[Federal Register Volume 76, Number 58 (Friday, March 25, 2011)]
[Proposed Rules]
[Pages 16862-16976]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-5449]
[[Page 16861]]
Vol. 76
Friday,
No. 58
March 25, 2011
Part II
Federal Reserve System
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12 CFR Part 229
Availability of Funds and Collection of Checks; Proposed Rule
Federal Register / Vol. 76 , No. 58 / Friday, March 25, 2011 /
Proposed Rules
[[Page 16862]]
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FEDERAL RESERVE SYSTEM
12 CFR Part 229
[Regulation CC; Docket No. R-1409]
RIN No. 7100-AD68
Availability of Funds and Collection of Checks
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed rule, request for comment.
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SUMMARY: The Board of Governors (Board) is proposing amendments to
facilitate the banking industry's ongoing transition to fully-
electronic interbank check collection and return, including proposed
amendments to condition a depositary bank's right of expeditious return
on the depositary bank agreeing to accept returned checks
electronically either directly or indirectly from the paying bank. The
Board also is proposing amendments to the funds availability schedule
provisions to reflect the fact that there are no longer any nonlocal
checks. The Board proposes to revise the model forms that banks may use
in disclosing their funds-availability policies to their customers and
to update the preemption determinations. Finally, the Board is
requesting comment on whether it should consider future changes to the
regulation to improve the check collection system, such as decreasing
the time afforded to a paying bank to decide whether to pay a check in
order to reduce the risk to a depositary bank of having to make funds
available for withdrawal before learning whether a deposited check has
been returned unpaid.
DATES: Comments on the proposed rule must be received not later than
June 3, 2011.
ADDRESSES: You may submit comments, identified by Docket No. R-1409 and
RIN No. 7100-AD68, by any of the following methods:
Agency Web Site: http://www.federalreserve.gov. Follow the
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: [email protected]. Include docket
number in the subject line of the message.
FAX: 202/452-3819 or 202/452-3102.
Mail: Jennifer J. Johnson, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue,
NW., Washington, DC 20551.
All public comments are available from the Board's Web site at
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as
submitted, except as necessary for technical reasons. Accordingly, your
comments will not be edited to remove any identifying or contact
information. Public comments may also be viewed electronically or in
paper in Room MP-500 of the Board's Martin Building (20th and C
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.
FOR FURTHER INFORMATION CONTACT: Dena L. Milligan, Attorney, (202/452-
3900), Legal Division; or Joseph P. Baressi, Financial Services Project
Leader (202/452-3959), Division of Reserve Bank Operations and Payment
Systems; for users of Telecommunication Devices for the Deaf (TDD)
only, contact 202/263-4869.
SUPPLEMENTARY INFORMATION:
Background
Regulation CC (12 CFR part 229) implements the Expedited Funds
Availability Act (EFA Act) and the Check Clearing for the 21st Century
Act (Check 21 Act).\1\ The Board implemented the EFA Act in subparts A,
B, and C of Regulation CC. The EFA Act was enacted to provide
depositors of checks with prompt funds availability and to foster
improvements in the check collection and return processes. Subpart A of
Regulation CC contains general information, such as definitions of
terms. Subpart B of Regulation CC specifies availability schedules
within which banks must make funds available for withdrawal. Subpart B
also includes rules regarding exceptions to the schedules, disclosure
of funds availability policies, and payment of interest. These
provisions implement specific requirements set forth in the EFA Act.
The provisions of subpart C were adopted by the Board pursuant to the
authority granted to it in Sec. Sec. 609(b) and (c) of the EFA Act.\2\
Section 609(b) directs the Board to consider requiring that depository
institutions and Federal Reserve Banks take certain steps to improve
the check-processing system, such by taking steps necessary to automate
the check-return process (Sec. 609(b)(4)).\3\ Section 609(c) grants
the Board authority to regulate any aspect of the payment system and
any related function of the payment system with respect to checks.\4\
Subpart C includes rules to speed the collection and return of checks,
such as rules covering the expeditious return responsibilities of
paying and returning banks, authorization of direct returns,
notification of nonpayment of large-dollar returns, check indorsement
standards, and same-day settlement of checks presented to the paying
bank.
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\1\ Expedited Funds Availability Act, 12 U.S.C. 4001 et seq.;
Check Clearing for the 21st Century Act, 12 U.S.C. 5001 et seq.
\2\ 12 U.S.C. 4008 (b) and (c).
\3\ Section 609(b)(4) states that ``[i]n order to improve the
check processing system, the Board shall consider (among other
proposals) requiring, by regulation, that * * * the Federal Reserve
banks and depository institutions take such actions as are necessary
to automate the process of returning unpaid checks.'' 12 U.S.C.
4008(b)(4).
\4\ Section 609(c)(1) states that ``[i]n order to carry out the
provisions of this title, the Board of Governors of the Federal
Reserve System shall have the responsibility to regulate--(A) any
aspect of the payment system, including the receipt, payment,
collection, or clearing of checks.'' 12 U.S.C. 4008(c)(1).
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Subpart C's provisions presume that banks generally handle checks
in paper form. Since the provisions were adopted in 1988, however,
banks have largely migrated to an electronic interbank check collection
and return system.\5\ This migration was facilitated by the Check 21
Act,\6\ which became effective in October 2004 and is implemented in
subparts A and D of Regulation CC. The Check 21 Act permits banks to
use a properly prepared substitute check in place of the original
check, which enables banks to take the original check out of the
collection and return process and to handle check images for much of
the check collection and return process without having to retain the
original check. The Check 21 Act has been a catalyst for rapid growth
in banks' electronic handling of checks over the last 5 years. For
example, at year-end 2005, the Reserve Banks received about 4 percent
of checks deposited with them for collection in electronic form and
presented approximately 28 percent of their checks in electronic
form.\7\ In December 2010, the Reserve Banks received about 99.7
percent of checks deposited for forward collection electronically, and
presented about 98.4 percent of checks electronically. In addition, at
the end of 2005 virtually all returned checks handled by the Reserve
Banks were sent to and from the Reserve Banks in paper form. By
December 2010, the Reserve Banks received 97.1 percent of returned
checks
[[Page 16863]]
electronically, and delivered about 76.7 percent of returned checks to
depositary banks electronically.\8\ Based on information from banking
industry sources, the Board believes that these trends with respect to
checks handled by the Reserve Banks are representative of trends
nationwide.\9\
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\5\ Certain provisions, such as the same-day settlement
provisions in Sec. 229.36(f), were adopted at later times.
\6\ Public Law 108-100, 117 Stat. 1177 (codified at 12 U.S.C.
5001-5018) (2003).
\7\ Prior to the Check 21 Act, the Reserve Banks presented about
20 to 25 percent of their check volume electronically, primarily
under MICR-presentment programs.
\8\ The proportion of returned checks the Reserve Banks
delivered electronically to the depositary bank increased from 28
percent in June 2009 to 76.7 percent in December 2010. The
proportion of depositary banks to which the Reserve Banks deliver
returns electronically, while lower, has also increased, from 8
percent in June 2009 to 52 percent in December 2010.
\9\ The Electronic Check Clearing House Organization (ECCHO)
collects data from various check-clearing intermediaries, including
the Reserve Banks, to estimate the percent of interbank checks that
are presented electronically. See http://www.eccho.org/check_ps.php.
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Overview of the Proposal
I. Amendments To Encourage Electronic Check Clearing and Check Return
As a general matter, the Board believes that electronic check-
clearing and check-return methods improve the efficiency of the check
system. Electronic methods are faster and more resilient, and, at the
same time, they are less costly and less error prone. Despite the
increasing number of checks presented and returned electronically, some
banks continue to demand paper returned checks or present paper checks
for same-day settlement under Sec. 229.36(f) of Regulation CC. The
full benefits and cost savings of the electronic methods, however,
cannot be realized so long as some banks continue to employ paper-
processing methods. Accordingly, under its authority provided in Sec.
609(c) of the EFA Act, the Board is proposing amendments to subpart C
of Regulation CC to provide incentives for depositary banks to receive,
and paying banks to send, returned checks electronically. The Board
also is proposing amendments to the same-day settlement provisions to
promote electronic presentment of checks. Further, based on experience
since the Check 21 Act became effective, the Board is proposing minor
amendments to subpart D of Regulation CC with respect to substitute
checks.
A. Expeditious-Return Rule
1. Current Rule
Regulation CC currently provides that if a paying bank determines
not to pay a check, it must return the check in an expeditious manner,
as provided under either the ``two-day/four-day test'' (Sec.
229.30(a)(1)), or the ``forward-collection test'' ((Sec.
229.30(a)(2)).\10\ To meet the two-day/four-day test, a paying bank
must send a returned local check in a manner such that the check would
normally be received by the depositary bank not later than 4 p.m. local
time of the depositary bank on the second business day following the
banking day on which the check was presented to the paying bank. For
nonlocal checks, a paying bank must send a returned check in a manner
such that the check would normally be received by the depositary bank
not later than 4 p.m. local time of the depositary bank on the fourth
business day following the banking day on which the check was presented
to the paying bank. Because there now is only one Federal Reserve Bank
check-processing region, there are no longer any nonlocal checks, and
the four-day test applies to a null set of checks.\11\
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\10\ Section 229.31(a) sets forth similar tests for returning
banks.
\11\ A local check is a check drawn on a paying bank located in
the same check-processing region as the depositary bank. 12 CFR
229.2(r). A nonlocal check is a check drawn on a paying bank located
in a different check-processing region as the depositary bank. 12
CFR 229.2(v).
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The forward-collection test is satisfied if a paying bank sends the
returned check in a manner that a similarly situated bank would send a
check (i) of similar amount as the returned check, (ii) drawn on the
depositary bank, and (iii) deposited for forward collection in the
similarly situated bank by noon on the banking day following the
banking day on which the check was presented to the paying bank.\12\
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\12\ The forward-collection test is satisfied if the paying bank
``returns a check by means as swift as the means similarly situated
banks would use for the forward collection of a check drawn on the
depositary bank.'' See commentary to Sec. 229.30(a)(2).
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When these tests were adopted in the late 1980s, the expeditious-
return standard presumed that banks could use the same modes of
transportation for returned checks that they used for forward-
collection checks. Delivering returned checks in the same time and
manner as forward checks would satisfy the regulation's expeditious-
return requirements. Today, by contrast, forward-check collection is
almost entirely electronic, and the dedicated air and ground
transportation for paper checks has largely been discontinued. Some
depositary banks, however, continue to require that returned checks be
delivered to them in paper form, making it difficult for paying banks
and returning banks to meet the expeditious-return requirement.
Accordingly, the full benefits and cost savings of electronic check-
return methods cannot be realized if paying banks and returning banks
must incur substantial expense to deliver returned checks to the banks
that continue to require that paper checks be returned. Moreover, as
technology has improved, the Board understands that the initial
implementation and ongoing costs incurred by a depositary bank to
receive returned items electronically have decreased substantially. For
example, the Reserve Banks now provide electronic copies of returned
checks in .pdf files to small depositary banks, which can use the .pdf
file to print substitute checks on their own premises if necessary.
Compared to alternative means of receiving electronic returns, this
approach involves only minimal upfront costs to a depositary bank, such
as the purchase of a printer capable of double-sided printing and
magnetic-ink toner cartridges.\13\ After printing the electronic
copies, the depositary bank can process them in the same way it
processes paper checks that are physically delivered to it.
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\13\ Prior to developing the capability of providing the
electronic .pdf copies, it may have been necessary for a depositary
bank, or its processor, to develop systems capable of automated
processing of incoming electronic data files (e.g., X9.100-187
files) representing returned checks and to integrate these systems
with the bank's other existing systems, such as the bank's demand-
deposit-account systems that maintain the bank's customer balances.
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2. Proposed Expeditious Return Requirement
The Board believes that a fully-electronic check-return system
benefits the nation's payment system, as well as consumers and
businesses. Additionally, the Board believes that electronic check
return substantially reduces risks to the check system and that the
costs to a bank to receive returned checks electronically have markedly
declined. Therefore, the Board believes that it is appropriate for the
risk of non-expeditious return to rest with a depositary bank that
chooses not to accept electronic returns. Accordingly, to encourage
depositary banks to agree to receive returned checks electronically,
and to avoid imposing increased cost on paying banks to return checks
expeditiously to depositary banks that do not accept electronic
returns, the Board proposes to amend Regulation CC to provide that a
depositary bank would not be entitled to expeditious return unless it
agrees to receive electronic returns directly or indirectly from the
paying bank returning the check.\14\ The Board proposes to define a new
term,
[[Page 16864]]
``electronic return,'' and to establish requirements for an item to
qualify as an electronic return.\15\ Under the proposal, an electronic
return would be treated as if it were a check for purposes of subpart C
of the regulation (See Sec. 229.33 in the section-by-section
analysis).\16\
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\14\ The paying bank initiating the return would still be
subject to the midnight deadline for all returned checks. See
Uniform Commercial Code (UCC) Sec. 4-302.
\15\ See proposed Sec. 229.2(v) (definition of ``electronic
return'') in the section-by-section analysis.
\16\ See proposed Sec. 229.34 in the section-by-section
analysis for warranties made with respect to electronic returns.
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Sections 229.30(a) and 229.31(a), respectively, would continue to
set forth the general expeditious return rule for paying banks and
returning banks. Proposed Sec. Sec. 229.30(b) and 229.31(b) would set
forth the exceptions to the expeditious return requirements, one of
which would be a new exception: There is no expeditious return
requirement if the depositary bank has not agreed to accept the
returned check electronically as described in proposed Sec. 229.32(a).
Under proposed Sec. 229.32(a), a depositary bank may agree to receive
an ``electronic return'' from the paying bank so as to be entitled to
expeditious return: (1) Directly from the paying bank; (2) directly
from a returning bank that holds itself out as willing to accept
electronic returns directly or indirectly from the paying bank and has
agreed to return checks expeditiously under Sec. 229.31(a); or (3) as
otherwise agreed with the paying bank, such as through a network
provided by a clearing house or other third party.
The Board proposes to delete the forward-collection test for
expeditious return from Sec. Sec. 229.30(a) and 229.31(a). This test
was originally included because paying banks and returning banks were
in some cases (such as that of a remote depositary bank) not able to
meet the two-day/four-day test, and the forward-collection test
provided that in these cases paying banks and returning banks
nonetheless satisfied the expeditious return requirement so long as the
returned check was delivered to the depositary bank in the same time
and manner that a forward-collection check would be delivered to the
bank (in its role as paying bank). Given that under the Board's
proposal, however, a paying bank or returning bank must satisfy the
expeditious return requirement only if the depositary bank agrees to
receive electronic returns, a paying bank or returning bank should
always be able to satisfy the two-day test with respect to a depositary
bank to which the test applies. Specifically, geographic remoteness of
a depositary bank from the paying bank should not preclude an
electronic return from reaching the depositary bank within two business
days of a check's presentment to the paying bank. Accordingly, the
Board believes that the forward-collection test is not necessary in
light of the Board's proposal.
Additionally, because there are no longer nonlocal checks (see the
discussion below in section III), the four-day test for expeditious
return of a nonlocal check no longer applies to any checks, and the
Board proposes to eliminate that test as well. Under the Board's
proposed rule, the two-day test for expeditious return will be the only
test in Sec. Sec. 229.30(a) and 229.31(a). Therefore, a paying bank or
returning bank would have to send the returned check expeditiously such
that the depositary bank would normally receive the check no later than
4 p.m. (local time of the depositary bank) on the second business day
following the banking day on which the check was presented to the
paying bank.
3. Alternate Approaches Considered
The Board requests comment on alternate approaches to revising the
expeditious return rule to encourage electronic returns. One possible
alternate approach would require a bank that holds itself out as a
returning bank to accept an electronic return from any other bank that
similarly holds itself out as a returning bank. This approach would
ensure that even if the paying bank and depositary bank had electronic
return agreements with different returning banks, the electronic return
could reach the depositary bank. This approach, however, may be costly
for returning banks to implement, because they would have to establish
electronic return connections and agreements with every other returning
bank. A second alternative would require an electronic return to be
returned through the forward-collection chain (essentially reverting to
the pre-Regulation CC rule). Some depositary banks, however, have
arrangements under which returned checks are delivered to a different
location than that from which the depositary bank sends its checks for
forward collection.\17\ The second alternative might impose barriers to
these arrangements. Both of these alternatives therefore appeared to be
more operationally complex and costly than the proposed approach.
Nonetheless, the Board requests comment on the desirability of these
and other alternatives to the Board's proposal.
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\17\ For example, a depositary bank may collect checks through a
correspondent bank or processor, but have returned checks delivered
directly to the depositary bank itself. Conversely, a depositary
bank may arrange with another bank to apply the other bank's
indorsement as the depositary-bank indorsement, such that depositary
bank's returned checks are handled by the other bank. See Sec.
229.35(d).
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B. Notice of Nonpayment Requirement
Under current Sec. 229.33(a), if a paying bank determines not to
pay a check in the amount of $2,500 or more, it must provide notice of
nonpayment such that the notice is received by the depositary bank by 4
p.m. (local time) on the second business day following the banking day
on which the check was presented to the paying bank. Return of the
check itself satisfies the notice of nonpayment requirement if the
return meets the timeframe requirement for a notice of nonpayment. The
current two-day timeframe for notice of nonpayment is the same as the
two-day timeframe for expeditious return set forth in proposed
Sec. Sec. 229.30(a) and 229.31(a). Accordingly, because a depositary
bank should receive the returned check within the current notice-of-
nonpayment timeframe, the Board proposes to delete the notice of
nonpayment provision as unnecessary.
Under the Board's proposal, a depositary bank that does not agree
to receive electronic returns from the paying bank, as specified in
Sec. 229.32(a), will not receive expeditious return or a notice of
nonpayment. The Board, however, believes that the proposed changes give
depositary banks a strong incentive to make arrangements to receive
returns electronically. The Board requests comment on whether the
notice-of-nonpayment requirement should be retained for banks that do
not agree to accept electronic returns in a nearly all-electronic
environment.
C. Same-Day Settlement Rule
Section 229.36(f) requires a paying bank to provide same-day
settlement for checks presented in accordance with reasonable delivery
requirements established by the paying bank and presented at a location
designated by the paying bank and by 8 a.m. (local time of the paying
bank) on a business day. Prior to the Regulation CC same-day settlement
rule, which became effective in 1994, private-sector collecting banks
sometimes (1) did not obtain settlement from the paying bank until the
day after presentment or (2) were charged ``presentment fees'' by the
paying bank, which the paying bank would deduct from the amount it paid
in settlement of the checks presented to it.\18\ By contrast, under
Sec. Sec. 13(1) and 16(13) of the Federal Reserve Act and Sec.
210.9(b)(1) of Regulation J (12 CFR
[[Page 16865]]
part 210), the Reserve Banks obtain same-day settlement at par for
checks presented to a paying bank before its cut-off hour, which is
generally 2:00 p.m. or later.\19\ To reduce the competitive disparity
between the Reserve Banks and other collecting banks, and to more
equitably balance the bargaining power between collecting and paying
banks, the same-day settlement rule (1) required a paying bank to
provide same-day settlement to a private-sector collecting bank,
provided that presentment was made by 8 a.m. in accordance with
reasonable delivery requirements established by the paying bank and (2)
prohibited the paying bank from deducting fees from the amount of its
settlement for checks presented in accordance with the terms of the
rule.\20\
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\18\ 57 FR 46956 (Oct. 14, 1992).
\19\ Times are stated as local time of the paying bank.
\20\ In April 1988 the Board requested comment on a proposal
requiring paying banks to settle on the day of presentment for
checks presented by any bank prior to 2 p.m., i.e., the same
timeframe as is applicable to the Reserve Banks. (53 FR 11911 (Apr.
11, 1988)) The overwhelming majority of commenters, however,
objected to the proposed 2 p.m. deadline because they believed that
it would severely disrupt corporate cash management and controlled
disbursement services, as well as paying banks' operations. See 57
FR 46956, 46957 (Oct. 14, 1992).
Further, in March 1998, the Board requested comment on the
effect of the same-day settlement rule, and on whether remaining
legal discrepancies between the Reserve Banks and private-sector
collecting banks, such as the 8 a.m. versus 2 p.m. presentment time
for same-day settlement, should be further reduced (63 FR 12700,
Mar. 16, 1998). Most commenters did not believe that the six-hour
difference in presentment deadlines or other remaining legal
disparities were a significant impediment to the ability of private-
sector collecting banks to compete with the Reserve Banks. See 63 FR
68701, 68703 (Dec. 14, 1998). The Board concluded that the costs
associated with reducing the remaining legal disparities would
outweigh any payments system efficiency gains, and therefore decided
not to propose any specific regulatory changes.
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As noted above, the Check 21 Act facilitated substantial changes in
the manner in which checks are collected in the United States. In
December 2010, the Reserve Banks received about 99.7 percent of check-
collection volume electronically, and presented about 98.4 percent of
their volume electronically. Many paying banks that receive check
presentments electronically have indicated that they prefer to receive
all of their interbank check presentments electronically, so that they
can streamline their back-office operations and eliminate the costs
associated with processing paper-check presentments. Some collecting
banks, however, continue to present paper checks to these paying banks
under the Regulation CC same-day settlement rule.
To encourage the banking industry's ongoing transition to fully-
electronic interbank check clearing, the Board proposes to allow a
paying bank to require checks presented for same-day settlement to be
presented electronically as ``electronic collection items.'' A paying
bank, however, must have agreed to receive electronic collection items
from the presenting bank under proposed Sec. 229.36(a). Similar to
electronic returns, the Board proposes to define a new term,
``electronic collection item,'' and to establish substantive
requirements for an item to qualify as an electronic collection item.
Under the proposal, the timeframes, deadlines, and settlement methods
for same-day settlement presentments of electronic collection items
would be the same as those currently in effect for same-day settlement
presentments of paper checks. The proposed definition of an electronic
collection item and the ways by which a paying bank agrees to accept
electronic presentment items from a presenting bank are discussed more
below in the section-by-section analysis of proposed Sec. Sec.
229.2(s) and 229.36(a), respectively.
The proposed rule would not preclude interbank presentment of
checks in paper form; settlement for such presentments would be subject
to the UCC, Sec. 229.36(d) if the paying bank has not specified that
checks presented for same-day settlement be presented as electronic
collection items, or Regulation J.\21\ The Board requests comment on
the proposed modification to the same-day settlement rule.
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\21\ See UCC 4-213 and 4-301.
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II. Electronic Items Not Derived From Checks
The Board is aware of industry practices in which an electronic
image of a ``check'' is created, but a check never existed in paper
(``electronically-created items''). For example, payees collect payment
by means of electronically-created items (i.e., items that never
existed in paper form) that resemble images of remotely created checks.
Similarly, the drawer's bank (the paying bank) might supply a smart-
phone application through which the drawer is able to execute a
``handwritten'' signature on the phone's screen, and through which the
signature is attached to an electronic ``check'' that the drawer sends
via the Internet to the payee, for the payee's subsequent electronic
deposit with its bank.
An electronically-created item is not derived from an original
paper check, and therefore it cannot be used to create a substitute
check that meets the requirements of the Check 21 Act and Regulation
CC.\22\ As a practical matter, a bank (including perhaps the depositary
bank) receiving an electronically-created item cannot distinguish the
item from any other image of a check that it receives electronically.
The bank, nonetheless, may transfer the image as if it were an
electronic collection item or electronic return, or produce a paper
item that is indistinguishable from a substitute check (although not a
valid substitute check because the item never existed in paper). A bank
that transfers an image as if it were an electronic collection item or
electronic return may be liable under the proposed new warranties (see
proposed Sec. 229.34) related to electronic collection items and
electronic returns, or may be liable for breach of the Check 21 Act's
warranty that a substitute check accurately represents all of the
information from the original check as of the time the original check
was truncated. In order to protect a bank that receives an
electronically-created item from another bank from potential liability,
the Board proposes that any bank transferring an electronically-created
image and related information as either an electronic collection item
or an electronic return would make any warranty the bank would make if
the electronically-created item were in fact an electronic collection
item or an electronic return (in other words, as if the item were
derived from a paper check). As discussed in the section-by-section
analysis of proposed Sec. 229.34, the proposal would apply the same
warranties to electronic collection items and electronic returns that
would apply had those items been handled as paper checks (including
remotely created checks) or substitute checks.
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\22\ Under the terms of the Check 21 Act, a substitute check is
a paper reproduction of an original check that contains an image of
the front and back of the original check. Regulation CC defines
original check as ``the first paper check issued with respect to a
particular payment transaction.'' In the case of an electronically
created item, there is no original check of which a substitute check
can be a reproduction.
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As a result of these proposed new warranties, a bank receiving a
warranty claim related to an electronic collection item, electronic
return, or a nonconforming substitute check could pass back its
liability for the item to the bank from which it had received the
electronically-created image and information. Although in some
instances the first bank to make the warranty also may not know whether
an image and information came from a paper instrument, the Board
believes that that bank is in the best position to
[[Page 16866]]
know and to protect itself contractually against the risk that it did
not.
As noted above, a bank often cannot distinguish between electronic
items derived from paper checks and electronically-created items.
Therefore, under the proposal, banks might treat electronically-created
items as if they were electronic collection items or electronic
returns. The Board requests comment on whether, in addition to the
proposed warranties discussed above, it should in the future consider
making an electronically-created item subject to subpart C of
Regulation CC as if it were a check. Such a change would result, for
example, in the paying bank to which the item is presented being
subject to the regulation's expeditious-return requirement. The Board
emphasizes that the proposed warranties, as well as making
electronically-created items subject to subpart C as if they were
checks, would not necessarily affect any future determinations by the
Board or the Bureau of Consumer Financial Protection as to whether such
electronically-created items are electronic fund transfers subject to
Regulation E (12 CFR part 205).
The Board proposes that the existing warranties related to remotely
created checks be extended to electronically-created items that
resemble images of remotely created checks. As a general matter, the
Board is not aware of reliable data regarding the prevalence of
remotely created checks and similar electronically-created items.\23\
The Board requests comment on the frequency of use of these types of
checks and items, the rate at which they are returned unpaid, and the
extent to which payees have valid reasons to obtain payment by means of
these items, as opposed to using an ACH debit transaction or other
means.
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\23\ Banks cannot readily differentiate remotely created checks
and electronically-created items that resemble remotely created
checks from regular checks, which makes data regarding these items
difficult to obtain.
In March 2008, the Reserve Banks published an estimate, based on
visual inspection of a sample of about 35,000 checks, that about one
percent of all checks in 2007 were remotely created. See page 33 of
the Reserve Banks' 2007 Check Sample Study: http://www.frbservices.org/files/communications/pdf/research/2007_check_sample_study.pdf. The study's definition of the item in question
was somewhat different than Regulation CC's definition of a remotely
created check.
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III. Amendments Related to the Elimination of Nonlocal Checks
In response to the continued nationwide decline in check usage and
banks' rapidly increasing use of electronic check-clearing methods
since the Check 21 Act, as well as to meet the cost recovery
requirements of the Monetary Control Act of 1980, the Federal Reserve
Banks have ceased check-processing operations at all of their check-
processing offices except one.\24\
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\24\ In 2003, the Reserve Banks had 45 check-processing offices.
Cleveland became the sole remaining Reserve Bank check-processing
office on February 27, 2010. Historically, appendix A to Regulation
CC identified each Federal Reserve Bank check-processing office and
listed under each office the first four digits of the routing
numbers of the depository institutions served by that office.
Appendix A thereby helped depositary banks determine whether a
deposited check's paying bank was local or nonlocal. In conjunction
with the Reserve Banks' cessation of check-processing activities at
each office, the Board published conforming amendments to appendix A
so that the appendix accurately reflected which institutions were
served by each remaining office. With Cleveland now the sole office,
all paying banks' routing symbols are listed under it.
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The EFA Act's and Regulation CC's funds-availability schedule
differentiates between ``local checks'' and ``nonlocal checks,'' which
are defined in terms of which ``check-processing region'' the paying
bank is located in relative to the depositary bank.\25\ The EFA Act and
Regulation CC define a ``check-processing region'' in terms of the
geographical area served by a Federal Reserve Bank check-processing
center.\26\ The Reserve Banks' office closures have had the effect of
reducing to one the number of check-processing regions. Accordingly,
there are no more ``nonlocal checks,'' because all paying banks and
depositary banks are located in the same check-processing region.\27\
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\25\ 12 CFR 229.2(r) and 229.2(v). A ``local check'' is one that
is payable by a bank located in the same check-processing region as
the depositary bank. By contrast, a ``nonlocal check'' is one that
is payable by a bank located in a different check-processing region
than the depositary bank.
\26\ Section 602(9) of EFA Act defines check processing region
as ``the geographical area served by a Federal Reserve bank check
processing center or such larger area as the Board may prescribe by
regulations.'' Section 229.2(m) defines check processing region as
``the geographical area served by an office of a Federal Reserve
Bank for purposes of its check-processing activities.''
\27\ A deposit of a ``local check'' receives two-day funds
availability under the regulation, whereas nonlocal checks received
five-day availability. The elimination of nonlocal checks therefore
has improved funds availability for banks' customers.
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Because there are no more nonlocal checks, certain provisions in
the regulation can be substantially simplified. Specifically, the Board
proposes to delete the definitions in subpart A that relate to
distinguishing local from nonlocal checks (specifically, the
definitions of ``check-processing region,'' ``local check,'' ``local
paying bank,'' ``nonlocal check,'' and ``nonlocal paying bank''), as
well as the related portions of appendix A to the regulation. The Board
also proposes to streamline the funds-availability and disclosure
provisions in subpart B and to update the model funds-availability
forms set forth in appendix C to the regulation.\28\ The Board proposes
that a bank basing its disclosures on the models currently in the
appendix would continue to receive a safe harbor for doing so up to 12
months after a final rule becomes effective, provided that the
disclosures accurately reflect the bank's policies and practices.
Finally, the Board proposes to update the preemption determinations,
with respect to states' funds-availability laws, that are set forth in
appendix F to the regulation.\29\
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\28\ The proposed updates to the model forms in appendix C are
based on consumer testing of the forms, and are discussed in more
detail in the section-by-section analysis below. A detailed report
regarding the consumer testing is available on the Board's public
Web site, http://www.federalreserve.gov, along with this proposed
rule.
\29\ See Regulation CC Sec. 229.20 and EFA Act Sec. 608. A
state's funds-availability law must have been in effect on or before
September 1, 1989, to not be preempted by the regulation.
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IV. Dodd-Frank Act Amendments
A. EFA Act Dollar Amounts
Section 1086 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (Dodd-Frank Act) amends the EFA Act by
increasing from $100 to $200 the amount of deposited funds that banks
must make available for withdrawal by opening of business on the next
day.\30\ The effective date of this provision of the act is the
``designated transfer date,'' which the Secretary of the Treasury has
determined to be July 21, 2011.\31\ This provision of the EFA Act is
implemented in Sec. 229.10(c)(1)(vii). Additionally, the model
disclosure forms set forth in current appendix C reflect the
requirement that a bank must make $100 of the deposit available on the
next business day. When the Dodd-Frank Act's increase to $200 becomes
effective, banks should ensure that their disclosures reflect the new
funds-availability schedule and that customers are notified of the
changes in policy in accordance with Sec. 229.18(e). Specifically,
effective July 21, 2011, a bank basing its funds-availability
disclosure on current model C-3, C-4, or C-5 must ensure that its
disclosure indicates that the first $200 (rather than $100) of a check
deposit will be
[[Page 16867]]
available on the next business day after the day of deposit.\32\
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\30\ See Sec. 1086(e) of the Dodd-Frank Act, Public Law 111-
203, 124 Stat. 1376 (2010).
\31\ See Sec. 1062 of the Dodd-Frank Act. The designated
transfer date is subject to an extension to up to 18 months after
the Dodd-Frank Act's date of enactment.
\32\ Per Sec. 229.18(e), a bank must provide a change-in-terms
notice to existing consumer customers by August 21, 2011.
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Section 1086 amends the EFA Act to require the Board, jointly with
the Bureau of Consumer Financial Protection (Bureau), to update the
dollar amounts to reflect inflation every five years after December 31,
2011.\33\ These amounts include the amount of funds a depositary bank
must make available from a deposit of a check not subject to next-day
availability (Sec. 229.10(c)(1)(vii)), by cash or similar means (Sec.
229.12(b)), and under the new-account and large-deposit exceptions
(Sec. Sec. 229.13(a) and (b)). These amounts also include the EFA
Act's damage limitations (Sec. 229.21(a)). To facilitate future
amendments to the regulation in this regard, the proposed amendments
minimize the number of references to specific dollar amounts. For
example, in the future, the $100 (which increases to $200 as of the
transfer date) mentioned above would be considered ``the minimum amount
of a deposit that must be made available on the next day.'' The Board
plans to seek comment on proposed methods of indexing the amounts to
inflation jointly with the Bureau at a later date.
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\33\ The amounts are indexed to the Consumer Price Index for
Urban Wage Earners and Clerical Workers (CPI-W), as published by the
Bureau of Labor Statistics (BLS), rounded to the nearest multiple of
$25. See Sec. 1086(f) of the Dodd-Frank Act.
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B. Rule-Writing Authority
Section 1086 also amends the Board's rule-writing authority under
the EFA Act by making certain rule-writing authorities joint with the
Bureau. Specifically, as of the transfer date, the Board's authority to
implement the EFA Act's provisions (EFA Act Sec. 609(a)), reduce hold
periods (EFA Act Sec. 603(d)(1)), establish exceptions to the funds-
availability schedule (EFA Act Sec. 604(f)), and publish model
disclosure provisions (EFA Act Sec. 605(f)(1)) will become joint with
the Bureau. Accordingly, after the transfer date, any rules promulgated
pursuant to these authorities will be done so jointly with the Bureau.
C. Administrative Enforcement
The Dodd-Frank Act eliminates the Office of Thrift Supervision as
of July 21, 2011, the ``transfer date'' provided in Sec. 311 of the
Dodd-Frank Act, and transfers enforcement authority for insured savings
associations under Sec. 8 of the Federal Deposit Insurance Act to the
Office of the Comptroller of the Currency.\34\ Accordingly, as of the
transfer date, compliance with part 229 will be enforced by the Office
of the Comptroller of the Currency in the case of savings associations
with deposits insured by the Federal Deposit Insurance Corporation. The
administrative enforcement provisions are contained in Sec. 229.3.
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\34\ The transfer date is subject to an extension of up to 18
months after the Dodd-Frank Act's date of enactment. See Sec. 311
of the Dodd-Frank Act.
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V. Other Proposed Amendments
The Board proposes other amendments to the provisions of Regulation
CC and its commentary. These proposed changes are discussed in the
section-by-section analysis below.
Section-by-Section Analysis
Paragraph citations in this section-by-section analysis are as
proposed to be renumbered, unless otherwise explicitly stated. Sections
not discussed below are either unchanged or have only technical or
conforming amendments. The Board requests comment on all aspects of the
proposed rule.
I. Subpart A
A. Section 229.1--Authority and Purpose, Organization
The Board proposes to add to Sec. 229.1(b) descriptions of the
appendices to the regulation, as well as amendments to conform Sec.
229.1(b) to amendments proposed in this notice.
B. Section 229.2--Definitions
The definitions of terms in Sec. 229.2 were incorporated into the
regulation at different times and are not currently in alphabetical
order. The Board proposes that the paragraphs in this section be
renumbered so that defined terms are in alphabetical order. Similarly,
the Board proposes to renumber the paragraphs in the commentary to
reflect the proposed renumbering.
1. Section 229.2(b)--Automated Clearinghouse (ACH) Credit Transfer
Because the regulation uses the term ACH only within other
definitions, the Board proposes to delete the definition of the term
``automated clearinghouse'' and replace it with a new defined term,
``automated clearinghouse (ACH) credit transfer.'' This phrase is used
in the definition of electronic payment (Sec. 229.2(t)) and in the
commentary to Sec. 229.10(b), which requires a bank to make funds
received for deposit by an electronic payment available for withdrawal
the next day. The Board intends no change to the regulation's substance
by this proposed clarifying definitional change.
2. Section 229.2(c)--Automated Teller Machine or ATM
The Board proposes to clarify that an automated teller machine
(ATM) includes only those devices at which a person may make deposits
by cash or paper check. For example, a remote deposit capture device
would not be considered an ATM because a bank's customer would be
depositing an image of the check, not the paper check, into the
account. The Board proposes conforming amendments to the commentary of
this section. Additionally, the Board proposes to provide an example of
the ``other account transactions'' that may be performed at an
automated teller machine (ATM); specifically, making cash withdrawals
from an account.
3. Section 229.2(r)--Depositary Bank
The Board proposes to clarify that a bank that rejects a check
submitted for deposit is not a depositary bank. The rationale for this
proposed change is discussed in more detail below in this section-by-
section analysis under Sec. 229.52.
4. Section 229.2(s)--Electronic Collection Item
The Board proposes in new Sec. 229.2(s) to define the new term
``electronic collection item'' as an electronic image of and
information related to a check that a bank sends for forward collection
and that a paying bank has agreed to receive under Sec. 229.36(a), and
that is sufficient to create a substitute check.\35\ Under the proposed
definition, the image and information must conform to American National
Standard Specifications for Electronic Exchange of Check and Image
Data--X9.100-187, in conjunction with its Universal Companion Document,
(hereinafter collectively referred to as ANS X9.100-187), unless the
parties otherwise agree.\36\ If an electronic collection item satisfies
the requirements set forth in proposed Sec. 229.2(s), then, as stated
in proposed Sec. 229.33, the provisions of subpart C would apply to
the electronic collection item as if it were a check. (See proposed
commentary to
[[Page 16868]]
Sec. 229.2(s)).\37\ Some electronic presentment agreements, however,
may not require an image of the check. Electronic items presented under
these agreements would not be electronic collection items because they
are not sufficient to create a substitute check, nor would they be
treated as checks for purposes of subpart C. The proposed commentary
also explains that an electronic collection item that contains an image
of the front and back of a substitute check (as opposed to an original
check) would be an electronic representation of a substitute check, as
that phrase is defined in proposed Sec. 229.2(hh) (current Sec.
229.2(xx)). Not all electronic representations of substitute checks,
however, would qualify as an electronic collection item, because, to be
an electronic collection item, an electronic representation of a
substitute check must contain sufficient information to create a
substitute check.
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\35\ The agreement to receive an electronic collection item
could be in the form of a Federal Reserve Bank operating circular or
a clearinghouse rule.
\36\ X9.100-187 is available from http://www.x9.org. The UCD for
X9.100-187 is available at http://www.checkimagecentral.org/pdf/UCD_X9_100-187-2008_Version_1.2.pdf.
\37\ For example, a paying bank receiving presentment of an
electronic collection item would be subject to the regulation's
expeditious-return requirement, provided the depositary bank has
agreed to accept electronic returns from the paying bank under Sec.
229.32(a).
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The Board believes that ANS X9.100-187 is the most prevalent
industry standard for electronic images and information that will
enable the receiving bank to create a substitute check. The Board
recognizes, however, that certain banks may use a different standard
and that, as is the case with many technology standards, the standard
likely will evolve. To the extent that banks use a different standard,
the proposed definition of electronic collection item would permit
parties to agree to a standard other than ANS X9.100-187 and still have
the item qualify as an electronic collection item that is treated as a
check for purposes of subpart C, provided that the item is sufficient
to create a substitute check. The Board requests comment on the
proposed standard for an electronic collection item and whether any
other standard should be specified in the regulation.
5. Section 229.2(u)--Electronic Presentment Point
The Board proposes in new Sec. 229.2(u) to define electronic
presentment point as the electronic location that the paying bank has
designated for receiving electronic collection items. This point may be
either an e-mail address or other electronic address. The Board
requests comment on whether this definition provides enough
specificity.
6. Section 229.2(v)--Electronic Return
The Board proposes in new Sec. 229.2(v) to define the new term
``electronic return'' as an electronic image of and information related
to a check that a paying bank has determined not to pay and that a
depositary bank has agreed to receive under Sec. 229.32(a), and that
is sufficient to create a substitute check. The image and information
must conform to ANS X9.100-187, unless the parties otherwise agree. The
proposed commentary explains that if an electronic return satisfies the
requirements set forth in Sec. 229.2(v), then the provisions of
subpart C apply to the electronic return as if it were a check (See
proposed Sec. 229.33).\38\
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\38\ Like an electronic collection item, an electronic return
may be an electronic representation of a substitute check, but not
all electronic representations of substitute checks would qualify as
an electronic return.
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The proposed commentary to Sec. 229.2(v) explains that a
depositary bank's agreement with a returning bank to accept .pdf files
that are sufficient to create substitute checks would be one example of
banks varying by agreement the regulation's requirement that an
electronic return conform with ANS X9.100-187. By agreeing with a
returning bank to accept an electronic return in the form of a .pdf
file, a depositary bank would thereby be entitled to expeditious
return. The Board requests comment on the proposed standard for an
electronic return and whether any other standard should be specified in
the regulation.
7. Section 229.2(w)--Electronic Return Point
The Board proposes in new Sec. 229.2(w) to define electronic
return point as the electronic location that the depositary bank has
designated for receiving electronic returns. The proposed commentary
notes that an electronic return point may be an e-mail address or other
electronic address that a depositary bank has designated as the place
to which electronic returns must be delivered. The Board requests
comment on whether this definition provides enough specificity.
8. Section 229.2(hh)--Paper or Electronic Representation of a
Substitute Check
The Board proposes to modify the commentary to the definition of
this term to note that an electronic representation of a substitute
check may also be an electronic collection item or electronic return if
the electronic representation contains sufficient information for
creating a substitute check and conforms to ANS X9.100-187, or another
format to which the parties agreed.
9. Section 229.2(pp)--Routing Number
The Board proposes to add to the definition a new subparagraph
providing that the term also includes the bank-identification number
contained in the electronic image of or information related to a check.
Further, the Board also proposes to move the two introductory
paragraphs in appendix A, which provide general information about
routing numbers, to the commentary to the definition of routing number.
10. Deleted Terms
Check-processing region, local check, local paying bank, nonlocal
check, and nonlocal paying bank. Because there is now only one
nationwide check-processing region, there are no longer any nonlocal
checks, and the definitions in the regulation implementing the
distinctions between local and nonlocal checks are no longer necessary.
Accordingly, the Board proposes to delete from the regulation the
definitions of ``check-processing region (current Sec. 229.2(m)),
``local check'' (current Sec. 229.2(r)), ``local paying bank''
(current Sec. 229.2(s)), and ``nonlocal paying bank'' (current Sec.
229.2(w)), and the commentary thereto.
Similarly situated bank. The only place the current regulation uses
this term is in the forward-collection test for expeditious return.
Because the Board proposes to delete that test from the regulation (as
discussed below in this section-by-section analysis under Sec. Sec.
229.30(a) and 229.31(a)), the regulation's definition of similarly
situated bank is no longer necessary and the Board proposes to delete
current Sec. 229.2(ee).
II. Subpart B
Throughout subpart B and the commentary thereto, the Board proposes
to eliminate all references to ``check-processing regions,'' ``local
checks,'' ``local paying banks,'' ``nonlocal checks,'' and ``nonlocal
paying banks.''
A. Section 229.10(c)--Next-Day Availability of Certain Check Deposits
1. Section 229.10(c)(1)(vi)
Given that there is only one nationwide check-processing region,
the Board proposes in Sec. 229.10(c)(1)(vi) to delete the phrase ``if
both branches are located in the same state or check-processing
region.'' As a result, the subparagraph would require a depositary bank
to provide next-day availability for a check deposited in a
[[Page 16869]]
branch of the depositary bank and drawn on the same or another branch
of the same bank.
2. Section 229.10(c)(1)(vii)
Section 1086(e) of the Dodd-Frank Act increases from $100 to $200
the minimum amount of funds deposited by check or checks on a given
business day that a bank must make available by opening of business on
the next business day pursuant to Sec. 603(a)(2)(D) of the EFA Act.
That provision of the EFA Act is implemented in Sec. 229.10(c)(1)(vii)
of Regulation CC, and the increase is expected to take effect on July
21, 2011, regardless of whether the Board and the Bureau have amended
Regulation CC. Accordingly, the Board proposes to amend the commentary
to Sec. 229.10(c)(1)(vii) to facilitate future amendments to the
minimum amount of a deposited check a bank must make available on the
business day following the banking day of deposit. Specifically, the
Board proposes to replace references to ``$100'' with references to
``the minimum amount.'' The Board proposes to make this amendment
throughout the commentary, as well as in the model forms.
3. Section 229.10(c)(2)
The Board proposes to delete current Sec. 229.10(c)(2), which
states that a depositary bank shall make funds available by the second
business day after the banking day on which a check is deposited in the
case of a check deposit that meets the requirements of Sec. Sec.
229.10(c)(1)(ii), (iii), (iv), or (v), except the check is not
deposited in person.\39\ In the absence of nonlocal checks, the checks
described Sec. 229.10(c)(2) are subject to the same rule as the
general rule set forth in proposed Sec. 229.12. Section 229.10(c)(2)
is therefore no longer necessary.
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\39\ These checks include U.S. Postal Service money orders,
checks drawn on Federal Reserve Banks or Federal Home Loan Banks,
checks drawn by state or local governments, or cashier's checks,
certified checks, or teller's checks.
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B. Section 229.12--Availability Schedule
1. Proposed Sec. 229.12(a)--In General
The Board proposes to delete current Sec. 229.12(a). It specifies
the effective date (September 1, 1990) for Sec. 229.12 and is no
longer necessary.
The Board proposes that new Sec. 229.12(a) set forth the general
funds-availability rule for deposits of checks: Unless subject to one
of the enumerated exceptions, funds from a check deposit must be made
available for withdrawal by the second business day following the
banking day of deposit. Proposed new Sec. 229.12(a) is derived from
current Sec. 229.12(b), which sets forth local check availability. In
the absence of a distinction between local checks and nonlocal checks,
current Sec. 229.12(b)(1), (2), (3), and (4) are subsumed within this
general rule, and the Board proposes to delete them.\40\ Similarly,
current Sec. 229.12(c) applies to nonlocal checks, which is now a null
set, and the Board proposes to delete Sec. 229.12(c) and commentary
thereto.
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\40\ Current Sec. 229.12(b) states which checks are subject to
second-day availability. These checks include local checks and
checks that meet the requirements of Sec. Sec. 229.10(c)(1)(ii),
(iii), (iv), or (v), except the check is not deposited in person.
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2. Section 229.12(b)--Withdrawal by Cash or Similar Means
Section 229.12(b) implements the EFA Act's permissive adjustment to
the funds-availability rules for withdrawals by cash or similar means.
In part, a bank may delay availability for withdrawal by cash or
similar means by one business day, provided that the bank makes $400 of
the deposited funds available for withdrawal not later than 5 p.m. on
the business days on which the funds must be made available under the
funds-available schedule. Like other amounts specified in the EFA Act,
this $400 will be adjusted every five years for inflation. In order to
facilitate future adjustments to the amount, the Board proposes to
amend the commentary to Sec. 229.12(b) by replacing references to
``$400'' with references to ``the cash withdrawal amount.'' The Board
proposes to make similar amendments throughout the commentary and model
forms.
3. Section 229.12(d)--Deposits at Nonproprietary ATMs
As indicated in the EFA Act's legislative history, Congress adopted
the five-day maximum hold on nonproprietary ATM deposits to match the
five-day maximum hold on a nonlocal check deposit, because the
depositary bank did not know the composition of a nonproprietary ATM
deposit (that is, whether the deposit consisted of cash, local checks,
nonlocal checks, etc.).\41\ In the absence of nonlocal checks, however,
there is no longer any class of check that is subject to a maximum
five-day hold.
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\41\ The EFA Act conference report states that ``nonproprietary
ATMs today do not distinguish among check deposits or between check
and cash deposits'' (H.R. Rep. No. 261, 100th Cong., 1st Sess. 179
(1987)).
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EFA Act Sec. 603(d)(1) states that ``The Board shall, by
regulation, reduce the time periods established under subsections (b),
(c), and (e) to as short a time as possible and equal to the period of
time achievable under the improved check clearing system for a
receiving depository institution to reasonably expect to learn of the
nonpayment of most items for each category of checks.'' The statute's
legislative history recommends a quantitative benchmark for the Board
to use to determine whether to reduce these hold periods: a receiving
bank could reasonably expect to learn of the return of two-thirds of
the checks in a given category before a bank must make the deposited
funds available for withdrawal at the opening of business.\42\
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\42\ Conference Report on H.R. 27 (H. Rept. 100-261), 100th
Congress, 1st session, 179 (1987), pp. H6906-7.
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As mentioned above, in December 2010 the Reserve Banks received
about 99.7 percent of deposited for forward collection electronically,
presented 98.4 percent of their checks electronically, received 97.1
percent of returned checks electronically, and delivered about 76.7
percent of returned checks to depositary banks electronically. Thus,
about 73.0 percent of checks cleared and returned through the Reserve
Banks complete the roundtrip from the depositary bank to the paying
bank and back again in electronic form. It is reasonable to expect that
a check cleared and returned entirely in electronic form would complete
this roundtrip in three business days. For example, if a check is
deposited on Monday and collected electronically, the check would
generally be presented to the paying bank on Tuesday. The paying bank
would generally send the return electronically to a returning bank on
the night between Wednesday and Thursday, which would electronically
deliver the returned check to the depositary bank on Thursday.
The Board therefore proposes to reduce in proposed Sec. 229.12(d)
(current Sec. 229.12(f)) the maximum hold period for nonproprietary
ATM deposits from 5 business days to 4 business days. Four business
days will provide the depositary bank with reasonable opportunity to
learn of the nonpayment of a check deposited at a nonproprietary ATM
before it must make the funds available for withdrawal.\43\ In the
example above, the depositary bank can reasonably expect to learn of an
unpaid electronically returned check on Thursday, and will be required
under the proposed 4-business-day hold period to make funds deposited
by check at a nonproprietary ATM
[[Page 16870]]
available for withdrawal at the opening of business on Friday.\44\
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\43\ Section 229.19(b) requires that funds be made available for
withdrawal by the opening of business on the day on which funds are
required to be made available for withdrawal.
\44\ The Board is proposing to follow the analysis it set forth
in 1999 that it would reduce the availability schedules in
Regulation CC only after determining that the depositary bank can
reasonably expect to learn of an unpaid check on the business day
before the day on which the bank must make funds available for
withdrawal at the opening of business. See 64 FR 37712 (July 13,
1999).
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As mentioned above, Congress recognized in the EFA Act legislative
history that depositary banks generally do not know the composition of
deposits made at nonproprietary ATMs (that is, whether the deposit
consisted of cash, local checks, nonlocal checks, etc.), and therefore
adopted a five-day maximum hold on nonproprietary ATM deposits to match
the five-day maximum hold on a nonlocal check deposit. Currently,
however, all cash deposits not made in person to an employee of the
depositary bank and check deposits must be made available for
withdrawal by the second business day following deposit. The Board
requests comment on whether the funds-availability schedule's
distinction between deposits to proprietary ATMs and deposits to
nonproprietary ATMs continues to make sense in an environment where all
in-person cash deposits and check deposits must be made available for
withdrawal by the second business day following deposit.
C. Section 229.13--Exceptions
1. Section 229.13(b)--Large Deposits
Section 229.13(b) sets forth an exception to the funds-availability
schedule for the aggregate amount of deposited checks totaling more
than $5,000 on any one banking day to the extent the aggregate amount
exceeds $5,000. Like other amounts specified in the EFA Act, this
$5,000 threshold will be adjusted every five years for inflation. In
order to facilitate future adjustments to the amount, the Board
proposes to amend the commentary to Sec. 229.13(b) by replacing
references to ``$5,000'' with references to ``the large-deposit
amount.'' The Board proposes to make similar amendments throughout the
commentary and model forms.
2. Section 229.13(d)--Repeated Overdrafts
Section 229.13(d) provides the depositary bank with an exception to
the general availability schedule in Sec. 229.12 for a check deposited
into an account that has been repeatedly overdrawn in the preceding six
months. The exception relates not only to overdrafts caused by checks,
but also those caused by, for example, debit card transactions. The
Board proposes to add a new paragraph, Sec. 229.13(d)(3), clarifying
that the exception does not include an attempted debit card transaction
for which the depositary bank declined the authorization request,
because in that case no debit card transaction has occurred.
3. Section 229.13(e)--Reasonable Cause to Doubt Collectability
Section 229.13(e) provides the depositary bank with an exception to
the Sec. 229.12 general availability schedule if the depositary bank
has reasonable cause to believe that the check is uncollectible from
the paying bank. The commentary currently states that a depositary bank
cannot invoke this exception simply because a check is drawn on a bank
in a rural area and the depositary bank knows it will not have the
opportunity to learn of the nonpayment of the check before funds must
be made available. If a check is collected and returned electronically,
however, the rural location of a paying bank will not affect the time
required to collect and return the check. The Board proposes to update
the example in paragraph (4) of the commentary to Sec. 229.13(e).
Specifically, a depositary bank may not invoke this exception simply
because a paying bank demands paper presentment and the depositary bank
believes it is unlikely to receive the return prior to the time by
which it must make the deposited funds available.
3. Section 229.13(g)--Notice of Exception
A depositary bank must provide notice to its customer when it
invokes one of the exceptions in Sec. 229.13 to apply an extended hold
to a deposit. Section 229.13(g)(1)(i) sets forth the information that
the notice must include. Currently, the notice must include the amount
of the deposit that is being delayed. During consumer testing of the
model forms, however, consumers were more readily able to recall the
deposited check for which the funds were being held when the notice
included the total amount of the deposit, rather than only the amount
being held. Accordingly, the Board proposes to require that the notice
of an exception hold contain the total amount of the deposit, in
addition to the amount of the deposit being held. Additionally,
consumers more readily understood when funds would be made available if
the notice stated the day on which the funds will be made available,
rather than explain availability in reference to the date of deposit.
Therefore, the Board proposes to require that the notice specify the
day funds will be made available instead of ``the time period within
which'' the funds will be available for withdrawal. The Board proposes
conforming changes to proposed model notice C-9.
Section 229.13(g)(1)(ii) states that if the notice is not given at
the time of the deposit, the depositary bank shall mail or deliver the
notice to the customer as soon as practicable, but no later than the
first business day following the day the facts become known to the
depositary bank, or the deposit is made, whichever is later. With the
elimination of nonlocal checks, depositary banks must generally make
check deposits available by opening of business on the second business
day following the banking day of deposit. The Board believes that it is
desirable for a customer to learn that its bank is extending a hold
before the customer would expect the funds to become available under
the bank's generally applicable availability policy. Further, it has
become more feasible for banks to provide notices to their customers
electronically, which results in near instant receipt of the notice to
the customer. The Board therefore proposes that, if the customer has
agreed to accept notices electronically, the depositary bank is
required to send the notice such that the bank may reasonably expect
the customer to receive it no later than the first business day
following the day the deposit is made or the facts become known to the
depositary bank, whichever is later. For example, the bank could e-mail
notice of the hold to the customer. The Board requests comment on
whether providing a notice in this fashion is practical.
Finally, Sec. 229.13(g)(4) describes the notice that a depositary
bank must provide when it applies an emergency-conditions hold. The
Board proposes to update the commentary to Sec. 229.13(g) to explain
that a depositary bank may provide notice via postings to the
depositary bank's website or through a directed e-mail.
4. Section 229.13(h)--Availability of Deposits Subject to Exceptions
If a check deposit is subject to an exception hold, Sec.
229.13(h)(4) provides that a reasonable period for a hold extension is
one business day (for a total of two) for a deposit of on-us checks,
five business days (for a total of seven) for local checks, and six
business days (for a total of eleven) for nonlocal checks and deposits
into nonproprietary ATMs. The Board proposes that the safe harbor for
the reasonable hold extension for a deposit of on-us checks remain one
business day, and that safe harbor for the reasonable hold extension
for other
[[Page 16871]]
checks be reduced to two business days (from five or six business
days), for a total of four business days for all other checks.\45\
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\45\ As described above, the Board proposes to reduce the
generally-applicable hold period for nonproprietary ATM deposits
from five business days to four. The proposed reasonable hold
extension of two business days would therefore provide a total of
six business days for nonproprietary ATM deposits.
---------------------------------------------------------------------------
Section 229.13(h)(4) would continue to permit a bank to apply a
longer hold extension than this, but the bank would have the burden of
establishing that the longer hold extension is reasonable. The Board is
proposing conforming changes to the commentary to Sec. 229.13(h).
In adopting Regulation CC's permanent availability schedules, the
Board stated that the reasonable extended-hold periods are ``designed
to provide adequate time for the depositary bank to learn of the
nonpayment of virtually all checks that are returned.'' \46\ If a check
is cleared and returned electronically, the depositary bank should
receive the returned check in three business days. Checks that are not
cleared and returned entirely in electronic form, however, will
typically take longer to be returned to the depositary bank. The
Reserve Banks, however, project that by year-end 2011, 97 percent of
their checks will be cleared and returned entirely in electronic form,
which the Board believes is representative of the industry as a
whole.\47\ Therefore, depositary banks will receive virtually all
returned checks by the third business day after the day of deposit,
with the depositary bank making funds available at opening of business
on the fourth day. Although the proposed reasonable extended-hold
period of two business days (four business days total) may increase
risk for a depositary bank that does not accept electronic returns, the
Board believes that the reduction in the exception hold safe harbor is
warranted given that it will provide faster availability for depositors
as well as an incentive for depositary banks to take advantage of
electronic check-return infrastructure.
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\46\ See 55 FR 21848, 21850 (May 30, 1990).
\47\ See the Board's Federal Register notice announcing its
approval of the Federal Reserve Banks' 2011 fee schedules for priced
services, 75 FR 67740 (Nov. 3, 2010).
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If the paying bank does not return checks electronically, the time
required for a check to be delivered from the depositary bank to the
paying bank and back again may be greater than three business days. A
paying bank that does not send returned checks electronically, however,
generally will not meet its expeditious return requirement, and the
depositary bank may have a claim for any losses it incurs due to the
failure of the paying bank to send the returned check expeditiously.
D. Section 229.15--General Disclosure Requirements
1. Section 229.15(a)
Section 229.15(a) sets forth the form requirements for disclosures
under subpart B. In general, there are two types of disclosures under
subpart B--funds-availability policy disclosures and delayed
availability notices. Both types of disclosures must be written and in
a form the customer may keep. The Board proposes to amend Sec.
229.15(a) to clarify that the form requirements apply to both funds-
availability policy disclosures and delayed availability notices
required by subpart B.
2. Section 229.15(b)(1)
Section 229.15(b) states that ``[i]n its disclosure, a bank shall
describe funds as being available on `the ---------- business day
after' the day of deposit.'' The Board's consumer testing of the model
disclosures in Appendix C (discussed in more detail below), however,
indicated that consumers may more readily understand alternative
formulations of statements of when deposited funds will be available
for withdrawal. The Board therefore proposes in Sec. 229.15(b)(1) to
provide banks with more flexibility regarding this description.\48\ The
proposal requires a bank in its disclosure or notice to specify the
business day on which funds are available for withdrawal by describing
that day in relation to the banking day on which the deposit is
received, and to use in this description language substantially similar
to that set forth in proposed Sec. 229.15(b)(1). Under the proposal,
for example, the banking day of receipt may be described as ``the same
business day,'' and the business day after the banking day of receipt
may be described as ``the next business day,'' or described using
either cardinal or ordinal numbers, such as ``2 business days'' or
``the second business day.''
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\48\ Under the Board's proposal, a bank that bases its
availability-policy disclosure on the models currently provided in
Appendix C will continue to receive a safe harbor for doing so. See
the discussion of Appendix C below in this section-by-section
analysis.
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E. Section 229.16--Specific Availability Policy Disclosure
1. Section 229.16(b)(2)
Because the Board is eliminating references to local and nonlocal
checks throughout the regulation and commentary, the Board proposes to
delete the requirement that banks that distinguish between local and
nonlocal checks in their availability policy disclose that a check
payable through one bank (the bank whose routing number appears in the
MICR line) and payable by another bank would be considered local or
nonlocal on the basis of the location of the bank by which the check is
payable. In the absence of nonlocal checks, that disclosure requirement
is obsolete.
2. Section 229.16(c)(2)
Section 229.16(c)(2) sets forth the information required in a
notice when a bank invokes a case-by-case hold. These information
requirements are similar to the information requirements for exception-
hold notices under Sec. 229.13(g). Consumer testing demonstrated that
consumers are both able to recall the deposit to which the hold is
being applied if the notice states the total deposit amount and able to
understand more readily the day on which funds will be made available
if given a specific date. Therefore, the Board proposes to amend the
case-by-case notice requirements in Sec. 229.16(c)(2)(i) to require
that a case-by-case notice include the total amount of the deposit and
the specific date on which funds will be made available.
Further, in the absence of nonlocal checks, the case-by-case hold
period is so short that a paper notice of the hold sent through the
mail may not reach the customer until after the hold has been lifted.
The Board therefore proposes to amend Sec. 229.16(c)(2)(ii) and the
related commentary to provide that, if the customer has agreed to
accept notices electronically, a bank that invokes a case-by-case hold
after the time of deposit be required to deliver the notice such that
the bank may reasonably expect the notice to be received by the
customer not later than the first business day following the banking
day of deposit. For example, the bank could e-mail notice of the hold
to the customer on the business day after the banking day of deposit.
The Board requests comment on whether providing a notice in this
fashion is practical.
In addition, the Board requests comment on the extent to which
banks continue to find it useful to apply case-by-case holds to check
deposits and on whether the regulation's provision for case-by-case
holds should be deleted. In the absence of nonlocal checks, the extra
hold period that a depositary bank may obtain by applying a case-by-
case hold is generally not sufficient for the bank to learn that a
deposited check has been returned unpaid before making funds available
to the depositor.
[[Page 16872]]
F. Section 229.19--Miscellaneous
1. Section 229.19(e)(2)
Section 229.19(e)(2) limits the ability of a depositary bank that
cashes a check for a customer to place a hold on other funds of the
customer. The Board proposes to amend Sec. 229.19(e)(2) to clarify
that a depositary bank that cashes a check for a customer over the
counter may place a hold on funds in an account of the customer only if
the check is not drawn on the depositary bank. In contrast, if a
depositary bank cashes a check drawn on itself, the check is considered
finally paid when cashed under the U.C.C.\49\ The Board intends no
change to the substance of this provision.
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\49\ See UCC 4-215 and commentary to Regulation CC Sec.
229.19(e).
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2. Section 229.19(g)(2)
The Board proposes to delete as obsolete the provision regarding
mergers between July 1, 1998, and March 1, 2000.
G. Section 229.21(g)--Record Retention
Current Sec. 229.21(g) requires a bank to maintain records
evidencing compliance with subpart B's requirements for not less than
two years, and states that a bank may store records using, among other
media, ``microfiche, microfilm, [and] magnetic tape.'' These listed
examples in Sec. 229.21(g) of the types of media on which a bank may
store records are obsolete, and the Board proposes to replace them with
a more general provision that a bank may store records using
``electronic storage media,'' among other media.
H. Appendix A--Routing Number Guide to Next-Day-Availability Checks
In the absence of nonlocal checks, it is no longer necessary to
retain the portion of appendix A that lists under the single remaining
Reserve Bank check-processing office (the head office of the Federal
Reserve Bank of Cleveland) all banks' four-digit routing symbols. The
Board proposes to delete this portion of the appendix, as well as the
reference to the Federal Reserve Bank of Cleveland. The Board proposes
to retain in the appendix the lists of nine-digit routing numbers
associated with certain next-day-availability checks.\50\ The Board
also proposes to delete certain listed routing numbers of the Federal
Reserve Banks and Federal Home Loan Banks that have been retired.
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\50\ Treasury checks, postal money orders, and checks drawn on
the Federal Reserve Banks and Federal Home Loan Banks can be
identified by routing number, and these routing numbers will
continue to be listed in appendix A. Next-day-availability checks
such as cashier's, certified, and teller's checks cannot be
identified by routing number, however, and are not listed in the
appendix.
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I. Appendix C, Model Availability-Policy Disclosures, Clauses and
Notices
1. Consumer Testing Process
The model availability-policy forms in appendix C of Regulation CC
include numerous obsolete provisions related to nonlocal checks.
Additionally, the model forms were first published over 20 years ago,
when Regulation CC was first promulgated. More recently, the Board has
tested with consumers the model forms included with its other
regulations.\51\ In this instance, the Board used ICF Macro, a research
and consulting firm that specializes in designing and testing
documents, to conduct consumer testing to help the Board's review of
the model availability-policy forms proposed in this notice. ICF Macro
prepared a detailed report of the results of the testing, which is
available on the Board's Web site (http://www.federalreserve.gov) along
with this proposed rule.
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\51\ See Interim Final Rule on Mortgage Disclosures (Regulation
Z), 75 FR 58470 (Sept. 24, 2010).
---------------------------------------------------------------------------
The consumer testing consisted of two rounds of in-depth interviews
with 9 consumers in Alexandria, Virginia, on August 19 and 20, 2010,
and 11 consumers in Denver, Colorado, on September 13 and 14, 2010.
Consumer participants were recruited to ensure the selection of a range
of participants in terms of gender, education, ethnicity, and checking
and savings account balances.\52\ While the interview protocol varied
slightly between rounds, the general structure and most of the
questions were the same.
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\52\ A sample of the screening instrument used to recruit
interview participants is included as Appendix A to the ICF Macro
report. Appendix B to the report provides a summary of the
demographics of the interview participants.
---------------------------------------------------------------------------
Prior to the first round of interviews, Board staff and ICF Macro
collaboratively revised the forms from those currently found in
appendix C.\53\ For example, the format was substantially modified;
provisions related to nonlocal checks were eliminated; and language was
added regarding a bank's right to charge back a customer's account if a
deposited check is returned unpaid. Based on the results of each round
of interviews, the forms were again revised. The Board plans to conduct
additional consumer testing of the forms in response to public comments
received on this proposal, as appropriate.
---------------------------------------------------------------------------
\53\ The sample forms used during the consumer interviews are
included as Appendix C to the ICF Macro report.
---------------------------------------------------------------------------
2. Model Disclosures Generally
Citations below are to the forms in the appendix as they are
proposed to be renumbered, unless otherwise explicitly stated. Forms
not discussed below are either unchanged or have only technical or
conforming amendments.
In the absence of nonlocal checks, the Board proposes throughout
appendix C to delete all references to the nonlocal-check and local-
check categories. Instead, the Board proposes that the forms, as
applicable, specify the types of check deposits that receive next-day
availability, and then state the availability that will be provided for
checks ``other than those specified.''
The Board proposes to modify the format of the model disclosures
from a mostly narrative form to a more tabular form. For example, the
Board proposes that the portions of the model disclosures specifying
funds availability for deposits to established accounts and for
deposits to new accounts (accounts open for 30 days or less) be
presented within tables. The Board's testing on forms under other rules
has consistently indicated that consumers more readily understand
information presented in a tabular form.\54\
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\54\ See 75 FR 58539 at 58542 (September 24, 2010) and ICF Macro
report, p. 4.
---------------------------------------------------------------------------
The Board is not proposing any changes to the model substitute-
check-policy disclosure and notices in the appendix.
i. Format of Banks' Funds-availability Disclosures and Notices
The Board proposes to add to the commentary to appendix C a new
paragraph A(4) discussing banks' formatting of disclosures and notices
based on the proposed model funds-availability disclosures and notices
in the appendix. Specifically, although the regulation does not require
banks to use a certain paper size for their funds-availability
disclosures and notices, the proposed model funds-availability policy
disclosures are generally designed to be printed on an 8\1/2\ x 11 inch
sheet of paper with black text on a white background, so as to increase
their readability for consumers. Further, Sec. 229.15(a) requires that
banks generally provide disclosures and notices in a form that the
customer may keep.\55\ The proposed commentary notes that a bank that
provides a disclosure or notice
[[Page 16873]]
electronically to a customer would comport with the formatting
specifications of the proposed model disclosures and notices by
providing a disclosure or notice in a file format, such as a .pdf file
format, that electronically represents an 8\1/2\ x 11 inch sheet of
paper with black text and a white background. In addition, a bank may
vary (either enlarge or decrease) the font size of the model forms. As
explained in the proposed commentary, a bank that uses too small a font
may not be in compliance with Sec. 229.15(a)'s clear-and-conspicuous
requirement.
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\55\ The commentary to Sec. 229.13(g) indicates that notice of
an extended hold should be provided in a form the customer may keep.
The proposed commentary to Sec. 229.16(c)(2) indicates that notice
of a case-by-case hold should be provided in this form as well.
---------------------------------------------------------------------------
ii. Charge Back After Making Funds From Check Deposits Available
Paragraph 5 of the commentary to appendix C states that banks may
add information related to funds availability to the model forms. One
of the examples currently provided is that a bank's disclosure may
state that although funds have become available and the customer has
withdrawn them, the customer remains responsible for deposited checks
that are returned unpaid. The Board believes that all banks reserve the
right to charge back a customer's account if a deposited check is
returned unpaid.\56\ The Board proposes to incorporate language to this
effect within the model availability-policy disclosures themselves and
to delete this as an example from paragraph A(5) of the commentary and
add a provision to paragraph B(1)(a) describing the charge-back
statement in the proposed model disclosures. The Board requests comment
on whether this proposed revision reflects the practice of most banks.
---------------------------------------------------------------------------
\56\ See Sec. UCC 4-214, which generally permits a collecting
bank that has made provisional settlement with its customer to
revoke the settlement (e.g., charge back the amount or obtain a
refund) if the bank itself fails to receive settlement.
---------------------------------------------------------------------------
iii. Reference to Day of Availability
The Board is proposing model availability-policy disclosures that
in many cases would use cardinal numbers, instead of ordinal numbers,
to describe the business day on which funds will be available in
relation to the day on which funds are deposited. For example, the
Board proposes in many cases to use ``2'' in place of ``second,''
because consumers readily perceived that formulation. In addition, the
Board proposes that the disclosures refer to the ``next'' business day
after a deposit, rather than the ``first'' business day. The Board
proposes to modify paragraph B(1)(b) of the commentary accordingly.
Notwithstanding the language used in the proposed model forms, use of
ordinal numbers would continue to be permitted (see proposed Sec.
229.15(b)).
iv. Inclusion of Optional Information
The Board proposes model availability-policy disclosures that would
reflect certain provisions of the regulation that apply only to certain
banks, depending on the banks' policies and practices. For example, the
proposed model disclosures would include language about use of special
deposit slips as a condition for next-day availability for certain
types of check deposits (see Sec. 229.10(c)(2) and language similar to
the appendix's current model clauses C-6 and C-7 related to check
cashing, immediate availability, and holds on other funds (see Sec.
229.19(e)).\57\ The text of these portions of the disclosures would be
enclosed within brackets to indicate that a bank should include it in
the bank's disclosures only if it is applicable given the bank's
policies and practices. The Board proposes that paragraph B(1)(c) of
the commentary to appendix C be modified accordingly.
---------------------------------------------------------------------------
\57\ Because the Board proposes to incorporate the information
set forth in current model clauses C-6 and C-7 as bracketed
information within the model disclosures, the Board proposes to
delete model clauses C-6 and C-7 from the appendix.
---------------------------------------------------------------------------
v. Same-Day Availability
Although Sec. 229.10(a) of the regulation requires next-day
availability for cash deposits, and Sec. 229.10(b) requires next-day
availability for electronic payments (as defined in Sec. 229.2(t)),
the model availability-policy disclosures in appendix C include clauses
that state that funds from electronic direct deposits are available on
the day the bank receives the funds. As indicated in paragraph B(1)(b)
of the commentary to the appendix, this is because U.S. Treasury
regulations and ACH association rules require that preauthorized
credits, such as direct deposits, be made available on the day the bank
receives the funds.
During the Board's consumer testing, many consumers expressed
surprise that the sample disclosures indicated that funds from cash
deposits and wire transfers (defined in Sec. 229.2(bbb)) would not be
available until the next day. When the models in Appendix C were first
published over 20 years ago, most banks updated their demand-deposit-
account systems on an overnight basis, such that a cash deposit or
incoming wire transfer would not be reflected in the receiving
customer's account balance until opening of business the next day. The
Board believes, however, that most banks now provide same-day (if not
immediate) availability for cash deposits and wire transfers.
The Board therefore proposes that model funds-availability
disclosures C-1 through C-3B, which are designed for banks that
generally make deposits available by the next day (and are discussed in
more detail below), be modified to indicate that funds from cash
deposits and wire transfers will be available for withdrawal on the
same business day that the bank receives the funds. The proposed
commentary states that a bank basing its disclosure on one of these
models should modify its disclosure to indicate that funds from cash
deposits and wire transfers will be available the next day if that
reflects the bank's practice.
In contrast, proposed models C-4A and C-4B, which are designed for
banks that hold funds from deposits to the statutory limits, indicate
that funds from cash deposits and wire transfers will be available on
the business day following receipt. The proposed commentary states that
a bank that bases its disclosures on one of these models but that makes
funds from cash deposits and wire transfers available the same day they
are received--i.e., a bank that places holds to statutory limits only
on check deposits--should modify its disclosures accordingly.
3. Model C-1--Next-Day Availability
Proposed model C-1 may be used by a bank that has a policy of
making funds from all deposits available by the first business day
after a deposit is made, but not reserving the right to invoke the new-
account and other exceptions in Sec. 229.13. The Board requests
comment on whether any banks have such a policy and on whether model C-
1 can be deleted from Appendix C.
4. Model C-2--Next-Day Availability and Sec. 229.13 Exceptions
Proposed model C-2 may be used by a bank that has a policy of
making funds from deposits available by the first business day after a
deposit is made, but reserves the right to invoke the new-account and
other exceptions in Sec. 229.13.
5. Model C-3A--Next-Day Availability, Case-by-Case Holds to Statutory
Limits Without Cash-Withdrawal Limitation, and Sec. 229.13 Exceptions;
and Model C-3B--Next-Day Availability, Case-by-Case Holds to Statutory
Limits With Cash-Withdrawal Limitation, and Sec. 229.13 Exceptions
The Board proposes to include in the appendix two versions of model
C-3. The first version, proposed C-3A, would be used by a bank that,
when it
[[Page 16874]]
delays availability on a case-by-case basis, does not impose the cash-
withdrawal limitation permitted by Sec. 229.12(b). The second version,
proposed C-3B, would be used by a bank that does impose this limitation
when it delays availability on a case-by-case basis. The additional
text that is included in proposed C-3B, but not C-3A, related to the
cash-withdrawal limitation, derives from current model clause C-10,
modified to promote consumer comprehension on the basis of the Board's
testing.\58\ The Board proposes that this text be structured as a
bulleted list, because the Board's testing indicated that consumers
better noticed and understood the cash-withdrawal limitation (and the
distinction between other uses of funds) when it is in this form rather
than in a text paragraph.\59\
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\58\ Because the Board proposes to incorporate into C-3B and C-
4B (discussed below) the information set forth in current model
clause C-10, the Board proposes to delete model clause C-10 from the
appendix.
\59\ See p. vii of the ICF Macro report.
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Proposed models C-3A and C-3B include in brackets language similar
to current model clauses C-6 and C-7, related to check cashing,
immediate availability, and holds on other funds, modified on the basis
of the Board's testing to promote consumer comprehension. A bank that
bases its disclosure on proposed model C-3A or C-3B would need to
include this bracketed text in its disclosure only if the text
corresponds to the bank's policy and practice. A bank that has such a
policy would include the proposed bracketed text in the same location
as in the proposed model. Testing indicated that consumers notice and
retain the information presented in these clauses better if the
location of the clauses is early in the disclosure.\60\
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\60\ The Board proposes to take an identical approach in
proposed model disclosures C-4A and C-4B. Specifically, a bank that
bases its disclosure on proposed model C-4A or C-4B would include
the bracketed text in its disclosure only if the text corresponds to
the bank's policy and practice.
---------------------------------------------------------------------------
Banks that base their availability-policy disclosure on model
disclosure C-3A or C-3B and whose availability policy necessitates
incorporation of one or more of the proposed appendix's remaining model
clauses (proposed C-6, C-7, and C-8; current C-9, C-11, or C-11A) would
append those model clauses to the end of the second page of proposed
model C-3A or C-3B. The appendix's remaining model clauses pertain to a
bank's funds-availability policy for deposits at ATMs (proposed C-6), a
credit union's interest-payment policy (proposed C-7), and the
availability of funds deposited at other locations (proposed C-8).
6. Model C-4A--Holds to Statutory Limits on All Deposits Without Cash-
Withdrawal Limitation; and Model C-4B--Holds to Statutory Limits on All
Deposits With Cash-Withdrawal Limitation
The Board proposes to remove current model disclosures C-4 (holds
to statutory limits on all deposits (includes chart)) and C-5 (holds to
statutory limits on all deposits), because those models are no longer
necessary in the absence of nonlocal checks. The Board proposes to add
new model disclosures C-4A and C-4B for a bank to use if the bank's
policy is to hold funds on all deposits up to the statutory limits.
Proposed model disclosure C-4A would be used by a bank that delays
availability as allowed under Sec. 229.12 but does not impose the
cash-withdrawal limitation permitted by Sec. 229.12(b), whereas
proposed model C-4B would be used by a bank that delays availability as
allowed under Sec. 229.12 and does impose the cash-withdrawal
limitation permitted by Sec. 229.12(b). The Board proposes the
position of the text related to the cash-withdrawal limitation in C-4B
because the Board's testing indicated that consumers better noticed and
understood the information when placed at the proposed location and in
the proposed format within the disclosure. Banks that base their
availability-policy disclosure on proposed model disclosure C-4A or C-
4B and whose availability policy necessitates incorporation of one or
more of the proposed appendix's remaining model clauses (proposed C-6,
C-7, or C-8) would append those model clauses to the end of the second
page of proposed model C-4A or C-4B.
7. Proposed Model Clauses
The Board proposes to delete current model clauses C-6 (holds on
other funds (check cashing)), C-7 (holds on other funds (other
account)), and C-10 (cash-withdrawal limitation), all of which the
Board proposes to be incorporated into other model forms. The Board
also proposes to delete current model clause C-8 (Appendix B
availability (nonlocal checks)) because it is obsolete in the absence
of nonlocal checks. Within current model clause C-9 (Automated Teller
Machine Deposits (Extended Hold)) (proposed C-6), the Board proposes to
change ``fifth business day'' to ``fourth business day'' to conform to
the changes in proposed Sec. 229.12(d), discussed above in this
section-by-section analysis.
8. Proposed Model Notices
i. Format
As with the proposed model funds-availability policy disclosures,
the Board proposes to modify the format of the model notices, where
appropriate, from a mostly narrative form to a more tabular form. For
example, the Board proposes to convert current model notice C-18
(notice at locations where employees accept consumer deposits (case-by-
case holds)) (proposed C-14) to a table.
ii. Proposed Model C-9--Exception or Reasonable-Cause Hold Notice
Current models C-12 and C-13 each include a checklist of reasons
for which a bank may apply an exception hold. The Board's consumer
testing on other disclosures has found that consumers may be confused
by a listing of reasons, even though only one reason is checked and the
others do not apply to the consumer's situation.\61\ The Board
therefore proposes model notices that describe only one reason for the
hold, instead of a checklist of reasons. A bank using proposed model C-
9 would insert the reason for the hold that is applicable to the
consumer's situation in the location designated by ``(reason for
hold).'' The checklist of reasons that is included in the current model
would be moved to the proposed commentary, with proposed revisions for
clarity. The proposed commentary also states that a bank may insert, in
place of ``(reason for hold),'' a reason other than those listed in the
commentary.
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\61\ See 75 FR 58539 at 58560 (September 24, 2010), discussing
the results of the Board's testing of model forms related to the
suspension or reduction of a home equity line of credit. See also
the ICF Macro report, page viii.
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Current model C-12 (proposed C-9) indicates that a bank's notice of
an exception hold should refer to the dollar amount being held from a
deposit.\62\ The Board proposes that proposed models C-12 also refer to
the dollar amount of the deposit from which funds are being held.
During the Board's testing, consumers more readily understood this
approach and thought that the amount of the deposit would be more
helpful in remembering the deposit in question.\63\
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\62\ Specifically, the model reads ``We are delaying the
availability of $(amount being held) from this deposit.''
\63\ See ICF Macro report, p. ix.
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iii. Proposed Model C-12A--Case-by-Case Hold Notice Without Cash-
Withdrawal Limitation and Proposed Model C-12B, Case-by-Case Hold
Notice With Cash-Withdrawal Limitation
Current model C-16 (case-by-case hold notice) states that the day
on
[[Page 16875]]
which funds will be available for withdrawal may be ``([subject to our
cash-withdrawal limitation policy]).'' The limitation is material to
the length of the hold, and, without additional inquiry, consumers may
not know what the limitation is. Accordingly, the Board proposes to
include in appendix C two versions of a model case-by-case hold notice:
proposed C-12A may be used by a bank that imposes a case-by-case hold,
but does not have a policy of imposing the cash-withdrawal limitation,
whereas proposed model notice C-12B may be used by a bank that imposes
such a hold and does have such a policy. Each of the two proposed
versions would incorporate the specific days by which funds would be
available.
Current model C-16 indicates that a bank's notice of an exception
hold should refer to the dollar amount being held from a deposit. The
Board proposes that proposed models C-12A, and C-12B also refer to the
dollar amount of the deposit from which funds are being held, because
consumers thought that the amount of the deposit would be more helpful
in remembering the deposit in question.\64\
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\64\ See ICF Macro report, p. ix.
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iv. Proposed Model C-13--Notice at Locations Where Employees Accept
Consumer Deposits and Proposed Model C-14--Notice at Locations Where
Employees Accept Consumer Deposits (Case-by-Case Holds)
Current models C-17 and C-18 (proposed C-13 and C-14) are notices
that are designed to be posted, for example, on a wall near a teller
window in a bank branch, and set forth a brief summary of a bank's
funds-availability policy. Current model C-17 may be used by a bank
that has a policy of placing holds to statutory limits on deposits,
whereas current model C-18 may be used by a bank that has a policy of
placing case-by-case holds on check deposits.
The Board proposes to modify current model notice C-18 (proposed C-
14) to indicate that funds from cash deposits and wire transfers will
be available for withdrawal on the same business day that the bank
receives the funds. Therefore, a bank with a case-by-case availability
policy that makes cash deposits and wire transfers available the next
business day would modify the notice accordingly. By contrast, current
model C-17 (proposed C-14) indicates that funds from cash deposits and
wire transfers will be available on the next business day. A bank that
holds check deposits up to the statutory limits but that makes funds
from cash deposits and wire transfers available on the day they are
received would modify the notice accordingly.
A bank using either notice that imposes cash-withdrawal limitations
under proposed Sec. 229.12(b) would indicate that funds from check
deposits will generally be available by the third, rather than second,
business day after the day of deposit, by replacing ``(number)'' in the
lower-right-hand box of the tables in the proposed models with
``third,'' rather than ``second.''
J. Appendix F--Official Board Interpretations; Preemption
Determinations
Section 608 of the EFA Act provides that any state law in effect on
September 1, 1989, that provides that funds be made available in a
shorter period of time than provided in Regulation CC will supersede
the time periods in the Act and regulation. Section 229.20 of the
regulation implements Sec. 608, and Sec. 229.20(e) sets forth the
procedures by which a state may submit to the Board a request for a
preemption determination. In response to states' requests, the Board
issued determinations specifying the provisions of the funds
availability laws in California, Connecticut, Illinois, Maine,
Massachusetts, New Jersey, New York, Rhode Island, and Wisconsin that
supersede the EFA Act and Regulation CC. These determinations are
contained in appendix F to the regulation.
Since September 1, 1989, Connecticut, New Jersey, Rhode Island, and
Wisconsin have repealed all state-specific funds availability
provisions. California has repealed the funds availability provisions
applicable to credit unions. In addition, the elimination of nonlocal
checks under the EFA Act and Regulation CC affect the regulation's
preemption of states' laws. The Board notes that the Dodd-Frank Act's
increase from $100 to $200 of the minimum amount of check deposits that
banks must make available by the next business day may affect the EFA
Act and Regulation CC preemption of state law. The Board therefore
proposes to update the preemption determinations in the appendix. The
proposed determinations would supersede any previous determinations
made by the Board.
III. Subpart C
A. Section 229.30--Paying Bank's Responsibility for Return of Checks
1. Section 229.30(a)--Expeditious Return of Checks
i. Section 229.30(a)(1)
Section 229.30(a)(1) sets forth the proposed test for expeditious
return of a check by the paying bank. The current rule provides that if
a paying bank determines not to pay a check, it must return the check
in an expeditious manner, as provided under either the two-day/four-day
test or the forward-collection test. For the reasons discussed above,
the Board proposes to eliminate the forward-collection test and the
four-day test for expeditious return of a check by the paying bank. As
a result, the Board proposes that the two-day test for expeditious
return be the only test for expeditious return in Sec. 229.30(a)(1)
(and Sec. 229.31(a)(1)). In general, the paying bank may satisfy any
expeditious return requirement by sending an electronic return if the
depositary bank has agreed to receive electronic returns from the
paying bank under proposed Sec. 229.32(a), a paper check or a notice
in lieu if the check is unavailable. The exceptions to this general
rule, including where the depositary bank has not agreed to accept
electronic returns from the paying bank, are set forth in proposed
Sec. 229.30(b).
ii. Section 229.30(a)(3)
The Board proposes to amend Sec. 229.30(a)(3) to clarify that a
paying bank may send a returned check to any bank that handled the
check for forward collection if the paying bank is unable to identify
the depositary bank.
iii. Section 229.30(a)(6)
The Board proposes to move current Sec. 229.36(a), which states
that a check payable at or through a paying bank is considered to be
drawn on that bank for purposes of the expeditious-return requirement
of this subpart, to proposed Sec. 229.30(a)(6).
2. Section 229.30(b)--Exceptions to Expeditious Return of Checks
i. Section 229.30(b)(1)
The Board proposes to group together the exceptions to a paying
bank's duty of expeditious return in Sec. 229.30(b)(1). Currently, the
requirement does not apply if a paying bank is unable to identify the
depositary bank or if the depositary bank does not maintain
[[Page 16876]]
accounts.\65\ As described above, the Board proposes that a paying bank
have a duty of expeditious return only if the depositary bank has
agreed to accept electronic returns from the paying bank under proposed
Sec. 229.32(a). The Board proposes to set forth this rule as an
exception to the general rule stated in proposed Sec. 229.30(a)(1).
Accordingly, proposed Sec. 229.30(b)(1)(i) states that a paying bank
need not return a check expeditiously if a depositary bank has not
agreed to accept electronic returns from the paying bank under Sec.
229.32(a). Although not imposing an expeditious return requirement on
the paying bank in this situation will expose the depositary bank to
risk, the Board believes that risk should rest with the bank choosing
not to take advantage of an electronic infrastructure that provides
expeditious return.
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\65\ In the current regulation. these exceptions to a paying
bank's duty of expeditious return are set forth, respectively, in
Sec. Sec. 229.30(b) and 229.30(e). The exceptions to a returning
bank's duty are in Sec. Sec. 229.31(b) and 229.31(e).
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The proposed commentary to Sec. 229.30(b)(1) includes an example
of when the paying bank's duty of expeditious return would and would
not apply. For example, assume that a depositary bank has not agreed to
accept electronic returns directly from the paying bank, but has agreed
to accept electronic returns from Returning Bank A, which has agreed to
handle returns expeditiously under Sec. 229.31(a). If Returning Bank A
has not held itself out as willing accept electronic returns directly
or indirectly from the paying bank (e.g., the returning bank has not
published electronic return service set-up guides), the depositary bank
has not agreed to accept electronic returns from the paying bank under
proposed Sec. 229.32(a). If a check is presented to the paying bank on
Monday, the paying bank would not need to send the returned check such
that the depositary bank normally would receive the returned check by 4
p.m. (local time of the depositary bank) on Wednesday. The paying bank,
however, must comply with any deadlines under the Uniform Commercial
Code, Regulation J (if sent through the Reserve Banks), or Sec.
229.30(c).
Under the proposed approach, a paying bank that returns checks in
paper form would be subject to the expeditious return requirement if
the depositary bank has agreed to accept electronic returns from a
returning bank that holds itself out as willing to accept electronic
returns directly or indirectly from the paying bank and agrees to
return checks expeditiously. The Board, however, notes that if the
returning bank from which the depositary bank has agreed to accept
electronic returns has either not held itself out as willing to accept
electronic returns directly or indirectly from the paying bank or has
not agreed to return checks expeditiously, then the paying bank would
not be subject to the expeditious return requirement under the
proposal.
ii. Section 229.30(b)(2)
Proposed Sec. 229.30(b)(2) addresses the situation in which the
requirement to return a check expeditiously does not apply because the
paying bank is unable to identify the depositary bank. In most cases in
today's predominantly electronic check-clearing environment, the
depositary bank's indorsement will accompany an electronic check as an
addenda record associated with the check, and the paying bank will be
able to route an electronic return to the depositary bank in a highly
automated manner.\66\
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\66\ As is discussed below under Sec. 229.35(a) and appendix D,
the Board proposes to require a depositary bank that transfers an
electronic collection item to apply its indorsement in accordance
with ANS X9.100-187, unless the parties otherwise agree.
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In some cases, the depositary bank's indorsement may not be in the
accompanying addenda record, and the paying bank will be unable to rely
on purely automated returns. The Board proposes to clarify in the
commentary that a paying bank is not ``unable'' to identify the
depositary bank where the depositary bank's indorsement is not in an
addenda record associated with the electronic image, but is legibly
included within the image of a check presented electronically to the
paying bank. In these cases, the paying bank may visually review the
image of the check to determine the identity of the depositary bank and
create an electronic return addressed to the depositary bank or a
returning bank agreeing to handle it on the basis of that indorsement
within the image. Provided the depositary bank accepts electronic
returns (directly or indirectly) from the paying bank under Sec.
229.32(a), the expeditious-return requirement would apply in this
situation.
In other cases, however, the depositary bank's indorsement may not
be in an addenda record associated with an electronic image, and also
may be absent from or illegible within the image of the check that is
presented to the paying bank. In these cases, the paying bank may be
unable to identify the depositary bank and the expeditious-return
requirement would not apply to the paying bank. If the paying bank has
an agreement to send electronic returns to a bank that handled the
check for forward collection, the paying bank may under Sec.
229.30(b)(2) send the electronic return to that bank, subject to that
agreement. Such a bank may be better able to identify the depositary
bank. In general, the paying bank must advise the bank to which the
return is sent that it is unable to identify the depositary bank. The
Board proposes to clarify in the commentary that, in the case of
electronic returns, the paying bank meets this requirement by inserting
the routing number of the bank to which it is sending the return where
the paying bank otherwise would have inserted the routing number of the
depositary bank. The Board requests comment on whether the regulation
and commentary provide the appropriate level of detail with respect to
paying banks' preparation and addressing of electronic returns in cases
where it is unable to identify the depositary bank.
3. Section 229.30(c)--Extension of Deadline
The Board proposes amending Sec. 229.30(c), which extends the
paying bank's deadline to initiate the return of a check. The current
rule generally extends the deadline to the time at which a paying bank
dispatches the return, if the paying bank uses a means of delivery that
ordinarily would result in receipt by the bank to which the return is
sent on or before the receiving bank's next banking day following the
day of the applicable deadline by the earlier of the close of that
banking day or a 2 p.m. cutoff hour (or such later time as set by the
receiving bank under UCC 4-108).\67\ The provision allows the paying
bank an extension, provided that the paying bank sends the return such
that it would ordinarily be received by the depositary bank within the
timeframes mandated by the regulation's current tests for expeditious
return.
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\67\ The current paragraph provides a further extension if the
paying bank uses a ``highly expeditious'' means of return, or if the
paying bank's deadline for return falls on a Saturday that is a
banking day for the paying bank under the UCC. (Saturday is never a
banking day under Regulation CC.)
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As discussed above, the Board proposes to eliminate the forward-
collection test and the four-day test for expeditious return of a
nonlocal check, such that the two-day test for expeditious return would
be the only remaining test. Correspondingly, the Board proposes to
simplify the extension in Sec. 229.30(c): The paying bank's deadline
for return would be extended to the time of dispatch if the paying bank
sends the return such that
[[Page 16877]]
it reaches the depositary bank by 4 p.m. on the second business day
after the banking day on which the check was presented to the paying
bank; i.e., such that the return would ordinarily reach the depositary
bank within the time required by the two-day expeditious-return test.
The proposed 4 p.m. deadline would correspond to the expeditious return
deadline in proposed Sec. Sec. 229.30(a). As noted in the proposed
commentary, a paying bank may rely on the return schedules of a
returning bank in determining whether the returned check or electronic
return would ``ordinarily'' reach the depositary bank by 4 p.m. on the
second business day after the banking day on which the check was
presented to the paying bank.
Alternatively, the Board requests comment on whether a paying bank
that sends a returned check to a returning bank and relies on this
extension should bear the risk that the returning bank may not return
the check expeditiously. Specifically, the Board requests comment on
whether it should modify the extension such that the return must
actually reach the depositary bank within the two-day timeframe for
expeditious return in order for the extension to apply. Such a
modification to the extension might further encourage paying banks to
initiate return of a check in a timely fashion.
4. Section 229.30(d)--Identification of a Returned Check
i. Placement of Reason for Return on a Substitute Check
Section 229.30(d) currently states that ``[a] paying bank returning
a check shall clearly indicate on the face of the check that it is a
returned check and the reason for return. If the check is a substitute
check, the paying bank shall place this information within the image of
the original check that appears on the front of the substitute check.''
When current Sec. 229.30(d) became effective in 2004, the placement on
substitute checks was consistent with the industry standard for
substitute checks, American National Standard Specifications for an
Image Replacement Document--IRD, X9.100-140 (ANS X9.100-140). Under the
terms of the revised industry standard, however, the reason for return
of a substitute check must be placed above a substitute check's image
of the original check--i.e., not within the image of the original check
that appears on the front of the substitute check, but nonetheless
within the portion of the front of the substitute check that is
``clipped'' when an image of the substitute check is captured.\68\ The
change to the standard is intended to make it less likely that the
return-reason information will obscure underlying data from the
original check, such as the name of the payee or the amount of the
check, while continuing to ensure that the reason for the return is
retained in any captured image of the substitute check, as well as on
any subsequent substitute check.
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\68\ In addition to the image of the front of the original
check, the portion of the front of the substitute check that is
clipped includes the area on the check above the original check
image and the routing number of the truncating bank to the left of
the image.
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The current commentary explains that Sec. 229.30(d) specifies
where to place the return-reason information on a returned substitute
check in order to ensure that ``the information is retained on any
subsequent substitute check.'' The revised industry standard, ANS
X9.100-140, is consistent with this purpose. Accordingly, the Board
proposes to modify the Sec. 229.30(d) to state that ``[i]f the check
is a substitute check or electronic return, the paying bank shall place
this information [the reason for the return] such that the information
would be retained on any subsequent substitute check.'' Further, the
Board proposes to amend the commentary to state that the requirement to
place the return-reason information such that it is retained on any
subsequent substitute check could be met by placing the information (1)
in the location on the front of the substitute check that is specified
by ANS X9.100-140 or (2) within the image of the original check that
appears on the front of the substitute check. The Board believes it is
necessary for the regulation to continue to permit this latter
possibility in order to encompass situations in which a paying bank
presented with a previously-created substitute check opts to physically
stamp the reason for the return on the substitute check.
ii. Refer-to-Maker Reason for Return
Current commentary to Sec. 229.30(d) states that ``refer to
maker'' may be a permissible reason for return in appropriate cases but
does not elaborate as to which cases may be appropriate. The Board,
however, does not believe that ``refer to maker,'' by itself, is an
appropriate reason for return in any case. ``Refer to maker'' is an
instruction rather than a reason for return. Alone, it does not provide
the depositary bank with sufficient information to determine whether it
should represent the check. Accordingly, the Board proposes to amend
the commentary to Sec. 229.30(d) to state that ``refer to maker'' is
insufficient as a reason for return, because ``refer to maker'' is an
instruction to the recipient of the returned check and not a reason for
return (e.g., insufficient funds). A paying bank may use ``refer to
maker'' in addition to the reason for return. The Board requests
comment on whether there are circumstances in which it is appropriate
to use only ``refer to maker'' when returning a check.
5. Section 229.30(e)--Notice in Lieu of Return
Section 229.30(f) currently states that if a check is unavailable
for return, the paying bank may send in its place a copy of the front
and back of the returned check, or, if no such copy is available, a
written notice of nonpayment containing the information specified in
current Sec. 229.33(b).
Historically, notices in lieu of return were used when an original
check was lost or destroyed. Following implementation of the Check 21
Act, however, the unavailability of an original check does not prevent
return of the check, provided that an image of the check sufficient to
create a substitute check is available. The Board therefore proposes to
revise the Sec. 229.30(e) commentary to provide that a bank may send a
notice in lieu of return only where neither the check itself nor an
image of and information related to the check sufficient to create a
substitute check is available.
The commentary states that notice by electronic transmission, other
than a legible facsimile or similar image of both sides of a check,
does not satisfy the requirements for a notice in lieu of return. The
Board proposes to amend the commentary to Sec. 229.30(e) to provide
that, if no image of both sides of the check is available, the notice
in lieu of return may be sent by means of an electronic transmission,
so long as it contains the required information. For example, the
notice may be sent by ACH payment record if permitted by applicable ACH
rules, or by an electronic check record if permitted by applicable
rules and standards. These records are similar to the currently-
permitted written notices of nonpayment where legible copies of both
sides of the check are unavailable. The Board requests comment,
however, on whether a bank would ever have the information necessary
for a notice in lieu of return if it had neither the check nor an image
of both sides of the check. As under the current rule, notice by
telephone or other similar oral transmission would not be permitted.
Because notice in lieu of return must include the information
required for a notice of nonpayment, and the Board
[[Page 16878]]
proposes to eliminate the notice of nonpayment requirement, the Board
proposes to move the information requirements for a notice in lieu of
return from current Sec. 229.33(b) to new Sec. 229.30(e)(2). The
Board proposes that the information requirements for a notice in lieu
of return remain unchanged.
Currently, a notice in lieu is not required to contain the check's
original MICR line. The Board understands, however, that a depositary
bank can often use the data from the original MICR line of a returned
check to find in its computer systems an image of the item, which the
depositary bank captured when it took the check for deposit, and which
the depositary bank can either re-clear or charge back to its
customer's account.\69\ The Board requests comment on whether the
information-content specifications for a notice in lieu of return
should be modified to reflect these capabilities by requiring that a
notice in lieu of return include the check's original MICR line.
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\69\ If the depositary bank chooses to re-clear a check on the
basis of an image of the check it captured when it took the check
for deposit, it should ensure that the re-cleared check reflects the
fact that the check has already been returned one time.
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As an alternative to the proposed approach, the Board requests
comment on whether the regulation's provision for notice in lieu of
return should be deleted. Specifically, the only factual scenario in
which a notice in lieu of return may be necessary under the proposal is
where a paper check is presented to the paying bank and the paying bank
loses the check, but has access to a copy that is not in the proper
format to permit creation of a substitute check or electronic return.
Forward interbank check collection, however, including presentment to
the paying bank, is almost always electronic, and, furthermore, paying
banks initiate almost all check returns electronically. Given the
overwhelming prevalence of electronic presentment and electronic
initiation of return, the paying bank almost always will be able to
return an electronic collection item that was presented to it.
Therefore, it may no longer be necessary for paying banks to use
notices in lieu of return.\70\ The Board requests comment on whether a
provision for notice in lieu of return continues to be necessary.
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\70\ If an electronic collection item presented to the paying
bank contained an illegible image of the check and the paying bank
decided to return the item (perhaps for an unrelated reason, such as
insufficient funds), the paying bank could return the electronic
collection item as an electronic return, instead of initiating a
notice in lieu of return.
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6. Section 229.30(f)--Reliance on Routing Number
The regulation currently provides that a paying bank may return a
check based on any routing number designating the depositary bank
appearing on the check in the depositary bank's indorsement. The Board
proposes in Sec. 229.30(f) to add that the paying bank may also rely
on any routing number designating the depositary bank in the electronic
image of or information related to the check.
B. Section 229.31--Returning Bank's Responsibility for Return of Checks
1. Section 229.31(a)--Expeditious Return of Checks
i. Section 229.31(a)(1)
For the reasons discussed above under Sec. 229.30(a)(1), the Board
proposes to make conforming amendments to Sec. 229.31(a) and eliminate
the forward-collection test and the four-day test for expeditious
return of a check by the returning bank, such that the two-day test for
expeditious return would be the only test in Sec. 229.31(a)(1).
Further, a returning bank would be subject to the expeditious return
requirement if it agrees to return checks expeditiously. The Board
proposes to amend the commentary to Sec. 229.31(a)(1) to explain that
a returning bank may condition its agreement to return checks
expeditiously on receiving an electronic return from the paying bank or
returning bank. The Board also proposes to amend the commentary to
Sec. 229.31(a)(1), by removing as an example of when a returning bank
agrees to return checks expeditiously a returning bank handling a
returned check for return that it did not handle for forward
collection. While the Board intends a paying bank to continue to be
able to send a returned check to a returning bank that did not handle
the check for forward collection, the Board does not believe that a
returning bank that receives such a check should be deemed to agree to
handle the returned check expeditiously. Under this proposed change,
for example, a returning bank may accept a paper returned check that it
did not handle for forward collection, while not being deemed to have
agreed to handle it for expeditious return.
ii. Section 229.31(a)(3)
The Board proposes to clarify in proposed Sec. 229.31(a)(3)
(currently in Sec. 229.31(a)) that if the returning bank is unable to
identify the depositary bank with respect to a returned check, it may
send the returned check to any bank that handled the check for forward
collection if it was not a collecting bank with respect to the check,
or to a prior collecting bank if it was a collecting bank.
iii. Section 229.31(a)(4)
The substance of proposed Sec. 229.31(a)(4) (currently in Sec.
229.31(a)) currently provides that a returning bank's time for
expeditious return under the forward-collection test and its deadline
for return are extended by one business day if the returning bank
converts a returned check to a qualified returned check.\71\ This
extension does not apply to the two-day/four-day test, and it does not
apply when the returning bank sends the check directly to the
depositary bank, because in that case qualifying the check does not
expedite its handling by the bank to which it is sent.
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\71\ A qualified returned check is ``a returned check that is
prepared for automated return to the depositary bank by placing the
check in a carrier envelope or placing a strip on the check and
encoding the strip or envelope in magnetic ink.'' Current 12 CFR
229.2(bb).
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The Board proposes to eliminate this extension. The extension does
not apply to the two-day test for expeditious return, which the Board
proposes to be the sole test. Further, the extension, if retained,
might benefit returning banks that choose to qualify and send paper
returned checks destined for depositary banks that have agreed to
accept returns electronically; a result that is inconsistent with the
policy of encouraging electronic return of checks. In addition, if a
returned check is destined for a depositary bank that does not accept
returned checks electronically (i.e., if the returned check is one to
which the proposed two-day test does not apply), the Board believes
that a returning bank's midnight deadline affords it sufficient time to
process and send the returned check, irrespective of whether the
returning bank qualifies the returned check or not.
A qualified return check is prepared for automated return by
placing the check in a carrier envelope or placing a strip on the
check. According to current industry practice, however, such envelopes
should be used only in situations in which the check has been mutilated
and cannot be imaged or handled by automated check-processing
equipment. Therefore, the Board requests comment on whether the
regulation should continue to allow a bank to prepare a check for
automated return by placing the check in a carrier envelope. Further,
in today's predominantly electronic check-clearing environment,
qualification of paper
[[Page 16879]]
returned checks happens only rarely and it is not clear that
qualification continues to be a means of expediting returned checks'
delivery to the depositary bank because carrier envelope's inhibit
check imaging. The Board requests comment on whether the regulation's
provisions for qualifying of paper returned checks by paying banks and
returning banks should be deleted.
2. Section 229.31(b)--Exceptions to Expeditious Return of Checks
The Board proposes changes to Sec. 229.31(b) similar to those
discussed above under Sec. 229.30(b). Specifically, the Board proposes
to group together the current exceptions to a returning bank's duty of
expeditious return in Sec. 229.31(b)(1) and to provide that, in
addition to the exceptions currently provided in the regulation, the
returning bank's duty of expeditious return does not apply if the
depositary bank has not agreed to accept electronic returns from the
paying bank under Sec. 229.32(a).
A returning bank does not have a duty to expeditiously return the
check if the returning bank is not able to identify the depositary bank
with respect to a returned check. Section 229.31(b) of the regulation
currently provides, however, that if a paying bank is not able to
identify the depositary bank with respect to a returned check and sends
the returned check under the terms of Sec. 229.30(b) to a returning
bank, but the returning bank can identify the depositary bank (for
example, on the basis of its records from the forward collection of the
check), then the returning bank must thereafter return the check
expeditiously to the depositary bank. The Board proposes to remove this
requirement from the regulation (proposed Sec. 229.31(b)(1)(iv)),
because it may be difficult for a returning bank to meet the two-day
test for expeditious return where the paying bank likely sent the
return as if the return was not subject to the expeditious return
requirement. In the absence of an expeditious-return requirement, the
UCC would nonetheless require a returning bank in this situation to use
ordinary care when returning the item.\72\
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\72\ UCC Sec. 4-202 states that a collecting bank exercises
ordinary care ``by taking proper action before its midnight deadline
following receipt of an item, notice, or settlement. Taking proper
action within a reasonably longer time may constitute the exercise
of ordinary care, but the bank has the burden of establishing
timeliness.''
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3. Section 229.31(d)--Charges
The Board proposes to clarify in Sec. 229.31(d) that a returning
bank may impose a charge for handling a returned check on the bank that
sent the returned check to it, rather than another party.
4. Section 229.31(e)--Notice in Lieu of Return
The Board proposes to make amendments to Sec. 229.31(e) to conform
with proposed amendments to Sec. 229.30(e).
5. Section 229.31(f)--Reliance on Routing Number
The regulation currently provides that a returning bank may return
a check based on any routing number designating the depositary bank
appearing on the check in the depositary bank's indorsement or in
magnetic ink on a qualified returned check. The Board proposes to add
that the returning bank may also rely on any routing number designating
the depositary bank in the electronic image or information included in
an electronic return.
C. Section 229.32--Depositary Bank's Responsibility for Returned Checks
1. Section 229.32(a)--Acceptance of Electronic Returns
i. Section 229.32(a)(1)
The Board proposes in Sec. 229.32(a)(1) three different
circumstances under which a depositary bank would be deemed to have
agreed to accept an electronic return from the paying bank. The
depositary bank must accept an electronic return in at least one of
these ways so as to be entitled to expeditious return under the Board's
proposal. The first way in which a depositary bank is considered to
have agreed to accept electronic returns from the paying bank is by
having a direct contractual relationship with the paying bank under
which it agrees to accept electronic returns from the paying bank
(proposed Sec. 229.32(a)(1)(i)).
Secondly, under proposed Sec. 229.32(a)(1)(ii), a depositary bank
could have a direct contractual relationship with a returning bank to
accept electronic returns. In turn, that returning bank must hold
itself out as willing to accept electronic returns directly or
indirectly (e.g., from another returning bank) from the paying bank and
must have agreed to handle returned checks expeditiously under Sec.
229.31(a) in order for the depositary bank to have agreed to receive
electronic returns from the paying bank under Sec. 229.32(a). The
proposed commentary to proposed Sec. 229.32(a) provides an example of
such an arrangement. The Board proposes to provide examples in the
proposed commentary to proposed Sec. 229.32(a) of how a returning bank
holds itself out as willing to accept electronic returns directly or
indirectly from the paying bank. Specifically, a returning bank would
be considered to hold itself out as willing to accept electronic
returns if it published information about its generally available
electronic return service, such as information about signing up for the
service and fees. The Board requests comment on whether it should
provide more specificity as to under what circumstances a returning
bank is deemed to hold itself out as willing to accept electronic
returns directly or indirectly from a paying bank.
Third, a depositary bank may have otherwise agreed with the paying
bank to receive an electronic return. The proposed commentary indicates
that one example of such an agreement would be where the depositary
bank and paying bank are both members of the same check clearing house,
through which the depositary bank has agreed to accept electronic
returns from the paying bank.
ii. Section 229.32(a)(2)
Proposed Sec. 229.32(a)(2) establishes that a depositary bank
receives an electronic return when the return is delivered to the
electronic return point designated by the bank or, by agreement,
otherwise is made available to the bank for retrieval or review. For
example, if a depositary bank designates an e-mail address as its
electronic receipt address, the depositary bank has received the
electronic return when it is delivered to that e-mail address. In
contrast, if the depositary bank has an arrangement with a returning
bank whereby the returning bank sends the electronic return to its
storage device and then provides the depositary bank with access to the
storage device for retrieving electronic returns, the electronic return
is received by the depositary bank when the returning bank makes the
electronic return available for the depositary bank to retrieve or
review from the storage device in accordance with the agreement between
the depositary bank and the returning bank.
iii. Section 229.32(a)(3)
Proposed Sec. 229.32(a)(3) would permit a depositary bank to
require that electronic returns be separated from electronic collection
items. This proposed rule is similar to the undesignated paragraph in
existing Sec. 229.32(a) (proposed Sec. 229.32(b)(2)) that permits a
depositary bank to require that returned checks be separated from
forward-collection checks.
[[Page 16880]]
2. Section 229.32(b)--Acceptance of Paper Returned Checks
The Board proposes to clarify that current Sec. 229.32(a)
(proposed to be redesignated as Sec. 229.32(b)) is limited to setting
forth the locations at which a depositary bank must accept paper
returned checks. Further, because there are no more nonlocal checks,
the Board proposes to delete current Sec. 229.32(a)(2)(iii) from the
regulation, which states that if the address in the depositary bank's
indorsement is not in the same check-processing region as the address
associated with the routing number in its indorsement, the depositary
bank must accept returned checks both at a location consistent with the
address in the indorsement and at an office associated with the routing
number.\73\ Under the proposal, a depositary bank that includes its
address in its indorsement is required to receive paper returned checks
at a location consistent with the address (proposed Sec.
229.32(b)(1)(ii)(A)) and at a location, if any, at which it requests
presentment of paper checks (proposed Sec. 229.32(b)(1)(i)). Moreover,
the depositary bank may structure its operations such that these two
locations are the same, i.e., such that the depositary bank accepts
paper returned checks at only one location.
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\73\ The Board also proposes to delete the second sentence of
paragraph 8 of the commentary to Sec. 229.35(a), which states that
if the address in the indorsement is not consistent with the routing
number, then the depositary bank must accept returned checks at a
branch or head office consistent with the routing number.
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The Board proposes that a depositary bank is entitled to
expeditious return only if it agrees to accept an electronic return
under Sec. 229.32(a). The Board anticipates that virtually all
depositary banks will agree to do so, and that a depositary bank that
accepts electronic returns will generally prefer to receive all returns
in electronic form. Further, return of a paper check to such a
depositary bank should be rare, because under the Board's proposal a
paper returned check must be delivered to the bank within the two-day
timeframe for expeditious return, and delivery of a paper check within
that timeframe is generally difficult and costly. The Board believes it
is therefore appropriate for a depositary bank to be able to limit to
one the number of locations at which it must accept returned checks. If
the bank specifies a location for delivery of paper returned checks
that is difficult to reach, and the depositary bank has not agreed to
accept electronic returns from the paying bank, the risk of any delay
falls mainly on the depositary bank itself.
3. Section 229.32(e)--Charges
In Sec. 229.32(e), the Board proposes to clarify that a depositary
bank may not impose a charge for accepting and paying the check on the
bank returning a check to it, as opposed to other parties on which it
is permitted to impose charges.
4. Section 229.32(f)--Notification to Customer
Current Sec. 229.33(d) states that if the depositary bank receives
a returned check, it must provide notice of the facts to its customer
by midnight of the banking day following the banking day on which it
received the returned check, or within a longer reasonable time. The
Board proposes to redesignate current Sec. 229.33(d) as Sec.
229.32(f). The commentary to this section is proposed to be revised to
remove outdated provisions.
D. Current Sec. 229.33--Notice of Nonpayment
For the reasons discussed above, the Board proposes to delete the
requirement in current Sec. 229.33 that a paying bank provide notice
of nonpayment of a check in the amount of $2,500 or more. Further, the
Board proposes, where appropriate, to delete references to notices of
nonpayment throughout subpart C.
E. Section 229.33--Electronic Returns and Collection Items
The Board's proposal defines two new items: electronic returns and
electronic collection items. The proposal permits paying banks to send
electronic returns to depositary banks that have agreed to receive
them, either directly or indirectly, from the paying bank; the proposal
also permits paying banks to require that items presented for same-day
settlement be presented as electronic collection items. Because such
items are intended to take the place of original paper checks or
substitute checks, proposed new Sec. 229.33 provides that electronic
collection items and electronic returns are subject to the requirements
of subpart C as if they were checks, unless the subpart provides
otherwise. For example, if a paying bank receives presentment of an
electronic collection item and returns it unpaid, it would be subject
to the regulation's expeditious-return requirement, provided the
depositary bank has agreed to accept electronic returns from the paying
bank under Sec. 229.32(a). Similarly, a depositary bank that receives
an electronic return must so notify its customer, as required under
Sec. 229.32(f).
F. Section 229.34--Warranties and Indemnities
1. Section 229.34(a)--Transfer and Presentment Warranties With Respect
to an Electronic Collection Item or an Electronic Return
Proposed Sec. 229.34(a) sets forth the warranties that a bank
makes when it transfers or presents an electronic collection item or
electronic return and receives consideration. The Board proposes that
the bank warrant that (1) the electronic image accurately represents
all of the information on the front and back of the original check as
of the time that the original check was truncated and the electronic
information contains an accurate record of all MICR line information
required for a substitute check under Sec. 229.2(rr) and the amount of
the check; and (2) no person will receive a transfer, presentment, or
return of, or otherwise be charged for, an electronic collection item,
an electronic return, the original check, a substitute check, or a
paper or electronic representation of a substitute check such that the
person will be asked to make payment based on a check it has already
paid. Each bank that transfers or presents an electronic collection
item would make the warranties to the transferee bank, any subsequent
collecting bank, the paying bank, and the drawer. Each bank that
transfers an electronic return would make the warranties to the
transferee returning bank, any subsequent returning bank, the
depositary bank, and the owner of the check.
These warranties are similar to the warranty that the transferor of
a substitute check or paper or electronic representation of a
substitute check makes under the terms of the Check 21 Act and Sec.
229.52 of Regulation CC. These warranties would, for example, protect a
bank that may need to create a substitute check from an electronic
collection item or electronic return that it receives. The proposed
warranties would not apply to electronic items transferred or presented
pursuant to an agreement that does not require the items to include an
image of the check, because such items would not purport to meet the
proposed definition of an electronic collection item or electronic
return and the receiving bank would not expect to be able create a
legally equivalent substitute check from the item.
2. Current Sec. 229.34(b)--Warranty of Notice of Nonpayment
Because the Board proposes to delete the regulation's provision for
notice of nonpayment, the Board proposes to
[[Page 16881]]
delete the warranty applicable to such notice that is set forth in
current Sec. 229.34(b).
3. Proposed Sec. 229.34(b)--Settlement Amount, Encoding, and Offset
Warranties
The Board proposes that the encoding warranty in current Sec.
229.34(c)(3) (proposed Sec. 229.34(b)(3)) be extended to information
encoded after issue as electronic information. For purposes of this
paragraph, information encoded after issue includes any information in
the electronic information of an electronic collection item or
electronic return.
4. Proposed Sec. 229.34(c)--Transfer and Presentment Warranties With
Respect to a Remotely Created Check
Under current Sec. 229.34(d), a bank that transfers or presents a
remotely created check and receives settlement or consideration for it
warrants that the person on whose account the remotely created check is
drawn authorized the issuance of the check in the amount stated on the
check and to the payee stated on the check. The Board proposes to amend
the commentary to proposed Sec. 229.34(c) to clarify that under
proposed Sec. 229.34(e), the warranty would apply to an electronic
image and information that purport to be derived from a remotely
created check, even were they not in fact derived from a paper check.
For example, a depositary bank transferring an electronic image and
information that, upon inspection, appear to be derived from a check
that meets the regulation's definition of remotely created check would
make the warranty of authorization for a remotely created check even if
no original check existed with respect to the transaction in question.
Further, a paying bank receiving presentment of such an item would
receive from the presenting bank a warranty that the item was
authorized by the person on whose account the item is drawn.
Currently, a bank that transfers a remotely created check makes the
current Sec. 229.34(e) warranty to the transferee bank, any subsequent
collecting bank, and the paying bank. The Board's proposed warranties
with respect to electronic collection items (which could be derived
from remotely created checks) extend to the drawer; similarly, the
current notice of nonpayment and returned check warranties extend to
the owner of the check. The Board requests comment on whether the
remotely created check warranties should extend to the person on whose
account the remotely created check is drawn.
5. Section 229.34(d)--Warranties With Respect to a Returned Check
Proposed Sec. 229.34(d) contains the warranties set forth in
current Sec. 229.34(a). The Board proposes to delete from these
warranties the warranty of return of a check within the deadline
specified in Regulation J. The Regulation J warranties apply only to
those returned checks subject to the terms of that regulation, and need
not be specified in Regulation CC.
6. Section 229.34(e)--Electronic Image and Information Transferred as
an Electronic Collection Item or Electronic Return
Under proposed Sec. 229.34(e), a bank that transfers or presents
an electronic image and related electronic information as if it were an
electronic collection item or electronic return would make all the
warranties in Sec. 229.34 as if the image and information were an
electronic collection item or electronic return. In turn, because
electronic collection items and electronic returns would be treated as
if they were checks or returned checks under Sec. 229.33, a bank also
would make the warranties in Sec. 229.34 as if the images and related
electronic information were checks or returned checks. This proposal
protects recipients of these items that likely will not be able to
distinguish them from similar items that originated as paper checks and
therefore meet the definitions of ``electronic collection item'' and
``electronic return.''
In order for a substitute check to be the legal equivalent of the
original check, the image and information contained in the substitute
check must be of a paper check. Accordingly, the Board proposes
definitions that require electronic collection items and electronic
returns be derived from an item that existed as paper. In some cases, a
bank may receive an electronic image and electronic information that
looks like an electronic collection item or electronic return, but is
neither, because it was originally created electronically and there was
never a paper check. Banks that receive such images and related
electronic information usually cannot differentiate them from actual
electronic collection items or electronic returns. Nonetheless, a bank
that unknowingly receives an electronic image and related electronic
information not derived from a paper instrument may nonetheless
transfer the image and related electronic information as if it were
derived from a paper instrument. Therefore, the Board believes that
electronic images and related electronic information transferred as
electronic collection items or electronic returns should be subject to
the same warranties as electronic collection items and electronic
returns, and therefore, the same warranties as checks and returned
checks (see proposed Sec. 229.34(a)).
G. Section 229.35(a)--Indorsement Standards; Appendix D--Indorsement,
Reconverting-Bank Identification, and Truncating-Bank Identification
Standards
Section 229.35(a) requires a bank (other than the paying bank) that
handles a check to indorse the check in a manner that permits a person
to interpret the indorsement. Since implementation of the Check 21 Act,
banks have increasingly complied with this requirement by associating
their electronic indorsements with items that they handle
electronically.
In appendix D, the Board proposes to require a depositary bank that
transfers an electronic collection item to another bank to apply its
indorsement to that item electronically in accordance with ANS X9.100-
187, unless the parties otherwise agree.\74\ Similarly, the Board also
proposes to require a collecting bank that transfers an electronic
collection item, or a returning bank that transfers an electronic
return, to another bank to apply its indorsement electronically in
accordance with ANS X9.100-187, unless the parties otherwise agree. In
general, the Board believes that inclusion of banks' indorsements as
addenda records accompanying electronic collection items and electronic
returns will facilitate the automated handling of the items by
subsequent banks. In particular, inclusion of the depositary bank's
indorsement as an addenda record accompanying an electronic collection
item will facilitate the automated routing of electronic returns by
paying banks and returning banks.
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\74\ This new requirement would not alter the flexibility
provided by Sec. 229.35(d) to a depositary bank to arrange with
another bank to apply the other bank's indorsement as the
depositary-bank indorsement.
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H. Section 229.36--Presentment and Issuance of Checks
1. Section 229.36(a)--Receipt of Electronic Collection Items
i. Section 229.36(a)(1)
Proposed Sec. 229.36(a)(1) sets forth two circumstances in which a
paying bank is deemed to have agreed to accept an electronic collection
item from the presenting bank. First, a paying bank may agree to accept
the electronic
[[Page 16882]]
collection item directly from the presenting bank. Second, a paying
bank may have otherwise agreed with the presenting bank to accept an
electronic collection item. The proposed commentary indicates that one
example of such an agreement would be where the paying bank and
presenting bank are both members of the same check clearing house,
under the rules of which the paying bank has agreed to accept
electronic collection items from the presenting bank.
ii. Section 229.36(a)(2)
Similar to proposed Sec. 229.32(a)(2), proposed Sec. 229.36(a)(2)
sets forth when a bank is considered to receive an electronic
collection item. A bank receives an electronic collection item when it
is delivered to the electronic presentment point designated by the bank
or, by agreement, otherwise is made available to the bank for retrieval
or review. For example, if a paying bank designates an Internet
protocol (IP) address as its electronic presentment point, the paying
bank has received an electronic collection item when it is delivered to
that address. In contrast, the paying bank may have an arrangement with
the collecting bank whereby electronic collection items are received by
the paying bank when the collecting bank makes the items available for
the paying bank to retrieve or review from a storage device in
accordance with the agreement between the collecting bank and the
paying bank.
iii. Section 229.36(a)(3)
Similar to proposed Sec. 229.32(a)(2), proposed Sec. 229.36(a)(3)
permits a paying bank, for ease of processing, to require that
electronic collection items be separated from electronic returns.
2. Section 229.36(b)--Receipt of Paper Checks
The Board proposes in Sec. 229.36(b)(2) that a paying bank be
permitted to require that forward-collection checks be separated from
returned checks. A similar provision in current Sec. 229.36(f)(1) is
limited to checks presented for same-day settlement and permits a
paying bank to require that paper checks presented for same-day
settlement be separated from other forward-collection checks or
returned checks. The Board requests comment on whether a requirement
that paper checks presented for same-day settlement be separated from
other checks presentments remains necessary.
3. Section 229.36(d)--Same-Day Settlement
For the reasons discussed above in the overview of the proposal,
the Board proposes in Sec. 229.36(d)(2) to permit a paying bank to
require that checks presented for same-day settlement be presented as
electronic collection items to a designated electronic presentment
point.
4. Section 229.36(e)--Issuance of Payable-Through Checks
Current Sec. 229.36(e) requires a bank that arranges for checks
payable by it to be payable through another bank to print conspicuously
on the face of the check the name, location, and first four digits of
the routing number of the bank by which the check is payable. The
purpose of this provision is to alert the depositary bank receiving a
check for deposit that it could not rely on the routing number in the
MICR line of the check to determine whether the check was local or
nonlocal. Because there are no longer any nonlocal checks, the Board
believes that Sec. 229.36(e) is no longer necessary and proposes to
delete it.
I. Section 229.37--Variation by Agreement
The commentary to Sec. 229.37 provides examples of situations
where variation by agreement is permissible. The Board proposes to
amend the commentary to Sec. 229.37 to include as an example of
permissible variation by agreement the situation where a depositary
bank and a paying bank or returning bank agree to send electronic
returns even where the item is available for return. Similarly, the
Board proposes to amend the commentary by adding an example that
permits a presenting bank and paying bank to agree that presentment
takes place upon receipt of an electronic collection item.
J. Section 229.38--Liability
Section 229.38(d)(2) makes drawee banks liable to the extent they
issue payable-through checks that are payable through a bank located in
a different check-processing region and that circumstance causes a
delay in return. Because there is now only one check-processing region,
this liability provision is obsolete and the Board proposes to delete
it.
K. Section 229.40--Mergers
The Board proposes to delete as obsolete the provision in Sec.
229.40(b) regarding mergers consummated on or after July 1, 1998, and
before March 1, 2000.
L. Section 229.43--Checks Payable in Guam, American Samoa, and the
Northern Mariana Islands
The Board proposes to modify Sec. 229.43 to reflect how the
proposed warranties for electronic collection items and electronic
returns in Sec. 229.34 would apply to checks payable in Guam, American
Samoa, and the Northern Mariana Islands. Specifically, a bank that
handles Pacific island checks in the same manner as other checks may
transfer electronic images and electronic information as electronic
collection items or electronic returns derived from Pacific island
checks. Accordingly, such a bank would make the warranties in
Sec. Sec. 229.34(a) and (b) with respect to Pacific island checks.
IV. Subpart D
A. Section 229.52--Substitute-Check Warranties
Sometimes a check submitted for deposit is subsequently
``rejected'' by the bank that receives the check. For example, a bank's
customer might submit a check at an ATM that captures an image of the
check and sends the image electronically to the bank. In turn, the bank
may provide provisional credit to the customer and review the item. For
various reasons, the bank's review of the item might result in the item
being rejected--for example, the bank might determine that the item is
not payable to the customer who submitted it for deposit. It is costly
for the bank to obtain the check from the ATM to provide it back to the
customer; moreover, the check may have been destroyed. Accordingly,
banks sometimes provide the rejected item to the customer in the form
of a substitute check. In such a scenario, the bank would be both the
reconverting bank (the bank that created the substitute check) and the
truncating bank (the bank that truncated the original check).
Under the terms of Sec. 229.52(a), a bank makes the Check 21 Act
warranties with respect to a substitute check when it transfers the
substitute check for consideration, as the terms ``transfer'' and
``consideration'' are defined in current Sec. 229.2(ccc) (proposed to
be redesignated as Sec. 229.2(tt)). However, a bank may not have
received consideration for a substitute check it provides to its
customer after it has rejected an original check submitted for deposit.
As noted in the commentary to the definition of transfer and
consideration, the Check 21 Act contemplates that a nonbank person that
receives a substitute check from a bank will receive warranties and
indemnities with
[[Page 16883]]
respect to that check. Therefore, in order to prevent a bank from being
able to transfer a check that the bank truncated and then reconverted
without providing the substitute-check warranties and indemnity, the
Board proposes to add to Sec. 229.52(a) a new subsection stating that
a bank that rejects a check submitted for deposit and sends back to its
customer a substitute check (or a paper or electronic representation of
a substitute check) makes the warranties in Sec. 229.52(a) regardless
of whether it received consideration for the substitute check. Because
the bank would make these warranties, the substitute check would be the
legal equivalent of the rejected original check, provided that the
substitute check meets the requirements for legal equivalence set forth
in Sec. 229.51(a).\75\ If the substitute check does not meet the
requirements for legal equivalence, then the substitute check recipient
would have a Check 21 warranty claim against the bank.
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\75\ These requirements are that the substitute check (1)
accurately represents all of the information on the front and back
of the original check as of the time the original check was
truncated; and (2) bears the legend, ``This is a legal copy of your
check. You can use it the same way you would use the original
check.''
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Because the bank is both the truncating bank and the reconverting
bank with respect to the check, the bank must identify itself on the
front of the substitute check as the truncating bank and on the front
and back of the check as the reconverting bank, in accordance with the
terms of Sec. 229.51(b). The bank is not, however, a depositary bank,
collecting bank, or returning bank with respect to the check, and the
Board proposes to add a clarifying statement to that effect in proposed
Sec. 229.2(r) (current Sec. 229.2(o), the regulation's definition of
depositary bank). Moreover, the bank's identification of itself on the
back of the check as a reconverting bank does not constitute the bank's
indorsement of the check. To address this latter point, the Board
proposes changes to the commentaries to Sec. Sec. 229.35(a) and
229.51(b), and to paragraph 3(ii) of appendix D.
The Board also proposes to modify the commentary to reflect the
fact that a bank that transfers and receives consideration for an
electronic collection item or electronic return that is an electronic
representation of a substitute check makes the warranties in Sec.
229.52.
B. Section 229.53--Substitute-Check Indemnity
In addition to imposing the substitute check warranties on a bank
that rejects a check for deposit, the Board similarly proposes to add
to Sec. 229.53(a) a new subsection stating that a bank that rejects a
check submitted for deposit and sends back to its customer a substitute
check provides the indemnity set forth in Sec. 229.53(a) regardless of
whether the bank received consideration. The Board also proposes to
modify the commentary to reflect the fact that a bank that transfers
and receives consideration for an electronic collection item or
electronic return that is an electronic representation of a substitute
check is responsible for providing the indemnity in Sec. 229.53.
Other Requests for Comment
I. Effective Date
The Board proposes that the revised subparts A and B take effect 30
days following publication of the final rule. The Board recognizes that
some banks may wish to use the model forms soon after the rule becomes
effective, as part of their normal reordering or reprinting cycle for
their funds-availability disclosures. In order to minimize the
compliance costs, the Board proposes that banks would have 12 months to
comply with the amendments to subpart B and the model forms in appendix
C.
The Board proposes that the amendments to subparts C and D become
effective six months following publication of the final rule. As
discussed above, these amendments provide, among other things, that a
depositary bank must accept electronic returns in order to be entitled
to expeditious return. The time required for depositary banks that
currently accept paper returned checks to implement the operational
changes necessary for receiving electronic returns generally should not
be significant. Many of these depositary banks are small and receive a
small number of returned checks. Accordingly, receiving returns as
.pdfs, for example, should not require substantial changes. The Board
does not expect that other changes to subpart C, such as the proposed
provisions for electronic same-day settlement, would impose a
significant transition burden given that almost all checks are already
presented electronically. Further, under the proposal a collecting bank
may continue to present paper checks under the terms of the UCC and
Regulation J.
II. Potential Future Changes To Reduce Risks to Depositary Banks
Given that there are no longer any nonlocal checks, a depositary
bank must make funds available to the depositor for withdrawal by the
second business day after the banking day of deposit, unless one of the
time-period adjustments in Sec. 229.12 or one of the exceptions in
Sec. 229.13 is applicable. Even assuming that banks collect and return
all checks electronically, depositary banks will in many cases
nonetheless be required to make the funds represented by a check
deposit available for withdrawal before learning whether the check has
been returned unpaid. The Board therefore requests comment on whether
this risk is significant and whether there are feasible means to help
reduce any risk to depositary banks. For example, the deadline in the
UCC by which a paying bank must initiate return of an unpaid check is
generally midnight of the banking day following the banking day of
receipt of the check by the paying bank, except as the deadline may be
extended by Sec. 229.30(c) of Regulation CC. As delivery of forward-
collection and returned checks becomes increasingly electronic, this
amount of time (typically about 36 hours) afforded to the paying bank
takes up a substantial portion of the total time required for a check
to be sent from the depositary bank to the paying bank and back again.
The Board requests comment on whether it would be desirable to reduce
the amount of time afforded to the paying bank to decide whether or not
to pay a check that has been presented to it. The Board also requests
comment on whether there are other, preferable, ways to reduce this
risk to depositary banks.
Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (PRA) (44
U.S.C. 3506; 5 CFR part 1320 Appendix A.1), the Board reviewed the
proposed rulemaking under the authority delegated to the Board by the
Office of Management and Budget (OMB). The collection of information
that is proposed by this rulemaking is found in 12 CFR 229. The Board
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 EFA Act, as amended, and the Check 21 Act authorizes the Board
to issue regulations to carry out the provisions of those Acts (12
U.S.C. 4008 and 12 U.S.C. 5014, respectively). Because the Federal
Reserve does not collect any information, no issue of confidentiality
arises. However, if, during a compliance examination of a financial
institution, a violation or possible violation of the EFA Act or the
Check 21 Act is noted then information regarding such violation may be
kept
[[Page 16884]]
confidential pursuant to Section (b)(8) of the Freedom of Information
Act. 5 U.S.C. 552(b)(8). This information collection is mandatory.
Regulation CC applies to all banks, not just State Member Banks
(SMBs). However, under the PRA, the Board accounts for the burden of
the paperwork associated with the regulation only for entities that are
supervised by the Federal Reserve. The Board accounts for the paperwork
burden only for SMBs and uninsured state branches and agencies of
foreign banks. Other Federal financial agencies are responsible for
estimating and reporting to OMB the total paperwork burden for the
institutions for which they have administrative enforcement authority.
The current annual burden to comply with the provisions of
Regulation CC is estimated to be 202,396 hours for the 1,060
institutions supervised by the Federal Reserve and that are deemed to
be respondents for the purposes of the PRA.
As discussed above, the Board proposes to amend model disclosures,
clauses, and notices, in appendix C that banks may use in disclosing
their funds-availability policies to their customers and to update the
preemption determinations in appendix F to incorporate content
requirements prescribed by section 1086 of the Dodd-Frank Act.
The Board estimates that the proposed rule would impose a one-time
increase in the total annual burden under Regulation CC. The 1,060
respondents would take, on average, 80 hours (two business weeks) to
update their systems to comply with the proposed disclosure
requirements addressed in 12 CFR part 229. This one-time revision would
increase the burden by 84,800 hours. The Board estimates that, on a
continuing basis, the revision to the rule would have a negligible
effect on the annual burden. The total annual burden for the Regulation
CC information collection is estimated to increase from 202,396 to
287,196 hours.
Comments are invited on: (1) Whether the proposed collection of
information is necessary for the proper performance of the Board's
functions; including whether the information has practical utility; (2)
the accuracy of the Board's estimate of the burden of the proposed
information collection, including the cost of compliance; (3) ways to
enhance the quality, utility, and clarity of the information to be
collected; and (4) ways to minimize the burden of information
collection on respondents, including through the use of automated
collection techniques or other forms of information technology.
Comments on the collection of information should be sent to Cynthia
Ayouch, Acting Federal Reserve Clearance Officer, Division of Research
and Statistics, Mail Stop 95-A, Board of Governors of the Federal
Reserve System, Washington, DC 20551, with copies of such comments sent
to the Office of Management and Budget, Paperwork Reduction Project
(7100-0235), Washington, DC 20503.
Regulatory Flexibility Act
In accordance with section 3(a) of the Regulatory Flexibility Act
(RFA), 5 U.S.C. 601-612, the Board is publishing an initial regulatory
flexibility analysis for the proposed amendments to Regulation CC. The
RFA requires an agency either to provide an initial regulatory
flexibility analysis with a proposed rule or to certify that the
proposed rule will not have a significant economic impact on a
substantial number of small entities. In accordance with section 3(a)
of the RFA, the Board has reviewed the proposed regulation. While the
Board believes that the proposed rule likely would not have a
significant economic impact on a substantial number of small entities
(5 U.S.C. 605(b)), the Board has prepared an Initial Regulatory
Flexibility Analysis in accordance with 5 U.S.C. 603. The Board will,
if necessary, conduct a final regulatory flexibility analysis after
consideration of comments received during the public comment period.
The Board is proposing the foregoing amendments to Regulation CC
pursuant to its authority under the EFA Act and the Check 21 Act. The
proposed amendments would apply to all banks regardless of their size,
and the Board anticipates that the proposal would reduce banks' overall
costs of collecting and returning checks.
By providing that a depositary bank preserves its right to
expeditious return only of it agrees to receive returned checks
electronically, the proposed rule would encourage, but not require,
depositary banks to accept check returns in electronic form. A
depositary bank that currently receives returned checks in paper form
and that chooses, as encouraged by the proposal, to begin to receive
returned checks electronically, will incur some cost associated with
that transition. The Board expects that these costs would be relatively
low for a small depositary bank, which typically would receive only a
small volume of returned checks. For example, as mentioned above, the
Federal Reserve Banks now offer a product under which they deliver
electronically to small depositary banks copies (.pdf files) of
returned checks, which the banks can print on their own premises if
necessary.\76\ To receive returned checks in this fashion, a depositary
bank may need to establish and maintain an electronic connection to the
Reserve Banks, or another returning bank that offers a similar service,
and to purchase certain equipment, such as a printer capable of double-
sided printing and magnetic-ink toner cartridges. Depending on the
volume of returned checks that a small depositary bank receives, the
Board estimates that this transition would cost a small depositary bank
approximately $5,000 in net-present-value terms.\77\ Conversely, a
small depositary bank that does not choose to accept returned checks
electronically would, under the proposal, incur additional risk
associated with that decision. Specifically, the bank would not retain
its right to expeditious return of a check, and a returned check may
not be delivered to the bank in a timely fashion. While this risk is
difficult to quantify, it is reasonable to expect that each small
depositary bank will weigh the costs and benefits of whether to accept
returns electronically. If the bank determines that the net present
value of the risk is greater than the cost to receive returned checks
electronically, then the bank can minimize its cost associated with the
Board's proposal by accepting returned checks electronically.
---------------------------------------------------------------------------
\76\ After printing the .pdf files, the depositary bank would be
able to process the checks exactly as it would process paper checks
physically delivered to it.
\77\ This estimate takes into account the cost to a small
depositary bank to establish and maintain an electronic connection
to the Reserve Banks, which is estimated to be $110 per month. See
75 FR 67731 at 67747 (Nov. 3, 2010). Some small banks, however, may
already have such a connection. Further, a small depositary bank may
choose to receive its returns electronically in a manner that does
not require this connection, such as through a different returning
bank, an electronic check clearinghouse, or a nonbank processor.
---------------------------------------------------------------------------
The proposed updates to the model funds-availability policy
disclosures and notices in appendix C should not impose significant
cost on small banks. Under the proposal, a bank that bases its
disclosures and notices on the current models in the appendix will
continue to receive a safe harbor for 12 months after the final rule
becomes effective, provided that the bank's disclosures and notices
accurately reflect the bank's policies and practices. Moreover, a bank
that chooses to update its disclosures on the basis of the proposal
would not generally need to redeliver disclosures to all of its
existing customers if the bank's underlying funds-availability
[[Page 16885]]
policies did not change; instead, in accordance with the regulation, a
bank would need to provide the disclosures at the time a customer opens
an account, and upon request.
Any costs to a small bank that may result from the rule will be
offset to some extent by savings to the bank in other areas. For
example, receiving returned checks electronically may enable a small
bank to reduce its ongoing operating costs associated with receiving
and processing returned checks. Further, as other banks with which the
small bank does business also begin to receive returned checks
electronically, the small bank, in its role as paying bank, may
experience lower costs associated with sending returned checks to other
banks, because a paying bank typically pays a higher fee to deliver a
returned check in paper form to a depositary bank, as compared to
delivering a returned check electronically to the depositary bank. In
addition, the proposed provisions for electronic same-day settlement
may reduce a small bank's costs associated with receiving check
presentments, because it should further reduce the number of paper
check presentments that it receives.
According to the Small Business Administration size standards
defining small entities, a commercial bank, savings association, or
credit union is considered a ``small entity'' if it has assets of $175
million or less.\78\ The Board can identify through data from Reports
of Condition and Income (``call reports'') the approximate number of
small depository institutions that would be subject to the proposed
rule if finalized.\79\ Based on September 2010 call report data, there
are approximately 11,030 depository institutions that have total
domestic assets of $175 million or less and thus are considered small
entities for purposes of the RFA. Based on December 2010 data regarding
checks returned through the Reserve Banks, the Board estimates that 41
percent of small depository institutions had at that time made
arrangements to receive returned checks electronically, whereas 59
percent had not. Banks are steadily adopting electronic check handling
methods, however, and the Board expects that a substantially higher
percentage of small depository institutions will have made arrangements
to receive electronic check returns by the time the Board adopts a
final rule. The Board specifically requests comment on the cost of its
proposed rule to a small depository institution.
---------------------------------------------------------------------------
\78\ U.S. Small Business Administration, Table of Small Business
Size Standards Matched to North American Industry Classification
System Codes, available at http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf.
\79\ The proposed rule would not impose costs on any small
entities other than depository institutions.
---------------------------------------------------------------------------
The Board notes that subpart A of Regulation J overlaps with the
proposed rule with respect to checks collected or returned through the
Reserve Banks. The provisions of Regulation J supersede any
inconsistent provisions of Regulation CC, but only to the extent of the
inconsistency.\80\
---------------------------------------------------------------------------
\80\ See 12 CFR 210.3(f).
---------------------------------------------------------------------------
Text of Proposed Revisions
Certain conventions have been used to highlight the proposed
changes to the text of the regulation and commentary. With the
exception of appendices C and F to the regulation, new language is
shown inside [rtrif]bold-faced arrows[ltrif], while language proposed
to be deleted is set off with [lsqbb]bold-faced brackets[rsqbb]. In
appendix C, each proposed new model form is set forth in its entirety
and the corresponding current form is deleted in its entirety, because
the convention described above for the changes to the text within each
of the forms would render illegible the formatting of the proposed
forms. The Board proposes to replace the text of appendix F in its
entirety. Paragraphs in the commentary are numbered to comply with
Federal Register publication rules.
List of Subjects in 12 CFR Part 229
Banks, Banking, Federal Reserve System, Reporting and recordkeeping
requirements.
Authority and Issuance
For the reasons set forth in the preamble, the Board proposes to
amend 12 CFR part 229 as follows:
PART 229--AVAILABILITY OF FUNDS AND COLLECTIONS OF CHECKS
(REGULATION CC)
Subpart A--General
1. Section 229.1 is revised to read as follows:
Sec. 229.1 Authority and purpose; organization.
(a) Authority and purpose. This part is issued by the Board of
Governors of the Federal Reserve System (Board) to implement the
Expedited Funds Availability Act (12 U.S.C. 4001-4010) (the EFA Act)
and the Check Clearing for the 21st Century Act (12 U.S.C. 5001-5018)
(the Check 21 Act).
(b) Organization. This part is divided into subparts and appendices
as follows--
(1) Subpart A contains general information. It sets forth--
(i) The authority, purpose, and organization;
(ii) Definition of terms; and
(iii) Authority for administrative enforcement of this part's
provisions.
(2) Subpart B of this part contains rules regarding the duty of
banks to make funds deposited into accounts available for withdrawal,
including availability schedules. Subpart B of this part also contains
rules regarding exceptions to the schedules, disclosure of funds
availability policies, payment of interest, liability of banks for
failure to comply with Subpart B of this part, and other matters.
(3) Subpart C of this part contains rules to expedite the
collection and return of checks by banks[rtrif], including provisions
that accommodate electronic presentment and return of checks[ltrif].
These rules cover the direct return of checks, the manner in which the
paying bank and returning banks must return checks to the depositary
bank, [lsqbb]notification of nonpayment by the paying bank,[rsqbb]
indorsement and presentment of checks, same-day settlement for certain
checks, the liability of banks for failure to comply with subpart C of
this part, and other matters.
(4) Subpart D of this part contains rules relating to substitute
checks. These rules address the creation and legal status of substitute
checks; the substitute check warranties and indemnity; expedited
recredit procedures for resolving improper charges and warranty claims
associated with substitute checks provided to consumers; and the
disclosure and notices that banks must provide.
[rtrif](5) Appendix A of this part contains a routing number guide
to next-day-availability checks. The guide lists the routing numbers of
checks drawn on Federal Reserve Banks and Federal Home Loan Banks, and
U.S. Treasury checks and Postal money orders that are subject to next-
day availability.
(6) Appendix C of this part contains model funds-availability
policy disclosures, clauses, and notices and a model disclosure and
notices related to substitute-check policies.
(7) Appendix D of this part contains indorsement standards and
standards for identifying the reconverting bank and truncating bank.
(8) Appendix E of this part contains Board interpretations, which
are labeled ``Commentary,'' of the provisions of this
[[Page 16886]]
part. The Commentary provides background material to explain the
Board's intent in adopting a particular part of the regulation and
provides examples to aid in understanding how a particular requirement
is to work. The Commentary is an official Board interpretation under
section 611(e) of the EFA Act (12 U.S.C. 4010(e)).
(9) Appendix F of this part contains the Board's determinations of
the EFA Act and Regulation CC's preemption of state laws that were in
effect on September 1, 1989.[ltrif]
2. Section 229.2 is revised to read as follows:
Sec. 229.2 Definitions.
As used in this part, and unless the context requires otherwise,
the following terms have the meanings set forth in this section, and
the terms not defined in this section have the meanings set forth in
the Uniform Commercial Code:
(a) Account. (1) Except as provided in paragraphs (a)(2) and (a)(3)
of this section, account means a deposit as defined in 12 CFR
204.2(a)(1)(i) that is a transaction account as described in 12 CFR
204.2(e). As defined in these sections, account generally includes
[rtrif]an[ltrif] account[lsqbb]s[rsqbb] at a bank from which the
account holder is permitted to make transfers or withdrawals by
negotiable or transferable instrument, payment order of withdrawal,
telephone transfer, electronic payment, or other similar means for the
purpose of making payments or transfers to third persons or others.
Account also includes [rtrif]an[ltrif] account[lsqbb]s[rsqbb] at a bank
from which the account holder may make third party payments at an ATM,
remote service unit, or other electronic device, including by debit
card, but the term does not include [rtrif]a[ltrif] savings
deposit[lsqbb]s[rsqbb]or account[lsqbb]s[rsqbb] described in 12 CFR
204.2(d)(2) even though such accounts permit third party transfers. An
account may be in the form of--
(i) A demand deposit account,
(ii) A negotiable order of withdrawal account,
(iii) A share draft account,
(iv) An automatic transfer account, or
(v) Any other transaction account described in 12 CFR 204.2(e).
(2) For purposes of subpart B of this part and, in connection
therewith, this subpart A, account does not include an account where
the account holder is a bank, where the account holder is an office of
an institution described in paragraphs (e)(1) through (e)(6) of this
section or an office of a ``foreign bank'' as defined in section 1(b)
of the International Banking Act (12 U.S.C. 3101) that is located
outside the United States, or where the direct or indirect account
holder is the Treasury of the United States.
(3) For purposes of subpart D of this part and, in connection
therewith, this subpart A, account means any deposit, as defined in 12
CFR 204.2(a)(1)(i), at a bank, including a demand deposit or other
transaction account and a savings deposit or other time deposit, as
those terms are defined in 12 CFR 204.2.
(b) [lsqbb]Automated clearinghouse or ACH means a facility that
processes debit and credit transfers under rules established by a
Federal Reserve Bank operating circular on automated clearinghouse
items or under rules of an automated clearinghouse association.[rsqbb]
[rtrif]Automated clearinghouse (ACH) credit transfer means a transfer
whereby the originator orders that its account be debited and another
account be credited through the ACH, which is a facility that processes
debit and credit transfers under rules established by a Federal Reserve
Bank operating circular on ACH items or under rules of an ACH
association or similar interbank agreement.[ltrif]
(c) Automated teller machine or ATM means an electronic device at
which a natural person may make deposits to an account by cash or
[rtrif]paper[ltrif] check and perform other account
transactions[rtrif], for example, making cash withdrawals from an
account.[ltrif]
(d) Available for withdrawal with respect to funds deposited means
available for all uses generally permitted to the customer for actually
and finally collected funds under the bank's account agreement or
policies, such as for payment of checks drawn on the account,
certification of checks drawn on the account, electronic payments,
withdrawals by cash, and transfers between accounts.
(e)[rtrif](1)[ltrif] Bank means--
[lsqbb](1)[rsqbb][rtrif](i)[ltrif] An insured bank as defined in
section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813) or a
bank that is eligible to apply to become an insured bank under section
5 of that Act (12 U.S.C. 1815);
[lsqbb](2)[rsqbb][rtrif](ii)[ltrif] A mutual savings bank as
defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C.
1813);
[lsqbb](3)[rsqbb][rtrif](iii)[ltrif] A savings bank as defined in
section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813);
[lsqbb](4)[rsqbb][rtrif](iv)[ltrif] An insured credit union as
defined in section 101 of the Federal Credit Union Act (12 U.S.C. 1752)
or a credit union that is eligible to make application to become an
insured credit union under section 201 of that Act (12 U.S.C. 1781);
[lsqbb](5)[rsqbb][rtrif](v)[ltrif] A member as defined in section 2
of the Federal Home Loan Bank Act (12 U.S.C. 1422);
[lsqbb](6)[rsqbb][rtrif](vi)[ltrif] A savings association as
defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C.
1813) that is an insured depository institution as defined in section 3
of that Act (12 U.S.C. 1813(c)(2)) or that is eligible to apply to
become an insured depository institution under section 5 of that Act
(12 U.S.C. 1815); or
[lsqbb](7)[rsqbb][rtrif](vii)[ltrif] An agency or a branch of a
foreign bank as defined in section l(b) of the International Banking
Act (12 U.S.C. 3101).
[rtrif](2)[ltrif] For purposes of subparts C and D 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. Unless otherwise
specified, the term bank includes all of a bank's offices in the United
States, but not offices located outside the United States.
[lsqbb]Note:[rsqbb] [rtrif](3)[ltrif] For purposes of subpart D of
this part and, in connection therewith, this subpart A, bank also
includes the Treasury of the United States or the United States Postal
Service to the extent that the Treasury or the Postal Service acts as a
paying bank.
(f) Banking day means that part of any business day on which an
office of a bank is open to the public for carrying on substantially
all of its banking functions.
(g) Business day means a calendar day other than a Saturday or a
Sunday, January 1, the third Monday in January, the third Monday in
February, the last Monday in May, July 4, the first Monday in
September, the second Monday in October, November 11, the fourth
Thursday in November, or December 25. If January 1, July 4, November
11, or December 25 fall on a Sunday, the next Monday is not a business
day.
(h) Cash means United States coins and currency.
(i) Cashier's check means a check that is--
(1) Drawn on a bank;
(2) Signed by an officer or employee of the bank on behalf of the
bank as drawer;
(3) A direct obligation of the bank; and
(4) Provided to a customer of the bank or acquired from the bank
for remittance purposes.
(j) Certified check means a check with respect to which the drawee
bank
[[Page 16887]]
certifies by signature on the check of an officer or other authorized
employee of the bank that--
(1) (i) The signature of the drawer on the check is genuine; and
(ii) The bank has set aside funds that--
(A) Are equal to the amount of the check, and
(B) Will be used to pay the check; or
(2) The bank will pay the check upon presentment.
(k)[rtrif](1)[ltrif] Check means--
[lsqbb](1)[rsqbb][rtrif](i)[ltrif] A negotiable demand draft drawn
on or payable through or at an office of a bank;
[lsqbb](2)[rsqbb][rtrif](ii)[ltrif] A negotiable demand draft drawn
on a Federal Reserve Bank or a Federal Home Loan Bank;
[lsqbb](3)[rsqbb][rtrif](iii)[ltrif] A negotiable demand draft
drawn on the Treasury of the United States;
[lsqbb](4)[rsqbb][rtrif](iv)[ltrif] A demand draft drawn on a state
government or unit of general local government that is not payable
through or at a bank;
[lsqbb](5)[rsqbb][rtrif](v)[ltrif] A United States Postal Service
money order; or
[lsqbb](6)[rsqbb][rtrif](vi)[ltrif] A traveler's check drawn on or
payable through or at a bank.
[lsqbb](7)[rsqbb][rtrif](2)[ltrif] The term check includes an
original check and a substitute check.
[rtrif](3)[ltrif] The term check does not include a noncash item or
an item payable in a medium other than United States money.
[rtrif](4)[ltrif] A draft may be a check even though it is
described on its face by another term, such as money order.
[rtrif](5)[ltrif] For purposes of subparts C and D, and in
connection therewith, subpart A, of this part, the term check also
includes a demand draft of the type described above that is
nonnegotiable.
(l) [lsqbb][Reserved][rsqbb] [rtrif]Claimant bank means a bank that
submits a claim for a recredit for a substitute check to an
indemnifying bank under Sec. 229.55.[ltrif]
(m) [lsqbb]Check processing region means the geographical area
served by an office of a Federal Reserve Bank for purposes of its check
processing activities.[rsqbb] Collecting bank means any bank handling a
check for forward collection, except the paying bank.
(n) Consumer means a natural person who--
(1) With respect to a check handled for forward collection, draws
the check on a consumer account; or
(2) With respect to a check handled for return, deposits the check
into or cashes the check against a consumer account.
(o) Consumer account means any account used primarily for personal,
family, or household purposes.
(p) Contractual branch, with respect to a bank, means a branch of
another bank that accepts a deposit on behalf of the first bank.
(q) Customer means a person having an account with a bank.
(r) [lsqbb]Local check means a check payable by or at a local
paying bank, or a check payable by a nonbank payor and payable through
a local paying bank.[rsqbb] Depositary bank means the first bank to
which a check is transferred even though it is also the paying bank or
the payee. A check deposited in an account is deemed to be transferred
to the bank holding the account into which the check is deposited, even
though the check is physically received and indorsed first by another
bank. [rtrif]A bank that rejects a check submitted for deposit is not a
depositary bank with respect to that check.[ltrif]
(s) [lsqbb]Local paying bank means a paying bank that is located in
the same check processing region as the physical location of the
branch, contractual branch, or proprietary ATM of the depositary bank
in which that check was deposited.[rsqbb] [rtrif]Electronic collection
item means an electronic image of and information related to a check
that a bank sends for forward collection and that--
(1) A paying bank has agreed to receive under Sec. 229.36(a);
(2) Is sufficient to create a substitute check; and
(3) Conforms with American National Standard Specifications for
Electronic Exchange of Check and Image Data--X9.100-187, in conjunction
with its Universal Companion Document (hereinafter collectively
referred to as ANS X9.100-187), unless the Board by rule or order
determines that different standard applies or the parties otherwise
agree.[ltrif]
(t) Electronic payment means a wire transfer or an ACH credit
transfer.
(u) [rtrif]Electronic presentment point means the electronic
location that a paying bank has designated for receiving electronic
collection items.[ltrif]
(v) [lsqbb]Nonlocal check means a check payable by, through, or at
a nonlocal paying bank.[rsqbb] [rtrif]Electronic return means an
electronic image of and information related to a check that a paying
bank determines not to pay and that--
(1) A depositary bank has agreed to receive under Sec. 229.32(a);
(2) Is sufficient to create a substitute check; and
(3) Conforms with ANS X9.100-187, unless the Board by rule or order
determines that a different standard applies or the parties otherwise
agree.[ltrif]
(w) [lsqbb]Nonlocal paying bank means a paying bank that is not a
local paying bank with respect to the depositary bank.[rsqbb]
[rtrif]Electronic return point means the electronic location that the
depositary bank has designated for receiving electronic returns.[ltrif]
(x) Fedwire has the same meaning as that set forth in Sec.
210.26(e) of this chapter.
(y) Forward collection means the process by which a bank sends a
check on a cash basis to a collecting bank for settlement or to the
paying bank for payment.
(z) Good faith means honesty in fact and observance of reasonable
commercial standards of fair dealing.
(aa) Indemnifying bank means a bank that provides an indemnity
under Sec. 229.53 with respect to a substitute check.
(bb) Interest compensation means an amount of money calculated at
the average of the Federal Funds rates published by the Federal Reserve
Bank of New York for each of the days for which interest compensation
is payable, divided by 360. The Federal Funds rate for any day on which
a published rate is not available is the same as the published rate for
the last preceding day for which there is a published rate.
(cc) Magnetic ink character recognition line and MICR line mean the
numbers, which may include the routing number, account number, check
number, check amount, and other information, that are printed near the
bottom of a check in magnetic ink in accordance with American National
Standard Specifications for Placement and Location of MICR Printing,
X9.13 (hereinafter ANS X9.13) for an original check and American
National Standard Specifications for an Image Replacement Document--
IRD, X9.100-140 (hereinafter ANS X9.100-140) for a substitute check
(unless the Board by rule or order determines that different standards
apply).
(dd) Merger transaction means--
(1) A merger or consolidation of two or more banks; or
(2) The transfer of substantially all of the assets of one or more
banks or branches to another bank in consideration of the assumption by
the acquiring bank of substantially all of the liabilities of the
transferring banks, including the deposit liabilities.
(ee) [lsqbb]Similarly situated bank means a bank of similar size,
located in the same community, and with similar check handling
activities as the paying bank or returning bank.[rsqbb] Noncash item
means an item that would otherwise be a check, except that--
(1) A passbook, certificate, or other document is attached;
[[Page 16888]]
(2) It is accompanied by special instructions, such as a request
for special advice of payment or dishonor;
(3) It consists of more than a single thickness of paper, except a
check that qualifies for handling by automated check processing
equipment; or
(4) It has not been preprinted or post-encoded in magnetic ink with
the routing number of the paying bank.
(ff) Nonproprietary ATM means an ATM that is not a proprietary ATM.
(gg) Original check means the first paper check issued with respect
to a particular payment transaction.
(hh) Paper or electronic representation of a substitute check means
any copy of or information related to a substitute check that a bank
handles for forward collection or return, charges to a customer's
account, or provides to a person as a record of a check payment made by
the person.
(ii)[rtrif](1)[ltrif] Paying bank means--
[lsqbb](1)[rsqbb][rtrif](i)[ltrif] The bank by which a check is
payable, unless the check is payable at another bank and is sent to the
other bank for payment or collection;
[lsqbb](2)[rsqbb][rtrif](ii)[ltrif] The bank at which a check is
payable and to which it is sent for payment or collection;
[lsqbb](3)[rsqbb] [rtrif](iii)[ltrif] The Federal Reserve Bank or
Federal Home Loan Bank by which a check is payable;
[lsqbb](4)[rsqbb][rtrif](iv)[ltrif] The bank through which a check
is payable and to which it is sent for payment or collection, if the
check is not payable by a bank; or
[lsqbb](5)[rsqbb][rtrif](v)[ltrif] The state or unit of general
local government on which a check is drawn and to which it is sent for
payment or collection.
[rtrif](2)[ltrif] For purposes of subparts C and D, and in
connection therewith, subpart A, paying bank includes the bank through
which a check is payable and to which the check is sent for payment or
collection, regardless of whether the check is payable by another bank,
and the bank whose routing number appears on a check in fractional or
magnetic form and to which the check is sent for payment or collection.
[lsqbb]Note:[rsqbb] [rtrif](3)[ltrif] For purposes of subpart D of
this part and, in connection therewith, this subpart A, paying bank
also includes the Treasury of the United States or the United States
Postal Service for a check that is payable by that entity and that is
sent to that entity for payment or collection.
(jj) Person means a natural person, corporation, unincorporated
company, partnership, government unit or instrumentality, trust, or any
other entity or organization.
(kk) Proprietary ATM means an ATM that is [rtrif](1)[ltrif] --
[lsqbb](1)[rsqbb][rtrif](i)[ltrif] Owned or operated by, or
operated exclusively for, the depositary bank;
[lsqbb](2)[rsqbb][rtrif](ii)[ltrif] Located on the premises
(including the outside wall) of the depositary bank; or
[lsqbb](3)[rsqbb][rtrif](iii)[ltrif] Located within 50 feet of the
premises of the depositary bank, and not identified as being owned or
operated by another entity.
[rtrif](2)[ltrif] If more than one bank meets the owned or operated
criterion of paragraph [lsqbb](aa)[rsqbb][rtrif](kk)[ltrif](1) of this
section, the ATM is considered proprietary to the bank that operates
it.
(ll) Qualified returned check means a returned check that is
prepared for automated return to the depositary bank by placing the
check in a carrier envelope or placing a strip on the check and
encoding the strip or envelope in magnetic ink. A qualified returned
check need not contain other elements of a check drawn on the
depositary bank, such as the name of the depositary bank.
(mm) Reconverting bank means--
(1) The bank that creates a substitute check; or
(2) With respect to a substitute check that was created by a person
that is not a bank, the first bank that transfers, presents, or returns
that substitute check or, in lieu thereof, the first paper or
electronic representation of that substitute check.
(nn) Remotely created check means a check that is not created by
the paying bank and that does not bear a signature applied, or
purported to be applied, by the person on whose account the check is
drawn. For purposes of this definition, ``account'' means an account as
defined in paragraph (a) of this section as well as a credit or other
arrangement that allows a person to draw checks that are payable by,
through, or at a bank.
(oo) Returning bank means a bank (other than the paying or
depositary bank) handling a returned check or notice in lieu of return.
A returning bank is also a collecting bank for purposes of UCC 4-
202(b).
(pp) Routing number means--
(1) The [rtrif]bank-identification[ltrif] number printed on the
face of a check in fractional form or in nine-digit form;
[lsqbb]or[rsqbb]
(2) The [rtrif]bank-identification[ltrif] number in a bank's
indorsement in fractional or nine-digit form[lsqbb].[rsqbb][rtrif]; or
(3) In the case of an electronic collection item or electronic
return, the bank-identification number contained in the electronic
image of or information related to a check.[ltrif]
(qq) State means a state, the District of Columbia, Puerto Rico, or
the U.S. Virgin Islands. For purposes of subpart D of this part and, in
connection therewith, this subpart A, state also means Guam, American
Samoa, [lsqbb]the Trust Territory of the Pacific Islands,[rsqbb] the
Northern Mariana Islands, and any other territory of the United States.
(rr) Substitute check means a paper reproduction of an original
check that--
(1) Contains an image of the front and back of the original check;
(2) Bears a MICR line that, except as provided under ANS X9.100-140
(unless the Board by rule or order determines that a different standard
applies), contains all the information appearing on the MICR line of
the original check at the time that the original check was issued and
any additional information that was encoded on the original check's
MICR line before an image of the original check was captured;
(3) Conforms in paper stock, dimension, and otherwise with ANS
X9.100-140 (unless the Board by rule or order determines that a
different standard applies); and
(4) Is suitable for automated processing in the same manner as the
original check.
(ss) Sufficient copy and copy. (1) A sufficient copy is a copy of
an original check that accurately represents all of the information on
the front and back of the original check as of the time the original
check was truncated or is otherwise sufficient to determine whether or
not a claim is valid.
(2) A copy of an original check means any paper reproduction of an
original check, including a paper printout of an electronic image of
the original check, a photocopy of the original check, or a substitute
check.
(tt) Teller's check means a check provided to a customer of a bank
or acquired from a bank for remittance purposes, that is drawn by the
bank, and drawn on another bank or payable through or at a bank.
(uu) Transfer and consideration. The terms transfer and
consideration have the meanings set forth in the Uniform Commercial
Code and in addition, for purposes of subpart D--
(1) The term transfer with respect to a substitute check or a paper
or electronic representation of a substitute check means delivery of
the substitute check or other representation of the substitute check by
a bank to a person other than a bank; and
(2) A bank that transfers a substitute check or a paper or
electronic representation of a substitute check directly to a person
other than a bank has received consideration for the substitute check
or other paper or
[[Page 16889]]
electronic representation of the substitute check if it has charged, or
has the right to charge, the person's account or otherwise has received
value for the original check, a substitute check, or a representation
of the original check or substitute check.
(vv) Traveler's check means an instrument for the payment of money
that--
(1) Is drawn on or payable through or at a bank;
(2) Is designated on its face by the term traveler's check or by
any substantially similar term or is commonly known and marketed as a
traveler's check by a corporation or bank that is an issuer of
traveler's checks;
(3) Provides for a specimen signature of the purchaser to be
completed at the time of purchase; and
(4) Provides for a countersignature of the purchaser to be
completed at the time of negotiation.
(ww) Truncate means to remove an original check from the forward
collection or return process and send to a recipient, in lieu of such
original check, a substitute check or, by agreement, information
relating to the original check (including data taken from the MICR line
of the original check or an electronic image of the original check),
whether with or without the subsequent delivery of the original check.
(xx) Truncating bank means--
(1) The bank that truncates the original check; or
(2) If a person other than a bank truncates the original check, the
first bank that transfers, presents, or returns, in lieu of such
original check, a substitute check or, by agreement with the recipient,
information relating to the original check (including data taken from
the MICR line of the original check or an electronic image of the
original check), whether with or without the subsequent delivery of the
original check.
(yy) Uniform Commercial Code, Code, or U.C.C. means the Uniform
Commercial Code as adopted in a state.
(zz) United States means the states, including the District of
Columbia, the U.S. Virgin Islands, and Puerto Rico.
(aaa) Unit of general local government means any city, county,
parish, town, township, village, or other general purpose political
subdivision of a state. The term does not include special purpose units
of government, such as school districts or water districts.
(bbb) Wire transfer means an unconditional order to a bank to pay a
fixed or determinable amount of money to a beneficiary upon receipt or
on a day stated in the order, that is transmitted by electronic or
other means through Fedwire, the Clearing House Interbank Payments
System, other similar network, between banks, or on the books of a
bank. Wire transfer does not include an electronic fund transfer as
defined in section 903(6) of the Electronic Fund Transfer Act (15
U.S.C. 1693a(6)).
3. In Sec. 229.3, paragraph (a) is revised as follows:
Sec. 229.3 Administrative enforcement.
(a) Enforcement agencies. Compliance with this part is enforced
under--
(1) Section 8 of the Federal Deposit Insurance Act (12 U.S.C. 1818
et seq.) in the case of--
(i) National banks, Federal branches and Federal agencies of
foreign banks, by the Office of the Comptroller of the Currency;
(ii) Member banks of the Federal Reserve System (other than
national banks), and offices, branches, and agencies of foreign banks
located in the United States (other than Federal branches, Federal
agencies, and insured State branches of foreign banks), by the Board;
and
(iii) Banks insured by the Federal Deposit Insurance Corporation
(other than members of the Federal Reserve System) and insured State
branches of foreign banks, by the Board of Directors of the Federal
Deposit Insurance Corporation;
(2) Section 8 of the Federal Deposit Insurance Act, by the Director
of the Office of Thrift Supervision in the case of savings associations
the deposits of which are insured by the Federal Deposit Insurance
Corporation; and
(3) The Federal Credit Union Act (12 U.S.C. 1751 et seq.) by the
National Credit Union Administration Board with respect to any Federal
credit union or credit union insured by the National Credit Union Share
Insurance Fund.
[rtrif](4)[ltrif]The terms used in paragraph (a)(1) of this section
that are not defined in this part or otherwise defined in section 3(s)
of the Federal Deposit Insurance Act (12 U.S.C. 1813(s)) shall have the
meaning given to them in section 1(b) of the International Banking Act
of 1978 (12 U.S.C. 3101).
* * * * *
Subpart B--Availability of Funds and Disclosure of Funds
Availability Policies
4. In Sec. 229.10, revise paragraphs (b) and (c) as follows:
Sec. 229.10 Next-Day availability.
* * * * *
(b) Electronic payments--(1) In general. A bank shall make funds
received for deposit in an account by an electronic payment available
for withdrawal not later than the business day after the banking day on
which the bank received the electronic payment.
(2) When an electronic payment is received. An electronic payment
is received when the bank receiving the payment has received both--
(i) Payment in actually and finally collected funds; and
(ii) Information on the account and amount to be credited.
[rtrif](3) Extent of payment received.[ltrif] A bank receives an
electronic payment only to the extent that the bank has received
payment in actually and finally collected funds.
(c) Certain check deposits--(1) [lsqbb]General rule[rsqbb][rtrif]In
general[ltrif]. A depositary bank shall make funds deposited in an
account by check available for withdrawal not later than the business
day after the banking day on which the funds are deposited, in the case
of--
(i) A check drawn on the Treasury of the United States and
deposited in an account held by a payee of the check;
(ii) A U.S. Postal Service money order deposited--
(A) In an account held by a payee of the money order; and
(B) In person to an employee of the depositary bank.
(iii) A check drawn on a Federal Reserve Bank or Federal Home Loan
Bank and deposited--
(A) In an account held by a payee of the check; and
(B) In person to an employee of the depositary bank;
(iv) A check drawn by a state or a unit of general local government
and deposited--
(A) In an account held by a payee of the check;
(B) In a depositary bank located in the state that issued the
check, or the same state as the unit of general local government that
issued the check;
(C) In person to an employee of the depositary bank; and
(D) With a special deposit slip or deposit envelope, if such slip
or envelope is required by the depositary bank under paragraph
(c)[lsqbb](3)[rsqbb][rtrif](2)[ltrif] of this section.
(v) A cashier's, certified, or teller's check deposited--
(A) In an account held by a payee of the check;
(B) In person to an employee of the depositary bank; and
(C) With a special deposit slip or deposit envelope, if such slip
or envelope is required by the depositary bank under paragraph
(c)[lsqbb](3)[rsqbb][rtrif](2)[ltrif] of this section.
[[Page 16890]]
(vi) A check deposited in a branch of the depositary bank and drawn
on the same or another branch of the same bank [if both branches are
located in the same state or the same check processing region]; and,
(vii) The lesser of--
(A) $100, or
(B) The aggregate amount deposited on any one banking day to all
accounts of the customer by check or checks not subject to next-day
availability under paragraphs (c)(1)(i) through (vi) of this section.
[lsqbb](2) Checks not deposited in person. A depositary bank shall
make funds deposited in an account by check or checks available for
withdrawal not later than the second business day after the banking day
on which funds are deposited, in the case of a check deposit described
in and that meets the requirements of paragraphs (c)(1)(ii), (iii),
(iv), and (v), of this section, except that it is not deposited in
person to an employee of the depositary bank.[rsqbb]
[lsqbb](3)[rsqbb][rtrif](2)[ltrif] Special deposit slip. (i) As a
condition to making the funds available for withdrawal in accordance
with this section, a depositary bank may require that a state or local
government check or a cashier's, certified, or teller's check be
deposited with a special deposit slip or deposit envelope that
identifies the type of check.
(ii) If a depositary bank requires the use of a special deposit
slip or deposit envelope, the bank must either provide the special
deposit slip or deposit envelope to its customers or inform its
customers how the slip or envelope may be prepared or obtained and make
the slip or envelope reasonably available.
5. Section 229.12 is revised to read as follows:
Sec. 229.12 Availability schedule.
[lsqbb](a) Effective date. The availability schedule contained in
this section is effective September 1, 1990.[rsqbb]
[lsqbb](b) Local checks and certain other checks[rsqbb][rtrif](a)
In general[ltrif]. Except as provided in [rtrif]Sec. 229.10(c),[ltrif]
paragraphs [rtrif](b), (c), and[ltrif] (d)[lsqbb], (e), and (f)[rsqbb]
of this section, [rtrif]and in Sec. 229.13,[ltrif] a depository bank
shall make funds deposited in an account by a check available for
withdrawal not later than the second business day following the banking
day on which funds are deposited.[ltrif][lsqbb], in the case of--
[rsqbb]
[lsqbb](1) A local check;
(2) A check drawn on the Treasury of the United States that is not
governed by the availability requirements of Sec. 229.10(c);
(3) A U.S. Postal Service money order that is not governed by the
availability requirements of Sec. 229.10(c); and
(4) A check drawn on a Federal Reserve Bank or Federal Home Loan
Bank; a check drawn by a state or unit of general local government; or
a cashier's, certified, or teller's check; if any check referred to in
this paragraph (b)(4) is a local check that is not governed by the
availability requirements of Sec. 229.10(c).[rsqbb]
[lsqbb](c) Nonlocal checks--(1) In general. Except as provided in
paragraphs (d), (e), and (f) of this section, a depositary bank shall
make funds deposited in an account by a check available for withdrawal
not later than the fifth business day following the banking day on
which funds are deposited, in the case of--
(i) A nonlocal check; and
(ii) A check drawn on a Federal Reserve Bank or Federal Home Loan
Bank; a check drawn by a state or unit of general local government; a
cashier's, certified, or teller's check; or a check deposited in a
branch of the depositary bank and drawn on the same or another branch
of the same bank, if any check referred to in this paragraph (c)(1)(ii)
is a nonlocal check that is not governed by the availability
requirements of Sec. 229.10(c).
(2) Nonlocal checks specified in appendix B-2 to this part must be
made available for withdrawal not later than the times prescribed in
that appendix.[rsqbb]
[lsqbb](d)[rsqbb][rtrif](b)[ltrif] Time period adjustment for
withdrawal by cash or similar means. A depositary bank may extend by
one business day the time that funds deposited in an account by one or
more checks subject to paragraphs [lsqbb](b), (c), or (f)[rsqbb]
[rtrif](a) or (d)[ltrif]of this section are available for withdrawal by
cash or similar means. Similar means include electronic payment,
issuance of a cashier's or teller's check, [lsqbb]or[rsqbb]
certification of a check, or other irrevocable commitment to pay, but
do not include the granting of credit to a bank, a Federal Reserve
Bank, or a Federal Home Loan Bank that presents a check to the
depositary bank for payment. A depositary bank shall, however, make
$400 of these funds available for withdrawal by cash or similar means
not later than 5 p.m. on the business day on which the funds are
available under paragraph[lsqbb]s (b), (c), or (f)[rsqbb] [rtrif](a) or
(d)[ltrif] of this section. This $400 is in addition to the $100
available under Sec. 229.10(c)(1)(vii).
[lsqbb](e)[rsqbb][rtrif](c)[ltrif] Extension of schedule for
certain deposits in Alaska, Hawaii, Puerto Rico, and the U.S. Virgin
Islands. The depositary bank may extend the time periods set forth in
this section by one business day in the case of any deposit, other than
a deposit described in Sec. 229.10, that is--
(1) Deposited in an account at a branch of a depositary bank if the
branch is located in Alaska, Hawaii, Puerto Rico, or the U.S. Virgin
Islands; and
(2) Deposited by a check drawn on or payable at or through a paying
bank not located in the same state as the depositary bank.
[lsqbb](f)[rsqbb][rtrif](d)[ltrif] Deposits at nonproprietary ATMs.
A depositary bank shall make funds deposited in an account at a
nonproprietary ATM by cash or check available for withdrawal not later
than the [lsqbb]fifth[rsqbb] [rtrif]fourth[ltrif] business day
following the banking day on which the funds are deposited.
6. Section 229.13 is revised as follows:
Sec. 229.13 Exceptions.
(a) New accounts. For purposes of this paragraph, checks subject to
Sec. 229.10(c)(1)(v) include traveler's checks.
(1) A deposit in a new account--
(i) Is subject to the requirements of Sec. 229.10(a) and (b) to
make funds from deposits by cash and electronic payments available for
withdrawal on the business day following the banking day of deposit or
receipt;
(ii) Is subject to the requirements of Sec. 229.10(c)(1)(i)
through (v) [lsqbb]and Sec. 229.10(c)(2)[rsqbb] only with respect to
the first $5,000 of funds deposited on any one banking day; but the
amount of the deposit in excess of $5,000 shall be available for
withdrawal not later than the ninth business day following the banking
day on which funds are deposited; and
(iii) Is not subject to the availability requirements of Sec. Sec.
229.10(c)(1)(vi) and (vii) and 229.12.
(2) An account is considered a new account during the first 30
calendar days after the account is established. An account is not
considered a new account if each customer on the account has had,
within 30 calendar days before the account is established, another
account at the depositary bank for at least 30 calendar days.
(b) Large deposits. Sections 229.10(c) and 229.12 do not apply to
the aggregate amount of deposits by one or more checks to the extent
that the aggregate amount is in excess of $5,000 on any one banking
day. For customers that have multiple accounts at a depositary bank,
the bank may apply this exception to the aggregate deposits to all
accounts held by the customer, even if the customer is not the sole
holder of the accounts and not all of the holders of the accounts are
the same.
(c) Redeposited checks. Sections 229.10(c) and 229.12 do not apply
to a
[[Page 16891]]
check that has been returned unpaid and redeposited by the customer or
the depositary bank. This exception does not apply--
(1) To a check that has been returned due to a missing indorsement
and redeposited after the missing indorsement has been obtained, if the
reason for return indication on the check states that it was returned
due to a missing indorsement; or
(2) To a check that has been returned because it was post dated, if
the reason for return indicated on the check states that it was
returned because it was post dated, and if the check is no longer post
dated when redeposited.
(d) Repeated overdrafts. [rtrif](1)[ltrif] If any account or
combination of accounts of a depositary bank's customer has been
repeatedly overdrawn, then for a period of six months after the last
such overdraft, Sec. Sec. 229.10(c) and 229.12 do not apply to any of
the accounts.
[rtrif](2)[ltrif] A depositary bank may consider a customer's
account to be repeatedly overdrawn if--
[lsqbb](1)[rsqbb][rtrif](i)[ltrif] On six or more banking days
within the preceding six months, the account balance is negative, or
the account balance would have become negative if checks or other
charges to the account had been paid; or
[lsqbb](2)[rsqbb][rtrif](ii)[ltrif] On two or more banking days
within the preceding six months, the account balance is negative, or
the account balance would have become negative, in the amount of $5,000
or more, if checks or other charges to the account had been paid.
[rtrif](iii) For purposes of this paragraph (d)(2), such other
charges to the account shall not include attempted charges initiated by
debit card that the depositary bank declines to authorize.[ltrif]
(e) Reasonable cause to doubt collectibility--(1) In general.
Sections 229.10(c) and 229.12 do not apply to a check deposited in an
account at a depositary bank if the depositary bank has reasonable
cause to believe that the check is uncollectible from the paying bank.
Reasonable cause to believe a check is uncollectible requires the
existence of facts that would cause a well-grounded belief in the mind
of a reasonable person. Such belief shall not be based on the fact that
the check is of a particular class or is deposited by a particular
class of persons. The reason for the bank's belief that the check is
uncollectible shall be included in the notice required under paragraph
(g) of this section.
(2) Overdraft and returned check fees. [rtrif](i)[ltrif] A
depositary bank that extends the time when funds will be available for
withdrawal as described in paragraph (e)(1) of this section, and does
not furnish the depositor with written notice at the time of deposit
shall not assess any fees for any subsequent overdrafts (including use
of a line of credit) or return of checks of other debits to the
account, if--
[lsqbb](i)[rsqbb][rtrif](A)[ltrif] The overdraft or return of the
check would not have occurred except for the fact that the deposited
funds were delayed under paragraph (e)(1) of this section; and
[lsqbb](ii)[rsqbb][rtrif](B)[ltrif] The deposited check was paid by
the paying bank.
[rtrif](ii)[ltrif] Notwithstanding the foregoing, the depositary
bank may assess an overdraft or returned check fee if it includes a
notice concerning overdraft and returned check fees with the notice of
exception required in paragraph (g) of this section and, when required,
refunds any such fees upon the request of the customer. The notice must
state that the customer may be entitled to a refund of overdraft or
returned check fees that are assessed if the check subject to the
exception is paid and how to obtain a refund.
(f) Emergency conditions. Sections 229.10(c) and 229.12 do not
apply to funds deposited by check in a depositary bank[rtrif], if the
depositary bank exercises such diligence as the circumstances
require,[ltrif] in the case of--
(1) An interruption of communications or computer or other
equipment facilities;
(2) A suspension of payments by another bank;
(3) A war; or
(4) An emergency condition beyond the control of the depositary
bank[lsqbb], if the depositary bank exercises such diligence as the
circumstances require[rsqbb].
(g) Notice of exception--(1) In general. Subject to paragraphs
(g)(2) and (g)(3) of this section, when a depositary bank extends the
time when funds will be available for withdrawal based on the
application of an exception contained in paragraphs (b) through (e) of
this section, it must provide the depositor with a written notice.
(i) The notice shall include the following information--
(A) A number or code, which need not exceed four digits, that
identifies the customer's account;
(B) The date of the deposit;
[rtrif](C) The total amount of the deposit;[ltrif]
[lsqbb](C)[rsqbb][rtrif](D)[ltrif] The amount of the deposit that
is being delayed;
[lsqbb](D)[rsqbb][rtrif](E)[ltrif] The reason the exception was
invoked; and
[lsqbb](E)[rsqbb][rtrif](F)[ltrif] The [lsqbb]time period within
which[rsqbb][rtrif]day[ltrif] the funds will be available for
withdrawal.
(ii) Timing of notice. The notice shall be provided to the
depositor at the time of the deposit, unless the deposit is not made in
person to an employee of the depositary bank, or, if the facts upon
which a determination to invoke one of the exceptions in paragraphs (b)
through (e) of this section to delay a deposit only become known to the
depositary bank after the time of the deposit. If the notice is not
given at the time of the deposit, the depositary bank shall mail or
deliver the notice to the customer as soon as practicable, but no later
than the first business day following the day the facts become known to
the depositary bank, or the deposit is made, whichever is later.
[rtrif]If the customer has agreed to accept notices electronically, the
bank shall send the notice such that the bank may reasonably expect it
to be received by the customer no later than the first business day
following the day the facts become known to the depositary bank, or the
deposit is made, whichever is later.[ltrif]
(2) One-time exception notice. [rtrif](i)[ltrif] In lieu of
providing notice pursuant to paragraph (g)(1) of this section, a
depositary bank that extends the time when the funds deposited in a
nonconsumer account will be available for withdrawal based on an
exception contained in paragraph (b) or (c) of this section may provide
a single notice to the customer that includes the following
information--
[lsqbb](i)[rsqbb][rtrif](A)[ltrif] The reason(s) the exception may
be invoked; and
[lsqbb](ii)[rsqbb][rtrif](B)[ltrif] The time period within which
deposits subject to the exception generally will be available for
withdrawal.
[rtrif](ii)[ltrif] This one-time notice shall be provided only if
each type of exception cited in the notice will be invoked for most
check deposits in the account to which the exception could apply. This
notice shall be provided at or prior to the time notice must be
provided under paragraph (g)(1)(ii) of this section.
(3) Notice of repeated overdrafts exception. [rtrif](i)[ltrif] In
lieu of providing notice pursuant to paragraph (g)(1) of this section,
a depositary bank that extends the time when funds deposited in an
account will be available for withdrawal based on the exception
contained in paragraph (d) of this section may provide a notice to the
customer for each time period during which the exception will be in
effect. The notice shall include the following information--
[lsqbb](i)[rsqbb][rtrif](A)[ltrif] [lsqbb]The account number of the
customer[rsqbb][rtrif]A number or code, which need not exceed four
digits, that identifies the customer's account[ltrif];
[lsqbb](ii)[rsqbb][rtrif](B)[ltrif] The fact that the availability
of funds deposited in the customer's account will be delayed
[[Page 16892]]
because the repeated overdrafts exception will be invoked;
[lsqbb](iii)[rsqbb][rtrif](C)[ltrif] The time period within which
deposits subject to the exception generally will be available for
withdrawal; and
[lsqbb](iv)[rsqbb][rtrif](D)[ltrif] The time period during which
the exception will apply.
[rtrif](ii)[ltrif] This notice shall be provided at or prior to the
time notice must be provided under paragraph (g)(1)(ii) of this section
and only if the exception cited in the notice will be invoked for most
check deposits in the account.
(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.
(5) Record retention. A depositary bank shall retain a record, in
accordance with Sec. 229.21(g), of each notice provided pursuant to
its application of the reasonable[rtrif]-[ltrif]cause exception under
paragraph (e) of this section, together with a brief statement of the
facts giving rise to the bank's reason to doubt the collectibility of
the check.
(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 Sec. Sec. 229.10(c) and 229.12 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
[rtrif]Sec. [ltrif]229.12.
(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 Sec. Sec. 229.10(c) and 229.12, 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)[lsqbb],[rsqbb] [rtrif]and two[ltrif]
[lsqbb]five[rsqbb] business days for [lsqbb]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 Sec. 229.12(f)[rsqbb][rtrif]all
other checks[ltrif]. A longer extension may be reasonable, but the bank
has the burden of so establishing.
7. Section 229.14 is revised to read as follows:
Sec. 229.14 Payment of interest.
(a) In general. A depositary bank shall begin to accrue interest or
dividends on funds deposited in an interest-bearing account not later
than the business day on which the depositary bank receives credit for
the funds. For the purposes of this section, the depositary bank may--
(1) Rely on the availability schedule of its Federal Reserve
Bank[lsqbb], Federal Home Loan Bank,[rsqbb] or correspondent bank to
determine the time credit is actually received; and
(2) Accrue interest or dividends on funds deposited in interest-
bearing accounts by checks that the depositary bank sends to paying
banks or subsequent collecting banks for payment or collection based on
the availability of funds the depositary bank receives from the paying
or collecting banks.
(b) Special rule for credit unions. Paragraph (a) of this section
does not apply to any account at a bank described in Sec. 229.2(e)(4),
if the bank--
(1) Begins the accrual of interest or dividends at a later date
than the date described in paragraph (a) of this section with respect
to all funds, including cash, deposited in the account; and
(2) Provides notice of its interest or dividend payment policy in
the manner required under Sec. 229.16(d).
(c) Exception for checks returned unpaid. This subpart does not
require a bank to pay interest or dividends on funds deposited by a
check that is returned unpaid.
8. Section 229.15 is revised to read as follows:
Sec. 229.15 General disclosure [rtrif]and notice[ltrif] requirements.
(a) Form of disclosures [rtrif]and notices[ltrif]. A bank shall
make the disclosures [rtrif]and notices[ltrif] required by this subpart
clearly and conspicuously in writing. Disclosures [rtrif]and
notices[ltrif], other than those posted at locations where employees
accept consumer deposits and ATMs and the notice on preprinted deposit
slips, must be in a form that the customer may keep. The disclosures
shall be grouped together and shall not contain any information not
related to the disclosures required by this subpart. If contained in a
document that sets forth other account terms, the disclosures shall be
highlighted within the document by, for example, use of a separate
heading.
(b) [lsqbb]Uniform r[rsqbb] [rtrif]R[ltrif]eference to day of
availability. In its disclosure[rtrif]s and notices[ltrif], a bank
shall [lsqbb]describe funds as being available for withdrawal on ``the
------ business day after'' the day of deposit. In this calculation,
the first business day is the business day following the banking day
the deposit was received, and the last business day is the day on which
the funds are made available.[rsqbb] [rtrif]specify the business day on
which funds are available for withdrawal by describing that day in
relation to the banking day on which the bank received the deposit. A
bank shall use the following, or substantially similar, language--
(1) The banking day of receipt may be described as ``the same
business day;''
(2) The business day after the banking day of receipt may be
described as ``the next business day;'' and
(3) A business day after the banking day of receipt may be
described using a phrase that includes--
(i) A cardinal number, such as ``1 business day'' or ``2 business
days;'' or
(ii) An ordinal number, such as ``the first business day'' or ``the
second business day.''[ltrif]
(c) Multiple accounts and multiple account holders. A bank need not
give multiple disclosures to a customer that holds multiple accounts if
the accounts are subject to the same availability policies. Similarly,
a bank need not give separate disclosures to each customer on a jointly
held account.
(d) Dormant or inactive accounts. A bank need not give availability
disclosures to a customer that holds a dormant or inactive account.
9. Section 229.16 is revised to read as follows:
Sec. 229.16 Specific availability policy disclosure.
(a) [lsqbb]General[rsqbb][rtrif]In general[ltrif]. To meet the
requirements of a specific availability policy disclosure under
Sec. Sec. 229.17 and 229.18(d), a bank shall provide a disclosure
describing the bank's policy as to when funds deposited in an account
are available for withdrawal. The disclosure must reflect the policy
followed by the bank in most cases. A bank may impose longer delays on
a case-by-case basis or by invoking
[[Page 16893]]
one of the exceptions in Sec. 229.13, provided this is reflected in
the disclosure.
(b) Content of specific availability policy disclosure. The
specific availability policy disclosure shall contain the following, as
applicable--
(1) A summary of the bank's availability policy;
(2) A description of any categories of deposits or checks
[rtrif]that are subject to differing[ltrif] [lsqbb]used by the bank
when it delays[rsqbb] availability (such as [lsqbb]local or
nonlocal[rsqbb] [rtrif]next-day-availability[ltrif] checks [rtrif]and
other checks[ltrif])[lsqbb]; how to determine the category to which a
particular deposit or check belongs;[rsqbb] and when each category will
be available for withdrawal (including a description of the bank's
business days and when a deposit is considered
received);[lsqbb]\1\[rsqbb]
[lsqbb]\1\ A bank that distinguishes in its disclosure between
local and nonlocal checks based on the routing number on the check must
disclose that certain checks, such as some credit union share drafts
that are payable by one bank but payable through another bank, will be
treated as local or nonlocal checks based upon the location of the bank
by which they are payable and not on the basis of the location of the
bank whose routing number appears on the check. A bank that makes funds
from nonlocal checks available for withdrawal within the time periods
required for local checks under Sec. Sec. 229.12 and 229.13 is not
required to provide this disclosure on payable-through checks to its
customers. The statement concerning payable-through checks must
describe how the customer can determine whether these checks will be
treated as local or nonlocal, or state that special rules apply to such
checks and that the customer may ask about the availability of these
checks.[rsqbb]
(3) A description of any of the exceptions in Sec. 229.13 that may
be invoked by the bank, including the time following a deposit that
funds generally will be available for withdrawal and a statement that
the bank will notify the customer if the bank invokes one of the
exceptions;
(4) A description, as specified in paragraph (c)(1) of this
section, of any case-by-case policy of delaying availability that may
result in deposited funds being available for withdrawal later than the
time periods stated in the bank's availability policy; and
(5) A description of how the customer can differentiate between a
proprietary and a nonproprietary ATM, if the bank makes funds from
deposits at nonproprietary ATMs available for withdrawal later than
funds from deposits at proprietary ATMs.
(c) Longer delays on a case-by-case basis--(1) Notice in specific
policy disclosure. A bank that has a policy of making deposited funds
available for withdrawal sooner than required by this subpart may
extend the time when funds are available up to the time periods allowed
under this subpart on a case-by-case basis, provided the bank includes
the following in its specific policy disclosure--
(i) A statement that the time when deposited funds are available
for withdrawal may be extended in some cases, and the latest time
following a deposit that funds will be available for withdrawal;
(ii) A statement that the bank will notify the customer if funds
deposited in the customer's account will not be available for
withdrawal until later than the time periods stated in the bank's
availability policy; and
(iii) A statement that customers should ask if they need to be sure
about when a particular deposit will be available for withdrawal.
(2) Notice at time of case-by-case delay--(i) In general. When a
depositary bank extends the time when funds will be available for
withdrawal on a case-by-case basis, it must provide the depositor with
a written notice. The notice shall include the following information--
(A) A number or code, which need not exceed four digits, that
identifies the customer's account.
(B) The date of the deposit;
[rtrif](C) The total amount of the deposit[ltrif]
[lsqbb](C)[rsqbb][rtrif](D)[ltrif] The amount of the deposit that
is being delayed; and
[lsqbb](D)[rsqbb][rtrif](E)[ltrif] The day the funds will be
available for withdrawal.
(ii) Timing of notice. The notice shall be provided to the
depositor at the time of the deposit, unless the deposit is not made in
person to an employee of the depositary bank or the decision to extend
the time when the deposited funds will be available is made after the
time of the deposit. If notice is not given at the time of the deposit,
the depositary bank shall mail or deliver the notice to the customer
not later than the first business day following the banking day the
deposit is made. [rtrif]If the customer has agreed to accept notices
electronically, the bank shall send the notice such that the bank may
reasonably expect it to be received by the customer not later than the
first business day following the banking day the deposit is
made.[ltrif]
(3) Overdraft and returned check fees. [rtrif](i)[ltrif] A
depositary bank that extends the time when funds will be available for
withdrawal on a case-by-case basis and does not furnish the depositor
with written notice at the time of deposit shall not assess any fees
for any subsequent overdrafts (including use of a line of credit) or
return of checks or other debits to the account, if--
[lsqbb](i)[rsqbb][rtrif](A)[ltrif] The overdraft or return of the
check or other debit would not have occurred except for the fact that
the deposited funds were delayed under paragraph (c)(1) of this
section; and
[lsqbb](ii)[rsqbb][rtrif](B)[ltrif] The deposited check was paid by
the paying bank.
[rtrif](ii)[ltrif] Notwithstanding the foregoing, the depositary
bank may assess an overdraft or returned check fee if it includes a
notice concerning overdraft and returned check fees with the notice
required in paragraph (c)(2) of this section and, when required,
refunds any such fees upon the request of the customer. The notice must
state that the customer may be entitled to a refund of overdraft or
returned check fees that are assessed if the check subject to the delay
is paid and how to obtain a refund.
(d) Credit union notice of interest payment policy. If a bank
described in Sec. 229.2(e)(4) begins to accrue interest or dividends
on all deposits made in an interest-bearing account, including cash
deposits, at a later time than the day specified in Sec. 229.14(a),
the bank's specific policy disclosures shall contain an explanation of
when interest or dividends on deposited funds begin to accrue.
10. Sec. 229.17 is republished to read as follows:
Sec. 229.17 Initial disclosures.
Before opening a new account, a bank shall provide a potential
customer with the applicable specific availability policy disclosure
described in Sec. 229.16.
11. Sec. 229.18 is republished to read as follows:
Sec. 229.18 Additional disclosure requirements.
(a) Deposit slips. A bank shall include on all preprinted deposit
slips furnished to its customers a notice that deposits may not be
available for immediate withdrawal.
(b) Locations where employees accept consumer deposits. A bank
shall post in a conspicuous place in each location where its employees
receive deposits to consumer accounts a notice that sets forth the time
periods applicable to the availability of funds deposited in a consumer
account.
(c) Automated teller machines. (1) A depositary bank shall post or
provide a notice at each ATM location that funds deposited in the ATM
may not be available for immediate withdrawal.
(2) A depositary bank that operates an off-premises ATM from which
deposits
[[Page 16894]]
are removed not more than two times each week, as described in Sec.
229.19(a)(4), shall disclose at or on the ATM the days on which
deposits made at the ATM will be considered received.
(d) Upon request. A bank shall provide to any person, upon oral or
written request, a notice containing the applicable specific
availability policy disclosure described in Sec. 229.16.
(e) Changes in policy. A bank shall send a notice to holders of
consumer accounts at least 30 days before implementing a change to the
bank's availability policy regarding such accounts, except that a
change that expedites the availability of funds may be disclosed not
later than 30 days after implementation.
13. Section 229.19 is revised to read as follows:
Sec. 229.19 Miscellaneous.
(a) When funds are considered deposited. For the purposes of this
subpart--
(1) Funds deposited at a staffed facility, ATM, or contractual
branch are considered deposited when they are received at the staffed
facility, ATM, or contractual branch;
(2) Funds mailed to the depositary bank are considered deposited on
the day they are received by the depositary bank;
(3) Funds deposited to a night depository, lock box, or similar
facility are considered deposited on the day on which the deposit is
removed from such facility and is available for processing by the
depositary bank;
(4) Funds deposited at an ATM that is not on, or within 50 feet of,
the premises of the depositary bank are considered deposited on the day
the funds are removed from the ATM, if funds normally are removed from
the ATM not more than two times each week; and
(5) Funds may be considered deposited on the next banking day, in
the case of funds that are deposited--
(i) On a day that is not a banking day for the depositary bank; or
(ii) After a cut-off hour set by the depositary bank for the
receipt of deposits of 2 p.m. or later, or, for the receipt of deposits
at ATMs, contractual branches, or off-premise facilities, of 12 noon or
later. Different cut-off hours later than these times may be
established for the receipt of different types of deposits, or receipt
of deposits at different locations.
(b) Availability at start of business day. Except as otherwise
provided in Sec. 229.12[lsqbb](d)[rsqbb][rtrif](b)[ltrif], if any
provision of this subpart requires that funds be made available for
withdrawal on any business day [rtrif]after the banking day of
deposit[ltrif], the funds shall be available for withdrawal by the
later of:
(1) 9 a.m. (local time of the depositary bank); or
(2) The time the depositary bank's teller facilities (including
ATMs) are available for customer account withdrawals.
(c) Effect on policies of depositary bank. This part does not--
(1) Prohibit a depositary bank from making funds available to a
customer for withdrawal in a shorter period of time than the time
required by this subpart;
(2) Affect a depositary bank's right--
(i) To accept or reject a check for deposit;
(ii) To revoke any settlement made by the depositary bank with
respect to a check accepted by the bank for deposit, to charge back the
customer's account for the amount of a check based on the return of the
check or receipt of a notice of nonpayment of the check, or to claim a
refund of such credit; and
(iii) To charge back funds made available to its customer for an
electronic payment for which the bank has not received payment in
actually and finally collected funds;
(3) Require a depositary bank to open or otherwise to make its
facilities available for customer transactions on a given business day;
or
(4) Supersede any policy of a depositary bank that limits the
amount of cash a customer may withdraw from its account on any one day,
if that policy--
(i) Is not dependent on the time the funds have been deposited in
the account, as long as the funds have been on deposit for the time
period specified in Sec. Sec. 229.10, 229.12, or 229.13; and
(ii) In the case of withdrawals made in person to an employee of
the depositary bank--
(A) Is applied without discrimination to all customers of the bank;
and
(B) Is related to security, operating, or bonding requirements of
the depositary bank.
(d) Use of calculated availability. A depositary bank may provide
availability to its nonconsumer accounts based on a sample of checks
that represents the average composition of the customer's deposits, if
the terms for availability based on the sample are equivalent to or
more prompt than the availability requirements of this subpart.
(e) Holds on other funds. (1) A depositary bank that receives a
check for deposit in an account may [lsqbb]not[rsqbb] place a hold on
any funds of the customer at the bank, [lsqbb]where[rsqbb][rtrif]only
if[ltrif] --
(i) The amount of funds that are held [rtrif]does not[ltrif]
exceed[lsqbb]s[rsqbb] the amount of the check; [lsqbb]or[rsqbb]
[rtrif]and[ltrif]
(ii) The funds are [lsqbb]not[rsqbb] made available for withdrawal
within the times specified in Sec. Sec. 229.10, 229.12, and 229.13.
(2) A depositary bank that cashes a check for a customer over the
counter [lsqbb], other than a check drawn on the depositary
bank,[rsqbb] may [lsqbb]not[rsqbb] place a hold on funds in an account
of the customer at the bank, [rtrif]only[ltrif] if--
(i) The amount of funds that are held [rtrif]does not[ltrif]
exceed[lsqbb]s[rsqbb] the amount of the check; [lsqbb]or[rsqbb]
(ii) The funds are [lsqbb]not[rsqbb] made available for withdrawal
within the times specified in Sec. Sec. 229.10, 229.12, and
229.13[lsqbb].[rsqbb][rtrif]; and
(iii) The check is not drawn on the depositary bank. [ltrif]
(f) Employee training and compliance. Each bank shall establish
procedures to ensure that the bank complies with the requirements of
this subpart, and shall provide each employee who performs duties
subject to the requirements of this subpart with a statement of the
procedures applicable to that employee.
(g) Effect of merger transaction--[lsqbb](1) In general[rsqbb]. For
purposes of this subpart, except for the purposes of the new accounts
exception of Sec. 229.13(a), and when funds are considered deposited
under Sec. 229.19(a), two or more banks that have engaged in a merger
transaction may be considered to be separate banks for a period of one
year following the consummation of the merger transaction.
[lsqbb](2) Merger transactions on or after July 1, 1998, and before
March 1, 2000. If banks have consummated a merger transaction on or
after July 1, 1998, and before March 1, 2000, the merged banks may be
considered separate banks until March 1, 2001.[rsqbb]
13a. Section 229.20 is revised to read as follows:
Sec. 229.20 Relation to state law.
(a) In general. [rtrif](1)[ltrif] Any provision of a law or
regulation of any state in effect on or before September 1, 1989, that
requires funds deposited in an account at a bank chartered by the state
to be made available for withdrawal in a shorter time than the time
provided in subpart B, and, in connection therewith, subpart A, shall--
[lsqbb](1)[rsqbb][rtrif](i)[ltrif] Supersede the provisions of the
EFA Act and subpart B, and, in connection therewith, subpart A, to the
extent the provisions relate to the time by which funds deposited or
received for deposit in an account are available for withdrawal; and
[lsqbb](2)[rsqbb][rtrif](ii)[ltrif] Apply to all federally insured
banks located within the state.
[rtrif](2)[ltrif] No amendment to a state law or regulation
governing the availability
[[Page 16895]]
of funds that becomes effective after September 1, 1989, shall
supersede the EFA Act and subpart B, and, in connection therewith,
subpart A, but unamended provisions of state law shall remain in
effect.
(b) Preemption of inconsistent law. Except as provided in paragraph
(a), the EFA Act and subpart B, and, in connection therewith, subpart
A, supersede any provision of inconsistent state law.
(c) Standards for preemption. A provision of a state law in effect
on or before September 1, 1989, is not inconsistent with the EFA Act,
or subpart B, or in connection therewith, subpart A, if it requires
that funds shall be available in a shorter period of time than the time
provided in this subpart. Inconsistency with the EFA Act and subpart B,
and in connection therewith, subpart A, may exist when state law--
(1) Permits a depositary bank to make funds deposited in an account
by cash, electronic payment, or check available for withdrawal in a
longer period of time than the maximum period of time permitted under
subpart B, and, in connection therewith, subpart A; or
(2) Provides for disclosures or notices concerning funds
availability relating to accounts.
(d) Preemption determinations. The Board may determine, upon the
request of any state, bank, or other interested party, whether the EFA
Act and subpart B, and, in connection therewith, subpart A, preempt
provisions of state laws relating to the availability of funds.
(e) Procedures for preemption determinations.[rtrif](1)[ltrif] A
request for a preemption determination shall include the following--
[lsqbb](1)[rsqbb][rtrif](i)[ltrif] A copy of the full text of the
state law in question, including any implementing regulations or
judicial interpretations of that law; and
[lsqbb](2)[rsqbb][rtrif](ii)[ltrif] A comparison of the provisions
of state law with the corresponding provisions in the EFA Act and
subparts A and B of this part, together with a discussion of the
reasons why specific provisions of state law are either consistent or
inconsistent with corresponding sections of the EFA Act and subparts A
and B of this part.
[rtrif](2)[ltrif] A request for a preemption determination shall be
addressed to the Secretary, Board of Governors of the Federal Reserve
System.
14. Amend Sec. 229.21 by revising paragraphs (f) and (g) to read
as follows:
Sec. 229.21 Civil liability.
* * * * *
(f) Exclusions. This section does not apply to claims that arise
under subpart[rtrif]s[ltrif] C [rtrif]or D[ltrif] of this part or to
actions for wrongful dishonor.
(g) Record retention. (1) A bank shall retain evidence of
compliance with the requirements imposed by this subpart for not less
than two years. Records may be stored by use of [lsqbb]microfiche,
microfilm, magnetic tape,[rsqbb][rtrif]electronic storage media[ltrif]
or other methods capable of accurately retaining and reproducing
information.
(2) If a bank has actual notice that it is being investigated, or
is subject to an enforcement proceeding by an agency charged with
monitoring that bank's compliance with the EFA Act and this subpart, or
has been served with notice of an action filed under this section, it
shall retain the records pertaining to the action or proceeding pending
final disposition of the matter, unless an earlier time is allowed by
order of the agency or court.
Subpart C--Collection of Checks
15. Revise Sec. 229.30 to read as follows:
Sec. 229.30 Paying bank's responsibility for return of checks.
(a) [rtrif]Expeditious[ltrif] [lsqbb]R[rsqbb][rtrif]r[ltrif]eturn
of checks. [rtrif](1)[ltrif]If a paying bank determines not to pay a
check [lsqbb]it shall return the check in an expeditious manner as
provided in either paragraph (a)(1) or (a)(2) of this
section[rsqbb][rtrif], the paying bank shall send the returned check
expeditiously such that the depositary bank normally would receive the
returned check no later than 4 p.m. (local time of the depositary bank)
on the second business day following the banking day on which the check
was presented to the paying bank[ltrif].
[lsqbb](1) Two-day/four-day test. A paying bank returns a check in
an expeditious manner if it sends the returned check in a manner such
that the check would normally be received by the depositary bank not
later than 4 p.m. (local time of the depositary bank) of--
(i) The second business day following the banking day on which the
check was presented to the paying bank, if the paying bank is located
in the same check processing region as the depositary bank; or
(ii) The fourth business day following the banking day on which the
check was presented to the paying bank, if the paying bank is not
located in the same check processing region as the depositary
bank.[rsqbb]
[rtrif](2)[ltrif]If the last business day on which the paying bank
may deliver a returned check to the depositary bank is not a banking
day for the depositary bank, the paying bank [lsqbb]meets the two-day/
four-day test[rsqbb][rtrif]satisfies its expeditious return
requirement[ltrif] if the returned check is received by the depositary
bank on or before the depositary bank's next banking day.
[lsqbb](2) Forward collection test. A paying bank also returns a
check in an expeditious manner if it sends the returned check in a
manner that a similarly situated bank would normally handle a check--
(i) Of similar amount as the returned check;
(ii) Drawn on the depositary bank; and
(iii) Deposited for forward collection in the similarly situated
bank by noon on the banking day following the banking day on which the
check was presented to the paying bank.[rsqbb]
[rtrif](3)[ltrif][lsqbb]Subject to the requirement for expeditious
return, a[rsqbb] [rtrif]A[ltrif] paying bank may send a returned check
to the depositary bank, [lsqbb]or[rsqbb] to any other bank agreeing to
handle the returned check expeditiously under Sec. 229.31(a)[rtrif],
or, under Sec. 229.30(b)(2), to any bank that handled the check for
forward collection[ltrif].
[rtrif](4)[ltrif] A paying bank may convert a check to a qualified
returned check. A qualified returned check shall be encoded in magnetic
ink with the routing number of the depositary bank, the amount of the
returned check, and a ``2'' in the case of an original check (or a
``5'' in the case of a substitute check) in position 44 of the
qualified return MICR line as a return identifier. A qualified returned
original check shall be encoded in accordance with ANS X9.13, and a
qualified returned substitute check shall be encoded in accordance with
ANS X9.100-140.
[rtrif](5)[ltrif] This paragraph [rtrif](a)[ltrif] does not affect
a paying bank's responsibility to return a check within the deadlines
required by the U.C.C., Regulation J (12 CFR part 210), or Sec.
229.30(c).
[rtrif](6) A check payable at or through a paying bank is
considered to be drawn on that bank for purposes of the expeditious
return requirement of this subpart.[ltrif]
(b) [lsqbb]Unidentifiable depositary bank.[rsqbb][rtrif]Exceptions
to expeditious return of checks. (1) The expeditious return requirement
of paragraph (a) of this section does not apply if--
(i) The depositary bank has not agreed to accept electronic returns
from the paying bank under Sec. 229.32(a);
(ii) The check is deposited in a depositary bank that does not
maintain accounts; or
(iii) A paying bank is unable to identify the depositary bank with
respect to a check.
(2)[ltrif] A paying bank that is unable to identify the depositary
bank [lsqbb]with respect to a check[rsqbb] may send the
[[Page 16896]]
returned check to any bank that handled the check for forward
collection even if that bank does not agree to handle the check
expeditiously under Sec. 229.31(a). A paying bank sending a returned
check under this paragraph [rtrif](b)(2)[ltrif] to a bank that handled
the check for forward collection must advise the bank to which the
check is sent that the paying bank is unable to identify the depositary
bank. [lsqbb]The expeditious-return requirements in Sec. 229.30(a) do
not apply to the paying bank's return of a check under this
paragraph.[rsqbb]
(c) Extension of deadline. [rtrif](1)[ltrif]The deadline for return
[lsqbb]or notice of nonpayment[rsqbb] under the U.C.C. or Regulation J
(12 CFR part 210), or [lsqbb]Sec. 229.36(f)(2)[rsqbb] [rtrif]Sec.
229.36(d)(3)[ltrif] is extended to the time of dispatch of such return
[or notice of nonpayment] where a paying bank uses a means of delivery
that would ordinarily result in receipt by the [rtrif]depositary[ltrif]
bank [lsqbb]to which it is sent[rsqbb] [rtrif]by 4 p.m. (local time of
the depositary bank) on the second business day after the banking day
on which the check was presented to the paying bank.[ltrif][lsqbb]--
(1) On or before the receiving bank's next banking day following
the otherwise applicable deadline by the earlier of the close of that
banking day or a cutoff hour of 2 p.m. or later set by the receiving
bank under U.C.C. 4-108, 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 cutoff hour or banking day
referred to above; 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 a deadline falling on a Saturday that is a
banking day (as defined in the applicable U.C.C.) for the paying
bank.[rsqbb]
[rtrif]If the last business day on which the paying bank may
deliver a returned check to the depositary bank is not a banking day
for the depositary bank, the paying bank's deadline under the U.C.C. or
Regulation J (12 CFR part 210), or Sec. 229.36(d)(3) is extended to
the time of dispatch of such return where a paying bank uses a means of
delivery such that the returned check would ordinarily be received by
the depositary bank on or before the depositary bank's next banking
day.[ltrif]
(d) Identification of returned check. A paying bank returning a
check shall clearly indicate on the [lsqbb]face[rsqbb]
[rtrif]front[ltrif] of the check that it is a returned check and the
reason for return. If the check is a substitute check [rtrif]or
electronic return[ltrif], the paying bank shall place this information
[lsqbb]within the image of the original check that appears on the front
of the substitute check[rsqbb] [rtrif]such that the information would
be retained on any subsequent substitute check.[ltrif]
[lsqbb](e) Depositary bank without accounts. The expeditious return
requirements of paragraph (a) of this section does not apply to checks
deposited in a depositary bank that does not maintain accounts.[rsqbb]
[lsqbb](f)[rsqbb][rtrif](e)[ltrif] Notice in lieu of return.
[rtrif](1)[ltrif] If a check is unavailable for return, the paying bank
may send in its place a copy of the front and back of the returned
check, or, if no such copy is available, a written notice of nonpayment
containing the information specified in [lsqbb]Sec.
229.33(b)[rsqbb][rtrif]paragraph (e)(2) of this section[ltrif]. The
copy or notice shall clearly state that it constitutes a notice in lieu
of return. A notice in lieu of return is considered a returned check
subject to the expeditious return requirements of this section and to
the other [lsqbb]requirements[rsqbb][rtrif]provisions[ltrif] of this
subpart.
[rtrif](2) The notice must include, if available, the--
(i) Name and routing number of the paying bank;
(ii) Name of the payee(s);
(iii) Amount of the returned check;
(iv) Date of the indorsement of the depositary bank;
(v) Account number of the customer(s) of the depositary bank;
(vi) Branch name or number of the depositary bank from its
indorsement;
(vii) Trace number associated with the indorsement of the
depositary bank; and
(viii) Reason for return.
(3) The notice may include other information from the check that
may be useful in identifying the check being returned and the customer
and must include the name and routing number of the depositary bank
from its indorsement.
(4) If the paying bank is not sure of an item of information, it
shall include the information required by this paragraph to the extent
possible, and identify any item of information for which the bank is
not sure of the accuracy.[ltrif]
[lsqbb](g)[rsqbb][rtrif](f)[ltrif] Reliance on routing number. A
paying bank may [lsqbb]return[rsqbb][rtrif]send[ltrif] a returned check
based on any routing number designating the depositary bank appearing
on the [lsqbb]returned[rsqbb] check in the depositary bank's
indorsement [rtrif]or in the electronic image of or information related
to the check[ltrif].
16. Revise Sec. 229.31 to read as follows:
Sec. 229.31 Returning bank's responsibility for return of checks.
(a) [rtrif]Expeditious [lsqbb]R[rsqbb][rtrif]r[ltrif]eturn of
checks. [rtrif](1)[ltrif] [lsqbb]A[rsqbb] [rtrif]If the returning bank
agrees to handle the return expeditiously, the[ltrif] returning bank
shall [lsqbb]return a returned check in an expeditious manner as
provided in either paragraph (a)(1) or (a)(2) of this
section[rsqbb][rtrif]send the returned check expeditiously such that
the depositary bank normally would receive the returned check no later
than 4 p.m. (local time of the depositary bank) on the second business
day following the banking day on which the check was presented to the
paying bank[ltrif].
[lsqbb](1) Two-day/four-day test. A returning bank returns a check
in an expeditious manner if it sends the returned check in a manner
such that the check would normally be received by the depositary bank
not later than 4 p.m. (local time) of--
(i) The second business day following the banking day on which the
check was presented to the paying bank if the paying bank is located in
the same check processing region as the depositary bank; or
(ii) The fourth business day following the banking day on which the
check was presented to the paying bank if the paying bank is not
located in the same check processing region as the depositary
bank.[rsqbb]
(2) If the last business day on which the returning bank may
deliver a returned check to the depositary bank is not a banking day
for the depositary bank, the returning bank meets this requirement if
the returned check is received by the depositary bank on or before the
depositary bank's next banking day.
[lsqbb](2) Forward collection test. A returning bank also returns a
check in an expeditious manner if it sends the returned check in a
manner that a similarly situated bank would normally handle a check--
(i) Of similar amount as the returned check;
(ii) Drawn on the depositary bank; and
(iii) Received for forward collection by the similarly situated
bank at the time the returning bank received the returned check, except
that a returning bank may set a cut-off hour for the receipt of
returned checks that is earlier than the similarly situated bank's cut-
off hour for checks received for forward collection, if the cut-off
hour is not earlier than 2 p.m.[rsqbb]
[rtrif](3)[ltrif] [lsqbb]Subject to the requirement for expeditious
return, t[rsqbb][rtrif]T[ltrif]he returning bank may send the returned
check to the depositary bank, [lsqbb]or[rsqbb] to
[[Page 16897]]
any bank agreeing to handle the returned check expeditiously under
Sec. 229.31(a)[rtrif], or, under Sec. 229.31(b)(2), to any bank that
handled the check for forward collection[ltrif].
[rtrif](4)[ltrif] The returning bank may convert the returned check
to a qualified returned check. A qualified returned check shall be
encoded in magnetic ink with the routing number of the depositary bank,
the amount of the returned check, and a ``2'' in the case of an
original check (or a ``5'' in the case of a substitute check) in
position 44 of the qualified return MICR line as a return identifier. A
qualified returned original check shall be encoded in accordance with
ANS X9.13, and a qualified returned substitute check shall be encoded
in accordance with ANS X9.100-140. [lsqbb]The time for expeditious
return under the forward collection test, and the deadline for return
under the U.C.C. and Regulation J (12 CFR part 210), are extended by
one business day if the returning bank converts a returned check to a
qualified returned check. This extension does not apply to the two-day/
four-day test specified in paragraph (a)(1) of this section or when a
returning bank is returning a check directly to the depositary
bank.[rsqbb]
[rtrif](b) Exceptions to expeditious return of checks. (1) The
expeditious return requirement of paragraph (a) of this section does
not apply if--
(i) The depositary bank has not agreed to accept electronic returns
from the paying bank under Sec. 229.32(a);
(ii) The check is deposited in a depositary bank that does not
maintain accounts;
(iii) A returning bank is unable to identify the depositary bank
with respect to a check; or
(iv) The returning bank received the returned check pursuant to
paragraph (b)(2) of this section or Sec. 229.30(b)(2).
(2) If a returning bank is unable to identify the depositary bank,
the returning bank may send the returned check to any bank that handled
the check for forward collection, if the returning bank was not a
collecting bank with respect to the returned check; or a prior
collecting bank, if the returning bank was a collecting bank with
respect to the returned check. A returning bank sending a returned
check under this paragraph (b)(2) to a bank that handled the check for
forward collection must advise the bank to which the check is sent that
the returning bank is unable to identify the depositary bank.[ltrif]
[lsqbb](b) Unidentifiable depositary bank. A returning bank that is
unable to identify the depositary bank with respect to a returned check
may send the returned check to--
(1) Any collecting bank that handled the check for forward
collection if the returning bank was not a collecting bank with respect
to the returned check; or
(2) A prior collecting bank, if the returning bank was a collecting
bank with respect to the returned check;
A returning bank sending a returned check under this paragraph must
advise the bank to which the check is sent that the returning bank is
unable to identify the depositary bank.
The expeditious return requirements in paragraph (a) of this
section do not apply to return of a check under this paragraph. A
returning bank that receives a returned check from a paying bank under
Sec. 229.30(b), or from a returning bank under this paragraph, but
that is able to identify the depositary bank, must thereafter return
the check expeditiously to the depositary bank.[rsqbb]
(c) Settlement. A returning bank shall settle with a bank sending a
returned check to it for return by the same means that it settles or
would settle with the sending bank for a check received for forward
collection drawn on the depositary bank. This settlement is final when
made.
(d) Charges. A returning bank may impose a charge [rtrif]on a bank
sending a returned check[ltrif] for handling the returned check.
[lsqbb](e) Depositary bank without accounts. The expeditious return
requirement[s] of paragraph (a) of this section does not apply to
checks deposited with a depositary bank that does not maintain
accounts.[rsqbb]
[lsqbb](f)[rsqbb][rtrif](e)[ltrif] Notice in lieu of return. If a
check is unavailable for return, the returning bank may send in its
place a copy of the front and back of the returned check, or, if no
copy is available, a written notice of nonpayment containing the
information specified in [lsqbb]Sec. 229.33(b)[rsqbb][rtrif]Sec.
229.30(e)(2)[ltrif]. The copy or notice shall clearly state that it
constitutes a notice in lieu of return. A notice in lieu of return is
considered a returned check subject to the expeditious return
requirements of this section and to the other
[lsqbb]requirements[rsqbb][rtrif]provisions[ltrif] of this subpart.
[lsqbb](g)[rsqbb][rtrif](f)[ltrif] Reliance on routing number. A
returning bank may [lsqbb]return[rsqbb][rtrif]send[ltrif] a returned
check based on any routing number designating the depositary bank
appearing on the returned check in the depositary bank's
indorsement[rtrif],[ltrif] [lsqbb]or[rsqbb] in magnetic ink on a
qualified returned check[rtrif], or in the electronic image or
information included in the electronic return[ltrif].
17. Revise Sec. 229.32 to read as follows:
Sec. 229.32 Depositary bank's responsibility for returned checks.
[rtrif](a) Acceptance of electronic returns. (1) A depositary bank
agrees to accept an electronic return from a paying bank if it has
agreed to receive the electronic return--
(i) Directly from the paying bank;
(ii) Directly from a returning bank that has held itself out as
willing to accept electronic returns directly or indirectly from the
paying bank and has agreed to return checks expeditiously under Sec.
229.31(a); or
(iii) As otherwise agreed with the paying bank.
(2) When electronic return received. A depositary bank receives an
electronic return when the return is delivered to the electronic return
point designated by the depositary bank or, by agreement, otherwise is
made available to the depositary bank for retrieval or review.
(3) A depositary bank may require that electronic returns be
separated from electronic collection items.[ltrif]
[lsqbb](a)[rsqbb][rtrif](b)[ltrif] Acceptance of
[rtrif]paper[ltrif] returned checks. [rtrif](1)[ltrif]A depositary bank
shall accept [rtrif]paper[ltrif] returned checks [lsqbb]and written
notices of nonpayment[rsqbb].
[lsqbb](1)[rsqbb][rtrif](i)[ltrif]At a location [rtrif], if
any,[ltrif] at which presentment of [rtrif]paper[ltrif] checks for
forward collection is requested by the depositary bank; and
[lsqbb](2)(i)[rsqbb][rtrif](ii)(A)[ltrif] At a branch, head office,
or other location consistent with the name and address of the bank in
its indorsement on the check;
[lsqbb](ii)[rsqbb][rtrif](B)[ltrif] If no address appears in the
indorsement, at a branch or head office associated with the routing
number of the bank in its indorsement on the check;
[lsqbb](iii) If the address in the indorsement is not in the same
check processing region as the address associated with the routing
number of the bank in its indorsement on the check, at a location
consistent with the address in the indorsement and at a branch or head
office associated with the routing number in the bank's
indorsement;[rsqbb] or
[lsqbb](iv)[rsqbb][rtrif](C)[ltrif] If no routing number or address
appears in its indorsement on the check, at any branch or head office
of the bank.
[rtrif](2)[ltrif] A depositary bank may require that returned
checks be separated from forward collection checks.
[lsqbb](b)[rsqbb][rtrif](c)[ltrif] Payment. [rtrif](1)[ltrif] A
depositary bank shall pay the returning [rtrif]bank[ltrif] or paying
bank returning the check to it for the amount of the check prior to the
close of business on the banking day on which it received the check
(``payment date'') by--
[[Page 16898]]
[lsqbb](1)[rsqbb][rtrif](i)[ltrif] Debit to an account of the
depositary bank on the books of the returning [rtrif]bank[ltrif] or
paying bank;
[lsqbb](2)[rsqbb][rtrif](ii)[ltrif] Cash;
[lsqbb](3)[rsqbb][rtrif](iii)[ltrif] Wire transfer; or
[(4)][rtrif](iv)[ltrif] Any other form of payment acceptable to the
returning [rtrif]bank[ltrif] or paying
bank[lsqbb];[rsqbb][rtrif].[ltrif]
[rtrif](2)[ltrif] [provided that t] [rtrif]T[ltrif]he proceeds of
the payment [lsqbb]are[rsqbb] [rtrif]must be[ltrif] available to the
returning [rtrif]bank[ltrif] or paying bank in cash or by credit to an
account of the returning [rtrif]bank[ltrif] or paying bank on or as of
the payment date. If the payment date is not a banking day for the
returning [rtrif]bank[ltrif] or paying bank or the depositary bank is
unable to make the payment on the payment date, payment shall be made
by the next day that is a banking day for the returning
[rtrif]bank[ltrif] or paying bank. These payments are final when made.
[lsqbb](c)[rsqbb][rtrif](d)[ltrif] Misrouted returned checks
[lsqbb]and written notices of nonpayment[rsqbb]. If a bank receives a
returned check [lsqbb]or written notice of nonpayment[rsqbb] on the
basis that it is the depositary bank, and the bank determines that it
is not the depositary bank with respect to the check [lsqbb]or
notice[rsqbb], it shall either promptly send the returned check
[lsqbb]or notice[rsqbb] to the depositary bank directly or by means of
a returning bank agreeing to handle the returned check
[lsqbb]expeditiously under Sec. 229.31(a)[rsqbb], or send the check
[lsqbb]or notice[rsqbb] back to the bank from which it was received.
[lsqbb](d)[rsqbb][rtrif](e)[ltrif] Charges. A depositary bank may
not impose [rtrif]on the bank returning the check[ltrif] a charge for
accepting and paying checks being returned to it.
[rtrif](f) Notification to customer. If the depositary bank
receives a returned check, it shall send or give notice to its customer
of the facts by midnight of the banking day following the banking day
on which it received the returned check, or within a longer reasonable
time.[ltrif]
18. Revise Sec. 229.33 to read as follows.
[rtrif]Sec. 229.33 Electronic collection items and electronic
returns.
(a) Checks under this subpart. Electronic collection items and
electronic returns are subject to the provisions of this subpart as if
they were checks or returned checks, unless otherwise provided in this
subpart.
(b) [Reserved][ltrif]
19. Revise Sec. 229.34 to read as follows:
Sec. 229.34 Warranties.
[rtrif](a) Transfer and presentment warranties with respect to an
electronic collection item or an electronic return. (1) Each bank that
transfers or presents an electronic collection item or an electronic
return and receives a settlement or other consideration for it warrants
that--
(i) The electronic image accurately represents all of the
information on the front and back of the original check as of the time
that the original check was truncated and the electronic information
contains an accurate record of all MICR line information required for a
substitute check under Sec. 229.2(rr) of this part and the amount of
the check, and
(ii) No person will receive a transfer, presentment, or return of,
or otherwise be charged for, an electronic collection item, an
electronic return, the original check, a substitute check, or a paper
or electronic representation of a substitute check such that the person
will be asked to make payment based on a check it has already paid.
(2) Each bank that transfers or presents an electronic collection
item makes the warranties in paragraph (a)(1) of this section to the
transferee bank, any subsequent collecting bank, the paying bank, and
the drawer; and
(3) Each bank that transfers an electronic return makes the
warranties in paragraph (a)(1) of this section to the transferee
returning bank, any subsequent returning bank, the depositary bank, and
the owner of the check.[ltrif]
[lsqbb](b) Warranty of notice of nonpayment. Each paying bank that
gives a notice of nonpayment warrants to the transferee bank, to any
subsequent transferee bank, to the depositary bank, and to the owner of
the check that--
(1) 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, returned or will return the check within its deadline under
the U.C.C., Regulation J (12 CFR part 210), or Sec. 229.30(c) of this
part;
(2) It is authorized to send the notice; and
(3) The check has not been materially altered.
These warranties are not made with respect to checks drawn on a
state or a unit of general local government that are not payable
through or at a bank.[rsqbb]
[lsqbb](c) Warranty of s[rsqbb][rtrif](b) S[ltrif]ettlement amount,
encoding, and offset [rtrif]warranties for all items[ltrif]. (1) Each
bank that presents one or more checks to a paying bank and in return
receives a settlement or other consideration warrants to the paying
bank that the total amount of the checks presented is equal to the
total amount of the settlement demanded by the presenting bank from the
paying bank.
(2) Each bank that transfers one or more checks or returned checks
to a collecting [rtrif]bank[ltrif], returning [rtrif]bank[ltrif], or
depositary bank and in return receives a settlement or other
consideration warrants to the transferee bank that the accompanying
information, if any, accurately indicates the total amount of the
checks or returned checks transferred.
(3) Each bank that presents or transfers a check or returned check
warrants to any bank that subsequently handles it that, at the time of
presentment or transfer, the information encoded after issue in
magnetic ink [rtrif]or as electronic information[ltrif] on the check or
returned check is [lsqbb]correct[rsqbb][rtrif]accurate[ltrif]. For
purposes of this paragraph, the information encoded after issue on the
check or returned check includes any information placed in the MICR
line of a substitute check [rtrif] or in the electronic information of
an electronic collection item or electronic return[ltrif][lsqbb]that
represents that check or returned check[rsqbb].
(4) If a bank settles with another bank for checks presented, or
for returned checks for which it is the depositary bank, in amount
exceeding the total amount of the checks, the settling bank may set off
the excess settlement amount against subsequent settlements for checks
presented, or for returned checks for which it is the depositary bank,
that it receives from the other bank.
[lsqbb](d)[rsqbb][rtrif](c)[ltrif] Transfer and presentment
warranties with respect to a remotely created check. (1) A bank that
transfers or presents a remotely created check and receives a
settlement or other consideration warrants to the transferee bank, any
subsequent collecting bank, and the paying bank that the person on
whose account the remotely created check is drawn authorized the
issuance of the check in the amount stated on the check and to the
payee stated on the check. For purposes of this paragraph (d)(1),
``account'' includes an account as defined in Sec. 229.2(a) as well as
a credit or other arrangement that allows a person to draw checks that
are payable by, through, or at a bank.
(2) If a paying bank asserts a claim for breach of warranty under
paragraph (d)(1) of this section, the warranting bank may defend by
proving that the customer of the paying bank is precluded under U.C.C.
4-406, as applicable, from asserting against the paying bank the
unauthorized issuance of the check.
[lsqbb](a) Warranties[rsqbb][rtrif](d) Warranty of returned
check[ltrif]. [rtrif](1)[ltrif]Each paying bank or returning bank that
transfers a
[[Page 16899]]
returned check and receives a settlement or other consideration for it
warrants to the transferee returning bank, to any subsequent returning
bank, to the depositary bank, and to the owner of the check, that--
[lsqbb](1)[rsqbb][rtrif](i)[ltrif]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, returned the check within its deadline
under the U.C.C. [, or Regulation J (12 CFR part 210),] or Sec.
229.30(c) [of this part];
[lsqbb](2)[rsqbb][rtrif](ii)[ltrif] It is authorized to return the
check;
[lsqbb](3)[rsqbb][rtrif](iii)[ltrif] The check has not been
materially altered; and
[lsqbb](4)[rsqbb][rtrif](iv)[ltrif] In the case of a notice in lieu
of return, the [original] check has not and will not be returned.
[rtrif](2)[ltrif] These warranties are not made with respect to
checks drawn on the Treasury of the United States, U.S. Postal Service
money orders, or checks drawn on a state or a unit of general local
government that are not payable through or at a bank.
[rtrif](e) Electronic image and information transferred as an
electronic collection item or electronic return. A bank that transfers
or presents an electronic image and related electronic information as
if it were an electronic collection item or electronic return makes the
warranties in this section as if the image and information were an
electronic collection item or electronic return.[ltrif]
[lsqbb](e)[rsqbb][rtrif](f)[ltrif] Damages. Damages for breach of
these warranties shall not exceed the consideration received by the
bank that presents or transfers a check or returned check, plus
interest compensation and expenses related to the check or returned
check, if any.
[lsqbb](f)[rsqbb][rtrif](g)[ltrif] Tender of defense. If a bank is
sued for breach of a warranty under this section, it may give a prior
bank in the collection or return chain written notice of the
litigation, and the bank notified may then give similar notice to any
other prior bank. If the notice states that the bank notified may come
in and defend and that failure to do so will bind the bank notified in
an action later brought by the bank giving the notice as to any
determination of fact common to the two litigations, the bank notified
is so bound unless after seasonable receipt of the notice the bank
notified does come in and defend.
[lsqbb](g)[rsqbb][rtrif](h)[ltrif] 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.
23. In Sec. 229.35, paragraph (b) is revised to read as follows:
Sec. 229.35 Indorsements.
* * * * *
(b) Liability of bank handling check. A bank that handles a check
for forward collection or return is liable to any bank that
subsequently handles the check to the extent that the subsequent bank
does not receive payment for the check because of suspension of
payments by another bank or otherwise. This paragraph applies whether
or not a bank has [lsqbb]placed its indorsement
on[rsqbb][rtrif]indorsed[ltrif] the check. This liability is not
affected by the failure of any bank to exercise ordinary care, but any
bank failing to do so remains liable. A bank seeking recovery against a
prior bank shall send notice to that prior bank reasonably promptly
after it learns the facts entitling it to recover. A bank may recover
from the bank with which it settled for the check by revoking the
settlement, charging back any credit given to an account, or obtaining
a refund. A bank may have the rights of a holder with respect to each
check it handles.
* * * * *
24. Revise Sec. 229.36 to read as follows:
Sec. 229.36 Presentment [and issuance] of checks.
[lsqbb](a) Payable through and payable at checks. A check payable
at or through a paying bank is considered to be drawn on that bank for
purposes of the expeditious return and notice of nonpayment
requirements of this subpart[rsqbb].
[lsqbb](b)[rsqbb][rtrif](a)[ltrif] [lsqbb]Receipt at bank office or
processing center[rsqbb][rtrif]Receipt of electronic collection items.
(1) A paying bank agrees to receive an electronic collection item from
a presenting bank if it has agreed to receive the electronic collection
item--
(i) Directly from the presenting bank; or
(ii) As otherwise agreed with the presenting bank.
(2) When electronic collection item received. A bank receives an
electronic collection item when the item is delivered to the electronic
presentment point designated by the bank or, by agreement, otherwise is
made available to the bank for retrieval or review.
(3) A paying bank may require that electronic collection items be
separated from electronic returns.[ltrif]
[rtrif](b) Receipt of paper checks. (1)[ltrif] A check [rtrif]in
paper form[ltrif] is considered received by the paying bank when it is
received:
[lsqbb](1)[rsqbb][rtrif](i)[ltrif] At a location to which delivery
is requested by the paying bank;
[lsqbb](4)[rsqbb][rtrif](ii)[ltrif] At a branch, head office, or
other location consistent with the name and address of the bank on the
check if the bank is identified on the check by name and
address[rtrif];[ltrif]
[lsqbb](2)[rsqbb][rtrif](iii)[ltrif] At an address of the bank
associated with the routing number on the check, whether in magnetic
ink or in fractional form[rtrif], or in the electronic image of or
electronic information related to the check[ltrif]; or
[lsqbb](3)[rsqbb][rtrif](iv)[ltrif] At any branch or head office,
if the bank is identified on the check by name without address.
[rtrif](2) A paying bank may require that forward collection checks
be separated from returned checks.[ltrif]
[lsqbb](c) Reserved[rsqbb]
[lsqbb](d)[rsqbb][rtrif](c)[ltrif] Liability of bank during forward
collection. Settlements between banks for the forward collection of a
check are final when made; however, a collecting bank handling a check
for forward collection may be liable to a prior collecting bank,
including the depositary bank, and the depositary bank's customer.
[lsqbb](e) Issuance of payable-through checks. (1) A bank that
arranges for checks payable by it to be payable through another bank
shall require that the following information be printed conspicuously
on the face of each check:
(i) The name, location, and first four digits of the nine-digit
routing number of the bank by which the check is payable; and
(ii) The words ``payable through'' followed by the name of the
payable-through bank.
(2) A bank is responsible for damages under Sec. 229.38 to the
extent that a check payable by it and not payable through another bank
is labeled as provided in this section.[rsqbb]
[lsqbb](f)[rsqbb][rtrif](d)[ltrif] Same-day settlement. (1) A check
is considered presented, and a paying bank must settle for or return
the check pursuant to paragraph
[lsqbb](f)(2)[rsqbb][rtrif](d)(3)[ltrif] of this section,
if[rtrif],[ltrif] [lsqbb]a presenting bank delivers the check[rsqbb] in
accordance with reasonable delivery requirements established by the
paying bank[rtrif], a presenting bank delivers the check[ltrif] and
demands payment under this paragraph [lsqbb](f)[rsqbb][rtrif](d)[ltrif]
--
(i) [rtrif](A) As an electronic collection item to the electronic
presentment point designated by the paying bank, if the paying bank
agrees to receive electronic collection items from the presenting bank
under Sec. 229.36(a); or[ltrif]
[[Page 16900]]
[rtrif](B)[ltrif] At a location designated by the paying bank for
receipt of checks under this paragraph
[lsqbb](f)[rsqbb][rtrif](d)[ltrif] [lsqbb]that is in the check
processing region consistent with the routing number encoded in
magnetic ink on the check and[rsqbb] at which the paying bank would be
considered to have received the check under paragraph
(b)[rtrif](1)[ltrif] of this section or, if no location is designated,
at any location described in paragraph (b)[rtrif](1)[ltrif] of this
section; and
(ii) By 8 a.m. on a business day (local time of the location
described in paragraph [(f)(1)(i)][rtrif](d)(1)(i)[ltrif] of this
section).
[rtrif](2) A paying bank may require that checks presented under
paragraph (d)(1) for settlement pursuant to paragraph (d)(3) of this
section be presented as electronic collection items and be presented
electronically to a designated electronic presentment point.[ltrif]
[lsqbb]A paying bank may require that checks presented for
settlement pursuant to this paragraph (f)(1) be separated from other
forward-collection checks or returned checks.[rsqbb]
[lsqbb](2)[rsqbb][rtrif](3)[ltrif] If presentment of a check meets
the requirements of paragraph [lsqbb](f)(1)[rsqbb][rtrif](d)(1)[ltrif]
of this section, the paying bank is accountable to the presenting bank
for the amount of the check unless, by the close of Fedwire on the
business day it receives the check, it either:
(i) Settles with the presenting bank for the amount of the check by
credit to an account at a Federal Reserve Bank designated by the
presenting bank; or
(ii) Returns the check.
[lsqbb](3)[rsqbb][rtrif](4)[ltrif] Notwithstanding paragraph
[lsqbb](f)(2)[rsqbb][rtrif](d)(3)[ltrif] of this section, if a paying
bank closes on a business day and receives presentment of a check on
that day in accordance with paragraph [(f)(1)][rtrif](d)(1)[ltrif] of
this section, the paying bank is accountable to the presenting bank for
the amount of the check unless, by the close of Fedwire on its next
banking day, it either:
(i) Settles with the presenting bank for the amount of the check by
credit to an account at a Federal Reserve Bank designated by the
presenting bank; or
(ii) Returns the check.
[rtrif](5)[ltrif] If the closing [rtrif]in paragraph (d)(4)[ltrif]
is voluntary, unless the paying bank settles for or returns the check
in accordance with paragraph [lsqbb](f)(2)[rsqbb][rtrif](d)(3)[ltrif]
of this section, it shall pay interest compensation to the presenting
bank for each day after the business day on which the check was
presented until the paying bank settles for the check, including the
day of settlement.
25. Revise Sec. 229.38 to read as follows:
Sec. 229.38 Liability.
(a) Standard of care; liability; measure of damages. A bank shall
exercise ordinary care and act in good faith in complying with the
requirements of this subpart. A bank that fails to exercise ordinary
care or act in good faith under this subpart may be liable to the
depositary bank, the depositary bank's customer, the owner of a check,
or another party to the check. The measure of damages for failure to
exercise ordinary care is the amount of the loss incurred, up to the
amount of the check, reduced by the amount of the loss that party would
have incurred even if the bank had exercised ordinary care. A bank that
fails to act in good faith under this subpart may be liable for other
damages, if any, suffered by the party as a proximate consequence.
Subject to a bank's duty to exercise ordinary care or act in good faith
in choosing the means of return [lsqbb]or notice of nonpayment[rsqbb],
the bank is not liable for the insolvency, neglect, misconduct,
mistake, or default of another bank or person, or for loss or
destruction of a check [lsqbb]or notice of nonpayment[rsqbb] in transit
or in the possession of others. This section does not affect a paying
bank's liability to its customer under the U.C.C. or other law.
(b) Paying bank's failure to make timely return. If a paying bank
fails both to comply with Sec. 229.30(a) and to comply with the
deadline for return under the U.C.C., Regulation J (12 CFR part 210),
or Sec. 229.30(c) in connection with a single nonpayment of a check,
the paying bank shall be liable under either Sec. 229.30(a) or such
other provision, but not both.
(c) Comparative negligence. If a person, including a bank, fails to
exercise ordinary care or act in good faith under this subpart in
indorsing a check (Sec. 229.35), accepting a returned check [lsqbb]or
notice of nonpayment[rsqbb] (Sec. Sec. 229.32(a) and
[lsqbb]229.33(c)[rsqbb][rtrif](b)[ltrif]), or otherwise, the damages
incurred by that person under Sec. 229.38(a) shall be diminished in
proportion to the amount of negligence or bad faith attributable to
that person.
(d) Responsibility for certain aspects of checks--(1) A paying
bank, or in the case of a check payable through the paying bank and
payable by another bank, the bank by which the check is payable, is
responsible for damages under paragraph (a) of this section to the
extent that the condition of the check when issued by it or its
customer adversely affects the ability of a bank to indorse the check
legibly in accordance with Sec. 229.35. A depositary bank is
responsible for damages under paragraph (a) of this section to the
extent that the condition of the back of a check arising after the
issuance of the check and prior to acceptance of the check by it
adversely affects the ability of a bank to indorse the check legibly in
accordance with Sec. 229.35. A reconverting bank is responsible for
damages under paragraph (a) of this section to the extent that the
condition of the back of a substitute check transferred, presented, or
returned by it--
(i) Adversely affects the ability of a subsequent bank to indorse
the check legibly in accordance with Sec. 229.35; or
(ii) Causes an indorsement that previously was applied in
accordance with Sec. 229.35 to become illegible.
[lsqbb]Note:[rsqbb][rtrif](2)[ltrif] Responsibility under this
paragraph (d) shall be treated as negligence of the paying bank,
depositary bank, or reconverting bank for purposes of paragraph (c) of
this section.
[lsqbb](2) Responsibility for payable through checks. In the case
of a check that is payable by a bank and payable through a paying bank
located in a different check processing region than the bank by which
the check is payable, the bank by which the check is payable is
responsible for damages under paragraph (a) of this section, to the
extent that the check is not returned to the depositary bank through
the payable through bank as quickly as the check would have been
required to be returned under Sec. 229.30(a) had the bank by which the
check is payable--
(i) Received the check as paying bank on the day the payable
through bank received the check; and
(ii) Returned the check as paying bank in accordance with Sec.
229.30(a)(1).
Responsibility under this paragraph shall be treated as negligence
of the bank by which the check is payable for purposes of paragraph (c)
of this section.[rsqbb]
(e) Timeliness of action. If a bank is delayed in acting beyond the
time limits set forth in this subpart because of interruption of
communication or computer facilities, suspension of payments by a bank,
war, emergency conditions, failure of equipment, or other circumstances
beyond its control, its time for acting is extended for the time
necessary to complete the action, if it exercises such diligence as the
circumstances require.
(f) Exclusion. Section 229.21 of this part and section 611 (a),
(b), and (c) of the EFA Act (12 U.S.C. 4010 (a), (b), and (c)) do not
apply to this subpart.
(g) Jurisdiction. Any action under this subpart may be brought in
any United States district court, or in any other court of competent
jurisdiction, and shall be brought within one year after
[[Page 16901]]
the date of the occurrence of the violation involved.
(h) Reliance on Board rulings. No provision of this subpart
imposing any liability shall apply to any act done or omitted in good
faith in conformity with any rule, regulation, or interpretation
thereof by the Board, regardless of whether the rule, regulation, or
interpretation is amended, rescinded, or determined by judicial or
other authority to be invalid for any reason after the act or omission
has occurred.
26. In Sec. 229.39, revise paragraph (c) to read as follows:
Sec. 229.39 Insolvency of bank.
* * * * *
(c) Preference against collecting, paying, or returning bank. If a
collecting, paying, or returning bank receives settlement from a
subsequent bank for a check or returned check, which settlement is or
becomes final, and suspends payments without making a settlement for
the check with the prior bank, which is or becomes final, the prior
bank has a preferred claim against the collecting [rtrif]bank[ltrif] or
returning bank.
* * * * *
27. Revise Sec. 229.40 to read as follows:
Sec. 229.40 Effect of merger transaction.
[lsqbb](a) In general.[rsqbb] For purposes of this subpart, two or
more banks that have engaged in a merger transaction may be considered
to be separate banks for a period of one year following the
consummation of the merger transaction.
[lsqbb](b) Merger transactions on or after July 1, 1998, and before
March 1, 2000. If banks have consummated a merger transaction on or
after July 1, 1998, and before March 1, 2000, the merged banks may be
considered separate banks until March 1, 2001.[rsqbb]
28. Revise Sec. 229.41 to read as follows:
Sec. 229.41 Relation to [S][rtrif]s[ltrif]tate law.
The provisions of this subpart supersede any inconsistent
provisions of the U.C.C. as adopted in any state, or of any other state
law, but only to the extent of the inconsistency.
29. Revise Sec. 229.42 to read as follows:
Sec. 229.42 Exclusions.
The expeditious-return (Sec. Sec. 229.30(a) and 229.31(a))[lsqbb],
notice-of-nonpayment (Sec. 229.33),[rsqbb] and same-day settlement
[lsqbb](Sec. 229.36(f))[rsqbb][rtrif](Sec. 229.36(d))[ltrif]
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.
30. Revise Sec. 229.43 to read as follows:
Sec. 229.43 Checks payable in Guam, American Samoa, and the Northern
Mariana Islands.
(a) Definitions. The definitions in Sec. 229.2 apply to this
section, unless otherwise noted. In addition, 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 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).
(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
(and the word ``check'' in each such section is construed to include a
Pacific island check)--
(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 [rtrif](a), (b),[ltrif] (c)(2), (c)(3), (d),
[[lsqbb](e), and[rsqbb] (f)[rtrif], and (g)[ltrif];
(4) Sec. 229.35; for purposes of Sec. 229.35(c), the Pacific
island bank is deemed to be a bank;
(5) [lsqbb][Sec. 229.36(d)[rsqbb]][rtrif]Sec. 229.36(b)[ltrif];
(6) Sec. 229.37;
(7) Sec. 229.38(a) and (c) through (h);
(8) Sec. 229.39(a), (b), (c) and (e); and
(9) Sec. Sec. 229.40 through 229.42.
Subpart D--Substitute Checks
31. In Sec. 229.52, revise paragraph (a) to read as follows:
Sec. 229.52 Substitute check warranties.
(a) Content and provision of substitute check warranties.
[rtrif](1)[ltrif] A bank that transfers, presents, or returns a
substitute check (or a paper or electronic representation of a
substitute check) for which it receives consideration warrants to the
parties listed in paragraph (b) of this section that--
[1] (i) The substitute check meets the requirements for legal
equivalence described in Sec. 229.51(a)(1)-(2); and
[2] (ii) No depositary bank, drawee, drawer, or indorser will
receive presentment or return of, or otherwise be charged for, the
substitute check, the original check, or a paper or electronic
representation of the substitute check or original check such that that
person will be asked to make a payment based on a check that it already
has paid.
[rtrif](2) A bank that rejects a check submitted for deposit and
returns to its customer a substitute check (or a paper or electronic
representation of a substitute check) makes the warranties described in
paragraph (a)(1) of this section regardless of whether the bank
received consideration.[ltrif]
* * * * *
32. In Sec. 229.53, revise paragraph (a) to read as follows:
Sec. 229.53 Substitute check indemnity.
(a) Scope of indemnity. [rtrif](1)[ltrif] A bank that transfers,
presents, or returns a substitute check or a paper or electronic
representation of a substitute check for which it receives
consideration shall indemnify the recipient and any subsequent
recipient (including a collecting or returning bank, the depositary
bank, the drawer, the drawee, the payee, the depositor, and any
indorser) for any loss incurred by any recipient of a substitute check
if that loss occurred due to the receipt of a substitute check instead
of the original check.
[rtrif](2) A bank that rejects a check submitted for deposit and
returns to its customer a substitute check (or a paper or electronic
representation of a substitute check) shall indemnify the recipient as
described in paragraph (a)(1) of this section regardless of whether the
bank received consideration.[ltrif]
* * * * *
33. Revise Appendix A to Part 229 to read as follows:
Appendix A to Part 229--Routing Number Guide to Next-Day-Availability
Checks [and Local Checks]
[lsqbb]A. Each bank is assigned a routing number by an agent of
the American Bankers Association. The routing number takes two
forms: a fractional form and a nine-digit form. A paying bank
generally is identified on the face of a check by its routing number
in both the fractional form (which generally appears in the upper
right-hand corner of the check) and the nine-digit form (which is
printed in magnetic ink along the bottom of the check). Where a
check is payable by one bank but payable through another bank, the
routing number appearing on the check is that of the payable-through
bank, not the payor bank.
B. The first four digits of the nine-digit routing number (and
the denominator of the fractional routing number) form the ``Federal
Reserve routing symbol,'' and the first two digits of the routing
number identify the Federal Reserve District in which the bank is
located. Thus, 01 will be the first two digits of the routing number
of a bank in the First Federal Reserve District (Boston), and 12
will be the first two digits of the routing number of a bank in the
Twelfth District (San Francisco). Adding 2 to the first digit
denotes
[[Page 16902]]
a thrift institution. Thus, 21 identifies a thrift in the First
District, and 32 denotes a thrift in the Twelfth District.
Fourth Federal Reserve District
Federal Reserve Bank of Cleveland
Head Office
\1\ 0110 0215
0111 0216
0112 0219
0113 0220
0114 0223
0115 0260
0116 0280
0117 0310
0118 0311
0119 0312
0210 0313
0211 0319
0212 0360
0213 0410
0214 0412
0420 0441
0421 0442
0422 0510
0423 0514
0430 0515
0432 0519
0433 0520
0434 ...................................
0440
0521 0650
0522 0651
0530 0652
0531 0653
0532 0654
0539 0655
0540 0660
0550 0670
0560 0710
0570 0711
0610 0712
0611 0719
0612 0720
0613 0724
0620 0730
0621 0739
0622 0740
0630 0749
0631 0750
0632 0759
0640 0810
0641 0812
0642 0813
0815 0960
0819 1010
0820 1011
0829 1012
0830 1019
0839 1020
0840 1021
0841 1022
0842 1023
0843 1030
0863 1031
0865 1039
0910 1040
0911 1041
0912 1049
0913 1070
0914 1110
0915 1111
0918 1113
0919 1119
0920 1120
0921 1122
0929 1123
1130 1251
1131 1252
1140 2111
1149 2112
1163 2113
1210 2114
1211 2115
1212 2116
1213 2117
1220 2118
1221 2119
1222 2210
1223 2211
1224 2212
1230 2213
1231 2214
1232 2215
1233 2216
1240 2219
1241 2220
1242 2223
1243 2260
1250 2280
2310 2520
2311 2521
2312 2522
2313 2530
2319 2531
2360 2532
2410 2539
2412 2540
2420 2550
2421 2560
2422 2570
2423 2610
2430 2611
2432 2612
2433 2613
2434 2620
2440 2621
2441 2622
2442 2630
2510 2631
2514 2632
2515 2640
2519 2641
2642 2813
2650 2815
2651 2819
2652 2820
2653 2829
2654 2830
2655 2839
2660 2840
2670 2841
2710 2842
2711 2843
2712 2863
2719 2865
2720 2910
2724 2911
2730 2912
2739 2913
2740 2914
2749 2915
2750 2918
2759 2919
2810 2920
2812 2921
2929 3123
2960 3130
3010 3131
3011 3140
3012 3149
3019 3163
3020 3210
3021 3211
3022 3212
3023 3213
3030 3220
3031 3221
3039 3222
3040 3223
3041 3224
3049 3230
3070 3231
3110 3232
3111 3233
3113 3240
3119 3241
3120 3242
3122 3243
3250 3252
3251
\1\ The first two digits identify the bank's Federal Reserve District.
For example, 01 identifies the First Federal Reserve District
(Boston), and 12 identifies the Twelfth District (San Francisco).
Adding 2 to the first digit denotes a thrift institution. For example,
21 identifies a thrift in the First District, and 32 denotes a thrift
in the Twelfth District.[rsqbb]
Federal Reserve Banks
0110 0001 5 0539 0008 9
0111 0048 1 0610 0014 6
0210 0120 8 0620 0019 0
0212 0400 5 0630 0019 9
0213 0500 1 0640 0010 1
0220 0026 6 0650 0021 0
0310 0004 0 0660 0010 9
0410 0001 4 0710 0030 1
0420 0043 7 [lsqbb]0711 0711 0[rsqbb]
0430 0030 0 0720 0029 0
0440 0050 3 0730 0033 8
0510 0003 3 [lsqbb]0740 0020 1[rsqbb]
0519 0002 3 ...................................
0520 0027 8 [lsqbb]0750 0012 9[rsqbb]
0530 0020 6 0810 0004 5
0820 0013 8 1120 0001 1
0830 0059 3 1130 0004 9
0840 0003 9 1140 0072 1
0910 0008 0 1210 0037 4
0920 0026 7 1220 0016 6
1010 0004 8 1230 0001 3
1020 0019 9 1240 0031 3
1030 0024 0 1250 0001 1
1040 0012 6
1110 0003 8
Federal Home Loan Banks
0110 0053 6 0740 0101 9
0212 0639 1 [lsqbb]0810 0091 9[rsqbb]
0260 0973 9 [lsqbb]0910 0091 2[rsqbb]
0410 0291 5 [lsqbb]1010 0091 2[rsqbb]
0420 0091 6 1011 0194 7
0430 0143 5 1110 1083 7
[lsqbb]0430 1862 2[rsqbb] 1119 1083 0
0610 0876 6 1210 0070 1
0710 0450 1 1240 0287 4
0730 0091 4 1250 0050 3
[rtrif]U.S. Treasury Checks and 0000 0051 8
Postal
Money Orders Postal Money Orders
U.S. Treasury Checks 0000 0119 3
0000 0050 5 0000 0800 2[ltrif]
34. Revise Appendix C to Part 229 to read as follows:
[[Page 16903]]
Appendix C to Part 229--Model Availability-Policy Disclosures, Clauses,
and Notices; Model Substitute-Check-Policy Disclosure and Notices
This appendix contains model availability-policy and substitute-
check-policy disclosures, clauses, and notices to facilitate
compliance with the disclosure and notice requirements of Regulation
CC (12 CFR part 229). Although use of these models is not required,
banks using them properly (with the exception of models C-22 through
C-25) to make disclosures required by Regulation CC are deemed to be
in compliance.
Model Disclosures
C-1 Next-day availability
C-2 Next-day availability and section 229.13 exceptions
C-3[rtrif]A[ltrif] Next-day availability, case-by-case holds to
statutory limits [rtrif]without cash-withdrawal limitation[ltrif],
and section 229.13 exceptions
[rtrif]C-3B Next-day availability, case-by-case holds to statutory
limits with cash-withdrawal limitation, and section 229.13
exceptions[ltrif]
C-4[rtrif]A[ltrif] Holds to statutory limits on all deposits
[lsqbb](includes chart)[rsqbb] [rtrif]without cash-withdrawal
limitation[ltrif]
C-[lsqbb]5[rsqbb][rtrif]4B[ltrif] Holds to statutory limits on all
deposits [rtrif]with cash-withdrawal limitation[ltrif]
C-5[lsqbb]A[rsqbb] Substitute-Check-Policy Disclosure Model
Model Clauses
[lsqbb]C-6 Holds on other funds (check cashing)[rsqbb]
[lsqbb]C-7 Holds on other funds (other account)[rsqbb]
[lsqbb]C-8 Appendix B availability (nonlocal checks)[rsqbb]
C-[lsqbb]9[rsqbb][rtrif]6[ltrif] Automated teller machine deposits
(extended hold)
[lsqbb]C-10 Cash-withdrawal limitation[rsqbb]
C-[lsqbb]11[rsqbb][rtrif]7[ltrif] Credit union interest-payment
policy
C-[lsqbb]11A[rsqbb][rtrif]8[ltrif] Availability of funds deposited
at other locations
Model Notices
C-[lsqbb]12[rsqbb][rtrif]9[ltrif] Exception [rtrif]or reasonable-
cause[ltrif] hold notice
[lsqbb]C-13 Reasonable-cause hold notice[rsqbb]
C-[lsqbb]14[rsqbb][rtrif]10[ltrif] One-time notice for large-deposit
and redeposited-check exception holds
C-[lsqbb]15[rsqbb][rtrif]11[ltrif] One-time notice for repeated-
overdraft exception holds
C-[lsqbb]16[rsqbb][rtrif]12A[ltrif] Case-by-case hold notice
[rtrif]without cash-withdrawal limitation
C-16[lsqbb]B[rsqbb][rtrif]12B[ltrif] Case-by-case hold notice with
cash-withdrawal limitation[ltrif]
C-[lsqbb]17[rsqbb][rtrif]13[ltrif] Notice at locations where
employees accept consumer deposits
C-[lsqbb]18[rsqbb][rtrif]14[ltrif] Notice at locations where
employees accept consumer deposits (case-by-case holds)
C-[lsqbb]19[rsqbb][rtrif]15[ltrif] Notice at automated teller
machines
C-[lsqbb]20[rsqbb][rtrif]16[ltrif] Notice at automated teller
machines (delayed receipt)
C-[lsqbb]21[rsqbb][rtrif]17[ltrif] Deposit-slip notice
C-[lsqbb]22[rsqbb][rtrif]18[ltrif] Expedited-Recredit Claim, Valid-
Claim Refund Notice
C-[lsqbb]23[rsqbb][rtrif]19[ltrif] Expedited-Recredit Claim,
Provisional-Refund Notice
C-[lsqbb]24[rsqbb][rtrif]20[ltrif] Expedited-Recredit Claim, Denial
Notice
C-[lsqbb]25[rsqbb][rtrif]21[ltrif] Expedited-Recredit Claim,
Reversal Notice
[lsqbb]C-1 Next-Day Availability
YOUR ABILITY TO WITHDRAW FUNDS
Our policy is to make funds from your cash and check 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 the funds are available, you can
withdraw them in cash and we will use them 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 Section 229.13 Exceptions
YOUR ABILITY TO WITHDRAW FUNDS
Our policy is to make funds from your cash and check 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
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
Section 229.13 Exceptions
YOUR ABILITY TO WITHDRAW FUNDS
Our policy is to make funds from your cash and check 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, will 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.
[[Page 16904]]
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 from your cash
and check deposits. 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
we receive 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:
[GRAPHIC] [TIFF OMITTED] TP25MR11.000
[GRAPHIC] [TIFF OMITTED] TP25MR11.001
[[Page 16905]]
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
chart below will show you when funds from the check will be
available. 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.
[GRAPHIC] [TIFF OMITTED] TP25MR11.002
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 from your cash
and check deposits. 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
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:
[[Page 16906]]
[GRAPHIC] [TIFF OMITTED] TP25MR11.003
[GRAPHIC] [TIFF OMITTED] TP25MR11.004
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 fundsfrom 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 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.
[[Page 16907]]
Funds from all other check deposits will be available on the
(number) business day after the day of your deposit.
BILLING CODE 6210-01-P
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[[Page 16908]]
[GRAPHIC] [TIFF OMITTED] TP25MR11.006
[[Page 16909]]
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[[Page 16910]]
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[[Page 16911]]
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[[Page 16912]]
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[[Page 16913]]
[GRAPHIC] [TIFF OMITTED] TP25MR11.011
[[Page 16914]]
[GRAPHIC] [TIFF OMITTED] TP25MR11.012
[[Page 16915]]
[GRAPHIC] [TIFF OMITTED] TP25MR11.013
[[Page 16916]]
[GRAPHIC] [TIFF OMITTED] TP25MR11.014
[[Page 16917]]
[GRAPHIC] [TIFF OMITTED] TP25MR11.015
BILLING CODE 6210-01-C
[ltrif]C-5[lsqbb]A[rsqbb]--Substitute-Check-Policy Disclosure
Substitute Checks and Your Rights
[IMPORTANT INFORMATION ABOUT YOUR CHECKING ACCOUNT]
Substitute Checks and Your Rights
What is a substitute check?
To make check processing faster, federal law permits banks to
replace original checks with ``substitute checks.'' These checks are
similar in size to original checks with a slightly reduced image of
the front and back of the original check. The front of a substitute
check states: ``This is a legal copy of your check. You can use it
the same way you would use the original check.'' You may use a
substitute check as proof of payment just like the original check.
Some or all of the checks that you receive back from us may be
substitute checks. This notice describes rights you have when you
receive substitute checks from us. The rights in this notice do not
apply to original checks or to electronic debits to your account.
However, you have rights under other law with respect to those
transactions.
What are my rights regarding substitute checks?
In certain cases, Federal law provides a special procedure that
allows you to request a refund for losses you suffer if a substitute
check is posted to your account (for example, if you think that we
withdrew the wrong amount from your account or that we withdrew
money from your account more than once for the same check). The
losses you may attempt to recover under this procedure may include
the amount that was withdrawn from your account and fees that were
charged as a result of the withdrawal (for example, bounced-check
fees).
[[Page 16918]]
The amount of your refund under this procedure is limited to the
amount of your loss or the amount of the substitute check, whichever
is less. You also are entitled to interest on the amount of your
refund if your account is an interest-bearing account. If your loss
exceeds the amount of the substitute check, you may be able to
recover additional amounts under other law.
If you use this procedure, you may receive up to (amount, not
lower than $2,500) of your refund (plus interest if your account
earns interest) within (number of days, not more than 10) business
days after we received your claim and the remainder of your refund
(plus interest if your account earns interest) not later than
(number of days, not more than 45) calendar days after we received
your claim.
We may reverse the refund (including any interest on the refund)
if we later are able to demonstrate that the substitute check was
correctly posted to your account.
How do I make a claim for a refund?
If you believe that you have suffered a loss relating to a
substitute check that you received and that was posted to your
account, please contact us at (contact information, for example
phone number, mailing address, e-mail address). You must contact us
within (number of days, not less than 40) calendar days of the date
that we mailed (or otherwise delivered by a means to which you
agreed) the substitute check in question or the account statement
showing that the substitute check was posted to your account,
whichever is later. We will extend this time period if you were not
able to make a timely claim because of extraordinary circumstances.
Your claim must include--
A description of why you have suffered a loss (for
example, you think the amount withdrawn was incorrect);
An estimate of the amount of your loss;
An explanation of why the substitute check you received
is insufficient to confirm that you suffered a loss; and
A copy of the substitute check [and/or] the following
information to help us identify the substitute check: (identifying
information, for example the check number, the name of the person to
whom you wrote the check, the amount of the check).
[lsqbb]C-6--Holds on Other Funds (Check Cashing)
If we cash a check for you that is drawn on another bank, we may
withhold the availability of a corresponding amount of funds that
are already in your account. Those funds will be available at the
time funds from the check we cashed would have been available if you
had deposited it.[rsqbb]
[lsqbb]C-7--Holds on Other Funds (Other Account)
If we accept for deposit a check that is drawn on another bank,
we may make funds from the deposit available for withdrawal
immediately but delay your availability to withdraw a corresponding
amount of funds that you have on deposit in another account with us.
The funds in the other account would then not be available for
withdrawal until the time periods that are described elsewhere in
this disclosure for the type of check that you deposited.[rsqbb]
[lsqbb]C-8--Appendix B Availability (Nonlocal Checks)
3. Certain other checks. We can process nonlocal checks drawn on
financial institutions in certain areas faster than usual.
Therefore, funds from deposits of checks drawn on institutions in
those areas will be available to you more quickly. Call us if you
would like a list of the routing numbers for these
institutions.[rsqbb]
C-[lsqbb]9[rsqbb][rtrif]6[ltrif]--Automated Teller Machine
Deposits (Extended Hold)
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 [lsqbb]fifth[rsqbb][rtrif]fourth[ltrif] 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.)
[lsqbb]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 p.m.) on that
day. Any remaining funds will be available for withdrawal in cash on
the following business day.[rsqbb]
C-[lsqbb]11[rsqbb][rtrif]7[ltrif]--Credit-Union Interest-Payment
Policy
INTEREST-PAYMENT POLICY
If we receive a deposit to your account on or before the tenth
of the month, you begin earning interest on the deposit (whether it
was a deposit of cash or checks) as of the first day of that month.
If we receive the deposit after the tenth of the month, you begin
earning interest on the deposit as of the first of the following
month. For example, a deposit made on June 7 earns interest from
June 1, while a deposit made on June 17 earns interest from July 1.
C-[lsqbb]11A[rsqbb][rtrif]8[ltrif]--Availability of Funds
Deposited at Other Locations
DEPOSITS AT OTHER LOCATIONS
This availability policy only applies to funds deposited at
(location). Please inquire for information about the availability of
funds deposited at other locations.
[lsqbb]C-12--Exception Hold Notice
NOTICE OF HOLD
Account number: Date of deposit:
(number) (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: Date of deposit:
(number) (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 indorsement 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).[rsqbb]
C-14--One-Time Notice for Large-Deposit and Redeposited-Check Exception
Holds
NOTICE OF HOLD
If you deposit into your account:
[[Page 16919]]
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 after the
day of your deposit. 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).
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 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 Holds
NOTICE OF HOLD
Account number: Date of deposit:
(number) (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: Date of deposit:
(number) (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).]
C-17--Notice at Locations Where Employees Accept Consumer Deposits
[GRAPHIC] [TIFF OMITTED] TP25MR11.016
C-18--Notice at Locations Where Employees Accept Consumer Deposits
(Case-by-Case Holds)
FUNDS--AVAILABILITY POLICY
Our general policy is to allow you to withdraw funds deposited
in your account on the (number) business day after the day we
receive your deposit. Funds from electronic deposits will be
available on the day we receive the deposit. In some cases, we may
delay your ability to withdraw funds beyond the (number) business
day. Then, the funds will generally be available by the fifth
business day after the day of deposit.[rsqbb]
BILLING CODE 6210-01-P
[[Page 16920]]
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[[Page 16921]]
[GRAPHIC] [TIFF OMITTED] TP25MR11.018
[[Page 16922]]
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[[Page 16923]]
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[[Page 16924]]
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[[Page 16925]]
[GRAPHIC] [TIFF OMITTED] TP25MR11.022
[[Page 16926]]
[GRAPHIC] [TIFF OMITTED] TP25MR11.023
BILLING CODE 6210-01-C
[ltrif]C-[lsqbb]19[rsqbb][rtrif]15[ltrif]--Notice at Automated
Teller Machines
AVAILABILITY OF DEPOSITS
Funds from deposits may not be available for immediate
withdrawal. Please refer to your institution's rules governing funds
availability for details.
C-[lsqbb]20[rsqbb][rtrif]16[ltrif]--Notice at Automated Teller Machines
(Delayed Receipt)
NOTICE
Deposits at this ATM between (day) and (day) will not be
considered received until (day). The availability of funds from the
deposit may be delayed as a result.
C-[lsqbb]21[rsqbb][rtrif]17[ltrif]--Deposit-Slip Notice
Deposits may not be available for immediate withdrawal.
C-[lsqbb]22[rsqbb][rtrif]18[ltrif]--Expedited-Recredit Claim,
Valid-Claim Refund Notice
Notice of Valid Claim and Refund
We have determined that your substitute-check claim is valid. We
are refunding (amount) [of which [(amount) represents fees] [and]
[(amount) represents accrued interest]] to your account. You may
withdraw these funds as of (date). [This refund is the amount in
excess of the $2,500 [plus interest] that we credited to your
account on (date).]
C-[lsqbb]23[rsqbb][rtrif]19[ltrif]--Expedited-Recredit Claim,
Provisional-Refund Notice
Notice of Provisional Refund
In response to your substitute-check claim, we are refunding
(amount) [of which [(amount) represents fees] [and] [(amount)
represents accrued interest]] to your account, while we complete our
investigation of your claim. You may withdraw these funds as of
(date). [Unless we determine that your claim is not valid, we will
credit the remaining amount of your refund to your account no later
than the 45th calendar day after we received your claim.]
If, based on our investigation, we determine that your claim is
not valid, we will reverse the refund by withdrawing the amount of
the refund [plus interest that we have paid you on that amount] from
your account. We will notify you within one day of any such
reversal.
C-[lsqbb]24[rsqbb][rtrif]20[ltrif]--Expedited-Recredit Claim,
Denial Notice
Denial of Claim
Based on our review, we are denying your substitute-check claim.
As the enclosed (type of document, for example original check or
sufficient copy) shows, (describe reason for denial, for example the
check was properly posted, the signature is authentic, there was no
warranty breach).
[We have also enclosed a copy of the other information we used
to make our decision.] [Upon your request, we will send you a copy
of the other information that we used to make our decision.]
C-[lsqbb]25[rsqbb][rtrif]21[ltrif]--Expedited-Recredit Claim,
Reversal Notice
Reversal of Refund
In response to your substitute-check claim, we provided a refund
of (amount) by crediting your account on (date(s)). We now have
determined that your substitute check claim was not valid. As the
enclosed (type of document, for example original check or sufficient
copy) shows, (describe reason for reversal, for example the check
was properly posted, the signature is authentic, there was no
warranty breach). As a result, we have reversed the refund to your
account [lsqbb]plus interest that we have paid you on that
amount[rsqbb] by withdrawing (amount) from your account on (date).
[lsqbb]We have also enclosed a copy of the other information we
used to make our decision.[rsqbb]
[[Page 16927]]
[lsqbb]Upon your request, we will send you a copy of the information
we used to make our decision.[rsqbb]
35. Appendix D to Part 229 is revised to read as follows:
Appendix D to Part 229--Indorsement, Reconverting Bank Identification,
and Truncating Bank Identification Standards
(1) The depositary bank shall indorse an original check or
substitute check according to the following specifications:
(i) The indorsement shall contain--
(A) The bank's nine-digit routing number, set off by an arrow at
each end of the number and pointing toward the number, and, if the
depositary bank is a reconverting bank with respect to the check, an
asterisk outside the arrow at each end of the routing number to
identify the bank as a reconverting bank;
(B) The indorsement date; and
(C) The bank's name or location, if the depositary bank applies
the indorsement physically.
(ii) The indorsement also may contain--
(A) A branch identification;
(B) A trace or sequence number;
[lsqbb](C) A telephone number for receipt of notification of
large-dollar returned checks;[rsqbb] and
[lsqbb](D)[rsqbb][rtrif](C)[ltrif] Other information, provided
that the inclusion of such information does not interfere with the
readability of the indorsement.
(iii)[rtrif](A)[ltrif] The indorsement, if applied to an
existing paper check, shall be placed on the back of the check so
that the routing number is wholly contained in the area 3.0 inches
from the leading edge of the check to 1.5 inches from the trailing
edge of the check.[lsqbb]\31\[rsqbb]
[lsqbb]\31\[rsqbb] [rtrif](B) The leading edge is defined as the
right side of the check looking at it from the front. The trailing
edge is defined as the left side of the check looking at it from the
front. See American National Standards Specifications for the
Placement and Location of MICR Printing, X9.13.[ltrif]
(iv) When printing its depositary bank indorsement (or a
depositary bank indorsement that previously was applied
electronically) onto a substitute check at the time that the
substitute check is created, a reconverting bank shall place the
indorsement on the back of the check between 1.88 and 2.74 inches
from the leading edge of the check. The reconverting bank may omit
the depositary bank's name and location from the indorsement.
(2) Each subsequent collecting bank or returning bank indorser
shall protect the identifiability and legibility of the depositary
bank indorsement by indorsing an original check or substitute check
according to the following specifications:
(i) The indorsement shall contain only--
(A) The bank's nine-digit routing number (without arrows) and,
if the collecting bank or returning bank is a reconverting bank with
respect to the check, an asterisk at each end of the number to
identify the bank as a reconverting bank;
(B) The indorsement date, and
(C) An optional trace or sequence number.
(ii) The indorsement, if applied to an existing paper check,
shall be placed on the back of the check from 0.0 inches to 3.0
inches from the leading edge of the check.
(iii) When printing its collecting bank or returning bank
indorsement (or a collecting bank or returning bank indorsement that
previously was applied electronically) onto a substitute check at
the time that the substitute check is created, a reconverting bank
shall place the indorsement on the back of the check between 0.25
and 2.50 inches from the trailing edge of the check.
(3) A reconverting bank shall comply with the following
specifications when creating a substitute check:
(i)[rtrif](A)[ltrif] If it is a depositary bank, collecting
bank, or returning bank with respect to the substitute check, the
reconverting bank shall place its own indorsement onto the back of
the check as specified in this appendix.
[lsqbb](ii)[rsqbb][rtrif](B) If it is a paying bank with respect
to the substitute check or a bank that rejected a check submitted
for deposit,[ltrif] [lsqbb]A[rsqbb][rtrif]the[ltrif] reconverting
bank [lsqbb]that also is the paying bank with respect to the
substitute check[rsqbb] shall so identify itself by placing on the
back of the check, between 0.25 and 2.50 inches from the trailing
edge of the check, its nine-digit routing number (without arrows)
and an asterisk at each end of the number.
[lsqbb](iii)[rsqbb][rtrif](ii)[ltrif] The reconverting bank
shall place on the front of the check, outside the image of the
original check[lsqbb],[rsqbb][rtrif]--[ltrif]
[rtrif](A)[ltrif] its nine-digit routing number (without arrows)
and an asterisk at each end of the number, in accordance with ANS
X9.100-140[lsqbb].[rsqbb][rtrif], and[ltrif]
[lsqbb](iv)[rsqbb][rtrif](B)[ltrif] [lsqbb]The reconverting bank
shall place on the front of the check, outside the image of the
original check,[rsqbb] the truncating bank's nine-digit routing
number (without arrows) and a bracket at each end of the number, in
accordance with ANS X9.100-140.
(4) Any indorsement, reconverting bank identification, or
truncating bank identification placed on an original check or
substitute check shall be printed in black ink.
[rtrif](5) A depositary bank shall indorse an electronic
collection item in accordance with ANS X9.100-187, unless the
parties otherwise agree, and according to the following
specifications--
(i) The electronic indorsement shall contain--
(A) The depositary bank's nine-digit routing number; and
(B) The indorsement date.
(ii) The electronic indorsement also may contain other
information, provided that the inclusion of such information does
not interfere with the readability of the indorsement.
(6) Each subsequent collecting bank or returning bank indorser
shall protect the identifiability and legibility of the depositary
bank indorsement by indorsing an electronic collection item or
electronic return in accordance with ANS X9.100-187, unless the
parties otherwise agree.[ltrif]
36. Amend Appendix E to Part 229 as follows:
A. Revise Sections II through XI.
B. In Section XII, revise paragraphs A. and E.
C. Revise Sections XIII through XXVIII.
D. In Section XXIX, revise paragraph B.
E. Revise Sections XXX through XXXIII.
F. Revise Section XXXVIII.
The revisions read as follows:
Appendix E to Part 229--Commentary
I. Introduction
A. Background
1. The Board interpretations, which are labeled
``Commentary[rtrif],[ltrif]'' [lsqbb]and
follow[rsqbb][rtrif]of[ltrif] each section of Regulation CC (12 CFR
part 229)[lsqbb],[rsqbb] provide background material to explain the
Board's intent in adopting a particular part of the regulation; the
Commentary also provides examples to aid in understanding how a
particular requirement is to work. Under section 611(e) of the
Expedited Funds Availability Act (12 U.S.C. 4010(e)) [rtrif](the EFA
Act)[ltrif], no provision of section 611 imposing any liability
shall apply to any act done or omitted in good faith conformity with
any rule, regulation, or interpretation thereof by the Board of
Governors of the Federal Reserve System, notwithstanding the fact
that after such act or omission has occurred, such rule, regulation,
or interpretation is amended, rescinded, or determined by judicial
or other authority to be invalid for any reason. The Commentary is
an ``interpretation'' of a regulation by the Board within the
meaning of section 611.
II. Section 229.2 Definitions
A. Background
1. Section 229.2 defines the terms used in the regulation. For
the most part, terms are defined as they are in section 602 of the
[lsqbb]Expedited Funds Availability[rsqbb] [rtrif]EFA[ltrif] Act (12
U.S.C. 4001) [rtrif]or in section 3 of the Check 21 Act (12 U.S.C.
5002)[ltrif]. The Board has made a number of changes for the sake of
clarity, to conform the terminology to that which is familiar to the
banking industry, to define terms that are not defined in the EFA
Act [rtrif]or the Check 21 Act[ltrif], and to carry out the purposes
of the EFA Act [rtrif]and the Check 21 Act[ltrif]. The Board also
has incorporated by reference the definitions of the Uniform
Commercial Code where appropriate. Some of Regulation CC's
definitions are self-explanatory and therefore are not discussed in
this Commentary.
B. 229.2(a) Account
1. The EFA Act defines account to mean ``a demand deposit
account or similar transaction account at a depository
institution.'' The regulation defines account, for purposes other
than subpart D, in terms of the definition of ``transaction
account'' in the Board's Regulation D (12 CFR part 204). This
definition of account, however, excludes certain deposits, such as
nondocumentary obligations (see 12 CFR 204.2(a)(1)(vii)), that are
covered under the definition of ``transaction account'' in
Regulation D. The definition applies to
[[Page 16928]]
accounts with general third party payment powers but does not cover
time deposits or savings deposits, including money market deposit
accounts, even though they may have limited third party payment
powers. [lsqbb]The Board believes that it is appropriate to exclude
t[rsqbb][rtrif]T[ltrif]hese accounts [rtrif]are excluded[ltrif]
because of the reference to demand deposits in the EFA Act, which
suggests that the EFA Act is intended to apply only to accounts that
permit unlimited third party transfers.
2. The term account also differs from the definition of
transaction account in Regulation D because the term account refers
to accounts held at banks. Under
[lsqbb]S[rsqbb][rtrif]s[ltrif]ubparts A and C, the term bank
includes not only any depository institution, as defined in the EFA
Act, but also any person engaged in the business of banking, such as
a Federal Reserve Bank, a Federal Home Loan Bank, or a private
banker that is not subject to Regulation D. Thus, accounts at these
institutions benefit from the expeditious return requirements of
[lsqbb]S[rsqbb][rtrif]s[ltrif]ubpart C.
3. Interbank deposits, including accounts of offices of domestic
banks or foreign banks located outside the United States, and direct
and indirect accounts of the United States Treasury (including
Treasury General Accounts and Treasury Tax and Loan deposits) are
exempt from subpart B and, in connection therewith, subpart A.
However, interbank deposits are included as accounts for purposes of
subparts C and D and, in connection therewith, subpart A.
4. The Check 21 Act defines account to mean any deposit account
at a bank. Therefore, for purposes of subpart D and, in connection
therewith, subpart A, account means any deposit, as that term is
defined by Sec. 204.2(a)(1)(i) of Regulation D, at a bank. Many
deposits that are not accounts for purposes of the other subparts of
Regulation CC, such as savings deposits, are accounts for purposes
of subpart D.
C. 229.2(b) Automated Clearinghouse (ACH) [rtrif]Credit Transfer[ltrif]
1. [rtrif]Automated Clearinghouse (ACH) credit transfers are
included in the definition of electronic payment.[ltrif] [lsqbb]The
Board has defined automated clearinghouse as[rsqbb] [rtrif]An ACH
is[ltrif] a facility that processes debit and credit transfers under
rules established by a Federal Reserve Bank operating circular
governing [lsqbb]automated clearinghouse[rsqbb][rtrif]ACH[ltrif]
items or the rules of an ACH association [rtrif]or similar interbank
agreement[ltrif]. [lsqbb]ACH credit transfers are included in the
definition of electronic payment.[rsqbb] [rtrif]The reference to
``debit and credit transfers'' does not refer to the corresponding
debit and credit entries that are part of the same transaction, but
to the different kinds of ACH payments. In an ACH credit transfer,
the originator orders that its account be debited and another
account credited. In contrast, in an ACH debit transfer, the
originator, with prior authorization, orders another account to be
debited and the originator's account to be credited.[ltrif]
[lsqbb]2. The reference to ``debit and credit transfers'' does not
refer to the corresponding debit and credit entries that are part of
the same transaction, but to the different kinds of ACH payments. In
an ACH credit transfer, the originator orders that its account be
debited and another account credited. In an ACH debit transfer, the
originator, with prior authorization, orders another account to be
debited and the originator's account to be credited.[rsqbb]
[lsqbb]3[rsqbb][rtrif]2[ltrif]. A facility that handles only
wire transfers (defined elsewhere) is not an ACH.
D. 229.2(c) Automated Teller Machine (ATM)
1. [lsqbb]ATM is not defined in the EFA Act. The regulation
defines a[rsqbb][rtrif]A[ltrif]n ATM
[lsqbb]as[rsqbb][rtrif]is[ltrif] an electronic device at which a
natural person may make deposits to an account by cash or
[rtrif]paper[ltrif] check and perform other account
transactions[rtrif], such as cash withdrawals[ltrif]. Point-of-sale
terminals, machines that only dispense cash, night depositories, and
lobby deposit boxes are not ATMs within the meaning of the
definition, either because they do not accept deposits of cash or
checks (e.g., point-of-sale terminals and cash dispensers) or
because they only accept deposits (e.g., night depositories and
lobby boxes) and cannot [rtrif]dispense cash and[ltrif] perform
other transactions. A lobby deposit box or similar receptacle in
which written payment orders or deposits may be placed is not an
ATM. [rtrif]Finally, a remote deposit capture device is not an ATM
because a natural person can deposit neither cash nor paper checks
into an account using the device.[ltrif]
2. A facility may be an ATM within this definition even if it is
a branch under state or federal law, although an ATM is not a branch
as that term is used in this regulation.
E. 229.2(d) Available for Withdrawal
1. Under this definition, when funds become available for
withdrawal, the funds may be put to all uses for which the customer
may use actually and finally collected funds in the customer's
account under the customer's account agreement with the bank.
Examples of such uses include payment of checks drawn on the
account, certification of checks, electronic payments, and cash
withdrawals. Funds are available for these uses notwithstanding
provisions of other law that may restrict the use of uncollected
funds (e.g., 18 U.S.C. 1004; 12 U.S.C. 331).
2. If a bank makes funds available to a customer for a specific
purpose (such as paying checks that would otherwise overdraw the
customer's account and be returned for insufficient funds) before
the funds must be made available under the bank's policy or this
regulation, it may nevertheless apply a hold consistent with this
regulation to those funds for other purposes (such as cash
withdrawals). For purposes of this regulation, funds are considered
available for withdrawal even though they are being held by the bank
to satisfy an obligation of the customer other than the customer's
potential liability for the return of the check. For example, a bank
does not violate its obligations under this subpart by holding funds
to satisfy a garnishment, tax levy, or court order restricting
disbursements from the account; or to satisfy the customer's
liability arising from the certification of a check, sale of a
cashier's or teller's check, guaranty or acceptance of a check, or
similar transaction to be debited from the customer's account.
F. 229.2(e) Bank
1. The EFA Act uses the term depository institution, which it
defines by reference to section 19(b)(1)(A)(i) through (vi) of the
Federal Reserve Act (12 U.S.C. 461(b)(1)(A)(i) through (vi)). This
regulation uses the term bank, a term that conforms to the usage the
Board has previously adopted in Regulation J [rtrif](12 CFR part
210)[ltrif]. Bank is also used in Articles 4 and 4A of the Uniform
Commercial Code.
2. Bank is defined to include depository institutions, such as
commercial banks, savings banks, savings and loan associations, and
credit unions as defined in the EFA Act, and U.S. branches and
agencies of foreign banks. For purposes of
[lsqbb]S[rsqbb][rtrif]s[ltrif]ubpart B, the term does not include
corporations organized under section 25A of the Federal Reserve Act,
12 U.S.C. 611-631 (Edge corporations) or corporations having an
agreement or undertaking with the Board under section 25 of the
Federal Reserve Act, 12 U.S.C. 601-604a (agreement corporations).
For purposes of [lsqbb]S[rsqbb][rtrif]s[ltrif]ubparts C and D, and
in connection therewith, [lsqbb]S[rsqbb][rtrif]s[ltrif]ubpart A, any
Federal Reserve Bank, Federal Home Loan Bank, or any other person
engaged in the business of banking is regarded as a bank. The phrase
``any other person engaged in the business of banking'' is derived
from U.C.C. 1-201[rtrif](b)[ltrif](4), and is intended to cover
entities that handle checks for collection and payment, such as Edge
and agreement corporations, commercial lending companies under 12
U.S.C. 3101, certain industrial banks, and private bankers, so that
virtually all checks will be covered by the same rules for forward
collection and return, even though they may not be covered by the
requirements of [lsqbb]S[rsqbb][rtrif]s[ltrif]ubpart B. For the
purposes of [lsqbb]S[rsqbb][rtrif]s[ltrif]ubparts C and D, and in
connection therewith, [lsqbb]S[rsqbb][rtrif]s[ltrif]ubpart A, the
term also may include a state or a unit of general local government
to the extent that it pays warrants or other drafts drawn directly
on the state or local government itself, and the warrants or other
drafts are sent to the state or local government for payment or
collection.
3. Unless otherwise specified, the term bank includes all of a
bank's offices in the United States. The regulation does not cover
foreign offices of U.S. banks.
4. For purposes of subpart D and, in connection therewith,
subpart A, the term bank also includes the Treasury of the United
States and the United States Postal Service to the extent that they
act as paying banks because the Check 21 Act includes these two
entities in the definition of the term bank to the extent that they
act as payors.
G. 229.2(f) Banking Day and (g) Business Day
1. The EFA Act [rtrif]and the Check 21 Act[ltrif]
define[lsqbb]s[rsqbb] business day as any day excluding Saturdays,
Sundays, and legal holidays. Legal holiday, however, is not defined,
and the variety of local holidays, together with the practice of
some banks to close midweek, makes the EFA Act's definition
difficult to apply. [lsqbb]The Board believes that
t[rsqbb][rtrif]T[ltrif]wo kinds of business days are relevant.
First, when determining the day when funds are deposited or when a
bank must perform
[[Page 16929]]
certain actions (such as returning a check), the focus should be on
a day that the bank is actually open for business. Second, when
counting days for purposes of determining when funds must be
available under the regulation[lsqbb]or when notice of nonpayment
must be received by the depositary bank[rsqbb], there would be
confusion and uncertainty in trying to follow the schedule of a
particular bank, and there is less need to identify a day when a
particular bank is open. Most banks that act as intermediaries
(large correspondents and Federal Reserve Banks) follow the same
holiday schedule. Accordingly, the regulation has two definitions:
Business day generally follows the standard Federal Reserve Bank
holiday schedule (which is followed by most large banks), and
banking day is defined to mean that part of a business day on which
a bank is open for substantially all of its banking activities.
2. The definition of banking day corresponds to the definition
of banking day in U.C.C. 4-104(a)(3), except that a banking day is
defined in terms of a business day. Thus, if a bank is open on
Saturday, Saturday might be a banking day for purposes of the
U.C.C., but it would not be a banking day for purposes of Regulation
CC because Saturday is never a business day under the regulation.
3. The definition of banking day is phrased in terms of when
``an office of a bank is open'' to indicate that a bank may observe
a banking day on a per-branch basis. A deposit made at an ATM or
off-premise facility (such as a remote depository or a lock box) is
considered made at the branch holding the account into which the
deposit is made for the purpose of determining the day of deposit.
All other deposits are considered made at the branch at which the
deposit is received. For example, under Sec. 229.19(a)(1), funds
deposited at an ATM are considered deposited at the time they are
received at the ATM. On a calendar day that is a banking day for the
branch or other location of the depositary bank at which the account
is maintained, a deposit received at an ATM before the ATM's cut-off
hour is considered deposited on that banking day, and a deposit
received at an ATM after the ATM's cut-off hour is considered
deposited on the next banking day of the branch or other location
where the account is maintained. On a calendar day that is not a
banking day for the account-holding location, all ATM deposits are
considered deposited on that location's next banking day. This rule
for determining the day of deposit also would apply to a deposit to
an off-premise facility, such as a night depository or lock box,
which is considered deposited when removed from the facility and
available for processing under Sec. 229.19(a)(3). If an unstaffed
facility, such as a night depository or lock box, is on branch
premises, the day of deposit is determined by the banking day at the
branch at which the deposit is received, whether or not it is the
branch at which the account is maintained.
H. 229.2(h) Cash
1. Cash means U.S. coins and currency. The phrase in the EFA Act
``including Federal Reserve notes'' has been deleted as unnecessary.
(See 31 U.S.C. 5103.)
I. 229.2(i) Cashier's Check
1. The regulation adds to the second item in the EFA Act's
definition of cashier's check the phrase, ``on behalf of the bank as
drawer,'' to clarify that the term cashier's check is intended to
cover only checks that a bank draws on itself. The definition of
cashier's check includes checks provided to a customer of the bank
in connection with customer deposit account activity, such as
account disbursements and interest payments. The definition also
includes checks acquired from a bank by noncustomers for remittance
purposes, such as certain loan disbursement checks. Cashier's checks
provided to customers or others are often labeled as ``cashier's
check,'' ``officer's check,'' or ``official check.'' The definition
excludes checks that a bank draws on itself for other purposes, such
as to pay employees and vendors, and checks issued by the bank in
connection with a payment service, such as a payroll or a bill-
paying service. Cashier's checks generally are sold by banks to
substitute the bank's credit for the customer's credit and thereby
enhance the collectibility of the checks. A check issued in
connection with a payment service generally is provided as a
convenience to the customer rather than as a guarantee of the
check's collectibility. In addition, such checks are often more
difficult to distinguish from other types of checks than are
cashier's checks as defined by this regulation.
J. 229.2(j) Certified Check
1. The EFA Act defines a certified check as one to which a bank
has certified that the drawer's signature is genuine and that the
bank has set aside funds to pay the check. Under the Uniform
Commercial Code, certification of a check means the bank's signed
agreement that it will honor the check as presented (U.C.C. 3-409).
The regulation defines certified check to include both the EFA Act's
and U.C.C.'s definitions.
K. 229.2(k) Check
1. Check is defined in section 602(7) of the EFA Act as a
negotiable demand draft drawn on or payable through an office of a
depository institution located in the United States, excluding
noncash items. The regulation includes six categories of instruments
within the definition of check. [rtrif]Check is defined in section 3
of the Check 21 Act as including nonnegotiable demand drafts.
Because these instruments are often handled as cash items in the
forward collection process, for the purposes of subparts C and D,
and in connection therewith, subpart A, the definition of check
includes nonnegotiable demand drafts drawn on or payable through a
bank, drawn on a Federal Reserve Bank or Federal Home Loan Bank, or
drawn on the Treasury of the United States.[ltrif]
2. The first category is negotiable demand drafts drawn on, or
payable through or at, an office of a bank. As the definition of
bank includes only offices located in the United States, this
category is limited to checks drawn on, or payable through or at, a
banking office located in the United States.
3. The EFA Act [rtrif]and the Check 21 Act[ltrif]
treat[lsqbb]s[rsqbb] drafts payable through a bank as checks, even
though under the U.C.C. the payable-through bank is a collecting
bank to make presentment and generally is not authorized to make
payment (U.C.C. 4-106(a)). [lsqbb]The[rsqbb] [rtrif]Neither
the[ltrif] EFA Act [rtrif]nor the Check 21 Act[ltrif] [lsqbb]does
not[rsqbb] expressly address items that are payable at a bank. This
regulation treats both payable-through and payable-at demand drafts
as checks. [lsqbb]The Board believes that
t[rsqbb][rtrif]T[ltrif]reating demand drafts payable at a bank as
checks [lsqbb]will[rsqbb][rtrif]should[ltrif] not have a substantial
effect on the operations of payable-at banks--by far the largest
proportion of payable-at items are not negotiable demand drafts, but
time items, such as commercial paper, bonds, notes, bankers'
acceptances, and securities. These time items are not covered by the
requirements of the EFA Act or this regulation. [lsqbb](The
treatment of payable-through drafts is discussed in greater detail
in connection with the definitions of local check and paying
bank.)[rsqbb]
4. The second category is checks drawn on Federal Reserve Banks
and Federal Home Loan Banks. Principal and interest payments on
federal debt instruments [lsqbb]often are[rsqbb] [rtrif]may
be[ltrif] paid with checks drawn on a Federal Reserve Bank as fiscal
agent of the United States[lsqbb], and these fiscal agency checks
are indistinguishable from other checks drawn on Federal Reserve
Banks[rsqbb]. (See 31 CFR part 355.) [lsqbb]Federal Reserve Bank
checks also are used by some banks as substitutes for cashier's or
teller's checks. Similarly, s[rsqbb][rtrif]S[ltrif]avings and loan
associations [lsqbb]often[rsqbb][rtrif]may[ltrif] use checks drawn
on Federal Home Loan Banks as teller's checks. The definition of
check includes checks drawn on Federal Home Loan Banks and Federal
Reserve Banks because in many cases they are the functional
equivalent of Treasury checks or teller's checks.
5. The third and fourth categories of instrument included in the
definition of check refer to government checks. The EFA Act refers
to checks drawn on the U.S. Treasury, even though these instruments
are not drawn on or payable through an office of a depository
institution, and checks drawn by state and local governments. The
EFA Act also [lsqbb]gives the Board authority to
define[rsqbb][rtrif]provides that[ltrif] functionally equivalent
instruments [rtrif]may be defined in the regulation[ltrif] as
depository checks.[lsqbb]\1\[rsqbb] [rtrif](See Section 602(11) of
the EFA Act (12 U.S.C. 4001(11)).[ltrif] Thus, the EFA Act is
intended to apply to instruments other than those that meet the
strict definition of check in section 602(7) of the EFA Act. Checks
and warrants drawn by states and local governments often are used
for the purposes of making unemployment compensation payments and
other payments that are important to the recipients. Consequently,
the [lsqbb]Board has expressly defined[rsqbb][rtrif]Regulation CC
defines[ltrif] check to include drafts drawn on the U.S. Treasury
and drafts or warrants drawn by a state or a unit of general local
government on itself.
[lsqbb]\1\ Section 602(11) of the EFA Act (12 U.S.C. 4001(11))
defines ``depository check'' as ``any cashier's check, certified
check, teller's check, and any other functionally equivalent
instrument as determined by the Board.''[rsqbb]
[[Page 16930]]
6. The fifth category of instrument included in the definition
of check is U.S. Postal Service money orders. These instruments are
defined as checks because they often are used as a substitute for
checks by consumers, even though money orders are not negotiable
under Postal Service regulations. [lsqbb]The Board has not
provided[rsqbb][rtrif]Regulation CC does not provide[ltrif] specific
rules for other types of money orders; these instruments generally
are drawn on or payable through or payable at banks and are treated
as checks on that basis.
7. The sixth and final category of instrument included in the
definition of check is traveler's checks drawn on or payable through
or at a bank. Traveler's check is defined in paragraph
[lsqbb](hh)[rsqbb] [rtrif](vv)[ltrif] [lsqbb]of this section[rsqbb].
[lsqbb]8. Finally, for the purposes of Subparts C and D, and in
connection therewith, Subpart A, the definition of check includes
nonnegotiable demand drafts because these instruments are often
handled as cash items in the forward collection process.[rsqbb]
[lsqbb]9[rsqbb][rtrif]8[ltrif]. A substitute check as defined in
Sec. 229.2[lsqbb](aaa)[rsqbb][rtrif](rr)[ltrif] is a check for
purposes of Regulation CC and the U.C.C., even if that substitute
check does not meet the requirements for legal equivalence set forth
in Sec. 229.51(a).
[lsqbb]10[rsqbb][rtrif]9[ltrif]. The definition of check does
not include an instrument payable in a foreign currency (i.e., other
than in United States money as defined in 31 U.S.C. 5101) or a
credit card draft (i.e., a sales draft used by a merchant or a draft
generated by a bank as a result of a cash advance), or an ACH debit
transfer. The definition of check includes a check that a bank may
supply to a customer as a means of accessing a credit line without
the use of a credit card.
L. 229.2(l) [lsqbb]Reserved[rsqbb]
M. 229.2(m) [lsqbb]Check Processing Region[rsqbb]
[lsqbb]1. The EFA Act defines this term as ``the geographic area
served by a Federal Reserve bank check processing center or such
larger area as the Board may prescribe by regulations.'' The Board
has defined check processing region as the territory served by one
of the Federal Reserve head offices, branches, or regional check
processing centers. Appendix A includes a list of routing numbers
arranged by Federal Reserve Bank office. The definition of check
processing region is key to determining whether a check is
considered local or nonlocal.[rsqbb][rtrif][Reserved][ltrif]
N. 229.2(n) [Reserved]
O. 229.2(o) Consumer Account
1. Consumer account is defined as an account used primarily for
personal, family, or household purposes. An account that does not
meet the definition of consumer account is a nonconsumer account. A
clearing account maintained at a bank directly by a brokerage firm
is not a consumer account, even if the account is used to pay checks
drawn by consumers using the funds in that account. The bank's
relationship is with the brokerage firm, and the account is used by
the brokerage firm to facilitate the clearing of its customers'
checks. Because for purposes of Regulation CC the term account
includes only deposit accounts, a consumer's revolving credit
relationship or other line of credit with a bank is not a consumer
account, even if the consumer draws on such credit lines by using a
check. Both consumer and nonconsumer accounts are subject to the
requirements of this regulation, including the requirement that
funds be made available according to specific schedules and that the
bank make specified disclosures of its availability policies.
Section 229.18(b) (notices at branch locations) and Sec. 229.18(e)
(notice of changes in policy) apply only to consumer accounts.
Section 229.13(g)(2) (one-time exception notice) and Sec. 229.19(d)
(use of calculated availability) apply only to nonconsumer accounts.
P. 229.2(p) Contractual Branch
1. When one bank arranges for another bank to accept deposits on
its behalf, the second bank is a contractual branch of the first
bank. For further discussion of contractual branch deposits and
related disclosures, see Sec. [Sec. 229.2(s) and] 229.19(a) of the
regulation and the commentary to Sec. [Sec. 229.2(s),] 229.10(c),
229.14(a), 229.16(a), 229.18(b), and 229.19(a).
Q. 229.2(q) [Reserved]
R. 229.2(r) [lsqbb]229.2(r) Local Check
1. Local check is defined as a check payable by or at a local
paying bank, or, in the case of nonbank payors, payable through a
local paying bank. A check payable by a local bank but payable
through a nonlocal bank is a local check. Conversely, a check
payable through a local bank but payable by a nonlocal bank is a
nonlocal check. Where two banks are named on a check and neither is
designated as a payable-through bank, the check is considered
payable by either bank and may be considered local or nonlocal
depending on the bank to which it is sent for payment. Generally,
the depositary bank may rely on the routing number to determine
whether a check is local or nonlocal. Appendix A includes a list of
routing numbers arranged by Federal Reserve Bank Office to assist
persons in determining whether or not such a check is local. If,
however, a check is payable by one bank but payable through another
bank, the routing number appearing on the check will be that of the
payable-through bank, not the paying bank. Many credit union share
drafts and certain other checks payable by banks are payable through
other banks. In such cases, the routing number cannot be relied on
to determine whether the check is local or nonlocal. For payable-
through checks that meet the labeling requirements of Sec.
229.36(e), the depositary bank may rely on the four-digit routing
symbol of the paying bank that is printed on the face of the check
as required by that section, e.g., in the title plate, but not on
the first four digits of the payable-through bank's routing number
printed in magnetic ink in the MICR line or in fractional form, to
determine whether the check is local or nonlocal.[rsqbb] Depositary
Bank
1. The regulation uses the term depositary bank rather than the
term receiving depository institution. Receiving depository
institution is a term unique to the EFA Act, while depositary bank
is the term used in Article 4 of the U.C.C. and Regulation J
[rtrif](12 CFR part 210). The Check 21 Act uses the term depositary
bank.[ltrif]
2. A depositary bank includes the bank in which the check is
first deposited. If a foreign office of a U.S. or foreign bank sends
checks to its U.S. correspondent bank for forward collection, the
U.S. correspondent is the depositary bank because foreign offices of
banks are not included in the definition of bank.
3. If a customer deposits a check in its account at a bank, the
customer's bank is the depositary bank with respect to the check.
For example, if a person deposits a check into an account at a
nonproprietary ATM, the bank holding the account into which the
check is deposited is the depositary bank even though another bank
may service the nonproprietary ATM and send the check for
collection. (Under Sec. 229.35 the depositary bank may agree with
the bank servicing the nonproprietary ATM to have the servicing bank
place its own indorsement on the check as the depositary bank. For
the purposes of [lsqbb]S[rsqbb][rtrif]s[ltrif]ubpart C, the bank
applying its indorsement as the depositary bank indorsement on the
check is the depositary bank.)
4. For purposes of [lsqbb]S[rsqbb][rtrif]s[ltrif]ubpart B, a
bank may act as both the depositary bank and the paying bank with
respect to a check, if the check is payable by the bank in which it
was deposited, or if the check is payable by a nonbank payor and
payable through or at the bank in which it was deposited. A bank
also is considered a depositary bank with respect to checks it
receives as payee. For example, a bank is a depositary bank with
respect to checks it receives for loan repayment, even though these
checks are not deposited in an account at the bank. Because these
checks would not be ``deposited to accounts,'' they would not be
subject to the availability or disclosure requirements of
[lsqbb]S[rsqbb][rtrif]s[ltrif]ubpart B.
[rtrif]5. A bank is not a depositary bank with respect to a
check if the bank receives the check for deposit but then rejects
the check. For example, if a bank's customer submits a check for
deposit into an ATM and the bank subsequently reviewed the item and
determined not to accept the item for deposit, that bank is not a
depositary bank with respect to the check it rejected. Accordingly,
such a bank does not take on the liabilities of a depositary bank
under this part.[ltrif]
[lsqbb]S. 229.2(s) Local Paying Bank
1. ``Local paying bank'' is defined as a paying bank located in
the same check-processing region as the branch, contractual branch,
or proprietary ATM of the depositary bank. For example, a check
deposited at a contractual branch would be deemed local or nonlocal
based on the location of the contractual branch with respect to the
location of the paying bank.
Examples.
a. If a check that is payable by a bank that is located in the
same check processing region as the depositary bank is payable
through a bank located in another check processing region, the check
is considered local or nonlocal depending on the location of the
bank by which it is payable even if the
[[Page 16931]]
check is sent to the nonlocal bank for collection.
b. The location of the depositary bank is determined by the
physical location of the branch or proprietary ATM at which a check
is deposited, regardless of whether the deposit is made in person,
by mail, or otherwise. For example, if a branch of the depositary
bank located in one check-processing region sends a check that was
deposited at that branch to the depositary bank's central facility
in another check-processing region, and the central facility is in
the same check-processing region as the paying bank, the check is
still considered nonlocal. ( See the commentary to the definition of
``paying bank.'')
c. If a person deposits a check to an account by mailing or
otherwise sending the check to a facility or office that is not a
bank, the check is considered local or nonlocal depending on the
location of the bank whose indorsement appears on the check as the
depositary bank.[rsqbb]
[rtrif]S. 229.2(s) Electronic Collection Item
1. Banks often enter into agreements under which a check may be
transferred or presented by sending an electronic image of the check
and electronic information related to the check (e.g., MICR-line
information). The terms of the agreements may vary. If, however, an
electronic collection item satisfies all the requirements set forth
in Sec. 229.2(s), then the provisions of subpart C apply to the
electronic collection item as if it were a check subject to that
subpart.
a. The agreement to receive an electronic collection item may be
either bilateral or through a Federal Reserve Bank operating
circular, clearinghouse rule, or other interbank agreement. (See UCC
Sec. 4-110).
b. The electronic image of the front and back of the original
check or substitute check as well as electronic information related
to the check must be sufficient to create a substitute check.
Electronic information related to the check includes information
contained in the MICR line of the check prior to truncation. Some
banks' agreements to receive items electronically may not require an
electronic image of the front and back of an original check.
Electronic items received under these agreements would not be
electronic collection items under this part.
c. ANS X9.100-187 is the most prevalent industry standard for
electronic images and information that will enable a bank to create
a substitute check. Multiple standards may, however, exist that
would enable a bank to create a substitute check from an electronic
image and information. Accordingly, the parties may agree to send
and receive checks as electronic images and information that conform
to a different standard.
d. Electronic collection items that contain images of the front
and back of a substitute check also are electronic representations
of a substitute check (see Sec. 229.2(hh)). Not all electronic
representations of substitute checks, however, are electronic
collection items. To be an electronic collection item, the
electronic representation of a substitute check must satisfy the
requirements for electronic collection items--it must contain
sufficient information to create a substitute check and it must
conform to ANS X9.100-187, unless the parties agree to a different
standard.[ltrif]
T. 229.2(t) Electronic Payment
1. Electronic payment is defined to mean a wire transfer as
defined in Sec. 229.2[lsqbb](ll)[rsqbb][rtrif](bbb)[ltrif] or an
ACH credit transfer [rtrif]as defined in Sec. 229.2(b)[ltrif]. The
EFA Act requires that funds deposited by wire transfer be made
available for withdrawal on the business day following deposit but
expressly leaves the definition of the term wire transfer to the
[lsqbb]Board[rsqbb][rtrif]regulation[ltrif]. Because ACH credit
transfers [lsqbb]frequently involve important consumer payments,
such as wages[rsqbb][rtrif]pose little risk of return to the
depositary bank[ltrif], the regulation requires that funds deposited
by ACH credit transfers be available for withdrawal on the business
day following deposit.
2. ACH debit transfers, even though they may be transmitted
electronically, are not defined as electronic payments because the
receiver of an ACH debit transfer has the right to return the
transfer, which would reverse the credit given to the originator.
Thus, ACH debit transfers are more like checks than wire transfers.
Further, bank customers that receive funds by originating ACH debit
transfers are primarily large corporations, which generally would be
able to negotiate with their banks for prompt availability.
3. A point-of-sale transaction would not be considered an
electronic payment unless the transaction was effected by means of
an ACH credit transfer or wire transfer.
[rtrif]U. 229.2(u) Electronic Presentment Point
1. The term ``electronic presentment point'' means the
electronic address that a paying bank has designated as the place to
which electronic collection items be presented. This address may be
either an e-mail address or other electronic address.[ltrif]
[rtrif]V. 229.2(v) Electronic Return
1. Many paying banks have entered into agreements with returning
banks, depositary banks, clearinghouses, or other parties to return
checks electronically. For purposes of subpart C, the term
``electronic return'' means an electronic image of and electronic
information related to a check the paying bank determines not to pay
and that is sufficient for a subsequent bank to create a substitute
check (See Sec. 229.2(rr) and accompanying commentary). To be
sufficient to create a substitute check, the electronic image must
include an image of both the front and back of the check. The
electronic information, typically contained in an electronic record
accompanying the electronic image, must include information from the
MICR line of the check at the time it was truncated. The electronic
record may include information in addition to MICR-line related
information.
2. ANS X9.100-187 is the most prevalent industry standard for
electronic images and information that will enable a subsequent bank
to create a substitute check (i.e., in accordance with ANS X9.100-
140). Similar to electronic presentment, multiple standards may
exist that would enable a bank to create a substitute check from an
electronic image and information. Accordingly, the parties may agree
to return checks as electronic images and information that conform
to a different standard. For example, the depositary bank may agree
to receive the electronic image and information sufficient for
creating a substitute check in a .pdf, rather than in accordance
with ANS X9.100-187.
3. An electronic image and information related to a check the
paying bank determines not to pay is subject to the provisions of
subpart C only if the depositary bank has agreed to receive the
electronic return in accordance with Sec. 229.32(a) (See Sec.
229.32(a) and accompanying commentary).
4. Electronic returns that contain images of the front and back
of a substitute check also are electronic representations of a
substitute check (See Sec. 229.2(hh)). Not all electronic
representations of substitute checks, however, are electronic
returns. To be an electronic return, the electronic representation
of a substitute check must satisfy the requirements for electronic
returns--it must contain sufficient information to create a
substitute check and must conform to ANS X9.100-187.[ltrif]
[rtrif]W. 229.2(w) Electronic Return Point
1. The term ``electronic return point'' means the e-mail address
or other electronic address that a depositary bank has designated as
the place to which electronic returns must be delivered.
2. The electronic return point may be different from the
electronic presentment point designated by a bank for presentment of
electronic collection items.[ltrif]
X. 229.2(x) [Reserved]
Y. 229.2(y) Forward Collection
1. Forward collection is defined to mean the process by which a
bank sends a check to the paying bank for collection, including
sending the check to an intermediary collecting bank for settlement,
as distinguished from the process by which the check is returned
unpaid. Noncash collections are not included in the term forward
collection.
Z. 229.2(z) Good Faith
1. This definition of good faith derives from U.C.C. 3-
103(a)(4).
AA. 229.2(aa) [Reserved]
BB. 229.2(bb) Interest Compensation
1. This calculation of interest compensation derives from U.C.C.
4A-506(b). (See Sec. Sec. 229.34[lsqbb](e)[rsqbb][rtrif](f)[ltrif]
and 229.36[lsqbb](f)[rsqbb][rtrif](d)[ltrif].)
CC. 229.2(cc) [lsqbb]MICR Line[rsqbb] [rtrif]Magnetic ink character
recognition line or MICR line[ltrif]
1. Information in the MICR line of a check must be printed in
accordance with ANS X9.13 for original checks and ANS X9.100-140 for
substitute checks. These standards could vary the requirements for
printing the MICR line, such as by indicating circumstances under
which the use of magnetic ink is not required.
DD. 229.2(dd) Merger Transaction
1. Merger transaction is a term used in
[lsqbb]S[rsqbb][rtrif]s[ltrif]ubparts B and C in connection with
[[Page 16932]]
transition rules for merged banks. It encompasses mergers,
consolidations, and purchase/assumption transactions of the type
that usually must be approved under the Bank Merger Act (12 U.S.C.
1828(c)) or similar statutes; it does not encompass acquisitions of
a bank under the Bank Holding Company Act (12 U.S.C. 1842) where an
acquired bank maintains its separate corporate existence.
2. Regulation CC adopts a one-year transition period for banks
that are party to a merger transaction during which the merged banks
will continue to be treated as separate entities. (See Sec. Sec.
229.19(g) and 229.40.)
EE. 229.2(ee) Noncash Item
1. The EFA Act defines the term check to exclude noncash items,
and defines noncash items to include checks to which another
document is attached, checks accompanied by special instructions, or
any similar item classified as a noncash item in the
[lsqbb]Board's[rsqbb] regulation. To qualify as a noncash item, an
item must be handled as such and may not be handled as a cash item
by the depositary bank.
2. The regulation's definition of noncash item also includes
checks that consist of more than a single thickness of paper (except
checks that qualify for handling by automated check processing
equipment[lsqbb], e.g. those placed in carrier envelopes[rsqbb]) and
checks that have not been preprinted or post-encoded in magnetic ink
with the paying bank's routing number, as well as checks with
documents attached or accompanied by special instructions. (In the
context of this definition, paying bank refers to the paying bank as
defined for purposes of [lsqbb]S[rsqbb][rtrif]s[ltrif]ubpart C.)
3. A check that has been preprinted or post-encoded with a
routing number that has been retired (e.g., because of a merger) for
at least three years is a noncash item unless the current number is
added for processing purposes [lsqbb]by placing the check in an
encoded carrier envelope or adding a strip to the check[rsqbb].
4. Checks that are accompanied by special instructions are also
noncash items. For example, a person concerned about whether a check
will be paid may request the depositary bank to send a check for
collection as a noncash item with an instruction to the paying bank
to notify the depositary bank promptly when the check is paid or
dishonored.
5. For purposes of forward collection, a copy of a check is
neither a check nor a noncash item, but may be treated as either.
For purposes of return, a copy is generally a notice in lieu of
return. (See Sec. Sec. 229.30[lsqbb](f)[rsqbb][rtrif](e)[ltrif] and
229.31[lsqbb](f)[rsqbb][rtrif](e)[ltrif].)
FF. 229.2(ff) [Reserved]
GG. 229.2(gg) Original Check
1. The definition of original check distinguishes the first
paper check signed or otherwise authorized by the drawer to effect a
particular payment transaction from a substitute check or other
paper or electronic representation that is derived from an original
check or substitute check. There is only one original check for any
particular payment transaction. However, multiple substitute checks
could be created to represent that original check at various points
in the check collection and return process.
HH. 229.2(hh) Paper or Electronic Representation of a Substitute Check
1. Receipt of a paper or electronic representation of a
substitute check does not trigger indemnity or expedited recredit
rights, although the recipient nonetheless could have a warranty
claim or a claim under other check law with respect to that document
or the underlying payment transaction. A paper or electronic
representation of a substitute check would include a representation
of a substitute check that was drawn on an account, as well as a
representation of a substitute traveler's check, credit card check,
or other item that meets the substitute check definition. The
following examples illustrate the scope of the definition.
Examples.
a. A bank receives electronic presentment of a substitute check
that has been converted to electronic form and charges the
customer's account for that electronic item. The periodic account
statement that the bank provides to the customer includes
information about the electronically-presented substitute check in a
line-item list describing all the checks the bank charged to the
customer's account during the previous month. The electronic file
that the bank received for presentment and charged to the customer's
account would be an electronic representation of a substitute check,
and the line-item appearing on the customer's account statement
would be a paper representation of a substitute check.
b. A paying bank receives and settles for a substitute check and
then realizes that its settlement was for the wrong amount. The
paying bank sends an adjustment request to the presenting bank to
correct the error. The adjustment request is not a paper or
electronic representation of a substitute check under the definition
because it is not being handled for collection or return as a check.
Rather, it is a separate request that is related to a check. As a
result, no substitute check warranty, indemnity, or expedited
recredit rights attach to the adjustment.
[rtrif]2. An electronic representation of a substitute check
also may be an electronic collection item or an electronic return if
the electronic representation of the substitute check otherwise
satisfies their requirements (see Sec. 229.2(s) and (v)).
Example.
A bank receives electronic presentment of a substitute check
that has been converted to electronic form. If the electronic file
that the bank receives for presentment contains an electronic image
of and information related to the substitute check that are
sufficient for creating a substitute check and the electronic image
and information conform to ANS X9.100-187, or another format to
which the parties agree, that electronic file would be an electronic
collection item in addition to an electronic representation of a
substitute check.[ltrif]
II. 229.2(ii) Paying Bank
1. The regulation uses this term in lieu of the EFA Act's
``originating depository institution.'' [rtrif]The Check 21 Act also
uses the term ``paying bank.''[ltrif] For purposes of all subparts
of Regulation CC, the term paying bank includes the bank by which a
check is payable, the payable-at bank to which a check is sent, or,
if the check is payable by a nonbank payor, the bank through which
the check is payable and to which it is sent for payment or
collection. For purposes of subparts C and D, the term paying bank
also includes the payable-through bank and the bank whose routing
number appears on the check, regardless of whether the check is
payable by a different bank, provided that the check is sent for
payment or collection to the payable through bank or the bank whose
routing number appears on the check.
2. Under Sec. Sec. 229.30[rtrif](a)[ltrif] [lsqbb]and
229.36(a)[rsqbb], a bank designated as a payable-through bank or
payable-at bank and to which the check is sent for payment or
collection is responsible for the expedited return of checks
[lsqbb]and notice of nonpayment requirements
of[rsqbb][rtrif]under[ltrif] [lsqbb]S[rsqbb][rtrif]s[ltrif]ubpart C.
The payable-through or payable-at bank may contract with the payor
with respect to its liability in discharging these responsibilities.
[lsqbb]The Board believes that the EFA Act makes a clear connection
between availability and the time it takes for checks to be cleared
and returned.[rsqbb] Allowing the payable-through bank additional
time to forward checks to the payor and await return or pay
instructions from the payor would delay the return of these checks,
increasing the risks to depositary banks. Subpart C places on
payable-through and payable-at banks the requirements of expeditious
return based on the time the payable-through or payable-at bank
received the check for forward collection.
3. If a check is sent for forward collection based on the
routing number, the bank associated with the routing number is a
paying bank for the purposes of
[lsqbb]S[rsqbb][rtrif]s[ltrif]ubparts C and D requirements[lsqbb],
including notice of nonpayment,[rsqbb] even if the check is not
drawn by a customer of that bank or the check is fraudulent.
4. The phrase ``and to which [lsqbb]the check[rsqbb] is sent for
payment or collection'' includes sending not only the physical
check, but information regarding the check under a truncation
arrangement.
5. Federal Reserve Banks and Federal Home Loan Banks are also
paying banks under all subparts of the regulation with respect to
checks payable by them, even though such banks are not defined as
banks for purposes of [lsqbb]S[rsqbb][rtrif]s[ltrif]ubpart B.
6. In accordance with the Check 21 Act, for purposes of subpart
D and, in connection therewith, subpart A, paying bank includes the
Treasury of the United States or the United States Postal Service
with respect to a check payable by that entity and sent to that
entity for payment or collection, even though the Treasury and
Postal Service are not defined as banks for purposes of subparts B
and C. Because the Federal Reserve Banks act as fiscal agents for
the Treasury and the U.S. Postal Service and in that capacity are
designated as presentment locations for
[[Page 16933]]
Treasury checks and U.S. Postal Service money orders, a Treasury
check or U.S. Postal Service money order presented to a Federal
Reserve Bank is considered to be presented to the Treasury or U.S.
Postal Service, respectively.
JJ. 229.2(jj) [Reserved]
KK. 229.2(kk) Proprietary ATM
[lsqbb]1. All deposits at nonproprietary ATMs are treated as
deposits of nonlocal checks, and deposits at proprietary ATMs
generally are treated as deposits at banking offices. The Conference
Report on the EFA Act indicates that the special availability rules
for deposits received through nonproprietary ATMs are provided
because ``nonproprietary ATMs today do not distinguish among check
deposits or between check and cash deposits'' (H.R. Rep. No. 261,
100th Cong., 1st Sess. at 179 (1987)). Thus, a deposit of any
combination of cash and checks at a nonproprietary ATM may be
treated as if it were a deposit of nonlocal checks, because the
depositary bank does not know the makeup of the deposit and
consequently is unable to place different holds on cash, local
check, and nonlocal check deposits made at the ATM.[rsqbb]
[rtrif]1.[ltrif][lsqbb]2.[rsqbb] A colloquy between Senators
Proxmire and Dodd during the floor debate on the Competitive
Equality Banking Act (133 Cong. Rec. S11289 (Aug. 4, 1987))
indicates that whether a bank operates the ATM is the primary
criterion in determining whether the ATM is proprietary to that
bank. Because a bank should be capable of ascertaining the
composition of deposits made to an ATM operated by that bank, an
exception to the availability schedules is not warranted for these
deposits. If more than one bank meets the ``owns or operates''
criterion, the ATM is considered proprietary to the bank that
operates it. For the purpose of this definition, the bank that
operates an ATM is the bank that puts checks deposited into the ATM
into the forward collection stream. An ATM owned by one or more
banks, but operated by a nonbank servicer, is considered proprietary
to the bank or banks that own it.
[rtrif]2.[ltrif][lsqbb]3.[rsqbb] The EFA Act also includes
location as a factor in determining whether an ATM that is either
owned or operated by a bank is proprietary to that bank. The
definition of proprietary ATM includes an ATM located on the
premises of the bank, either inside the branch or on its outside
wall, regardless of whether the ATM is owned or operated by that
bank. Because the EFA Act also defines a proprietary ATM as one that
is ``in close proximity'' to the bank, the regulation defines an ATM
located within 50 feet of a bank to be proprietary to that bank
unless it is identified as being owned or operated by another
entity. The [lsqbb]Board believes that the[rsqbb] statutory
proximity test was designed to apply to situations where it would
appear to the depositor that the ATM is run by his or her bank,
because of the proximity of the ATM to the bank. [lsqbb]The Board
believes that a[rsqbb][rtrif]A[ltrif]n ATM located within 50 feet of
a banking office would be presumed proprietary to that bank unless
it is clearly identified as being owned or operated by another
entity.
LL. 229.2(ll) Qualified Returned Check
1. Subpart C requires the paying bank and returning bank(s) to
return checks in an expeditious manner [rtrif]under certain
circumstances[ltrif]. [lsqbb]The banks may meet this responsibility
by returning a check to the depositary bank by the same general
means used for forward collection of a check from the depositary
bank to the paying bank. One[rsqbb][rtrif]While the primary[ltrif]
way to speed the return process is to [rtrif]send the return
electronically, a bank also could[ltrif] prepare the returned check
for automated [rtrif]paper[ltrif] processing. [lsqbb]Returned checks
can be automated by either the paying bank or a returning bank by
placing the return in a carrier envelope or by placing a strip on
the bottom of the return, and encoding the envelope or strip with
the routing number of the depositary bank, the amount of the check,
and a special return identifier.[rsqbb] Qualified returned checks
are identified by placing a ``2'' in the case of an original check
(or a ``5'' in the case of a substitute check) in position 44 of the
qualified-return MICR line as a return identifier in accordance with
American National Standard Specifications for Placement and Location
of MICR Printing, X9.13 (hereinafter ``ANS X9.13'') for original
checks or American National Standard Specifications for an Image
Replacement Document--IRD, X9.100-140 (hereinafter ``ANS X9.100-
140'') for substitute checks. [rtrif](See Sec. 229.2(w) and
accompanying commentary for a discussion of standards for electronic
returns.)[ltrif]
2. Generally, under the standard of care imposed by Sec.
229.38, a paying [rtrif]bank[ltrif] or returning bank would be
liable for any damages incurred due to misencoding of the routing
number, the amount of the check, or return identifier on a qualified
returned check unless the error was due to problems with the
depositary bank's indorsement. (See also discussion of Sec.
229.38(c).) A qualified returned check that contains an encoding
error would still be a qualified returned check for purposes of the
regulation.
[lsqbb]3. A qualified returned check need not contain the
elements of a check drawn on the depositary bank, such as the name
of the depositary bank. Because indorsements and other information
on carrier envelopes or strips will not appear on a returned check
itself, banks will wish to retain carrier envelopes and/or microfilm
or other records of carrier envelopes or strips with their check
records.[rsqbb]
MM. 229.2(mm) Reconverting Bank
1. A substitute check is ``created'' when and where a paper
reproduction of an original check that meets the requirements of
Sec. 229.2[lsqbb](pp)[rsqbb][rtrif](rr)[ltrif] is physically
printed. A bank is a reconverting bank if it creates a substitute
check directly or if another person by agreement creates a
substitute check on the bank's behalf. A bank also is a reconverting
bank if it is the first bank that receives a substitute check
created by a nonbank and transfers, presents, or returns that
substitute check or, in lieu thereof, the first paper or electronic
representation of such substitute check.
Examples.
a. Bank A, by agreement, sends an [lsqbb]electronic check
file[rsqbb] [rtrif]electronic image and information related to the
paper check[ltrif] for collection to Bank B. Bank B chooses to use
that file to print a substitute check that meets the requirements of
Sec. 229.2[lsqbb](pp) [rsqbb][rtrif](rr)[ltrif]. Bank B is the
reconverting bank as of the time it prints the substitute check.
b. Company A, which is not a bank, by agreement receives check
information electronically from Bank A. Bank A becomes the
reconverting bank when Company A prints a substitute check on behalf
of Bank A in accordance with that agreement.
c. A depositary bank's customer, which is a nonbank business,
receives a check for payment, truncates that original check, and
creates a substitute check to deposit with its bank. The depositary
bank receives that substitute check from its customer and is the
first bank to handle the substitute check. The depositary bank
becomes the reconverting bank as of the time that it transfers or
presents the substitute check (or in lieu thereof the first paper or
electronic representation of the substitute check) for forward
collection.
d. A bank is the payable-through bank for checks that are drawn
on a nonbank payor, which is the bank's customer. When the customer
decides not to pay a check that is payable through the bank, the
customer creates a substitute check for purposes of return. The
payable-through bank becomes the reconverting bank when it returns
the substitute check (or in lieu thereof the first paper or
electronic representation of the substitute check) to a returning
bank or the depositary bank.
e. A paying bank returns a substitute check to the depositary
bank, which in turn gives that substitute check back to its nonbank
customer. That customer then redeposits the substitute check for
collection at a different bank. Because the substitute check was
already transferred by a bank, the second depositary bank does not
become a reconverting bank when it transfers or presents that
substitute check for collection.
2. In some cases there will be one or more banks between the
truncating bank and the reconverting bank.
Example.
A depositary bank truncates the original check and sends an
electronic representation of the original check for collection to an
intermediary bank. The intermediary bank sends the electronic
representation of the original check to the presenting bank, which
creates a substitute check to present to the paying bank. The
presenting bank is the reconverting bank.
3. A check could move from electronic form to substitute check
form several times during the collection and return process. It
therefore is possible that there could be multiple substitute
checks, and thus multiple reconverting banks, with respect to the
same underlying payment.
NN. 229.2(nn) Remotely Created Check
1. A check authorized by a consumer over the telephone that is
not created by the paying bank and bears a legend on the signature
line, such as ``Authorized by Drawer,'' is an example of a remotely
created check. A check that bears the signature applied, or
purported to be applied, by the person on whose account the check is
drawn
[[Page 16934]]
is not a remotely created check. A typical forged check, such as a
stolen personal check fraudulently signed by a person other than the
drawer, is not covered by the definition of a remotely created
check.
2. The term signature as used in this definition has the meaning
set forth at U.C.C. 3-401. The term ``applied by'' refers to the
physical act of placing the signature on the check.
3. The definition of a ``remotely created check'' differs from
the definition of a ``remotely created consumer item'' under the
U.C.C. A ``remotely created check'' may be drawn on an account held
by a consumer, corporation, unincorporated company, partnership,
government unit or instrumentality, trust, or any other entity or
organization. A ``remotely created consumer item'' under the U.C.C.,
however, must be drawn on a consumer account.
4. Under Regulation CC (12 CFR part 229), the term ``check''
includes a negotiable demand draft drawn on or payable through or at
an office of a bank. In the case of a ``payable through'' or
``payable at'' check, the signature of the person on whose account
the check is drawn would include the signature of the payor
institution or the signatures of the customers who are authorized to
draw checks on that account, depending on the arrangements between
the ``payable through'' or ``payable at'' bank, the payor
institution, and the customers.
5. The definition of a remotely created check includes a
remotely created check that has been reconverted to a substitute
check.
OO. 229.2(oo) Returning Bank
1. Returning bank is defined to mean any bank (excluding the
paying bank and the depositary bank) handling a returned check. A
returning bank may or may not be a bank that handled the returned
check in the forward collection process. A returning bank includes a
bank that agrees to handle a returned check for expeditious return
to the depositary bank under Sec. 229.31(a). A returning bank is
also a collecting bank for the purpose of a collecting bank's duty
to exercise ordinary care under U.C.C. 4-202(b) and is analogous to
a collecting bank for purposes of final settlement. (See Commentary
to Sec. 229.35(b).)
PP. 229.2(pp) Routing Number
1. Each bank is assigned a routing number by an agent of the
American Bankers Association. The routing number takes two forms--a
fractional form and a nine-digit form. A paying bank is identified
by both the fractional form routing number (which normally appears
in the upper right hand corner of the check) and the nine-digit
form. The nine-digit routing number of the paying bank generally is
printed in magnetic ink near the bottom of the check (the MICR
[lsqbb]strip[rsqbb][rtrif]line[ltrif]; see ANS[lsqbb]I[rsqbb]
X9.13[lsqbb]-1983[rsqbb]). [rtrif]Where a check is payable by one
bank but payable through another bank, the routing number appearing
on the check is that of the payable through bank, not the payor
bank. In the case of an electronic collection item, the routing
number of the paying bank is contained in the electronic image of
the check (in fractional form or nine-digit form) or in the
electronic information related to the check (in nine-digit
form).[ltrif] Subpart C requires depositary banks[rtrif],[ltrif]
[lsqbb]and[rsqbb] subsequent collecting banks[rtrif], and returning
banks[ltrif] to place their routing numbers in nine-digit form in
their indorsements.
QQ. 229.2(qq) [Reserved]
RR. 229.2(rr) Substitute Check
1. ``A paper reproduction of an original check'' could include a
reproduction created directly from the original check or a
reproduction of the original check that is created from some other
source that contains an image of the original check, such as an
electronic representation of an original check or substitute check,
or a previous substitute check.
2. Because a substitute check must be a piece of paper, an
electronic file or electronic check image that has not yet been
printed in accordance with the substitute check definition is not a
substitute check.
3. Because a substitute check must be a representation of a
check, a paper reproduction of something that is not a check cannot
be a substitute check. For example, a savings bond or a check drawn
on a non-U.S. branch of a foreign bank cannot be reconverted to a
substitute check.
4. As described in Sec. 229.51(b) and the commentary thereto, a
reconverting bank is required to ensure that a substitute check
contains all indorsements applied by previous parties that handled
the check in any form. Therefore, the image of the original check
that appears on the back of a substitute check would include
indorsements that were physically applied to the original check
before an image of the original check was captured. An indorsement
that was applied physically to the original check after an image of
the original check was captured would be conveyed as an electronic
indorsement (see paragraph 3 of the commentary to Sec. 229.35(a)).
The back of the substitute check would contain a physical
representation of any indorsements that were applied electronically
to the check after an image of the check was captured but before
creation of the substitute check.
Example.
Bank A, which is the depositary bank, captures an image of an
original check, indorses it electronically and, by agreement,
transmits to Bank B an electronic image of the check accompanied by
the electronic indorsement. Bank B then creates a substitute check
to send to Bank C. The back of the substitute check created by Bank
B must contain a representation of the indorsement previously
applied electronically by Bank A and Bank B's own indorsement. (For
more information on indorsement requirements, see Sec. 229.35,
appendix D, and the commentary thereto.)
5. Some substitute checks will not be created directly from the
original check, but rather will be created from a previous
substitute check. The back of a subsequent substitute check will
contain an image of the full length of the back of the previous
substitute check. ANS X9.100-140 requires preservation of the full
length of the back of the previous substitute check in order to
preserve previous indorsements and reconverting bank
identifications. By contrast, the front of a subsequent substitute
check will not contain an image of the entire previous substitute
check. Rather, the image field of the subsequent substitute check
will contain the image of the front of the original check that
appeared on the previous substitute check at the time the previous
substitute check was converted to electronic form. The portions of
the front of the subsequent substitute check other than the image
field will contain information applied by the subsequent
reconverting bank, such as its reconverting bank identification, the
MICR line, the legal equivalence legend, and optional security
information.
Examples.
a. The back of a subsequent substitute check would contain the
following indorsements, all of which would be preserved through the
image of the back of the previous substitute check: (1) The
indorsements that were applied physically to the original check
before an image of the original check was captured; (2) a physical
representation of indorsements that were applied electronically to
the original check after an image of the original check was captured
but before creation of the first substitute check; and (3)
indorsements that were applied physically to the previous substitute
check. In addition, the reconverting bank for the subsequent
substitute check must overlay onto the back of that substitute check
a physical representation of any indorsements that were applied
electronically after the previous substitute check was converted to
electronic form but before creation of the subsequent substitute
check.
b. Because information could have been physically added to the
image of the front of the original check that appeared on the
previous substitute check, the original check image that appears on
the front of a subsequent substitute check could contain information
in addition to that which appeared on the original check at the time
it was truncated.
6. The MICR line applied to a substitute check must contain
information in all fields of the MICR line that were encoded on the
original check at any time before an image of the original check was
captured. This includes all the MICR-line information that was
preprinted on the original check, plus any additional information
that was added to the MICR line before the image of the original
check was captured (for example, the amount of the check). The
information in each field of the substitute check's MICR line must
be the same information as in the corresponding field of the MICR
line of the original check, except as provided by ANS X9.100-140
(unless the Board by rule or order determines that a different
standard applies). Industry standards may not, however, vary the
requirement that a substitute check at the time of its creation must
bear a full-field MICR line.
7. ANS X9.100-140 provides that a substitute check must have a
``4'' in position 44 and that a qualified returned substitute check
must have a ``4'' in position 44 of the forward-collection MICR line
as well as a ``5'' in position 44 of the qualified return MICR line.
The ``4'' and ``5'' indicate that the
[[Page 16935]]
document is a substitute check so that the size of the check image
remains constant throughout the collection and return process,
regardless of the number of substitute checks created that represent
the same original check (see also Sec. Sec.
229.30(a)[lsqbb](2)[rsqbb][rtrif](3)[ltrif] and
229.31(a)[lsqbb](2)[rsqbb][rtrif](3)[ltrif] and the commentary
thereto regarding requirements for qualified returned substitute
checks). An original check generally has a blank position 44 for
forward collection. Because a reconverting bank must encode position
44 of a substitute check's forward collection MICR line with a
``4,'' the reconverting bank must vary any character that appeared
in position 44 of the forward-collection MICR line of the original
check. A bank that misencodes or fails to encode position 44 at the
time it attempts to create a substitute check has failed to create a
substitute check. A bank that receives a properly-encoded substitute
check may further encode that item but does so subject to the
encoding warranties in Regulation CC and the U.C.C.
8. A substitute check's MICR line could contain information in
addition to the information required at the time the substitute
check is created. For example, if the amount field of the original
check was not encoded and the substitute check therefore did not,
when created, have an encoded amount field, the MICR line of the
substitute check later could be amount-encoded.
9. A bank may receive a substitute check that contains a MICR-
line variation but nonetheless meets the MICR-line replication
requirements of Sec. 229.2[lsqbb](aaa)(2)[rsqbb]
[rtrif](rr)(2)[ltrif] because that variation is permitted by ANS
X9.100-140. If such a substitute check contains a MICR-line error, a
bank that receives it may, but is not required to, repair that
error. Such a repair must be made in accordance with ANS X9.100-140
for repairing a MICR line, which generally allows a bank to correct
an error by applying a strip that may or may not contain information
in all fields encoded on the check's MICR line. A bank's repair of a
MICR-line error on a substitute check is subject to the encoding
warranties in Regulation CC and the U.C.C.
10. A substitute check must conform to all the generally
applicable industry standards for substitute checks set forth in ANS
X9.100-140, which incorporates other industry standards by
reference. Thus, multiple substitute check images contained on the
same page of an account statement are not substitute checks.
SS. 229.2(ss) Sufficient Copy and Copy
1. A copy must be a paper reproduction of a check. An electronic
image therefore is not a copy or a sufficient copy. However, if a
customer has agreed to receive such information electronically, a
bank that is required to provide an original check or sufficient
copy may satisfy that requirement by providing an electronic image
in accordance with Sec. 229.58 and the commentary thereto.
2. A bank under Sec. 229.53(b)(3) may limit its liability for
an indemnity claim and under Sec. Sec. 229.54(e)(2) and
229.55(c)(2) may respond to an expedited recredit claim by providing
the claimant with a copy of a check that accurately represents all
of the information on the front and back of the original check as of
the time the original check was truncated or that otherwise is
sufficient to determine the validity of the claim against the bank.
Examples.
a. A copy of an original check that accurately represents all
the information on the front and back of the original check as of
the time of truncation would constitute a sufficient copy if that
copy resolved the claim. For example, if resolution of the claim
required accurate payment and indorsement information, an accurate
copy of the front and back of a legible original check (including
but not limited to a substitute check) would be a sufficient copy.
b. A copy of the original check that does not accurately
represent all the information on both the front and back of the
original check also could be a sufficient copy if such copy
contained all the information necessary to determine the validity of
the relevant claim. For instance, if a consumer received a
substitute check that contained a blurry image of a legible original
check, the consumer might seek an expedited recredit because his or
her account was charged for $1,000, but he or she believed that the
check was written for only $100. If the amount that appeared on the
front of the original check was legible, an accurate copy of only
the front of the original check that showed the amount of the check
would be sufficient to determine whether or not the consumer's claim
regarding the amount of the check was valid.
TT. 229.2(tt) Teller's Check
1. Teller's check is defined in the EFA Act to mean a check
issued by a depository institution and drawn on another depository
institution. The definition in the regulation includes not only
checks drawn by a bank on another bank, but also checks payable
through or at a bank. This would include checks drawn on a nonbank,
as long as the check is payable through or at a bank. The definition
does not include checks that are drawn by a nonbank on a nonbank
even if payable through or at a bank. The definition includes checks
provided to a customer of the bank in connection with customer
deposit account activity, such as account disbursements and interest
payments. The definition also includes checks acquired from a bank
by a noncustomer for remittance purposes, such as certain loan
disbursement checks. The definition excludes checks used by the bank
to pay employees or vendors and checks issued by the bank in
connection with a payment service, such as a payroll or a bill-
paying service. Teller's checks generally are sold by banks to
substitute the bank's credit for the customer's credit and thereby
enhance the collectibility of the checks. A check issued in
connection with a payment service generally is provided as a
convenience to the customer rather than as a guarantee of the
check's collectibility. In addition, such checks are often more
difficult to distinguish from other types of checks than are
teller's checks as defined by this regulation.
UU. 229.2(uu) Transfer and Consideration
1. Under Sec. Sec. 229.52 and 229.53, a bank is responsible for
the warranties and indemnity when it transfers, presents, or returns
a substitute check (or a paper or electronic representation thereof)
for consideration. Drawers and other nonbank persons that receive
checks from a bank are not transferees that receive consideration as
those terms are defined in the U.C.C. However, the Check 21 Act
clearly contemplates that such nonbank persons that receive
substitute checks (or representations thereof) from a bank will
receive the warranties and indemnity from all previous banks that
handled the check. To ensure that these parties are covered by the
substitute check warranties and indemnity in the manner contemplated
by the Check 21 Act, Sec.
229.2[lsqbb](ccc)[rsqbb][rtrif](uu)[ltrif] incorporates the U.C.C.
definitions of the terms transfer and consideration by reference and
[rtrif]for purposes of subpart D[ltrif] expands those definitions to
cover a broader range of situations. Delivering a check to a nonbank
that is acting on behalf of a bank (such as a third-party check
processor or presentment point) is a transfer of the check to that
bank. [rtrif]In subpart C, the terms transfer and consideration have
the meaning that they have in the UCC.[ltrif]
Examples.
a. A paying bank pays a substitute check and then provides that
paid substitute check (or a representation thereof) to a drawer with
a periodic statement. Under the expanded definitions, the paying
bank thereby transfers the substitute check (or representation
thereof) to the drawer for consideration and makes the substitute
check warranties described in Sec. 229.52. A drawer that suffers a
loss due to receipt of a substitute check may have warranty,
indemnity, and, if the drawer is a consumer, expedited recredit
rights under the Check 21 Act and subpart D. A drawer that suffers a
loss due to receipt of a paper or electronic representation of a
substitute check would receive the substitute check warranties but
would not have indemnity or expedited recredit rights.
b. The expanded definitions also operate such that a paying bank
that pays an original check (or a representation thereof) and then
creates a substitute check to provide to the drawer with a periodic
statement transfers the substitute check for consideration and
thereby provides the warranties and indemnity.
c. The expanded definitions ensure that a bank that receives a
returned check in any form and then provides a substitute check to
the depositor gives the substitute check warranties and indemnity to
the depositor.
d. The expanded definitions apply to substitute checks
representing original checks that are not drawn on deposit accounts,
such as checks used to access a credit card or a home equity line of
credit.
VV. 229.2(vv) Traveler's Check
1. The EFA Act and regulation require that traveler's checks be
treated as cashier's, teller's, or certified checks when a new
depositor opens an account. (See Sec. 229.13(a); 12 U.S.C.
4003(a)(1)(C).) The EFA Act does not define traveler's check.
2. One element of the definition states that a traveler's check
is ``drawn on or payable through or at a bank.'' Sometimes
traveler's checks that are not issued by banks do not
[[Page 16936]]
have any words on them identifying a bank as drawee or paying agent,
but instead bear unique routing numbers with an 8000 prefix that
identifies a bank as paying agent.
3. Because a traveler's check is payable by, at, or through a
bank, it is also a check for purposes of this regulation. When not
subject to the next-day availability requirement for new accounts, a
traveler's check should be treated as a [lsqbb]local or
nonlocal[rsqbb] check[lsqbb]depending on the location of the paying
bank[rsqbb] [rtrif]under Sec. 229.12[ltrif]. [lsqbb]The depositary
bank may rely on the designation of the paying bank by the routing
number to determine whether local or nonlocal treatment is
required.[rsqbb]
WW. 229.2(ww) Truncate
1. Truncate means to remove the original check from the forward
collection or return process and to send in lieu of the original
check either a substitute check or, by agreement, information
relating to the original check. Truncation does not include removal
of a substitute check from the check collection or return process.
XX. 229.2(xx) Truncating Bank
1. A bank is a truncating bank if it truncates an original check
or if it is the first bank to transfer, present, or return another
form of an original check that was truncated by a person that is not
a bank.
Example.
a. A bank's customer that is a nonbank business receives a check
for payment and deposits either a substitute check or an electronic
representation of the original check with its depositary bank
instead of the original check. That depositary bank is the
truncating bank when it transfers, presents, or returns the
substitute check or electronic representation in lieu of the
original check. That bank also would be the reconverting bank if it
were the first bank to transfer, present, or return a substitute
check that it received from (or created from the information given
by) its nonbank customer [lsqbb](see Sec. 229.2 (yy) and the
commentary thereto)[rsqbb].
2. A truncating bank does not make the subpart D warranties and
indemnity unless it also is the reconverting bank. Therefore, a bank
that truncates the original check and sends an electronic file to a
collecting bank does not provide subpart D protections to the
recipient of that electronic item. However, a recipient of an
electronic item may protect itself against losses associated with
that item by agreement with the truncating bank.
YY. 229.2(yy) Uniform Commercial Code
1. Uniform Commercial Code is defined as the version of the Code
adopted by the individual states. For purposes of uniform citation,
all citations to the U.C.C. in this part refer to the Official Text
as approved by the American Law Institute and the National
Conference of Commissioners on Uniform State Laws.
ZZ. 229.2(zz) [Reserved]
AAA. 229.2(aaa) Unit of General Local Government
1. Unit of general local government is defined to include a
city, county, parish, town, township, village, or other general
purpose political subdivision of a state. The term does not include
special purpose units, such as school districts, water districts, or
Indian nations.
BBB. 229.2(bbb) Wire Transfer
1. The EFA Act [lsqbb]delegates to the Board the authority to
define[rsqbb] [rtrif]permits[ltrif] the term [rtrif]``[ltrif]wire
transfer[lsqbb].[rsqbb][rtrif]'' to be defined by regulation.[ltrif]
The regulation defines wire transfer as an unconditional order to a
bank to pay a fixed or determinable amount of money to a
beneficiary, upon receipt or on a day stated in the order, that is
transmitted by electronic or other means over certain networks or on
the books of banks and that is used primarily to transfer funds
between [lsqbb]commercial[rsqbb] [rtrif]nonconsumer[ltrif] accounts.
``Unconditional'' means that no condition, such as presentation of
documents, must be met before the bank receiving the order is to
make payment. A wire transfer may be transmitted by electronic or
other means. ``Electronic means'' include computer-to-computer
links, on-line terminals, [lsqbb]telegrams (including TWX, TELEX, or
similar methods of communication),[rsqbb] telephone calls, or other
similar methods. [rtrif]The[ltrif] Fedwire [rtrif]Funds
Service[ltrif] (the Federal Reserve's wire transfer network), CHIPS
(Clearing House Interbank Payments System, operated by
[lsqbb]t[rsqbb][rtrif]T[ltrif]he [lsqbb]New York[rsqbb] Clearing
House), and book transfers among banks or within one bank are
covered by this definition. Credits for credit and debit card
transactions are not wire transfers. The term wire transfer excludes
electronic fund transfers as that term is defined by the Electronic
Fund Transfer Act.
III. Administrative Liability and Enforcement [Reserved]
IV. Section 229.10--Next-Day Availability
A. Business Days and Banking Days
1. This section, as well as other provisions of this subpart
governing the availability of funds, provides that funds must be
made available for withdrawal not later than a specified number of
business days following the banking day on which the funds are
deposited. Thus, a deposit is considered made only on a banking day,
i.e., a day that the bank is open to the public for carrying on
substantially all of its banking functions. For example, if a
deposit is made at an ATM on a Saturday, Sunday, or other day on
which the bank is closed to the public, the deposit is considered
received on that bank's next banking day.
2. Nevertheless, business days are used to determine the number
of days following the banking day of deposit that funds must be
available for withdrawal. For example, if a deposit of a
[lsqbb]local[rsqbb] check were made on a Monday, the availability
schedule [rtrif]generally[ltrif] requires that funds be available
for withdrawal on the second business day after deposit. Therefore,
funds must be made available on Wednesday regardless of whether the
bank was closed on Tuesday for other than a standard legal holiday
as specified in the definition of business day.
B. 229.10(a) Cash Deposits
1. This paragraph implements the EFA Act's requirement for next-
day availability for cash deposits to accounts at a depositary bank
``staffed by individuals employed by such
institution.''[lsqbb]\2\[rsqbb] Under this paragraph, cash deposited
in an account at a staffed teller station on a Monday must become
available for withdrawal by the start of business on Tuesday. It
must become available for withdrawal by the start of business on
Wednesday if it is deposited by mail, at a proprietary ATM, or by
other means other than at a staffed teller station.
[rtrif]2. Nothing in the EFA Act or this regulation affects
terms of account arrangements, such as negotiable order of
withdrawal accounts, which may require prior notice of withdrawal.
(See 12 CFR 204.2(e)(2).)[ltrif]
[lsqbb]\2\ Nothing in the EFA Act or this regulation affects
terms of account arrangements, such as negotiable order of
withdrawal accounts, which may require prior notice of withdrawal.
(See 12 CFR 204.2(e)(2).)[rsqbb]
C. 229.10(b) Electronic Payments
1. The EFA Act provides next-day availability for funds received
for deposit by wire transfer. The regulation uses the term
electronic payment, rather than wire transfer, to include both wire
transfers and ACH credit transfers under the next-day availability
requirement. (See discussion of definitions of [lsqbb]automated
clearinghouse[rsqbb] [rtrif]ACH credit transfer[ltrif], electronic
payment, and wire transfer in Sec. 229.2.)
2. The EFA Act requires that funds received by wire transfer be
available for withdrawal not later than the business day following
the day a wire transfer is received. This paragraph clarifies what
constitutes receipt of an electronic payment. For the purposes of
this paragraph, a bank receives an electronic payment when the bank
receives both payment in finally collected funds and the payment
instructions indicating the customer accounts to be credited and the
amount to be credited to each account. For example, in the case of
[rtrif]a[ltrif] Fedwire [rtrif]Funds transfer[ltrif], the bank
receives finally collected funds at the time the payment is made.
(See 12 CFR 210.31.) Finally collected funds generally are received
for an ACH credit transfer when they are posted to the receiving
bank's account on the settlement day. In certain cases, the bank
receiving ACH credit payments will not receive the specific payment
instructions indicating which accounts to credit until after
settlement day. In these cases, the payments are not considered
received until the information on the account and amount to be
credited is received.
3. This paragraph also establishes the extent to which an
electronic payment is considered made. Thus, if a participant on a
private network fails to settle and the receiving bank receives
finally settled funds representing only a partial amount of the
payment, it must make only the amount that it actually received
available for withdrawal.
4. The availability requirements of this regulation do not
preempt or invalidate other rules, regulations, or agreements which
require funds to be made available on a more prompt basis. For
example, the next-day availability requirement for ACH credits in
this section does not preempt ACH
[[Page 16937]]
association rules and Treasury regulations (31 CFR part 210), which
provide that the proceeds of these credit payments be available to
the recipient for withdrawal on the day the bank receives the funds.
D. 229.10(c) Certain Check Deposits
1. The EFA Act generally requires that funds be made available
on the business day following the banking day of deposit for
Treasury checks, state and local government checks, cashier's
checks, certified checks, teller's checks, and ``on us'' checks,
under specified conditions. (Treasury checks are checks drawn on the
Treasury of the United States and have a routing number beginning
with the digits ``0000.'') This section also requires next-day
availability for additional types of checks not addressed in the EFA
Act. Checks drawn on a Federal Reserve Bank or a Federal Home Loan
Bank and U.S. Postal Service money orders also must be made
available on the first business day following the day of deposit
under specified conditions. For the purposes of this section, all
checks drawn on a Federal Reserve Bank or a Federal Home Loan Bank
that contain in the MICR line a routing number that is listed in
appendix A are subject to the next-day availability requirement if
they are deposited in an account held by a payee of the check and in
person to an employee of the depositary bank, regardless of the
purposes for which the checks were issued. For all new accounts,
even if the new account exception is not invoked, traveler's checks
must be included in the $5,000 aggregation of checks deposited on
any one banking day that are subject to the next-day availability
requirement. (See Sec. 229.13(a).)
2. Deposit in Account of Payee. One statutory condition to
receipt of next-day availability of Treasury checks, state and local
government checks, cashier's checks, certified checks, and teller's
checks is that the check must be ``endorsed only by the person to
whom it was issued.'' The EFA Act could be interpreted to include a
check that has been indorsed in blank and deposited into an account
of a third party that is not named as payee. [lsqbb]The Board
believes that s[rsqbb][rtrif]S[ltrif]uch a check presents greater
risks than a check deposited by the payee and that Congress did not
intend to require next-day availability for such checks. The
regulation, therefore, provides that funds must be available on the
business day following deposit only if the check is deposited in an
account held by a payee of the check. For the purposes of this
section, payee does not include transferees other than named payees.
The regulation also applies this condition to Postal Service money
orders and checks drawn on Federal Reserve Banks and Federal Home
Loan Banks.
3. Deposits Made to an Employee of the Depositary Bank.
a. In most cases, next-day availability of the proceeds of
checks subject to this section is conditioned on the deposit of
these checks in person to an employee of the depositary bank. If the
deposit is not made to an employee of the depositary bank on the
premises of such bank, the proceeds of the deposit must be made
available for withdrawal by the start of business on the second
business day after deposit, under [lsqbb]paragraph (c)(2) of this
section[rsqbb][rtrif]Sec. 229.12[ltrif]. For example, second-day
availability rather than next-day availability would be allowed for
deposits of checks subject to this section made at a proprietary
ATM, night depository, through the mail or a lock box, or at a
teller station staffed by a person who is not an employee of the
depositary bank. Second-day availability also may be allowed for
deposits picked up by an employee of the depositary bank at the
customer's premises; such deposits would be considered made upon
receipt at the branch or other location of the depositary bank.
Employees of 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).)
b. In the case of Treasury checks, the EFA Act and regulation do
not condition the receipt of next-day availability to deposits at
staffed teller stations. Therefore, Treasury checks deposited at a
proprietary ATM must be accorded next-day availability, if the check
is deposited to an account of a payee of the check.
4. ``On Us'' Checks. The EFA Act [lsqbb]and regulation[rsqbb]
require[rtrif]s[ltrif] next-day availability for ``on us'' checks,
i.e., checks deposited in a branch of the depositary bank and drawn
on the same or another branch of the same bank, if both branches are
located in the same state or [rtrif]geographical area served by a
Federal Reserve Bank check processing center (``[ltrif]check
processing region[rtrif]'')[ltrif]. [lsqbb]Thus, checks deposited in
one branch of a bank and drawn on another branch of the same bank
must receive next-day availability even if the branch on which the
checks are drawn is located in another check processing region but
in the same state as the branch in which the check is
deposited[rsqbb]. [rtrif]As there is now only one check processing
center, all ``on-us'' checks deposited in the U.S. must receive
next-day availability.[ltrif] For the purposes of this requirement,
deposits at facilities that are not located on the premises of a
brick-and-mortar branch of the bank, such as off-premise ATMs and
remote depositories, are not considered deposits made at branches of
the depositary bank.
5. [lsqbb]First $100[rsqbb][rtrif]The minimum amount[ltrif].
a. The EFA Act and regulation also require that [lsqbb]up
to[rsqbb] [rtrif]at least[ltrif] $100 [rtrif](``the minimum
amount'')[ltrif] of the aggregate deposit by check or checks not
subject to next-day availability on any one banking day be made
available on the next business day. For example, if
[lsqbb]$70[rsqbb][rtrif]less than the minimum amount[ltrif] were
deposited in an account by check(s) on a Monday, the entire
[lsqbb]$70[rsqbb][rtrif]amount of the deposit[ltrif] must be
available for withdrawal at the start of business on Tuesday. If
[lsqbb]$200[rsqbb][rtrif] more than the minimum amount[ltrif] were
deposited by check(s) on a Monday, this section requires that
[lsqbb]$100 of the funds[rsqbb] [rtrif]the minimum amount[ltrif] be
available for withdrawal at the start of business on Tuesday. The
portion of the customer's deposit to which the [lsqbb]$100[rsqbb]
[rtrif]minimum amount[ltrif] must be applied is at the discretion of
the depositary bank, as long as it is not applied to any checks
subject to next-day availability. The [lsqbb]$100[rsqbb] next-day
availability rule [rtrif]for the minimum amount[ltrif] does not
apply to deposits at nonproprietary ATMs.
b. The [lsqbb]$100[rsqbb][rtrif]minimum amount[ltrif] that must
be made available under this rule is in addition to the amount that
must be made available for withdrawal on the business day after
deposit under other provisions of this section. For example, if a
customer deposits a $1,000 Treasury check[lsqbb],[rsqbb] and a
$1,000 [lsqbb]local[rsqbb]check [rtrif]not subject to paragraphs
(c)(1)(i) through (vi)[ltrif] in its account on Monday,
[lsqbb]$1,100 must be made available for withdrawal on Tuesday--
[rsqbb] the proceeds of the $1,000 Treasury check, as well as the
[lsqbb]first $100[rsqbb][rtrif]minimum amount from[ltrif]
[lsqbb]of[rsqbb] the [lsqbb]local[rsqbb][rtrif]other[ltrif] check
[rtrif]must be made available for withdrawal on Tuesday[ltrif].
c. A depositary bank may aggregate all [lsqbb]local and
nonlocal[rsqbb] check deposits made by the customer on a given
banking day for the purposes of the [lsqbb]$100[rsqbb][rtrif]minimum
amount [ltrif] next-day availability rule. Thus, if a customer has
two accounts at the depositary bank, and on a particular banking day
makes deposits to each account [rtrif]that exceed the minimum
amount[ltrif], [lsqbb]$100[rsqbb][rtrif]the minimum amount
from[ltrif] [lsqbb]of[rsqbb] the total [rtrif]checks[ltrif]
deposited to the two accounts must be made available on the business
day after deposit. Banks may aggregate deposits to individual and
joint accounts for the purposes of this provision.
d. If the customer deposits a [lsqbb]$500 local[rsqbb] check
[rtrif] not subject to paragraphs (c)(1)(i) through (vi) that
exceeds the minimum amount[ltrif], and gets [lsqbb]$100[rsqbb] cash
back [rtrif]in an amount equal to or greater than the minimum
amount[ltrif] at the time of deposit, the bank need not make an
additional [lsqbb]$100[rsqbb][rtrif]amount[ltrif] available for
withdrawal on the following day. Similarly, if the customer
depositing the [lsqbb]local[rsqbb] check has a negative book
balance, or negative available balance in its account at the time of
deposit, the [lsqbb]$100[rsqbb][rtrif]minimum amount[ltrif] that
must be available on the next business day may be made available by
applying the [lsqbb]$100[rsqbb][rtrif]minimum amount[ltrif] to the
negative balance, rather than making the
[lsqbb]$100[rsqbb][rtrif]minimum amount[ltrif] available for
withdrawal by cash or check on the following day.
6. Special Deposit Slips.
a. Under the EFA Act, a depositary bank may require the use of a
special deposit slip as a condition to providing next-day
availability for certain types of checks. This condition was
included in the EFA Act because many banks determine the
availability of their customers' check deposits in an automated
manner by reading the [lsqbb]MICR-encoded[rsqbb] routing number on
the deposited checks. Using these procedures, a bank can determine
whether a check is [lsqbb]a local or nonlocal check, a check[rsqbb]
drawn on the Treasury, a Federal Reserve Bank, a Federal Home Loan
Bank, or a branch of the depositary bank, or a U.S. Postal Service
money order. Appendix A includes the routing numbers of certain
categories of checks that are subject to next-day availability. The
bank cannot require a special deposit slip for these checks.
[[Page 16938]]
b. A bank cannot distinguish whether the check is a state or
local government check, cashier's check, certified check, or
teller's check by reading the [lsqbb]MICR-encoded[rsqbb] routing
number, because these checks bear the same routing number as other
checks drawn on the same bank that are not accorded next-day
availability. Therefore, a bank may require a special deposit slip
for these checks.
c. The regulation specifies that if a bank decides to require
the use of a special deposit slip (or a special deposit envelope in
the case of a deposit at an ATM or other unstaffed facility) as a
condition to granting next-day availability under paragraphs
(c)(1)(iv) or (c)(1)(v) of this section [lsqbb]or second-day
availability under paragraph (c)(2) of this section[rsqbb], and if
the deposit slip that must be used is different from the bank's
regular deposit slips, the bank must either provide the special
slips to its customers or inform its customers how such slips may be
obtained and make the slips reasonably available to the customers.
d. A bank may meet this requirement by providing customers with
an order form for the special deposit slips and allowing sufficient
time for the customer to order and receive the slips before this
condition is imposed. If a bank provides deposit slips in its
branches for use by its customers, it also must provide the special
deposit slips in the branches. If special deposit envelopes are
required for deposits at an ATM, the bank must provide such
envelopes at the ATM.
e. Generally, a teller is not required to advise depositors of
the availability of special deposit slips merely because checks
requiring special deposit slips for next-day availability are
deposited without such slips. If a bank provides the special deposit
slips only upon the request of a depositor, however, the teller must
advise the depositor of the availability of the special deposit
slips, or the bank must post a notice advising customers that the
slips are available upon request. Such notice need not be posted at
each teller window, but the notice must be posted in a place where
consumers seeking to make deposits are likely to see it before
making their deposits. For example, the notice might be posted at
the point where the line forms for teller service in the lobby. The
notice is not required at any drive-through teller windows nor is it
required at night depository locations, or at locations where
consumer deposits are not accepted. If a bank prepares a deposit for
a depositor, it must use a special deposit slip where appropriate. A
bank may require the customer to segregate the checks subject to
next-day availability for which special deposit slips could be
required, and to indicate on a regular deposit slip that such checks
are being deposited, if the bank so instructs its customers in its
initial disclosure.
V. Section 229.11--[Reserved]
VI. Section 229.12--Availability Schedule
[lsqbb]A. 229.12(a) Effective Date
1. The availability schedule set forth in this section
supersedes the temporary schedule that was effective September 1,
1988, through August 31, 1990.[rsqbb]
A. 229.12[lsqbb](b)[rsqbb][rtrif](a)[ltrif] [lsqbb]Local Checks
and Certain Other Checks[rsqbb][rtrif]In general.[ltrif]
1. [lsqbb]Local[rsqbb][rtrif]Except as provided in Sec.
229.10(c), Sec. 229.12(b), (c) and (d), and Sec. 229.13[ltrif]
checks must be made available for withdrawal not later than the
second business day following the banking day on which the checks
were deposited. [rtrif]Thus, the proceeds of a check deposited on a
Monday generally must be made available for withdrawal on
Wednesday.[ltrif]
[lsqbb]2. In addition, the proceeds of Treasury checks and U.S.
Postal Service money orders not subject to next-day (or second-day)
availability under Sec. 229.10(c), checks drawn on Federal Reserve
Banks and Federal Home Loan Banks, checks drawn by a state or unit
of general local government, cashier's checks, certified checks, and
teller's checks not subject to next-day (or second-day) availability
under Sec. 229.10(c) and payable in the same check processing
region as the depositary bank, must be made available for withdrawal
by the second business day following deposit.[rsqbb]
[lsqbb]3[rsqbb][rtrif]2[ltrif]. Exceptions are made for
withdrawals by cash or similar means[rtrif],[ltrif]
[lsqbb]and[rsqbb] for deposits in banks located outside the 48
contiguous states[rtrif], for checks deposited in a nonproprietary
ATM, and for the reasons set forth in Sec. 229.13[ltrif].
[lsqbb]Thus, the proceeds of a local check deposited on a Monday
generally must be made available for withdrawal on Wednesday.[rsqbb]
[lsqbb]C. 229.12(c) Nonlocal Checks
1. Nonlocal checks must be made available for withdrawal not
later than the fifth business day following deposit, i.e., proceeds
of a nonlocal check deposited on a Monday must be made available for
withdrawal on the following Monday. In addition, a check described
in Sec. 229.10(c) that does not meet the conditions for next-day
availability (or second-day availability) is treated as a nonlocal
check, if the check is drawn on or payable through or at a nonlocal
paying bank. Adjustments are made to the schedule for withdrawals by
cash or similar means and deposits in banks located outside the 48
contiguous states.
[lsqbb]2. Reduction in Schedules.
a. Section 603(d)(1) of the EFA Act (12 U.S.C. 4002(d)(1))
requires the Board to reduce the statutory schedules for any
category of checks where most of those checks would be returned in a
shorter period of time than provided in the schedules. The conferees
indicated that ``if the new system makes it possible for two-thirds
of the items of a category of checks to meet this test in a shorter
period of time, then the Federal Reserve must shorten the schedules
accordingly.'' H.R. Rep. No. 261, 100th Cong., 1st Sess. at 179
(1987).
b. Reduced schedules are provided for certain nonlocal checks
where significant improvements can be made to the EFA Act's
schedules due to transportation arrangements or proximity between
the check processing regions of the depositary bank and the paying
bank, allowing for faster collection and return. Appendix B sets
forth the specific reduction of schedules applicable to banks
located in certain check processing regions.
c. A reduction in schedules may apply even in those cases where
the determination that the check is nonlocal cannot be made based on
the routing number on the check. For example, a nonlocal credit
union payable-through share draft may be subject to a reduction in
schedules if the routing number of the payable-through bank that
appears on the draft is included in appendix B, even though the
determination that the payable-through share draft is nonlocal is
based on the location of the credit union and not the routing number
on the draft.[rsqbb]
B. 229.12[lsqbb](d)[rsqbb][rtrif](b)[ltrif] Time Period
Adjustment for Withdrawal by Cash or Similar Means
1. The EFA Act provides an adjustment to the availability rules
for cash withdrawals. Funds from [lsqbb]local and nonlocal[rsqbb]
checks [rtrif](other than checks subject to Sec. 229.10(c))[ltrif]
need not be available for cash withdrawal until 5 p.m. on the day
specified in the schedule. At 5 p.m., $400 of the deposit must be
made available for cash withdrawal[rtrif](the ``cash withdrawal
amount'')[ltrif]. [lsqbb]This $400[rsqbb] [rtrif]The cash withdrawal
amount[ltrif] is in addition to the [lsqbb]first $100[rsqbb][rtrif]
minimum amount[ltrif] of a day's deposit [rtrif]under Sec.
229.10(c)(1)(vii)[ltrif], which must be made available for
withdrawal at the start of business on the first business day
following the banking day of deposit. If the proceeds of
[lsqbb]local and nonlocal[rsqbb] checks become available for
withdrawal on the same business day, the [lsqbb]$400 withdrawal
limitation applies to[rsqbb][rtrif]cash withdrawal amount is based
on[ltrif] the aggregate amount of the funds that became available
for withdrawal on that day. The remainder of the funds must be
available for cash withdrawal at the start of business on the
business day following the business day specified in the schedule.
2. The EFA Act recognizes that the [lsqbb]$400[rsqbb][rtrif]cash
withdrawal amount[ltrif] that must be provided on the day specified
in the schedule may exceed a bank's daily ATM cash withdrawal limit,
and explicitly provides that the EFA Act does not supersede the
bank's policy in this regard. The [lsqbb]Board believes that
the[rsqbb] rationale for accommodating a bank's ATM withdrawal limit
also applies to other cash withdrawal limits established by that
bank. Section 229.19(c)(4) of the regulation addresses the relation
between a bank's cash withdrawal limit (for over-the-counter cash
withdrawals as well as ATM cash withdrawals) and the requirements of
this subpart.
3. [lsqbb]The Board believes that the[rsqbb] Congress included
this special cash withdrawal rule to provide a depositary bank with
additional time to learn of the nonpayment of a check before it must
make funds available to its customer. If a customer deposits a
[lsqbb]local[rsqbb] check on a Monday, and that check is returned by
the paying bank, the depositary bank may not receive the returned
check until Thursday, the day after funds for a [lsqbb]local[rsqbb]
check ordinarily must be made available for withdrawal. The intent
of the special cash withdrawal rule is to minimize this risk to the
depositary bank. For this rule to minimize the depositary bank's
risk, it must apply not only to cash withdrawals, but also to
withdrawals by other means that result in an irrevocable debit to
the customer's account or commitment to pay by
[[Page 16939]]
the bank on the customer's behalf during the day. Thus, the cash
withdrawal rule also includes withdrawals by electronic payment,
issuance of a cashier's or teller's check, certification of a check,
or other irrevocable commitment to pay, such as authorization of an
on-line point-of-sale debit. The rule also would apply to checks
presented over the counter for payment on the day of presentment by
the depositor or another person. Such checks could not be dishonored
for insufficient funds if an amount sufficient to cover the check
had became available for cash withdrawal under this rule; however,
payment of such checks would be subject to the bank's cut-off hour
established under U.C.C. 4-108. The cash withdrawal rule does not
apply to checks and other provisional debits presented to the bank
for payment that the bank has the right to return.
C. 229.12[lsqbb](e)[rsqbb][rtrif](c)[ltrif] Extension of
Schedule for Certain Deposits in Alaska, Hawaii, Puerto Rico, and
the U.S. Virgin Islands
1. The EFA Act and regulation provide an extension of the
availability schedules for check deposits at a branch of a bank if
the branch is located in Alaska, Hawaii, Puerto Rico, or the U.S.
Virgin Islands. The schedules for [lsqbb]local[rsqbb] checks
[rtrif](other than those subject to next-day availability under
Sec. 229.10(c))[ltrif][lsqbb], nonlocal checks (including nonlocal
checks subject to the reduced schedules of appendix B),[rsqbb] and
deposits at nonproprietary ATMs are extended by one business day for
checks deposited to accounts in banks located in these jurisdictions
that are drawn on or payable at or through a paying bank not located
in the same jurisdiction as the depositary bank. For example, a
check deposited in a bank in Hawaii and drawn on a San Francisco
paying bank must be made available for withdrawal not later than the
third business day following deposit. This extension does not apply
to deposits that must be made available for withdrawal on the next
business day.
2. The Congress did not provide this extension of the schedules
to checks drawn on a paying bank located in Alaska, Hawaii, Puerto
Rico, or the U.S. Virgin Islands and deposited in an account at a
depositary bank in the 48 contiguous states. Therefore, a check
deposited in a San Francisco bank drawn on a Hawaii paying bank must
be made available for withdrawal not later than the second rather
than the third business day following deposit.
D. 229.12[lsqbb](f)[rsqbb][rtrif](d)[ltrif] Deposits at
Nonproprietary ATMs
1. The EFA Act and regulation provide a special rule for
deposits made at nonproprietary ATMs. This paragraph does not apply
to deposits made at proprietary ATMs. All deposits at a
nonproprietary ATM must be made available for withdrawal by the
[lsqbb]fifth[rsqbb] [rtrif]fourth[ltrif] business day following the
banking day of deposit. For example, a deposit made at a
nonproprietary ATM on a Monday, including any deposit by cash or
checks that would otherwise be subject to next-day (or second-day)
availability, must be made available for withdrawal not later than
[lsqbb]Monday of the following week[rsqbb][rtrif]Friday.[ltrif]
[rtrif]2.[ltrif] The provisions of section 229.10(c)(1)(vii)
[lsqbb]requiring a depositary bank to make up to $100 of an
aggregate daily deposit[rsqbb] [rtrif]setting forth the minimum
amount of a deposit that must be made[ltrif] available for
withdrawal on the first business day after the banking day of
deposit do not apply to deposits at a nonproprietary ATM.
VII. Section 229.13--Exceptions
A. Introduction
1. While certain safeguard exceptions (such as those for new
accounts and checks the bank has reasonable cause to believe are
uncollectible) are established in the EFA Act, [lsqbb]the Congress
gave the Board the discretion to determine whether certain other
exceptions should be included in its regulations.
Specifically,[rsqbb] the EFA Act [lsqbb]gives the Board the
authority to establish[rsqbb][rtrif]permits other exceptions to be
established by regulation, specifically[ltrif] exceptions to the
schedules for large or redeposited checks and for accounts that have
been repeatedly overdrawn. These exceptions apply to [lsqbb]local
and nonlocal[rsqbb] checks subject to the general availability
schedule in Sec. 229.12 as well as to checks that must otherwise be
accorded next-day [lsqbb](or second-day)[rsqbb] availability under
Sec. 229.10(c).
2. Many checks will not be returned to the depositary bank by
the time funds must be made available for withdrawal [lsqbb]under
the next-day (or second-day), local and nonlocal schedules[rsqbb].
In order to reduce risk to depositary banks, [lsqbb]the Board has
exercised its statutory authority to adopt[rsqbb][rtrif]Regulation
CC contains[ltrif] these exceptions to the schedules in the
regulation to allow the depositary bank to extend the time within
which it is required to make funds available.
[lsqbb]3. The EFA Act also gives the Board the authority to
suspend the schedules for any classification of checks, if the
schedules result in an unacceptable level of fraud losses. The Board
will adopt regulations or issue orders to implement this statutory
authority if and when circumstances requiring its implementation
arise.[rsqbb]
B. 229.13(a) New Accounts
1. Definition of New Account.
a. The EFA Act provides an exception to the availability
schedule for new accounts. An account is defined as a new account
during the first 30 calendar days after the account is opened. An
account is opened when the first deposit is made to the account. An
account is not considered a new account, however, if each customer
on the account has a transaction account relationship with the
depositary bank, including a dormant account, that is at least 30
calendar days old or if each customer has had an established
transaction account with the depositary bank within the 30 calendar
days prior to opening the second account.
b. The following are examples of what constitutes, and does not
constitute, a new account:
i. If the customer has an established account with a bank and
opens a second account with the bank, the second account is not
subject to the new account exception.
ii. If a customer's account were closed and another account
opened as a successor to the original account (due, for example, to
the theft of checks or a debit card used to access the original
account), the successor account is not subject to the new account
exception, assuming the previous account relationship is at least 30
days old. Similarly, if a customer closes an established account and
opens a separate account within 30 days, the new account is not
subject to the new account exception.
iii. If a customer has a savings deposit or other deposit that
is not an account (as that term is defined in Sec. 229.2(a)) at the
bank, and opens an account, the account is subject to the new
account exception.
iv. If a person that is authorized to sign on a corporate
account (but has no other relationship with the bank) opens a
personal account, the personal account is subject to the new account
exception.
v. If a customer has an established joint account at a bank, and
subsequently opens an individual account with that bank, the
individual account is not subject to the new account exception.
vi. If two customers that each have an established individual
account with the bank open a joint account, the joint account is not
subject to the new account exception. If one of the customers on the
account has no current or recent established account relationship
with the bank, however, the joint account is subject to the new
account exception, even if the other individual on the account has
an established account relationship with the bank.
2. Rules Applicable to New Accounts.
a. During the new[rtrif]-[ltrif]account exception period, the
[rtrif]general[ltrif] schedule[lsqbb]s[rsqbb] for [lsqbb]local and
nonlocal[rsqbb] checks [rtrif]in Sec. 229.12[ltrif]
do[rtrif]es[ltrif] not apply, and, unlike the other exceptions
provided in this section, the regulation provides no maximum time
frames within which the proceeds of these deposits must be made
available for withdrawal. Maximum times within which funds must be
available for withdrawal during the new account period are provided,
however, for certain other deposits. Deposits received by cash and
electronic payments must be made available for withdrawal in
accordance with Sec. 229.10.
b. Special rules also apply to deposits of Treasury checks, U.S.
Postal Service money orders, checks drawn on Federal Reserve Banks
and Federal Home Loan Banks, state and local government checks,
cashier's checks, certified checks, teller's checks, and, for the
purposes of the new account exception only, traveler's checks. The
first $5,000 of funds deposited to a new account on any one banking
day by these check deposits must be made available for withdrawal in
accordance with Sec. 229.10(c)[lsqbb]. Thus, the first $5,000 of
the proceeds of these check deposits must be made
available[rsqbb][rtrif]; that is,[ltrif] on the first business day
following deposit, if the deposit is made in person to an employee
of the depositary bank and the other conditions of next-day
availability are met. [lsqbb]Funds must be made available on the
second business day after deposit for deposits that are not made
over the counter, in accordance with Sec. 229.10(c)(2).[rsqbb]
(Proceeds of Treasury check deposits must be made available on the
first business day after deposit, even if the check is not deposited
in person to an employee of the depositary
[[Page 16940]]
bank.) Funds in excess of the first $5,000 deposited by these types
of checks on a banking day must be available for withdrawal not
later than the ninth business day following the banking day of
deposit. The requirements of Sec. 229.10(c)(1)(vi) and (vii) that
``on us'' checks and the [lsqbb]first $100[rsqbb][rtrif]minimum
amount[ltrif] of a day's deposit be made available for withdrawal on
the next business day do not apply during the new account period.
3. Representation by Customer. The depositary bank may rely on
the representation of the customer that the customer has no
established account relationship with the bank, and has not had any
such account relationship within the past 30 days, to determine
whether an account is subject to the new account exception.
C. 229.13(b) Large Deposits
1. Under the large[rtrif]-[ltrif]deposit exception, a depositary
bank may extend the hold placed on check deposits to the extent that
the amount of the aggregate deposit on any banking day exceeds
$5,000[rtrif](the ``large-deposit amount'')[ltrif]. This exception
applies to [lsqbb]local and nonlocal[rsqbb] checks [rtrif]under
Sec. 229.12[ltrif], as well as to checks that otherwise would be
made available on the next [lsqbb](or second)[rsqbb] business day
after the day of deposit under Sec. 229.10(c). Although [lsqbb]the
first $5,000 of a day's deposit[rsqbb][rtrif]any amount under the
large-deposit amount[ltrif] is subject to the availability otherwise
provided for checks, the amount in excess of
[lsqbb]$5,000[rsqbb][rtrif]the large-deposit threshold[ltrif] may be
held for an additional period of time as provided in Sec.
229.13(h). When the large[rtrif]-[ltrif]deposit exception is applied
to deposits composed of a mix of checks that would otherwise be
subject to differing availability schedules, the depositary bank has
the discretion to choose the portion of the deposit to which it
applies the exception. Deposits by cash or electronic payment are
not subject to this exception for large deposits.
2. The following example illustrates the operation of the
large[rtrif]-[ltrif]deposit exception. If a customer deposits $2,000
in cash and a $9,000 [lsqbb]local[rsqbb] check on a Monday
[rtrif]that is not subject to next-day availability[ltrif],
[lsqbb]$2,100 ([rsqbb] the proceeds of the cash deposit and
[lsqbb]$100[rsqbb] [rtrif]the minimum amount under Sec.
229.10(c)[ltrif] from the [lsqbb]local[rsqbb] check
deposit[lsqbb])[rsqbb] must be made available for withdrawal on
Tuesday. [lsqbb]An additional $4,900 of the proceeds of the local
check[rsqbb] [rtrif]The amount under the large-deposit threshold
less the minimum amount under Sec. 229.10(c)[ltrif] must be
available for withdrawal on Wednesday in accordance with the
[lsqbb]local[rsqbb] [rtrif]general[ltrif] schedule, and the
remaining [lsqbb]$4,000[rsqbb][rtrif]amount over the large-deposit
threshold[ltrif] may be held for an additional period of time under
the large[rtrif]-[ltrif]deposit exception.
3. Where a customer has multiple accounts with a depositary
bank, the bank may apply the large[rtrif]-[ltrif]deposit exception
to the aggregate deposits to all of the customer's accounts, even if
the customer is not the sole holder of the accounts and not all of
the holders of the customer's accounts are the same. Thus, a
depositary bank may aggregate the deposits made to two individual
accounts in the same name, to an individual and a joint account with
one common name, or to two joint accounts with at least one common
name for the purpose of applying the large[rtrif]-[ltrif]deposit
exception. Aggregation of deposits to multiple accounts is permitted
because [lsqbb]the Board believes that[rsqbb] the risk to the
depositary bank associated with large deposits is similar regardless
of how the deposits are allocated among the customer's accounts.
D. 229.13(c) Redeposited Checks
1. The EFA Act [lsqbb]gives the Board the authority to
promulgate[rsqbb][rtrif]provides that the regulation may
include[ltrif] an exception to the schedule for checks that have
been returned unpaid and redeposited. Section 229.13(c) provides
such an exception for checks that have been returned unpaid and
redeposited by the customer or the depositary bank. This exception
applies to [lsqbb]local and nonlocal[rsqbb] checks [rtrif]subject to
Sec. 229.12[ltrif], as well as to checks that would otherwise be
made available on the next [lsqbb](or second)[rsqbb] business day
after the day of deposit under Sec. 229.10(c).
2. This exception addresses the increased risk to the depositary
bank that checks that have been returned once will be uncollectible
when they are presented to the paying bank a second time. [lsqbb]The
Board, however, does not believe that t[rsqbb][rtrif]T[ltrif]his
increased risk is [rtrif]not[ltrif] present for checks that have
been returned due to a missing indorsement. Thus, the exception does
not apply to checks returned unpaid due to missing indorsements and
redeposited after the missing indorsement has been obtained, if the
reason for return indicated on the check (see Sec. 229.30(d))
states that it was returned due to a missing indorsement. For the
same reason, this exception does not apply to a check returned
because it was postdated (future dated), if the reason for return
indicated on the check states that it was returned because it was
postdated, and if it is no longer postdated when redeposited.
3. To determine when funds must be made available for
withdrawal, the banking day on which the check is redeposited is
considered to be the day of deposit. A depositary bank that made
[lsqbb]$100[rsqbb] [rtrif]the minimum amount[ltrif] of a check
available for withdrawal under Sec. 229.10(c)(1)(vii) can charge
back the full amount of the check, including the
[lsqbb]$100[rsqbb][rtrif]the minimum amount made available[ltrif],
if the check is returned unpaid, and the [lsqbb]$100[rsqbb]
[rtrif]minimum amount[ltrif] need not be made available again if the
check is redeposited.
E. 229.13(d) Repeated Overdrafts
1. The EFA Act [lsqbb]gives the Board the authority to
establish[rsqbb][rtrif]provides that the regulation may
include[ltrif] an exception for ``deposit accounts which have been
overdrawn repeatedly.'' This paragraph provides two tests to
determine what constitutes repeated overdrafts. Under the first
test, a customer's accounts are considered repeatedly overdrawn if,
on six banking days within the preceding six months, the available
balance in any account held by the customer is negative, or the
balance would have become negative if checks or other charges to the
account had been paid, rather than returned. This test can be met
based on separate occurrences (e.g., checks that are returned for
insufficient funds on six different days), or based on one
occurrence (e.g., a negative balance that remains on the customer's
account for six banking days). If the bank dishonors a check that
otherwise would have created a negative balance, however, the
incident is considered an overdraft only on that day.
2. The second test addresses substantial overdrafts. Such
overdrafts increase the risk to the depositary bank of dealing with
the repeated overdrafter. Under this test, a customer incurs
repeated overdrafts if, on two banking days within the preceding six
months, the available balance in any account held by the customer is
negative in an amount of $5,000 or more, or would have become
negative in an amount of $5,000 or more if checks or other charges
to the account had been paid.
3. The exception relates not only to overdrafts caused by checks
drawn on the account, but also overdrafts caused by other debit
charges (e.g. ACH debits, point-of-sale transactions, returned
checks, account fees, etc.). If the potential debit is in excess of
available funds, the exception applies regardless of whether the
items were paid or returned unpaid.
[rtrif]4. Under either test described above, the ``other charges
to the account'' that would have created an overdraft had they been
paid do not include attempted debit card transactions for which the
depositary bank has declined the authorization request, because
there is no transaction that has occurred.[ltrif]
[rtrif]5.[ltrif] An overdraft resulting from an error on the
part of the depositary bank, or from the imposition of overdraft
charges for which the customer is entitled to a refund under
Sec. Sec. 229.13(e) or 229.16(c), cannot be considered in
determining whether the customer is a repeated overdrafter. The
exception excludes accounts with overdraft lines of credit, unless
the credit line has been exceeded or would have been exceeded if the
checks or other charges to the account had been paid.
[lsqbb]4.[rsqbb][rtrif]6.[ltrif]This exception applies to
[lsqbb]local and nonlocal[rsqbb] checks [rtrif]subject to Sec.
229.12[ltrif], as well as to checks that otherwise would be made
available on the next [lsqbb](or second)[rsqbb] business day after
the day of deposit under Sec. 229.10(c). When a bank places or
extends a hold under this exception, it need not make the
[lsqbb]first $100[rsqbb][rtrif]minimum amount[ltrif] of a deposit
available for withdrawal on the next business day, as otherwise
would be required by Sec. 229.10(c)(1)(vii).
F. 229.13(e) Reasonable Cause To Doubt Collectibility
1. In the case of certain check deposits, if the bank has
reasonable cause to believe the check is uncollectible, it may
extend the time funds must be made available for withdrawal. This
exception applies to [lsqbb]local and nonlocal[rsqbb] checks
[rtrif]under Sec. 229.12[ltrif], as well as to checks that would
otherwise be made available on the next [lsqbb](or second)[rsqbb]
business day after the day of deposit under Sec. 229.10(c). When a
bank places or extends a hold under this exception, it need not make
[[Page 16941]]
the [lsqbb]first $100[rsqbb][rtrif]minimum amount[ltrif] of a
deposit available for withdrawal on the next business day, as
otherwise would be required by Sec. 229.10(c)(1)(vii). If the
reasonable[rtrif]-[ltrif]cause exception is invoked, the bank must
include in the notice to its customer, required by Sec. 229.13(g),
the reason that the bank believes that the check is uncollectible.
2. The following are several examples of circumstances under
which the reasonable[rtrif]-[ltrif]cause exception may be invoked:
a. If a bank received a notice from the paying bank that a check
was not paid and is being returned to the depositary bank, the
depositary bank could place a hold on the check or extend a hold
previously placed on that check, and notify the customer that the
bank had received notice that the check is being returned. The
exception could be invoked even if the notice were incomplete, if
the bank had reasonable cause to believe that the notice applied to
that particular check.
b. The depositary bank may have received information from the
paying bank, prior to the presentment of the check, that gives the
bank reasonable cause to believe that the check is uncollectible.
For example, the paying bank may have indicated that payment has
been stopped on the check, or that the drawer's account does not
currently have sufficient funds to honor the check. Such information
may provide sufficient basis to invoke this exception. In these
cases, the depositary bank could invoke the exception and disclose
as the reason the exception is being invoked the fact that
information from the paying bank indicates that the check may not be
paid.
c. The fact that a check is deposited more than six months after
the date on the check (i.e.[rtrif],[ltrif] a stale check) is a
reasonable indication that the check may be uncollectible, because
under U.C.C. 4-404 a bank has no duty to its customer to pay a check
that is more than six months old. Similarly, if a check being
deposited is postdated (future dated), the bank may have a
reasonable cause to believe the check is uncollectible, because the
check may not be properly payable under U.C.C. 4-401. The bank, in
its notice, should specify that the check is stale-dated or
postdated.
d. There are reasons that may cause a bank to believe that a
check is uncollectible that are based on confidential information.
For example, a bank could conclude that a check being deposited is
uncollectible based on its reasonable belief that the depositor is
engaging in kiting activity. Reasonable belief as to the insolvency
or pending insolvency of the drawer of the check or the drawee bank
and that the checks will not be paid also may justify invoking this
exception. In these cases, the bank may indicate, as the reason it
is invoking the exception, that the bank has confidential
information that indicates that the check might not be paid.
3. [lsqbb]The Board has included a[rsqbb][rtrif]Appendix C
contains a model reasonable[rtrif]-[ltrif]cause exception notice as
a model notice in appendix C (C-[lsqbb]13[rsqbb][rtrif]9[ltrif]).
The [rtrif]commentary in appendix C to the[ltrif] model notice
includes several reasons for which this exception may be invoked.
The [lsqbb]Board does not intend to provide[rsqbb][rtrif]commentary
list is not[ltrif] a comprehensive list of reasons for which this
exception may be invoked; another reason that does not appear
[rtrif]in the commentary to the[ltrif] [lsqbb]on[rsqbb] the model
notice may be used as the basis for extending a hold, if the reason
satisfies the conditions for invoking this exception. A depositary
bank may invoke the reasonable[rtrif]-[ltrif]cause exception based
on a combination of factors that give rise to a reasonable cause to
doubt the collectibility of a check. In these cases, the bank should
disclose the primary reasons for which the exception was invoked in
accordance with paragraph (g) of this section.
4. The regulation provides that the determination that a check
is uncollectible shall not be based on a class of checks or persons.
For example, a depositary bank cannot invoke this exception simply
because [lsqbb]the check is drawn on a paying bank in a rural
area[rsqbb][rtrif]a paying bank demands paper presentment[ltrif] and
the depositary bank knows it will not have the opportunity to learn
of nonpayment of that check before funds must be made available
under the availability schedules. Similarly, a depositary bank
cannot invoke the reasonable cause exception based on the race or
national origin of the depositor.
5. If a depositary bank invokes this exception with respect to a
particular check and does not provide a written notice to the
depositor at the time of deposit, the depositary bank may not assess
any overdraft fee (such as an ``NSF'' charge) or charge interest for
use of overdraft credit, if the check is paid by the paying bank and
these charges would not have occurred had the exception not been
invoked. A bank may assess an overdraft fee under these
circumstances, however, if it provides notice to the customer, in
the notice of exception required by paragraph (g) of this section,
that the fee may be subject to refund, and refunds the charges upon
the request of the customer. The notice must state that the customer
may be entitled to a refund of any overdraft fees that are assessed
if the check being held is paid, and indicate where such requests
for a refund of overdraft fees should be directed.
G. 229.13(f) Emergency Conditions
1. Certain emergency conditions may arise that delay the
collection or return of checks, or delay the processing and updating
of customer accounts. In the circumstances specified in this
paragraph, the depositary bank may extend the holds that are placed
on deposits of checks that are affected by such delays, if the bank
exercises such diligence as the circumstances require. For example,
if a bank learns that a check has been delayed in the process of
collection due to [lsqbb]severe weather conditions[rsqbb] [rtrif]an
interruption of computer facilities[ltrif] or other causes beyond
its control, an emergency condition covered by this section may
exist and the bank may place a hold on the check to reflect the
delay. This exception applies to [lsqbb]local and nonlocal[rsqbb]
checks [rtrif]subject to Sec. 229.12[ltrif], as well as
[rtrif]to[ltrif] checks that would otherwise be made available on
the next [lsqbb](or second)[rsqbb] business day after the day of
deposit under Sec. 229.10(c). When a bank places or extends a hold
under this exception, it need not make the [lsqbb]first
$100[rsqbb][rtrif]minimum amount[ltrif] of a deposit available for
withdrawal on the next business day, as otherwise would be required
by Sec. 229.10(c)(1)(vii). In cases where the emergency[rtrif]-
[ltrif]conditions exception does not apply, as in the case of
deposits of cash or electronic payments under Sec. 229.10 (a) and
(b), the depositary bank may not be liable for a delay in making
funds available for withdrawal if the delay is due to a bona fide
error such as an unavoidable computer malfunction.
H. 229.13(g) Notice of Exception
1. In general.
a. If a depositary bank invokes any of the safeguard exceptions
to the schedules listed above, other than the new[rtrif]-
[ltrif]account or emergency[rtrif]-[ltrif]conditions exception, and
extends the hold on a deposit beyond the time periods permitted in
Sec. Sec. 229.10(c) and 229.12, it must provide a notice to its
customer. Except in the cases described in paragraphs (g)(2) and
(g)(3) of this section, notices must be given each time an exception
hold is invoked and must state [lsqbb]the[rsqbb] [rtrif]a number or
code that identifies the[ltrif] customer's account
[lsqbb]number[rsqbb], the date of deposit, [rtrif]the total amount
of the deposit, the amount of the deposit that is being
delayed,[ltrif] the reason the exception was invoked, and the time
period within which funds will be available for withdrawal. For a
customer that is not a consumer, a depositary bank satisfies the
written-notice requirement by sending an electronic notice that
displays the text and is in a form that the customer may keep, if
the customer agrees to such means of notice. Information is in a
form that the customer may keep if, for example, it can be
downloaded or printed. For a customer who is a consumer, a
depositary bank satisfies the written-notice requirement by sending
an electronic notice in compliance with the requirements of the
Electronic Signatures in Global and National Commerce Act (12 U.S.C.
7001 et seq.), which include obtaining the consumer's affirmative
consent to such means of notice.
b. With respect to paragraph (g)(1), the requirement that the
notice state the [lsqbb]time period within[rsqbb][rtrif]day
on[ltrif] which the funds shall be made available may be satisfied
[lsqbb]if the notice identifies the date the deposit is received and
information sufficient to indicate when funds will be available and
the amounts that will be available at those times. For
example,[rsqbb] for a deposit involving more than one check,
[rtrif]if[ltrif] [lsqbb]the bank need not provide a notice that
discloses when funds from each individual check in the deposit will
be available for withdrawal; instead,[rsqbb] the bank
[lsqbb]may[rsqbb] provide[rtrif]s[ltrif] a total dollar amount for
each of the [lsqbb]time periods when[rsqbb][rtrif]days on which
the[ltrif] funds will be available[lsqbb], or provide the customer
with an explanation of how to determine the amount of the deposit
that will be held and when the funds will be available for
deposit.[rsqbb] Appendix C (C-[lsqbb]12[rsqbb][rtrif]9[ltrif])
contains a model notice.
c. For deposits made in person to an employee of the depositary
bank, the notice generally must be given to the person making the
deposit, i.e., the ``depositor[rtrif],[ltrif]''[lsqbb],[rsqbb] at
the time of deposit. The depositor need not be the customer holding
the account. For other deposits, such as deposits received at
[[Page 16942]]
an ATM, lobby deposit box, night depository, or through the mail,
notice must be [lsqbb]mailed[rsqbb] [rtrif]sent[ltrif] to the
customer not later than the close of the business day following the
banking day on which the deposit was made.
d. Notice to the customer also may be provided at a later time,
if the facts upon which the determination to invoke the exception
[rtrif]is made[ltrif] do not become known to the depositary bank
until after notice would otherwise have to be given. In these cases,
the bank must [lsqbb]mail[rsqbb] [rtrif]send[ltrif] the notice to
the customer as soon as practicable, but not later than the business
day following the day the facts become known. A bank is deemed to
have knowledge when the facts are brought to the attention of the
person or persons in the bank responsible for making the
determination, or when the facts would have been brought to their
attention if the bank had exercised due diligence.
[rtrif]e. If the customer has agreed to accept notices
electronically, the bank shall send the notice such that the bank
may reasonably expect it to be received by the customer no later
than the first business day following the day the facts become known
to the depositary bank, or the deposit is made, whichever is
later.[ltrif]
[lsqbb]e[rsqbb][rtrif]f[ltrif]. In those cases described in
paragraphs (g)(2) and (g)(3), the depositary bank need not provide a
notice every time an exception hold is applied to a deposit. When
paragraph (g)(2) or (g)(3) requires disclosure of the time period
within which deposits subject to the exception generally will be
available for withdrawal, the requirement may be satisfied if the
one-time notice states when ``on us[lsqbb],[rsqbb]'' [lsqbb]local,
and nonlocal[rsqbb] [rtrif]and other[ltrif] checks will be available
for withdrawal if an exception is invoked.
2. One-time exception notice.
a. Under paragraph (g)(2), if a nonconsumer account (see
Commentary to Sec. 229.2[lsqbb](n)[rsqbb][rtrif](o)[ltrif]) is
subject to the large[rtrif]-[ltrif]deposit or redeposited[rtrif]-
[ltrif]check exception, the depositary bank may give its customer a
single notice at or prior to the time notice must be provided under
paragraph (g)(1). Notices provided under paragraph (g)(2) must
contain the reason the exception may be invoked and the time period
within which deposits subject to the exception will be available for
withdrawal (see Model Notice C-[lsqbb]14[rsqbb][rtrif]10[ltrif]). A
depositary bank may provide a one-time notice to a nonconsumer
customer under paragraph (g)(2) only if each exception cited in the
notice (the large deposit and/or the redeposited check exception)
will be invoked for most check deposits to the customer's account to
which the exception could apply. A one-time notice may state that
the depositary bank will apply exception holds to certain subsets of
deposits to which the large[rtrif]-[ltrif]deposit or
redeposited[rtrif]-[ltrif]check exception may apply, and the notice
should identify such subsets. For example, the depositary bank may
apply the redeposited[rtrif]-[ltrif]check exception only to checks
that were redeposited automatically by the depositary bank in
accordance with an agreement with the customer, rather than to all
redeposited checks. In lieu of sending the one-time notice, a
depositary bank may send individual hold notices for each deposit
subject to the large[rtrif]-[ltrif]deposit or redeposited[rtrif]-
[ltrif]check exception in accordance with Sec. 229.13(g)(1) (see
Model Notice C-[lsqbb]12[rsqbb][rtrif]9[ltrif]).
b. In the case of a deposit of multiple checks, the depositary
bank has the discretion to place an exception hold on any
combination of checks in excess of [lsqbb]$5,000[rsqbb][rtrif]the
large-deposit threshold[ltrif]. The notice should enable a customer
to determine the availability of the deposit in the case of a
deposit of multiple checks [rtrif]subject to differing hold
periods[ltrif]. [lsqbb]For example, if a customer deposits a $5,000
local check and a $5,000 nonlocal check, under the large deposit
exception, the depositary bank may make funds available in the
amount of (1) $100 on the first business day after deposit, $4,900
on the second business day after deposit (local check), and $5,000
on the eleventh business day after deposit (nonlocal check with 6-
day exception hold), or (2) $100 on the first business day after
deposit, $4,900 on the fifth business day after deposit (nonlocal
check), and $5,000 on the seventh business day after deposit (local
check with 5-day exception hold).[rsqbb] The notice
[rtrif]also[ltrif] should reflect the bank's priorities in placing
exception holds on next-day [lsqbb](or second-day), local, and
nonlocal[rsqbb] [rtrif]and other[ltrif] checks.
3. Notice of repeated[rtrif]-[ltrif]overdraft exception. Under
paragraph (g)(3), if an account is subject to the repeated[rtrif]-
[ltrif]overdraft exception, the depositary bank may provide one
notice to its customer for each time period during which the
exception will apply. Notices sent pursuant to paragraph (g)(3) must
state the customer's account [lsqbb]number[rsqbb]
[rtrif]identifier[ltrif], the fact the exception was invoked under
the repeated[rtrif]-[ltrif]overdraft exception, the time period
within which deposits subject to the exception will be made
available for withdrawal, and the time period during which the
exception will apply (see Model Notice C-
[lsqbb]15[rsqbb][rtrif]11[ltrif]). A depositary bank may provide a
one-time notice to a customer under paragraph (g)(3) only if the
repeated[rtrif]-[ltrif]overdraft exception will be invoked for most
check deposits to the customer's account.
4. Emergency[rtrif]-[ltrif]conditions exception notice.
a. If an account is subject to the emergency[rtrif]-
[ltrif]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[rtrif]-[ltrif]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 [rtrif]on the depositary
bank's website or through a directed e-mail[ltrif], 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 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.
5. Record retention. A depositary bank must retain a record of
each notice of a reasonable[rtrif]-[ltrif]cause exception for a
period of two years, or such longer time as provided in the record
retention requirements of Sec. 229.21. This record must contain a
brief description of the facts on which the depositary bank based
its judgment that there was reasonable cause to doubt the
collectibility of a check. In many cases, [lsqbb]such as where the
exception was invoked on the basis of a notice of nonpayment
received,[rsqbb] the record requirement may be met by retaining a
copy of the notice sent to the customer. In other cases, such as
where the exception was invoked on the basis of confidential
information, a further description to the facts, such as insolvency
of drawer, should be included in the record.
I. 229.13(h) Availability of Deposits Subject to Exceptions
1. If a depositary bank invokes any exception other than the
new[rtrif]-[ltrif]account exception, the bank may extend the time
within which funds must be made available under the schedule by a
reasonable period of time. This provision establishes that an
extension of up to one business day for ``on us''
checks[lsqbb],[rsqbb] [rtrif]and two[ltrif] [lsqbb]five[rsqbb]
business days for [lsqbb]local checks, and six business days for
nonlocal checks[rsqbb] [rtrif]all other checks[ltrif] [lsqbb]and
checks deposited in a nonproprietary ATM[rsqbb] is reasonable. Under
certain circumstances, however, a longer extension of the schedules
may be reasonable. In these cases, the burden is placed on the
depositary bank to establish that a longer period is reasonable.
2. For example, assume a bank extended the hold on a
[lsqbb]local[rsqbb] check deposit by [rtrif]two[ltrif]
[lsqbb]five[rsqbb] business days based on its reasonable cause to
believe that the check is uncollectible. If, on the day before the
extended hold is scheduled to expire, the bank [lsqbb]receives a
notification from the paying bank[rsqbb] [rtrif]learns[ltrif] that
the check is being returned unpaid, the bank may determine that a
longer hold is warranted[lsqbb], if it decides not to charge back
the customer's account based on the notification[rsqbb]. If the bank
decides to extend the hold, the bank must send a second notice, in
accordance with paragraph (g) of this section, indicating the new
date that the funds will be available for withdrawal.
3. With respect to Treasury checks, U.S. Postal Service money
orders, checks drawn on Federal Reserve Banks or Federal Home Loan
Banks, state and local government checks, cashier's checks,
certified checks, and teller's checks subject to the next-day
[lsqbb](or second-day)[rsqbb] availability requirement,
[[Page 16943]]
the depositary bank may extend the time funds must be made available
for withdrawal under the large[rtrif]-[ltrif]deposit,
redeposited[rtrif]-[ltrif]check, repeated[rtrif]-[ltrif]overdraft,
or reasonable[rtrif]-[ltrif]cause exception by a reasonable period
beyond the delay that would have been permitted under the regulation
had the checks not been subject to the next-day [lsqbb](or second-
day)[rsqbb] availability requirement. The additional hold is added
to the [lsqbb]local or nonlocal[rsqbb] [rtrif]general[ltrif]
schedule [lsqbb]that would apply based on the location of the paying
bank[rsqbb] [rtrif]in Sec. 229.12[ltrif].
4. One business day for ``on us'' checks [rtrif]and two[ltrif]
[lsqbb], five[rsqbb] business days for [lsqbb]local checks, and six
business days for nonlocal checks or checks deposited in a
nonproprietary ATM[rsqbb] [rtrif]all other checks[ltrif], in
addition to the time period provided in the schedule, should provide
adequate time for [rtrif]a[ltrif][lsqbb]the[rsqbb] depositary bank
[rtrif]that accepts electronic returns under Sec. 229.32(a)[ltrif]
to learn of the nonpayment of virtually all checks that are
returned. [lsqbb]For example, if a customer deposits a $7,000
cashier's check drawn on a nonlocal bank, and the depositary bank
applies the large deposit exception to that check, $5,000 must be
available for withdrawal on the first business day after the day of
deposit and the remaining $2,000 must be available for withdrawal on
the eleventh business day following the day of deposit (six business
days added to the five-day schedule for nonlocal checks), unless the
depositary bank establishes that a longer hold is reasonable.[rsqbb]
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
Sec. Sec. 229.10(c) or 229.12, whichever is later.
6. This provision does not apply to holds imposed under the
new[rtrif]-[ltrif]account exception. Under that exception, the
maximum time period within which funds must be made available for
withdrawal is specified for deposits that generally must be accorded
next-day availability under Sec. 229.10. This subpart does not
specify the maximum time period within which the proceeds of
[lsqbb]local and nonlocal[rsqbb] [rtrif]other[ltrif] checks must be
made available for withdrawal during the new account period.
VIII. Section 229.14 Payment of Interest
A. 229.14(a) In General
1. This section requires that a depositary bank begin accruing
interest on interest-bearing accounts not later than the day on
which the depositary bank receives credit for the funds
deposited.[lsqbb]\3\[rsqbb] A depositary bank generally receives
credit on checks [lsqbb]within one or two days[rsqbb] [rtrif]on the
business day[ltrif] following deposit. A bank receives credit on a
cash deposit, an electronic payment, and the deposit of a check that
is drawn on the depositary bank itself on the day the cash,
electronic payment, or check is received. In the case of a deposit
at a nonproprietary ATM, credit generally is received on the day the
bank that operates the ATM credits the depositary bank for the
amount of the deposit. In the case of a deposit at a contractual
branch, 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 receives credit for the deposit.
[lsqbb]\3\[rsqbb] [rtrif]2.[ltrif] This section implements
section 606 of the EFA Act (12 U.S.C. 4005). The EFA Act keys the
requirement to pay interest to the time the depositary bank receives
provisional credit for a check. [lsqbb]Provisional credit is a term
used in the U.C.C. that is derived from the Code's concept of
provisional settlement. (See U.C.C. 4-214 and 4-215.)[rsqbb]
Provisional credit is credit that is subject to charge-back if the
check is returned unpaid; once the check is finally paid, the right
to charge back expires and the provisional credit becomes final
[rtrif](See U.C.C. 4-214 and 4-215)[ltrif]. Under
[lsqbb]S[rsqbb][rtrif]s[ltrif]ubpart C, a paying bank no longer has
an automatic right to charge back credits given in settlement of a
check, and the concept of provisional settlement is no longer useful
and has been eliminated by the regulation. Accordingly, this section
uses the term credit rather than provisional credit, and this
section applies regardless of whether a credit would be provisional
or final under the U.C.C. Credit does not include a bookkeeping
entry (sometimes referred to as deferred credit) that does not
represent funds actually available for the bank's use.
[lsqbb]2[rsqbb][rtrif]3[ltrif]. Because account includes only
transaction accounts, other interest-bearing accounts of the
depositary bank, such as money market deposit accounts, savings
deposits, and time deposits, are not subject to this requirement;
however, a bank may accrue interest on such deposits in the same way
that it accrues interest under this paragraph for simplicity of
operation. The [lsqbb]Board intends the[rsqbb] term interest
[lsqbb]to[rsqbb] refer[rtrif]s[ltrif] to payments to or for the
account of any customer as compensation for the use of funds, but
[lsqbb]to[rsqbb] exclude[rtrif]s[ltrif] the absorption of expenses
incident to providing a normal banking function or a bank's
forbearance from charging a fee in connection with such a service.
[lsqbb](See 12 CFR 217.2(d).)[rsqbb] Thus, earnings credits often
applied to corporate accounts are not interest payments for the
purposes of this section.
[lsqbb]3[rsqbb][rtrif]4[ltrif]. It may be difficult for a
depositary bank to track which day [lsqbb]the depositary
bank[rsqbb][rtrif]it[ltrif] receives credit for specific checks in
order to accrue interest properly on the account to which the check
is deposited. This difficulty may be pronounced if the bank uses
different means of collecting checks based on the time of day the
check is received, the dollar amount of the check, and/or the paying
bank to which it must be sent. Thus, for the purpose of the interest
accrual requirement, a bank may rely on an availability schedule
from its Federal Reserve Bank[lsqbb], Federal Home Loan Bank,[rsqbb]
or correspondent to determine when the depositary bank receives
credit. If availability is delayed beyond that specified in the
availability schedule, a bank may charge back interest erroneously
accrued or paid on the basis of that schedule.
[lsqbb]4[rsqbb][rtrif]5[ltrif]. This paragraph also permits a
depositary bank to accrue interest on checks deposited to all of its
interest-bearing accounts based on when the bank receives credit on
all checks sent for payment or collection. For example, if a bank
receives credit on 20 percent of the funds deposited in the bank by
check as of the business day of deposit (e.g., ``on us'' checks), 70
percent as of the business day following deposit, and 10 percent on
the second business day following deposit, the bank can apply these
percentages to determine the day interest must begin to accrue on
check deposits to all interest-bearing accounts, regardless of when
the bank received credit on the funds deposited in any particular
account. Thus, a bank may begin accruing interest on a uniform basis
for all interest-bearing accounts, without the need to track the
type of check deposited to each account.
[lsqbb]5[rsqbb][rtrif]6[ltrif]. This section is not intended to
limit a policy of a depositary bank that provides that interest
accrues only on balances that exceed a specified amount, or on the
minimum balance maintained in the account during a given period,
provided that the balance is determined based on the date that the
depositary bank receives credit for the funds. This section also is
not intended to limit any policy providing that interest accrues
sooner than required by this paragraph.
B. 229.14(b) Special Rule for Credit Unions
1. This provision implements a requirement in section 606(b) of
the EFA Act, and provides an exemption from the payment-of-interest
requirements for credit unions that do not begin to accrue interest
or dividends on their customer accounts until a later date than the
day the credit union receives credit for those deposits, including
cash deposits. These credit unions are exempt from the payment-of-
interest requirements, as long as they provide notice of their
interest accrual policies in accordance with Sec. 229.16(d). For
example, if a credit union has a policy of computing interest on all
deposits received by the 10th of the month from the first of that
month, and on all deposits received after the 10th of the month from
the first of the next month, that policy is not superseded by this
regulation, if the credit union provides proper disclosure of this
policy to its customers.
2. The EFA Act limits this exemption to credit unions; other
types of banks must comply with the payment-of-interest
requirements. In addition, credit unions that compute interest from
the day of deposit or day of credit should not change their existing
practices in order to avoid compliance with the requirement that
interest accrue from the day the credit union receives credit.
C. 229.14(c) Exception for Checks Returned Unpaid
1. This provision is based on section 606(c) of the EFA Act (12
U.S.C. 4005(c)) and provides that interest need not be paid on funds
deposited in an interest-bearing account by check that has been
returned unpaid, regardless of the reason for return.
IX. Section 229.15 General Disclosure Requirements
A. 229.15(a) Form of Disclosures [rtrif]and Notices[ltrif]
1. This paragraph sets forth the general requirements for the
disclosures [rtrif]and
[[Page 16944]]
notices[ltrif] required under [lsqbb]S[rsqbb][rtrif]s[ltrif]ubpart
B. All of the disclosures [rtrif]and notices[ltrif] must be given in
a clear and conspicuous manner, must be in writing, and, in most
cases, must be in a form the customer may keep. A disclosure
[rtrif]or notice[ltrif] is in a form that the customer may keep if,
for example, it can be downloaded or printed. For a customer that is
not a consumer, a depositary bank satisfies the written-disclosure
[rtrif]or notice[ltrif] requirement by sending an electronic
disclosure [rtrif]or notice[ltrif] that displays the text and is in
a form that the customer may keep, if the customer agrees to such
means of disclosure [rtrif]or notice[ltrif]. For a customer who is a
consumer, a depositary bank satisfies the written-[rtrif]disclosure
or[ltrif] notice requirement by sending an electronic
[rtrif]disclosure or[ltrif] notice in compliance with the
requirements of the Electronic Signatures in Global and National
Commerce Act (12 U.S.C. 7001 et seq.), which include obtaining the
consumer's affirmative consent to such means of [rtrif]disclosure
or[ltrif] notice. Disclosures posted at locations where employees
accept consumer deposits, at ATMs, and on preprinted deposit slips
need not be in a form that the customer may keep. Appendix C of the
regulation contains model forms, clauses, and notices to assist
banks in preparing disclosures.
2. Disclosures concerning availability must be grouped together
and may not contain any information that is not related to the
disclosures required by this subpart. Therefore, banks may not
intersperse the required disclosures with other account disclosures,
and may not include other account information that is not related to
their availability policy within the text of the required
disclosures. Banks may, however, include information that is related
to their availability policies. For example, a bank may inform its
customers that, even when the bank has already made funds available
for withdrawal, the customer is responsible for any problem with the
deposit, such as the return of a deposited check. [rtrif]See Model
Forms C1-C4.[ltrif]
3. The regulation does not require that the disclosures be
segregated from other account terms and conditions. For example,
banks may include the disclosure of their specific availability
policy in a booklet or pamphlet that sets out all of the terms and
conditions of the bank's accounts. The required disclosures must,
however, be grouped together and highlighted or identified in some
manner, for example, by use of a separate heading for the
disclosures, such as ``When Deposits are Available for Withdrawal.''
4. A bank may, by agreement or at the consumer's request,
provide any disclosure or notice required by subpart B in a language
other than English, provided that the bank makes a complete
disclosure available in English at the customer's request.
B. 229.15(b) [lsqbb]Uniform[rsqbb] Reference to Day of Availability
1. This paragraph requires banks to disclose in a uniform manner
when deposited funds will be available for withdrawal. Banks must
disclose when deposited funds are available for withdrawal by
stating the business day on which the customer may begin to withdraw
funds [rtrif]in relation to the banking day on which the bank
received the deposit[ltrif]. [lsqbb]The business day funds will be
available must be disclosed as ``the -------- business day after''
the day of deposit, or substantially similar language.[rsqbb] The
business day of availability is determined by counting the number of
business days starting with the [lsqbb]business day following
the[rsqbb] banking day on which the deposit is received, as
determined under Sec. 229.19(a), and ending with the business day
on which the customer may begin to withdraw funds. For example, a
bank that [rtrif]makes electronic direct deposits available on the
banking day they are received may describe the deposits as being
available ``the same business day.'' A bank that makes check
deposits available on the business day after the banking day they
are received may describe the deposits as being available ``the next
day.'' A bank that[ltrif] imposes delays of
[lsqbb]four[rsqbb][rtrif]one[ltrif] intervening business
day[lsqbb]s[rsqbb] [rtrif]between the banking day of receipt and the
business day of availability[ltrif] for [lsqbb]nonlocal[rsqbb]
checks must describe those checks as being available on ``the
[lsqbb]fifth[rsqbb] [rtrif]second[ltrif] business day after'' the
day of the deposit [rtrif]or ``2 business days'' after the day of
the deposit[ltrif].
C. 229.15(c) Multiple Accounts and Multiple Account Holders
1. This paragraph clarifies that banks need not provide multiple
disclosures under the regulation. A single disclosure to a customer
that holds multiple accounts, or a single disclosure to one of the
account holders of a jointly held account, satisfies the disclosure
requirements of the regulation.
D. 229.15(d) Dormant or Inactive Accounts
1. This paragraph makes clear that banks need not provide
disclosure of their specific availability policies to customers that
hold accounts that are either dormant or inactive. The determination
that certain accounts are dormant or inactive must be made by the
bank. If a bank considers an account dormant or inactive for
purposes other than this regulation and no longer provides
statements and other mailings to an account for this reason, such an
account is considered dormant or inactive for purposes of this
regulation.
X. Section 229.16 Specific Availability Policy Disclosure
A. 229.16(a) General
1. This section describes the information that must be disclosed
by banks to comply with Sec. Sec. 229.17 and 229.18(d), which
require that banks furnish notices of their specific policy
regarding availability of deposited funds. The disclosure provided
by a bank must reflect the availability policy followed by the bank
in most cases, even though a bank may in some cases make funds
available sooner or impose a longer delay.
2. The disclosure must reflect the policy and practice of the
bank regarding availability as to most accounts and most deposits
into those accounts. In disclosing the availability policy that it
follows in most cases, a bank may provide a single disclosure that
reflects one policy to all its transaction account customers, even
though some of its customers may receive faster availability than
that reflected in the policy disclosure. Thus, a bank need not
disclose to some customers that they receive faster availability
than indicated in the disclosure. If, however, a bank has a policy
of imposing delays in availability on any customers longer than
those specified in its disclosure, those customers must receive
disclosures that reflect the longer applicable availability periods.
A bank may establish different availability policies for different
groups of customers, such as customers in a particular geographic
area or customers of a particular branch. For purposes of providing
a specific availability policy, the bank may allocate customers
among groups through good faith use of a reasonable method. A bank
may also establish different availability policies for deposits at
different locations, such as deposits at a contractual branch.
3. A bank may disclose that funds are available for withdrawal
on a given day notwithstanding the fact that the bank uses the funds
to pay checks received before that day. For example, a bank may
disclose that its policy is to make funds available from deposits of
[lsqbb]local[rsqbb] checks on the second business day following the
day of deposit, even though it may use the deposited funds to pay
checks prior to the second business day; the funds used to pay
checks in this example are not available for withdrawal until the
second business day after deposit because the funds are not
available for all uses until the second business day. (See the
definition of available for withdrawal in Sec. 229.2(d).)
B. 229.16(b) Content of Specific Policy Disclosure
1. This paragraph sets forth the items that must be included, as
applicable, in a bank's specific availability policy disclosure. The
information that must be disclosed by a particular bank will vary
considerably depending upon the bank's availability policy. For
example, a bank that makes deposited funds available for withdrawal
on the business day following the day of deposit need simply
disclose that deposited funds will be available for withdrawal on
the first business day after the day of deposit, the bank's business
days, and when deposits are considered received.
2. On the other hand, a bank that has a policy of routinely
delaying on a blanket basis the time when [rtrif]some[ltrif]
deposited funds are available for withdrawal would have a more
detailed disclosure. Such blanket hold policies might be for the
maximum time allowed under [lsqbb]the federal law[rsqbb] [rtrif]this
regulation[ltrif] or might be for shorter periods. These banks must
disclose the types of deposits that will be subject to delays, how
the customer can determine the type of deposit being made, and the
day that funds from each type of deposit will be available for
withdrawal.
3. Some banks may have a combination of next-day availability
and blanket delays. For example, a bank may provide next-day
availability for all deposits except for one or two categories, such
as deposits at nonproprietary ATMs and [lsqbb]nonlocal[rsqbb]
personal checks over a specified dollar amount. The bank would
describe the categories that are subject to delays in
[[Page 16945]]
availability and tell the customer when each category would be
available for withdrawal, and state that other deposits will be
available for withdrawal on the first business day after the day of
deposit. Similarly, a bank that provides availability on the second
business day for most of its deposits would need to identify the
categories of deposits which, under the regulation, are subject to
next-day availability and state that all other deposits will be
available on the second business day.
4. [lsqbb]Because many banks' availability policies may be
complex, a bank must give a brief summary of its policy at the
beginning of the disclosure. In addition, t[rsqbb][rtrif]T[ltrif]he
bank must describe any circumstances when actual availability may be
longer than the schedules disclosed. Such circumstances would arise,
for example, when the bank invokes one of the exceptions set forth
in Sec. 229.13 of the regulation, or when the bank delays or
extends the time when deposited funds are available for withdrawal
up to the time periods allowed by the regulation on a case-by-case
basis. [lsqbb]Also, a bank that must make certain checks available
faster under appendix B (reduction of schedules for certain nonlocal
checks) must state that some check deposits will be available for
withdrawal sooner because of special rules and that a list of the
pertinent routing numbers is available upon request.[rsqbb]
[lsqbb]5. Generally, a bank that distinguishes in its disclosure
between local and nonlocal checks based on the routing number on the
check must disclose to its customers that certain checks, such as
some credit union payable-through drafts, will be treated as local
or nonlocal based on the location of the bank by which they are
payable (e.g., the credit union), and not on the basis of the
location of the bank whose routing number appears on the check. A
bank is not required to provide this disclosure, however, if it
makes the proceeds of both local and nonlocal checks available for
withdrawal within the time periods required for local checks in
Sec. Sec. 229.12 and 229.13.[rsqbb]
[lsqbb]6[rsqbb][rtrif]5[ltrif]. The business day cut-off time
used by the bank must be disclosed and if some locations have
different cut-off times the bank must note this in the disclosure
and state the earliest time that might apply. A bank need not list
all of the different cut-off times that might apply. If a bank does
not have a cut-off time prior to its closing time, the bank need not
disclose a cut-off time.
[lsqbb]7[rsqbb][rtrif]6[ltrif]. A bank taking advantage of the
extended time period for making deposits at nonproprietary ATMs
available for withdrawal under Sec.
229.12[lsqbb](f)[rsqbb][rtrif](d)[ltrif] must explain this in the
initial disclosure. In addition, the bank must provide a list (on or
with the initial disclosure) of either the bank's proprietary ATMs
or those ATMs that are nonproprietary at which customers may make
deposits. As an alternative to providing such a list, the bank may
label all of its proprietary ATMs with the bank's name and state in
the initial disclosure that this has been done. Similarly, a bank
taking advantage of the cash withdrawal limitations of Sec. 229.12
[lsqbb](d)[rsqbb][rtrif](b)[ltrif], or the provision in Sec.
229.19(e) allowing holds to be placed on other deposits when a
deposit is made or a check is cashed, must explain this in the
initial disclosure.
[lsqbb]8[rsqbb][rtrif]7[ltrif]. A bank that provides
availability based on when the bank generally receives credit for
deposited checks need not disclose the time when a check drawn on a
specific bank will be available for withdrawal. Instead, the bank
may disclose the categories of deposits that must be available on
the first business day after the day of deposit (deposits subject to
Sec. 229.10) and state the other categories of deposits and the
time periods that will be applicable to those deposits. [lsqbb]For
example, a bank might disclose the four-digit Federal Reserve
routing symbol for local checks and indicate that such checks as
well as certain nonlocal checks will be available for withdrawal on
the first or second business day following the day of deposit,
depending on the location of the particular bank on which the check
is drawn, and disclose that funds from all other checks will be
available on the second or third business day. The bank must also
disclose that the customer may request a copy of the bank's detailed
schedule that would enable the customer to determine the
availability of any check and must provide such schedule upon
request. A change in the bank's detailed schedule would not trigger
the change in policy disclosure requirement of Sec.
229.18(e).[rsqbb]
C. 229.16(c) Longer Delays on a Case-by-Case Basis
1. Notice in specific policy disclosure.
a. Banks that make deposited funds available for withdrawal
sooner than required by the regulation--for example, providing their
customers with immediate or next-day availability for deposited
funds--and delay the time when funds are available for withdrawal
only from time to time determined on a case-by-case basis, must
provide notice of this in their specific availability policy
disclosure. This paragraph outlines the requirements for that
notice.
b. In addition to stating what their specific availability
policy is in most cases, banks that may delay or extend the time
when deposits are available on a case-by-case basis must state that
from time to time funds may be available for withdrawal later than
the time periods in their specific policy disclosure, disclose the
latest time that a customer may have to wait for deposited funds to
be available for withdrawal when a case-by-case hold is placed,
state that customers will be notified when availability of a deposit
is delayed on a case-by-case basis, and advise customers to ask if
they need to be sure of the availability of a particular deposit.
c. A bank that imposes delays on a case-by-case basis is still
subject to the availability requirements of this regulation. If the
bank imposes a delay on a particular deposit that is not longer than
the availability required by Sec. 229.12 for [lsqbb]local and
nonlocal[rsqbb] checks, the reason for the delay need not be based
on the exceptions provided in Sec. 229.13. If the delay exceeds the
time periods permitted under Sec. 229.12, however, then it must be
based on an exception provided in Sec. 229.13, and the bank must
comply with the Sec. 229.13 notice requirements. A bank that
imposes delays on a case-by-case basis may avail itself of the one-
time notice provisions in Sec. 229.13(g)(2) and (3) for deposits to
which those provisions apply.
2. Notice at time of case-by-case delay.
a. In addition to including the disclosures required by
paragraph (c)(1) of this section in their specific availability
policy disclosure, banks that delay or extend the time period when
funds are available for withdrawal on a case-by-case basis must give
customers a [rtrif]written[ltrif] notice when availability of funds
from a particular deposit will be delayed or extended beyond the
time when deposited funds are generally available for withdrawal.
The notice must state that a delay is being imposed and indicate
when the funds will be available. In addition, the notice must
include [lsqbb]the[rsqbb] [rtrif]a number or code that identifies
the customer's[ltrif] account [lsqbb]number[rsqbb], the date of the
deposit, [rtrif]the total amount of the deposit,[ltrif]
[lsqbb]and[rsqbb] the amount of the deposit being delayed[rtrif],
and the day the funds will be available for withdrawal.[ltrif]
b. If notice of the delay was not given at the time the deposit
was made and the bank assesses overdraft or returned check fees on
accounts when a case-by-case hold has been placed, the case-by-case
hold notice provided to the customer must include a notice
concerning overdraft or returned check fees. The notice must state
that the customer may be entitled to a refund of any overdraft or
returned check fees that result from the deposited funds not being
available if the check that was deposited was in fact paid by the
payor bank, and explain how to request a refund of any fees. (See
Sec. 229.16(c)(3).)
c. The requirement that the case-by-case hold notice state the
day that funds will be made available for withdrawal may be met by
stating the date or the number of business days after deposit that
the funds will be made available. This requirement is satisfied if
the notice provides information sufficient to indicate when funds
will be available and the amounts that will be available at those
times. For example, for a deposit involving more than one check, the
bank need not provide a notice that discloses when funds from each
individual item in the deposit will be available for withdrawal.
Instead, the bank may provide a total dollar amount for each of the
time periods when funds will be available, or provide the customer
with an explanation of how to determine the amount of the deposit
that will be held and when the held funds will be available for
withdrawal.
d. For deposits made in person to an employee of the depositary
bank, the notice generally must be given at the time of the deposit.
The notice at the time of the deposit must be given to the person
making the deposit, that is, the ``depositor.'' The depositor need
not be the customer holding the account. For other deposits, such as
deposits received at an ATM, lobby deposit box, night depository,
through the mail, or by armored car, notice must be
[lsqbb]mailed[rsqbb] [rtrif]sent[ltrif] to the customer not later
than the close of the business day following the banking day on
which the deposit was made. Notice to the customer also
[lsqbb]may[rsqbb] [rtrif]must[ltrif] be [lsqbb]provided[rsqbb]
[rtrif]sent[ltrif] not later than the close of the business day
following the banking day on which the deposit was made if the
decision to delay availability is made after the time of the
deposit. [rtrif]If the
[[Page 16946]]
customer has agreed to accept notices electronically, the bank shall
send the notice such that the bank may reasonably expect it to be
received by the customer not later than the first business day
following the banking day the deposit is made.[ltrif]
3. Overdraft and returned check fees. If a depositary bank
delays or extends the time when funds from a deposited check are
available for withdrawal on a case-by-case basis and does not
provide a written notice to its depositor at the time of deposit,
the depositary bank may not assess any overdraft or returned check
fees (such as an insufficient funds charge) or charge interest for
use of an overdraft line of credit, if the deposited check is paid
by the paying bank and these fees would not have occurred had the
additional case-by-case delay not been imposed. A bank may assess an
overdraft or returned check fee under these circumstances, however,
if it provides notice to the customer in the notice required by
paragraph (c)(2) of this section that the fee may be subject to
refund, and refunds the fee upon the request of the customer when
required to do so. The notice must state that the customer may be
entitled to a refund of any overdraft or returned check fees that
are assessed if the deposited check is paid, and indicate where such
requests for a refund of overdraft fees should be directed.
Paragraph (c)(3) applies when a bank provides a case-by-case notice
in accordance with paragraph (c)(2) and does not apply if the bank
has provided an exception hold notice in accordance with Sec.
229.13.
D. 229.16(d) Credit Union Notice of Interest Payment Policy
1. This paragraph sets forth the special disclosure requirement
for credit unions that delay accrual of interest or dividends for
all cash and check deposits beyond the date of receiving provisional
credit for checks being deposited. (The interest payment requirement
is set forth in Sec. 229.14(a).) Such credit unions are required to
describe their policy with respect to accrual of interest or
dividends on deposits in their specific availability policy
disclosure.
XI. Section 229.17 Initial Disclosures
A. This paragraph requires banks to provide a notice of their
availability policy to all potential customers prior to opening an
account. The requirement of a notice prior to opening an account
requires banks to provide disclosures prior to accepting a deposit
to open an account. Disclosures must be given at the time the bank
accepts an initial deposit regardless of whether the bank has opened
the account yet for the customer. If a bank, however, receives a
written request by mail from a person asking that an account be
opened and the request includes an initial deposit, the bank may
open the account with the deposit, provided the bank
[lsqbb]mails[rsqbb] [rtrif]sends[ltrif] the required disclosures to
the customer not later than the business day following the banking
day on which the bank receives the deposit. Similarly, if a bank
receives a telephone request from a customer asking that an account
be opened with a transfer from a separate account of the customer's
at the bank, the disclosure may be mailed not later than the
business day following the banking day of the request.
XII. Section 229.18 Additional Disclosure Requirements
A. 229.18(a) Deposit Slips
1. This paragraph requires banks to include a notice on all
preprinted deposit slips. The deposit slip notice need only state,
somewhere on the front of the deposit slip, that deposits may not be
available for immediate withdrawal. The notice is required only on
preprinted deposit slips--those printed with the customer's account
number and name and furnished by the bank in response to a
customer's order to the bank. A bank need not include the notice on
deposit slips that are not preprinted and supplied to the customer--
such as counter deposit slips--or on those special deposit slips
provided to the customer under Sec. 229.10(c). A bank is not
responsible for ensuring that the notice appear[rtrif]s[ltrif] on
deposit slips that the customer does not obtain from or through the
bank. [lsqbb]This paragraph applies to preprinted deposit slips
furnished to customers on or after September 1, 1988.[rsqbb]
* * * * *
E. 229.18(e) Changes in Policy
1. This paragraph requires banks to send notices to their
customers when the banks change their availability policies with
regard to consumer accounts. A notice may be given in any form as
long as it is clear and conspicuous. If the bank gives notice of a
change by sending the customer a complete new availability
disclosure, the bank must direct the customer to the changed terms
in the disclosure by use of a letter or insert, or by highlighting
the changed terms in the disclosure.
2. Generally, a bank must send a notice at least 30 calendar
days before implementing any change in its availability policy. If
the change results in faster availability of deposits[lsqbb]--for
example, if the bank changes its availability for nonlocal checks
from the fifth business day after deposit to the fourth business day
after deposit--[rsqbb] the bank need not send advance notice. The
bank must, however, send notice of the change no later than 30
calendar days after the change is implemented. [lsqbb]A bank is not
required to give a notice when there is a change in appendix B
(reduction of schedules for certain nonlocal checks).[rsqbb]
3. A bank that has provided its customers with a list of ATMs
under Sec. 229.16(b)(5) shall provide its customers with an updated
list of ATMs once a year if there are changes in the list of ATMs
previously disclosed to the customers.
XIII. Section 229.19 Miscellaneous
A. 229.19(a) When Funds Are Considered Deposited
1. The time funds must be made available for withdrawal under
this subpart is determined by the day the deposit is made. This
paragraph provides rules to determine the day funds are considered
deposited in various circumstances.
2. Staffed facilities and ATMs. Funds received at a staffed
teller station or ATM are considered deposited when received by the
teller or placed in the ATM. Funds received at 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.) Funds
deposited to a deposit box in a bank lobby that is accessible to
customers only during regular business hours generally are
considered deposited when placed in the lobby box; a bank may,
however, treat deposits to lobby boxes the same as deposits to night
depositories (as provided in Sec. 229.19(a)(3)), provided a notice
appears on the lobby box informing the customer when such funds will
be considered deposited.
3. Mail. Funds mailed to the depositary bank are considered
deposited on the banking day they are received by the depositary
bank. The funds are received by the depositary bank at the time the
mail is delivered to the bank, even if it is initially delivered to
a mail room, rather than the check processing area.
4. Other facilities.
a. In addition to deposits at staffed facilities, at ATMs, and
by mail, funds may be deposited at a facility such as a night
depository or a lock box. A night depository is a receptacle for
receipt of deposits, typically used by corporate depositors when the
branch is closed. Funds deposited at a night depository are
considered deposited on the banking day the deposit is removed, and
the contents of the deposit are accessible to the depositary bank
for processing. For example, some businesses deposit their funds in
a locked bag at the night depository late in the evening, and return
to the bank the following day to open the bag. Other depositors may
have an agreement with their bank that the deposit bag must be
opened under the dual control of the bank and the depositor. In
these cases, the funds are considered deposited when the customer
returns to the bank and opens the deposit bag.
b. A lock box is a post office box used by a corporation for the
collection of bill payments or other check receipts. The depositary
bank generally assumes the responsibility for collecting the mail
from the lock box, processing the checks, and crediting the
corporation for the amount of the deposit. Funds deposited through a
lock box arrangement are considered deposited on the day the deposit
is removed from the lock box and are accessible to the depositary
bank for processing.
5. Certain off-premise ATMs. A special provision is made for
certain off-premise ATMs that are not serviced daily. Funds
deposited at such an ATM are considered deposited on the day they
are removed from the ATM, if the ATM is not serviced more than two
times each week. This provision is intended to address the practices
of some banks of servicing certain remote ATMs infrequently. If a
depositary bank applies this provision with respect to an ATM, a
notice must be posted at the ATM informing depositors that funds
deposited at the ATM may not be considered deposited until a future
day, in accordance with Sec. 229.18.
[[Page 16947]]
6. Banking day of deposit.
a. This paragraph also provides that a deposit received on a day
that the depositary bank is closed, or after the bank's cut-off
hour, may be considered made on the next banking day. Generally, for
purposes of the availability schedules of this subpart, a bank may
establish a cut-off hour of 2[rtrif]:00[ltrif] p.m. or later for
receipt of deposits at its head office or branch offices. 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 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.
b. Different cut-off hours may be established for different
types of deposits. For example, a bank may establish a
2[rtrif]:00[ltrif] p.m. cut-off for the receipt of check deposits,
but a later cut-off for the receipt of wire transfers. Different
cut-off hours also may be established for deposits received at
different locations. For example, a different cut-off may be
established for ATM deposits than for over-the-counter deposits, or
for different teller stations at the same branch. With the exception
of the 12[rtrif]:00[ltrif] noon cut-off for deposits at ATMs and
off-premise facilities, no cut-off hour for receipt of deposits for
purposes of this subpart can be established earlier than
2[rtrif]:00[ltrif] p.m.
c. A bank is not required to remain open until
2[rtrif]:00[ltrif] p.m. If a bank closes before 2[rtrif]:00[ltrif]
p.m., deposits received after the closing may be considered
deposited on the next banking day. Further, as Sec. 229.2(f)
defines the term banking day as the portion of a business day on
which a bank is open to the public for substantially all of its
banking functions, a day, or a portion of a day, is not necessarily
a banking day merely because the bank is open for only limited
functions, such as keeping drive-in or walk-up teller windows open,
when the rest of the bank is closed to the public. For example, a
banking office that usually provides a full range of banking
services may close at 12[rtrif]:00[ltrif] noon but leave a drive-in
teller window open for the limited purpose of receiving deposits and
making cash withdrawals. Under those circumstances, the bank is
considered closed and may consider deposits received after
12[rtrif]:00[ltrif] noon as having been received on the next banking
day. The fact that a bank may reopen for substantially all of its
banking functions after 2[rtrif]:00[ltrif] p.m., or that it
continues its back office operations throughout the day, would not
affect this result. A bank may not, however, close individual teller
stations and reopen them for next-day's business before
2[rtrif]:00[ltrif] p.m. during a banking day.
B. 229.19(b) Availability at Start of Business Day
1. If funds must be made available for withdrawal on a business
day [rtrif]under subpart B[ltrif], the funds must be available for
withdrawal by the later of 9[rtrif]:00[ltrif] a.m. or the time the
depositary bank's teller facilities, including ATMs, are available
for customer account withdrawals, except under the special rule for
cash withdrawals set forth in Sec.
229.12[lsqbb](d)[rsqbb][rtrif](b)[ltrif]. Thus, if a bank has no
ATMs and its branch facilities are available for customer
transactions beginning at 10[rtrif]:00[ltrif] a.m., funds must be
available for customer withdrawal beginning at 10[rtrif]:00[ltrif]
a.m. If the bank has ATMs that are available 24 hours a day, rather
than establishing 12:01 a.m. as the start of the business day, this
paragraph sets 9[rtrif]:00[ltrif] a.m. as the start of the day with
respect to ATM withdrawals. The Board believes that this rule
provides banks with sufficient time to update their accounting
systems to reflect the available funds in customer accounts for that
day.
2. The start of business is determined by the local time of the
branch or other location of the depositary bank at which the account
is maintained. For example, if funds in a customer's account at a
west coast bank are first made available for withdrawal at the start
of business on a given day, and the customer attempts to withdraw
the funds at an east coast ATM, the depositary bank is not required
to make the funds available until 9[rtrif]:00[ltrif] a.m.
[lsqbb]west coast time[rsqbb] (12[rtrif]:00[ltrif] noon [lsqbb]east
coast[rsqbb] [rtrif]Eastern[ltrif] time).
C. 229.19(c) Effect on Policies of Depositary Bank
1. This subpart establishes the maximum hold that may be placed
on customer deposits. A depositary bank may provide availability to
its customers in a shorter time than prescribed in this subpart. A
depositary bank also may adopt different funds availability policies
for different segments of its customer base, as long as each policy
meets the schedules in the regulation. For example, a bank may
differentiate between its corporate and consumer customers, or may
adopt different policies for its consumer customers based on whether
a customer has an overdraft line of credit associated with the
account.
2. This regulation does not affect a depositary bank's right to
accept or reject a check for deposit, to charge back the customer's
account based on a returned check or notice of nonpayment, or to
claim a refund for any credit provided to the customer. For example,
even if a check is returned or a notice of nonpayment is received
after the time by which funds must be made available for withdrawal
in accordance with this regulation, the depositary bank may charge
back the customer's account for the full amount of the check.
[lsqbb](See Sec. 229.33(d) and Commentary.)[rsqbb]
3. Nothing in the regulation requires a depositary bank to have
facilities open for customers to make withdrawals at specified times
or on specified days. For example, even though the special cash
withdrawal rule set forth in Sec.
229.12[lsqbb](d)[rsqbb][rtrif](b)[ltrif] states that a bank must
make [lsqbb]up to $400 available for cash
withdrawals[rsqbb][rtrif]the cash withdrawal amount available[ltrif]
no later than 5[rtrif]:00[ltrif] p.m. on specific business days, if
a bank does not participate in an ATM system and does not have any
teller windows open at or after 5[rtrif]:00[ltrif] p.m., the bank
need not join an ATM system or keep offices open. In this case, the
bank complies with this rule if the funds that are required to be
available for cash withdrawal at 5[rtrif]:00[ltrif] p.m. on a
particular day are available for withdrawal at the start of business
on the following day. Similarly, if a depositary bank is closed for
customer transactions, including ATMs, on a day funds must be made
available for withdrawal, the regulation does not require the bank
to open.
4. The special cash withdrawal rule in the EFA Act recognizes
that the [lsqbb]$400[rsqbb][rtrif]the cash withdrawal amount[ltrif]
that must be made available for cash withdrawal by
5[rtrif]:00[ltrif] p.m. on the day specified in the schedule may
exceed a bank's daily ATM cash withdrawal limit and explicitly
provides that the EFA Act does not supersede a bank's policy in this
regard. As a result, if a bank has a policy of limiting
[rtrif]daily[ltrif] cash withdrawals from automated teller machines
to [lsqbb]$250 per day[rsqbb][rtrif]less than the cash withdrawal
amount[ltrif], the regulation would not require that the bank
dispense [lsqbb]$400 of the proceeds of the customer's
deposit[rsqbb][rtrif]the full amount[ltrif] that must be made
available for cash withdrawal on that day.
5. Even though the EFA Act clearly provides that the bank's ATM
withdrawal limit is not superseded by the federal availability rules
on the day funds must first be made available, the EFA Act does not
specifically permit banks to limit cash withdrawals at ATMs on
subsequent days when the entire amount of the deposit must be made
available for withdrawal. The Board believes that the rationale
behind the EFA Act's provision that a bank's ATM withdrawal limit is
not superseded by the requirement that funds be made available for
cash withdrawal applies on subsequent days. Nothing in the
regulation prohibits a depositary bank from establishing ATM cash
withdrawal limits that vary among customers of the bank, as long as
the limit is not dependent on the length of time funds have been in
the customer's account (provided that the permissible hold has
expired).
6. Some small banks, particularly credit unions, due to lack of
secure facilities, keep no cash on their premises and hence offer no
cash withdrawal capability to their customers. Other banks limit the
amount of cash on their premises due to bonding requirements or cost
factors, and consequently reserve the right to limit the amount of
cash each customer can withdraw over-the-counter on a given day. For
example, some banks require advance notice for large cash
withdrawals in order to limit the amount of cash needed to be
maintained on hand at any time.
7. Nothing in the regulation is intended to prohibit a bank from
limiting the amount of cash that may be withdrawn at a staffed
teller station if the bank has a policy limiting the amount of cash
that may be withdrawn, and if that policy is applied equally to all
customers of the bank, is based on security,
[[Page 16948]]
operating, or bonding requirements, and is not dependent on the
length of time the funds have been in the customer's account (as
long as the permissible hold has expired). The regulation, however,
does not authorize such policies if they are otherwise prohibited by
statutory, regulatory, or common law.
D. 229.19(d) Use of Calculated Availability
1. A depositary bank may provide availability to its nonconsumer
accounts on a calculated availability basis. Under calculated
availability, a specified percentage of funds from check deposits
may be made available to the customer on the next business day, with
the remaining percentage deferred until [rtrif]the[ltrif] subsequent
day[lsqbb]s[rsqbb]. The determination of the percentage of deposited
funds that will be made available each day is based on the
customer's typical deposit mix as determined by a sample of the
customer's deposits. Use of calculated availability is permitted
only if, on average, the availability terms that result from the
sample are equivalent to or more prompt than the requirements of
this subpart.
E. 229.19(e) Holds on Other Funds
1. Section 607(d) of the EFA Act (12 U.S.C. 4006(d)) provides
that once funds are available for withdrawal under the EFA Act, such
funds shall not be frozen solely due to the subsequent deposit of
additional checks that are not yet available for withdrawal. This
provision of the EFA Act is designed to prevent evasion of the EFA
Act's availability requirements.
2. This paragraph clarifies that if a customer deposits a check
in an account (as defined in Sec. 229.2(a)), the bank may not place
a hold on any of the customer's funds so that the funds that are
held exceed the amount of the check deposited or the total amount of
funds held are not made available for withdrawal within the times
required in this subpart. For example, if a bank places a hold on
funds in a customer's non[rtrif]-[ltrif]transaction account, rather
than a transaction account, for deposits made to the customer's
transaction account, the bank may place such a hold only to the
extent that the funds held do not exceed the amount of the deposit
and the length of the hold does not exceed the time periods
permitted by this regulation.
3. These restrictions also apply to holds placed on funds in a
customer's account (as defined in Sec. 229.2(a)) if a customer
cashes a check at a bank (other than a check drawn on that bank)
over the counter. The regulation does not prohibit holds that may be
placed on other funds of the customer for checks cashed over the
counter, to the extent that the transaction does not involve a
deposit to an account. [rtrif]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 have been
required under Sec. Sec. 229.13 or 229.16 had the check been
deposited in the account.[ltrif] A bank may not, however, place a
hold on any account when an ``on us'' check is cashed over the
counter. ``On us'' checks are considered finally paid when cashed
(see U.C.C. 4-215(a)(1)). [lsqbb]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 have been
required under Sec. Sec. 229.13 or 229.16 had the check been
deposited in the account.[rsqbb]
F. 229.19(f) Employee Training and Compliance
1. The EFA Act requires banks to take such actions as may be
necessary to inform fully each employee that performs duties subject
to the EFA Act of the requirements of the EFA Act, and to establish
and maintain procedures reasonably designed to
[lsqbb]assure[rsqbb][rtrif]ensure[ltrif] and monitor employee
compliance with such requirements.
2. This paragraph requires a bank to establish procedures to
ensure compliance with these requirements and provide these
procedures to the employees responsible for carrying them out.
G. 229.19(g) Effect of Merger Transaction
1. After banks merge, there is often a period of adjustment
before their operations are consolidated. This paragraph
accommodates this adjustment period by allowing merged banks to be
treated as separate banks for purposes of this subpart for a period
of up to one year after consummation of the merger transaction,
except that a customer of any bank that is a party to the
transaction that has an established account with that bank may not
be treated as a new[rtrif]-[ltrif]account holder for any other party
to the transaction for purposes of the new[rtrif]-[ltrif]account
exception of Sec. 229.13(a), and a deposit in any branch of the
merged bank is considered deposited in the bank for purposes of the
availability schedules in accordance with Sec. 229.19(a).
2. This rule affects the status of the combined entity in
several areas. For example, this rule would affect when an ATM is a
proprietary ATM (Sec. 229.2[lsqbb](aa)[rsqbb][rtrif](kk)[ltrif] and
Sec. 229.12[lsqbb](b)[rsqbb][rtrif](d)[ltrif]) and when a check is
considered drawn on a branch of the depositary bank (Sec.
229.10(c)(1)(vi)).
3. Merger transaction is defined in Sec.
229.2[lsqbb](t)[rsqbb][rtrif](dd)[ltrif].
XIV. Section 229.20 Relation to State Law
A. 229.20(a) In General
1. Several states have enacted laws that govern when banks in
those states must make funds available to their customers. The EFA
Act provides that any state law in effect on September 1, 1989, that
provides that funds be made available in a shorter period of time
than provided in this regulation, will supersede the time periods in
the EFA Act and the regulation. [lsqbb]The Conference Report on the
EFA Act clarifies this provision by stating that any state law
enacted on or before September 1, 1989, may supersede federal law to
the extent that the law relates to the time funds must be made
available for withdrawal. H.R. Rep. No. 261, 100th Cong. 1st Sess.
at 182 (1987).[rsqbb]
2. Thus, if a state had wished to adopt a law governing funds
availability, it had to have made that law effective on or before
September 1, 1989. Laws adopted after that date do not supersede
federal law, even if they provide for shorter availability periods
than are provided under federal law. If a state that had a law
governing funds availability in effect before September 1, 1989,
amended its law after that date, the amendment would not supersede
Federal law, but an amendment deleting a state requirement would be
effective.
3. If a state provides for a shorter hold for a certain category
of checks than is provided for under Federal law, that state
requirement will supersede the federal provision. [lsqbb]For
example, most state laws base some hold periods on whether the check
being deposited is drawn on an in-state or out-of-state bank. If a
state contains more than one check processing region, the state's
hold period for in-state checks may be shorter than the Federal
maximum hold period for nonlocal checks. Thus, the state schedule
would supersede the Federal schedule to the extent that it applies
to in-state, nonlocal checks.
4.[rsqbb] The EFA Act also provides that any state law that
provides for availability in a shorter period of time than required
by Federal law is applicable to all federally insured institutions
in that state, including federally chartered institutions. If a
state law provides shorter availability only for deposits in
accounts in certain categories of banks, such as commercial banks,
the superseding state law continues to apply only to those
categories of banks, rather than to all federally insured banks in
the state.
B. 229.20(b) Preemption of Inconsistent Law
1. This paragraph reflects the statutory provision that other
provisions of state law that are inconsistent with federal law are
preempted. Preemption does not require a determination by the Board
to be effective.
C. 229.20(c) Standards for Preemption
1. This section describes the standards [lsqbb]the Board uses
in[rsqbb][rtrif]for[ltrif] making determinations on whether federal
law will preempt state laws governing funds availability. A
provision of state law is considered inconsistent with federal law
if it permits a depositary bank to make funds available to a
customer in a longer period of time than the maximum period
permitted by the EFA Act and this regulation. For example, a state
law that permits a hold of [lsqbb]four[rsqbb][rtrif]three[ltrif]
business days or longer for [lsqbb]local[rsqbb] checks permits a
hold that is longer than that permitted under the EFA Act and this
regulation, and therefore is inconsistent and preempted. State
availability schedules that provide for availability in a shorter
period of time than required under Regulation CC supersede the
federal schedule.
2. Under a state law, some categories of deposits could be
available for withdrawal sooner or later than the time required by
this subpart, depending on the composition of the deposit. For
example, the EFA Act and this regulation (Sec. 229.10(c)(1)(vii))
require next-day availability for [lsqbb]the first
$100[rsqbb][rtrif]a minimum amount[ltrif] of the aggregate deposit
of [lsqbb]local or nonlocal[rsqbb] checks on any day, and a state
law could require next-day availability for any check of
[lsqbb]$100[rsqbb][rtrif]the minimum amount under Sec.
229.10(c)[ltrif] or less that is deposited. Under the EFA Act and
this regulation, if [rtrif]on a given day[ltrif] either one
[lsqbb]$150[rsqbb] check [rtrif]that is greater than the minimum
amount or three checks that are
[[Page 16949]]
each less than the minimum amount, but that combined are more than
the minimum amount, are deposited[ltrif][lsqbb]or three $50 checks
are deposited on a given day[rsqbb], [lsqbb]$100[rsqbb] [rtrif]the
minimum amount under Sec. 229.10(c)[ltrif] must be made available
for withdrawal on the next business day, and
[lsqbb]$50[rsqbb][rtrif]the remaining amount[ltrif] must be made
available in accordance with the [lsqbb]local or nonlocal[rsqbb]
[rtrif]general[ltrif] schedule. Under the state law, however, the
two deposits would be subject to different availability rules. In
the first case, none of the proceeds of the deposit would be subject
to next-day availability; in the second case, the entire proceeds of
the deposit would be subject to next-day availability. In this
example, because the state law would, in some situations, permit a
hold longer than the maximum permitted by the EFA Act, this
provision of state law is inconsistent and preempted in its
entirety.
3. In addition to the differences between state and federal
availability schedules, a number of state laws contain exceptions to
the state availability schedules that are different from those
provided under the EFA Act and this regulation. The state exceptions
continue to apply only in those cases where the state schedule is
shorter than or equal to the federal schedule, and then only up to
the limit permitted by the Regulation CC schedule. Where a deposit
is subject to a state exception under a state schedule that is not
preempted by Regulation CC and is also subject to a federal
exception, the hold on the deposit cannot exceed the hold
permissible under the federal exception in accordance with
Regulation CC. In such cases, only one exception notice is required,
in accordance with Sec. 229.13(g). This notice need only include
the applicable federal exception as the reason the exception was
invoked. For those categories of checks for which the state schedule
is preempted by the federal schedule, only the federal exceptions
may be used.
4. State laws that provide maximum availability periods for
categories of deposits that are not covered by the EFA Act would not
be preempted. Thus, state funds availability laws that apply to
funds in time and savings deposits are not affected by the EFA Act
or this regulation. In addition, the availability schedules of
several states apply to ``items'' deposited to an account. The term
items may encompass [rtrif]types of[ltrif] deposits [lsqbb], such as
nonnegotiable instruments,[rsqbb] that are not subject to the
Regulation CC availability schedules. Deposits that are not covered
by Regulation CC continue to be subject to the state availability
schedules. State laws that provide maximum availability periods for
categories of institutions that are not covered by the EFA Act also
would not be preempted. For example, a state law that governs money
market mutual funds would not be affected by the EFA Act or this
regulation.
5. Generally, state rules governing the disclosure or notice of
availability policies applicable to accounts also are preempted, if
they are different from the federal rules. Nevertheless, a state law
requiring disclosure of funds availability policies that apply to
deposits other than ``accounts,'' such as savings or time deposits,
are not inconsistent with the EFA Act and this subpart. Banks in
these states would have to follow the state disclosure rules for
these deposits.
D. 229.20(d) Preemption Determinations
1. The Board may issue preemption determinations upon the
request of an interested party in a state. The determinations will
relate only to the provisions of
[lsqbb]S[rsqbb][rtrif]s[ltrif]ubparts A and B; generally the Board
will not issue individual preemption determinations regarding the
relation of state U.C.C. provisions to the requirements of
[lsqbb]S[rsqbb][rtrif]s[ltrif]ubpart C [rtrif]or D[ltrif].
E. 229.20(e) Procedures for Preemption Determinations
1. This provision sets forth the information that must be
included in a request by an interested party for a preemption
determination [lsqbb]by the Board[rsqbb].
XV. Section 229.21 Civil Liability
A. 229.21(a) Civil Liability
1. This paragraph sets forth the statutory penalties for failure
to comply with the requirements of this subpart. These penalties
apply to provisions of state law that supersede provisions of this
regulation, such as requirements that funds deposited in accounts at
banks be made available more promptly than required by this
regulation, but they do not apply to other provisions of state law.
(See Commentary to Sec. 229.20.)
B. 229.21(b) Class Action Awards
1. This paragraph sets forth the provision in the EFA Act
concerning the factors that should be considered by the court in
establishing the amount of a class action award.
C. 229.21(c) Bona Fide Errors
1. A bank is shielded from liability under this section for a
violation of a requirement of this subpart if it can demonstrate, by
a preponderance of the evidence, that the violation resulted from a
bona fide error and that it maintains procedures designed to avoid
such errors. For example, a bank may make a bona fide error if it
fails to give next-day availability on a check drawn on the Treasury
because the bank's computer system malfunctions in a way that
prevents the bank from updating its customer's account[lsqbb]; or if
it fails to identify whether a payable-through check is a local or
nonlocal check despite procedures designed to make this
determination accurately[rsqbb].
D. 229.21(d) Jurisdiction
1. The EFA Act confers subject matter jurisdiction on courts of
competent jurisdiction and provides a time limit for civil actions
for violations of this subpart.
E. 229.21(e) Reliance on Board Rulings
1. This provision shields banks from civil liability if they act
in good faith in reliance on any rule, regulation, model form,
notice, or clause (if the disclosure actually corresponds to the
bank's availability policy), or interpretation of the Board, even if
it were subsequently determined to be invalid. Banks may rely on
this Commentary, which is issued as an official Board
interpretation, as well as on the regulation itself.
[rtrif]2. This provision does not shield a bank from civil
liability if the bank relies on earlier versions of the model forms
(i.e., those not currently in appendix C) after [lsqbb]date that is
12 months after the effective date of the rule[rsqbb].[ltrif]
F. 229.21(f) Exclusions
1. This provision clarifies that liability under this section
does not apply to violations of the requirements of
[lsqbb]S[rsqbb][rtrif]s[ltrif]ubpart C [rtrif]or D[ltrif] of this
regulation, or to actions for wrongful dishonor of a check by a
paying bank's customer.
G. 229.21(g) Record Retention
1. Banks must keep records to show compliance with the
requirements of this subpart for at least two years. This record
retention period is extended in the case of civil actions and
enforcement proceedings. Generally, a bank is not required to retain
records showing that it actually has given disclosures or notices
required by this subpart to each customer, but it must retain
evidence demonstrating that its procedures reasonably ensure the
customers' receipt of the required disclosures and notices. A bank
must, however, retain a copy of each notice provided pursuant to its
use of the reasonable[rtrif]-[ltrif]cause exception under Sec.
229.13(g) as well as a brief description of the facts giving rise to
the availability of that exception.
XVI. Section 229.30 Paying Bank's Responsibility for Return of
Checks
A. 229.30(a) Return of Checks
1. This section requires a paying bank (which, for purposes of
[lsqbb]S[rsqbb][rtrif]s[ltrif]ubpart C, may include a payable-
through and payable-at bank; see [lsqbb]Sec. 229.2(z)[rsqbb]
[rtrif]Sec. 229.2(ii)[ltrif]) that determines not to pay a check to
return the check expeditiously. [lsqbb]Generally, a check[rsqbb]
[rtrif]A returned check, including the original check, substitute
check, and electronic return,[ltrif] is returned expeditiously if
[lsqbb]the return process is as fast as the forward collection
process. This paragraph provides two standards for expeditious
return, the ``two-day/four-day'' test, and the ``forward
collection'' test[rsqbb][rtrif]paying bank sends the return such
that the depositary bank normally would receive the returned check
no later than 4 p.m. (local time of the depositary bank) two
business days after presentment to the paying bank. See Sec.
229.30(b) and commentary thereto for the exceptions to this general
rule. If the paying bank need not return the check expeditiously
under Sec. 229.30(a), the paying bank, nonetheless, must return the
check within its deadlines under the Uniform Commercial Code,
Regulation J (12 CFR part 210) or Sec. 229.36(d)(2), or Sec.
229.30(c) for returning the item or notice (See Sec. 229.30(a)(4)
and accompanying commentary).[ltrif]
[lsqbb]2. Under the ``two-day/four-day'' test, if a check is
returned such that it would normally be received by the depositary
bank two business days after presentment where both the paying and
depositary banks are located in the same check processing region or
four business days after presentment where the paying and depositary
banks are not located in the same check processing region, the check
is considered returned expeditiously. In certain limited cases,
[[Page 16950]]
however, these times are shorter than the time it would normally
take a forward collection check deposited in the paying bank and
payable by the depositary bank to be collected. Therefore, the Board
has included a ``forward collection'' test, whereby a check is
nonetheless considered to be returned expeditiously if the paying
bank uses transportation methods and banks for return comparable to
those used for forward collection checks, even if the check is not
received by the depositary banks within the two-day or four-day
period.
3. Two-day/four-day test.
a. Under the first test, a paying bank must return the check so
that the check would normally be received by the depositary bank
within specified times, depending on whether or not the paying and
depositary banks are located in the same check processing region.
b. Where both banks are located in the same check processing
region, a check is returned expeditiously if it is returned to the
depositary bank by 4 p.m. (local time of the depositary bank) of the
second business day after the banking day on which the check was
presented to the paying bank. For example, a check presented on
Monday to a paying bank must be returned to a depositary bank
located in the same check processing region by 4 p.m. on Wednesday.
For a paying bank that is located in a different check processing
region than the depositary bank, the deadline to complete return is
4 p.m. (local time of the depositary bank) of the fourth business
day after the banking day on which the check was presented to the
paying bank. For example, a check presented to such a paying bank on
Monday must be returned to the depositary bank by 4 p.m. on Friday.
c. This two-day/four-day test does not necessarily require
actual receipt of the check by the depositary bank within these
times. Rather, the paying bank must send the check so that the check
would normally be received by the depositary bank within the
specified time. Thus, the paying bank is not responsible for
unforeseeable delays in the return of the check, such as
transportation delays.[rsqbb]
[lsqbb]d[rsqbb][rtrif]2[ltrif]. [lsqbb]Often, returned checks
will be delivered to the depositary bank together with forward
collection checks.[rsqbb] Where the last day on which a check could
be delivered to a depositary bank under [lsqbb]this two-day/four-day
test[rsqbb] Sec. 229.30(a) is not a banking day for the depositary
bank, [lsqbb]a returning bank might not schedule delivery of forward
collection checks to the depositary bank on that day.
Further,[rsqbb] the depositary bank may not process checks on that
day. Consequently, if the last day of the time limit business day
following the banking day after which the check was presented is not
a banking day for the depositary bank, the check electronic return
may be delivered to the depositary bank sent such that it is
received by the depositary bank before the close of the depositary
bank's next banking day and the return will still be considered
expeditious. [lsqbb]Ordinarily, this extension of time will allow
the returned checks to be delivered with the next shipment of
forward collection checks destined for the depositary bank.[rsqbb]
[lsqbb]e. The times specified in this two-day/four-day test are
based on estimated forward-collection times, but take into account
the particular difficulties that may be encountered in handling
checks. It is anticipated that the normal process of forward
collection of a check coupled with these return requirements will
result in the return of checks before the proceeds of local and
nonlocal checks, other than those covered by section 229.10(c), must
be made available for withdrawal.[rsqbb]
[rtrif]3. In order to satisfy its expeditious return
requirement, a paying bank may return either an electronic return or
a paper check.[ltrif]
[lsqbb]f.[rsqbb] [rtrif]4.[ltrif] [lsqbb]Under this two-day/
four-day test, no[rsqbb] [rtrif]No[ltrif] particular
[lsqbb]means[rsqbb][rtrif]path[ltrif] of returning checks is
required, thus providing flexibility to paying banks in selecting
[lsqbb]means[rsqbb][rtrif]the path[ltrif] of return. The Board
anticipates that paying banks will often use returning banks (see
Sec. 229.31) as their agents to return checks to depositary banks.
A paying bank may rely on the availability schedule of the returning
bank it uses in determining whether the returned check would
``normally'' be returned within the required time [lsqbb]under this
two-day/four-day test[rsqbb], unless the paying bank has reason to
believe that these schedules do not reflect the actual time for
return of a check.
[lsqbb]4. Forward collection test.
a. Under the second, ``forward collection,'' test, a paying bank
returns a check expeditiously if it returns a check by means as
swift as the means similarly situated banks would use for the
forward collection of a check drawn on the depositary bank.
b. Generally, the paying bank would satisfy the ``forward
collection'' test if it uses a transportation method and collection
path for return comparable to that used for forward collection,
provided that the returning bank selected to process the return
agrees to handle the returned check under the standards for
expeditious return for returning banks under Sec. 229.31(a). This
test allows many paying banks a simple means of expeditious return
of checks and takes into account the longer time for return that
will be required by banks that do not have ready access to direct
courier transportation.
c. The paying bank's normal method of sending a check for
forward collection would not be expeditious, however, if it is
materially slower than that of other banks of similar size and with
similar check handling activity in its community.
d. Under the ``forward collection'' test, a paying bank must
handle, route, and transport a returned check in a manner designed
to be at least as fast as a similarly situated bank would collect a
forward collection check (1) of similar amount, (2) drawn on the
depositary bank, and (3) received for deposit by a branch of the
paying bank or a similarly situated bank by noon on the banking day
following the banking day of presentment of the returned check.
e. This test refers to similarly situated banks to indicate a
general community standard. In the case of a paying bank (other than
a Federal Reserve Bank), a similarly situated bank is a bank of
similar asset size, in the same community, and with similar check
handling activity as the paying bank. (See Sec. 229.2(ee).) A
paying bank has similar check handling activity to other banks that
handle similar volumes of checks for collection.
f. Under the forward collection test, banks that use means of
handling returned checks that are less efficient than the means used
by similarly situated banks must improve their procedures. On the
other hand, a bank with highly efficient means of collecting checks
drawn on a particular bank, such as a direct presentment of checks
to a bank in a remote community, is not required to use that means
for returned checks, i.e. direct return, if similarly situated banks
do not present checks directly to that depositary bank.[rsqbb]
5. Examples.
[rtrif]a. The depositary bank has agreed to accept electronic
returns directly from a paying bank. If a check is presented to that
paying bank on Monday, the paying bank must send the returned check
such that the depositary bank normally would receive the returned
check by 4 p.m. (local time of the depositary bank) on Wednesday.
b. The depositary bank has not agreed to accept electronic
returns directly from the paying bank, but has agreed to accept
electronic returns from Returning Bank A, which holds itself as
willing to accept electronic returns directly or indirectly from the
paying bank and has agreed to handle returns expeditiously under
Sec. 229.31(a). If a check is presented to the paying bank on
Monday, the paying bank must send the returned check such that the
depositary bank normally would receive the returned check by 4:00
p.m. (local time of the depositary bank) on Wednesday. The paying
bank may rely on Returning Bank A's schedules for sending returned
checks in determining whether the depositary bank normally would
receive the returned check by 4 p.m. on Wednesday.
c. The depositary bank has not agreed to accept electronic
returns directly from the paying bank, but has agreed to accept
electronic returns from Returning Bank A, which holds itself as
willing to accept electronic returns directly or indirectly from the
paying bank and has agreed to handle returns expeditiously under
Sec. 229.31(a). Returning Bank A, however, does not have an
agreement with the paying bank to accept returns; rather Returning
Bank B has agreed to accept returns from the paying bank and to
handle such returns expeditiously. Returning Bank A has agreed to
accept returns from Returning Bank B. If a check is presented to the
paying bank on Monday, the paying bank must send the returned check
such that the depositary bank normally would receive the returned
check by 4 p.m. (local time of the depositary bank) on Wednesday.
d. The depositary bank and paying bank are members of the same
clearinghouse, through which both have agreed to accept electronic
returns. If a check is presented to that paying bank on Monday, the
paying bank must send an electronic return such that the depositary
bank normally would receive the returned check by 4 p.m. (local time
of the depositary bank) on Wednesday.
[[Page 16951]]
e. In each example, the paying bank must send the returned check
such that the depositary bank normally would receive the check by 4
p.m. (local time of the depositary bank) on Wednesday. The paying
bank may satisfy its obligation by sending either an electronic
return or a paper check by such time. Additionally, if the paying
bank sends the returned check in a manner such that the depositary
bank normally would receive the returned check by 4 p.m. on
Wednesday, but the depositary bank does not receive the returned
check by that time due to an operational difficulty of the
depositary bank or returning bank, the paying bank has satisfied its
expeditious return requirement.[ltrif]
[lsqbb]If a check is presented to a paying bank on Monday and
the depositary bank and the paying bank are participants in the same
clearinghouse and the depositary bank has agreed to receive returns
electronically through the clearinghouse, the paying bank should
arrange to have the returned check received by the depositary bank
by Wednesday. This would be the same day the paying bank would
deliver a forward collection check to the depositary bank if the
paying bank received the deposit by noon on Tuesday.[rsqbb]
[lsqbb]b. i. If a check is presented to a paying bank on Monday
and the paying bank would normally collect checks drawn on the
depositary bank by sending them to a correspondent or a Federal
Reserve Bank by courier, the paying bank could send the returned
check to its correspondent or Federal Reserve Bank, provided that
the correspondent has agreed to handle returned checks expeditiously
under Sec. 229.31(a). (All Federal Reserve Banks agree to handle
returned checks expeditiously.)
ii. The paying bank must deliver the returned check to the
correspondent or Federal Reserve Bank by the correspondent's or
Federal Reserve Bank's appropriate cut-off hour. The appropriate
cut-off hour is the cut-off hour for returned checks that
corresponds to the cut-off hour for forward collection checks drawn
on the depositary bank that would normally be used by the paying
bank or a similarly situated bank. A returned check cut-off hour
corresponds to a forward collection cut-off hour if it provides for
the same or faster availability for checks destined for the same
depositary banks.
iii. In this example, delivery to the correspondent or a Federal
Reserve Bank by the appropriate cut-off hour satisfies the paying
bank's duty, even if use of the correspondent or Federal Reserve
Bank is not the most expeditious means of returning the check. Thus,
a paying bank may send a local returned check to a correspondent
instead of a Federal Reserve Bank, even if the correspondent then
sends the returned check to a Federal Reserve Bank the following day
as a qualified returned check. Where the paying bank delivers
forward collection checks by courier to the correspondent or the
Federal Reserve Bank, mailing returned checks to the correspondent
or Federal Reserve Bank would not satisfy the forward collection
test.
iv. If a paying bank ordinarily mails its forward collection
checks to its correspondent or Federal Reserve Bank in order to
avoid the costs of a courier delivery, but similarly situated banks
use a courier to deliver forward collection checks to their
correspondent or Federal Reserve Bank, the paying bank must send its
returned checks by courier to meet the forward collection test.
c. If a paying bank normally sends its forward collection checks
directly to the depositary bank, which is located in another
community, but similarly situated banks send forward collection
checks drawn on the depositary bank to a correspondent or a Federal
Reserve Bank, the paying bank would not have to send returned checks
directly to the depositary bank, but could send them to a
correspondent or a Federal Reserve Bank.
d. The dollar amount of the returned check has a bearing on how
it must be returned. If the paying bank and similarly situated banks
present large-dollar checks drawn on the depositary bank directly to
the depositary bank, but use a Federal Reserve Bank or a
correspondent to collect small-dollar checks, generally the paying
bank would be required to send its large-dollar returns directly to
the depositary bank (or through a returning bank, if the checks are
returned as quickly), but could use a Federal Reserve Bank or a
correspondent for its small-dollar returns.[rsqbb]
6. Choice of returning bank.
In meeting the requirements of [lsqbb]the forward collection
test[rsqbb] [rtrif]Sec. 229.30(a)[ltrif], the paying bank is
responsible for its own actions, but not for those of the depositary
bank or returning banks. (This is analogous to the responsibility of
collecting banks under U.C.C. 4-202(c).) For example, if the paying
bank starts the return of the check in a timely manner but return is
delayed by a returning bank [lsqbb](including delay to create a
qualified returned check)[rsqbb], generally the paying bank has met
its [rtrif]expeditious return[ltrif] requirement[lsqbb]s[rsqbb].
(See Sec. 229.38.) If, however, the paying bank selects a returning
bank that the paying bank should know is not capable of meeting its
return requirements, the paying bank will not have met its
obligation of exercising ordinary care in selecting intermediaries
to return the check. [lsqbb]The paying bank is free to use a method
of return, other than its method of forward collection, as long as
the alternate method results in delivery of the returned check to
the depositary bank as quickly as the forward collection of a check
drawn on the depositary bank or, where the returning bank takes a
day to create a qualified returned check under Sec. 229.31(a), one
day later than the forward collection time.[rsqbb] If a paying bank
returns a check on its banking day of receipt without settling for
the check, as permitted under U.C.C. 4-302(a), and receives
settlement for the returned check from a returning bank, it must
promptly pay the amount of the check to the collecting bank from
which it received the check.
[lsqbb]7. Qualified returned checks. Although paying banks may
wish to prepare qualified returned checks because they will be
handled at a lower cost by returning banks, the one business day
extension provided to returning banks is not available to paying
banks because of the longer time that a paying bank has to dispatch
the check. Normally, paying banks will be able to convert a check to
a qualified returned check at any time after the determination is
made to return the check until late in the day following
presentment, while a returning bank may receive returned checks late
on one day and be expected to dispatch them early the next morning.
A check that is converted to a qualified returned check must be
encoded in accordance with ANS X9.13 for original checks or ANS
X9.100-140 for substitute checks.[rsqbb]
[lsqbb]8[rsqbb][rtrif]7[ltrif]. Routing of returned checks.
a. [lsqbb]In effect, under either test,
t[lsqbb][rtrif]T[ltrif]he paying bank acts as an agent or subagent
of the depositary bank in selecting a means of return. Under Sec.
229.30(a), a paying bank is authorized to route the returned
check[rtrif], including an electronic return,[ltrif] in a variety of
ways:
i. It may send the returned check directly to the depositary
bank by courier or other means of delivery[lsqbb],[rsqbb] [rtrif]or
it may send the electronic return directly to the depositary bank if
the depositary bank has agreed to accept electronic returns from the
paying bank, thereby[ltrif] bypassing returning banks; or
ii. It may send the returned check [rtrif]or electronic
return[ltrif] to any returning bank agreeing to handle the returned
check [rtrif]or electronic return[ltrif] for expeditious return to
the depositary bank under Sec. 229.31(a), regardless of whether or
not the returning bank handled the check for forward collection.
[rtrif]In determining whether a depositary bank has agreed to accept
an electronic return from a returning bank, a paying bank may rely
on a returning bank's published list of depositary banks to which it
delivers electronic returns.[ltrif]
b. If the paying bank elects to return the check directly to the
depositary bank, it is not necessarily required to return the check
to the branch of first deposit. The check may be returned to the
depositary bank at any [rtrif]physical[ltrif] location permitted
under [lsqbb]Sec. 229.32(a)[rsqbb] [rtrif]Sec. 229.32(b). If the
paying bank elects to send an electronic return directly to the
depositary bank, it must send the electronic return to the
electronic return point designated by the depositary bank[ltrif].
9. Midnight deadline.
a. Except for the extension permitted by Sec. 229.30(c),
discussed below, this section does not relieve a paying bank from
the requirement for timely return (i.e., midnight deadline) under
U.C.C. 4-301 and 4-302, which continue to apply. Under U.C.C. 4-302,
a paying bank is ``accountable'' for the amount of a demand item,
other than a documentary draft, if it does not pay or return the
item or send notice of dishonor by its midnight deadline. Under
U.C.C. 3-418(c) and 4-215(a), late return constitutes payment and
would be final in favor of a holder in due course or a person who
has in good faith changed his position in reliance on the payment.
Thus, retaining this requirement gives the paying bank an additional
incentive to make a prompt return.
b. The expeditious return requirement applies to a paying bank
that determines not to pay a check. This requirement applies to a
payable-through or a payable-at bank that is defined as a paying
bank (see [lsqbb]Sec. 229.2(z)[rsqbb][rtrif]Sec. 229.2(ii)[ltrif])
and that returns
[[Page 16952]]
a check. This requirement begins when the payable-through or
payable-at bank receives the check during forward collection, not
when the payor returns the check to the payable-through or payable-
at bank. Nevertheless, a check sent for payment or collection to a
payable-through or payable-at bank is not considered to be drawn on
that bank for purposes of the midnight deadline provision of U.C.C.
4-301. (See discussion of [lsqbb]Sec. 229.36(a)[rsqbb][rtrif]Sec.
229.30(a)(5)[ltrif].)
c. The liability section of this subpart (Sec. 229.38) provides
that a paying bank is not subject to both ``accountability'' for
missing the midnight deadline under the U.C.C. and liability for
missing the timeliness requirements of this regulation. Also, a
paying bank is not responsible for failure to make expeditious
return to a party that has breached a presentment warranty under
U.C.C. 4-208[rtrif].[ltrif][lsqbb], notwithstanding that the paying
bank has returned the check. (See Commentary to Sec.
229.33(a).)[rsqbb]
10. U.C.C. provisions affected. This paragraph directly affects
the following provisions of the U.C.C., and may affect other
sections or provisions:
a. Section 4-301(d), in that instead of returning a check
through a clearinghouse or to the presenting bank, a paying bank may
send a returned check to the depositary bank or to a returning bank.
b. Section 4-301(a), in that time limits specified in that
section may be affected by the additional requirement to make an
expeditious return and in that settlement for returned checks is
made under Sec. 229.31(c), not by revocation of settlement.
[rtrif]11. Payable-through and payable at checks
a. For purposes of subpart C, the regulation defines a payable-
through and or payable-at bank (which could be designated the
collectible-through or collectible-at bank) as a paying bank. The
requirements of Sec. 229.30(a) are imposed on a payable-through or
payable-at bank and are based on the time of receipt of the forward
collection check by the payable-through or payable-at bank. This
provision is intended to speed the return of checks that are payable
through or at a bank to the depositary bank.[ltrif]
B. 229.30(b) [lsqbb]Unidentifiable Depositary
Bank[rsqbb][rtrif]Exceptions to Expeditious Return of Checks[ltrif]
1. [rtrif]This paragraph sets forth the circumstances under
which a paying bank is not required to return the check to the
depositary bank in accordance with Sec. 229.30(a).[ltrif]
[rtrif]2. The depositary bank has not agreed to accept
electronic returns from the paying bank.
a. In the circumstances where a depositary bank has not agreed
to accept electronic returns from the paying bank under Sec.
229.32(a), the paying bank should send a paper return directly to
the depositary bank or send an electronic return to a returning
bank, which would then be required to send a paper return to the
depositary bank.
b. Example. The depositary bank has agreed to accept electronic
returns from Returning Bank A. Returning Bank A does not hold itself
out as accepting electronic returns from either the paying bank or
other returning banks. Under these facts, the depositary bank has
not agreed to accept electronic returns from the paying bank under
Sec. 229.32(a), and therefore the paying bank need not send the
returned check expeditiously to the depositary bank. The paying
bank, however, must comply with any deadlines under the Uniform
Commercial Code, Regulation J (12 CFR part 210), or Sec.
229.30(c).[ltrif]
3. Depositary bank without accounts
a. Subpart B of this regulation applies only to ``checks''
deposited in transaction ``accounts.'' Thus, a depositary bank with
only time or savings accounts need not comply with the availability
requirements of subpart B. Collecting banks may not have an
electronic connection with these banks as paying banks because no
checks are drawn on them. Consequently, the costs of using expedited
means to deliver returned checks directly to such a depositary bank
may not be justified. Thus, the expeditious-return requirement of
Sec. 229.30(a) does not apply to checks being returned to banks
that do not hold accounts. The paying bank's midnight deadline in
U.C.C. 4-301 and 4-302 [lsqbb]and[rsqbb][rtrif],[ltrif] Sec. 210.12
of Regulation J (12 CFR 210.12)[rtrif], and the extension in Sec.
229.30(c)[ltrif] would continue to apply to these checks. Returning
banks also would be required to act on such checks within their
midnight deadline. Further, in order to avoid complicating the
process of returning checks generally, banks without accounts are
required to use the standard indorsement, and their checks are
returned by returning banks and paid for by the depositary bank
under the same rules as checks deposited in other banks, with the
exception of the expeditious-return requirements of Sec. Sec.
229.30(a) and 229.31(a).
b. The expeditious-return requirement applies to a check
deposited in a bank that is not a depository institution. Federal
Reserve Banks, Federal Home Loan Banks, private bankers, and
possibly certain industrial banks are not depository institutions
within the meaning of the EFA Act, and therefore are not subject to
the expedited availability and disclosure requirements of subpart B.
These banks do, however, maintain accounts as defined in Sec.
229.2(a), and a paying bank returning a check to one of these banks
would be required to return the check to the depositary bank, in
accordance with the expeditious-return requirement.
4. Unidentifiable depositary bank
a. For most checks presented electronically, the depositary
bank's indorsement will accompany the electronic image and
information related to the check, either as an addenda record or
within the image of the check.[ltrif] In some cases, a paying bank
will be unable to identify the depositary bank through the use of
ordinary care and good faith. The Board expects that these cases
will be unusual as skilled return [lsqbb]clerks[rsqbb] [rtrif]staff
generally[ltrif] will readily identify the depositary bank from the
depositary bank indorsement required under Sec. 229.35 and appendix
D. [rtrif]For example, a paying bank would be unable to identify the
depositary bank if the depositary bank's indorsement is in neither
an addenda record nor within the image of the check. A paying bank,
however, would not be ``unable'' to identify the depositary bank
merely because the depositary bank's indorsement is not attached as
an addenda record, and therefore requires the paying bank to
retrieve the image.[ltrif]
[rtrif]b.[ltrif] In cases where the paying bank is unable to
identify the depositary bank, the paying bank may, in accordance
with Sec. 229.30(a), send the returned check to a returning bank
that agrees to handle the returned check for expeditious return to
the depositary bank under Sec. 229.31(a). The returning bank may be
better able to identify the depositary bank.
[lsqbb]2.[rsqbb][rtrif]c.[ltrif] In the alternative, the paying
bank may send the check back up the path used for forward collection
of the check. The presenting bank and prior collecting banks
normally will be able to trace the collection path of the check
through the use of their internal records in conjunction with the
indorsements on the returned check. In these limited cases, the
paying bank may send such a returned check to any bank that handled
the check for forward collection, even if that bank does not agree
to handle the returned check for expeditious return to the
depositary bank under Sec. 229.31(a). [rtrif]The return of a check
to a bank that handled the check for forward collection is
consistent with Sec. 229.35(b), which requires a bank handling a
check to take up the check if it is has not been paid.[ltrif]
[rtrif]d. If the paying bank has an agreement to send electronic
returns to a bank that handled the check for forward collection, the
paying bank may send an electronic return to that bank.[ltrif] A
paying bank returning a check under this paragraph [to a bank that
has not agreed to handle the check expeditiously] must advise that
bank that it is unable to identify the depositary bank. This advice
must be conspicuous, such as a stamp on each check for which the
depositary bank is unknown if such checks are commingled with other
returned checks, or, if such checks are sent in a separate cash
letter, by one notice on the cash letter. [rtrif]In the case of an
electronic return, the advice requirement may be satisfied by the
paying bank inserting the routing number of the bank to which it is
sending the return where the paying bank otherwise would have
inserted the routing number of the depositary bank.[ltrif] This
information will warn the bank that this check will require special
research and handling in accordance with Sec. 229.31(b). The
returned check may not be prepared [lsqbb]for automated[rsqbb]
[rtrif]as a qualified[ltrif] return. [lsqbb]The return of a check to
a bank that handled the check for forward collection is consistent
with Sec. 229.35(b), which requires a bank handling a check to take
up the check it is has not been paid.[rsqbb]
[lsqbb]3.[rsqbb][rtrif]e.[ltrif] The sending of a check to a
bank that handled the check for forward collection under this
paragraph is not subject to the requirements for expeditious return
by the paying bank. [lsqbb]Often, the paying bank will not have
courier or other expeditious means of transportation to the
collecting or presenting bank.[rsqbb] [rtrif]Because the paying bank
is unable to identify the depositary bank, the paying bank will not
know whether the
[[Page 16953]]
depositary bank has agreed to accept an electronic return from the
paying bank under Sec. 229.32(a). Moreover, returning the check
through the forward collection chain may require handling by more
banks, and thus may take more time.[ltrif] Although the lack of a
requirement of expeditious return will create risks for the
depositary bank, in many cases the inability to identify the
depositary bank will be due to the depositary bank's, or a
collecting bank's, failure to use the indorsement required by Sec.
229.35(a) and appendix D. If the depositary bank failed to use the
proper indorsement, it should bear the risks of less than
expeditious return. Similarly, where the inability to identify the
depositary bank is due to indorsements or other information placed
on the back of the check by the depositary bank's customer or other
prior indorser, the depositary bank should bear the risk that it
cannot charge a returned check back to that customer. Where the
inability to identify the depositary bank is due to subsequent
indorsements of collecting banks, these collecting banks may be
liable for a loss incurred by the depositary bank due to less than
expeditious return of a check; those banks therefore have an
incentive to return checks sent to them under this paragraph
quickly.
[lsqbb]4.[rsqbb][rtrif]f.[ltrif] This paragraph does not relieve
a paying bank from the liability for the lack of expeditious return
in cases where the paying bank is itself responsible for the
inability to identify the depositary bank, such as when the paying
bank's customer has used a check with printing or other material on
the back in the area reserved for the depositary bank's indorsement,
making the indorsement unreadable. (See Sec. 229.38(d).)
[lsqbb]5.[rsqbb][rtrif]g.[ltrif] A paying bank's return under
this paragraph is also subject to its midnight deadline under U.C.C.
4-301, Regulation J (if the check is returned through a Federal
Reserve Bank), and the exception provided in Sec. 229.30(c). A
paying bank also may send a check to a prior collecting bank to make
a claim against that bank under Sec. 229.35(b) where the depositary
bank is insolvent or in other cases as provided in Sec. 229.35(b).
Finally, a paying bank may make a claim against a prior collecting
bank based on a breach of warranty under U.C.C. 4-208.
C. 229.30(c) Extension of Deadline
1. This paragraph permits extension of the deadlines [rtrif]in
the U.C.C., Regulation J (12 CFR part 210) and Sec. 229.36(d)(3) of
this part[ltrif] for returning a check for which the paying bank
previously has settled (generally midnight of the banking day
following the banking day on which the check is received by the
paying bank) and for returning a check without settling for it
(generally midnight of the banking day on which the check is
received by the paying bank, or such other time provided by Sec.
210.9 of Regulation J (12 CFR part 210) or Sec.
229.36[lsqbb](f)(2)[rsqbb][rtrif](d)(3)[ltrif] of this part)[lsqbb],
but not of the duty of expeditious return, in two
circumstances:[rsqbb][rtrif]if the paying bank returns the check
using a means of delivery such that the depositary bank would
ordinarily receive the return within the timeframe specified in
Sec. 229.30(a).[ltrif]
[rtrif]2. If a paying bank sends an electronic return, the
paying bank's midnight (or other applicable) deadline is extended to
the time it dispatches the electronic return so long as the
depositary bank would ordinarily receive the electronic return by 4
p.m. (local time of the depositary bank) on the second business day
following the banking day on which the paying bank received the
check. A paying bank may rely on its returning bank's electronic
return delivery schedules in determining when the depositary bank
would ordinarily receive an electronic return.[ltrif]
[lsqbb]a[rsqbb][rtrif]3[ltrif]. A paying bank may have a courier
that leaves after midnight (or after any other applicable deadline)
to deliver its forward-collection checks. This paragraph removes the
constraint of the midnight deadline for returned checks if the
returned check [lsqbb]reaches the receiving bank on or before the
receiving bank's next banking day following the otherwise applicable
deadline by the earlier of the close of that banking day or a cutoff
hour of 2 p.m. or later set by the receiving bank under U.C.C. 4-
108[rsqbb][rtrif]would ordinarily reach the depositary bank by 4
p.m. (local time of the depositary bank) on the second business day
following the banking day on which the paying bank received the
check. A paying bank may rely on its returning bank's delivery
schedules in determining when the depositary bank would ordinarily
receive the returned check[ltrif]. [lsqbb]The extension also applies
if the check reaches the bank to which it is sent later than the
time described in the previous sentence if highly expeditious means
of transportation are used. For example, a West Coast paying bank
may use this further extension to ship a returned check by air
courier directly to an East Coast returning bank even if the check
arrives after the returning bank's cutoff hour. This paragraph
applies to the extension of all midnight deadlines except Saturday
midnight deadlines (see paragraph C.1.b. below).[rsqbb]
[lsqbb]b. A paying bank may observe a banking day, as defined in
the applicable U.C.C., on a Saturday, which is not a business day
and therefore not a banking day under Regulation CC. In such a case,
the U.C.C. deadline for returning checks received and settled for on
Friday, or for returning checks received on Saturday without
settling for them, might require the bank to return the checks by
midnight Saturday. However, the bank may not have couriers leaving
on Saturday to carry returned checks, and even if it did, the
returning or depositary bank to which the returned checks were sent
might not be open until Sunday night or Monday morning to receive
and process the checks. This paragraph extends the midnight deadline
if the returned checks reach the returning bank by a cut-off hour
(usually on Sunday night or Monday morning) that permits processing
during its next processing cycle or reach the depositary bank by the
cut-off hour on its next banking day following the Saturday midnight
deadline. This paragraph applies exclusively to the extension of
Saturday midnight deadlines.[rsqbb]
[lsqbb]2[rsqbb][rtrif]4[ltrif]. The time limits that are
extended [lsqbb]in each case[rsqbb] are the paying bank's midnight
deadline for returning a check for which it has already settled and
the paying bank's deadline for returning a check without settling
for it in U.C.C. 4-301 and 4-302, Sec. Sec. 210.9 and 210.12 of
Regulation J (12 CFR 210.9 and 210.12), and Sec.
229.36[lsqbb](f)(2)[rsqbb][rtrif](d)(3)[ltrif] of this part. As
these extensions are designed to speed [lsqbb](Sec. 229.30(c)(1)),
or at least not slow (Sec. 229.30(c)(2)),[rsqbb] the overall return
of checks, no modification or extension of the expeditious return
requirements in Sec. 229.30(a) is required.
[lsqbb]3[lsqbb][rtrif]5[ltrif]. The paying bank satisfies its
midnight or other return deadline by dispatching returned checks to
another bank by courier, including a courier under contract with the
paying bank, prior to expiration of the deadline.
[lsqbb]4[rsqbb][rtrif]6[ltrif]. This paragraph directly affects
U.C.C. 4-301 and 4-302 and Sec. Sec. 210.9 and 210.12 of Regulation
J (12 CFR 210.9 and 210.12) to the extent that this paragraph
applies by its terms, and may affect other provisions.
D. 229.30(d) Identification of Returned Check
1. The reason for the return must be clearly indicated. A check
is identified as a returned check if the front of that check
indicates the reason for return, even though it does not
specifically state that the check is a returned check. [lsqbb]A
reason such as ``Refer to Maker'' is permissible in appropriate
cases.[rsqbb] [rtrif]``Refer to Maker'' is an instruction to the
recipient of the returned check and not a reason for return.
Therefore, ``Refer to Maker'' is insufficient as a reason for
return. ``Refer to Maker'' may be used in addition to the reason for
return.[ltrif] If the returned check is a substitute check,
[rtrif]the requirement to place[ltrif] the reason for return
[rtrif]information such that it is retained on any subsequent
substitute check could be met by placing the information (1) in the
location on the front of the substitute check that is specified by
ANS X9.100-140 or (2)[ltrif] [lsqbb]must be placed[rsqbb] within the
image of the original check that appears on the front of the
substitute check so that the information is retained on any
subsequent substitute check. If the paying bank places the returned
check in a carrier envelope, the carrier envelope should indicate
that it is a returned check but need not repeat the reason for
return stated on the check if it in fact appears on the check.
[lsqbb]F. 229.30(f)[rsqbb][rtrif]E. 229.30(e)[ltrif] Notice in Lieu of
Return
[rtrif]1. A notice in lieu of return may be used by a bank
handling a returned check that has been lost or destroyed, including
when the original returned check has been charged back as lost or
destroyed as provided in Sec. 229.35(b). Notice in lieu of return
is permitted only when a bank does not have and cannot obtain
possession of the check (or must retain possession of the check for
protest) and does not have sufficient information to create a
substitute check. For example, a bank may have an image of both
sides of the check, but the image may be insufficient, or may not be
in the proper format, to create a substitute check. A bank using a
notice in lieu of return gives a warranty under Sec.
229.34(e)(1)(iv) that the [lsqbb]original[rsqbb] check has not been
and will not be returned.[ltrif]
[lsqbb]1[rsqbb][rtrif]2[ltrif]. A check that is lost or
otherwise unavailable for return may be returned by sending a
legible copy of both sides of the
[[Page 16954]]
check or, if such a copy is not available to the paying bank, a
written notice of nonpayment containing the information specified in
[lsqbb]Sec. 229.33(b)[rsqbb][rtrif]Sec. 229.30(e)(2)[ltrif]. The
copy or written notice must clearly indicate it is a notice in lieu
of return [lsqbb]and must be handled in the same manner as other
returned checks[rsqbb]. [rtrif]Notice by a legible facsimile or
electronic transmission of the image of both sides of the check may
satisfy the requirements for a notice in lieu of return. If no image
of both sides of the check is available, the notice may be sent by
other means, but not[ltrif] [lsqbb]Notice[rsqbb] by
telephone[lsqbb], telegraph,[rsqbb] or other
[lsqbb]electronic[rsqbb] [rtrif]oral[ltrif]
transmission[lsqbb],other than a legible facsimile or similar image
transmission of both sides of the check, does not satisfy the
requirements for a notice in lieu of return[rsqbb]. The requirement
for a writing and the indication that the notice is a substitute for
the returned check is necessary so that the returning and depositary
banks are informed that the notice carries value. [lsqbb]Notice in
lieu of return is permitted only when a bank does not have and
cannot obtain possession of the check or must retain possession of
the check for protest. A check is not unavailable for return if it
is merely difficult to retrieve from a filing system or from storage
by a keeper of checks in a truncation system. A notice in lieu of
return may be used by a bank handling a returned check that has been
lost or destroyed, including when the original returned check has
been charged back as lost or destroyed as provided in Sec.
229.35(b). A bank using a notice in lieu of return gives a warranty
under Sec. 229.34(a)(4) that the original check has not been and
will not be returned.[rsqbb]
[lsqbb]2[rsqbb][rtrif]3[ltrif]. The requirement of this
paragraph supersedes the requirement of U.C.C. 4-301(a) as to the
form and information required of a notice of dishonor or nonpayment.
Reference in the regulation and this commentary to a returned check
includes a notice in lieu of return unless the context indicates
otherwise.
[lsqbb]3[rsqbb][rtrif]4[ltrif]. The notice in lieu of return is
subject to the provisions of Sec. 229.30 and is treated like a
returned check for settlement purposes. [lsqbb]If the original check
is over $2,500, the notice of nonpayment under Sec. 229.33 is still
required, but may be satisfied by the notice in lieu of return if
the notice in lieu meets the time and information requirements of
Sec. 229.33.[rsqbb]
[lsqbb]4[rsqbb][rtrif]5[ltrif]. If not all of the information
required by [lsqbb]Sec. 229.33(b)[rsqbb] [rtrif]Sec.
229.30(e)(2)[ltrif] is available, the paying bank may make a claim
against any prior bank handling the check as provided in Sec.
229.35(b).
[rtrif]6. Content of notices
a. This paragraph provides that the notice must contain, if
available, specified items of information that would enable a
depositary bank to identify the check to which the notice relates.
b. If the paying bank cannot identify the depositary bank from
the check itself, the paying bank should treat the notice in lieu as
if it were a returned check for which the paying bank cannot
identify the depositary bank (see Sec. 229.30(b)(2) and
accompanying commentary).
c. If a bank is uncertain as to the accuracy of an item of
information, it nevertheless must identify the item of information,
but a bank may make this identification by setting the item off with
question marks, asterisks, or other symbols designated for this
purpose by generally applicable industry standards.[ltrif]
[lsqbb]G. 229.30(g)[rsqbb][rtrif]F. 229.30(f)[ltrif] Reliance on
Routing Number
1. Although Sec. 229.35 and appendix D require that the
depositary bank indorsement contain its nine-digit routing number,
it is possible that a returned check will bear the routing number of
the depositary bank in fractional, nine-digit, or other form. This
paragraph permits a paying bank to rely on the routing number of the
depositary bank as it appears on the check (in the depositary bank's
indorsement) [rtrif]or in the electronic image or information
included in the electronic collection item[ltrif] when it is
received by the paying bank.
2. If there are inconsistent routing numbers, the paying bank
may rely on any routing number designating the depositary bank. The
paying bank is not required to resolve the inconsistency prior to
processing the check. The paying bank remains subject to the
requirement to act in good faith and use ordinary care under Sec.
229.38(a).
XVII. Section 229.31 Returning Bank's Responsibility for Return of
Checks
A. 229.31(a) Return of Checks
1. The standards for return of checks established by this
section are similar to those for paying banks in Sec. 229.30(a).
This section requires a returning bank to [lsqbb]return a returned
check expeditiously if it agrees to handle the returned check for
expeditious return under this paragraph[rsqbb] [rtrif]send a
returned check expeditiously if the returning bank has agreed to do
so[ltrif]. In effect, the returning bank is an agent or subagent of
the paying bank and a subagent of the depositary bank for the
purposes of returning the check. [rtrif]A returning bank may satisfy
its expeditious return requirement by returning either an electronic
return or returned check within the timeframe. The exceptions to
this requirement are set out in Sec. 229.31(b).[ltrif]
2. A returning bank agrees to [lsqbb]handle a returned check for
expeditious return[rsqbb][rtrif]return checks expeditiously[ltrif]
to the depositary bank if it:
a. Publishes or distributes availability schedules for the
return of [rtrif]electronic returns or[ltrif] returned checks and
accepts the [rtrif]electronic return or[ltrif] returned check for
return;
[lsqbb]b. Handles a returned check for return that it did not
handle for forward collection;[rsqbb] or
[lsqbb]c[rsqbb][rtrif]b[ltrif]. Otherwise agrees to handle a
returned check for expeditious return.
[rtrif]3. A returning bank may agree to handle only certain
types of returns expeditiously. For example, a returning bank may
agree to handle electronic returns expeditiously, while not agreeing
to handle returned checks expeditiously.
4. If a returning bank has not agreed to return checks
expeditiously, the returning bank has no expeditious return
requirement with respect to the check. Therefore, a paying bank will
not satisfy its expeditious return requirement by sending a returned
check to that returning bank that has not agreed to return checks
expeditiously.
5. The returning bank's return of a check under this paragraph
is subject to the midnight deadline under U.C.C. 4-202(b). (See
definition of returning bank in Sec. 229.2(mm)).
6. In the case of electronic returns, a returning bank agrees to
handle the electronic return expeditiously if the returning bank has
an agreement with the paying bank for accepting electronic returns,
and handling such returns expeditiously, and the returning bank
accepts the electronic return.[ltrif]
[lsqbb]3[rsqbb][rtrif]7[ltrif]. [lsqbb]Two-day/four-day
test.[rsqbb] As in the case of a paying bank, a returning bank's
return of a returned check is expeditious if it [lsqbb]meets either
of two tests. Under the ``two-day/four-day'' test, the check must be
returned so that it[rsqbb] [rtrif]is sent in a manner such that
it[ltrif] would normally be received by the depositary bank by 4
p.m. [lsqbb]either[rsqbb] [rtrif](local time of the depositary
bank)[ltrif] two [lsqbb]or four[rsqbb] business days after the check
was presented to the paying bank[lsqbb], depending on whether or not
the paying bank is located in the same check processing region as
the depositary bank[rsqbb]. [lsqbb]This is the same test as the two-
day/four-day test applicable to paying banks. (See Commentary to
Sec. 229.30(a).)[rsqbb] While a returning bank will not have first
hand knowledge of the day on which a check was presented to the
paying bank, returning banks may, by agreement, allocate with paying
banks liability for late return based on the delays caused by each.
[lsqbb]In effect, the two-day/four day test protects all paying and
returning banks that return checks from claims that they failed to
return a check expeditiously, where the check is returned within the
specified time following presentment to the paying bank, or a later
time as would result from unforeseen delays.[rsqbb]
[lsqbb]4. Forward collection test.
a. The ``forward collection'' test is similar to the forward
collection test for paying banks. Under this test, a returning bank
must handle a returned check in the same manner that a similarly
situated collecting bank would handle a check of similar size drawn
on the depositary bank for forward collection. A similarly situated
bank is a bank (other than a Federal Reserve Bank) that is of
similar asset size and check handling activity in the same
community. A bank has similar check handling activity if it handles
a similar volume of checks for forward collection as the forward
collection volume of the returning bank.
b. Under the forward collection test, a returning bank must
accept returned checks, including both qualified and other returned
checks (``raw returns''), at approximately the same times and
process them according to the same general schedules as checks
handled for forward collection. Thus, a returning bank generally
must process even raw returns on an overnight basis, unless its time
limit is extended by one day to convert a raw return to a qualified
returned check.[rsqbb]
[lsqbb]5[rsqbb][rtrif]8[ltrif]. Cut-off hours. A returning bank
may establish earlier cut-off hours for receipt of returned checks
than for receipt of forward collection checks, but the cut-off hour
for
[[Page 16955]]
returned checks may not be earlier than 2 p.m. [rtrif](local time of
the returning bank).[ltrif] The returning bank also may set
different sorting requirements for returned checks than those
applicable to other checks. Thus, a returning bank may allow itself
more processing time for returns than for forward collection checks.
[lsqbb]All returned checks received by a cut-off hour for returned
checks must be processed and dispatched by the returning bank by the
time that it would dispatch forward collection checks received at a
corresponding forward collection cut-off hour that provides for the
same or faster availability for checks destined for the same
depositary banks.[rsqbb]
[lsqbb]6. Examples.
a. If a returning bank receives a returned check by its cut-off
hour for returned checks on Monday and the depositary bank and the
returning bank are participants in the same clearinghouse, the
returning bank should arrange to have the returned check received by
the depositary bank by Tuesday. This would be the same day that it
would deliver a forward collection check drawn on the depositary
bank and received by the returning bank at a corresponding forward
collection cut-off hour on Monday.
b. i. If a returning bank receives a returned check, and the
returning bank normally would collect a forward collection check
drawn on the depositary bank by sending the forward collection check
to a correspondent or a Federal Reserve Bank by courier, the
returning bank could send the returned check in the same manner if
the correspondent has agreed to handle returned checks expeditiously
under Sec. 229.31(a). The returning bank would have to deliver the
check by the correspondent's or Federal Reserve Bank's cut-off hour
for returned checks that corresponds to its cut-off hour for forward
collection checks drawn on the depositary bank. A returning bank may
take a day to convert a check to a qualified returned check. Where
the forward collection checks are delivered by courier, mailing the
returned checks would not meet the duty established by this section
for returning banks.
ii. A returning bank must return a check to the depositary bank
by courier or other means as fast as a courier, if similarly
situated returning banks use couriers to deliver their forward
collection checks to the depositary bank.
iii. For some depositary banks, no community practice exists as
to delivery of checks. For example, a credit union whose customers
use payable-through drafts normally does not have checks presented
to it because the drafts are normally sent to the payable-through
bank for collection. In these circumstances, the community standard
is established by taking into account the dollar volume of the
checks being sent to the depositary bank and the location of the
depositary bank, and determining whether similarly situated banks
normally would deliver forward collection checks to the depositary
bank, taking into account the particular risks associated with
returned checks. Where the community standard does not require
courier delivery, other means of delivery, including mail, are
acceptable.[rsqbb]
[lsqbb]7[rsqbb][rtrif]9[ltrif]. Qualified returned checks.
a. The expeditious return requirement for a returning bank in
this regulation is more stringent in many cases than the duty of a
collecting bank to exercise ordinary care under U.C.C. 4-202 in
returning a check. [lsqbb]A returning bank is under a duty to act as
expeditiously in returning a check as it would in the forward
collection of a check. Notwithstanding its duty of expeditious
return, its midnight deadline under U.C.C. 4-202 and Sec. 210.12(a)
of Regulation J (12 CFR 210.12(a)), under the forward collection
test, a returning bank may take an extra day to qualify a returned
check.[rsqbb] A qualified returned check will be handled by
subsequent returning banks more efficiently than a raw return.
[lsqbb]This paragraph gives a returning bank an extra business day
beyond the time that would otherwise be required to return the
returned check to convert a returned check to a qualified returned
check.[rsqbb] 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. A check that is
converted to a qualified returned check must be encoded in
accordance with ANS X9.13 for original checks or ANS X9.100-140 for
substitute checks.
[lsqbb]b. If the returning bank is sending the returned check
directly to the depositary bank, this extra day is not available
because preparing a qualified returned check will not expedite
handling by other banks.[rsqbb] 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.
[lsqbb]The returning bank would not lose the one-day extension
available to it for creating a qualified returned check because of
an encoding error.[rsqbb]
[lsqbb]8[rsqbb][rtrif]10[ltrif]. Routing of returned check.
a. Under Sec. 229.31(a), the returning bank is authorized to
route the returned check in a variety of ways:
i. It may send [rtrif]an electronic return if the depositary
bank has agreed to accept an electronic return from the returning
bank or it may send[ltrif] the returned check directly to the
depositary bank by courier or other [lsqbb]expeditious[rsqbb] means
of delivery; [lsqbb]or[rsqbb]
ii. [rtrif]It may send an electronic return to any other
returning bank that has agreed to accept an electronic return from
the returning bank; or
iii.[ltrif] It may send the returned check to any returning bank
agreeing to handle the returned check for expeditious return to the
depositary bank under this section regardless of whether or not the
returning bank handled the check for forward collection.
b. If the returning bank elects to send the returned check
directly to the depositary bank, it is not required to send the
check to the branch of the depositary bank that first handled the
check. The returned check may be sent to the depositary bank at any
location permitted under Sec. 229.32(b). [rtrif]If the returning
bank elects to send the electronic return directly to the depositary
bank, it must send the electronic return to the electronic return
point designated by the depositary bank[ltrif].
[lsqbb]9[rsqbb][rtrif]11[ltrif]. Responsibilities of returning
bank. In meeting the requirements of this section, the returning
bank is responsible for its own actions, but not those of the paying
bank, other returning banks, or the depositary bank. (See U.C.C. 4-
202(c) regarding the responsibility of collecting banks.) For
example, if the paying bank has delayed the start of the return
process, but the returning bank acts in a timely manner, the
returning bank may satisfy the requirements of this section even if
the delayed return results in a loss to the depositary bank. (See
Sec. 229.38.) A returning bank must handle a notice in lieu of
return [lsqbb]as[rsqbb] expeditiously [lsqbb]as a returned
check[rsqbb].
[lsqbb]10[rsqbb][rtrif]12[ltrif]. U.C.C. sections affected. This
paragraph directly affects the following provisions of the U.C.C.,
and may affect other sections or provisions:
a. Section 4-202(b), in that time limits required by that
section may be affected by the additional requirement to make an
expeditious return.
b. Section 4-214(a), in that settlement for returned checks is
made under Sec. 229.31(c) and not by charge-back of provisional
credit, and in that the time limits may be affected by the
additional requirement to make an expeditious return.
B. 229.31(b) [lsqbb]Unidentifiable Depositary
Bank[rsqbb][rtrif]Exceptions to Expeditious Return of Checks[ltrif]
1. This section is similar to Sec. 229.30(b), but applies to
returning banks instead of paying banks. [lsqbb]In some cases a
returning bank will be unable to identify the depositary bank with
respect to a check.[rsqbb] [rtrif]In general, in circumstances where
the paying bank is not subject to the expeditious return requirement
(see Sec. 229.30(b)), the returning bank may not receive the
returned check in a timeframe that enables it to return the check to
the depositary bank by the second business day following the banking
day on which the check was presented to the paying bank. Moreover,
the same circumstances that make expeditious return of a check
difficult for a paying bank also are likely to make expeditious
return of a check difficult for a returning bank.[ltrif]
[rtrif]2. Depositary bank has not agreed to accept electronic
returns under Sec. 229.32(a).
a. A returning bank is not subject to the expeditious return
requirement in Sec. 229.31(a) with respect to a check if the
depositary bank has not agreed to accept an electronic return from
the paying bank under Sec. 229.32(a), in which case the paying bank
is not required to return the check expeditiously under Sec.
229.30(a). If a depositary bank has not agreed to accept electronic
returns, a returning bank is unlikely to be able to return a paper
check to the depositary bank in an expeditious manner.
3. Unidentifiable depositary banks
a.[ltrif] Returning banks agreeing to handle checks for return
to depositary banks under Sec. 229.31(a) are expected to be expert
in identifying depositary bank indorsements. In the limited cases
where the returning bank cannot identify the depositary bank,
[rtrif]if[ltrif] the returning bank [rtrif]did not handle the check
for forward collection, it[ltrif] may send the returned check to
[lsqbb]a returning bank that agrees to handle the returned check for
[[Page 16956]]
expeditious return under Sec. 229.31(a), or it may send the
returned check to a[rsqbb][rtrif]any collecting[ltrif] bank that
handled the returned check for forward collection[rtrif].[ltrif]
[lsqbb], even if that bank does not agree to handle the check
expeditiously under section 229.31(a).
2.[rsqbb] If[rtrif], on the other hand,[ltrif] the returning
bank itself handled the check for forward collection, it may send
the returned check to a collecting bank that was prior to it in the
forward-collection process, which will be better able to identify
the depositary bank. If there are no prior collecting banks, the
returning bank must research the collection of the check and
identify the depositary bank.
[rtrif]b.[ltrif] As in the case of paying banks under Sec.
229.30(b), a returning bank[lsqbb]'s sending of a check to a bank
that handled the check for forward collection under Sec.
229.31(b)[rsqbb] [rtrif]that cannot identify the depositary
bank[ltrif] is not subject to the expeditious return requirements of
Sec. 229.31(a).
[lsqbb]3. The returning bank's return of a check under this
paragraph is subject to the midnight deadline under U.C.C. 4-202(b).
(See definition of returning bank in Sec. 229.2(cc).)[rsqbb]
[lsqbb]4. Where a returning bank receives a check that it does
not agree to handle expeditiously under Sec. 229.31(a), such as a
check sent to it under Sec. 229.30(b), but the returning bank is
able to identify the depositary bank, the returning bank must
thereafter return the check expeditiously to the depositary bank.
The returning bank returns a check expeditiously under this
paragraph if it returns the check by the same means it would use to
return a check drawn on it to the depositary bank or by other
reasonably prompt means[rsqbb].
[lsqbb]5[rsqbb][rtrif]c[ltrif]. As in the case of a paying bank
returning a check under Sec. 229.30(b)), a returning bank returning
a check under [lsqbb]this paragraph[rsqbb][rtrif]Sec.
229.30(b)(2)[ltrif] to a bank that has not agreed to handle the
check expeditiously must advise that bank that it is unable to
identify the depositary bank. This advice must be conspicuous, such
as a stamp on [lsqbb]each check for which the depositary bank is
unknown if such checks are commingled with other returned checks,
or, if such checks are sent in a separate cash letter, by one[rsqbb]
[rtrif]the check or a[ltrif] notice on the cash letter. [lsqbb]The
returned check may not be prepared for automated return.[rsqbb]
[rtrif]In the case of an electronic return, the advice requirement
may be satisfied by the returning bank inserting the routing number
of the bank to which it is sending the return where the returning
bank otherwise would have inserted the routing number of the
depositary bank.[ltrif]
[rtrif]3. Depositary banks without accounts
a. Section 229.31(b)(3) is similar to Sec. 229.30(b)(3) and
relieves the returning bank of its obligation to make expeditious
return to a depositary bank that does not maintain any accounts.
(See the commentary to Sec. 229.30(b).[ltrif]
C. 229.31(c) Settlement
1. Under the U.C.C., a collecting bank receives settlement for a
check [lsqbb]when it[rsqbb][rtrif]by midnight of the banking day on
which the check[ltrif] is presented to the paying bank. The paying
bank may recover the settlement when the paying bank returns the
check to the presenting bank. Under this regulation, however, the
paying bank may return the check directly to the depositary bank or
through returning banks that did not handle the check for forward
collection. On these more efficient return paths, the paying bank
does not recover the settlement made to the presenting bank. Thus,
this paragraph requires the returning bank to settle for a returned
check (either with the paying bank or another returning bank) in the
same way that it would settle for a similar check for forward
collection. To achieve uniformity, this paragraph applies even if
the returning bank handled the check for forward collection.
2. Any returning bank, including one that handled the check for
forward collection, may provide availability for returned checks
pursuant to an availability schedule as it does for forward
collection checks. These settlements by returning banks, as well as
settlements between banks made during the forward collection of a
check, are considered final when made subject to any deferment of
availability. (See [lsqbb]Sec. 229.36(d)[rsqbb][rtrif]Sec.
229.36(c)[ltrif] and Commentary to Sec. 229.35(b).)
3. A returning bank may vary the settlement method it uses by
agreement with paying banks or other returning banks. Special rules
apply in the case of insolvency of banks. (See Sec. 229.39.) If
payment cannot be obtained from a depositary or returning bank
because of its insolvency or otherwise, recovery can be had by
returning, paying, and collecting banks from prior banks on this
basis of the liability of prior banks under Sec. 229.35(b).
4. This paragraph affects U.C.C. 4-214(a) in that a paying or
collecting bank does not ordinarily have a right to charge back
against the bank from which it received the returned check, although
it is entitled to settlement if it returns the returned check to
that bank, and may affect other sections or provisions. Under
[lsqbb]Sec. 229.36(d)[rsqbb][rtrif]Sec. 229.36(c)[ltrif], a bank
collecting a check remains liable to prior collecting banks and the
depositary bank's customer under the U.C.C.
D. 229.31(d) Charges
1. This paragraph permits any returning bank, even one that
handled the check for forward collection, to impose a fee on the
paying bank or other returning bank for its service in handling a
returned check. Where a claim is made under Sec. 229.35(b), the
bank on which the claim is made is not authorized by this paragraph
to impose a charge for taking up a check. This paragraph preempts
state laws to the extent that these laws prevent returning banks
from charging fees for handling returned checks.
[lsqbb]F. 229.31(f)[rsqbb][rtrif]E. 229.31(e)[ltrif] Notice in Lieu of
Return
1. This paragraph is similar to [lsqbb]Sec. 229.30(f)[rsqbb]
[rtrif]Sec. 229.30(e)[ltrif] and authorizes a returning bank to
originate a notice in lieu of return if the returned check is
unavailable for return. Notice in lieu of return is permitted only
when a bank does not have and cannot obtain possession of the check
[rtrif]([ltrif]or must retain possession of the check for
protest[rtrif]) and does not have sufficient information to create a
substitute check[ltrif]. [lsqbb]A check is not unavailable for
return if it is merely difficult to retrieve from a filing system or
from storage by a keeper of checks in a truncation system.[rsqbb]
(See the Commentary to [lsqbb]Sec. 229.30(f)[rsqbb][rtrif]Sec.
229.30(e)[ltrif].)
[lsqbb]G. 229.31(g)[rsqbb] [rtrif]F. 229.31(f)[ltrif] Reliance on
Routing Number
1. This paragraph is similar to [lsqbb]Sec.
229.30(g)[rsqbb][rtrif]Sec. 229.30(f)[ltrif] and permits a
returning bank to rely on routing numbers appearing on a returned
check such as routing numbers in the depositary bank's
indorsement[rtrif],[ltrif] [lsqbb]or[rsqbb] on qualified returned
checks[rtrif], or in the electronic image or information included in
the electronic return when it is received by the returning
bank[ltrif]. (See the Commentary to [lsqbb]Sec.
229.30(g)[rsqbb][rtrif]Sec. 229.30(f)[ltrif].)
XVIII. Section 229.32 Depositary Bank's Responsibility for Returned
Checks
[rtrif]A. 229.32(a) Acceptance of Electronic Returns
1. A paying bank and a returning bank must satisfy the
expeditious return requirements under Sec. Sec. 229.30(a) and
229.31(a) only if the depositary bank has agreed to accept an
electronic return from the paying bank. This section sets forth the
circumstances under which a depositary bank has agreed to accept an
electronic return from the paying bank for purposes of subpart C,
and therefore the circumstances under which the paying bank and
returning banks have a duty to return the check expeditiously.
2. There are three different ways a depositary bank can agree to
accept electronic returns from the paying bank for purposes of
subpart C:
a. First, a depositary bank may have a direct contractual
relationship with the paying bank under which it has agreed to
accept electronic returns directly from the paying bank.
b. Second, a depositary bank may have a direct contractual
relationship with a returning bank under which the depositary bank
accepts electronic returns directly from the returning bank. In
turn, that returning bank must hold itself out as willing to accept
electronic returns directly or indirectly from the paying bank and
agrees to return checks expeditiously. For example, the returning
bank may hold itself out as willing to enter into a direct
contractual relationship with the paying bank to accept electronic
returns or returned checks for expeditious return to the depositary
bank. Alternatively, that returning bank may hold itself out as
willing to accept electronic returns from other returning banks that
accept electronic returns from the paying bank. A depositary bank is
deemed to have agreed to accept electronic returns under Sec.
229.32(a)(1)(ii) if the returning bank holds itself out as willing
to accept electronic returns directly or indirectly from the paying
bank, notwithstanding the fact that the paying bank has no actual
agreement with the returning bank to send electronic returns.
c. Third, a depositary bank may have otherwise agreed with the
paying bank to accept electronic returns. For example, the
[[Page 16957]]
depositary bank and paying bank may both be members of the same
clearing house, under the rules of which the depositary bank has
agreed to accept electronic returns from the paying bank.
d. The paying bank or returning bank must deliver the electronic
return to the electronic location designated by the depositary bank.
Accordingly, regardless of the means by which a depositary bank
agrees to accept electronic returns from the paying bank, the
depositary bank's agreement with the paying bank or returning bank
must designate an electronic return point.
3. A returning bank holds itself out as willing to accept
electronic returns from a paying bank by publishing information
about its generally available electronic return service, including
how to enroll in the returning bank's electronic return service and
fees for the service. For example, a returning bank may publish on
its Web site electronic return service set-up guides for a paying
bank to complete.
4. This section also sets forth when a depositary bank receives
an electronic return. A depositary bank ``receives'' an electronic
return when that electronic return is delivered to the electronic
return point designated by the bank or when the electronic return is
otherwise made available for retrieval or review in accordance with
an agreement between the depositary bank and the delivering paying
bank or returning bank. For example, if a depositary bank designates
an e-mail address as its electronic return point, the depositary
bank has received the electronic return when it is delivered to that
e-mail address. In contrast, if the depositary bank has an
arrangement with a returning bank whereby the returning bank sends
the electronic return to its storage device and then provides the
depositary bank with access to the storage device for retrieving
electronic returns, the electronic return is received by the
depositary bank when the returning bank makes the electronic return
available for the depositary bank to retrieve or review from the
storage device in accordance with the agreement between the
returning bank and the depositary bank.[ltrif]
[lsqbb]A. 229.32(a)[rsqbb][rtrif]B. 229.32(b)[ltrif] Acceptance of
[rtrif]Paper[ltrif] Returned Checks
1. [lsqbb]This regulation seeks to encourage direct returns by
paying and returning banks and may result in a number of banks
sending checks to depositary banks with no preexisting arrangements
as to where the returned checks should be delivered.[rsqbb] This
paragraph states where the depositary bank is required to accept
returned [rtrif]paper[ltrif] checks [lsqbb]and written notices of
nonpayment under Sec. 229.33[rsqbb]. (These locations differ from
locations at which a depositary bank [rtrif]may accept electronic
returns[ltrif][lsqbb]or must accept electronic notices[rsqbb].) It
is derived from U.C.C. 3-111, which specifies that presentment for
payment may be made at the place specified in the instrument or, if
there is none, at the place of business of the party to pay. In the
case of returned checks, the depositary bank does not print the
check and can only specify the place of ``payment'' of the returned
check in its indorsement.
2. The paragraph specifies four locations at which the
depositary bank must accept returned [rtrif]paper[ltrif] checks:
a. The depositary bank must accept returned [rtrif]paper[ltrif]
checks at any location at which it requests presentment of forward
collection checks[rtrif],[ltrif] such as a processing center. A
depositary bank does not request presentment of forward collection
checks at a branch of the bank merely by paying checks presented
over the counter.
b. i. If the depositary bank indorsement states the name and
address of the depositary bank, it must accept returned
[rtrif]paper[ltrif] checks at the branch, head office, or other
location, such as a processing center, indicated by the address. If
the address is too general to identify a particular location, then
the depositary bank must accept returned checks at any branch or
head office consistent with the address. If, for example, the
address is ``New York, New York,'' each branch in New York City must
accept returned [rtrif]paper[ltrif] checks. [rtrif]Accordingly, a
depositary bank may limit the locations at which it must accept
returned paper checks by specifying a branch or head office in its
indorsement.[ltrif]
ii. If no address appears in the depositary bank's indorsement,
the depositary bank must accept returned [rtrif]paper[ltrif] checks
at any branch or head office associated with the depositary bank's
routing number. The offices associated with the routing number of a
bank are found in American Bankers Association Key to Routing
Numbers, published by an agent of the American Bankers Association,
which lists a city and state address for each routing number.
[lsqbb]iii. The depositary bank must accept returned checks at
the address in its indorsement and at an address associated with its
routing number in the indorsement if the written address in the
indorsement and the address associated with the routing number in
the indorsement are not in the same check processing region. Under
Sec. Sec. 229.30(g) and 229.31(g), a paying or returning bank may
rely on the depositary bank's routing number in its indorsement in
handling returned checks and is not required to send returned checks
to an address in the depositary bank's indorsement that is not in
the same check processing region as the address associated with the
routing number in the indorsement.[rsqbb]
[lsqbb]iv[rsqbb][rtrif]iii[ltrif]. If no routing number or
address appears in its indorsement, the depositary bank must accept
a returned [rtrif]paper[ltrif] check at any branch or head office of
the bank. The indorsement requirement of Sec. 229.35 and appendix D
requires that the indorsement contain a routing number, a name, and
a location. Consequently, this provision, as well as paragraph
(a)(2)(ii) of this section, only applies where the depositary bank
has failed to comply with the indorsement requirement.
3. For ease of processing, a depositary bank may require that
returning [rtrif]banks[ltrif] or paying banks returning checks to it
separate returned checks from forward collection checks being
presented.
4. Under [lsqbb]Sec. 229.33(d)[rsqbb][rtrif]Sec.
229.32(f)[ltrif], a depositary bank receiving a returned check
[lsqbb]or notice of nonpayment[rsqbb] must send notice to its
customer by its midnight deadline or within a longer reasonable
time.
[lsqbb]B. 229.32(b)[rsqbb][rtrif]C. 229.32(c)[ltrif] Payment
1. As discussed in the commentary to Sec. 229.31(c), under this
regulation a paying [rtrif]bank[ltrif] or returning bank does not
obtain credit for a returned check by charge-back but by, in effect,
[lsqbb]presenting[rsqbb] [rtrif]``presenting''[ltrif] the returned
check to the depositary bank. This paragraph imposes an obligation
to ``pay'' a returned check that is similar to the obligation to pay
a forward collection check by a paying bank, except that the
depositary bank may not return a returned check for which it is the
depositary bank. Also, certain means of payment, such as remittance
drafts, may be used only with the agreement of the
[lsqbb]returning[rsqbb] bank [rtrif]``presenting'' the returned
check[ltrif].
2. The depositary bank must pay for a returned check by the
close of the banking day on which it received the returned check.
The day on which a returned check is received is determined pursuant
to U.C.C. 4-108, which permits the bank to establish a cut-off hour,
generally not earlier than 2 p.m., and treat checks received after
that hour as being received on the next banking day. If the
depositary bank is unable to make payment to a returning
[rtrif]bank[ltrif] or paying bank on the banking day that it
receives the returned check, because the returning
[rtrif]bank[ltrif] or paying bank is closed for a holiday or because
the time when the depositary bank received the check is after the
close of Fedwire, e.g., west coast banks with late cut-off hours,
payment may be made on the next banking day of the bank receiving
payment.
3. Payment must be made so that the funds are available for use
by the bank returning the check to the depositary bank on the day
the check is received by the depositary bank. For example, a
depositary bank meets this requirement if it sends a wire transfer
of funds to the returning [rtrif]bank[ltrif] or paying bank on the
day it receives the returned check, even if the returning
[rtrif]bank[ltrif] or paying bank has closed for the day. A wire
transfer should indicate the purpose of the payment.
4. The depositary bank may use a net settlement arrangement to
settle for a returned check. Banks with net settlement agreements
could net the appropriate credits and debits for returned checks
with the accounting entries for forward collection checks if they so
desired. If, for purposes of establishing additional controls or for
other reasons, the banks involved desired a separate settlement for
returned checks, a separate net settlement agreement could be
established.
5. The bank sending the returned check to the depositary bank
may agree to accept payment at a later date if, for example, it does
not believe that the amount of the returned check or checks warrants
the costs of same-day payment. Thus, a returning [rtrif]bank[ltrif]
or paying bank may agree to accept payment through an ACH credit or
debit transfer that settles the day after the returned check is
received instead of a wire transfer that settles on the same day.
6. This paragraph and this subpart do not affect the depositary
bank's right to recover
[[Page 16958]]
a provisional settlement with its nonbank customer for a check that
is returned. (See also Sec. Sec. 229.19(c)(2)(ii),
[lsqbb]229.33(d)[rsqbb][rtrif]229.32(f)[ltrif] and 229.35(b).)
[lsqbb]C. 229.32(c)[lsqbb][rtrif]D. 229.32(d)[ltrif] Misrouted Returned
Checks
1. This paragraph permits a bank receiving a check on the basis
that it is the depositary bank to send the misrouted returned check
to the correct depositary bank, if it can identify the correct
depositary bank, either directly or through a returning bank
agreeing to handle the check expeditiously under [lsqbb]Sec.
229.30(a)[rsqbb][rtrif]Sec. 229.31(a)[ltrif]. In these cases, the
bank receiving the check is acting as a returning bank.
Alternatively, the bank receiving the misrouted returned check must
send the check back to the bank from which it was received. In
either case the bank to which the returned check was misrouted could
receive settlement for the check. The depositary bank would be
required to pay for the returned check under [lsqbb]Sec.
229.32(b)[rsqbb][rtrif]Sec. 229.32(c)[ltrif], and any other bank to
which the check is sent under this paragraph would be required to
settle for the check as a returning bank under Sec. 229.31(c). If
the check was originally received ``free,'' that is, without a
charge for the check, the bank incorrectly receiving the check would
have to return the check, without a charge, to the bank from which
it came. The bank to which the returned check was misrouted is
required to act promptly but is not required to meet the expeditious
return requirements of Sec. 229.31(a); however, it must act within
its midnight deadline. This paragraph does not affect a bank's
duties under Sec. 229.35(b).
[lsqbb]D. 229.32(d)[rsqbb][rtrif]E. 229.32(e)[ltrif] Charges
1. This paragraph prohibits a depositary bank from charging the
equivalent of a presentment fee for returned checks. A returning
bank, however, may charge a fee for handling returned checks. If the
returning bank receives a mixed cash letter of returned checks,
which includes some checks for which the returning bank also is the
depositary bank, the fee may be applied to all the returned checks
in the cash letter. In the case of a sorted cash letter containing
only returned checks for which the returning bank is the depositary
bank, however, no fee may be charged.
[rtrif]F. 229.32(f) Notification to Customer
1. This paragraph requires a depositary bank to notify its
customer of nonpayment upon receipt of a returned check. Notice also
must be given if a depositary bank receives a notice of recovery
under Sec. 229.35(b). A bank that chooses to provide the notice
required by Sec. 229.32(f) in writing may send the notice by e-mail
or facsimile if the bank sends the notice to the e-mail address or
facsimile number specified by the customer for that purpose. The
notice to the customer required under this paragraph also may
satisfy the notice requirement of Sec. 229.13(g) if the depositary
bank invokes the reasonable-cause exception of Sec. 229.13(e) due
to learning of nonpayment, provided the notice meets all the
requirements of Sec. 229.13(g).[ltrif]
[rtrif]XIX. Section 229.33 Electronic returns and collection items
A. 229.33(a) Checks under this subpart
1. If a depositary bank has agreed to accept an electronic
return, that electronic return is subject to the provisions of this
subpart as if it were a returned check. For example, a depositary
bank that receives an electronic return must notify its customer by
midnight of the banking day following the banking day on which it
received the electronic return, or within a longer reasonable time.
(See Sec. 229.32(f)).
2. Similarly, if a bank has agreed to accept an electronic
collection item from another bank (either under the same-day
settlement provisions of Sec. 229.36(d) or otherwise), the
electronic collection item is subject to the provisions of this
subpart as it were a check. For example, if a paying bank receives
presentment of an electronic collection item, it is subject to the
expeditious return requirements of this subpart, provided the
depositary bank has agreed to accept electronic returns from the
paying bank under Sec. 229.32(a).[ltrif]
XX. Section 229.34 Warranties
[rtrif]A. Transfer and presentment warranties with respect to an
electronic collection item and electronic return.
1. Paragraph (a) sets forth the warranties that a bank makes
when transferring an electronic collection item or electronic return
and receives settlement or other consideration for it. Electronic
collection items and electronic returns are treated as checks
subject to the provisions of subpart C, and therefore the warranties
in Sec. 229.34(a) are in addition to any warranties a bank makes
under paragraphs (b), (c), or (d).
2. The first warranty in Sec. 229.34(a) relates to the
requirements for substitute checks. A bank that transfers an
electronic collection item or electronic return warrants that the
electronic image accurately represents all of the information on the
front and back of the original check as of the time the original
check was truncated and that the electronic information contains a
record of all MICR-line information required for a substitute check
under Sec. 229.2(rr) of this part and the amount of the check. This
paragraph provides a bank that creates a substitute check from an
electronic collection item or electronic return with a warranty
claim against the bank that transferred the electronic collection
item or electronic return to it or any prior transferor of the
electronic collection item or electronic return.
3. A bank that transfers an electronic collection item or an
electronic return also warrants that no person will receive a
transfer, return of, or otherwise be charged for, an electronic
collection item, an electronic return, the original check, a
substitute check, or a paper or electronic representation of a
substitute check such that the person will be asked to make payment
based on a check it has already paid. A bank that transfers an
electronic collection item or electronic return that is an
electronic representation of a substitute check also makes the
warranties and indemnity in Sec. Sec. 229.52 and 229.53.[ltrif]
[lsqbb]C. 229.34(c)[rsqbb][rtrif]B. 229.34(b)[ltrif] Warranty of
Settlement Amount, Encoding, and Offset
1. Paragraph [lsqbb](c)[rsqbb][rtrif](b)[ltrif](1) provides that
a bank that presents and receives settlement for checks warrants to
the paying bank that the settlement it demands (e.g., as noted on
the cash letter) equals the total amount of the checks it presents.
This paragraph gives the paying bank a warranty claim against the
presenting bank for the amount of any excess settlement made on the
basis of the amount demanded, plus expenses. If the amount demanded
is understated, a paying bank discharges its settlement obligation
under U.C.C. 4-301 by paying the amount demanded, but remains liable
for the amount by which the demand is understated; the presenting
bank is nevertheless liable for expenses in resolving the
adjustment.
2. When checks or returned checks are transferred to a
collecting [rtrif]bank[ltrif], returning [rtrif]bank[ltrif], or
depositary bank, the transferor bank is not required to demand
settlement, as is required upon presentment to the paying bank.
However, often the checks or returned checks will be accompanied by
information (such as a cash letter listing) that will indicate the
total of the checks or returned checks. Paragraph
[lsqbb](c)[rsqbb][rtrif](b)[ltrif](2) provides that if the
transferor bank includes information indicating the total amount of
checks or returned checks transferred, it warrants that the
information is correct (i.e., equals the actual total of the items).
3. Paragraph [lsqbb](c)[rsqbb][rtrif](b)[ltrif](3) provides that
a bank that presents or transfers a check or returned check warrants
the accuracy of [lsqbb]the magnetic ink encoding that was placed on
the item[rsqbb] [rtrif]information encoded on the item in magnetic
ink or provided electronically[ltrif] after issue, and that exists
at the time of presentment or transfer, to any bank that
subsequently handles the check or returned check. Under U.C.C. 4-
209(a), only the encoder (or the encoder and the depositary bank, if
the encoder is a customer of the depositary bank) warrants the
encoding accuracy, thus any claims on the warranty must be directed
to the encoder. Paragraph [lsqbb](c)[rsqbb][rtrif](b)[ltrif](3)
expands on the U.C.C. by providing that all banks that transfer or
present a check or returned check make the encoding warranty. In
addition, under the U.C.C., the encoder makes the warranty to
subsequent collecting banks and the paying bank, while paragraph
[lsqbb](c)[rsqbb][rtrif](b)[ltrif](3) provides that the warranty is
made to banks in the return chain as well. Paragraph
[lsqbb](c)[rsqbb][rtrif](b)[ltrif](3) applies to all MICR-line
encoding on a substitute check [rtrif]and, in the case of an
electronic collection item or electronic return, to the electronic
information related to a check [ltrif].
4. A paying bank that settles for an overstated cash letter
because of a misencoded check may make a warranty claim against the
presenting bank under paragraph
[lsqbb](c)[rsqbb][rtrif](b)[ltrif](1) (which would require the
paying bank to show that the check was part of the overstated cash
letter) or an encoding warranty claim under paragraph
[lsqbb](c)[rsqbb][rtrif](b)[ltrif](3) against the presenting bank or
any preceding bank that handled the misencoded check.
5. Paragraph [lsqbb](c)[rsqbb][rtrif](b)[ltrif](4) provides that
a paying bank or a depositary bank may set
[[Page 16959]]
off excess settlement paid to another bank against settlement owed
to that bank for checks presented or returned checks received (for
which it is the depositary bank) subsequent to the excess
settlement.
[lsqbb]D. 229.34(d)[rsqbb][rtrif]C. 229.34(c)[ltrif] Transfer
and Presentment Warranties [rtrif]With Respect to a Remotely Created
Check[ltrif]
1. A bank that transfers or presents a remotely created check
and receives a settlement or other consideration warrants that the
person on whose account the check is drawn authorized the issuance
of the check in the amount stated on the check and to the payee
stated on the check. The warranties are given only by banks and only
to subsequent banks in the collection chain. The warranties
ultimately shift liability for the loss created by an unauthorized
remotely created check to the depositary bank. The depositary bank
cannot assert the transfer and presentment warranties against a
depositor. However, a depositary bank may, by agreement, allocate
liability for such an item to the depositor and also may have a
claim under other laws against that person.
2. The transfer and presentment warranties for remotely created
checks supplement the Federal Trade Commission's Telemarketing Sales
Rule, which requires telemarketers that submit checks for payment to
obtain the customer's ``express verifiable authorization'' (the
authorization may be either in writing or tape recorded and must be
made available upon request to the customer's bank). 16 CFR
310.3(a)(3). The transfer and presentment warranties shift liability
to the depositary bank only when the remotely created check is
unauthorized, and would not apply when the customer initially
authorizes a check but then experiences ``buyer's remorse'' and
subsequently tries to revoke the authorization by asserting a claim
against the paying bank under U.C.C. 4-401. If the depositary bank
suspects ``buyer's remorse,'' it may obtain from its customer the
express verifiable authorization of the check by the paying bank's
customer, required under the Federal Trade Commission's
Telemarketing Sales Rule, and use that authorization as a defense to
the warranty claim.
3. The scope of the transfer and presentment warranties for
remotely created checks differs from that of the corresponding
U.C.C. warranty provisions in two respects. The U.C.C. warranties
differ from the [lsqbb]Sec. 229.34(d)[rsqbb][rtrif]Sec.
229.34(c)[ltrif] warranties in that [lsqbb]they[rsqbb][rtrif]the
U.C.C. warranties[ltrif] are given by any person, including a
nonbank depositor, that transfers a remotely created check and not
just to a bank, as is the case under [lsqbb]Sec.
229.34(d)[rsqbb][rtrif]Sec. 229.34(c)[ltrif]. In addition, the
U.C.C. warranties state that the person on whose account the item is
drawn authorized the issuance of the item in the amount for which
the item is drawn. The [lsqbb]Sec. 229.34(d)[rsqbb][rtrif]Sec.
229.34(c)[ltrif] warranties specifically cover the amount as well as
the payee stated on the check. Neither the U.C.C.
warranties[lsqbb],[rsqbb] nor the [lsqbb]Sec.
229.34(d)[rsqbb][rtrif]Sec. 229.34(c)[ltrif] warranties apply to
the date stated on the remotely created check.
4. A bank making the [lsqbb]Sec. 229.34(d)[rsqbb][rtrif]Sec.
229.34(c)[ltrif] warranties may defend a claim asserting violation
of the warranties by proving that the customer of the paying bank is
precluded by U.C.C. 4-406 from making a claim against the paying
bank. This may be the case, for example, if the customer failed to
discover the unauthorized remotely created check in a timely manner.
5. The transfer and presentment warranties for a remotely
created check apply to a remotely created check that has been
reconverted to a substitute check[rtrif], to an electronic
collection item derived from a remotely created check, and to an
electronic image and information transferred as an electronic
collection item derived from a remotely created check.[ltrif]
[lsqbb]A. 229.34(a)[rsqbb][rtrif]D. 229.34(d)[ltrif] Warranty of
Returned Check
1. This paragraph includes warranties that a returned check,
including a notice in lieu of return [rtrif]and electronic
return[ltrif], 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)[lsqbb], Regulation J (12 CFR part
210),[rsqbb] 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 [lsqbb]original[rsqbb] check has not been and will
not be returned for payment. (See the Commentary to [lsqbb]Sec.
229.30(f)[rsqbb] [rtrif]Sec. 229.30(e)[ltrif].) [rtrif]``Check''
includes the original check, a substitute check, an electronic
return, and notice in lieu of return.[ltrif] The warranty does not
include a warranty that the bank complied with the expeditious
return requirements of Sec. Sec. 229.30(a) and 229.31(a). These
warranties do not apply to checks drawn on the United States
Treasury, to U.S. Postal Service money orders, or to checks drawn on
a state or a unit of general local government that are not payable
through or at a bank. (See Sec. 229.42.)
[rtrif]E. 229.34(e) Electronic image and information transferred as an
electronic collection item or electronic return
1. Paragraph (e) sets forth the warranties that a bank makes
when transferring an electronic image and related information as if
it were an electronic collection item or electronic return. These
warranties are the same warranties made for electronic collection
items and electronic returns throughout Sec. 229.34 and carry the
same conditions, such as the requirement for receiving settlement or
other consideration where applicable. Applying the Sec. 229.34
warranties to all images and related information transferred as if
they were electronic collection items or electronic returns protects
a transferee bank in the event it creates a substitute check from an
electronic image and related information that does not represent an
item that existed in paper (i.e., an electronically created item).
2. As a practical matter, a bank receiving an electronically
created image and related information generally cannot distinguish
the image and related information from an image and related
information that derived from a paper check. In turn, the bank
receiving the electronically created image and related information
may produce a paper item that is indistinguishable from a substitute
check (although the item is not a substitute check because the item
never existed in paper). Therefore, a bank that transfers the paper
item may be liable for a breach of the substitute check warranties.
The warranties in Sec. 229.34(e) enable a bank that receives a
nonconforming substitute check to pass back liability to the bank
from which it received the electronic image and related information,
notwithstanding the fact that the image and information did not
derive from a paper check.[ltrif]
[lsqbb]B. 229.34(b) Warranty of Notice of Nonpayment
1. This paragraph provides for warranties for notices of
nonpayment. This warranty does not include a warranty that the
notice is accurate and timely under Sec. 229.33. The requirements
of Sec. 229.33 that are not covered by the warranty are subject to
the liability provisions of Sec. 229.38. These warranties are
designed to give the depositary bank more confidence in relying on
notices of nonpayment. This paragraph imposes liability on a paying
bank that gives notice of nonpayment and then subsequently returns
the check. (See Commentary on Sec. 229.33(a).)[rsqbb]
[lsqbb]E. 229.34(d)[rsqbb][rtrif]F. 229.34(f)[ltrif] Damages
1. This paragraph adopts for the warranties in Sec. 229.34 (a),
(b), [lsqbb]and[rsqbb] (c)[rtrif], (d) and (e)[ltrif] the damages
provided in U.C.C. 4-207(c) and 4A-506(b). (See definition of
interest compensation in [lsqbb]Sec. 229.2(oo)[rsqbb][rtrif]Sec.
229.2(bb)[ltrif].)
[lsqbb]F. 229.34(e)[rsqbb][rtrif]G. 229.34(g)[ltrif] Tender of Defense
1. This paragraph adopts for this regulation the vouching-in
provisions of U.C.C. 3-119.
[lsqbb]G. 229.34(f)[rsqbb][rtrif]H. 229.34(h)[ltrif] Notice of Claim
1. This paragraph adopts the notice provisions of U.C.C.
sections 4-207(d) and 4-208(e). The time limit set forth in this
paragraph applies to notices of claims for warranty breaches only.
As provided in Sec. 229.38(g), all actions under this section must
be brought within one year after the date of the occurrence of the
violation involved.
XXI. Section 229.35 Indorsements
A. 229.35(a) Indorsement Standards
1. This section and appendix D require banks to use a standard
form of indorsement when indorsing checks during the forward
collection and return process. The standard provides for
indorsements by all collecting and returning banks, plus a unique
standard for depositary bank indorsements. It is designed to
facilitate the identification of the depositary bank and the prompt
return of checks. The regulation places a duty on banks to ensure
that their indorsements can be interpreted by any person. The
indorsement standard specifies the information each indorsement must
contain and its location and ink color[rtrif], if applied to a paper
check[ltrif].
2. Banks generally apply indorsements to a paper check in one of
two ways: (1) Banks
[[Page 16960]]
print or ``spray'' indorsements onto a check when the check is
processed through the banks' automated check sorters (regardless of
whether the checks are original checks or substitute checks), and
(2) reconverting banks print or ``overlay'' previously applied
electronic indorsements and their own indorsements and
identifications onto a substitute check at the time that the
substitute check is created. If a subsequent substitute check is
created in the course of collection or return, that substitute check
will contain, in its image of the back of the previous substitute
check, reproductions of indorsements that were sprayed or overlaid
onto the previous item. For purposes of the indorsement standard set
forth in appendix D, a reproduction of a previously applied sprayed
or overlaid indorsement contained within an image of a check does
not constitute ``an indorsement that previously was applied
electronically.'' To accommodate these two indorsement scenarios,
the appendix includes two indorsement location specifications: one
standard applies to banks spraying indorsements onto existing paper
original checks and substitute checks, and another applies to
reconverting banks overlaying indorsements that previously were
applied electronically and their own indorsements onto substitute
checks at the time the substitute checks are created.
3. A bank might use check processing equipment that captures an
image of a check prior to spraying an indorsement onto that
[rtrif]check[ltrif] [lsqbb]item[rsqbb]. If the bank truncates that
[rtrif]check[ltrif] [lsqbb]item[rsqbb], it should ensure that it
also applies an indorsement to the item electronically [rtrif]in
accordance with ANS X9.100-187, unless the parties otherwise
agree[ltrif]. A reconverting bank satisfies its obligation to
preserve all previously applied indorsements by overlaying a bank's
indorsement that previously was applied electronically onto a
substitute check that the reconverting bank creates.
4. The location of an indorsement applied to an original paper
check in accordance with appendix D may shift if that check is
truncated and later reconverted to a substitute check. If an
indorsement applied to the original check in accordance with
appendix D is overwritten by a subsequent indorsement applied to the
substitute check in accordance with appendix D, then one or both of
those indorsements could be rendered illegible. As explained in
Sec. 229.38(d) and the commentary thereto, a reconverting bank is
liable for losses associated with indorsements that are rendered
illegible as a result of check substitution.
5. To ensure that indorsements can be easily read and would
remain legible after an image of a check is captured, the standard
requires all indorsements applied to original checks and substitute
checks to be printed in black ink [lsqbb]as of January 1,
2006[rsqbb].
6. The standard requires the depositary bank's indorsement to
include (1) its nine-digit routing number set off by an arrow at
each end of the routing number and, if the depositary bank is a
reconverting bank with respect to the check, an asterisk outside the
arrow at each end of the routing number to identify the bank as a
reconverting bank; (2) the indorsement date; and (3) if the
indorsement is applied physically, name or location information. The
standard also permits but does not require the indorsement to
include other identifying information. The standard requires a
collecting bank's or returning bank's indorsement to include only
(1) the bank's nine digit routing number (without arrows) and, if
the collecting bank or returning bank is a reconverting bank with
respect to the check, an asterisk at each end of the number to
identify the bank as a reconverting bank, (2) the indorsement date,
and (3) an optional trace or sequence number. [rtrif]The information
required to be included in the depositary bank's indorsement of an
electronic collection item, and the information that may be
included, is the same as set forth above. The formatting of the
information, however, should be in accordance with ANS X9.100-
187.[ltrif]
7. Depositary banks should not include information that can be
confused with required information. For example, a nine-digit zip
code could be confused with the nine-digit routing number.
8. A depositary bank may want to include an address in its
indorsement in order to limit the number of locations at which it
must receive returned checks. [lsqbb]In instances where this address
is not consistent with the routing number in the indorsement, the
depositary bank is required to receive returned checks at a branch
or head office consistent with the routing number.[rsqbb] Banks
should note, however, that Sec. 229.32 requires a depositary bank
to receive returned checks at the location(s) at which it receives
forward-collection checks[lsqbb].[rsqbb] [rtrif]as well as the other
locations enumerated in Sec. 229.32(b) (see Sec. 229.32(b) and
accompanying commentary). If a depositary bank includes an e-mail
address or other electronic address for delivery of electronic
returns, and has agreed to accept electronic returns from the paying
bank or returning bank, the paying bank or returning bank may send
electronic returns to such address.[ltrif]
9. In addition to indorsing a substitute check in accordance
with appendix D, a reconverting bank must identify itself and the
truncating bank by applying its routing number and the routing
number of the truncating bank to the front of the check in
accordance with appendix D and ANS X9.100-140. Further, if the
reconverting bank is the paying bank, [rtrif]or a bank that rejected
a check submitted for deposit,[ltrif] it also must identify itself
by applying its routing number to the back of the check in
accordance with appendix D. In these instances, the reconverting
bank and truncating bank routing numbers are for identification
purposes only and are not indorsements or acceptances.
10. Under the U.C.C., a specific guarantee of prior indorsement
is not necessary. (See U.C.C. 4-207(a) and 4-208(a).) Use of
guarantee language in indorsements, such as ``P.E.G.'' (``prior
endorsements guaranteed''), may result in reducing the type size
used in bank indorsements, thereby making them more difficult to
read. Use of this language may make it more difficult for other
banks to identify the depositary bank. Subsequent collecting bank
indorsements may not include this language.
11. If the bank maintaining the account into which a check is
deposited agrees with another bank (a correspondent, ATM operator,
or lock box operator) to have the other bank accept returns
[lsqbb]and notices of nonpayment[rsqbb] for the bank of account, the
indorsement placed on the check as the depositary bank indorsement
may be the indorsement of the bank that acts as correspondent, ATM
operator, or lock box operator as provided in paragraph (d) of this
section.
12. The backs of [lsqbb]many[rsqbb][rtrif]some[ltrif] checks
bear pre-printed information or blacked out areas for various
reasons. For example, some checks are printed with a carbon band
across the back that allows the transfer of information from the
check to a ledger with one writing. Also, contracts or loan
agreements are printed on certain checks. Other checks that are
mailed to recipients may contain areas on the back that are blacked
out so that they may not be read through the mailer. On the deposit
side, the payee of the check may place its indorsement or
information identifying the drawer of the check in the area
specified for the depositary bank indorsement, thus making the
depositary bank indorsement unreadable.
13. The indorsement standard does not prohibit the use of a
carbon band or other printed or written matter on the backs of
checks and does not require banks to avoid placing their
indorsements in these areas. Nevertheless, checks will be handled
more efficiently if depositary banks design indorsement stamps so
that the nine-digit routing number avoids the carbon band area.
Indorsing parties other than banks, e.g., corporations, will benefit
from the faster return of checks if they protect the identifiability
and legibility of the depositary bank indorsement by staying clear
of the area reserved for the depositary bank indorsement.
14. Section 229.38(d) allocates responsibility for loss
resulting from a delay in return of a check due to indorsements that
are unreadable because of material on the back of the check. The
depositary bank is responsible for a loss resulting from a delay in
return caused by the condition of the check arising after its
issuance until its acceptance by the depositary bank that made the
depositary bank's indorsement illegible. The paying bank is
responsible for loss resulting from a delay in return caused by
indorsements that are not readable because of other material on the
back of the check at the time that it was issued. Depositary and
paying banks may shift these risks to their customers by agreement.
15. The standard does not require the paying bank to indorse the
check; however, if a paying bank does indorse a check that is
returned, it should follow the indorsement standard for collecting
banks and returning banks. The standard requires collecting and
returning banks to indorse the check for tracing purposes. With
respect to the identification of a paying bank that is also a
reconverting bank, see the commentary to Sec. 229.51(b)(2).
[[Page 16961]]
B. 229.35(b) Liability of Bank Handling Check
1. When a check is sent for forward collection, the collection
process results in a chain of indorsements extending from the
depositary bank through any subsequent collecting banks to the
paying bank. This section extends the indorsement chain through the
paying bank to the returning banks, and would permit each bank to
recover from any prior indorser if the claimant bank does not
receive payment for the check from a subsequent bank in the
collection or return chain. For example, if a returning bank
returned a check to an insolvent depositary bank, and did not
receive the full amount of the check from the failed bank, the
returning bank could obtain the unrecovered amount of the check from
any bank prior to it in the collection and return chain including
the paying bank. Because each bank in the collection and return
chain could recover from a prior bank, any loss would fall on the
first collecting bank that received the check from the depositary
bank. To avoid circuity of actions, the returning bank could recover
directly from the first collecting bank. Under the U.C.C., the first
collecting bank might ultimately recover from the depositary bank's
customer or from the other parties on the check.
2. Where a check is returned through the same banks used for the
forward collection of the check, priority during the forward
collection process controls over priority in the return process for
the purpose of determining prior and subsequent banks under this
regulation.
3. Where a returning bank is insolvent and fails to pay the
paying bank or a prior returning bank for a returned check, Sec.
229.39(a) requires the receiver of the failed bank to return the
check to the bank that transferred the check to the failed bank.
That bank then either could continue the return to the depositary
bank or recover based on this paragraph. Where the paying bank is
insolvent, and fails to pay the collecting bank, the collecting bank
also could recover from a prior collecting bank under this
paragraph, and the bank from which it recovered could in turn
recover from its prior collecting bank until the loss settled on the
depositary bank (which could recover from its customer).
4. A bank is not required to make a claim against an insolvent
bank before exercising its right to recovery under this paragraph.
Recovery may be made by charge-back or by other means. This right of
recovery also is permitted even where nonpayment of the check is the
result of the claiming bank's negligence such as failure to make
expeditious return, but the claiming bank remains liable for its
negligence under Sec. 229.38.
5. This liability is imposed on a bank handling a check for
collection or return regardless of whether the bank's indorsement
appears on the check. Notice must be sent under this paragraph to a
prior bank from which recovery is sought reasonably promptly after a
bank learns that it did not receive payment from another bank, and
learns the identity of the prior bank. Written notice reasonably
identifying the check and the basis for recovery is sufficient if
the check is not available. Receipt of notice by the bank against
which the claim is made is not a precondition to recovery by charge-
back or other means; however, a bank may be liable for negligence
for failure to provide timely notice. A paying or returning bank
also may recover from a prior collecting bank as provided in
Sec. Sec. 229.30(b) and 229.31(b) [rtrif](in those cases where the
paying bank or returning bank is unable to identify the depositary
bank)[ltrif]. This provision is not a substitute for a paying or
returning bank making expeditious return under Sec. Sec. 229.30(a)
or 229.31[lsqbb](b)[rsqbb][rtrif](a)[ltrif]. This paragraph does not
affect a paying bank's accountability for a check under U.C.C. 4-
215(a) and 4-302. Nor does this paragraph affect a collecting bank's
accountability under U.C.C. 4-213 and 4-215(d). A collecting bank
becomes accountable upon receipt of final settlement as provided in
the foregoing U.C.C. sections. The term final settlement in
Sec. Sec. 229.31(c), [lsqbb]229.32
(b)[rsqbb][rtrif]229.32(c)[ltrif], and [lsqbb]229.36
(d)[rsqbb][rtrif]229.36(c)[ltrif]is intended to be consistent with
the use of the term final settlement in the U.C.C. (e.g., U.C.C. 4-
213, 4-214, and 4-215). (See also Sec.
229.2[lsqbb](oo)[rsqbb][rtrif](bb)[ltrif] and Commentary.)
6. This paragraph also provides that a bank may have the rights
of a holder based on the handling of the check for collection or
return. A bank may become a holder or a holder in due course
regardless of whether prior banks have complied with the indorsement
standard in Sec. 229.35(a) and appendix D.
7. This paragraph affects the following provisions of the
U.C.C., and may affect other provisions:
a. Section 4-214(a), in that the right to recovery is not based
on provisional settlement, and recovery may be had from any prior
bank. Section 4-214(a) would continue to permit a depositary bank to
recover a provisional settlement from its customer. (See
[lsqbb]Sec. 229.33(d)[rsqbb][rtrif]Sec. 229.32(f)[ltrif].)
b. Section 3-415 and related provisions (such as section 3-503),
in that such provisions would not apply as between banks, or as
between the depositary bank and its customer.
C. 229.35(c) Indorsement by Bank
1. This section protects the rights of a customer depositing a
check in a bank without requiring the words ``pay any bank,'' as
required by the U.C.C. (See U.C.C. 4-201(b).) Use of this language
in a depositary bank's indorsement will make it more difficult for
other banks to identify the depositary bank. The indorsement
standard in appendix D prohibits such material in subsequent
collecting bank indorsements. The existence of a bank indorsement
provides notice of the restrictive indorsement without any
additional words.
D. 229.35(d) Indorsement for Depositary Bank
1. This section permits a depositary bank to arrange with
another bank to indorse checks. This practice may occur when a
correspondent indorses for a respondent, or when the bank servicing
an ATM or lock box indorses for the bank maintaining the account in
which the check is deposited--i.e., the depositary bank. If the
indorsing bank applies the depositary bank's indorsement, checks
will be returned to the depositary bank. If the indorsing bank does
not apply the depositary bank's indorsement, by agreement with the
depositary bank it may apply its own indorsement as the depositary
bank indorsement. In that case, the depositary bank's own
indorsement on the check (if any) should avoid the location reserved
for the depositary bank. The actual depositary bank remains
responsible for the availability and other requirements of
[lsqbb]S[rsqbb][rtrif]s[ltrif]ubpart B, but the bank indorsing as
depositary bank is considered the depositary bank for purposes of
[lsqbb]S[rsqbb][rtrif]s[ltrif]ubpart C. The check will be
returned[lsqbb], and notice of nonpayment will be given,[rsqbb] to
the bank indorsing as depositary bank.
2. Because the depositary bank for
[lsqbb]S[rsqbb][rtrif]s[ltrif]ubpart B purposes will desire prompt
notice of nonpayment, its arrangement with the indorsing bank should
provide for prompt notice of nonpayment. The bank indorsing as
depositary bank may require the depositary bank to agree to take up
the check if the check is not paid even if the depositary bank's
indorsement does not appear on the check and it did not handle the
check. The arrangement between the banks may constitute an agreement
varying the effect of provisions of
[lsqbb]S[rsqbb][rtrif]s[ltrif]ubpart C under Sec. 229.37.
XXII. Section 229.36 Presentment and Issuance of Checks
[lsqbb]A. 229.36(a) Payable Through and Payable at Checks
1. For purposes of Subpart C, the regulation defines a payable-
through or payable-at bank (which could be designated the
collectible-through or collectible-at bank) as a paying bank. The
requirements of Sec. 229.30(a) and the notice of nonpayment
requirements of Sec. 229.33 are imposed on a payable-through or
payable-at bank and are based on the time of receipt of the forward
collection check by the payable-through or payable-at bank. This
provision is intended to speed the return of checks that are payable
through or at a bank to the depositary bank.[rsqbb]
[rtrif]A. 229.36(a) Receipt of Electronic Collection Items
1. This paragraph sets forth the circumstances under which a
paying bank has agreed to accept an electronic collection item from
the presenting bank for purposes of subpart C. There are two
different ways a paying bank can agree to accept an electronic
collection item from the presenting bank for purposes of subpart C:
a. First, a paying bank may have a direct contractual
relationship with the presenting bank under which it has agreed to
accept electronic collection items directly from the presenting
bank.
b. Second, a paying bank may have otherwise agreed with the
presenting bank to accept electronic collection items. For example,
the presenting bank and paying bank may both be members of the same
clearing house, under the rules of which the paying bank has agreed
to accept electronic collection items from the presenting bank.
2. The presenting bank must deliver the electronic collection
item to the electronic
[[Page 16962]]
location designated by the paying bank. Accordingly, regardless of
the means by which a paying bank agrees to accept electronic
collection items from the presenting bank, the paying bank's
agreement with the presenting bank must designate an electronic
presentment point.
3. This paragraph also sets forth when a paying bank receives an
electronic collection item. A bank ``receives'' an electronic
collection item when that item is delivered to the electronic
presentment point designated by the bank or when the electronic
collection item is otherwise made available for retrieval or review
in accordance with an agreement between the paying bank and the
presenting bank. For example, if a paying bank designates an
Internet protocol (IP) address as its electronic presentment point,
the paying bank has received the electronic collection item when it
is delivered to that address. In contrast, if the paying bank has an
arrangement with a presenting bank whereby the presenting bank sends
the electronic collection item to its storage device and then
provides the paying bank with access to the storage device for
retrieving electronic collection items, the electronic collection
item is received by the paying bank when the presenting bank makes
the electronic collection item available for the paying bank to
retrieve or review from storage device in accordance with the
agreement between the presenting bank and the paying bank.[ltrif]
B. 229.36(b) [lsqbb]Receipt at Bank Office or Processing
Center[rsqbb][rtrif]Receipt of paper checks.[ltrif]
[lsqbb]1. This paragraph seeks to facilitate efficient
presentment of checks to promote early return [lsqbb]or notice of
nonpayment[rsqbb] to the depositary bank and clarifies the law as to
the effect of presentment by routing number. This paragraph differs
from Sec. 229.32(a) because presentment of checks differs from
delivery of returned checks.[rsqbb]
[lsqbb]2[rsqbb][rtrif]1[ltrif]. The paragraph specifies four
locations at which the paying bank must accept presentment of
[rtrif]paper[ltrif] checks. Where the check is payable through a
bank and the check is sent to that bank, the payable-through bank is
the paying bank for purposes of this subpart, regardless of whether
the paying bank must present the check to another bank or to a
nonbank payor for payment.
a. Delivery of checks may be made, and presentment is considered
to occur, at a location (including a processing center) requested by
the paying bank. [lsqbb]This is the way most checks are presented by
banks today.[rsqbb] This provision adopts the common law rule of a
number of legal decisions that the processing center acts as the
agent of the paying bank to accept presentment and to begin the time
for processing of the check. (See also U.C.C. 4-204(c).) If a bank
designates different locations for the presentment of forward
collection checks bearing different routing numbers, for purposes of
this paragraph it requests presentment of checks bearing a
particular routing number only at the location designated for
receipt of forward collection checks bearing that routing number.
[lsqbb]d[rsqbb][rtrif]b[ltrif]. If the check specifies the name
and address of a branch or head office, or other location (such as a
processing center), the check may be delivered by delivery to that
office or other location. If the address is too general to identify
a particular office, delivery may be made at any office consistent
with the address. For example, if the address is ``San Francisco,
California,'' each office in San Francisco must accept presentment.
The designation of an address on the check generally is in the
control of the paying bank.
[lsqbb]b[rsqbb][rtrif]c[ltrif]. i. Delivery may be made at an
office of the bank associated with the routing number on the check.
The office associated with the routing number of a bank is found in
American Bankers Association Key to Routing Numbers, published by an
agent of the American Bankers Association, which lists a city and
state address for each routing number. Checks generally are handled
by collecting banks on the basis of the nine-digit routing number
encoded in magnetic ink (or on the basis of the fractional form
routing number if the magnetic ink characters are obliterated) on
the check, rather than the printed name or address. [rtrif]In the
case of a substitute check derived from an electronic collection
item, delivery may be made at an office of the bank associated with
the routing number in the electronic image of or electronic
information related to the check.[ltrif] The definition of a paying
bank in [lsqbb]Sec. 229.2(z)[rsqbb][rtrif]Sec. 229.2(ii)[ltrif]
includes a bank designated by routing number, whether or not there
is a name on the check, and whether or not any name is consistent
with the routing number. Where a check is payable by one bank, but
payable through another, the routing number is that of the payable-
through bank, not that of the payor bank. As the payor bank has
selected the payable-through bank as the point through which
presentment is to be made, it is proper to treat the payable-through
bank as the paying bank for purposes of this section.
ii. There is no requirement in the regulation that the name and
address on the check agree with the address associated with the
routing number on the check. A bank generally may control the use of
its routing number, just as it does the use of its name. The address
associated with the routing number may be a processing center.
iii. In some cases, a paying bank may have several offices in
the city associated with the routing number. In such case, it would
not be reasonable or efficient to require the presenting bank to
sort the checks by more specific branch addresses that might be
printed on the checks, and to deliver the checks to each branch. A
collecting bank normally would deliver all checks to one location.
In cases where checks are delivered to a branch other than the
branch on which they may be drawn, computer and courier
communication among branches should permit the paying bank to
determine quickly whether to pay the check.
[lsqbb]c[rsqbb][rtrif]d[ltrif]. If the check specifies the name
of the paying bank but no address, the bank must accept delivery at
any office. Where delivery is made by a person other than a bank, or
where the routing number is not readable, delivery will be made
based on the name and address of the paying bank on the check. If
there is no address, delivery may be made at any office of the
paying bank. This provision is consistent with U.C.C. 3-111, which
states that presentment for payment may be made at the place
specified in the instrument, or, if there is none, at the place of
business of the party to pay. Thus, there is a trade-off for a
paying bank between specifying a particular address on a check to
limit locations of delivery, and simply stating the name of the bank
to encourage wider currency for the check.
3. This paragraph may affect U.C.C. 3-111 to the extent that the
U.C.C. requires presentment to occur at a place specified in the
instrument.
C. [lsqbb][Reserved]
D. 229.36(d)[rsqbb][rtrif]229.36(c)[ltrif] Liability of Bank During
Forward Collection
1. This paragraph makes settlement between banks during forward
collection final when made, subject to any deferment of credit, just
as settlements between banks during the return of checks are final.
In addition, this paragraph clarifies that this change does not
affect the liability scheme under U.C.C. 4-201 during forward
collection of a check. That U.C.C. section provides that, unless a
contrary intent clearly appears, a bank is an agent or subagent of
the owner of a check, but that Article 4 of the U.C.C. applies even
though a bank may have purchased an item and is the owner of it.
This paragraph preserves the liability of a collecting bank to prior
collecting banks and the depositary bank's customer for negligence
during the forward collection of a check under the U.C.C., even
though this paragraph provides that settlement between banks during
forward collection is final rather than provisional. Settlement by a
paying bank is not considered to be final payment for the purposes
of U.C.C. 4-215(a)(2) or (3), because a paying bank has the right to
recover settlement from a returning or depositary bank to which it
returns a check under this subpart. Other provisions of the U.C.C.
not superseded by this subpart, such as section 4-202, also continue
to apply to the forward collection of a check and may apply to the
return of a check. (See definition of returning bank in [lsqbb]Sec.
229.2(cc)[rsqbb][rtrif]Sec. 229.2(oo)[ltrif].)
[lsqbb]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, and location, and
first four digits of the nine-digit routing number of the bank by
which the check is payable and the legend ``payable through''
followed by the name of the payable-through bank. The first four
digits of the nine-digit routing number and the location of the bank
by which the check is payable must be associated with the same check
processing region. (This section does not affect Sec. 229.36(b).)
The required information is deemed conspicuous if it is printed in a
type size not smaller than six-point type and if it is contained in
the title plate, which is located in the lower left quadrant of the
check. The required information may be conspicuous if it is located
elsewhere on the check.
[[Page 16963]]
2. If a payable-through check does not meet the requirements of
this paragraph, the bank by which the check is payable may be liable
to the depositary bank or others as provided in Sec. 229.38. For
example, a bank by which a payable-through check is payable could be
liable to a depositary bank that suffers a loss, such as lost
interest or liability under Subpart B, that would not have occurred
had the check met the requirements of this paragraph. Similarly, a
bank may be liable under Sec. 229.38 if a check payable by it that
is not payable through another bank is labeled as provided in this
section. For example, a bank that holds checking accounts and
processes checks at a central location but has widely-dispersed
branches may be liable under this section if it labels all of its
checks as ``payable through'' a single branch and includes the name,
address, and four-digit routing symbol of another branch. These
checks would not be payable through another bank and should not be
labeled as payable-through checks. (All of a bank's offices within
the United States are considered part of the same bank; see Sec.
229.2(e).) In this example, the bank by which the checks are payable
could be liable to a depositary bank that suffers a loss, such as
lost interest or liability under Subpart B, due to the mislabeled
check. The bank by which the check is payable may be liable for
additional damages if it fails to act in good faith.[rsqbb]
[lsqbb]F. 229.36(f)[rsqbb][rtrif]D. 229.36(d)[ltrif] Same-Day
Settlement
1. This paragraph provides that, under certain conditions, a
paying bank must settle with a presenting bank for a check on the
same day the check is presented in order to avail itself of the
ability to return the check on its next banking day under U.C.C. 4-
301 and 4-302. This paragraph does not apply to checks presented for
immediate payment over the counter. Settling for a check under this
paragraph does not constitute final payment of the check under the
U.C.C. This paragraph does not supersede or limit the rules
governing collection and return of checks through Federal Reserve
Banks that are contained in Subpart A of Regulation J (12 CFR part
210).
2. Presentment requirements.
a. Location and time.
i. For presented checks to qualify for mandatory same-day
settlement, information accompanying the checks must indicate that
presentment is being made under this paragraph--e.g. ``these checks
are being presented for same-day settlement''--and must include a
demand for payment of the total amount of the checks together with
appropriate payment instructions in order to enable the paying bank
to discharge its settlement responsibilities under this paragraph.
In addition, the check or checks must be presented at a location
designated by the paying bank for receipt of checks for same-day
settlement by 8:00 a.m. local time of that location. [lsqbb]The
designated presentment location must be a location at which the
paying bank would be considered to have received a check under Sec.
229.36(b). The paying bank may not designate a location solely for
presentment of checks subject to settlement under this paragraph; by
designating a location for the purposes of Sec. 229.36(f), the
paying bank agrees to accept checks at that location for purposes of
Sec. 229.36(b).[rsqbb]
[rtrif]ii. Electronic presentment. A paying bank may require
that checks presented for same-day settlement under this paragraph
be presented as electronic collection items to a designated
electronic presentment point. If a paying bank so requires, the
presenting bank must present checks for same-day settlement as
electronic collection items, and may not present paper checks to
physical locations for receiving same-day settlement under this
section. An electronic collection item presented for same-day
settlement is subject to the provisions of this subpart as if it
were a check (See Sec. 229.33). Therefore, references to checks in
this subpart include electronic collection items presented under
Sec. 229.36(d).
iii. A paying bank may designate a presentment location for
paper checks, but the designated presentment location must be a
location at which the paying bank would be considered to have
received a check under Sec. 229.36(b). If the paying bank does not
designate any presentment location, it must accept presentment for
same-day settlement at any location identified in Sec. 229.36(b),
i.e., at an address of the bank associated with the routing number
on the check, at any branch or head office if the bank is identified
on the check by name without address, or at a branch, head office,
or other location consistent with the name and address of the bank
on the check if the bank is identified on the check by name and
address. With the exception of receiving electronic collection
items, the paying bank may not designate a location solely for
presentment of checks subject to settlement under this paragraph; by
designating a location for the purposes of Sec. 229.36(d), the
paying bank agrees to accept checks at that location for the
purposes of Sec. 229.36(b).[ltrif]
[lsqbb]ii. The designated presentment location also must be
within the check processing region consistent with the nine-digit
routing number encoded in magnetic ink on the check. A paying bank
that uses more than one routing number associated with a single
check processing region may designate, for purposes of this
paragraph, one or more locations in that check processing region at
which checks will be accepted, but the paying bank must accept any
checks with a routing number associated with that check processing
region at each designated location. A paying bank may designate a
presentment location for traveler's checks with an 8000-series
routing number anywhere in the country because these traveler's
checks are not associated with any check processing region. The
paying bank, however, must accept at that presentment location any
other checks for which it is paying bank that have a routing number
consistent with the check processing region of that location.[rsqbb]
[lsqbb]iii If the paying bank does not designate a presentment
location, it must accept presentment for same-day settlement at any
location identified in Sec. 229.36(b), i.e., at an address of the
bank associated with the routing number on the check, at any branch
or head office if the bank is identified on the check by name
without address, or at a branch, head office, or other location
consistent with the name and address of the bank on the check if the
bank is identified on the check by name and address.[rsqbb]
[rtrif]iv.[ltrif] A paying bank and a presenting bank may agree that
checks will be accepted for same-day settlement at an alternative
location (e.g., at an intercept processor located in a different
check processing region) or that the cut-off time for same-day
settlement be earlier or later than 8:00 a.m. local time.
[lsqbb]iv[rsqbb][rtrif]v[ltrif]. In the case of a check payable
through a bank but payable by another bank, this paragraph does not
authorize direct presentment to the bank by which the check is
payable. The requirements of same-day settlement under this
paragraph would apply to a payable-through or payable-at bank to
which the check is sent for payment or collection.
b. Reasonable delivery requirements. A check is considered
presented when it is delivered to and payment is demanded at a
location specified in paragraph
[lsqbb](f)(1)[rsqbb][rtrif](d)(1)[ltrif]. Ordinarily, a presenting
bank will find it necessary to contact the paying bank to determine
the appropriate presentment location and any delivery instructions.
Further, because presentment might not take place during the paying
bank's banking day, a paying bank may establish reasonable delivery
requirements to safeguard the checks presented, such as use of a
night depository. If a presenting bank fails to follow reasonable
delivery requirements established by the paying bank, it runs the
risk that it will not have presented the checks. However, if no
reasonable delivery requirements are established or if the paying
bank does not make provisions for accepting delivery of checks
during its non-business hours, leaving the checks at the presentment
location constitutes effective presentment.
c. Sorting of checks. A paying bank may require that checks
presented to it for same-day settlement be sorted separately from
other forward collection checks it receives as a collecting bank or
returned checks it receives as a returning or depositary bank. For
example, if a bank provides correspondent check collection services
and receives unsorted checks from a respondent bank that include
checks for which it is the paying bank and that would otherwise meet
the requirements for same-day settlement under this section, the
collecting bank need not make settlement in accordance with
paragraph [lsqbb](f)(2)[rsqbb][rtrif](d)(3)[ltrif]. If the
collecting bank receives sorted checks from its respondent bank,
consisting only of checks for which the collecting bank is the
paying bank and that meet the requirements for same-day settlement
under this paragraph, the collecting bank may not charge a fee for
handling those checks and must make settlement in accordance with
this paragraph.
3. Settlement
a. If a bank presents a check in accordance with the time and
location requirements for presentment under paragraph
[lsqbb](f)(1)[rsqbb][rtrif](d)(1)[ltrif], the paying bank either
must settle for the check on the business day it receives the check
without charging a presentment fee or return the check prior to
[[Page 16964]]
the time for settlement. (This return deadline is subject to
extension under Sec. 229.30(c).) The settlement must be in the form
of a credit to an account designated by the presenting bank at a
Federal Reserve Bank (e.g., a Fedwire transfer). The presenting bank
may agree with the paying bank to accept settlement in another form
(e.g., credit to an account of the presenting bank at the paying
bank or debit to an account of the paying bank at the presenting
bank). The settlement must occur by the close of Fedwire on the
business day the check is received by the paying bank. Under the
provisions of Sec. 229.34(c), a settlement owed to a presenting
bank may be set off by adjustments for previous settlements with the
presenting bank. (See also Sec. 229.39(d).)
b. Checks that are presented after the 8 a.m. (local time
[rtrif]of the paying bank[ltrif]) presentment deadline for same-day
settlement and before the paying bank's cut-off hour are treated as
if they were presented under other applicable law and settled for or
returned accordingly. However, for purposes of settlement only, the
presenting bank may require the paying bank to treat such checks as
presented for same-day settlement on the next business day in lieu
of accepting settlement by cash or other means on the business day
the checks are presented to the paying bank. Checks presented after
the paying bank's cut-off hour or on non-business days, but
otherwise in accordance with this paragraph, are considered
presented for same-day settlement on the next business day.
4. Closed Paying Bank
a. There may be certain business days that are not banking days
for the paying bank. Some paying banks may continue to settle for
checks presented on these days (e.g., by opening their back office
operations or by using an intercept processor). In other cases, a
paying bank may be unable to settle for checks presented on a day it
is closed.
If the paying bank closes on a business day and checks are
presented to the paying bank in accordance with paragraph
[lsqbb](f)(1)[rsqbb][rtrif](d)(1)[ltrif], the paying bank is
accountable for the checks unless it settles for or returns the
checks by the close of Fedwire on its next banking day. In addition,
checks presented on a business day on which the paying bank is
closed are considered received on the paying bank's next banking day
for purposes of the U.C.C. midnight deadline (U.C.C. 4-301 and 4-
302) and this regulation's expeditious return [and notice of
nonpayment] provisions.
b. If the paying bank is closed on a business day voluntarily,
the paying bank must pay interest compensation, as defined in
[lsqbb]Sec. 229.2(oo)[rsqbb][rtrif]Sec. 229.2(bb)[ltrif], to the
presenting bank for the value of the float associated with the check
from the day of the voluntary closing until the day of settlement.
Interest compensation is not required in the case of an involuntary
closing on a business day, such as a closing required by state law.
In addition, if the paying bank is closed on a business day due to
emergency conditions, settlement delays and interest compensation
may be excused under Sec. 229.38(e) or U.C.C. 4-109(b).
5. Good faith. Under Sec. 229.38(a), both presenting banks and
paying banks are held to a standard of good faith, defined in
[lsqbb]Sec. 229.2(nn)[rsqbb][rtrif]Sec. 229.2(z)[ltrif] to mean
honesty in fact and the observance of reasonable commercial
standards of fair dealing. For example, designating a presentment
location or changing presentment locations for the primary purpose
of discouraging banks from presenting checks for same-day settlement
might not be considered good faith on the part of the paying bank.
Similarly, presenting a large volume of checks without prior notice
could be viewed as not meeting reasonable commercial standards of
fair dealing and therefore may not constitute presentment in good
faith. In addition, if banks, in the general course of business,
regularly agree to certain practices related to same-day settlement,
it might not be considered consistent with reasonable commercial
standards of fair dealing, and therefore might not be considered
good faith, for a bank to refuse to agree to those practices if
agreeing would not cause it harm.
6. U.C.C. sections affected. This paragraph directly affects the
following provisions of the U.C.C. and may affect other sections or
provisions:
a. Section 4-204(b)(1), in that a presenting bank may not send a
check for same-day settlement directly to the paying bank, if the
paying bank designates a different location in accordance with
paragraph [lsqbb](f)(1)[rsqbb][rtrif](d)(1)[ltrif].
b. Section 4-213(a), in that the medium of settlement for checks
presented under this paragraph is limited to a credit to an account
at a Federal Reserve Bank and that, for checks presented after the
deadline for same-day settlement and before the paying bank's cut-
off hour, the presenting bank may require settlement on the next
business day in accordance with this paragraph rather than accept
settlement on the business day of presentment by cash.
c. Section 4-301(a), in that, to preserve the ability to
exercise deferred posting, the time limit specified in that section
for settlement or return by a paying bank on the banking day a check
is received is superseded by the requirement to settle for checks
presented under this paragraph by the close of Fedwire.
d. Section 4-302(a), in that, to avoid accountability, the time
limit specified in that section for settlement or return by a paying
bank on the banking day a check is received is superseded by the
requirement to settle for checks presented under this paragraph by
the close of Fedwire.
XXIII. Section 229.37 Variations by Agreement
A. This section is similar to U.C.C. 4-103, and permits
consistent treatment of agreements varying Article 4 or Subpart C,
given the substantial interrelationship of the two documents. To
achieve consistency, the official comment to U.C.C. 4-103(a) (which
in turn follows U.C.C. 1-201(3)) should be followed in construing
this section. For example, as stated in Official Comment 2 to
section 4-103, owners of items and other interested parties are not
affected by agreements under this section unless they are parties to
the agreement or are bound by adoption, ratification, estoppel, or
the like. In particular, agreements varying this subpart that delay
the return of a check beyond the times required by this subpart may
result in liability under Sec. 229.38 to entities not party to the
agreement.
B. The Board has not followed U.C.C. 4-103(b), which permits
Federal Reserve regulations and operating letters, clearinghouse
rules, and the like to apply to parties that have not specifically
assented. Nevertheless, this section does not affect the status of
such agreements under the U.C.C.
C. The following are examples of situations where variation by
agreement is permissible, subject to the limitations of this
section:
[rtrif]1. A depositary bank may agree with a paying bank or a
returning bank to accept electronic returns even when the item is
available for return. (See Sec. 229.32(a).)[ltrif]
[lsqbb]1[rsqbb][rtrif]2[ltrif]. A depositary bank may authorize
another bank to apply the other bank's indorsement to a check as the
depositary bank. (See Sec. 229.35(d).)
[lsqbb]2[rsqbb][rtrif]3[ltrif]. A depositary bank may authorize
returning banks to commingle qualified returned checks with forward
collection checks. (See [lsqbb]Sec. 229.32(a)[rsqbb][rtrif]Sec.
229.32(b)[ltrif].)
[lsqbb]3[rsqbb][rtrif]4[ltrif]. A depositary bank may limit its
liability to its customer in connection with the late return of a
deposited check where the lateness is caused by markings on the
check by the depositary bank's customer or prior indorser in the
area of the depositary bank indorsement. (See Sec. 229.38(d).)
[lsqbb]4[rsqbb][rtrif]5[ltrif]. A paying bank may require its
customer to assume the paying bank's liability for delayed or
missent checks where the delay or missending is caused by markings
placed on the check by the paying bank's customer that obscured a
properly placed indorsement of the depositary bank. (See Sec.
229.38(d).)
[lsqbb]5[rsqbb][rtrif]6[ltrif]. A collecting or paying bank may
agree to accept forward collection checks without the indorsement of
a prior collecting bank. (See Sec. 229.35(a).)
[lsqbb]6[rsqbb][rtrif]7[ltrif]. A bank may agree to accept
returned checks without the indorsement of a prior bank. (See Sec.
229.35(a).)
[lsqbb]7. A presenting bank may agree with a paying bank to
present checks for same-day settlement at a location that is not in
the check processing region consistent with the routing number on
the checks. (See Sec. 229.36(f)(1)(i).)[rsqbb]
8. A presenting bank may agree with a paying bank to present
checks for same-day settlement by a deadline earlier or later than
8:00 a.m. (See [lsqbb]Sec. 229.36(f)(1)(ii)[rsqbb][rtrif]Sec.
229.36(d)(1)(ii)[ltrif].)
9. A presenting bank and a paying bank may agree that
presentment takes place when the paying bank receives an
[lsqbb]electronic transmission of information describing the check
rather than upon delivery of the physical check[rsqbb]
[rtrif]electronic collection item[ltrif]. (See Sec.
229.36[lsqbb](b)[rsqbb][rtrif](a)[ltrif].)
[lsqbb]10. A depositary bank may agree with a paying or
returning bank to accept an image or other notice in lieu of a
returned check even when the check is available for return under
this part. Except to the extent that other parties interested in the
check assent to or are bound by the variation of the notice-in-lieu
provisions of this part, banks entering into such an agreement may
be responsible
[[Page 16965]]
under this part or other applicable law to other interested parties
for any losses caused by the handling of a returned check under the
agreement. (See Sec. Sec. 229.30(f), 229.31(f), 229.38(a).)[rsqbb]
D. The Board expects to review the types of variation by
agreement that develop under this section and will consider whether
it is necessary to limit certain variations.
XXIV. Section 229.38 Liability
A. 229.38(a) Standard of care; liability; measure of damages
1. The standard of care established by this section applies to
any bank covered by the requirements of
[lsqbb]S[rsqbb][rtrif]s[ltrif]ubpart C of the regulation. Thus, the
standard of care applies to a paying bank under Sec. Sec. 229.30
[lsqbb]and 229.33[rsqbb], to a returning bank under Sec. 229.31, to
a depositary bank under Sec. Sec. 229.32 [lsqbb]and 229.33[rsqbb],
to a bank erroneously receiving a returned check [lsqbb]or written
notice of nonpayment[rsqbb] as depositary bank under Sec.
229.32(d), and to a bank indorsing a check under Sec. 229.35. The
standard of care is similar to the standard imposed by U.C.C. 1-203
and 4-103(a) and includes a duty to act in good faith, as defined in
[lsqbb]Sec. 229.2(nn)[rsqbb][rtrif]Sec. 229.2(z)[ltrif] of this
regulation.
2. A bank not meeting this standard of care is liable to the
depositary bank, the depositary bank's customer, the owner of the
check, or another party to the check. The depositary bank's customer
is usually a depositor of a check in the depositary bank (but see
Sec. 229.35(d)). The measure of damages 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).
This subpart does not absolve a collecting bank of liability to
prior collecting banks under U.C.C. 4-201.
3. Under this measure of damages, a depositary bank or other
person must show that the damage incurred results from the
negligence proved. For example, the depositary bank may not simply
claim that its customer will not accept a charge-back of a returned
check, but must prove that it could not charge back when it received
the returned check and could have charged back if no negligence had
occurred, and must first attempt to collect from its customer. (See
Marcoux v. Van Wyk, 572 F.2d 651 (8th Cir. 1978); Appliance Buyers
Credit Corp. v. Prospect Nat'l Bank, 708 F.2d 290 (7th Cir. 1983).)
Generally, a paying or returning bank's liability would not be
reduced because the depositary bank did not place a hold on its
customer's deposit before it learned of nonpayment of the check.
4. This paragraph also states that it does not affect a paying
bank's liability to its customer. Under U.C.C. 4-402, for example, a
paying bank is liable to its customer for wrongful dishonor, which
is different from failure to exercise ordinary care and has a
different measure of damages.
B. 229.38(b) Paying Bank's Failure To Make Timely Return
1. Section 229.30(a) imposes requirements on the paying bank for
expeditious return of a check and leaves in place the U.C.C.
deadlines (as they may be modified by Sec. 229.30(c)), which may
allow return at a different time. This paragraph clarifies that the
paying bank could be liable for failure to meet either standard, but
not for failure to meet both. The regulation intends to preserve the
paying bank's accountability for missing its midnight or other
deadline under the U.C.C., (e.g., sections 4-215 and 4-302),
provisions that are not incorporated in this regulation, but may be
useful in establishing the time of final payment by the paying bank.
C. 229.38(c) Comparative Negligence
1. This paragraph establishes a ``pure'' comparative negligence
standard for liability under [lsqbb]S[rsqbb][rtrif]s[ltrif]ubpart C
of this regulation. This comparative negligence rule may have
particular application where a paying or returning bank delays in
returning a check because of difficulty in identifying the
depositary bank. Some examples will illustrate liability in such
cases. In each example, it is assumed that the returned check is
received by the depositary bank after it has made funds available to
its customer, that it may no longer recover the funds from its
customer, and that the inability to recover the funds from the
customer is due to a delay in returning the check contrary to the
standards established by Sec. Sec. 229.30(a) or 229.31(a).
2. Examples.
a. If a depositary bank fails to use the indorsement required by
this regulation, and this failure is caused by a failure to exercise
ordinary care, and if a paying or returning bank is delayed in
returning the check because additional time is required to identify
the depositary bank or find its routing number, the paying or
returning bank's liability to the depositary bank would be reduced
or eliminated.
b. If the depositary bank uses the standard indorsement, but
that indorsement is obscured by a subsequent collecting bank's
indorsement, and a paying or returning bank is delayed in returning
the check because additional time was required to identify the
depositary bank or find its routing number, the paying or returning
bank may not be liable to the depositary bank because the delay was
not due to its negligence. Nonetheless, the collecting bank may be
liable to the depositary bank to the extent that its negligence in
indorsing the check caused the paying or returning bank's delay.
c. If a depositary bank accepts a check that has printing, a
carbon band, or other material on the back of the check that existed
at the time the check was issued, and the depositary bank's
indorsement is obscured by the printing, carbon band, or other
material, and a paying or returning bank is delayed in returning the
check because additional time was required to identify the
depositary bank, the returning bank may not be liable to the
depositary bank because the delay was not due to its negligence.
Nonetheless, the paying bank may be liable to the depositary bank to
the extent that the printing, carbon band, or other material caused
the delay.
D. 229.38(d) Responsibility for Certain Aspects of Checks
1. Responsibility for back of check. The indorsement standard in
Sec. 229.35 is most effective if the back of the check remains
clear of other matter that may obscure bank indorsements. Because
bank indorsements are usually applied by automated equipment, it is
not possible to avoid pre-existing matter on the back of the check.
For example, bank indorsements are not required to avoid a carbon
band or printed, stamped, or written terms or notations on the back
of the check. Accordingly, this provision places responsibility on
the paying bank, depositary bank, or reconverting bank, as
appropriate, for keeping the back of the check clear for bank
indorsements during forward collection and return.
2. ANS X9.100-140 provides that an image of an original check
must be reduced in size when placed on the first substitute check
associated with that original check. (The image thereafter would be
constant in size on any subsequent substitute check that might be
created.) Because of this size reduction, the location of an
indorsement, particularly a depositary bank indorsement, applied to
an original paper check likely will change when the first
reconverting bank creates a substitute check that contains that
indorsement within the image of the original paper check. If the
indorsement was applied to the original paper check in accordance
with appendix D's location requirements for indorsements applied to
existing paper checks, and if the size reduction of the image causes
the placement of the indorsement to no longer be consistent with the
appendix's requirements, then the reconverting bank bears the
liability for any loss that results from the shift in the placement
of the indorsement. Such a loss could result either because the
original indorsement applied in accordance with appendix D is
rendered illegible by a subsequent indorsement that later is applied
to the substitute check in accordance with appendix D, or because
the subsequent bank cannot apply its indorsement to the substitute
check legibly in accordance with appendix D as a result of the shift
in the previous indorsement.
Example.
In accordance with appendix D's specifications, a depositary
bank sprays its indorsement onto a business-sized original check
between 3.0 inches from the leading edge of the check and 1.5 inches
from the trailing edge of the check. The check's conversion to
electronic form and subsequent reconversion to paper form causes the
location of the depositary bank indorsement, now contained within
the image of the original check, to change such that it is less than
3.0 inches from the leading edge of the substitute check. In
accordance with appendix D's specifications, a subsequent collecting
bank sprays its indorsement onto the substitute check between the
leading edge of the check and 3.0 inches from the leading edge of
the check and the indorsement happens to be on top of the shifted
depositary bank indorsement. If the check is returned unpaid and the
return is not expeditious because of the illegibility of the
depositary bank indorsement, and the
[[Page 16966]]
depositary bank incurs a loss that it would not have incurred had
the return been expeditious, the reconverting bank bears the
liability for that loss.
[lsqbb]3. Responsibility for payable-through checks.
a. This paragraph provides that the bank by which a payable-
through check is payable is liable for damages under paragraph (a)
of this section to the extent that the check is not returned through
the payable-through bank as quickly as would have been necessary to
meet the requirements of Sec. 229.30(a)(1) (the 2-day/4-day test)
had the bank by which it is payable received the check as paying
bank on the day the payable-through bank received it. The location
of the bank by which a check is payable for purposes of the 2-day/4-
day test may be determined from the location or the first four
digits of the routing number of the bank by which the check is
payable. This information should be stated on the check. (See Sec.
229.36(e) and accompanying Commentary.) Responsibility under
paragraph (d)(2) does not include responsibility for the time
required for the forward collection of a check to the payable-
through bank.
b. Generally, liability under paragraph (d)(2) will be limited
in amount. Under Sec. 229.33(a), a paying bank that returns 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.
Thus, ordinarily the bank by which a payable-through check is
payable would be liable under paragraph (a) only for checks in
amounts up to $2,500, and the paying bank would be responsible for
notice of nonpayment for checks in the amount of $2,500 or
more.[rsqbb]
[lsqbb]4[rsqbb][rtrif]3[ltrif]. Responsibility under
paragraph[lsqbb]s[rsqbb] (d)(1) [lsqbb]and (d)(2)[rsqbb] is treated
as negligence for comparative negligence purposes, and the
contribution to damages under paragraph[lsqbb]s[rsqbb] (d)(1)
[lsqbb]and (d)(2)[rsqbb] is treated in the same way as the degree of
negligence under paragraph (c) of this section.
E. 229.38(e) Timeliness of Action
1. This paragraph excuses certain delays. It adopts the standard
of U.C.C. 4-109(b).
F. 229.38(f) Exclusion
1. This paragraph provides that the civil liability and class
action provisions, particularly the punitive damage provisions of
sections 611(a) and (b), and the bona fide error provision of 611(c)
of the EFA Act (12 U.S.C. 4010(a), (b), and (c)) do not apply to
regulatory provisions adopted to improve the efficiency of the
payments mechanism. Allowing punitive damages for delays in the
return of checks where no actual damages are incurred would only
encourage litigation and provide little or no benefit to the check
collection system. In view of the provisions of paragraph (a), which
incorporate traditional bank collection standards based on
negligence, the provision on bona fide error is not included in
[lsqbb]S[rsqbb][rtrif]s[ltrif]ubpart C.
G. 229.38(g) Jurisdiction
1. The EFA Act confers subject matter jurisdiction on courts of
competent jurisdiction and provides a time limit for civil actions
for violations of this subpart.
H. 229.38(h) Reliance on Board Rulings
1. This provision shields banks from civil liability if they act
in good faith in reliance on any rule, regulation, or interpretation
of the Board, even if it were subsequently determined to be invalid.
Banks may rely on the Commentary to this regulation, which is issued
as an official Board interpretation, as well as on the regulation
itself.
XXV. Section 229.39 Insolvency of Bank
A. Introduction
1. These provisions cover situations where a bank becomes
insolvent during collection or return and are derived from U.C.C. 4-
216. They are intended to apply to all banks.
B. 229.39(a) Duty of Receiver
1. This paragraph requires a receiver of a closed bank to return
a check to the prior bank if it does not pay for the check. This
permits the prior bank, as holder, to pursue its claims against the
closed bank or prior indorsers on the check.
C. 229.39(b) Preference Against Paying or Depositary Bank
1. This paragraph gives a bank a preferred claim against a
closed paying 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. If the bank with a preferred claim
under this paragraph recovers from a prior bank or other party to
the check, the prior bank or other party to the check is subrogated
to the preferred claim.
D. 229.39(c) Preference Against Paying, Collecting, or Depositary Bank
1. This paragraph gives a bank a preferred claim against a
closed collecting, paying, or returning bank that receives
settlement but does not settle for a check. (See Commentary to Sec.
229.35(b) for discussion of prior and subsequent banks.) As in the
case of Sec. 229.39(b), if the bank with a preferred claim under
this paragraph recovers from a prior bank or other party to the
check, the prior bank or other party to the check is subrogated to
the preferred claim.
E. 229.39(d) Preference Against Presenting Bank
1. This paragraph gives a paying bank a preferred claim against
a closed presenting bank in the event that the presenting bank
breaches an amount or encoding warranty as provided in Sec.
229.34(c)(1) or (3) and does not reimburse the paying bank for
adjustments for a settlement made by the paying bank in excess of
the value of the checks presented. This preference is intended to
have the effect of a perfected security interest and is intended to
put the paying bank in the position of a secured creditor for
purposes of the receivership provisions of the Federal Deposit
Insurance Act and similar provisions of state law.
F. 229.39(e) Finality of Settlement
1. This paragraph provides that insolvency does not interfere
with the finality of a settlement, such as a settlement by a paying
bank that becomes final by expiration of the midnight deadline.
XXVI. Section 229.40 Effect on Merger Transaction
A. When banks merge, there is normally a period of adjustment
required before their operations are consolidated. To allow for this
adjustment period, the regulation provides that the merged banks may
be treated as separate banks for a period of up to one year after
the consummation of the transaction. The term merger transaction is
defined in [lsqbb]Sec. 229.2(t)[rsqbb][rtrif]Sec.
229.2(dd)[ltrif]. This rule affects the status of the combined
entity in a number of areas in this subpart. For example:
1. The paying bank's responsibility for expeditious return
(Sec. 229.30).
2. The returning bank's responsibility for expeditious return
(Sec. 229.31).
[lsqbb]3. Whether a returning bank is entitled to an extra day
to qualify a return that will be delivered directly to a depositary
bank that has merged with the returning bank (Sec.
229.31(a)).[rsqbb]
[lsqbb]4[rsqbb][rtrif]3[ltrif]. Where the depositary bank must
accept returned checks [lsqbb](Sec. 229.32(a))[rsqbb] [rtrif]Sec.
229.32(b)[ltrif].
[lsqbb]5. Where the depositary bank must accept notice of
nonpayment (Sec. 229.33(c)).[rsqbb]
[lsqbb]6[rsqbb][rtrif]4[ltrif]. Where a paying bank must accept
presentment of checks (Sec. 229.36(b)).
XXVII. Section 229.41 Relation to State Law
A. This section specifies that state law relating to the
collection of checks is preempted only to the extent that it is
inconsistent with this regulation. Thus, this regulation is not a
complete replacement for state laws relating to the collection or
return of checks.
XXVIII. Section 229.42 Exclusions
A. Checks drawn on the United States Treasury, U.S. Postal
Service money orders, and checks drawn on states and units of
general local government that are presented directly to the state or
unit of general local government and that are not payable through or
at a bank are excluded from the coverage of the expeditious-
return[lsqbb], notice-of-nonpayment,[rsqbb] and same-day settlement
requirements of subpart C of this part. Other provisions of this
subpart continue to apply to the checks. This exclusion does not
apply to checks drawn by the U.S. government on banks.
XXIX. Section 229.43 Checks Payable in Guam, American Samoa, and
the Northern Mariana Islands
* * * * *
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
[[Page 16967]]
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
[lsqbb]Sec. 229.2(z)[rsqbb][rtrif]Sec. 229.2(ii)[ltrif] (unless
otherwise noted in this section). Pacific island banks are not
subject to the provisions of Regulation CC.
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 under Regulation
CC, Sec. 229.31(c) does not apply to a returning bank settling with
the Pacific island bank.
3. A depositary bank that handles a Pacific island check is not
subject to the provisions of subpart B of Regulation CC, including
the availability, notice, and interest accrual requirements, with
respect to that check. If, however, a bank accepts a Pacific island
check for deposit (or otherwise accepts the check as transferee) and
collects the Pacific island check in the same manner as other
checks, the bank is subject to the provisions of Sec. 229.32,
including the provisions regarding time and manner of settlement for
returned checks in [lsqbb]Sec. 229.32(b)[rsqbb][rtrif]Sec.
229.32(c)[ltrif], 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 [lsqbb]Sec. 229.32(b)[rsqbb][rtrif]Sec.
229.32(c)[ltrif] do not apply, because the Pacific island bank is
not a paying bank under Regulation CC. [lsqbb]The depositary bank is
not subject to the notice of nonpayment provisions in Sec. 229.33
for Pacific island checks.[rsqbb]
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). [rtrif]Similarly, a bank that handles Pacific island
checks in the same manner as other checks may transfer electronic
collection items, electronic returns, or electronic images and
related electronic information as if they were electronic collection
items or electronic returns derived from Pacific island checks.
Accordingly, a bank makes the warranties in Sec. Sec. 229.34(a) and
(e) with respect to Pacific island checks.[ltrif] A bank that acts
as a returning bank for a Pacific island check is not subject to the
warranties in Sec. 229.34[lsqbb](a)[rsqbb][rtrif](e)[ltrif].
Similarly, because the Pacific island bank is not a ``bank'' or a
``paying bank'' under Regulation CC, Sec. 229.34 [lsqbb](b),
(c)(1), and (c)(4)[rsqbb] [rtrif](b)(1), (b)(4), and (c)[ltrif] 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[lsqbb](d)[rsqbb] [rtrif](c)[ltrif], regarding finality of
settlement between banks during forward collection, applies to banks
that handle Pacific island checks 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 Sec. Sec. 229.37 and 229.39 through
229.42.
XXX. Sec. 229.51 General Provisions Governing Substitute Checks
A. 229.51(a) Legal Equivalence
1. Section 229.51(a) states that a substitute check for which a
bank has provided the substitute check warranties is the legal
equivalent of the original check for all purposes and all persons if
it meets the accuracy and legend requirements. Where the law (or a
contract) requires production of the original check, production of a
legally equivalent substitute check would satisfy that requirement.
A person that receives a substitute check cannot be assessed costs
associated with the creation of the substitute check, absent
agreement to the contrary.
Examples.
a. A presenting bank presents a substitute check that meets the
legal equivalence requirements to a paying bank. The paying bank
cannot refuse presentment of the substitute check on the basis that
it is a substitute check, because the substitute check is the legal
equivalent of the original check.
b. A depositor's account agreement with a bank provides that the
depositor is entitled to receive original cancelled checks back with
his or her periodic account statement. The bank may honor that
agreement by providing original checks, substitute checks, or a
combination thereof. However, a bank may not honor such an agreement
by providing something other than an original check or a substitute
check.
c. A mortgage company argues that a consumer missed a monthly
mortgage payment that the consumer believes she made. A legally
equivalent substitute check concerning that mortgage payment could
be used in the same manner as the original check to prove the
payment.
2. A person other than a bank that creates a substitute check
could transfer, present, or return that check only by agreement
unless and until a bank provided the substitute check warranties.
3. To be the legal equivalent of the original check, a
substitute check must accurately represent all the information on
the front and back of the check as of the time the original check
was truncated. An accurate representation of information that was
illegible on the original check would satisfy this requirement. The
payment instructions placed on the check by, or as authorized by,
the drawer, such as the amount of the check, the payee, and the
drawer's signature, must be accurately represented, because that
information is an essential element of a negotiable instrument.
Other information that must be accurately represented includes (1)
the information identifying the drawer and the paying bank that is
preprinted on the check, including the MICR line; and (2) other
information placed on the check prior to the time an image of the
check is captured, such as any required identification written on
the front of the check and any indorsements applied to the back of
the check. A substitute check need not capture other characteristics
of the check, such as watermarks, microprinting, or other physical
security features that cannot survive the imaging process or
decorative images, in order to meet the accuracy requirement.
Conversely, some security features that are latent on the original
check might become visible as a result of the check imaging process.
For example, the original check might have a faint representation of
the word ``void'' that will appear more clearly on a photocopied or
electronic image of the check. Provided the inclusion of the clearer
version of the word on the image used to create a substitute check
did not obscure the required information listed above, a substitute
check that contained such information could be the legal equivalent
of an original check under Sec. 229.51(a). However, if a person
suffered a loss due to receipt of such a substitute check instead of
the original check, that person could have an indemnity claim under
Sec. 229.53 and, in the case of a consumer, an expedited recredit
claim under Sec. 229.54.
4. To be the legal equivalent of the original check, a
substitute check must bear the legal equivalence legend described in
Sec. 229.51(a)(2). A bank may not vary the language of the legal
equivalence legend and must place the legend on the substitute check
as specified by generally applicable industry standards for
substitute checks contained in ANS X9.100-140.5. In some cases, the
original check used to create a substitute check could be forged or
otherwise fraudulent. A substitute check created from a fraudulent
original check would have the same status under Regulation CC and
the U.C.C. as the original fraudulent check. For example, a
substitute check of a fraudulent original check would not be
properly payable under U.C.C. 4-401 and would be subject to the
transfer and presentment warranties in U.C.C. 4-207 and 4-208.
5. In some cases, the original check used to create a substitute
check could be forged or otherwise fraudulent. A substitute check
created from a fraudulent original check would have the same status
under Regulation CC and the U.C.C. as the original fraudulent check.
For example, a substitute check of a fraudulent original check would
not be properly payable under U.C.C. 4-401 and would be subject to
the transfer and presentment warranties in U.C.C. 4-207 and 4-208.
B. 229.51(b) Reconverting-Bank Duties
1. As discussed in more detail in appendix D and the commentary
to section 229.35, a reconverting bank must indorse (or, if it is a
paying bank with respect to the check, identify itself on) the back
of a substitute check in a manner that preserves all indorsements
applied, whether physically or
[[Page 16968]]
electronically, by persons that previously handled the check in any
form for forward collection or return. Indorsements applied
physically to the original check before an image of the check was
captured would be preserved through the image of the back of the
original check that a substitute check must contain. Indorsements
applied physically to the original check after an image of the
original check was captured would be conveyed as electronic
indorsements (see paragraph 3 of the commentary to section
229.35(a)). If indorsements were applied electronically after an
image of the original check was captured or were applied
electronically after a previous substitute check was converted to
electronic form, the reconverting bank must apply those indorsements
physically to the substitute check. A reconverting bank is not
responsible for obtaining indorsements that persons that previously
handled the check should have applied but did not apply.
2. A reconverting bank also must identify itself as such on the
front and back of the substitute check and must preserve on the back
of the substitute check the identifications of any previous
reconverting banks in accordance with appendix D. The presence on
the back of a substitute check of indorsements that were applied by
previous reconverting banks and identified with asterisks in
accordance with appendix D would satisfy the requirement that the
reconverting bank preserve the identification of previous
reconverting banks. As discussed in more detail in the commentary to
section 229.35, the reconverting-bank and truncating-bank routing
numbers on the front of a substitute check and, if the reconverting
bank is the paying bank [rtrif]or a bank that rejected a check
submitted for deposit[ltrif], the reconverting bank's routing number
on the back of a substitute check are for identification only and
are not indorsements or acceptances.
3. The reconverting bank must place the routing number of the
truncating bank surrounded by brackets on the front of the
substitute check in accordance with appendix D and ANS X9.100-140.
Example
A bank's customer, which is a nonbank business, receives checks
for payment and by agreement deposits substitute checks instead of
the original checks with its depositary bank. The depositary bank is
the reconverting bank with respect to the substitute checks and the
truncating bank with respect to the original checks. In accordance
with appendix D and with ANS X9.100-140, the bank must therefore be
identified on the front of the substitute checks as a reconverting
bank and as the truncating bank, and on the back of the substitute
checks as the depositary bank and a reconverting bank.
C. 229.51(c) Applicable Law
1. A substitute check that meets the requirements for legal
equivalence set forth in this section is subject to any provision of
federal or state law that applies to original checks, except to the
extent such provision is inconsistent with the Check 21 Act or
subpart D. A legally equivalent substitute check is subject to all
laws that are not preempted by the Check 21 Act in the same manner
and to the same extent as is an original check. Thus, any person
could satisfy a law that requires production of an original check by
producing a substitute check that is derived from the relevant
original check and that meets the legal equivalence requirements of
Sec. 229.51(a).
2. A law is not inconsistent with the Check 21 Act or subpart D
merely because it allows for the recovery of a greater amount of
damages.
Example.
A drawer that suffers a loss with respect to a substitute check
that was improperly charged to its account and for which the drawer
has an indemnity claim but not a warranty claim would be limited
under the Check 21 Act to recovery of the amount of the substitute
check plus interest and expenses. However, if the drawer also
suffered damages that were proximately caused because the bank
wrongfully dishonored subsequently presented checks as a result of
the improper substitute check charge, the drawer could recover those
losses under U.C.C. 4-402.
XXXI. Sec. 229.52 Substitute Check Warranties
A. 229.52(a) Warranty Content and Provision
1. The responsibility for providing the substitute check
warranties begins with the reconverting bank. In the case of a
substitute check created by a bank, the reconverting bank starts the
flow of warranties when it transfers, presents, or returns a
substitute check for which it receives consideration [rtrif]or when
it rejects a check submitted for deposit and returns to its customer
a substitute check[ltrif]. A bank that receives a substitute check
created by a nonbank starts the flow of warranties when it
transfers, presents, or returns for consideration either the
substitute check it received or an electronic or paper
representation of that substitute check. [rtrif]A bank that
transfers and receives consideration for an electronic collection
item or electronic return that is an electronic representation of a
substitute check also makes the warranties.[ltrif]
[rtrif]2.[ltrif] To ensure that warranty protections flow all
the way through to the ultimate recipient of a substitute check or
paper or electronic representation thereof, any subsequent bank that
transfers, presents, or returns for consideration either the
substitute check or a paper or electronic representation of the
substitute check is responsible to subsequent transferees for the
warranties. Any warranty recipient could bring a claim for a breach
of a substitute check warranty if it received either the actual
substitute check or a paper or electronic representation of a
substitute check.
[lsqbb]2.[rsqbb] [rtrif]3.[ltrif] The substitute check
warranties and indemnity are not given under Sec. Sec. 229.52 and
229.53 by a bank that truncates the original check and by agreement
transfers the original check electronically to a subsequent bank for
consideration. However, parties may, by agreement, allocate
liabilities associated with the exchange of electronic check
information.
Example.
A bank that receives check information electronically and uses
it to create substitute checks is the reconverting bank and, when it
transfers, presents, or returns that substitute check, becomes the
first warrantor. However, that bank may protect itself by including
in its agreement with the sending bank provisions that specify the
sending bank's warranties and responsibilities to the receiving
bank, particularly with respect to the accuracy of the check image
and check data transmitted under the agreement.
[lsqbb]3[rsqbb][rtrif]4[ltrif]. A bank need not affirmatively
make the warranties because they attach automatically when a bank
transfers, presents, or returns the substitute check (or a
representation thereof) for which it receives consideration. Because
a substitute check transferred, presented, or returned for
consideration is warranted to be the legal equivalent of the
original check and thereby subject to existing laws as if it were
the original check, all U.C.C. and other Regulation CC warranties
that apply to the original check also apply to the substitute check.
[lsqbb]4[rsqbb][rtrif]5[ltrif]. The legal equivalence warranty
by definition must be linked to a particular substitute check. When
an original check is truncated, the check may move from electronic
form to substitute check form and then back again, such that there
would be multiple substitute checks associated with one original
check. When a check changes form multiple times in the collection or
return process, the first reconverting bank and subsequent banks
that transfer, present, or return the first substitute check (or a
paper or electronic representation of the first substitute check)
warrant the legal equivalence of only the first substitute check. If
a bank receives an electronic representation of a substitute check
and uses that representation to create a second substitute check,
the second reconverting bank and subsequent transferees of the
second substitute check (or a representation thereof) warrant the
legal equivalence of both the first and second substitute checks. A
reconverting bank would not be liable for a warranty breach under
Sec. 229.52 if the legal equivalence defect is the fault of a
subsequent bank that handled the substitute check, either as a
substitute check or in other paper or electronic form.
[lsqbb]5[rsqbb][rtrif]6[ltrif]. The warranty in Sec.
229.52(a)[lsqbb](2)[rsqbb][rtrif](1)(ii)[ltrif], which addresses
multiple payment requests for the same check, is not linked to a
particular substitute check but rather is given by each bank
handling the substitute check, an electronic representation of a
substitute check, or a subsequent substitute check created from an
electronic representation of a substitute check. All banks that
transfer, present, or return a substitute check (or a paper or
electronic representation thereof) therefore provide the warranty
regardless of whether the ultimate demand for double payment is
based on the original check, the substitute check, or some other
electronic or paper representation of the substitute or original
check, and regardless of the order in which the duplicative payment
requests occur. This warranty is given by the banks that transfer,
present, or return a substitute check even if the demand for
duplicative payment results from a fraudulent substitute check about
which the warranting bank had no knowledge.
[[Page 16969]]
Example.
A nonbank depositor truncates a check and in lieu thereof sends
an electronic version of that check to both Bank A and Bank B. Bank
A and Bank B each uses the check information that it received
electronically to create a substitute check, which it presents to
Bank C for payment. Bank A and Bank B each is a reconverting bank
that made the substitute check warranties when it presented a
substitute check to and received payment from Bank C. Bank C could
pursue a warranty claim for the loss it suffered as a result of the
duplicative payment against either Bank A or Bank B.
[rtrif]7. A bank that rejects a check for deposit and instead of
the original check provides its customer with a substitute check
makes the warranties in Sec. 229.52(a)(1). As noted in the
commentary to Sec. 229. 2(uu), the Check 21 Act contemplates that
nonbank persons that receive substitute checks (or representations
thereof) from a bank will receive warranties and indemnities with
respect to the checks. A reconverting bank that provides a
substitute check to its depositor after it has rejected the check
for deposit may not have received consideration for the substitute
check. In order to prevent banks from being able to transfer a check
the bank truncated and then reconverted without providing substitute
check warranties, the regulation provides that a bank that rejects a
check for deposit but provides its customer with a substitute check
makes the warranties set forth in Sec. 229.52(a)(1) regardless of
whether the bank received consideration.
Example.
A bank's customer submits a check at an ATM that captures an
image of the check and sends the image electronically to the bank.
After reviewing the item, the bank rejects the item submitted for
deposit. Instead of providing the original check to its customer,
the bank provides a substitute check to its customer. This bank is
the reconverting bank with respect to the substitute check and makes
the warranties described in Sec. 229.52(a)(1) regardless of whether
the bank previously extended credit to its customer. (See commentary
to Sec. 229.2(uu).)[ltrif]
B. 229.52(b) Warranty Recipients
1. A reconverting bank makes the warranties to the person to
which it transfers, presents, or returns the substitute check for
consideration and to any subsequent recipient that receives either
the substitute check or a paper or electronic representation derived
from the substitute check. These subsequent recipients could include
a subsequent collecting or returning bank, the depositary bank, the
drawer, the drawee, the payee, the depositor, and any indorser. The
paying bank would be included as a warranty recipient, for example
because it would be the drawee of a check or a transferee of a check
that is payable through it.
2. The warranties flow with the substitute check to persons that
receive a substitute check or a paper or electronic representation
of a substitute check. The warranties do not flow to a person that
receives only the original check or a representation of an original
check that was not derived from a substitute check. However, a
person that initially handled only the original check could become a
warranty recipient if that person later receives a returned
substitute check or a paper or electronic representation of a
substitute check that was derived from that original check.
[rtrif]3. A reconverting bank also makes the warranties to a
person to whom the bank transfers a substitute check that the bank
has rejected for deposit regardless of whether the bank received
consideration.[ltrif]
XXXII. Sec. 229.53 Substitute Check Indemnity
A. 229.53(a) Scope of Indemnity
1. Each bank that for consideration transfers, presents, or
returns a substitute check or a paper or electronic representation
of a substitute check is responsible for providing the substitute
check indemnity. [rtrif]A bank that transfers and receives
consideration for an electronic collection item or electronic return
that is an electronic representation of a substitute check also is
responsible for providing the indemnity.[ltrif]
[rtrif]2.[ltrif]The indemnity covers losses due to any
subsequent recipient's receipt of the substitute check instead of
the original check. The indemnity therefore covers the loss caused
by receipt of the substitute check as well as the loss that a bank
incurs because it pays an indemnity to another person. A bank that
pays an indemnity would in turn have an indemnity claim regardless
of whether it received the substitute check or a paper or electronic
representation of the substitute check The indemnity would not apply
to a person that handled only the original check or a paper or
electronic version of the original check that was not derived from a
substitute check.
[rtrif]3. A reconverting bank also provides the substitute check
indemnity to a person to whom the bank transfers a substitute check
that the bank has rejected for deposit regardless of whether the
bank providing the indemnity has received consideration.[ltrif]
Examples.
a. A paying bank makes payment based on a substitute check that
was derived from a fraudulent original cashier's check. The amount
and other characteristics of the original cashier's check are such
that, had the original check been presented instead, the paying bank
would have inspected the original check for security features. The
paying bank's fraud detection procedures were designed to detect the
fraud in question and allow the bank to return the fraudulent check
in a timely manner. However, the security features that the bank
would have inspected were security features that did not survive the
imaging process (see the commentary to Sec. 229.51(a)). Under these
circumstances, the paying bank could assert an indemnity claim
against the bank that presented the substitute check.
b. By contrast with the previous examples, the indemnity would
not apply if the characteristics of the presented substitute check
were such that the bank's security policies and procedures would not
have detected the fraud even if the original had been presented. For
example, if the check was under the threshold amount at which the
bank subjects an item to its fraud detection procedures, the bank
would not have inspected the item for security features regardless
of the form of the item and accordingly would have suffered a loss
even if it had received the original check.
c. A paying bank makes an erroneous payment based on an
electronic representation of a substitute check because the
electronic cash letter accompanying the electronic item included the
wrong amount to be charged. The paying bank would not have an
indemnity claim associated with that payment because its loss did
not result from receipt of an actual substitute check instead of the
original check. However, the paying bank could protect itself from
such losses through its agreement with the bank that sent the check
to it electronically and may have rights under other law.
d. A drawer has agreed with its bank that the drawer will not
receive paid checks with periodic account statements. The drawer
requested a copy of a paid check in order to prove payment and
received a photocopy of a substitute check. The photocopy that the
bank provided in response to this request was illegible, such that
the drawer could not prove payment. Any loss that the drawer
suffered as a result of receiving the blurry check image would not
trigger an indemnity claim because the loss was not caused by the
receipt of a substitute check. The drawer may, however, still have a
warranty claim if he received a copy of a substitute check, and may
also have rights under the U.C.C.
B. 229.53(b) Indemnity Amount
1. If a recipient of a substitute check is making an indemnity
claim because a bank has breached one of the substitute check
warranties, the recipient can recover any losses proximately caused
by that warranty breach.
Examples.
a. A drawer discovers that its account has been charged for two
different substitute checks that were provided to the drawer and
that were associated with the same original check. As a result of
this duplicative charge, the paying bank dishonored several
subsequently-presented checks that it otherwise would have paid and
charged the drawer returned check fees. The payees of the returned
checks also charged the drawer returned check fees. The drawer would
have a warranty claim against any of the warranting banks, including
its bank, for breach of the warranty described in Sec.
229.52(a)[lsqbb](2)[rsqbb][rtrif](1)(ii)[ltrif]. The drawer also
could assert an indemnity claim. Because there is only one original
check for any payment transaction, if the collecting and presenting
bank had collected the original check instead of using a substitute
check the bank would have been asked to make only one payment. The
drawer could assert its warranty and indemnity claims against the
paying bank, because that is the bank with which the drawer has a
customer relationship and the drawer has received an indemnity from
that bank. The drawer could recover from the indemnifying bank the
amount of the erroneous charge, as well as the amount of the
returned check fees charged by both the paying bank and the payees
of the returned checks. If the drawer's account were an interest-
bearing account, the drawer also could recover any interest lost on
the erroneously debited amount and the
[[Page 16970]]
erroneous returned check fees. The drawer also could recover its
expenditures for representation in connection with the claim.
Finally, the drawer could recover any other losses that were
proximately caused by the warranty breach.
b. In the example above, the paying bank that received the
duplicate substitute checks also would have a warranty claim against
the previous transferor(s) of those substitute checks and could seek
an indemnity from that bank (or either of those banks). The
indemnifying bank would be responsible for compensating the paying
bank for all the losses proximately caused by the warranty breach,
including representation expenses and other costs incurred by the
paying bank in settling the drawer's claim.
2. If the recipient of the substitute check does not have a
substitute check warranty claim with respect to the substitute
check, the amount of the loss the recipient may recover under Sec.
229.53 is limited to the amount of the substitute check, plus
interest and expenses. However, the indemnified person might be
entitled to additional damages under some other provision of law.
Examples.
a. A drawer received a substitute check that met all the legal
equivalence requirements and for which the drawer was only charged
once, but the drawer believed that the underlying original check was
a forgery. If the drawer suffered a loss because it could not prove
the forgery based on the substitute check, for example because
proving the forgery required analysis of pen pressure that could be
determined only from the original check, the drawer would have an
indemnity claim. However, the drawer would not have a substitute
check warranty claim because the substitute check was the legal
equivalent of the original check and no person was asked to pay the
substitute check more than once. In that case, the amount of the
drawer's indemnity under Sec. 229.53 would be limited to the amount
of the substitute check, plus interest and expenses. However, the
drawer could attempt to recover additional losses, if any, under
other law.
b. As described more fully in the commentary to Sec. 229.53(a)
regarding the scope of the indemnity, a paying bank could have an
indemnity claim if it paid a legally equivalent substitute check
that was created from a fraudulent cashier's check that the paying
bank's fraud detection procedures would have caught and that the
bank would have returned by its midnight deadline had it received
the original check. However, if the substitute check was not subject
to a warranty claim (because it met the legal equivalence
requirements and there was only one payment request) the paying
bank's indemnity would be limited to the amount of the substitute
check plus interest and expenses.
3. The amount of an indemnity would be reduced in proportion to
the amount of any amount loss attributable to the indemnified
person's negligence or bad faith. This comparative negligence
standard is intended to allocate liability in the same manner as the
comparative negligence provision of Sec. 229.38(c).
4. An indemnifying bank may limit the losses for which it is
responsible under Sec. 229.53 by producing the original check or a
sufficient copy. However, production of the original check or a
sufficient copy does not absolve the indemnifying bank from
liability claims relating to a warranty the bank has provided under
Sec. 229.52 or any other law, including but not limited to subpart
C of this part or the U.C.C.
C. 229.53(c) Subrogation of Rights
1. A bank that pays an indemnity claim is subrogated to the
rights of the person it indemnified, to the extent of the indemnity
it provided, so that it may attempt to recover that amount from
another person based on an indemnity, warranty, or other claim. The
person that the bank indemnified must comply with reasonable
requests from the indemnifying bank for assistance with respect to
the subrogated claim.
Example.
A paying bank indemnifies a drawer for a substitute check that
the drawer alleged was a forgery that would have been detected had
the original check instead been presented. The bank that provided
the indemnity could pursue its own indemnity claim against the bank
that presented the substitute check, could attempt to recover from
the forger, or could pursue any claim that it might have under other
law. The bank also could request from the drawer any information
that the drawer might possess regarding the possible identity of the
forger.
XXXIII. Sec. 229.54 Expedited Recredit for Consumers
A. 229.54(a) Circumstances Giving Rise to a Claim
1. A consumer may make a claim for expedited recredit under this
section only for a substitute check that he or she has received and
for which the bank charged his or her deposit account. As a result,
checks used to access loans, such as credit card checks or home
equity line of credit checks, that are reconverted to substitute
checks would not give rise to an expedited recredit claim, unless
such a check was returned unpaid and the bank charged the consumer's
deposit account for the amount of the returned check. In addition, a
consumer who received only a statement that contained images of
multiple substitute checks per page would not be entitled to make an
expedited recredit claim, although he or she could seek redress
under other provisions of law, such as Sec. 229.52 or U.C.C. 4-401.
However, a consumer who originally received only a statement
containing images of multiple substitute checks per page but later
received a substitute check, such as in response to a request for a
copy of a check shown in the statement, could bring a claim if the
other expedited recredit criteria were met. Although a consumer must
at some point have received a substitute check to make an expedited
recredit claim, the consumer need not be in possession of the
substitute check at the time he or she submits the claim.
2. A consumer must in good faith assert that the bank improperly
charged the consumer's account for the substitute check or that the
consumer has a warranty claim for the substitute check (or both).
The warranty in question could be a substitute-check warranty
described in Sec. 229.52 or any other warranty that a bank provides
with respect to a check under other law. A consumer could, for
example, have a warranty claim under Sec.
229.34[lsqbb](b)[rsqbb][rtrif](a) or (d)[ltrif], which contains
returned-check warranties that are made to the owner of the check.
* * * * *
XXXVIII. Appendix C--Model Availability-Policy Disclosures,
Clauses, and Notices; and Model Substitute-Check-Policy Disclosure
and Notices
A. Introduction
1. Appendix C contains model disclosures, clauses, and notices
that may be used by banks to meet their disclosure and notice
responsibilities under the regulation. Banks using the models
(except models C-[lsqbb]22[rsqbb][rtrif]18[ltrif] through C-
[lsqbb]25[rsqbb][rtrif]21[ltrif]) properly will be deemed 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[rtrif], and information the inclusion of which
is dependent on a bank's policies and practices,[ltrif] 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 EFA Act's protection from liability for banks
that use the forms properly. For example, if a bank does not have a
cutoff hour prior to its closing time, or if a bank does not take
advantage of the section 229.13 exceptions, it may delete the
references to those provisions. Changes to the models may not be so
extensive 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[rtrif], although a materially
smaller size may not meet the clear and conspicuous standard of
section 229.15(a)[ltrif]
c. Incorporating certain state-law plain-English requirements
[rtrif]4. a. Although banks are not required to use a certain
paper size for their disclosures and notices, model funds-
availability disclosures C-1, C-2, C-3A, C-3B, C-4A, and C-4B and
notices C-9, C-10, C-11, C-12A, and C-12B are designed to be
provided to customers on an 8\1/2\ x 11 inch sheet of paper. In
addition, the following formatting techniques ensure that the
information is readable:
i. A readable font style and font size
ii. Sufficient spacing between lines of the text
iii. Adequate spacing between paragraphs, as appropriate
iv. Sufficient white space and margins above, below and to the
sides of the text
v. Sufficient contrast between the text and the background, such
as black text on white paper
b. While the regulation does not require banks to use the above
formatting techniques in presenting the information in these
disclosures and notices, banks are encouraged to consider these
techniques
[[Page 16971]]
when deciding how to disclose information. A bank that provides a
disclosure or notice electronically to a customer comports with the
models' formatting techniques by providing a disclosure or notice in
a file format, such as the .pdf file format, that electronically
represents an 8\1/2\ x 11 inch sheet of paper with black text and a
white background.[ltrif]
[rtrif]5[ltrif][lsqbb]4[rsqbb]. Shorter time periods for
availability may always be substituted for time periods used in the
models.
[rtrif]6[ltrif][lsqbb]5[rsqbb]. Banks may also add related
information. For example, a bank may [lsqbb]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[rsqbb] include a telephone number to be used
if a customer has an inquiry regarding a deposit.
[rtrif]7[ltrif][lsqbb]6[rsqbb]. Banks are cautioned against
using the models without reviewing their own policies and practices,
as well as state and federal laws [rtrif]and regulations[ltrif]
regarding the time periods for availability of specific types of
checks. A bank using the models will be in compliance with the EFA
Act and the regulation only if the bank's disclosures correspond to
its availability policy.
[lsqbb]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 section
229.21(e). Banks are encouraged, however, to use current versions of
the models when reordering or reprinting supplies.[rsqbb]
B. Model Availability-Policy and Substitute-Check-Policy Disclosures,
Models C-1 through C-5[lsqbb]A[rsqbb]
1. Models C-1 Through C-5[lsqbb]A[rsqbb] Generally
a. Models C-1 through C-[lsqbb]5A[rsqbb][rtrif]4B[ltrif] are
models for the availability-policy disclosures described in section
229.16 and [rtrif]model C-5 is a model for the[ltrif] substitute-
check-policy disclosure described in section 229.57. The
[rtrif]funds-availability[ltrif] models accommodate a variety of
availability policies, ranging from next-day availability to holds
to statutory limits on all deposits. Model[rtrif]s[ltrif] C-
3[rtrif]A and C-3B[ltrif] reflect[lsqbb]s[rsqbb] the additional
disclosures discussed in section 229.16(b) and (c) for banks that
have a policy of extending availability times on a case-by-case
basis. [rtrif]All of the funds-availability models indicate that a
bank's policy may provide 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. (See Sec.
229.19(c)(2) of the regulation.)[ltrif]
b. As already noted, there are several places in the forms where
information must be inserted. This information includes the bank's
cutoff times [rtrif]and[ltrif][lsqbb],[rsqbb] limitations relating
to next-day availability[lsqbb], and the first four digits of
routing numbers for local banks[rsqbb]. In disclosing when funds
will be available for withdrawal, [rtrif] a bank that makes funds
available on the business day the deposit was received may describe
the funds as being available ``the same business day.'' A bank that
makes funds available on a business day after the business day of
receipt[ltrif] [lsqbb]the bank[rsqbb] must insert [lsqbb]the[rsqbb]
[rtrif]a cardinal number (1, 2, etc.),[ltrif] ordinal number (such
as first, second, etc.)[rtrif], or the word ``next'' to
describe[ltrif] [lsqbb]of[rsqbb] the business day after deposit that
the funds will become available.
c. Models C-1 through C-[lsqbb]5A generally do not reflect any
optional provisions of the regulation, or those that apply only to
certain banks[rsqbb] [rtrif]4B reflect some information the
inclusion of which depends on a bank's policies and practices, such
as placing a hold on funds already on deposit when it cashes a check
for a customer or makes funds immediately available to a customer
(see Sec. 229.19(e) of the regulation), and requiring special
deposit slips as a condition for next-day availability for deposits
of certain types of checks (see Sec. 229.10(c)(2)). This
information in the model availability-policy disclosures is placed
within brackets to indicate that whether a bank should include the
text in its availability-policy disclosure is dependent on the
bank's funds-availability policies and practices. Additionally,
certain other provisions of the regulation that apply only to
certain banks are reflected[ltrif] [lsqbb]Instead, disclosures for
these provisions are included[rsqbb] in model[lsqbb]s C-6 through C-
11A[rsqbb] [rtrif]clauses C-6, C-7, and C-8[ltrif]. A bank using one
of the model availability-policy disclosures should also consider
whether it must incorporate one or more of [lsqbb]models C-6 through
C-11A.[rsqbb] [rtrif]these model clauses. A bank for which one or
more of these clauses is applicable would append the clause(s) to
the end of its availability-policy disclosure.[ltrif]
d. While section 229.10(b) of the regulation requires next-day
availability for electronic payments, Treasury regulations (31 CFR
210) and ACH association rules require that preauthorized credits
(direct deposits) be made available on the day the bank receives the
funds. Models C-1 through [lsqbb]C-5[rsqbb] [rtrif]C-4B[ltrif]
reflect these rules. Wire transfers [lsqbb], however,[rsqbb]
[rtrif]and cash deposits[ltrif] are not governed by Treasury or ACH
rules, but banks generally make funds from [lsqbb]wire
transfers[rsqbb] [rtrif]these types of deposits[ltrif] 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 [lsqbb]wire transfers.[rsqbb] [rtrif]these types
of deposits. A bank that makes the proceeds of cash deposits or wire
transfers available for withdrawal on the banking day they are
received may specify in its disclosure that these types of deposits
are available ``the same business day'' notwithstanding that the
funds were not available at the opening of business on that day.
Models C-1 through C-3B indicate that funds from these types of
deposits will be available on the day received. A bank that uses one
of these models should modify its disclosure to indicate that funds
from cash deposits and wire transfers will be available on the next
day if that reflects the bank's practice. In contrast, models C-4A
and C-4B indicate that funds from cash deposits and wire transfers
will be available on the business day following receipt. A bank that
uses one of these models but that makes funds from cash deposits and
wire transfers available the same day they are received--i.e., a
bank that places holds to statutory limits only on check deposits--
may modify the forms accordingly to reflect the bank's
practice.[ltrif]
2. Model C-1, Next-Day Availability. A bank may use this model
when its policy is to make funds from all [rtrif]check[ltrif]
deposits available [lsqbb]on the first[rsqbb] [rtrif]by the
next[ltrif] business day after a deposit is made. This model may
also be used by banks that provide [lsqbb]immediate
availability[rsqbb] [rtrif]same-day for check deposits[ltrif] by
substituting the [lsqbb]word ``immediately''[rsqbb] [rtrif]phrase
``the same business day''[ltrif] in place of [lsqbb]on the first
business day after the day we receive your deposit.''[rsqbb]
[rtrif]``the next business day.''[ltrif]
3. Model C-2, Next-Day Availability and Section 229.13.
Exceptions. A bank may use this model when its policy is to make
funds from all [rtrif]check[ltrif] deposits available to its
customers [lsqbb]on the first[rsqbb] [rtrif]by the next[ltrif]
business day after the deposit is made, and to reserve the right to
invoke the new-account and other exceptions in section 229.13. 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 [rtrif]checks other than next-day-
availability checks[ltrif] [lsqbb]a nonlocal check[rsqbb].
4. Model[rtrif]s[ltrif] C-3[rtrif]A[ltrif], Next-Day
Availability, Case-by-Case Holds to Statutory Limits [rtrif]on Check
Deposits Without Cash-Withdrawal Limitation[ltrif], and Section
229.13 Exceptions[rtrif]; and C-3B, Next-Day Availability, Case-by-
Case Holds to Statutory Limits on Check Deposits With Cash-
Withdrawal Limitation, and Section 229.13 Exceptions[ltrif]
a. A bank may use [lsqbb]this model[rsqbb] [rtrif]these
models[ltrif] when its policy, in most cases, is to make funds from
all types of deposits available [rtrif]by[ltrif] the day after the
deposit is made, but to delay availability on some
[rtrif]check[ltrif] deposits on a case-by-case basis up to the
maximum time periods allowed under the regulation. A bank using
[lsqbb]this model[rsqbb] [rtrif]these models[ltrif] also reserves
the right to invoke the exceptions listed in section 229.13.
[lsqbb]A bank using this model also reserves the right to invoke the
exceptions listed in section 229.13.[rsqbb] 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 [rtrif]checks other than next-day-availability
checks[ltrif] [lsqbb]a nonlocal check[rsqbb].
[rtrif]b. Model availability-policy disclosure C-3A may be used
by a bank that, when it delays availability of a check deposit on a
case-by-case basis, does not impose the cash-withdrawal limitation
permitted by section 229.12(b), whereas model availability-policy
disclosure C-3B may be used by a bank that does impose this
limitation when it delays availability on a case-by-case basis.
c. Models C-3A and C-3B include in brackets language related to
check cashing, immediate availability, and holds on other
[[Page 16972]]
funds. A bank that bases its disclosure on model C-3A or C-3B would
include this bracketed text in its disclosure only if the text
corresponds to the bank's policy and practice. A bank that has such
a policy, and that therefore includes this text in its disclosure,
would include the text in the location indicated by the model. A
bank that bases its availability-policy disclosure on model
disclosure C-3A or C-3B and whose availability policy necessitates
incorporation of one or more of the appendix's model clauses (C-9,
C-11, or C-11A) would append those model clauses to the end of the
second page of model C-3A or C-3B.[ltrif]
5. Model[rtrif]s[ltrif] C-4[rtrif]A[ltrif], Holds to Statutory
Limits on All Deposits [rtrif]Without Cash-Withdrawal Limitation;
and C-4B, Holds to Statutory Limits on All Deposits With Cash-
Withdrawal Limitation[ltrif]
[rtrif]a.[ltrif] A bank may use [lsqbb]this model[rsqbb]
[rtrif]these models[ltrif] when its policy is to [lsqbb]impose
delays to the full extent[rsqbb] [rtrif]delay availability as[ltrif]
allowed under section 229.12 and to reserve the right to invoke the
section 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
[rtrif]checks other than next-day-availability[ltrif] [lsqbb]a
nonlocal check[rsqbb].
[rtrif]b. Model availability-policy disclosure C-4A may be used
by a bank that delays availability as allowed under section 229.12
but does not impose the cash-withdrawal limitation permitted by
section 229.12(b), whereas model availability-policy disclosure C-4B
may be used by a bank that delays availability as allowed under
section 229.12 and does impose the cash-withdrawal limitation
permitted by section 229.12(b).
c. Models C-4A and C-4B include in brackets language related to
check cashing, immediate availability, and holds on other funds. A
bank that bases its disclosure on model C-4A or C-4B would include
this bracketed text in its disclosure only if the text corresponds
to the bank's policy and practice. A bank that has such a policy and
that therefore includes this text in its disclosure would include
the text in the location indicated by the model. A bank that bases
its availability-policy disclosure on model disclosure C-4A or C-4B
and whose availability policy necessitates incorporation of one or
more of the appendix's model clauses (C-9, C-11, or C-11A) would
append those model clauses to the end of the second page of model C-
4A or C-4B.[ltrif] [lsqbb]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-5A bank may use this form when its policy is to
impose delays to the full extent allowed by section 229.12 and to
reserve the right to invoke the section 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.[rsqbb]
7. Model C-5[lsqbb]A[rsqbb][rtrif], Substitute-Check-Policy
Disclosure[ltrif] A bank may use this form when it is providing the
disclosure to its consumers required by section 229.57 explaining
that a substitute check is the legal equivalent of an original check
and the circumstances under which the consumer may make a claim for
expedited recredit.
C. Model Clauses, Models C-6 through C-[lsqbb]11A[rsqbb][rtrif]8[ltrif]
1. Models C-6 through C-[lsqbb]11A[rsqbb][rtrif]8[ltrif].
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. [rtrif]A bank for
which one or more of these clauses is applicable would append the
clause(s) to the end of its availability-policy disclosure.[ltrif]
[lsqbb]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
section 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 section 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.[rsqbb] [rtrif]2.[ltrif] Model C-
[lsqbb]9[rsqbb][rtrif]6[ltrif], Automated Teller Machine Deposits
(Extended Holds). A bank that reserves the right to delay
availability of deposits at nonproprietary ATMs until the
[rtrif]fourth[ltrif][lsqbb]fifth[rsqbb] business day following the
date of deposit, as permitted by section
229.12([rtrif]b[ltrif][lsqbb]f[rsqbb]), 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 section 229.16(b)(5).
[lsqbb]6. Model C-10, Cash-Withdrawal Limitation
A bank that imposes cash-withdrawal limitations under section
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.''[rsqbb]
[rtrif]3[ltrif][lsqbb]7[rsqbb]. Model C-
[lsqbb]11[rsqbb][rtrif]7[ltrif], Credit Union Interest-Payment
Policy. A credit union subject to the notice requirement of section
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.
[rtrif]4[ltrif][lsqbb]8[rsqbb]. Model C-
[lsqbb]11A[rsqbb][rtrif]8[ltrif], Availability of Funds Deposited at
Other Locations. A clause similar to model C-
[lsqbb]11A[rsqbb][rtrif]8[ltrif] should be used if a bank bases the
availability of funds on the location where the funds are deposited
[lsqbb](for example, at a contractual or other branch located in a
different check-processing region). Similarly, a clause similar to
model C-[lsqbb]11A[rsqbb][rtrif]8[ltrif] should be used if a bank
distinguishes between local and nonlocal checks (for example, a bank
using model availability-policy disclosure C-4[rtrif]A[ltrif] and C-
[lsqbb]5[rsqbb][rtrif]4B[ltrif]), and accepts deposits in more than
one check-processing region[rsqbb].
D. Model Notices, Models C-[lsqbb]12[rsqbb][rtrif]9[ltrif] through C-
[lsqbb]25[rsqbb][rtrif]21[ltrif]
1. Model Notices C-[lsqbb]12[rsqbb][rtrif]9[ltrif] through C-
[lsqbb]25[rsqbb][rtrif]21[ltrif] Generally. Models C-
[lsqbb]12[rsqbb][rtrif]9[ltrif] through C-
[lsqbb]25[rsqbb][rtrif]21[ltrif] provide models for the various
notices required by the regulation. A bank that cashes a check and
places a hold on funds in an account of the customer (see section
229.19(e)) should modify the model hold notice accordingly. For
example, the bank could replace the word ``deposit'' with the word
``transaction'' and could add the phrase ``or cashed'' after the
word ``deposited.''
2. Model C-[lsqbb]12[rsqbb][rtrif]9[ltrif], Exception[lsqbb]-
[rsqbb] [rtrif]or Reasonable-Cause[ltrif] Hold Notice.
[rtrif]a. i.[ltrif] This model satisfies the written notice
required under section 229.13(g) when a bank places a hold based on
a section 229.13 exception[rtrif], including the reasonable-cause
exception. The model notice includes a location, indicated by
``(reason for hold),'' in which the bank must insert the reason for
placing the hold. The bulleted list below contains examples of
reasons a bank may place a hold that could be inserted into the
notice:
(1) A check you deposited was previously returned unpaid.
(2) You have overdrawn your account repeatedly in the last six
months.
(3) The checks you deposited on this day exceeded $5,000.
(4) There is an emergency, such as a failure of computer or
communications equipment.
(5) We believe a check you deposited will not be paid, because
(e.g., a reason from paragraph b).
ii.[ltrif]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 [lsqbb]must
incorporate in the notice[rsqbb][rtrif]may use[ltrif] the material
set out in brackets if it imposes overdraft or returned-check fees
after invoking the reasonable-cause exception under section
229.13(e).
[lsqbb]3. Model C-13,[rsqbb][rtrif]b.[ltrif] Reasonable-Cause
Hold Notice. [lsqbb]This[rsqbb][rtrif]i. Model[ltrif] notice
[rtrif]C-9 also[ltrif] satisfies the written notice required under
section 229.13(g) when a bank invokes the reasonable-cause exception
under section 229.13(e). The [lsqbb]notice provides the bank with a
list of[rsqbb] [rtrif]model notice includes a location, indicated by
``(reason for hold),'' in which the bank would
[[Page 16973]]
insert the[ltrif] specific reason[lsqbb]s that may be given[rsqbb]
for invoking the exception. [lsqbb]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.[rsqbb]
[rtrif]The list below provides examples of reasons that a bank could
insert into the notice as its reason for doubting collectability:
(1) We received notice that the check is being returned unpaid.
(2) We have confidential information that indicates that the
check may not be paid.
(3) The check is drawn on an account with repeated overdrafts.
(4) We are unable to verify a signature on the back of the
check.
(5) Some information on the check is not consistent with other
information on the check.
(6) There are apparent alterations on the check.
(7) The routing number of the paying bank is not a current
routing number.
(8) The check is postdated.
(9) The check has a stale date, that is, it was written too long
ago and is expired.
(10) We have been notified that the check has been lost or
damaged in collection.
ii. The above list is not intended to be comprehensive; another
reason that does not appear in the list may be inserted in place of
(``reason for hold'') provided the reason satisfies the conditions
for invoking the reasonable cause exception.
iii. If a hold is being placed on more than one check in a
deposit, each check should be described separately, and if different
reasons apply, each reason should be indicated.[ltrif] 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 [lsqbb]must incorporate in the
notice[rsqbb][rtrif]may use[ltrif] the material set out in brackets
if it imposes overdraft or returned-check fees after invoking the
reasonable-cause exception under section 229.13(e).
[lsqbb]4[rsqbb][rtrif]3[ltrif]. Model C-
[lsqbb]14[rsqbb][rtrif]10[ltrif], One-Time Notice for Large-Deposit
and Redeposited-Check Exception Holds. This model satisfies the
notice requirements of section 229.13(g)(2) concerning nonconsumer
accounts.
[lsqbb]5[rsqbb][rtrif]4[ltrif]. Model C-
[lsqbb]15[rsqbb][rtrif]11[ltrif], One-Time Notice for Repeated-
Overdraft Exception Hold. This model satisfies the notice
requirements of section 229.13(g)(3).
[lsqbb]6[rsqbb][rtrif]5[ltrif]. Model[rtrif]s[ltrif] C-
[lsqbb]16[rsqbb][rtrif]12A[ltrif], Case-by-Case Hold Notice
[rtrif]Without Cash-Withdrawal Limitation; and C-
[lsqbb]16B[rsqbb][rtrif]12B[ltrif], Case-by-Case Hold Notice With
Cash-Withdrawal Limitation.[ltrif] [lsqbb]This model[rsqbb]
[rtrif]These models[ltrif] satisfies the notice required under
section 229.16(c)(2) when a bank with a case-by-case hold policy
imposes a hold on a deposit. [rtrif]Model case-by-case hold notice
C-12A may be used by a bank that imposes a case-by-case hold, but
does not have a policy of imposing the cash-withdrawal limitation
permitted by section 229.12(b), whereas model notice C-12B may be
used by a bank that imposes such a hold and does have such a policy.
Section 229.16(c)(2)[ltrif] [lsqbb]This notice[rsqbb] does not
require a statement of the specific reason for the hold, as is the
case when a section 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.
[lsqbb]7[rsqbb][rtrif]6[ltrif]. Model C-
[lsqbb]17[rsqbb][rtrif]13[ltrif], Notice at Locations Where
Employees Accept Consumer Deposits[rtrif];[ltrif][lsqbb],[rsqbb] and
Model C-[lsqbb]18[rsqbb][rtrif]14[ltrif], Notice at Locations Where
Employees Accept Consumer Deposits (Case-by-Case Holds)
[rtrif]a.[ltrif] These models satisfy the notice requirement of
section 229.18(b). Model C-[lsqbb]17[rsqbb][rtrif]13[ltrif] reflects
an availability policy of holds to statutory limits on all deposits,
and model C-[lsqbb]18[rsqbb][rtrif]14[ltrif] reflects a case-by-case
availability policy.
[rtrif]b. i. Model C-13 indicates that funds from cash deposits
and wire transfers will be available on the business day following
receipt. A bank that uses this model but that makes funds from these
types of deposits available the same day they are received--i.e., a
bank that places holds to statutory limits only on check deposits--
may modify the form accordingly to reflect the bank's practice. In
contrast, model C-14 indicates that funds from cash deposits and
wire transfers will be available on the day received. A bank that
uses this model should modify its disclosure to indicate that funds
from these types of deposits will be available on the next day if
that reflects the bank's practice. A bank should ensure that its
notice reflects the availability given in most cases for these types
of deposits.
ii. A bank that imposes cash-withdrawal limitations under
section 229.12(b) should indicate that funds will generally be
available by the third, rather than second, business day after the
day of deposit, by replacing ``(number)'' in the lower-right-hand
box of the tables in the models with ``third'' (rather than
second).[ltrif]
[lsqbb]8[rsqbb][rtrif]7[ltrif]. Model C-
[lsqbb]19[rsqbb][rtrif]15[ltrif], Notice at Automated Teller
Machines[rtrif].[ltrif] This model satisfies the ATM notice
requirement of section 229.18(c)(1).
[lsqbb]9[rsqbb][rtrif]8[ltrif]. Model C-
[lsqbb]20[rsqbb][rtrif]16[ltrif], Notice at Automated Teller
Machines (Delayed Receipt)[rtrif].[ltrif] This model satisfies the
ATM notice requirement of section 229.18(c)(2) when receipt of
deposits at off-premises ATMs is delayed under section 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.
[lsqbb]10[rsqbb][rtrif]9[ltrif]. Model C-
[lsqbb]21[rsqbb][rtrif]22[ltrif], Deposit-Slip Notice[rtrif].[ltrif]
This model satisfies the notice requirements of section 229.18(a)
for deposit slips.
[lsqbb]11[rsqbb][rtrif]10[ltrif]. Models C-
[lsqbb]22[rsqbb][rtrif]18[ltrif] Through C-
[lsqbb]25[rsqbb][rtrif]21[ltrif] Generally[rtrif].[ltrif] Models C-
[lsqbb]22[rsqbb][rtrif]18[ltrif] through C-
[lsqbb]25[rsqbb][rtrif]21[ltrif] provide models for the various
notices required when a consumer who receives substitute checks
makes an expedited recredit claim under section 229.54 for a loss
related to a substitute check. The Check 21 Act does not provide
banks that use these models with a safe harbor. However, the Board
has published these models to aid banks' efforts to comply with
section 229.54(e).
[lsqbb]12[rsqbb][rtrif]11[ltrif]. Model C-
[lsqbb]22[rsqbb][rtrif]18[ltrif], Valid-Claim Refund
Notice[rtrif].[ltrif] A bank may use this model when crediting the
entire amount or the remaining amount of a consumer's expedited-
recredit claim after determining that the consumer's claim is valid.
This notice could be used when the bank provides the consumer a full
recredit based on a valid-claim determination within ten days of the
receipt of the consumer's claim or when the bank recredits the
remaining amount of a consumer's expedited-recredit claim by the
45th calendar day after receiving the consumer's claim, as required
under section 229.54(e)(1).
[lsqbb]13[rsqbb][rtrif]12[ltrif]. Model C-
[lsqbb]23[rsqbb][rtrif]19[ltrif], Provisional-Refund
Notice[rtrif].[ltrif] A bank may use this model when providing a
full or partial expedited recredit to a consumer pending further
investigation of the consumer's claim, as required under section
229.54(e)(1).
[lsqbb]14[rsqbb][rtrif]13[ltrif]. Model C-
[lsqbb]24[rsqbb][rtrif]20[ltrif], Denial Notice[rtrif].[ltrif] A
bank may use this model when denying a claim for an expedited
recredit under section 229.54(e)(2).
[lsqbb]15[rsqbb][rtrif]14[ltrif]. Model C-
[lsqbb]25[rsqbb][rtrif]21[ltrif], Reversal Notice[rtrif].[ltrif] A
bank may use this model when reversing an expedited recredit that
was credited to a consumer's account under section 229.54(e)(3).
37. Revise Appendix F to Part 229 to read as follows:
[rtrif]Appendix F to Part 229--Official Board Interpretations;
Preemption Determinations
Uniform Commercial Code, Section 4-213(5)
1. State provision that may supersede Regulation CC
Section 4-213(5) of the Uniform Commercial Code (``U.C.C.'')
provides that money deposited in a bank is available for withdrawal
as of right at the opening of business of the banking day after
deposit. Although the language ``deposited in a bank'' is unclear,
arguably it is broader than the language ``made in person to an
employee of the depositary bank,'' which conditions the next-day
availability of cash under Regulation CC (Sec. 229.10(a)(1)). Under
Regulation CC, deposits of cash that are not made in person to an
employee of the depositary bank must be made available by the second
business day after the banking day of deposit (Sec. 229.10(a)(2)).
Therefore, this provision of the U.C.C. may call for the
availability of certain cash deposits in a shorter time than
provided in Regulation CC. To the extent that section 4-213(5) of
the U.C.C. requires certain cash deposits in a shorter time than
provided in Regulation CC, that section supersedes Regulation CC.
2. State provision superseded by Regulation CC
Section 4-213(5) of the U.C.C., however, is subject to Section
4-103(1), which provides,
[[Page 16974]]
in part, that ``the effect of the provisions of this Article may be
varied by agreement * * *.'' The Regulation CC funds availability
requirements may not be varied by agreement. Therefore, a depositary
bank may agree to extend availability beyond the requirement of
section 4-213(5), but may not agree with its customer under section
4-103(1) of the Code to extend availability beyond the time periods
provided in Sec. 229.10(a) of Regulation CC.
Other preemption determinations
California
California has three separate sets of regulations establishing
maximum availability schedules, all adopted pursuant to California
Financial Code section 866.5 (which requires the banking
commissioners to promulgate regulations establishing a reasonable
period of time within which a depository institution must make
deposited funds available to customers) and California Commercial
Code section 4-213(4)(a), that were in effect on or before September
1, 1989. The regulations applicable to commercial banks and branches
of foreign banks (collectively, banks) located in California (Cal.
Admin. Code tit. 10, Sec. Sec. 10.190401-10.190402) were
promulgated by the superintendent of banks. The regulations
applicable to savings banks and savings and loan associations
(collectively, savings institutions) (Cal. Admin. Code tit. 10,
Sec. Sec. 106.200-106.202) were promulgated by the savings and loan
commissioner. The regulations applicable to industrial loan
companies (Cal. Admin. Code tit. 10, Sec. 40.101) were promulgated
by the Commissioner of Corporations. California Financial Code
section 867 also establishes availability periods for funds
deposited by cashier's check, certified check, teller's check, or
depository check under certain circumstances. Finally, California
Financial Code section 866.2 establishes disclosure requirements.
1. Funds availability periods
A. Banks and savings institutions.
The regulations applicable to California banks and savings
institutions provide that a depositary bank shall make funds
deposited into a deposit account available for withdrawal as
provided in Regulation CC, subject to the following:
Cashier's checks, teller's checks, certified checks, or
depository checks. Section 867 of the California Financial Code
requires depository institutions to make funds deposited by
cashier's check, teller's check, certified check, or depository
check available for withdrawal on the second business day following
deposit, if certain conditions are met. The Regulation CC next-day
availability requirement for cashier's checks and teller's checks
applies only to those checks issued to a customer of the bank or
acquired from the bank for remittance purposes. To the extent that
the state's second-day availability requirement applies to cashier's
and teller's checks issued to a non-customer of the bank for other
than remittance purposes, the state two-day requirement provides for
holds of the same number of days as the federal schedules and
therefore supersedes the federal schedules if the California
regulations do not allow the funds to be made available later in the
day than does Regulation CC.
Checks drawn on in-state bank with a different four-digit
routing symbol. California regulations require banks (not including
savings institutions) to provide fourth business day availability of
funds deposited into a bank with a four-digit routing symbol of 1210
(``1210 bank'') by a check drawn on an in-state bank with a four-
digit routing symbol of 1220 (``1220 bank''). Similarly, a 1220 bank
that receives a check drawn on a 1210, in-state bank may make the
funds available for withdrawal by the fourth business day after the
day of deposit. Regulation CC, however, provides that checks must be
made available for withdrawal by the second business day after the
banking day of deposit. Because California's regulations permit
depositary banks to make funds available within a longer period of
time than the federal schedules, California's regulations are
superseded by the EFA Act and subpart B of Regulation CC.
Paying bank. The California regulation uses the term paying bank
when describing the institution on which these checks are drawn, but
does not define paying bank or bank. Regulation CC's definitions of
paying bank and bank include savings institutions and credit unions
as well as commercial banks and branches of foreign banks. However,
because the California regulation makes separate provisions for
checks drawn on savings institutions and credit unions, the Board
concludes that the term paying bank, as used in the California
regulation, includes only commercial banks and foreign bank
branches.
Exceptions to the availability schedules. Under the state
preemption standards of Regulation CC (see Sec. 229.20(c) and
accompanying Commentary), for deposits subject to the state
availability schedules, a state exception may be used to extend the
state availability schedule up to the federal availability schedule.
Once the deposit is held up to the federal availability schedule
limit under a state exception, the depositary bank may further
extend the hold under any federal exception that can be applied to
the deposit. If no state exceptions exist, then no exceptions holds
may be placed on deposits covered by state schedules. Thus, to the
extent that California law provides for exceptions to the California
schedules that supersede Regulation CC, those exceptions may be
applied in order to extend the state availability schedules up to
the federal availability schedules or such later time as is
permitted by a federal exception.
B. Industrial loan companies.
Section 229.2(e)(1)(i) of Regulation CC, the term bank includes
an insured bank as defined in section 3 of the Federal Deposit
Insurance Act (12 U.S.C. 1813). That Act defines bank to include any
State bank (12 U.S.C. 1813(a)(1)(A)) and, in turn, defines State
bank to include an industrial bank or similar depository institution
that receives deposits and is incorporated under the laws of any
state (12 U.S.C. 1813(a)(2)). The California regulations applicable
to industrial loan companies set forth a funds availability schedule
that does not incorporate the periods set forth in Regulation CC.
Accordingly, the following preemption determination sets forth the
provisions of state law that supersede federal law and those that
are preempted by it.
Check of $100 or less. California regulations require industrial
loan companies to give next-day availability to a check of $100 or
less. Therefore, the California provision supersedes the Regulation
CC provision if on a single banking day multiple checks, each under
$100, are deposited.
U.S. Treasury, state and local government checks. California
regulations require industrial loan companies to give next-day
availability to items drawn by the State of California or any of its
departments, agencies, or political subdivisions. Regulation CC
conditions next-day availability on receipt of the deposit at a
staffed teller station or use of a special deposit slip. Therefore,
California law supersedes the federal law in that the state law does
not condition next-day availability on receipt at a staffed teller
station or use of a special deposit slip.
On-us checks. California regulations require industrial loan
companies to provide second business day availability to checks
drawn on the depositary bank. Regulation CC requires next-day
availability for checks deposited in a branch of the depositary bank
and drawn on the same or another branch of the same bank. Thus,
generally, the Regulation CC rule for availability of on-us checks
preempts the California regulations. To the extent, however, that an
on-us check is deposited at an off-premises ATM or another facility
of the depositary bank that is not considered a branch under federal
law, the state regulation supersedes the Regulation CC availability
requirements.
Cashier's checks, teller's checks, certified checks, or
depository checks. Section 867 of the California Financial Code
requires depository institutions to make funds deposited by
cashier's check, teller's check, certified check, or depository
check available for withdrawal on the second business day following
deposit, if certain conditions are met. The Regulation CC next-day
availability requirement for cashier's checks and teller's checks
applies only to those checks issued to a customer of the bank or
acquired from the bank for remittance purposes. To the extent that
the state second-day availability requirement applies to cashier's
and teller's checks issued to a non-customer of the bank for other
than remittance purposes, the state two-day requirement provides for
holds of the same number of days as the federal schedules and
therefore supersedes the federal local and nonlocal schedules if the
California regulations do not allow the funds to be made available
later in the day than does Regulation CC.
In-state and out-of-state checks. California regulations require
industrial loan companies to make funds deposited by a check drawn
on a depository institution in California available no later than
the sixth business day after deposit. Industrial loan companies are
required to make funds deposited by a check drawn on a depository
institution outside of California available no later than the
twelfth business day after deposit. Regulation CC, however,
generally requires depositary banks to make funds deposited by a
check drawn on any depository bank available no later
[[Page 16975]]
than the second business day after deposit. Accordingly,
California's regulation permitting longer holds by industrial loan
companies is preempted by Regulation CC.
Exceptions to the availability schedules. California regulations
provide exceptions to the state availability schedules applicable to
industrial loan companies for large deposits, new accounts, repeated
overdrafters, doubtful collectibility, foreign items, and emergency
conditions. In all cases where the federal availability schedule
preempts the state schedule, only the federal exceptions will apply.
For deposits that are covered by the state's availability schedule
(e.g., cashier's or teller's checks that are not deposited with a
special deposit slip or at a staff teller station and on-us checks
deposited at an off-premises ATM or another facility of the
depositary bank that is not considered a branch under federal law),
the state exceptions may be used to extend the state availability
schedule up to the federal availability schedule. Once the deposit
is held up to the federal availability limit under a state
exception, the depositary bank may further extend the hold under any
federal exception that can be applied to the deposit. Any time a
depositary bank invokes an exception to extend a hold beyond the
time periods otherwise permitted by law, it must give notice of the
extended hold to its customer in accordance with Sec. 229.13(g) of
Regulation CC.
2. Disclosures
California law (Cal. Fin. Code Sec. 866.2) requires depository
institutions to provide written disclosures of their general
availability policies to potential customers prior to opening any
deposit account. The law also requires that preprinted deposit slips
and ATM deposit envelopes contain a conspicuous summary of the
general policy. Finally, the law requires depository institutions to
provide specific notice of the time the customer may withdraw funds
deposited by check or similar instrument into a deposit account if
the funds are not available for immediate withdrawal.
Section 229.20(c)(2) of Regulation CC provides that
inconsistency may exist when a state law provides for disclosures
concerning funds availability relating to accounts. California
Financial Code Sec. 866.2 requires disclosures that differ from
those required by Regulation CC and, therefore, is preempted to the
extent that it applies to accounts as defined in Regulation CC.
Thus, the state law continues to apply to savings accounts and other
accounts not governed by Regulation CC disclosure requirements.
The Department of Savings and Loan regulations provide that for
those non-transaction accounts covered by state law but not by
federal law, disclosures in accordance with Regulation CC will be
deemed to comply with the state law disclosure requirements. To the
extent that the Department of Savings and Loan regulations permit
reliance on Regulation CC disclosures for transaction accounts and
to the extent the state regulations survive the preemption of
California Financial Code Sec. 866.2, they are not preempted by,
nor do they supersede, the federal law. The state law continues to
apply to savings accounts and other non-transaction accounts not
governed by Regulation CC disclosure requirements.
3. Other general provisions
Accounts. The California funds availability laws and regulations
apply to accounts as defined by Regulation CC as well as savings
accounts, as defined in the Board's Regulation D (12 CFR 204.2(d)),
negotiable order of withdrawal draft accounts, share draft accounts
and other share accounts (other than time accounts). (California
Financial Code section 886(b)) The funds availability schedules in
Regulation CC apply only to accounts as defined in Regulation CC,
which generally consist of transaction accounts. The California
funds availability regulations continue to apply to deposits in
savings and other accounts (such as accounts in which the account-
holder is another bank) that are not accounts under Regulation CC.
Under Sec. 229.19(e) of Regulation CC (Holds on other funds),
however, the federal availability schedules may apply to savings,
time, and other accounts not defined as accounts under Regulation CC
in certain circumstances.
Business day/banking day. The definitions of business day and
banking day in the California regulations are preempted by the
Regulation CC definition of those terms. Thus, for determining
whether the permissible hold under the California schedules
supersedes the Regulation CC schedule, deposits are considered made
on the specified number of business days following the banking day
of deposit.
Availability at start of day. The California regulations do not
specify when during the day funds must be made available for
withdrawal. Section 229.19(b) of Regulation CC provides that funds
must be made available at the start of the business day. In those
cases where federal and state law provide for holds for the same
number of days, to the extent that the California regulations allow
funds to be made available later in the day than does Regulation CC,
the federal law would preempt state law.
Checks. The California law applies to any Item (California
Financial Code section 866.5 and California Commercial Code section
4213(4)(a)). The California Commercial Code defines item to mean any
instrument for the payment of money even though it is not negotiable
* * * (Cal. Com. Code section 4104(g)). This term is broader in
scope than the definition of check in the Act and Regulation CC. All
of the regulations, however, define the term item to include checks,
negotiable orders of withdrawal, share drafts, warrants, and money
orders. As limited by the state regulations, the state law applies
only to instruments that are also checks as defined in Sec.
229.2(k) of Regulation CC.
Illinois
Section 4-213(5) of the U.C.C. as adopted in Illinois (Illinois
Revised Statutes Chapter 26, paragraph 4-213(5), enacted July 26,
1988) provides that funds from deposits must be available in
accordance with the provisions of the federal Expedited Funds
Availability Act (Title VI of the Competitive Equality Banking Act
of 1987) and the regulations promulgated by the Federal Reserve
Board for the implementation of that Act. Therefore, Section 4-
213(5) of the Illinois law does not supersede Regulation CC; and,
because this provision of Illinois law does not permit funds to be
made available for withdrawal in a longer period of time than
required under the Act and Regulation, it is not preempted by
Regulation CC.
Maine
Maine's funds availability (Title 9-B MRSA section 241(5),
adopted in 1985) requires Maine financial institutions to make funds
deposited in a transaction account, savings account, or time account
available for withdrawal within a reasonable period. The Maine
statute gives the Superintendent of Banking for the State of Maine
the authority to promulgate rules setting forth time limitations and
disclosure requirements governing funds availability. Under the
Superintendent of Banking's regulations, effective July 1, 1987
(Regulation 18(IV)), and adopted amendments to this regulation,
effective September 1, 1988, funds deposited to any deposit account
in a Maine financial institution must be made available for
withdrawal in accordance with the Act and Regulation CC (Regulation
18-IV(A)(1), 02-029-118 Me. Code. R. Sec. IV). The state regulation
provides that an institution's funds availability policies for
accounts subject to Regulation CC be disclosed in a manner
consistent with the Regulation CC requirements. Funds availability
policies for accounts not subject to Regulation CC must be disclosed
in accordance with the state regulation (Regulation 18-IV(A)(2)).
Funds availability and disclosures. The Maine regulation
incorporates the Regulation CC availability and disclosure
requirements with respect to deposits to accounts covered by
Regulation CC. Because the state requirements are consistent with
the federal requirements, the Maine regulation is not preempted by,
nor does it supersede, the federal law.
Accounts. The Maine funds availability law and regulations apply
to accounts as defined by Regulation CC as well as savings accounts,
as defined in the Board's Regulation D (12 CFR 204.2(d)). The funds
availability schedules in Regulation CC apply only to accounts as
defined in Regulation CC, which generally consist of transaction
accounts. The Maine funds availability law and regulations continue
to apply to deposits in all accounts, including those that are not
accounts under Regulation CC. Under Sec. 229.19(e) of Regulation CC
(Holds on other funds), however, the federal availability schedules
may apply to savings, time, and other accounts not defined as
accounts under Regulation CC in certain circumstances.
Massachusetts
In 1988, Massachusetts amended its statute governing funds
availability (Mass. Gen. L. ch. 167D, section 35).
1. Funds availability periods
Massachusetts requires banking institutions to make funds
available for withdrawal in accordance with the EFA Act and
Regulation CC. Massachusetts defines local originating depository
institution (local paying bank in Regulation CC terminology) as a
depository institution located in Massachusetts (as distinguished
from a depository institution located in the same
[[Page 16976]]
check-processing region--the terminology the EFA Act uses).
Regulation CC no longer distinguishes between ``local'' and
``nonlocal'' originating depository institutions, and therefore, the
term ``local originating depository institution'' is no longer
relevant for purposes of funds availability. Because the
Massachusetts statute incorporates the Regulation CC availability
requirements, the state requirements are consistent with the federal
requirements, and the Massachusetts statute is not preempted by, nor
does it supersede, the federal law.
2. Disclosures
The Massachusetts regulation incorporates the Regulation CC
disclosure requirements with respect to both accounts covered by
Regulation CC and savings and other accounts not governed by the
federal regulation. Because the state requirements are consistent
with the federal requirements, the Massachusetts regulation is not
preempted by, nor does it supersede, the federal law. The
Massachusetts disclosure rules would continue to apply to accounts
not governed by the Regulation CC disclosure requirements.
3. Other general provisions
Accounts. The Massachusetts statute governs the availability of
funds deposited in ``any demand deposit, negotiable order of
withdrawal account, savings deposit, share account or other asset
account.'' Regulation CC applies only to accounts as defined in
Sec. 229.2(a). Regulation CC does not affect the Massachusetts
statute to the extent that the state law applies to deposits in
savings and other accounts (including transaction accounts where the
account holder is a bank, foreign bank, or the U.S. Treasury) that
are not accounts under Regulation CC. Under Sec. 229.19(e) of
Regulation CC, Holds on other funds, the federal availability
schedules may apply to savings, time, and other accounts not defined
as accounts under Regulation CC, in certain circumstances.
New York
In 1983, the New York State Banking Department, pursuant to
section 14-d of the New York Banking law, issued regulations
requiring that funds deposited in an account be made available for
withdrawal within specified time periods, and provided certain
exceptions to those availability schedules. Part 34 of the New York
State Banking Department's General Regulations established time
frames within which commercial banks, trust companies, and branches
of foreign banks (collectively, banks); and savings banks, savings
and loan associations, and credit unions (collectively, savings
institutions) must make funds deposited in customer accounts
available for withdrawal.
1. Funds availability periods
The Banking Department amended part 34, effective September 1,
1988, generally to exclude accounts covered by Regulation CC from
the scope of the state regulation, except for deposits drawn on non-
local, but in-state, banks. The New York schedule for banks and
savings institutions permits maximum holds on funds deposited by
checks drawn on a nonlocal, but in state, bank or savings
institution ranging from no later than the fourth business day (in
the case of banks) to no later than the fifth business day (in the
case of savings institutions). Because Regulation CC requires funds
to be made available no later than the second business day (unless
an exception applies, as discussed below), Regulation CC preempts
the New York schedule for funds availability.
Exceptions to the availability schedules. New York law provides
exceptions to the state availability schedules for large deposits,
new accounts, repeated overdrafters, doubtful collectibility,
foreign items, and emergency conditions (part 34.5, renumbered from
34.4). In all cases where the federal availability schedule preempts
the state schedule, only the federal exceptions will apply. Because
the federal availability schedule preempts the state schedule for
all cases, the New York exceptions do not apply.
2. Disclosures
The revised New York regulation does not contain funds
availability disclosure requirements applicable to accounts subject
to Regulation CC.
3. Other provisions
Accounts. The New York statute governs the availability of funds
deposited in savings accounts and time deposits, as well as accounts
as defined in Sec. 229.2(a) of Regulation CC. Regulation CC applies
only to accounts as defined in Sec. 229.2(a). Regulation CC does
not affect the New York statute to the extent that the state law
applies to deposits in savings accounts and time deposits, which are
not accounts under Regulation CC. Under Sec. 229.19(e) of
Regulation CC, Holds on other funds, the federal availability
schedules may apply to savings, time, and other accounts not defined
as accounts under Regulation CC, in certain circumstances.
Items. The New York law and regulation apply to items deposited
to accounts. Part 34.3(e) defines item as a check, negotiable order
of withdrawal or money order deposited into an account. The Board
interprets the definition of item in New York law to be consistent
with the definition of check in Regulation CC (Sec. 229.2(k)).
By order of the Board of Governors of the Federal Reserve
System, March 3, 2011.
Robert deV Frierson,
Deputy Secretary of the Board.
[FR Doc. 2011-5449 Filed 3-24-11; 8:45 am]
BILLING CODE 6210-01-P