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pdfFederal Reserve System
Pt. 229
Bank of llll (address) an announcement
of applications covered by the CRA filed by
bank holding companies.
(b) Notice for branch offices.
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COMMUNITY REINVESTMENT ACT NOTICE
Under the Federal Community Reinvestment Act (CRA), the Federal Reserve Board
(Board) evaluates our record of helping to
meet the credit needs of this community
consistent with safe and sound operations.
The Board also takes this record into account when deciding on certain applications
submitted by us.
Your involvement is encouraged.
You are entitled to certain information
about our operations and our performance
under the CRA. You may review today the
public section of our most recent CRA evaluation, prepared by the Federal Reserve
Bank of llll (address), and a list of services provided at this branch. You may also
have access to the following additional information, which we will make available to you
at this branch within five calendar days
after you make a request to us: (1) a map
showing the assessment area containing this
branch, which is the area in which the Board
evaluates our CRA performance in this community; (2) information about our branches
in this assessment area; (3) a list of services
we provide at those locations; (4) data on our
lending performance in this assessment area;
and (5) copies of all written comments received by us that specifically relate to our
CRA performance in this assessment area,
and any responses we have made to those
comments. If we are operating under an approved strategic plan, you may also have access to a copy of the plan.
[If you would like to review information
about our CRA performance in other communities served by us, the public file for our entire bank is available at (name of office located in state), located at (address).]
At least 30 days before the beginning of
each quarter, the Federal Reserve System
publishes a list of the banks that are scheduled for CRA examination by the Reserve
Bank in that quarter. This list is available
from (title of responsible official), Federal
Reserve Bank of llll (address). You may
send written comments about our performance in helping to meet community credit
needs to (name and address of official at
bank) and (title of responsible official), Federal Reserve Bank of llll (address). Your
letter, together with any response by us, will
be considered by the Federal Reserve System
in evaluating our CRA performance and may
be made public.
You may ask to look at any comments received by the Reserve Bank. You may also
request from the Reserve Bank an announcement of our applications covered by the CRA
filed with the Reserve Bank. We are an affiliate of (name of holding company), a bank
holding company. You may request from
(title of responsible official), Federal Reserve
Bank of llll (address) an announcement
of applications covered by the CRA filed by
bank holding companies.
[Reg. BB, 60 FR 22200, May 4, 1995]
PART 229—AVAILABILITY OF FUNDS
AND COLLECTION OF CHECKS
(REGULATION CC)
Subpart A—General
Sec.
229.1
229.2
229.3
Authority and purpose; organization.
Definitions.
Administrative enforcement.
Subpart B—Availability of Funds and
Disclosure of Funds Availability Policies
229.10 Next-day availability.
229.11 [Reserved]
229.12 Availability schedule.
229.13 Exceptions.
229.14 Payment of interest.
229.15 General disclosure requirements.
229.16 Specific availability policy disclosure.
229.17 Initial disclosures.
229.18 Additional disclosure requirements.
229.19 Miscellaneous.
229.20 Relation to state law.
229.21 Civil liability.
Subpart C—Collection of Checks
229.30 Paying bank’s responsibility for return of checks.
229.31 Returning bank’s responsibility for
return of checks.
229.32 Depositary bank’s responsibility for
returned checks.
229.33 Notice of nonpayment.
229.34 Warranties.
229.35 Indorsements.
229.36 Presentment and issuance of checks.
229.37 Variation by agreement.
229.38 Liability.
229.39 Insolvency of bank.
229.40 Effect of merger transaction.
229.41 Relation to State law.
229.42 Exclusions.
229.43 Checks payable in Guam, American
Samoa, and the Northern Mariana Islands.
Subpart D—Substitute Checks
229.51 General provisions governing substitute checks.
229.52 Substitute check warranties.
229.53 Substitute check indemnity.
229.54 Expedited recredit for consumers.
229.55 Expedited recredit for banks.
229.56 Liability.
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§ 229.1
12 CFR Ch. II (1–1–18 Edition)
229.57 Consumer awareness.
229.58 Mode of delivery of information.
229.59 Relation to other law.
229.60 Variation by agreement.
APPENDIX A TO PART 229—ROUTING NUMBER
GUIDE TO NEXT-DAY AVAILABILITY CHECKS
AND LOCAL CHECKS
APPENDIX B TO PART 229 [RESERVED]
APPENDIX C TO PART 229—MODEL AVAILABILITY POLICY DISCLOSURES, CLAUSES,
AND NOTICES; MODEL SUBSTITUTE CHECK
POLICY DISCLOSURE AND NOTICES
APPENDIX D TO PART 229—INDORSEMENT, RECONVERTING BANK IDENTIFICATION, AND
TRUNCATING BANK IDENTIFICATION STANDARDS
APPENDIX E TO PART 229—COMMENTARY
APPENDIX F TO PART 229—OFFICIAL BOARD INTERPRETATIONS; PREEMPTION DETERMINATIONS
AUTHORITY: 12 U.S.C. 4001–4010, 12 U.S.C.
5001–5018.
SOURCE: 53 FR 19433, May 27, 1988, unless
otherwise noted.
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Subpart A—General
§ 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. 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, notification of
nonpayment by the paying bank,
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.
[53 FR 19433, May 27, 1988, as amended at 57
FR 36598, Aug. 14, 1992; 57 FR 46972, Oct. 14,
1992; Reg. CC, 60 FR 51670, Oct. 3, 1995; 69 FR
47309, Aug. 4, 2004]
EFFECTIVE DATE NOTE: At 82 FR 27578, June
15, 2017, § 229.1 was amended by revising paragraph (b)(3) and adding paragraphs (b)(5)
through (10), effective July 1, 2018. For the
convenience of the user, the added and revised text is set forth as follows:
§ 229.1
*
Authority and purpose; organization.
*
*
*
*
*
*
*
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(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 B of this part is reserved.
(7) Appendix C of this part contains model
funds-availability policy disclosures, clauses,
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*
(b) * * *
(3) Subpart C of this part contains rules to
expedite the collection and return of checks
and electronic checks by banks. These rules
cover the direct return of checks and electronic checks, the manner in which the paying bank and returning banks must return
checks and electronic checks to the depositary bank, notification of nonpayment by
the paying bank, indorsement and presentment of checks and electronic checks, sameday settlement for certain checks, the liability of banks for failure to comply with subpart C of this part, and other matters.
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Federal Reserve System
§ 229.2
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and notices and a model disclosure and notices related to substitute-check policies.
(8) Appendix D of this part is reserved.
(9) Appendix E of this part contains Board
interpretations,
which
are
labeled‘‘Commentary,’’ of the provisions of
this 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)).
(10) 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.
§ 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 accounts 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 accounts 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 savings deposits or accounts 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) 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.
(c) Automated teller machine or ATM
means an electronic device at which a
natural person may make deposits to
an account by cash or check and perform other account transactions.
(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) Bank means—
(1) An insured bank as defined in section 3 of the Federal Deposit Insurance
Act (12 U.S.C. 18I3) or a bank that is eligible to apply to become an insured
bank under section 5 of that Act (12
U.S.C. 1815);
(2) A mutual savings bank as defined
in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813);
(3) A savings bank as defined in section 3 of the Federal Deposit Insurance
Act (12 U.S.C. 1813);
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§ 229.2
12 CFR Ch. II (1–1–18 Edition)
(4) 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);
(5) A member as defined in section 2 of
the Federal Home Loan Bank Act (12
U.S.C. 1422);
(6) A savings association as defined in
section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813) that is an insured depository institution as defined
in section 3 of that Act (12 U.S.C.
1813(c)(2)) or that is eligible to apply to
become an insured depository institution under section 5 of that Act (12
U.S.C. 1815); or
(7) 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).
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.
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NOTE: 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 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) Check means—
(1) A negotiable demand draft drawn
on or payable through or at an office of
a bank;
(2) A negotiable demand draft drawn
on a Federal Reserve Bank or a Federal
Home Loan Bank;
(3) A negotiable demand draft drawn
on the Treasury of the United States;
(4) A demand draft drawn on a state
government or unit of general local
government that is not payable
through or at a bank;
(5) A United States Postal Service
money order; or
(6) A traveler’s check drawn on or
payable through or at a bank.
(7) The term check includes an original check and a substitute check.
NOTE: The term check does not include a
noncash item or an item payable in a medium other than United States money. A
draft may be a check even though it is described on its face by another term, such as
money order. 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) [Reserved]
(m) Check processing region means the
geographical area served by an office of
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Federal Reserve System
§ 229.2
a Federal Reserve Bank for purposes of
its check processing activities.
(n) Consumer account means any account used primarily for personal, family, or household purposes.
(o) 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.
(p) Electronic payment means a wire
transfer or an ACH credit transfer.
(q) 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.
(r) 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.
(s) Local paying bank means a paying
bank that is located in the same checkprocessing region as the physical location of the branch, contractual branch,
or proprietary ATM of the depositary
bank in which that check was deposited.
(t) 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.
(u) Noncash item means an item that
would otherwise be a check, except
that—
(1) A passbook, certificate, or other
document is attached;
(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 postencoded in magnetic ink with the routing number of the paying bank.
(v) Nonlocal check means a check payable by, through, or at a nonlocal paying bank.
(w) Nonlocal paying bank means a
paying bank that is not a local paying
bank with respect to the depositary
bank.
(x) Nonproprietary ATM means an
ATM that is not a proprietary ATM.
(y) [Reserved]
(z) Paying bank means—
(1) 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;
(2) The bank at which a check is payable and to which it is sent for payment or collection;
(3) The Federal Reserve Bank or Federal Home Loan Bank by which a check
is payable;
(4) 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
(5) The state or unit of general local
government on which a check is drawn
and to which it is sent for payment or
collection.
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.
NOTE: 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.
(aa) Proprietary ATM means an ATM
that is—
(1) Owned or operated by, or operated
exclusively for, the depositary bank;
(2) Located on the premises (including the outside wall) of the depositary
bank; or
(3) Located within 50 feet of the
premises of the depositary bank, and
not identified as being owned or operated by another entity.
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§ 229.2
12 CFR Ch. II (1–1–18 Edition)
If more than one bank meets the
owned or operated criterion of paragraph (aa)(1) of this section, the ATM
is considered proprietary to the bank
that operates it.
(bb) 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.
(cc) 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).
(dd) Routing number means—
(1) The number printed on the face of
a check in fractional form on in ninedigit form; or
(2)
The
number
in
a
bank’s
indorsement in fractional or nine-digit
form.
(ee) 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.
(ff) 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, the Trust
Territory of the Pacific Islands, the
Northern Mariana Islands, and any
other territory of the United States.
(gg) 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.
(hh) 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.
(ii) Uniform Commercial Code, Code, or
U.C.C. means the Uniform Commercial
Code as adopted in a state.
(jj) United States means the states, including the District of Columbia, the
U.S. Virgin Islands, and Puerto Rico.
(kk) 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.
(ll) Wire transfer means an unconditional order to a bank to pay a fixed or
determinable amount of money to a
beneficiary upon receipt or on a day
stated in the order, that is transmitted
by electronic or other means through
Fedwire, the Clearing House Interbank
Payments System, other similar network, between banks, or on the books
of a bank. Wire transfer does not include an electronic fund transfer as defined in section 903(6) of the Electronic
Fund Transfer Act (15 U.S.C. 1693a(6)).
(mm) Fedwire has the same meaning
as that set forth in § 210.26(e) of this
chapter.
(nn) Good faith means honesty in fact
and observance of reasonable commercial standards of fair dealing.
(oo) 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.
(pp) Contractual branch, with respect
to a bank, means a branch of another
bank that accepts a deposit on behalf
of the first bank.
(qq) Claimant bank means a bank that
submits a claim for a recredit for a
substitute check to an indemnifying
bank under § 229.55.
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Federal Reserve System
§ 229.2
(rr) Collecting bank means any bank
handling a check for forward collection, except the paying bank.
(ss) 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.
(tt) Customer means a person having
an account with a bank.
(uu) Indemnifying bank means a bank
that provides an indemnity under
§ 229.53 with respect to a substitute
check.
(vv) 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).
(ww) Original check means the first
paper check issued with respect to a
particular payment transaction.
(xx) 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.
(yy) Person means a natural person,
corporation, unincorporated company,
partnership, government unit or instrumentality, trust, or any other entity or organization.
(zz) 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.
(aaa) 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.
(bbb) 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.
(ccc) 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 electronic representation of the substitute
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31
§ 229.2
12 CFR Ch. II (1–1–18 Edition)
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.
(ddd) 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.
(eee) 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.
(fff) 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.
kpayne on DSK54DXVN1OFR with $$_JOB
[53 FR 19433, May 27, 1988, as amended at 53
FR 31292, Aug. 18, 1988; 53 FR 44324, Nov. 2,
1988; Reg. CC, 54 FR 13850, Apr. 6, 1989; 57 FR
46972, Oct. 14, 1992; 58 FR 2, Jan. 4, 1993; 60 FR
51670, Oct. 3, 1995; 62 FR 13809, Mar. 24, 1997;
69 FR 47309, 47310, Aug. 4, 2004; 70 FR 71225,
Nov. 28, 2005]
EFFECTIVE DATE NOTE: At 82 FR 27578, June
15, 2017, § 229.2 was amended by revising paragraphs (dd), (uu), (vv), and (bbb), and by adding paragraphs (ggg) and (hhh), effective
July 1, 2018. For the convenience of the user,
the added and revised text is set forth as follows:
§ 229.2
*
Definitions.
*
*
*
*
*
*
*
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*
(uu) Indemnifying bank. Indemnifying bank
means—
(1) For the purposes of § 229.34, a bank that
provides an indemnity under § 229.34 with respect to remote deposit capture or an electronically-created item, or
(2) For the purposes of § 229.53, a bank that
provides an indemnity under § 229.53 with respect to a substitute check.
(vv) 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 (unless the Board by
rule or order determines that different
standards apply)—
(1) 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, or
(2) For purposes of subpart C and subpart
D, contained in a record specified for MICR
line data in an electronic check or electronic
returned check in accordance with American
National Standard Specifications for Electronic Exchange of Check Image Data—Domestic, X9.100–187 (hereinafter ANS X9.100—
187).
*
*
*
*
*
(bbb) Copy and sufficient copy. (1) A copy of
an original check means—
(i) Any paper reproduction of an original
check, including a paper printout of an electronic image of the check, a photocopy of
the original check, or a substitute check; or
(ii) Any electronic reproduction of a check
that a recipient has agreed to receive from
the sender instead of a paper reproduction.
(2) 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
844
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*
(dd) Routing number means—
(1) The number printed on the face of a
check in fractional form on in nine-digit
form;
(2) The number in a bank’s indorsement in
fractional or nine-digit form; or
(3) For purposes of subpart C and subpart
D, the bank-identification number contained
in an electronic check or electronic returned
check.
Sfmt 8003
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31
Federal Reserve System
§ 229.3
check was truncated or is otherwise sufficient to determine whether or not a claim is
valid.
*
*
*
*
*
kpayne on DSK54DXVN1OFR with $$_JOB
(ggg) Electronic check and electronic returned
check mean an electronic image of, and electronic information derived from, a paper
check or paper returned check, respectively,that—
(1) Is sent to a receiving bank pursuant to
an agreement between the sender and the receiving bank; and
(2) Conforms with ANS X9.100–187, unless
the Board by rule or order determines that a
different standard applies or the parties otherwise agree.
(hhh) Electronically-created item means an
electronic image that has all the attributes
of an electronic check or electronic returned
check but was created electronically and not
derived from a paper check.
§ 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, and 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.
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).
(b) Additional powers. (1) For the purposes of the exercise by any agency referred to in paragraph (a) of this section of its powers under any statute referred to in that paragraph, a violation
of any requirement imposed under the
EFA Act is deemed to be a violation of
a requirement imposed under that statute.
(2) In addition to its powers under
any provision of law specifically referred to in paragraph (a) of this section, each of the agencies referred to in
that paragraph may exercise, for purposes of enforcing compliance with any
requirement imposed under this part,
any other authority conferred on it by
law.
(c) Enforcement by the Board. (1) Except to the extent that enforcement of
the requirements imposed under this
part is specifically committed to some
other government agency, the Board
shall enforce such requirements.
(2) If the Board determines that—
(i) Any bank that is not a bank described in paragraph (a) of this section;
or
(ii) Any other person subject to the
authority of the Board under the EFA
Act and this part,
has failed to comply with any requirement imposed by this part, the Board
may issue an order prohibiting any
bank, any Federal Reserve Bank, or
any other person subject to the authority of the Board from engaging in any
activity or transaction that directly or
indirectly involves such noncomplying
bank or person (including any activity
or transaction involving the receipt,
payment, collection, and clearing of
checks, and any related function of the
payment system with respect to
checks).
[53 FR 19433, May 27, 1988, as amended by
Reg. CC, 55 FR 21855, May 30, 1990; 57 FR
36600, Aug. 14, 1992; 69 FR 47310, Aug. 4, 2004]
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31
§ 229.10
12 CFR Ch. II (1–1–18 Edition)
kpayne on DSK54DXVN1OFR with $$_JOB
Subpart B—Availability of Funds
and Disclosure of Funds Availability Policies
§ 229.10 Next-day availability.
(a) Cash deposits. (1) A bank shall
make funds deposited in an account by
cash available for withdrawal not later
than the business day after the banking day on which the cash is deposited,
if the deposit is made in person to an
employee of the depositary bank.
(2) A bank shall make funds deposited in an account by cash available for
withdrawal not later than the second
business day after the banking day on
which the cash is deposited, if the deposit is not made in person to an employee of the depositary bank.
(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.
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) General
rule. 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)(3) 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)(3) of this section.
(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.
(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.
(3) 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
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31
Federal Reserve System
§ 229.12
kpayne on DSK54DXVN1OFR with $$_JOB
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.
§ 229.11
[Reserved]
§ 229.12
Availability schedule.
(a) Effective date. The availability
schedule contained in this section is effective September 1, 1990.
(b) Local checks and certain other
checks. Except as provided in paragraphs (d), (e), and (f) of this section, 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, in the case of—
(1) A local check;
(2) A check drawn on the Treasury of
the United States that is not governed
by the availability requirements of
§ 229.10(c);
(3) A U.S. Postal Service money order
that is not governed by the availability
requirements of § 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 § 229.10(c).
(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 § 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.
(d) 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 (b), (c), or (f) 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,
or 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 5:00 p.m. on the
business day on which the funds are
available under paragraphs (b), (c), or
(f) of this section. This $400 is in addition to the $100 available under
§ 229.10(c)(1)(vii).
(e) 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
§ 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.
(f) 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 fifth
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31
§ 229.13
12 CFR Ch. II (1–1–18 Edition)
business day following the banking day
on which the funds are deposited.
[53 FR 19433, May 27, 1988, as amended by
Reg. CC, 55 FR 50818, Dec. 11, 1990; 56 FR 7801,
Feb. 26, 1991; 56 FR 66343, Dec. 23, 1991; 57 FR
36601, Aug. 14, 1992; 60 FR 51670, Oct. 3, 1995]
kpayne on DSK54DXVN1OFR with $$_JOB
§ 229.13
Exceptions.
(a) New accounts. For purposes of this
paragraph,
checks
subject
to
§ 229.10(c)(1)(v)
include
traveler’s
checks.
(1) A deposit in a new account—
(i) Is subject to the requirements of
§ 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
§ 229.10(c)(1)
(i)
through
(v)
and
§ 229.10(c)(2) 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 §§ 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
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 postdated when redeposited.
(d) Repeated overdrafts. 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,
§§ 229.10(c) and 229.12 do not apply to
any of the accounts. A depositary bank
may consider a customer’s account to
be repeatedly overdrawn if—
(1) 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
(2) 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.
(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.
A depositary bank that extends the
time when funds will be available for
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31
Federal Reserve System
§ 229.13
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—
(i) 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
(ii) The deposited check was paid by
the paying bank.
kpayne on DSK54DXVN1OFR with $$_JOB
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 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,
if the depositary bank exercises such
diligence as the circumstances require.
(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;
(C) The amount of the deposit that is
being delayed;
(D) The reason the exception was invoked; and
(E) The time period within which 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.
(2) One-time exception notice. 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—
(i) The reason(s) the exception may
be invoked; and
(ii) The time period within which deposits subject to the exception generally will be available for withdrawal.
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. 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—
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31
§ 229.14
12 CFR Ch. II (1–1–18 Edition)
kpayne on DSK54DXVN1OFR with $$_JOB
(i) The account number of the customer;
(ii) The fact that the availability of
funds deposited in the customer’s account will be delayed because the repeated overdrafts exception will be invoked;
(iii) The time period within which deposits subject to the exception generally will be available for withdrawal;
and
(iv) The time period during which the
exception will apply.
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 § 229.21(g), of each notice provided pursuant to its application of the
reasonable 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 §§ 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 § 229.10(c)(1) (i)
through (v) or § 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 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 §§ 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 § 229.10(c)(1)(vi), five business
days for checks described in § 229.12(b)
(1) through (4), and six business days
for checks described in § 229.12(c) (1)
and (2) or § 229.12(f). A longer extension
may be reasonable, but the bank has
the burden of so establishing.
[53 FR 19433, May 27, 1988, as amended by
Reg. CC, 54 FR 13850, Apr. 6, 1989; Reg. CC, 55
FR 21855, May 30, 1990; 57 FR 3279, Jan. 29,
1992; 57 FR 36598, Aug. 14, 1992; 60 FR 51671,
Oct. 3, 1995; Reg. CC, 62 FR 13809, Mar. 24,
1997; 69 FR 47310, Aug. 4, 2004]
§ 229.14
Payment of interest.
(a) In general. A depositary bank
shall begin to accrue interest or dividends on funds deposited in an interestbearing 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, Federal
Home Loan Bank, 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.
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Federal Reserve System
§ 229.16
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(b) Special rule for credit unions. Paragraph (a) of this section does not apply
to any account at a bank described in
§ 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 § 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.
§ 229.15 General disclosure requirements.
(a) Form of disclosures. A bank shall
make the disclosures required by this
subpart clearly and conspicuously in
writing. Disclosures, 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) Uniform reference to day of availability. In its disclosure, a bank shall
describe funds as being available for
withdrawal on ‘‘the lllll 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.
(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.
§ 229.16 Specific availability policy disclosure.
(a) General. To meet the requirements of a specific availability policy
disclosure under §§ 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 one of the exceptions in § 229.l3,
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 used by the bank
when it delays availability (such as
local or nonlocal checks); how to determine the category to which a particular deposit or check belongs; 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);1
(3) A description of any of the exceptions in § 229.13 that may be invoked by
the bank, including the time following
a deposit that funds generally will be
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 §§ 229.12 and 229.13 is
not required to provide this disclosure on
payable-through checks to its customers.
The statement concerning payable-through
checks must describe how the customer can
determine whether these checks will be
treated as local or nonlocal, or state that
special rules apply to such checks and that
the customer may ask about the availability
of these checks.
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§ 229.16
12 CFR Ch. II (1–1–18 Edition)
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 caseby-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 caseby-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;
(C) The amount of the deposit that is
being delayed; and
(D) 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.
(3) Overdraft and returned check fees.
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—
(i) 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
(ii) The deposited check was paid by
the paying bank.
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
§ 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 § 229.14(a), the bank’s specific policy disclosures shall contain an
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Federal Reserve System
§ 229.19
explanation of when interest or dividends on deposited funds begin to accrue.
[53 FR 19433, May 27, 1988, as amended at 53
FR 31292, Aug. 18, 1988; 53 FR 44324, Nov. 2,
1988; Reg. CC, 54 FR 13850, Apr. 6, 1989; 60 FR
51671, Oct. 3, 1995; Reg. CC, 62 FR 13810, Mar.
24, 1997; 69 FR 47311, Aug. 4, 2004]
§ 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 § 229.16.
[Reg. CC, 60 FR 51671, Oct. 3, 1995]
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§ 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 are removed not more than two
times each week, as described in
§ 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 § 229.l6.
(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.
§ 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 2:00 p.m. or later, or, for the receipt of deposits at ATMs, contractual
branches, or off-premise facilities, of
12:00 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
§ 229.12(d), if any provision of this subpart requires that funds be made available for withdrawal on any business
day, the funds shall be available for
withdrawal by the later of:
(1) 9:00 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
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§ 229.20
12 CFR Ch. II (1–1–18 Edition)
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 §§ 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 not place a
hold on any funds of the customer at
the bank, where—
(i) The amount of funds that are held
exceeds the amount of the check; or
(ii) The funds are not made available
for withdrawal within the times specified in §§ 229.10, 229.12, and 229.13.
(2) A depositary bank that cashes a
check for a customer over the counter,
other than a check drawn on the depositary bank, may not place a hold on
funds in an account of the customer at
the bank, if—
(i) The amount of funds that are held
exceeds the amount of the check; or
(ii) The funds are not made available
for withdrawal within the times specified in §§ 229.10, 229.12, and 229.13.
(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—(1) In
general. For purposes of this subpart,
except for the purposes of the new accounts exception of § 229.13(a), and
when funds are considered deposited
under § 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.
(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.
[Reg. CC, 53 FR 19433, May 27, 1988, as amended by 54 FR 13850, Apr. 6, 1989; 60 FR 51671,
Oct. 3, 1995; 62 FR 13810, Mar. 24, 1997; 64 FR
14577, Mar. 26, 1999]
§ 229.20
Relation to state law.
(a) In general. 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—
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Federal Reserve System
§ 229.21
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(1) 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
(2) Apply to all federally insured
banks located within the state.
No amendment to a state law or regulation governing the availability 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 2, 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. A request for a preemption
determination shall include the following—
(1) A copy of the full text of the state
law in question, including any imple-
menting regulations or judicial interpretations of that law; and
(2) 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.
A request for a preemption determination shall be addressed to the Secretary, Board of Governors of the Federal Reserve System.
[53 FR 19433, May 27, 1988, as amended at 69
FR 47311, Aug. 4, 2004]
§ 229.21 Civil liability.
(a) Civil liability. A bank that fails to
comply with any requirement imposed
under subpart B, and in connection
therewith, subpart A, of this part or
any provision of state law that supersedes any provision of subpart B, and
in connection therewith, subpart A,
with respect to any person is liable to
that person in an amount equal to the
sum of—
(1) Any actual damage sustained by
that person as a result of the failure;
(2) Such additional amount as the
court may allow, except that—
(i) In the case of an individual action,
liability under this paragraph shall not
be less than $100 nor greater than
$1,000; and
(ii) In the case of a class action—
(A) No minimum recovery shall be
applicable to each member of the class;
and
(B) The total recovery under this
paragraph in any class action or series
of class actions arising out of the same
failure to comply by the same depositary bank shall not be more than the
lesser of $500,000 or 1 percent of the net
worth of the bank involved; and
(3) In the case of a successful action
to enforce the foregoing liability, the
costs of the action, together with a
reasonable attorney’s fee as determined by the court.
(b) Class action awards. In determining the amount of any award in
any class action, the court shall consider, among other relevant factors—
(1) The amount of any damages
awarded;
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§ 229.30
12 CFR Ch. II (1–1–18 Edition)
(2) The frequency and persistence of
failures of compliance;
(3) The resources of the bank;
(4) The number of persons adversely
affected; and
(5) The extent to which the failure of
compliance was intentional.
(c) Bona fide errors—(1) General rule. A
bank is not liable in any action
brought under this section for a violation of this subpart if the bank demonstrates by a preponderance of the
evidence that the violation was not intentional and resulted from a bona fide
error, notwithstanding the maintenance of procedures reasonably adapted
to avoid any such error.
(2) Examples. Examples of a bona fide
error include clerical, calculation,
computer malfunction and programming, and printing errors, except that
an error of legal judgment with respect
to the bank’s obligation under this subpart is not a bona fide error.
(d) Jurisdiction. Any action under this
section 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
the date of the occurrence of the violation involved.
(e) 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 such 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.
(f) Exclusions. This section does not
apply to claims that arise under subpart C 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 microfiche,
microfilm, magnetic tape, 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.
[53 FR 19433, May 27, 1988, as amended at 69
FR 47311, Aug. 4, 2004]
Subpart C—Collection of Checks
§ 229.30 Paying bank’s responsibility
for return of checks.
(a) Return of checks. If a paying bank
determines not to pay a check, it shall
return the check in an expeditious
manner as provided in either paragraph
(a)(1) or (a)(2) of this section.
(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 4:00 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.
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 meets the two-day/
four-day test if the returned check is
received by the depositary bank on or
before the depositary bank’s next
banking day.
(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
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Federal Reserve System
§ 229.30
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(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.
Subject to the requirement for expeditious return, a paying bank may send a
returned check to the depositary bank,
or to any other bank agreeing to handle the returned check expeditiously
under § 229.31(a). 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. This
paragraph 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 § 229.30(c).
(b) Unidentifiable depositary bank. A
paying bank that is unable to identify
the depositary bank with respect to a
check may send the 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 § 229.31(a). A paying
bank sending a returned check under
this paragraph 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. The expeditious
return
requirements
in
§ 229.30(a) do not apply to the paying
bank’s return of a check under this
paragraph.
(c) Extension of deadline. The deadline
for return or notice of nonpayment
under the U.C.C. or Regulation J (12
CFR part 210), or § 229.36(f)(2) 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 bank to which it is sent—
(1) On or before the receiving bank’s
next banking day following the other-
wise 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.
(d) Identification of returned check. A
paying bank returning a check shall
clearly indicate on the front 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.
(e) Depositary bank without accounts.
The expeditious return requirements of
paragraph (a) of this section do not
apply to checks deposited in a depositary bank that does not maintain accounts.
(f) Notice in lieu of return. 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
§ 229.33(b). 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 requirements of this subpart.
(g) Reliance on routing number. A paying bank may return a returned check
based on any routing number designating the depositary bank appearing
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31
§ 229.31
12 CFR Ch. II (1–1–18 Edition)
on the returned check in the depositary bank’s indorsement.
[53 FR 19433, May 27, 1988, as amended at 53
FR 31292, Aug. 18, 1988; Reg. CC, 55 FR 21855,
May 30, 1990; 57 FR 46972, Oct. 14, 1993; Reg.
CC, 62 FR 13810, Mar. 24, 1997; 69 FR 47311,
Aug. 4, 2004]
EFFECTIVE DATE NOTE: At 82 FR 27579, June
15, 2017, § 229.30 was revised, effective July 1,
2018. For the convenience of the user, the revised text is set forth as follows:
§ 229.30 Electronic checks and electronic information.
(a) Checks under this subpart. Electronic
checks and electronic returned checks are
subject to this subpart as if they were checks
or returned checks, except where ‘‘paper
check’’ or ‘‘paper returned check’’ is specified. For the purposes of this subpart, the
term ‘‘check’’ or ‘‘returned check’’ as used in
Subpart A includes ‘‘electronic check’’ or
‘‘electronic returned check,’’ except where
‘‘paper check’’ or ‘‘paper returned check’’ is
specified.
(b) Writings. If a bank is required to provide
information in writing under this subpart,
the bank may satisfy that requirement by
providing the information electronically if
the receiving bank agrees to receive that information electronically.
kpayne on DSK54DXVN1OFR with $$_JOB
§ 229.31 Returning bank’s responsibility for return of checks.
(a) Return of checks. A returning bank
shall return a returned check in an expeditious manner as provided in either
paragraph (a)(1) or (a)(2) of this section.
(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 4:00 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.
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.
(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 2:00 p.m.
Subject to the requirement for expeditious return, the returning bank may
send the returned check to the depositary bank, or to any bank agreeing to
handle the returned check expeditiously under § 229.31(a). 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. 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.
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kpayne on DSK54DXVN1OFR with $$_JOB
Federal Reserve System
§ 229.31, Nt.
(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;
of return is considered a returned
check subject to the expeditious return
requirements of this section and to the
other requirements of this subpart.
(g) Reliance on routing number. A returning bank may return a returned
check based on any routing number
designating the depositary bank appearing on the returned check in the
depositary bank’s indorsement or in
magnetic ink on a qualified returned
check.
even if that collecting bank does not
agree to handle the returned check expeditiously under § 229.31(a). 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
§ 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.
(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 on a bank sending a
returned check for handling the returned check.
(e) Depositary bank without accounts.
The expeditious return requirements of
paragraph (a) of this section do not
apply to checks deposited with a depositary bank that does not maintain accounts.
(f) 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
§ 229.33(b). The copy or notice shall
clearly state that it constitutes a notice in lieu of return. A notice in lieu
[53 FR 19433, May 27, 1988, as amended at 53
FR 31292, Aug. 18, 1988; Reg. CC, 54 FR 13850,
Apr. 6, 1989; 69 FR 47311, Aug. 4, 2004]
EFFECTIVE DATE NOTE: At 82 FR 27579, June
15, 2017, § 229.31 was revised, effective July 1,
2018. For the convenience of the user, the revised text is set forth as follows:
§ 229.31 Paying bank’s responsibility for return of checks and notices of nonpayment.
(a) Return of checks. (1) Subject to the requirement of expeditious return under paragraph (b) of this section, a paying bank may
send a returned check to the depositary
bank, to any other bank agreeing to handle
the returned check, or as provided in paragraph (a)(2) of this section.
(2) A paying bank that is unable to identify
the depositary bank with respect to a check
may send the returned check to any bank
that handled the check for forward collection and must advise the bank to which the
check is sent that the paying bank is unable
to identify the depositary bank.
(3) 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.
(4) Except as provided in paragraph (g) of
this section, this section does not affect a
paying bank’s responsibility to return a
check within the deadlines required by the
UCC or Regulation J (12 CFR part 210).
(b) Expeditious return of checks. (1) Except
as provided in paragraph (d) of this section,
if a paying bank determines not to pay a
check, it shall return the check in an expeditious manner such that the check would normally be received by the depositary bank not
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kpayne on DSK54DXVN1OFR with $$_JOB
§ 229.32
12 CFR Ch. II (1–1–18 Edition)
later than 2 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.
(2) If the second business day following the
banking day on which the check was presented to the paying bank is not a banking
day for the depositary bank, the paying bank
satisfies the expeditious return requirement
if it sends the returned check in a manner
such that the depositary bank would normally receive the returned check not later
than 2 p.m. (local time of the depositary
bank) on the depositary bank’s next banking
day.
(c) Notice of nonpayment. (1) If a paying
bank determines not to pay a check in the
amount of $5,000 or more, it shall provide notice of nonpayment such that the notice
would normally be received by the depositary bank not later than 2 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. If
the day the paying bank is required to provide notice is not a banking day for the depositary bank, receipt of notice not later
than 2 p.m. (local time of the depositary
bank) on the depositary bank’s next banking
day constitutes timely notice. Notice may be
provided by any reasonable means, including
the returned check, a writing (including a
copy of the check), or telephone.
(2)(i) To the extent available to the paying
bank, notice must include the information
contained in the check’s MICR line when the
check is received by the paying bank, as well
as—
(A) Name of the payee(s);
(B) Amount;
(C) Date of the indorsement of the depositary bank;
(D) The bank name, routing number, and
trace or sequence number associated with
the indorsement of the depositary bank; and
(E) Reason for nonpayment.
(ii) If the paying bank is not sure of the accuracy 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.
(iii) The notice may include other information from the check that may be useful in
identifying the check being returned and the
customer.
(d) Exceptions to the expeditious return of
checks and notice of nonpayment requirements.
The expeditious return and notice of nonpayment requirements of paragraphs (b) and
(c) of this section do not apply if—
(1) The check is deposited in a depositary
bank that is not subject to subpart B of this
part; or
(2) A paying bank is unable to identify the
depositary bank with respect to the check.
(e) Identification of returned check. A paying
bank returning a check shall clearly indicate
on the front of the check that it is a returned check and the reason for return. If
the paying bank is returning a substitute
check or an electronic returned check, the
paying bank shall include this information
such that the information would be retained
on any subsequent substitute check.
(f) Notice in Lieu of Return. 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 paragraph (c)(2) of this section. The copy or written 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 requirements of this
subpart.
(g) Extension of deadline. The deadline for
return or notice of dishonor or nonpayment
under the UCC or Regulation J (12 CFR part
210), or § 229.36(d)(3) and (4) is extended to the
time of dispatch of such return or notice if
the depositary bank (or the receiving bank,
if the depositary bank is unidentifiable) receives the returned check or notice—
(1) On or before the depositary bank’s (or
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. (local time of the depositary bank or receiving bank) or later set by
the depositary bank (or receiving bank)
under UCC 4–108, for all deadlines other than
those described in paragraph (g)(2) of this
section; 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 UCC) for the paying bank.
(h) 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.
(i) Reliance on routing number. A paying
bank may return a returned check based on
any routing number designating the depositary bank appearing on the returned check
in the depositary bank’s indorsement.
§ 229.32 Depositary bank’s responsibility for returned checks.
(a) Acceptance of returned checks. A
depositary bank shall accept returned
checks and written notices of nonpayment
(1) At a location at which presentment of checks for forward collection
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Federal Reserve System
§ 229.32
is requested by the depositary bank;
and
(2) (i) At a branch, head office, or
other location consistent with the
name and address of the bank in its
indorsement on the check;
(ii) 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;
(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; or
(iv) If no routing number or address
appears in its indorsement on the
check, at any branch or head office of
the bank.
kpayne on DSK54DXVN1OFR with $$_JOB
A depositary bank may require that returned checks be separated from forward collection checks.
(b) Payment. A depositary bank shall
pay the returning 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—
(1) Debit to an account of the depositary bank on the books of the returning or paying bank;
(2) Cash;
(3) Wire transfer; or
(4) Any other form of payment acceptable to the returning or paying
bank;
provided that the proceeds of the payment are available to the returning or
paying bank in cash or by credit to an
account of the returning or paying
bank on or as of the payment date. If
the payment date is not a banking day
for the returning 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
or paying bank. These payments are
final when made.
(c) Misrouted returned checks and written notices of nonpayment. If a bank receives a returned check or written no-
tice of nonpayment 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 or
notice, it shall either promptly send
the returned check or notice to the depositary bank directly or by means of a
returning bank agreeing to handle the
returned check expeditiously under
§ 229.31(a), or send the check or notice
back to the bank from which it was received.
(d) Charges. A depositary bank may
not impose a charge for accepting and
paying checks being returned to it.
[53 FR 19433, May 27, 1988, as amended by
Reg. CC, 54 FR 13850, Apr. 6, 1989]
EFFECTIVE DATE NOTE: At 82 FR 27580, June
15, 2017, § 229.32 was revised, effective July 1,
2018. For the convenience of the user, the revised text is set forth as follows:
§ 229.32 Returning bank’s responsibility for
return of checks.
(a) Return of checks. (1) Subject to the requirement of expeditious return under paragraph (b) of this section, a returning bank
may send a returned check to the depositary
bank, to any other bank agreeing to handle
the returned check, or as provided in paragraph (a)(2) of this section.
(2) A returning bank that is unable to identify the depositary bank with respect to a
check may send the returned check to any
collecting bank that handled the returned
check for forward collection if the returning
bank was not a collecting bank with respect
to the returned check, or to 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 to a bank must
advise the bank to which the returned check
is sent that the returning bank is unable to
identify the depositary bank.
(3) A returning 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.
(b) Expeditious return of checks. (1) Except
as provided in paragraph (c) of this section,
a returning bank shall return a returned
check in an expeditious manner such that
the check would normally be received by the
depositary bank not later than 2 p.m. (local
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§ 229.33
12 CFR Ch. II (1–1–18 Edition)
kpayne on DSK54DXVN1OFR with $$_JOB
time of the depositary bank) on the second
business day following the banking day on
which the check was presented to the paying
bank.
(2) If the second business day following the
banking day on which the check was presented to the paying bank is not a banking
day for the depositary bank, the returning
bank satisfies the expeditious return requirement if it sends the returned check in a manner such that the depositary bank would normally receive the returned check not later
than 2 p.m. (local time of the depositary
bank) on the depositary bank’s next banking
day.
(c) Exceptions to the expeditious return of
checks. The expeditious return requirement
of paragraph (b) of this section does not
apply if—
(1) The check is deposited in a depositary
bank that is not subject to subpart B of this
part;
(2) A paying bank is unable to identify the
depositary bank with respect to the check;
or
(3) The bank handles a misrouted returned
check pursuant to § 229.33(f).
(d) 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 such copy is
available, a written notice of nonpayment
containing the information specified in
§ 229.31(c). The copy or written 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
requirements of this section and the other
requirements of this subpart.
(e) 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.
(f) Charges. A returning bank may impose a
charge on a bank sending a returned check
for handling the returned check.
(g) Reliance on routing number. A returning
bank may return a returned check based on
any routing number designating the depositary bank appearing on the returned check
in the depositary bank’s indorsement or in
magnetic ink on a qualified returned check.
§ 229.33 Notice of nonpayment.
(a) Requirement. If a paying bank determines not to pay a check in the
amount of $2,500 or more, it shall provide notice of nonpayment such that
the notice is received by the depositary
bank by 4:00 p.m. (local time) on the
second business day following the
banking day on which the check was
presented to the paying bank. If the
day the paying bank is required to provide notice is not a banking day for the
depositary bank, receipt of notice on
the depositary bank’s next banking day
constitutes timely notice. Notice may
be provided by any reasonable means,
including the returned check, a writing
(including a copy of the check), telephone, Fedwire, telex, or other form of
telegraph.
(b) Content of notice. Notice must include the—
(1) Name and routing number of the
paying bank;
(2) Name of the payee(s);
(3) Amount;
(4) Date of the indorsement of the depositary bank;
(5) Account number of the customer(s) of the depositary bank;
(6) Branch name or number of the depositary bank from its indorsement;
(7) Trace number associated with the
indorsement of the depositary bank;
and
(8) Reason for nonpayment.
The notice may include other information from the check that may be useful
in identifying the check being returned
and the customer, and, in the case of a
written notice, must include the name
and routing number of the depositary
bank from its indorsement. 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.
(c) Acceptance of notice. The depositary bank shall accept notices during
its banking day—
(1) Either at the telephone or telegraph number of its return check unit
indicated in the indorsement, or, if no
such
number
appears
in
the
indorsement or if the number is illegible, at the general purpose telephone or
telegraph number of its head office or
the
branch
indicated
in
the
indorsement; and
(2) At any other number held out by
the bank for receipt of notice of nonpayment, and, in the case of written
notice, as specified in § 229.32(a).
(d) Notification to customer. If the depositary bank receives a returned
check or notice of nonpayment, it shall
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31
Federal Reserve System
§ 229.33
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
notice, or within a longer reasonable
time.
(e) Depositary bank without accounts.
The requirements of this section do not
apply to checks deposited in a depositary bank that does not maintain accounts.
[53 FR 19433, May 27, 1988, as amended at 69
FR 47311, Aug. 4, 2004]
kpayne on DSK54DXVN1OFR with $$_JOB
EFFECTIVE DATE NOTE: At 82 FR 27580, June
15, 2017, § 229.33 was revised, effective July 1,
2018. For the convenience of the user, the revised text is set forth as follows:
§ 229.33 Depositary bank’s responsibility for
returned checks and notices of nonpayment.
(a) Right to assert claim. (1) A paying bank
or returning bank may be liable to a depositary bank under § 229.38 for failing to return
a check in an expeditious manner only if the
depositary bank has arrangements in place
such that the paying bank or returning bank
could return a returned check to the depositary bank electronically, directly or indirectly, by commercially reasonable means.
(2) For purposes of paragraph (a)(1) of this
section, the depositary bank that has asserted a claim has the burden of proof for
demonstrating that the depositary bank’s arrangements meet the standard of paragraph
(a)(1).
(b) Acceptance of electronic returned checks
and electronic notices of nonpayment. A depositary bank’s agreement with the transferor
bank governs the terms under which the depositary bank will accept electronic returned checks and electronic written notices
of nonpayment.
(c) Acceptance of paper returned checks and
paper notices of nonpayment. (1) A depositary
bank shall accept paper returned checks and
paper notices of nonpayment during its
banking day—
(i) At a location, if any, at which presentment of paper checks for forward collection
is requested by the depositary bank; and
(ii)(A) At a branch, head office, or other location consistent with the name and address
of the bank in its indorsement on the check;
(B) 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; or
(C) If no routing number or address appears
in its indorsement on the check, at any
branch or head office of the bank.
(2) A depositary bank may require that
paper returned checks be separated from
paper forward collection checks.
(d) Acceptance of oral notices of nonpayment.
A depositary bank shall accept oral notices
of nonpayment during its banking day—
(1) At the telephone number indicated in
the indorsement; and
(2) At any other number held out by the
bank for receipt of notice of nonpayment.
(e) Payment. (1) A depositary bank shall
pay the returning bank or paying bank returning the check to it for the amount of the
check prior to the close of business on the
depositary bank’s banking day on which it
received the check (‘‘payment date’’) by—
(i) Debit to an account of the depositary
bank on the books of the returning bank or
paying bank;
(ii) Cash;
(iii) Wire transfer; or
(iv) Any other form of payment acceptable
to the returning bank or paying bank.
(2) The proceeds of the payment must be
available to the returning bank or paying
bank in cash or by credit to an account of
the returning bank or paying bank on or as
of the payment date. If the payment date is
not a banking day for the returning bank 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 bank or
paying bank. These payments are final when
made.
(f) Misrouted returned checks and written notices of nonpayment. If a bank receives a returned check or written notice of nonpayment 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 or notice, it shall either promptly
send the returned check or notice to the depositary bank directly or by means of a returning bank agreeing to handle the returned check or notice, or send the check or
notice back to the bank from which it was
received.
(g) Charges. A depositary bank may not impose a charge for accepting and paying
checks being returned to it.
(h) Notification to customer. If the depositary bank receives a returned check, notice
of nonpayment, or notice of recovery under
§ 229.35(b), 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, notice
of nonpayment, or notice of recovery, or
within a longer reasonable time.
(i) Depositary bank without accounts. The requirements of this section with respect to
notices of nonpayment do not apply to
checks deposited in a depositary bank that
does not maintain accounts.
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§ 229.34
12 CFR Ch. II (1–1–18 Edition)
§ 229.34 Warranties.
(a) Warranties. Each paying bank or
returning bank that transfers a 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—
(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
the check within its deadline under the
U.C.C., Regulation J (12 CFR part 210),
or § 229.30(c) of this part;
(2) It is authorized to return the
check;
(3) The check has not been materially
altered; and
(4) In the case of a notice in lieu of
return, the original check has not and
will not be returned.
kpayne on DSK54DXVN1OFR with $$_JOB
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.
(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 § 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.
(c) Warranty of settlement amount, encoding, and offset. (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, returning, 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 on
the check or returned check is correct.
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 that represents that
check or returned check.
(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.
(d) 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 § 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
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31
Federal Reserve System
§ 229.34, Nt.
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.
(e) 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.
(f) 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.
(g) 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.
[53 FR 19433, May 27, 1988, as amended by
Reg. CC, 54 FR 13850, Apr. 6, 1989; 57 FR 46972,
Oct. 14, 1992; 62 FR 13810, Mar. 24, 1997; 69 FR
47311, Aug. 4, 2004; 70 FR 71225, Nov. 28, 2005]
kpayne on DSK54DXVN1OFR with $$_JOB
EFFECTIVE DATE NOTE: At 82 FR 27581, June
15, 2017, § 229.34 was revised, effective July 1,
2018. For the convenience of the user, the revised text is set forth as follows:
§ 229.34 Warranties and indemnities.
(a) Warranties with respect to electronic
checks and electronic returned checks. (1) Each
bank that transfers or presents an electronic
check or electronic returned check 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 includes an accurate record of all MICR line information re-
quired for a substitute check under
§ 229.2(aaa) 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 check or electronic
returned check, 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 makes the warranties
under paragraph (a)(1) of this section makes
the warranties to—
(i) In the case of transfers for collection or
presentment, the transferee bank, any subsequent collecting bank, the paying bank, and
the drawer; and
(ii) In the case of transfers for return, the
transferee returning bank, any subsequent
returning bank, the depositary bank, and the
owner.
(b) 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 (b)(1), ‘‘account’’ includes an account as defined in § 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 (b)(1) of
this section, the warranting bank may defend by proving that the customer of the
paying bank is precluded under UCC 4–406, as
applicable, from asserting against the paying
bank the unauthorized issuance of the check.
(c) Settlement amount, encoding, and offset
warranties. (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
bank, returning bank, 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 regarding the
check or returned check is accurate. For
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§ 229.34, Nt.
12 CFR Ch. II (1–1–18 Edition)
purposes of this paragraph, the information
encoded after issue regarding the check or
returned check means any information that
could be encoded in the MICR line of a paper
check.
(4) If a bank settles with another bank for
checks presented, or for returned checks for
which it is the depositary bank, in an
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.
(d) Returned check warranties. (1) Each paying bank or returning bank that transfers a
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—
(i) 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 UCC or
§ 229.31(g) of this part;
(ii) It is authorized to return the check;
(iii) The check has not been materially altered; and
(iv) In the case of a notice in lieu of return,
the check has not and will not be returned.
(2) 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.
(e) Notice of nonpayment warranties. (1)
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—
(i) 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 UCC
or § 229.31(g) of this part;
(ii) It is authorized to send the notice; and
(iii) The check has not been materially altered.
(2) These warranties are not made with respect to checks drawn on the Treasury of the
United States, U.S. Postal Service money orders, or check drawn on a state or a unit of
general local government that are not payable through or at a bank.
(f) Remote deposit capture indemnity. (1) The
indemnity described in paragraph (f)(2) of
this section is provided by a depositary bank
that—
(i) Is a truncating bank under § 229.2(eee)(2)
because it accepts deposit of an electronic
image or other electronic information related to an original check;
(ii) Does not receive the original check;
(iii) Receives settlement or other consideration for an electronic check or substitute
check related to the original check; and
(iv) Does not receive a return of the check
unpaid.
(2) A bank described in paragraph (f)(1) of
this section shall indemnify, as set forth in
§ 229.34(i), a depositary bank that accepts the
original check for deposit for losses incurred
by that depositary bank if the loss is due to
the check having already been paid.
(3) A depositary bank may not make an indemnity claim under paragraph (f)(2) of this
section if the original check it accepted for
deposit bore a restrictive indorsement inconsistent with the means of deposit.
(g) Indemnities with respect to electronicallycreated items. Each bank that transfers or
presents an electronically-created item and
receives a settlement or other consideration
for it shall indemnify, as set forth in
§ 229.34(i), each transferee bank, any subsequent collecting bank, the paying bank, and
any subsequent returning bank against
losses that result from the fact that—
(1) The electronic image or electronic information is not derived from a paper check;
(2) The person on whose account the electronically-created item is drawn did not authorize the issuance of the item in the
amount stated on the item or to the payee
stated on the item (for purposes of this paragraph (g)(2), ‘‘account’’ includes an account
as defined in section 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); or
(3) A person receives a transfer, presentment, or return of, or otherwise is charged
for an electronically-created item such that
the person is asked to make payment based
on an item or check it has already paid.
(h) Damages. Damages for breach of the
warranties in this section 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.
(i) Indemnity amounts. (1) The amount of
the indemnity in paragraphs (f)(2) and (g) of
this section shall not exceed the sum of—
(i) The amount of the loss of the indemnified bank, up to the amount of the settlement or other consideration received by the
indemnifying bank; and
(ii) Interest and expenses of the indemnified bank (including costs and reasonable
attorney’s fees and other expenses of representation).
(2)(i) If a loss described in paragraph (f)(2)
or (g) of this section results in whole or in
part from the indemnified bank’s negligence
or failure to act in good faith, then the indemnity amount described in paragraph (i)(1)
of this section shall be reduced in proportion
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Federal Reserve System
§ 229.35
to the amount of negligence or bad faith attributable to the indemnified bank.
(ii) Nothing in this paragraph (i)(2) affects
the rights of a person under the UCC or other
applicable provision of state or federal law.
(j) Tender of defense. If a bank is sued for
breach of a warranty or for indemnity 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.
(k) Notice of claim. Unless a claimant gives
notice of a claim for breach of warranty or
for indemnity under this section to the bank
that made the warranty or indemnification
within 30 days after the claimant has reason
to know of the breach or facts and circumstances giving rise to the indemnity and
the identity of the warranting or indemnifying bank, the warranting or indemnifying bank is discharged to the extent of
any loss caused by the delay in giving notice
of the claim.
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.
(c) Indorsement by a bank. After a
check has been indorsed by a bank,
only a bank may acquire the rights of
a holder—
(1) Until the check has been returned
to the person initiating collection; or
(2) Until the check has been specially
indorsed by a bank to a person who is
not a bank.
(d) Indorsement for depositary bank. A
depositary bank may arrange with another bank to apply the other bank’s
indorsement as the depositary bank
indorsement,
provided
that
any
indorsement of the depositary bank on
the check avoids the area reserved for
the depositary bank indorsement as
specified in appendix D. The other bank
indorsing as depositary bank is considered the depositary bank for purposes
of subpart C of this part.
§ 229.35 Indorsements.
(a) Indorsement standards. A bank
(other than a paying bank) that handles a check during forward collection
or a returned check shall indorse the
check in a manner that permits a person to interpret the indorsement, in accordance with the indorsement standard set forth in appendix D of this part.
(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 placed its
indorsement on 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
EFFECTIVE DATE NOTE: At 82 FR 27582, June
15, 2017, § 229.35 was amended by revising
paragraphs (a) and (d), effective July 1, 2018.
For the convenience of the user, the revised
text is set forth as follows:
[53 FR 19433, May 27, 1988, as amended by
Reg. CC, 55 FR 21855, May 30, 1990; 69 FR
47311, Aug. 4, 2004]
§ 229.35 Indorsements.
(a) Indorsement standards. A bank (other
than a paying bank) that handles a check
during forward collection or a returned
check shall indorse the check in a manner
that permits a person to interpret the
indorsement, in accordance with American
National Standard (ANS) Specifications for
Physical Check Endorsements, X9.100–111
(ANS X9.100–111), for a paper check other
than a substitute check; ANS Specifications
for an Image Replacement Document, X9.100–
140 (ANS X9.100–140), for a substitute check;
and ANS Specifications for Electronic Exchange of Check and Image Data—Domestic,
X9.100–187 (ANS X9.100–187), for an electronic
check; unless the Board by rule or order determines that different standards apply or
the parties otherwise agree.
*
*
*
*
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(d) Indorsement for depositary bank. A depositary bank may arrange with another bank
to apply the other bank’s indorsement as the
depositary bank indorsement, provided that
any indorsement of the depositary bank on
the check avoids the area reserved for the
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31
§ 229.36
12 CFR Ch. II (1–1–18 Edition)
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depositary bank indorsement as specified in
the indorsement standard applicable to the
check under paragraph (a) of this section.
The other bank indorsing as depositary bank
is considered the depositary bank for purposes of subpart C of this part.
§ 229.36 Presentment and issuance of
checks.
(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.
(b) Receipt at bank office or processing
center. A check is considered received
by the paying bank when it is received:
(1) At a location to which delivery is
requested by the paying bank;
(2) At an address of the bank associated with the routing number on the
check, whether in magnetic ink or in
fractional form;
(3) At any branch or head office, if
the bank is identified on the check by
name without address; or
(4) 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.
(c) [Reserved]
(d) 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.
(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 payablethrough bank.
(2) A bank is responsible for damages
under § 229.38 to the extent that a check
payable by it and not payable through
another bank is labelled as provided in
this section.
(f) Same-day settlement. (1) A check is
considered presented, and a paying
bank must settle for or return the
check pursuant to paragraph (f)(2) of
this section, if a presenting bank delivers the check in accordance with reasonable delivery requirements established by the paying bank and demands
payment under this paragraph (f)—
(i) At a location designated by the
paying bank for receipt of checks under
this paragraph (f) that is in the check
processing region consistent with the
routing number encoded in magnetic
ink on the check and at which the paying bank would be considered to have
received the check under paragraph (b)
of this section or, if no location is designated, at any location described in
paragraph (b) of this section; and
(ii) By 8 a.m. on a business day (local
time of the location described in paragraph (f)(1)(i) of this section).
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.
(2) If presentment of a check meets
the requirements of paragraph (f)(1) 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.
(3) Notwithstanding paragraph (f)(2)
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) 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.
If the closing is voluntary, unless the
paying bank settles for or returns the
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Federal Reserve System
§ 229.38
check in accordance with paragraph
(f)(2) 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.
[Reg. CC, 53 FR 19433, May 27, 1988, as amended by 54 FR 32047, Aug. 4, 1989; 55 FR 21855,
May 30, 1990; 57 FR 46972, Oct. 14, 1992; 60 FR
51671, Oct. 3, 1995; 62 FR 13810, Mar. 24, 1997;
64 FR 59613, Nov. 3, 1999]
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EFFECTIVE DATE NOTE: At 82 FR 27583, June
15, 2017, § 229.36 was revised, effective July 1,
2018. For the convenience of the user, the revised text is set forth as follows:
§ 229.36 Presentment
and
issuance
of
checks.
(a) Receipt of electronic checks. The terms
under which a paying bank will accept presentment of an electronic check is governed
by the paying bank’s agreement with the
presenting bank.
(b) Receipt of paper checks. (1) A paper
check is considered received by the paying
bank when it is received—
(i) At a location to which delivery is requested by the paying bank;
(ii) At an address of the bank associated
with the routing number on the check,
whether contained in the MICR line or in
fractional form;
(iii) 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; or
(iv) At any branch or head office, if the
bank is identified on the check by name
without address.
(2) A bank may require that checks presented to it as a paying bank be separated
from returned checks.
(c) 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.
(d) Same-day settlement. (1) A paper check is
considered presented, and a paying bank
must settle for or return the check pursuant
to paragraph (d)(2) of this section, if a presenting bank delivers the check in accordance with reasonable delivery requirements
established by the paying bank and demands
payment under this paragraph (d)—
(i) At a location designated by the paying
bank for receipt of paper checks under this
paragraph (d) at which the paying bank
would be considered to have received the
paper check under paragraph (b) of this section or, if no location is designated, at any
location described in paragraph (b) of this
section; and
(ii) By 8 a.m. on a business day (local time
of the location described in paragraph
(d)(1)(i) of this section).
(2) A paying bank may require that paper
checks presented for settlement pursuant to
paragraph (d)(1) of this section be separated
from other forward-collection checks or returned checks.
(3) If presentment of a paper check meets
the requirements of paragraph (d)(1) 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.
(4) Notwithstanding paragraph (d)(3) of this
section, if a paying bank closes on a business
day and receives presentment of a paper
check on that day in accordance with paragraph (d)(1) of this section—
(i) 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—
(A) 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
(B) Returns the check.
(ii) If the closing is voluntary, unless the
paying bank settles for or returns the check
in accordance with paragraph (d)(3) 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.
§ 229.37 Variation by agreement.
The effect of the provisions of subpart C may be varied by agreement, except that no agreement can disclaim
the responsibility of a bank for its own
lack of good faith or failure to exercise
ordinary care, or can limit the measure
of damages for such lack or failure; but
the parties may determine by agreement the standards by which such responsibility is to be measured if such
standards are not manifestly unreasonable.
§ 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
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§ 229.38
12 CFR Ch. II (1–1–18 Edition)
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 or notice of
nonpayment, 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 or notice of nonpayment 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 § 229.30(a) and to comply
with the deadline for return under the
U.C.C., Regulation J (12 CFR part 210),
or § 229.30(c) in connection with a single
nonpayment of a check, the paying
bank shall be liable under either
§ 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
(§ 229.35), accepting a returned check or
notice of nonpayment (§§ 229.32(a) and
229.33(c)), or otherwise, the damages incurred by that person under § 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 accord-
ance with § 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 § 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 § 229.35; or
(ii) Causes an indorsement that previously was applied in accordance with
§ 229.35 to become illegible.
NOTE: 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.
(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 § 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 § 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.
(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
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31
Federal Reserve System
§ 229.39
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
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.
[53 FR 19433, May 27, 1988, as amended by
Reg. CC, 54 FR 13850, Apr. 6, 1989; 54 FR 32047,
Aug. 4, 1989; 69 FR 47311, Aug. 4, 2004]
EFFECTIVE DATE NOTE: At 82 FR 27583, June
15, 2017, § 229.38 was amended by revising
paragraphs (b), (c) and (d), effective July 1,
2018. For the convenience of the user, the revised text is set forth as follows:
§ 229.38
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Liability.
*
*
*
*
(b) Paying bank’s failure to make timely return. If a paying bank fails both to comply
with its expeditious return requirements
under § 229.31(b) and with the deadline for return under the UCC, Regulation J (12 CFR
part 210), or the extension of deadline under
§ 229.31(g) in connection with a single nonpayment of a check, the paying bank shall be
liable under either § 229.31(b) 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 (§ 229.35), accepting a returned check or notice of nonpayment
(§ 229.33(b), (c), and (d)), or otherwise, the
damages incurred by that person under
§ 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 § 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
§ 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 § 229.35; or
(ii) Causes an indorsement that previously
was applied in accordance with § 229.35 to become illegible.
(2) 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.
*
*
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§ 229.39 lnsolvency of bank.
(a) Duty of receiver. A check or returned check in, or coming into, the
possession of a paying, collecting, depositary, or returning bank that suspends payment, and which is not paid,
shall be returned by the receiver, trustee, or agent in charge of the closed
bank to the bank or customer that
transferred the check to the closed
bank.
(b) Preference against paying or depositary bank. If a paying bank finally pays
a check, or if a depositary bank becomes obligated to pay a returned
check, and suspends payment without
making a settlement for the check or
returned check with the prior bank
that is or becomes final, the prior bank
has a preferred claim against the paying bank or the depositary bank.
(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
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31
§ 229.40
12 CFR Ch. II (1–1–18 Edition)
against the collecting or returning
bank.
(d) Preference against presenting bank.
If a paying bank settles with a presenting bank for one or more checks,
and if the presenting bank breaches a
warranty specified in § 229.34(c) (1) or
(3) with respect to those checks and
suspends payments before satisfying
the paying bank’s warranty claim, the
paying bank has a preferred claim
against the presenting bank for the
amount of the warranty claim.
(e) Finality of settlement. If a paying
or depositary bank gives, or a collecting, paying, or returning bank
gives or receives, a settlement for a
check or returned check and thereafter
suspends payment, the suspension does
not prevent or interfere with the settlement becoming final if such finality
occurs automatically upon the lapse of
a certain time or the happening of certain events.
[Reg. CC, 53 FR 19433, May 27, 1988, as amended at 57 FR 46973, Oct. 14, 1992; Reg. CC, 62 FR
13810, Mar. 24, 1997]
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EFFECTIVE DATE NOTE: At 82 FR 27583, June
15, 2017, § 229.39 was revised, effective July 1,
2018. For the convenience of the user, the revised text is set forth as follows:
§ 229.39 Insolvency of bank.
(a) Duty of receiver to return unpaid checks.
A check or returned check in, or coming
into, the possession of a paying bank, collecting bank, depositary bank, or returning
bank that suspends payment, and which is
not paid, shall be returned by the receiver,
trustee, or agent in charge of the closed
bank to the bank or customer that transferred the check to the closed bank.
(b) Claims against banks for checks not returned by receiver. If a check or returned
check is not returned by the receiver, trustee, or agent in charge of the closed bank
under paragraph (a) of this section, a bank
shall have claims with respect to the check
or returned check as follows:
(1) If the paying bank has finally paid the
check, or if a depositary bank is obligated to
pay the returned check, and suspends payment without making a settlement for the
check or returned check with the prior bank
that is or becomes final, the prior bank has
a claim against the paying bank or the depositary bank.
(2) If a collecting bank, paying bank, 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 claim against the collecting bank or returning bank.
(c) Preferred claim against presenting bank
for breach of warranty. If a paying bank settles with a presenting bank for one or more
checks, and if the presenting bank breaches
a warranty specified in § 229.34(c)(1) or (3)
with respect to those checks and suspends
payments before satisfying the paying
bank’s warranty claim, the paying bank has
a preferred claim against the presenting
bank for the amount of the warranty claim.
(d) Finality of settlement. If a paying bank
or depositary bank gives, or a collecting
bank, paying bank, or returning bank gives
or receives, a settlement for a check or returned check and thereafter suspends payment, the suspension does not prevent or
interfere with the settlement becoming final
if such finality occurs automatically upon
the lapse of a certain time or the happening
of certain events.
§ 229.40 Effect of merger transaction.
(a) In general. 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.
(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.
[Reg. CC, 53 FR 19433, May 27, 1988, as amended at 64 FR 14577, Mar. 26, 1999]
EFFECTIVE DATE NOTE: At 82 FR 27584, June
15, 2017, § 229.40 was revised, effective July 1,
2018. For the convenience of the user, the revised text is set forth as follows:
§ 229.40 Effect of merger transaction.
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.
§ 229.41 Relation to State 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.
§ 229.42 Exclusions.
The expeditious-return (§§ 229.30(a)
and 229.31(a)), notice-of-nonpayment
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31
Federal Reserve System
§ 229.43
(§ 229.33), and same-day settlement
(§ 229.36(f)) requirements of this subpart
do not apply to a check drawn upon the
United States Treasury, to a U.S. Postal Service money order, or to a check
drawn on a state or a unit of general
local government that is not payable
through or at a bank.
[Reg. CC, 62 FR 13810, Mar. 24, 1997]
EFFECTIVE DATE NOTE: At 82 FR 27584, June
15, 2017, § 229.42 was revised, effective July 1,
2018. For the convenience of the user, the revised text is set forth as follows:
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§ 229.42 Exclusions.
The expeditious return (§§ 229.31(b) and
229.32(b)), notice of nonpayment (§ 229.31(c)),
and same-day settlement (§ 229.36(d)) 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.
§ 229.43 Checks payable in Guam,
American Samoa, and the Northern
Mariana Islands.
(a) Definitions. The definitions in
§ 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 § 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
§ 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 § 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) § 229.31, except that the returning
bank is not subject to the requirement
to return a Pacific island check in an
expeditious manner;
(2) § 229.32;
(3) § 229.34(c)(2), (c)(3), (d), (e), and (f);
(4) § 229.35; for purposes of § 229.35(c),
the Pacific island bank is deemed to be
a bank;
(5)
(6)
(7)
(8)
(9)
§ 229.36(d);
§ 229.37;
§ 229.38(a) and (c) through (h);
§ 229.39(a), (b), (c) and (e); and
§§ 229.40 through 229.42.
[Reg. CC, 62 FR 13810, Mar. 24, 1997, as
amended at 70 FR 71225, Nov. 28, 2005]
EFFECTIVE DATE NOTE: At 82 FR 27584, June
15, 2017, § 229.43 was amended by revising
paragraphs (a)(2) and (b), effective July 1,
2018. For the convenience of the user, the revised text is set forth as follows:
§ 229.43 Checks payable in Guam, American
Samoa, and the Northern Mariana Islands.
(a) * * *
(2) Pacific island check means—
(i) A demand draft drawn on or payable
through or at a Pacific island bank, which is
not a check as defined in § 229.2(k); and
(ii) An electronic image of, and electronic
information derived from, a demand draft or
returned demand draft drawn on or payable
through or at a Pacific island bank that—
(A) Is sent to a receiving bank pursuant to
an agreement between the sender and the receiving bank; and
(B) Conforms with ANS X9.100–187, unless
the Board by rule or order determines that a
different standard applies or the parties otherwise agree.
(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
§ 229.2(k) or an electronic check defined in
§ 229.2(ggg), 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) Section 229.30(a) (Checks under this subpart), and (b) (Writings);
(2) Section 229.32 (Returning bank’s responsibilities for return of checks) except that
the returning bank is not subject to the requirement to return a Pacific Island check in
an expeditious manner;
(3) Section 229.33(b) (Acceptance of electronic returned checks and electronic notices of nonpayment), (c) (Acceptance of
paper returned checks and paper notices of
nonpayment), § 229.33(d) (Acceptances of oral
notices of nonpayment), § 229.33(e) (Payment), § 229.33(f) (Misrouted returned checks
and
written
notices
of
nonpayment),
§ 229.33(g) (Charges);
(4) Section 229.34(a) (Warranties with respect to electronic checks and electronic returned checks), § 229.34(b) (Transfer and presentment warranties with respect to a remotely-created check), § 229.34(c)(2) (Cash
letter total warranty), § 229.34(c)(3) (Encoding
warranty), § 229.34(f) (Remote deposit capture
warranty), § 229.34(g) (Indemnities with respect
to
electronically-created
items),
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31
§ 229.51
12 CFR Ch. II (1–1–18 Edition)
§ 229.34(h) (Damages), § 229.34(i) (Indemnity
amounts), and § 229.34(j) (Tender of defense);
(5) Section 229.35 (Indorsements); for purposes of § 229.35(c) (Indorsement by a bank),
the Pacific island bank is deemed to be a
bank;
(6) Section 229.36(c) (Liability of bank during forward collection);
(7) Section 229.37 (Variation by agreement);
(8) Section 229.38 (Liability), except for
§ 229.38(b) (Paying bank’s failure to make
timely return);
(9) Section 229.39 (Insolvency of bank), except for § 229.39(c) (Preferred claim against
presenting bank for breach of warranty); and
(10) Section 229.40 (Effect of merger transaction), § 229.41 (Relation to state law) and
§ 229.42 (Exclusions).
Subpart D—Substitute Checks
ANS X9.100–140 and appendix D of this
part.
(c) Applicable law. A substitute check
that is the legal equivalent of an original check under paragraph (a) of this
section shall be subject to any provision, including any provision relating
to the protection of customers, of this
part, the U.C.C., 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 the Check 21 Act
or this subpart.
EFFECTIVE DATE NOTE: At 82 FR 27584, June
15, 2017, § 229.51 was amended by revising
paragraphs (b)(2) and (3), effective July 1,
2018. For the convenience of the user, the revised text is set forth as follows:
§ 229.51 General provisions governing substitute checks.
AUTHORITY: 12 U.S.C. 5001–5018.
SOURCE: 69 FR 47311, Aug. 4, 2004, unless
otherwise noted.
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§ 229.51 General provisions governing
substitute checks.
(a) Legal equivalence. A substitute
check for which a bank has provided
the warranties described in § 229.52 is
the legal equivalent of an original
check for all persons and all purposes,
including any provision of federal or
state law, 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.’’
(b) Reconverting bank duties. A bank
shall ensure that a substitute check for
which it is the reconverting bank—
(1) Bears all indorsements applied by
parties that previously handled the
check in any form (including the original check, a substitute check, or another paper or electronic representation of such original check or substitute check) for forward collection or
return;
(2) Identifies the reconverting bank
in a manner that preserves any previous reconverting bank identifications, in accordance with ANS X9.100–
140 and appendix D of this part; and
(3) Identifies the bank that truncated
the original check, in accordance with
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§ 229.52 Substitute check warranties.
(a) Content and provision of substitute
check warranties. 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) The substitute check meets the
requirements for legal equivalence described in § 229.51(a)(1)–(2); and
(2) 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.
(b) Warranty recipients. A bank makes
the warranties described in paragraph
(a) of this section to the person to
which the bank transfers, presents, or
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(b) * * *
(2) Identifies the reconverting bank in a
manner that preserves any previous reconverting-bank identifications, in accordance
with ANS X9.100–140; and
(3) Identifies the bank that truncated the
original check, in accordance with ANS
X9.100–140.
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31
Federal Reserve System
§ 229.53
returns the substitute check or a paper
or electronic representation of such
substitute check and to any subsequent
recipient, which could include a collecting or returning bank, the depositary bank, the drawer, the drawee, the
payee, the depositor, and any indorser.
These parties receive the warranties
regardless of whether they received the
substitute check or a paper or electronic representation of a substitute
check.
EFFECTIVE DATE NOTE: At 82 FR 27584, June
15, 2017, § 229.52 was amended by revising
paragraph (a), effective July 1, 2018. For the
convenience of the user, the revised text is
set forth as follows:
§ 229.52
Substitute check warranties.
(a) Content and provision of substitutecheck warranties. (1) 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—
(i) The substitute check meets the requirements for legal equivalence described in
§ 229.51(a)(1) and (2); and
(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.
(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 in paragraph (a)(1) of this section
regardless of whether the bank received consideration.
*
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§ 229.53
*
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*
*
Substitute check indemnity.
(a) Scope of indemnity. 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 sub-
stitute check instead of the original
check.
(b) Indemnity amount—(1) In general.
Unless otherwise indicated by paragraph (b)(2) or (b)(3) of this section, the
amount of the indemnity under paragraph (a) of this section is as follows:
(i) If the loss resulted from a breach
of a substitute check warranty provided under § 229.52, the amount of the
indemnity shall be the amount of any
loss (including interest, costs, reasonable attorney’s fees, and other expenses
of representation) proximately caused
by the warranty breach.
(ii) If the loss did not result from a
breach of a substitute check warranty
provided under § 229.52, the amount of
the indemnity shall be the sum of—
(A) The amount of the 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)
related to the substitute check.
(2) Comparative negligence. (i) If a loss
described in paragraph (a) of this section results in whole or in part from
the indemnified person’s negligence or
failure to act in good faith, then the indemnity amount described in paragraph (b)(1) of this section shall be reduced in proportion to the amount of
negligence or bad faith attributable to
the indemnified person.
(ii) Nothing in this paragraph (b)(2)
reduces the rights of a consumer or any
other person under the U.C.C. or other
applicable provision of state or federal
law.
(3) Effect of producing the original
check or a sufficient copy—
(i) If an indemnifying bank produces
the original check or a sufficient copy,
the indemnifying bank shall—
(A) Be liable under this section only
for losses that are incurred up to the
time that the bank provides that original check or sufficient copy to the indemnified person; and
(B) Have a right to the return of any
funds it has paid under this section in
excess of those losses.
(ii) The production by the indemnifying bank of the original check or a
sufficient
copy
under
paragraph
(b)(3)(i) of this section shall not absolve the indemnifying bank from any
liability under any warranty that the
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31
§ 229.54
12 CFR Ch. II (1–1–18 Edition)
bank has provided under § 229.52 or
other applicable law.
(c) Subrogation of rights—(1) In general. An indemnifying bank shall be
subrogated to the rights of the person
that it indemnifies to the extent of the
indemnity it has provided and may attempt to recover from another person
based on a warranty or other claim.
(2) Duty of indemnified person for subrogated claims. Each indemnified person
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
person related to a check that forms
the basis for the indemnification.
EFFECTIVE DATE NOTE: At 82 FR 27585, June
15, 2017, § 229.53 was amended by revising
paragraph (a), effective July 1, 2018. For the
convenience of the user, the revised text is
set forth as follows:
§ 229.53
Substitute check indemnity.
(a) Scope of indemnity. (1) 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.
(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.
*
*
*
*
*
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§ 229.54 Expedited recredit for consumers.
(a) Circumstances giving rise to a claim.
A consumer may make a claim under
this section for a recredit with respect
to a substitute check if the consumer
asserts in good faith that—
(1) The bank holding the consumer’s
account charged that account for a
substitute check that was provided to
the consumer (although the consumer
need not be in possession of that sub-
stitute check at the time he or she submits a claim);
(2) The substitute check was not
properly charged to the consumer account or the consumer has a warranty
claim with respect to the substitute
check;
(3) The consumer suffered a resulting
loss; and
(4) Production of the original check
or a sufficient copy is necessary to determine whether or not the substitute
check in fact was improperly charged
or whether the consumer’s warranty
claim is valid.
(b) Procedures for making claims. A
consumer shall make his or her claim
for a recredit under this section with
the bank that holds the consumer’s account in accordance with the timing,
content, and form requirements of this
section.
(1) Timing of claim. (i) The consumer
shall submit his or her claim such that
the bank receives the claim by the end
of the 40th calendar day after the later
of the calendar day on which the bank
mailed or delivered, by a means agreed
to by the consumer—
(A) The periodic account statement
that contains information concerning
the transaction giving rise to the
claim; or
(B) The substitute check giving rise
to the claim.
(ii) If the consumer cannot submit
his or her claim by the time specified
in paragraph (b)(1)(i) of this section because of extenuating circumstances,
the bank shall extend the 40-calendarday period by an additional reasonable
amount of time.
(iii) If a consumer makes a claim
orally and the bank requires the claim
to be in writing, the consumer’s claim
is timely if the oral claim was received
within the time described in paragraphs (b)(1)(i)–(ii) of this section and
the written claim was received within
the time described in paragraph
(b)(3)(ii) of this section.
(2) Content of claim. (i) The consumer’s claim shall include the following information:
(A) A description of the consumer’s
claim, including the reason why the
consumer believes his or her account
was improperly charged for the substitute check or the nature of his or
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Federal Reserve System
§ 229.54
her warranty claim with respect to
such check;
(B) A statement that the consumer
suffered a loss and an estimate of the
amount of that loss;
(C) The reason why production of the
original check or a sufficient copy is
necessary to determine whether or not
the charge to the consumer’s account
was proper or the consumer’s warranty
claim is valid; and
(D) Sufficient information to allow
the bank to identify the substitute
check and investigate the claim.
(ii) If a consumer attempts to make a
claim but fails to provide all the information in paragraph (b)(2)(i) of this
section that is required to constitute a
claim, the bank shall inform the consumer that the claim is not complete
and identify the information that is
missing.
(3) Form and submission of claim; computation of time for bank action. The
bank holding the account that is the
subject of the consumer’s claim may,
in its discretion, require the consumer
to submit the information required by
this section in writing. A bank that requires a written submission—
(i) May permit the consumer to submit the written claim electronically;
(ii) Shall inform a consumer who submits a claim orally of the written
claim requirement at the time of the
oral claim and may require such consumer to submit the written claim
such that the bank receives the written
claim by the 10th business day after
the banking day on which the bank received the oral claim; and
(iii) Shall compute the time periods
for acting on the consumer’s claim described in paragraph (c) of this section
from the date on which the bank received the written claim.
(c) Action on claims. A bank that receives a claim that meets the requirements of paragraph (b) of this section
shall act as follows:
(1) Valid consumer claim. If the bank
determines that the consumer’s claim
is valid, the bank shall—
(i) Recredit the consumer’s account
for the amount of the consumer’s loss,
up to the amount of the substitute
check, plus interest if the account is an
interest-bearing account, no later than
the end of the business day after the
banking day on which the bank makes
that determination; and
(ii) Send to the consumer the notice
required by paragraph (e)(1) of this section.
(2) Invalid consumer claim. If a bank
determines that the consumer’s claim
is not valid, the bank shall send to the
consumer the notice described in paragraph (e)(2) of this section.
(3) Recredit pending investigation. If
the bank has not taken an action described in paragraph (c)(1) or (c)(2) of
this section before the end of the 10th
business day after the banking day on
which the bank received the claim, the
bank shall—
(i) By the end of that business day—
(A) Recredit the consumer’s account
for the amount of the consumer’s loss,
up to the lesser of the amount of the
substitute check or $2,500, plus interest
on that amount if the account is an interest-bearing account; and
(B) Send to the consumer the notice
required by paragraph (e)(1) of this section; and
(ii) Recredit the consumer’s account
for the remaining amount of the consumer’s loss, if any, up to the amount
of the substitute check, plus interest if
the account is an interest-bearing account, no later than the end of the 45th
calendar day after the banking day on
which the bank received the claim and
send to the consumer the notice required by paragraph (e)(1) of this section, unless the bank prior to that time
has determined that the consumer’s
claim is or is not valid in accordance
with paragraph (c)(1) or (c)(2) of this
section.
(4) Reversal of recredit. A bank may
reverse a recredit that it has made to a
consumer account under paragraph
(c)(1) or (c)(3) of this section, plus interest that the bank has paid, if any,
on that amount, if the bank—
(i) Determines that the consumer’s
claim was not valid; and
(ii) Notifies the consumer in accordance with paragraph (e)(3) of this section.
(d) Availability of recredit—(1) Nextday availability. Except as provided in
paragraph (d)(2) of this section, a bank
shall make any amount that it recredits to a consumer account under
this section available for withdrawal
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kpayne on DSK54DXVN1OFR with $$_JOB
§ 229.54
12 CFR Ch. II (1–1–18 Edition)
no later than the start of the business
day after the banking day on which the
bank provides the recredit.
(2) Safeguard exceptions. A bank may
delay availability to a consumer of a
recredit provided under paragraph
(c)(3)(i) of this section until the start of
the earlier of the business day after the
banking day on which the bank determines the consumer’s claim is valid or
the 45th calendar day after the banking
day on which the bank received the
oral or written claim, as required by
paragraph (b) of this section, if—
(i) The consumer submits the claim
during the 30-calendar-day period beginning on the banking day on which
the consumer account was established;
(ii) Without regard to the charge that
gave rise to the recredit claim—
(A) On six or more business days during the six-month period ending on the
calendar day on which the consumer
submitted 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
(B) On two or more business days
during such six-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; or
(iii) The bank has reasonable cause
to believe that the claim is fraudulent,
based on facts that would cause a wellgrounded belief in the mind of a reasonable person that the claim is fraudulent. The fact that the check in question or the consumer is of a particular
class may not be the basis for invoking
this exception.
(3) Overdraft fees. A bank that delays
availability as permitted in paragraph
(d)(2) of this section may not impose an
overdraft fee with respect to drafts
drawn by the consumer on such recredited funds until the fifth calendar day
after the calendar day on which the
bank sent the notice required by paragraph (e)(1) of this section.
(e) Notices relating to consumer expedited recredit claims—(1) Notice of recredit. A bank that recredits a consumer account under paragraph (c) of
this section shall send notice to the
consumer of the recredit no later than
the business day after the banking day
on which the bank recredits the consumer account. This notice shall describe—
(i) The amount of the recredit; and
(ii) The date on which the recredited
funds will be available for withdrawal.
(2) Notice that the consumer’s claim is
not valid. If a bank determines that a
substitute check for which a consumer
made a claim under this section was in
fact properly charged to the consumer
account or that the consumer’s warranty claim for that substitute check
was not valid, the bank shall send notice to the consumer no later than the
business day after the banking day on
which the bank makes that determination. This notice shall—
(i) Include the original check or a
sufficient copy, except as provided in
§ 229.58;
(ii) Demonstrate to the consumer
that the substitute check was properly
charged or the consumer’s warranty
claim is not valid; and
(iii) Include the information or documents (in addition to the original
check or sufficient copy), if any, on
which the bank relied in making its determination or a statement that the
consumer may request copies of such
information or documents.
(3) Notice of a reversal of recredit. A
bank that reverses an amount it previously recredited to a consumer account shall send notice to the consumer no later than the business day
after the banking day on which the
bank made the reversal. This notice
shall include the information listed in
paragraph (e)(2) of this section and also
describe—
(i) The amount of the reversal, including both the amount of the recredit (including the interest component, if any) and the amount of interest paid on the recredited amount, if
any, being reversed; and
(ii) The date on which the bank made
the reversal.
(f) 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 provision of law, such as a claim
for wrongful dishonor of a check under
the U.C.C., or from liability for additional damages, such as damages under
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31
Federal Reserve System
§ 229.55
§ 229.53 or § 229.56 of this subpart or
U.C.C. 4–402.
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§ 229.55
Expedited recredit for banks.
(a) Circumstances giving rise to a claim.
A bank that has an indemnity claim
under § 229.53 with respect to a substitute check may make an expedited
recredit claim against an indemnifying
bank if—
(1) The claimant bank or a bank that
the claimant bank has indemnified—
(i) Has received a claim for expedited
recredit from a consumer under § 229.54;
or
(ii) Would have been subject to such
a claim if the consumer account had
been charged for the substitute check;
(2) The claimant bank is obligated to
provide an expedited recredit with respect to such substitute check under
§ 229.54 or otherwise has suffered a resulting loss; and
(3) The production of the original
check or a sufficient copy is necessary
to determine the validity of the charge
to the consumer account or the validity of any warranty claim connected
with such substitute check.
(b) Procedures for making claims. A
claimant bank shall send its claim to
the indemnifying bank, subject to the
timing, content, and form requirements of this section.
(1) Timing of claim. The claimant
bank shall submit its claim such that
the indemnifying bank receives the
claim by the end of the 120th calendar
day after the date of the transaction
that gave rise to the claim.
(2) Content of claim. The claimant
bank’s claim shall include the following information—
(i) A description of the consumer’s
claim or the warranty claim related to
the substitute check, including why
the bank believes that the substitute
check may not be properly charged to
the consumer account;
(ii) A statement that the claimant
bank is obligated to recredit a consumer account under § 229.54 or otherwise has suffered a loss and an estimate of the amount of that recredit or
loss, including interest if applicable;
(iii) The reason why production of
the original check or a sufficient copy
is necessary to determine the validity
of the charge to the consumer account
or the warranty claim; and
(iv) Sufficient information to allow
the indemnifying bank to identify the
substitute check and investigate the
claim.
(3) Requirements relating to copies of
substitute checks. If the information
submitted by a claimant bank under
paragraph (b)(2) of this section includes
a copy of any substitute check, the
claimant bank shall take reasonable
steps to ensure that the copy cannot be
mistaken for the legal equivalent of
the check under § 229.51(a) or sent or
handled by any bank, including the indemnifying bank, for forward collection or return.
(4) Form and submission of claim; computation of time. The indemnifying bank
may, in its discretion, require the
claimant bank to submit the information required by this section in writing, including a copy of the paper or
electronic claim submitted by the consumer, if any. An indemnifying bank
that requires a written submission—
(i) May permit the claimant bank to
submit the written claim electronically;
(ii) Shall inform a claimant bank
that submits a claim orally of the written claim requirement at the time of
the oral claim; and
(iii) Shall compute the 10-day time
period for acting on the claim described in paragraph (c) of this section
from the date on which the bank received the written claim.
(c) Action on claims. No later than the
10th business day after the banking day
on which the indemnifying bank receives a claim that meets the requirements of paragraph (b) of this section,
the indemnifying bank shall—
(1) Recredit the claimant bank for
the amount of the claim, up to the
amount of the substitute check, plus
interest if applicable;
(2) Provide to the claimant bank the
original check or a sufficient copy; or
(3) Provide information to the claimant bank regarding why the indemnifying bank is not obligated to comply
with paragraph (c)(1) or (c)(2) of this
section.
(d) Recredit does not abrogate other liabilities. Providing a recredit to a
claimant bank under this section does
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31
§ 229.56
12 CFR Ch. II (1–1–18 Edition)
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not absolve the indemnifying bank
from liability for claims brought under
any other law or from additional damages under § 229.53 or § 229.56.
(e) Indemnifying bank’s right to a refund. (1) If a claimant bank reverses a
recredit it previously made to a consumer account under § 229.54 or otherwise receives reimbursement for a substitute check that formed the basis of
its claim under this section, the claimant bank shall provide a refund
promptly to any indemnifying bank
that previously advanced funds to the
claimant bank. The amount of the refund to the indemnifying bank shall be
the amount of the reversal or reimbursement obtained by the claimant
bank, up to the amount previously advanced by the indemnifying bank.
(2) If the indemnifying bank provides
the claimant bank with the original
check or a sufficient copy under paragraph (c)(2) of this section, § 229.53(b)(3)
governs the indemnifying bank’s entitlement to repayment of any amount
provided to the claimant bank that exceeds the amount of losses the claimant bank incurred up to that time.
§ 229.56 Liability.
(a) Measure of damages—(1) In general.
Except as provided in paragraph (a)(2)
or (a)(3) of this section or § 229.53, any
person that breaches a warranty described in § 229.52 or fails to comply
with any requirement of this subpart
with respect to any other person shall
be liable to that person for an amount
equal to the sum of—
(i) The amount of the loss suffered by
the person as a result of the breach or
failure, up to the amount of the substitute check; and
(ii) 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 a person receives under paragraph (a)(1) of this section shall be reduced by any amount that the person
receives and retains as a recredit under
§ 229.54 or § 229.55.
(3) Comparative negligence. (i) If a person incurs damages that resulted in
whole or in part from that person’s
negligence or failure to act in good
faith, then the amount of any damages
due to that person under paragraph
(a)(1) of this section shall be reduced in
proportion to the amount of negligence
or bad faith attributable to that person.
(ii) Nothing in this paragraph (a)(3)
reduces the rights of a consumer or any
other person under the U.C.C. or other
applicable provision of federal or state
law.
(b) Timeliness of action. Delay by a
bank beyond any time limits prescribed or permitted by this subpart is
excused if the delay is caused by interruption of communication or computer
facilities, suspension of payments by
another bank, war, emergency conditions, failure of equipment, or other
circumstances beyond the control of
the bank and if the bank uses such diligence as the circumstances require.
(c) Jurisdiction. A person may bring
an action to enforce a claim under this
subpart in any United States district
court or in any other court of competent jurisdiction. Such claim shall be
brought within one year of the date on
which the person’s cause of action accrues. For purposes of this paragraph, a
cause of action accrues as of the date
on which the injured person first
learns, or by which such person reasonably should have learned, of the facts
and circumstances giving rise to the
cause of action, including the identity
of the warranting or indemnifying
bank against which the action is
brought.
(d) Notice of claims. Except as otherwise provided in this paragraph (d), unless a person gives notice of a claim
under this section to the warranting or
indemnifying bank within 30 calendar
days after the person has reason to
know of both the claim and the identity of the warranting or indemnifying
bank, the warranting or indemnifying
bank is discharged from liability in an
action to enforce a claim under this
subpart to the extent of any loss
caused by the delay in giving notice of
the claim. A timely recredit claim by a
consumer under § 229.54 constitutes
timely notice under this paragraph.
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Federal Reserve System
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§ 229.57
Pt. 229, App. A
Consumer awareness.
(a) General disclosure requirement and
content. Each bank shall provide, in accordance with paragraph (b) of this section, a brief disclosure to each of its
consumer customers that describes—
(1) That a substitute check is the
legal equivalent of an original check;
and
(2) The consumer recredit rights that
apply when a consumer in good faith
believes that a substitute check was
not properly charged to his or her account.
(b) Distribution—(1) Disclosure to consumers who receive paid checks with periodic account statements. A bank shall
provide the disclosure described in
paragraph (a) of this section to a consumer customer who receives paid
original checks or paid substitute
checks with his or her periodic account
statement—
(i) No later than the first regularly
scheduled communication with the
consumer after October 28, 2004, for
each consumer who is a customer of
the bank on that date; and
(ii) At the time the customer relationship is initiated, for each customer
relationship established after October
28, 2004.
(2) Disclosure to consumers who receive
substitute checks on an occasional basis—
(i) The bank shall provide the disclosure described in paragraph (a) of this
section to a consumer customer of the
bank who requests an original check or
a copy of a check and receives a substitute check. If feasible, the bank
shall provide this disclosure at the
time of the consumer’s request; otherwise, the bank shall provide this disclosure no later than the time at which
the bank provides a substitute check in
response to the consumer’s request.
(ii) The bank shall provide the disclosure described in paragraph (a) of this
section to a consumer customer of the
bank who receives a returned substitute check, at the time the bank
provides such substitute check.
(3) Multiple account holders. A bank
need not give separate disclosures to
each customer on a jointly held account.
§ 229.58 Mode of delivery of information.
A bank may deliver any notice or
other information that it is required to
provide under this subpart by United
States mail or by any other means
through which the recipient has agreed
to receive account information. If a
bank is required to provide an original
check or a sufficient copy, the bank instead may provide an electronic image
of the original check or sufficient copy
if the recipient has agreed to receive
that information electronically.
§ 229.59 Relation to other law.
The Check 21 Act and this subpart supersede any provision of federal or
state law, including the Uniform Commercial Code, that is inconsistent with
the Check 21 Act or this subpart, but
only to the extent of the inconsistency.
§ 229.60 Variation by agreement.
Any provision of § 229.55 may be varied by agreement of the banks involved. No other provision of this subpart may be varied by agreement by
any person or persons.
APPENDIX A TO PART 229—ROUTING
NUMBER GUIDE TO NEXT-DAY AVAILABILITY CHECKS AND LOCAL CHECKS
A. Each bank is assigned a routing number
by 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
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31
Pt. 229, App. A
12 CFR Ch. II (1–1–18 Edition)
(San Francisco). Adding 2 to the first digit
denotes 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
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1 0110
0610
0611
0612
0613
0620
0621
0622
0630
0631
0632
0640
0641
0642
0650
0651
0652
0653
0654
0655
0660
0670
0710
0711
0712
0719
0720
0724
0730
0739
0740
0749
0750
0759
0810
0812
0813
0815
0819
0820
0829
0830
0839
0840
0841
0842
0843
0863
0865
0910
0911
0912
0913
0914
0915
0918
0919
0111
0112
0113
0114
0115
0116
0117
0118
0119
0210
0211
0212
0213
0214
0215
0216
0219
0220
0223
0260
0280
0310
0311
0312
0313
0319
0360
0410
0412
0420
0421
0422
0423
0430
0432
0433
0434
0440
0441
0442
0510
0514
0515
0519
0520
0521
0522
0530
0531
0532
0539
0540
0550
0560
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0920
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1011
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1019
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1021
1022
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2423
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2434
2440
2441
2442
2510
2514
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2519
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2521
2522
2530
2531
2532
2539
2540
2550
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2570
2610
2611
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2621
2622
2630
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2632
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2650
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31
Federal Reserve System
Pt. 229, App. C
2724
3023
2730
3030
2739
3031
2740
3039
2749
3040
2750
3041
2759
3049
2810
3070
2812
3110
2813
3111
2815
3113
2819
3119
2820
3120
2829
3122
2830
3123
2839
3130
2840
3131
2841
3140
2842
3149
2843
3163
2863
3210
2865
3211
2910
3212
2911
3213
2912
3220
2913
3221
2914
3222
2915
3223
2918
3224
2919
3230
2920
3231
2921
3232
2929
3233
2960
3240
3010
3241
3011
3242
3012
3243
3019
3250
3020
3251
3021
3252
3022
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.
kpayne on DSK54DXVN1OFR with $$_JOB
0001
0048
0120
0400
0500
0026
0004
0001
0043
0030
0050
0003
0002
0027
5
1
8
5
1
6
0
4
7
0
3
3
3
8
0530
0539
0610
0620
0630
0640
0650
0660
0710
0711
0720
0730
0740
0750
0020
0008
0014
0019
0019
0010
0021
0010
0030
0711
0029
0033
0020
0012
0004
0013
0059
0003
0008
0026
0004
0019
0024
0012
5
8
3
9
0
7
8
9
0
6
0110
0212
0260
0410
0420
0430
0430
0610
0710
0730
0053
0639
0973
0291
0091
0143
1862
0876
0450
0091
6
1
9
5
6
5
2
6
1
4
1110
1120
1130
1140
1210
1220
1230
1240
1250
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9
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0
9
1
0
9
1
0
0
8
1
9
Frm 00893
8
1
9
1
4
6
3
3
1
FEDERAL HOME LOAN BANKS
0740
0810
0910
1010
1011
1110
1119
1210
1240
1250
0101
0091
0091
0091
0194
1083
1083
0070
0287
0050
9
9
2
2
7
7
0
1
4
3
[53 FR 19433, May 27, 1988]
EDITORIAL NOTE: For FEDERAL REGISTER citations affecting appendix A to part 229, see
the List of CFR Sections Affected, which appears in the Finding Aids section of the
printed volume and at www.fdsys.gov.
APPENDIX B TO PART 229 [RESERVED]
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 Availability Policy Disclosures
Model Clauses
C–6 Holds on other funds (check cashing)
C–7 Holds on other funds (other account)
C–8 Appendix B availability (nonlocal
checks)
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0003
0001
0004
0072
0037
0016
0001
0031
0001
C–1 Next-day availability
C–2 Next-day availability and § 229.13 exceptions
C–3 Next-day availability, case-by-case holds
to statutory limits, and § 229.13 exceptions
C–4 Holds to statutory limits on all deposits
(includes chart)
C–5 Holds to statutory limits on all deposits
C–5A Substitute check policy disclosure
FEDERAL RESERVE BANKS
0110
0111
0210
0212
0213
0220
0310
0410
0420
0430
0440
0510
0519
0520
0810
0820
0830
0840
0910
0920
1010
1020
1030
1040
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31
Pt. 229, App. C
12 CFR Ch. II (1–1–18 Edition)
C–9 Automated teller machine deposits (extended hold)
C–10 Cash withdrawal limitation
C–11 Credit union interest payment policy
C–11A Availability of Funds Deposited at
Other Locations
Model Notices
C–12 Exception hold notice
C–13 Reasonable cause hold notice
C–14 One-time notice for large deposit and
redeposited check exception holds
C–15 One-time notice for repeated overdraft
exception holds
C–16 Case-by-case hold notice
C–17 Notice at locations where employees accept consumer deposits
C–18 Notice at locations where employees accept consumer deposits (case-by-case
holds)
C–19 Notice at automated teller machines
C–20 Notice at automated teller machines
(delayed receipt)
C–21 Deposit slip notice
C–22 Expedited Recredit Claim, Valid Claim
Refund Notice
C–23 Expedited Recredit Claim, Provisional
Refund Notice
C–24 Expedited Recredit Claim, Denial Notice
C–25 Expedited Recredit Claim, Reversal Notice
Longer Delays May Apply
C–1—Next-Day Availability
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.
Your Ability To Withdraw Funds
Special Rules for New Accounts
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.
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.
Model Availability Policy Disclosures
C–2—Next-day availability and § 229.13
exceptions
Your Ability To Withdraw Funds
kpayne on DSK54DXVN1OFR with $$_JOB
draw 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.
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 with-
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31
Federal Reserve System
Pt. 229, App. C
C–3—Next-Day Availability, Case-by-Case
Holds to Statutory Limits, and § 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.
kpayne on DSK54DXVN1OFR with $$_JOB
Longer Delays May Apply
In some cases, we will not make all of the
funds that you deposit by check available to
you on the first business day after the day of
your deposit. Depending on the type of check
that you deposit, funds may not be available
until the fifth business day after the day of
your deposit. The first $100 of your deposits,
however, may be available on the first business day.
If we are not going to make all of the funds
from your deposit available on the first business day, we will notify you at the time you
make your deposit. We will also tell you
when the funds will be available. If your deposit is not made directly to one of our employees, or if we decide to take this action
after you have left the premises, we will mail
you the notice by the day after we receive
your deposit.
If you will need the funds from a deposit
right away, you should ask us when the
funds will be available.
In addition, funds you deposit by check
may be delayed for a longer period under the
following circumstances:
• We believe a check you deposit will not
be paid.
• You deposit checks totaling more than
$5,000 on any one day.
• You redeposit a check that has been returned unpaid.
• You have overdrawn your account repeatedly in the last six months.
• There is an emergency, such as failure of
computer or communications equipment.
We will notify you if we delay your ability
to withdraw funds for any of these reasons,
and we will tell you when the funds will be
available. They will generally be available
no later than the (number) business day after
the day of your deposit.
Special Rules for New Accounts
If you are a new customer, the following
special rules will apply during the first 30
days your account is open.
Funds from electronic direct deposits to
your account will be available on the day we
receive the deposit. Funds from deposits of
cash, wire transfers, and the first $5,000 of a
day’s total deposits of cashier’s, certified,
teller’s, traveler’s, and federal, state and
local government checks will be available on
the first business day after the day of your
deposit if the deposit meets certain conditions. For example, the checks must be payable to you (and you may have to use a special deposit slip). The excess over $5,000 will
be available on the ninth business day after
the day of your deposit. If your deposit of
these checks (other than a U.S. Treasury
check) is not made in person to one of our
employees, the first $5,000 will not be available until the second business day after the
day of your deposit.
Funds from all other check deposits will be
available on the (number) business day after
the day of your deposit.
C–4—Holds to Statutory Limits On All
Deposits (Includes Chart)
Your Ability To Withdraw Funds
Our policy is to delay the availability of
funds 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.
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31
12 CFR Ch. II (1–1–18 Edition)
• 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.
Some
checks
are
marked
‘‘payable
through’’ and have a four-or nine-digit number nearby. For these checks, use this fourdigit number (or the first four digits of the
nine-digit number), not the routing number
on the bottom of the check, to determine if
these checks are local or nonlocal. Once you
have determined the first four digits of the
routing number (1234 in the examples above),
the following chart will show you when funds
from the check will be available:
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:
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31
ER24MR97.000
kpayne on DSK54DXVN1OFR with $$_JOB
Pt. 229, App. C
Federal Reserve System
First four digits from routing
number
Pt. 229, App. C
[local numbers] .................
All other numbers .............
$100 on the first business day after the day of your
deposit.
Remaining funds on the second business day after
the day of your deposit.
$100 on the first business day after the day of your
deposit.
Remaining funds on the fifth 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.
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
kpayne on DSK54DXVN1OFR with $$_JOB
When funds are available if a deposit is
made on a Monday
When funds are available
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.
Tuesday.
Wednesday.
Tuesday.
Monday of the following week.
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)].
887
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31
12 CFR Ch. II (1–1–18 Edition)
• 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.
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:
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 fourdigit number (or the first four digits of the
nine-digit number), not the routing number
on the bottom of the check, to determine if
these checks are local or nonlocal. Our policy is to make funds from local and nonlocal
checks available as follows.
1. Local checks. The first $100 from a deposit of local checks will be available on the
Other Check Deposits
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31
ER17SE97.000
kpayne on DSK54DXVN1OFR with $$_JOB
Pt. 229, App. C
Federal Reserve System
Pt. 229, App. C
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.
3. Local and nonlocal checks. If you deposit both categories of checks, $100 from the
checks will be available on the first business
day after the day of your deposit, not $100
from each category of check.
Longer Delays May Apply
Funds you deposit by check may be delayed for a longer period under the following
circumstances:
• We believe a check you deposit will not
be paid.
• You deposit checks totaling more than
$5,000 on any one day.
• You redeposit a check that has been returned unpaid.
• You have overdrawn your account repeatedly in the last six months.
• There is an emergency, such as failure of
computer or communications equipment.
We will notify you if we delay your ability
to withdraw funds for any of these reasons,
and we will tell you when the funds will be
available. They will generally be available
no later than the (number) business day after
the day of your deposit.
kpayne on DSK54DXVN1OFR with $$_JOB
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 avail-
able 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–5A—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).
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
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31
Pt. 229, App. C
12 CFR Ch. II (1–1–18 Edition)
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.
tions 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.
How Do I Make a Claim for a Refund?
C–9—Automated Teller Machine Deposits
(Extended Hold)
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).
Deposits at Automated Teller Machines
Funds from any deposits (cash or checks)
made at automated teller machines (ATMs)
we do not own or operate will not be available until the fifth business day after the
day of your deposit. This rule does not apply
at ATMs that we own or operate.
(A list of our ATMs is enclosed. or A list of
ATMs where you can make deposits but that are
not owned or operated by us is enclosed. or All
ATMs that we own or operate are identified as
our machines.)
C–10—Cash Withdrawal Limitation
Cash Withdrawal Limitation
We place certain limitations on withdrawals in cash. In general, $100 of a deposit
is available for withdrawal in cash on the
first business day after the day of deposit. In
addition, a total of $400 of other funds becoming available on a given day is available
for withdrawal in cash at or after (time no
later than 5:00 p.m.) on that day. Any remaining funds will be available for withdrawal in
cash on the following business day.
C–11—Credit Union Interest Payment Policy
Model Clauses
Interest Payment Policy
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.
C–7—Holds on Other Funds (Other Account)
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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.
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 l, while a deposit made on June 17
earns interest from July 1.
C–11A—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.
Model Notices
C–8—Appendix B Availability (Nonlocal
Checks)
C–12—Exception Hold Notice
3. Certain other checks. We can process
nonlocal checks drawn on financial institu-
Notice of Hold
Account number: (number)
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Federal Reserve System
Pt. 229, App. C
Date of deposit: (date)
We are delaying the availability of (amount
being held) from this deposit. These funds
will be available on the (number) business
day after the day of your deposit.
We are taking this action because:
—A check you deposited was previously returned unpaid.
—You have overdrawn your account repeatedly in the last six months.
—The checks you deposited on this day exceed $5,000.
—An emergency, such as failure of computer
or communications equipment, has occurred.
—We believe a check you deposited will not
be paid for the following reasons [*]:
llllllllllllllllllllllll
llllllllllllllllllllllll
llllllllllllllllllllllll
[*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
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Notice of Hold
Account number: (number)
Date of deposit: (date)
We are delaying the availability of the
funds you deposited by the following check:
(description of check, such as amount and
drawer.)
These funds will be available on the
(number) business day after the day of your
deposit. The reason for the delay is explained
below:
—We received notice that the check is being
returned unpaid.
—We have confidential information that indicates that the check may not be paid.
—The check is drawn on an account with repeated overdrafts.
—We are unable to verify the endorsement of
a joint payee.
—Some information on the check is not consistent with other information on the
check.
—There are erasures or other apparent alterations on the check.
—The routing number of the paying bank is
not a current routing number.
—The check is postdated or has a stale date.
—Information from the paying bank indicates that the check may not be paid.
—We have been notified that the check has
been lost or damaged in collection.
—Other:
llllllllllllllllllllllll
[If you did not receive this notice at the
time you made the deposit and the check
you deposited is paid, we will refund to you
any fees for overdrafts or returned checks
that result solely from the additional delay
that we are imposing. To obtain a refund of
such fees, (description of procedure for obtaining refund).]
C–14—One-Time Notice for Large Deposit and
Redeposited Check Exception Holds
Notice of Hold
If you deposit into your account:
• Checks totaling more than $5,000 on any
one day, the first $5,000 deposited on any one
banking day will be available to you according to our general policy. The amount in excess of $5,000 will generally be available on
the (number) business day after the day of deposit for checks drawn on (bank name), the
(number) business day after the day of deposit for local checks and (number) business
day after the day of deposit for nonlocal
checks. If checks (not drawn on us) that otherwise would receive next-day availability
exceed $5,000, the excess will be treated as either local or nonlocal checks depending on
the location of the paying bank. If your
check deposit, exceeding $5,000 on any one
day, is a mix of local checks, nonlocal
checks, checks drawn on (bank name), or
checks that generally receive next-day availability, the excess will be calculated by first
adding together the (type of check), then the
(type of check), then the (type of check), then
the (type of check).
• A check that has been returned unpaid,
the funds will generally be available on the
(number) business day after the day of deposit for checks drawn on (bank name), the
(number) business day after the day of deposit for local checks and the (number) business day after the day of deposit for nonlocal
checks. Checks (not drawn on us) that otherwise would receive next-day availability will
be treated as either local or nonlocal checks
depending on the location of the paying
bank.
C–15—One-Time Notice for Repeated
Overdraft Exception Hold
Notice of Hold
Account Number: (number) Date of Notice:
(date)
We are delaying the availability of checks
deposited into your account due to repeated
overdrafts of your account. For the next six
months, deposits will generally be available
on the (number) business day after the day of
your deposit for checks drawn on (bank
name), the (number) business day after the
day of your deposit for local checks, and the
(number) business day after the day of deposit for nonlocal checks. Checks (not drawn
on us) that otherwise would have received
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Pt. 229, App. C
12 CFR Ch. II (1–1–18 Edition)
next-day availability will be treated as either local or nonlocal checks depending on
the location of the paying bank.
your institution’s rules
availability for details.
Notice of Hold
NOTICE
Account number: (number)
Date of deposit: (date)
We are delaying the availability of (amount
being held) from this deposit. These funds
will be available on the (number) business
day after the day of your deposit [(subject to
our cash withdrawal limitation policy)].
[If you did not receive this notice at the
time you made the deposit and the check
you deposited is paid, we will refund to you
any fees for overdrafts or returned checks
that result solely from the additional delay
that we are imposing. To obtain a refund of
such fees, (description of procedure for obtaining refund).]
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–17—Notice at locations where employees
accept consumer deposits
FUNDS AVAILABILITY POLICY
When funds can be withdrawn by cash or check
Description of deposit
Direct deposits .......................
Cash, wire transfers, cashier’s, certified, teller’s, or
government checks, checks
on (bank name) [unless
(any limitation reIated to
branches in different check
processing regions)], and
the first $100 of a day’s deposits of other checks.
Local checks ..........................
Nonlocal checks ....................
C–21—Deposit Slip Notice
Deposits may not be available for immediate withdrawal.
C–22—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–23—Expedited Recredit Claim, Provisional
Refund Notice
The day we receive the deposit
The first business day after
the day of deposit.
Notice of Provisional Refund
The second business day
after the day of deposit.
The fifth business day after
the day of deposit.
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 direct 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.
C–19—Notice at Automated Teller Machines
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funds
C–20—Notice at Automated Teller Machines
(Delayed Receipt)
C–16—Case-by-Case Hold Notice
AVAILABILITY OF DEPOSITS
Funds from deposits may not be available
for immediate withdrawal. Please refer to
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–24—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) 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
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31
Federal Reserve System
Pt. 229, App. D
of the other information that we used to
make our decision.]
C–25—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 [plus interest that we have paid you
on that amount] by withdrawing (amount)
from your account on (date).
[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 information we used to make our decision.]
[53 FR 19433, May 27, 1988, as amended at 53
FR 31293, Aug. 18, 1988; Reg. CC, 55 FR 21855,
May 30, 1990; 55 FR 50818, Dec. 11, 1990; 56 FR
7802, Feb. 26, 1991; 57 FR 3280, Jan. 29, 1992; 60
FR 51671, Oct. 3, 1995; 62 FR 13811, Mar. 24,
1997; 62 FR 48752, Sept. 17, 1997; 69 FR 47315,
47316, Aug. 4, 2004]
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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;
(C) A telephone number for receipt of notification of large-dollar returned checks; and
(D) Other information, provided that the
inclusion of such information does not interfere with the readability of the indorsement.
(iii) 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. 31
(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) 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.
(ii) A reconverting bank that also is the
paying bank with respect to the substitute
check 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.
31 The leading edge is definded 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.
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31
Pt. 229, App. E
12 CFR Ch. II (1–1–18 Edition)
(iii) The reconverting bank shall place on
the front of the check, outside the image of
the original check, its nine-digit routing
number (without arrows) and an asterisk at
each end of the number, in accordance with
ANS X9.100–140.
(iv) The reconverting bank shall place on
the front of the check, outside the image of
the original check, 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.
[69 FR 47316, Aug. 4, 2004]
EFFECTIVE DATE NOTE: At 82 FR 27585, June
15, 2017, appendix D to part 229 was removed
and reserved, effective July 1, 2018.
APPENDIX E TO PART 229—COMMENTARY
I. Introduction
A. Background
1. The Board interpretations, which are labeled ‘‘Commentary’’ and follow each section
of Regulation CC (12 CFR Part 229), provide
background material to explain the Board’s
intent in adopting a particular part of the
regulation; the Commentary also provides
examples to aid in understanding how a particular requirement is to work. Under section 611(e) of the Expedited Funds Availability Act (12 U.S.C. 4010(e)), no provision of
section 611 imposing any liability shall apply
to any act done or omitted in good faith conformity with any rule, regulation, or interpretation thereof by the Board of Governors
of the Federal Reserve System, notwithstanding the fact that after such act or omission has occurred, such rule, regulation, or
interpretation is amended, rescinded, or determined by judicial or other authority to be
invalid for any reason. The Commentary is
an ‘‘interpretation’’ of a regulation by the
Board within the meaning of section 611.
II. Section 229.2 Definitions
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A. Background
1. Section 229.2 defines the terms used in
the regulation. For the most part, terms are
defined as they are in section 602 of the Expedited Funds Availability Act (12 U.S.C.
4001). The Board has made a number of
changes for the sake of clarity, to conform
the terminology to that which is familiar to
the banking industry, to define terms that
are not defined in the EFA Act, and to carry
out the purposes of the EFA Act. The Board
also has incorporated by reference the definitions of the Uniform Commercial Code where
appropriate. Some of Regulation CC’s defini-
tions 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 accounts with general third party
payment powers but does not cover time deposits or savings deposits, including money
market deposit accounts, even though they
may have limited third party payment powers. The Board believes that it is appropriate
to exclude these accounts because of the reference to demand deposits in the 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 Subparts 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 Subpart C.
3. Interbank deposits, including accounts
of offices of domestic banks or foreign banks
located outside the United States, and direct
and indirect accounts of the United States
Treasury (including Treasury General Accounts and Treasury Tax and Loan 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
§ 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)
1. The Board has defined automated clearinghouse as a facility that processes debit
and credit transfers under rules established
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Federal Reserve System
Pt. 229, App. E
by a Federal Reserve Bank operating circular governing automated clearinghouse
items or the rules of an ACH association.
ACH credit transfers are included in the definition of electronic payment.
2. The reference to ‘‘debit and credit transfers’’ does not refer to the corresponding
debit and credit entries that are part of the
same transaction, but to different kinds of
ACH payments. In an ACH credit transfer,
the originator orders that its account be debited and another account credited. In an
ACH debit transfer, the originator, with
prior authorization, orders another account
to be debited and the originator’s account to
be credited.
3. A facility that handles only wire transfers (defined elsewhere) is not an ACH.
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
D. 229.2(c) Automated Teller Machine (ATM)
1. ATM is not defined in the EFA Act. The
regulation defines an ATM as an electronic
device at which a natural person may make
deposits to an account by cash or check and
perform other account transactions. Pointof-sale terminals, machines that only dispense cash, night depositories, and lobby deposit boxes are not ATMs within the meaning of the definition, either because they do
not accept deposits of cash or checks (e.g.,
point-of-sale terminals and cash dispensers)
or because they only accept deposits (e.g.,
night depositories and lobby boxes) and cannot perform other transactions. A lobby deposit box or similar receptacle in which written payment orders or deposits may be
placed is not an ATM.
2. A facility may be an ATM within this
definition even if it is a branch under state
or federal law, although an ATM is not a
branch as that term is used in this regulation.
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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
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. 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 Subpart B, the term
does not include corporations organized
under section 25A of the Federal Reserve
Act, 12 U.S.C. 611–631 (Edge corporations) or
corporations having an agreement or undertaking with the Board under section 25 of the
Federal Reserve Act, 12 U.S.C. 601–604a
(agreement corporations). For purposes of
Subparts C and D, and in connection therewith, Subpart A, any Federal Reserve Bank,
Federal Home Loan Bank, or any other person engaged in the business of banking is regarded as a bank. The phrase ‘‘any other person engaged in the business of banking’’ is
derived from U.C.C. 1–201(4), and is intended
to cover entities that handle checks for collection and payment, such as Edge and
agreement corporations, commercial lending
companies under 12 U.S.C. 3101, certain industrial banks, and private bankers, so that
virtually all checks will be covered by the
same rules for forward collection and return,
even though they may not be covered by the
requirements of Subpart B. For the purposes
of Subparts C and D, and in connection
therewith, Subpart A, the term also may include a state or a unit of general local government to the extent that it pays warrants
or other drafts drawn directly on the state or
local government itself, and the warrants or
other drafts are sent to the state or local
government for payment or collection.
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12 CFR Ch. II (1–1–18 Edition)
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.
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G. 229.2(f) Banking Day and (g) Business Day
1. The EFA Act defines business day as any
day excluding Saturdays, Sundays, and legal
holidays. Legal holiday, however, is not defined, and the variety of local holidays, together with the practice of some banks to
close midweek, makes the EFA Act’s definition difficult to apply. The Board believes
that two kinds of business days are relevant.
First, when determining the day when funds
are deposited or when a bank must perform
certain actions (such as returning a check),
the focus should be on a day that the bank is
actually open for business. Second, when
counting days for purposes of determining
when funds must be available under the regulation or when notice of nonpayment must
be received by the depositary bank, there
would be confusion and uncertainty in trying
to follow the schedule of a particular bank,
and there is less need to identify a day when
a particular bank is open. Most banks that
act as intermediaries (large correspondents
and Federal Reserve Banks) follow the same
holiday schedule. Accordingly, the regulation has two definitions: Business day generally follows the standard Federal Reserve
Bank holiday schedule (which is followed by
most large banks), and banking day is defined to mean that part of a business day on
which a bank is open for substantially all of
its banking activities.
2. The definition of banking day corresponds to the definition of banking day in
U.C.C. 4–104(a)(3), except that a banking day
is defined in terms of a business day. Thus,
if a bank is open on Saturday, Saturday
might be a banking day for purposes of the
U.C.C., but it would not be a banking day for
purposes of Regulation CC because Saturday
is never a business day under the regulation.
3. The definition of banking day is phrased
in terms of when ‘‘an office of a bank is
open’’ to indicate that a bank may observe a
banking day on a per-branch basis. A deposit
made at an ATM or off-premise facility (such
as a remote depository or a lock box) is considered made at the branch holding the account into which the deposit is made for the
purpose of determining the day of deposit.
All other deposits are considered made at the
branch at which the deposit is received. For
example, under § 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 offpremise facility, such as a night depository
or lock box, which is considered deposited
when removed from the facility and available for processing under § 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
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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.
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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.
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 treats drafts payable
through a bank as checks, even though under
the U.C.C. the payable-through bank is a collecting bank to make presentment and generally is not authorized to make payment
(U.C.C. 4–106(a)). The EFA Act does not expressly address items that are payable at a
bank. This regulation treats both payablethrough and payable-at demand drafts as
checks. The Board believes that treating demand drafts payable at a bank as checks will
not have a substantial effect on the operations of payable-at banks—by far the largest proportion of payable-at items are not
negotiable demand drafts, but time items,
such as commercial paper, bonds, notes,
bankers’ acceptances, and securities. These
time items are not covered by the requirements of the EFA Act or this regulation.
(The treatment of payable-through drafts is
discussed in greater detail in connection
with the definitions of local check and paying bank.)
4. The second category is checks drawn on
Federal Reserve Banks and Federal Home
Loan Banks. Principal and interest payments on federal debt instruments often are
paid with checks drawn on a Federal Reserve
Bank as fiscal agent of the United States,
and these fiscal agency checks are indistinguishable from other checks drawn on Federal Reserve Banks. (See 31 CFR Part 355.)
Federal Reserve Bank checks also are used
by some banks as substitutes for cashier’s or
teller’s checks. Similarly, savings and loan
associations often use checks drawn on Fed-
eral 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 gives the Board authority to define
functionally equivalent instruments as depository checks. 1 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 Board has expressly defined check to include drafts drawn on the U.S. Treasury and
drafts or warrants drawn by a state or a unit
of general local government on itself.
6. The fifth category of instrument included in the definition of check is U.S.
Postal Service money orders. These instruments are defined as checks because they
often are used as a substitute for checks by
consumers, even though money orders are
not negotiable under Postal Service regulations. The Board has not provided specific
rules for other types of money orders; these
instruments generally are drawn on or payable through or payable at banks and are
treated as checks on that basis.
7. The sixth and final category of instrument included in the definition of check is
traveler’s checks drawn on or payable
through or at a bank. Traveler’s check is defined in paragraph (hh) of this section.
8. Finally, for the purposes of 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.
9. A substitute check as defined in
§ 229.2(aaa) 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
§ 229.51(a).
10. The definition of check does not include
an instrument payable in a foreign currency
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.’’
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12 CFR Ch. II (1–1–18 Edition)
(i.e., other than in United States money as
defined in 31 U.S.C. 5101) or a credit card
draft (i.e., a sales draft used by a merchant
or a draft generated by a bank as a result of
a cash advance), or an ACH debit transfer.
The definition of check includes a check that
a bank may supply to a customer as a means
of accessing a credit line without the use of
a credit card.
L. 229.2(l) [Reserved]
M. 229.2(m) Check Processing Region
1. The 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.
N. 229.2(n) Consumer Account
1. Consumer account is defined as an account used primarily for personal, family, or
household purposes. An account that does
not meet the definition of consumer account
is a nonconsumer account. 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 § 229.18(e) (notice of changes in policy) apply only to consumer accounts. Section 229.13(g)(2) (onetime exception notice) and § 229.19(d) (use of
calculated availability) apply only to nonconsumer accounts.
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O. 229.2(o) Depositary Bank
1. The regulation uses the term depositary
bank rather than the term receiving depository institution. Receiving depository institution is a term unique to the EFA Act,
while depositary bank is the term used in
Article 4 of the U.C.C. and Regulation J.
2. A depositary bank includes the bank in
which the check is first deposited. If a foreign office of a U.S. or foreign bank sends
checks to its U.S. correspondent bank for
forward collection, the U.S. correspondent is
the depositary bank because foreign offices
of banks are not included in the definition of
bank.
3. If a customer deposits a check in its account at a bank, the customer’s bank is the
depositary bank with respect to the check.
For example, if a person deposits a check
into an account at a nonproprietary ATM,
the bank holding the account into which the
check is deposited is the depositary bank
even though another bank may service the
nonproprietary ATM and send the check for
collection. (Under § 229.35 the depositary
bank may agree with the bank servicing the
nonproprietary ATM to have the servicing
bank place its own indorsement on the check
as the depositary bank. For the purposes of
Subpart
C,
the
bank
applying
its
indorsement
as
the
depositary
bank
indorsement on the check is the depositary
bank.)
4. For purposes of Subpart B, a bank may
act as both the depositary bank and the paying bank with respect to a check, if the
check is payable by the bank in which it was
deposited, or if the check is payable by a
nonbank payor and payable through or at
the bank in which it was deposited. A bank
also is considered a depositary bank with respect to checks it receives as payee. For example, a bank is a depositary bank with respect to checks it receives for loan repayment, even though these checks are not deposited in an account at the bank. Because
these checks would not be ‘‘deposited to accounts,’’ they would not be subject to the
availability or disclosure requirements of
Subpart B.
P. 229.2(p) Electronic Payment
1. Electronic payment is defined to mean a
wire transfer as defined in § 229.2(11) or an
ACH credit transfer. 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 Board. Because ACH credit transfers frequently involve important consumer
payments, such as wages, the regulation requires that funds deposited by ACH credit
transfers be available for withdrawal on the
business day following deposit.
2. ACH debit transfers, even though they
may be transmitted electronically, are not
defined as electronic payments because the
receiver of an ACH debit transfer has the
right to return the transfer, which would reverse the credit given to the originator.
Thus, ACH debit transfers are more like
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checks than wire transfers. Further, bank
customers that receive funds by originating
ACH debit transfers are primarily large corporations, which generally would be able to
negotiate with their banks for prompt availability.
3. A point-of-sale transaction would not be
considered an electronic payment unless the
transaction was effected by means of an ACH
credit transfer or wire transfer.
Q. 229.2(q) Forward Collection
1. Forward collection is defined to mean
the process by which a bank sends a check to
the paying bank for 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.
R. 229.2(r) Local Check
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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 § 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.
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
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 checkprocessing 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.
T. 229.2(t) Merger Transaction
1. Merger transaction is a term used in
Subparts B and C in connection with transition rules for merged banks. It encompasses
mergers, consolidations, and purchase/assumption transactions of the type that usually must be approved under the Bank Merger Act (12 U.S.C. 1828(c)) or similar statutes;
it does not encompass acquisitions of a bank
under the Bank Holding Company Act (12
U.S.C. 1842) where an acquired bank maintains its separate corporate existence.
2. Regulation CC adopts a one-year transition period for banks that are party to a
merger transaction during which the merged
banks will continue to be treated as separate
entities. (See §§ 229.19(g) and 229.40.)
U. 229.2(u) 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 Board’s
regulation. To qualify as a noncash item, an
item must be handled as such and may not
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12 CFR Ch. II (1–1–18 Edition)
be handled as a cash item by the depositary
bank.
2. The regulation’s definition of noncash
item also includes checks that consist of
more than a single thickness of paper (except
checks that qualify for handling by automated check processing equipment, e.g.
those placed in carrier envelopes) and checks
that have not been preprinted or post-encoded in magnetic ink with the paying
bank’s routing number, as well as checks
with documents attached or accompanied by
special instructions. (In the context of this
definition, paying bank refers to the paying
bank as defined for purposes of Subpart C.)
3. A check that has been preprinted or
post-encoded with a routing number that has
been retired (e.g., because of a merger) for at
least three years is a noncash item unless
the current number is added for processing
purposes by placing the check in an encoded
carrier envelope or adding a strip to the
check.
4. Checks that are accompanied by special
instructions are also noncash items. For example, a person concerned about whether a
check will be paid may request the depositary bank to send a check for collection as a
noncash item with an instruction to the paying bank to notify the depositary bank
promptly when the check is paid or dishonored.
5. For purposes of forward collection, a
copy of a check is neither a check nor a
noncash item, but may be treated as either.
For purposes of return, a copy is generally a
notice in lieu of return. (See §§ 229.30(f) and
229.31(f).)
V. 229.2(v) [Reserved]
W. 229.2(w) [Reserved]
X. 229.2(x) [Reserved]
Y. 229.2(y) [Reserved]
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Z. 229.2(z) Paying Bank
1. The regulation uses this term in lieu of
the EFA Act’s ‘‘originating depository institution.’’ 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 payablethrough 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 §§ 229.30 and 229.36(a), a bank designated as a payable-through bank or pay-
able-at bank and to which the check is sent
for payment or collection is responsible for
the expedited return of checks and notice of
nonpayment requirements of Subpart C. The
payable-through or payable-at bank may
contract with the payor with respect to its
liability in discharging these responsibilities. The Board believes that the EFA Act
makes a clear connection between availability and the time it takes for checks to be
cleared and returned. Allowing the payablethrough 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 Subparts C and D
requirements, including notice of nonpayment, even if the check is not drawn by
a customer of that bank or the check is
fraudulent.
4. The phrase ‘‘and to which [the check] is
sent for payment or collection’’ includes
sending not only the physical check, but information regarding the check under a truncation arrangement.
5. Federal Reserve Banks and Federal
Home Loan Banks are also paying banks
under all subparts of the regulation with respect to checks payable by them, even
though such banks are not defined as banks
for purposes of Subpart B.
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
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.
AA. 229.2(aa) Proprietary ATM
1. All deposits at nonproprietary ATMs are
treated as deposits of nonlocal checks, and
deposits at proprietary ATMs generally are
treated as deposits at banking offices. The
Conference Report on the EFA Act indicates
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that the special availability rules for deposits received through nonproprietary ATMs
are provided because ‘‘nonproprietary ATMs
today do not distinguish among check deposits or between check and cash deposits’’
(H.R. Rep. No. 261, 100th Cong., 1st Sess. at
179 (1987)). Thus, a deposit of any combination of cash and checks at a nonproprietary
ATM may be treated as if it were a deposit
of nonlocal checks, because the depositary
bank does not know the makeup of the deposit and consequently is unable to place different holds on cash, local check, and
nonlocal check deposits made at the ATM.
2. A colloquy between Senators Proxmire
and Dodd during the floor debate on the
Competitive Equality Banking Act (133 Cong.
Rec. S11289 (Aug. 4, 1987)) indicates that
whether a bank operates the ATM is the primary criterion in determining whether the
ATM is proprietary to that bank. Because a
bank should be capable of ascertaining the
composition of deposits made to an ATM operated by that bank, an exception to the
availability schedules is not warranted for
these deposits. If more than one bank meets
the ‘‘owns or operates’’ criterion, the ATM is
considered proprietary to the bank that operates it. For the purpose of this definition,
the bank that operates an ATM is the bank
that puts checks deposited into the ATM
into the forward collection stream. An ATM
owned by one or more banks, but operated by
a nonbank servicer, is considered proprietary
to the bank or banks that own it.
3. The 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 Board believes that the
statutory proximity test was designed to
apply to situations where it would appear to
the depositor that the ATM is run by his or
her bank, because of the proximity of the
ATM to the bank. The Board believes that an
ATM located within 50 feet of a banking office would be presumed proprietary to that
bank unless it is clearly identified as being
owned or operated by another entity.
kpayne on DSK54DXVN1OFR with $$_JOB
BB. 229.2(bb) Qualified Returned Check
1. Subpart C requires the paying bank and
returning bank(s) to return checks in an expeditious manner. The banks may meet this
responsibility by returning a check to the
depositary bank by the same general means
used for forward collection of a check from
the depositary bank to the paying bank. One
way to speed the return process is to prepare
the returned check for automated processing. 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.
2. Generally, under the standard of care
imposed by § 229.38, a paying or returning
bank would be liable for any damages incurred due to misencoding of the routing
number, the amount of the check, or return
identifier on a qualified returned check unless the error was due to problems with the
depositary bank’s indorsement. (See also discussion of § 229.38(c).) A qualified returned
check that contains an encoding error would
still be a qualified returned check for purposes of the regulation.
3. A qualified returned check need not contain the elements of a check drawn on the
depositary bank, such as the name of the depositary bank. Because indorsements and
other information on carrier envelopes or
strips will not appear on a returned check
itself, banks will wish to retain carrier envelopes and/or microfilm or other records of
carrier envelopes or strips with their check
records.
CC. 229.2(cc) Returning Bank
1. Returning bank is defined to mean any
bank (excluding the paying bank and the depositary bank) handling a returned check. A
returning bank may or may not be a bank
that handled the returned check in the forward collection process. A returning bank includes a bank that agrees to handle a returned check for expeditious return to the
depositary bank under § 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
§ 229.35(b).)
DD. 229.2(dd) 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
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12 CFR Ch. II (1–1–18 Edition)
nine-digit routing number of the paying
bank generally is printed in magnetic ink
near the bottom of the check (the MICR
strip; see ANSI X9.13–1983). Subpart C requires depositary banks and subsequent collecting banks to place their routing numbers
in nine-digit form in their indorsements.
EE. 229.2(ee) [Reserved]
FF. 229.2(ff) [Reserved]
II. 229.2(ii) Uniform Commercial Code
GG. 229.2(gg) Teller’s Check
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.
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.
HH. 229.2(hh) Traveler’s Check
kpayne on DSK54DXVN1OFR with $$_JOB
to the next-day availability requirement for
new accounts, a traveler’s check should be
treated as a local or nonlocal check depending on the location of the paying bank. The
depositary bank may rely on the designation
of the paying bank by the routing number to
determine whether local or nonlocal treatment is required.
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 § 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
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
JJ. 229.2(jj) [Reserved]
KK. 229.2(kk) Unit of General Local
Government
1. Unit of general local government is defined to include a city, county, parish, town,
township, village, or other general purpose
political subdivision of a state. The term
does not include special purpose units, such
as school districts, water districts, or Indian
nations.
LL. 229.2(ll) Wire Transfer
1. The EFA Act delegates to the Board the
authority to define the term wire transfer.
The regulation defines wire transfer as an
unconditional order to a bank to pay a fixed
or determinable amount of money to a beneficiary, upon receipt or on a day stated in
the order, that is transmitted by electronic
or other means over certain networks or on
the books of banks and that is used primarily to transfer funds between commercial
accounts. ‘‘Unconditional’’ means that no
condition, such as presentation of documents, must be met before the bank receiving the order is to make payment. A wire
transfer may be transmitted by electronic or
other means. ‘‘Electronic means’’ include
computer-to-computer links, on-line terminals, telegrams (including TWX, TELEX, or
similar methods of communication), telephone calls, or other similar methods.
Fedwire (the Federal Reserve’s wire transfer
network), CHIPS (Clearing House Interbank
Payments System, operated by the New
York Clearing House), and book transfers
among banks or within one bank are covered
by this definition. Credits for credit and
debit card transactions are not wire transfers. The term wire transfer excludes electronic fund transfers as that term is defined
by the Electronic Fund Transfer Act.
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31
Federal Reserve System
Pt. 229, App. E
MM. 229.2(mm) [Reserved]
NN. 229.2(nn) Good Faith
1. This definition of good faith derives from
U.C.C. 3–103(a)(4).
count, 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.
OO. 229.2(oo) Interest Compensation
Examples.
1. This calculation of interest compensation
derives from U.C.C. 4A–506(b). (See §§ 229.34(e)
and 229.36(f).)
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.
PP. 229.2(pp) 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 §§ 229.2(s) and 229.19(a) of the regulation
and the commentary to §§ 229.2(s), 229.10(c),
229.14(a), 229.16(a), 229.18(b), and 229.19(a).
QQ. 229.2(qq) [Reserved]
RR. 229.2(rr) [Reserved]
SS. 229.2(ss) [Reserved]
TT. 229.2(tt) [Reserved]
UU. 229.2(uu) [Reserved]
VV. 229.2(vv) MICR Line
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.
YY. 229.2(yy) [Reserved]
WW. 229.2(ww) 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.
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XX. 229.2(xx) 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 ac-
ZZ. 229.2(zz) Reconverting Bank
1. A substitute check is ‘‘created’’ when
and where a paper reproduction of an original check that meets the requirements of
§ 229.2(aaa) 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 electronic check file for collection to Bank B.
Bank B chooses to use that file to print a
substitute check that meets the requirements of § 229.2(aaa). Bank B is the reconverting bank as of the time it prints the substitute check.
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31
Pt. 229, App. E
12 CFR Ch. II (1–1–18 Edition)
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.
kpayne on DSK54DXVN1OFR with $$_JOB
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.
AAA. 229.2(aaa) 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 § 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 § 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 § 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,
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Federal Reserve System
Pt. 229, App. E
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.
kpayne on DSK54DXVN1OFR with $$_JOB
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 ap-
plies). 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 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 §§ 229.30(a)(2) and 229.31(a)(2)
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 § 229.2(aaa)(2) because that
variation is permitted by ANS X9.100–140. If
such a substitute check contains a MICRline 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
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12 CFR Ch. II (1–1–18 Edition)
page of an account statement are not substitute checks.
BBB. 229.2(bbb) 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 § 229.58 and the commentary thereto.
2. A bank under § 229.53(b)(3) may limit its
liability for an indemnity claim and under
§§ 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.
kpayne on DSK54DXVN1OFR with $$_JOB
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.
fined 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, § 229.2(ccc) incorporates the U.C.C. definitions of the term transfer and consideration by reference and 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.
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 § 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.
CCC. 229.2(ccc) Transfer and Consideration
DDD. 229.2(ddd) Truncate
1. Under §§ 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 de-
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.
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Pt. 229, App. E
EEE. 229.2(eee) 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 (see
§ 229.2(yy) and the commentary thereto).
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.
kpayne on DSK54DXVN1OFR with $$_JOB
FFF. 229.2(fff) 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 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.
III. Section 229.3 Administrative Enforcement
[Reserved]
IV. Section 229.10 Next-Day Availability
A. Business Days and Banking Days
1. This section, as well as other provisions
of this subpart governing the availability of
funds, provides that funds must be made
available for withdrawal not later than a
specified number of business days following
the banking day on which the funds are deposited. Thus, a deposit is considered made
only on a banking day, i.e., a day that the
bank is open to the public for carrying on
substantially all of its banking functions.
For example, if a deposit is made at an ATM
on a Saturday, Sunday, or other day on
which the bank is closed to the public, the
deposit is considered received on that bank’s
next banking day.
2. Nevertheless, business days are used to
determine the number of days following the
banking day of deposit that funds must be
available for withdrawal. For example, if a
deposit of a local check were made on a Monday, the availability schedule requires that
funds be available for withdrawal on the second business day after deposit. Therefore,
funds must be made available on Wednesday
regardless of whether the bank was closed on
Tuesday for other than a standard legal holiday as specified in the definition of business
day.
B. 229.10(a) Cash Deposits
1. This paragraph implements the EFA
Act’s requirement for next-day availability
for cash deposits to accounts at a depositary
bank ‘‘staffed by individuals employed by
such institution.’’ 2 Under this paragraph,
cash deposited in an account at a staffed
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).)
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12 CFR Ch. II (1–1–18 Edition)
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.
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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
automated clearinghouse, electronic payment, and wire transfer in § 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 Fedwire, the bank receives finally collected funds at the time the
payment is made. (See 12 CFR 210.31.) Finally collected funds generally are received
for an ACH credit transfer when they are
posted to the receiving bank’s account on
the settlement day. In certain cases, the
bank receiving ACH credit payments will not
receive the specific payment instructions indicating which accounts to credit until after
settlement day. In these cases, the payments
are not considered received until the information on the account and amount to be
credited is received.
3. This paragraph also establishes the extent to which an electronic payment is considered made. Thus, if a participant on a private network fails to settle and the receiving
bank receives finally settled funds representing only a partial amount of the payment, it must make only the amount that it
actually received available for withdrawal.
4. The availability requirements of this
regulation do not preempt or invalidate
other rules, regulations, or agreements
which require funds to be made available on
a more prompt basis. For example, the nextday availability requirement for ACH credits
in this section does not preempt ACH association rules and Treasury regulations (31
CFR part 210), which provide that the proceeds of these credit payments be available
to the recipient for withdrawal on the day
the bank receives the funds.
D. 229.10(c) Certain Check Deposits
1. The 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 nextday 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 § 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. The Board believes that such a check
presents greater risks than a check deposited
by the payee and that Congress did not intend to require next-day availability for such
checks. The regulation, therefore, provides
that funds must be available on the business
day following deposit only if the check is deposited in an account held by a payee of the
check. For the purposes of this section,
payee does not include transferees other
than named payees. The regulation also applies this condition to Postal Service money
orders and checks drawn on Federal Reserve
Banks and Federal Home Loan Banks.
3. Deposits Made to an Employee of the Depositary Bank.
a. In most cases, next-day availability of
the proceeds of checks subject to this section
is conditioned on the deposit of these checks
in person to an employee of the depositary
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Federal Reserve System
Pt. 229, App. E
bank. If the deposit is not made to an employee of the depositary bank on the premises of such bank, the proceeds of the deposit
must be made available for withdrawal by
the start of business on the second business
day after deposit, under paragraph (c)(2) of
this section. For example, second-day availability rather than next-day availability
would be allowed for deposits of checks subject to this section made at a proprietary
ATM, night depository, through the mail or
a lock box, or at a teller station staffed by a
person who is not an employee of the depositary bank. Second-day availability also may
be allowed for deposits picked up by an employee of the depositary bank at the customer’s premises; such deposits would be
considered made upon receipt at the branch
or other location of the depositary bank.
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 § 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 and regulation require next-day availability for ‘‘on
us’’ checks, i.e., checks deposited in a branch
of the depositary bank and drawn on the
same or another branch of the same bank, if
both branches are located in the same state
or check processing region. Thus, checks deposited in one branch of a bank and drawn on
another branch of the same bank must receive next-day availability even if the
branch on which the checks are drawn is located in another check processing region but
in the same state as the branch in which the
check is deposited. For the purposes of this
requirement, deposits at facilities that are
not located on the premises of a brick-andmortar branch of the bank, such as offpremise ATMs and remote depositories, are
not considered deposits made at branches of
the depositary bank.
5. First $100.
a. The EFA Act and regulation also require
that up to $100 of the aggregate deposit by
check or checks not subject to next-day
availability on any one banking day be made
available on the next business day. For example, if $70 were deposited in an account by
check(s) on a Monday, the entire $70 must be
available for withdrawal at the start of business on Tuesday. If $200 were deposited by
check(s) on a Monday, this section requires
that $100 of the funds be available for withdrawal at the start of business on Tuesday.
The portion of the customer’s deposit to
which the $100 must be applied is at the discretion of the depositary bank, as long as it
is not applied to any checks subject to nextday availability. The $100 next-day availability rule does not apply to deposits at
nonproprietary ATMs.
b. The $100 that must be made available
under this rule is in addition to the amount
that must be made available for withdrawal
on the business day after deposit under other
provisions of this section. For example, if a
customer deposits a $1,000 Treasury check,
and a $1,000 local check in its account on
Monday, $1,100 must be made available for
withdrawal on Tuesday—the proceeds of the
$1,000 Treasury check, as well as the first
$100 of the local check.
c. A depositary bank may aggregate all
local and nonlocal check deposits made by
the customer on a given banking day for the
purposes of the $100 next-day availability
rule. Thus, if a customer has two accounts at
the depositary bank, and on a particular
banking day makes deposits to each account,
$100 of the total deposited to the two accounts must be made available on the business day after deposit. Banks may aggregate
deposits to individual and joint accounts for
the purposes of this provision.
d. If the customer deposits a $500 local
check, and gets $100 cash back at the time of
deposit, the bank need not make an additional $100 available for withdrawal on the
following day. Similarly, if the customer depositing the local check has a negative book
balance, or negative available balance in its
account at the time of deposit, the $100 that
must be available on the next business day
may be made available by applying the $100
to the negative balance, rather than making
the $100 available for withdrawal by cash or
check on the following day.
6. Special Deposit Slips.
a. Under the 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 MICR-encoded
routing number on the deposited checks.
Using these procedures, a bank can determine whether a check is a local or nonlocal
check, a check drawn on the Treasury, a
Federal Reserve Bank, a Federal Home Loan
Bank, or a branch of the depositary bank, or
a U.S. Postal Service money order. Appendix
A includes the routing numbers of certain
categories of checks that are subject to nextday availability. The bank cannot require a
special deposit slip for these checks.
b. A bank cannot distinguish whether the
check is a state or local government check,
cashier’s check, certified check, or teller’s
check by reading the MICR-encoded routing
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Pt. 229, App. E
12 CFR Ch. II (1–1–18 Edition)
number, because these checks bear the same
routing number as other checks drawn on
the same bank that are not accorded nextday availability. Therefore, a bank may require a special deposit slip for these checks.
c. The regulation specifies that if a bank
decides to require the use of a special deposit
slip (or a special deposit envelope in the case
of a deposit at an ATM or other unstaffed facility) as a condition to granting next-day
availability under paragraphs (c)(1)(iv) or
(c)(1)(v) of this section or second-day availability under paragraph (c)(2) of this section,
and if the deposit slip that must be used is
different from the bank’s regular deposit
slips, the bank must either provide the special slips to its customers or inform its customers how such slips may be obtained and
make the slips reasonably available to the
customers.
d. A bank may meet this requirement by
providing customers with an order form for
the special deposit slips and allowing sufficient time for the customer to order and receive the slips before this condition is imposed. If a bank provides deposit slips in its
branches for use by its customers, it also
must provide the special deposit slips in the
branches. If special deposit envelopes are required for deposits at an ATM, the bank
must provide such envelopes at the ATM.
e. Generally, a teller is not required to advise depositors of the availability of special
deposit slips merely because checks requiring special deposit slips for next-day availability are deposited without such slips. If a
bank provides the special deposit slips only
upon the request of a depositor, however, the
teller must advise the depositor of the availability of the special deposit slips, or the
bank must post a notice advising customers
that the slips are available upon request.
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
A. 229.12(a) Effective Date
1. The availability schedule set forth in
this section supersedes the temporary schedule that was effective September 1, 1988,
through August 31, 1990.
B. 229.12(b) Local Checks and Certain Other
Checks
1. Local checks must be made available for
withdrawal not later than the second business day following the banking day on which
the checks were deposited.
2. In addition, the proceeds of Treasury
checks and U.S. Postal Service money orders
not subject to next-day (or second-day)
availability under § 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 § 229.10(c) and payable in
the same check processing region as the depositary bank, must be made available for
withdrawal by the second business day following deposit.
3. Exceptions are made for withdrawals by
cash or similar means and for deposits in
banks located outside the 48 contiguous
states. Thus, the proceeds of a local check
deposited on a Monday generally must be
made available for withdrawal on Wednesday.
C. 229.12(c) Nonlocal Checks
1. Nonlocal checks must be made available
for withdrawal not later than the fifth business day following deposit, i.e., proceeds of a
nonlocal check deposited on a Monday must
be made available for withdrawal on the following Monday. In addition, a check described in § 229.10(c) that does not meet the
conditions for next-day availability (or second-day availability) is treated as a nonlocal
check, if the check is drawn on or payable
through or at a nonlocal paying bank. Adjustments are made to the schedule for withdrawals by cash or similar means and deposits in banks located outside the 48 contiguous states.
2. Reduction in Schedules.
a. Section 603(d)(1) of the 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
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Federal Reserve System
Pt. 229, App. E
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 payablethrough 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 payablethrough share draft is nonlocal is based on
the location of the credit union and not the
routing number on the draft.
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D. 229.12(d) 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 local and nonlocal checks need
not be available for cash withdrawal until
5:00 p.m. on the day specified in the schedule.
At 5:00 p.m., $400 of the deposit must be made
available for cash withdrawal. This $400 is in
addition to the first $100 of a day’s deposit,
which must be made available for withdrawal at the start of business on the first
business day following the banking day of
deposit. If the proceeds of local and nonlocal
checks become available for withdrawal on
the same business day, the $400 withdrawal
limitation applies to the aggregate amount
of the funds that became available for withdrawal on that day. The remainder of the
funds must be available for cash withdrawal
at the start of business on the business day
following the business day specified in the
schedule.
2. The EFA Act recognizes that the $400
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 Board
believes that the rationale for accommodating a bank’s ATM withdrawal limit also
applies to other cash withdrawal limits established by that bank. Section 229.19(c)(4) of
the regulation addresses the relation between a bank’s cash withdrawal limit (for
over-the-counter cash withdrawals as well as
ATM cash withdrawals) and the requirements of this subpart.
3. The Board believes that the Congress included this special cash withdrawal rule to
provide a depositary bank with additional
time to learn of the nonpayment of a check
before it must make funds available to its
customer. If a customer deposits a local
check on a Monday, and that check is returned by the paying bank, the depositary
bank may not receive the returned check
until Thursday, the day after funds for a
local check ordinarily must be made available for withdrawal. The intent of the special
cash withdrawal rule is to minimize this risk
to the depositary bank. For this rule to minimize the depositary bank’s risk, it must
apply not only to cash withdrawals, but also
to withdrawals by other means that result in
an irrevocable debit to the customer’s account or commitment to pay by the bank on
the customer’s behalf during the day. Thus,
the cash withdrawal rule also includes withdrawals by electronic payment, issuance of a
cashier’s or teller’s check, certification of a
check, or other irrevocable commitment to
pay, such as authorization of an on-line
point-of-sale debit. The rule also would apply
to checks presented over the counter for payment on the day of presentment by the depositor or another person. Such checks could
not be dishonored for insufficient funds if an
amount sufficient to cover the check had became available for cash withdrawal under
this rule; however, payment of such checks
would be subject to the bank’s cut-off hour
established under U.C.C. 4–108. The cash
withdrawal rule does not apply to checks and
other provisional debits presented to the
bank for payment that the bank has the
right to return.
E. 229.12(e) Extension of Schedule for Certain
Deposits in Alaska, Hawaii, Puerto Rico,
and the U.S. Virgin Islands
1. The 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 local checks, nonlocal checks (including nonlocal checks subject to the reduced schedules of appendix B), and deposits
at nonproprietary ATMs are extended by one
business day for checks deposited to accounts in banks located in these jurisdictions that are drawn on or payable at or
through a paying bank not located in the
same jurisdiction as the depositary bank.
For example, a check deposited in a bank in
Hawaii and drawn on a San Francisco paying
bank must be made available for withdrawal
not later than the third business day following deposit. This extension does not
apply to deposits that must be made available for withdrawal on the next business day.
2. The Congress did not provide this extension of the schedules to checks drawn on a
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12 CFR Ch. II (1–1–18 Edition)
paying bank located in Alaska, Hawaii,
Puerto Rico, or the U.S. Virgin Islands and
deposited in an account at a depositary bank
in the 48 contiguous states. Therefore, a
check deposited in a San Francisco bank
drawn on a Hawaii paying bank must be
made available for withdrawal not later than
the second rather than the third business
day following deposit.
F. 229.12(f) Deposits at Nonproprietary ATMs
1. The 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 fifth
business day following the banking day of
deposit. For example, a deposit made at a
nonproprietary ATM on a Monday, including
any deposit by cash or checks that would
otherwise be subject to next-day (or secondday) availability, must be made available for
withdrawal not later than Monday of the following
week.
The
provisions
of
§ 229.10(c)(1)(vii) requiring a depositary bank
to make up to $100 of an aggregate daily deposit available for withdrawal on the first
business day after the banking day of deposit
do not apply to deposits at a nonproprietary
ATM.
VII. Section 229.13 Exceptions
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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, the Congress gave the Board the discretion to determine whether certain other exceptions should be included in its regulations. Specifically, the EFA Act gives the
Board the authority to establish exceptions
to the schedules for large or redeposited
checks and for accounts that have been repeatedly overdrawn. These exceptions apply
to local and nonlocal checks as well as to
checks that must otherwise be accorded
next-day (or second-day) availability under
§ 229.10(c).
2. Many checks will not be returned to the
depositary bank by the time funds must be
made available for withdrawal under the
next-day (or second-day), local, and nonlocal
schedules. In order to reduce risk to depositary banks, the Board has exercised its statutory authority to adopt these exceptions to
the schedules in the regulation to allow the
depositary bank to extend the time within
which it is required to make funds available.
3. The 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.
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 § 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.
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a. During the new account exception period, the schedules for local and nonlocal
checks do not apply, and, unlike the other
exceptions provided in this section, the regulation provides no maximum time frames
within which the proceeds of these deposits
must be made available for withdrawal. Maximum times within which funds must be
available for withdrawal during the new account period are provided, however, for certain other deposits. Deposits received by
cash and electronic payments must be made
available for withdrawal in accordance with
§ 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 § 229.10(c). Thus, the first $5,000
of the proceeds of these check deposits must
be made available on the first business day
following deposit, if the deposit is made in
person to an employee of the depositary
bank and the other conditions of next-day
availability are met. Funds must be made
available on the second business day after
deposit for deposits that are not made over
the counter, in accordance with § 229.10(c)(2).
(Proceeds of Treasury check deposits must
be made available on the first business day
after deposit, even if the check is not deposited in person to an employee of the depositary bank.) Funds in excess of the first $5,000
deposited by these types of checks on a
banking day must be available for withdrawal not later than the ninth business day
following the banking day of deposit. The requirements of § 229.10(c)(1)(vi) and (vii) that
‘‘on us’’ checks and the first $100 of a day’s
deposit be made available for withdrawal on
the next business day do not apply during
the new account period.
3. Representation by Customer. The depositary bank may rely on the representation of
the customer that the customer has no established account relationship with the
bank, and has not had any such account relationship within the past 30 days, to determine whether an account is subject to the
new account exception.
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C. 229.13(b) Large Deposits
1. Under the large deposit exception, a depositary bank may extend the hold placed on
check deposits to the extent that the
amount of the aggregate deposit on any
banking day exceeds $5,000. This exception
applies to local and nonlocal checks, as well
as to checks that otherwise would be made
available on the next (or second) business
day after the day of deposit under § 229.10(c).
Although the first $5,000 of a day’s deposit is
subject to the availability otherwise provided for checks, the amount in excess of
$5,000 may be held for an additional period of
time as provided in § 229.13(h). When the
large deposit exception is applied to deposits
composed of a mix of checks that would otherwise be subject to differing availability
schedules, the depositary bank has the discretion to choose the portion of the deposit
to which it applies the exception. Deposits
by cash or electronic payment are not subject to this exception for large deposits.
2. The following example illustrates the operation of the large deposit exception. If a
customer deposits $2,000 in cash and a $9,000
local check on a Monday, $2,100 (the proceeds
of the cash deposit and $100 from the local
check deposit) must be made available for
withdrawal on Tuesday. An additional $4,900
of the proceeds of the local check must be
available for withdrawal on Wednesday in
accordance with the local schedule, and the
remaining $4,000 may be held for an additional period of time under the large deposit
exception.
3. Where a customer has multiple accounts
with a depositary bank, the bank may apply
the large deposit exception to the aggregate
deposits to all of the customer’s accounts,
even if the customer is not the sole holder of
the accounts and not all of the holders of the
customer’s accounts are the same. Thus, a
depositary bank may aggregate the deposits
made to two individual accounts in the same
name, to an individual and a joint account
with one common name, or to two joint accounts with at least one common name for
the purpose of applying the large deposit exception. Aggregation of deposits to multiple
accounts is permitted because the Board believes that the risk to the depositary bank
associated with large deposits is similar regardless of how the deposits are allocated
among the customer’s accounts.
D. 229.13(c) Redeposited Checks
1. The EFA Act gives the Board the authority to promulgate an exception to the schedule for checks that have been returned unpaid and redeposited. Section 229.13(c) provides such an exception for checks that have
been returned unpaid and redeposited by the
customer or the depositary bank. This exception applies to local and nonlocal checks, as
well as to checks that would otherwise be
made available on the next (or second) business day after the day of deposit under
§ 229.10(c).
2. This exception addresses the increased
risk to the depositary bank that checks that
have been returned once will be uncollectible
when they are presented to the paying bank
a second time. The Board, however, does not
believe that this increased risk is present for
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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 § 229.30(d)) states that it was
returned due to a missing indorsement. For
the same reason, this exception does not
apply to a check returned because it was
postdated (future dated), if the reason for return indicated on the check states that it
was returned because it was postdated, and if
it is no longer postdated when redeposited.
3. To determine when funds must be made
available for withdrawal, the banking day on
which the check is redeposited is considered
to be the day of deposit. A depositary bank
that made $100 of a check available for withdrawal under § 229.10(c)(1)(vii) can charge
back the full amount of the check, including
the $100, if the check is returned unpaid, and
the $100 need not be made available again if
the check is redeposited.
less of whether the items were paid or returned unpaid. An overdraft resulting from
an error on the part of the depositary bank,
or from the imposition of overdraft charges
for which the customer is entitled to a refund under §§ 229.13(e) or 229.16(c), cannot be
considered in determining whether the customer is a repeated overdrafter. The exception excludes accounts with overdraft lines
of credit, unless the credit line has been exceeded or would have been exceeded if the
checks or other charges to the account had
been paid.
4. This exception applies to local and
nonlocal checks, as well as to checks that
otherwise would be made available on the
next (or second) business day after the day of
deposit under § 229.10(c). When a bank places
or extends a hold under this exception, it
need not make the first $100 of a deposit
available for withdrawal on the next business day, as otherwise would be required by
§ 229.10(c)(1)(vii).
E. 229.13(d) Repeated Overdrafts
F. 229.13(e) Reasonable Cause To Doubt
Collectibility
1. The EFA Act gives the Board the authority to establish an exception for ‘‘deposit accounts which have been overdrawn repeatedly.’’ This paragraph provides two tests to
determine what constitutes repeated overdrafts. Under the first test, a customer’s accounts are considered repeatedly overdrawn
if, on six banking days within the preceding
six months, the available balance in any account held by the customer is negative, or
the balance would have become negative if
checks or other charges to the account had
been paid, rather than returned. This test
can be met based on separate occurrences
(e.g., checks that are returned for insufficient funds on six different days), or based on
one occurrence (e.g., a negative balance that
remains on the customer’s account for six
banking days). If the bank dishonors a check
that otherwise would have created a negative balance, however, the incident is considered an overdraft only on that day.
2. The second test addresses substantial
overdrafts. Such overdrafts increase the risk
to the depositary bank of dealing with the
repeated overdrafter. Under this test, a customer incurs repeated overdrafts if, on two
banking days within the preceding six
months, the available balance in any account held by the customer is negative in an
amount of $5,000 or more, or would have become negative in an amount of $5,000 or more
if checks or other charges to the account had
been paid.
3. The exception relates not only to overdrafts caused by checks drawn on the account, but also overdrafts caused by other
debit charges (e.g. ACH debits, point-of-sale
transactions, returned checks, account fees,
etc.). If the potential debit is in excess of
available funds, the exception applies regard-
1. In the case of certain check deposits, if
the bank has reasonable cause to believe the
check is uncollectible, it may extend the
time funds must be made available for withdrawal. This exception applies to local and
nonlocal checks, as well as to checks that
would otherwise be made available on the
next (or second) business day after the day of
deposit under § 229.10(c). When a bank places
or extends a hold under this exception, it
need not make the first $100 of a deposit
available for withdrawal on the next business day, as otherwise would be required by
§ 229.10(c)(1)(vii). If the reasonable cause exception is invoked, the bank must include in
the notice to its customer, required by
§ 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
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
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Pt. 229, App. E
sufficient funds to honor the check. Such information may provide sufficient basis to invoke this exception. In these cases, the depositary bank could invoke the exception
and disclose as the reason the exception is
being invoked the fact that information from
the paying bank indicates that the check
may not be paid.
c. The fact that a check is deposited more
than six months after the date on the check
(i.e. a stale check) is a reasonable indication
that the check may be uncollectible, because
under U.C.C. 4–404 a bank has no duty to its
customer to pay a check that is more than
six months old. Similarly, if a check being
deposited is postdated (future dated), the
bank may have a reasonable cause to believe
the check is uncollectible, because the check
may not be properly payable under U.C.C. 4–
401. The bank, in its notice, should specify
that the check is stale-dated or postdated.
d. There are reasons that may cause a bank
to believe that a check is uncollectible that
are based on confidential information. For
example, a bank could conclude that a check
being deposited is uncollectible based on its
reasonable belief that the depositor is engaging in kiting activity. Reasonable belief as
to the insolvency or pending insolvency of
the drawer of the check or the drawee bank
and that the checks will not be paid also
may justify invoking this exception. In these
cases, the bank may indicate, as the reason
it is invoking the exception, that the bank
has confidential information that indicates
that the check might not be paid.
3. The Board has included a reasonable
cause exception notice as a model notice in
appendix C (C–13). The model notice includes
several reasons for which this exception may
be invoked. The Board does not intend to
provide a comprehensive list of reasons for
which this exception may be invoked; another reason that does not appear on the
model notice may be used as the basis for extending a hold, if the reason satisfies the
conditions for invoking this exception. A depositary bank may invoke the reasonable
cause exception based on a combination of
factors that give rise to a reasonable cause
to doubt the collectibility of a check. In
these cases, the bank should disclose the primary reasons for which the exception was invoked in accordance with paragraph (g) of
this section.
4. The regulation provides that the determination that a check is uncollectible shall
not be based on a class of checks or persons.
For example, a depositary bank cannot invoke this exception simply because the
check is drawn on a paying bank in a rural
area and the depositary bank knows it will
not have the opportunity to learn of nonpayment of that check before funds must be
made available under the availability schedules. Similarly, a depositary bank cannot invoke the reasonable cause exception based
on the race or national origin of the depositor.
5. If a depositary bank invokes this exception with respect to a particular check and
does not provide a written notice to the depositor at the time of deposit, the depositary
bank may not assess any overdraft fee (such
as an ‘‘NSF’’ charge) or charge interest for
use of overdraft credit, if the check is paid
by the paying bank and these charges would
not have occurred had the exception not
been invoked. A bank may assess an overdraft fee under these circumstances, however, if it provides notice to the customer, in
the notice of exception required by paragraph (g) of this section, that the fee may be
subject to refund, and refunds the charges
upon the request of the customer. The notice
must state that the customer may be entitled to a refund of any overdraft fees that
are assessed if the check being held is paid,
and indicate where such requests for a refund
of overdraft fees should be directed.
G. 229.13(f) Emergency Conditions
1. Certain emergency conditions may arise
that delay the collection or return of checks,
or delay the processing and updating of customer accounts. In the circumstances specified in this paragraph, the depositary bank
may extend the holds that are placed on deposits of checks that are affected by such
delays, if the bank exercises such diligence
as the circumstances require. For example, if
a bank learns that a check has been delayed
in the process of collection due to severe
weather conditions or other causes beyond
its control, an emergency condition covered
by this section may exist and the bank may
place a hold on the check to reflect the
delay. This exception applies to local and
nonlocal checks, as well as checks that
would otherwise be made available on the
next (or second) business day after the day of
deposit under § 229.10(c). When a bank places
or extends a hold under this exception, it
need not make the first $100 of a deposit
available for withdrawal on the next business day, as otherwise would be required by
§ 229.10(c)(1)(vii). In cases where the emergency conditions exception does not apply,
as in the case of deposits of cash or electronic payments under § 229.10 (a) and (b), the
depositary bank may not be liable for a
delay in making funds available for withdrawal if the delay is due to a bona fide error
such as an unavoidable computer malfunction.
H. 229.13(g) Notice of Exception
1. In general.
a. If a depositary bank invokes any of the
safeguard exceptions to the schedules listed
above, other than the new account or emergency conditions exception, and extends the
hold on a deposit beyond the time periods
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12 CFR Ch. II (1–1–18 Edition)
permitted in §§ 229.10(c) and 229.12, it must
provide a notice to its customer. Except in
the cases described in paragraphs (g)(2) and
(g)(3) of this section, notices must be given
each time an exception hold is invoked and
must state the customer’s account number,
the date of deposit, the reason the exception
was invoked, and the time period within
which funds will be available for withdrawal.
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 time period within which the funds shall be made
available may be satisfied if the notice identifies the date the deposit is received and information sufficient to indicate when funds
will be available and the amounts that will
be available at those times. For example, for
a deposit involving more than one check, the
bank need not provide a notice that discloses
when funds from each individual check in
the deposit will be available for withdrawal;
instead, the bank may provide a total dollar
amount for each of the time periods when
funds will be available, or provide the customer with an explanation of how to determine the amount of the deposit that will be
held and when the funds will be available for
deposit. Appendix C (C–12) contains a model
notice.
c. For deposits made in person to an employee of the depositary bank, the notice
generally must be given to the person making the deposit, i.e., the ‘‘depositor’’, at the
time of deposit. The depositor need not be
the customer holding the account. For other
deposits, such as deposits received at an
ATM, lobby deposit box, night depository, or
through the mail, notice must be mailed to
the customer not later than the close of the
business day following the banking day on
which the deposit was made.
d. Notice to the customer also may be provided at a later time, if the facts upon which
the determination to invoke the exception
do not become known to the depositary bank
until after notice would otherwise have to be
given. In these cases, the bank must mail the
notice to the customer as soon as practicable, but not later than the business day
following the day the facts become known. A
bank is deemed to have knowledge when the
facts are brought to the attention of the person or persons in the bank responsible for
making the determination, or when the facts
would have been brought to their attention
if the bank had exercised due diligence.
e. 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,’’ local, and nonlocal checks will be available for withdrawal if an exception is invoked.
2. One-time exception notice.
a. Under paragraph (g)(2), if a nonconsumer
account (see Commentary to § 229.2(n)) is
subject to the large deposit or redeposited
check exception, the depositary bank may
give its customer a single notice at or prior
to the time notice must be provided under
paragraph (g)(1). Notices provided under
paragraph (g)(2) must contain the reason the
exception may be invoked and the time period within which deposits subject to the exception will be available for withdrawal (see
Model Notice C–14). A depositary bank may
provide a one-time notice to a nonconsumer
customer under paragraph (g)(2) only if each
exception cited in the notice (the large deposit and/or the redeposited check exception)
will be invoked for most check deposits to
the customer’s account to which the exception could apply. A one-time notice may
state that the depositary bank will apply exception holds to certain subsets of deposits
to which the large deposit or redeposited
check exception may apply, and the notice
should identify such subsets. For example,
the depositary bank may apply the redeposited check exception only to checks that
were redeposited automatically by the depositary bank in accordance with an agreement with the customer, rather than to all
redeposited checks. In lieu of sending the
one-time notice, a depositary bank may send
individual hold notices for each deposit subject to the large deposit or redeposited check
exception in accordance with § 229.13(g)(1)
(see Model Notice C–12).
b. In the case of a deposit of multiple
checks, the depositary bank has the discretion to place an exception hold on any combination of checks in excess of $5,000. The notice should enable a customer to determine
the availability of the deposit in the case of
a deposit of multiple checks. For example, if
a customer deposits a $5,000 local check and
a $5,000 nonlocal check, under the large deposit exception, the depositary bank may
make funds available in the amount of (1)
$100 on the first business day after deposit,
$4,900 on the second business day after deposit (local check), and $5,000 on the eleventh
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Pt. 229, App. E
business day after deposit (nonlocal check
with 6-day exception hold), or (2) $100 on the
first business day after deposit, $4,900 on the
fifth business day after deposit (nonlocal
check), and $5,000 on the seventh business
day after deposit (local check with 5-day exception hold). The notice should reflect the
bank’s priorities in placing exception holds
on next-day (or second-day), local, and
nonlocal checks.
3. Notice of repeated overdraft exception.
Under paragraph (g)(3), if an account is subject to the repeated overdraft exception, the
depositary bank may provide one notice to
its customer for each time period during
which the exception will apply. Notices sent
pursuant to paragraph (g)(3) must state the
customer’s account number, the fact the exception was invoked under the repeated overdraft exception, the time period within
which deposits subject to the exception will
be made available for withdrawal, and the
time period during which the exception will
apply (see Model Notice C–15). A depositary
bank may provide a one-time notice to a customer under paragraph (g)(3) only if the repeated overdraft exception will be invoked
for most check deposits to the customer’s account.
4. Emergency conditions exception notice.
a. If an account is subject to the emergency conditions exception under § 229.13(f),
the depositary bank must provide notice in a
reasonable form within a reasonable time,
depending on the circumstances. For example, a depositary bank may learn of a weather emergency or a power outage that affects
the paying bank’s operations. Under these
circumstances, it likely would be reasonable
for the depositary bank to provide an emergency conditions exception notice in the
same manner and within the same time as
required for other exception notices. On the
other hand, if a depositary bank experiences
a weather or power outage emergency that
affects its own operations, it may be reasonable for the depositary bank to provide a
general notice to all depositors via postings
at branches and ATMs, or through newspaper, television, or radio notices.
b. If the depositary bank extends the hold
placed on a deposit due to an emergency condition, the 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 cause exception for a period of two
years, or such longer time as provided in the
record retention requirements of § 229.21.
This record must contain a brief description
of the facts on which the depositary bank
based its judgment that there was reasonable
cause to doubt the collectibility of a check.
In many cases, such as where the exception
was invoked on the basis of a notice of nonpayment received, the record requirement
may be met by retaining a copy of the notice
sent to the customer. In other cases, such as
where the exception was invoked on the
basis of confidential information, a further
description to the facts, such as insolvency
of drawer, should be included in the record.
I. 229.13(h) Availability of Deposits Subject
to Exceptions
1. If a depositary bank invokes any exception other than the new account exception,
the bank may extend the time within which
funds must be made available under the
schedule by a reasonable period of time. This
provision establishes that an extension of up
to one business day for ‘‘on us’’ checks, five
business days for local checks, and six business days for nonlocal checks and checks deposited in a nonproprietary ATM is reasonable. Under certain circumstances, however,
a longer extension of the schedules may be
reasonable. In these cases, the burden is
placed on the depositary bank to establish
that a longer period is reasonable.
2. For example, assume a bank extended
the hold on a local check deposit by five
business days based on its reasonable cause
to believe that the check is uncollectible. If,
on the day before the extended hold is scheduled to expire, the bank receives a notification from the paying bank that the check is
being returned unpaid, the bank may determine that a longer hold is warranted, if it
decides not to charge back the customer’s
account based on the notification. If the
bank decides to extend the hold, the bank
must send a second notice, in accordance
with paragraph (g) of this section, indicating
the new date that the funds will be available
for withdrawal.
3. With respect to Treasury checks, U.S.
Postal Service money orders, checks drawn
on Federal Reserve Banks or Federal Home
Loan Banks, state and local government
checks, cashier’s checks, certified checks,
and teller’s checks subject to the next-day
(or second-day) availability requirement, the
depositary bank may extend the time funds
must be made available for withdrawal under
the large deposit, redeposited check, repeated overdraft, or reasonable cause exception by a reasonable period beyond the delay
that would have been permitted under the
regulation had the checks not been subject
to the next-day (or second-day) availability
requirement. The additional hold is added to
the local or nonlocal schedule that would
apply based on the location of the paying
bank.
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4. One business day for ‘‘on us’’ checks, five
business days for local checks, and six business days for nonlocal checks or checks deposited in a nonproprietary ATM, in addition
to the time period provided in the schedule,
should provide adequate time for the depositary bank to learn of the nonpayment of virtually all checks that are returned. For example, if a customer deposits a $7,000 cashier’s check drawn on a nonlocal bank, and
the depositary bank applies the large deposit
exception to that check, $5,000 must be available for withdrawal on the first business day
after the day of deposit and the remaining
$2,000 must be available for withdrawal on
the eleventh business day following the day
of deposit (six business days added to the
five-day schedule for nonlocal checks), unless the depositary bank establishes that a
longer hold is reasonable.
5. In the case of the application of the
emergency conditions exception, the depositary bank may extend the hold placed on a
check by not more than a reasonable period
following the end of the emergency or the
time funds must be available for withdrawal
under §§ 229.10(c) or 229.12, whichever is later.
6. This provision does not apply to holds
imposed under the new account exception.
Under that exception, the maximum time period within which funds must be made available for withdrawal is specified for deposits
that generally must be accorded next-day
availability under § 229.10. This subpart does
not specify the maximum time period within
which the proceeds of local and nonlocal
checks must be made available for withdrawal during the new account period.
VIII. Section 229.14 Payment of Interest
A. 229.14(a) In General
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1. This section requires that a depositary
bank begin accruing interest on interestbearing accounts not later than the day on
which the depositary bank receives credit for
the funds deposited. 3 A depositary bank gen3 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. Provisional credit is a
term used in the U.C.C. that is derived from
the Code’s concept of provisional settlement.
(See U.C.C. 4–214 and 4–215.) Provisional credit is credit that is subject to charge-back if
the check is returned unpaid; once the check
is finally paid, the right to charge back expires and the provisional credit becomes
final. Under Subpart C, a paying bank no
longer has an automatic right to charge
back credits given in settlement of a check,
and the concept of provisional settlement is
no longer useful and has been eliminated by
the regulation. Accordingly, this section
erally receives credit on checks within one
or two days following deposit. A bank receives credit on a cash deposit, an electronic
payment, and the deposit of a check that is
drawn on the depositary bank itself on the
day the cash, electronic payment, or check is
received. In the case of a deposit at a nonproprietary ATM, credit generally is received on the day the bank that operates the
ATM credits the depositary bank for the
amount of the deposit. 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.
2. Because account includes only transaction accounts, other interest-bearing accounts of the depositary bank, such as
money market deposit accounts, savings deposits, and time deposits, are not subject to
this requirement; however, a bank may accrue interest on such deposits in the same
way that it accrues interest under this paragraph for simplicity of operation. The Board
intends the term interest to refer to payments to or for the account of any customer
as compensation for the use of funds, but to
exclude the absorption of expenses incident
to providing a normal banking function or a
bank’s forbearance from charging a fee in
connection with such a service. (See 12 CFR
217.2(d).) Thus, earnings credits often applied
to corporate accounts are not interest payments for the purposes of this section.
3. It may be difficult for a depositary bank
to track which day the depositary bank receives credit for specific checks in order to
accrue interest properly on the account to
which the check is deposited. This difficulty
may be pronounced if the bank uses different
means of collecting checks based on the time
of day the check is received, the dollar
amount of the check, and/or the paying bank
to which it must be sent. Thus, for the purpose of the interest accrual requirement, a
bank may rely on an availability schedule
from its Federal Reserve Bank, Federal
Home Loan Bank, or correspondent to determine when the depositary bank receives
credit. If availability is delayed beyond that
specified in the availability schedule, a bank
may charge back interest erroneously accrued or paid on the basis of that schedule.
4. This paragraph also permits a depositary
bank to accrue interest on checks deposited
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.
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Federal Reserve System
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to all of its interest-bearing accounts based
on when the bank receives credit on all
checks sent for payment or collection. For
example, if a bank receives credit on 20 percent of the funds deposited in the bank by
check as of the business day of deposit (e.g.,
‘‘on us’’ checks), 70 percent as of the business
day following deposit, and 10 percent on the
second business day following deposit, the
bank can apply these percentages to determine the day interest must begin to accrue
on check deposits to all interest-bearing accounts, regardless of when the bank received
credit on the funds deposited in any particular account. Thus, a bank may begin accruing interest on a uniform basis for all interest-bearing accounts, without the need to
track the type of check deposited to each account.
5. This section is not intended to limit a
policy of a depositary bank that provides
that interest accrues only on balances that
exceed a specified amount, or on the minimum balance maintained in the account
during a given period, provided that the balance is determined based on the date that
the depositary bank receives credit for the
funds. This section also is not intended to
limit any policy providing that interest accrues sooner than required by this paragraph.
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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-ofinterest 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 § 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
1. This paragraph sets forth the general requirements for the disclosures required
under Subpart B. All of the disclosures must
be given in a clear and conspicuous manner,
must be in writing, and, in most cases, must
be in a form the customer may keep. A disclosure 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 requirement by sending an
electronic disclosure that displays the text
and is in a form that the customer may keep,
if the customer agrees to such means of disclosure. 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.
Disclosures posted at locations where employees accept consumer deposits, at ATMs,
and on preprinted deposit slips need not be in
a form that the customer may keep. Appendix C of the regulation contains model forms,
clauses, and notices to assist banks in preparing disclosures.
2. Disclosures concerning availability must
be grouped together and may not contain
any information that is not related to the
disclosures required by this subpart. Therefore, banks may not intersperse the required
disclosures with other account disclosures,
and may not include other account information that is not related to their availability
policy within the text of the required disclosures. Banks may, however, include information that is related to their availability policies. For example, a bank may inform its
customers that, even when the bank has already made funds available for withdrawal,
the customer is responsible for any problem
with the deposit, such as the return of a deposited check.
3. The regulation does not require that the
disclosures be segregated from other account
terms and conditions. For example, banks
may include the disclosure of their specific
availability policy in a booklet or pamphlet
that sets out all of the terms and conditions
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Pt. 229, App. E
12 CFR Ch. II (1–1–18 Edition)
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) Uniform Reference to Day of
Availability
1. This paragraph requires banks to disclose in a uniform manner when deposited
funds will be available for withdrawal. Banks
must disclose when deposited funds are
available for withdrawal by stating the business day on which the customer may begin
to withdraw funds. The business day funds
will be available must be disclosed as ‘‘the
llllllll business day after’’ the day
of deposit, or substantially similar language.
The business day of availability is determined by counting the number of business
days starting with the business day following the banking day on which the deposit
is received, as determined under § 229.19(a),
and ending with the business day on which
the customer may begin to withdraw funds.
For example, a bank that imposes delays of
four intervening business days for nonlocal
checks must describe those checks as being
available on ‘‘the fifth business day after’’
the day of the deposit.
C. 229.15(c) Multiple Accounts and Multiple
Account Holders
1. This paragraph clarifies that banks need
not provide multiple disclosures under the
regulation. A single disclosure to a customer
that holds multiple accounts, or a single disclosure to one of the account holders of a
jointly held account, satisfies the disclosure
requirements of the regulation.
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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 §§ 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 local checks on the second business
day following the day of deposit, even
though it may use the deposited funds to pay
checks prior to the second business day; the
funds used to pay checks in this example are
not available for withdrawal until the second
business day after deposit because the funds
are not available for all uses until the second
business day. (See the definition of available
for withdrawal in § 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
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Federal Reserve System
Pt. 229, App. E
information that must be disclosed by a particular bank will vary considerably depending upon the bank’s availability policy. For
example, a bank that makes deposited funds
available for withdrawal on the business day
following the day of deposit need simply disclose that deposited funds will be available
for withdrawal on the first business day after
the day of deposit, the bank’s business days,
and when deposits are considered received.
2. On the other hand, a bank that has a policy of routinely delaying on a blanket basis
the time when deposited funds are available
for withdrawal would have a more detailed
disclosure. Such blanket hold policies might
be for the maximum time allowed under the
federal law or might be for shorter periods.
These banks must disclose the types of deposits that will be subject to delays, how the
customer can determine the type of deposit
being made, and the day that funds from
each type of deposit will be available for
withdrawal.
3. Some banks may have a combination of
next-day availability and blanket delays.
For example, a bank may provide next-day
availability for all deposits except for one or
two categories, such as deposits at nonproprietary ATMs and nonlocal personal
checks over a specified dollar amount. The
bank would describe the categories that are
subject to delays in availability and tell the
customer when each category would be available for withdrawal, and state that other deposits will be available for withdrawal on the
first business day after the day of deposit.
Similarly, a bank that provides availability
on the second business day for most of its deposits would need to identify the categories
of deposits which, under the regulation, are
subject to next-day availability and state
that all other deposits will be available on
the second business day.
4. Because many banks’ availability policies may be complex, a bank must give a
brief summary of its policy at the beginning
of the disclosure. In addition, the bank must
describe any circumstances when actual
availability may be longer than the schedules disclosed. Such circumstances would
arise, for example, when the bank invokes
one of the exceptions set forth in § 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-bycase basis. Also, a bank that must make certain checks available faster under appendix
B (reduction of schedules for certain
nonlocal checks) must state that some check
deposits will be available for withdrawal
sooner because of special rules and that a
list of the pertinent routing numbers is
available upon request.
5. Generally, a bank that distinguishes in
its disclosure between local and nonlocal
checks based on the routing number on the
check must disclose to its customers that
certain checks, such as some credit union
payable-through drafts, will be treated as
local or nonlocal based on the location of the
bank by which they are payable (e.g., the
credit union), and not on the basis of the location of the bank whose routing number appears on the check. A bank is not required to
provide this disclosure, however, if it makes
the proceeds of both local and nonlocal
checks available for withdrawal within the
time periods required for local checks in
§§ 229.12 and 229.13.
6. The business day cut-off time used by
the bank must be disclosed and if some locations have different cut-off times the bank
must note this in the disclosure and state
the earliest time that might apply. A bank
need not list all of the different cut-off times
that might apply. If a bank does not have a
cut-off time prior to its closing time, the
bank need not disclose a cut-off time.
7. A bank taking advantage of the extended
time period for making deposits at nonproprietary ATMs available for withdrawal
under § 229.12(f) must explain this in the initial disclosure. In addition, the bank must
provide a list (on or with the initial disclosure) of either the bank’s proprietary ATMs
or those ATMs that are nonproprietary at
which customers may make deposits. As an
alternative to providing such a list, the bank
may label all of its proprietary ATMs with
the bank’s name and state in the initial disclosure that this has been done. Similarly, a
bank taking advantage of the cash withdrawal limitations of § 229.12(d), or the provision in § 229.19(e) allowing holds to be placed
on other deposits when a deposit is made or
a check is cashed, must explain this in the
initial disclosure.
8. A bank that provides availability based
on when the bank generally receives credit
for deposited checks need not disclose the
time when a check drawn on a specific bank
will be available for withdrawal. Instead, the
bank may disclose the categories of deposits
that must be available on the first business
day after the day of deposit (deposits subject
to § 229.10) and state the other categories of
deposits and the time periods that will be applicable to those deposits. For example, a
bank might disclose the four-digit Federal
Reserve routing symbol for local checks and
indicate that such checks as well as certain
nonlocal checks will be available for withdrawal on the first or second business day
following the day of deposit, depending on
the location of the particular bank on which
the check is drawn, and disclose that funds
from all other checks will be available on
the second or third business day. The bank
must also disclose that the customer may request a copy of the bank’s detailed schedule
that would enable the customer to determine
the availability of any check and must provide such schedule upon request. A change in
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12 CFR Ch. II (1–1–18 Edition)
the bank’s detailed schedule would not trigger the change in policy disclosure requirement of § 229.18(e).
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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 caseby-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 caseby-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 § 229.12 for local and nonlocal
checks, the reason for the delay need not be
based on the exceptions provided in § 229.13.
If the delay exceeds the time periods permitted under § 229.12, however, then it must
be based on an exception provided in § 229.13,
and the bank must comply with the § 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
§ 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 notice when availability of funds from a particular deposit will be delayed or extended
beyond the time when deposited funds are
generally available for withdrawal. The notice must state that a delay is being imposed
and indicate when the funds will be available. In addition, the notice must include the
account number, the date of the deposit, and
the amount of the deposit being delayed.
b. If notice of the delay was not given at
the time the deposit was made and the bank
assesses overdraft or returned check fees on
accounts when a case-by-case hold has been
placed, the case-by-case hold notice provided
to the customer must include a notice concerning overdraft or returned check fees. The
notice must state that the customer may be
entitled to a refund of any overdraft or returned check fees that result from the deposited funds not being available if the check
that was deposited was in fact paid by the
payor bank, and explain how to request a refund of any fees. (See § 229.16(c)(3).)
c. The requirement that the case-by-case
hold notice state the day that funds will be
made available for withdrawal may be met
by stating the date or the number of business
days after deposit that the funds will be
made available. This requirement is satisfied
if the notice provides information sufficient
to indicate when funds will be available and
the amounts that will be available at those
times. For example, for a deposit involving
more than one check, the bank need not provide a notice that discloses when funds from
each individual item in the deposit will be
available for withdrawal. Instead, the bank
may provide a total dollar amount for each
of the time periods when funds will be available, or provide the customer with an explanation of how to determine the amount of
the deposit that will be held and when the
held funds will be available for withdrawal.
d. For deposits made in person to an employee of the depositary bank, the notice
generally must be given at the time of the
deposit. The notice at the time of the deposit
must be given to the person making the deposit, that is, the ‘‘depositor.’’ The depositor
need not be the customer holding the account. For other deposits, such as deposits
received at an ATM, lobby deposit box, night
depository, through the mail, or by armored
car, notice must be mailed to the customer
not later than the close of the business day
following the banking day on which the deposit was made. Notice to the customer also
may be provided not later than the close of
the business day following the banking day
on which the deposit was made if the decision to delay availability is made after the
time of the deposit.
3. Overdraft and returned check fees. If a
depositary bank delays or extends the time
when funds from a deposited check are available for withdrawal on a case-by-case basis
and does not provide a written notice to its
depositor at the time of deposit, the depositary bank may not assess any overdraft or
returned check fees (such as an insufficient
funds charge) or charge interest for use of an
overdraft line of credit, if the deposited
check is paid by the paying bank and these
fees would not have occurred had the additional case-by-case delay not been imposed.
A bank may assess an overdraft or returned
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Pt. 229, App. E
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 § 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 § 229.14(a).) Such credit
unions are required to describe their policy
with respect to accrual of interest or dividends on deposits in their specific availability policy disclosure.
XI. Section 229.17 Initial Disclosures
A. This paragraph requires banks to provide a notice of their availability policy to
all potential customers prior to opening an
account. The requirement of a notice prior
to opening an account requires banks to provide disclosures prior to accepting a deposit
to open an account. Disclosures must be
given at the time the bank accepts an initial
deposit regardless of whether the bank has
opened the account yet for the customer. If
a bank, however, receives a written request
by mail from a person asking that an account be opened and the request includes an
initial deposit, the bank may open the account with the deposit, provided the bank
mails the required disclosures to the customer not later than the business day following the banking day on which the bank
receives the deposit. Similarly, if a bank receives a telephone request from a customer
asking that an account be opened with a
transfer from a separate account of the customer’s at the bank, the disclosure may be
mailed not later than the business day following the banking day of the request.
XII. Section 229.18 Additional Disclosure
Requirements
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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 § 229.10(c). A bank is not responsible for ensuring that the notice appear
on deposit slips that the customer does not
obtain from or through the bank. This paragraph applies to preprinted deposit slips furnished to customers on or after September 1,
1988.
B. 229.18(b) Locations Where Employees
Accept Consumer Deposits
1. This paragraph describes the statutory
requirement that a bank post in each location where its employees accept consumer
deposits a notice of its availability policy
pertaining to consumer accounts. The notice
that is required must specifically state the
availability periods for the various deposits
that may be made to consumer accounts.
The notice need not be posted at each teller
window, but the notice must be posted in a
place where consumers seeking to make deposits are likely to see it before making
their deposits. For example, the notice
might be posted at the point where the line
forms for teller service in the lobby. The notice is not required at any drive-through
teller windows nor is it required at night depository locations, or at locations where
consumer deposits are not accepted. A bank
that acts as a contractual branch at a particular location must include the availability policy that applies to its own customers but need not include the policy that
applies to the customers of the bank for
which it is acting as a contractual branch.
C. 229.18(c) Automated Teller Machines
1. This paragraph sets forth the required
notices for ATMs. Paragraph (c)(1) provides
that the depositary bank is responsible for
posting a notice on all ATMs at which deposits can be made to accounts at the depositary bank. The depositary bank may arrange
for a third party, such as the owner or operator of the ATM, to post the notice and indemnify the depositary bank from liability if
the depositary bank is liable under § 229.21
for the owner or operator failing to provide
the required notice.
2. The notice may be posted on a sign,
shown on the screen, or included on deposit
envelopes provided at the ATM. This disclosure must be given before the customer has
made the deposit. Therefore, a notice provided on the customer’s deposit receipt or
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12 CFR Ch. II (1–1–18 Edition)
appearing on the ATM’s screen after the customer has made the deposit would not satisfy this requirement.
3. Paragraph (c)(2) requires a depositary
bank that operates an off-premise ATM from
which deposits are removed not more than
two times a week to make a disclosure of
this fact on the off-premise ATM. The notice
must disclose to the customer the days on
which deposits made at the ATM will be considered received.
D. 229.18(d) Upon Request
1. This paragraph requires banks to provide
written notice of their specific availability
policy to any person upon that person’s oral
or written request. The notice must be sent
within a reasonable period of time following
receipt of the request.
E. 229.18(e) Changes in Policy
1. This paragraph requires banks to send
notices to their customers when the banks
change their availability policies with regard to consumer accounts. A notice may be
given in any form as long as it is clear and
conspicuous. If the bank gives notice of a
change by sending the customer a complete
new availability disclosure, the bank must
direct the customer to the changed terms in
the disclosure by use of a letter or insert, or
by highlighting the changed terms in the disclosure.
2. Generally, a bank must send a notice at
least 30 calendar days before implementing
any change in its availability policy. If the
change results in faster availability of deposits—for example, if the bank changes its
availability for nonlocal checks from the
fifth business day after deposit to the fourth
business day after deposit—the bank need
not send advance notice. The bank must,
however, send notice of the change no later
than 30 calendar days after the change is implemented. A bank is not required to give a
notice when there is a change in appendix B
(reduction of schedules for certain nonlocal
checks).
3. A bank that has provided its customers
with a list of ATMs under § 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
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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 § 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
§ 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
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Federal Reserve System
Pt. 229, App. E
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 § 229.18.
6. Banking day of deposit.
a. This paragraph also provides that a deposit received on a day that the depositary
bank is closed, or after the bank’s cut-off
hour, may be considered made on the next
banking day. Generally, for purposes of the
availability schedules of this subpart, a bank
may establish a cut-off hour of 2 p.m. or
later for receipt of deposits at its head office
or branch offices. For receipt of deposits at
ATMs, contractual branches, or other offpremise facilities, such as night depositories
or lock boxes, the depositary bank may establish a cut-off hour of 12:00 noon or later
(either local time of the branch or other location of the depositary bank at which the
account is maintained or local time of the
ATM, contractual branch, or other offpremise 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 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 overthe-counter deposits, or for different teller
stations at the same branch. With the exception of the 12 noon cut-off for deposits at
ATMs and off-premise facilities, no cut-off
hour for receipt of deposits for purposes of
this subpart can be established earlier than 2
p.m.
c. A bank is not required to remain open
until 2 p.m. If a bank closes before 2 p.m., deposits received after the closing may be considered deposited on the next banking day.
Further, as § 229.2(f) defines the term banking day as the portion of a business day on
which a bank is open to the public for substantially all of its banking functions, a day,
or a portion of a day, is not necessarily a
banking day merely because the bank is open
for only limited functions, such as keeping
drive-in or walk-up teller windows open,
when the rest of the bank is closed to the
public. For example, a banking office that
usually provides a full range of banking services may close at 12 noon but leave a drivein teller window open for the limited purpose
of receiving deposits and making cash withdrawals. Under those circumstances, the
bank is considered closed and may consider
deposits received after 12 noon as having
been received on the next banking day. The
fact that a bank may reopen for substantially all of its banking functions after 2
p.m., or that it continues its back office operations throughout the day, would not affect this result. A bank may not, however,
close individual teller stations and reopen
them for next-day’s business before 2 p.m.
during a banking day.
B. 229.19(b) Availability at Start of Business
Day
1. If funds must be made available for withdrawal on a business day, the funds must be
available for withdrawal by the later of 9
a.m. or the time the depositary bank’s teller
facilities, including ATMs, are available for
customer account withdrawals, except under
the special rule for cash withdrawals set
forth in § 229.12(d). Thus, if a bank has no
ATMs and its branch facilities are available
for customer transactions beginning at 10
a.m., funds must be available for customer
withdrawal beginning at 10 a.m. If the bank
has ATMs that are available 24 hours a day,
rather than establishing 12:01 a.m. as the
start of the business day, this paragraph sets
9 a.m. as the start of the day with respect to
ATM withdrawals. The Board believes that
this rule provides banks with sufficient time
to update their accounting systems to reflect
the available funds in customer accounts for
that day.
2. The start of business is determined by
the local time of the branch or other location of the depositary bank at which the account is maintained. For example, if funds in
a customer’s account at a west coast bank
are first made available for withdrawal at
the start of business on a given day, and the
customer attempts to withdraw the funds at
an east coast ATM, the depositary bank is
not required to make the funds available
until 9 a.m. west coast time (12 noon east
coast time).
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
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Pt. 229, App. E
12 CFR Ch. II (1–1–18 Edition)
the schedules in the regulation. For example,
a bank may differentiate between its corporate and consumer customers, or may
adopt different policies for its consumer customers based on whether a customer has an
overdraft line of credit associated with the
account.
2. This regulation does not affect a depositary bank’s right to accept or reject a check
for deposit, to charge back the customer’s
account based on a returned check or notice
of nonpayment, or to claim a refund for any
credit provided to the customer. For example, even if a check is returned or a notice of
nonpayment is received after the time by
which funds must be made available for
withdrawal in accordance with this regulation, the depositary bank may charge back
the customer’s account for the full amount
of the check. (See § 229.33(d) and Commentary.)
3. Nothing in the regulation requires a depositary bank to have facilities open for customers to make withdrawals at specified
times or on specified days. For example,
even though the special cash withdrawal rule
set forth in § 229.12(d) states that a bank
must make up to $400 available for cash
withdrawals no later than 5 p.m. on specific
business days, if a bank does not participate
in an ATM system and does not have any
teller windows open at or after 5 p.m., the
bank need not join an ATM system or keep
offices open. In this case, the bank complies
with this rule if the funds that are required
to be available for cash withdrawal at 5 p.m.
on a particular day are available for withdrawal at the start of business on the following day. Similarly, if a depositary bank is
closed for customer transactions, including
ATMs, on a day funds must be made available for withdrawal, the regulation does not
require the bank to open.
4. The special cash withdrawal rule in the
EFA Act recognizes that the $400 that must
be made available for cash withdrawal by 5
p.m. on the day specified in the schedule
may exceed a bank’s daily ATM cash withdrawal limit and explicitly provides that the
EFA Act does not supersede a bank’s policy
in this regard. As a result, if a bank has a
policy of limiting cash withdrawals from
automated teller machines to $250 per day,
the regulation would not require that the
bank dispense $400 of the proceeds of the customer’s deposit that must be made available
for cash withdrawal on that day.
5. Even though the 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-thecounter on a given day. For example, some
banks require advance notice for large cash
withdrawals in order to limit the amount of
cash needed to be maintained on hand at any
time.
7. Nothing in the regulation is intended to
prohibit a bank from limiting the amount of
cash that may be withdrawn at a staffed teller station if the bank has a policy limiting
the amount of cash that may be withdrawn,
and if that policy is applied equally to all
customers of the bank, is based on security,
operating, or bonding requirements, and is
not dependent on the length of time the
funds have been in the customer’s account
(as long as the permissible hold has expired).
The regulation, however, does not authorize
such policies if they are otherwise prohibited
by statutory, regulatory, or common law.
D. 229.19(d) Use of Calculated Availability
1. A depositary bank may provide availability to its nonconsumer accounts on a calculated availability basis. Under calculated
availability, a specified percentage of funds
from check deposits may be made available
to the customer on the next business day,
with the remaining percentage deferred until
subsequent days. The determination of the
percentage of deposited funds that will be
made available each day is based on the customer’s typical deposit mix as determined by
a sample of the customer’s deposits. Use of
calculated availability is permitted only if,
on average, the availability terms that result from the sample are equivalent to or
more prompt than the requirements of this
subpart.
E. 229.19(e) Holds on Other Funds
1. Section 607(d) of the 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
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Federal Reserve System
Pt. 229, App. E
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 § 229.2(a)), the bank may not place a
hold on any of the customer’s funds so that
the funds that are held exceed the amount of
the check deposited or the total amount of
funds held are not made available for withdrawal within the times required in this subpart. For example, if a bank places a hold on
funds in a customer’s non transaction account, rather than a transaction account, for
deposits made to the customer’s transaction
account, the bank may place such a hold
only to the extent that the funds held do not
exceed the amount of the deposit and the
length of the hold does not exceed the time
periods permitted by this regulation.
3. These restrictions also apply to holds
placed on funds in a customer’s account (as
defined in § 229.2(a)) if a customer cashes a
check at a bank (other than a check drawn
on that bank) over the counter. The regulation does not prohibit holds that may be
placed on other funds of the customer for
checks cashed over the counter, to the extent that the transaction does not involve a
deposit to an account. A bank may not, however, place a hold on any account when an
‘‘on us’’ check is cashed over the counter.
‘‘On us’’ checks are considered finally paid
when cashed (see U.C.C. 4–215(a)(1)). 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
§§ 229.13 or 229.16 had the check been deposited in the account.
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 assure and monitor employee compliance with
such requirements.
2. This paragraph requires a bank to establish procedures to ensure compliance with
these requirements and provide these procedures to the employees responsible for carrying them out.
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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 cus-
tomer of any bank that is a party to the
transaction that has an established account
with that bank may not be treated as a new
account holder for any other party to the
transaction for purposes of the new account
exception of § 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
§ 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 (§ 229.2(aa) and § 229.12(b)) and
when a check is considered drawn on a
branch
of
the
depositary
bank
(§ 229.10(c)(1)(vi)).
3. Merger transaction is defined in
§ 229.2(t).
XIV. Section 229.20 Relation to State Law
A. 229.20(a) In General
1. Several states have enacted laws that
govern when banks in those states must
make funds available to their customers.
The 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. 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).
2. Thus, if a state had wished to adopt a
law governing funds availability, it had to
have made that law effective on or before
September 1, 1989. Laws adopted after that
date do not supersede federal law, even if
they provide for shorter availability periods
than are provided under federal law. If a
state that had a law governing funds availability in effect before September 1, 1989,
amended its law after that date, the amendment would not supersede federal law, but an
amendment deleting a state requirement
would be effective.
3. If a state provides for a shorter hold for
a certain category of checks than is provided
for under federal law, that state requirement
will supersede the federal provision. For example, most state laws base some hold periods on whether the check being deposited is
drawn on an in-state or out-of-state bank. If
a state contains more than one check processing region, the state’s hold period for instate 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.
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Pt. 229, App. E
12 CFR Ch. II (1–1–18 Edition)
4. 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.
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C. 229.20(c) Standards for Preemption
1. This section describes the standards the
Board uses in making determinations on
whether federal law will preempt state laws
governing funds availability. A provision of
state law is considered inconsistent with federal law if it permits a depositary bank to
make funds available to a customer in a
longer period of time than the maximum period permitted by the EFA Act and this regulation. For example, a state law that permits a hold of four business days or longer
for local checks permits a hold that is longer
than that permitted under the 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 (§ 229.10(c)(1)(vii)) require
next-day availability for the first $100 of the
aggregate deposit of local or nonlocal checks
on any day, and a state law could require
next-day availability for any check of $100 or
less that is deposited. Under the EFA Act
and this regulation, if either one $150 check
or three $50 checks are deposited on a given
day, $100 must be made available for withdrawal on the next business day, and $50
must be made available in accordance with
the local or nonlocal schedule. Under the
state law, however, the two deposits would
be subject to different availability rules. In
the first case, none of the proceeds of the deposit would be subject to next-day availability; in the second case, the entire proceeds of the deposit would be subject to nextday 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 § 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 deposits, such as nonnegotiable instruments, that are not subject to
the Regulation CC availability schedules.
Deposits that are not covered by Regulation
CC continue to be subject to the state availability schedules. State laws that provide
maximum availability periods for categories
of institutions that are not covered by the
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 Subparts A and
B; generally the Board will not issue individual preemption determinations regarding
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Federal Reserve System
Pt. 229, App. E
the relation of state U.C.C. provisions to the
requirements of Subpart C.
E. 229.20(e) Procedures for Preemption
Determinations
1. This provision sets forth the information
that must be included in a request by an interested party for a preemption determination by the Board.
XV. Section 229.21 Civil Liability
A. 229.21(a) Civil Liability
1. This paragraph sets forth the statutory
penalties for failure to comply with the requirements of this subpart. These penalties
apply to provisions of state law that supersede provisions of this regulation, such as requirements that funds deposited in accounts
at banks be made available more promptly
than required by this regulation, but they do
not apply to other provisions of state law.
(See Commentary to § 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.
F. 229.21(f) Exclusions
1. This provision clarifies that liability
under this section does not apply to violations of the requirements of Subpart C of
this regulation, or to actions for wrongful
dishonor of a check by a paying bank’s customer.
G. 229.21(g) Record Retention
1. Banks must keep records to show compliance with the requirements of this subpart for at least two years. This record retention period is extended in the case of civil
actions and enforcement proceedings. Generally, a bank is not required to retain
records showing that it actually has given
disclosures or notices required by this subpart to each customer, but it must retain
evidence demonstrating that its procedures
reasonably ensure the customers’ receipt of
the required disclosures and notices. A bank
must, however, retain a copy of each notice
provided pursuant to its use of the reasonable cause exception under § 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
C. 229.21(c) Bona Fide Errors
1. A bank is shielded from liability under
this section for a violation of a requirement
of this subpart if it can demonstrate, by a
preponderance of the evidence, that the violation resulted from a bona fide error and
that it maintains procedures designed to
avoid such errors. For example, a bank may
make a bona fide error if it fails to give
next-day availability on a check drawn on
the Treasury because the bank’s computer
system malfunctions in a way that prevents
the bank from updating its customer’s account; or if it fails to identify whether a payable-through check is a local or nonlocal
check despite procedures designed to make
this determination accurately.
D. 229.21(d) Jurisdiction
1. The EFA Act confers subject matter jurisdiction on courts of competent jurisdiction and provides a time limit for civil actions for violations of this subpart.
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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.
1. This section requires a paying bank
(which, for purposes of Subpart C, may include a payable-through and payable-at
bank; see § 229.2(z)) that determines not to
pay a check to return the check expeditiously. Generally, a check is returned expeditiously if the return process is as fast as
the forward collection process. This paragraph provides two standards for expeditious
return, the ‘‘two-day/four-day’’ test, and the
‘‘forward collection’’ test.
2. Under the ‘‘two-day/four-day’’ test, if a
check is returned such that it would normally be received by the depositary bank
two business days after presentment where
both the paying and depositary banks are located in the same check processing region or
four business days after presentment where
the paying and depositary banks are not located in the same check processing region,
the check is considered returned expeditiously. In certain limited cases, however,
these times are shorter than the time it
would normally take a forward collection
check deposited in the paying bank and payable by the depositary bank to be collected.
Therefore, the Board has included a ‘‘forward
collection’’ test, whereby a check is nonetheless considered to be returned expeditiously
if the paying bank uses transportation methods and banks for return comparable to
those used for forward collection checks,
even if the check is not received by the depositary banks within the two-day or fourday period.
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Pt. 229, App. E
12 CFR Ch. II (1–1–18 Edition)
3. Two-day/four-day test.
a. Under the first test, a paying bank must
return the check so that the check would
normally be received by the depositary bank
within specified times, depending on whether
or not the paying and depositary banks are
located in the same check processing region.
b. Where both banks are located in the
same check processing region, a check is returned expeditiously if it is returned to the
depositary bank by 4:00 p.m. (local time of
the depositary bank) of the second business
day after the banking day on which the
check was presented to the paying bank. For
example, a check presented on Monday to a
paying bank must be returned to a depositary bank located in the same check processing region by 4 p.m. on Wednesday. For a
paying bank that is located in a different
check processing region than the depositary
bank, the deadline to complete return is 4
p.m. (local time of the depositary bank) of
the fourth business day after the banking
day on which the check was presented to the
paying bank. For example, a check presented
to such a paying bank on Monday must be
returned to the depositary bank by 4:00 p.m.
on Friday.
c. This two-day/four-day test does not necessarily require actual receipt of the check
by the depositary bank within these times.
Rather, the paying bank must send the
check so that the check would normally be
received by the depositary bank within the
specified time. Thus, the paying bank is not
responsible for unforeseeable delays in the
return of the check, such as transportation
delays.
d. Often, returned checks will be delivered
to the depositary bank together with forward collection checks. Where the last day
on which a check could be delivered to a depositary bank under this two-day/four-day
test is not a banking day for the depositary
bank, a returning bank might not schedule
delivery of forward collection checks to the
depositary bank on that day. Further, the
depositary bank may not process checks on
that day. Consequently, if the last day of the
time limit is not a banking day for the depositary bank, the check may be delivered to
the depositary bank before the close of the
depositary bank’s next banking day and the
return will still be considered expeditious.
Ordinarily, this extension of time will allow
the returned checks to be delivered with the
next shipment of forward collection checks
destined for the depositary bank.
e. The times specified in this two-day/fourday test are based on estimated forward collection times, but take into account the particular difficulties that may be encountered
in handling returned checks. It is anticipated that the normal process for forward
collection of a check coupled with these return requirements will frequently result in
the return of checks before the proceeds of
nonlocal checks, other than those covered by
§ 229.10(c), must be made available for withdrawal.
f. Under this two-day/four-day test, no particular means of returning checks is required, thus providing flexibility to paying
banks in selecting means of return. The
Board anticipates that paying banks will
often use returning banks (see § 229.31) as
their agents to return checks to depositary
banks. A paying bank may rely on the availability schedule of the returning bank it uses
in determining whether the returned check
would ‘‘normally’’ be returned within the required time under this two-day/four-day test,
unless the paying bank has reason to believe
that these schedules do not reflect the actual
time for return of a check.
4. Forward collection test.
a. Under the second, ‘‘forward collection,’’
test, a paying bank returns a check expeditiously if it returns a check by means as
swift as the means similarly situated banks
would use for the forward collection of a
check drawn on the depositary bank.
b. Generally, the paying bank would satisfy the ‘‘forward collection’’ test if it uses a
transportation method and collection path
for return comparable to that used for forward collection, provided that the returning
bank selected to process the return agrees to
handle the returned check under the standards for expeditious return for returning
banks under § 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 § 229.2(ee).) A paying bank has similar
check handling activity to other banks that
handle similar volumes of checks for collection.
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Federal Reserve System
Pt. 229, App. E
f. Under the forward collection test, banks
that use means of handling returned checks
that are less efficient than the means used
by similarly situated banks must improve
their procedures. On the other hand, a bank
with highly efficient means of collecting
checks drawn on a particular bank, such as a
direct presentment of checks to a bank in a
remote community, is not required to use
that means for returned checks, i.e. direct
return, if similarly situated banks do not
present checks directly to that depositary
bank.
5. Examples.
a. If a check is presented to a paying bank
on Monday and the depositary bank and the
paying bank are participants in the same
clearinghouse, the paying bank should arrange to have the returned check received by
the depositary bank by Wednesday. This
would be the same day the paying bank
would deliver a forward collection check to
the depositary bank if the paying bank received the deposit by noon on Tuesday.
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 § 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 cutoff hour for returned checks that corresponds to the cut-off hour for forward collection checks drawn on the depositary bank
that would normally be used by the paying
bank or a similarly situated bank. A returned check cut-off hour corresponds to a
forward collection cut-off hour if it provides
for the same or faster availability for checks
destined for the same depositary banks.
iii. In this example, delivery to the correspondent or a Federal Reserve Bank by the
appropriate cut-off hour satisfies the paying
bank’s duty, even if use of the correspondent
or Federal Reserve Bank is not the most expeditious means of returning the check.
Thus, a paying bank may send a local returned check to a correspondent instead of a
Federal Reserve Bank, even if the correspondent then sends the returned check to
a Federal Reserve Bank the following day as
a qualified returned check. Where the paying
bank delivers forward collection checks by
courier to the correspondent or the Federal
Reserve Bank, mailing returned checks to
the correspondent or Federal Reserve Bank
would not satisfy the forward collection test.
iv. If a paying bank ordinarily mails its
forward collection checks to its correspondent or Federal Reserve Bank in order
to avoid the costs of a courier delivery, but
similarly situated banks use a courier to deliver forward collection checks to their correspondent or Federal Reserve Bank, the
paying bank must send its returned checks
by courier to meet the forward collection
test.
c. If a paying bank normally sends its forward collection checks directly to the depositary bank, which is located in another community, but similarly situated banks send
forward collection checks drawn on the depositary bank to a correspondent or a Federal Reserve Bank, the paying bank would
not have to send returned checks directly to
the depositary bank, but could send them to
a correspondent or a Federal Reserve Bank.
d. The dollar amount of the returned check
has a bearing on how it must be returned. If
the paying bank and similarly situated
banks present large-dollar checks drawn on
the depositary bank directly to the depositary bank, but use a Federal Reserve Bank
or a correspondent to collect small-dollar
checks, generally the paying bank would be
required to send its large-dollar returns directly to the depositary bank (or through a
returning bank, if the checks are returned as
quickly), but could use a Federal Reserve
Bank or a correspondent for its small-dollar
returns.
6. Choice of returning bank. In meeting the
requirements of the forward collection test,
the paying bank is responsible for its own actions, but not for those of the depositary
bank or returning banks. (This is analogous
to the responsibility of collecting banks
under U.C.C. 4–202(c).) For example, if the
paying bank starts the return of the check in
a timely manner but return is delayed by a
returning bank (including delay to create a
qualified returned check), generally the paying bank has met its requirements. (See
§ 229.38.) If, however, the paying bank selects
a returning bank that the paying bank
should know is not capable of meeting its return requirements, the paying bank will not
have met its obligation of exercising ordinary care in selecting intermediaries to return the check. The paying bank is free to
use a method of return, other than its method of forward collection, as long as the alternate method results in delivery of the returned check to the depositary bank as
quickly as the forward collection of a check
drawn on the depositary bank or, where the
returning bank takes a day to create a qualified returned check under § 229.31(a), one day
later than the forward collection time. If a
paying bank returns a check on its banking
day of receipt without settling for the check,
as permitted under U.C.C. 4–302(a), and receives settlement for the returned check
from a returning bank, it must promptly pay
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Pt. 229, App. E
12 CFR Ch. II (1–1–18 Edition)
the amount of the check to the collecting
bank from which it received the check.
7. Qualified returned checks. Although
paying banks may wish to prepare qualified
returned checks because they will be handled
at a lower cost by returning banks, the one
business day extension provided to returning
banks is not available to paying banks because of the longer time that a paying bank
has to dispatch the check. Normally, paying
banks will be able to convert a check to a
qualified returned check at any time after
the determination is made to return the
check until late in the day following presentment, while a returning bank may receive
returned checks late on one day and be expected to dispatch them early the next
morning. 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.
8. Routing of returned checks.
a. In effect, under either test, the paying
bank acts as an agent or subagent of the depositary bank in selecting a means of return.
Under § 229.30(a), a paying bank is authorized
to route the returned check in a variety of
ways:
i. It may send the returned check directly
to the depositary bank by courier or other
means of delivery, bypassing returning
banks; or
ii. It may send the returned check to any
returning bank agreeing to handle the returned check for expeditious return to the
depositary bank under § 229.31(a), regardless
of whether or not the returning bank handled the check for forward collection.
b. If the paying bank elects to return the
check directly to the depositary bank, it is
not necessarily required to return the check
to the branch of first deposit. The check may
be returned to the depositary bank at any location permitted under § 229.32(a).
9. Midnight deadline.
a. Except for the extension permitted by
§ 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 § 229.2(z)) and
that returns a check. This requirement begins when the payable-through or payable-at
bank receives the check during forward collection, not when the payor returns the
check to the payable-through or payable-at
bank. Nevertheless, a check sent for payment or collection to a payable-through or
payable-at bank is not considered to be
drawn on that bank for purposes of the midnight deadline provision of U.C.C. 4–301. (See
discussion of § 229.36(a).)
c. The liability section of this subpart
(§ 229.38) provides that a paying bank is not
subject to both ‘‘accountability’’ for missing
the midnight deadline under the U.C.C. and
liability for missing the timeliness requirements of this regulation. Also, a paying bank
is not responsible for failure to make expeditious return to a party that has breached a
presentment warranty under U.C.C. 4–208,
notwithstanding that the paying bank has
returned the check. (See Commentary to
§ 229.33(a).)
10. U.C.C. provisions affected. This paragraph directly affects the following provisions of the U.C.C., and may affect other sections or provisions:
a. Section 4–301(d), in that instead of returning a check through a clearinghouse or
to the presenting bank, a paying bank may
send a returned check to the depositary bank
or to a returning bank.
b. Section 4–301(a), in that time limits
specified in that section may be affected by
the additional requirement to make an expeditious return and in that settlement for returned checks is made under § 229.31(c), not
by revocation of settlement.
B. 229.30(b) Unidentifiable Depositary Bank
1. In some cases, a paying bank will be unable to identify the depositary bank through
the use of ordinary care and good faith. The
Board expects that these cases will be unusual as skilled return clerks will readily
identify the depositary bank from the depositary bank indorsement required under
§ 229.35 and appendix D. In cases where the
paying bank is unable to identify the depositary bank, the paying bank may, in accordance with § 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 § 229.31(a). The returning bank may be better able to identify
the depositary bank.
2. In the alternative, the paying bank may
send the check back up the path used for forward collection of the check. The presenting
bank and prior collecting banks normally
will be able to trace the collection path of
the check through the use of their internal
records
in
conjunction
with
the
indorsements on the returned check. In these
limited cases, the paying bank may send
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Federal Reserve System
Pt. 229, App. E
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 § 229.31(a). A paying
bank returning a check under this paragraph
to a bank that has not agreed to handle the
check expeditiously must advise that bank
that it is unable to identify the depositary
bank. This advice must be conspicuous, such
as a stamp on each check for which the depositary bank is unknown if such checks are
commingled with other returned checks, or,
if such checks are sent in a separate cash letter, by one notice on the cash letter. This information will warn the bank that this
check will require special research and handling in accordance with § 229.31(b). The returned check may not be prepared for automated return. The return of a check to a
bank that handled the check for forward collection is consistent with § 229.35(b), which
requires a bank handling a check to take up
the check it is has not been paid.
3. The sending of a check to a bank that
handled the check for forward collection
under this paragraph is not subject to the requirements for expeditious return by the
paying bank. Often, the paying bank will not
have courier or other expeditious means of
transportation to the collecting or presenting bank. Although the lack of a requirement of expeditious return will create risks
for the depositary bank, in many cases the
inability to identify the depositary bank will
be due to the depositary bank’s, or a collecting
bank’s,
failure
to
use
the
indorsement required by § 229.35(a) and appendix D. If the depositary bank failed to use
the proper indorsement, it should bear the
risks of less than expeditious return. Similarly, where the inability to identify the depositary bank is due to indorsements or
other information placed on the back of the
check by the depositary bank’s customer or
other prior indorser, the depositary bank
should bear the risk that it cannot charge a
returned check back to that customer.
Where the inability to identify the depositary bank is due to subsequent indorsements
of collecting banks, these collecting banks
may be liable for a loss incurred by the depositary bank due to less than expeditious
return of a check; those banks therefore
have an incentive to return checks sent to
them under this paragraph quickly.
4. This paragraph does not relieve a paying
bank from the liability for the lack of expeditious return in cases where the paying
bank is itself responsible for the inability to
identify the depositary bank, such as when
the paying bank’s customer has used a check
with printing or other material on the back
in the area reserved for the depositary
bank’s
indorsement,
making
the
indorsement unreadable. (See § 229.38(d).)
5. A paying bank’s return under this paragraph is also subject to its midnight deadline
under U.C.C. 4–301, Regulation J (if the check
is returned through a Federal Reserve Bank),
and the exception provided in § 229.30(c). A
paying bank also may send a check to a prior
collecting bank to make a claim against
that bank under § 229.35(b) where the depositary bank is insolvent or in other cases as
provided in § 229.35(b). Finally, a paying bank
may make a claim against a prior collecting
bank based on a breach of warranty under
U.C.C. 4–208.
C. 229.30(c) Extension of Deadline
1. This paragraph permits extension of the
deadlines for returning a check for which the
paying bank previously has settled (generally midnight of the banking day following
the banking day on which the check is received by the paying bank) and for returning
a check without settling for it (generally
midnight of the banking day on which the
check is received by the paying bank, or
such other time provided by § 210.9 of Regulation J (12 CFR part 210) or § 229.36(f)(2) of this
part), but not of the duty of expeditious return, in two circumstances:
a. A paying bank may have a courier that
leaves after midnight (or after any other applicable deadline) to deliver its forward-collection checks. This paragraph removes the
constraint of the midnight deadline for returned checks if the returned check 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. 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 XVI.C.1.b of this appendix).
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
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31
Pt. 229, App. E
12 CFR Ch. II (1–1–18 Edition)
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.
2. The time limits that are extended in
each case are the paying bank’s midnight
deadline for returning a check for which it
has already settled and the paying bank’s
deadline for returning a check without settling for it in U.C.C. 4–301 and 4–302, §§ 210.9
and 210.12 of Regulation J (12 CFR 210.9 and
210.12), and § 229.36(f)(2) of this part. As these
extensions
are
designed
to
speed
(§ 229.30(c)(1)),
or
at
least
not
slow
(§ 229.30(c)(2)), the overall return of checks,
no modification or extension of the expeditious return requirements in § 229.30(a) is required.
3. The paying bank satisfies its midnight
or other return deadline by dispatching returned checks to another bank by courier,
including a courier under contract with the
paying bank, prior to expiration of the deadline.
4. This paragraph directly affects U.C.C. 4–
301 and 4–302 and §§ 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. A reason such as ‘‘Refer to
Maker’’ is permissible in appropriate cases.
If the returned check is a substitute check,
the reason for return must be placed 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.
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E. 229.30(e) Depositary Bank Without
Accounts
1. Subpart B of this regulation applies only
to ‘‘checks’’ deposited in transaction-type
‘‘accounts.’’ Thus, a depositary bank with
only time or savings accounts need not comply with the availability requirements of
Subpart B. Collecting banks will not have
couriers delivering checks to these banks as
paying banks, because no checks are drawn
on them. Consequently, the costs of using a
courier or other expedited means to deliver
returned checks directly to such a depositary bank may not be justified. Thus, the expedited return requirement of § 229.30(a) and
the notice of nonpayment requirement of
§ 229.33 do not apply to checks being returned
to banks that do not hold accounts. The paying bank’s midnight deadline in U.C.C. 4–301
and 4–302 and § 210.12 of Regulation J (12 CFR
210.12) would continue to apply to these
checks. Returning banks also would be required to act on such checks within their
midnight deadline. Further, in order to avoid
complicating the process of returning checks
generally, banks without accounts are required to use the standard indorsement, and
their checks are returned by returning banks
and paid for by the depositary bank under
the same rules as checks deposited in other
banks, with the exception of the expeditious
return and notice of nonpayment requirements of §§ 229.30(a), 229.31(a), and 229.33.
2. The expeditious return requirements
also apply to a check deposited in a bank
that is not a depository institution. Federal
Reserve Banks, Federal Home Loan Banks,
private bankers, and possibly certain 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 § 229.2(a), and a
paying bank returning a check to one of
these banks would be required to return the
check to the depositary bank, in accordance
with the requirements of this section.
F. 229.30(f) Notice in Lieu of Return
1. A check that is lost or otherwise unavailable for return may be returned by
sending a legible copy of both sides of the
check or, if such a copy is not available to
the paying bank, a written notice of nonpayment containing the information specified in § 229.33(b). The copy or written notice
must clearly indicate it is a notice in lieu of
return and must be handled in the same
manner as other returned checks. Notice by
telephone, telegraph, or other electronic
transmission, other than a legible facsimile
or similar image transmission of both sides
of the check, does not satisfy the requirements for a notice in lieu of return. The requirement for a writing and the indication
that the notice is a substitute for the returned check is necessary so that the returning and depositary banks are informed that
the notice carries value. Notice in lieu of return is permitted only when a bank does not
have and cannot obtain possession of the
check or must retain possession of the check
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Pt. 229, App. E
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 § 229.35(b). A bank
using a notice in lieu of return gives a warranty under § 229.34(a)(4) that the original
check has not been and will not be returned.
2. The requirement of this paragraph supersedes the requirement of U.C.C. 4–301(a) as
to the form and information required of a notice of dishonor or nonpayment. Reference in
the regulation and this commentary to a returned check includes a notice in lieu of return unless the context indicates otherwise.
3. The notice in lieu of return is subject to
the provisions of § 229.30 and is treated like a
returned check for settlement purposes. If
the original check is over $2,500, the notice
of nonpayment under § 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 § 229.33.
4. If not all of the information required by
§ 229.33(b) is available, the paying bank may
make a claim against any prior bank handling the check as provided in § 229.35(b).
G. 229.30(g) Reliance on Routing Number
1. Although § 229.35 and appendix D require
that the depositary bank indorsement contain its nine-digit routing number, it is possible that a returned check will bear the
routing number of the depositary bank in
fractional, nine-digit, or other form. This
paragraph permits a paying bank to rely on
the routing number of the depositary bank
as it appears on the check (in the depositary
bank’s indorsement) when it is received by
the paying bank.
2. If there are inconsistent routing numbers, the paying bank may rely on any routing number designating the depositary bank.
The paying bank is not required to resolve
the inconsistency prior to processing the
check. The paying bank remains subject to
the requirement to act in good faith and use
ordinary care under § 229.38(a).
XVII. Section 229.31 Returning Bank’s
Responsibility for Return of Checks
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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 § 229.30(a). This section requires a returning bank to return a returned
check expeditiously if it agrees to handle the
returned check for expeditious return under
this paragraph. In effect, the returning bank
is an agent or subagent of the paying bank
and a subagent of the depositary bank for
the purposes of returning the check.
2. A returning bank agrees to handle a returned check for expeditious return to the
depositary bank if it:
a. Publishes or distributes availability
schedules for the return of returned checks
and accepts the returned check for return;
b. Handles a returned check for return that
it did not handle for forward collection; or
c. Otherwise agrees to handle a returned
check for expeditious return.
3. Two-day/four-day test. As in the case of
a paying bank, a returning bank’s return of
a returned check is expeditious if it meets
either of two tests. Under the ‘‘two-day/fourday’’ test, the check must be returned so
that it would normally be received by the depositary bank by 4:00 p.m. either two or four
business days after the check was presented
to the paying bank, depending on whether or
not the paying bank is located in the same
check processing region as the depositary
bank. This is the same test as the two-day/
four-day test applicable to paying banks.
(See Commentary to § 229.30(a).) While a returning bank will not have first hand knowledge of the day on which a check was presented to the paying bank, returning banks
may, by agreement, allocate with paying
banks liability for late return based on the
delays caused by each. In effect, the two-day/
four day test protects all paying and returning banks that return checks from claims
that they failed to return a check expeditiously, where the check is returned within
the specified time following presentment to
the paying bank, or a later time as would result from unforeseen delays.
4. Forward collection test.
a. The ‘‘forward collection’’ test is similar
to the forward collection test for paying
banks. Under this test, a returning bank
must handle a returned check in the same
manner that a similarly situated collecting
bank would handle a check of similar size
drawn on the depositary bank for forward
collection. A similarly situated bank is a
bank (other than a Federal Reserve Bank)
that is of similar asset size and check handling activity in the same community. A
bank has similar check handling activity if
it handles a similar volume of checks for forward collection as the forward collection
volume of the returning bank.
b. Under the forward collection test, a returning bank must accept returned checks,
including both qualified and other returned
checks (‘‘raw returns’’), at approximately
the same times and process them according
to the same general schedules as checks handled for forward collection. Thus, a returning
bank generally must process even raw returns on an overnight basis, unless its time
limit is extended by one day to convert a raw
return to a qualified returned check.
5. Cut-off hours. A returning bank may establish earlier cut-off hours for receipt of returned checks than for receipt of forward
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12 CFR Ch. II (1–1–18 Edition)
collection checks, but the cut-off hour for returned checks may not be earlier than 2:00
p.m. The returning bank also may set different sorting requirements for returned
checks than those applicable to other
checks. Thus, a returning bank may allow
itself more processing time for returns than
for forward collection checks. All returned
checks received by a cut-off hour for returned checks must be processed and dispatched by the returning bank by the time
that it would dispatch forward collection
checks received at a corresponding forward
collection cut-off hour that provides for the
same or faster availability for checks destined for the same depositary banks.
6. Examples.
a. If a returning bank receives a returned
check by its cut-off hour for returned checks
on Monday and the depositary bank and the
returning bank are participants in the same
clearinghouse, the returning bank should arrange to have the returned check received by
the depositary bank by Tuesday. This would
be the same day that it would deliver a forward collection check drawn on the depositary bank and received by the returning
bank at a corresponding forward collection
cut-off hour on Monday.
b. i. If a returning bank receives a returned
check, and the returning bank normally
would collect a forward collection check
drawn on the depositary bank by sending the
forward collection check to a correspondent
or a Federal Reserve Bank by courier, the returning bank could send the returned check
in the same manner if the correspondent has
agreed to handle returned checks expeditiously under § 229.31(a). The returning bank
would have to deliver the check by the correspondent’s or Federal Reserve Bank’s cutoff 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 payablethrough 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 de-
positary bank and the location of the depositary bank, and determining whether similarly situated banks normally would deliver
forward collection checks to the depositary
bank, taking into account the particular
risks associated with returned checks. Where
the community standard does not require
courier delivery, other means of delivery, including mail, are acceptable.
7. Qualified returned checks.
a. The expeditious return requirement for
a returning bank in this regulation is more
stringent in many cases than the duty of a
collecting bank to exercise ordinary care
under U.C.C. 4–202 in returning a check. A returning bank is under a duty to act as expeditiously in returning a check as it would in
the forward collection of a check. Notwithstanding its duty of expeditious return, its
midnight deadline under U.C.C. 4–202 and
§ 210.12(a) of Regulation J (12 CFR 210.12(a)),
under the forward collection test, a returning bank may take an extra day to qualify a
returned check. A qualified returned check
will be handled by subsequent returning
banks more efficiently than a raw return.
This paragraph gives a returning bank an
extra business day beyond the time that
would otherwise be required to return the returned check to convert a returned check to
a qualified returned check. The qualified returned check must include the routing number of the depositary bank, the amount of
the check, and a return identifier encoded on
the check in magnetic ink. 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.
b. If the returning bank is sending the returned check directly to the depositary
bank, this extra day is not available because
preparing a qualified returned check will not
expedite handling by other banks. If the returning bank makes an encoding error in
creating a qualified returned check, it may
be liable under § 229.38 for losses caused by
any negligence or under § 229.34(c)(3) for
breach of an encoding warranty. The returning bank would not lose the one-day extension available to it for creating a qualified
returned check because of an encoding error.
8. Routing of returned check.
a. Under § 229.31(a), the returning bank is
authorized to route the returned check in a
variety of ways:
i. It may send the returned check directly
to the depositary bank by courier or other
expeditious means of delivery; or
ii. It may send the returned check to any
returning bank agreeing to handle the returned check for expeditious return to the
depositary bank under this section regardless of whether or not the returning bank
handled the check for forward collection.
b. If the returning bank elects to send the
returned check directly to the depositary
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Federal Reserve System
Pt. 229, App. E
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 § 229.32(a).
9. Responsibilities of returning bank. In
meeting the requirements of this section, the
returning bank is responsible for its own actions, but not those of the paying bank,
other returning banks, or the depositary
bank. (See U.C.C. 4–202(c) regarding the responsibility of collecting banks.) For example, if the paying bank has delayed the start
of the return process, but the returning bank
acts in a timely manner, the returning bank
may satisfy the requirements of this section
even if the delayed return results in a loss to
the depositary bank. (See § 229.38.) A returning bank must handle a notice in lieu of return as expeditiously as a returned check.
10. U.C.C. sections affected. This paragraph
directly affects the following provisions of
the U.C.C., and may affect other sections or
provisions:
a. Section 4–202(b), in that time limits required by that section may be affected by
the additional requirement to make an expeditious return.
b. Section 4–214(a), in that settlement for
returned checks is made under § 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.
under § 229.31(b) is not subject to the expeditious return requirements of § 229.31(a).
3. The returning bank’s return of a check
under this paragraph is subject to the midnight deadline under U.C.C. 4–202(b). (See definition of returning bank in § 229.2(cc).)
4. Where a returning bank receives a check
that it does not agree to handle expeditiously under § 229.31(a), such as a check sent
to it under § 229.30(b), but the returning bank
is able to identify the depositary bank, the
returning bank must thereafter return the
check expeditiously to the depositary bank.
The returning bank returns a check expeditiously under this paragraph if it returns the
check by the same means it would use to return a check drawn on it to the depositary
bank or by other reasonably prompt means.
5. As in the case of a paying bank returning a check under § 229.30(b), a returning
bank returning a check under this paragraph
to a bank that has not agreed to handle the
check expeditiously must advise that bank
that it is unable to identify the depositary
bank. This advice must be conspicuous, such
as a stamp on each check for which the depositary bank is unknown if such checks are
commingled with other returned checks, or,
if such checks are sent in a separate cash letter, by one notice on the cash letter. The returned check may not be prepared for automated return.
B. 229.31(b) Unidentifiable Depositary Bank
1. Under the U.C.C., a collecting bank receives settlement for a check when it is presented to the paying bank. The paying bank
may recover the settlement when the paying
bank returns the check to the presenting
bank. Under this regulation, however, the
paying bank may return the check directly
to the depositary bank or through returning
banks that did not handle the check for forward collection. On these more efficient return paths, the paying bank does not recover
the settlement made to the presenting bank.
Thus, this paragraph requires the returning
bank to settle for a returned check (either
with the paying bank or another returning
bank) in the same way that it would settle
for a similar check for forward collection. To
achieve uniformity, this paragraph applies
even if the returning bank handled the check
for forward collection.
2. Any returning bank, including one that
handled the check for forward collection,
may provide availability for returned checks
pursuant to an availability schedule as it
does for forward collection checks. These
settlements by returning banks, as well as
settlements between banks made during the
forward collection of a check, are considered
final when made subject to any deferment of
availability. (See § 229.36(d) and Commentary
to § 229.35(b).)
1. This section is similar to § 229.30(b), but
applies to returning banks instead of paying
banks. In some cases a returning bank will
be unable to identify the depositary bank
with respect to a check. Returning banks
agreeing to handle checks for return to depositary banks under § 229.31(a) are expected
to be expert in identifying depositary bank
indorsements. In the limited cases where the
returning bank cannot identify the depositary bank, the returning bank may send the
returned check to a returning bank that
agrees to handle the returned check for expeditious return under § 229.31(a), or it may
send the returned check to a bank that handled the check for forward collection, even if
that bank does not agree to handle the returned check expeditiously under § 229.31(a).
2. If the returning bank itself handled the
check for forward collection, it may send the
returned check to a collecting bank that was
prior to it in the forward collection process,
which will be better able to identify the depositary bank. If there are no prior collecting banks, the returning bank must research the collection of the check and identify the depositary bank. As in the case of
paying banks under § 229.30(b), a returning
bank’s sending of a check to a bank that
handled the check for forward collection
C. 229.31(c) Settlement
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12 CFR Ch. II (1–1–18 Edition)
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 § 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 § 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 § 229.36(d), 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 § 229.35(b), the bank on
which the claim is made is not authorized by
this paragraph to impose a charge for taking
up a check. This paragraph preempts state
laws to the extent that these laws prevent
returning banks from charging fees for handling returned checks.
E. 229.31(e) Depositary Bank Without
Accounts
1. This paragraph is similar to § 229.30(e)
and relieves a returning bank of its obligation to make expeditious return to a depositary bank that does not maintain any accounts. (See the Commentary to § 229.30(e).)
F. 229.31(f) Notice in Lieu of Return
1. This paragraph is similar to § 229.30(f)
and authorizes a returning bank to originate
a notice in lieu of return if the returned
check is unavailable for return. Notice in
lieu of return is permitted only when a bank
does not have and cannot obtain possession
of the check or must retain possession of the
check for protest. A check is not unavailable
for return if it is merely difficult to retrieve
from a filing system or from storage by a
keeper of checks in a truncation system.
(See the Commentary to § 229.30(f).)
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G. 229.31(g) Reliance on Routing Number
1. This paragraph is similar to § 229.30(g)
and permits a returning bank to rely on
routing numbers appearing on a returned
check such as routing numbers in the depositary bank’s indorsement or on qualified re-
turned checks. (See the Commentary to
§ 229.30(g).)
XVIII. Section 229.32 Depositary Bank’s
Responsibility for Returned Checks
A. 229.32(a) Acceptance of Returned Checks
1. This regulation seeks to encourage direct returns by paying and returning banks
and may result in a number of banks sending
checks to depositary banks with no preexisting arrangements as to where the returned checks should be delivered. This paragraph states where the depositary bank is required to accept returned checks and written
notices of nonpayment under § 229.33. (These
locations differ from locations at which a depositary bank must accept electronic notices.) It is derived from U.C.C. 3–111, which
specifies that presentment for payment may
be made at the place specified in the instrument or, if there is none, at the place of business of the party to pay. In the case of returned checks, the depositary bank does not
print the check and can only specify the
place of ‘‘payment’’ of the returned check in
its indorsement.
2. The paragraph specifies four locations at
which the depositary bank must accept returned checks:
a. The depositary bank must accept returned checks at any location at which it requests presentment of forward collection
checks such as a processing center. A depositary bank does not request presentment of
forward collection checks at a branch of the
bank merely by paying checks presented
over the counter.
b. i. If the depositary bank indorsement
states the name and address of the depositary bank, it must accept returned checks at
the branch, head office, or other location,
such as a processing center, indicated by the
address. If the address is too general to identify a particular location, then the depositary bank must accept returned checks at
any branch or head office consistent with the
address. If, for example, the address is ‘‘New
York, New York,’’ each branch in New York
City must accept returned checks.
ii. If no address appears in the depositary
bank’s indorsement, the depositary bank
must accept returned checks at any branch
or head office associated with the depositary
bank’s routing number. The offices associated with the routing number of a bank are
found in American Bankers Association Key to
Routing Numbers, published by an agent of
the American Bankers Association, which
lists a city and state address for each routing number.
iii. The depositary bank must accept returned checks at the address in its
indorsement and at an address associated
with its routing number in the indorsement
if the written address in the indorsement and
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Pt. 229, App. E
the address associated with the routing number in the indorsement are not in the same
check processing region. Under §§ 229.30(g)
and 229.31(g), a paying or returning bank
may rely on the depositary bank’s routing
number in its indorsement in handling returned checks and is not required to send returned checks to an address in the depositary bank’s indorsement that is not in the
same check processing region as the address
associated with the routing number in the
indorsement.
iv. If no routing number or address appears
in its indorsement, the depositary bank must
accept a returned check at any branch or
head office of the bank. The indorsement requirement of § 229.35 and appendix D requires
that the indorsement contain a routing number, a name, and a location. Consequently,
this provision, as well as paragraph (a)(2)(ii)
of this section, only applies where the depositary bank has failed to comply with the
indorsement requirement.
3. For ease of processing, a depositary bank
may require that returning or paying banks
returning checks to it separate returned
checks from forward collection checks being
presented.
4. Under § 229.33(d), a depositary bank receiving a returned check or notice of nonpayment must send notice to its customer by
its midnight deadline or within a longer reasonable time.
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B. 229.32(b) Payment
1. As discussed in the commentary to
§ 229.31(c), under this regulation a paying or
returning bank does not obtain credit for a
returned check by charge-back but by, in effect, presenting the returned check to the
depositary bank. This paragraph imposes an
obligation to ‘‘pay’’ a returned check that is
similar to the obligation to pay a forward
collection check by a paying bank, except
that the depositary bank may not return a
returned check for which it is the depositary
bank. Also, certain means of payment, such
as remittance drafts, may be used only with
the agreement of the returning bank.
2. The depositary bank must pay for a returned check by the close of the banking day
on which it received the returned check. The
day on which a returned check is received is
determined pursuant to U.C.C. 4–108, which
permits the bank to establish a cut-off hour,
generally not earlier than 2:00 p.m., and
treat checks received after that hour as
being received on the next banking day. If
the depositary bank is unable to make payment to a returning or paying bank on the
banking day that it receives the returned
check, because the returning or paying bank
is closed for a holiday or because the time
when the depositary bank received the check
is after the close of Fedwire, e.g., west coast
banks with late cut-off hours, payment may
be made on the next banking day of the bank
receiving payment.
3. Payment must be made so that the funds
are available for use by the bank returning
the check to the depositary bank on the day
the check is received by the depositary bank.
For example, a depositary bank meets this
requirement if it sends a wire transfer of
funds to the returning or paying bank on the
day it receives the returned check, even if
the returning or paying bank has closed for
the day. A wire transfer should indicate the
purpose of the payment.
4. The depositary bank may use a net settlement arrangement to settle for a returned
check. Banks with net settlement agreements could net the appropriate credits and
debits for returned checks with the accounting entries for forward collection checks if
they so desired. If, for purposes of establishing additional controls or for other reasons, the banks involved desired a separate
settlement for returned checks, a separate
net settlement agreement could be established.
5. The bank sending the returned check to
the depositary bank may agree to accept
payment at a later date if, for example, it
does not believe that the amount of the returned check or checks warrants the costs of
same-day payment. Thus, a returning or paying bank may agree to accept payment
through an ACH credit or debit transfer that
settles the day after the returned check is
received instead of a wire transfer that settles on the same day.
6. This paragraph and this subpart do not
affect the depositary bank’s right to recover
a provisional settlement with its nonbank
customer for a check that is returned. (See
also §§ 229.19(c)(2)(ii), 229.33(d) and 229.35(b).)
C. 229.32(c) Misrouted Returned Checks
1. This paragraph permits a bank receiving
a check on the basis that it is the depositary
bank to send the misrouted returned check
to the correct depositary bank, if it can identify the correct depositary bank, either directly or through a returning bank agreeing
to handle the check expeditiously under
§ 229.30(a). In these cases, the bank receiving
the check is acting as a returning bank. Alternatively,
the
bank
receiving
the
misrouted returned check must send the
check back to the bank from 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 § 229.32(b), and any other
bank to which the check is sent under this
paragraph would be required to settle for the
check as a returning bank under § 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,
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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 § 229.31(a); however, it must act within its
midnight deadline. This paragraph does not
affect a bank’s duties under § 229.35(b).
D. 229.32(d) Charges
1. This paragraph prohibits a depositary
bank from charging the equivalent of a presentment fee for returned checks. A returning bank, however, may charge a fee for handling returned checks. If the returning bank
receives a mixed cash letter of returned
checks, which includes some checks for
which the returning bank also is the depositary bank, the fee may be applied to all the
returned checks in the cash letter. In the
case of a sorted cash letter containing only
returned checks for which the returning
bank is the depositary bank, however, no fee
may be charged.
XIX. Section 229.33 Notice of Nonpayment
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A. 229.33(a) Requirement
1. Notice of nonpayment as required by
this section and written notice in lieu of return as provided in §§ 229.30(f) and 229.31(f)
serve different functions. The two kinds of
notice, however, must meet the content requirements of this section. The paying bank
must send a notice of nonpayment if it decides not to pay a check of $2,500 or more. A
paying bank may rely on an amount encoded
on the check in magnetic ink to determine
whether the check is in the amount of $2,500
or more. The notice of nonpayment carries
no value, and the check itself (or the notice
in lieu of return) must be returned. The paying bank must ensure that the notice of nonpayment is received by the depositary bank
by 4:00 p.m. local time on the second business day following presentment. A bank
identified by routing number as the paying
bank is considered the paying bank under
this regulation and would be required to create a notice of nonpayment even though that
bank determined that the check was not
drawn by a customer of that bank. (See Commentary to the definition of paying bank in
§ 229.2(z).)
2. The paying bank should not send a notice of nonpayment until it has finally determined not to pay the check. Under § 229.34(b),
by sending the notice the paying bank warrants that it has returned or will return the
check. If a paying bank sends a notice and
subsequently decides to pay the check, the
paying bank may mitigate its liability on
this warranty by notifying the depositary
bank that the check has been paid.
3. Because the return of the check itself
may serve as the required notice of nonpayment, in many cases no notice other than
the return of the check will be necessary.
For example, in many cases the return of a
check through a clearinghouse to another
participant of the clearinghouse will be
made in time to meet the time requirements
of this section. If the check normally will
not be received by the depositary bank within the time limits for notice, the return of
the check will not satisfy the notice requirement. In determining whether the returned
check will satisfy the notice requirement,
the paying bank may rely on the availability
schedules of returning banks as the time
that the returned check is expected to be delivered to the depositary bank, unless the
paying bank has reason to know the availability schedules are inaccurate.
4. Unless the returned check is used to satisfy the notice requirement, the requirement
for notice is independent of and does not affect the requirements for timely and expeditious return of the check under § 229.30 and
the U.C.C. (See § 229.30(a).) If a paying bank
fails both to comply with this section and to
comply with the requirements for timely and
expeditious return under § 229.30 and the
U.C.C. and Regulation J (12 CFR part 210),
the paying bank shall be liable under either
this section or such other requirements, but
not both. (See § 229.38(b).) A paying bank is
not responsible for failure to give notice of
nonpayment to a party that has breached a
presentment warranty under U.C.C. 4–208,
notwithstanding that the paying bank may
have returned the check. (See U.C.C. 4–208
and 4–302.)
B. 229.33(b) Content of Notices
1. This paragraph provides that the notice
must at a minimum contain eight elements
which are specifically enumerated. In the
case of written notices, the name and routing number of the depositary bank also are
required.
2. If the paying bank cannot identify the
depositary bank from the check itself, it
may wish to send the notice to the earliest
collecting bank it can identify and indicate
that the notice is not being sent to the depositary bank. The collecting bank may be
able to identify the depositary bank and forward the notice, but is under no duty to do
so. In addition, the collecting bank may actually be the depositary bank.
3. A bank must identify an item of information if the bank is uncertain as to that
item’s accuracy. 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.
C. 229.33(c) Acceptance of Notice
1. In the case of a written notice, the depositary bank is required to accept notices
at the locations specified in § 229.32(a). In the
case of telephone notices, the bank may not
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refuse to accept notices at the telephone
numbers identified in this section, but may
transfer calls or use a recording device.
Banks may vary by agreement the location
and manner in which notices are received.
D. 229.33(d) Notification to Customer
1. This paragraph requires a depositary
bank to notify its customer of nonpayment
upon receipt of a returned check or notice of
nonpayment, regardless of the amount of the
check or notice. This requirement is similar
to the requirement under the U.C.C. as interpreted in Appliance Buyers Credit Corp. v.
Prospect National Bank, 708 F.2d 290 (7th Cir.
1983), that a depositary bank may be liable
for damages incurred by its customer for its
failure to give its customer timely advice
that it has received a notice of nonpayment.
Notice also must be given if a depositary
bank receives a notice of recovery under
§ 229.35(b). A bank that chooses to provide
the notice required by § 229.33(d) 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
§ 229.13(g) if the depositary bank invokes the
reasonable-cause exception of § 229.13(e) due
to the receipt of a notice of nonpayment,
provided the notice meets all the requirements of § 229.13(g).
XX. Section 229.34 Warranties
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A. 229.34(a) Warranty of Returned Check
1. This paragraph includes warranties that
a returned check, including a notice in lieu
of return, was returned by the paying bank,
or in the case of a check payable by a bank
and payable through another bank, the bank
by which the check is payable, within the
deadline under the U.C.C. (subject to any
claims or defenses under the U.C.C., such as
breach of a presentment warranty), Regulation J (12 CFR part 210), or § 229.30(c); that
the paying or returning bank is authorized
to return the check; that the returned check
has not been materially altered; and that, in
the case of a notice in lieu of return, the
original check has not been and will not be
returned for payment. (See the Commentary
to § 229.30(f).) The warranty does not include
a warranty that the bank complied with the
expeditious
return
requirements
of
§§ 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
§ 229.42.)
B. 229.34(b) Warranty of Notice of
Nonpayment
1. This paragraph provides for warranties
for notices of nonpayment. This warranty
does not include a warranty that the notice
is accurate and timely under § 229.33. The requirements of § 229.33 that are not covered by
the warranty are subject to the liability provisions of § 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 § 229.33(a).)
C. 229.34(c) Warranty of Settlement Amount,
Encoding, and Offset
1. Paragraph (c)(1) provides that a bank
that presents and receives settlement for
checks warrants to the paying bank that the
settlement it demands (e.g., as noted on the
cash letter) equals the total amount of the
checks it presents. This paragraph gives the
paying bank a warranty claim against the
presenting bank for the amount of any excess settlement made on the basis of the
amount demanded, plus expenses. If the
amount demanded is understated, a paying
bank discharges its settlement obligation
under U.C.C. 4–301 by paying the amount demanded, but remains liable for the amount
by which the demand is understated; the presenting bank is nevertheless liable for expenses in resolving the adjustment.
2. When checks or returned checks are
transferred to a collecting, returning, or depositary bank, the transferor bank is not required to demand settlement, as is required
upon presentment to the paying bank. However, often the checks or returned checks
will be accompanied by information (such as
a cash letter listing) that will indicate the
total of the checks or returned checks. Paragraph (c)(2) provides that if the transferor
bank includes information indicating the
total amount of checks or returned checks
transferred, it warrants that the information
is correct (i.e., equals the actual total of the
items).
3. Paragraph (c)(3) provides that a bank
that presents or transfers a check or returned check warrants the accuracy of the
magnetic ink encoding that was placed on
the item after issue, and that exists at the
time of presentment or transfer, to any bank
that subsequently handles the check or returned check. Under U.C.C. 4–209(a), only the
encoder (or the encoder and the depositary
bank, if the encoder is a customer of the depositary bank) warrants the encoding accuracy, thus any claims on the warranty must
be directed to the encoder. Paragraph (c)(3)
expands on the U.C.C. by providing that all
banks that transfer or present a check or returned check make the encoding warranty.
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12 CFR Ch. II (1–1–18 Edition)
In addition, under the U.C.C., the encoder
makes the warranty to subsequent collecting
banks and the paying bank, while paragraph
(c)(3) provides that the warranty is made to
banks in the return chain as well. Paragraph
(c)(3) applies to all MICR-line encoding on a
substitute check.
4. A paying bank that settles for an overstated cash letter because of a misencoded
check may make a warranty claim against
the presenting bank under paragraph (c)(1)
(which would require the paying bank to
show that the check was part of the overstated cash letter) or an encoding warranty
claim under paragraph (c)(3) against the presenting bank or any preceding bank that
handled the misencoded check.
5. Paragraph (c)(4) provides that a paying
bank or a depositary bank may set 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.
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D. 229.34(d) Transfer and Presentment
Warranties
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 § 229.34(d)
warranties in that they 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 § 229.34(d).
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
§ 229.34(d) warranties specifically cover the
amount as well as the payee stated on the
check. Neither the U.C.C. warranties, nor the
§ 229.34(d) warranties apply to the date stated
on the remotely created check.
4. A bank making the § 229.34(d) 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.
E. 229.34(d) Damages
1. This paragraph adopts for the warranties
in § 229.34 (a), (b), and (c) the damages provided in U.C.C. 4–207(c) and 4A–506(b). (See
definition of interest compensation in
§ 229.2(oo).)
F. 229.34(e) Tender of Defense
1. This paragraph adopts for this regulation the vouching-in provisions of U.C.C. 3–
119.
G. 229.34(f) 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 § 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
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Federal Reserve System
Pt. 229, App. E
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.
2. Banks generally apply indorsements to a
paper check in one of two ways: (1) banks
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
item. If the bank truncates that item, it
should ensure that it also applies an
indorsement to the item electronically. 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 § 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 as of January 1, 2006.
6. The standard requires the depositary
bank’s indorsement to include (1) its ninedigit 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.
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. 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. Banks should note,
however, that § 229.32 requires a depositary
bank to receive returned checks at the location(s) at which it receives forward-collection checks.
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, 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
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Pt. 229, App. E
12 CFR Ch. II (1–1–18 Edition)
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 and notices of nonpayment for the bank of account, the
indorsement placed on the check as the depositary bank indorsement may be the
indorsement of the bank that acts as correspondent, ATM operator, or lock box operator as provided in paragraph (d) of this section.
12. The backs of many checks bear preprinted 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
§ 229.51(b)(2).
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, § 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
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Federal Reserve System
Pt. 229, App. E
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 § 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 §§ 229.30(b) and 229.31(b). This provision is not a substitute for a paying or returning bank making expeditious return
under §§ 229.30(a) or 229.31(b). This paragraph
does not affect a paying bank’s accountability for a check under U.C.C. 4–215(a) and
4–302. Nor does this paragraph affect a collecting bank’s accountability under U.C.C. 4–
213 and 4–215(d). A collecting bank becomes
accountable upon receipt of final settlement
as provided in the foregoing U.C.C. sections.
The term final settlement in §§ 229.31 (c),
229.32 (b), and 229.36(d) is intended to be consistent with the use of the term final settlement in the U.C.C. (e.g., U.C.C. 4–213, 4–214,
and 4–215). (See also § 229.2(cc) and Commentary.)
6. This paragraph also provides that a bank
may have the rights of a holder based on the
handling of the check for collection or return. A bank may become a holder or a holder in due course regardless of whether prior
banks have complied with the indorsement
standard in § 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
§ 229.33(d).)
b. Section 3–415 and related provisions
(such as section 3–503), in that such provisions would not apply as between banks, or
as between the depositary bank and its customer.
C. 229.35(c) Indorsement by Bank
1. This section protects the rights of a customer depositing a check in a bank without
requiring the words ‘‘pay any bank,’’ as required by the U.C.C. (See U.C.C. 4–201(b).)
Use of this language in a depositary bank’s
indorsement will make it more difficult for
other banks to identify the depositary bank.
The indorsement standard in appendix D prohibits such material in subsequent collecting
bank indorsements. The existence of a bank
indorsement provides notice of the restrictive indorsement without any additional
words.
D. 229.35(d) Indorsement for Depositary Bank
1. This section permits a depositary bank
to arrange with another bank to indorse
checks. This practice may occur when a correspondent indorses for a respondent, or
when the bank servicing an ATM or lock box
indorses for the bank maintaining the account in which the check is deposited—i.e.,
the depositary bank. If the indorsing bank
applies the depositary bank’s indorsement,
checks will be returned to the depositary
bank. If the indorsing bank does not apply
the depositary bank’s indorsement, by agreement with the depositary bank it may apply
its own indorsement as the depositary bank
indorsement. In that case, the depositary
bank’s own indorsement on the check (if
any) should avoid the location reserved for
the depositary bank. The actual depositary
bank remains responsible for the availability
and other requirements of Subpart B, but the
bank indorsing as depositary bank is considered the depositary bank for purposes of Subpart C. The check will be returned, and notice of nonpayment will be given, to the
bank indorsing as depositary bank.
2. Because the depositary bank for Subpart
B purposes will desire prompt notice of nonpayment, its arrangement with the indorsing
bank should provide for prompt notice of
nonpayment. The bank indorsing as depositary bank may require the depositary bank
to agree to take up the check if the check is
not paid even if the depositary bank’s
indorsement does not appear on the check
and it did not handle the check. The arrangement between the banks may constitute an
agreement varying the effect of provisions of
Subpart C under § 229.37.
XXII. Section 229.36 Presentment and Issuance
of Checks
A. 229.36(a) Payable Through and Payable at
Checks
1. For purposes of Subpart C, the regulation defines a payable-through or payable-at
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12 CFR Ch. II (1–1–18 Edition)
bank (which could be designated the collectible-through or collectible-at bank) as a paying bank. The requirements of § 229.30(a) and
the notice of nonpayment requirements of
§ 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.
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B. 229.36(b) Receipt at Bank Office or
Processing Center
1. This paragraph seeks to facilitate efficient presentment of checks to promote
early return or notice of nonpayment to the
depositary bank and clarifies the law as to
the effect of presentment by routing number.
This paragraph differs from § 229.32(a) because presentment of checks differs from delivery of returned checks.
2. The paragraph specifies four locations at
which the paying bank must accept presentment of checks. Where the check is payable
through a bank and the check is sent to that
bank, the payable-through bank is the paying bank for purposes of this subpart, regardless of whether the paying bank must
present the check to another bank or to a
nonbank payor for payment.
a. Delivery of checks may be made, and
presentment is considered to occur, at a location (including a processing center) requested by the paying bank. This is the way
most checks are presented by banks today.
This provision adopts the common law rule
of a number of legal decisions that the processing center acts as the agent of the paying
bank to accept presentment and to begin the
time for processing of the check. (See also
U.C.C. 4–204(c).) If a bank designates different locations for the presentment of forward collection checks bearing different
routing numbers, for purposes of this paragraph it requests presentment of checks
bearing a particular routing number only at
the location designated for receipt of forward collection checks bearing that routing
number.
b. i. Delivery may be made at an office of
the bank associated with the routing number
on the check. The office associated with the
routing number of a bank is found in American Bankers Association Key to Routing Numbers, published by 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. The definition of a paying
bank in § 229.2(z) includes a bank designated
by routing number, whether or not there is a
name on the check, and whether or not any
name is consistent with the routing number.
Where a check is payable by one bank, but
payable through another, the routing number is that of the payable-through bank, not
that of the payor bank. As the payor bank
has selected the payable-through bank as the
point through which presentment is to be
made, it is proper to treat the payablethrough bank as the paying bank for purposes of this section.
ii. There is no requirement in the regulation that the name and address on the check
agree with the address associated with the
routing number on the check. A bank generally may control the use of its routing
number, just as it does the use of its name.
The address associated with the routing
number may be a processing center.
iii. In some cases, a paying bank may have
several offices in the city associated with the
routing number. In such case, it would not be
reasonable or efficient to require the presenting bank to sort the checks by more specific branch addresses that might be printed
on the checks, and to deliver the checks to
each branch. A collecting bank normally
would deliver all checks to one location. In
cases where checks are delivered to a branch
other than the branch on which they may be
drawn, computer and courier communication
among branches should permit the paying
bank to determine quickly whether to pay
the check.
c. If the check specifies the name of the
paying bank but no address, the bank must
accept delivery at any office. Where delivery
is made by a person other than a bank, or
where the routing number is not readable,
delivery will be made based on the name and
address of the paying bank on the check. If
there is no address, delivery may be made at
any office of the paying bank. This provision
is consistent with U.C.C. 3–111, which states
that presentment for payment may be made
at the place specified in the instrument, or,
if there is none, at the place of business of
the party to pay. Thus, there is a trade-off
for a paying bank between specifying a particular address on a check to limit locations
of delivery, and simply stating the name of
the bank to encourage wider currency for the
check.
d. If the check specifies the name and address of a branch or head office, or other location (such as a processing center), the
check may be delivered by delivery to that
office or other location. If the address is too
general to identify a particular office, delivery may be made at any office consistent
with the address. For example, if the address
is ‘‘San Francisco, California,’’ each office in
San Francisco must accept presentment. The
designation of an address on the check generally is in the control of the paying bank.
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Federal Reserve System
Pt. 229, App. E
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. [Reserved]
D. 229.36(d) Liability of Bank During
Forward Collection
1. This paragraph makes settlement between banks during forward collection final
when made, subject to any deferment of
credit, just as settlements between banks
during the return of checks are final. In addition, this paragraph clarifies that this
change does not affect the liability scheme
under U.C.C. 4–201 during forward collection
of a check. That U.C.C. section provides
that, unless a contrary intent clearly appears, a bank is an agent or subagent of the
owner of a check, but that Article 4 of the
U.C.C. applies even though a bank may have
purchased an item and is the owner of it.
This paragraph preserves the liability of a
collecting bank to prior collecting banks and
the depositary bank’s customer for negligence during the forward collection of a
check under the U.C.C., even though this
paragraph provides that settlement between
banks during forward collection is final rather than provisional. Settlement by a paying
bank is not considered to be final payment
for the purposes of U.C.C. 4–215(a)(2) or (3),
because a paying bank has the right to recover settlement from a returning or depositary bank to which it returns a check under
this subpart. Other provisions of the U.C.C.
not superseded by this subpart, such as section 4–202, also continue to apply to the forward collection of a check and may apply to
the return of a check. (See definition of returning bank in § 229.2(cc).)
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E. 229.36(e) Issuance of Payable Through
Checks
1. If a bank arranges for checks payable by
it to be payable through another bank, it
must require its customers to use checks
that contain conspicuously on their face the
name, location, and first four digits of the
nine-digit routing number of the bank by
which the check is payable and the legend
‘‘payable through’’ followed by the name 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 § 229.36(b).) The required information is deemed conspicuous if it is printed in
a type size not smaller than six-point type
and if it is contained in the title plate, which
is located in the lower left quadrant of the
check. The required information may be conspicuous if it is located elsewhere on the
check.
2. If a payable-through check does not
meet the requirements of this paragraph, the
bank by which the check is payable may be
liable to the depositary bank or others as
provided in § 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 § 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 fourdigit 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 § 229.2(e).) In this
example, the bank by which the checks are
payable could be liable to a depositary bank
that suffers a loss, such as lost interest or liability under Subpart B, due to the mislabeled check. The bank by which the check
is payable may be liable for additional damages if it fails to act in good faith.
F. 229.36(f) Same-Day Settlement
1. This paragraph provides that, under certain conditions, a paying bank must settle
with a presenting bank for a check on the
same day the check is presented in order to
avail itself of the ability to return the check
on its next banking day under U.C.C. 4–301
and 4–302. This paragraph does not apply to
checks presented for immediate payment
over the counter. Settling for a check under
this paragraph does not constitute final payment of the check under the U.C.C. This
paragraph does not supersede or limit the
rules governing collection and return of
checks through Federal Reserve Banks that
are contained in Subpart A of Regulation J
(12 CFR part 210).
2. Presentment requirements.
a. Location and time.
i. For presented checks to qualify for mandatory same-day settlement, information accompanying the checks must indicate that
presentment is being made under this paragraph—e.g. ‘‘these checks are being presented for same-day settlement’’—and must
include a demand for payment of the total
amount of the checks together with appropriate payment instructions in order to enable the paying bank to discharge its settlement responsibilities under this paragraph.
In addition, the check or checks must be presented at a location designated by the paying bank for receipt of checks for same-day
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Pt. 229, App. E
12 CFR Ch. II (1–1–18 Edition)
settlement by 8:00 a.m. local time of that location. The designated presentment location
must be a location at which the paying bank
would be considered to have received a check
under § 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 § 229.36(f), the paying bank agrees
to accept checks at that location for the purposes of § 229.36(b).
ii. The designated presentment location
also must be within the check processing region consistent with the nine-digit routing
number encoded in magnetic ink on the
check. A paying bank that uses more than
one routing number associated with a single
check processing region may designate, for
purposes of this paragraph, one or more locations in that check processing region at
which checks will be accepted, but the paying bank must accept any checks with a
routing number associated with that check
processing region at each designated location. A paying bank may designate a presentment location for traveler’s checks with
an 8000-series routing number anywhere in
the country because these traveler’s checks
are not associated with any check processing
region. The paying bank, however, must accept at that presentment location any other
checks for which it is paying bank that have
a routing number consistent with the check
processing region of that location.
iii. If the paying bank does not designate a
presentment location, it must accept presentment for same-day settlement at any location identified in § 229.36(b), i.e., at an address of the bank associated with the routing
number on the check, at any branch or head
office if the bank is identified on the check
by name without address, or at a branch,
head office, or other location consistent with
the name and address of the bank on the
check if the bank is identified on the check
by name and address. A paying bank and a
presenting bank may agree that checks will
be accepted for same-day settlement at an
alternative location (e.g., at an intercept
processor located in a different check processing region) or that the cut-off time for
same-day settlement be earlier or later than
8:00 a.m. local time.
iv. In the case of a check payable through
a bank but payable by another bank, this
paragraph does not authorize direct presentment to the bank by which the check is payable. The requirements of same-day settlement under this paragraph would apply to a
payable-through or payable-at bank to which
the check is sent for payment or collection.
b. Reasonable delivery requirements. A
check is considered presented when it is delivered to and payment is demanded at a location specified in paragraph (f)(1). Ordinarily, a presenting bank will find it necessary to contact the paying bank to deter-
mine 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 sameday settlement be sorted separately from
other forward collection checks it receives
as a collecting bank or returned checks it receives as a returning or depositary bank. For
example, if a bank provides correspondent
check collection services and receives
unsorted checks from a respondent bank
that include checks for which it is the paying bank and that would otherwise meet the
requirements for same-day settlement under
this section, the collecting bank need not
make settlement in accordance with paragraph (f)(2). If the collecting bank receives
sorted checks from its respondent bank, consisting only of checks for which the collecting bank is the paying bank and that
meet the requirements for same-day settlement under this paragraph, the collecting
bank may not charge a fee for handling those
checks and must make settlement in accordance with this paragraph.
3. Settlement
a. If a bank presents a check in accordance
with the time and location requirements for
presentment under paragraph (f)(1), the paying bank either must settle for the check on
the business day it receives the check without charging a presentment fee or return the
check prior to the time for settlement. (This
return deadline is subject to extension under
§ 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 § 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 § 229.39(d).)
b. Checks that are presented after the 8
a.m. (local time) presentment deadline for
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Federal Reserve System
Pt. 229, App. E
same-day settlement and before the paying
bank’s cut-off hour are treated as if they
were presented under other applicable law
and settled for or returned accordingly. However, for purposes of settlement only, the
presenting bank may require the paying
bank to treat such checks as presented for
same-day settlement on the next business
day in lieu of accepting settlement by cash
or other means on the business day the
checks are presented to the paying bank.
Checks presented after the paying bank’s
cut-off hour or on non-business days, but
otherwise in accordance with this paragraph,
are considered presented for same-day settlement on the next business day.
4. Closed Paying Bank
a. There may be certain business days that
are not banking days for the paying bank.
Some paying banks may continue to settle
for checks presented on these days (e.g., by
opening their back office operations or by
using an intercept processor). In other cases,
a paying bank may be unable to settle for
checks presented on a day it is closed.
If the paying bank closes on a business day
and checks are presented to the paying bank
in accordance with paragraph (f)(1), the paying bank is accountable for the checks unless
it settles for or returns the checks by the
close of Fedwire on its next banking day. In
addition, checks presented on a business day
on which the paying bank is closed are considered received on the paying bank’s next
banking day for purposes of the U.C.C. midnight deadline (U.C.C. 4–301 and 4–302) and
this regulation’s expeditious return and notice of nonpayment provisions.
b. If the paying bank is closed on a business day voluntarily, the paying bank must
pay interest compensation, as defined in
§ 229.2(oo), to the presenting bank for the
value of the float associated with the check
from the day of the voluntary closing until
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
§ 229.38(e) or U.C.C. 4–109(b).
5. Good faith. Under § 229.38(a), both presenting banks and paying banks are held to
a standard of good faith, defined in § 229.2(nn)
to mean honesty in fact and the observance
of reasonable commercial standards of fair
dealing. For example, designating a presentment location or changing presentment locations for the primary purpose of discouraging banks from presenting checks for
same-day settlement might not be considered good faith on the part of the paying
bank. Similarly, presenting a large volume
of checks without prior notice could be
viewed as not meeting reasonable commercial standards of fair dealing and therefore
may not constitute presentment in good
faith. In addition, if banks, in the general
course of business, regularly agree to certain
practices related to same-day settlement, it
might not be considered consistent with reasonable commercial standards of fair dealing, and therefore might not be considered
good faith, for a bank to refuse to agree to
those practices if agreeing would not cause it
harm.
6. U.C.C. sections affected. This paragraph
directly affects the following provisions of
the U.C.C. and may affect other sections or
provisions:
a. Section 4–204(b)(1), in that a presenting
bank may not send a check for same-day settlement directly to the paying bank, if the
paying bank designates a different location
in accordance with paragraph (f)(1).
b. Section 4–213(a), in that the medium of
settlement for checks presented under this
paragraph is limited to a credit to an account at a Federal Reserve Bank and that,
for checks presented after the deadline for
same-day settlement and before the paying
bank’s cut-off hour, the presenting bank may
require settlement on the next business day
in accordance with this paragraph rather
than accept settlement on the business day
of presentment by cash.
c. Section 4–301(a), in that, to preserve the
ability to exercise deferred posting, the time
limit specified in that section for settlement
or return by a paying bank on the banking
day a check is received is superseded by the
requirement to settle for checks presented
under this paragraph by the close of Fedwire.
d. Section 4–302(a), in that, to avoid accountability, the time limit specified in that
section for settlement or return by a paying
bank on the banking day a check is received
is superseded by the requirement to settle
for checks presented under this paragraph by
the close of Fedwire.
XXIII. Section 229.37 Variations by Agreement
A. This section is similar to U.C.C. 4–103,
and permits consistent treatment of agreements varying Article 4 or Subpart C, given
the substantial interrelationship of the two
documents. To achieve consistency, the official comment to U.C.C. 4–103(a) (which in
turn follows U.C.C. 1–201(3)) should be followed in construing this section. For example, as stated in Official Comment 2 to section 4–103, owners of items and other interested parties are not affected by agreements
under this section unless they are parties to
the agreement or are bound by adoption,
ratification, estoppel, or the like. In particular, agreements varying this subpart
that delay the return of a check beyond the
times required by this subpart may result in
liability under § 229.38 to entities not party
to the agreement.
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Pt. 229, App. E
12 CFR Ch. II (1–1–18 Edition)
B. The Board has not followed U.C.C. 4–
103(b), which permits Federal Reserve regulations and operating letters, clearinghouse
rules, and the like to apply to parties that
have not specifically assented. Nevertheless,
this section does not affect the status of
such agreements under the U.C.C.
C. The following are examples of situations
where variation by agreement is permissible,
subject to the limitations of this section:
1. A depositary bank may authorize another bank to apply the other bank’s
indorsement to a check as the depositary
bank. (See § 229.35(d).)
2. A depositary bank may authorize returning banks to commingle qualified returned
checks with forward collection checks. (See
§ 229.32(a).)
3. A depositary bank may limit its liability
to its customer in connection with the late
return of a deposited check where the lateness is caused by markings on the check by
the depositary bank’s customer or prior
indorser in the area of the depositary bank
indorsement. (See § 229.38(d).)
4. A paying bank may require its customer
to assume the paying bank’s liability for delayed or missent checks where the delay or
missending is caused by markings placed on
the check by the paying bank’s customer
that obscured a properly placed indorsement
of the depositary bank. (See § 229.38(d).)
5. A collecting or paying bank may agree
to accept forward collection checks without
the indorsement of a prior collecting bank.
(See § 229.35(a).)
6. A bank may agree to accept returned
checks without the indorsement of a prior
bank. (See § 229.35(a).)
7. A presenting bank may agree with a paying bank to present checks for same-day settlement at a location that is not in the
check processing region consistent with the
routing number on the checks. (See
§ 229.36(f)(1)(i).)
8. A presenting bank may agree with a paying bank to present checks for same-day settlement by a deadline earlier or later than
8:00 a.m. (See § 229.36(f)(1)(ii).)
9. A presenting bank and a paying bank
may agree that presentment takes place
when the paying bank receives an electronic
transmission of information describing the
check rather than upon delivery of the physical check. (See § 229.36(b).)
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 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 §§ 229.30(f),
229.31(f), 229.38(a).)
D. The Board expects to review the types
of variation by agreement that develop
under this section and will consider whether
it is necessary to limit certain variations.
XXIV. Section 229.38 Liability
A. 229.38(a) Standard of care; liability;
measure of damages
1. The standard of care established by this
section applies to any bank covered by the
requirements of Subpart C of the regulation.
Thus, the standard of care applies to a paying bank under §§ 229.30 and 229.33, to a returning bank under § 229.31, to a depositary
bank under §§ 229.32 and 229.33, to a bank erroneously receiving a returned check or
written notice of nonpayment as depositary
bank under § 229.32(d), and to a bank indorsing a check under § 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 § 229.2(nn)
of this regulation.
2. A bank not meeting this standard of care
is liable to the depositary bank, the depositary bank’s customer, the owner of the
check, or another party to the check. The
depositary bank’s customer is usually a depositor of a check in the depositary bank
(but see § 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
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Pt. 229, App. E
customer. Under U.C.C. 4–402, for example, a
paying bank is liable to its customer for
wrongful dishonor, which is different from
failure to exercise ordinary care and has a
different measure of damages.
B. 229.38(b) Paying Bank’s Failure To Make
Timely Rreturn
1. Section 229.30(a) imposes requirements
on the paying bank for expeditious return of
a check and leaves in place the U.C.C. deadlines (as they may be modified by § 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.
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C. 229.38(c) Comparative negligence
1. This paragraph establishes a ‘‘pure’’
comparative negligence standard for liability under Subpart C of this regulation. This
comparative negligence rule may have particular application where a paying or returning bank delays in returning a check because
of difficulty in identifying the depositary
bank. Some examples will illustrate liability
in such cases. In each 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 §§ 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 § 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
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12 CFR Ch. II (1–1–18 Edition)
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.
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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 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.
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
§ 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 § 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 payablethrough bank.
b. Generally, liability under paragraph
(d)(2) will be limited in amount. Under
§ 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.
4. Responsibility under paragraphs (d)(1)
and (d)(2) is treated as negligence for comparative negligence purposes, and the contribution to damages under paragraphs (d)(1)
and (d)(2) is treated in the same way as the
degree of negligence under paragraph (c) of
this section.
E. 229.38(e) Timeliness of Action
1. This paragraph excuses certain delays. It
adopts the standard of U.C.C. 4–109(b).
F. 229.38(f) Exclusion
1. This paragraph provides that the civil liability and class action provisions, particularly the punitive damage provisions of sections 611(a) and (b), and the bona fide error
provision of 611(c) of the 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 Subpart 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
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Pt. 229, App. E
XXVI. Section 229.40 Effect on Merger
Transaction
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 § 229.35(b) for discussion of prior
and subsequent banks.) As in the case of
§ 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 § 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.
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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.
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 § 229.2(t). This rule affects the status
of the combined entity in a number of areas
in this subpart. For example:
1. The paying bank’s responsibility for expeditious return (§ 229.30).
2. The returning bank’s responsibility for
expeditious return (§ 229.31).
3. Whether a returning bank is entitled to
an extra day to qualify a return that will be
delivered directly to a depositary bank that
has merged with the returning bank
(§ 229.31(a)).
4. Where the depositary bank must accept
returned checks (§ 229.32(a)).
5. Where the depositary bank must accept
notice of nonpayment (§ 229.33(c)).
6. Where a paying bank must accept presentment of checks (§ 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, notice-ofnonpayment, 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
A. 229.43(a) Definitions
1. Bank offices in Guam, American Samoa,
and the Northern Mariana Islands (which
Regulation CC defines as Pacific island
banks) do not meet the definition of bank in
§ 229.2(e) because they are not located in the
United States. Some checks drawn on Pacific
island banks (defined as Pacific island
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12 CFR Ch. II (1–1–18 Edition)
checks) bear U.S. routing numbers and are
collected and returned by banks in the same
manner as checks payable in the U.S.
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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
§ 229.2(k), the bank is subject to certain provisions of Regulation CC, as provided in this
section. Because the Pacific island bank is
not a bank as defined in § 229.2(e), it is not a
paying bank as defined in § 229.2(z) (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 § 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 § 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, § 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 § 229.32, including the provisions regarding
time and manner of settlement for returned
checks in § 229.32(b), in the event the Pacific
island check is returned by a returning bank.
If the depositary bank receives the returned
Pacific island check directly from the Pacific island bank, however, the provisions of
§ 229.32(b) do not apply, because the Pacific
island bank is not a paying bank under Regulation CC. The depositary bank is not subject to the notice of nonpayment provisions
in § 229.33 for Pacific island checks.
4. Banks that handle Pacific island checks
in the same manner as other checks are subject to the indorsement provisions of § 229.35.
Section 229.35(c) eliminates the need for the
restrictive indorsement ‘‘pay any bank.’’ For
purposes of § 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 § 229.34(c)(2) regarding accurate cash letter totals and the encoding
warranty in § 229.34(c)(3). A bank that acts as
a returning bank for a Pacific island check is
not subject to the warranties in § 229.34(a).
Similarly, because the Pacific island bank is
not a ‘‘bank’’ or a ‘‘paying bank’’ under Regulation CC, § 229.34(b), (c)(1), and (c)(4) do not
apply. For the same reason, the provisions of
§ 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
§ 229.38 do not apply to Pacific island banks.
Section 229.36(d), regarding finality of settlement between banks during forward collection, applies to banks that handle Pacific island checks in the same manner as other
checks, as do the liability provisions of
§ 229.38, to the extent the banks are subject
to the requirements of Regulation CC as provided in this section, and §§ 229.37 and 229.39
through 229.42.
XXX. § 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
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Federal Reserve System
Pt. 229, App. E
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 § 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 § 229.53 and, in the case of a consumer, an expedited recredit claim under
§ 229.54.
4. To be the legal equivalent of the original
check, a substitute check must bear the
legal equivalence legend described in
§ 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.
B. 229.51(b) Reconverting Bank Duties
1. As discussed in more detail in appendix
D and the commentary to § 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 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
§ 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 § 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, 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
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12 CFR Ch. II (1–1–18 Edition)
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
§ 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. § 229.52 Substitute Check Warranties
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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. 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. 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.
2. The substitute check warranties and indemnity are not given under §§ 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.
3. 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.
4. 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
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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 § 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.
5. The warranty in § 229.52(a)(2), 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.
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.
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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 de-
positary 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.
XXXII. § 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. 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.
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 § 229.51(a)). Under these circumstances, the paying bank could assert an
indemnity claim against the bank that presented the substitute check.
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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.
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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 war-
ranting banks, including its bank, for breach
of the warranty described in § 229.52(a)(2).
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 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 § 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
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Pt. 229, App. E
to pay the substitute check more than once.
In that case, the amount of the drawer’s indemnity under § 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 § 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
§ 229.38(c).
4. An indemnifying bank may limit the
losses for which it is responsible under
§ 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 § 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.
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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. § 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 § 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 § 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
§ 229.34(b), which contains returned check
warranties that are made to the owner of the
check.
3. A consumer’s recovery under the expedited recredit section is limited to the
amount of his or her loss, up to the amount
of the substitute check subject to the claim,
plus interest if the consumer’s account is an
interest-bearing account. The consumer’s
loss could include fees that resulted from the
allegedly incorrect charge, such as bounced
check fees that were imposed because the
improper charge caused the bank to dishonor
subsequently presented checks that it otherwise would have honored. A consumer who
suffers a total loss greater than the amount
of the substitute check plus interest could
attempt to recover the remainder of that
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12 CFR Ch. II (1–1–18 Edition)
loss by bringing warranty, indemnity, or
other claim under this subpart or other applicable law.
Examples.
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a. A consumer who received a substitute
check believed that he or she wrote the
check for $150, but the bank charged his or
her account for $1,500. The amount on the
substitute check the consumer received is illegible. If the substitute check contained a
blurry image of what was a legible original
check, the consumer could have a claim for
a breach of the legal equivalence warranty in
addition to an improper charge claim. Because the amount of the check cannot be determined from the substitute check provided
to the consumer, the consumer, if acting in
good faith, could assert that the production
of the original check or a better copy of the
original check is necessary to determine the
validity of the claim. The consumer in this
case could attempt to recover his or her
losses by using the expedited recredit procedure. The consumer’s losses recoverable
under § 229.54 could include the $1,350 he or
she believed was incorrectly charged plus
any improperly charged fees associated with
that charge, up to $150 (plus foregone interest on the amount of the consumer’s loss if
the account was an interest-bearing account). The consumer could recover any additional losses, if any, under other law, such
as U.C.C. 4–401 and 4–402.
b. A consumer received a substitute check
for which his or her account was charged and
believed that the original check from which
the substitute was derived was a forgery.
The forgery was good enough that analysis
of the original check was necessary to verify
whether the signature is that of the consumer. Under those circumstances, the consumer, if acting in good faith, could assert
that the charge was improper, that he or she
therefore had incurred a loss in the amount
of the check (plus foregone interest if the account was an interest-bearing account), and
that he or she needed the original check to
determine the validity of the forgery claim.
By contrast, if the signature on the substitute check obviously was forged (for example, if the forger signed a name other than
that of the account holder) and there was no
other defect with the substitute check, the
consumer would not need the original check
or a sufficient copy to determine the fact of
the forgery and thus would not be able to
make an expedited recredit claim under this
section. However, the consumer would have a
claim under U.C.C. 4–401 if the item was not
properly payable.
B. 229.54(b) Procedures for Making Claims
1. The consumer must submit his or her expedited recredit claim to the bank within 40
calendar days of the later of the day on
which the bank mailed or delivered, by a
means agreed to by the consumer, (1) the
periodic account statement containing information concerning the transaction giving
rise to the claim, or (2) the substitute check
giving rise to the claim. The mailing or delivery of a substitute check could be in connection with a regular account statement, in
response to a consumer’s specific request for
a copy of a check, or in connection with the
return of a substitute check to the payee.
2. Section 229.54(b) contemplates more than
one possible means of delivering an account
statement or a substitute check to the consumer. The time period for making a claim
thus could be triggered by the mailed, in-person, or electronic delivery of an account
statement or by the mailed or in-person delivery of a substitute check. In-person delivery would include, for example, making an
account statement or substitute check available at the bank for the consumer’s retrieval
under an arrangement agreed to by the consumer. In the case of a mailed statement or
substitute check, the 40-day period should be
calculated from the postmark on the envelope. In the case of in-person delivery, the 40day period should be calculated from the earlier of the calendar day on which delivery occurred or the bank first made the statement
or substitute check available for the consumer’s retrieval.
3. A bank must extend the consumer’s time
for submitting a claim for a reasonable period if the consumer is prevented from submitting his or her claim within 40 days because of extenuating circumstances. Extenuating circumstances could include, for example, the extended travel or illness of the consumer.
4. For purposes of determining the timeliness of a consumer’s actions, a consumer’s
claim is considered received on the banking
day on which the consumer’s bank receives a
complete claim in person or by telephone or
on the banking day on which the consumer’s
bank receives a letter or e-mail containing a
complete claim. (But see paragraphs 9–11 of
this section for a discussion of time periods
related to oral claims that the bank requires
to be put in writing.)
5. A consumer who makes an untimely
claim would not be entitled to recover his or
her losses using the expedited recredit procedure. However, he or she still could have
rights under other law, such as a warranty or
indemnity claim under subpart D, a claim
for an improper charge to his or her account
under U.C.C. 4–401, or a claim for wrongful
dishonor under U.C.C. 4–402.
6. A consumer’s claim must include the
reason why the consumer believes that his or
her account was charged improperly or why
he or she has a warranty claim. A charge
could be improper, for example, if the bank
charged the consumer’s account for an
amount different than the consumer believes
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Federal Reserve System
Pt. 229, App. E
he or she authorized or charged the consumer more than once for the same check, or
if the check in question was a forgery or otherwise fraudulent.
7. A consumer also must provide a reason
why production of the original check or a
sufficient copy is necessary to determine the
validity of the claim identified by the consumer. For example, if the consumer believed that the bank charged his or her account for the wrong amount, the original
check might be necessary to prove this claim
if the amount of the substitute check were
illegible. Similarly, if the consumer believed
that his or her signature had been forged, the
original check might be necessary to confirm the forgery if, for example, pen pressure
or similar analysis were necessary to determine the genuineness of the signature.
8. The information that the consumer is required to provide under § 229.54(b)(2)(iv) to facilitate the bank’s investigation of the claim
could include, for example, a copy of the allegedly defective substitute check or information related to that check, such as the
number, amount, and payee.
9. A bank may accept an expedited recredit
claim in any form but could in its discretion
require the consumer to submit the claim in
writing. A bank that requires a recredit
claim to be in writing must inform the consumer of that requirement and provide a location to which such a written claim should
be sent. If the consumer attempts to make a
claim orally, the bank must inform the consumer at that time of the written notice requirement. A bank that receives a timely
oral claim and then requires the consumer to
submit the claim in writing may require the
consumer to submit the written claim within
10 business days of the bank’s receipt of the
timely oral claim. If the consumer’s oral
claim was timely and the consumer’s written
claim was received within the 10-day period
for submitting the claim in writing, the consumer would satisfy the requirement of
§ 229.54(b)(1) to submit his or her claim within 40 days, even if the bank received the
written claim after that 40-day period.
10. A bank may permit but may not require
a consumer to submit a written claim electronically.
11. If a bank requires a consumer to submit
a claim in writing, the bank may compute
time periods for the bank’s action on the
claim from the date that the bank received
the written claim. Thus, if a consumer called
the bank to make an expedited recredit
claim and the bank required the consumer to
submit the claim in writing, the time at
which the bank must take action on the
claim would be determined based on the date
on which the bank received the written
claim, not the date on which the consumer
made the oral claim.
12. Regardless of whether the consumer’s
communication with the bank is oral or
written, a consumer complaint that does not
contain all the elements described in
§ 229.54(b) is not a claim for purposes of
§ 229.54. If the consumer attempts to submit
a claim but does not provide all the required
information, then the bank has a duty to inform the consumer that the complaint does
not constitute a claim under § 229.54 and
identify what information is missing.
C. 229.54(c) Action on Claims
1. If the bank has not determined whether
or not the consumer’s claim is valid by the
end of the 10th business day after the banking day on which the consumer submitted
the claim, the bank must by that time recredit the consumer’s account for the
amount of the consumer’s loss, up to the
lesser of the amount of the substitute check
or $2,500, plus interest if the account is an interest-bearing account. A bank must provide
the recredit pending investigation for each
substitute check for which the consumer
submitted a claim, even if the consumer submitted multiple substitute check claims in
the same communication.
2. A bank that provides a recredit to the
consumer, either provisionally or after determining that the consumer’s claim is
valid, may reverse the amount of the recredit if the bank later determines that the
claim in fact was not valid. A bank that reverses a recredit also may reverse the
amount of any interest that it has paid on
the previously recredited amount. A bank’s
time for reversing a recredit may be limited
by a statute of limitations.
D. 229.54(d) Availability of Recredit
1. The availability of a recredit provided by
a bank under § 229.54(c) is governed solely by
§ 229.54(d) and therefore is not subject to the
availability provisions of subpart B. A bank
generally must make a recredit available for
withdrawal no later than the start of the
business day after the banking day on which
the bank provided the recredit. However, a
bank may delay the availability of up to the
first $2,500 that it provisionally recredits to
a consumer account under § 229.54(c)(3)(i) if
(1) the account is a new account, (2) without
regard to the substitute check giving rise to
the recredit claim, the account has been repeatedly overdrawn during the six month period ending on the date the bank received
the claim, or (3) the bank has reasonable
cause to believe that the claim is fraudulent.
These first two exceptions are meant to operate in the same manner as the corresponding new account and repeated overdraft exceptions in subpart B, as described in
§ 229.13(a) and (d) and the commentary thereto regarding application of the exceptions.
When a recredit amount for which a bank
delays availability contains an interest component, that component also is subject to
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the delay because it is part of the amount recredited under § 229.54(c)(3)(i). However, interest continues to accrue during the hold
period.
2. Section 229.54(d)(2) describes the maximum period of time that a bank may delay
availability of a recredit provided under
§ 229.54(c). The bank may delay availability
under one of the three listed exceptions until
the business day after the banking day on
which the bank determines that the consumer’s claim is valid or the 45th calendar
day after the banking day on which the bank
received the consumer’s claim, whichever is
earlier. The only portion of the recredit that
is subject to delay under § 229.54(d)(2) is the
amount that the bank recredits under
§ 229.54(c)(3)(i) (including the interest component, if any) pending its investigation of a
claim.
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E. 229.54(e) Notices Relating to Consumer
Expedited Recredit Claims
1. A bank must notify a consumer of its action regarding a recredit claim no later than
the business day after the banking day that
the bank makes a recredit, determines a
claim is not valid, or reverses a recredit, as
appropriate. As provided in § 229.58, a bank
may provide any notice required by this section by U.S. mail or by any other means
through which the consumer has agreed to
receive account information.
2. A bank that denies the consumer’s recredit claim must demonstrate to the consumer that the substitute check was properly charged or that the warranty claim was
not valid, such as by explaining the reason
that the substitute check charge was proper
or the consumer’s warranty claim was not
valid. For example, if a consumer has
claimed that the bank charged its account
for an improper amount, the bank denying
that claim must explain why it determined
that the charged amount was proper.
3. A bank denying a recredit claim also
must provide the original check or a sufficient copy, unless the bank is providing the
claim denial notice electronically and the
consumer has agreed to receive that type of
information electronically. In that case,
§ 229.58 allows the bank instead to provide an
image of the original check or an image of
the sufficient copy that the bank would have
sent to the consumer had the bank provided
the notice by mail.
4. A bank that relies on information or
documents in addition to the original check
or sufficient copy when denying a consumer
expedited recredit claim also must either
provide such information or documents to
the consumer or inform the consumer that
he or she may request copies of such information or documents. This requirement does
not apply to a bank that relies only on the
original check or a sufficient copy to make
its determination.
5. Models C–22 through C–25 in appendix C
contain model language for each of three notices described in § 229.54(e). A bank may, but
is not required to, use the language listed in
the appendix. 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 § 229.54(e).
F. 229.54(f) Recredit Does Not Abrogate Other
Liabilities
1. The amount that a consumer may recover under § 229.54 is limited to the lesser of
the amount of his or her loss or the amount
of the substitute check, plus interest on that
amount if his or her account earns interest.
However, a consumer’s total loss associated
with the substitute check could exceed that
amount, and the consumer could be entitled
to additional damages under other law. For
example, if a consumer’s loss exceeded the
amount of the substitute check plus interest
and he or she had both a warranty and an indemnity claim with respect to the substitute
check, he or she would be entitled to additional damages under § 229.53 of this subpart.
Similarly, if a consumer was charged
bounced check fees as a result of an improperly charged substitute check and could not
recover all of those fees because of the
§ 229.54’s limitation on recovery, he or she
could attempt to recover additional amounts
under U.C.C. 4–402.
XXXIV. § 229.55 Expedited Recredit Procedures
for Banks
A. 229.55(a) Circumstances Giving Rise to a
Claim
1. This section allows a bank to make an
expedited recredit claim under two sets of
circumstances: first, because it is obligated
to provide a recredit, either to the consumer
or to another bank that is obligated to provide a recredit in connection with the consumer’s claim; and second, because the bank
detected a problem with the substitute check
that, if uncaught, could have given rise to a
consumer claim.
2. The loss giving rise to an interbank recredit claim could be the recredit that the
claimant bank provided directly to its consumer customer under § 229.54 or a loss incurred because the claimant bank was required to indemnify another bank that provided an expedited recredit to either a consumer or a bank.
Examples.
a. A paying bank charged a consumer’s account based on a substitute check that contained a blurry image of a legible original
check, and the consumer whose account was
charged made an expedited recredit claim
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against the paying bank because the consumer suffered a loss and needed the original
check or a sufficient copy to determine the
validity of his or her claim. The paying bank
would have a warranty claim against the
presenting bank that transferred the defective substitute check to it and against any
previous transferring bank(s) that handled
that substitute check or another paper or
electronic representation of the check. The
paying bank therefore would meet each of
the requirements necessary to bring an
interbank expedited recredit claim.
b. Continuing with the example in paragraph a, if the presenting bank determined
that the paying bank’s claim was valid and
provided a recredit, the presenting bank
would have suffered a loss in the amount of
the recredit it provided and could, in turn,
make an expedited recredit claim against
the bank that transferred the defective substitute check to it.
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B. 229.55(b) Procedures for Making Claims
1. An interbank recredit claim under this
section must be brought within 120 calendar
days of the transaction giving rise to the
claim. For purposes of computing this period, the transaction giving rise to the claim
is the claimant bank’s settlement for the
substitute check in question.
2. When estimating the amount of its loss,
§ 229.55(b)(2)(ii) states that the claimant bank
should include ‘‘interest if applicable.’’ The
quoted phrase refers to any interest that the
claimant bank or a bank that the claimant
bank indemnified paid to a consumer who
has an interest-bearing account in connection with an expedited recredit under § 229.54.
3. The information that the claimant bank
is required to provide under § 229.55(b)(2)(iv)
to facilitate investigation of the claim could
include, for example, a copy of any written
claim that a consumer submitted under
§ 229.54 or any written record the bank may
have of a claim the consumer submitted
orally. The information also could include a
copy of the defective substitute check or information relating to that check, such as the
number, amount, and payee of the check.
However, a claimant bank that provides a
copy of the substitute check must take reasonable steps to ensure that the copy is not
mistaken for a legal equivalent of the original check or handled for forward collection
or return.
4. The indemnifying bank’s right to require
a claimant bank to submit a claim in writing
and the computation of time from the date
of the written submission parallel the corresponding provision in the consumer recredit section (§ 229.54(b)(3)). However, the indemnifying bank also may require the claimant bank to submit a copy of the written or
electronic claim submitted by the consumer
under that section, if any.
C. 229.55(c) Action on Claims
1. An indemnifying bank that responds to
an interbank expedited recredit claim by
providing the original check or a sufficient
copy of the original check need not demonstrate why that claim or the underlying
consumer expedited recredit claim is or is
not valid.
XXXV. § 229.56 Liability
A. 229.56(a) Measure of Damages
1. In general, a person’s recovery under
this section is limited to the amount of the
loss up to the amount of the substitute
check that is the subject of the claim, plus
interest and expenses (including costs and
reasonable attorney’s fees and other expenses of representation) related to that substitute check. However, a person that is entitled to an indemnity under § 229.53 because of
a breach of a substitute check warranty also
may recover under § 229.53 any losses proximately caused by the warranty breach, including interest, costs, wrongfully-charged
fees imposed as a result of the warranty
breach, reasonable attorney’s fees, and other
expenses of representation.
2. A reconverting bank also may be liable
under § 229.38 for damages associated with
the illegibility of indorsements applied to
substitute checks if that illegibility results
because the reduction of the original check
image and its placement on the substitute
check
shifted
a
previously-applied
indorsement that, when applied, complied
with appendix D. For more detailed discussion of this topic, see § 229.38 and the accompanying commentary.
B. 229.56(b) Timeliness of Action
1. A bank’s delay beyond the time limits
prescribed or permitted by any provision of
subpart D is excused if the delay is caused by
certain circumstances beyond the bank’s
control. This parallels the standard of U.C.C.
4–109(b).
C. 229.56(c) Jurisdiction
1. The Check 21 Act confers subject matter
jurisdiction on courts of competent jurisdiction and provides a time limit for civil actions for violations of subpart D.
D. 229.56(d) Notice of Claims
1. This paragraph is designed to adopt the
notice of claim provisions of U.C.C. 4–207(d)
and 4–208(e), with an added provision that a
timely § 229.54 expedited recredit claim satisfies the generally-applicable notice requirement. The time limit described in this paragraph applies only to notices of warranty
and indemnity claims. As provided in
§ 229.56(c), all actions under § 229.56 must be
brought within one year of the date that the
cause of action accrues.
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XXXVI. Consumer Awareness
A. 229.57(a) General Disclosure Requirement
and Content
1. A bank must provide the disclosure required by § 229.57 under two circumstances.
First, each bank must provide the disclosure
to each of its consumer customers who receives paid checks with his or her account
statement. This requirement does not apply
if the bank provides with the account statement something other than paid original
checks, paid substitute checks, or a combination thereof. For example, this requirement would not apply if a bank provided
with the account statement only a document
that contained multiple check images per
page. Second, a bank also must provide the
disclosure when it (a) provides a substitute
check to a consumer in response to that consumer’s request for a check or check copy or
(b) returns a substitute check to a consumer
depositor. A bank must provide the disclosure each time it provides a substitute check
to a consumer on an occasional basis, regardless of whether the bank previously provided
the disclosure to that consumer.
2. A bank may, but is not required to, use
the model disclosure in appendix C–5A to satisfy the disclosure content requirements of
this section. A bank that uses the model language is deemed to comply with the disclosure content requirement(s) for which it uses
the model language, provided the information in the disclosure accurately describes
the bank’s policies and practices. A bank
also may include in its disclosure additional
information relating to substitute checks
that is not required by this section.
3. A bank may, by agreement or at the consumer’s request, provide the disclosure required by this section in a language other
than English, provided that the bank makes
a complete English notice available at the
consumer’s request.
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B. 229.57(b) Distribution
1. A consumer may request a check or a
copy of a check on an occasional basis, such
as to prove that he or she made a particular
payment. A bank that responds to the consumer’s request by providing a substitute
check must provide the required disclosure
at the time of the consumer’s request if feasible. Otherwise, the bank must provide the
disclosure no later than the time at which
the bank provides a substitute check in response to the consumer’s request. It would
not be feasible for a bank to provide notice
to the consumer at the time of the request if,
for example, the bank did not know at the
time of the request whether it would provide
a substitute check in response to that request, regardless of the form of the consumer’s request. It also would not be feasible
for a bank to provide notice at the time of
the request if the consumer’s request was
mailed to the bank or made by telephone,
even if the bank knew when it received the
request that it would provide a substitute
check in response. A bank’s provision to the
consumer of something other a substitute
check, such as a photocopy of a check or a
statement containing images of multiple
substitute checks per page, does not trigger
the notice requirement.
2. A consumer who does not routinely receive paid checks might receive a returned
substitute check. For example, a consumer
deposits an original check that is payable to
him or her into his or her deposit account.
The paying bank returns the check unpaid
and the depositary bank returns the check to
the depositor in the form of a substitute
check. A depositary bank that provides a returned substitute check to a consumer depositor must provide the substitute check
disclosure at that time.
XXXVII. Variation by Agreement
Section 229.60 provides that banks involved
in an interbank expedited recredit claim
under § 229.55 may vary the terms of that section by agreement, but otherwise no person
may vary the terms of subpart D by agreement. A bank’s decision to provide more generous protections for consumers than this
subpart requires, such as by providing consumers additional time to submit expedited
claims under § 229.54 under non-exigent circumstances, would not be a variation prohibited by § 229.60.
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 disclosure,
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–22
through C–25) 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 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 models properly. For example, if a bank does not have a
cut-off hour prior to it’s closing time, or if a
bank does not take advantage of the § 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
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Federal Reserve System
Pt. 229, App. E
the models. Acceptable changes include, for
example:
a. Using ‘‘customer’’ and ‘‘bank’’ instead of
pronouns.
b. Changing the typeface or size.
c. Incorporating certain state law ‘‘plain
English’’ requirements.
4. Shorter time periods for availability
may always be substituted for time periods
used in the models.
5. Banks may also add related information.
For example, a bank may indicate that although funds have been made available to a
customer and the customer has withdrawn
them, the customer is still responsible for
problems with the deposit, such as checks
that were deposited being returned unpaid.
Or a bank could include a telephone number
to be used if a customer has an inquiry regarding a deposit.
6. Banks are cautioned against using the
models without reviewing their own policies
and practices, as well as state and federal
laws regarding the time periods for availability of specific types of checks. A bank
using the models will be in compliance with
the EFA Act and the regulation only if the
bank’s disclosures correspond to its availability policy.
7. Banks that have used earlier versions of
the models (such as those models that gave
Social Security benefits and payroll payments as examples of preauthorized credits
available the day after deposit, or that did
not address the cash withdrawal limitation)
are protected from civil liability under
§ 229.21(e). Banks are encouraged, however, to
use current versions of the models when reordering or reprinting supplies.
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B. Model Availability Policy and Substitute
Check Policy Disclosures, Models C–1
through C–5A
1. Models C–1 through C–5 generally.
a. Models C–1 through C–5A are models for
the availability policy disclosures described
in § 229.16 and substitute check policy disclosure described in § 229.57. The models accommodate a variety of availability policies,
ranging from next-day availability to holds
to statutory limits on all deposits. Model C–
3 reflects the additional disclosures discussed in §§ 229.16 (b) and (c) for banks that
have a policy of extending availability times
on a case-by-case basis.
b. As already noted, there are several
places in the models where information must
be inserted. This information includes the
bank’s cut-off times, limitations relating to
next-day availability, and the first four digits of routing numbers for local banks. In
disclosing when funds will be available for
withdrawal, the bank must insert the ordinal
number (such as first, second, etc.) of the
business day after deposit that the funds will
become available.
c. Models C–1 through C–5A generally do
not reflect any optional provisions of the
regulation, or those that apply only to certain banks. Instead, disclosures for these
provisions are included in Models C–6
through C–11A. A bank using one of the
model availability policy disclosures should
also consider whether it must incorporate
one or more of Models C–6 through C–11A.
d. While § 229.10(b) requires next-day availability for electronic payments, Treasury
regulations (31 CFR part 210) and ACH association rules require that preauthorized
credits (’’direct deposits’’) be made available
on the day the bank receives the funds. Models C–1 through C–5 reflect these rules. Wire
transfers, however, are not governed by
Treasury or ACH rules, but banks generally
make funds from wire transfers available on
the day received or on the business day following receipt. Banks should ensure that
their disclosures reflect the availability
given in most cases for wire transfers.
2. Model C–1 Next-day availability. A bank
may use this model when its policy is to
make funds from all deposits available on
the first business day after a deposit is made.
This model may also be used by banks that
provide immediate availability by substituting the word ‘‘immediately’’ in place of
‘‘on the first business day after the day we
receive your deposit.’’
3. Model C–2 Next-day availability and
§ 229.13 exceptions. A bank may use this model
when its policy is to make funds from all deposits available to its customers on the first
business day after the deposit is made, and
to reserve the right to invoke the new account and other exceptions in § 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 a nonlocal
check.
4. Model C–3 Next-day availability, case-bycase holds to statutory limits, and § 229.13 exceptions. A bank may use this model when its
policy, in most cases, is to make funds from
all types of deposits available the day after
the deposit is made, but to delay availability
on some deposits on a case-by-case basis up
to the maximum time periods allowed under
the regulation. A bank using this model also
reserves the right to invoke the exceptions
listed in § 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 a nonlocal check.
5. Model C–4 Holds to statutory limits on all
deposits. A bank may use this model when its
policy is to impose delays to the full extent
allowed under § 229.12 and to reserve the
right to invoke the § 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
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Pt. 229, App. E
12 CFR Ch. II (1–1–18 Edition)
be available if the deposit were of a nonlocal
check. Model C–4 uses a chart to show the
bank’s availability policy for local and
nonlocal checks and Model C–5 uses a narrative description.
6. Model C–5 Holds to statutory limits on all
deposits. A bank may use this model when its
policy is to impose delays to the full extent
allowed under § 229.12 and to reserve the
right to invoke the § 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.
7. Model C–5A A bank may use this form
when it is providing the disclosure to its consumers required by § 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.
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C. Model Clauses, Models C–6 Through C–11A
1. Models C–6 through C–11A generally. Certain clauses like those in the models must be
incorporated into a bank’s availability policy disclosure under certain circumstances.
The commentary to each clause indicates
when a clause similar to the model clause is
required.
2. Model C–6 Holds on other funds (check
cashing). A bank that reserves the right to
place a hold on funds already on deposit
when it cashes a check for a customer, as addressed in § 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
§ 229.19(e), must incorporate this type of
clause in its availability policy disclosure.
4. Model C–8 Appendix B availability
(nonlocal checks). A bank in a check processing region where the availability schedules for certain nonlocal checks have been
reduced, as described in appendix B of Regulation CC, must incorporate this type of
clause in its availability policy disclosure.
Banks using Model C–5 may insert this
clause at the conclusion of the discussion titled ‘‘Nonlocal checks.’’
5. Model C–9 Automated teller machine deposits (extended holds). A bank that reserves the
right to delay availability of deposits at nonproprietary ATMs until the fifth business
day following the date of deposit, as permitted by § 229.12(f), 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
§ 229.16(b)(5).
6. Model C–10 Cash withdrawal limitation. A
bank that imposes cash withdrawal limitations under § 229.12 must incorporate this
type of clause in its availability policy disclosure. Banks reserving the right to impose
the cash withdrawal limitation and using
Model C–3 should disclose that funds may
not be available until the sixth (rather than
fifth) business day in the first paragraph
under the heading ‘‘Longer Delays May
Apply.’’
7. Model C–11 Credit union interest payment
policy. A credit union subject to the notice
requirement of § 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.
8. Model C–11A Availability of funds deposited
at other locations. A clause similar to Model
C–11A should be used if a bank bases the
availability of funds on the location where
the funds are deposited (for example, at a
contractual or other branch located in a different check processing region). Similarly, a
clause similar to Model C–11A should be used
if a bank distinguishes between local and
non-local checks (for example, a bank using
model availability policy disclosure C–4 or
C–5), and accepts deposits in more than one
check processing region.
D. Model Notices, Models C–12 through C–25
1. Models C–12 through C–25 generally. Models C–12 through C–25 provide models of 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
§ 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–12 Exception hold notice. This
model satisfies the written notice required
under § 229.13(g) when a bank places a hold
based on a § 229.13 exception. If a hold is
being placed on more than one check in a deposit, each check need not be described, but
if different reasons apply, each reason must
be indicated. A bank may use the actual date
when funds will be available for withdrawal
rather than the number of the business day
following the day of deposit. A bank must incorporate in the notice the material set out
in brackets if it imposes overdraft or returned check fees after invoking the reasonable cause exception under § 229.13(e).
3. Model C–13 Reasonable cause hold notice.
This notice satisfies the written notice required under § 229.13(g) when a bank invokes
the reasonable cause exception under
§ 229.13(e). The notice provides the bank with
a list of specific reasons that may be given
for invoking the exception. If a hold is being
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Federal Reserve System
Pt. 229, App. E, Nt.
placed on more than one check in a deposit,
each check must be described separately, and
if different reasons apply, each reason must
be indicated. A bank may disclose its reason
for doubting collectibility by checking the
appropriate reason on the model. If the
‘‘Other’’ category is checked, the reason
must be given. A bank may use the actual
date when funds will be available for withdrawal rather than the number of the business day following the day of deposit. A bank
must incorporate in the notice the material
set out in brackets if it imposes overdraft or
returned check fees after invoking the reasonable cause exception under § 229.13(e).
4. Model C–14 One-time notice for large deposit and redeposited check exception holds.
This model satisfies the notice requirements
of § 229.13(g)(2) concerning nonconsumer accounts.
5. Model C–15 One-time notice for repeated
overdraft exception hold. This model satisfies
the notice requirements of § 229.13(g)(3).
6. Model C–16 Case-by-case hold notice. This
model satisfies the notice required under
§ 229.16(c)(2) when a bank with a case-by-case
hold policy imposes a hold on a deposit. This
notice does not require a statement of the
specific reason for the hold, as is the case
when a § 229.13 exception hold is placed. A
bank may specify the actual date when funds
will be available for withdrawal rather than
the number of the business day following the
day of deposit when funds will be available.
A bank must incorporate in the notice the
material set out in brackets if it imposes
overdraft fees after invoking a case-by-case
hold.
7. Model C–17 Notice at locations where employees accept consumer deposits and Model C–
18 Notice at locations where employees accept
consumer deposits (case-by-case holds). These
models satisfy the notice requirement of
§ 229.18(b). Model C–17 reflects an availability
policy of holds to statutory limits on all deposits, and Model C–18 reflects a case-by-case
availability policy.
8. Model C–19 Notice at automated teller machines. This model satisfies the ATM notice
requirement of § 229.18(c)(1).
9. Model C–20 Notice at automated teller machines (delayed receipt). This model satisfies
the ATM notice requirement of § 229.18(c)(2)
when receipt of deposits at off-premises
ATMs is delayed under § 229.19(a)(4). It is
based on collection of deposits once a week.
If collections occur more or less frequently,
the description of when deposits are received
must be adjusted accordingly.
10. Model C–21 Deposit slip notice. This
model satisfies the notice requirements of
§ 229.18(a) for deposit slips.
11. Models C–22 through C–25 generally. Models C–22 through C–25 provide models for the
various notices required when a consumer
who receives substitute checks makes an expedited recredit claim under § 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 § 229.54(e).
12. Model C–22 Valid Claim Refund Notice. 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 § 229.54(e)(1).
13. Model C–23 Provisional Refund Notice. 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
§ 229.54(e)(1).
14. Model C–24 Denial Notice. A bank may
use this model when denying a claim for an
expedited recredit under § 229.54(e)(2).
15. Model C–25 Reversal Notice. A bank may
use this model when reversing an expedited
recredit that was credited to a consumer’s
account under § 229.54(e)(3).
[Reg. CC, 60 FR 51672, Oct. 3, 1995, as amended by Reg. CC, 62 FR 13816, Mar. 24, 1997; 64
FR 59613, Nov. 3, 1999; 68 FR 52078, Sept. 2,
2003; 68 FR 53672, Sept. 12, 2003; 69 FR 47317,
Aug. 4, 2004; 70 FR 71225, Nov. 28, 2005]
EFFECTIVE DATE NOTE: At 82 FR 27585, June
15, 2017, effective July 1, 2018, appendix E to
part 229 was amended as follows:
A. Under ‘‘II. Section 229.2 Definitions’’:
i. By revising paragraph 2 under ‘‘Z. 229.2(z)
Paying Bank’’;
ii. By revising DD. 229(dd);
iii. By revising VV. 229.2(vv);
iv. By revising BBB. 229.2(bbb);
v. By adding GGG. 229.2(ggg); and
vi. By adding HHH. 229.2(hhh).
B. By revising XVI through XXVI and
XXIX;
C. In ‘‘XXX. § 229.51 General provisions governing substitute checks,’’ by revising paragraph B;
D. By revising XXXI;
E. In ‘‘XXXII. § 229.53 Substitute Check Indemnity,’’ by revising paragraphs A, B.1.,
B.1. Examples, and B.3.
F. In ‘‘XXXIII. Section 229.54 Expedited Recredit for Consumers,’’ by revising paragraph
A.2.
For the convenience of the user, the added
and revised text is set forth as follows:
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Pt. 229, App. E, Nt.
12 CFR Ch. II (1–1–18 Edition)
indorsements. (See § 229.35 and commentary
thereto).
APPENDIX E TO PART 229—COMMENTARY
*
*
*
II. SECTION 229.2
*
*
*
*
*
DEFINITIONS
*
*
*
*
*
*
*
2. Under § 229.31, a bank designated as a
payable-through bank or payable-at bank
and to which the check is sent for payment
or collection is responsible for the expedited
return of checks and notice of nonpayment
requirements of Subpart C. The payablethrough or payable-at bank may contract
with the payor with respect to its liability in
discharging these responsibilities. 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. Allowing the payable-through bank
additional time to forward checks to the
payor and await return or pay instructions
from the payor may delay the return of these
checks, increasing the risks to depositary
banks. Subpart C of this part requires payable-through and payable-at banks to return
a check expeditiously based on the time the
payable-through or payable-at bank received
the check for forward collection.
*
*
*
*
*
DD. 229.2(dd) Routing Number
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*
*
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 form of the routing number of the
paying bank generally is printed in magnetic
ink near the bottom of the check (the MICR
line; see ANS X9.13). In the case of an electronic check, the routing number of the paying bank is contained in the electronic
image of the check (in nine-digit form and
fractional form) and in the electronic information related to the check (in nine-digit
form). When 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. Industry standards require depositary
banks, subsequent collecting banks, and returning banks to place their routing numbers
in
nine-digit
form
in
their
1. Information in the MICR line of a check
must be printed in accordance with ANS
X9.13 for original checks and in accordance
with ANS X9.100–140 for substitute checks,
and must be contained in electronic checks
in accordance with ANS X9.100–187. 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. Banks that exchange checks electronically may agree to
other standards for including MICR line information in the checks that they exchange
electronically.
*
*
*
*
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BBB. 229.2(bbb) Sufficient Copy and Copy
1. A ‘‘copy’’ or a ‘‘sufficient copy’’ as defined in 229.2(bbb) must be a paper reproduction of a check, unless the parties sending
and receiving the copy otherwise agree.
Therefore, an electronic image of a check is
not a ‘‘copy’’ or a ‘‘sufficient copy’’ absent
an agreement to that effect. If a customer
has agreed to receive such information electronically, however, a bank that is required
to provide a copy or sufficient copy may satisfy that requirement by providing an electronic image. (See § 229.58).
2. A sufficient copy, which is used to resolve claims related to the receipt of a substitute check, must be a copy of the original
check.
3. A bank under § 229.53(b)(3) may limit its
liability for an indemnity claim and under
§§ 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
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Z. 229.2(z) Paying Bank
*
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31
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Pt. 229, App. E, Nt.
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.
*
*
*
*
*
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GGG. 229.2(ggg) Electronic Check and Electronic
Returned Check
1. Banks often enter into agreements under
which a check may be transferred, returned,
or presented electronically instead of transferring, returning, or presenting the paper
check. For example, an agreement may provide that either an electronic image of the
check or electronic information related to
the check may be sent instead of the paper
check. In order to satisfy Regulation CC’s
definition of ‘‘electronic check’’ (or ‘‘electronic returned check’’), however, both the
electronic image of the check and electronic
information derived from the check must be
sent. A sending bank and receiving bank
may also agree, for example, that instead of
sending the electronic check or electronic
returned check directly to the receiving
bank, the electronic check or electronic returned check may be sent to an intermediary
that stores the electronic check or electronic returned check on the receiving
bank’s behalf and makes the electronic
check or electronic returned check available
for the receiving bank to retrieve.
2. A sending bank must have an agreement
with the receiving bank in order to send an
electronic check instead of a paper check.
The agreement to receive an electronic
check or electronic returned check may be
either bilateral or through a Federal Reserve
Bank operating circular, clearinghouse rule,
or other interbank agreement. (See UCC 4–
110).
3. ANS X9.100–187 is the most prevalent industry standard for electronic checks and
electronic returned checks that will enable
banks to create substitute checks. Multiple
standards, however, exist that would enable
a bank to create a substitute check from an
electronic check. Therefore, the banks exchanging electronic checks may agree that a
different standard applies to electronic
checks exchanged between the two banks.
Additionally, banks that exchange checks
electronically may agree to transfer,
present, or return only electronic images of
checks or only electronic information related to checks. In these situations, the
sending bank and receiving bank will have
agreed to a different standard as ANS X9.100–
187 requires both an electronic image and
electronic information.
4. Electronic checks and electronic returned checks as defined in Regulation CC
are subject to subpart C, except as otherwise
provided in that subpart. (See § 229.30 and
commentary thereto).
HHH. 229.2(hhh) Electronically-Created Item
1. Electronically-created items are also
sometimes referred to in the industry as
‘‘electronic payment orders’’ or ‘‘EPOs.’’
2. Because an electronically-created item
as defined in Regulation CC never existed in
paper form, it does not meet the definition of
‘‘electronic check’’ in 229.2(ggg) and therefore an electronically-created item cannot be
used to create a substitute check that is the
legal equivalent of the original paper check.
3. An electronically-created item can resemble an electronic image of a paper check
or an electronic image of a remotely created
check. (See 229.2(fff) (definition of remotely
created check)).
Examples
a. A corporate customer of a bank, rather
than printing and mailing a paper check to a
payee, electronically creates an image that
looks like an image of the corporate customer’s paper checks and emails the image
to the payee.
b. A consumer uses a smart-phone application through which the consumer provides
the payee name, amount, and the consumer’s
signature. The application electronically
sends this information, appearing formatted
as a check, to the payee.
c. A consumer calls his utility company to
make an emergency bill payment, and provides his bank account information. The
utility company uses this information to
create an electronically-created item and deposits the electronically-created item with
its bank to obtain payment from the consumer.
*
*
*
*
XVI. SECTION 229.30 ELECTRONIC CHECKS AND
ELECTRONIC INFORMATION
A. 229.30(a) Checks Under This Subpart
1. A bank may agree to receive an electronic check or electronic returned check
from another bank instead of a paper check
or returned check. (See § 229.2(bbb) and commentary thereto). Section 229.30(a) does not
give a bank the right to send an electronic
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check or electronic returned check absent an
agreement to do so with the receiving bank.
2. Electronic checks and electronic returned checks are subject to subpart C of
this part as if they were checks or returned
checks, unless otherwise provided in subpart
C. For example, § 229.31(c), which requires a
paying bank to provide a notice of nonpayment if the paying bank determines not
to pay a check in the amount of $5,000 or
more, also applies when a paying bank determines not to pay an electronic check in the
amount of $5,000 or more. A depositary
bank’s obligation to pay for a returned check
(§ 229.33(e)) also applies with respect to an
electronic returned check.
Additionally, §§ 229.33(b) and 229.36(a) specify that the parties’ agreements govern the
receipt of electronic returned checks and
electronic written notices of nonpayment,
and electronic checks, respectively. Section
229.34(a) sets forth warranties that are given
only with respect to electronic checks and
electronic returned checks and section
229.34(f) sets forth an indemnity given only
with respect to remote deposit capture. Warranties that apply to paper checks or paper
returned checks also apply to electronic
checks and electronic returned checks, including § 229.34(b) (transfer and presentment
warranties with respect to remotely created
checks), § 229.34(c) (settlement amount, encoding, and offset warranties), § 229.34(d) (returned check warranties), and § 229.34(e) (notice of nonpayment warranties). The parties
may, by agreement, vary the effect of the
provisions in subpart C of this part as they
apply to electronic checks and electronic returned checks, except that as set forth in
§ 229.37, no agreement can disclaim the responsibility of a bank for its own lack of
good faith or failure to exercise ordinary
care. (See § 229.37 and commentary thereto).
3. Certain provisions of subpart C relate
solely to paper checks or paper returned
checks, as specified, such as § 229.33(c) (acceptance of paper returned checks) and
§ 229.36(d) (same-day settlement).
B. 229.30(b) Writings
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1. Provisions in subpart C of this part require that a paying bank or returning bank
send information in writing. For example,
§ 229.31(f) requires that a notice in lieu be either a copy of the check or a written notice
of nonpayment. A bank may send information required to be in writing in electronic
form if the bank sending the information has
an agreement with the bank receiving the information to do so.
XVII. SECTION 229.31 PAYING BANK’S RESPONSIBILITY FOR RETURN OF CHECKS AND
NOTICES OF NONPAYMENT
A. 229.31(a) Return of Checks
1. Routing of returned checks.
a. This subsection is subject to the requirements of expeditious return provided in
§ 229.31(b).
b. The paying bank acts, in effect, as an
agent or subagent of the depositary bank in
selecting a means of return. Under § 229.31(a),
a paying bank is authorized to route the returned check in a variety of ways:
i. It may send the returned check directly
to the depositary bank by sending an electronic returned check directly to the depositary bank if the paying bank has an agreement with the depositary bank to do so, or
by using a courier or other means of delivery, bypassing returning banks; or
ii. It may send the returned check or electronic returned check to any returning bank
agreeing to handle the returned check or
electronic returned check, regardless of
whether or not the returning bank handled
the check for forward collection.
c. 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. A paper check
may be returned to the depositary bank at
any physical location permitted under
§ 229.33(c).
2. a. In some cases, a paying bank will be
unable to identify the depositary bank
through the use of ordinary care and good
faith. These cases are now rare as depositary
banks generally apply their indorsements
electronically. A paying bank, for example,
would be unable to identify the depositary
bank if the depositary bank’s indorsement is
neither in an addenda record nor within the
image of the check that was presented electronically. A paying bank, however, would
not be ‘‘unable’’ to identify the depositary
bank merely because the depositary bank’s
indorsement is available within the image
rather than attached as an addenda record.
b. In cases where the paying bank is unable
to identify the depositary bank, the paying
bank may send the returned check to a returning bank that agrees to handle the returned check. The returning bank may be
better able to identify the depositary bank.
c. 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 presenting bank or a prior
collecting bank is required to accept the returned check and send it to another prior
collecting bank in the path used for forward
collection or to the depositary bank. If the
paying bank has an agreement to send electronic returned checks to a bank that handled the check for forward collection, the
paying bank may send the electronic returned check to that bank.
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d. A paying bank returning a check to a
prior collecting bank because it is unable to
identify the depositary bank 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. In the case of an electronic returned check, the advice requirement may
be satisfied as agreed to by the parties. The
advice will warn the bank that this check
will require special research and handling in
accordance with § 229.32(a)(2). The returned
check may not be prepared as a qualified return.
e. A paying bank also may send a check to
a prior collecting bank to make a claim
against that bank under § 229.35(b) where the
depositary bank is insolvent or in other
cases as provided in § 229.35(b). Finally, a
paying bank may make a claim against a
prior collecting bank based on a breach of
warranty under UCC 4–208.
3. Midnight deadline. Except for the extension permitted by § 229.31(g), discussed below,
this section does not relieve a paying bank
from the requirement for timely return (i.e.,
midnight deadline) under UCC 4–301 and 4–
302, which continue to apply. Under UCC 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 UCC 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, the UCC midnight deadline gives
the paying bank an incentive to make a
prompt return.
4. UCC provisions affected. This paragraph
directly affects the following provisions of
the UCC, 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 settlement for
returned checks is made under § 229.32(e), not
by revocation of settlement.
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B. 229.31(b) Expeditious Return of Checks
1. This section requires a paying bank
(which, for purposes of subpart C, may include a payable-through and payable-at bank
(see § 229.2(z)) that determines not to pay a
check to return the check expeditiously.
Section 229.31(d) sets forth exceptions to this
general rule. If a paying bank is not subject
to the requirement for expeditious return
under § 229.31(b), the paying bank, nonethe-
less, must return the check within its deadlines under the UCC, Regulation J (12 CFR
part 210) or §§ 229.36(d)(3) and (f)(4), as extended by § 229.31(g), for returning the item
or sending notice.
2. Two-Day Test
a. A returned check, including the original
check, substitute check, or electronic returned check, is returned expeditiously if a
paying bank sends the returned check in a
manner such that the returned check would
normally be received by the depositary bank
not later than 2 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.
b. A paying bank may satisfy its expeditious return requirement by returning either
an electronic returned check or a paper
check. For example, a paying bank could
meet the expeditious return test by sending
an electronic returned check directly to the
depositary bank, if the paying bank has an
agreement with the depositary bank to do
so, such that it normally would reach the depositary bank by the specified deadline, or
sending an electronic returned check to a returning bank, if the paying bank has an
agreement with the returning bank to do so,
within the returning bank’s timeframe for
delivering electronic returned checks to the
depositary bank within the return deadline.
A paying bank that sends a returned check
in paper form would typically need a highly
expeditious means of delivery to meet the
expeditious return test.
c. This test does not require actual receipt
of the returned check by the depositary bank
within the specified deadline. In determining
whether an electronic returned check would
normally reach a depositary bank within the
specified deadline, a paying bank may rely
on a returning bank’s return deadlines and
availability schedules for electronic returned
checks and returned checks destined for the
depositary bank. A paying bank may not
rely on the availability schedules if the paying bank has reason to believe that these
schedules do not reflect the actual time for
return of an electronic returned check to the
depositary bank to which the paying bank is
returning the check. The paying bank is not
responsible for unforeseeable delays in the
return of the check, such as communication
failures or transportation delays.
d. Where the second business day following
presentment of the check to the paying bank
is not a banking day for the depositary bank,
the depositary bank might not process
checks on that day. Consequently, if the last
day of the time limit is not a banking day
for the depositary bank, the check may be
delivered to the depositary bank not later
than 2 p.m. (local time of the depositary
bank) on the depositary bank’s next banking
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day and the return will still be considered
expeditious.
e. Paying banks and returning banks are
subject to the expeditious return rule, however, under section 229.33(a) a paying or returning bank may be liable to a depositary
bank for failing to return a check in an expeditious manner only if the depositary bank
has arrangements in place such that the paying or returning bank could return a returned check to the depositary bank electronically by commercially reasonable
means. The depositary bank has the burden
of proof for demonstrating that its arrangements are commercially reasonable.
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3. Examples
a. The paying bank and depositary bank
have a bilateral agreement under which the
depositary bank agrees to receive electronic
returned checks directly from the paying
bank. If a check is presented to a paying
bank on Monday, the paying bank should
send the returned check such that an electronic returned check normally would be received by the depositary bank by 2 p.m.
(local time of the depositary bank) on
Wednesday. This result is the same if, instead of a bilateral agreement, the paying
bank and depositary bank are members of
the same clearinghouse and agree to exchange electronic returned checks under
clearinghouse rules.
b. The depositary bank has an agreement
to receive electronic returned checks from
Returning Bank A but not from the paying
bank. The paying bank, however, has an
agreement with Returning Bank A to send
electronic returned checks to Returning
Bank A. If a check is presented to the paying
bank on Monday, the paying bank should
send the returned check such that the depositary bank normally would receive the returned check by 2 p.m. (local time of the depositary bank) on Wednesday. A paying bank
may satisfy this requirement by sending either an electronic returned check or a paper
returned check to Returning Bank A in a
manner that permits Returning Bank A to
send an electronic returned check to the depositary bank by 2 p.m. on Wednesday. The
paying bank may also send a paper returned
check to the depositary bank if a paper returned check would normally be received by
the depositary bank by 2 p.m. on Wednesday.
c. The paying bank has an agreement to
send electronic returned checks to Returning
Bank A. The depositary bank has an agreement to receive electronic returned checks
from Returning Bank B. The paying bank
does not have an agreement to send electronic returned checks to Returning Bank B.
Returning Bank A, however, has an agreement to send electronic returned checks to
Returning Bank B. If a check is presented to
the paying bank on Monday, the paying bank
should send the returned check such that the
depositary bank normally would receive the
returned check by 2 p.m. (local time of the
depositary bank) on Wednesday.
C. 229.31(c) Notice of Nonpayment
1. Requirement
a. The paying bank must send a notice of
nonpayment if it decides not to pay a check
in the amount of $5,000 or more. Except in
the case where the returned check or a notice in lieu of return serves as the notice of
nonpayment, the notice of nonpayment carries no value, and the check or substitute
check must be returned in addition to the
notice of nonpayment. The paying bank
must send the notice of nonpayment such
that it would normally be received by the depositary bank not later than 2 p.m. (local
time of the depositary bank) on the second
business day following presentment. In determining whether the notice requirement is
satisfied, the paying bank may rely on the
availability schedules of a third party that
provides the notice on behalf of the paying
bank as the time that the notice is expected
to be delivered to the depositary bank, unless the paying bank has reason to know the
availability schedules are inaccurate.
b. A bank identified by routing number as
the paying bank is considered the paying
bank under this subpart and would be required to provide a notice of nonpayment
even though that bank determined that the
check was not drawn by a customer of that
bank. (See commentary to the definition of
paying bank in § 229.2(z)). A bank designated
as a payable-through or payable-at bank and
to which the check is sent for payment or
collection is responsible for the notice of
nonpayment requirement. The payablethrough or payable-at bank may contract
with the payor with respect to its liability in
discharging these responsibilities.
c. The paying bank should not send a notice of nonpayment until it has finally determined not to pay the check. Under § 229.34(e),
by sending the notice the paying bank warrants that it has returned or will return the
check. If a paying bank sends a notice and
subsequently decides to pay the check, the
paying bank may mitigate its liability on
this warranty by notifying the depositary
bank that the check has been paid.
d. The return of the check itself may serve
as the required notice of nonpayment. In
some cases, the returned check may be received by the depositary bank within the
time requirements of § 229.31(c)(1) and no notice other than the return of the check will
be necessary. If the check is not received by
the depositary bank within the time limits
for notice, the return of the check may not
satisfy the notice requirement. In determining whether the returned check will satisfy the notice requirement, the paying bank
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may rely on the availability schedules of returning banks as the time that the returned
check is expected to be delivered to the depositary bank, unless the paying bank has
reason to know the availability schedules
are inaccurate.
e. The requirement for notice does not affect the requirements for return of the check
under the UCC (or § 229.31(b)). A paying bank
is not responsible for failure to give notice of
nonpayment to a party that has breached a
presentment warranty under UCC 4–208, notwithstanding that the paying bank may have
returned the check. (See UCC 4–208 and 4–
302).
2. Content of Notices
a. This paragraph provides that, to the extent the information is available to the paying bank, the notice must at a minimum
contain the information contained in the
check’s MICR line when the check was received by the paying bank. The MICR line information includes the paying bank’s routing number, the account number of the paying bank’s customer, the check number, and
auxiliary on-us fields for corporate checks,
and may include the amount of the check.
b. Although it has no duty to do so, a paying bank that cannot identify the depositary
bank from the check itself may wish to send
the notice to the earliest collecting bank it
can identify and indicate that the notice is
not being sent to the depositary bank. The
collecting bank may be able to identify the
depositary bank and forward the notice, but
is under no duty to do so. In addition, the
collecting bank may actually be the depositary bank.
c. A bank must identify an item of information if the bank is uncertain as to that
item’s accuracy. A bank may make this
identification in accordance with general industry practices, or by other reasonable
means. For example, where the paying bank
receives a handwritten check with a payee
name that the paying bank cannot decipher
using a good faith effort, the paying bank
could include a ‘‘?’’ symbol in the payee’s
name field of the notice to indicate its uncertainty as to that particular element.
D. 229.31(d) Exceptions to the Expeditious
Return of Checks and Notice of Nonpayment
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1. Depositary Banks Not Subject to Subpart
B of This Part
a. Subpart B of this part applies only to
‘‘checks’’ deposited in transaction ‘‘accounts.’’ A depositary bank with only time
or savings accounts or credit card accounts
need not comply with the availability requirements of subpart B of Regulation CC.
Thus, the expeditious return requirement of
§ 229.31(b) and the notice of nonpayment requirement of § 229.31(c) do not apply to
checks being returned to banks that do not
hold accounts. The paying bank’s midnight
deadline in UCC 4–301 and 4–302 and § 210.12 of
Regulation J (12 CFR 210.12), and the extension in § 229.31(g), would continue to apply to
these checks.
b. The expeditious return requirement and
the notice of nonpayment requirement apply
only to ‘‘checks’’ deposited in a bank that is
a ‘‘depository institution’’ under the EFA
Act. 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 requirements of subpart
B of this regulation. Thus, the expeditious
return and notice of nonpayment requirements of this section would not apply to a
paying bank returning a check that was deposited in one of these banks.
2. Unidentifiable Depositary Banks
a. A paying bank that sends a check to a
bank that handled the check for forward collection because the paying bank is unable to
identify the depositary bank is not subject
to the requirement for expeditious return by
the paying bank or to the requirement for
notice of nonpayment. Although the lack of
requirement for notice of nonpayment under
this paragraph will create risks for the depositary bank, the inability to identify the
depositary bank will generally be due to the
depositary bank’s, or a collecting bank’s,
failure to indorse as required by § 229.35(a). If
the depositary bank failed to use the proper
indorsement, it should bear the risks of lessthan-expeditious return or not receiving notice of nonpayment in a timely manner.
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.
b. This paragraph does not relieve a paying
bank from the liability for the lack of expeditious return or not providing notice of nonpayment 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, and the depositary bank placed
its indorsement on the original check making the indorsement unreadable. (See
§ 229.38(c)).
c. A paying bank’s return of a check to an
unidentifiable depositary bank is subject to
its midnight deadline under UCC 4–301, Regulation J (if the check is returned through a
Federal Reserve Bank), and the extension
provided in § 229.31(g).
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E. 229.31(e) 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. A reason such as ‘‘Refer to
Maker’’ may be appropriate in certain cases,
such as when a drawer with a positive pay
arrangement instructs the bank to return
the check. By contrast, a reason such as
‘‘Refer to Maker’’ would be inappropriate in
cases where a check is being returned due to
the paying bank having already paid the
item, where a check has been altered, or
where a check is unauthorized. In such cases,
the payee and not the drawer would generally have more information as to why the
check is being returned.
2. If the returned check is a substitute
check or electronic returned check, the reason for return information must be included
such that it is retained on any subsequent
substitute check. For substitute checks, this
requirement 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 so that the information
is retained on any subsequent substitute
check. For electronic returned checks, this
requirement could be met by including the
reason for return in accordance with ANS
X9.100–187. 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.
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F. 229.31(f) Notice in Lieu of Return
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
§ 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 that does not have the original
check may have an image of both sides of the
check, but the image may be insufficient or
may not be in the proper format such that
the bank cannot create a substitute check or
provide required substitute check warranties. In that case, the check would be unavailable for return. A bank using a notice in
lieu of return gives a warranty under
§ 229.34(d)(1)(iv) that the check, in any form,
has not been and will not be returned.
2. A notice in lieu of return must be in
writing (either in paper form, or if agreed to
by the parties electronic form), but not provided by telephone or other oral transmission. The requirement for a writing and
the indication that the notice is a substitute
for the returned check is necessary so that
any returning bank and the depositary bank
are informed that the notice carries value. A
check that is lost or otherwise unavailable
for return may be returned by sending a legible copy of both sides of the check or, if
such a copy is not available to the paying
bank, a written notice of nonpayment containing
the
information
specified
in
§ 229.31(c)(2). The copy or written notice must
clearly indicate it is a notice in lieu of return. Notice by a legible facsimile of both
sides of the check may satisfy the requirements for a notice in lieu of return.
The paying bank may send an electronic
image of both sides of the check as a notice
in lieu of return only if it has an agreement
to do so with the receiving bank. (See
§ 229.30(b)).
3. The requirement of this paragraph supersedes the requirement of UCC 4–301(a) as
to the form and information required of a notice of dishonor or nonpayment.
4. The notice in lieu of return is subject to
the provisions of this subpart relating to returned checks and is treated like a returned
check for purposes of this subpart. Reference
in the regulation and this commentary to a
returned check includes a notice in lieu of
return unless the context indicates otherwise.
5. If not all of the information required by
§ 229.31(c)(2) is available, the paying bank
may make a claim against any prior bank
handling the check as provided in § 229.35(b).
G. 229.31(g) Extension of Deadline
1. This paragraph permits extension of the
deadlines in the UCC, Regulation J (12 CFR
part 210), and § 229.36(d)(3) and (4) 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 § 210.9 of Regulation J (12 CFR part 210),
or § 229.36(d)(3) or (4)), in two circumstances:
a. A paying bank may, by agreement, send
an electronic returned check instead of a
paper returned check or 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 reaches the depositary bank (or receiving bank, if the depositary bank is unidentifiable) on or before the depositary
bank’s (or receiving bank’s) next banking
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Federal Reserve System
Pt. 229, App. E, Nt.
day following the otherwise applicable deadline by the earlier of the close of that banking day or a cutoff hour of 2 p.m. (local time
of the depositary bank or receiving bank) or
later set by the depositary bank (or receiving bank) under UCC 4–108. This paragraph
applies to the extension of all midnight
deadlines except Saturday midnight deadlines (see the following paragraph).
b. A paying bank may observe a banking
day, as defined in the applicable UCC, on a
Saturday, which is not a business day and
therefore not a banking day under Regulation CC. In such a case, the UCC 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 its back-office operations staff
available on Saturday to prepare and send
the electronic returned checks, and the returning bank or depositary bank that would
be receiving this electronic information may
not have staff available to process it until
Sunday night or Monday morning. 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 (or receiving 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.
2. The time limits that are extended in
each case are the paying bank’s midnight
deadline for returning a check for which it
has already settled and the paying bank’s
deadline for returning a check without settling for it in UCC 4–301 and 4–302, §§ 210.9 and
210.12 of Regulation J (12 CFR 210.9 and
210.12), and § 229.36(d)(3) and (4).
3. If the paying bank has an agreement to
do so with the receiving bank (such as
through bilateral agreements, clearinghouse
rules, or operating circular), the paying bank
may satisfy its midnight or other return
deadline by sending an electronic returned
check prior to the expiration of the deadline.
The time when the electronic returned check
is considered to be received by the depositary bank is determined by the agreement.
The paying bank satisfies its midnight or
other return deadline by dispatching paper
returned checks to another bank by courier,
including a courier under contract with the
paying bank, prior to expiration of the deadline.
4. This paragraph directly affects UCC 4–
301 and 4–302 and §§ 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.
H. 229.31(h) Payable Through and Payable at
Checks
1. For purposes of subpart C of this part,
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
subpart C 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 and receipt of notices of nonpayment for checks that are payable through
or at a bank to the depositary bank.
2. 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 UCC 4–301.
I. 229.31(i) Reliance on Routing Number
1. Although § 229.35 requires that the depositary bank indorsement contain its ninedigit 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)
or in the electronic check sent pursuant to
an agreement when the check, or electronic
check, 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 § 229.38(a).
XVIII. SECTION 229.32 RETURNING BANK’S
RESPONSIBILITY FOR RETURNED CHECKS
A. 229.32(a) Return of Checks
1. Routing of Returned Check
a. Under § 229.32(a), the returning bank is
authorized to route the returned check in a
variety of ways:
i. It may send the returned check directly
to the depositary bank by sending an electronic returned check directly to the depositary bank if the returning bank has an
agreement with the depositary bank to do
so, or by using a courier or other means of
delivery; or
ii. It may send the returned check or electronic returned check to any returning bank
agreeing to handle the returned check regardless of whether or not the returning
bank handled the check for forward collection.
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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. A paper returned check
may be sent to the depositary bank at any
physical location permitted under § 229.33(b).
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2. Unidentifiable Depositary Bank
a. Returning banks agreeing to handle
checks for return to depositary banks under
§ 229.32(a) are expected to be expert in identifying depositary bank indorsements. In the
limited cases where the returning bank cannot identify the depositary bank, if the returning bank did not handle the check for
forward collection, it may send the returned
check to any collecting bank that handled
the check for forward collection.
b. If, on the other hand, 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.
c. The returning bank’s return of a check
under this paragraph is subject to the requirement to use ordinary care under UCC 4–
202(b). (See definition of returning bank in
§ 229.2(cc)).
d. As in the case of a paying bank returning a check under § 229.31(a)(2), a returning
bank returning a check under § 229.32(a)(2)
must advise the bank to which it sends the
returned check that it is unable to identify
the depositary bank. This advice must be
conspicuous, such as a stamp on the check or
a notice on the cash letter. The returned
check may not be prepared as a qualified return. In the case of an electronic returned
check, the advice requirement may be satisfied as agreed to by the parties.
3. A returning bank agrees to handle a returned check if it—
a. Publishes or distributes availability
schedules for the return of returned checks
and accepts the returned check for return;
b. Handles a returned check for return that
it did not handle for forward collection;
c. Agrees with the paying bank or returning bank to handle electronic returned
checks sent by that bank; or
d. Otherwise agrees to handle a returned
check.
4. 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, unless the sending
bank and returning bank agree otherwise,
the cut-off hour for returned checks may not
be earlier than 2 p.m. (local time of the returning bank). 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.
5. Qualified returned checks. A qualified returned check will be handled by subsequent
returning banks more efficiently than a raw
return. The qualified returned check must
include the routing number of the depositary
bank, the amount of the check, and a return
identifier encoded on the check in magnetic
ink. 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. If the
returning bank makes an encoding error in
creating a qualified returned check, it may
be liable under § 229.38 for losses caused by
any negligence or under § 229.34(c)(3) for
breach of an encoding warranty.
6. 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 UCC 4–202(c) regarding the responsibility of collecting banks).
7. UCC sections affected. Section 229.32 directly affects UCC Section 4–214(a) and may
affect other sections or provisions. (See UCC
4–202(b)). Section 4–214(a) is affected in that
settlement for returned checks is made
under § 229.32(e) and not by charge-back of
provisional credit.
B. 229.32(b) Expeditious Return of Checks
1. The standards for return of checks established by this section are similar to those for
paying banks in § 229.31(b). This section requires a returning bank to return a returned
check expeditiously, subject to the exceptions set forth in § 229.32(c). In effect, the returning bank is an agent or subagent of the
paying bank and a subagent of the depositary bank for the purposes of returning the
check.
2. A returning bank that agrees to handle
a returned check (see commentary to
§ 229.32(a)) is subject to the expeditious return requirement with respect to the returned check except as provided in
§ 229.32(c)).
3. Two-day test. As in the case of a paying
bank, a returning bank’s return of a returned
check is expeditious if it is sent in a manner
such that the depositary bank would normally receive the returned check by 2 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. Although a returning bank will not
have firsthand 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.
Paying banks and returning banks are subject to the expeditious return rule, however,
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under section 229.33(a) a paying or returning
bank may be liable to a depositary bank for
failing to return a check in an expeditious
manner only if the depositary bank has arrangements in place such that the paying
bank or returning bank could return a returned check to the depositary bank electronically by commercially reasonable
means. The depositary bank has the burden
of proof for demonstrating that its arrangements are commercially reasonable.
4. Example. Returning Bank A does not
have an agreement to send electronic returned checks to the depositary bank but
has an agreement to send electronic returned
checks to Returning Bank B, which, in turn,
has an agreement to send electronic returned
checks to the depositary bank. If a check is
presented to the paying bank on Monday,
each returning bank would need to send the
returned check in a manner such that the depositary bank normally would receive the returned check by 2 p.m. (local time of the depositary bank) on Wednesday.
E. 229.32(e) Settlement
D. 229.32(d) Notice in Lieu of Return
1. Under the UCC, a paying bank settles
with a presenting bank after the check 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 § 229.36(c) and commentary
to § 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 § 229.39). If payment cannot be
obtained from a depositary bank or returning bank because of its insolvency or otherwise, recovery can be had by returning
banks, paying banks, and collecting banks
from prior banks on this basis of the liability
of prior banks under § 229.35(b).
4. This paragraph affects UCC 4–214(a) in
that a paying bank 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 § 229.36(c), a bank collecting a check remains liable to prior collecting banks and the depositary bank’s customer under the UCC.
1. This paragraph is similar to § 229.31(f)
and authorizes a returning bank to originate
a notice in lieu of return if the returned
check is unavailable for return. Notice in
lieu of return is permitted only when a bank
1. This paragraph permits any returning
bank, even one that handled the check for
forward collection, to impose a fee on the
C. 229.32(c) Exceptions to the Expeditious
Return of Checks
1. This paragraph sets forth the circumstances under which a returning bank is
not required to return the check to the depositary bank in accordance with § 229.32(b).
2. Depositary bank not subject to subpart
B. This paragraph is similar to § 229.31(d)(1)
and relieves a returning bank of its obligation to make expeditious return to a depositary bank that does not hold ‘‘accounts’’
under subpart B of this regulation or is not
a ‘‘depository institution’’ within the meaning of the EFA Act. (See commentary to
§ 229.31(d)).
3. Unidentifiable depositary bank. A returning bank is not subject to the expeditious return requirements of § 229.32(b) in
handling a returned check for which the paying bank cannot identify the depositary
bank.
4. Misrouted returned check. A returning
bank is not subject to the expeditious return
requirements of § 229.32(b) in handling a
misrouted returned check pursuant to
§ 229.33(f). A bank acting as a returning bank
because it received a returned check on the
basis that it was the depositary bank and
sends the misrouted returned check to the
correct depositary bank, directly or through
subsequent returning banks, is similarly not
subject to the expeditious return requirements of § 229.32(b). (See commentary to
§ 229.33(f)).
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does not have and cannot obtain possession
of the check (or when the bank must retain
possession of the check for protest) and does
not have sufficient information to create a
substitute check. (See commentary to
§ 229.31(f)).
F. 229.32(f) Charges
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31
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paying bank or other returning bank for its
service in handling a returned check. Where
a claim is made under § 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.
G. 229.32(g) Reliance on Routing Number
1. This paragraph is similar to § 229.31(i)
and permits a returning bank to rely on
routing numbers appearing on a returned
check such as routing numbers in the depositary bank’s indorsement, or in the electronic
returned check received by the returning
bank pursuant to an agreement, or on qualified returned checks. (See commentary to
§ 229.31(i)).
DEPOSITARY BANK’S RESPONSIBILITY FOR RETURNED CHECKS AND
NOTICES OF NONPAYMENT
payment. (See §§ 229.2(ggg), 229.30(b), and
229.31(c) and commentary thereto). The depositary bank’s acceptance of electronic returned checks and electronic written notices
of nonpayment is governed by the depositary
bank’s agreement with the banks sending
the electronic returned check or electronic
written notice of nonpayment to the depositary bank (or through the applicable clearinghouse rules). The agreement normally
would specify the electronic address or receipt point at which the depositary bank accepts returned checks and written notices of
nonpayment electronically, as well as what
constitutes receipt of the returned checks
and written notices of nonpayment. The
agreement also may specify whether electronic returned checks must be separated
from electronic checks sent for forward collection.
C. 229.33(c) Acceptance of Paper Returned
Checks and Paper Notices of Nonpayment
XIX. SECTION 229.33
A. 229.33(a) Right To Assert Claim
1. This paragraph sets forth the circumstances under which a paying bank or returning bank may be liable to a depositary
bank for failing to return a check in an expeditious manner in accordance with §§ 229.31(b)
and 229.32(b) respectively.
2. This paragraph does not require a depositary bank to establish arrangements to accept returned checks electronically, either
directly from the paying bank or indirectly
from a returning bank. Most depositary
banks, however, have arrangements in place
to accept returned checks electronically.
(See commentary to §§ 229.31(b) and 229.32(b)
for examples of direct and indirect arrangements).
3. The depositary bank has the burden of
proof for demonstrating that its arrangements for accepting returned checks electronically are commercially reasonable. The
standard allows for case-by-case flexibility
and can change over time to reflect market
practices. The standard is intended to prevent a depositary bank from establishing
electronic return arrangements that are very
limited in scope or that provide unreasonable barriers to return such that, in practice,
the depositary bank would accept only a
small proportion of its returns electronically.
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B. 229.33(b) Acceptance of Electronic Returned
Checks and Electronic Notices of Nonpayment
1. A depositary bank may agree directly
with a returning bank or a paying bank (or
through clearinghouse rules) to accept electronic returned checks. Likewise, a depositary bank may agree directly with a paying
bank (or through clearinghouse rules) to accept electronic written notices of non-
1. This paragraph states where the depositary bank is required to accept paper returned checks and paper notices of nonpayment during its banking day. (These locations differ from locations at which a depositary bank must accept oral notices or
electronic notices. (See § 229.33(b) and (d) and
commentary thereto). This paragraph is derived from UCC 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
paper returned checks and paper notices of
nonpayment:
a. The depositary bank must accept paper
returned checks and paper notices of nonpayment at any location at which it requests
presentment of forward collection paper
checks, such as a processing center. A depositary bank does not request presentment of
forward collection checks at a branch of the
bank merely by paying checks presented
over the counter.
b. i. If the depositary bank indorsement
states the name and address of the depositary bank, it must accept paper returned
checks and paper notices of nonpayment 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 paper returned
checks and paper notices of nonpayment 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 paper returned checks and
paper notices of nonpayment. Accordingly, a
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Federal Reserve System
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depositary bank may limit the locations at
which it must accept paper returned checks
and paper notices of nonpayment by specifying a branch or head office in its
indorsement.
ii. If no address appears in the depositary
bank’s indorsement, the depositary bank
must accept paper returned checks and paper
notices of nonpayment 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.
iii. If no routing number or address appears
in its indorsement, the depositary bank must
accept a paper returned check at any branch
or head office of the bank. Section 229.35 and
applicable industry standards require that
the indorsement contain a routing number, a
name, and a location. Consequently paragraphs (c)(1)(ii)(B) and (C) of this section
apply only where the depositary bank has
failed to comply with the indorsement requirement.
3. For ease of processing, a depositary bank
may require that returning banks or paying
banks returning checks to it separate returned checks from forward collection
checks being presented.
D. 229.33(d) Acceptance Oral Notices of
Nonpayment
In the case of telephone notices, the depositary bank may not refuse to accept notices
at the telephone numbers identified in this
section, but may transfer calls or use a recording device.
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E. 229.33(e) Payment
1. As discussed in the commentary to
§ 229.32(e), under this regulation a paying
bank or returning bank does not obtain credit for a returned check by charge-back but
by, in effect, ‘‘presenting’’ the returned
check to the depositary bank. This paragraph imposes an obligation to ‘‘pay’’ a returned check that is similar to the obligation to pay a forward collection check by a
paying bank, except that the depositary
bank may not return a returned check for
which it is the depositary bank. Also, certain
means of payment, such as remittance
drafts, may be used only by agreement.
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 UCC 4–108, which
permits the bank to establish a cut-off hour,
generally not earlier than 2 p.m. (local time
of the depositary bank), 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
bank or paying bank on the banking day
that it receives the returned check, because
the returning bank 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 to the
returning bank or paying bank on the day it
receives the returned check, even if the returning bank 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 bank
or paying bank may agree to accept payment
through an ACH credit or debit transfer that
settles the day after the returned check is
received instead of a wire transfer that settles on the same day.
6. This paragraph and this subpart do not
affect the depositary bank’s right to recover
a provisional settlement with its nonbank
customer for a check that is returned. (See
also §§ 229.19(c)(2)(ii), 229.33(h), and 229.35(b)).
F. 229.33(f) Misrouted Returned Checks and
Written Notices of Nonpayment
1. This paragraph permits a bank receiving
a check or written notice of nonpayment (either in paper form or electronic form) on the
basis that it is the depositary bank to send
the misrouted returned check or written notice of nonpayment 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
or written notice of nonpayment. When sending a returned check under this paragraph,
the bank receiving the misrouted check is
acting as a returning bank. Alternatively,
the bank receiving the misrouted returned
check or written notice of nonpayment must
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send the check or notice back to the bank
from which it was received.
2. In sending a misrouted returned check,
the bank to which the returned check was
misrouted (the incorrect depositary bank)
could receive settlement from the bank to
which it sends the misrouted check under
§ 229.33(f) (the correct depositary bank, a returning bank that agrees to handle it, or the
bank from which the misrouted check was
received). The correct depositary bank would
be required to pay for the returned check
under § 229.33(e), 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 § 229.32(e). The bank to
which the returned check was misrouted is
required to act promptly, i.e., within its midnight deadline. This paragraph does not affect a bank’s duties under § 229.35(b).
G. 229.33(g) 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.
H. 229.33(h) Notification to Customer
1. This paragraph requires a depositary
bank to notify its customer of nonpayment
upon receipt of a returned check or notice of
nonpayment. Notice also must be given if a
depositary bank receives a notice of recovery
under § 229.35(b). A bank that chooses to provide the notice required by § 229.33(h) in writing may send the notice by email or facsimile if the bank sends the notice to the
email 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 § 229.13(g) if the depositary bank invokes the reasonable-cause exception of
§ 229.13(e) due to the receipt of a notice of
nonpayment, provided the notice meets all
the requirements of § 229.13(g).
XX. SECTION 229.34 WARRANTIES AND
INDEMNITIES
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A. Introduction
1. Unless otherwise specified, warranties
that apply to checks or returned checks also
apply to electronic checks and electronic returned checks, including under paragraphs
(b) (transfer and presentment warranties
with respect to remotely created checks), (c)
(settlement amount, encoding, and offset
warranties), (d) (returned check warranties),
and (e) (notice of nonpayment warranties).
(See § 229.30(a) and commentary thereto).
Paragraph (f), however, sets forth remote deposit capture indemnities provided to banks
that accept an original check for deposit for
losses incurred by that depositary bank if
the loss is due to the check having already
been paid. Paragraph (a) sets forth warranties that are given only with respect to electronic checks and electronic returned
checks. Paragraph (g) sets forth indemnities
with respect to electronically created items.
B. 229.34(a) Warranties With Respect to Electronic Checks and Electronic Returned
Checks
1. Paragraph (a) of § 229.34 sets forth the
warranties that a bank makes when transferring or presenting an electronic check or
electronic returned check and receiving settlement or other consideration for it. Electronic checks and electronic returned checks
sent pursuant to an agreement with the receiving bank are treated as checks subject to
subpart C. Therefore, the warranties in
§ 229.34(a) are in addition to any warranties a
bank makes under paragraphs (b), (c), (d),
and (e) with respect to an electronic check or
electronic returned check. For example, a
bank that transfers and receives consideration for an electronic check that is derived
from a remotely created check warrants that
the remotely created check, from which the
electronic check is derived, is authorized by
the person on whose account the check is
drawn.
2. The warranties in § 229.34(a)(1) relate to a
subsequent bank’s ability to create a substitute check. This paragraph provides a
bank that creates a substitute check from an
electronic check or electronic returned
check with a warranty claim against any
prior bank that transferred the electronic
check or electronic returned check. The warranties in this paragraph correspond to the
warranties made by a bank that transfers,
presents, or returns a substitute check (a
paper or electronic representation of a substitute check) for which it receives consideration. (See § 229.52 and commentary thereto).
A bank that transfers an electronic check or
electronic returned check that is an electronic representation of a substitute check
also makes the warranties and indemnities
in §§ 229.52 and 229.53.
3. By agreement, a sending and receiving
bank may vary the warranties the sending
bank makes to the receiving bank for electronic images of or electronic information
related to checks, for example, to provide
that the bank transferring the check does
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not warrant that the electronic image or information is sufficient for creating a substitute check. (See § 229.37(a)). The variation
by agreement, however, would not affect the
rights of banks and persons that are not
bound by the agreement.
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C. 229.34(b) 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 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.
The Federal Trade Commission’s Telemarketing Sales Rule (16 CFR part 310) contains further regulatory provisions regarding
remotely created checks.
2. The scope of the transfer and presentment warranties for remotely created checks
differs from that of the corresponding UCC
warranty provisions in two respects. The
UCC warranties 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 § 229.34(b). In addition, the UCC 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
§ 229.34(b) warranties specifically cover the
amount as well as the payee stated on the
check. Neither the UCC warranties, nor the
§ 229.34(b) warranties, apply to the date stated on the remotely created check.
3. A bank making the § 229.34(b) warranties
may defend a claim asserting violation of
the warranties by proving that the customer
of the paying bank is precluded by UCC 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.
4. The transfer and presentment warranties
for a remotely created check apply to a remotely created check that has been converted to an electronic check or reconverted
to a substitute check.
D. 229.34(c) Settlement Amount, Encoding, and
Offset Warranties
1. Paragraph (c)(1) provides that a bank
that presents and receives settlement for
checks warrants to the paying bank that the
settlement it demands (e.g., as noted on the
cash letter or in the electronic cash letter
file) 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 UCC
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 bank, returning
bank, 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 or cash
letter control record) that will indicate the
total of the checks or returned checks. Paragraph (c)(2) provides that if the transferor
bank includes information indicating the
total amount of checks or returned checks
transferred, it warrants that the information
is correct (i.e., equals the actual total of the
items).
3. Paragraph (c)(3) provides that a bank
that presents or transfers a check or returned check warrants the accuracy of information encoded regarding the check after
issue, and that exists at the time of presentment or transfer, to any bank that subsequently handles the check or returned check.
Paragraph (c)(3) applies to all MICR-line encoding on a paper check, substitute check, or
contained in an electronic check or electronic returned check. Under UCC 4–209(a),
only the encoder (or the encoder and the depositary bank, if the encoder is a customer
of the depositary bank) warrants the encoding accuracy, thus any claims on the warranty must be directed to the encoder. Paragraph (c)(3) expands on the UCC by providing
that all banks that transfer or present a
check or returned check make the encoding
warranty. In addition, under the UCC, the
encoder makes the warranty to subsequent
collecting banks and the paying bank, while
paragraph (c)(3) provides that the warranty
is made to banks in the return chain as well.
4. A paying bank that settles for an overstated cash letter because of a misencoded
check may make a warranty claim against
the presenting bank under paragraph (c)(1)
(which would require the paying bank to
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12 CFR Ch. II (1–1–18 Edition)
show that the check was part of the overstated cash letter) or an encoding warranty
claim under paragraph (c)(3) against the presenting bank or any preceding bank that
handled the misencoded check.
5. Paragraph (c)(4) provides that a paying
bank or a depositary bank may set 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.
E. 229.34(d) Returned Check Warranties
1. This paragraph includes warranties that
a returned check, including a notice in lieu
of return or an electronic returned check,
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 UCC (subject to any claims or
defenses under the UCC, such as breach of a
presentment warranty) or § 229.31(g); that the
paying bank 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
check has not been and will not be returned
for payment. (See commentary to § 229.31(f)).
The warranty does not include a warranty
that the bank complied with the expeditious
return requirements of §§ 229.31(b) and
229.32(b). 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 § 229.42).
F. 229.34(e) Notice of Nonpayment Warranties
1. This paragraph sets forth warranties for
notices of nonpayment. This warranty does
not include a warranty that the notice is accurate and timely under § 229.31(c). The requirements of § 229.31(c) that are not covered
by the warranty are subject to the liability
provisions of § 229.38. These warranties are
designed to protect depositary banks that
rely on notices of nonpayment. This paragraph imposes liability on a paying bank
that gives notice of nonpayment and then
subsequently does not return the check. (See
commentary to § 229.31(c)).
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G. 229.34(f) Remote Deposit Capture Indemnity
1. This indemnity provides for a depositary
bank’s potential liability when it permits a
customer to deposit checks by remote deposit capture (i.e., to truncate checks and deposit an electronic image of the original
check instead of the original check). Because
the depositary bank’s customer retains the
original check, that customer might, intentionally or mistakenly, deposit the original
check in another depositary bank. The de-
positary bank that accepts the original
check, in turn, may make funds available to
the customer before it learns that the check
is being returned unpaid and, in some cases,
may be unable to recover the funds from its
customer. Section 229.34(f) provides the depositary bank that accepts the original
check for deposit with a claim against the
depositary bank that did not receive the
original check because it permitted its customer to truncate it, received settlement or
other consideration for the check, and did
not receive a return of the check unpaid.
This claim exists only if the check is returned to the depositary bank that accepted
the original check due to the fact that the
check had already been paid.
2. Examples
a. Depositary Bank A offers its customers
a remote deposit capture service that permits customers to take pictures of the front
and back of their checks and send the image
to the bank for deposit. Depositary Bank A
accepts an image of the check from its customer and sends an electronic check for collection to Paying Bank. Paying Bank, in
turn, pays the check. Depositary Bank A receives settlement for the check. The same
customer who sent Depositary Bank A the
electronic image of the check then deposits
the original check in Depositary Bank B.
There is no restrictive indorsement on the
check. Depositary Bank B sends the original
check (or a substitute check or electronic
check) for collection and makes funds from
the deposited check available to its customer. The customer withdraws the funds.
Paying Bank returns the check to Depositary Bank B indicating that the check already had been paid. Depositary Bank B may
be unable to charge back funds from its customer’s account. Depositary Bank B may
make an indemnity claim against Depositary Bank A for the amount of the funds Depositary Bank B is unable to recover from its
customer.
b. The facts are the same as above with respect to Depositary Bank A and B; however,
the original check deposited in Depositary
Bank B bears a restrictive indorsement ‘‘for
mobile deposit at Depositary Bank A only’’
and the customer’s account number at Depositary Bank A. Depositary Bank B may
not make an indemnity claim against Depositary Bank A because Depositary Bank B accepted the original check bearing a restrictive indorsement inconsistent with the
means of deposit.
c. The facts are the same as above with respect to Depositary Bank A; however, Depositary Bank B also offers a remote deposit
capture service to its customer. The customer uses Depositary Bank B’s remote deposit capture service to send an electronic
image of the front and back of the check,
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after sending the same image to Depositary
Bank A. The customer deposits the original
check into Depositary Bank C without a restrictive indorsement. Paying Bank pays the
check based on the image presented by Depositary Bank A, and Depositary Bank A receives settlement for the check without the
check being returned unpaid to it. Paying
Bank returns the checks presented by Depositary Bank B and Depositary Bank C. Neither Depositary Bank B nor Depositary Bank
C can recover the funds from the deposited
check from the customer. Depositary Bank B
does not have an indemnity claim against
Depositary Bank A because Depositary Bank
B did not receive the original check for deposit. Depositary Bank C, however, would be
able to bring an indemnity claim against Depositary Bank A.
3. A depositary bank may, by agreement,
allocate liability for loss incurred from subsequent deposit of the original check to its
customer that sent the electronic check related to the original check to the depositary
bank.
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H. 229.34(g) Indemnities With Respect to
Electronically-Created Items
1. As a practical matter a bank receiving
an electronic image generally cannot distinguish an image that is derived from a paper
check from an electronically-created item.
Nonetheless, the bank receiving the electronically-created item often handles the
electronically-created image as if it were derived from a paper check.
2. Paragraph (g) of § 229.34 sets forth the indemnities that a bank provides when transferring or presenting an electronically-created item and receiving settlement or other
consideration for it. The indemnities set
forth in § 229.34(g) are provided only by banks
and only to subsequent banks in the collection chain. The indemnities ultimately shift
liability for losses to the depositary bank
due to the fact the electronically created
item is not derived from a paper check, was
unauthorized, or was transferred or presented for payment more than once. (See
§ 229.34(i) and commentary thereto). The depositary bank cannot assert the indemnities
set forth in § 229.34(g) 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 paying bank’s losses in paragraph
(g)(1) of this section include losses arising
from Regulation E non-compliance caused by
the receipt of an electronically-created item.
3. Under paragraphs (g)(2) and (3), indemnified banks have a claim for damages pursuant to § 229.34(i) regardless of whether the
damages would have occurred if the item
transferred had been derived from a paper
check.
3. Examples
a. A paying bank pays an electronicallycreated item, which the paying bank’s customer subsequently claims is unauthorized.
The paying bank may incur liability on the
item due to the fact the item is electronically created and not derived from a paper
check. For example, the paying bank may
have no means of disputing the customer’s
claim without examining the physical check,
which does not exist. The indemnity in
§ 229.34(g) enables the paying bank to recover
from the presenting bank or any prior transferor bank for the amount of its loss, as permitted under § 229.34(i), due to receiving the
electronically-created item.
b. A bank receives an electronic image of
and electronic information related to an
electronically-created item and, in turn, produces a paper item that is indistinguishable
from a substitute check. The paper item is
not a substitute check because the item is
not derived from an original, paper check.
That bank may incur a loss because it cannot produce the legal equivalent of a check
(See § 229.53 and commentary thereto). The
indemnity in § 229.34(g) enables a bank that
received the electronically-created item to
recover from the bank sending the check for
the amount of the loss permitted under
§ 229.34(i).
c. A paying bank is not required by
§ 229.31(b) to return an electronically-created
item expeditiously. The depositary bank incurs a loss because it receives the return of
the
electronically-created
item
unexpeditiously and is unable to recover
funds previously made available to its customer. The depositary bank is not an indemnified party under § 229.34(g) and therefore
cannot recover its loss pursuant to that indemnity.
I. 229.34(h) Damages
1. This paragraph adopts for the warranties
in § 229.34(a), (b), (c), (d), and (e) the damages
provided in UCC 4–207(c) and 4A–506(b). (See
definition of interest compensation in
§ 229.2(oo)).
J. 229.34(i) Indemnity Amounts
1. This paragraph adopts for the amount of
the indemnities provided for in § 229.34(f)(2)
and (g) an amount comparable to the damages provided in § 229.53(b)(1)(ii) of subpart D
of this regulation.
2. The amount of an indemnity would be
reduced in proportion to the amount of any
loss attributable to the indemnified person’s
negligence or bad faith. This comparativenegligence standard is intended to allocate
liability in the same manner as the comparative negligence provision of § 229.38(c).
3. An indemnified bank may be able to
make an indemnity claim against more than
one indemnifying depositary bank. However,
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an indemnified bank may not recover in the
aggregate across all indemnifying banks
more than the amount described in this
paragraph. Therefore, an indemnified bank
that recovers the amount of its the loss from
one indemnifying depositary bank under this
paragraph no longer has a loss that it can
collect from a different indemnifying depositary bank.
K. 229.34(j) Tender of Defense
1. This paragraph adopts for this regulation the vouching-in provisions of UCC 3–119.
L. 229.34(k) Notice of Claim
1. This paragraph adopts the notice provisions of UCC sections 4–207(d) and 4–208(e)
and applies them to this section’s indemnities and warranties. The time limit set
forth in this paragraph applies to notices of
claims for warranty breaches and for indemnities. As provided in § 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
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A. 229.35(a) Indorsement Standards
1. This section requires banks to use a
standard form of indorsement when indorsing checks during the forward collection and
return process. It is designed to facilitate
the identification of the depositary bank and
the
prompt
return
of
checks.
The
indorsement standard a bank must use depends on the type of check being indorsed.
Paper checks must be indorsed in accordance
with ANS X9.100–111. Substitute checks must
be indorsed in accordance with ANS X9.100–
140. Electronic checks must be indorsed in
accordance ANS X9.100–187. The Board, however, may by rule or order determine that
different standards apply.
2. The parties sending and receiving a
check may agree that different indorsement
standards will apply to such checks. For example, although ANS X9.100–187 is an industry standard for banks’ exchange of electronic checks, the parties may agree to send
and receive electronic checks that conform
to a different standard.
3. Banks generally apply indorsements to a
paper check in one of two ways: (1) In accordance with ANS X9.100–111, banks print or
‘‘spray’’ indorsements onto a paper 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) in accordance
with ANS X9.100–140, 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.
4. A bank might use check-processing
equipment that captures an image of a check
prior to spraying an indorsement onto that
item. If the bank truncates that item, it
should ensure that it also applies an
indorsement to the item electronically. 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. (See commentary to § 229.51(b)).
5. 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 paper returned checks and
paper notices of nonpayment. Banks should
note, however, that § 229.33(c) requires a depositary bank to receive paper returned
checks at the location(s) at which it receives
paper forward-collection checks, as well as
the other locations enumerated in § 229.33(c).
(See § 229.33(c) and commentary thereto).
6. Under the UCC, a specific guarantee of
prior indorsement is not necessary. (See UCC
4–207(a) and 4–208(a)). Use of guarantee language in indorsements of paper checks, 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.
7. If the bank maintaining the account into
which a check is deposited agrees with another bank (a correspondent, ATM operator,
or lock box operator) to have the other bank
accept returns and notices of nonpayment
for the bank of account, the indorsement
placed on the check as the depositary bank
indorsement may be the indorsement of the
bank that acts as correspondent, ATM operator, or lock box operator as provided in
paragraph (d) of § 229.35.
8. In general, paper checks will be handled
more efficiently if depositary banks place
their indorsement so that the nine-digit
routing number is not obscured by pre-existing matter on the back of the check. 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 on
the back of the paper check reserved for the
depositary bank indorsement.
9. A paying bank is not required to indorse
the check; however, if a paying bank does indorse a check that is returned, it should follow the indorsement standards for collecting
banks and returning banks. Collecting banks
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and returning banks are required to indorse
the check for tracing purposes. With respect
to the identification of a paying bank that is
also a reconverting bank, see commentary to
§ 229.51(b)(2).
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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 paragraph
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
intermediary 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 UCC, 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, § 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 expedi-
tious return, but the claiming bank remains
liable for its negligence under § 229.38.
5. This liability to a bank that subsequently handles the check and does not receive payment for the check 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 chargeback or other means; however, a bank may
be liable for negligence for failure to provide
timely notice. A paying bank or returning
bank also may recover from a prior collecting bank as provided in §§ 229.31(a) and
229.32(b) (in those cases where the paying
bank is unable to identify the depositary
bank). This paragraph does not affect a paying bank’s accountability for a check under
UCC 4–215(a) and 4–302. Nor does this paragraph affect a collecting bank’s accountability under UCC 4–214 and 4–215(d). A collecting bank becomes accountable upon receipt of final settlement as provided in the
foregoing UCC sections. Final settlement in
§§ 229.32(e), 229.33(e), and 229.36(c) is intended
to be consistent with final settlement in the
UCC (e.g., UCC 4–213, 4–214, and 4–215). (See
also § 229.2(cc) (definition of returning bank)
and commentary thereto).
6. This paragraph also provides that a bank
may have the rights of a holder based on the
handling of a 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 § 229.35(a).
7. This paragraph affects the following provisions of the UCC, and may affect other provisions depending on circumstance:
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
§ 229.33(h)).
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 UCC (See UCC 4–201(b)). Use of
this language in a depositary bank’s
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indorsement will make it more difficult for
other banks to identify the depositary bank.
The applicable industry standard 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. An indorsing bank may by agreement
with the depositary bank apply its own
indorsement
as
the
depositary
bank
indorsement. In that case, the actual depositary bank’s own indorsement on the check
(if any) should avoid the location reserved
for the depositary bank. The actual depositary bank remains responsible for the availability and other requirements of subpart B,
but the bank indorsing as depositary bank is
considered the depositary bank for purposes
of subpart C (e.g., for purposes of determining the right to assert a claim under
§ 229.33(a) for failure to return a check expeditiously and accepting paper checks under
§ 229.33(c)). The check will be returned, and
notice of nonpayment will be given, to the
bank indorsing as depositary bank.
2. Because the depositary bank for subpart
B purposes will desire prompt notice of nonpayment, its arrangement with the indorsing
bank should provide for prompt notice of
nonpayment. The bank indorsing as depositary bank may require the depositary bank
to agree to take up the check if the check is
not paid even if the depositary bank’s
indorsement does not appear on the check
and it did not handle the check. The arrangement between the banks may constitute an
agreement varying the effect of provisions of
subpart C under § 229.37.
XXII. SECTION 229.36 PRESENTMENT AND
ISSUANCE OF CHECKS
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A. 229.36(a) Receipt of Electronic Checks
1. A paying bank may agree to accept presentment
of
electronic
checks.
(See
§ 229.2(ggg) and commentary thereto). The
paying bank’s acceptance of such electronic
checks is governed by the paying bank’s
agreement with the bank sending the electronic check to the paying bank. The terms
of these agreements are determined by the
parties and may include, for example, the
electronic address or electronic receipt point
at which the paying bank agrees to accept
electronic checks, as well as when presentment occurs. The agreement also may specify whether electronic checks sent for forward collection must be separated from electronic returned checks.
B. 229.36(b) Receipt of Paper Checks
1. The paragraph specifies four locations at
which the paying bank must accept presentment of paper 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 paper checks may be made,
and presentment is considered to occur, at a
location (including a processing center) requested by the paying bank. This provision
adopts the common law rule 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
UCC 4–204(c)). If a bank designates different
locations for the presentment of forward collection paper checks bearing different routing numbers, for purposes of this paragraph
it requests presentment of paper checks
bearing a particular routing number only at
the location designated for receipt of forward collection paper checks bearing that
routing number.
b. If the check specifies the name and address of a branch or head office, or other location (such as a processing center), the
paper check may be delivered 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 of
paper checks. The designation of an address
on the check generally is in the control of
the paying bank.
c. i. Delivery of a paper check may be made
at an office of the bank associated with the
routing number on the check. In the case of
a substitute check, delivery may be made at
an office of the bank associated with the
routing number in the electronic check from
which it was derived. 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. Paper checks generally are handled by
collecting banks on the basis of the ninedigit routing number contained in the MICR
line (or on the basis of the fractional form
routing number if the MICR line is obliterated) on the check, rather than the printed
name or address. The definition of a paying
bank in § 229.2(z) includes a bank designated
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Pt. 229, App. E, Nt.
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. In these cases, the
payor bank has selected the payable-through
bank as the point through which presentment of paper checks is to be made.
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 paper checks by more
specific branch addresses that might be
printed on the checks, and to deliver paper
checks to each branch. A collecting bank
normally would deliver all paper checks to
one location. In cases where paper 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.
d. If the paper 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 UCC 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.
2. This paragraph may affect UCC 3–111 to
the extent that the UCC requires presentment to occur at a place specified in the instrument.
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C. 229.36(c) 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 UCC 4–201 during forward collection of
a check. That UCC 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 UCC applies even though a bank may have pur-
chased 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 UCC, 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 UCC 4–215(a)(2) or (3), because a paying bank has the right to recover
settlement from a returning bank or depositary bank to which it returns a check under
this subpart. Other provisions of the UCC 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 § 229.2(cc)).
D. 229.36(d) Same-Day Settlement
1. This paragraph governs settlement for
presentment of paper checks. Settlement for
presentment of electronic checks is governed
by the agreement of the parties. (See
§ 229.36(a) and commentary thereto). This
paragraph provides that, under certain conditions, a paying bank must settle with a
presenting bank for a paper check on the
same day the paper check is presented in
order to avail itself of the ability to return
the paper check on its next banking day
under UCC 4–301 and 4–302. This paragraph
does not apply to paper checks presented for
immediate payment over the counter. Settling for a paper check under this paragraph
does not constitute final payment of the
paper check under the UCC. This paragraph
does not supersede or limit the rules governing collection and return of paper 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 paper checks to qualify for
mandatory same-day settlement, information accompanying the paper 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 paper check or checks
must be presented at a location designated
by the paying bank for receipt of paper
checks for same-day settlement by 8 a.m.
local time of that location. The designated
presentment location must be a location at
which the paying bank would be considered
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Pt. 229, App. E, Nt.
12 CFR Ch. II (1–1–18 Edition)
to have received a paper check under
§ 229.36(b). The paying bank may not designate a location solely for presentment of
paper checks subject to settlement under
this paragraph; by designating a location for
the purposes of § 229.36(d), the paying bank
agrees to accept paper checks at that location for the purposes of § 229.36(b).
ii. If the paying bank does not designate a
presentment location, it must accept presentment of paper check for same-day settlement at any location identified in § 229.36(b),
i.e., at an address of the bank associated with
the routing number on the check, at any
branch or head office if the bank is identified
on the check by name without address, or at
a branch, head office, or other location consistent with the name and address of the
bank on the check if the bank is identified
on the check by name and address. A paying
bank and a presenting bank may agree that
paper checks will be accepted for same-day
settlement at an alternative location or that
the cut-off time for same-day settlement be
earlier or later than 8 a.m. local time of the
presentment location.
iii. In the case of a paper check payable
through a bank but payable by another bank,
this paragraph does not authorize direct presentment to the bank by which the paper
check is payable. The requirements of sameday settlement under this paragraph would
apply to a payable-through or payable-at
bank to which the paper check is sent for
payment or collection.
b. Reasonable delivery requirements. A
paper check is considered presented when it
is delivered to and payment is demanded at
a location specified in paragraph (d)(1). Ordinarily, a presenting bank will find it necessary to contact the paying bank to determine the appropriate presentment location
and any delivery instructions. Further, because presentment might not take place during the paying bank’s banking day, a paying
bank may establish reasonable delivery requirements to safeguard the paper 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 paper 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 paper checks at the presentment
location constitutes effective presentment.
c. Sorting of checks. A paying bank may
require that paper checks presented to it for
same-day settlement be sorted separately
from other forward collection paper checks
it receives as a collecting bank or paper returned checks it receives as a returning bank
or depositary bank. For example, if a bank
provides correspondent check collection
services and receives unsorted paper checks
from a respondent bank that include paper
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 (d)(3). If
the collecting bank receives sorted paper
checks from its respondent bank, consisting
only of paper 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 paper checks
and must make settlement in accordance
with this paragraph.
3. Settlement
a. If a bank presents a paper check in accordance with the time and location requirements for presentment under paragraph
(d)(1), the paying bank either must settle for
the paper check on the business day it receives the paper check without charging a
presentment fee or return the paper check
prior to the time for settlement. (This return
deadline is subject to extension under
§ 229.31(g).) 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), unless the
presenting bank agrees 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 paper check
is received by the paying bank. Under the
provisions of § 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 § 229.39(d)).
b. Paper checks that are presented after
the 8 a.m. (local time of the location at
which the paper checks are presented) 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 paper 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 paper checks are presented to the
paying bank. Paper checks presented after
the paying bank’s cut-off hour or on nonbusiness 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.
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Federal Reserve System
Pt. 229, App. E, Nt.
Some paying banks may continue to settle
for paper checks presented on these days
(e.g., by opening their back office operations). In other cases, a paying bank may be
unable to settle for paper checks presented
on a day it is closed. If the paying bank
closes on a business day and paper checks
are presented to the paying bank in accordance with paragraph (d)(1), the paying bank
is accountable for the paper checks unless it
settles for or returns the paper checks by the
close of Fedwire on its next banking day. In
addition, paper 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 UCC
midnight deadline (UCC 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
§ 229.2(oo), to the presenting bank for the
value of the float associated with the paper
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 § 229.38(e) or UCC 4–109(b).
5. Good faith. Under § 229.38(a), both the
presenting bank and paying bank are held to
a standard of good faith, defined in § 229.2(nn)
to mean honesty in fact and the observance
of reasonable commercial standards of fair
dealing. For example, designating a presentment location or changing presentment locations for the primary purpose of discouraging banks from presenting paper checks
for same-day settlement might not be considered good faith on the part of the paying
bank. Similarly, presenting a large volume
of paper 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. UCC sections affected. This paragraph
directly affects the following provisions of
the UCC and may affect other sections or
provisions:
a. Section 4–204(b)(1), in that a presenting
bank may not send a paper check for sameday settlement directly to the paying bank,
if the paying bank designates a different location in accordance with paragraph (d)(1).
b. Section 4–213(a), in that the medium of
settlement for paper checks presented under
this paragraph is limited to a credit to an account at a Federal Reserve Bank and that,
for paper 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 paper check is received is superseded
by the requirement to settle for paper 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 paper check is received is superseded by the requirement to
settle for paper checks presented under this
paragraph by the close of Fedwire.
XXIII. SECTION 229.37 VARIATIONS BY
AGREEMENT
A. This section is similar to UCC 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 UCC 4–103(a) (which in turn follows UCC 1–201(3)) should be followed in construing this section. For example, as stated
in Official Comment 2 to UCC 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 § 229.38 to
entities not party to the agreement.
B. The Board has not followed UCC 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 UCC.
C. The following are examples of situations
where variation by agreement is permissible,
subject to the limitations of this section:
1. A depositary bank may authorize another bank to apply the other bank’s
indorsement to a check as the depositary
bank. (See § 229.35(d)).
2. A depositary bank may authorize returning banks to commingle paper qualified returned checks with paper forward collection
checks. (See § 229.33(c)).
3. A depositary bank may limit its liability
to its customer in connection with the late
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Pt. 229, App. E, Nt.
12 CFR Ch. II (1–1–18 Edition)
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 § 229.38(d)).
4. A paying bank may require its customer
to assume the paying bank’s liability for delayed or missent checks where the delay or
missending is caused by markings placed on
the check by the paying bank’s customer
that obscured a properly placed indorsement
of the depositary bank. (See § 229.38(d)).
5. A collecting bank or paying bank may
agree to accept forward collection checks
without the indorsement of a prior intermediary collecting bank. (See § 229.35(a)).
6. A bank may agree to accept returned
checks without the indorsement of a prior
bank. (See § 229.35(a)).
7. A presenting bank may agree with a paying bank to present paper checks for sameday settlement by a deadline earlier or later
than 8 a.m. (See § 229.36(d)(1)(ii)).
8. A presenting bank and a paying bank
may agree that presentment takes place
when the paying bank receives an electronic
transmission of information describing the
check rather than upon delivery of the physical check. (See § 229.36(b)).
9. A depositary bank may agree with a paying bank 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, a depositary bank entering into such an agreement may be responsible under this part or
other applicable law to other interested parties for any losses caused by the acceptance
of an image or notice in lieu of a returned
check. (See §§ 229.31(f) and 229.38(a)).
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.
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 § 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 UCC 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 UCC 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 UCC 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.
XXIV. SECTION 229.38 LIABILITY
B. 229.38(b) Paying Bank’s Failure To Make
Timely Return
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A. 229.38(a) Standard of Care; Liability;
Measure of Damages
1. The standard of care established by this
section applies to any bank covered by the
requirements of subpart C of the regulation.
Thus, the standard of care applies to a paying bank under §§ 229.31, to a returning bank
under § 229.32, to a depositary bank under
§§ 229.33, to a bank erroneously receiving a
returned check or written notice of nonpayment as depositary bank under § 229.33(f),
and to a bank indorsing a check under
§ 229.35. The standard of care is similar to the
standard imposed by UCC 1–203 and 4–103(a)
and includes a duty to act in good faith, as
defined in § 229.2(nn) of this regulation.
1. Section 229.31(b) imposes requirements
on the paying bank for expeditious return of
a check and leaves in place the UCC deadlines (as they may be modified by § 229.31(g)),
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 UCC
(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.
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Federal Reserve System
Pt. 229, App. E, Nt.
C. 229.38(c) Comparative Negligence
1. This paragraph establishes a ‘‘pure’’
comparative negligence standard for liability under subpart C of this regulation. This
comparative negligence rule may have particular application where a paying bank or
returning bank delays in returning a check
because of difficulty in identifying the depositary bank, where the depositary bank
has failed to exercise ordinary care in applying its indorsement.
D. 229.38(d) Responsibility for Certain Aspects
of Checks
1. 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 ANS X9.100–111’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 ANS X9.100–
111’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 ANS X9.100–111 is rendered
illegible by a subsequent indorsement that a
reconverting bank later applies to the substitute check in accordance with ANS
X9.100–140, or because a subsequent bank receiving a substitute check cannot apply its
indorsement to the substitute check legibly
in accordance with ANS X9.100–111 as a result of the shift in the previous indorsement.
2. Responsibility under paragraph (d)(1) is
treated as negligence for comparative negligence purposes, and the contribution to
damages under paragraph (d)(1) is treated in
the same way as the degree of negligence
under paragraph (c) of this section.
*
*
*
*
*
Like UCC 4–216, paragraphs (a), (b), and (d) of
§ 229.39 are intended to establish the point in
the collection process at which collection or
return of a check should be either stopped or
continued when a particular bank suspends
payments. Section 229.39(a) sets forth the
circumstances under which the receiver
must stop collection or return and, instead,
send the check back to the bank or customer
that transferred the check. Section 229.39(b)
sets forth the circumstances under which the
collection or return of the check should continue. Paragraphs (a) and (b) of § 229.39 are
not intended to confer upon banks preferential positions in the event of bank failures over general depositors or any other
creditor of the failed bank. (See UCC 4–216,
cmt. 1).
B. 229.39(a) Duty of Receiver To Return Unpaid
Checks
1. This paragraph requires a receiver of a
closed bank to return a check to the prior
bank if the paying bank or the receiver did
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) Claims Against Banks for Checks
Not Returned by the Receiver
1. This section sets forth the claims available to banks in situations in which a receiver does not return a check under
§ 229.39(a). In those situations, the prior bank
would not be a holder of the check and would
be unable to pursue claims as a holder.
2. Paragraph (b)(1) of § 229.39 gives a bank a
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 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
claim.
3. Paragraph (b)(2) of § 229.39 gives a bank a
claim against a closed collecting bank, paying bank, or returning bank that receives
settlement for but does not make settlement
for a check. (See commentary to § 229.35(b)
for discussion of prior and subsequent
banks). As in the case of § 229.39(b)(1), if the
bank with a 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 claim.
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XXV. SECTION 229.39 INSOLVENCY OF BANK
A. Introduction
D. 229.39(c) Preferred Claim Against Presenting
Bank for Breach of Warranty
1. These provisions cover situations where
a bank becomes insolvent during collection
or return of a check. Paragraphs (a), (b), and
(d) of § 229.39 are derived from UCC 4–216.
They are intended to apply to all banks.
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 § 229.34(c)(1) or (3) and does not
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reimburse the paying bank for adjustments
for a settlement made by the paying bank in
excess of the value of the checks presented.
This preferred claim 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.
E. 229.39(d) 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 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 § 229.2(t).
This rule affects the status of the combined
entity in a number of areas in this subpart,
such as the following:
1. The paying bank’s responsibility for notice of nonpayment (§ 229.31(c)).
2. Where the depositary bank must accept
returned checks (§ 229.33(b) and (c)).
3. Where the depositary bank must accept
notice of nonpayment (§ 229.33(b) and (c)).
4. Where a paying bank must accept presentment of paper checks (§ 229.36(b)).
*
*
*
*
*
XXIX. SECTION 229.43 CHECKS PAYABLE IN
GUAM, AMERICAN SAMOA, AND THE NORTHERN MARIANA ISLANDS
A. 229.43(a) Definitions
1. For purposes of subparts B and C of this
part, bank offices in Guam, American
Samoa, and the Northern Mariana Islands
(which Regulation CC defines as Pacific island banks) do not meet the definition of
bank in § 229.2(e) because they are not located in the United States. Some checks
drawn on Pacific island banks (defined as Pacific island checks) bear U.S. routing numbers and are collected and returned by banks
in the same manner as checks payable in the
U.S.
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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
§ 229.2(k), or an electronic image and electronic information derived from a demand
draft as defined in § 229.43(a)(2), the bank is
subject to certain provisions of subpart C of
this part, as provided in this section. Because a Pacific island bank is not a bank as
defined in § 229.2(e) for purposes of subpart C,
it is not a paying bank as defined in § 229.2(z)
for purposes of subpart C (unless otherwise
noted in this section). Pacific island banks
are not subject to the provisions of subparts
B and C, but may be subject to the provisions of subpart D of this part to the extent
they create substitute checks. (See § 229.2(ff)
defining ‘‘State’’).
2. A bank may agree to handle a Pacific island check as a returned check under § 229.32
and may convert the returned Pacific island
check to a qualified returned check. 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 for purposes
of subpart C of this part, § 229.32(e) 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 generally is subject to the
provisions of § 229.33, except for § 229.33(c)
with respect to its application to paper notices of nonpayment, § 229.33(d) (acceptance
of oral notices of nonpayment), and
§ 229.33(h) (notification to customer of returned check). If the depositary bank receives the returned Pacific island check directly from the Pacific island bank, the provisions of § 229.33(e) (regarding time and manner of settlement for returned checks) do not
apply, because the Pacific island bank is not
a paying bank for purposes of subpart C of
this part. In the event the Pacific island
check is returned by a returning bank, however, the provisions of § 229.33(e) apply. The
depositary bank is not subject to the provisions in § 229.33(c) with respect to paper notices of nonpayment for Pacific island
checks, but is subject to § 229.33(c) with respect to paper returned checks that are Pacific island checks.
4. Banks that handle Pacific island checks
in the same manner as other checks are subject to the indorsement provisions of § 229.35.
Section 229.35(c) eliminates the need for the
restrictive indorsement ‘‘pay any bank.’’ For
purposes of § 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
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Federal Reserve System
Pt. 229, App. E, Nt.
other checks is subject to the transfer warranty provision in § 229.34(c)(2) regarding accurate cash letter totals and the encoding
warranty in § 229.34(c)(3). A bank that acts as
a returning bank for a Pacific island check is
not subject to the returned check warranties
in § 229.34(d). Similarly, because the Pacific
island bank is not a ‘‘bank’’ or a ‘‘paying
bank’’ for purposes of subpart C of this part,
the notice of nonpayment warranties in
§ 229.34(e), and the presentment warranties in
§ 229.34(c)(1) and (c)(4) do not apply. For the
same reason, the provisions of § 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 § 229.38 do not apply
to Pacific island banks. Section 229.36(c), 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 § 229.38, to the extent
the banks are subject to the requirements of
Regulation CC as provided in this section,
and §§ 229.37 and 229.39 through 229.42.
XXX. SECTION 229.51 GENERAL PROVISIONS
GOVERNING SUBSTITUTE CHECKS
*
*
*
*
*
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B. 229.51(b) Reconverting Bank Duties
1. In accordance with ANS X9.100–140, a reconverting bank must indorse (or, if it is a
paying bank with respect to the check or a
bank that rejected a check submitted for deposit, identify itself on) the back of a substitute check in a manner that preserves all
indorsements applied, whether physically or
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. If a bank sprays an
indorsement onto a paper check after it captures an image of the check, it should ensure
that it applies an indorsement to the item
electronically, if it transfers the check as an
electronic check or electronic returned
check. (See paragraph 4 of commentary to
section 229.35(a)). A reconverting bank satisfies its obligation to preserve all previously
applied indorsements by physically applying
(overlaying) electronic indorsements onto a
substitute check that the reconverting bank
creates. A reconverting bank is not responsible for obtaining indorsements that persons that previously handled the check in
any form should have applied but did not
apply.
2. 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 a substitute check in accordance with ANS
X9.100–140.
3. If the reconverting bank is the paying
bank or a bank that rejected a check submitted for deposit, it also must identify
itself by applying its routing number to the
back of the check. A reconverting bank also
must preserve on the back of the substitute
check, in accordance with ANS X9.100–140,
the identifications of any previous reconverting banks. The reconverting-bank and
truncating-bank routing numbers on the
front of a substitute check and, if the reconverting bank is the paying bank or a bank
that rejected a check submitted for deposit,
the reconverting bank’s routing number on
the back of a substitute check are for identification only and are not indorsements or acceptances.
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 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.
4. The location of an indorsement applied
to a paper check in accordance with ANS
X9.100–111 may shift if that check is truncated and later reconverted to a substitute
check. If an indorsement applied to an original check in accordance with ANS X9.100–111
is overwritten by a subsequent indorsement
applied to a substitute check in accordance
with industry standards, then one or both of
those indorsements could be rendered illegible. As explained in § 229.38(c) and the commentary thereto, a reconverting bank is liable for losses associated with indorsements
that are rendered illegible as a result of
check substitution.
*
*
*
*
XXXI. SECTION 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 or
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Pt. 229, App. E, Nt.
12 CFR Ch. II (1–1–18 Edition)
when it rejects a check submitted for deposit
and returns to its customer a substitute
check. 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.
2. 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.
3. The substitute-check warranties and indemnity are not given under sections 229.52
and 229.53 by a bank that truncates the original check and by agreement transfers an
electronic check to a subsequent bank for
consideration. However, the warranties in
§ 229.34(a) would apply to the transfer of an
electronic check, and those warranties may
be varied by agreement between the parties.
A bank that is a truncating bank under
§ 229.2(eee)(2) because it accepts a deposit of
a check electronically might be subject to a
claim by another depositary bank that accepts the original check for deposit. (See
§ 229.34(f) and commentary thereto).
Example. A bank that receives an electronic check 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
with respect to the substitute check warranties. That bank, however, may have similar
warranty claims with respect to the electronic check under § 229.34(a) against the
bank that transferred the electronic check.
4. 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 UCC and other Regulation CC warranties
that apply to the original check also apply
to the substitute check.
5. 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 section 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.
6. The warranty in § 229.52(a)(1)(ii), 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.
(See
also
§ 229.34(a)(1)(ii)).
Example. A nonbank depositor truncates a
check and in lieu of the check sends an electronic check to both Bank A and Bank B.
Bank A and Bank B each use 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 are
both reconverting banks and each 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.
7. A bank that rejects a check submitted
for deposit and, instead of the original
check, provides its customer with a substitute check makes the warranties in
§ 229.52(a)(1). As noted in the commentary to
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Federal Reserve System
Pt. 229, App. E, Nt.
§ 229.2(ccc), 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 submitted 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 submitted for deposit but provides its customer
with a substitute check (or a paper or electronic representation of a substitute check)
makes
the
warranties
set
forth
in
§ 229.52(a)(1) regardless of whether the bank
received consideration.
Example. A bank’s customer submits a
check for deposit 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 § 229.52(a)(1) regardless of whether the bank previously extended
credit to its customer. (See commentary to
§ 229.2(ccc)).
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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. (See § 229.34(f) regarding claims by a
depositary bank that accepts deposit of an
original check).
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.
XXXII. SECTION 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.
2. 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 image of the original
check that was not derived from a substitute
check.
3. A reconverting bank also provides the
substitute check indemnity to a person to
whom the bank transfers a substitute check
(or a paper or electronic representation of a
substitute check) derived from a check that
the bank has rejected for deposit regardless
of whether the bank providing the indemnity
has received consideration.
*
*
*
*
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
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31
Pt. 229, App. F
12 CFR Ch. II (1–1–18 Edition)
of the warranty described in § 229.52(a)(1)(ii).
The drawer also could assert an indemnity
claim. Because there is only one original
check for any payment transaction, if the
collecting bank 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 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.
*
*
*
*
*
3. The amount of an indemnity would be
reduced in proportion to the amount of any
loss attributable to the indemnified person’s
negligence or bad faith. This comparativenegligence standard is intended to allocate
liability in the same manner as the comparative-negligence provision of section 229.38(c).
*
*
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XXXIII. 229.54
*
*
*
EXPEDITED RECREDIT FOR
CONSUMERS
A. * * *
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 section 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 section 229.34(a) or (d), which contain
returned-check warranties that are made to
the owner of the check.
*
*
*
*
APPENDIX F TO PART 229—OFFICIAL
BOARD INTERPRETATIONS; PREEMPTION DETERMINATIONS
Uniform Commercial Code, Section 4–213(5)
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
(§ 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
(§ 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.
This provision of the U.C.C., however, is
subject to Section 4–103(1), which provides, 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.) U.C.C. Section 4–213(5) supersedes the Regulation CC provision in
§ 229.10(a)(2), but a depositary bank may not
agree with its customer under section 4–
103(1) of the Code to extend availability beyond the time periods provided in § 229.10(a)
of Regulation CC.
California
Background
The Board has been requested, in accordance with § 229.20(d) of Regulation CC (12
CFR part 229), to determine whether the Expedited Funds Availability Act (the ‘‘Act’’)
and subpart B (and in connection therewith,
subpart A) of Regulation CC preempt the
provisions of California law concerning
availability of funds. This preemption determination specifies those provisions of the
California funds availability law that supersede the Act and Regulation CC. (See also
the Board’s preemption determination regarding the Uniform Commercial Code, section 4–213(5), pertaining to availability of
cash deposits.)
California has four separate sets of regulations establishing maximum availability
schedules. The regulations applicable to
commercial banks and branches of foreign
banks located in California (Cal. Admin.
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Federal Reserve System
Pt. 229, App. F
Code tit. 10, §§ 10.190401–10.190402) were promulgated by the Superintendent of Banks.
The regulations applicable to savings banks
and savings and loan associations (Cal.
Admin. Code tit. 10, §§ 106.200–106.202) were
adopted by the Savings and Loan Commissioner. The regulations applicable to credit
unions (Cal. Admin. Code tit. 10, section 901)
and to industrial loan companies (Cal.
Admin. Code tit. 10, section 1101) were adopted by the Commissioner of Corporations.
All the regulations were adopted pursuant
to California Financial Code section 866.5
and California Commercial Code section
4213(4)(a), under which the appropriate state
regulatory agency for each depository institution must issue administrative regulations
to define a reasonable time for permitting
customers to draw on items received for deposit in the customer’s account. 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.
The Board’s determination with respect to
these California laws and regulations governing the funds availability requirements
applicable to depository institutions in California are as follows.
Commercial Banks and Branches of Foreign
Banks
Coverage
The California State Banking Department
regulations, which apply to California state
commercial
banks,
California
national
banks, and California branch offices of foreign banks, provide that a depositary bank
shall make funds deposited into a deposit account available for withdrawal as provided in
Regulation CC with certain exceptions. 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 law and regulations apply to accounts as defined by Regulation CC as well
as savings accounts (other than time accounts), as defined in the Board’s Regulation
D (12 CFR 204.2(d)). (Note, however, that
under § 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.)
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Availability Schedules
Temporary schedule. Regulation CC provides
that, until September 1, 1990, nonlocal
checks must be made available for withdrawal by the seventh business day after the
banking day of deposit, except for certain
nonlocal checks listed in appendix B–1,
which must be made available within a
shorter time (by the fifth business day following deposit for those California checks
listed). Under the temporary schedule in the
California regulations, a depositary bank
with a four-digit routing symbol of 1210
(‘‘1210 bank’’) or of 1220 (‘‘1220 bank’’) that receives for deposit a check drawn on a
nonlocal, in-state commercial bank or foreign bank branch 1 must make the funds
available for withdrawal by the fourth business day after the day of deposit. The California regulations provide that 1210 and 1220
banks must make deposited checks drawn on
nonlocal in-state thrifts (defined as savings
and loan associations, savings banks, and
credit unions) available by the fifth business
day after deposit. In addition, California law
provides that all other depositary banks
must make deposited checks drawn on a
nonlocal in-state commercial bank or foreign bank branch available by the fifth business day after deposit and checks drawn on
nonlocal in-state thrifts available by the
sixth business day after deposit. To the extent that these schedules provide for shorter
holds than Regulation CC and its appendix
B–1, the state schedules supersede the federal
schedules. 2 For example, the California fourday schedule that applies to checks drawn on
in-state nonlocal commercial banks or foreign bank branches and deposited in a 1210 or
1220 bank would be shorter than and would
supersede the federal schedules.
The California regulations do not specify
whether the state schedules apply to deposits of checks at nonproprietary ATMs. Under
the temporary schedules in Regulation CC,
deposits at nonproprietary ATMs must be
1 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.
2 Appendix B–1 of Regulation CC provides
that the federal schedules will be the same
as the California schedules (5 days) in the
following cases: A depositary bank bearing a
1210 routing number receiving for deposit
checks bearing a 3220 or a 3223 routing number, and a depositary bank bearing a 1220
routing number receiving for deposit checks
bearing a 3210 routing number. In the cases
where federal and state law are the same, the
state law is not preempted by, nor does it supersede, the federal law.
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Pt. 229, App. F
12 CFR Ch. II (1–1–18 Edition)
made available for withdrawal by the seventh business day following deposit. To the
extent that the California schedules provide
for shorter availability for deposits at nonproprietary ATMs, they would supersede the
temporary schedule in Regulation CC for deposits at nonproprietary ATMs specified in
§ 229.11(d).
Permanent schedule. Regulation CC provides
that, as of September 1, 1990, nonlocal checks
must be made available for withdrawal by
the fifth business day after the banking day
of deposit. Under the permanent schedule in
the California regulations, a depositary bank
with a four-digit routing symbol of 1210 or of
1220 that receives for deposit a check drawn
on a nonlocal, in-state commercial bank or
foreign bank branch must make the funds
available for withdrawal by the fourth business day after the day of deposit. These state
schedules provide for shorter hold periods
than and thus supersede the federal schedules.
Second-day availability. 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 supersedes the federal
local and nonlocal schedules.
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.
Exceptions to the availability schedules.
Under the state preemption standards of
Regulation CC (see § 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.
Disclosures
California law (Cal. Fin. Code § 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 or notices
concerning funds availability relating to accounts. California Financial Code § 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. The state
law continues to apply to savings accounts
and other accounts not governed by Regulation CC disclosure requirements.
Savings Institutions
Coverage
The California Department of Savings and
Loan regulations, which apply to California
savings and loan associations and California
savings banks, provide that a depositary
bank shall make funds deposited into a
transaction or non-transaction account
available for withdrawal as provided in Regulation CC. 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 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)).
(Note, however, that under § 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.)
Availability Schedules
Second-day availability. Section 867 of the
California Financial Code requires depository institutions to make funds deposited by
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Federal Reserve System
Pt. 229, App. F
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 supersedes the federal
local and nonlocal schedules.
Temporary and permanent schedules. Other
than the provisions of Section 867 discussed
above, California law incorporates the Regulation CC availability requirements with respect to deposits to accounts covered by Regulation CC. Because the state requirements
are consistent with the federal requirements,
the California regulation is not preempted
by, nor does it supersede, the federal law.
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Disclosures
California law (Cal. Fin. Code § 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 or notices concerning
funds availability relating to accounts. To
the extent that California Financial Code
§ 866.2 requires disclosures that differ from
those required by Regulation CC and apply
to accounts as defined in Regulation CC (generally, transaction accounts), the California
law is preempted by Regulation CC.
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 § 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.
Credit Unions and Industrial Loan
Companies
Each credit union and federally-insured industrial loan company that maintains an office in California for the acceptance of deposits must make funds deposited by check
available for withdrawal in accordance with
the following table:
Availability
Credit Union
$100 or less checks; U.S.
Treasury checks; state/local
gov’t checks.
On us checks; cashier’s/certifies/teller’s/depository
checks.
In-state checks .......................
out-of-state checks .................
1st day ........
1st day
2nd day .......
2nd day
6th day ........
10th day ......
6th day
12th day
NOTE: These time periods are stated in terms of availability
for withdrawal not later than the Xth business day following
the banking day of deposit to facilitate comparison with Regulation CC. State regulations are stated in terms of availability
at the start of the business day subsequent to the number of
days specified in the regulation.
Coverage
The California law and regulations govern
the availability of funds to ‘‘demand deposits, negotiable order of withdrawal draft accounts, savings deposits subject to automatic transfers, share draft accounts, and all
savings deposits and share accounts, other
than time deposits.’’ (California Financial
Code section 886(b)) The federal preemption
of state funds availability laws only applies
to accounts subject to Regulation CC, which
generally includes transaction accounts.
Thus, 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 no accounts under Regulation CC.
(Note, however, that under § 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.)
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.
The Commissioner’s regulations, however,
define the term item to include checks, negotiable orders of withdrawal, share drafts,
warrants, and money orders. As limited by
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Pt. 229, App. F
12 CFR Ch. II (1–1–18 Edition)
the state regulations, the state law applies
only to instruments that are also checks as
defined in § 229.2(k) of Regulation CC.
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Availability Schedules
Temporary schedule. The California regulations provide that in-state nonlocal checks
must be made available for withdrawal not
later than the sixth business day following
deposit. This time period is shorter than the
seventh business day availability required
for nonlocal checks under § 229.11(c) of Regulation CC, although it is not shorter than the
schedules for nonlocal checks set forth in
§ 229.11(c)(2) and appendix B–1 of Regulation
CC. Thus, the state scheduled for in-state
nonlocal checks supersede the federal schedule to the extent that they apply to an item
payable by a California institution that is
defined as a nonlocal check under Regulation CC, and is not subject to reduced schedules under § 229.11(c)(2) and appendix B–1.
Under the California regulations, credit
unions and industrial loan companies must
provide next-day availability to first-indorsed items issued by any federally-insured
institution. This regulatory requirement,
however, has been superseded by section 867
of the California Financial Code, which requires depository institutions to make funds
deposited by cashier’s check, teller’s check,
certified checks, or depository check available for withdrawal on the second business
day following deposit, if certain conditions
are met. This requirement became effective
January 1, 1988.
The Regulation CC next-day availability
requirement for cashier’s checks and teller’s
checks applies only to those checks issued
for remittance purposes. To the extent that
the state second business day availability requirement applies to cashier’s and teller’s
checks issued for other than remittance purposes, the state two-day requirement supersedes the federal local and nonlocal schedules.
The California regulations do not specify
whether they apply to deposits of checks at
nonproprietary ATMs. Under the temporary
schedule in Regulation CC, deposits at nonproprietary ATMs must be made available
for withdrawal at the start of the seventh
business day after deposit. To the extent
that the California schedules provide for
shorter availability for deposits at nonproprietary ATMs, they would supersede the
temporary schedule in Regulation CC for deposits at nonproprietary ATMs specified in
§ 229.11(d).
Permanent schedule. Under the California
regulations, credit unions and industrial
loan companies must provide next-day availability to first-indorsed items issued by any
federally-insured institution. This regulatory requirement, however, has been superseded by section 867 of the California Financial Code, which requires depository institu-
tions 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. This requirement
became effective January 1, 1988.
The Regulation CC next-day availability
requirement for cashier’s and teller’s checks
applies only to those checks issued for remittance purposes. To the extent that the state
second business day availability requirement
applies to cashier’s and teller’s checks issued
for other than remittance purposes, the state
two-day requirement supersedes the federal
local and nonlocal schedules.
Next-day availability. Credit unions and industrial loan companies in California are required to give next-day availability to items
drawn by the State of California or any of its
departments, agencies, or political subdivisions. California law supersedes the fedeal
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.
California credit unions and industrial
loan companies must provide second business
day availability to checks drawn on the depositary bank. Regulation CC requires nextday availability for 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 the same check processing region.
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 (1) drawn on an
out-of-state branch of the depositary bank
that is not in the same check processing region as the branch in which it was deposited,
or (2) 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.
Exceptions to the availability schedules. California law provides exceptions to the state
availability schedules 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 availability schedule (e.g., in-state
nonlocal checks under the temporary schedule; cashier’s or teller’s checks that are not
deposited with a special deposit slip or at a
staff teller station), 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
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Federal Reserve System
Pt. 229, App. F
beyond the time periods otherwise permitted
by law, it must give notice of the extended
hold to its customer in accordance with
§ 229.13(g) of Regulation CC.
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 the permissible hold under
the California schedules that supersede the
Regulation CC schedule, deposits are considered made on the specified number of business days following the banking day of deposit.
Disclosures
California law (Cal. Fin. Code section 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 a depository institution 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 or notices
concerning funds availability relating to accounts. California Financial Code section
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.
The state law continues to apply to savings
accounts and other accounts not governed by
Regulation CC disclosure requirements.
Connecticut
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Background
The Board has been requested, in accordance with § 229.20(d) of Regulation CC (12
CFR part 229), to determine whether the Expedited Funds Availability Act (the ‘‘Act’’)
and subpart B (and in connection therewith,
subpart A) of Regulation CC, preempt provisions of Connecticut law relating to the
availability of funds. This preemption determination specifies those provisions of the
Connecticut funds availability law that supersede the Act and Regulation CC. (See also
the Board’s preemption determination regarding the Uniform Commercial Code, section 4–213(5), pertaining to availability of
cash deposits.)
In 1987, Connecticut amended its statute
governing funds availability (Conn. Gen.
Stat. section 36–9v), which requires Connecticut depository institutions to make
funds deposited in a checking, time, interest,
or savings account available for withdrawal
with specified periods.
Generally, the Connecticut statute, as
amended, provides that items deposited in a
checking, time, interest, or savings account
at a depository institution must be available
for withdrawal in accordance with the following table:
Availability
On us checks ...............................
In-state checks ...........................
Out-of-state checks .....................
Exceptions to the schedules are provided
for items received for deposit for the purpose
of opening an account and for items that the
depositary bank has reason to believe will
not clear. The Connecticut statute also requires availability policy disclosures to depositors in the form of written notices and
notices posted conspicuously at each branch.
Coverage
The Connecticut statute governs the availability of funds deposited in savings and
time accounts, as well as accounts as defined
in § 229.2(a) of Regulation CC. The federal
preemption of state funds availability requirements only applies to accounts subject
to Regulation CC, which generally consist of
trasaction accounts. Regulation CC does not
affect the Connecticut 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.
(Note, however, that under § 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.)
The Connecticut statute applies to items
deposited in accounts. This term encompasses instruments that are not defined as
checks in Regulation CC (§ 229.2(k)), such as
nonnegotiable instruments, and are therefore not subject to Regulation CC’s provisions governing funds availability. Those
items that are subject to Connecticut law
but are not subject to Regulation CC will
continue to be covered by the state availability schedules and exceptions.
Availability Schedules
Temporary schedule. Connecticut law provides that certain checks that are nonlocal
under Regulation CC must be available in a
shorter time (sixth business day after deposit for checks payable by depository institutions not located in Connecticut) than
under the federal regulation (seventh business day after deposit under the temporary
schedule for nonlocal checks). Accordingly,
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31
Pt. 229, App. F
12 CFR Ch. II (1–1–18 Edition)
the Connecticut law supersedes Regulation
CC with respect to nonlocal checks (other
than checks covered by appendix B–1) deposited in accounts until the federal permanent
availability schedules take effect on September 1, 1990.
The Connecticut statute does not specify
whether it applies to deposits of checks at
nonproprietary ATMs. Under the temporary
schedule in Regulation CC, deposits at nonproprietary ATMs must be made available
for withdrawal at the start of the seventh
business day after deposit. To the extent
that the Connecticut schedules provide for
shorter availability for deposits at nonproprietary ATMs, they would supersede the
temporary schedule in Regulation CC for deposits at nonproprietary ATMs specified in
§ 229.11(d).
Exceptions to the availability schedule. The
Connecticut law provides exceptions for
items received for deposit for the purpose of
opening new accounts and for items that the
depositary bank has reason to believe will
not clear. 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 availability schedule (e.g., nonlocal
out-of-state checks under the temporary
schedule), the state exceptions may be used
to extend the state availability schedule (of
six business days) to meet the federal availability schedule (of seven business days).
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. 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 § 229.13(g) of Regulation CC.
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Disclosures
The Connecticut statute (Conn. Gen. Stat.
Section 36–9v(b)) requires written notice to
depositors of an institution’s check hold policy and requires a notice of the policy to be
posted in each branch.
Regulation CC preempts state disclosure
requirements concerning funds availability
that relate to accounts that are inconsistent
with the federal requirements. The state
requriements are different from, and therefore inconsistent with, the federal disclosure
rules. (§ 229.20(c)(2)). Thus, the Connecticut
statute is preempted by Regulation CC to
the extent that these disclosure provisions
apply to accounts as defined by Regulation
CC. The Connecticut disclosure rules would
continue to apply to accounts, such as savings and time accounts, not governed by the
Regulation CC disclosure requirements.
Illinois
The Board has been requested, in accordance with § 229.20(d) of Regulation CC (12
CFR part 229), to determine whether the Expedited Funds Availability Act and subpart
B, and, in connection therewith, subpart A,
of Regulation CC, preempt provisions of Illinois law relating to the availability of funds.
Section 4–213(5) of the Uniform Commercial
Code as adopted in Illinois (Illinois Revised
Statutes Chapter 26, paragraph 4–213(5), enacted July 26, 1988) provides that:
Time periods after which deposits must be
available for withdrawal shall be determined
by 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.
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
Background
The Board has been requested, in accordance with § 229.20(d) of Regulation CC (12
CFR part 229), to determine whether the Expedited Funds Availability Act (the ‘‘Act’’)
and subpart B (and in connection therewith,
subpart A) of Regulation CC, preempt the
provisions of Maine law concerning the
availability of funds. This preemption determination addresses the relation of the Act
and Regulation CC to the Maine funds availability law. (See also the Board’s preemption
determination regarding the Uniform Commercial Code, section 4–213(5), pertaining to
availability of cash deposits.)
In 1985, Maine adopted a statute governing
funds availability (Title 9–B MRSA section
241(5)), which 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.
The Superintendent of Banking issued regulations implementing the Maine funds
availability statute, effective July 1, 1987
(Regulation 18(IV)), and adopted amendments to this regulation, effective September 1, 1988. Under the revised regulation,
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–
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Federal Reserve System
Pt. 229, App. F
IV(A)(1)). 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)).
Coverage
The Maine law and regulation govern the
availability of funds to any deposit account,
as defined in the Board’s Regulation D (12
CFR 204.2(a)). This coverage is broader than
the accounts covered in Regulation CC. The
Maine law continues to apply to all deposit
accounts, including those that are not accounts under Regulation CC. (Note, however,
that under § 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.)
Availability Schedules 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.
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Massachusetts
mand deposit, negotiable order of withdrawal
account, savings deposit, share account or
other asset account.’’ Regulation CC applies
only to accounts as defined in § 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. (Note, however,
that under § 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.)
Availability Schedules
The Massachusetts definition of local originating depository institution (local paying
bank in Regulation CC terminology) requires
that in-state checks that are nonlocal
checks under Regulation CC be made available in accordance with the Regulation CC
local schedule. The Massachusetts law supersedes Regulation CC under the temporary
and permanent schedule with respect to
nonlocal checks payable by banks located in
Massachusetts and deposited into accounts.
Regulation CC preempts the Massachusetts
law, however, to the extent the state law
does not define banks located outside of Massachusetts, but in the same check processing
region as the paying bank, as local originating
depository institutions.
Background
Disclosures
The Board has been requested, in accordance with § 229.20(d) of Regulation CC (12
CFR part 229), to determine whether the Expedited Funds Availability Act (the ‘‘Act’’)
and subpart B (and in connection therewith,
subpart A) of Regulation CC, preempt provisions of Massachusetts law relating to the
availability of funds. This preemption determination addresses the relationship of the
Act and Regulation CC to the Massachusetts
funds availability law. (See also the Board’s
preemption determination regarding the
Uniform Commercial Code, section 4–213(5),
pertaining to availability of cash deposits.)
In 1988, Massachusetts amended its statute
governing funds availability (Mass. Gen. L.
ch. 167D, section 35), to require Massachusetts banking institutions to make funds
available for withdrawal and disclose their
availability policies in accordance with the
Act and Regulation CC. The Massachusetts
law, however, provides that ‘‘local originating depository institution’’ is to be defined as any originating depository institution located in the Commonwealth.
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.
Coverage
The Massachusetts statute governs the
availability of funds deposited in ‘‘any de-
New Jersey
Background
The Board has been requested, in accordance with § 229.20(d) of Regulation CC (12
CFR part 229), to determine whether the Expedited Funds Availability Act (the ‘‘Act’’)
and subpart B (and in connection therewith,
subpart A) of Regulation CC preempt the
provisions of New Jersey law concerning disclosure of a bank’s funds availability policy.
(See also the Board’s preemption determination regarding the Uniform Commercial
Code, section 4–213(5), pertaining to availability of cash deposits.)
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31
Pt. 229, App. F
12 CFR Ch. II (1–1–18 Edition)
New Jersey does not have a law or regulation establishing the maximum time periods
within which funds deposited by check or
electronic payment must be made available
for withdrawal. New Jersey does, however,
have regulations concerning the disclosure of
a banking institution’s availability policy
(N.J.A.C. 3:1–15.1 et seq.).
Disclosures
New Jersey law requires every banking institution (defined as any state or federally
chartered commercial bank, savings bank, or
savings and loan association) to provide
written disclosure to all holders of and applicants for deposit accounts which describes
the institution’s funds availability policy.
Institutions must also disclose to their customers any significant changes to their
availability policy.
Regulation CC preempts state disclosure
requirements concerning funds availability
that relates to accounts that are inconsistent
with the federal requirements. The state requirements are different from, and therefore
inconsistent with, the federal disclosure
rules. (§ 229.20(c)(2)). Thus, the New Jersey
statute (N.J.A.C. sections 3:1–15.1 et seq.) is
preempted by Regulation CC to the extent
that these disclosure provisions apply to accounts as defined by Regulation CC. The New
Jersey disclosure rules would continue to
apply to other deposit accounts, as defined by
New Jersey law, including money market accounts and savings accounts established by a
natural person for personal or family purposes, which are not governed by the Regulation CC disclosure requirements.
New York
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Background
The Board has been requested, in accordance with § 229.20(d) of Regulation CC (12
CFR part 229), to determine whether the Expedited Funds Availability Act (the ‘‘Act’’)
and subpart B (and in connection therewith,
subpart A) of Regulation CC, preempt the
provisions of New York law concerning the
availability of funds. This preemption determination addresses the relation of the Act
and Regulation CC to the New York funds
availability law. (See also the Board’s preemption determination regarding the Uniform Commercial Code, section 4–213(5), pertaining to availability of cash deposits.)
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 (banks); and savings banks, savings
and loan associations, and credit unions
(savings institutions) must make funds deposited in customer accounts available for withdrawal.
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. Part
34.4 (a)(2) and (b)(2) of the revised New York
rules, however, continue to apply to checks
deposited to accounts, as defined in Regulation CC. These provisions require that the
proceeds of nonlocal checks payable by a
New York institution be made available for
withdrawal not later than the start of the
fourth business day following deposit, if deposited in a bank, or the fifth business day
following deposit, if deposited in a savings
institution. The revised regulation also provides that, with respect to savings accounts
and time deposits, New York institutions
could elect to comply with either the state
or federal availability and disclosure requirements.
This preemption determination supersedes
the determination issued by the Board on
August 18, 1988 (53 FR 32357 (August 24, 1988)).
Coverage
The New York law and regulation govern
the availability of funds in savings accounts
and time deposits, as well as accounts as defined in § 229.2(a) of Regulation CC. The New
York law continues to apply to deposits to
savings accounts and time deposits that are
not accounts under Regulation CC. (Note,
however, that under § 229.19(e) of Regulation
CC, Hold 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.)
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
(§ 229.2(k)).
Availability Schedules
The provisions of New York law governing
the availability of in-state nonlocal items
provide for shorter hold than is provided
under Regulation CC, and supersede that federal availability requirements. With the exception of these provisions, the New York
regulation does not apply to deposits to accounts covered by Regulation CC.
Temporary schedule. The time periods for
the availability of in-state nonlocal checks,
contained in part 34.4 (a)(2) and (b)(2), are
shorter that the seventh business day availability required for nonlocal checks under
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31
Federal Reserve System
Pt. 229, App. F
§ 229.11(c) of Regulation CC, although they
are not necessarily shorter than the schedules for nonlocal checks set forth in
§ 229.11(c)(2) and appendix B–1 of Regulation
CC. Thus, these state schedules supersede
the federal schedule to the extent that they
apply to an item payable by a New York
bank or savings institution that is defined as
a nonlocal checks under Regulation CC and
the applicable state schedule is less than the
applicable schedule specified in § 229.11(c) and
appendix B–1.
Permanent schedule. The New York schedule for banks supersedes the Regulation CC
requirement in the permanent schedule, effective September 1, 1990, that nonlocal
checks be made available for withdrawal by
the start of the fifth business day following
deposit, to the extent that the in-state
checks are defined as nonlocal under Regulation CC, and the Regulation CC schedule for
nonlocal checks is not shortened under
§ 229.12(c)(2) and appendix B–2 of Regulation
CC. In addition, the New York schedule for
savings institutions supersedes the Regulation CC time period adjustment for withdrawal by cash or similar means in the permanent schedule, to the extent that the instate checks are defined as nonlocal under
Regulation CC, and the Regulation CC schedule for nonlocal checks is not shortened
under § 229.12(c)(2) and appendix B–2.
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 34.4). The state exceptions
apply only with respect to deposits of instate nonlocal checks that are subject to the
state availability schedule. For these deposits, the depositary bank may invoke a state
exception and place a hold on the deposit up
to the federal availability schedule limit for
that type of deposit. Once the federal availability schedule limit is reached, the depositary bank may further extend the hold under
any of the federal exceptions that apply to
that 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 § 229.12(g) of
Regulation CC.
Disclosures
The revised New York regulation does not
contain funds availability disclosure requirements applicable to accounts subject to Regulation CC.
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Rhode Island
pedited Funds Availability Act (the ‘‘Act’’)
and subpart B (and in connection therewith,
subpart A) of Regulation CC, supersede provisions of Rhode Island law relating to the
availability of funds. This preemption determination specifies those provisions in the
Rhode Island funds availability law that supersede the Act and Regulation CC. (See also
the Board’s preemption determination regarding the Uniform Commercial Code, section 4–213(5), pertaining to availability of
cash deposits.)
In 1986, Rhode Island adopted a statute
governing funds availability (R.I. Gen. Laws
tit. 6A, sections 4–601 through 4–608), which
requires Rhode Island depository institutions to make checks deposited in a personal
transaction account available for withdrawal
within certain specific periods. Commercial
banks and thrift institutions (mutual savings banks, savings banks, savings and loan
institutions and credit unions) must make
funds available for withdrawal in accordance
with the following table:
Treasury checks, Rhode Island
Government checks, first-indorsed.
In-state cashier’s checks less than
$2,500.
On-us checks ...................................
In-state clearinghouse checks .........
In-state nonclearinghouse checks ...
1st or 2nd Federal Reserve District
checks (out-of-state).
Other checks ....................................
Thrift institutions
2nd .........
2nd
2nd .........
2nd
2nd
3rd
5th
7th
3rd
4th
6th
7th
.........
..........
..........
..........
9th ..........
10th
NOTE: These time periods are stated in terms of availability
for withdrawal not later than the Xth business day following
the banking day of deposit to facilitate comparison with Regulation CC. State regulations are stated in terms of availability
at the start of the business day subsequent to the number of
days specified in the regulation.
The Rhode Island statute also provides restrictions and exceptions to the schedules
and requires institutions to make certain
disclosures to their customers.
Coverage
The Rhode Island statute governing the
availability of funds deposited in personal
transaction accounts, a term not defined in
the statute. The federal law would continue
to apply to accounts, as defined in § 229.2(a),
that are not personal transaction accounts.
The Rhode Island statute applies to items,
defined as checks, negotiable orders of withdrawal, or money orders. The Board interprets the definition of item to be consistent
with the definition of check in Regulation CC
(§ 299.2(k)).
Background
Availability Schedules
The Board has been requested, in accordance with § 229.20(d) of Regulation CC (12
CFR part 229), to determine whether the Ex-
Temporary schedule. Rhode Island law requires availability for certain checks in the
same time as does Regulation CC. Thus, in
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Pt. 229, App. F
12 CFR Ch. II (1–1–18 Edition)
these instances, the federal law does not preempt the state law. Rhode Island law requires commercial banks (but not thrift institutions) to make checks payable by a depositary institution that uses the same instate clearing facility as the depositary bank
available for withdrawal on the third business day following the day of the deposit.
This is the same time period contained in
Regulation CC for local checks payable by a
bank that is a member of the same local
clearinghouse as the depositary bank. (The
Board views the definition of the same in-state
clearing facility as having the same meaning
as the term the same check clearinghouse association in the federal law’s provision that allows banks to limit the customer’s ability to
withdraw cash on the third business day if
the local check being deposited is payable by
a bank that is not a member of the same
local clearinghouse as the depositary bank.)
Since the Rhode Island law and the federal
law both require the funds to be made available no later than the third business day, the
state law is not preempted by the federal
law.
The Rhode Island law also requires commercial banks and savings institutions to
make checks payable by a depository institution located in the First or Second Federal
Reserve District (outside of Rhode Island)
available on the seventh business day following deposit. To the extent that this provision applies to checks payable by institutions located outside the Boston check processing region, it provides for availability in
the same time as required for nonlocal
checks under the temporary federal schedule, and thus is not preempted by the federal
law.
The Rhode Island statute does not specify
whether it applies to deposits of checks at
nonproprietary ATMs. Under the temporary
schedule in Regulation CC, deposits at nonproprietary ATMs must be made available
for withdrawal at the opening of the seventh
business day after deposit. To the extent
that the Rhode Island schedules provide for
shorter availability for deposits at nonproprietary ATMs, they would supersede the
temporary schedule.
Exceptions to the availability schedules. The
Rhode Island law contains exceptions for
reason to doubt collectibility or ability of
the depositor to reimburse the depositary
bank, for new accounts, for large checks, and
for foreign checks. 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 availability schedule, the state exceptions may be used to extend the state availability schedule to meet 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 fed-
eral exception that can be applied to the deposit. Thus, if the state and federal availability schedules are the same for a particular deposit, both a state and a federal exception must be applicable to that deposit in
order to extend the hold beyond the schedule. 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 § 229.13(g) of Regulation CC.
Business day/banking day. The Rhode Island
statute defines business day as excluding Saturday, Sunday and legal holidays. This definition is preempted by the Regulation CC
definitions of business day and banking day.
Thus, for determining the permissible hold
under the Rhode Island schedules that supersede the Regulation CC schedule, deposits
are considered made on the specified number
of business days following the banking day of
deposit.
Disclosures
The Rhode Island statute requires written
notice to depositors of an institution’s check
hold policy and requires a notice on deposit
slips. Regulation CC preempts state disclosure requirements concerning funds availability that relate to accounts that are inconsistent with the federal requirements.
The state reuirements are different from,
and therefore inconsistent with, the federal
rules. (§ 229.20(c)(2)) Thus, Regulation CC preempts the Rhode Island disclosure requirements concerning funds availability.
Wisconsin
Background
The Board has been requested, in accordance with § 229.20(d) of Regulation CC (12
CFR part 229), to determine whether the Expedited Funds Availability Act (the Act) and
subpart B (and in connection therewith, subpart A) of Regulation CC preempt the provisions of Wisconsin law concerning availability of funds. This preemption determination specifies those provisions of the Wisconsin funds availability law that are not
preempted by the Act and Regulation CC.
(See also the Board’s preemption determination regarding the Uniform Commercial
Code, section 4–213(5), pertaining to availability of cash deposits.)
Wisconsin Statutes sections 404.213(4m),
215.136, and 186.117 require Wisconsin banks,
savings and loan associations, and credit
unions, respectively, to make funds deposited in accounts available for withdrawal
within specified time frames. Generally,
checks drawn on the U.S. Treasury, the
State of Wisconsin, or on a local government
located in Wisconsin must be made available
for withdrawal by the second day following
deposit. (The law governing commercial
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31
Federal Reserve System
Pt. 229, App. F
banks determines availability based on
banking day; the laws governing savings and
loan associations and credit unions determine availability based on business days.)
In-state and out-of-state checks must be
made available for withdrawal within five
days and eight days following deposit, respectively. Exceptions are provided for new
accounts and reason to doubt collectibility.
In addition, Wisconsin Statutes section
404.103 permits commercial banks to vary
these availability requirements by agreement.
Coverage
Wisconsin law defines account, with respect
to the rules governing commercial banks, as
any account with a bank and includes a checking, time, interest or savings account (Wisconsin Statutes section 404.104(1)(a)). The
statutes relating to the funds availability requirements applicable to savings and loan
associations and credit unions do not define
the term account. The Federal preemption of
state funds availability requirements applies
only to accounts subject to Regulation CC,
which generally consist of transaction accounts. Regulation CC does not affect the
Wisconsin law to the extent that the state
law applies to deposits in savings, time, 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. (Note,
however, that under § 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.)
The Wisconsin statute applies to items deposited in accounts. This term encompasses
instruments that are not defined as checks in
Regulation CC (§ 229.2(k)), such as nonnegotiable instruments, and are therefore not
subject to Regulation CC’s provisions governing funds availability. Those items that
are subject to Wisconsin law but are not subject to Regulation CC will continue to be
covered by the state availability schedules
and exceptions.
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Availability Schedules
Temporary schedule. The Wisconsin statute
requires that in-state nonlocal checks be
made available for withdrawal not later than
the fifth day following deposit (Wisconsin
Statutes
sections
404.213(4m)(b)(2);
215.136(2)(b); 186.117(2)(b)). This time period is
shorter than the seventh business day availability required for nonlocal checks under
§ 229.11(c) of Regulation CC, although it is
not shorter than the schedules for nonlocal
checks set forth in § 229.11(c)(2) and appendix
B–1 of Regulation CC. Thus, the state schedule for in-state nonlocal checks supersedes
the Federal schedule to the extent that it applies to an item payable by a Wisconsin bank
that is defined as a nonlocal check under
Regulation CC and is not subject to reduced
schedules under § 229.11(c)(2) and appendix B–
1.
Permanent Schedule. Under the Federal permanent availability schedule, nonlocal
checks must be made available for withdrawal not later than the fifth business day
following deposit. The fifth day availability
requirement for in-state items in the Wisconsin statute supersedes the Regulation CC
time period adjustment for withdrawal by
cash or similar means in the permanent
schedule, to the extent that the in-state
checks are defined as nonlocal under Regulation CC.
Next-day availability. Under the Wisconsin
statute, the proceeds of state and local government checks must be made available for
withdrawal by the second day following deposit, if the check is endorsed only by the
person to whom it was issued (Wisconsin
Statutes
sections
404.213(4m)(b)(1);
215.136(2)(b); and 186.117(2)(a)). Regulation CC
requires next-day availability for these
checks if they are (1) deposited in an account
of a payee of the check, (2) deposited in a depositary bank located in the same state as
the state or local government that issued the
check, (3) deposited in person to an employee
of the depositary bank, and (4) deposited
with a special deposit slip, if the depositary
bank informed its customers that use of such
a slip is a condition to next-day availability.
Under the Federal law, if a state or local
government check is not deposited in person
to an employee of the depositary bank, but
meets the other conditions set forth in
§ 229.10(c)(1)(iv), the funds must be made
available for withdrawal not later than the
second business day following deposit. The
Wisconsin statute supersedes Regulation CC
to the extent that the state law does not permit the use of a special deposit slip as a condition to receipt of second-day availability.
Exceptions to the schedules. Wisconsin law
provides exceptions to the state availability
schedules for new accounts (those opened
less than 90 days) and reason to doubt collectibility (Wisconsin Statutes sections
404.213(4m)(b); 215.136(2); and 186.117(2)). The
state availability law also permits commercial banks to vary the funds availability requirements by agreement (Wisconsin Statute
section 404.103(1)). In all cases where the Federal schedule preempts the state schedule,
only the Federal exceptions apply. For deposits that are covered by the state availability schedule (e.g., in-state nonlocal
checks), a state exception must apply in
order 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
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Pt. 229, App. F
12 CFR Ch. II (1–1–18 Edition)
hold only if a Federal exception 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
§ 229.13(g) of Regulation CC.
Business day/banking day. The definitions of
business day and banking day in the Wisconsin statutes are preempted by the Regulation CC definition of those terms. For determining the permissible hold under the
Wisconsin schedules that supersede the Regulation CC schedule, deposits are considered
available for withdrawal on the specified
number of business days following the banking day of deposit.
Wisconsin law considers funds to be deposited, for the purpose of determining when
they must be made available for withdrawal,
when an item is ‘‘received at the proof and
transit facility of the depository.’’ For the
purposes of this preemption determination,
funds are considered deposited under Wisconsin law in accordance with the rules set
forth in § 229.19(a) of Regulation CC.
Disclosures
The state law does require, however, that a
bank give notice to its customer if it extends
the time within which funds will be available
for withdrawal due to the bank’s doubt as to
the collectibility of the item (Wisconsin
Statutes sections 404.213(4m)(b); 215.136(2);
and 186.117(2)).
Regulation CC preempts state disclosure
requirements concerning funds availability
that relate to accounts that are inconsistent
with the Federal requirements. The state requirement is different from, and therefore
inconsistent with, the Federal disclosure
rules (§ 229.20(c)(2)). Thus, the Wisconsin statute is preempted by Regulation CC to the extent that the state notice requirement applies to accounts as defined by Regulation
CC. The Wisconsin requirement would continue to apply to accounts, such as savings
and time accounts, not governed by the Regulation CC disclosure requirements.
[53 FR 32356, Aug. 24, 1988, as amended at 53
FR 44328, Nov. 2, 1988; 53 FR 47524, Nov. 22,
1988; 53 FR 51748, Dec. 23, 1988; Reg. CC, 54 FR
13838, Apr. 6, 1989; 55 FR 11358, Mar. 28, 1990;
60 FR 51703, Oct. 3, 1995]
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The Wisconsin statute does not require disclosure of a bank’s funds availability policy.
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| File Type | application/pdf |
| File Title | CFR-2018-title12-vol3-part229.pdf |
| Author | DWOLFGANG |
| File Modified | 2020-01-27 |
| File Created | 2020-01-27 |