 and 4-302, Secs. 210.9 and 
210.12 of Regulation J (12 CFR 210.9 and 210.12), and 
Sec. 229.36(f)(2) of this part. As these extensions are designed to 
speed (Sec. 229.30(c)(1)), or at least not slow (Sec. 229.30(c)(2)), 
the overall return of checks, no modification or extension of the 
expeditious return requirements in Sec. 229.30(a) is required.
    3. The paying bank satisfies its midnight or other return 
deadline by dispatching returned checks to another bank by courier, 
including a courier under contract with the paying bank, prior to 
expiration of the deadline.
    4. This paragraph directly affects U.C.C. 4-301 and 4-302 and 
Secs. 210.9 and 210.12 of Regulation J (12 CFR 210.9 and 210.12) to 
the extent that this paragraph applies by its terms, and may affect 
other provisions.

D. 229.30(d)  Identification of Returned Check

    1. Most paying banks currently use some form of stamp on a 
returned check indicating the reason for return. This paragraph 
makes this practice mandatory. No particular form of stamp is 
required, but the stamp must indicate the reason for return. A check 
is identified as a returned check by a reason for return stamp, even 
though the stamp does not specifically state that the check is a 
returned check. A reason such as ``Refer to Maker'' is permissible 
in appropriate cases. If the paying bank places the returned check 
in a carrier envelope, the carrier envelope should indicate that it 
is a returned check, but need not repeat the reason for return 
stated in the check if it in fact appears on the check.

E. 229.30(e)  Depositary Bank Without Accounts

    1. Subpart B of this regulation applies only to ``checks'' 
deposited in transaction-type ``accounts.'' Thus, a depositary bank 
with only time or savings accounts need not comply with the 
availability requirements of Subpart B. Collecting banks will not 
have couriers delivering checks to these banks as paying banks, 
because no checks are drawn on them. Consequently, the costs of 
using a courier or other expedited means to deliver returned checks 
directly to such a depositary bank may not be justified. Thus, the 
expedited return requirement of Sec. 229.30(a) and the notice of 
nonpayment requirement of Sec. 229.33 do not apply to checks being 
returned to banks that do not hold accounts. The paying bank's 
midnight deadline in U.C.C. 4-301 and 4-302 and Sec. 210.12 of 
Regulation J (12 CFR 210.12) would continue to apply to these 
checks. Returning banks also would be required to act on such checks 
within their midnight deadline. Further, in order to avoid 
complicating the process of returning checks generally, banks 
without accounts are required to use the standard indorsement, and 
their checks are returned by returning banks and paid for by the 
depositary bank under the same rules as checks deposited in other 
banks, with the exception of the expeditious return and notice of 
nonpayment requirements of Secs. 229.30(a), 229.31(a), and 229.33.
    2. The expeditious return requirements also apply to a check 
deposited in a bank that is not a depository institution. Federal 
Reserve Banks, Federal Home Loan Banks, private bankers, and 
possibly certain 

[[Page 51692]]
industrial banks are not depository institutions within the meaning of 
the Act, and therefore are not subject to the expedited availability 
and disclosure requirements of Subpart B. These banks do, however, 
maintain accounts as defined in Sec. 229.2(a), and a paying bank 
returning a check to one of these banks would be required to return 
the check to the depositary bank, in accordance with the 
requirements of this section.

F. 229.30(f)  Notice in Lieu of Return

    1. A check that is lost or otherwise unavailable for return may 
be returned by sending a legible copy of both sides of the check or, 
if such a copy is not available to the paying bank, a written notice 
of nonpayment containing the information specified in 
Sec. 229.33(b). The copy or written notice must clearly indicate it 
is a notice in lieu of return and must be handled in the same manner 
as other returned checks. Notice by telephone, telegraph, or other 
electronic transmission, other than a legible facsimile or similar 
image transmission of both sides of the check, does not satisfy the 
requirements for a notice in lieu of return. The requirement for a 
writing and the indication that the notice is a substitute for the 
returned check is necessary so that the returning and depositary 
banks are informed that the notice carries value. Notice in lieu of 
return is permitted only when a bank does not have and cannot obtain 
possession of the check or must retain possession of the check for 
protest. A check is not unavailable for return if it is merely 
difficult to retrieve from a filing system or from storage by a 
keeper of checks in a truncation system. A notice in lieu of return 
may be used by a bank handling a returned check that has been lost 
or destroyed, including when the original returned check has been 
charged back as lost or destroyed as provided in Sec. 229.35(b). A 
bank using a notice in lieu of return gives a warranty under 
Sec. 229.34(a)(4) that the original check has not been and will not 
be returned.
    2. The requirement of this paragraph supersedes the requirement 
of U.C.C. 4-301(a) as to the form and information required of a 
notice of dishonor or nonpayment. Reference in the regulation and 
this commentary to a returned check includes a notice in lieu of 
return unless the context indicates otherwise.
    3. The notice in lieu of return is subject to the provisions of 
Sec. 229.30 and is treated like a returned check for settlement 
purposes. If the original check is over $2,500, the notice of 
nonpayment under Sec. 229.33 is still required, but may be satisfied 
by the notice in lieu of return if the notice in lieu meets the time 
and information requirements of Sec. 229.33.
    4. If not all of the information required by Sec. 229.33(b) is 
available, the paying bank may make a claim against any prior bank 
handling the check as provided in Sec. 229.35(b).

G. 229.30(g)  Reliance on Routing Number

    1. Although Sec. 229.35 and Appendix D require that the 
depositary bank indorsement contain its nine-digit routing number, 
it is possible that a returned check will bear the routing number of 
the depositary bank in fractional, nine-digit, or other form. This 
paragraph permits a paying bank to rely on the routing number of the 
depositary bank as it appears on the check (in the depositary bank's 
indorsement) when it is received by the paying bank.
    2. If there are inconsistent routing numbers, the paying bank 
may rely on any routing number designating the depositary bank. The 
paying bank is not required to resolve the inconsistency prior to 
processing the check. The paying bank remains subject to the 
requirement to act in good faith and use ordinary care under 
Sec. 229.38(a).

XVII. Section 229.31  Returning Bank's Responsibility for Return of 
Checks

A. 229.31(a)  Return of Checks

    1. The standards for return of checks established by this 
section are similar to those for paying banks in Sec. 229.30(a). 
This section requires a returning bank to return a returned check 
expeditiously if it agrees to handle the returned check for 
expeditious return under this paragraph. In effect, the returning 
bank is an agent or subagent of the paying bank and a subagent of 
the depositary bank for the purposes of returning the check.
    2. A returning bank agrees to handle a returned check for 
expeditious return to the depositary bank if it:
    a. Publishes or distributes availability schedules for the 
return of returned checks and accepts the returned check for return;
    b. Handles a returned check for return that it did not handle 
for forward collection; or
    c. Otherwise agrees to handle a returned check for expeditious 
return.
    3. Two-day/four-day test. As in the case of a paying bank, a 
returning bank's return of a returned check is expeditious if it 
meets either of two tests. Under the ``two-day/four-day'' test, the 
check must be returned so that it would normally be received by the 
depositary bank by 4:00 p.m. either two or four business days after 
the check was presented to the paying bank, depending on whether or 
not the paying bank is located in the same check processing region 
as the depositary bank. This is the same test as the two-day/four-
day test applicable to paying banks. (See Commentary to 
Sec. 229.30(a).) While a returning bank will not have first hand 
knowledge of the day on which a check was presented to the paying 
bank, returning banks may, by agreement, allocate with paying banks 
liability for late return based on the delays caused by each. In 
effect, the two-day/four day test protects all paying and returning 
banks that return checks from claims that they failed to return a 
check expeditiously, where the check is returned within the 
specified time following presentment to the paying bank, or a later 
time as would result from unforeseen delays.
    4. Forward collection test.
    a. The ``forward collection'' test is similar to the forward 
collection test for paying banks. Under this test, a returning bank 
must handle a returned check in the same manner that a similarly 
situated collecting bank would handle a check of similar size drawn 
on the depositary bank for forward collection. A similarly situated 
bank is a bank (other than a Federal Reserve Bank) that is of 
similar asset size and check handling activity in the same 
community. A bank has similar check handling activity if it handles 
a similar volume of checks for forward collection as the forward 
collection volume of the returning bank.
    b. Under the forward collection test, a returning bank must 
accept returned checks, including both qualified and other returned 
checks (``raw returns''), at approximately the same times and 
process them according to the same general schedules as checks 
handled for forward collection. Thus, a returning bank generally 
must process even raw returns on an overnight basis, unless its time 
limit is extended by one day to convert a raw return to a qualified 
returned check.
    5. Cut-off hours. A returning bank may establish earlier cut-off 
hours for receipt of returned checks than for receipt of forward 
collection checks, but the cut-off hour for returned checks may not 
be earlier than 2:00 p.m. The returning bank also may set different 
sorting requirements for returned checks than those applicable to 
other checks. Thus, a returning bank may allow itself more 
processing time for returns than for forward collection checks. All 
returned checks received by a cut-off hour for returned checks must 
be processed and dispatched by the returning bank by the time that 
it would dispatch forward collection checks received at a 
corresponding forward collection cut-off hour that provides for the 
same or faster availability for checks destined for the same 
depositary banks.
    6. Examples.
    a. If a returning bank receives a returned check by its cut-off 
hour for returned checks on Monday and the depositary bank and the 
returning bank are participants in the same clearinghouse, the 
returning bank should arrange to have the returned check received by 
the depositary bank by Tuesday. This would be the same day that it 
would deliver a forward collection check drawn on the depositary 
bank and received by the returning bank at a corresponding forward 
collection cut-off hour on Monday.
    b. i. If a returning bank receives a returned check, and the 
returning bank normally would collect a forward collection check 
drawn on the depositary bank by sending the forward collection check 
to a correspondent or a Federal Reserve Bank by courier, the 
returning bank could send the returned check in the same manner if 
the correspondent has agreed to handle returned checks expeditiously 
under Sec. 229.31(a). The returning bank would have to deliver the 
check by the correspondent's or Federal Reserve Bank's cut-off hour 
for returned checks that corresponds to its cut-off hour for forward 
collection checks drawn on the depositary bank. A returning bank may 
take a day to convert a check to a qualified returned check. Where 
the forward collection checks are delivered by courier, mailing the 
returned checks would not meet the duty established by this section 
for returning banks.
    ii. A returning bank must return a check to the depositary bank 
by courier or other means as fast as a courier, if similarly 
situated returning banks use couriers to deliver their forward 
collection checks to the depositary bank. 

[[Page 51693]]

    iii. For some depositary banks, no community practice exists as 
to delivery of checks. For example, a credit union whose customers 
use payable-through drafts normally does not have checks presented 
to it because the drafts are normally sent to the payable-through 
bank for collection. In these circumstances, the community standard 
is established by taking into account the dollar volume of the 
checks being sent to the depositary bank and the location of the 
depositary bank, and determining whether similarly situated banks 
normally would deliver forward collection checks to the depositary 
bank, taking into account the particular risks associated with 
returned checks. Where the community standard does not require 
courier delivery, other means of delivery, including mail, are 
acceptable.
    7. Qualified returned checks.
    a. The expeditious return requirement for a returning bank in 
this regulation is more stringent in many cases than the duty of a 
collecting bank to exercise ordinary care under U.C.C. 4-202 in 
returning a check. A returning bank is under a duty to act as 
expeditiously in returning a check as it would in the forward 
collection of a check. Notwithstanding its duty of expeditious 
return, its midnight deadline under U.C.C. 4-202 and Sec. 210.12(a) 
of Regulation J (12 CFR 210.12(a)), under the forward collection 
test, a returning bank may take an extra day to qualify a returned 
check. A qualified returned check will be handled by subsequent 
returning banks more efficiently than a raw return. This paragraph 
gives a returning bank an extra business day beyond the time that 
would otherwise be required to return the returned check to convert 
a returned check to a qualified returned check. The qualified 
returned check must include the routing number of the depositary 
bank, the amount of the check, and a return identifier encoded on 
the check in magnetic ink.
    b. If the returning bank is sending the returned check directly 
to the depositary bank, this extra day is not available because 
preparing a qualified returned check will not expedite handling by 
other banks. If the returning bank makes an encoding error in 
creating a qualified returned check, it may be liable under 
Sec. 229.38 for losses caused by any negligence. The returning bank 
would not lose the one-day extension available to it for creating a 
qualified returned check because of an encoding error.
    8. Routing of returned check.
    a. Under Sec. 229.31(a), the returning bank is authorized to 
route the returned check in a variety of ways:
    i. It may send the returned check directly to the depositary 
bank by courier or other expeditious means of delivery; or
    ii. It may send the returned check to any returning bank 
agreeing to handle the returned check for expeditious return to the 
depositary bank under this section regardless of whether or not the 
returning bank handled the check for forward collection.
    b. If the returning bank elects to send the returned check 
directly to the depositary bank, it is not required to send the 
check to the branch of the depositary bank that first handled the 
check. The returned check may be sent to the depositary bank at any 
location permitted under Sec. 229.32(a).
    9. Responsibilities of returning bank. In meeting the 
requirements of this section, the returning bank is responsible for 
its own actions, but not those of the paying bank, other returning 
banks, or the depositary bank. (See U.C.C. 4-202(c) regarding the 
responsibility of collecting banks.) For example, if the paying bank 
has delayed the start of the return process, but the returning bank 
acts in a timely manner, the returning bank may satisfy the 
requirements of this section even if the delayed return results in a 
loss to the depositary bank. (See Sec. 229.38.) A returning bank 
must handle a notice in lieu of return as expeditiously as a 
returned check.
    10. U.C.C. sections affected. This paragraph directly affects 
the following provisions of the U.C.C., and may affect other 
sections or provisions:
    a. Section 4-202(b), in that time limits required by that 
section may be affected by the additional requirement to make an 
expeditious return.
    b. Section 4-214(a), in that settlement for returned checks is 
made under Sec. 229.31(c) and not by charge-back of provisional 
credit, and in that the time limits may be affected by the 
additional requirement to make an expeditious return.

B. 229.31(b)  Unidentifiable Depositary Bank

    1. This section is similar to Sec. 229.30(b), but applies to 
returning banks instead of paying banks. In some cases a returning 
bank will be unable to identify the depositary bank with respect to 
a check. Returning banks agreeing to handle checks for return to 
depositary banks under Sec. 229.31(a) are expected to be expert in 
identifying depositary bank indorsements. In the limited cases where 
the returning bank cannot identify the depositary bank, the 
returning bank may send the returned check to a returning bank that 
agrees to handle the returned check for expeditious return under 
Sec. 229.31(a), or it may send the returned check to a bank that 
handled the check for forward collection, even if that bank does not 
agree to handle the returned check expeditiously under 
Sec. 229.31(a).
    2. If the returning bank itself handled the check for forward 
collection, it may send the returned check to a collecting bank that 
was prior to it in the forward collection process, which will be 
better able to identify the depositary bank. If there are no prior 
collecting banks, the returning bank must research the collection of 
the check and identify the depositary bank. As in the case of paying 
banks under Sec. 229.30(b), a returning bank's sending of a check to 
a bank that handled the check for forward collection under 
Sec. 229.31(b) is not subject to the expeditious return requirements 
of Sec. 229.31(a).
    3. The returning bank's return of a check under this paragraph 
is subject to the midnight deadline under U.C.C. 4-202(b). (See 
definition of returning bank in Sec. 229.2(cc).)
    4. Where a returning bank receives a check that it does not 
agree to handle expeditiously under Sec. 229.31(a), such as a check 
sent to it under Sec. 229.30(b), but the returning bank is able to 
identify the depositary bank, the returning bank must thereafter 
return the check expeditiously to the depositary bank. The returning 
bank returns a check expeditiously under this paragraph if it 
returns the check by the same means it would use to return a check 
drawn on it to the depositary bank or by other reasonably prompt 
means.
    5. As in the case of a paying bank returning a check under 
Sec. 229.30(b), a returning bank returning a check under this 
paragraph to a bank that has not agreed to handle the check 
expeditiously must advise that bank that it is unable to identify 
the depositary bank. This advice must be conspicuous, such as a 
stamp on each check for which the depositary bank is unknown if such 
checks are commingled with other returned checks, or, if such checks 
are sent in a separate cash letter, by one notice on the cash 
letter. The returned check may not be prepared for automated return.

C. 229.31(c)  Settlement

    1. Under the U.C.C., a collecting bank receives settlement for a 
check when it is presented to the paying bank. The paying bank may 
recover the settlement when the paying bank returns the check to the 
presenting bank. Under this regulation, however, the paying bank may 
return the check directly to the depositary bank or through 
returning banks that did not handle the check for forward 
collection. On these more efficient return paths, the paying bank 
does not recover the settlement made to the presenting bank. Thus, 
this paragraph requires the returning bank to settle for a returned 
check (either with the paying bank or another returning bank) in the 
same way that it would settle for a similar check for forward 
collection. To achieve uniformity, this paragraph applies even if 
the returning bank handled the check for forward collection.
    2. Any returning bank, including one that handled the check for 
forward collection, may provide availability for returned checks 
pursuant to an availability schedule as it does for forward 
collection checks. These settlements by returning banks, as well as 
settlements between banks made during the forward collection of a 
check, are considered final when made subject to any deferment of 
availability. (See Sec. 229.36(d) and Commentary to Sec. 229.35(b).)
    3. A returning bank may vary the settlement method it uses by 
agreement with paying banks or other returning banks. Special rules 
apply in the case of insolvency of banks. (See Sec. 229.39.) If 
payment cannot be obtained from a depositary or returning bank 
because of its insolvency or otherwise, recovery can be had by 
returning, paying, and collecting banks from prior banks on this 
basis of the liability of prior banks under Sec. 229.35(b).
    4. This paragraph affects U.C.C. 4-214(a) in that a paying or 
collecting bank does not ordinarily have a right to charge back 
against the bank from which it received the returned check, although 
it is entitled to settlement if it returns the returned check to 
that bank, and may affect other sections or provisions. Under 
Sec. 229.36(d), a bank collecting a check remains liable to prior 
collecting banks and 

[[Page 51694]]
the depositary bank's customer under the U.C.C.

D. 229.31(d)  Charges

    1. This paragraph permits any returning bank, even one that 
handled the check for forward collection, to impose a fee on the 
paying bank or other returning bank for its service in handling a 
returned check. Where a claim is made under Sec. 229.35(b), the bank 
on which the claim is made is not authorized by this paragraph to 
impose a charge for taking up a check. This paragraph preempts state 
laws to the extent that these laws prevent returning banks from 
charging fees for handling returned checks.

E. 229.31(e)  Depositary Bank Without Accounts

    1. This paragraph is similar to Sec. 229.30(e) and relieves a 
returning bank of its obligation to make expeditious return to a 
depositary bank that does not maintain any accounts. (See the 
Commentary to Sec. 229.30(e).)

F. 229.31(f)  Notice in Lieu of Return

    1. This paragraph is similar to Sec. 229.30(f) and authorizes a 
returning bank to originate a notice in lieu of return if the 
returned check is unavailable for return. Notice in lieu of return 
is permitted only when a bank does not have and cannot obtain 
possession of the check or must retain possession of the check for 
protest. A check is not unavailable for return if it is merely 
difficult to retrieve from a filing system or from storage by a 
keeper of checks in a truncation system. (See the Commentary to 
Sec. 229.30(f).)

G. 229.31(g)  Reliance on Routing Number

    1. This paragraph is similar to Sec. 229.30(g) and permits a 
returning bank to rely on routing numbers appearing on a returned 
check such as routing numbers in the depositary bank's indorsement 
or on qualified returned checks. (See the Commentary to 
Sec. 229.30(g).)

XVIII. Section 229.32  Depositary Bank's Responsibility for 
Returned Checks

A. 229.32(a)  Acceptance of Returned Checks

    1. This regulation seeks to encourage direct returns by paying 
and returning banks and may result in a number of banks sending 
checks to depositary banks with no preexisting arrangements as to 
where the returned checks should be delivered. This paragraph states 
where the depositary bank is required to accept returned checks and 
written notices of nonpayment under Sec. 229.33. (These locations 
differ from locations at which a depositary bank must accept 
electronic notices.) It is derived from U.C.C. 3-111, which 
specifies that presentment for payment may be made at the place 
specified in the instrument or, if there is none, at the place of 
business of the party to pay. In the case of returned checks, the 
depositary bank does not print the check and can only specify the 
place of ``payment'' of the returned check in its indorsement.
    2. The paragraph specifies four locations at which the 
depositary bank must accept returned checks:
    a. The depositary bank must accept returned checks at any 
location at which it requests presentment of forward collection 
checks such as a processing center. A depositary bank does not 
request presentment of forward collection checks at a branch of the 
bank merely by paying checks presented over the counter.
    b. i. If the depositary bank indorsement states the name and 
address of the depositary bank, it must accept returned checks at 
the branch, head office, or other location, such as a processing 
center, indicated by the address. If the address is too general to 
identify a particular location, then the depositary bank must accept 
returned checks at any branch or head office consistent with the 
address. If, for example, the address is ``New York, New York,'' 
each branch in New York City must accept returned checks.
    ii. If no address appears in the depositary bank's indorsement, 
the depositary bank must accept returned checks at any branch or 
head office associated with the depositary bank's routing number. 
The offices associated with the routing number of a bank are found 
in American Bankers Association Key to Routing Numbers, published by 
Thomson Financial Publishing Inc., which lists a city and state 
address for each routing number.
    iii. The depositary bank must accept returned checks at the 
address in its indorsement and at an address associated with its 
routing number in the indorsement if the written address in the 
indorsement and the address associated with the routing number in 
the indorsement are not in the same check processing region. Under 
Secs. 229.30(g) and 229.31(g), a paying or returning bank may rely 
on the depositary bank's routing number in its indorsement in 
handling returned checks and is not required to send returned checks 
to an address in the depositary bank's indorsement that is not in 
the same check processing region as the address associated with the 
routing number in the indorsement.
    iv. If no routing number or address appears in its indorsement, 
the depositary bank must accept a returned check at any branch or 
head office of the bank. The indorsement requirement of Sec. 229.35 
and Appendix D requires that the indorsement contain a routing 
number, a name, and a location. Consequently, this provision, as 
well as paragraph (a)(2)(ii) of this section, only applies where the 
depositary bank has failed to comply with the indorsement 
requirement.
    3. For ease of processing, a depositary bank may require that 
returning or paying banks returning checks to it separate returned 
checks from forward collection checks being presented.
    4. Under Sec. 229.33(d), a depositary bank receiving a returned 
check or notice of nonpayment must send notice to its customer by 
its midnight deadline or within a longer reasonable time.

B. 229.32(b)  Payment

    1. As discussed in the commentary to Sec. 229.31(c), under this 
regulation a paying or returning bank does not obtain credit for a 
returned check by charge-back but by, in effect, presenting the 
returned check to the depositary bank. This paragraph imposes an 
obligation to ``pay'' a returned check that is similar to the 
obligation to pay a forward collection check by a paying bank, 
except that the depositary bank may not return a returned check for 
which it is the depositary bank. Also, certain means of payment, 
such as remittance drafts, may be used only with the agreement of 
the returning bank.
    2. The depositary bank must pay for a returned check by the 
close of the banking day on which it received the returned check. 
The day on which a returned check is received is determined pursuant 
to U.C.C. 4-108, which permits the bank to establish a cut-off hour, 
generally not earlier than 2:00 p.m., and treat checks received 
after that hour as being received on the next banking day. If the 
depositary bank is unable to make payment to a returning or paying 
bank on the banking day that it receives the returned check, because 
the returning or paying bank is closed for a holiday or because the 
time when the depositary bank received the check is after the close 
of Fedwire, e.g., west coast banks with late cut-off hours, payment 
may be made on the next banking day of the bank receiving payment.
    3. Payment must be made so that the funds are available for use 
by the bank returning the check to the depositary bank on the day 
the check is received by the depositary bank. For example, a 
depositary bank meets this requirement if it sends a wire transfer 
of funds to the returning or paying bank on the day it receives the 
returned check, even if the returning or paying bank has closed for 
the day. A wire transfer should indicate the purpose of the payment.
    4. The depositary bank may use a net settlement arrangement to 
settle for a returned check. Banks with net settlement agreements 
could net the appropriate credits and debits for returned checks 
with the accounting entries for forward collection checks if they so 
desired. If, for purposes of establishing additional controls or for 
other reasons, the banks involved desired a separate settlement for 
returned checks, a separate net settlement agreement could be 
established.
    5. The bank sending the returned check to the depositary bank 
may agree to accept payment at a later date if, for example, it does 
not believe that the amount of the returned check or checks warrants 
the costs of same-day payment. Thus, a returning or paying bank may 
agree to accept payment through an ACH credit or debit transfer that 
settles the day after the returned check is received instead of a 
wire transfer that settles on the same day.
    6. This paragraph and this subpart do not affect the depositary 
bank's right to recover a provisional settlement with its nonbank 
customer for a check that is returned. (See also 
Secs. 229.19(c)(2)(ii), 229.33(d) and 229.35(b).)

C. 229.32(c)  Misrouted Returned Checks

    1. This paragraph permits a bank receiving a check on the basis 
that it is the depositary bank to send the misrouted returned check 
to the correct depositary bank, if it can identify the correct 
depositary bank, either directly or through a returning bank 
agreeing to handle the check expeditiously under Sec. 229.30(a). In 
these cases, the bank receiving the check is acting as a returning 
bank. Alternatively, the bank receiving the misrouted returned check 
must send the check back to the bank from 

[[Page 51695]]
which it was received. In either case the bank to which the returned 
check was misrouted could receive settlement for the check. The 
depositary bank would be required to pay for the returned check 
under Sec. 229.32(b), and any other bank to which the check is sent 
under this paragraph would be required to settle for the check as a 
returning bank under Sec. 229.31(c). If the check was originally 
received ``free,'' that is, without a charge for the check, the bank 
incorrectly receiving the check would have to return the check, 
without a charge, to the bank from which it came. The bank to which 
the returned check was misrouted is required to act promptly but is 
not required to meet the expeditious return requirements of 
Sec. 229.31(a); however, it must act within its midnight deadline. 
This paragraph does not affect a bank's duties under Sec. 229.35(b).

D. 229.32(d)  Charges

    1. This paragraph prohibits a depositary bank from charging the 
equivalent of a presentment fee for returned checks. A returning 
bank, however, may charge a fee for handling returned checks. If the 
returning bank receives a mixed cash letter of returned checks, 
which includes some checks for which the returning bank also is the 
depositary bank, the fee may be applied to all the returned checks 
in the cash letter. In the case of a sorted cash letter containing 
only returned checks for which the returning bank is the depositary 
bank, however, no fee may be charged.

XIX. Section 229.33  Notice of Nonpayment

A. 229.33(a)  Requirement

    1. Notice of nonpayment as required by this section and written 
notice in lieu of return as provided in Secs. 229.30(f) and 
229.31(f) serve different functions. The two kinds of notice, 
however, must meet the content requirements of this section. The 
paying bank must send a notice of nonpayment if it decides not to 
pay a check of $2,500 or more. A paying bank may rely on an amount 
encoded on the check in magnetic ink to determine whether the check 
is in the amount of $2,500 or more. The notice of nonpayment carries 
no value, and the check itself (or the notice in lieu of return) 
must be returned. The paying bank must ensure that the notice of 
nonpayment is received by the depositary bank by 4:00 p.m. local 
time on the second business day following presentment. A bank 
identified by routing number as the paying bank is considered the 
paying bank under this regulation and would be required to create a 
notice of nonpayment even though that bank determined that the check 
was not drawn by a customer of that bank. (See Commentary to the 
definition of paying bank in Sec. 229.2(z).)
    2. The paying bank should not send a notice of nonpayment until 
it has finally determined not to pay the check. Under 
Sec. 229.34(b), by sending the notice the paying bank warrants that 
it has returned or will return the check. If a paying bank sends a 
notice and subsequently decides to pay the check, the paying bank 
may mitigate its liability on this warranty by notifying the 
depositary bank that the check has been paid.
    3. Because the return of the check itself may serve as the 
required notice of nonpayment, in many cases no notice other than 
the return of the check will be necessary. For example, in many 
cases the return of a check through a clearinghouse to another 
participant of the clearinghouse will be made in time to meet the 
time requirements of this section. If the check normally will not be 
received by the depositary bank within the time limits for notice, 
the return of the check will not satisfy the notice requirement. In 
determining whether the returned check will satisfy the notice 
requirement, the paying bank may rely on the availability schedules 
of returning banks as the time that the returned check is expected 
to be delivered to the depositary bank, unless the paying bank has 
reason to know the availability schedules are inaccurate.
    4. Unless the returned check is used to satisfy the notice 
requirement, the requirement for notice is independent of and does 
not affect the requirements for timely and expeditious return of the 
check under Sec. 229.30 and the U.C.C. (See Sec. 229.30(a).) If a 
paying bank fails both to comply with this section and to comply 
with the requirements for timely and expeditious return under 
Sec. 229.30 and the U.C.C. and Regulation J (12 CFR part 210), the 
paying bank shall be liable under either this section or such other 
requirements, but not both. (See Sec. 229.38(b).) A paying bank is 
not responsible for failure to give notice of nonpayment to a party 
that has breached a presentment warranty under U.C.C. 4-208, 
notwithstanding that the paying bank may have returned the check. 
(See U.C.C. 4-208 and 4-302.)

B. 229.33(b)  Content of Notices

    1. This paragraph provides that the notice must at a minimum 
contain eight elements which are specifically enumerated. In the 
case of written notices, the name and routing number of the 
depositary bank also are required.
    2. If the paying bank cannot identify the depositary bank from 
the check itself, it may wish to send the notice to the earliest 
collecting bank it can identify and indicate that the notice is not 
being sent to the depositary bank. The collecting bank may be able 
to identify the depositary bank and forward the notice, but is under 
no duty to do so. In addition, the collecting bank may actually be 
the depositary bank.

C. 229.33(c)  Acceptance of Notice

    1. In the case of a written notice, the depositary bank is 
required to accept notices at the locations specified in 
Sec. 229.32(a). In the case of telephone notices, the bank may not 
refuse to accept notices at the telephone numbers identified in this 
section, but may transfer calls or use a recording device. Banks may 
vary by agreement the location and manner in which notices are 
received.

D. 229.33(d)  Notification to Customer

    1. This paragraph requires a depositary bank to notify its 
customer of nonpayment upon receipt of a returned check or notice of 
nonpayment, regardless of the amount of the check or notice. This 
requirement is similar to the requirement under the U.C.C. as 
interpreted in Appliance Buyers Credit Corp. v. Prospect National 
Bank, 708 F.2d 290 (7th Cir. 1983), that a depositary bank may be 
liable for damages incurred by its customer for its failure to give 
its customer timely advice that it has received a notice of 
nonpayment. Notice also must be given if a depositary bank receives 
a notice of recovery under Sec. 229.35(b). The notice to the 
customer required under this paragraph also may satisfy the notice 
requirement of Sec. 229.13(g) if the depositary bank invokes the 
reasonable cause exception of Sec. 229.13(e) due to the receipt of a 
notice of nonpayment, provided the notice meets the other 
requirements of Sec. 229.13(g).

XX. Section 229.34  Warranties

A. 229.34(a)  Warranty of Returned Check

    1. This paragraph includes warranties that a returned check, 
including a notice in lieu of return, was returned by the paying 
bank, or in the case of a check payable by a bank and payable 
through another bank, the bank by which the check is payable, within 
the deadline under the U.C.C., Regulation J, or Sec. 229.30(c); that 
the paying or returning bank is authorized to return the check; that 
the returned check has not been materially altered; and that, in the 
case of a notice in lieu of return, the original check has not been 
and will not be returned for payment. (See the Commentary to 
Sec. 229.30(f).) The warranty does not include a warranty that the 
bank complied with the expeditious return requirements of 
Secs. 229.30(a) and 229.31(a). These warranties do not apply to 
checks drawn on the United States Treasury, to U.S. Postal Service 
money orders, or to checks drawn on a state or a unit of general 
local government that are not payable through or at a bank. (See 
Sec. 229.42.)

B. 229.34(b)  Warranty of Notice of Nonpayment

    1. This paragraph provides for warranties for notices of 
nonpayment. This warranty does not include a warranty that the 
notice is accurate and timely under Sec. 229.33. The requirements of 
Sec. 229.33 that are not covered by the warranty are subject to the 
liability provisions of Sec. 229.38. These warranties are designed 
to give the depositary bank more confidence in relying on notices of 
nonpayment. This paragraph imposes liability on a paying bank that 
gives notice of nonpayment and then subsequently returns the check. 
(See Commentary on Sec. 229.33(a).)

C. 229.34(c)  Warranty of Settlement Amount, Encoding, and Offset

    1. Paragraph (c)(1) provides that a bank that presents and 
receives settlement for checks warrants to the paying bank that the 
settlement it demands (e.g., as noted on the cash letter) equals the 
total amount of the checks it presents. This paragraph gives the 
paying bank a warranty claim against the presenting bank for the 
amount of any excess settlement made on the basis of the amount 
demanded, plus expenses. If the amount demanded is understated, a 
paying bank discharges its settlement obligation under U.C.C. 4-301 
by paying the amount demanded, but remains liable for the amount by 
which the demand is understated; the presenting bank is nevertheless 
liable for expenses in resolving the adjustment. 

[[Page 51696]]

    2. When checks or returned checks are transferred to a 
collecting, returning, or depositary bank, the transferor bank is 
not required to demand settlement, as is required upon presentment 
to the paying bank. However, often the checks or returned checks 
will be accompanied by information (such as a cash letter listing) 
that will indicate the total of the checks or returned checks. 
Paragraph (c)(2) provides that if the transferor bank includes 
information indicating the total amount of checks or returned checks 
transferred, it warrants that the information is correct (i.e., 
equals the actual total of the items).
    3. Paragraph (c)(3) provides that a bank that presents or 
transfers a check or returned check warrants the accuracy of the 
magnetic ink encoding that was placed on the item after issue, and 
that exists at the time of presentment or transfer, to any bank that 
subsequently handles the check or returned check. Under U.C.C. 4-
209(a), only the encoder (or the encoder and the depositary bank, if 
the encoder is a customer of the depositary bank) warrants the 
encoding accuracy, thus any claims on the warranty must be directed 
to the encoder. Paragraph (c)(3) expands on the U.C.C. by providing 
that all banks that transfer or present a check or returned check 
make the encoding warranty. In addition, under the U.C.C., the 
encoder makes the warranty to subsequent collecting banks and the 
paying bank, while paragraph (c)(3) provides that the warranty is 
made to banks in the return chain as well.
    4. A paying bank that settles for an overstated cash letter 
because of a misencoded check may make a warranty claim against the 
presenting bank under paragraph (c)(1) (which would require the 
paying bank to show that the check was part of the overstated cash 
letter) or an encoding warranty claim under paragraph (c)(3) against 
the presenting bank or any preceding bank that handled the 
misencoded check.
    5. Paragraph (c)(4) provides that the paying bank may set off 
any excess settlement made against settlement owed to the presenting 
bank for checks presented subsequently.

D. 229.34(d)  Damages

    1. This paragraph adopts for the warranties in Sec. 229.34 (a), 
(b), and (c) the damages provided in U.C.C. 4-207(c) and 4A-506(b). 
(See definition of interest compensation in Sec. 229.2(oo).)

E. 229.34(e)  Tender of Defense

    1. This paragraph adopts for this regulation the vouching-in 
provisions of U.C.C. 3-119.

XXI. Section 229.35  Indorsements

A. 229.35(a)  Indorsement Standards

    1. This section and Appendix D require banks to use a standard 
form of indorsement when indorsing checks during the forward 
collection and return process. The standard provides for 
indorsements by all collecting and returning banks, plus a unique 
standard for depositary bank indorsements. It is designed to 
facilitate the identification of the depositary bank and the prompt 
return of checks. The regulation places a duty on banks to ensure 
that their indorsements are legible. The indorsement standard 
specifies the information each indorsement must contain and its 
location and ink color.
    2. The indorsement standard requires that the nine-digit routing 
number of the depositary bank be wholly contained in an area on the 
back of the check from 3.0 inches from the leading edge to 1.5 
inches from the trailing edge of the check. This permits banks to 
use encoding equipment that measures from either the leading or 
trailing edge of the check to place indorsements in this area. The 
standard does not require that the entire depositary bank 
indorsement be contained within the specified area, but checks will 
be handled most efficiently if depositary banks place as much 
information as possible within the designated area to ensure that 
the information is protected from being overstamped by subsequent 
indorsements. The location requirement for subsequent collecting 
bank indorsements (not including returning bank indorsements) limits 
these indorsements to the area on the back of the check from the 
leading edge to 3.0 inches from the leading edge of the check. The 
area from the trailing edge of the check to 1.5 inches from the 
trailing edge is commonly used for the payee indorsement.
    3. The standard requires depositary banks to use either purple 
or black ink. The Board encourages depositary banks to indorse 
checks in purple ink where possible, because use of a unique ink 
color will facilitate the speedy identification of the depositary 
bank. Black ink, however, may be used when use of purple ink is not 
feasible, such as where a bank uses the same equipment to apply both 
depositary bank and subsequent collecting bank indorsements, and the 
equipment has only one source of ink.
    4. The standard requires subsequent collecting banks to use an 
ink color other than purple for their indorsements. The standard 
also requires the depositary bank's indorsement to include its nine-
digit routing number set off by arrows, the bank's name and 
location, and the indorsement date, and permits the indorsement to 
include other identifying information.
    5. The standard does not include the fractional routing number 
for depositary banks; however, a bank may include its fractional 
routing number or repeat its nine-digit routing number in its 
indorsement. If a depositary bank includes its routing number in its 
indorsement more than once, paying and returning banks will be able 
to identify the depositary bank more readily. Depositary banks 
should not include information that can be confused with required 
information. For example, a nine-digit zip code could be confused 
with the nine-digit routing number.
    6. A depositary bank is not required to place a street address 
in its indorsement; however, a bank may want to put an address in 
its indorsement in order to limit the number of locations at which 
it must accept returned checks. In instances where this address is 
not consistent with the routing number in the indorsement, the 
depositary bank is required to accept returned checks at a branch or 
head office consistent with the routing number. Banks should note, 
however, that Sec. 229.32 requires a depositary bank to accept 
returned checks at the location(s) it accepts forward collection 
checks. The inclusion of a depositary bank's telephone number where 
it would receive notices of large-dollar returns in its indorsements 
is optional.
    7. Under the U.C.C., a specific guarantee of prior indorsement 
is not necessary. (See U.C.C. 4-207(a) and 4-208(a).) Use of 
guarantee language in indorsements, such as ``P.E.G.'' (``prior 
endorsements guaranteed''), may result in reducing the type size 
used in bank indorsements, thereby making them more difficult to 
read. Use of this language may make it more difficult for other 
banks to identify the depositary bank. Subsequent collecting bank 
indorsements may not include this language.
    8. The standard for returning banks requires a returning bank to 
apply an indorsement that avoids the area on the back of the check 
from 3.0 inches from the leading edge of the check to the trailing 
edge--the area reserved for the payee and depositary bank 
indorsements. Returning bank indorsements may differ from subsequent 
collecting bank indorsements. The use of various methods to process 
returns using a variety of equipment also may cause returning bank 
indorsements to vary substantially in form, content, and placement 
on the check. Thus, a returning bank indorsement may be on the face 
of the check or on the back of the check. A returning bank 
indorsement may not be in purple ink. No content requirements have 
been adopted for the returning bank indorsement.
    9. If the bank maintaining the account into which a check is 
deposited agrees with another bank (a correspondent, ATM operator, 
or lock box operator) to have the other bank accept returns and 
notices of nonpayment for the bank of account, the indorsement 
placed on the check as the depositary bank indorsement may be the 
indorsement of the bank that acts as correspondent, ATM operator, or 
lock box operator as provided in paragraph (d) of this section.
    10. The backs of many checks bear pre-printed information or 
blacked out areas for various reasons. For example, some checks are 
printed with a carbon band across the back that allows the transfer 
of information from the check to a ledger with one writing. Also, 
contracts or loan agreements are printed on certain checks. Other 
checks that are mailed to recipients may contain areas on the back 
that are blacked out so that they may not be read through the 
mailer. On the deposit side, the payee of the check may place its 
indorsement or information identifying the drawer of the check in 
the area specified for the depositary bank indorsement, thus making 
the depositary bank indorsement unreadable.
    11. The indorsement standard does not prohibit the use of a 
carbon band or other printed or written matter on the backs of 
checks and does not require banks to avoid placing their 
indorsements in these areas. Nevertheless, checks will be handled 
more efficiently if depositary banks design indorsement stamps so 
that the nine-digit routing number avoids the carbon band area. 
Indorsing parties other than banks, e.g., corporations, will benefit 
from the faster return of checks if they protect the 

[[Page 51697]]
identifiability and legibility of the depositary bank indorsement by 
staying clear of the area reserved for the depositary bank 
indorsement.
    12. Section 229.38(d) allocates responsibility for loss 
resulting from a delay in return of a check due to indorsements that 
are unreadable because of material on the back of the check. The 
depositary bank is responsible for a loss resulting from a delay in 
return caused by the condition of the check arising after its 
issuance until its acceptance by the depositary bank that made the 
depositary bank's indorsement illegible. The paying bank is 
responsible for loss resulting from a delay in return caused by 
indorsements that are not readable because of other material on the 
back of the check at the time that it was issued. Depositary and 
paying banks may shift these risks to their customers by agreement.
    13. The standard does not require the paying bank to indorse the 
check; however, if a paying bank does indorse a check that is 
returned, it should follow the indorsement standard for returning 
banks. The standard requires collecting and returning banks to 
indorse the check for tracing purposes.

B. 229.35(b)  Liability of Bank Handling Check

    1. When a check is sent for forward collection, the collection 
process results in a chain of indorsements extending from the 
depositary bank through any subsequent collecting banks to the 
paying bank. This section extends the indorsement chain through the 
paying bank to the returning banks, and would permit each bank to 
recover from any prior indorser if the claimant bank does not 
receive payment for the check from a subsequent bank in the 
collection or return chain. For example, if a returning bank 
returned a check to an insolvent depositary bank, and did not 
receive the full amount of the check from the failed bank, the 
returning bank could obtain the unrecovered amount of the check from 
any bank prior to it in the collection and return chain including 
the paying bank. Because each bank in the collection and return 
chain could recover from a prior bank, any loss would fall on the 
first collecting bank that received the check from the depositary 
bank. To avoid circuity of actions, the returning bank could recover 
directly from the first collecting bank. Under the U.C.C., the first 
collecting bank might ultimately recover from the depositary bank's 
customer or from the other parties on the check.
    2. Where a check is returned through the same banks used for the 
forward collection of the check, priority during the forward 
collection process controls over priority in the return process for 
the purpose of determining prior and subsequent banks under this 
regulation.
    3. Where a returning bank is insolvent and fails to pay the 
paying bank or a prior returning bank for a returned check, 
Sec. 229.39(a) requires the receiver of the failed bank to return 
the check to the bank that transferred the check to the failed bank. 
That bank then either could continue the return to the depositary 
bank or recover based on this paragraph. Where the paying bank is 
insolvent, and fails to pay the collecting bank, the collecting bank 
also could recover from a prior collecting bank under this 
paragraph, and the bank from which it recovered could in turn 
recover from its prior collecting bank until the loss settled on the 
depositary bank (which could recover from its customer).
    4. A bank is not required to make a claim against an insolvent 
bank before exercising its right to recovery under this paragraph. 
Recovery may be made by charge-back or by other means. This right of 
recovery also is permitted even where nonpayment of the check is the 
result of the claiming bank's negligence such as failure to make 
expeditious return, but the claiming bank remains liable for its 
negligence under Sec. 229.38.
    5. This liability is imposed on a bank handling a check for 
collection or return regardless of whether the bank's indorsement 
appears on the check. Notice must be sent under this paragraph to a 
prior bank from which recovery is sought reasonably promptly after a 
bank learns that it did not receive payment from another bank, and 
learns the identity of the prior bank. Written notice reasonably 
identifying the check and the basis for recovery is sufficient if 
the check is not available. Receipt of notice by the bank against 
which the claim is made is not a precondition to recovery by charge-
back or other means; however, a bank may be liable for negligence 
for failure to provide timely notice. A paying or returning bank 
also may recover from a prior collecting bank as provided in 
Secs. 229.30(b) and 229.31(b). This provision is not a substitute 
for a paying or returning bank making expeditious return under 
Secs. 229.30(a) or 229.31(b). This paragraph does not affect a 
paying bank's accountability for a check under U.C.C. 4-215(a) and 
4-302. Nor does this paragraph affect a collecting bank's 
accountability under U.C.C. 4-213 and 4-215(d). A collecting bank 
becomes accountable upon receipt of final settlement as provided in 
the foregoing U.C.C. sections. The term final settlement in 
Secs. 229.31 (c), 229.32 (b), and 229.36(d) is intended to be 
consistent with the use of the term final settlement in the U.C.C. 
(e.g., U.C.C. 4-213, 4-214, and 4-215). (See also Sec. 229.2(cc) and 
Commentary.)
    6. This paragraph also provides that a bank may have the rights 
of a holder based on the handling of the check for collection or 
return. A bank may become a holder or a holder in due course 
regardless of whether prior banks have complied with the indorsement 
standard in Sec. 229.35(a) and Appendix D.
    7. This paragraph affects the following provisions of the 
U.C.C., and may affect other provisions:
    a. Section 4-214(a), in that the right to recovery is not based 
on provisional settlement, and recovery may be had from any prior 
bank. Section 4-214(a) would continue to permit a depositary bank to 
recover a provisional settlement from its customer. (See 
Sec. 229.33(d).)
    b. Section 3-415 and related provisions (such as section 3-503), 
in that such provisions would not apply as between banks, or as 
between the depositary bank and its customer.

C. 229.35(c)  Indorsement by Bank

    1. This section protects the rights of a customer depositing a 
check in a bank without requiring the words ``pay any bank,'' as 
required by the U.C.C. (See U.C.C. 4-201(b).) Use of this language 
in a depositary bank's indorsement will make it more difficult for 
other banks to identify the depositary bank. The indorsement 
standard in Appendix D prohibits such material in subsequent 
collecting bank indorsements. The existence of a bank indorsement 
provides notice of the restrictive indorsement without any 
additional words.

D. 229.35(d)  Indorsement for Depositary Bank

    1. This section permits a depositary bank to arrange with 
another bank to indorse checks. This practice may occur when a 
correspondent indorses for a respondent, or when the bank servicing 
an ATM or lock box indorses for the bank maintaining the account in 
which the check is deposited--i.e., the depositary bank. If the 
indorsing bank applies the depositary bank's indorsement, checks 
will be returned to the depositary bank. If the indorsing bank does 
not apply the depositary bank's indorsement, by agreement with the 
depositary bank it may apply its own indorsement as the depositary 
bank indorsement. In that case, the depositary bank's own 
indorsement on the check (if any) should avoid the location reserved 
for the depositary bank. The actual depositary bank remains 
responsible for the availability and other requirements of Subpart 
B, but the bank indorsing as depositary bank is considered the 
depositary bank for purposes of Subpart C. The check will be 
returned, and notice of nonpayment will be given, to the bank 
indorsing as depositary bank.
    2. Because the depositary bank for Subpart B purposes will 
desire prompt notice of nonpayment, its arrangement with the 
indorsing bank should provide for prompt notice of nonpayment. The 
bank indorsing as depositary bank may require the depositary bank to 
agree to take up the check if the check is not paid even if the 
depositary bank's indorsement does not appear on the check and it 
did not handle the check. The arrangement between the banks may 
constitute an agreement varying the effect of provisions of Subpart 
C under Sec. 229.37.

XXII. Section 229.36  Presentment and Issuance of Checks

A. 229.36(a)  Payable Through and Payable at Checks

    1. For purposes of Subpart C, the regulation defines a payable-
through or payable-at bank (which could be designated the 
collectible-through or collectible-at bank) as a paying bank. The 
requirements of Sec. 229.30(a) and the notice of nonpayment 
requirements of Sec. 229.33 are imposed on a payable-through or 
payable-at bank and are based on the time of receipt of the forward 
collection check by the payable-through or payable-at bank. This 
provision is intended to speed the return of checks that are payable 
through or at a bank to the depositary bank. 

[[Page 51698]]


B. 229.36(b)  Receipt at Bank Office or Processing Center

    1. This paragraph seeks to facilitate efficient presentment of 
checks to promote early return or notice of nonpayment to the 
depositary bank and clarifies the law as to the effect of 
presentment by routing number. This paragraph differs from 
Sec. 229.32(a) because presentment of checks differs from delivery 
of returned checks.
    2. The paragraph specifies four locations at which the paying 
bank must accept presentment of checks. Where the check is payable 
through a bank and the check is sent to that bank, the payable-
through bank is the paying bank for purposes of this subpart, 
regardless of whether the paying bank must present the check to 
another bank or to a nonbank payor for payment.
    a. Delivery of checks may be made, and presentment is considered 
to occur, at a location (including a processing center) requested by 
the paying bank. This is the way most checks are presented by banks 
today. This provision adopts the common law rule of a number of 
legal decisions that the processing center acts as the agent of the 
paying bank to accept presentment and to begin the time for 
processing of the check. (See also U.C.C. 4-204(c).) If a bank 
designates different locations for the presentment of forward 
collection checks bearing different routing numbers, for purposes of 
this paragraph it requests presentment of checks bearing a 
particular routing number only at the location designated for 
receipt of forward collection checks bearing that routing number.
    b. i. Delivery may be made at an office of the bank associated 
with the routing number on the check. The office associated with the 
routing number of a bank is found in American Bankers Association 
Key to Routing Numbers, published by Thomson Financial Publishing 
Inc., which lists a city and state address for each routing number. 
Checks generally are handled by collecting banks on the basis of the 
nine-digit routing number encoded in magnetic ink (or on the basis 
of the fractional form routing number if the magnetic ink characters 
are obliterated) on the check, rather than the printed name or 
address. The definition of a paying bank in Sec. 229.2(z) includes a 
bank designated by routing number, whether or not there is a name on 
the check, and whether or not any name is consistent with the 
routing number. Where a check is payable by one bank, but payable 
through another, the routing number is that of the payable-through 
bank, not that of the payor bank. As the payor bank has selected the 
payable-through bank as the point through which presentment is to be 
made, it is proper to treat the payable-through bank as the paying 
bank for purposes of this section.
    ii. There is no requirement in the regulation that the name and 
address on the check agree with the address associated with the 
routing number on the check. A bank generally may control the use of 
its routing number, just as it does the use of its name. The address 
associated with the routing number may be a processing center.
    iii. In some cases, a paying bank may have several offices in 
the city associated with the routing number. In such case, it would 
not be reasonable or efficient to require the presenting bank to 
sort the checks by more specific branch addresses that might be 
printed on the checks, and to deliver the checks to each branch. A 
collecting bank normally would deliver all checks to one location. 
In cases where checks are delivered to a branch other than the 
branch on which they may be drawn, computer and courier 
communication among branches should permit the paying bank to 
determine quickly whether to pay the check.
    c. If the check specifies the name of the paying bank but no 
address, the bank must accept delivery at any office. Where delivery 
is made by a person other than a bank, or where the routing number 
is not readable, delivery will be made based on the name and address 
of the paying bank on the check. If there is no address, delivery 
may be made at any office of the paying bank. This provision is 
consistent with U.C.C. 3-111, which states that presentment for 
payment may be made at the place specified in the instrument, or, if 
there is none, at the place of business of the party to pay. Thus, 
there is a trade-off for a paying bank between specifying a 
particular address on a check to limit locations of delivery, and 
simply stating the name of the bank to encourage wider currency for 
the check.
    d. If the check specifies the name and address of a branch or 
head office, or other location (such as a processing center), the 
check may be delivered by delivery to that office or other location. 
If the address is too general to identify a particular office, 
delivery may be made at any office consistent with the address. For 
example, if the address is ``San Francisco, California,'' each 
office in San Francisco must accept presentment. The designation of 
an address on the check generally is in the control of the paying 
bank.
    3. This paragraph may affect U.C.C. 3-111 to the extent that the 
U.C.C. requires presentment to occur at a place specified in the 
instrument.

C. 229.36(c)  Truncation

    1. Truncation includes a variety of procedures in which the 
physical check is held or delayed by the depositary or collecting 
bank, and the information from the check is transmitted to the 
paying bank electronically. Presentment takes place when the paying 
bank receives the electronic transmission. This process has the 
potential to improve the efficiency of check processing, and express 
provision for truncation and electronic presentment is made in 
U.C.C. 4-110 and 4-406(b). This paragraph allows truncation by 
agreement with the paying bank; however, such agreement may not 
prejudice the interests of prior parties to the check. For example, 
a truncation agreement may not extend the paying bank's time for 
return. Such an extension could damage the depositary bank, which 
must make funds available to its customers under mandatory 
availability schedules.

D. 229.36(d)  Liability of Bank During Forward Collection

    1. This paragraph makes settlement between banks during forward 
collection final when made, subject to any deferment of credit, just 
as settlements between banks during the return of checks are final. 
In addition, this paragraph clarifies that this change does not 
affect the liability scheme under U.C.C. 4-201 during forward 
collection of a check. That U.C.C. section provides that, unless a 
contrary intent clearly appears, a bank is an agent or subagent of 
the owner of a check, but that Article 4 of the U.C.C. applies even 
though a bank may have purchased an item and is the owner of it. 
This paragraph preserves the liability of a collecting bank to prior 
collecting banks and the depositary bank's customer for negligence 
during the forward collection of a check under the U.C.C., even 
though this paragraph provides that settlement between banks during 
forward collection is final rather than provisional. Settlement by a 
paying bank is not considered to be final payment for the purposes 
of U.C.C. 4-215(a)(2) or (3), because a paying bank has the right to 
recover settlement from a returning or depositary bank to which it 
returns a check under this subpart. Other provisions of the U.C.C. 
not superseded by this subpart, such as section 4-202, also continue 
to apply to the forward collection of a check and may apply to the 
return of a check. (See definition of returning bank in 
Sec. 229.2(cc).)

E. 229.36(e)  Issuance of Payable Through Checks

    1. If a bank arranges for checks payable by it to be payable 
through another bank, it must require its customers to use checks 
that contain conspicuously on their face the name, location, and 
first four digits of the nine-digit routing number of the bank by 
which the check is payable and the legend ``payable through'' 
followed by the name and location of the payable-through bank. The 
first four digits of the nine-digit routing number and the location 
of the bank by which the check is payable must be associated with 
the same check processing region. (This section does not affect 
Sec. 229.36(b).) The required information is deemed conspicuous if 
it is printed in a type size not smaller than six-point type and if 
it is contained in the title plate, which is located in the lower 
left quadrant of the check. The required information may be 
conspicuous if it is located elsewhere on the check.
    2. If a payable-through check does not meet the requirements of 
this paragraph, the bank by which the check is payable may be liable 
to the depositary bank or others as provided in Sec. 229.38. For 
example, a bank by which a payable-through check is payable could be 
liable to a depositary bank that suffers a loss, such as lost 
interest or liability under Subpart B, that would not have occurred 
had the check met the requirements of this paragraph. Similarly, a 
bank may be liable under Sec. 229.38 if a check payable by it that 
is not payable through another bank is labeled as provided in this 
section. For example, a bank that holds checking accounts and 
processes checks at a central location but has widely-dispersed 
branches may be liable under this section if it labels all of its 
checks as ``payable through'' a single branch and includes the name, 
address, and four-digit routing symbol of another branch. 

[[Page 51699]]
These checks would not be payable through another bank and should not 
be labeled as payable-through checks. (All of a bank's offices 
within the United States are considered part of the same bank; see 
Sec. 229.2(e).) In this example, the bank by which the checks are 
payable could be liable to a depositary bank that suffers a loss, 
such as lost interest or liability under Subpart B, due to the 
mislabeled check. The bank by which the check is payable may be 
liable for additional damages if it fails to act in good faith.

F. 229.36(f)  Same-Day Settlement

    1. This paragraph provides that, under certain conditions, a 
paying bank must settle with a presenting bank for a check on the 
same day the check is presented in order to avail itself of the 
ability to return the check on its next banking day under U.C.C. 4-
301 and 4-302. This paragraph does not apply to checks presented for 
immediate payment over the counter. Settling for a check under this 
paragraph does not constitute final payment of the check under the 
U.C.C. This paragraph does not supersede or limit the rules 
governing collection and return of checks through Federal Reserve 
Banks that are contained in Subpart A of Regulation J (12 CFR part 
210).
    2. Presentment requirements.
    a. Location and time.
    i. For presented checks to qualify for mandatory same-day 
settlement, information accompanying the checks must indicate that 
presentment is being made under this paragraph--e.g. ``these checks 
are being presented for same-day settlement''--and must include a 
demand for payment of the total amount of the checks together with 
appropriate payment instructions in order to enable the paying bank 
to discharge its settlement responsibilities under this paragraph. 
In addition, the check or checks must be presented at a location 
designated by the paying bank for receipt of checks for same-day 
settlement by 8:00 a.m. local time of that location. The designated 
presentment location must be a location at which the paying bank 
would be considered to have received a check under Sec. 229.36(b). 
The paying bank may not designate a location solely for presentment 
of checks subject to settlement under this paragraph; by designating 
a location for the purposes of Sec. 229.36(f), the paying bank 
agrees to accept checks at that location for the purposes of 
Sec. 229.36(b).
    ii. The designated presentment location also must be within the 
check processing region consistent with the nine-digit routing 
number encoded in magnetic ink on the check. A paying bank that uses 
more than one routing number associated with a single check 
processing region may designate, for purposes of this paragraph, one 
or more locations in that check processing region at which checks 
will be accepted, but the paying bank must accept any checks with a 
routing number associated with that check processing region at each 
designated location. A paying bank may designate a presentment 
location for traveler's checks with an 8000-series routing number 
anywhere in the country because these traveler's checks are not 
associated with any check processing region. The paying bank, 
however, must accept at that presentment location any other checks 
for which it is paying bank that have a routing number consistent 
with the check processing region of that location.
    iii. If the paying bank does not designate a presentment 
location, it must accept presentment for same-day settlement at any 
location identified in Sec. 229.36(b), i.e., at an address of the 
bank associated with the routing number on the check, at any branch 
or head office if the bank is identified on the check by name 
without address, or at a branch, head office, or other location 
consistent with the name and address of the bank on the check if the 
bank is identified on the check by name and address. A paying bank 
and a presenting bank may agree that checks will be accepted for 
same-day settlement at an alternative location (e.g., at an 
intercept processor located in a different check processing region) 
or that the cut-off time for same-day settlement be earlier or later 
than 8:00 a.m. local time.
    iv. In the case of a check payable through a bank but payable by 
another bank, this paragraph does not authorize direct presentment 
to the bank by which the check is payable. The requirements of same-
day settlement under this paragraph would apply to a payable-through 
or payable-at bank to which the check is sent for payment or 
collection.
    b. Reasonable delivery requirements. A check is considered 
presented when it is delivered to and payment is demanded at a 
location specified in paragraph (f)(1). Ordinarily, a presenting 
bank will find it necessary to contact the paying bank to determine 
the appropriate presentment location and any delivery instructions. 
Further, because presentment might not take place during the paying 
bank's banking day, a paying bank may establish reasonable delivery 
requirements to safeguard the checks presented, such as use of a 
night depository. If a presenting bank fails to follow reasonable 
delivery requirements established by the paying bank, it runs the 
risk that it will not have presented the checks. However, if no 
reasonable delivery requirements are established or if the paying 
bank does not make provisions for accepting delivery of checks 
during its non-business hours, leaving the checks at the presentment 
location constitutes effective presentment.
    c. Sorting of checks. A paying bank may require that checks 
presented to it for same-day settlement be sorted separately from 
other forward collection checks it receives as a collecting bank or 
returned checks it receives as a returning or depositary bank. For 
example, if a bank provides correspondent check collection services 
and receives unsorted checks from a respondent bank that include 
checks for which it is the paying bank and that would otherwise meet 
the requirements for same-day settlement under this section, the 
collecting bank need not make settlement in accordance with 
paragraph (f)(2). If the collecting bank receives sorted checks from 
its respondent bank, consisting only of checks for which the 
collecting bank is the paying bank and that meet the requirements 
for same-day settlement under this paragraph, the collecting bank 
may not charge a fee for handling those checks and must make 
settlement in accordance with this paragraph.

3. Settlement

    a. If a bank presents a check in accordance with the time and 
location requirements for presentment under paragraph (f)(1), the 
paying bank either must settle for the check on the business day it 
receives the check without charging a presentment fee or return the 
check prior to the time for settlement. (This return deadline is 
subject to extension under Sec. 229.30(c).) The settlement must be 
in the form of a credit to an account designated by the presenting 
bank at a Federal Reserve Bank (e.g., a Fedwire transfer). The 
presenting bank may agree with the paying bank to accept settlement 
in another form (e.g., credit to an account of the presenting bank 
at the paying bank or debit to an account of the paying bank at the 
presenting bank). The settlement must occur by the close of Fedwire 
on the business day the check is received by the paying bank. Under 
the provisions of Sec. 229.34(c), a settlement owed to a presenting 
bank may be set off by adjustments for previous settlements with the 
presenting bank. (See also Sec. 229.39(d).)
    b. Checks that are presented after the 8 a.m. (local time) 
presentment deadline for same-day settlement and before the paying 
bank's cut-off hour are treated as if they were presented under 
other applicable law and settled for or returned accordingly. 
However, for purposes of settlement only, the presenting bank may 
require the paying bank to treat such checks as presented for same-
day settlement on the next business day in lieu of accepting 
settlement by cash or other means on the business day the checks are 
presented to the paying bank. Checks presented after the paying 
bank's cut-off hour or on non-business days, but otherwise in 
accordance with this paragraph, are considered presented for same-
day settlement on the next business day.

4. Closed Paying Bank

    a. There may be certain business days that are not banking days 
for the paying bank. Some paying banks may continue to settle for 
checks presented on these days (e.g., by opening their back office 
operations or by using an intercept processor). In other cases, a 
paying bank may be unable to settle for checks presented on a day it 
is closed.
    If the paying bank closes on a business day and checks are 
presented to the paying bank in accordance with paragraph (f)(1), 
the paying bank is accountable for the checks unless it settles for 
or returns the checks by the close of Fedwire on its next banking 
day. In addition, checks presented on a business day on which the 
paying bank is closed are considered received on the paying bank's 
next banking day for purposes of the U.C.C. midnight deadline 
(U.C.C. 4-301 and 4-302) and this regulation's expeditious return 
and notice of nonpayment provisions.
    b. If the paying bank is closed on a business day voluntarily, 
the paying bank must pay interest compensation, as defined in 
Sec. 229.2(oo), to the presenting bank for the value of the float 
associated with the check from the day of the voluntary closing 
until 

[[Page 51700]]
the day of settlement. Interest compensation is not required in the 
case of an involuntary closing on a business day, such as a closing 
required by state law. In addition, if the paying bank is closed on 
a business day due to emergency conditions, settlement delays and 
interest compensation may be excused under Sec. 229.38(e) or U.C.C. 
4-109(b).
    5. Good faith. Under Sec. 229.38(a), both presenting banks and 
paying banks are held to a standard of good faith, defined in 
Sec. 229.2(nn) to mean honesty in fact and the observance of 
reasonable commercial standards of fair dealing. For example, 
designating a presentment location or changing presentment locations 
for the primary purpose of discouraging banks from presenting checks 
for same-day settlement might not be considered good faith on the 
part of the paying bank. Similarly, presenting a large volume of 
checks without prior notice could be viewed as not meeting 
reasonable commercial standards of fair dealing and therefore may 
not constitute presentment in good faith. In addition, if banks, in 
the general course of business, regularly agree to certain practices 
related to same-day settlement, it might not be considered 
consistent with reasonable commercial standards of fair dealing, and 
therefore might not be considered good faith, for a bank to refuse 
to agree to those practices if agreeing would not cause it harm.
    6. U.C.C. sections affected. This paragraph directly affects the 
following provisions of the U.C.C. and may affect other sections or 
provisions:
    a. Section 4-204(b)(1), in that a presenting bank may not send a 
check for same-day settlement directly to the paying bank, if the 
paying bank designates a different location in accordance with 
paragraph (f)(1).
    b. Section 4-213(a), in that the medium of settlement for checks 
presented under this paragraph is limited to a credit to an account 
at a Federal Reserve Bank and that, for checks presented after the 
deadline for same-day settlement and before the paying bank's cut-
off hour, the presenting bank may require settlement on the next 
business day in accordance with this paragraph rather than accept 
settlement on the business day of presentment by cash.
    c. Section 4-301(a), in that, to preserve the ability to 
exercise deferred posting, the time limit specified in that section 
for settlement or return by a paying bank on the banking day a check 
is received is superseded by the requirement to settle for checks 
presented under this paragraph by the close of Fedwire.
    d. Section 4-302(a), in that, to avoid accountability, the time 
limit specified in that section for settlement or return by a paying 
bank on the banking day a check is received is superseded by the 
requirement to settle for checks presented under this paragraph by 
the close of Fedwire.

XXIII. Section 229.37  Variations by Agreement

    A. This section is similar to U.C.C. 4-103, and permits 
consistent treatment of agreements varying Article 4 or Subpart C, 
given the substantial interrelationship of the two documents. To 
achieve consistency, the official comment to U.C.C. 4-103(a) (which 
in turn follows U.C.C. 1-201(3)) should be followed in construing 
this section. For example, as stated in Official Comment 2 to 
section 4-103, owners of items and other interested parties are not 
affected by agreements under this section unless they are parties to 
the agreement or are bound by adoption, ratification, estoppel, or 
the like. In particular, agreements varying this subpart that delay 
the return of a check beyond the times required by this subpart may 
result in liability under Sec. 229.38 to entities not party to the 
agreement. This section is consistent with the limits on truncation 
agreements in Sec. 229.36(c).
    B. The Board has not followed U.C.C. 4-103(b), which permits 
Federal Reserve regulations and operating letters, clearinghouse 
rules, and the like to apply to parties that have not specifically 
assented. Nevertheless, this section does not affect the status of 
such agreements under the U.C.C.
    C. The following are examples of situations where variation by 
agreement is permissible, subject to the limitations of this 
section:
    1. A depositary bank may authorize another bank to apply the 
other bank's indorsement to a check as the depositary bank. (See 
Sec. 229.35(d).)
    2. A depositary bank may authorize returning banks to commingle 
qualified returned checks with forward collection checks. (See 
Sec. 229.32(a).)
    3. A depositary bank may limit its liability to its customer in 
connection with the late return of a deposited check where the 
lateness is caused by markings on the check by the depositary bank's 
customer or prior indorser in the area of the depositary bank 
indorsement. (See Sec. 229.38(d).)
    4. A paying bank may require its customer to assume the paying 
bank's liability for delayed or missent checks where the delay or 
missending is caused by markings placed on the check by the paying 
bank's customer that obscured a properly placed indorsement of the 
depositary bank. (See Sec. 229.38(d).)
    5. A collecting or paying bank may agree to accept forward 
collection checks without the indorsement of a prior collecting 
bank. (See Sec. 229.35(a).)
    6. A bank may agree to accept returned checks without the 
indorsement of a prior bank. (See Sec. 229.35(a).)
    7. A presenting bank may agree with a paying bank to present 
checks for same-day settlement at a location that is not in the 
check processing region consistent with the routing number on the 
checks. (See Sec. 229.36(f)(1)(i).)
    8. A presenting bank may agree with a paying bank to present 
checks for same-day settlement by a deadline earlier or later than 
8:00 a.m. (See Sec. 229.36(f)(1)(ii).)
    D. The Board expects to review the types of variation by 
agreement that develop under this section and will consider whether 
it is necessary to limit certain variations.

XXIV. Section 229.38  Liability

A. 229.38(a) Standard of care; liability; measure of damages

    1. The standard of care established by this section applies to 
any bank covered by the requirements of Subpart C of the regulation. 
Thus, the standard of care applies to a paying bank under 
Secs. 229.30 and 229.33, to a returning bank under Sec. 229.31, to a 
depositary bank under Secs. 229.32 and 229.33, to a bank erroneously 
receiving a returned check or written notice of nonpayment as 
depositary bank under Sec. 229.32(d), and to a bank indorsing a 
check under Sec. 229.35. The standard of care is similar to the 
standard imposed by U.C.C. 1-203 and 4-103(a) and includes a duty to 
act in good faith, as defined in Sec. 229.2(nn) of this regulation.
    2. A bank not meeting this standard of care is liable to the 
depositary bank, the depositary bank's customer, the owner of the 
check, or another party to the check. The depositary bank's customer 
is usually a depositor of a check in the depositary bank (but see 
Sec. 229.35(d)). The measure of damages stated derives from U.C.C. 
4-103(e) and 4-202(c). This subpart does not absolve a collecting 
bank of liability to prior collecting banks under U.C.C. 4-201.
    3. Under this measure of damages, a depositary bank or other 
person must show that the damage incurred results from the 
negligence proved. For example, the depositary bank may not simply 
claim that its customer will not accept a charge-back of a returned 
check, but must prove that it could not charge back when it received 
the returned check and could have charged back if no negligence had 
occurred, and must first attempt to collect from its customer. (See 
Marcoux v. Van Wyk, 572 F.2d 651 (8th Cir. 1978); Appliance Buyers 
Credit Corp. v. Prospect Nat'l Bank, 708 F.2d 290 (7th Cir. 1983).) 
Generally, a paying or returning bank's liability would not be 
reduced because the depositary bank did not place a hold on its 
customer's deposit before it learned of nonpayment of the check.
    4. This paragraph also states that it does not affect a paying 
bank's liability to its customer. Under U.C.C. 4-402, for example, a 
paying bank is liable to its customer for wrongful dishonor, which 
is different from failure to exercise ordinary care and has a 
different measure of damages.

B. 229.38(b)  Paying Bank's Failure To Make Timely Rreturn

    1. Section 229.30(a) imposes requirements on the paying bank for 
expeditious return of a check and leaves in place the U.C.C. 
deadlines (as they may be modified by Sec. 229.30(c)), which may 
allow return at a different time. This paragraph clarifies that the 
paying bank could be liable for failure to meet either standard, but 
not for failure to meet both. The regulation intends to preserve the 
paying bank's accountability for missing its midnight or other 
deadline under the U.C.C., (e.g., sections 4-215 and 4-302), 
provisions that are not incorporated in this regulation, but may be 
useful in establishing the time of final payment by the paying bank.

C. 229.38(c)  Comparative negligence

    1. This paragraph establishes a ``pure'' comparative negligence 
standard for liability under Subpart C of this regulation. This 
comparative negligence rule may have particular application where a 
paying or returning bank delays in returning a check because of 
difficulty in identifying the depositary bank. Some examples will 
illustrate liability in such cases. In each 

[[Page 51701]]
example, it is assumed that the returned check is received by the 
depositary bank after it has made funds available to its customer, 
that it may no longer recover the funds from its customer, and that 
the inability to recover the funds from the customer is due to a 
delay in returning the check contrary to the standards established 
by Secs. 229.30(a) or 229.31(a).
    2. Examples.
    a. If a depositary bank fails to use the indorsement required by 
this regulation, and this failure is caused by a failure to exercise 
ordinary care, and if a paying or returning bank is delayed in 
returning the check because additional time is required to identify 
the depositary bank or find its routing number, the paying or 
returning bank's liability to the depositary bank would be reduced 
or eliminated.
    b. If the depositary bank uses the standard indorsement, but 
that indorsement is obscured by a subsequent collecting bank's 
indorsement, and a paying or returning bank is delayed in returning 
the check because additional time was required to identify the 
depositary bank or find its routing number, the paying or returning 
bank may not be liable to the depositary bank because the delay was 
not due to its negligence. Nonetheless, the collecting bank may be 
liable to the depositary bank to the extent that its negligence in 
indorsing the check caused the paying or returning bank's delay.
    c. If a depositary bank accepts a check that has printing, a 
carbon band, or other material on the back of the check that existed 
at the time the check was issued, and the depositary bank's 
indorsement is obscured by the printing, carbon band, or other 
material, and a paying or returning bank is delayed in returning the 
check because additional time was required to identify the 
depositary bank, the returning bank may not be liable to the 
depositary bank because the delay was not due to its negligence. 
Nonetheless, the paying bank may be liable to the depositary bank to 
the extent that the printing, carbon band, or other material caused 
the delay.

D. 229.38(d)  Responsibility for Certain Aspects of Checks

    1. Responsibility for back of check. The indorsement standard in 
Sec. 229.35 is most effective if the back of the check remains clear 
of other matter that may obscure bank indorsements. Because bank 
indorsements are usually applied by automated equipment, it is not 
possible to avoid pre-existing matter on the back of the check. For 
example, bank indorsements are not required to avoid a carbon band 
or printed, stamped, or written terms or notations on the back of 
the check. Accordingly, this provision places responsibility on the 
paying bank or depositary bank, as appropriate, for keeping the back 
of the check clear for bank indorsements during forward collection 
and return.
    2. Responsibility for payable-through checks.
    a. This paragraph provides that the bank by which a payable-
through check is payable is liable for damages under paragraph (a) 
of this section to the extent that the check is not returned through 
the payable-through bank as quickly as would have been necessary to 
meet the requirements of Sec. 229.30(a)(1) (the 2-day/4-day test) 
had the bank by which it is payable received the check as paying 
bank on the day the payable-through bank received it. The location 
of the bank by which a check is payable for purposes of the 2-day/4-
day test may be determined from the location or the first four 
digits of the routing number of the bank by which the check is 
payable. This information should be stated on the check. (See 
Sec. 229.36(e) and accompanying Commentary.) Responsibility under 
paragraph (d)(2) does not include responsibility for the time 
required for the forward collection of a check to the payable-
through bank.
    b. Generally, liability under paragraph (d)(2) will be limited 
in amount. Under Sec. 229.33(a), a paying bank that returns the 
amount of $2,500 or more is not returned through the payable-through 
bank as quickly as would have been required had the check been 
received by the bank by which it is payable, the depositary bank 
should not suffer damages unless it has not received timely notice 
of nonpayment. Thus, ordinarily the bank by which a payable-through 
check is payable would be liable under paragraph (a) only for checks 
in amounts up to $2,500, and the paying bank would be responsible 
for notice of nonpayment for checks in the amount of $2,500 or more.
    3. Responsibility under paragraphs (d)(1) and (d)(2) is treated 
as negligence for comparative negligence purposes, and the 
contribution to damages under paragraphs (d)(1) and (d)(2) is 
treated in the same way as the degree of negligence under paragraph 
(c) of this section.

E. 229.38(e)  Timeliness of Action

    1. This paragraph excuses certain delays. It adopts the standard 
of U.C.C. 4-109(b).

F. 229.38(f)  Exclusion

    1. This paragraph provides that the civil liability and class 
action provisions, particularly the punitive damage provisions of 
sections 611(a) and (b), and the bona fide error provision of 611(c) 
of the Act (12 U.S.C. 4010(a), (b), and (c)) do not apply to 
regulatory provisions adopted to improve the efficiency of the 
payments mechanism. Allowing punitive damages for delays in the 
return of checks where no actual damages are incurred would only 
encourage litigation and provide little or no benefit to the check 
collection system. In view of the provisions of paragraph (a), which 
incorporate traditional bank collection standards based on 
negligence, the provision on bona fide error is not included in 
Subpart C.

G. 229.38(g)  Jurisdiction

    1. The Act confers subject matter jurisdiction on courts of 
competent jurisdiction and provides a time limit for civil actions 
for violations of this subpart.

H. 229.38(h)  Reliance on Board Rulings

    1. This provision shields banks from civil liability if they act 
in good faith in reliance on any rule, regulation, or interpretation 
of the Board, even if it were subsequently determined to be invalid. 
Banks may rely on the Commentary to this regulation, which is issued 
as an official Board interpretation, as well as on the regulation 
itself.

XXV. Section 229.39  Insolvency of Bank

A. Introduction

    1. These provisions cover situations where a bank becomes 
insolvent during collection or return and are derived from U.C.C. 4-
216. They are intended to apply to all banks.

B. 229.39(a)  Duty of Receiver

    1. This paragraph requires a receiver of a closed bank to return 
a check to the prior bank if it does not pay for the check. This 
permits the prior bank, as holder, to pursue its claims against the 
closed bank or prior indorsers on the check.

C. 229.39(b)  Preference Against Paying or Depositary Bank

    1. This paragraph gives a bank a preferred claim against a 
closed paying or depositary bank that finally pays a check without 
settling for it. If the bank with a preferred claim under this 
paragraph recovers from a prior bank or other party to the check, 
the prior bank or other party to the check is subrogated to the 
preferred claim.

D. 229.39(c)  Preference Against Paying, Collecting, or Depositary Bank

    1. This paragraph gives a bank a preferred claim against a 
closed collecting, paying, or returning bank that receives 
settlement but does not settle for a check. (See Commentary to 
Sec. 229.35(b) for discussion of prior and subsequent banks.) As in 
the case of Sec. 229.39(b), if the bank with a preferred claim under 
this paragraph recovers from a prior bank or other party to the 
check, the prior bank or other party to the check is subrogated to 
the preferred claim.

E. 229.39(d)  Preference Against Presenting Bank

    1. This paragraph gives a paying bank a preferred claim against 
a closed presenting bank in the event that the presenting bank 
breaches an amount or encoding warranty as provided in 
Sec. 229.34(c)(1) or (3) and does not reimburse the paying bank for 
adjustments for a settlement made by the paying bank in excess of 
the value of the checks presented. This preference is intended to 
have the effect of a perfected security interest and is intended to 
put the paying bank in the position of a secured creditor for 
purposes of the receivership provisions of the Federal Deposit 
Insurance Act and similar provisions of state law.

F. 229.39(e)  Finality of Settlement

    1. This paragraph provides that insolvency does not interfere 
with the finality of a settlement, such as a settlement by a paying 
bank that becomes final by expiration of the midnight deadline.

XXVI. Section 229.40  Effect on Merger Transaction

    A. When banks merge, there is normally a period of adjustment 
required before their operations are consolidated. To allow for this 
adjustment period, the regulation provides that the merged banks may 
be treated as separate banks for a period of up to one year after 
the consummation of the transaction. The term merger transaction is 
defined in 

[[Page 51702]]
Sec. 229.2(t). This rule affects the status of the combined entity in a 
number of areas in this subpart. For example:
    1. The paying bank's responsibility for expeditious return 
(Sec. 229.30).
    2. The returning bank's responsibility for expeditious return 
(Sec. 229.31).
    3. Whether a returning bank is entitled to an extra day to 
qualify a return that will be delivered directly to a depositary 
bank that has merged with the returning bank (Sec. 229.31(a)).
    4. Where the depositary bank must accept returned checks 
(Sec. 229.32(a)).
    5. Where the depositary bank must accept notice of nonpayment 
(Sec. 229.33(c)).
    6. Where a paying bank must accept presentment of checks 
(Sec. 229.36(b)).

XXVII. Section 229.41  Relation to State Law

    A. This section specifies that state law relating to the 
collection of checks is preempted only to the extent that it is 
inconsistent with this regulation. Thus, this regulation is not a 
complete replacement for state laws relating to the collection or 
return of checks.

XXVIII. Section 229.42  Exclusions

    A. Checks drawn on the United States Treasury, U.S. Postal 
Service money orders, and checks drawn on states and units of 
general local government that are presented directly to the state or 
unit of general local government and that are not payable through or 
at a bank are excluded from the coverage of the expeditious return 
and notice of nonpayment requirements of Subpart C of this 
regulation. Other provisions of this subpart continue to apply to 
the checks. This exclusion does not apply to checks drawn by the 
U.S. government on banks.

XXIX. Appendix C--Model Forms, Clauses, and Notices

A. Introduction

    1. Appendix C contains model forms, clauses, and notices that 
may be used by banks to meet their disclosure responsibilities under 
the regulation. Banks using the model forms, clauses, and notices 
properly will be in compliance with the disclosure requirements of 
the regulation.
    2. Certain information that must be inserted by a bank using the 
forms is italicized within parentheses in the text of the forms. 
Some forms contain alternative clauses, and these are set forth in 
brackets and separated by the word ``or.'' Banks may make certain 
changes in the format or content of the model forms and delete 
material that is inapplicable without losing the Act's protection 
from liability for banks that use the forms properly. For example, 
if a bank does not take advantage of the Sec. 229.13 exceptions, it 
may delete the material relating to those exceptions. The 
rearrangement of the model forms, clauses, or notices may not be so 
extensive, however, as to affect the substance, clarity, or 
meaningful sequence of the forms. Acceptable changes include, for 
example:
    a. Using ``customer'' and ``bank'' instead of pronouns.
    b. Not using bold type for headings.
    c. Incorporating certain state law ``plain English'' 
requirements.
    3. Shorter time periods for availability may always be 
substituted for time periods used in the model forms, clauses, or 
notices.
    4. Banks may also add information related to their availability 
policies. For example, a bank might indicate that although funds 
have been made available to a customer and the customer has 
withdrawn them, the customer is still responsible for problems with 
the deposit, such as checks that were deposited being returned 
unpaid. Or a bank could provide in its disclosure a telephone number 
to be used if a customer has an inquiry regarding a deposit.
    5. Banks are cautioned against using the forms, clauses, or 
notices without reviewing their own policies and practices, as well 
as state and federal laws regarding the time periods for 
availability of specific types of checks. A bank using a model form 
will be in compliance with the Act and the regulation only if its 
disclosures correspond to the bank's availability policy.

B. Models

    1. Models C-1 through C-5 generally.
    a. These forms are models for the specific availability policy 
disclosure described in Sec. 229.16 of the regulation. The forms 
accommodate a variety of availability policies, ranging from 
policies of next-day availability to holds on a blanket basis up to 
the maximum time allowed in the regulation. Model C-3 reflects the 
additional disclosures discussed in Secs. 229.16(b) and (c) for 
banks that have a policy of extending availability times on a case-
by-case basis.
    b. As already noted, there are several places in the forms where 
information must be inserted. This information includes the bank's 
name and cut-off times, limitations relating to next-day 
availability, and the first four digits of routing numbers for local 
banks. In disclosing when funds will be available for withdrawal, 
the bank must insert the original number (such as first, second, 
etc.) of the business day the funds will become available.
    c. Models C-1 through C-5 generally do not reflect any optional 
provisions of the regulation, or those that apply only to certain 
banks. Instead, disclosures for these provisions are included in the 
model clauses (Models C-6 through C-11). A bank using one of the 
model forms should also consider whether it must incorporate one or 
more of the model clauses.
    d. While Sec. 229.10(b) of the regulation requires next-day 
availability for electronic payments, Treasury regulations (31 CFR 
part 210) and ACH association rules require that preauthorized 
credits (direct deposits) be made available on the day the bank 
receives the funds. Model Forms C-l through C-5 reflect these rules. 
Wire transfers, however, are not governed by Treasury or ACH rules, 
but banks generally make funds from wire transfers available on the 
day received or on the business day following receipt. Banks should 
ensure that their disclosures reflect the availability given in most 
cases for wire transfers.
    e. Banks that have used earlier versions of the model forms, 
clauses, or notices (such as those forms that gave Social Security 
benefits and payroll payments as examples of preauthorized credits 
available the day after deposit) are protected from civil liability 
under Sec. 229.21(e). Banks are encouraged, however, to use current 
versions of the forms when reordering or reprinting supplies of 
forms.
    2. Model C-1. A bank may use this form when its policy is to 
make funds from all deposits available on the first business day 
after a deposit is made. This form may also be used by banks that 
provide immediate availability by substituting the word 
``immediately'' in place of ``on the first business day after the 
day we receive your deposit.''
    3. Model C-2. A bank may use this form when its policy is to 
make funds from all deposits available to its customers on the first 
business day after the deposit is made, and to reserve the right to 
invoke the new account and other exceptions in Sec. 229.13 of the 
regulation.
    4. Model C-3. A bank may use this form when its policy, in most 
cases, is to make funds from all types of deposits available the day 
after the deposit is made, but to delay availability on some 
deposits on a case-by-case basis up to the maximum time periods 
allowed under the regulation. A bank using this form also reserves 
the right to invoke the exceptions listed in Sec. 229.13 of the 
regulation. A bank reserving the right to impose the cash withdrawal 
limitation in Sec. 229.12(d) should disclose that funds may not be 
available until the sixth (rather than fifth) business day in the 
first paragraph under the heading ``Longer Delays May Apply.''
    5. Model C-4. A bank may use this form when its policy is the 
same as that outlined in Model C-5. The only difference between 
Model C-5 and Model C-4 is that in the latter a chart showing the 
bank's availability policy for local and nonlocal checks is 
substituted for the narrative description in the former.
    6. Model C-5. A bank may use this form when its policy is to 
impose delays to the full extent allowed by Sec. 229.12 and to 
reserve the right to invoke the Sec. 229.13 exceptions.
    7. Models C-6 through C-11 generally. These model clauses must 
be incorporated into a bank's specific availability policy 
disclosure under certain circumstances. The commentary to each 
clause indicates when the clause is required.
    8. Model C-6. This clause must be incorporated in the specific 
availability policy disclosure by banks that reserve the right to 
place a hold on funds already on deposit when they cash a check for 
the customer, as discussed under Sec. 229.19(e).
    9. Model C-7. This clause must be incorporated in the specific 
availability disclosure by banks that reserve the right to place a 
hold on funds in an account of the customer other than the account 
into which the deposit is made, as discussed in Sec. 229.19(e).
    10. Model C-8. This clause must be incorporated in the specific 
availability policy disclosure by banks in check processing regions 
where the availability schedules for certain nonlocal checks have 
been reduced, as described in Appendix B of the regulation. Banks 
using Model C-5 may insert this clause at the conclusion of the 
discussion titled ``Nonlocal checks.'' 

[[Page 51703]]

    11. Model C-9. This clause must be incorporated in the specific 
availability policy disclosure by banks that reserve the right to 
delay availability of deposits at nonproprietary ATMs until the 
fifth business day following the date of deposit, as permitted by 
section 229.12(f). A bank must choose among the alternative language 
based on how it chooses to differentiate between proprietary and 
nonproprietary ATMs, as required under Sec. 229.16(b)(5).
    12. Model C-10. This clause may be used to disclose cash 
withdrawal limitations under Sec. 229.12. Banks using Model C-5 to 
disclose availability may substitute this clause for the sections 
titled ``Local checks'' and ``Nonlocal checks.''
    13. Model C-11. This clause must be incorporated in the specific 
availability policy disclosure by credit unions seeking to satisfy 
the notice requirement of Sec. 229.14(b). This model clause is only 
an example of a hypothetical policy. Credit unions may follow any 
policy for accrual provided the method of accruing interest is the 
same for cash and check deposits.
    14. Models C-12 through C-21 generally. These forms are models 
for various notices required by the regulation.
    15. Model C-12. This form satisfies the written notice required 
under Sec. 229.13(g) when a bank places a hold based on a 
Sec. 229.13 exception. If a hold is being placed on more than one 
check in a deposit, each check need not be described, but if 
different reasons apply, each reason must be indicated. A bank may 
use the actual date when funds will be available for withdrawal 
rather than the number of the business day following the day of 
deposit. The bank must incorporate in the notice the material set 
out in brackets if it imposes overdraft fees after invoking a 
Sec. 229.13 exception.
    16. Model C-13. This form satisfies the same requirement as 
Model C-12, and the same instructions apply, except that Model C-13 
is for use by a bank that invokes the reasonable cause exception in 
Sec. 229.13. The form provides the bank with a list of specific 
reasons that may be given for invoking the exception. If a hold is 
being placed on more than one check in a deposit, each check must be 
described separately, and if different reasons apply, each reason 
must be indicated. Banks may disclose the reason for their doubting 
collectibility by checking the appropriate reason on the form. If 
the ``Other'' category is checked, the reason must be given.
    17. Model C-14. This form satisfies the notice requirements of 
Sec. 229.13(g)(2).
    18. Model C-15. This form satisfies the notice requirements of 
Sec. 229.13(g)(3).
    19. Model C-16. This form satisfies the notice required under 
Sec. 229.16(b)(2) when a bank with a case-by-case hold policy 
imposes a delay on a deposit. This notice does not require a 
statement of the specific reason for the hold, as is the case when a 
Sec. 229.13 exception hold is placed. A bank may specify the actual 
date when funds will be available for withdrawal rather than the 
number of the business day following the day of deposit when funds 
will be available. The bank must incorporate in the notice the 
material set out in brackets if it imposes overdraft fees after 
invoking a case-by-case hold.
    20. Model C-17 and C-18. Either of these forms satisfies the 
notice requirement of Sec. 229.18(b) (notice at locations where 
employees accept consumer deposits). Model C-17 is based on an 
availability policy that is the same as the schedule described in 
Sec. 229.12 of the regulation and the policy reflected in models C-4 
and C-5. Model C-18 may be used by a bank with a case-by-case 
availability policy.
    21. Model C-19. This form satisfies the ATM notice requirement 
of Sec. 229.18(c)(1).
    22. Model C-20. This form satisfies the ATM notice requirement 
of Sec. 229.18(c)(2) when receipt of deposits at off-premise ATMs is 
delayed under Sec. 229.19(a)(4). It is based on collection of 
deposits once a week. If collections occur more or less frequently, 
the description of when deposits are received must be adjusted 
accordingly.
    23. Model C-21. This form satisfies the notice requirements of 
Sec. 229.18(a) for deposit slips.

    15. In appendix F to part 229, the appendix heading is revised and 
the New Mexico heading and all text under the New Mexico heading are 
removed, to read as follows:

Appendix F to Part 229--Official Board Interpretations; Preemption 
Determinations

* * * * *
    By order of the Board of Governors of the Federal Reserve System, 
acting through the Secretary of the Board under delegated authority, 
September 20, 1995.
William W. Wiles,
Secretary of the Board.
[FR Doc. 95-23755 Filed 10-2-95; 8:45 am]
BILLING CODE 6210-01-P