[Federal Register Volume 61, Number 107 (Monday, June 3, 1996)]
[Proposed Rules]
[Pages 27802-27818]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13880]



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FEDERAL RESERVE SYSTEM

12 CFR Part 229
[Regulation CC; Docket No. R-0926]


Availability of Funds and Collection of Checks

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule.

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SUMMARY: The Board is proposing amendments to its Regulation CC 
relating to the availability of funds and collection of checks. The 
proposed amendments do not represent any major policy changes and are 
intended to clarify the regulation and, in some cases, reduce the 
compliance burden for depository institutions.

DATES: Comments must be submitted on or before August 2, 1996.

ADDRESSES: Comments, which should refer to Docket No. R-0926, may be 
mailed to Mr. William W. Wiles, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue NW., 
Washington, D.C. 20551. Comments addressed to Mr. Wiles also may be 
delivered to the Board's mail room between 8:45 a.m. and 5:15 p.m. and 
to the security control room outside of those hours. Both the mail room 
and the security control room are accessible from the courtyard 
entrance on 20th Street between Constitution Avenue and C Street NW. 
Comments may be inspected in Room MP-500 between 9:00 a.m. and 5:00 
p.m.

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), Heatherun 
Allison, Attorney (202/452-3565), 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 NW., 
Washington, D.C. 20551.

SUPPLEMENTARY INFORMATION: The Board is proposing amendments to its 
Regulation CC (12 CFR Part 229), Availability of Funds and Collection 
of Checks. The proposed amendments are clarifying and technical in 
nature and do not represent any major policy changes. The proposed 
amendments to subpart B of the regulation, governing availability 
schedules and disclosures, address a variety of issues, including the 
treatment of deposits received at ``contractual'' branches (such as 
affiliate banks). Many of the proposed amendments are designed to 
reduce the burden on depository institutions of complying with the 
regulation. For example, the proposed amendments would provide more 
flexibility for banks giving hold notices under emergency conditions, 
clarify the various media by which written notices may be given, and 
delete certain notice content requirements. The Board is also proposing 
to update the Model Forms in Appendix C.
    The proposed amendments to subpart C, governing collection of 
checks, would make various clarifications of the interaction between 
Regulation CC and the Uniform Commercial Code (U.C.C.), set forth rules 
for checks drawn on banks in Guam, American Samoa, and the Northern 
Mariana Islands, and address other check collection matters. The Board 
is specifically requesting comment on the time required for a bank to 
qualify a returned check for automated processing (Sec. 229.31(a)), the 
provisions regarding the extension of the midnight deadline 
(Sec. 229.30(c)), and the extent of a presenting bank's preferred claim 
against a closed paying bank (Sec. 229.39(d)).
    A red-lined version of the proposed amendments to the regulation, 
model forms, and Commentary is available from the Board's Freedom of 
Information Office or by calling 202-452-3684.

Section-by-Section Analysis

    Available for withdrawal (Sec. 229.2(d)). The regulation defines 
``available for withdrawal'' to mean available for all uses generally 
permitted to the customer for actually and finally collected funds 
under the bank's account agreement or policies. The Commentary to this 
definition clarifies that funds are considered available for withdrawal 
even if they are being held to satisfy, among other things, the 
customer's liability arising from the certification, guaranty, or 
acceptance of a check or the sale of a cashier's or teller's check. The 
Board has received several inquiries as to whether funds would be 
considered available for withdrawal if they are being held to satisfy a 
contingent obligation of the customer relating to the customer's 
account. For example, a depositary bank might receive a notification 
that the customer has authorized a debit to the account at a point-of-
sale terminal. Banks often ``memo-post'' these debits to the customer's 
account in advance of the settlement date. The Board proposes to revise 
the Commentary to clarify that funds held to meet contingent 
obligations of the customer related to the account are considered to be 
available for withdrawal.
    Definition of ``bank'' (Sec. 229.2(e)). The regulation states that, 
for purposes of subpart C, the term ``bank'' includes any person 
engaged in the business of banking, including a Federal Reserve Bank, a 
Federal Home Loan Bank, and a state or unit of general local government 
to the extent that the state or unit of general local government acts 
as a paying bank. The Board proposes to amend the regulation's 
definition of ``bank'' to clarify that the Federal Reserve Banks, the 
Federal Home Loan Banks, and state or units of general local government 
are not necessarily engaged in the business of banking, notwithstanding 
the fact that they are included in this definition.
    Definition of ``traveler's check'' (Sec. 229.2(hh)). The Commentary 
states that ``[t]raveler's checks that are not issued by banks may not 
have any words on them identifying a bank as drawee or paying agent * * 
*.'' Some commenters have interpreted this provision to mean that 
traveler's checks are prohibited from having words on them identifying 
a bank. The Board proposes to revise the Commentary to clarify that 
only a description of a possible situation, and not a prohibition, is 
intended.
    Notice requirement to state amount of deposit (Secs. 229.13(g) and 
229.16(c)). Regulation CC requires a notice of an exception hold 
(Sec. 229.13(g)(1)(i)(B)) or a case-by-case hold 
(Sec. 229.16(c)(2)(i)(B)) to include the amount of the deposit from 
which funds will be held. Some banks have noted that when they learn 
that a check is being returned by the paying

[[Page 27803]]

bank several days after the day of deposit, it is often difficult to 
trace the check back to a particular deposit, especially in cases where 
a corporate customer makes several multi-check deposits on a single 
day. The Act does not require the notice to contain the amount of the 
deposit. The Board is proposing to eliminate the ``amount of deposit'' 
requirement for both exception and case-by-case hold notices. The Board 
also requests comment on the burdens to depositary banks and the 
benefits to customers of the requirement for hold notices to include 
the date of deposit.
    Emergency exception notices (Secs. 229.13(g)). The regulation 
allows a depositary bank to place an exception hold on funds deposited 
by check in the case of an emergency, such as computer or 
communications interruptions, suspension of payments by another bank, 
or war. The regulation requires the depositary bank to provide a notice 
to the customer of the emergency hold in the same manner in which it 
provides notice under the other exception holds, except that no notice 
is necessary if the funds are made available before the notice must be 
sent. Some banks have argued that during a major disaster they would be 
unable to meet the timing deadline for emergency exception hold 
notices. (Under the current regulation, the bank would have to mail or 
deliver the notice to the customer no later than the first business day 
following the day the facts upon which a determination to invoke the 
hold become known to the depositary bank.) The current deadline may be 
impracticable due to the time required to move to a backup processing 
site and the need for the bank to focus on other customer service 
priorities in the event of major disasters.
    Section 604(f)(2)(C) of the Act requires depositary banks to send 
emergency exception hold notices ``in accordance with regulations of 
the Board.'' Therefore, the Board has the authority to adopt a more 
flexible provision regarding the timing of emergency hold notices. 
Because of the difficulty of determining an appropriate time deadline 
for notices in advance of any particular emergency, the Board is 
proposing to amend Regulation CC to require a depositary bank to give 
reasonable notice of emergency exception holds. Reasonable notice in 
some situations might consist of individual notices mailed to customers 
as soon as practicable or, in other situations, may consist of general 
notices, such as postings at branches or ATMs, or newspaper, 
television, or radio notices. The Board proposes to amend 
Sec. 229.13(g) and revise the accompanying Commentary to provide 
separate requirements for emergency condition exception notices.
    Written notices (Secs. 229.13(g) and 229.15(a)). Section 229.13(g) 
requires a depositary bank to provide written exception hold notices to 
customers. Section 229.15(a) requires banks to make availability policy 
disclosures in writing. Some banks have asked whether a notice sent 
through electronic mail would be permissible. The Board is proposing to 
revise the Commentary to both these sections to clarify that notices 
delivered via fax or electronic media that display text on a monitor or 
screen, such as electronic mail, screenphone, or interactive 
television, are considered written notices.
    Exception holds and the cash withdrawal rule (Sec. 229.13(h)). 
Section 229.12(d) permits a depositary bank to extend holds on deposits 
of local, nonlocal, and certain other checks by one business day for 
purposes of withdrawals by cash or similar means, with the exception of 
$400, which must be made available by 5:00 p.m. on the original 
availability day (the ``cash withdrawal rule''). The purpose of the 
cash withdrawal rule is to allow depositary banks an additional day to 
learn if a check is being returned before allowing irrevocable 
withdrawals from the customer's account. Some banks have asked how the 
cash withdrawal rule works in conjunction with the exception holds. For 
example, if a large deposit exception hold is placed on a $7,000 local 
check, $100 must be made available on the next business day, an 
additional $4,900 must be available by the second business day after 
deposit for check-writing purposes and by the third business day after 
deposit for withdrawal by cash or similar means. The banks asked 
whether the five-day exception hold on the $2,000 remainder is added to 
the second business day for all purposes, or whether the hold period 
may be added to the second day for check-writing withdrawals and to the 
third day for cash and similar withdrawals. The Board believes that it 
is not necessary to extend the exception hold period for cash 
withdrawal purposes, as in almost every case the depositary bank should 
learn of a returned local check by the seventh business day after 
deposit. Therefore, the Board is proposing to clarify that the 
exception hold periods may be applied to the availability schedules for 
local and nonlocal checks and checks deposited in a nonproprietary ATM, 
but may not be extended under the cash withdrawal rule.
    Disclosure of branch-specific policies (Sec. 229.16(a)). Section 
229.16 requires banks to furnish notices of their specific availability 
policies. Some banks have established different availability policies 
at different branches (or for deposits accepted on behalf of the bank 
by affiliates or ``contractual branches''). These banks have asked 
about the disclosure implications of different policies and whether 
such a bank must disclose to every customer what routing numbers are 
local to each location where deposits are accepted. The Board is 
proposing to revise the Commentary to Sec. 229.16(a) to clarify that a 
bank may provide customers with a branch-specific disclosure. The Board 
proposes that banks, when determining which disclosure to provide, be 
allowed to allocate customers between branches through good faith use 
of a reasonable method, such as where the customer opened the account. 
This proposal is consistent with the disclosure requirement in the 
Interagency Policy Statement on Branch Closings.1
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    \1\ 58 FR 49083, September 21, 1993.
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    Deposits at contractual branches (Secs. 229.2(s), 229.10(c), 
229.14(a), 229.19(a)). Due to easing of interstate branching 
restrictions, the practice of one bank accepting deposits on behalf of 
another bank (``contractual branching'') is growing more prevalent. The 
Board proposes to clarify the Commentary regarding treatment of 
deposits at contractual branches. The proposed revision to the 
Commentary to the definition of local paying bank (Sec. 229.2(s)) 
states that a branch of a bank that is acting as an agent of the 
depositary bank is considered a branch of the depositary bank. 
Therefore, a check would be deemed local or nonlocal based on the 
location of the contractual branch with respect to the location of the 
paying bank.
    The Board also proposes to revise the Commentary to Secs. 229.10(c) 
and 229.19(a) to clarify that deposits at contractual branches would be 
treated similarly to deposits at proprietary ATMs; that is, deposits at 
contractual branches would be considered deposited when the funds are 
received by the contractual branch teller. However, deposits at 
contractual branches would not be considered deposited at a teller 
station staffed by an employee of the depositary bank within the 
meaning of Sec. 229.10(c)(ii)-(v). The Board is also proposing to 
revise the Commentary to Sec. 229.19(a) to state that the depositary 
bank could set a noon cut-off hour for deposits at contractual 
branches, as these deposits are treated as received at ``off-premise'' 
facilities. Finally, the Board proposes to revise the Commentary to 
Sec. 229.14(a) to clarify

[[Page 27804]]

that, in the case of a deposit at a contractual branch, interest must 
accrue when the account-holding bank receives credit for the deposit, 
not when the contractual branch receives credit.
    Holds on other funds--notices (Sec. 229.19(e)). Section 229.19(e) 
provides that when a bank accepts a deposit to an account that is 
subject to the Regulation CC availability requirements, the bank may 
not place a hold on any other funds of the customer that exceeds those 
requirements. Similarly, if a customer cashes a check over the counter 
(other than an ``on-us'' check), Sec. 229.19(e) prohibits the bank from 
placing a hold on a transaction account of that customer that exceeds 
the Regulation CC schedules that would apply to that check. Section 
229.19(e) does not explicitly address whether the depositary bank must 
provide a hold notice (case-by-case or safeguard exception) in these 
cases. The Board is proposing to revise the Commentary to 229.19(e) to 
clarify that such a hold requires a notice if an exception or case-by-
case notice would have been required under 229.13 or 229.16 had the 
funds been deposited in an account or had the hold been placed on those 
funds.
    Midnight deadline extension (Sec. 229.30(c)). The regulation 
(Sec. 229.30(c)(1)) allows a bank to return a check after the midnight 
deadline, in order to expedite delivery, as long as it uses a means of 
delivery designed to get the returned check to the receiving bank by 
the end of that receiving bank's next banking day, or later if ``highly 
expeditious transportation'' is used. Section 229.30(c)(2) allows a 
paying bank to extend a Saturday midnight deadline if the checks get to 
a returning bank by the cut-off hour for the returning bank's next 
processing cycle or to a depositary bank by the end of the depositary 
bank's next banking day. The Board proposes to amend the regulation to 
clarify that Sec. 229.30(c)(1) pertains to all midnight deadlines other 
than Saturday midnight deadlines, and that Sec. 229.30(c)(2) pertains 
only to extension of a Saturday midnight deadline.
    The Board also requests comment on whether further modifications to 
the regulation would be desirable in light of problems posed by 
nonstandard banking days other than Saturdays, e.g., mid-week holidays. 
For example, should the Sec. 229.30(c)(2) midnight deadline extension 
apply in all instances when a bank is open on a non-business day, such 
as a mid-week holiday? Do nonstandard banking days cause other problems 
for banks in complying with the regulation?
    In addition, some banks have asked whether the regulation's 
conditions for extending a midnight deadline require a determination of 
motive or whether the regulation simply sets forth a ``time-of-
receipt'' test. Specifically, questions have arisen concerning whether 
Sec. 229.30(c) is available only ``in order to expedite delivery'' (and 
not, for example, to avoid a kite) or whether extension of the midnight 
deadline is permitted for any reason so long as the returned check is 
received by the receiving bank by the end of that bank's next banking 
day (or later if ``highly expeditious transportation'' is used). The 
Board requests comment on the circumstances under which banks make use 
of the extension of the midnight deadline and under which the extension 
should be available.
    Extra day to create qualified returned checks (Sec. 229.31(a)). 
Section 229.31(a) allows a returning bank to convert a returned check 
to a qualified returned check (i.e., to encode the returned check with 
the routing number of the depositary bank, the amount of the check, and 
a return identifier so that it can be handled in an automated manner). 
If the returning bank creates a qualified returned check, 
Sec. 229.31(a) provides a one-day extension in the returning bank's 
time frame for meeting the ``forward-collection'' expeditious return 
test in Sec. 229.31(a)(2) (but not the ``two-day/four-day'' test) and 
the deadlines for return under Regulation J and the U.C.C. This 
extension does not apply if the returning bank returns the check 
directly to the depositary bank, because in that case the preparation 
of the qualified returned check will not expedite handling by other 
banks. Given the improvements in the check return system since 
Regulation CC was first implemented, the Board believes that the one-
day extension is rarely used and is unnecessary. The Board proposes to 
eliminate the extension and to amend Sec. 229.31(a) of the regulation 
and revise the accompanying Commentary accordingly. The Board requests 
comment on whether this extension is still necessary and, if so, a 
description of the operational problems that elimination of the 
extension would cause.
    Midnight deadline warranty and U.C.C. defenses (Sec. 229.34(a)(1)). 
Section 229.34(a)(1) requires a paying or returning bank that returns a 
check to warrant that the return is within its deadlines under 
Regulation CC, Regulation J, and the U.C.C. The Commentary to 
Sec. 229.30(a) clarifies that a paying bank is not responsible for 
failure to make expeditious return under that section to a party that 
has breached a presentment warranty under U.C.C. 4-208. This Commentary 
is consistent with U.C.C. 4-302(b), which subjects the paying bank's 
liability for missing its midnight deadline to defenses based on a 
breach of a presentment warranty or fraud. The Board proposes to revise 
the Commentary to Sec. 229.34(a)(1) to clarify that a paying or 
returning bank's warranty of timely return within the U.C.C. deadline 
is subject to U.C.C. claims or defenses.
    Set-off rights (Sec. 229.34(c)(4)) and returning bank liability 
(Sec. 229.31(a)). Under Sec. 229.34(c)(4), if a paying bank overpays a 
presenting bank for checks presented, the paying bank may set off the 
excess amount paid against subsequent settlements for checks presented 
by that bank. The Board proposes to amend that section (and revise the 
accompanying Commentary) to give any bank in the collection or return 
chain the right to offset excess settlement made to a particular bank 
against settlement for subsequent checks or returned checks transferred 
by that bank.
    The Board also proposes to revise the Commentary to Sec. 229.31(a), 
which discusses the returning bank's liability if it makes an encoding 
error when creating a qualified returned check. The Commentary 
currently points out that the returning bank could be liable under 
Sec. 229.38 for losses caused by negligence. The Board proposes to add 
that the returning bank could also be liable for a breach of its 
encoding warranty under Sec. 229.34(c)(3).
    Time limit for notice of warranty breach (Sec. 229.34(f)). Sections 
4-207(d) and 4-208(e) of the U.C.C. provide that a claimant on a breach 
of warranty must give notice to the warrantor within 30 days after the 
claimant has reason to know of the breach and the identity of the 
warrantor, or else the warrantor is discharged to the extent of any 
loss caused by the delay in notice. The Board proposes to add this time 
limitation for notices of warranty claims to Regulation CC. The Board's 
proposal would ensure that the same time limitations apply for check-
related warranty claims, regardless of whether the claim is under state 
or federal law.
    Electronic presentment (Sec. 229.36(c)). Section 229.36(c) allows a 
bank to present a check electronically under an agreement with the 
paying bank. That section and the accompanying Commentary contain 
references to check ``truncation'' (generally a term used to describe a 
system in which the physical check is held at some point in the check 
collection process). An electronic presentment arrangement may, but 
does not necessarily, include truncation of

[[Page 27805]]

the physical check. Therefore, the Board proposes to amend 
Sec. 229.36(c) and revise the accompanying Commentary to apply it to 
``electronic presentment'' arrangements, not merely ``truncation'' 
arrangements. The Board also proposes to revise the Commentary by 
adding an example of an electronic presentment arrangement.
    Labelling requirements for payable-through checks (Sec. 229.36(e)). 
A bank that arranges for a check drawn on it to be payable through 
another bank must ensure that certain information is printed on the 
face of the check. Specifically, Sec. 229.36(e) requires that these 
checks show (1) the name, location, and first four digits of the 
routing number of the bank by which the check is payable, and (2) the 
words ``payable through'' followed by the name and location of the 
payable-through bank. The Board adopted these labelling requirements to 
enable banks and their customers to identify payable-through checks and 
to determine whether they are local or nonlocal. The provisions 
regarding the ``payable through'' designation and the name and location 
of the payable-through bank are similar to provisions in U.C.C. 4-106. 
As these particular labelling requirements are covered by state law, 
the federal regulatory provision appears to be unnecessary, and the 
Board is proposing to eliminate it from Regulation CC. The Board would 
retain the labelling requirements regarding the name, location, and 
first four digits of the routing number of the bank by which the check 
is payable.
    Measure of damages (Sec. 229.38(a)). The Commentary states that the 
measure of damages provided in Sec. 229.38(a) ``derives from U.C.C. 4-
103(e) and 4-202(c).'' The Board proposes to revise the Commentary to 
clarify the effect of U.C.C. 4-202(c) upon the measure of damages, as 
U.C.C. 4-202(c) does not state a measure of damages but rather limits 
liability by providing that a bank that has exercised ordinary care is 
not liable for the insolvency, neglect, misconduct, mistake, or default 
of others, or for the loss or destruction of an item by others.
    Correction to Commentary (Sec. 229.38(d)). In the 1995 technical 
amendments to Regulation CC (60 FR 51669, October 3, 1995), some words 
were inadvertently dropped from the Commentary to Sec. 229.38(d). The 
Board is proposing to correct the Commentary.
    Preferred claim against depositary bank (Sec. 229.39(b)). Section 
229.39(b) gives a bank a preferred claim against a closed paying or 
depositary bank that ``finally pays'' a check or returned check without 
settling for it. A paying bank ``finally pays'' (becomes accountable 
for) a check if it doesn't settle for or return the check by the 
applicable deadline. A depositary bank is obligated to ``pay'' for a 
returned check under Sec. 229.32(b) but may not return the returned 
check. The depositary bank can meet its obligations under 
Sec. 229.32(b) only by settling for the returned check. Therefore, the 
depositary bank cannot ``finally pay'' for a returned check without 
settling for it. The Board proposes to amend Sec. 229.39(b) and revise 
the accompanying Commentary to clarify this distinction. The substance 
of Sec. 229.39(b) would not change.
    Preference against presenting bank (Sec. 229.39(d)). Section 
229.39(d) 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.
    The Board added Sec. 229.39(d) in 1992, as part of the ``same-day 
settlement'' amendments to Regulation CC (57 FR 46956, October 14, 
1992). At that time, some cementers suggested that the preferred claim 
should extend to claims other than adjustments, such as breach of a 
U.C.C. presentment warranty (e.g., warranties against forged or missing 
indorsements and alterations). At that time, the Board noted that a 
preferred claim against a failed presenting bank for forgeries, missing 
indorsements, and alterations may reduce risk to the paying bank. That 
risk, however, was not directly related to the obligation to make same-
day settlement and was not addressed in the original proposal, 
therefore the Board did not adopt the cementers' suggestion. The Board 
is now requesting comment on whether Sec. 229.39(d) should be expanded 
to cover the U.C.C. presentment warranties.
    Exclusions (Sec. 229.42). The regulation exempts certain checks 
from the expeditious return and notice of nonpayment requirements 
(e.g., a check drawn upon the United States Treasury, a U.S. Postal 
Service money order, or a check drawn on a state or a unit of general 
local government that is not payable through or at a bank). The Board 
proposes to amend the regulation to reflect that such checks are also 
exempt from the same-day settlement requirements of Sec. 229.36(f).
    Checks payable in Guam, American Samoa, and the Northern Mariana 
Islands (Sec. 229.43). The Board has received inquiries as to the 
applicability of Regulation CC to checks drawn on depository 
institutions located in Guam, American Samoa, and the Northern Mariana 
Islands (``Pacific island banks''). For purposes of the Board's 
Regulation J, which governs collection of checks through Federal 
Reserve Banks, Pacific island banks are deemed to be in the Twelfth 
Federal Reserve District. Some checks drawn on these institutions 
(``Pacific island checks'') bear U.S. routing numbers and are generally 
handled by banks in the U.S. in the same manner as other checks.
    Because the Act does not include Guam, American Samoa, or the 
Northern Mariana Islands in the definition of ``United States,'' 
Pacific island banks are not ``banks'' and Pacific island checks are 
not ``checks'' as defined in Regulation CC. Banks often handle Pacific 
island checks in the same manner as other checks, however. The Board 
believes that applying some of the provisions of subpart C to Pacific 
island checks would provide an appropriate legal framework for the 
handling of these checks. The Board proposes to add a new Sec. 229.43 
to the regulation and accompanying Commentary to set forth the 
provisions of subpart C that apply to checks drawn on Pacific island 
banks.
    The Board is proposing that the regulation specifically allow banks 
to handle Pacific island checks for direct return and to convert them 
to qualified returned checks. Because the subpart B availability 
schedules do not apply to Pacific island checks, the Board is not 
proposing to subject returning banks to the expeditious return 
requirements of Sec. 229.31, even though, as a practical matter, the 
Board believes that in most cases, banks will handle returned Pacific 
island checks expeditiously. The Board requests comment on whether the 
liability for failure to comply with expeditious return rules should 
apply for Pacific island checks. In addition, the Board is proposing 
that depositary banks that receive notice of nonpayment on Pacific 
island checks are not subject to the provisions of Sec. 229.33(d) 
requiring timely notice to the depositary bank's customer. Again, the 
Board believes that in practice, most depositary banks would give 
notice to their customer within the time frame required by 
Sec. 229.33(d) and requests comment on whether that section should 
apply to depositary banks with regard to Pacific island checks.

[[Page 27806]]

    The only Regulation CC warranties that would apply to banks 
handling Pacific island checks for forward collection or return are the 
cash letter total and encoding warranties in Sec. 229.34(c)(2) and (3). 
In addition, the Board would apply relevant provisions of Secs. 229.35-
229.42 to banks that handle Pacific island checks.
    Model Forms (Appendix C). The Board proposes to make technical and 
stylistic changes to facilitate use of the model forms. For example, 
the Board would revise the typefaces. Information that a bank must 
insert, such as the bank's cut-off hour, would be italicized in 
parentheses. Where a provision is required only if a bank has elected 
to take advantage of a particular section of the regulation (requiring 
the use of a special deposit slip to receive next-day availability for 
a teller's check, for example) the provision would be enclosed in 
brackets and the additional disclosure requirements (how to obtain a 
special deposit slip, for example) would be italicized within 
parentheses in the brackets. Banks that use earlier versions of the 
model forms would be protected from civil liability under 
Sec. 229.21(e), but would be encouraged to use new versions when 
reordering or reprinting supplies. The Board requests comment on 
whether any models in addition to those currently in Appendix C would 
be helpful to banks.
    The Board proposes the following additional changes to the models:
    Model C-3  Next-day availability, case-by-case holds to statutory 
limits, and Sec. 229.13 exceptions. The Board proposes to revise Model 
C-3, to clarify the availability of funds subject to a hold. Generally, 
the first $100 is available on the first business day after deposit. 
The first $100 may not be available, however, if the funds are subject 
to an exception hold under Sec. 229.13.
    Model C-5  Holds to statutory limits on all deposits. The Board 
proposes to revise Model C-5 to facilitate use of the form by banks 
that elect to impose the limitation on withdrawals by cash under 
Sec. 229.12(d).
    Model C-10  Cash withdrawal limitation. The Board proposes to 
revise Model C-10 to facilitate the incorporation of the clause into 
the various model availability policy disclosures.
    Model C-12  Exception hold notice. The Board proposes to revise 
Model C-12 to clarify that the optional provision concerning overdraft 
or returned check fees applies only to the last category of reasons, 
reasonable cause to doubt collectibility. In addition, to reflect the 
proposed change to Sec. 229.13(g)(1)(i)(B), the Board would delete the 
reference to the amount of the deposit.
    Model C-13  Reasonable cause hold notice. To reflect the proposed 
change to Sec. 229.13(g)(1)(i)(B), the Board proposes to delete the 
reference to the amount of the deposit.
    Model C-16  Case-by-case hold notice. The Board proposes to revise 
the model notice to incorporate optional language for banks that elect 
to impose the cash withdrawal limitation. In addition, to reflect the 
proposed change to Sec. 229.16(c)(2)(i)(B), the Board would delete the 
reference to the amount of the deposit.
    Commentary to model forms. The Board proposes to make a number of 
technical and stylistic changes to the Commentary to the model 
disclosures, clauses, and notices. For example, the proposed Commentary 
clarifies that the Act's protection from liability for banks that use 
the models properly applies to the model clauses and notices as well as 
to the model disclosures. In addition, the proposed Commentary to 
Models C-2 through C-5 clarifies that in disclosing that a longer delay 
may apply, a bank may disclose when funds will be generally available 
based on when the funds would be available if the deposit were of a 
nonlocal check. The proposed Commentary to model notices C-12 through 
C-16 clarifies that a bank should modify the notices if it places a 
hold on other funds.

Initial Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (5 U.S.C. 601-612) requires an 
agency to publish an initial regulatory flexibility analysis with any 
notice of proposed rulemaking. Two of the requirements of an initial 
regulatory flexibility analysis (5 U.S.C. 603(b)), a description of the 
reasons why action by the agency is being considered and a statement of 
the objectives of, and legal basis for, the proposed rule, are 
contained in the supplementary material above. The proposed rules 
require no additional reporting or recordkeeping requirements and do 
not overlap with other federal rules.
    Another requirement for the initial regulatory flexibility analysis 
is a description of and, where feasible, an estimate of the number of 
small entities to which the proposed rule will apply. The proposal will 
apply to all depository institutions regardless of size. The proposed 
amendments generally clarify rights and duties of depository 
institutions and do not impose any substantial economic burden on small 
entities.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
Ch. 3506; 5 CFR 1320 Appendix A.1), the Board reviewed the proposed 
rulemaking under the authority delegated to the Board by the Office of 
Management and Budget. Comments on the collections of information 
should be sent to the Office of Management and Budget, Paperwork 
Reduction Project (7100-0235), Washington, DC 20503, with copies of 
such comments to be sent to Mary M. McLaughlin, Federal Reserve Board 
Clearance Officer, Division of Research and Statistics, Mail Stop 97, 
Board of Governors of the Federal Reserve System, Washington, DC 20551.
    The collection of information requirements in this proposed 
rulemaking are found in 12 CFR 229.13, 229.15(a), 229.16(a), 229.16(c), 
229.19(e), 229.34(f), former 229.36(e), and Appendix C. This 
information is intended to alert consumers about their financial 
institutions' check-hold policies and to help prevent unintentional 
(and costly) overdrafts. The respondents are for-profit financial 
institutions, including small businesses. The Board's Regulation CC 
applies to all types of depository institutions, not just state member 
banks. However, under Paperwork Reduction Act regulations, the Federal 
Reserve accounts for the burden of the paperwork associated with the 
regulation only for state member banks. Any estimates of paperwork 
burden for institutions other than state member banks that would be 
affected by the proposed amendments would be provided by the federal 
agency or agencies that supervise those lenders.
    The Federal Reserve may not conduct or sponsor, and an organization 
is not required to respond to, this information collection unless it 
displays a currently valid OMB control number. The OMB control number 
is 7100-0235.
    The proposed amendments are not expected to change the ongoing 
annual burden. The estimated burden per response ranges from 3 minutes 
(for a notice of exception, a case-by-case hold notice, or a notice to 
a potential new customer or to any person upon request) to 20 hours for 
notices of changes in policy. There are 1,042 state member banks and an 
average frequency of 3,314 responses per respondent each year. The 
total amount of annual burden is estimated to be 183,711 hours. Based 
on an hourly cost of $20, the annual cost to the public is estimated to 
be $3,674,220. There is not estimated to be any annual cost burden over 
the annual

[[Page 27807]]

hour burden. Additionally, the Federal Reserve estimates that there is 
associated capital or start up cost in the amount of $80 per bank for 
revising the notices to conform with the new model availability policy 
disclosures, clauses, and notices when a bank exhausts its current 
supply.
    Because the notices are not provided to the Federal Reserve, no 
issue of confidentiality under the Freedom of Information Act arises. 
The disclosure of information to consumers with regard to the 
availability of funds is available to the public. The account 
information regarding the availability of funds in an individual's 
account is confidential between the institution and the consumer.
    Comments are invited on: (a) whether the proposed revised 
collection of information is necessary for the proper performance of 
the Federal Reserve's functions; including whether the information has 
practical utility; (b) the accuracy of the Federal Reserve's estimate 
of the burden of the proposed revised information collection, including 
the cost of compliance; (c) ways to enhance the quality, utility, and 
clarity of the information to be collected; and (d) ways to minimize 
the burden of information collection on respondents, including through 
the use of automated collection techniques or other forms of 
information technology.

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 
proposed to be 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. 229.2, the first sentence in paragraph (e) concluding 
text is revised to read as follows:


Sec. 229.2  Definitions.

* * * * *
    (e) * * *

For purposes of subpart C of this part and, in connection therewith, 
this subpart A, the term bank also includes any person engaged in the 
business of banking, as well as a Federal Reserve Bank, a Federal Home 
Loan Bank, and a state or unit of general local government to the 
extent that the state or unit of general local government acts as a 
paying bank. * * *
* * * * *
    3. Section 229.13 is amended as follows:
    a. In paragraphs (g)(1) introductory text and (g)(1)(ii)(A), the 
phrase ``paragraphs (b) through (f)'' is revised to read ``paragraphs 
(b) through (e)'';
    b. Paragraphs (g)(1)(i)(B) and (g)(1)(i)(E) are revised;
    c. Paragraph (g)(1)(ii)(B) is removed and the paragraph designation 
(g)(1)(ii)(A) is removed;
    d. Paragraph (g)(4) is redesignated as paragraph (g)(5) and new 
paragraph (g)(4) is added; and
    e. Paragraph (h) is revised.
    The addition and revisions read as follows:


Sec. 229.13  Exceptions.

* * * * *
    (g) Notice of exception--(1) * * *
    (i) * * *
    (B) The date of the deposit;
* * * * *
    (E) The time period within which the funds will be available for 
withdrawal.
* * * * *
    (4) Emergency conditions exception notice. When a depositary bank 
extends the time when funds will be available for withdrawal based on 
the application of the emergency conditions exception contained in 
paragraph (f) of this section, it must provide the depositor with 
notice in a reasonable form and within a reasonable time given the 
circumstances. The notice shall include the reason the exception was 
invoked and the time period within which funds shall be made available 
for withdrawal, unless the depositary bank, in good faith, does not 
know at the time the notice is given the duration of the emergency and, 
consequently, when the funds must be made available. The depositary 
bank is not required to provide a notice if the funds subject to the 
exception become available before the notice must be sent.
* * * * *
    (h) Availability of deposits subject to exceptions. (1) If an 
exception contained in paragraphs (b) through (f) of this section 
applies, the depositary bank may extend the time periods established 
under Secs. 229.10(c) and 229.12 (b), (c), (e), and (f) by a reasonable 
period of time.
    (2) If a depositary bank invokes an exception contained in 
paragraphs (b) through (e) of this section with respect to a check 
described in Sec. 229.10(c)(1) (i) through (v) or Sec. 229.10(c)(2), it 
shall make the funds available for withdrawal not later than a 
reasonable period after the day the funds would have been required to 
be made available had the check been subject to Sec. 229.12 (b), (c), 
(e), or (f).
    (3) If a depositary bank invokes an exception under paragraph (f) 
of this section based on an emergency condition, the depositary bank 
shall make the funds available for withdrawal not later than a 
reasonable period after the emergency has ceased or the period 
established in Secs. 229.10(c) and 229.12 (b), (c), (e), or (f), 
whichever is later.
    (4) For the purposes of this section, a ``reasonable period'' is an 
extension of up to one business day for checks described in 
Sec. 229.10(c)(1)(vi), five business days for checks described in 
Sec. 229.12(b)(1) through (4), and six business days for checks 
described in Sec. 229.12(c)(1) and (2) or for checks deposited in a 
nonproprietary ATM. A longer extension may be reasonable, but the bank 
has the burden of so establishing.
    4. Section Sec. 229.16(c)(2)(i)(B) is revised to read as follows:


Sec. 229.16  Specific availability policy disclosure.

* * * * *
    (c) Longer delays on a case-by-case basis. * * *
    (2) * * * (i) * * *
    (B) The date of the deposit;
* * * * *
    5. In Sec. 229.30, paragraph (c) is revised to read as follows:


Sec. 229.30  Paying bank's responsibility for return of checks.

* * * * *
    (c) Extension of deadline. The deadline for return or notice of 
nonpayment under the U.C.C. or Regulation J (12 CFR part 210), or 
section 229.36(f)(2) is extended to the time of dispatch of such return 
or notice of nonpayment where a paying bank, in an effort to expedite 
delivery of a returned check to a bank, uses a means of delivery that 
would ordinarily result in receipt by the bank to which it is sent--
    (1) On or before the receiving bank's next banking day following 
the otherwise applicable deadline, for all deadlines other than those 
described in paragraph (c)(2) of this section; this deadline is 
extended further if a paying bank uses a highly expeditious means of 
transportation, even if this means of transportation would ordinarily 
result in delivery after the receiving bank's next banking day; or
    (2) Prior to the cut-off hour for the next processing cycle (if 
sent to a returning bank), or on the next banking day (if sent to the 
depositary bank), for

[[Page 27808]]

a deadline falling on a Saturday that is a banking day (as defined in 
the applicable U.C.C.) for the paying bank.
* * * * *
    6. In Sec. 229.31, the last two sentences of paragraph (a) 
concluding text are removed.
    7. In Sec. 229.34, the section heading and paragraph (c)(4) are 
revised and a new paragraph (f) is added to read as follows:


Sec. 229.34   Warranties.

* * * * *
    (c) Warranty of settlement amount, encoding, and offset. * * *
* * * * *
    (4) If a bank settles with another bank in amount exceeding the 
total amount of the checks or returned checks received, the bank may 
set off the excess settlement amount against subsequent settlements for 
checks or returned checks it receives from the other bank.
* * * * *
    (f) Notice of claim. Unless a claimant gives notice of a claim for 
breach of warranty under this section to the bank that made the 
warranty within 30 days after the claimant has reason to know of the 
breach and the identity of the warranting bank, the warranting bank is 
discharged to the extent of any loss caused by the delay in giving 
notice of the claim.
    8. In Sec. 229.36, the heading and the last sentence of paragraph 
(c) and paragraph (e)(1) are revised to read as follows:


Sec. 229.36  Presentment and issuance of checks.

* * * * *
    (c) Electronic presentment. * * * An electronic presentment 
agreement may not extend return times or otherwise vary the 
requirements of this part with respect to parties interested in the 
check that are not party to the agreement.
* * * * *
    (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 name, location, and first four digits of the nine-
digit routing number of the bank by which the check is payable be 
printed conspicuously on the face of each check.
* * * * *
    9. In Sec. 229.39, paragraphs (b) and (d) are revised to read as 
follows:


Sec. 229.39  Insolvency of bank.

* * * * *
    (b) Preference against paying or depositary bank. If a paying bank 
finally pays a check, or if a depositary bank becomes obligated to pay 
a returned check, and suspends payment without making a settlement for 
the check or returned check with the prior bank that is or becomes 
final, the prior bank has a preferred claim against the paying bank or 
the depositary bank.
* * * * *
    (d) Preference against presenting bank. If a paying bank settles 
with a presenting bank for one or more checks, and if the presenting 
bank breaches a warranty specified in Sec. 229.34(c)(1) or (3) or in 
the U.C.C. with respect to those checks and suspends payments before 
satisfying the paying bank's warranty claim, the paying bank has a 
preferred claim against the presenting bank for the amount of the 
warranty claim.
* * * * *
    10. Section 229.42 is revised to read as follows:


Sec. 229.42  Exclusions.

    The expeditious return (Secs. 229.30(a) and 229.31(a)), notice of 
nonpayment (Sec. 229.33) and same-day settlement (Sec. 229.36(f)) 
requirements of this subpart do not apply to a check drawn upon the 
United States Treasury, to a U.S. Postal Service money order, or to a 
check drawn on a state or a unit of general local government that is 
not payable through or at a bank.
    11. A new Sec. 229.43 is added to read as follows:


Sec. 229.43  Checks payable in Guam, American Samoa, and the Northern 
Mariana Islands.

    (a) Definitions. For the purposes of this section--
    (1) Pacific island bank means an office of an institution that 
would be a bank as defined in Sec. 229.2(e) but for the fact that the 
office is located in Guam, American Samoa, or the Northern Mariana 
Islands;
    (2) Pacific island check means a negotiable demand draft drawn on 
or payable through or at a Pacific island bank, which is not a check as 
defined in Sec. 229.2(k).
    (3) The definitions in Sec. 229.2 apply to this section, unless 
otherwise noted.
    (b) Rules applicable to Pacific island checks. To the extent a bank 
handles a Pacific island check as if it were a check defined in 
Sec. 229.2(k), the bank is subject to the following sections of this 
part as if the Pacific island check were a check defined in 
Sec. 229.2(k):
    (1) Sec. 229.31, except that the returning bank is not subject to 
the requirement to return a Pacific island check in an expeditious 
manner;
    (2) Sec. 229.32;
    (3) Sec. 229.34(c)(2), (c)(3), (d), and (e);
    (4) Sec. 229.35; for purposes of Sec. 229.35(c), the Pacific island 
bank is deemed to be a bank;
    (5) Sec. 229.36(d);
    (6) Sec. 229.37;
    (7) Sec. 229.38(a) and (c) through (h);
    (8) Sec. 229.39(a), (b), (c) and (e); and
    (9) Secs. 229.40 through 229.42.
    12. Appendix C to Part 229 is amended as follows:
    a. The appendix heading is revised;
    b. The introductory text is revised;
    c. The heading above the contents listing for models C-1 through C-
5 is revised;
    d. The heading immediately above model policy disclosure ``C-1--
Next-day availability'' is revised; and
    d. Model Availability Policy Disclosures C-1 through C-5, Model 
Clauses C-9 and C-10, and Model Notices C-12 through C-16 are revised.
    The revisions read as follows:

Appendix C to Part 229--Model Availability Policy Disclosures, Clauses, 
and Notices

    This appendix contains model availability policy disclosures, 
clauses, and notices to facilitate compliance with the disclosure 
requirements of Regulation CC (12 CFR part 229). Although use of 
these models is not required, banks using them properly to make 
disclosures required by the Regulation CC are deemed to be in 
compliance.

Model Availability Policy Disclosures

* * * * *

Model Availability Policy Disclosures

C-1--Next-day availability

YOUR ABILITY TO WITHDRAW FUNDS

    Our policy is to make funds from your deposits available to you 
on the first business day after the day we receive your deposit. 
Electronic direct deposits will be available on the day we receive 
the deposit. Once they are available, you can withdraw the funds in 
cash and we will use the funds to pay checks that you have written.
    For determining the availability of your deposits, every day is 
a business day, except Saturdays, Sundays, and federal holidays. If 
you make a deposit before (time of day) on a business day that we 
are open, we will consider that day to be the day of your deposit. 
However, if you make a deposit after (time of day) or on a day we 
are not open, we will consider that the deposit was made on the next 
business day we are open.

C-2--Next-day availability and Sec. 229.13 exceptions

YOUR ABILITY TO WITHDRAW FUNDS

    Our policy is to make funds from your deposits available to you 
on the first business day after the day we receive your deposit. 
Electronic direct deposits will be available on the day we receive 
the deposit. Once they are available, you can withdraw the funds in 
cash and we will use the funds to pay checks that you have written.
    For determining the availability of your deposits, every day is 
a business day, except Saturdays, Sundays, and federal holidays. If 
you make a deposit before (time of day) on a business day that we 
are open, we will

[[Page 27809]]

consider that day to be the day of your deposit. However, if you 
make a deposit after (time of day) or on a day we are not open, we 
will consider that the deposit was made on the next business day we 
are open.

LONGER DELAYS MAY APPLY

    Funds you deposit by check may be delayed for a longer period 
under the following circumstances:
     We believe a check you deposit will not be paid.
     You deposit checks totaling more than $5,000 on any one 
day.
     You redeposit a check that has been returned unpaid.
     You have overdrawn your account repeatedly in the last 
six months.
     There is an emergency, such as failure of computer or 
communications equipment.
    We will notify you if we delay your ability to withdraw funds 
for any of these reasons, and we will tell you when the funds will 
be available. They will generally be available no later than the 
(number) business day after the day of your deposit.

SPECIAL RULES FOR NEW ACCOUNTS

    If you are a new customer, the following special rules will 
apply during the first 30 days your account is open.
    Funds from electronic direct deposits to your account will be 
available on the day we receive the deposit. Funds from deposits of 
cash, wire transfers, and the first $5,000 of a day's total deposits 
of cashier's, certified, teller's, traveler's, and federal, state 
and local government checks will be available on the first business 
day after the day of your deposit if the deposit meets certain 
conditions. For example, the checks must be payable to you (and you 
may have to use a special deposit slip). The excess over $5,000 will 
be available on the ninth business day after the day of your 
deposit. If your deposit of these checks (other than a U.S. Treasury 
check) is not made in person to one of our employees, the first 
$5,000 will not be available until the second business day after the 
day of your deposit.
    Funds from all other check deposits will be available on the 
(number) business day after the day of your deposit.

C-3--Next-day availability, case-by-case holds to statutory limits, and 
Sec. 229.13 exceptions

YOUR ABILITY TO WITHDRAW FUNDS

    Our policy is to make funds from your deposits available to you 
on the first business day after the day we receive your deposit. 
Electronic direct deposits will be available on the day we receive 
the deposit. Once they are available, you can withdraw the funds in 
cash and we will use the funds to pay checks that you have written.
    For determining the availability of your deposits, every day is 
a business day, except Saturdays, Sundays, and federal holidays. If 
you make a deposit before (time of day) on a business day that we 
are open, we will consider that day to be the day of your deposit. 
However, if you make a deposit after (time of day) or on a day we 
are not open, we will consider that the deposit was made on the next 
business day we are open.

LONGER DELAYS MAY APPLY

    In some cases, we will not make all of the funds that you 
deposit by check available to you on the first business day after 
the day of your deposit. Depending on the type of check that you 
deposit, funds may not be available until the fifth business day 
after the day of your deposit. The first $100 of your deposits, 
however, may be available on the first business day.
    If we are not going to make all of the funds from your deposit 
available on the first business day, we will notify you at the time 
you make your deposit. We will also tell you when the funds will be 
available. If your deposit is not made directly to one of our 
employees, or if we decide to take this action after you have left 
the premises, we will mail you the notice by the day after we 
receive your deposit.
    If you will need the funds from a deposit right away, you should 
ask us when the funds will be available.
    In addition, funds you deposit by check may be delayed for a 
longer period under the following circumstances:
     We believe a check you deposit will not be paid.
     You deposit checks totaling more than $5,000 on any one 
day.
     You redeposit a check that has been returned unpaid.
     You have overdrawn your account repeatedly in the last 
six months.
     There is an emergency, such as failure of computer or 
communications equipment.
    We will notify you if we delay your ability to withdraw funds 
for any of these reasons, and we will tell you when the funds will 
be available. They will generally be available no later than the 
(number) business day after the day of your deposit.

SPECIAL RULES FOR NEW ACCOUNTS

    If you are a new customer, the following special rules will 
apply during the first 30 days your account is open.
    Funds from electronic direct deposits to your account will be 
available on the day we receive the deposit. Funds from deposits of 
cash, wire transfers, and the first $5,000 of a day's total deposits 
of cashier's, certified, teller's, traveler's, and federal, state 
and local government checks will be available on the first business 
day after the day of your deposit if the deposit meets certain 
conditions. For example, the checks must be payable to you (and you 
may have to use a special deposit slip). The excess over $5,000 will 
be available on the ninth business day after the day of your 
deposit. If your deposit of these checks (other than a U.S. Treasury 
check) is not made in person to one of our employees, the first 
$5,000 will not be available until the second business day after the 
day of your deposit.
    Funds from all other check deposits will be available on the 
(number) business day after the day of your deposit.

C-4--Holds to statutory limits on all deposits (includes chart)

YOUR ABILITY TO WITHDRAW FUNDS

    Our policy is to delay the availability of funds that you 
deposit in your account. During the delay, you may not withdraw the 
funds in cash and we will not use the funds to pay checks that you 
have written.

DETERMINING THE AVAILABILITY OF A DEPOSIT

    The length of the delay is counted in business days from the day 
of your deposit. Every day is a business day except Saturdays, 
Sundays, and federal holidays. If you make a deposit before (time of 
day) on a business day that we are open, we will consider that day 
to be the day of your deposit. However, if you make a deposit after 
(time of day) or on a day we are not open, we will consider that the 
deposit was made on the next business day we are open.
    The length of the delay varies depending on the type of deposit 
and is explained below.

Same-Day Availability

    Funds from electronic direct deposits to your account will be 
available on the day we receive the deposit.

Next-Day Availability

    Funds from the following deposits are available on the first 
business day after the day of your deposit:
     U.S. Treasury checks that are payable to you.
     Wire transfers.
     Checks drawn on (bank name) [unless (any limitations 
related to branches in different states or check processing 
regions)].
    If you make the deposit in person to one of our employees, funds 
from the following deposits are also available on the first business 
day after the day of your deposit:
     Cash.
     State and local government checks that are payable to 
you [if you use a special deposit slip available from (where deposit 
slip may be obtained)].
     Cashier's, certified, and teller's checks that are 
payable to you [if you use a special deposit slip available from 
(where deposit slip may be obtained)].
     Federal Reserve Bank checks, Federal Home Loan Bank 
checks, and postal money orders, if these items are payable to you.
    If you do not make your deposit in person to one of our 
employees (for example, if you mail the deposit), funds from these 
deposits will be available on the second business day after the day 
of your deposit.

Other Check Deposits

    To find out when funds from other check deposits will be 
available, look at the first four digits of the routing number on 
the check:

BILLING CODE 6210-01-P

[[Page 27810]]

[GRAPHIC] [TIFF OMITTED] TP03JN96.000



BILLING CODE 6210-01-C

[[Page 27811]]

    Some checks are marked ``payable through'' and have a four- or 
nine-digit number nearby. For these checks, use this four-digit 
number (or the first four digits of the nine-digit number), not the 
routing number on the bottom of the check, to determine if these 
checks are local or nonlocal. Once you have determined the first 
four digits of the routing number (1234 in the examples above), the 
following chart will show you when funds from the check will be 
available:

----------------------------------------------------------------------------------------------------------------
                                                                          When funds are available if a deposit 
  First four digits from routing number      When funds are available              is made on a Monday          
----------------------------------------------------------------------------------------------------------------
[Local numbers].........................  $100 on the first business     Tuesday.                               
                                           day after the day of your                                            
                                           deposit.                                                             
                                          Remaining funds on the second  Wednesday.                             
                                           business day after the day                                           
                                           of your deposit.                                                     
 All other numbers......................  $100 on the first business     Tuesday.                               
                                           day after the day of your                                            
                                           deposit.                                                             
                                          Remaining funds on the fifth   Monday day of following week.          
                                           business of the day after                                            
                                           the your deposit.                                                    
----------------------------------------------------------------------------------------------------------------

    If you deposit both categories of checks, $100 from the checks 
will be available on the first business day after the day of your 
deposit, not $100 from each category of check.

LONGER DELAYS MAY APPLY

    Funds you deposit by check may be delayed for a longer period 
under the following circumstances:
     We believe a check you deposit will not be paid.
     You deposit checks totaling more than $5,000 on any one 
day.
     You redeposit a check that has been returned unpaid.
     You have overdrawn your account repeatedly in the last 
six months.
     There is an emergency, such as failure of computer or 
communications equipment.
    We will notify you if we delay your ability to withdraw funds 
for any of these reasons, and we will tell you when the funds will 
be available. They will generally be available no later than the 
(number) business day after the day of your deposit.

SPECIAL RULES FOR NEW ACCOUNTS

    If you are a new customer, the following special rules will 
apply during the first 30 days your account is open.
    Funds from electronic direct deposits to your account will be 
available on the day we receive the deposit. Funds from deposits of 
cash, wire transfers, and the first $5,000 of a day's total deposits 
of cashier's, certified, teller's, traveler's, and federal, state 
and local government checks will be available on the first business 
day after the day of your deposit if the deposit meets certain 
conditions. For example, the checks must be payable to you (and you 
may have to use a special deposit slip). The excess over $5,000 will 
be available on the ninth business day after the day of your 
deposit. If your deposit of these checks (other than a U.S. Treasury 
check) is not made in person to one of our employees, the first 
$5,000 will not be available until the second business day after the 
day of your deposit.
    Funds from all other check deposits will be available on the 
(number) business day after the day of your deposit.

C-5--Holds to statutory limits on all deposits

YOUR ABILITY TO WITHDRAW FUNDS

    Our policy is to delay the availability of funds that you 
deposit in your account. During the delay, you may not withdraw the 
funds in cash and we will not use the funds to pay checks that you 
have written.

DETERMINING THE AVAILABILITY OF A DEPOSIT

    The length of the delay is counted in business days from the day 
of your deposit. Every day is a business day except Saturdays, 
Sundays, and federal holidays. If you make a deposit before (time of 
day) on a business day that we are open, we will consider that day 
to be the day of your deposit. However, if you make a deposit after 
(time of day) or on a day we are not open, we will consider that the 
deposit was made on the next business day we are open.
    The length of the delay varies depending on the type of deposit 
and is explained below.

Same-Day Availability

    Funds from electronic direct deposits to your account will be 
available on the day we receive the deposit.

Next-Day Availability

    Funds from the following deposits are available on the first 
business day after the day of your deposit:
     U.S. Treasury checks that are payable to you.
     Wire transfers.
     Checks drawn on (bank name) [unless (any limitations 
related to branches in different states or check processing 
regions)].
    If you make the deposit in person to one of our employees, funds 
from the following deposits are also available on the first business 
day after the day of your deposit:
     Cash.
     State and local government checks that are payable to 
you [if you use a special deposit slip available from (where deposit 
slip may be obtained)].
     Cashier's, certified, and teller's checks that are 
payable to you [if you use a special deposit slip available from 
(where deposit slip may be obtained)].
     Federal Reserve Bank checks, Federal Home Loan Bank 
checks, and postal money orders, if these items are payable to you.
    If you do not make your deposit in person to one of our 
employees (for example, if you mail the deposit), the deposit will 
be treated like a deposit of a local check. Funds from these 
deposits will generally be available on the second business day 
after the day of your deposit.

Other Check Deposits

    The delay for other check deposits depends on whether the check 
is a local or a nonlocal check. To see whether a check is a local or 
a nonlocal check, look at the routing number on the check:

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[[Page 27812]]

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BILLING CODE 6210-01-C

[[Page 27813]]

    If the first four digits of the routing number (1234 in the 
examples above) are (list of local numbers), then the check is a 
local check. Otherwise, the check is a nonlocal check. Some checks 
are marked ``payable through'' and have a four- or nine-digit number 
nearby. For these checks, use the four-digit number (or the first 
four digits of the nine-digit number), not the routing number on the 
bottom of the check, to determine if these checks are local or 
nonlocal. Our policy is to make funds from local and nonlocal checks 
available as follows.
    1. Local checks. The first $100 from a deposit of local checks 
will be available on the first business day after the day of your 
deposit. The remaining funds will be available on the second 
business day after the day of your deposit.
    For example, if you deposit a local check of $700 on a Monday, 
$100 of the deposit is available on Tuesday. The remaining $600 is 
available on Wednesday.
    2. Nonlocal checks. The first $100 from a deposit of nonlocal 
checks will be available on the first business day after the day of 
your deposit. The remaining funds will be available on the fifth 
business day after the day of your deposit.
    For example, if you deposit a $700 nonlocal check on a Monday, 
$100 of the deposit is available on Tuesday. The remaining $600 is 
available on Monday of the following week.

LONGER DELAYS MAY APPLY

    Funds you deposit by check may be delayed for a longer period 
under the following circumstances:
     We believe a check you deposit will not be paid.
     You deposit checks totaling more than $5,000 on any one 
day.
     You redeposit a check that has been returned unpaid.
     You have overdrawn your account repeatedly in the last 
six months.
     There is an emergency, such as failure of computer or 
communications equipment.
    We will notify you if we delay your ability to withdraw funds 
for any of these reasons, and we will tell you when the funds will 
be available. They will generally be available no later than the 
(number) business day after the day of your deposit. If you deposit 
both categories of checks, $100 from the checks will be available on 
the first business day after the day of your deposit, not $100 from 
each category of check.

SPECIAL RULES FOR NEW ACCOUNTS

    If you are a new customer, the following special rules will 
apply during the first 30 days your account is open.
    Funds from electronic direct deposits to a new account will be 
available on the day we receive the deposit. Funds from deposits of 
cash, wire transfers, and the first $5,000 of a day's total deposits 
of cashier's, certified, teller's, traveler's, and federal, state 
and local government checks will be available on the first business 
day after the day of your deposit if the deposit meets certain 
conditions. For example, the checks must be payable to you (and you 
may have to use a special deposit slip). The excess over $5,000 will 
be available on the ninth business day after the day of your 
deposit. If your deposit of these checks (other than a U.S. Treasury 
check) is not made in person to one of our employees, the first 
$5,000 will not be available until the second business day after the 
day of your deposit.
    Funds from all other check deposits will be available on the 
(number) business day after the day of your deposit.
* * * * *

Model Clauses

* * * * *

C-9--Automated teller machine deposits (extended hold)

DEPOSITS AT AUTOMATED TELLER MACHINES

    Funds from any deposits (cash or checks) made at automated 
teller machines (ATMs) we do not own or operate will not be 
available until the fifth business day after the day of your 
deposit. This rule does not apply at ATMs that we own or operate.
    (A list of our ATMs is enclosed.) or (A list of ATMs where you 
can make deposits but that are not owned or operated by us is 
enclosed.) or (All ATMs that we own or operate are identified as our 
machines.)

C-10--Cash withdrawal limitation

CASH WITHDRAWAL LIMITATION

    We place certain limitations on withdrawals in cash. In general, 
$100 of a deposit is available for withdrawal in cash on the first 
business day after the day of deposit. In addition, a total of $400 
of other funds becoming available on a given day is available for 
withdrawal in cash at or after (time no later than 5:00 p.m.) on 
that day. Any remaining funds will be available for withdrawal in 
cash on the following business day.
* * * * *

Model Notices

C-12--Exception hold notice

NOTICE OF HOLD

    Account number: (number)
    Date of deposit: (date)
    We are delaying the availability of $(amount being held) from 
this deposit. These funds will be available on the (number) business 
day after the day of your deposit.
    We are taking this action because:

--A check you deposited was previously returned unpaid.
--You have overdrawn your account repeatedly in the last six months.
--The checks you deposited on this day exceed $5,000.
--An emergency, such as failure of computer or communications 
equipment, has occurred.
--We believe a check you deposited will not be paid for the 
following reasons[*]:

----------------------------------------------------------------------

----------------------------------------------------------------------

----------------------------------------------------------------------

    [*]If you did not receive this notice at the time you made the 
deposit and the check you deposited is paid, we will refund to you 
any fees for overdrafts or returned checks that result solely from 
the additional delay that we are imposing. To obtain a refund of 
such fees, (description of procedure for obtaining refund).

C-13--Reasonable cause hold notice

NOTICE OF HOLD

    Account number: number
    Date of deposit: date
    We are delaying the availability of the funds you deposited by 
the following check: (description of check, such as amount and 
drawer.)
    These funds will be available on the number business day after 
the day of your deposit. The reason for the delay is explained 
below:

--We received notice that the check is being returned unpaid.
--We have confidential information that indicates that the check may 
not be paid.
--The check is drawn on an account with repeated overdrafts.
--We are unable to verify the endorsement of a joint payee.
--Some information on the check is not consistent with other 
information on the check.
--There are erasures or other apparent alterations on the check.
--The routing number of the paying bank is not a current routing 
number.
--The check is postdated or has a stale date.
--Information from the paying bank indicates that the check may not 
be paid.
--We have been notified that the check has been lost or damaged in 
collection.
--Other:

----------------------------------------------------------------------
    [If you did not receive this notice at the time you made the 
deposit and the check you deposited is paid, we will refund to you 
any fees for overdrafts or returned checks that result solely from 
the additional delay that we are imposing. To obtain a refund of 
such fees, description of procedure for obtaining refund.]

C-14--One-time notice for large deposit and redeposited check exception 
holds

NOTICE OF HOLD

    If you deposit into your account:
     Checks totaling more than $5,000 on any one day, the 
first $5,000 deposited on any one banking day will be available to 
you according to our general policy. The amount in excess of $5,000 
will generally be available on the (number) business day after the 
day of deposit for checks drawn on (bank name), the (number) 
business day after the day of deposit for local checks and (number) 
business day after the day of deposit for nonlocal checks. If checks 
(not drawn on us) that otherwise would receive next-day availability 
exceed $5,000, the excess will be treated as either local or 
nonlocal checks depending on the location of the paying bank. If 
your check deposit, exceeding $5,000 on any one day, is a mix of 
local checks, nonlocal checks, checks drawn on (bank name), or 
checks that generally receive next-day availability, the excess will 
be calculated by first adding together the (type of check), then the 
(type of check), then the (type of check), then the (type of check).

[[Page 27814]]

     A check that has been returned unpaid, the funds will 
generally be available on the (number) business day after the day of 
deposit for checks drawn on (bank name), the (number) business day 
after the day of deposit for local checks and the (number) business 
day after the day of deposit for nonlocal checks. Checks (not drawn 
on us) that otherwise would receive next-day availability will be 
treated as either local or nonlocal checks depending on the location 
of the paying bank.

C-15--One-time notice for repeated overdraft exception hold

NOTICE OF HOLD

    Account Number: (number)
    Date of Notice: (date)
    We are delaying the availability of checks deposited into your 
account due to repeated overdrafts of your account. For the next six 
months, deposits will generally be available on the (number) 
business day after the day of your deposit for checks drawn on (bank 
name), the (number) business day after the day of your deposit for 
local checks, and the (number) business day after the day of deposit 
for nonlocal checks. Checks (not drawn on us) that otherwise would 
have received next-day availability will be treated as either local 
or nonlocal checks depending on the location of the paying bank.

C-16--Case-by-case hold notice

NOTICE OF HOLD

    Account number: (number)
    Date of deposit: (date)
    We are delaying the availability of $(amount being held) from 
this deposit. These funds will be available on the number business 
day after the day of your deposit [(subject to our cash withdrawal 
limitation policy)].
    [If you did not receive this notice at the time you made the 
deposit and the check you deposited is paid, we will refund to you 
any fees for overdrafts or returned checks that result solely from 
the additional delay that we are imposing. To obtain a refund of 
such fees, (description of procedure for obtaining refund).]
* * * * *
    13. In appendix E to Part 229, under section II, the last sentence 
of paragraph E.2. and the last sentence of paragraph HH.2. are revised 
and a new sentence is added to the end of paragraph S.1. to read as 
follows:

Appendix E to Part 229--Commentary

* * * * *
    II. Section 229.2 Definitions
* * * * *

E. 229.2(d)  Available for Withdrawal

* * * * *
    2. * * * 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; 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; or to satisfy a contingent 
liability of the customer related to the account.
* * * * *

S. 229.2(s)  Local Paying Bank

    1. * * * A branch of a bank accepting a deposit as agent for the 
depositary bank (a contractual branch) is a branch of the depositary 
bank for purposes of this definition.
* * * * *

HH. 229.2(hh)  Traveler's Check

* * * * *
    2. * * * Traveler's checks that are not issued by banks 
sometimes do not have any words on them identifying a bank as drawee 
or paying agent, but instead may bear unique routing numbers with an 
8000 prefix that identifies a bank as paying agent.
* * * * *
    14. In appendix E, under section IV, in paragraph D.3.a., three new 
sentences are added to the end to read as follows:
* * * * *

IV. Section 229.10  Next-Day Availability

* * * * *

D. 229.10(c)  Certain Check Deposits

* * * * *
    3. Deposits Made to an Employee of the Depositary Bank.
    a. * * * The depositary bank may have a contractual arrangement 
with another bank under which the other bank will accept deposits on 
behalf of the depositary bank. Employees of such a contractual 
branch would not be considered employees of the depositary bank for 
the purposes of this regulation, and deposits at contractual 
branches would be treated the same as deposits to a proprietary ATM 
for the purposes of this regulation. (See also, Commentary to 
Sec. 229.19(a).)
* * * * *
    15. In appendix E, under section VII:
    a. In paragraph H.1.a, the first sentence is revised and two new 
sentences are added to the end;
    b. Paragraph H.1.e. is removed and paragraph H.1.f. is redesignated 
as H.1.e.;
    c. Paragraph H.4. is redesignated as H.5. and new paragraph H.4. is 
added;
    d. The second sentence in paragraph I.1. is revised;
    e. The first sentence in paragraph I.4. is revised; and
    f. Paragraph I.5. is revised.
    The additions and revisions read as follows:
* * * * *

VII. Section 229.13  Exceptions

* * * * *

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 or 
emergency conditions 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. * * * A depositary bank 
satisfies the ``written'' notice requirement by sending an 
electronic transmission of a visual display of the text, if the 
customer agrees to receive account information through such means. 
The depositary bank, however, must give a paper copy of the notice 
to the customer upon request.
* * * * *
    4. Emergency conditions exception notice.
    a. If an account is subject to the emergency conditions 
exception under Sec. 229.13(f), the depositary bank must provide 
notice in a reasonable form within a reasonable time, depending on 
the circumstances. For example, a depositary bank may learn of a 
weather emergency or a power outage that affects the paying bank's 
operations. Under these circumstances, it likely would be reasonable 
for the depositary bank to provide an emergency conditions exception 
notice in the same manner and within the same time as required for 
other exception notices. On the other hand, if a depositary bank 
experiences a weather or power outage emergency that affects its own 
operations, it may be reasonable for the depositary bank to provide 
a general notice to all depositors via postings at branches and 
ATMs, or through newspaper, television, or radio notices.
    b. If the depositary bank extends the hold placed on a deposit 
due to an emergency condition, 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.
* * * * *

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

    1. * * * 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 and checks 
deposited in a nonproprietary ATM is reasonable. * * *
* * * * *
    4. One business day for ``on us'' checks, five business days for 
local checks, and six business days for nonlocal checks or checks 
deposited in a nonproprietary ATM, 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. * * *
    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(b), (c), (e), or (f), whichever is later.
* * * * *

[[Page 27815]]

    16. In appendix E, under section VIII, a new sentence is added to 
the end of paragraph A.1. to read as follows:
* * * * *

VIII. Section 229.14  Payment of Interest

A. 29.14(a) In General

    1. * * * In the case of a deposit at a contractual branch or 
agent of a depositary bank, credit is received on the day the 
depositary bank receives credit for the amount of the deposit, which 
may be different from the day the contractual branch or agent 
receives credit for the deposit.
* * * * *
    17. In appendix E, under section IX, two new sentences are added 
immediately following the second sentence of paragraph A.1. to read as 
follows:
* * * * *

IX. Section 229.15  General Disclosure Requirements

A. 229.15(a) Form of Disclosures

    1. * * * A depositary bank satisfies the requirement that 
disclosures be in writing and in a form the customer may keep by 
sending an electronic transmission of a visual display of the text, 
if the customer agrees to receive account information through such 
means. The depositary bank, however, must give a paper copy of the 
disclosure to the customer upon request. * * *
* * * * *
    18. In appendix E, under section X, paragraph A.3. is redesignated 
as paragraph A.4. and a new paragraph A.3. is added, and the last 
sentence of paragraph C.2.a. is revised to read as follows:
* * * * *

X. Section 229.16 Specific Availability Policy Disclosure

A. 229.16(a)  General

* * * * *
    3. A bank may establish different availability policies for 
different branches (or contractual branches) and may allocate 
customers to a particular branch for purposes of providing a 
specific availability policy. In this situation, the bank must 
allocate customers between branches through good faith use of a 
reasonable method, such as where the customer opened the account.
* * * * *

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

* * * * *
    2. * * *
    a. * * * In addition, the notice must include the account 
number, the date of the deposit, and the amount of the deposit being 
delayed.
* * * * *
    19. In appendix E, under section XIII, three sentences are added to 
the end of paragraph A.2., the last four sentences of paragraph A.6.a. 
are revised, and a new paragraph E.4. is added to read as follows:
* * * * *

XIII. Section 229.19 Miscellaneous

A. 229.19(a)  When Funds Are Considered Deposited

* * * * *
    2. * * * The depositary bank might have a contractual 
arrangement with another bank under which the other bank will accept 
deposits on behalf of the depositary bank. Funds received at such a 
contractual branch are considered deposited when received by a 
teller at the contractual branch or deposited into a proprietary ATM 
of the contractual branch. (See also, Commentary to Sec. 229.10(c) 
on deposits made to an employee of the depositary bank.)
* * * * *
    6. Banking day of deposit.
    a. * * * For receipt of deposits at ATMs, contractual branches, 
or other off-premise facilities, such as night depositories or lock 
boxes, the depositary bank may establish a cut-off hour of 12:00 
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, contractual branch, or other off-premise facility). The 
depositary bank must use the same timing method for establishing the 
cut-off hour for all ATMs, contractual branches, and other 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, contractual branch, or other off-premise 
deposits is intended to provide greater flexibility in the servicing 
of these facilities.
* * * * *

E. 229.19(e) Holds on Other Funds

* * * * *
    4. When a customer deposits a check in an account and the 
depositary bank places a hold on other funds of the customer, or 
when a customer cashes a check over the counter and the bank places 
a hold on an account of the customer, the bank must give whatever 
notice would be required under Secs. 229.13 or 229.16 had the funds 
been deposited in an account or had the hold been placed on those 
funds.
* * * * *
    20. In appendix E, under section XVI, a new sentence is added to 
the end of paragraphs C.1.a. and C.1.b. to read as follows:
* * * * *

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

* * * * *

C. 229.30(c)  Extension of Deadline

    1. * * *
    a. * * * This paragraph applies to the extension of all midnight 
deadlines except Saturday midnight deadlines (which are covered 
exclusively by paragraph C.1.b of this appendix).
    b. * * * This paragraph applies exclusively to the extension of 
Saturday midnight deadlines.
* * * * *
    21. In appendix E, under section XVII, paragraph A.7. is revised to 
read as follows:
* * * * *

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

A. 229.31(a)  Return of Checks

* * * * *
    7. Qualified returned checks. 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. Consistent with its duty of 
expeditious return and its midnight deadline under U.C.C. 4-202 and 
Sec. 210.12(a) of Regulation J (12 CFR 210.12(a)), a returning bank 
may qualify a returned check. A qualified returned check will be 
handled by subsequent returning banks more efficiently than a raw 
return. 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. 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 or under Sec. 229.34(c)(3) for breach of an encoding 
warranty.
* * * * *
    22. In appendix E, under section XX, the first sentence of 
paragraph A.1. and paragraph C.5. are revised, and a new paragraph F. 
is added as follows:
* * * * *

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. (subject to any claims or defenses 
under the U.C.C., such as breach of a presentment warranty), 
Regulation J (12 CFR Part 210), 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. * * *
* * * * *

C. 229.34(c)  Warranty of settlement amount, encoding, and offset

* * * * *
    5. Paragraph (c)(4) provides that any bank in the forward-
collection or return chain may set off excess settlement paid to 
another bank against settlement owed to that bank for

[[Page 27816]]

checks or returned checks transferred subsequent to the excess 
settlement.
* * * * *

F. 229.34(f)  Notice of Claim

    1. This paragraph adopts for this Regulation CC the warranty 
notice provisions of U.C.C. sections 4-207(d) and 4-208(e).

    23. In appendix E, section XXII is amended as follows:
    a. Paragraph C. is revised; and
    b. In paragraph E., the first sentence of paragraph E.1. and 
paragraph E.2. are revised to read as follows:
* * * * *

XXII. Section 229.36  Presentment and Issuance of Checks

* * * * *

C. 229.36(c)  Electronic Presentment

    1. Electronic presentment includes a variety of procedures in 
which the physical check may be held (truncated) or delayed by the 
depositary or collecting bank, and the information from the check is 
transmitted to the paying bank electronically. Often, electronic 
presentment agreements provide that presentment takes place when the 
paying bank receives the electronic transmission. Express provision 
for truncation and electronic presentment is made in U.C.C. 4-110 
and 4-406(b). This paragraph allows electronic presentment by 
agreement with the paying bank; however, such agreement may not 
prejudice the interests of prior parties to the check. For example, 
an electronic presentment 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.
    2. An electronic presentment agreement must be designed so that 
the rights of third parties are not prejudiced by the agreement. For 
example, banks may agree to an electronic presentment arrangement 
whereby the presenting bank transmits information about the check 
electronically to the paying bank before the arrival of the physical 
checks. The parties (including the drawer of the check) could agree 
that presentment continues to occur upon arrival of the physical 
checks at the paying bank but that the paying bank will settle for 
and/or return the checks within the time frames that would apply if 
the electronic transmission constituted presentment, if the physical 
checks arrive by the time specified in the agreement.
* * * * *

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. * * *
    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. The bank by which the check is payable may be liable for 
additional damages if it fails to act in good faith.
* * * * *
    24. In appendix E, section XXIV is amended as follows:
    a. In paragraph A.2., the third sentence is revised; and
    b. In paragraph D.2.b., the second sentence is removed and two new 
sentences are added immediately following the first sentence to read as 
follows:
* * * * *

XXIV. Section 229.38  Liability

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

* * * * *
    2. * * * The measure of damages provided in this section (loss 
incurred up to amount of check, less amount of loss party would have 
incurred even if bank had exercised ordinary care) is based on 
U.C.C. 4-103(e) (amount of the item reduced by an amount that could 
not have been realized by the exercise of ordinary care), as limited 
by 4-202(c) (bank is liable only for its own negligence and not for 
actions of subsequent banks in chain of collection). * * *
* * * * *

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

* * * * *
    2. * * *
    b. * * * Under Sec. 229.33(a), a paying bank that returns a 
check in the amount of $2,500 or more must provide notice of 
nonpayment to the depositary bank by 4:00 p.m. on the second 
business day following the banking day on which the check is 
presented to the paying bank. Even if a payable-through check in 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. * * *
* * * * *
    25. In appendix E, under section XXV, the first sentence in 
paragraph C.1. and the first sentence in paragraph E.1. are revised to 
read as follows:
* * * * *

XXV. Section 229.39  Insolvency of Bank

* * * * *

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

    1. This paragraph gives a bank a preferred claim against a 
closed paying bank that finally pays a check without settling for it 
or a closed depositary bank that becomes obligated to pay a returned 
check without settling for it. * * *
* * * * *

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) or a presentment warranty as provided in 
the U.C.C. (see U.C.C. 4-208) 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. * * *
* * * * *
    26. In appendix E, under section XXVIII, the first sentence of 
paragraph A. is revised to read as follows:
* * * * *

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, 
notice-of-nonpayment and same-day settlement requirements of subpart 
C of this regulation CC. * * *
* * * * *
    27. In appendix E, section XXIX is redesignated as section XXX and 
a new section XXIX is added to read as follows:
* * * * *

XXIX. Section 229.43  Checks Payable in Guam, American Samoa, and the 
Northern Mariana Islands

A. 229.43(a)  Definitions

    1. Bank offices in Guam, American Samoa, and the Northern 
Mariana Islands (which Regulation CC defines as Pacific island 
banks) do not meet the definition of bank in Sec. 229.2(e) because 
they are not located in the United States. Some checks drawn on 
Pacific island banks (defined as Pacific island checks) bear U.S. 
routing numbers and are collected and returned by banks in the same 
manner as checks payable in the U.S.

B. 229.43(b)  Rules Applicable to Pacific Island Checks

    1. When a bank handles a Pacific island check as if it were a 
check as defined in Sec. 229.2(k), the bank is subject to certain 
provisions of Regulation CC, as provided in this section. Because 
the Pacific island bank is not a bank as defined in Sec. 229.2(e), 
it is not a paying bank as defined in Sec. 229.2(z) (unless 
otherwise noted in this section). Pacific island banks are not 
subject to the provisions

[[Page 27817]]

of Regulation CC. Banks that handle Pacific island checks are not 
subject to the provisions of subpart B of Regulation CC, including 
the availability, notice, and interest accrual requirements, with 
respect to these checks.
    2. A bank may agree to handle a Pacific island check as a 
returned check under Sec. 229.31 and may convert the returned 
Pacific island check to a qualified returned check. The returning 
bank is not, however, subject to the expeditious return requirements 
of Sec. 229.31. The returning bank may receive the Pacific island 
check directly from a Pacific island bank or from another returning 
bank. As a Pacific island bank is not a paying bank, Sec. 229.31(c) 
does not apply to a returning bank settling with the Pacific island 
bank.
    3. A bank might accept a Pacific island check for deposit (or 
otherwise accept the check as transferee) and collect the Pacific 
island check in the same manner as other checks. Under these 
circumstances, the depositary bank is subject to the provisions of 
Sec. 229.32, including the provisions regarding time and manner of 
settlement for returned checks in Sec. 229.32(b), in the event the 
Pacific island check is returned by a returning bank. If the 
depositary bank receives the returned Pacific island check directly 
from the Pacific island bank, however, the provisions of 
Sec. 229.32(b) do not apply, because the Pacific island bank is not 
a paying bank under Regulation CC. The depositary bank is not 
subject to the notice of nonpayment requirements in Sec. 229.33 for 
Pacific island checks.
    4. Banks that handle Pacific island checks in the same manner as 
other checks are subject to the indorsement provisions of 
Sec. 229.35. Section 229.35(c) eliminates the need for the 
restrictive indorsement ``pay any bank.'' For purposes of 
Sec. 229.35(c), the Pacific island bank is deemed to be a bank.
    5. Pacific island checks will often be intermingled with other 
checks in a single cash letter. Therefore, a bank that handles 
Pacific island checks in the same manner as other checks is subject 
to the transfer warranty provision in Sec. 229.34(c)(2) regarding 
accurate cash letter totals and the encoding warranty in 
Sec. 229.34(c)(3). A bank that acts as a returning bank for a 
Pacific island check is not subject to the warranties in 
Sec. 229.34(a). Similarly, because the Pacific island bank is not a 
``bank'' or a ``paying bank'' under Regulation CC, Sec. 229.34(b), 
(c)(1), and (c)(4) do not apply. For the same reason, the provisions 
of Sec. 229.36 governing paying bank responsibilities such as place 
of receipt and same-day settlement do not apply to checks presented 
to a Pacific island bank, and the liability provisions applicable to 
paying banks in Sec. 229.38 do not apply to Pacific island banks. 
Section 229.36(d), regarding finality of settlement between banks 
during forward collection, applies to banks that handle a Pacific 
island check in the same manner as other checks, as do the liability 
provisions of Sec. 229.38, to the extent the banks are subject to 
the requirements of Regulation CC as provided in this section, and 
Secs. 229.37 and 229.39 through 229.42.
* * * * *
    28. Newly-redesignated section XXX is revised to read as follows:
* * * * *

XXX. Appendix C--Model Availability Policy Disclosures, Clauses, and 
Notices

A. Introduction

    1. Appendix C contains model disclosures, clauses, and notices 
that may be used by banks to meet their disclosure responsibilities 
under the regulation. Banks using the models properly will be in 
compliance with the regulation's disclosure requirements.
    2. Information that must be inserted by a bank using the models 
is italicized within parentheses in the text of the models. Optional 
information and alternate ways of providing the information is 
enclosed in brackets.
    3. Banks may make certain changes to the format or content of 
the models, including deleting material that is inapplicable, 
without losing the Act's protection from liability for banks that 
use the models 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 changes may not be so extensive, 
however, as to affect the substance, clarity, or meaningful sequence 
of the models. Acceptable changes include, for example:
    a. Using ``customer'' and ``bank'' instead of pronouns.
    b. Changing the typeface or size.
    c. Incorporating certain state law ``plain English'' 
requirements.
    4. Shorter time periods for availability may always be 
substituted for time periods used in the models.
    5. Banks may also add related information. For example, a bank 
may 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 include a telephone 
number to be used if a customer has an inquiry regarding a deposit.
    6. Banks are cautioned against using the models 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 the models will be in compliance with 
the Act and the regulation only if the bank's disclosures correspond 
to its availability policy.
    7. Banks that have used earlier versions of the models (such as 
those models that gave Social Security benefits and payroll payments 
as examples of preauthorized credits available the day after 
deposit, or that did not address the cash withdrawal limitation) are 
protected from civil liability under Sec. 229.21(e). Banks are 
encouraged, however, to use current versions of the models when 
reordering or reprinting supplies.

B. Model Availability Policy Disclosures, Models C-1 through C-5

    1. Models C-1 through C-5 generally.
    a. Models C-1 through C-5 are models for the availability policy 
disclosures described in Sec. 229.16. The models accommodate a 
variety of availability policies, ranging from next-day availability 
to holds to statutory limits on all deposits. 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 models 
where information must be inserted. This information includes the 
bank's 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 ordinal number (such as first, second, etc.) of the 
business day after deposit that 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 
Models C-6 through C-11. A bank using one of the model availability 
policy disclosures should also consider whether it must incorporate 
one or more of Models C-6 through C-11.
    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. Models 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.
    2. Model C-1 Next-day availability. A bank may use this model 
when its policy is to make funds from all deposits available on the 
first business day after a deposit is made. This model 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  Next-day availability and Sec. 229.13 exceptions. 
A bank may use this model 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. In 
disclosing that a longer delay may apply, a bank may disclose when 
funds will generally be available based on when the funds would be 
available if the deposit were of a nonlocal check.
    4. Model C-3  Next-day availability, case-by-case holds to 
statutory limits, and Sec. 229.13 exceptions. A bank may use this 
model 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 model also reserves the right to invoke

[[Page 27818]]

the exceptions listed in Sec. 229.13 of the regulation. In 
disclosing that a longer delay may apply, a bank may disclose when 
funds will generally be available based on when the funds would be 
available if the deposit were of a nonlocal check.
    5. Model C-4  Holds to statutory limits on all deposits. A bank 
may use this model when its when its policy is to impose delays to 
the full extent allowed under Sec. 229.12 and to reserve the right 
to invoke the Sec. 229.13 exceptions. In disclosing that a longer 
delay may apply, a bank may disclose when funds will generally be 
available based on when the funds would be available if the deposit 
were of a nonlocal check. Model C-4 uses a chart to show the bank's 
availability policy for local and nonlocal checks and Model C-5 uses 
a narrative description.
    6. Model C-5  Holds to statutory limits on all deposits. A bank 
may use this model when its policy is to impose delays to the full 
extent allowed under Sec. 229.12 and to reserve the right to invoke 
the Sec. 229.13 exceptions. In disclosing that a longer delay may 
apply, a bank may disclose when funds will generally be available 
based on when the funds would be available if the deposit were of a 
nonlocal check.

C. Model Clauses, Models C-6 Through C-11

    1. Models C-6  through C-11 generally. Certain clauses like 
those in the models must be incorporated into a bank's availability 
policy disclosure under certain circumstances. The commentary to 
each clause indicates when a clause similar to the model clause is 
required.
    2. Model C-6  Holds on other funds (check cashing). A bank that 
reserves the right to place a hold on funds already on deposit when 
it cashes a check for a customer, as addressed in Sec. 229.19(e), 
must incorporate this type of clause in its availability policy 
disclosure.
    3. Model C-7  Holds on other funds (other account). A bank that 
reserves 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 
addressed in Sec. 229.19(e), must incorporate this type of clause in 
its availability policy disclosure.
    4. Model C-8  Appendix B availability (nonlocal checks). A bank 
in a check processing region where the availability schedules for 
certain nonlocal checks have been reduced, as described in Appendix 
B of Regulation CC, must incorporate this type of clause in its 
availability policy disclosure. Banks using Model C-5 may insert 
this clause at the conclusion of the discussion titled ``Nonlocal 
checks.''
    5. Model C-9  Automated teller machine deposits (extended 
holds). A bank that reserves the right to delay availability of 
deposits at nonproprietary ATMs until the fifth business day 
following the date of deposit, as permitted by Sec. 229.12(f)(1), 
must incorporate this type of clause in its availability policy 
disclosure. 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).
    6. Model C-10  Cash withdrawal limitation. A bank that imposes 
cash withdrawal limitations under Sec. 229.12 must incorporate this 
type of clause in its availability policy disclosure. Banks 
reserving the right to impose the cash withdrawal limitation and 
using Model C-3 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.''
    7. Model C-11  Credit union interest payment policy. A credit 
union subject to the notice requirement of Sec. 229.14(b)(2) must 
incorporate this type of clause in its availability policy 
disclosure. 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.

D. Model Notices, Models C-12 Through C-21

    1. Model Notices C-12  through C-21 generally. Models C-12 
through C-21 provide models for the various notices required by the 
regulation.
    2. Model C-12  Exception hold notice. This model satisfies the 
written notice required under Sec. 229.13(g) when a bank places a 
hold based on a Sec. 229.13 exception. If the bank places the hold 
on other funds (see Sec. 229.19(e)), the notice should be modified 
accordingly. 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. A bank must 
incorporate in the notice the material set out in brackets if it 
imposes overdraft or returned check fees after invoking the 
reasonable cause exception under Sec. 229.13(e).
    3. Model C-13  Reasonable cause hold notice. This notice 
satisfies the written notice required under Sec. 229.13(g) when a 
bank invokes the reasonable cause exception under Sec. 229.13(e). If 
the bank places the hold on other funds (see Sec. 229.19(e)), the 
notice should be modified accordingly. The notice 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. A bank may disclose 
its reason for doubting collectibility by checking the appropriate 
reason on the model. If the ``Other'' category is checked, the 
reason must be given. 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. A bank must incorporate in the 
notice the material set out in brackets if it imposes overdraft or 
returned check fees after invoking the reasonable cause exception 
under Sec. 229.13(e).
    4. Model C-14  One-time notice for large deposit and redeposited 
check exception holds. This model satisfies the notice requirements 
of Sec. 229.13(g)(2) concerning nonconsumer accounts. If the bank 
places the hold on other funds (see Sec. 229.19(e)), the notice 
should be modified accordingly.
    5. Model C-15  One-time notice for repeated overdraft exception 
hold. This model satisfies the notice requirements of 
Sec. 229.13(g)(3). If the bank places the hold on other funds (see 
Sec. 229.19(e)), the notice should be modified accordingly.
    6. Model C-16  Case-by-case hold notice. This model satisfies 
the notice required under Sec. 229.16(c)(2) when a bank with a case-
by-case hold policy imposes a hold on a deposit. If the bank places 
the hold on other funds (see Sec. 229.19(e)), the notice should be 
modified accordingly. 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. A bank must incorporate in the notice the material set 
out in brackets if it imposes overdraft fees after invoking a case-
by-case hold.
    7. Model C-17  Notice at locations where employees accept 
consumer deposits and Model C-18  Notice at locations where 
employees accept consumer deposits (case-by-case holds). These 
models satisfy the notice requirement of Sec. 229.18(b). Model C-17 
reflects an availability policy of holds to statutory limits on all 
deposits, and Model C-18 reflects a case-by-case availability 
policy.
    8. Model C-19  Notice at automated teller machines. This model 
satisfies the ATM notice requirement of Sec. 229.18(c)(1).
    9. Model C-20  Notice at automated teller machines (delayed 
receipt). This model satisfies the ATM notice requirement of 
Sec. 229.18(c)(2) when receipt of deposits at off-premises 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.
    10. Model C-21  Deposit slip notice. This model satisfies the 
notice requirements of Sec. 229.18(a) for deposit slips.

    By order of the Board of Governors of the Federal Reserve 
System, May 15, 1996.
William W. Wiles,
Secretary of the Board.
[FR Doc. 96-13880 Filed 5-31-96; 8:45 a.m.]
BILLING CODE 6210-01-P