[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: 12CFR229.53]



[Page 567-568]

 

                       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 D_Substitute Checks

 

Sec. 229.53  Substitute check indemnity.



    (a) Scope of indemnity. A bank that transfers, presents, or returns 

a substitute check or a paper or electronic



[[Page 568]]



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.

    (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 Sec. 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 Sec. 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 bank has provided under Sec. 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.