[Code of Federal Regulations]

[Title 12, Volume 3]

[Revised as of January 1, 2006]

From the U.S. Government Printing Office via GPO Access

[CITE: 12CFR229.38]



[Page 564-565]

 

                       TITLE 12--BANKS AND BANKING

 

                   CHAPTER II--FEDERAL RESERVE SYSTEM

 

PART 229_AVAILABILITY OF FUNDS AND COLLECTION OF CHECKS (REGULATION CC)

--Table of Contents

 

                     Subpart C_Collection of Checks

 

Sec. 229.38  Liability.



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

exercise ordinary care and act in good faith in complying with the 

requirements of this subpart. A bank that fails to exercise ordinary 

care or act in good faith under this subpart may be liable to the 

depositary bank, the depositary bank's customer, the owner of a check, 

or another party to the check. The measure of damages for failure to 

exercise ordinary care is the amount of the loss incurred, up to the 

amount of the check, reduced by the amount of the loss that party would 

have incurred even if the bank had exercised ordinary care. A bank that 

fails to act in good faith under this subpart may be liable for other 

damages, if any, suffered by the party as a proximate consequence. 

Subject to a bank's duty to exercise ordinary care or act in good faith 

in choosing the means of return 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 Sec. 229.30(a) and to comply with the 

deadline for return under the U.C.C., Regulation J (12 CFR part 210), or 

Sec. 229.30(c) in connection with a single nonpayment of a check, the 

paying bank shall be liable under either Sec. 229.30(a) or such other 

provision, but not both.

    (c) Comparative negligence. If a person, including a bank, fails to 

exercise ordinary care or act in good faith under this subpart in 

indorsing a check (Sec. 229.35), accepting a returned check or notice 

of nonpayment (Sec. Sec. 229.32(a) and 229.33(c)), or otherwise, the 

damages incurred by that person under Sec. 229.38(a) shall be 

diminished in proportion to the amount of negligence or bad faith 

attributable to that person.



[[Page 565]]



    (d) Responsibility for certain aspects of checks--(1) A paying bank, 

or in the case of a check payable through the paying bank and payable by 

another bank, the bank by which the check is payable, is responsible for 

damages under paragraph (a) of this section to the extent that the 

condition of the check when issued by it or its customer adversely 

affects the ability of a bank to indorse the check legibly in accordance 

with Sec. 229.35. A depositary bank is responsible for damages under 

paragraph (a) of this section to the extent that the condition of the 

back of a check arising after the issuance of the check and prior to 

acceptance of the check by it adversely affects the ability of a bank to 

indorse the check legibly in accordance with Sec. 229.35. A 

reconverting bank is responsible for damages under paragraph (a) of this 

section to the extent that the condition of the back of a substitute 

check transferred, presented, or returned by it--

    (i) Adversely affects the ability of a subsequent bank to indorse 

the check legibly in accordance with Sec. 229.35; or

    (ii) Causes an indorsement that previously was applied in accordance 

with Sec. 229.35 to become illegible.

    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 Sec. 229.30(a) had the bank by which the check is 

payable--

    (i) Received the check as paying bank on the day the payable through 

bank received the check; and

    (ii) Returned the check as paying bank in accordance with Sec. 

229.30(a)(1).



Responsibility under this paragraph shall be treated as negligence of 

the bank by which the check is payable for purposes of paragraph (c) of 

this section.

    (e) Timeliness of action. If a bank is delayed in acting beyond the 

time limits set forth in this subpart because of interruption of 

communication or computer facilities, suspension of payments by a bank, 

war, emergency conditions, failure of equipment, or other circumstances 

beyond its control, its time for acting is extended for the time 

necessary to complete the action, if it exercises such diligence as the 

circumstances require.

    (f) Exclusion. Section 229.21 of this part and section 611 (a), (b), 

and (c) of the EFA Act (12 U.S.C. 4010 (a), (b), and (c)) do not apply 

to this subpart.

    (g) Jurisdiction. Any action under this subpart may be brought in 

any United States district court, or in any other court of competent 

jurisdiction, and shall be brought within one year after 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]