    [United States Statutes at Large, Volume 117, 108th Congress, 1st Session]
    [From the U.S. Government Publishing Office, www.gpo.gov]

    117 STAT. 1177

    Public Law 108-100
    108th Congress

    An Act

    To facilitate check truncation by authorizing substitute checks, to
    foster innovation in the check collection system without mandating
    receipt of checks in electronic form, and to improve the overall
    efficiency of the Nation's payments system, and for other
    purposes. [NOTE: Oct. 28, 2003 -  [H.R. 1474]]

    Be it enacted by the Senate and House of Representatives of the
    United States of America in Congress assembled, [NOTE: Check Clearing
    for the 21st Century Act.]

    SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This [NOTE: 12 USC 5001 note.] Act may be cited
    as the ``Check Clearing for the 21st Century Act'' or the ``Check 21
    Act''.

    (b) Table of Contents.--The table of contents of this Act is as
    follows:

    Sec.  1. Short title; table of contents.
    Sec.  2. Findings; purposes.
    Sec.  3. Definitions.
    Sec.  4. General provisions governing substitute checks.
    Sec.  5. Substitute check warranties.
    Sec.  6. Indemnity.
    Sec.  7. Expedited recredit for consumers.
    Sec.  8. Expedited recredit procedures for banks.
    Sec.  9. Delays in an emergency.
    Sec. 10. Measure of damages.
    Sec. 11. Statute of limitations and notice of claim.
    Sec. 12. Consumer awareness.
    Sec. 13. Effect on other law.
    Sec. 14. Variation by agreement.
    Sec. 15. Regulations.
    Sec. 16. Study and report on funds availability.
    Sec. 17. Statistical reporting of costs and revenues for transporting
    checks between Federal Reserve banks.
    Sec. 18. Evaluation and report by the Comptroller General.
    Sec. 19. Depositary services efficiency and cost reduction.
    Sec. 20. Effective date.

    SEC. 2. [NOTE: 12 USC 5001.] FINDINGS; PURPOSES.

    (a) Findings.--The Congress finds as follows:
    (1) In the Expedited Funds Availability Act, enacted on
    August 10, 1987, the Congress directed the Board of Governors of
    the Federal Reserve System to consider establishing regulations
    requiring Federal reserve banks and depository institutions to
    provide for check truncation, in order to improve the check
    processing system.
    (2) In that same Act, the Congress--
    (A) provided the Board of Governors of the Federal
    Reserve System with full authority to regulate all
    aspects of the payment system, including the receipt,
    payment, collection, and clearing of checks, and related
    functions of the payment system pertaining to checks;
    and

    [[Page 1178]]
    117 STAT. 1178

    (B) directed that the exercise of such authority by
    the Board superseded any State law, including the
    Uniform Commercial Code, as in effect in any State.
    (3) Check truncation is no less desirable in 2003 for both
    financial service customers and the financial services industry,
    to reduce costs, improve efficiency in check collections, and
    expedite funds availability for customers than it was over 15
    years ago when Congress first directed the Board to consider
    establishing such a process.

    (b) Purposes.--The purposes of this Act are as follows:
    (1) To facilitate check truncation by authorizing substitute
    checks.
    (2) To foster innovation in the check collection system
    without mandating receipt of checks in electronic form.
    (3) To improve the overall efficiency of the Nation's
    payments system.

    SEC. 3. [NOTE: 12 USC 5002.] DEFINITIONS.

    For purposes of this Act, the following definitions shall apply:
    (1) Account.--The term ``account'' means a deposit account
    at a bank.
    (2) Bank.--The term ``bank'' means any person that is
    located in a State and engaged in the business of banking and
    includes--
    (A) any depository institution (as defined in
    section 19(b)(1)(A) of the Federal Reserve Act);
    (B) any Federal reserve bank;
    (C) any Federal home loan bank; or
    (D) to the extent it acts as a payor--
    (i) the Treasury of the United States;
    (ii) the United States Postal Service;
    (iii) a State government; or
    (iv) a unit of general local government (as
    defined in section 602(24) of the Expedited Funds
    Availability Act).
    (3) Banking terms.--
    (A) Collecting bank.--The term ``collecting bank''
    means any bank handling a check for collection except
    the paying bank.
    (B) Depositary bank.--The term ``depositary bank''
    means--
    (i) the first bank to which a check is
    transferred, even if such bank is also the paying
    bank or the payee; or
    (ii) a bank to which a check is transferred
    for deposit in an account at such bank, even if
    the check is physically received and indorsed
    first by another bank.
    (C) Paying bank.--The term ``paying bank'' means--
    (i) the bank by which a check is payable,
    unless the check is payable at or through another
    bank and is sent to the other bank for payment or
    collection; or
    (ii) the bank at or through which a check is
    payable and to which the check is sent for payment
    or collection.
    (D) Returning bank.--

    [[Page 1179]]
    117 STAT. 1179

    (i) In general.--The term ``returning bank''
    means a bank (other than the paying or depositary
    bank) handling a returned check or notice in lieu
    of return.
    (ii) Treatment as collecting bank.--No
    provision of this Act shall be construed as
    affecting the treatment of a returning bank as a
    collecting bank for purposes of section 4-202(b)
    of the Uniform Commercial Code.
    (4) Board.--The term ``Board'' means the Board of Governors
    of the Federal Reserve System.
    (5) Business day.--The term ``business day'' has the same
    meaning as in section 602(3) of the Expedited Funds Availability
    Act.
    (6) Check.--The term ``check''--
    (A) means a draft, payable on demand and drawn on or
    payable through or at an office of a bank, whether or
    not negotiable, that is handled for forward collection
    or return, including a substitute check and a travelers
    check; and
    (B) does not include a noncash item or an item
    payable in a medium other than United States dollars.
    (7) Consumer.--The term ``consumer'' means an individual
    who--
    (A) with respect to a check handled for forward
    collection, draws the check on a consumer account; or
    (B) with respect to a check handled for return,
    deposits the check into, or cashes the check against, a
    consumer account.
    (8) Consumer account.--The term ``consumer account'' has the
    same meaning as in section 602(10) of the Expedited Funds
    Availability Act.
    (9) Customer.--The term ``customer'' means a person having
    an account with a bank.
    (10) Forward collection.--The term ``forward collection''
    means the transfer by a bank of a check to a collecting bank for
    settlement or the paying bank for payment.
    (11) Indemnifying bank.--The term ``indemnifying bank''
    means a bank that is providing an indemnity under section 6 with
    respect to a substitute check.
    (12) MICR line.--The terms ``MICR line'' and ``magnetic ink
    character recognition line'' mean the numbers, which may include
    the bank routing number, account number, check number, check
    amount, and other information, that are printed near the bottom
    of a check in magnetic ink in accordance with generally
    applicable industry standards.
    (13) Noncash item.--The term ``noncash item'' has the same
    meaning as in section 602(14) of the Expedited Funds
    Availability Act.
    (14) Person.--The term ``person'' means a natural person,
    corporation, unincorporated company, partnership, government
    unit or instrumentality, trust, or any other entity or
    organization.
    (15) Reconverting bank.--The term ``reconverting bank''
    means--
    (A) the bank that creates a substitute check; or

    [[Page 1180]]
    117 STAT. 1180

    (B) if a substitute check is created by a person
    other than a bank, the first bank that transfers or
    presents such substitute check.
    (16) Substitute check.--The term ``substitute check'' means
    a paper reproduction of the original check that--
    (A) contains an image of the front and back of the
    original check;
    (B) bears a MICR line containing all the information
    appearing on the MICR line of the original check, except
    as provided under generally applicable industry
    standards for substitute checks to facilitate the
    processing of substitute checks;
    (C) conforms, in paper stock, dimension, and
    otherwise, with generally applicable industry standards
    for substitute checks; and
    (D) is suitable for automated processing in the same
    manner as the original check.
    (17) State.--The term ``State'' has the same meaning as in
    section 3(a) of the Federal Deposit Insurance Act.
    (18) Truncate.--The term ``truncate'' means to remove an
    original paper check from the check collection or return process
    and send to a recipient, in lieu of such original paper check, a
    substitute check or, by agreement, information relating to the
    original check (including data taken from the MICR line of the
    original check or an electronic image of the original check),
    whether with or without subsequent delivery of the original
    paper check.
    (19) Uniform commercial code.--The term ``Uniform Commercial
    Code'' means the Uniform Commercial Code in effect in a State.
    (20) Other terms.--Unless the context requires otherwise,
    the terms not defined in this section shall have the same
    meanings as in the Uniform Commercial Code.

    SEC. 4. [NOTE: 12 USC 5003.] GENERAL PROVISIONS GOVERNING SUBSTITUTE
    CHECKS.

    (a) No Agreement Required.--A person may deposit, present, or send
    for collection or return a substitute check without an agreement with
    the recipient, so long as a bank has made the warranties in section 5
    with respect to such substitute check.
    (b) Legal Equivalence.--A substitute check shall be the legal
    equivalent of the original check for all purposes, including any
    provision of any Federal or State law, and for all persons if the
    substitute check--
    (1) accurately represents all of the information on the
    front and back of the original check as of the time the original
    check was truncated; and
    (2) bears the legend: ``This is a legal copy of your check.
    You can use it the same way you would use the original check.''.

    (c) Endorsements.--A bank shall ensure that the substitute check for
    which the bank is the reconverting bank bears all endorsements applied
    by parties that previously handled the check (whether in electronic form
    or in the form of the original paper check or a substitute check) for
    forward collection or return.
    (d) Identification of Reconverting Bank.--A bank shall identify
    itself as a reconverting bank on any substitute check for which the bank
    is a reconverting bank so as to preserve any

    [[Page 1181]]
    117 STAT. 1181

    previous reconverting bank identifications in conformance with generally
    applicable industry standards.
    (e) Applicable Law.--A substitute check that is the legal equivalent
    of the original check under subsection (b) shall be subject to any
    provision, including any provision relating to the protection of
    customers, of part 229 of title 12 of the Code of Federal Regulations,
    the Uniform Commercial Code, and any other applicable Federal or State
    law as if such substitute check were the original check, to the extent
    such provision of law is not inconsistent with this Act.

    SEC. 5. [NOTE: 12 USC 5004.] SUBSTITUTE CHECK WARRANTIES.

    A bank that transfers, presents, or returns a substitute check and
    receives consideration for the check warrants, as a matter of law, to
    the transferee, any subsequent collecting or returning bank, the
    depositary bank, the drawee, the drawer, the payee, the depositor, and
    any endorser (regardless of whether the warrantee receives the
    substitute check or another paper or electronic form of the substitute
    check or original check) that--
    (1) the substitute check meets all the requirements for
    legal equivalence under section 4(b); and
    (2) no depositary bank, drawee, drawer, or endorser will
    receive presentment or return of the substitute check, the
    original check, or a copy or other paper or electronic version
    of the substitute check or original check such that the bank,
    drawee, drawer, or endorser will be asked to make a payment
    based on a check that the bank, drawee, drawer, or endorser has
    already paid.

    SEC. 6. [NOTE: 12 USC 5005.] INDEMNITY.

    (a) Indemnity.--A reconverting bank and each bank that subsequently
    transfers, presents, or returns a substitute check in any electronic or
    paper form, and receives consideration for such transfer, presentment,
    or return shall indemnify the transferee, any subsequent collecting or
    returning bank, the depositary bank, the drawee, the drawer, the payee,
    the depositor, and any endorser, up to the amount described in
    subsections (b) and (c), as applicable, to the extent of any loss
    incurred by any recipient of a substitute check if that loss occurred
    due to the receipt of a substitute check instead of the original check.
    (b) Indemnity Amount.--
    (1) Amount in event of breach of warranty.--The amount of
    the indemnity under subsection (a) shall be the amount of any
    loss (including costs and reasonable attorney's fees and other
    expenses of representation) proximately caused by a breach of a
    warranty provided under section 5.
    (2) Amount in absence of breach of warranty.--In the absence
    of a breach of a warranty provided under section 5, the amount
    of the indemnity under subsection (a) shall be the sum of--
    (A) the amount of any loss, up to the amount of the
    substitute check; and
    (B) interest and expenses (including costs and
    reasonable attorney's fees and other expenses of
    representation).

    (c) Comparative Negligence.--
    (1) In general.--If a loss described in subsection (a)
    results in whole or in part from the negligence or failure to
    act in good faith on the part of an indemnified party, then that

    [[Page 1182]]
    117 STAT. 1182

    party's indemnification under this section shall be reduced in
    proportion to the amount of negligence or bad faith attributable
    to that party.
    (2) Rule of construction.--Nothing in this subsection
    reduces the rights of a consumer or any other person under the
    Uniform Commercial Code or other applicable provision of Federal
    or State law.

    (d) Effect of Producing Original Check or Copy.--
    (1) In general.--If the indemnifying bank produces the
    original check or a copy of the original check (including an
    image or a substitute check) that accurately represents all of
    the information on the front and back of the original check (as
    of the time the original check was truncated) or is otherwise
    sufficient to determine whether or not a claim is valid, the
    indemnifying bank shall--
    (A) be liable under this section only for losses
    covered by the indemnity that are incurred up to the
    time that the original check or copy is provided to the
    indemnified party; and
    (B) have a right to the return of any funds it has
    paid under the indemnity in excess of those losses.
    (2) Coordination of indemnity with implied warranty.--The
    production of the original check, a substitute check, or a copy
    under paragraph (1) by an indemnifying bank shall not absolve
    the bank from any liability on a warranty established under this
    Act or any other provision of law.

    (e) Subrogation of Rights.--
    (1) In general.--Each indemnifying bank shall be subrogated
    to the rights of any indemnified party to the extent of the
    indemnity.
    (2) Recovery under warranty.--A bank that indemnifies a
    party under this section may attempt to recover from another
    party based on a warranty or other claim.
    (3) Duty of indemnified party.--Each indemnified party shall
    have a duty to comply with all reasonable requests for
    assistance from an indemnifying bank in connection with any
    claim the indemnifying bank brings against a warrantor or other
    party related to a check that forms the basis for the
    indemnification.

    SEC. 7. [NOTE: 12 USC 5006.] EXPEDITED RECREDIT FOR CONSUMERS.

    (a) Recredit Claims.--
    (1) In general.--A consumer may make a claim for expedited
    recredit from the bank that holds the account of the consumer
    with respect to a substitute check, if the consumer asserts in
    good faith that--
    (A) the bank charged the consumer's account for a
    substitute check that was provided to the consumer;
    (B) either--
    (i) the check was not properly charged to the
    consumer's account; or
    (ii) the consumer has a warranty claim with
    respect to such substitute check;
    (C) the consumer suffered a resulting loss; and
    (D) the production of the original check or a better
    copy of the original check is necessary to determine the
    validity of any claim described in subparagraph (B).

    [[Page 1183]]
    117 STAT. 1183

    (2) 40-day period.--Any claim under paragraph (1) with
    respect to a consumer account may be submitted by a consumer
    before the end of the 40-day period beginning on the later of--
    (A) the date on which the financial institution
    mails or delivers, by a means agreed to by the consumer,
    the periodic statement of account for such account which
    contains information concerning the transaction giving
    rise to the claim; or
    (B) the date on which the substitute check is made
    available to the consumer.
    (3) Extension under extenuating circumstances.--If the
    ability of the consumer to submit the claim within the 40-day
    period under paragraph (2) is delayed due to extenuating
    circumstances, including extended travel or the illness of the
    consumer, the 40-day period shall be extended by a reasonable
    amount of time.

    (b) Procedures for Claims.--
    (1) In general.--To make a claim for an expedited recredit
    under subsection (a) with respect to a substitute check, the
    consumer shall provide to the bank that holds the account of
    such consumer--
    (A) a description of the claim, including an
    explanation of--
    (i) why the substitute check was not properly
    charged to the consumer's account; or
    (ii) the warranty claim with respect to such
    check;
    (B) a statement that the consumer suffered a loss
    and an estimate of the amount of the loss;
    (C) the reason why production of the original check
    or a better copy of the original check is necessary to
    determine the validity of the charge to the consumer's
    account or the warranty claim; and
    (D) sufficient information to identify the
    substitute check and to investigate the claim.
    (2) Claim in writing.--
    (A) In general.--The bank holding the consumer
    account that is the subject of a claim by the consumer
    under subsection (a) may, in the discretion of the bank,
    require the consumer to submit the information required
    under paragraph (1) in writing.
    (B) Means of submission.--A bank that requires a
    submission of information under subparagraph (A) may
    permit the consumer to make the submission
    electronically, if the consumer has agreed to
    communicate with the bank in that manner.

    (c) Recredit to Consumer.--
    (1) Conditions for recredit.--The bank shall recredit a
    consumer account in accordance with paragraph (2) for the amount
    of a substitute check that was charged against the consumer
    account if--
    (A) a consumer submits a claim to the bank with
    respect to that substitute check that meets the
    requirement of subsection (b); and
    (B) the bank has not--
    (i) provided to the consumer--
    (I) the original check; or

    [[Page 1184]]
    117 STAT. 1184

    (II) a copy of the original check
    (including an image or a substitute
    check) that accurately represents all of
    the information on the front and back of
    the original check, as of the time at
    which the original check was truncated;
    and
    (ii) demonstrated to the consumer that the
    substitute check was properly charged to the
    consumer account.
    (2) Timing of recredit.--
    (A) In general.--The bank shall recredit the
    consumer's account for the amount described in paragraph
    (1) no later than the end of the business day following
    the business day on which the bank determines the
    consumer's claim is valid.
    (B) Recredit pending investigation.--If the bank has
    not yet determined that the consumer's claim is valid
    before the end of the 10th business day after the
    business day on which the consumer submitted the claim,
    the bank shall recredit the consumer's account for--
    (i) the lesser of the amount of the substitute
    check that was charged against the consumer
    account, or $2,500, together with interest if the
    account is an interest-bearing account, no later
    than the end of such 10th business day; and
    (ii) the remaining amount of the substitute
    check that was charged against the consumer
    account, if any, together with interest if the
    account is an interest-bearing account, not later
    than the 45th calendar day following the business
    day on which the consumer submits the claim.

    (d) Availability of Recredit.--
    (1) Next business day availability.--Except as provided in
    paragraph (2), a bank that provides a recredit to a consumer
    account under subsection (c) shall make the recredited funds
    available for withdrawal by the consumer by the start of the
    next business day after the business day on which the bank
    recredits the consumer's account under subsection (c).
    (2) Safeguard exceptions.--A bank may delay availability to
    a consumer of a recredit provided under subsection (c)(2)(B)(i)
    until the start of either the business day following the
    business day on which the bank determines that the consumer's
    claim is valid or the 45th calendar day following the business
    day on which the consumer submits a claim for such recredit in
    accordance with subsection (b), whichever is earlier, in any of
    the following circumstances:
    (A) New accounts.--The claim is made during the 30-
    day period beginning on the business day the consumer
    account was established.
    (B) Repeated overdrafts.--Without regard to the
    charge that is the subject of the claim for which the
    recredit was made--
    (i) on 6 or more business days during the 6-
    month period ending on the date on which the
    consumer submits the claim, the balance in the
    consumer account was negative or would have become
    negative if checks or other charges to the account
    had been paid; or

    [[Page 1185]]
    117 STAT. 1185

    (ii) on 2 or more business days during such 6-
    month period, the balance in the consumer account
    was negative or would have become negative in the
    amount of $5,000 or more if checks or other
    charges to the account had been paid.
    (C) Prevention of fraud losses.--The bank has
    reasonable cause to believe that the claim is
    fraudulent, based on facts (other than the fact that the
    check in question or the consumer is of a particular
    class) that would cause a well-grounded belief in the
    mind of a reasonable person that the claim is
    fraudulent.
    (3) Overdraft fees.--No bank that, in accordance with
    paragraph (2), delays the availability of a recredit under
    subsection (c) to any consumer account may impose any overdraft
    fees with respect to drafts drawn by the consumer on such
    recredited amount before the end of the 5-day period beginning
    on the date notice of the delay in the availability of such
    amount is sent by the bank to the consumer.

    (e) Reversal of Recredit.--A bank may reverse a recredit to a
    consumer account if the bank--
    (1) determines that a substitute check for which the bank
    recredited a consumer account under subsection (c) was in fact
    properly charged to the consumer account; and
    (2) notifies the consumer in accordance with subsection
    (f)(3).

    (f) Notice to Consumer.--
    (1) Notice if consumer claim not valid.--If a bank
    determines that a substitute check subject to the consumer's
    claim was in fact properly charged to the consumer's account,
    the bank shall send to the consumer, no later than the business
    day following the business day on which the bank makes a
    determination--
    (A) the original check or a copy of the original
    check (including an image or a substitute check) that--
    (i) accurately represents all of the
    information on the front and back of the original
    check (as of the time the original check was
    truncated); or
    (ii) is otherwise sufficient to determine
    whether or not the consumer's claim is valid; and
    (B) an explanation of the basis for the
    determination by the bank that the substitute check was
    properly charged, including a statement that the
    consumer may request copies of any information or
    documents on which the bank relied in making the
    determination.
    (2) Notice of recredit.--If a bank recredits a consumer
    account under subsection (c), the bank shall send to the
    consumer, no later than the business day following the business
    day on which the bank makes the recredit, a notice of--
    (A) the amount of the recredit; and
    (B) the date the recredited funds will be available
    for withdrawal.
    (3) Notice of reversal of recredit.--In addition to the
    notice required under paragraph (1), if a bank reverses a
    recredited amount under subsection (e), the bank shall send to
    the consumer, no later than the business day following the
    business day on which the bank reverses the recredit, a notice
    of--
    (A) the amount of the reversal; and

    [[Page 1186]]
    117 STAT. 1186

    (B) the date the recredit was reversed.
    (4) Mode of delivery.--A notice described in this subsection
    shall be delivered by United States mail or by any other means
    through which the consumer has agreed to receive account
    information.

    (g) Other Claims Not Affected.--Providing a recredit in accordance
    with this section shall not absolve the bank from liability for a claim
    made under any other law, such as a claim for wrongful dishonor under
    the Uniform Commercial Code, or from liability for additional damages
    under section 6 or 10.
    (h) Clarification Concerning Consumer Possession.--A consumer who
    was provided a substitute check may make a claim for an expedited
    recredit under this section with regard to a transaction involving the
    substitute check whether or not the consumer is in possession of the
    substitute check.
    (i) Scope of Application.--This [NOTE: Applicability.] section
    shall only apply to customers who are consumers.

    SEC. 8. [NOTE: 12 USC 5007.] EXPEDITED RECREDIT PROCEDURES FOR BANKS.

    (a) Recredit Claims.--
    (1) In general.--A bank may make a claim against an
    indemnifying bank for expedited recredit for which that bank is
    indemnified if--
    (A) the claimant bank (or a bank that the claimant
    bank has indemnified) has received a claim for expedited
    recredit from a consumer under section 7 with respect to
    a substitute check or would have been subject to such a
    claim had the consumer's account been charged;
    (B) the claimant bank has suffered a resulting loss
    or is obligated to recredit a consumer account under
    section 7 with respect to such substitute check; and
    (C) production of the original check, another
    substitute check, or a better copy of the original check
    is necessary to determine the validity of the charge to
    the customer account or any warranty claim connected
    with such substitute check.
    (2) 120-day period.--Any claim under paragraph (1) may be
    submitted by the claimant bank to an indemnifying bank before
    the end of the 120-day period beginning on the date of the
    transaction that gave rise to the claim.

    (b) Procedures for Claims.--
    (1) In general.--To make a claim under subsection (a) for an
    expedited recredit relating to a substitute check, the claimant
    bank shall send to the indemnifying bank--
    (A) a description of--
    (i) the claim, including an explanation of why
    the substitute check cannot be properly charged to
    the consumer account; or
    (ii) the warranty claim;
    (B) a statement that the claimant bank has suffered
    a loss or is obligated to recredit the consumer's
    account under section 7, together with an estimate of
    the amount of the loss or recredit;
    (C) the reason why production of the original check,
    another substitute check, or a better copy of the
    original check is necessary to determine the validity of
    the charge to the consumer account or the warranty
    claim; and

    [[Page 1187]]
    117 STAT. 1187

    (D) information sufficient for the indemnifying bank
    to identify the substitute check and to investigate the
    claim.
    (2) Requirements relating to copies of substitute checks.--
    If the information submitted by a claimant bank pursuant to
    paragraph (1) in connection with a claim for an expedited
    recredit includes a copy of any substitute check for which any
    such claim is made, the claimant bank shall take reasonable
    steps to ensure that any such copy cannot be--
    (A) mistaken for the legal equivalent of the check
    under section 4(b); or
    (B) sent or handled by any bank, including the
    indemnifying bank, as a forward collection or returned
    check.
    (3) Claim in writing.--
    (A) In general.--An indemnifying bank may, in the
    discretion of the bank, require the claimant bank to
    submit the information required by paragraph (1) in
    writing, including a copy of the written or
    electronically submitted claim, if any, that the
    consumer provided in accordance with section 7(b).
    (B) Means of submission.--An indemnifying bank that
    requires a submission of information under subparagraph
    (A) may permit the claimant bank to make the submission
    electronically, if the claimant bank has agreed to
    communicate with the indemnifying bank in that manner.

    (c) Recredit by Indemnifying Bank.--
    (1) Prompt action required.--No [NOTE: Deadline.] later
    than 10 business days after the business day on which an
    indemnifying bank receives a claim under subsection (a) from a
    claimant bank with respect to a substitute check, the
    indemnifying bank shall--
    (A) provide, to the claimant bank, the original
    check (with respect to such substitute check) or a copy
    of the original check (including an image or a
    substitute check) that--
    (i) accurately represents all of the
    information on the front and back of the original
    check (as of the time the original check was
    truncated); or
    (ii) is otherwise sufficient to determine the
    bank's claim is not valid; and
    (B) recredit the claimant bank for the amount of the
    claim up to the amount of the substitute check, plus
    interest if applicable; or
    (C) provide information to the claimant bank as to
    why the indemnifying bank is not obligated to comply
    with subparagraph (A) or (B).
    (2) Recredit does not abrogate other liabilities.--Providing
    a recredit under this subsection to a claimant bank with respect
    to a substitute check shall not absolve the indemnifying bank
    from liability for claims brought under any other law or from
    additional damages under section 6 or 10 with respect to such
    check.
    (3) Refund to indemnifying bank.--If a claimant bank
    reverses, in accordance with section 7(e), a recredit previously
    made to a consumer account under section 7(c), or otherwise
    receives a credit or recredit with regard to such substitute

    [[Page 1188]]
    117 STAT. 1188

    check, the claimant bank shall promptly refund to any
    indemnifying bank any amount previously advanced by the
    indemnifying bank in connection with such substitute check.

    (d) Production of Original Check or a Sufficient Copy Governed by
    Section 6(d).--If the indemnifying bank provides the claimant bank with
    the original check or a copy of the original check (including an image
    or a substitute check) under subsection (c)(1)(A), section 6(d) shall
    govern any right of the indemnifying bank to any repayment of any funds
    the indemnifying bank has recredited to the claimant bank pursuant to
    subsection (c).

    SEC. 9. [NOTE: 12 USC 5008.] DELAYS IN AN EMERGENCY.

    A delay by a bank beyond the time limits prescribed or permitted by
    this Act shall be excused if the delay is caused by interruption of
    communication or computer facilities, suspension of payments by another
    bank, war, emergency conditions, failure of equipment, or other
    circumstances beyond the control of a bank and if the bank uses such
    diligence as the circumstances require.

    SEC. 10. [NOTE: 12 USC 5009.] MEASURE OF DAMAGES.

    (a) Liability.--
    (1) In general.--Except as provided in section 6, any person
    who, in connection with a substitute check, breaches any
    warranty under this Act or fails to comply with any requirement
    imposed by, or regulation prescribed pursuant to, this Act with
    respect to any other person shall be liable to such person in an
    amount equal to the sum of--
    (A) the lesser of--
    (i) the amount of the loss suffered by the
    other person as a result of the breach or failure;
    or
    (ii) the amount of the substitute check; and
    (B) interest and expenses (including costs and
    reasonable attorney's fees and other expenses of
    representation) related to the substitute check.
    (2) Offset of recredits.--The amount of damages any person
    receives under paragraph (1), if any, shall be reduced by the
    amount, if any, that the claimant receives and retains as a
    recredit under section 7 or 8.

    (b) Comparative Negligence.--
    (1) In general.--If a person incurs damages that resulted in
    whole or in part from the negligence or failure of that person
    to act in good faith, then the amount of any liability due to
    that person under subsection (a) shall be reduced in proportion
    to the amount of negligence or bad faith attributable to that
    person.
    (2) Rule of construction.--Nothing in this subsection
    reduces the rights of a consumer or any other person under the
    Uniform Commercial Code or other applicable provision of Federal
    or State law.

    SEC. 11. [NOTE: 12 USC 5010.] STATUTE OF LIMITATIONS AND NOTICE OF
    CLAIM.

    (a) Actions Under This Act.--
    (1) In general.--An action to enforce a claim under this Act
    may be brought in any United States district court, or in any
    other court of competent jurisdiction, before the end of the 1-
    year period beginning on the date the cause of action accrues.

    [[Page 1189]]
    117 STAT. 1189

    (2) Accrual.--A cause of action accrues as of the date the
    injured party first learns, or by which such person reasonably
    should have learned, of the facts and circumstances giving rise
    to the cause of action.

    (b) Discharge of Claims.--Except as provided in subsection (c),
    unless a person gives notice of a claim to the indemnifying or
    warranting bank within 30 days after the person has reason to know of
    the claim and the identity of the indemnifying or warranting bank, the
    indemnifying or warranting bank is discharged from liability in an
    action to enforce a claim under this Act to the extent of any loss
    caused by the delay in giving notice of the claim.
    (c) Notice of Claim by Consumer.--A timely claim by a consumer under
    section 7 for expedited recredit constitutes timely notice of a claim by
    the consumer for purposes of subsection (b).

    SEC. 12. [NOTE: Notice. 12 USC 5011.] CONSUMER AWARENESS.

    (a) In General.--Each bank shall provide, in accordance with
    subsection (b), a brief notice about substitute checks that describes--
    (1) how a substitute check is the legal equivalent of an
    original check for all purposes, including any provision of any
    Federal or State law, and for all persons, if the substitute
    check--
    (A) accurately represents all of the information on
    the front and back of the original check as of the time
    at which the original check was truncated; and
    (B) bears the legend: ``This is a legal copy of your
    check. You can use it in the same way you would use the
    original check.''; and
    (2) the consumer recredit rights established under section 7
    when a consumer believes in good faith that a substitute check
    was not properly charged to the account of the consumer.

    (b) Distribution.--
    (1) Existing customers.--With respect to consumers who are
    customers of a bank on the effective date of this Act and who
    receive original checks or substitute checks, a bank shall
    provide the notice described in subsection (a) to each such
    consumer no later than the first regularly scheduled
    communication with the consumer after the effective date of this
    Act.
    (2) New account holders.--A bank shall provide the notice
    described in subsection (a) to each consumer who will receive
    original checks or substitute checks, other than existing
    customers referred to in paragraph (1), at the time at which the
    customer relationship is initiated.
    (3) Mode of delivery.--A bank may send the notices required
    by this subsection by United States mail or by any other means
    through which the consumer has agreed to receive account
    information.
    (4) Consumers who request copies of checks.--Notice shall be
    provided to each consumer of the bank that requests a copy of a
    check and receives a substitute check, at the time of the
    request.

    (c) Model Language.--
    (1) In general.--Before [NOTE: Deadline. Publication.] the
    end of the 9-month period beginning on the date of the enactment
    of this Act, the Board

    [[Page 1190]]
    117 STAT. 1190

    shall publish model forms and clauses that a bank may use to
    describe each of the elements required by subsection (a).
    (2) Safe harbor.--
    (A) In general.--A bank shall be treated as being in
    compliance with the requirements of subsection (a) if
    the bank's substitute check notice uses a model form or
    clause published by the Board and such model form or
    clause accurately describes the bank's policies and
    practices.
    (B) Deletion or rearrangement.--A bank may delete
    any information in the model form or clause that is not
    required by this Act or rearrange the format.
    (3) Use of model language not required.--This section shall
    not be construed as requiring any bank to use a model form or
    clause that the Board prepares under this subsection.

    SEC. 13. [NOTE: 12 USC 5012.] EFFECT ON OTHER LAW.

    This Act shall supersede any provision of Federal or State law,
    including the Uniform Commercial Code, that is inconsistent with this
    Act, but only to the extent of the inconsistency.

    SEC. 14. [NOTE: 12 USC 5013.] VARIATION BY AGREEMENT.

    (a) Section 8.--Any provision of section 8 may be varied by
    agreement of the banks involved.
    (b) No Other Provisions May Be Varied.--Except as provided in
    subsection (a), no provision of this Act may be varied by agreement of
    any person or persons.

    SEC. 15. [NOTE: 12 USC 5014.] REGULATIONS.

    The Board may prescribe such regulations as the Board determines to
    be necessary to implement, prevent circumvention or evasion of, or
    facilitate compliance with the provisions of this Act.

    SEC. 16. [NOTE: 12 USC 5015.] STUDY AND REPORT ON FUNDS AVAILABILITY.

    (a) Study.--In order to evaluate the implementation and the impact
    of this Act, the Board shall conduct a study of--
    (1) the percentage of total checks cleared in which the
    paper check is not returned to the paying bank;
    (2) the extent to which banks make funds available to
    consumers for local and nonlocal checks prior to the expiration
    of maximum hold periods;
    (3) the length of time within which depositary banks learn
    of the nonpayment of local and nonlocal checks;
    (4) the increase or decrease in check-related losses over
    the study period; and
    (5) the appropriateness of the time periods and amount
    limits applicable under sections 603 and 604 of the Expedited
    Funds Availability Act, as in effect on the date of enactment of
    this Act.

    (b) Report to Congress.--Before [NOTE: Deadline.] the end of the
    30-month period beginning on the effective date of this Act, the Board
    shall submit a report to the Congress containing the results of the
    study conducted under this section, together with recommendations for
    legislative action.

    [[Page 1191]]
    117 STAT. 1191

    SEC. 17. [NOTE: 12 USC 5016.] STATISTICAL REPORTING OF COSTS AND
    REVENUES FOR TRANSPORTING CHECKS BETWEEN RESERVE BANKS.

    In the annual report prepared by the Board for the first full
    calendar year after the date of enactment of this Act and in each of the
    9 subsequent annual reports by the Board, the Board shall include the
    amount of operating costs attributable to, and an estimate of the
    Federal Reserve banks' imputed revenues derived from, the transportation
    of commercial checks between Federal Reserve bank check processing
    centers.

    SEC. 18. [NOTE: 12 USC 5017. Effective date.] EVALUATION AND REPORT BY
    THE COMPTROLLER GENERAL.

    (a) Study.--During the 5-year period beginning on the date of the
    enactment of this Act, the Comptroller General of the United States
    shall evaluate the implementation and administration of this Act,
    including--
    (1) an estimate of the gains in economic efficiency made
    possible from check truncation;
    (2) an evaluation of the benefits accruing to consumers and
    financial institutions from reduced transportation costs, longer
    hours for accepting deposits for credit within 1 business day,
    the impact of fraud losses, and an estimate of consumers' share
    of the total benefits derived from this Act; and
    (3) an assessment of consumer acceptance of the check
    truncation process resulting from this Act, as well as any new
    costs incurred by consumers who had their original checks
    returned with their regular monthly statements prior to the date
    of enactment of this Act.

    (b) Report to Congress.--Before [NOTE: Deadline.] the end of the
    5-year period referred to in subsection (a), the Comptroller General
    shall submit a report to the Congress containing the findings and
    conclusions of the Comptroller General in connection with the evaluation
    conducted pursuant to subsection (a), together with such recommendations
    for legislative and administrative action as the Comptroller General may
    determine to be appropriate.

    SEC. 19. [NOTE: 12 USC 5018.] DEPOSITARY SERVICES EFFICIENCY AND COST
    REDUCTION.

    (a) Findings.--The Congress finds as follows:
    (1) The Secretary of the Treasury has long compensated
    financial institutions for various critical depositary and
    financial agency services provided for or on behalf of the
    United States by--
    (A) placing large balances, commonly referred to as
    ``compensating balances'', on deposit at such
    institutions; and
    (B) using imputed interest on such funds to offset
    charges for the various depositary and financial agency
    services provided to or on behalf of the Government.
    (2) As a result of sharp declines in interest rates over the
    last few years to record low levels, or the public debt
    outstanding reaching the statutory debt limit, the Department of
    the Treasury often has had to dramatically increase or decrease
    the size of the compensating balances on deposit at these
    financial institutions.
    (3) The fluctuation of the compensating balances, and the
    necessary pledging of collateral by financial institutions to
    secure the value of compensating balances placed with those
    institutions, have created unintended financial uncertainty for

    [[Page 1192]]
    117 STAT. 1192

    the Secretary of the Treasury and for the management by
    financial institutions of their cash and securities.
    (4) It is imperative that the process for providing
    financial services to the Government be transparent, and provide
    the information necessary for the Congress to effectively
    exercise its appropriation and oversight responsibilities.
    (5) The use of direct payment for services rendered would
    strengthen cash and debt management responsibilities of the
    Secretary of the Treasury because the Secretary would no longer
    need to dramatically increase or decrease the level of such
    balances when interest rates fluctuate sharply or when the
    public debt outstanding reaches the statutory debt limit.
    (6) An alternative to the use of compensating balances, such
    as direct payments to financial institutions, would ensure that
    payments to financial institutions for the services they provide
    would be made in a more predictable manner and could result in
    cost savings.
    (7) Limiting the use of compensating balances could result
    in a more direct and cost-efficient method of obtaining those
    services currently provided under compensating balance
    arrangements.
    (8) A transition from the use of compensating balances to
    another compensation method must be carefully managed to prevent
    higher-than-necessary transitional costs and enable
    participating financial institutions to modify their planned
    investment of cash and securities.

    (b) Authorization of Appropriations For Services Rendered by
    Depositaries and Financial Agencies of the United States.--There are
    authorized to be appropriated for fiscal years beginning after fiscal
    year 2003 to the Secretary of the Treasury such sums as may be necessary
    for reimbursing financial institutions in their capacity as depositaries
    and financial agents of the United States for all services required or
    directed by the Secretary of the Treasury, or a designee of the
    Secretary, to be performed by such financial institutions on behalf of
    the Secretary of the Treasury or another Federal agency, including
    services rendered before fiscal year 2004.
    (c) Orderly Transition.--
    (1) In general.--As appropriations authorized in subsection
    (b) become available, the Secretary of the Treasury shall
    promptly begin the process of phasing in the use of the
    appropriations to pay financial institutions serving as
    depositaries and financial agents of the United States, and
    transitioning from the use of compensating balances to fund
    these services.
    (2) Post-transition use limited to extraordinary
    circumstances.--
    (A) In general.--Following the transition to the use
    of the appropriations authorized in subsection (b), the
    Secretary of the Treasury may use the compensating
    balances to pay financial institutions serving as
    depositaries and financial agents of the United States
    only in extraordinary situations where the Secretary
    determines that they are needed to ensure the fiscal
    operations of the Government continue to function in an
    efficient and effective manner.
    (B) Report.--Any use of compensating balances
    pursuant to subparagraph (A) shall promptly be reported
    by

    [[Page 1193]]
    117 STAT. 1193

    the Secretary of the Treasury to the Committee on
    Financial Services of the House of Representatives and
    the Committee on Banking, Housing, and Urban Affairs of
    the Senate.
    (3) Requirements for orderly transition.--In transitioning
    to the use of the appropriations authorized in subsection (b),
    the Secretary of the Treasury shall take such steps as may be
    appropriate to--
    (A) prevent abrupt financial disruption to the
    functions of the Department of the Treasury or to the
    participating financial institutions; and
    (B) maintain adequate accounting and management
    controls to ensure that payments to financial
    institutions for their banking services provided to the
    Government as depositaries and financial agents are
    accurate and that the arrangements last no longer than
    is necessary.
    (4) Reports required.--
    (A) Annual report.--
    (i) In general.--For [NOTE: Deadlines.] each
    fiscal year, the Secretary of the Treasury shall
    submit a report to the Congress on the use of
    compensating balances and on the use of
    appropriations authorized in subsection (b) during
    that fiscal year.
    (ii) Inclusion in budget.--The report required
    under clause (i) may be submitted as part of the
    budget submitted by the President under section
    1105 of title 31, United States Code, for the
    following fiscal year and if so, the report shall
    be submitted concurrently to the Committee on
    Financial Services of the House of Representatives
    and the Committee on Banking, Housing, and Urban
    Affairs of the Senate.
    (B) Final report following transition.--
    (i) In general.--Following completion of the
    transition from the use of compensating balances
    to the use of the appropriations authorized in
    subsection (b) to pay financial institutions for
    their services as depositaries and financial
    agents of the United States, the Secretary of the
    Treasury shall submit a report on the transition
    to the Committee on Financial Services of the
    House of Representatives and the Committee on
    Banking, Housing, and Urban Affairs of the Senate.
    (ii) Contents of report.--The report submitted
    under clause (i) shall include a detailed analysis
    of--
    (I) the cost of transition;
    (II) the direct costs of the
    services being paid from the
    appropriations authorized in subsection
    (b); and
    (III) the benefits realized from the
    use of direct payment for such services,
    rather than the use of compensating
    balance arrangements.

    (d) Technical Amendment.--The second undesignated paragraph of
    section 16 of the Federal Reserve Act (12 U.S.C. 412) is amended--
    (1) in the third sentence, by inserting ``or any other asset
    of a Federal reserve bank'' before the period at the end; and
    (2) in the last sentence, by inserting ``, or are otherwise
    held by or on behalf of,'' after ``in the vaults of''.

    [[Page 1194]]
    117 STAT. 1194

    (e) Effective Date.--Notwithstanding section 20, this section shall
    take effect on the date of the enactment of this Act.

    SEC. 20. [NOTE: 12 USC 5001 note.] EFFECTIVE DATE.

    This Act shall take effect at the end of the 12-month period
    beginning on the date of the enactment of this Act, except as otherwise
    specifically provided in this Act.

    Approved October 28, 2003.

    LEGISLATIVE HISTORY--H.R. 1474 (S. 1334):
    ---------------------------------------------------------------------------

    HOUSE REPORTS: Nos. 108-132 (Comm. on Financial Services) and 108-291
    (Comm. of Conference).
    SENATE REPORTS: No. 108-79 accompanying S. 1334 (Comm. on Banking,
    Housing, and Urban Affairs).
    CONGRESSIONAL RECORD, Vol. 149 (2003):
    June 5, considered and passed House.
    June 26, considered and passed Senate, amended, in lieu of
    S. 1334.
    Oct. 8, House agreed to conference report.
    Oct. 15, Senate agreed to conference report.
    WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 39 (2003):
    Oct. 28, Presidential statement.