[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: 12CFR229.60]
[Page 574-675]
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. 229.60 Variation by agreement.
Any provision of Sec. 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 (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.
C. Each Federal Reserve check processing office is listed below,
followed by the Federal Reserve routing symbols of the banks that are
located within the check-processing region served by that office.
Because some check processing regions cross Federal Reserve District
lines, there are some cases in which banks in different Federal Reserve
Districts are located in the same check-processing region and therefore
considered local to each other. For example, banks in Fairfield County,
Connecticut are located in Second District and have Second District
routing numbers (0211 or 2211), but the Windsor Locks office of the
First District processes the checks of these banks. Thus, as indicated
below, checks drawn on banks with 0211 or 2211 routing numbers would be
local for First District banks served by the Windsor Locks office but
would be nonlocal for other Second District depositary banks.
---------------------------------------------------------------------------
\1\ The first two digits identify the Federal Reserve District. Thus
01 identifies the First Federal Reserve District (Boston), and l2
identifies the Twelfth District (San Francisco).
\2\ 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.
\3\ Banks in Fairfield County, Connecticut are members of the
Federal Reserve Bank of New York and therefore have Second District
routing numbers. Their checks, however, are processed by the Windsor
Locks office. Thus, checks drawn on banks with 0211 or 2211 routing
numbers would not be local checks for Second District depositary banks.
---------------------------------------------------------------------------
First Federal Reserve District
[Federal Reserve Bank of Boston]
Head Office
0110 \1\
0112
0113
0114
0115
2110 \2\
2112
2113
2114
2115
Windsor Locks Office
0111
0116
0117
0118
0119
0211 \3\
2111
2116
2117
2118
2119
2211 \3\
Second Federal Reserve District
[Federal Reserve Bank of New York]
East Rutherford Office
0210
0212
0214
0215
0216
0219
0260
0280
2212
2214
2215
2216
2219
2260
Utica Office
0213
0220
0223
2213
2220
2223
Third Federal Reserve District
[Federal Reserve Bank of Philadelphia]
Head Office
0310
0311
0312
0313
0319
0360
[[Page 575]]
2310
2311
2312
2313
2319
2360
Fourth Federal Reserve District
[Federal Reserve Bank of Cleveland]
Head Office
0410
0412
0430
0432
0433
0434
0720
0724
2410
2412
2430
2432
2433
2434
2720
2724
Cincinnati Branch
0420
0421
0422
0423
0515
0519
0740
0749
0813
0830
0839
0863
2420
2421
2422
2423
2515
2519
2740
2749
2813
2830
2839
2863
Columbus Office
0440
0441
0442
2440
2441
2442
Fifth Federal Reserve District
[Federal Reserve Bank of Richmond]
Baltimore Branch
0510
0514
0520
0521
0522
0540
0550
0560
0570
2510
2514
2520
2521
2522
2540
2550
2560
2570
Charlotte Branch
0530
0531
0532
0539
2530
2531
2532
2539
Sixth Federal Reserve District
[Federal Reserve Bank of Atlanta]
Head Office
0610
0611
0612
0613
0620
0621
0622
2610
2611
2612
2613
2620
2621
2622
Jacksonville Branch
0630
0631
0632
0660
0670
2630
2631
2632
2660
2670
Nashville Branch
0640
0641
0642
2640
2641
2642
New Orleans Branch
0650
0651
0652
0653
0654
0655
2650
2651
2652
2653
2654
2655
Seventh Federal Reserve District
[Federal Reserve Bank of Chicago]
Head Office
0710
0711
0712
0719
0750
0759
2710
2711
2712
2719
2750
2759
Des Moines Office
0730
0739
1040
1041
1049
2730
2739
3040
3041
3049
Eighth Federal Reserve District
[Federal Reserve Bank of St. Louis]
Head Office
0810
0812
0815
0819
0865
2810
2812
2815
2819
2865
Memphis Branch
0820
0829
0840
0841
0842
0843
2820
2829
2840
2841
2842
2843
[[Page 576]]
Ninth Federal Reserve District
[Federal Reserve Bank of Minneapolis]
Head Office
0910
0911
0912
0913
0914
0915
0918
0919
0960
2910
2911
2912
2913
2914
2915
2918
2919
2960
Helena Branch
0920
0921
0929
2020
2921
2929
Tenth Federal Reserve District
[Federal Reserve Bank of Kansas City]
Head Office
1010
1011
1012
1019
3010
3011
3012
3019
Denver Branch
1020
1021
1022
1023
1070
1240
1241
1242
1243
3020
3021
3022
3023
3070
3240
3241
3242
3243
Eleventh Federal Reserve District
[Federal Reserve Bank of Dallas]
Head Office
1030
1031
1039
1110
1111
1113
1119
1120
1122
1123
1130
1131
1140
1149
1163
3030
3031
3039
3110
3111
3113
3119
3120
3122
3123
3130
3131
3140
3149
3163
Twelfth Federal Reserve District
[Federal Reserve Bank of San Francisco]
Head Office
1210
1211
1212
1213
3210
3211
3212
3213
Los Angeles Branch
1220
1221
1222
1223
1224
3220
3221
3222
3223
3224
Seattle Branch
1230
1231
1232
1233
1250
1251
1252
3230
3231
3232
3233
3250
3251
3252
U.S. Treasury Checks
0000 0050 5
0000 0051 8
Postal Money Orders
0000 0119 3
0000 0800 2
Federal Reserve Banks
0110 0001 5
0111 0048 1
0210 0120 8
0212 0400 5
0213 0500 1
0220 0026 6
0310 0004 0
0410 0001 4
0420 0043 7
0430 0030 0
0440 0050 3
0510 0003 3
0519 0002 3
0520 0027 8
0530 0020 6
0539 0008 9
0610 0014 6
0620 0019 0
0630 0019 9
0640 0010 1
0650 0021 0
0660 0010 9
0710 0030 1
0711 0711 0
0720 0029 0
0730 0033 8
0740 0020 1
0750 0012 9
0810 0004 5
0820 0013 8
0830 0059 3
0840 0003 9
0910 0008 0
0920 0026 7
1010 0004 8
1020 0019 9
1030 0024 0
1040 0012 6
1110 0003 8
1120 0001 1
1130 0004 9
1140 0072 1
1210 0037 4
1220 0016 6
1230 0001 3
1240 0031 3
1250 0001 1
Federal Home Loan Banks
0110 0053 6
0212 0639 1
0260 0973 9
0410 0291 5
0420 0091 6
0430 0143 5
0430 1862 2
0610 0876 6
0710 0450 1
0730 0091 4
[[Page 577]]
0740 0101 9
0810 0091 9
0910 0091 2
1010 0091 2
1011 0194 7
1110 1083 7
1119 1083 0
1210 0070 1
1240 0287 4
1250 0050 3
[53 FR 19433, May 27, 1988; 53 FR 24251, June 28, 1988, as amended at 53
FR 31293, 31416, Aug. 18, 1988; 54 FR 13851, Apr. 6, 1989; Reg. CC, 55
FR 21855, May 30, 1990; 58 FR 2, Jan. 4, 1993; Reg. CC, 59 FR 48790,
Sept. 23, 1994; 60 FR 51671, Oct. 3, 1995; 61 FR 25390, May 21, 1996;
Reg. CC, 62 FR 26220, May 13, 1997; 68 FR 31596, May 28, 2003; 68 FR
52078, Sept. 2, 2003; 69 FR 1656, Jan. 12, 2004; 69 FR 6919, Feb. 12,
2004; 69 FR 10603, Mar. 8, 2004; 69 FR 19922, Apr. 15, 2004; 69 FR
25827, May 10, 2004; 69 FR 28820, May 19, 2004; 69 FR 35506, June 25,
2004; 69 FR 57839, Sept. 28, 2004; 70 FR 7380, Feb. 14, 2005; 70 FR
8717, Feb. 23, 2005; 70 FR 21133, Apr. 25, 2005; 70 FR 47086, Aug. 12,
2005; 70 FR 60420, Oct. 18, 2005; 70 FR 75000, Dec. 19, 2005]
Effective Date Notes: 1. At 70 FR 60420, Oct. 18, 2005, the Fourth
Federal Reserve District routing symbol list in appendix A was amended
by removing the listings for 0442 and 2442 from the Columbus office and
by revising the Cincinnati listings, effective Jan. 21, 2006. For the
convenience of the user, the revised text is set forth as follows:
Appendix A to Part 229--Routing Number Guide to Next-Day Availability
Checks and Local Checks
* * * * *
Fourth Federal Reserve District
* * * * *
Cincinnati Branch
0420
0421
0422
0423
0442
0515
0519
0740
0749
0813
0830
0839
0863
2420
2421
2422
2423
2442
2515
2519
2740
2749
2813
2830
2839
2863
* * * * *
2. At 70 FR 60420, Oct. 18, 2005, the Fourth Federal Reserve
District routing symbol list in appendix A was amended by deleting the
remaining listings and heading for the Columbus office, and revising the
listings for the Cleveland head office, effective Feb. 11, 2006. For the
convenience of the user, the revised text is set forth as follows:
Appendix A to Part 229--Routing Number Guide to Next-Day Availability
Checks and Local Checks
* * * * *
Fourth Federal Reserve District
[Federal Reserve Bank of Cleveland]
Head Office
0410
0412
0430
0432
0433
0434
0440
0441
0720
0724
2410
2412
2430
2432
2433
2434
2440
2441
2720
2724
* * * * *
3. At 70 FR 73129, Dec. 9, 2005, the First Federal Reserve District
routing symbol list in appendix A was revised, effective Feb. 25, 2006.
For the convenience of the user, the revised text is set fourth as
follows:
Appendix A To Part 229--Routing Number Guide to Next-Day Availability
Checks and Local Checks
* * * * *
[[Page 578]]
First Federal Reserve District
[Federal Reserve Bank of Boston]
Windsor Locks Office
0110 \1\
0111
0112
0113
0114
0115
0116
0117
0118
0119
0211 \3\
2110 \2\
2111
2112
2113
2114
2115
2116
2117
2118
2119
2211 \3\
---------------------------------------------------------------------------
\1\ The first two digits identify the Federal Reserve District. For
example, 01 identifies the First Federal Reserve District (Boston), and
12 identifies the Twelfth District (San Francisco).
\2\ 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.
\3\ Banks in Fairfield County, Connecticut, are members of the
Federal Reserve Bank of New York and therefore have Second District
routing numbers. Their checks, however, are processed by the Windsor
Locks office. Thus, checks drawn on banks with 0211 or 2211 routing
numbers would not be local checks for Second District depositary banks.
---------------------------------------------------------------------------
* * * * *
4. At 70 FR 75000, Dec. 19, 2005, the Sixth Federal Reserve District
routing symbol lists in appendix A was revised, effective Mar. 31, 2006.
For the convenience of the user, the revised text is set forth as
follows:
Appendix A To Part 229--Routing Number Guide to Next-Day Availability
Checks and Local Checks
* * * * *
Sixth Federal Reserve District
[Federal Reserve Bank of Atlanta]
Head Office
0610
0611
0612
0613
0620
0621
0622
0650
0651
0652
0653
0654
0655
2610
2611
2612
2613
2620
2621
2622
2650
2651
2652
2653
2654
2655
Jacksonville Branch
0630
0631
0632
0660
0670
2630
2631
2632
2660
2670
Nashville Branch
0640
0641
0642
2640
2641
2642
Appendix B to Part 229--Reduction of Schedules for Certain Nonlocal
Checks
A depositary bank that is located in the following check processing
territories shall make funds deposited in an account by a nonlocal check
described below available for withdrawal not later than the number of
business days following the banking day on which funds are deposited, as
specified below.
------------------------------------------------------------------------
Number of
business
days
following
Federal Reserve office the banking
day funds
are
deposited
------------------------------------------------------------------------
Utica
0210, 0280................................................. 3
Nashville
0613, 2613................................................. 3
Kansas City
0865, 2865,................................................ 3
------------------------------------------------------------------------
[53 FR 19433, May 27, 1988, as amended at 58 FR 2, Jan. 4, 1993; 59 FR
48790, Sept. 23, 1994; Reg. CC, 60 FR 51671, Oct. 3, 1995; 61 FR 25390,
May 21, 1996]
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
C-1 Next-day availability
[[Page 579]]
C-2 Next-day availability and Sec. 229.13 exceptions
C-3 Next-day availability, case-by-case holds to statutory limits, and
Sec. 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
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)
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
Model Availability Policy Disclosures
C-1--Next-Day Availability
Your Ability to Withdraw Funds
Our policy is to make funds from your cash and check deposits
available to you on the first business day after the day we receive your
deposit. Electronic direct deposits will be available on the day we
receive the deposit. Once the funds are available, you can withdraw them
in cash and we will use them to pay checks that you have written.
For determining the availability of your deposits, every day is a
business day, except Saturdays, Sundays, and federal holidays. If you
make a deposit before (time of day) on a business day that we are open,
we will consider that day to be the day of your deposit. However, if you
make a deposit after (time of day) or on a day we are not open, we will
consider that the deposit was made on the next business day we are open.
C-2--Next-day availability and Sec. 229.13 exceptions
Your Ability to Withdraw Funds
Our policy is to make funds from your cash and check deposits
available to you on the first business day after the day we receive your
deposit. Electronic direct deposits will be available on the day we
receive the deposit. Once they are available, you can withdraw the funds
in cash and we will use the funds to pay checks that you have written.
For determining the availability of your deposits, every day is a
business day, except Saturdays, Sundays, and federal holidays. If you
make a deposit before (time of day) on a business day that we are open,
we will consider that day to be the day of your deposit. However, if you
make a deposit after (time of day) or on a day we are not open, we will
consider that the deposit was made on the next business day we are open.
Longer Delays May Apply
Funds you deposit by check may be delayed for a longer period under
the following circumstances:
We believe a check you deposit will not be paid.
You deposit checks totaling more than $5,000 on
any one day.
You redeposit a check that has been returned
unpaid.
You have overdrawn your account repeatedly in the
last six months.
There is an emergency, such as failure of
computer or communications equipment.
We will notify you if we delay your ability to withdraw funds for
any of these reasons, and we will tell you when the funds will be
available. They will generally be available no later than the (number)
business day after the day of your deposit.
Special Rules for New Accounts
If you are a new customer, the following special rules will apply
during the first 30 days your account is open.
Funds from electronic direct deposits to your account will be
available on the day we receive the deposit. Funds from deposits of
cash, wire transfers, and the first $5,000 of a day's total deposits of
cashier's, certified, teller's, traveler's, and federal, state and local
government checks will be available on the first business day after the
day of your deposit if the deposit meets certain conditions. For
example, the checks must be payable to you (and you may have to use a
special deposit slip). The excess over $5,000 will
[[Page 580]]
be available on the ninth business day after the day of your deposit. If
your deposit of these checks (other than a U.S. Treasury check) is not
made in person to one of our employees, the first $5,000 will not be
available until the second business day after the day of your deposit.
Funds from all other check deposits will be available on the
(number) business day after the day of your deposit.
C-3--Next-Day Availability, Case-by-Case Holds to Statutory Limits, and
Sec. 229.13 Exceptions
Your Ability To Withdraw Funds
Our policy is to make funds from your cash and check deposits
available to you on the first business day after the day we receive your
deposit. Electronic direct deposits will be available on the day we
receive the deposit. Once they are available, you can withdraw the funds
in cash and we will use the funds to pay checks that you have written.
For determining the availability of your deposits, every day is a
business day, except Saturdays, Sundays, and federal holidays. If you
make a deposit before (time of day) on a business day that we are open,
we will consider that day to be the day of your deposit. However, if you
make a deposit after (time of day) or on a day we are not open, we will
consider that the deposit was made on the next business day we are open.
Longer Delays May Apply
In some cases, we will not make all of the funds that you deposit by
check available to you on the first business day after the day of your
deposit. Depending on the type of check that you deposit, funds may not
be available until the fifth business day after the day of your deposit.
The first $100 of your deposits, however, 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.
[[Page 581]]
Same-Day Availability
Funds from electronic direct deposits to your account will be
available on the day we receive the deposit.
Next-Day Availability
Funds from the following deposits are available on the first
business day after the day of your deposit:
U.S. Treasury checks that are payable to you.
Wire transfers.
Checks drawn on (bank name) [unless (any
limitations related to branches in different states or check processing
regions)].
If you make the deposit in person to one of our employees, funds
from the following deposits are also available on the first business day
after the day of your deposit:
Cash.
State and local government checks that are
payable to you [if you use a special deposit slip available from (where
deposit slip may be obtained)].
Cashier's, certified, and teller's checks that
are payable to you [if you use a special deposit slip available from
(where deposit slip may be obtained)].
Federal Reserve Bank checks, Federal Home Loan
Bank checks, and postal money orders, if these items are payable to you.
If you do not make your deposit in person to one of our employees
(for example, if you mail the deposit), funds from these deposits will
be available on the second business day after the day we receive your
deposit.
Other Check Deposits
To find out when funds from other check deposits will be available,
look at the first four digits of the routing number on the check:
[GRAPHIC] [TIFF OMITTED] TR24MR97.000
Some checks are marked ``payable through'' and have a four-or nine-
digit number nearby. For these checks, use this four-digit number (or
the first four digits of the nine-digit number), not the routing number
on the bottom of the check, to determine if these checks are local or
nonlocal. Once you have determined the first four digits of the
[[Page 582]]
routing number (1234 in the examples above), the following chart will
show you when funds from the check will be available:
----------------------------------------------------------------------------------------------------------------
First four digits from routing When funds are available if a deposit is made
number When funds are available on a Monday
----------------------------------------------------------------------------------------------------------------
[local numbers].................... $100 on the first business Tuesday.
day after the day of your
deposit.
Remaining funds on the Wednesday.
second business day after
the day of your deposit.
All other numbers.................. $100 on the first business Tuesday.
day after the day of your
deposit.
Remaining funds on the Monday of the following week.
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
If you are a new customer, the following special rules will apply
during the first 30 days your account is open.
Funds from electronic direct deposits to your account will be
available on the day we receive the deposit. Funds from deposits of
cash, wire transfers, and the first $5,000 of a day's total deposits of
cashier's, certified, teller's, traveler's, and federal, state and local
government checks will be available on the first business day after the
day of your deposit if the deposit meets certain conditions. For
example, the checks must be payable to you (and you may have to use a
special deposit slip). The excess over $5,000 will be available on the
ninth business day after the day of your deposit. If your deposit of
these checks (other than a U.S. Treasury check) is not made in person to
one of our employees, the first $5,000 will not be available until the
second business day after the day of your deposit.
Funds from all other check deposits will be available on the
(number) business day after the day of your deposit.
C-5--Holds to Statutory Limits on All Deposits
Your Ability To Withdraw Funds
Our policy is to delay the availability of funds from your cash and
check deposits. During the delay, you may not withdraw the funds in cash
and we will not use the funds to pay checks that you have written.
Determining the Availability Of A Deposit
The length of the delay is counted in business days from the day of
your deposit. Every day is a business day except Saturdays, Sundays, and
federal holidays. If you make a deposit before (time of day) on a
business day that we are open, we will consider that day to be the day
of your deposit. However, if you make a deposit after (time of day) or
on a day we are not open, we will consider that the deposit was made on
the next business day we are open.
The length of the delay varies depending on the type of deposit and
is explained below.
Same-Day Availability
Funds from electronic direct deposits to your account will be
available on the day we receive the deposit.
Next-Day Availability
Funds from the following deposits are available on the first
business day after the day of your deposit:
U.S. Treasury checks that are payable to you.
Wire transfers.
Checks drawn on (bank name) [unless (any
limitations related to branches in different states or check processing
regions)].
If you make the deposit in person to one of our employees, funds
from the following deposits are also available on the first business day
after the day of your deposit:
Cash.
[[Page 583]]
State and local government checks that are
payable to you [if you use a special deposit slip available from (where
deposit slip may be obtained)].
Cashier's, certified, and teller's checks that
are payable to you [if you use a special deposit slip available from
(where deposit slip may be obtained)].
Federal Reserve Bank checks, Federal Home Loan
Bank checks, and postal money orders, if these items are payable to you.
If you do not make your deposit in person to one of our employees
(for example, if you mail the deposit), funds from these deposits will
be available on the second business day after the day we receive your
deposit.
Other Check Deposits
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:
[GRAPHIC] [TIFF OMITTED] TR17SE97.000
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
[[Page 584]]
through'' and have a four- or nine-digit number nearby. For these
checks, use the four-digit number (or the first four digits of the nine-
digit number), not the routing number on the bottom of the check, to
determine if these checks are local or nonlocal. Our policy is to make
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 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.
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-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
[[Page 585]]
your loss exceeds the amount of the substitute check, you may be able to
recover additional amounts under other law.
If you use this procedure, you may receive up to (amount, not lower
than $2,500) of your refund (plus interest if your account earns
interest) within (number of days, not more than 10) business days after
we received your claim and the remainder of your refund (plus interest
if your account earns interest) not later than (number of days, not more
than 45) calendar days after we received your claim.
We may reverse the refund (including any interest on the refund) if
we later are able to demonstrate that the substitute check was correctly
posted to your account.
How Do I Make a Claim for a Refund?
If you believe that you have suffered a loss relating to a
substitute check that you received and that was posted to your account,
please contact us at (contact information, for example phone number,
mailing address, e-mail address). You must contact us within (number of
days, not less than 40) calendar days of the date that we mailed (or
otherwise delivered by a means to which you agreed) the substitute check
in question or the account statement showing that the substitute check
was posted to your account, whichever is later. We will extend this time
period if you were not able to make a timely claim because of
extraordinary circumstances.
Your claim must include--
A description of why you have suffered a loss
(for example, you think the amount withdrawn was incorrect);
An estimate of the amount of your loss;
An explanation of why the substitute check you
received is insufficient to confirm that you suffered a loss; and
A copy of the substitute check [and/or] the
following information to help us identify the substitute check:
(identifying information, for example the check number, the name of the
person to whom you wrote the check, the amount of the check).
Model Clauses
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)
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.
C-8--Appendix B Availability (Nonlocal Checks)
3. Certain other checks. We can process nonlocal checks drawn on
financial institutions in certain areas faster than usual. Therefore,
funds from deposits of checks drawn on institutions in those areas will
be available to you more quickly. Call us if you would like a list of
the routing numbers for these institutions.
C-9--Automated Teller Machine Deposits (Extended Hold)
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
Interest Payment Policy
If we receive a deposit to your account on or before the tenth of
the month, you begin earning interest on the deposit (whether it was a
deposit of cash or checks) as of the first day of that month. If we
receive the deposit after the tenth of the month, you begin earning
interest on the deposit as of the first of the following month. For
example, a deposit made on June 7 earns interest from June l, while a
deposit made on June 17 earns interest from July 1.
[[Page 586]]
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-12--Exception Hold Notice
Notice of Hold
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.
We are taking this action because:
--A check you deposited was previously returned unpaid.
--You have overdrawn your account repeatedly in the last six months.
--The checks you deposited on this day exceed $5,000.
--An emergency, such as failure of computer or communications equipment,
has occurred.
--We believe a check you deposited will not be paid for the following
reasons [*]:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
[*If you did not receive this notice at the time you made the deposit
and the check you deposited is paid, we will refund to you any fees for
overdrafts or returned checks that result solely from the additional
delay that we are imposing. To obtain a refund of such fees,
(description of procedure for obtaining refund).]
C-13--Reasonable Cause Hold Notice
Notice of Hold
Account number: (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:
________________________________________________________________________
[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.
[[Page 587]]
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
next-day availability will be treated as either local or nonlocal checks
depending on the location of the paying bank.
C-16--Case-by-Case Hold Notice
Notice of Hold
Account number: (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).]
C-17--Notice at locations where employees accept consumer deposits
FUNDS AVAILABILITY POLICY
------------------------------------------------------------------------
When funds can be withdrawn
Description of deposit by cash or check
------------------------------------------------------------------------
Direct deposits........................... The day we receive the
deposit
Cash, wire transfers, cashier's, The first business day after
certified, teller's, or government the day of deposit.
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.............................. The second business day
after the day of deposit.
Nonlocal checks........................... 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
AVAILABILITY OF DEPOSITS
Funds from deposits may not be available for immediate withdrawal.
Please refer to your institution's rules governing funds availability
for details.
C-20--Notice at Automated Teller Machines (Delayed Receipt)
NOTICE
Deposits at this ATM between (day) and (day) will not be considered
received until (day). The availability of funds from the deposit may be
delayed as a result.
C-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
Notice of Provisional Refund
In response to your substitute check claim, we are refunding
(amount) [of which [(amount) represents fees] [and] [(amount) represents
accrued interest]] to your account, while we complete our investigation
of your claim. You may withdraw these funds as of (date). [Unless we
determine that your claim is not valid, we will credit the remaining
amount of your refund to your account no later than the 45th calendar
day after we received your claim.]
[[Page 588]]
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 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]
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
(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
[[Page 589]]
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.
(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]
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
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
definitions are self-explanatory and therefore are not discussed in this
Commentary.
B. 229.2(a) Account
1. The EFA Act defines account to mean ``a demand deposit account or
similar transaction account at a depository institution.'' The
regulation defines account, for purposes other than subpart D, in terms
of the definition of ``transaction account'' in the Board's Regulation D
(12 CFR part 204). This definition of account, however, excludes certain
deposits, such as nondocumentary obligations (see 12 CFR
204.2(a)(1)(vii)), that are covered under the definition of
``transaction account'' in Regulation D. The definition applies to
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
[[Page 590]]
purposes of subparts C and D and, in connection therewith, subpart A.
4. The Check 21 Act defines account to mean any deposit account at a
bank. Therefore, for purposes of subpart D and, in connection therewith,
subpart A, account means any deposit, as that term is defined by Sec.
204.2(a)(1)(i) of Regulation D, at a bank. Many deposits that are not
accounts for purposes of the other subparts of Regulation CC, such as
savings deposits, are accounts for purposes of subpart D.
C. 229.2(b) Automated Clearinghouse (ACH)
1. The Board has defined automated clearinghouse as a facility that
processes debit and credit transfers under rules established 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.
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.
Point-of-sale terminals, machines that only dispense cash, night
depositories, and lobby deposit boxes are not ATMs within the meaning of
the definition, either because they do not accept deposits of cash or
checks (e.g., point-of-sale terminals and cash dispensers) or because
they only accept deposits (e.g., night depositories and lobby boxes) and
cannot 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.
E. 229.2(d) Available for Withdrawal
1. Under this definition, when funds become available for
withdrawal, the funds may be put to all uses for which the customer may
use actually and finally collected funds in the customer's account under
the customer's account agreement with the bank. Examples of such uses
include payment of checks drawn on the account, certification of checks,
electronic payments, and cash withdrawals. Funds are available for these
uses notwithstanding provisions of other law that may restrict the use
of uncollected funds (e.g., 18 U.S.C. 1004; 12 U.S.C. 331).
2. If a bank makes funds available to a customer for a specific
purpose (such as paying checks that would otherwise overdraw the
customer's account and be returned for insufficient funds) before the
funds must be made available under the bank's policy or this regulation,
it may nevertheless apply a hold consistent with this regulation to
those funds for other purposes (such as cash withdrawals). For purposes
of this regulation, funds are considered available for withdrawal even
though they are being held by the bank to satisfy an obligation of the
customer other than the customer's potential liability for the return of
the check. For example, a bank does not violate its obligations under
this subpart by holding funds to satisfy a garnishment, tax levy, or
court order restricting disbursements from the account; or to satisfy
the customer's liability arising from the certification of a check, sale
of a cashier's or teller's check, guaranty or acceptance of a check, or
similar transaction to be debited from the customer's account.
F. 229.2(e) Bank
1. The EFA Act uses the term depository institution, which it
defines by reference to section 19(b)(1)(A)(i) through (vi) of the
Federal Reserve Act (12 U.S.C. 461(b)(1)(A)(i) through (vi)). This
regulation uses the term bank, a term that conforms to the usage the
Board has previously adopted in Regulation J. 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
[[Page 591]]
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.
3. Unless otherwise specified, the term bank includes all of a
bank's offices in the United States. The regulation does not cover
foreign offices of U.S. banks.
4. For purposes of subpart D and, in connection therewith, subpart
A, the term bank also includes the Treasury of the United States and the
United States Postal Service to the extent that they act as paying banks
because the Check 21 Act includes these two entities in the definition
of the term bank to the extent that they act as payors.
G. 229.2(f) Banking Day and (g) Business Day
1. The EFA Act 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 Sec. 229.19(a)(1), funds deposited at an ATM are
considered deposited at the time they are received at the ATM. On a
calendar day that is a banking day for the branch or other location of
the depositary bank at which the account is maintained, a deposit
received at an ATM before the ATM's cut-off hour is considered deposited
on that banking day, and a deposit received at an ATM after the ATM's
cut-off hour is considered deposited on the next banking day of the
branch or other location where the account is maintained. On a calendar
day that is not a banking day for the account-holding location, all ATM
deposits are considered deposited on that location's next banking day.
This rule for determining the day of deposit also would apply to a
deposit to an off-premise facility, such as a night depository or lock
box, which is considered deposited when removed from the facility and
available for processing under Sec. 229.19(a)(3). If an unstaffed
facility, such as a night depository or lock box, is on branch premises,
the day of deposit is determined by the banking day at the branch at
which the deposit is received, whether or not it is the branch at which
the account is maintained.
H. 229.2(h) Cash
1. Cash means U.S. coins and currency. The phrase in the EFA Act
``including Federal Reserve notes'' has been deleted as unnecessary.
(See 31 U.S.C. 5103.)
I. 229.2(i) Cashier's Check
1. The regulation adds to the second item in the EFA Act's
definition of cashier's check the phrase, ``on behalf of the bank as
drawer,'' to clarify that the term cashier's check is intended to cover
only checks that a bank draws on itself. The definition of cashier's
check includes checks provided to a customer of the bank in connection
with customer deposit account activity, such as account disbursements
and interest payments. The definition also includes checks acquired from
a bank by noncustomers for remittance purposes, such as certain loan
disbursement
[[Page 592]]
checks. Cashier's checks provided to customers or others are often
labeled as ``cashier's check,'' ``officer's check,'' or ``official
check.'' The definition excludes checks that a bank draws on itself for
other purposes, such as to pay employees and vendors, and checks issued
by the bank in connection with a payment service, such as a payroll or a
bill-paying service. Cashier's checks generally are sold by banks to
substitute the bank's credit for the customer's credit and thereby
enhance the collectibility of the checks. A check issued in connection
with a payment service generally is provided as a convenience to the
customer rather than as a guarantee of the check's collectibility. In
addition, such checks are often more difficult to distinguish from other
types of checks than are cashier's checks as defined by this regulation.
J. 229.2(j) Certified Check
1. The EFA Act defines a certified check as one to which a bank has
certified that the drawer's signature is genuine and that the bank has
set aside funds to pay the check. Under the Uniform Commercial Code,
certification of a check means the bank's signed agreement that it will
honor the check as presented (U.C.C. 3-409). The regulation defines
certified check to include both the EFA Act's and U.C.C.'s definitions.
K. 229.2(k) Check
1. Check is defined in section 602(7) of the EFA Act as a negotiable
demand draft drawn on or payable through an office of a depository
institution located in the United States, excluding noncash items. The
regulation includes six categories of instruments within the definition
of check.
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 payable-through 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 Federal Home
Loan Banks as teller's checks. The definition of check includes checks
drawn on Federal Home Loan Banks and Federal Reserve Banks because in
many cases they are the functional equivalent of Treasury checks or
teller's checks.
5. The third and fourth categories of instrument included in the
definition of check refer to government checks. The EFA Act refers to
checks drawn on the U.S. Treasury, even though these instruments are not
drawn on or payable through an office of a depository institution, and
checks drawn by state and local governments. The EFA Act also 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.
---------------------------------------------------------------------------
\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.''
---------------------------------------------------------------------------
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.
[[Page 593]]
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 Sec. 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 Sec.
229.51(a).
10. The definition of check does not include an instrument payable
in a foreign currency (i.e., other than in United States money as
defined in 31 U.S.C. 5101) or a credit card draft (i.e., a sales draft
used by a merchant or a draft generated by a bank as a result of a cash
advance), or an ACH debit transfer. The definition of check includes a
check that a bank may supply to a customer as a means of accessing a
credit line without the use of a credit card.
L. 229.2(l) [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 Sec. 229.18(e) (notice of changes in policy) apply only to consumer
accounts. Section 229.13(g)(2) (one-time exception notice) and Sec.
229.19(d) (use of calculated availability) apply only to nonconsumer
accounts.
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 Sec.
229.35 the depositary bank may agree with the bank servicing the
nonproprietary ATM to have the servicing bank place its own indorsement
on the check as the depositary bank. For the purposes of 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 Sec. 229.2(11) or an
[[Page 594]]
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 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
1. Local check is defined as a check payable by or at a local paying
bank, or, in the case of nonbank payors, payable through a local paying
bank. A check payable by a local bank but payable through a nonlocal
bank is a local check. Conversely, a check payable through a local bank
but payable by a nonlocal bank is a nonlocal check. Where two banks are
named on a check and neither is designated as a payable-through bank,
the check is considered payable by either bank and may be considered
local or nonlocal depending on the bank to which it is sent for payment.
Generally, the depositary bank may rely on the routing number to
determine whether a check is local or nonlocal. Appendix A includes a
list of routing numbers arranged by Federal Reserve Bank Office to
assist persons in determining whether or not such a check is local. If,
however, a check is payable by one bank but payable through another
bank, the routing number appearing on the check will be that of the
payable-through bank, not the paying bank. Many credit union share
drafts and certain other checks payable by banks are payable through
other banks. In such cases, the routing number cannot be relied on to
determine whether the check is local or nonlocal. For payable-through
checks that meet the labeling requirements of Sec. 229.36(e), the
depositary bank may rely on the four-digit routing symbol of the paying
bank that is printed on the face of the check as required by that
section, e.g., in the title plate, but not on the first four digits of
the payable-through bank's routing number printed in magnetic ink in the
MICR line or in fractional form, to determine whether the check is local
or nonlocal.
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 check-
processing region as the paying bank, the check is still considered
nonlocal. (See the commentary to the definition of ``paying bank.'')
c. If a person deposits a check to an account by mailing or
otherwise sending the check to a facility or office that is not a bank,
the check is considered local or nonlocal depending on the location of
the bank whose indorsement appears on the check as the depositary bank.
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
[[Page 595]]
under the Bank Holding Company Act (12 U.S.C. 1842) where an acquired
bank maintains its separate corporate existence.
2. Regulation CC adopts a one-year transition period for banks that
are party to a merger transaction during which the merged banks will
continue to be treated as separate entities. (See Sec. Sec. 229.19(g)
and 229.40.)
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 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
Sec. Sec. 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]
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 payable-
through bank and the bank whose routing number appears on the check,
regardless of whether the check is payable by a different bank, provided
that the check is sent for payment or collection to the payable through
bank or the bank whose routing number appears on the check.
2. Under Sec. Sec. 229.30 and 229.36(a), 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 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
payable-through bank additional time to forward checks to the payor and
await return or pay instructions from the payor would delay the return
of these checks, increasing the risks to depositary banks. Subpart C
places on payable-through and payable-at banks the requirements of
expeditious return based on the time the payable-through or payable-at
bank received the check for forward collection.
3. If a check is sent for forward collection based on the routing
number, the bank associated with the routing number is a paying bank for
the purposes of 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
[[Page 596]]
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 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.
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 Sec. 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
Sec. 229.38(c).) A qualified returned check that contains an encoding
error would still be a qualified returned check for purposes of the
regulation.
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.
[[Page 597]]
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 Sec. 229.31(a). A returning bank is also a collecting bank for
the purpose of a collecting bank's duty to exercise ordinary care under
U.C.C. 4-202(b) and is analogous to a collecting bank for purposes of
final settlement. (See Commentary to Sec. 229.35(b).)
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 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]
GG. 229.2(gg) Teller's Check
1. Teller's check is defined in the EFA Act to mean a check issued
by a depository institution and drawn on another depository institution.
The definition in the regulation includes not only checks drawn by a
bank on another bank, but also checks payable through or at a bank. This
would include checks drawn on a nonbank, as long as the check is payable
through or at a bank. The definition does not include checks that are
drawn by a nonbank on a nonbank even if payable through or at a bank.
The definition includes checks provided to a customer of the bank in
connection with customer deposit account activity, such as account
disbursements and interest payments. The definition also includes checks
acquired from a bank by a noncustomer for remittance purposes, such as
certain loan disbursement checks. The definition excludes checks used by
the bank to pay employees or vendors and checks issued by the bank in
connection with a payment service, such as a payroll or a bill-paying
service. Teller's checks generally are sold by banks to substitute the
bank's credit for the customer's credit and thereby enhance the
collectibility of the checks. A check issued in connection with a
payment service generally is provided as a convenience to the customer
rather than as a guarantee of the check's collectibility. In addition,
such checks are often more difficult to distinguish from other types of
checks than are teller's checks as defined by this regulation.
HH. 229.2(hh) Traveler's Check
1. The EFA Act and regulation require that traveler's checks be
treated as cashier's, teller's, or certified checks when a new depositor
opens an account. (See Sec. 229.13(a); 12 U.S.C. 4003(a)(1)(C).) The
EFA Act does not define traveler's check.
2. One element of the definition states that a traveler's check is
``drawn on or payable through or at a bank.'' Sometimes traveler's
checks that are not issued by banks do not have any words on them
identifying a bank as drawee or paying agent, but instead bear unique
routing numbers with an 8000 prefix that identifies a bank as paying
agent.
3. Because a traveler's check is payable by, at, or through a bank,
it is also a check for purposes of this regulation. When not subject to
the next-day availability requirement for new accounts, a traveler's
check should be treated as a 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.
II. 229.2(ii) Uniform Commercial Code
1. Uniform Commercial Code is defined as the version of the Code
adopted by the individual states. For purposes of uniform citation, all
citations to the U.C.C. in this part refer to the Official Text as
approved by the American Law Institute and the National Conference of
Commissioners on Uniform State Laws.
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
[[Page 598]]
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.
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).
OO. 229.2(oo) Interest Compensation
1. This calculation of interest compensation derives from U.C.C. 4A-
506(b). (See Sec. Sec. 229.34(d) and 229.36(f).)
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 Sec. Sec. 229.2(s) and 229.19(a) of the regulation and
the commentary to Sec. Sec. 229.2(s), 229.10(c), 229.14(a), 229.16(a),
229.18(b), and 229.19(a).
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.
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.
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 account, as well as a representation of a substitute traveler's
check, credit card check, or other item that meets the substitute check
definition. The following examples illustrate the scope of the
definition.
Examples.
a. A bank receives electronic presentment of a substitute check that
has been converted to electronic form and charges the customer's account
for that electronic item. The periodic account statement that the bank
provides to the customer includes information about the electronically-
presented substitute check in a line-item list describing all the checks
the bank charged to the customer's account during the previous month.
The electronic file that the bank received for presentment and charged
to the customer's account would be an electronic representation of a
substitute check, and the line-item appearing on the customer's account
statement would be a paper representation of a substitute check.
b. A paying bank receives and settles for a substitute check and
then realizes that its settlement was for the wrong amount. The paying
bank sends an adjustment request to the presenting bank to correct the
error. The adjustment request is not a paper or electronic
representation of a substitute check under the definition because it is
not being handled for collection or return as a check. Rather, it is a
separate request that is related to a check. As a result, no substitute
check warranty, indemnity, or expedited recredit rights attach to the
adjustment.
[[Page 599]]
YY. 229.2(yy) [Reserved]
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 Sec.
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 Sec. 229.2(aaa). Bank B
is the reconverting bank as of the time it prints the substitute check.
b. Company A, which is not a bank, by agreement receives check
information electronically from Bank A. Bank A becomes the reconverting
bank when Company A prints a substitute check on behalf of Bank A in
accordance with that agreement.
c. A depositary bank's customer, which is a nonbank business,
receives a check for payment, truncates that original check, and creates
a substitute check to deposit with its bank. The depositary bank
receives that substitute check from its customer and is the first bank
to handle the substitute check. The depositary bank becomes the
reconverting bank as of the time that it transfers or presents the
substitute check (or in lieu thereof the first paper or electronic
representation of the substitute check) for forward collection.
d. A bank is the payable-through bank for checks that are drawn on a
nonbank payor, which is the bank's customer. When the customer decides
not to pay a check that is payable through the bank, the customer
creates a substitute check for purposes of return. The payable-through
bank becomes the reconverting bank when it returns the substitute check
(or in lieu thereof the first paper or electronic representation of the
substitute check) to a returning bank or the depositary bank.
e. A paying bank returns a substitute check to the depositary bank,
which in turn gives that substitute check back to its nonbank customer.
That customer then redeposits the substitute check for collection at a
different bank. Because the substitute check was already transferred by
a bank, the second depositary bank does not become a reconverting bank
when it transfers or presents that substitute check for collection.
2. In some cases there will be one or more banks between the
truncating bank and the reconverting bank.
Example.
A depositary bank truncates the original check and sends an
electronic representation of the original check for collection to an
intermediary bank. The intermediary bank sends the electronic
representation of the original check to the presenting bank, which
creates a substitute check to present to the paying bank. The presenting
bank is the reconverting bank.
3. A check could move from electronic form to substitute check form
several times during the collection and return process. It therefore is
possible that there could be multiple substitute checks, and thus
multiple reconverting banks, with respect to the same underlying
payment.
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 Sec. 229.51(b) and the commentary thereto, a
reconverting bank is required to ensure that a substitute check contains
all indorsements applied by previous parties that handled the check in
any form. Therefore, the image of the original check that appears on the
back of a substitute check would include indorsements that were
physically applied to the original check before an image of the original
check was captured. An indorsement that was applied physically to the
original check after an image of the original check was captured would
be conveyed as an electronic indorsement (see paragraph 3 of the
commentary to Sec. 229.35(a)). The back of the substitute check would
contain a physical representation of any indorsements that were applied
electronically to the check after an
[[Page 600]]
image of the check was captured but before creation of the substitute
check.
Example.
Bank A, which is the depositary bank, captures an image of an
original check, indorses it electronically and, by agreement, transmits
to Bank B an electronic image of the check accompanied by the electronic
indorsement. Bank B then creates a substitute check to send to Bank C.
The back of the substitute check created by Bank B must contain a
representation of the indorsement previously applied electronically by
Bank A and Bank B's own indorsement. (For more information on
indorsement requirements, see Sec. 229.35, appendix D, and the
commentary thereto.)
5. Some substitute checks will not be created directly from the
original check, but rather will be created from a previous substitute
check. The back of a subsequent substitute check will contain an image
of the full length of the back of the previous substitute check. ANS
X9.100-140 requires preservation of the full length of the back of the
previous substitute check in order to preserve previous indorsements and
reconverting bank identifications. By contrast, the front of a
subsequent substitute check will not contain an image of the entire
previous substitute check. Rather, the image field of the subsequent
substitute check will contain the image of the front of the original
check that appeared on the previous substitute check at the time the
previous substitute check was converted to electronic form. The portions
of the front of the subsequent substitute check other than the image
field will contain information applied by the subsequent reconverting
bank, such as its reconverting bank identification, the MICR line, the
legal equivalence legend, and optional security information.
Examples.
a. The back of a subsequent substitute check would contain the
following indorsements, all of which would be preserved through the
image of the back of the previous substitute check: (1) The indorsements
that were applied physically to the original check before an image of
the original check was captured; (2) a physical representation of
indorsements that were applied electronically to the original check
after an image of the original check was captured but before creation of
the first substitute check; and (3) indorsements that were applied
physically to the previous substitute check. In addition, the
reconverting bank for the subsequent substitute check must overlay onto
the back of that substitute check a physical representation of any
indorsements that were applied electronically after the previous
substitute check was converted to electronic form but before creation of
the subsequent substitute check.
b. Because information could have been physically added to the image
of the front of the original check that appeared on the previous
substitute check, the original check image that appears on the front of
a subsequent substitute check could contain information in addition to
that which appeared on the original check at the time it was truncated.
6. The MICR line applied to a substitute check must contain
information in all fields of the MICR line that were encoded on the
original check at any time before an image of the original check was
captured. This includes all the MICR-line information that was
preprinted on the original check, plus any additional information that
was added to the MICR line before the image of the original check was
captured (for example, the amount of the check). The information in each
field of the substitute check's MICR line must be the same information
as in the corresponding field of the MICR line of the original check,
except as provided by ANS X9.100-140 (unless the Board by rule or order
determines that a different standard applies). Industry standards may
not, however, vary the requirement that a substitute check at the time
of its creation must bear a full-field MICR line.
7. ANS X9.100-140, provides that a substitute check must have a
``4'' in position 44 and that a qualified returned substitute check must
have a ``4'' in position 44 of the forward-collection MICR line as well
as a ``5'' in position 44 of the qualified return MICR line. The ``4''
and ``5'' indicate that the document is a substitute check so that the
size of the check image remains constant throughout the collection and
return process, regardless of the number of substitute checks created
that represent the same original check (see also Sec. Sec. 229.30(a)(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
[[Page 601]]
field of the original check was not encoded and the substitute check
therefore did not, when created, have an encoded amount field, the MICR
line of the substitute check later could be amount-encoded.
9. A bank may receive a substitute check that contains a MICR-line
variation but nonetheless meets the MICR-line replication requirements
of Sec. 229.2(aaa)(2) because that variation is permitted by ANS
X9.100-140. If such a substitute check contains a MICR-line error, a
bank that receives it may, but is not required to, repair that error.
Such a repair must be made in accordance with ANS X9.100-140 for
repairing a MICR line, which generally allows a bank to correct an error
by applying a strip that may or may not contain information in all
fields encoded on the check's MICR line. A bank's repair of a MICR-line
error on a substitute check is subject to the encoding warranties in
Regulation CC and the U.C.C.
10. A substitute check must conform to all the generally applicable
industry standards for substitute checks set forth in ANS X9.100-140,
which incorporates other industry standards by reference. Thus, multiple
substitute check images contained on the same page of an account
statement are not substitute checks.
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 Sec. 229.58 and the commentary thereto.
2. A bank under Sec. 229.53(b)(3) may limit its liability for an
indemnity claim and under Sec. Sec. 229.54(e)(2) and 229.55(c)(2) may
respond to an expedited recredit claim by providing the claimant with a
copy of a check that accurately represents all of the information on the
front and back of the original check as of the time the original check
was truncated or that otherwise is sufficient to determine the validity
of the claim against the bank.
Examples.
a. A copy of an original check that accurately represents all the
information on the front and back of the original check as of the time
of truncation would constitute a sufficient copy if that copy resolved
the claim. For example, if resolution of the claim required accurate
payment and indorsement information, an accurate copy of the front and
back of a legible original check (including but not limited to a
substitute check) would be a sufficient copy.
b. A copy of the original check that does not accurately represent
all the information on both the front and back of the original check
also could be a sufficient copy if such copy contained all the
information necessary to determine the validity of the relevant claim.
For instance, if a consumer received a substitute check that contained a
blurry image of a legible original check, the consumer might seek an
expedited recredit because his or her account was charged for $1,000,
but he or she believed that the check was written for only $100. If the
amount that appeared on the front of the original check was legible, an
accurate copy of only the front of the original check that showed the
amount of the check would be sufficient to determine whether or not the
consumer's claim regarding the amount of the check was valid.
CCC. 229.2(ccc) Transfer and Consideration
1. Under Sec. Sec. 229.52 and 229.53, a bank is responsible for the
warranties and indemnity when it transfers, presents, or returns a
substitute check (or a paper or electronic representation thereof) for
consideration. Drawers and other nonbank persons that receive checks
from a bank are not transferees that receive consideration as those
terms are defined in the U.C.C. However, the Check 21 Act clearly
contemplates that such nonbank persons that receive substitute checks
(or representations thereof) from a bank will receive the warranties and
indemnity from all previous banks that handled the check. To ensure that
these parties are covered by the substitute check warranties and
indemnity in the manner contemplated by the Check 21 Act, Sec.
229.2(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 Sec. 229.52. A drawer that suffers a loss due to receipt
of a substitute check may have warranty, indemnity, and, if the drawer
is a consumer, expedited recredit rights under the Check 21 Act and
subpart D. A drawer that suffers a loss due to receipt of a paper or
electronic representation of a substitute check would receive the
substitute check warranties but would not have indemnity or expedited
recredit rights.
[[Page 602]]
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.
DDD. 229.2(ddd) Truncate
1. Truncate means to remove the original check from the forward
collection or return process and to send in lieu of the original check
either a substitute check or, by agreement, information relating to the
original check. Truncation does not include removal of a substitute
check from the check collection or return process.
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 Sec. 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.
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 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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\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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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 Sec. 229.2.)
[[Page 603]]
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
next-day 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 next-day availability
requirement if they are deposited in an account held by a payee of the
check and in person to an employee of the depositary bank, regardless of
the purposes for which the checks were issued. For all new accounts,
even if the new account exception is not invoked, traveler's checks must
be included in the $5,000 aggregation of checks deposited on any one
banking day that are subject to the next-day availability requirement.
(See Sec. 229.13(a).)
2. Deposit in Account of Payee. One statutory condition to receipt
of next-day availability of Treasury checks, state and local government
checks, cashier's checks, certified checks, and teller's checks is that
the check must be ``endorsed only by the person to whom it was issued.''
The EFA Act could be interpreted to include a check that has been
indorsed in blank and deposited into an account of a third party that is
not named as payee. 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 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,
[[Page 604]]
and deposits at contractual branches would be treated the same as
deposits to a proprietary ATM for the purposes of this regulation. (See
also, Commentary to Sec. 229.19(a).)
b. In the case of Treasury checks, the EFA Act and regulation do not
condition the receipt of next-day availability to deposits at staffed
teller stations. Therefore, Treasury checks deposited at a proprietary
ATM must be accorded next-day availability, if the check is deposited to
an account of a payee of the check.
4. ``On Us'' Checks. The EFA Act 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-and-mortar
branch of the bank, such as off-premise ATMs and remote depositories,
are not considered deposits made at branches of the depositary bank.
5. 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 next-day 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 next-day 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 number, because these checks bear the
same routing number as other checks drawn on the same bank that are not
accorded next-day availability. Therefore, a bank may require a special
deposit slip for these checks.
c. The regulation specifies that if a bank decides to require the
use of a special deposit slip (or a special deposit envelope in the case
of a deposit at an ATM or other unstaffed facility) as a condition to
granting next-day availability under paragraphs (c)(1)(iv) or (c)(1)(v)
of this section 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
[[Page 605]]
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 Sec. 229.10(c), checks drawn on Federal Reserve
Banks and Federal Home Loan Banks, checks drawn by a state or unit of
general local government, cashier's checks, certified checks, and
teller's checks not subject to next-day (or second-day) availability
under Sec. 229.10(c) and payable in the same check processing region as
the depositary bank, must be made available for withdrawal by the second
business day following deposit.
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
Sec. 229.10(c) that does not meet the conditions for next-day
availability (or second-day availability) is treated as a nonlocal
check, if the check is drawn on or payable through or at a nonlocal
paying bank. Adjustments are made to the schedule for withdrawals by
cash or similar means and deposits in banks located outside the 48
contiguous states.
2. Reduction in Schedules.
a. Section 603(d)(1) of the EFA Act (12 U.S.C. 4002(d)(1)) requires
the Board to reduce the statutory schedules for any category of checks
where most of those checks would be returned in a shorter period of time
than provided in the schedules. The conferees indicated that ``if the
new system makes it possible for two-thirds of the items of a category
of checks to meet this test in a shorter period of time, then the
Federal Reserve must shorten the schedules accordingly.'' H.R. Rep. No.
261, 100th Cong., 1st Sess. at 179 (1987).
b. Reduced schedules are provided for certain nonlocal checks where
significant improvements can be made to the EFA Act's schedules due to
transportation arrangements or proximity between the check processing
regions of the depositary bank and the paying bank, allowing for faster
collection and return. Appendix B sets forth the specific reduction of
schedules applicable to banks located in certain check processing
regions.
c. A reduction in schedules may apply even in those cases where the
determination that the check is nonlocal cannot be made based on the
routing number on the check. For example, a nonlocal credit union
payable-through share draft may be subject to a reduction in schedules
if the routing number of the payable-through bank that appears on the
draft is included in Appendix B, even though the determination that the
payable-through share draft is nonlocal is based on the location of the
credit union and not the routing number on the draft.
[[Page 606]]
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 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 second-day) availability, must be
made available for withdrawal not later than Monday of the following
week. The provisions of Sec. 229.10(c)(1)(vii) requiring a depositary
bank
[[Page 607]]
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
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 Sec. 229.10(c).
2. Many checks will not be returned to the depositary bank by the
time funds must be made available for withdrawal 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 Sec. 229.2(a)) at the bank,
and opens an account, the account is subject to the new account
exception.
iv. If a person that is authorized to sign on a corporate account
(but has no other relationship with the bank) opens a personal account,
the personal account is subject to the new account exception.
v. If a customer has an established joint account at a bank, and
subsequently opens an individual account with that bank, the individual
account is not subject to the new account exception.
vi. If two customers that each have an established individual
account with the bank open a joint account, the joint account is not
subject to the new account exception. If one of the customers on the
account has no current or recent established account relationship with
the bank, however, the joint account is subject to the new account
exception, even if the other individual on the account has an
established account relationship with the bank.
2. Rules Applicable to New Accounts.
a. During the new 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 Sec.
229.10.
b. Special rules also apply to deposits of Treasury checks, U.S.
Postal Service money orders, checks drawn on Federal Reserve Banks and
Federal Home Loan Banks, state and local government checks, cashier's
checks, certified checks, teller's checks, and, for the purposes of the
new account exception only, traveler's checks. The first $5,000 of funds
deposited to a new account on any one banking day by these check
deposits must be made available for withdrawal in accordance with Sec.
229.10(c). Thus, the first $5,000
[[Page 608]]
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 Sec. 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 Sec. 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.
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 Sec. 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 Sec. 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 Sec. 229.10(c).
2. This exception addresses the increased risk to the depositary
bank that checks that have been returned once will be uncollectible when
they are presented to the paying bank a second time. The Board, however,
does not believe that this increased risk is present for checks that
have been returned due to a missing indorsement. Thus, the exception
does not apply to checks returned unpaid due to missing indorsements and
redeposited after the missing indorsement has been obtained, if the
reason for return indicated on the check (see Sec. 229.30(d)) states
that it was returned due to a missing indorsement. For the same reason,
this exception does not apply to a check returned because it was
postdated (future dated), if the reason for return indicated on the
check states that it was returned because it was postdated, and if it is
no longer postdated when redeposited.
3. To determine when funds must be made available for withdrawal,
the banking day on which the check is redeposited is considered to be
the day of deposit. A depositary bank that made $100 of a check
available for withdrawal under Sec. 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.
[[Page 609]]
E. 229.13(d) Repeated Overdrafts
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 regardless 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 Sec. Sec. 229.13(e) or
229.16(c), cannot be considered in determining whether the customer is a
repeated overdrafter. The exception excludes accounts with overdraft
lines of credit, unless the credit line has been exceeded or would have
been exceeded if the checks or other charges to the account had been
paid.
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 Sec. 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 Sec. 229.10(c)(1)(vii).
F. 229.13(e) Reasonable Cause To Doubt Collectibility
1. In the case of certain check deposits, if the bank has reasonable
cause to believe the check is uncollectible, it may extend the time
funds must be made available for withdrawal. This exception applies to
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 Sec. 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 Sec. 229.10(c)(1)(vii). If the reasonable cause exception
is invoked, the bank must include in the notice to its customer,
required by Sec. 229.13(g), the reason that the bank believes that the
check is uncollectible.
2. The following are several examples of circumstances under which
the reasonable cause exception may be invoked:
a. If a bank received a notice from the paying bank that a check was
not paid and is being returned to the depositary bank, the depositary
bank could place a hold on the check or extend a hold previously placed
on that check, and notify the customer that the bank had received notice
that the check is being returned. The exception could be invoked even if
the notice were incomplete, if the bank had reasonable cause to believe
that the notice applied to that particular check.
b. The depositary bank may have received information from the paying
bank, prior to the presentment of the check, that gives the bank
reasonable cause to believe that the check is uncollectible. For
example, the paying bank may have indicated that payment has been
stopped on the check, or that the drawer's account does not currently
have sufficient funds to honor the check. Such information may provide
sufficient basis to invoke this exception. In these cases, the
depositary bank could invoke the exception and disclose as the reason
the exception is being invoked the fact that information from the paying
bank indicates that the check may not be paid.
c. The fact that a check is deposited more than six months after the
date on the check (i.e. 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
[[Page 610]]
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 Sec. 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
Sec. 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 Sec. 229.10 (a) and (b), the depositary bank
may not be liable for a delay in making funds available for withdrawal
if the delay is due to a bona fide error such as an unavoidable computer
malfunction.
H. 229.13(g) Notice of Exception
1. In general.
a. If a depositary bank invokes any of the safeguard exceptions to
the schedules listed above, other than the new account or emergency
conditions exception, and extends the hold on a deposit beyond the time
periods permitted in Sec. Sec. 229.10(c) and 229.12, it must provide a
notice to its customer. Except in the cases described in paragraphs
(g)(2) and (g)(3) of this section, notices must be given each time an
exception hold is invoked and must state 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
[[Page 611]]
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 Sec. 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 Sec.
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 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
[[Page 612]]
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 Sec. 229.13(f), the depositary bank must provide notice in a
reasonable form within a reasonable time, depending on the
circumstances. For example, a depositary bank may learn of a weather
emergency or a power outage that affects the paying bank's operations.
Under these circumstances, it likely would be reasonable for the
depositary bank to provide an emergency 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
Sec. 229.21. This record must contain a brief description of the facts
on which the depositary bank based its judgment that there was
reasonable cause to doubt the collectibility of a check. In many cases,
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.
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
[[Page 613]]
following the end of the emergency or the time funds must be available
for withdrawal under Sec. Sec. 229.10(c) or 229.12, whichever is later.
6. This provision does not apply to holds imposed under the new
account exception. Under that exception, the maximum time period within
which funds must be made available for withdrawal is specified for
deposits that generally must be accorded next-day availability under
Sec. 229.10. This subpart does not specify the maximum time period
within which the proceeds of 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
1. This section requires that a depositary bank begin accruing
interest on interest-bearing accounts not later than the day on which
the depositary bank receives credit for the funds deposited.\3\ A
depositary bank generally 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.
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\3\ 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 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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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 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
[[Page 614]]
during a given period, provided that the balance is determined based on
the date that the depositary bank receives credit for the funds. This
section also is not intended to limit any policy providing that interest
accrues sooner than required by this paragraph.
B. 229.14(b) Special Rule for Credit Unions
1. This provision implements a requirement in section 606(b) of the
EFA Act, and provides an exemption from the payment-of-interest
requirements for credit unions that do not begin to accrue interest or
dividends on their customer accounts until a later date than the day the
credit union receives credit for those deposits, including cash
deposits. These credit unions are exempt from the payment-of-interest
requirements, as long as they provide notice of their interest accrual
policies in accordance with Sec. 229.16(d). For example, if a credit
union has a policy of computing interest on all deposits received by the
10th of the month from the first of that month, and on all deposits
received after the 10th of the month from the first of the next month,
that policy is not superseded by this regulation, if the credit union
provides proper disclosure of this policy to its customers.
2. The EFA Act limits this exemption to credit unions; other types
of banks must comply with the payment-of-interest requirements. In
addition, credit unions that compute interest from the day of deposit or
day of credit should not change their existing practices in order to
avoid compliance with the requirement that interest accrue from the day
the credit union receives credit.
C. 229.14(c) Exception for Checks Returned Unpaid
1. This provision is based on section 606(c) of the EFA Act (12
U.S.C. 4005(c)) and provides that interest need not be paid on funds
deposited in an interest-bearing account by check that has been returned
unpaid, regardless of the reason for return.
IX. Section 229.15 General Disclosure Requirements
A. 229.15(a) Form of Disclosures
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 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 --------
-------- business day after'' the day of deposit, or substantially
similar language. The business day of availability is determined by
counting the number of business
[[Page 615]]
days starting with the business day following the banking day on which
the deposit is received, as determined under Sec. 229.19(a), and ending
with the business day on which the customer may begin to withdraw funds.
For example, a bank that 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.
D. 229.15(d) Dormant or Inactive Accounts
1. This paragraph makes clear that banks need not provide disclosure
of their specific availability policies to customers that hold accounts
that are either dormant or inactive. The determination that certain
accounts are dormant or inactive must be made by the bank. If a bank
considers an account dormant or inactive for purposes other than this
regulation and no longer provides statements and other mailings to an
account for this reason, such an account is considered dormant or
inactive for purposes of this regulation.
X. Section 229.16 Specific Availability Policy Disclosure
A. 229.16(a) General
1. This section describes the information that must be disclosed by
banks to comply with Sec. Sec. 229.17 and 229.18(d), which require that
banks furnish notices of their specific policy regarding availability of
deposited funds. The disclosure provided by a bank must reflect the
availability policy followed by the bank in most cases, even though a
bank may in some cases make funds available sooner or impose a longer
delay.
2. The disclosure must reflect the policy and practice of the bank
regarding availability as to most accounts and most deposits into those
accounts. In disclosing the availability policy that it follows in most
cases, a bank may provide a single disclosure that reflects one policy
to all its transaction account customers, even though some of its
customers may receive faster availability than that reflected in the
policy disclosure. Thus, a bank need not disclose to some customers that
they receive faster availability than indicated in the disclosure. If,
however, a bank has a policy of imposing delays in availability on any
customers longer than those specified in its disclosure, those customers
must receive disclosures that reflect the longer applicable availability
periods. A bank may establish different availability policies for
different groups of customers, such as customers in a particular
geographic area or customers of a particular branch. For purposes of
providing a specific availability policy, the bank may allocate
customers among groups through good faith use of a reasonable method. A
bank may also establish different availability policies for deposits at
different locations, such as deposits at a contractual branch.
3. A bank may disclose that funds are available for withdrawal on a
given day notwithstanding the fact that the bank uses the funds to pay
checks received before that day. For example, a bank may disclose that
its policy is to make funds available from deposits of 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 Sec. 229.2(d).)
B. 229.16(b) Content of Specific Policy Disclosure
1. This paragraph sets forth the items that must be included, as
applicable, in a bank's specific availability policy disclosure. The
information that must be disclosed by a particular bank will vary
considerably depending upon the bank's availability policy. For example,
a bank that makes deposited funds available for withdrawal on the
business day following the day of deposit need simply disclose that
deposited funds will be available for withdrawal on the first business
day after the day of deposit, the bank's business days, and when
deposits are considered received.
2. On the other hand, a bank that has a policy of routinely delaying
on a blanket basis the time when 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
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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 Sec. 229.13 of the regulation, or when the bank
delays or extends the time when deposited funds are available for
withdrawal up to the time periods allowed by the regulation on a case-
by-case basis. 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 Sec. Sec. 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 Sec.
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
Sec. 229.12(d), or the provision in Sec. 229.19(e) allowing holds to
be placed on other deposits when a deposit is made or a check is cashed,
must explain this in the initial disclosure.
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 Sec. 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 the
bank's detailed schedule would not trigger the change in policy
disclosure requirement of Sec. 229.18(e).
C. 229.16(c) Longer Delays on a Case-by-Case Basis
1. Notice in specific policy disclosure.
a. Banks that make deposited funds available for withdrawal sooner
than required by the regulation--for example, providing their customers
with immediate or next-day availability for deposited funds--and delay
the time when funds are available for withdrawal only from time to time
determined on a case-by-case basis, must provide notice of this in their
specific availability policy disclosure. This paragraph outlines the
requirements for that notice.
b. In addition to stating what their specific availability policy is
in most cases, banks that may delay or extend the time when deposits are
available on a case-by-case basis must: state that from time to time
funds may be available for withdrawal later than the time periods in
their specific policy disclosure, disclose the latest time that a
customer may have to wait for deposited funds to be available for
withdrawal when a case-by-case hold is placed, state that customers will
be notified when availability of a deposit is delayed on a case-by-case
basis, and advise customers to ask if they need to be
[[Page 617]]
sure of the availability of a particular deposit.
c. A bank that imposes delays on a case-by-case basis is still
subject to the availability requirements of this regulation. If the bank
imposes a delay on a particular deposit that is not longer than the
availability required by Sec. 229.12 for local and nonlocal checks, the
reason for the delay need not be based on the exceptions provided in
Sec. 229.13. If the delay exceeds the time periods permitted under
Sec. 229.12, however, then it must be based on an exception provided in
Sec. 229.13, and the bank must comply with the Sec. 229.13 notice
requirements. A bank that imposes delays on a case-by-case basis may
avail itself of the one-time notice provisions in Sec. 229.13(g)(2) and
(3) for deposits to which those provisions apply.
2. Notice at time of case-by-case delay.
a. In addition to including the disclosures required by paragraph
(c)(1) of this section in their specific availability policy disclosure,
banks that delay or extend the time period when funds are available for
withdrawal on a case-by-case basis must give customers a 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 Sec. 229.16(c)(3).)
c. The requirement that the case-by-case hold notice state the day
that funds will be made available for withdrawal may be met by stating
the date or the number of business days after deposit that the funds
will be made available. This requirement is satisfied if the notice
provides information sufficient to indicate when funds will be available
and the amounts that will be available at those times. For example, for
a deposit involving more than one check, the bank need not provide a
notice that discloses when funds from each individual item in the
deposit will be available for withdrawal. Instead, the bank may provide
a total dollar amount for each of the time periods when funds will be
available, or provide the customer with an explanation of how to
determine the amount of the deposit that will be held and when the held
funds will be available for withdrawal.
d. For deposits made in person to an employee of the depositary
bank, the notice generally must be given at the time of the deposit. The
notice at the time of the deposit must be given to the person making the
deposit, that is, the ``depositor.'' The depositor need not be the
customer holding the account. For other deposits, such as deposits
received at an ATM, lobby deposit box, night depository, through the
mail, or by armored car, notice must be 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 check fee under
these circumstances, however, if it provides notice to the customer in
the notice required by paragraph (c)(2) of this section that the fee may
be subject to refund, and refunds the fee upon the request of the
customer when required to do so. The notice must state that the customer
may be entitled to a refund of any overdraft or returned check fees that
are assessed if the deposited check is paid, and indicate where such
requests for a refund of overdraft fees should be directed. Paragraph
(c)(3) applies when a bank provides a case-by-case notice in accordance
with paragraph (c)(2) and does not apply if the bank has provided an
exception hold notice in accordance with Sec. 229.13.
D. 229.16(d) Credit Union Notice of Interest Payment Policy
1. This paragraph sets forth the special disclosure requirement for
credit unions that delay accrual of interest or dividends for all cash
and check deposits beyond the date of receiving provisional credit for
checks being deposited. (The interest payment requirement is set forth
in Sec. 229.14(a).) Such credit unions are required to describe their
policy with respect to accrual of interest or dividends on deposits in
their specific availability policy disclosure.
[[Page 618]]
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
A. 229.18(a) Deposit Slips
1. This paragraph requires banks to include a notice on all
preprinted deposit slips. The deposit slip notice need only state,
somewhere on the front of the deposit slip, that deposits may not be
available for immediate withdrawal. The notice is required only on
preprinted deposit slips--those printed with the customer's account
number and name and furnished by the bank in response to a customer's
order to the bank. A bank need not include the notice on deposit slips
that are not preprinted and supplied to the customer--such as counter
deposit slips--or on those special deposit slips provided to the
customer under Sec. 229.10(c). A bank is not responsible for ensuring
that the notice appear 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 Sec. 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 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
[[Page 619]]
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
Sec. 229.16(b)(5) shall provide its customers with an updated list of
ATMs once a year if there are changes in the list of ATMs previously
disclosed to the customers.
XIII. Section 229.19 Miscellaneous
A. 229.19(a) When Funds Are Considered Deposited
1. The time funds must be made available for withdrawal under this
subpart is determined by the day the deposit is made. This paragraph
provides rules to determine the day funds are considered deposited in
various circumstances.
2. Staffed facilities and ATMs. Funds received at a staffed teller
station or ATM are considered deposited when received by the teller or
placed in the ATM. Funds received at a contractual branch are considered
deposited when received by a teller at the contractual branch or
deposited into a proprietary ATM of the contractual branch. (See also,
Commentary to Sec. 229.10(c) on deposits made to an employee of the
depositary bank.) Funds deposited to a deposit box in a bank lobby that
is accessible to customers only during regular business hours generally
are considered deposited when placed in the lobby box; a bank may,
however, treat deposits to lobby boxes the same as deposits to night
depositories (as provided in Sec. 229.19(a)(3)), provided a notice
appears on the lobby box informing the customer when such funds will be
considered deposited.
3. Mail. Funds mailed to the depositary bank are considered
deposited on the banking day they are received by the depositary bank.
The funds are received by the depositary bank at the time the mail is
delivered to the bank, even if it is initially delivered to a mail room,
rather than the check processing area.
4. Other facilities.
a. In addition to deposits at staffed facilities, at ATMs, and by
mail, funds may be deposited at a facility such as a night depository or
a lock box. A night depository is a receptacle for receipt of deposits,
typically used by corporate depositors when the branch is closed. Funds
deposited at a night depository are considered deposited on the banking
day the deposit is removed, and the contents of the deposit are
accessible to the depositary bank for processing. For example, some
businesses deposit their funds in a locked bag at the night depository
late in the evening, and return to the bank the following day to open
the bag. Other depositors may have an agreement with their bank that the
deposit bag must be opened under the dual control of the bank and the
depositor. In these cases, the funds are considered deposited when the
customer returns to the bank and opens the deposit bag.
b. A lock box is a post office box used by a corporation for the
collection of bill payments or other check receipts. The depositary bank
generally assumes the responsibility for collecting the mail from the
lock box, processing the checks, and crediting the corporation for the
amount of the deposit. Funds deposited through a lock box arrangement
are considered deposited on the day the deposit is removed from the lock
box and are accessible to the depositary bank for processing.
5. Certain off-premise ATMs. A special provision is made for certain
off-premise ATMs that are not serviced daily. Funds deposited at such an
ATM are considered deposited on the day they are removed from the ATM,
if the ATM is not serviced more than two times each week. This provision
is intended to address the practices of some banks of servicing certain
remote ATMs infrequently. If a depositary bank applies this provision
with respect to an ATM, a notice must be posted at the ATM informing
depositors that funds deposited at the ATM may not be considered
deposited until a future day, in accordance with Sec. 229.18.
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 off-premise 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 off-premise facility). The depositary
bank must use the same timing method for establishing the cut-off hour
for all ATMs, contractual branches, and other off-premise facilities
used by its customers. The choice of cut-off
[[Page 620]]
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 over-the-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 Sec. 229.2(f)
defines the term banking day as the portion of a business day on which a
bank is open to the public for substantially all of its banking
functions, a day, or a portion of a day, is not necessarily a banking
day merely because the bank is open for only limited functions, such as
keeping drive-in or walk-up teller windows open, when the rest of the
bank is closed to the public. For example, a banking office that usually
provides a full range of banking services may close at 12 noon but leave
a drive-in teller window open for the limited purpose of receiving
deposits and making cash withdrawals. Under those circumstances, the
bank is considered closed and may consider deposits received after 12
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 Sec. 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
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 Sec. 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 Sec. 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
[[Page 621]]
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-the-counter on a given day. For example,
some banks require advance notice for large cash withdrawals in order to
limit the amount of cash needed to be maintained on hand at any time.
7. Nothing in the regulation is intended to prohibit a bank from
limiting the amount of cash that may be withdrawn at a staffed teller
station if the bank has a policy limiting the amount of cash that may be
withdrawn, and if that policy is applied equally to all customers of the
bank, is based on security, 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 provision of the
EFA Act is designed to prevent evasion of the EFA Act's availability
requirements.
2. This paragraph clarifies that if a customer deposits a check in
an account (as defined in Sec. 229.2(a)), the bank may not place a hold
on any of the customer's funds so that the funds that are held exceed
the amount of the check deposited or the total amount of funds held are
not made available for withdrawal within the times required in this
subpart. For example, if a bank places a hold on funds in a customer's
non transaction account, rather than a transaction account, for deposits
made to the customer's transaction account, the bank may place such a
hold only to the extent that the funds held do not exceed the amount of
the deposit and the length of the hold does not exceed the time periods
permitted by this regulation.
3. These restrictions also apply to holds placed on funds in a
customer's account (as defined in Sec. 229.2(a)) if a customer cashes a
check at a bank (other than a check drawn on that bank) over the
counter. The regulation does not prohibit holds that may be placed on
other funds of the customer for checks cashed over the counter, to the
extent that the transaction does not involve a deposit to an account. 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
[[Page 622]]
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 Sec. Sec. 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.
G. 229.19(g) Effect of Merger Transaction
1. After banks merge, there is often a period of adjustment before
their operations are consolidated. This paragraph accommodates this
adjustment period by allowing merged banks to be treated as separate
banks for purposes of this subpart for a period of up to one year after
consummation of the merger transaction, except that a customer of any
bank that is a party to the transaction that has an established account
with that bank may not be treated as a new account holder for any other
party to the transaction for purposes of the new account exception of
Sec. 229.13(a), and a deposit in any branch of the merged bank is
considered deposited in the bank for purposes of the availability
schedules in accordance with Sec. 229.19(a).
2. This rule affects the status of the combined entity in several
areas. For example, this rule would affect when an ATM is a proprietary
ATM (Sec. 229.2(aa) and Sec. 229.12(b)) and when a check is considered
drawn on a branch of the depositary bank (Sec. 229.10(c)(1)(vi)).
3. Merger transaction is defined in Sec. 229.2(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 in-state checks may be
shorter than the federal maximum hold period for nonlocal checks. Thus,
the state schedule would supersede the federal schedule to the extent
that it applies to in-state, nonlocal checks.
4. The EFA Act also provides that any state law that provides for
availability in a shorter period of time than required by federal law is
applicable to all federally insured institutions in that state,
including federally chartered institutions. If a state law provides
shorter availability only for deposits in accounts in certain categories
of banks, such as commercial banks, the superseding state law continues
to apply only to those categories of banks, rather than to all federally
insured banks in the state.
B. 229.20(b) Preemption of Inconsistent Law
1. This paragraph reflects the statutory provision that other
provisions of state law that are inconsistent with federal law are
preempted. Preemption does not require a determination by the Board to
be effective.
C. 229.20(c) Standards for Preemption
1. This section describes the standards 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
[[Page 623]]
than that permitted under the EFA Act and this regulation, and therefore
is inconsistent and preempted. State availability schedules that provide
for availability in a shorter period of time than required under
Regulation CC supersede the federal schedule.
2. Under a state law, some categories of deposits could be available
for withdrawal sooner or later than the time required by this subpart,
depending on the composition of the deposit. For example, the EFA Act
and this regulation (Sec. 229.10(c)(1)(vii)) require next-day
availability for 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 next-day availability. In
this example, because the state law would, in some situations, permit a
hold longer than the maximum permitted by the EFA Act, this provision of
state law is inconsistent and preempted in its entirety.
3. In addition to the differences between state and federal
availability schedules, a number of state laws contain exceptions to the
state availability schedules that are different from those provided
under the EFA Act and this regulation. The state exceptions continue to
apply only in those cases where the state schedule is shorter than or
equal to the federal schedule, and then only up to the limit permitted
by the Regulation CC schedule. Where a deposit is subject to a state
exception under a state schedule that is not preempted by Regulation CC
and is also subject to a federal exception, the hold on the deposit
cannot exceed the hold permissible under the federal exception in
accordance with Regulation CC. In such cases, only one exception notice
is required, in accordance with Sec. 229.13(g). This notice need only
include the applicable federal exception as the reason the exception was
invoked. For those categories of checks for which the state schedule is
preempted by the federal schedule, only the federal exceptions may be
used.
4. State laws that provide maximum availability periods for
categories of deposits that are not covered by the EFA Act would not be
preempted. Thus, state funds availability laws that apply to funds in
time and savings deposits are not affected by the EFA Act or this
regulation. In addition, the availability schedules of several states
apply to ``items'' deposited to an account. The term items may encompass
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 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 Sec.
229.20.)
B. 229.21(b) Class Action Awards
1. This paragraph sets forth the provision in the EFA Act concerning
the factors that should be considered by the court in establishing the
amount of a class action award.
C. 229.21(c) Bona Fide Errors
1. A bank is shielded from liability under this section for a
violation of a requirement of this subpart if it can demonstrate, by a
[[Page 624]]
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.
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.
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 Sec. 229.13(g) as well as a brief description of the facts giving
rise to the availability of that exception.
XVI. Section 229.30 Paying Bank's Responsibility for Return of Checks
A. 229.30(a) Return of Checks
1. This section requires a paying bank (which, for purposes of
Subpart C, may include a payable-through and payable-at bank; see Sec.
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 four-day period.
3. Two-day/four-day test.
a. Under the first test, a paying bank must return the check so that
the check would normally be received by the depositary bank within
specified times, depending on whether or not the paying and depositary
banks are located in the same check processing region.
b. Where both banks are located in the same check processing region,
a check is returned expeditiously if it is returned to the depositary
bank by 4:00 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
[[Page 625]]
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/four-day 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 Sec. 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 Sec. 229.31) as their agents to
return checks to depositary banks. A paying bank may rely on the
availability schedule of the returning bank it uses in determining
whether the returned check would ``normally'' be returned within the
required time 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 Sec. 229.31(a). This test allows many paying banks a simple
means of expeditious return of checks and takes into account the longer
time for return that will be required by banks that do not have ready
access to direct courier transportation.
c. The paying bank's normal method of sending a check for forward
collection would not be expeditious, however, if it is materially slower
than that of other banks of similar size and with similar check handling
activity in its community.
d. Under the ``forward collection'' test, a paying bank must handle,
route, and transport a returned check in a manner designed to be at
least as fast as a similarly situated bank would collect a forward
collection check (1) of similar amount, (2) drawn on the depositary
bank, and (3) received for deposit by a branch of the paying bank or a
similarly situated bank by noon on the banking day following the banking
day of presentment of the returned check.
e. This test refers to similarly situated banks to indicate a
general community standard. In the case of a paying bank (other than a
Federal Reserve Bank), a similarly situated bank is a bank of similar
asset size, in the same community, and with similar check handling
activity as the paying bank. (See Sec. 229.2(ee).) A paying bank has
similar check handling activity to other banks that handle similar
volumes of checks for collection.
f. Under the forward collection test, banks that use means of
handling returned checks that are less efficient than the means used by
similarly situated banks must improve their procedures. On the other
hand, a bank with highly efficient means of collecting checks drawn on a
particular bank, such as a direct presentment of checks to a bank in a
remote community, is not required to use that means for returned checks,
i.e. direct return, if similarly situated banks do not present checks
directly to that depositary bank.
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 Sec. 229.31(a). (All
[[Page 626]]
Federal Reserve Banks agree to handle returned checks expeditiously.)
ii. The paying bank must deliver the returned check to the
correspondent or Federal Reserve Bank by the correspondent's or Federal
Reserve Bank's appropriate cut-off hour. The appropriate cut-off hour is
the cut-off hour for returned checks that corresponds to the cut-off
hour for forward collection checks drawn on the depositary bank that
would normally be used by the paying bank or a similarly situated bank.
A returned check cut-off hour corresponds to a forward collection cut-
off hour if it provides for the same or faster availability for checks
destined for the same depositary banks.
iii. In this example, delivery to the correspondent or a Federal
Reserve Bank by the appropriate cut-off hour satisfies the paying bank's
duty, even if use of the correspondent or Federal Reserve Bank is not
the most expeditious means of returning the check. Thus, a paying bank
may send a local returned check to a correspondent instead of a Federal
Reserve Bank, even if the correspondent then sends the returned check to
a Federal Reserve Bank the following day as a qualified returned check.
Where the paying bank delivers forward collection checks by courier to
the correspondent or the Federal Reserve Bank, mailing returned checks
to the correspondent or Federal Reserve Bank would not satisfy the
forward collection test.
iv. If a paying bank ordinarily mails its forward collection checks
to its correspondent or Federal Reserve Bank in order to avoid the costs
of a courier delivery, but similarly situated banks use a courier to
deliver forward collection checks to their correspondent or Federal
Reserve Bank, the paying bank must send its returned checks by courier
to meet the forward collection test.
c. If a paying bank normally sends its forward collection checks
directly to the depositary bank, which is located in another community,
but similarly situated banks send forward collection checks drawn on the
depositary bank to a correspondent or a Federal Reserve Bank, the paying
bank would not have to send returned checks directly to the depositary
bank, but could send them to a correspondent or a Federal Reserve Bank.
d. The dollar amount of the returned check has a bearing on how it
must be returned. If the paying bank and similarly situated banks
present large-dollar checks drawn on the depositary bank directly to the
depositary bank, but use a Federal Reserve Bank or a correspondent to
collect small-dollar checks, generally the paying bank would be required
to send its large-dollar returns directly to the depositary bank (or
through a returning bank, if the checks are returned as quickly), but
could use a Federal Reserve Bank or a correspondent for its small-dollar
returns.
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 Sec. 229.38.) If, however,
the paying bank selects a returning bank that the paying bank should
know is not capable of meeting its return requirements, the paying bank
will not have met its obligation of exercising ordinary care in
selecting intermediaries to return the check. The paying bank is free to
use a method of return, other than its method of forward collection, as
long as the alternate method results in delivery of the returned check
to the depositary bank as quickly as the forward collection of a check
drawn on the depositary bank or, where the returning bank takes a day to
create a qualified returned check under Sec. 229.31(a), one day later
than the forward collection time. If a paying bank returns a check on
its banking day of receipt without settling for the check, as permitted
under U.C.C. 4-302(a), and receives settlement for the returned check
from a returning bank, it must promptly pay the amount of the check to
the collecting bank from which it received the check.
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
Sec. 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
[[Page 627]]
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 Sec. 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 Sec. 229.32(a).
9. Midnight deadline.
a. Except for the extension permitted by Sec. 229.30(c), discussed
below, this section does not relieve a paying bank from the requirement
for timely return (i.e., midnight deadline) under U.C.C. 4-301 and 4-
302, which continue to apply. Under U.C.C. 4-302, a paying bank is
``accountable'' for the amount of a demand item, other than a
documentary draft, if it does not pay or return the item or send notice
of dishonor by its midnight deadline. Under U.C.C. 3-418(c) and 4-
215(a), late return constitutes payment and would be final in favor of a
holder in due course or a person who has in good faith changed his
position in reliance on the payment. Thus, retaining this requirement
gives the paying bank an additional incentive to make a prompt return.
b. The expeditious return requirement applies to a paying bank that
determines not to pay a check. This requirement applies to a payable-
through or a payable-at bank that is defined as a paying bank (see Sec.
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 Sec. 229.36(a).)
c. The liability section of this subpart (Sec. 229.38) provides
that a paying bank is not subject to both ``accountability'' for missing
the midnight deadline under the U.C.C. and liability for missing the
timeliness requirements of this regulation. Also, a paying bank is not
responsible for failure to make expeditious return to a party that has
breached a presentment warranty under U.C.C. 4-208, notwithstanding that
the paying bank has returned the check. (See Commentary to Sec.
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 Sec.
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 Sec. 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 Sec. 229.30(a), send the returned check to
a returning bank that agrees to handle the returned check for
expeditious return to the depositary bank under Sec. 229.31(a). The
returning bank may be better able to identify the depositary bank.
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 such a returned check to any
bank that handled the check for forward collection, even if that bank
does not agree to handle the returned check for expeditious return to
the depositary bank under Sec. 229.31(a). 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 Sec. 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 Sec.
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
[[Page 628]]
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 Sec. 229.35(a) and Appendix
D. If the depositary bank failed to use the proper indorsement, it
should bear the risks of less than expeditious return. Similarly, where
the inability to identify the depositary bank is due to indorsements or
other information placed on the back of the check by the depositary
bank's customer or other prior indorser, the depositary bank should bear
the risk that it cannot charge a returned check back to that customer.
Where the inability to identify the depositary bank is due to subsequent
indorsements of collecting banks, these collecting banks may be liable
for a loss incurred by the depositary bank due to less than expeditious
return of a check; those banks therefore have an incentive to return
checks sent to them under this paragraph quickly.
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 Sec.
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
Sec. 229.30(c). A paying bank also may send a check to a prior
collecting bank to make a claim against that bank under Sec. 229.35(b)
where the depositary bank is insolvent or in other cases as provided in
Sec. 229.35(b). Finally, a paying bank may make a claim against a prior
collecting bank based on a breach of warranty under U.C.C. 4-208.
C. 229.30(c) Extension of Deadline
1. This paragraph permits extension of the deadlines for returning a
check for which the paying bank previously has settled (generally
midnight of the banking day following the banking day on which the check
is received by the paying bank) and for returning a check without
settling for it (generally midnight of the banking day on which the
check is received by the paying bank, or such other time provided by
Sec. 210.9 of Regulation J (12 CFR part 210) or Sec. 229.36(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 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, Sec. Sec. 210.9 and 210.12
of Regulation J (12 CFR 210.9 and 210.12), and Sec. 229.36(f)(2) of
this part. As these extensions are designed to speed (Sec.
229.30(c)(1)), or at least not slow (Sec. 229.30(c)(2)), the overall
return of checks, no modification or extension of the expeditious return
requirements in Sec. 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
[[Page 629]]
paying bank, prior to expiration of the deadline.
4. This paragraph directly affects U.C.C. 4-301 and 4-302 and
Sec. Sec. 210.9 and 210.12 of Regulation J (12 CFR 210.9 and 210.12) to
the extent that this paragraph applies by its terms, and may affect
other provisions.
D. 229.30(d) Identification of Returned Check
1. The reason for the return must be clearly indicated. A check is
identified as a returned check if the front of that check indicates the
reason for return, even though it does not specifically state that the
check is a returned check. 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.
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 Sec. 229.30(a) and
the notice of nonpayment requirement of Sec. 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 Sec. 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 Sec. Sec.
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 Sec. 229.2(a), and a paying
bank returning a check to one of these banks would be required to return
the check to the depositary bank, in accordance with the 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 Sec. 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 for protest. A check is not unavailable for return if it is
merely difficult to retrieve from a filing system or from storage by a
keeper of checks in a truncation system. A notice in lieu of return may
be used by a bank handling a returned check that has been lost or
destroyed, including when the original returned check has been charged
back as lost or destroyed as provided in Sec. 229.35(b). A bank using a
notice in lieu of return gives a warranty under Sec. 229.34(a)(4) that
the original check has not been and will not be returned.
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
Sec. 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 Sec. 229.33 is still required, but may be satisfied by the notice
in lieu of return if the notice in lieu meets the time and information
requirements of Sec. 229.33.
4. If not all of the information required by Sec. 229.33(b) is
available, the paying bank may make a claim against any prior bank
handling the check as provided in Sec. 229.35(b).
[[Page 630]]
G. 229.30(g) Reliance on Routing Number
1. Although Sec. 229.35 and Appendix D require that the depositary
bank indorsement contain its nine-digit routing number, it is possible
that a returned check will bear the routing number of the depositary
bank in fractional, nine-digit, or other form. This paragraph permits a
paying bank to rely on the routing number of the depositary bank as it
appears on the check (in the depositary bank's indorsement) when it is
received by the paying bank.
2. If there are inconsistent routing numbers, the paying bank may
rely on any routing number designating the depositary bank. The paying
bank is not required to resolve the inconsistency prior to processing
the check. The paying bank remains subject to the requirement to act in
good faith and use ordinary care under Sec. 229.38(a).
XVII. Section 229.31 Returning Bank's Responsibility for Return of
Checks
A. 229.31(a) Return of Checks
1. The standards for return of checks established by this section
are similar to those for paying banks in Sec. 229.30(a). This section
requires a returning bank to 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/four-day'' 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 Sec. 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
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
[[Page 631]]
would collect a forward collection check drawn on the depositary bank by
sending the forward collection check to a correspondent or a Federal
Reserve Bank by courier, the returning bank could send the returned
check in the same manner if the correspondent has agreed to handle
returned checks expeditiously under Sec. 229.31(a). The returning bank
would have to deliver the check by the correspondent's or Federal
Reserve Bank's cut-off hour for returned checks that corresponds to its
cut-off hour for forward collection checks drawn on the depositary bank.
A returning bank may take a day to convert a check to a qualified
returned check. Where the forward collection checks are delivered by
courier, mailing the returned checks would not meet the duty established
by this section for returning banks.
ii. A returning bank must return a check to the depositary bank by
courier or other means as fast as a courier, if similarly situated
returning banks use couriers to deliver their forward collection checks
to the depositary bank.
iii. For some depositary banks, no community practice exists as to
delivery of checks. For example, a credit union whose customers use
payable-through drafts normally does not have checks presented to it
because the drafts are normally sent to the payable-through bank for
collection. In these circumstances, the community standard is
established by taking into account the dollar volume of the checks being
sent to the depositary bank and the location of the depositary bank, and
determining whether similarly situated banks normally would deliver
forward collection checks to the depositary bank, taking into account
the particular risks associated with returned checks. Where the
community standard does not require courier delivery, other means of
delivery, including mail, are acceptable.
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 Sec. 210.12(a) of Regulation J (12 CFR 210.12(a)), under the
forward collection test, a returning bank may take an extra day to
qualify a returned check. 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 Sec. 229.38 for losses caused by
any negligence or under Sec. 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 Sec. 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 bank, it is not required to send the check to the
branch of the depositary bank that first handled the check. The returned
check may be sent to the depositary bank at any location permitted under
Sec. 229.32(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 Sec.
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 Sec. 229.31(c) and not by charge-back of provisional credit, and
[[Page 632]]
in that the time limits may be affected by the additional requirement to
make an expeditious return.
B. 229.31(b) Unidentifiable Depositary Bank
1. This section is similar to Sec. 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 Sec. 229.31(a) are expected to be expert in identifying
depositary bank indorsements. In the limited cases where the returning
bank cannot identify the depositary bank, the returning bank may send
the returned check to a returning bank that agrees to handle the
returned check for expeditious return under Sec. 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 Sec. 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 Sec.
229.30(b), a returning bank's sending of a check to a bank that handled
the check for forward collection under Sec. 229.31(b) is not subject to
the expeditious return requirements of Sec. 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 Sec. 229.2(cc).)
4. Where a returning bank receives a check that it does not agree to
handle expeditiously under Sec. 229.31(a), such as a check sent to it
under Sec. 229.30(b), but the returning bank is able to identify the
depositary bank, the returning bank must thereafter return the check
expeditiously to the depositary bank. The returning bank returns a check
expeditiously under this paragraph if it returns the check by the same
means it would use to return a check drawn on it to the depositary bank
or by other reasonably prompt means.
5. As in the case of a paying bank returning a check under Sec.
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.
C. 229.31(c) Settlement
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 Sec. 229.36(d) and Commentary to Sec. 229.35(b).)
3. A returning bank may vary the settlement method it uses by
agreement with paying banks or other returning banks. Special rules
apply in the case of insolvency of banks. (See Sec. 229.39.) If payment
cannot be obtained from a depositary or returning bank because of its
insolvency or otherwise, recovery can be had by returning, paying, and
collecting banks from prior banks on this basis of the liability of
prior banks under Sec. 229.35(b).
4. This paragraph affects U.C.C. 4-214(a) in that a paying or
collecting bank does not ordinarily have a right to charge back against
the bank from which it received the returned check, although it is
entitled to settlement if it returns the returned check to that bank,
and may affect other sections or provisions. Under Sec. 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 Sec. 229.35(b), the bank on which the claim is
made is not authorized by this paragraph to impose a charge for taking
up a check. This paragraph preempts state laws to the extent that these
laws prevent
[[Page 633]]
returning banks from charging fees for handling returned checks.
E. 229.31(e) Depositary Bank Without Accounts
1. This paragraph is similar to Sec. 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 Sec. 229.30(e).)
F. 229.31(f) Notice in Lieu of Return
1. This paragraph is similar to Sec. 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 Sec. 229.30(f).)
G. 229.31(g) Reliance on Routing Number
1. This paragraph is similar to Sec. 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 returned checks. (See the Commentary to Sec. 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 Sec. 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 the
address associated with the routing number in the indorsement are not in
the same check processing region. Under Sec. Sec. 229.30(g) and
229.31(g), a paying or returning bank may rely on the depositary bank's
routing number in its indorsement in handling returned checks and is not
required to send returned checks to an address in the depositary bank's
indorsement that is not in the same check processing region as the
address associated with the routing number in the indorsement.
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 Sec. 229.35 and
Appendix D requires that the indorsement contain a routing number, a
name, and a location. Consequently, this provision, as well as paragraph
(a)(2)(ii) of this section, only applies where the depositary bank has
failed to comply with the indorsement requirement.
3. For ease of processing, a depositary bank may require that
returning or paying banks returning checks to it separate returned
checks from forward collection checks being presented.
4. Under Sec. 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.
[[Page 634]]
B. 229.32(b) Payment
1. As discussed in the commentary to Sec. 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 Sec. Sec.
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 Sec. 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
Sec. 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 Sec. 229.31(c). If the check was originally received
``free,'' that is, without a charge for the check, the bank incorrectly
receiving the check would have to return the check, without a charge, to
the bank from which it came. The bank to which the returned check was
misrouted is required to act promptly but is not required to meet the
expeditious return requirements of Sec. 229.31(a); however, it must act
within its midnight deadline. This paragraph does not affect a bank's
duties under Sec. 229.35(b).
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
A. 229.33(a) Requirement
1. Notice of nonpayment as required by this section and written
notice in lieu of return as provided in Sec. Sec. 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
[[Page 635]]
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 Sec. 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 Sec. 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 Sec. 229.30 and the U.C.C. (See Sec. 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 Sec. 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 Sec. 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 Sec. 229.32(a). In the
case of telephone notices, the bank may not 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 Sec. 229.35(b). A
bank that chooses to provide the notice required by Sec. 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 Sec.
229.13(g) if the depositary bank invokes the reasonable-cause exception
of Sec. 229.13(e) due to the receipt of a notice of nonpayment,
[[Page 636]]
provided the notice meets all the requirements of Sec. 229.13(g).
XX. Section 229.34 Warranties
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
Sec. 229.30(c); that the paying or returning bank is authorized to
return the check; that the returned check has not been materially
altered; and that, in the case of a notice in lieu of return, the
original check has not been and will not be returned for payment. (See
the Commentary to Sec. 229.30(f).) The warranty does not include a
warranty that the bank complied with the expeditious return requirements
of Sec. Sec. 229.30(a) and 229.31(a). These warranties do not apply to
checks drawn on the United States Treasury, to U.S. Postal Service money
orders, or to checks drawn on a state or a unit of general local
government that are not payable through or at a bank. (See Sec.
229.42.)
B. 229.34(b) Warranty of Notice of Nonpayment
1. This paragraph provides for warranties for notices of nonpayment.
This warranty does not include a warranty that the notice is accurate
and timely under Sec. 229.33. The requirements of Sec. 229.33 that are
not covered by the warranty are subject to the liability provisions of
Sec. 229.38. These warranties are designed to give the depositary bank
more confidence in relying on notices of nonpayment. This paragraph
imposes liability on a paying bank that gives notice of nonpayment and
then subsequently returns the check. (See Commentary on Sec.
229.33(a).)
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. 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.
D. 229.34(d) Damages
1. This paragraph adopts for the warranties in Sec. 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 Sec. 229.2(oo).)
[[Page 637]]
E. 229.34(e) Tender of Defense
1. This paragraph adopts for this regulation the vouching-in
provisions of U.C.C. 3-119.
F. 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 Sec.
229.38(g), all actions under this section must be brought within one
year after the date of the occurrence of the violation involved.
XXI. Section 229.35 Indorsements
A. 229.35(a) Indorsement Standards
1. This section and Appendix D require banks to use a standard form
of indorsement when indorsing checks during the forward collection and
return process. The standard provides for indorsements by all collecting
and returning banks, plus a unique standard for depositary bank
indorsements. It is designed to facilitate the identification of the
depositary bank and the prompt return of checks. The regulation places a
duty on banks to ensure that their indorsements can be interpreted by
any person. The indorsement standard specifies the information each
indorsement must contain and its location and ink color.
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 Sec. 229.38(d) and the commentary
thereto, a reconverting bank is liable for losses associated with
indorsements that are rendered illegible as a result of check
substitution.
5. To ensure that indorsements can be easily read and would remain
legible after an image of a check is captured, the standard requires all
indorsements applied to original checks and substitute checks to be
printed in black ink as of January 1, 2006.
6. The standard requires the depositary bank's indorsement to
include (1) its nine-digit routing number set off by an arrow at each
end of the routing number and, if the depositary bank is a reconverting
bank with respect to the check, an asterisk outside the arrow at each
end of the routing number to identify the bank as a reconverting bank;
(2) the indorsement date; and (3) if the indorsement is applied
physically, name or location information. The standard also permits but
does not require the indorsement to include other identifying
information. The standard requires a collecting bank's or returning
bank's indorsement to include only (1) the bank's nine digit routing
number (without arrows) and, if the collecting bank or returning bank is
a reconverting bank with respect to the check, an asterisk at each end
of the number to identify the bank as a reconverting bank, (2) the
indorsement date, and (3) an optional trace or sequence number.
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
[[Page 638]]
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 Sec. 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 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 pre-printed information or blacked
out areas for various reasons. For example, some checks are printed with
a carbon band across the back that allows the transfer of information
from the check to a ledger with one writing. Also, contracts or loan
agreements are printed on certain checks. Other checks that are mailed
to recipients may contain areas on the back that are blacked out so that
they may not be read through the mailer. On the deposit side, the payee
of the check may place its indorsement or information identifying the
drawer of the check in the area specified for the depositary bank
indorsement, thus making the depositary bank indorsement unreadable.
13. The indorsement standard does not prohibit the use of a carbon
band or other printed or written matter on the backs of checks and does
not require banks to avoid placing their indorsements in these areas.
Nevertheless, checks will be handled more efficiently if depositary
banks design indorsement stamps so that the nine-digit routing number
avoids the carbon band area. Indorsing parties other than banks, e.g.,
corporations, will benefit from the faster return of checks if they
protect the identifiability and legibility of the depositary bank
indorsement by staying clear of the area reserved for the depositary
bank indorsement.
14. Section 229.38(d) allocates responsibility for loss resulting
from a delay in return of a check due to indorsements that are
unreadable because of material on the back of the check. The depositary
bank is responsible for a loss resulting from a delay in return caused
by the condition of the check arising after its issuance until its
acceptance by the depositary bank that made the depositary bank's
indorsement illegible. The paying bank is responsible for loss resulting
from a delay in return caused by indorsements that are not readable
because of other material on the back of the check at the time that it
was issued. Depositary and paying banks may shift these risks to their
customers by agreement.
15. The standard does not require the paying bank to indorse the
check; however, if a paying bank does indorse a check that is returned,
it should follow the indorsement standard for collecting banks and
returning banks. The standard requires collecting and returning banks to
indorse the check for tracing purposes. With respect to the
identification of a paying bank that is also a reconverting bank, see
the commentary to Sec. 229.51(b)(2).
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
[[Page 639]]
the depositary bank. To avoid circuity of actions, the returning bank
could recover directly from the first collecting bank. Under the U.C.C.,
the first collecting bank might ultimately recover from the depositary
bank's customer or from the other parties on the check.
2. Where a check is returned through the same banks used for the
forward collection of the check, priority during the forward collection
process controls over priority in the return process for the purpose of
determining prior and subsequent banks under this regulation.
3. Where a returning bank is insolvent and fails to pay the paying
bank or a prior returning bank for a returned check, Sec. 229.39(a)
requires the receiver of the failed bank to return the check to the bank
that transferred the check to the failed bank. That bank then either
could continue the return to the depositary bank or recover based on
this paragraph. Where the paying bank is insolvent, and fails to pay the
collecting bank, the collecting bank also could recover from a prior
collecting bank under this paragraph, and the bank from which it
recovered could in turn recover from its prior collecting bank until the
loss settled on the depositary bank (which could recover from its
customer).
4. A bank is not required to make a claim against an insolvent bank
before exercising its right to recovery under this paragraph. Recovery
may be made by charge-back or by other means. This right of recovery
also is permitted even where nonpayment of the check is the result of
the claiming bank's negligence such as failure to make expeditious
return, but the claiming bank remains liable for its negligence under
Sec. 229.38.
5. This liability is imposed on a bank handling a check for
collection or return regardless of whether the bank's indorsement
appears on the check. Notice must be sent under this paragraph to a
prior bank from which recovery is sought reasonably promptly after a
bank learns that it did not receive payment from another bank, and
learns the identity of the prior bank. Written notice reasonably
identifying the check and the basis for recovery is sufficient if the
check is not available. Receipt of notice by the bank against which the
claim is made is not a precondition to recovery by charge-back or other
means; however, a bank may be liable for negligence for failure to
provide timely notice. A paying or returning bank also may recover from
a prior collecting bank as provided in Sec. Sec. 229.30(b) and
229.31(b). This provision is not a substitute for a paying or returning
bank making expeditious return under Sec. Sec. 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
Sec. Sec. 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 Sec. 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 Sec.
229.35(a) and Appendix D.
7. This paragraph affects the following provisions of the U.C.C.,
and may affect other provisions:
a. Section 4-214(a), in that the right to recovery is not based on
provisional settlement, and recovery may be had from any prior bank.
Section 4-214(a) would continue to permit a depositary bank to recover a
provisional settlement from its customer. (See Sec. 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
[[Page 640]]
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 Sec. 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 bank (which could be designated the collectible-
through or collectible-at bank) as a paying bank. The requirements of
Sec. 229.30(a) and the notice of nonpayment requirements of Sec.
229.33 are imposed on a payable-through or payable-at bank and are based
on the time of receipt of the forward collection check by the payable-
through or payable-at bank. This provision is intended to speed the
return of checks that are payable through or at a bank to the depositary
bank.
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 Sec. 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 Sec. 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
payable-through bank as the paying bank for purposes of this section.
ii. There is no requirement in the regulation that the name and
address on the check agree with the address associated with the routing
number on the check. A bank generally may control the use of its routing
number, just as it does the use of its name. The address associated with
the routing number may be a processing center.
iii. In some cases, a paying bank may have several offices in the
city associated with the routing number. In such case, it would not be
reasonable or efficient to require the presenting bank to sort the
checks by more specific branch addresses that might be printed on the
checks, and to deliver the checks to each branch. A collecting bank
normally would deliver all checks to one location. In cases where checks
are delivered to a branch other than the branch on which they may be
drawn, computer and courier communication among branches should permit
the paying bank to determine quickly whether to pay the check.
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,
[[Page 641]]
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.
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 Sec.
229.2(cc).)
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 Sec. 229.36(b).) The required information is deemed conspicuous
if it is printed in a type size not smaller than six-point type and if
it is contained in the title plate, which is located in the lower left
quadrant of the check. The required information may be conspicuous if it
is located elsewhere on the check.
2. If a payable-through check does not meet the requirements of this
paragraph, the bank by which the check is payable may be liable to the
depositary bank or others as provided in Sec. 229.38. For example, a
bank by which a payable-through check is payable could be liable to a
depositary bank that suffers a loss, such as lost interest or liability
under Subpart B, that would not have occurred had the check met the
requirements of this paragraph. Similarly, a bank may be liable under
Sec. 229.38 if a check payable by it that is not payable through
another bank is labeled as provided in this section. For example, a bank
that holds checking accounts and processes checks at a central location
but has widely-dispersed branches may be liable under this section if it
labels all of its checks as ``payable through'' a single branch and
includes the name, address, and four-digit routing symbol of another
branch. These checks would not be payable through another bank and
should not be labeled as payable-through checks. (All of a bank's
offices within the United States are considered part of the same bank;
see Sec. 229.2(e).) In this example, the bank by which the checks are
payable could be liable to a depositary bank that suffers a loss, such
as lost interest or liability under Subpart B, due to the mislabeled
check. The bank by which the check is payable may be liable for
additional damages if it fails to act in good faith.
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
[[Page 642]]
on its next banking day under U.C.C. 4-301 and 4-302. This paragraph
does not apply to checks presented for immediate payment over the
counter. Settling for a check under this paragraph does not constitute
final payment of the check under the U.C.C. This paragraph does not
supersede or limit the rules governing collection and return of checks
through Federal Reserve Banks that are contained in Subpart A of
Regulation J (12 CFR part 210).
2. Presentment requirements.
a. Location and time.
i. For presented checks to qualify for mandatory same-day
settlement, information accompanying the checks must indicate that
presentment is being made under this paragraph--e.g. ``these checks are
being presented for same-day settlement''--and must include a demand for
payment of the total amount of the checks together with appropriate
payment instructions in order to enable the paying bank to discharge its
settlement responsibilities under this paragraph. In addition, the check
or checks must be presented at a location designated by the paying bank
for receipt of checks for same-day settlement by 8:00 a.m. local time of
that location. The designated presentment location must be a location at
which the paying bank would be considered to have received a check under
Sec. 229.36(b). The paying bank may not designate a location solely for
presentment of checks subject to settlement under this paragraph; by
designating a location for the purposes of Sec. 229.36(f), the paying
bank agrees to accept checks at that location for the purposes of Sec.
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 Sec. 229.36(b), i.e., at an address of the bank
associated with the routing number on the check, at any branch or head
office if the bank is identified on the check by name without address,
or at a branch, head office, or other location consistent with the name
and address of the bank on the check if the bank is identified on the
check by name and address. 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 determine the appropriate
presentment location and any delivery instructions. Further, because
presentment might not take place during the paying bank's banking day, a
paying bank may establish reasonable delivery requirements to safeguard
the checks presented, such as use of a night depository. If a presenting
bank fails to follow reasonable delivery requirements established by the
paying bank, it runs the risk that it will not have presented the
checks. However, if no reasonable delivery requirements are established
or if the paying bank does not make provisions for accepting delivery of
checks during its non-business hours, leaving the checks at the
presentment location constitutes effective presentment.
c. Sorting of checks. A paying bank may require that checks
presented to it for same-day settlement be sorted separately from other
forward collection checks it receives as a collecting bank or returned
checks it receives as a returning or depositary bank. For example, if a
bank provides correspondent check collection services and receives
unsorted checks from a respondent bank that include checks for which it
is the paying bank and that would otherwise meet the requirements for
same-day settlement under this section, the collecting bank need not
make settlement in accordance with paragraph (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.
[[Page 643]]
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 Sec. 229.30(c).) The settlement must be in the form of
a credit to an account designated by the presenting bank at a Federal
Reserve Bank (e.g., a Fedwire transfer). The presenting bank may agree
with the paying bank to accept settlement in another form (e.g., credit
to an account of the presenting bank at the paying bank or debit to an
account of the paying bank at the presenting bank). The settlement must
occur by the close of Fedwire on the business day the check is received
by the paying bank. Under the provisions of Sec. 229.34(c), a
settlement owed to a presenting bank may be set off by adjustments for
previous settlements with the presenting bank. (See also Sec.
229.39(d).)
b. Checks that are presented after the 8 a.m. (local time)
presentment deadline for same-day settlement and before the paying
bank's cut-off hour are treated as if they were presented under other
applicable law and settled for or returned accordingly. However, for
purposes of settlement only, the presenting bank may require the paying
bank to treat such checks as presented for same-day settlement on the
next business day in lieu of accepting settlement by cash or other means
on the business day the checks are presented to the paying bank. Checks
presented after the paying bank's cut-off hour or on non-business days,
but otherwise in accordance with this paragraph, are considered
presented for same-day settlement on the next business day.
4. Closed Paying Bank
a. There may be certain business days that are not banking days for
the paying bank. Some paying banks may continue to settle for checks
presented on these days (e.g., by opening their back office operations
or by using an intercept processor). In other cases, a paying bank may
be unable to settle for checks presented on a day it is closed.
If the paying bank closes on a business day and checks are presented
to the paying bank in accordance with paragraph (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 Sec.
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 Sec. 229.38(e) or U.C.C. 4-109(b).
5. Good faith. Under Sec. 229.38(a), both presenting banks and
paying banks are held to a standard of good faith, defined in Sec.
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
[[Page 644]]
bank on the banking day a check is received is superseded by the
requirement to settle for checks presented under this paragraph by the
close of Fedwire.
XXIII. Section 229.37 Variations by Agreement
A. This section is similar to U.C.C. 4-103, and permits consistent
treatment of agreements varying Article 4 or Subpart C, given the
substantial interrelationship of the two documents. To achieve
consistency, the official comment to U.C.C. 4-103(a) (which in turn
follows U.C.C. 1-201(3)) should be followed in construing this section.
For example, as stated in Official Comment 2 to section 4-103, owners of
items and other interested parties are not affected by agreements under
this section unless they are parties to the agreement or are bound by
adoption, ratification, estoppel, or the like. In particular, agreements
varying this subpart that delay the return of a check beyond the times
required by this subpart may result in liability under Sec. 229.38 to
entities not party to the agreement.
B. The Board has not followed U.C.C. 4-103(b), which permits Federal
Reserve regulations and operating letters, clearinghouse rules, and the
like to apply to parties that have not specifically assented.
Nevertheless, this section does not affect the status of such agreements
under the U.C.C.
C. The following are examples of situations where variation by
agreement is permissible, subject to the limitations of this section:
1. A depositary bank may authorize another bank to apply the other
bank's indorsement to a check as the depositary bank. (See Sec.
229.35(d).)
2. A depositary bank may authorize returning banks to commingle
qualified returned checks with forward collection checks. (See Sec.
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
Sec. 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 Sec. 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 Sec. 229.35(a).)
6. A bank may agree to accept returned checks without the
indorsement of a prior bank. (See Sec. 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
Sec. 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 Sec. 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 Sec. 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 Sec. Sec.
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 Sec. Sec. 229.30
and 229.33, to a returning bank under Sec. 229.31, to a depositary bank
under Sec. Sec. 229.32 and 229.33, to a bank erroneously receiving a
returned check or written notice of nonpayment as depositary bank under
Sec. 229.32(d), and to a bank indorsing a check under Sec. 229.35. The
standard of care is similar to the standard imposed by U.C.C. 1-203 and
4-103(a) and includes a duty to act in good faith, as defined in Sec.
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 Sec. 229.35(d)).
The measure of damages provided in this section (loss incurred up to
amount of check, less amount of loss party would have incurred even if
bank had exercised ordinary care) is based on U.C.C. 4-103(e) (amount of
the item reduced by an amount that could not have been realized by the
exercise of ordinary care), as limited by 4-202(c) (bank is liable only
for its own negligence and not for actions of subsequent
[[Page 645]]
banks in chain of collection). This subpart does not absolve a
collecting bank of liability to prior collecting banks under U.C.C. 4-
201.
3. Under this measure of damages, a depositary bank or other person
must show that the damage incurred results from the negligence proved.
For example, the depositary bank may not simply claim that its customer
will not accept a charge-back of a returned check, but must prove that
it could not charge back when it received the returned check and could
have charged back if no negligence had occurred, and must first attempt
to collect from its customer. (See Marcoux v. Van Wyk, 572 F.2d 651 (8th
Cir. 1978); Appliance Buyers Credit Corp. v. Prospect Nat'l Bank, 708
F.2d 290 (7th Cir. 1983).) Generally, a paying or returning bank's
liability would not be reduced because the depositary bank did not place
a hold on its customer's deposit before it learned of nonpayment of the
check.
4. This paragraph also states that it does not affect a paying
bank's liability to its customer. Under U.C.C. 4-402, for example, a
paying bank is liable to its customer for wrongful dishonor, which is
different from failure to exercise ordinary care and has a different
measure of damages.
B. 229.38(b) Paying Bank's Failure To Make Timely 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 Sec. 229.30(c)), which may allow return at
a different time. This paragraph clarifies that the paying bank could be
liable for failure to meet either standard, but not for failure to meet
both. The regulation intends to preserve the paying bank's
accountability for missing its midnight or other deadline under the
U.C.C., (e.g., sections 4-215 and 4-302), provisions that are not
incorporated in this regulation, but may be useful in establishing the
time of final payment by the paying bank.
C. 229.38(c) Comparative negligence
1. This paragraph establishes a ``pure'' comparative negligence
standard for liability under 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 Sec. Sec. 229.30(a) or 229.31(a).
2. Examples.
a. If a depositary bank fails to use the indorsement required by
this regulation, and this failure is caused by a failure to exercise
ordinary care, and if a paying or returning bank is delayed in returning
the check because additional time is required to identify the depositary
bank or find its routing number, the paying or returning bank's
liability to the depositary bank would be reduced or eliminated.
b. If the depositary bank uses the standard indorsement, but that
indorsement is obscured by a subsequent collecting bank's indorsement,
and a paying or returning bank is delayed in returning the check because
additional time was required to identify the depositary bank or find its
routing number, the paying or returning bank may not be liable to the
depositary bank because the delay was not due to its negligence.
Nonetheless, the collecting bank may be liable to the depositary bank to
the extent that its negligence in indorsing the check caused the paying
or returning bank's delay.
c. If a depositary bank accepts a check that has printing, a carbon
band, or other material on the back of the check that existed at the
time the check was issued, and the depositary bank's indorsement is
obscured by the printing, carbon band, or other material, and a paying
or returning bank is delayed in returning the check because additional
time was required to identify the depositary bank, the returning bank
may not be liable to the depositary bank because the delay was not due
to its negligence. Nonetheless, the paying bank may be liable to the
depositary bank to the extent that the printing, carbon band, or other
material caused the delay.
D. 229.38(d) Responsibility for Certain Aspects of Checks
1. Responsibility for back of check. The indorsement standard in
Sec. 229.35 is most effective if the back of the check remains clear of
other matter that may obscure bank indorsements. Because bank
indorsements are usually applied by automated equipment, it is not
possible to avoid pre-existing matter on the back of the check. For
example, bank indorsements are not required to avoid a carbon band or
printed, stamped, or written terms or notations on the back of the
check. Accordingly, this provision places responsibility on the paying
bank, depositary bank, or reconverting bank, as appropriate, for keeping
the back of the check clear for bank indorsements during forward
collection and return.
2. ANS X9.100-140 provides that an image of an original check must
be reduced in size when placed on the first substitute check associated
with that original check. (The
[[Page 646]]
image thereafter would be constant in size on any subsequent substitute
check that might be created.) Because of this size reduction, the
location of an indorsement, particularly a depositary bank indorsement,
applied to an original paper check likely will change when the first
reconverting bank creates a substitute check that contains that
indorsement within the image of the original paper check. If the
indorsement was applied to the original paper check in accordance with
appendix D's location requirements for indorsements applied to existing
paper checks, and if the size reduction of the image causes the
placement of the indorsement to no longer be consistent with the
appendix's requirements, then the reconverting bank bears the liability
for any loss that results from the shift in the placement of the
indorsement. Such a loss could result either because the original
indorsement applied in accordance with appendix D is rendered illegible
by a subsequent indorsement that later is applied to the substitute
check in accordance with appendix D, or because the subsequent bank
cannot apply its indorsement to the substitute check legibly in
accordance with appendix D as a result of the shift in the previous
indorsement.
Example.
In accordance with appendix D's specifications, a depositary bank
sprays its indorsement onto a business-sized original check between 3.0
inches from the leading edge of the check and 1.5 inches from the
trailing edge of the check. The check's conversion to electronic form
and subsequent reconversion to paper form causes the location of the
depositary bank indorsement, now contained within the image of the
original check, to change such that it is less than 3.0 inches from the
leading edge of the substitute check. In accordance with appendix D's
specifications, a subsequent collecting bank sprays its indorsement onto
the substitute check between the leading edge of the check and 3.0
inches from the leading edge of the check and the indorsement happens to
be on top of the shifted depositary bank indorsement. If the check is
returned unpaid and the return is not expeditious because of the
illegibility of the depositary bank indorsement, and the 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 Sec. 229.30(a)(1) (the 2-day/4-day test) had the bank
by which it is payable received the check as paying bank on the day the
payable-through bank received it. The location of the bank by which a
check is payable for purposes of the 2-day/4-day test may be determined
from the location or the first four digits of the routing number of the
bank by which the check is payable. This information should be stated on
the check. (See Sec. 229.36(e) and accompanying Commentary.)
Responsibility under paragraph (d)(2) does not include responsibility
for the time required for the forward collection of a check to the
payable-through bank.
b. Generally, liability under paragraph (d)(2) will be limited in
amount. Under Sec. 229.33(a), a paying bank that returns a check in the
amount of $2,500 or more must provide notice of nonpayment to the
depositary bank by 4:00 p.m. on the second business day following the
banking day on which the check is presented to the paying bank. Even if
a payable-through check in the amount of $2,500 or more is not returned
through the payable-through bank as quickly as would have been required
had the check been received by the bank by which it is payable, the
depositary bank should not suffer damages unless it has not received
timely notice of nonpayment. Thus, ordinarily the bank by which a
payable-through check is payable would be liable under paragraph (a)
only for checks in amounts up to $2,500, and the paying bank would be
responsible for notice of nonpayment for checks in the amount of $2,500
or more.
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
[[Page 647]]
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 or return and are derived from U.C.C. 4-216. They are
intended to apply to all banks.
B. 229.39(a) Duty of Receiver
1. This paragraph requires a receiver of a closed bank to return a
check to the prior bank if it does not pay for the check. This permits
the prior bank, as holder, to pursue its claims against the closed bank
or prior indorsers on the check.
C. 229.39(b) Preference Against Paying or Depositary Bank
1. This paragraph gives a bank a preferred claim against a closed
paying bank that finally pays a check without settling for it or a
closed depositary bank that becomes obligated to pay a returned check
without settling for it. If the bank with a preferred claim under this
paragraph recovers from a prior bank or other party to the check, the
prior bank or other party to the check is subrogated to the preferred
claim.
D. 229.39(c) Preference Against Paying, Collecting, or Depositary Bank
1. This paragraph gives a bank a preferred claim against a closed
collecting, paying, or returning bank that receives settlement but does
not settle for a check. (See Commentary to Sec. 229.35(b) for
discussion of prior and subsequent banks.) As in the case of Sec.
229.39(b), if the bank with a preferred claim under this paragraph
recovers from a prior bank or other party to the check, the prior bank
or other party to the check is subrogated to the preferred claim.
E. 229.39(d) Preference Against Presenting Bank
1. This paragraph gives a paying bank a preferred claim against a
closed presenting bank in the event that the presenting bank breaches an
amount or encoding warranty as provided in Sec. 229.34(c)(1) or (3) and
does not reimburse the paying bank for adjustments for a settlement made
by the paying bank in excess of the value of the checks presented. This
preference is intended to have the effect of a perfected security
interest and is intended to put the paying bank in the position of a
secured creditor for purposes of the receivership provisions of the
Federal Deposit Insurance Act and similar provisions of state law.
F. 229.39(e) Finality of Settlement
1. This paragraph provides that insolvency does not interfere with
the finality of a settlement, such as a settlement by a paying bank that
becomes final by expiration of the midnight deadline.
XXVI. Section 229.40 Effect on Merger Transaction
A. When banks merge, there is normally a period of adjustment
required before their operations are consolidated. To allow for this
adjustment period, the regulation provides that the merged banks may be
treated as separate banks for a period of up to one year after the
consummation of the transaction. The term merger transaction is defined
in Sec. 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 (Sec.
229.30).
2. The returning bank's responsibility for expeditious return (Sec.
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 (Sec. 229.31(a)).
4. Where the depositary bank must accept returned checks (Sec.
229.32(a)).
5. Where the depositary bank must accept notice of nonpayment (Sec.
229.33(c)).
6. Where a paying bank must accept presentment of checks (Sec.
229.36(b)).
XXVII. Section 229.41 Relation to State Law
A. This section specifies that state law relating to the collection
of checks is preempted only to the extent that it is inconsistent with
this regulation. Thus, this regulation is not a complete replacement for
state laws relating to the collection or return of checks.
[[Page 648]]
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-of-
nonpayment, 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 Sec. 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.
B. 229.43(b) Rules Applicable to Pacific Island Checks
1. When a bank handles a Pacific island check as if it were a check
as defined in Sec. 229.2(k), the bank is subject to certain provisions
of Regulation CC, as provided in this section. Because the Pacific
island bank is not a bank as defined in Sec. 229.2(e), it is not a
paying bank as defined in Sec. 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 Sec. 229.31 and may convert the returned Pacific island
check to a qualified returned check. The returning bank is not, however,
subject to the expeditious-return requirements of Sec. 229.31. The
returning bank may receive the Pacific island check directly from a
Pacific island bank or from another returning bank. As a Pacific island
bank is not a paying bank under Regulation CC, Sec. 229.31(c) does not
apply to a returning bank settling with the Pacific island bank.
3. A depositary bank that handles a Pacific island check is not
subject to the provisions of subpart B of Regulation CC, including the
availability, notice, and interest accrual requirements, with respect to
that check. If, however, a bank accepts a Pacific island check for
deposit (or otherwise accepts the check as transferee) and collects the
Pacific island check in the same manner as other checks, the bank is
subject to the provisions of Sec. 229.32, including the provisions
regarding time and manner of settlement for returned checks in Sec.
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 Sec. 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 Sec. 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 Sec. 229.35.
Section 229.35(c) eliminates the need for the restrictive indorsement
``pay any bank.'' For purposes of Sec. 229.35(c), the Pacific island
bank is deemed to be a bank.
5. Pacific island checks will often be intermingled with other
checks in a single cash letter. Therefore, a bank that handles Pacific
island checks in the same manner as other checks is subject to the
transfer warranty provision in Sec. 229.34(c)(2) regarding accurate
cash letter totals and the encoding warranty in Sec. 229.34(c)(3). A
bank that acts as a returning bank for a Pacific island check is not
subject to the warranties in Sec. 229.34(a). Similarly, because the
Pacific island bank is not a ``bank'' or a ``paying bank'' under
Regulation CC, Sec. 229.34(b), (c)(1), and (c)(4) do not apply. For the
same reason, the provisions of Sec. 229.36 governing paying bank
responsibilities such as place of receipt and same-day settlement do not
apply to checks presented to a Pacific island bank, and the liability
provisions applicable to paying banks in Sec. 229.38 do not apply to
Pacific island banks. Section 229.36(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 Sec. 229.38, to the extent the banks are
subject to the requirements of Regulation CC as provided in this
section, and Sec. Sec. 229.37 and 229.39 through 229.42.
XXX. Sec. 229.51 General provisions governing substitute checks
A. Sec. 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.
[[Page 649]]
Examples.
a. A presenting bank presents a substitute check that meets the
legal equivalence requirements to a paying bank. The paying bank cannot
refuse presentment of the substitute check on the basis that it is a
substitute check, because the substitute check is the legal equivalent
of the original check.
b. A depositor's account agreement with a bank provides that the
depositor is entitled to receive original cancelled checks back with his
or her periodic account statement. The bank may honor that agreement by
providing original checks, substitute checks, or a combination thereof.
However, a bank may not honor such an agreement by providing something
other than an original check or a substitute check.
c. A mortgage company argues that a consumer missed a monthly
mortgage payment that the consumer believes she made. A legally
equivalent substitute check concerning that mortgage payment could be
used in the same manner as the original check to prove the payment.
2. A person other than a bank that creates a substitute check could
transfer, present, or return that check only by agreement unless and
until a bank provided the substitute check warranties.
3. To be the legal equivalent of the original check, a substitute
check must accurately represent all the information on the front and
back of the check as of the time the original check was truncated. An
accurate representation of information that was illegible on the
original check would satisfy this requirement. The payment instructions
placed on the check by, or as authorized by, the drawer, such as the
amount of the check, the payee, and the drawer's signature, must be
accurately represented, because that information is an essential element
of a negotiable instrument. Other information that must be accurately
represented includes (1) the information identifying the drawer and the
paying bank that is preprinted on the check, including the MICR line;
and (2) other information placed on the check prior to the time an image
of the check is captured, such as any required identification written on
the front of the check and any indorsements applied to the back of the
check. A substitute check need not capture other characteristics of the
check, such as watermarks, microprinting, or other physical security
features that cannot survive the imaging process or decorative images,
in order to meet the accuracy requirement. Conversely, some security
features that are latent on the original check might become visible as a
result of the check imaging process. For example, the original check
might have a faint representation of the word ``void'' that will appear
more clearly on a photocopied or electronic image of the check. Provided
the inclusion of the clearer version of the word on the image used to
create a substitute check did not obscure the required information
listed above, a substitute check that contained such information could
be the legal equivalent of an original check under Sec. 229.51(a).
However, if a person suffered a loss due to receipt of such a substitute
check instead of the original check, that person could have an indemnity
claim under Sec. 229.53 and, in the case of a consumer, an expedited
recredit claim under Sec. 229.54.
4. To be the legal equivalent of the original check, a substitute
check must bear the legal equivalence legend described in Sec.
229.51(a)(2). A bank may not vary the language of the legal equivalence
legend and must place the legend on the substitute check as specified by
generally applicable industry standards for substitute checks contained
in ANS X9.100-140.
5. In some cases, the original check used to create a substitute
check could be forged or otherwise fraudulent. A substitute check
created from a fraudulent original check would have the same status
under Regulation CC and the U.C.C. as the original fraudulent check. For
example, a substitute check of a fraudulent original check would not be
properly payable under U.C.C. 4-401 and would be subject to the transfer
and presentment warranties in U.C.C. 4-207 and 4-208.
B. 229.51(b) Reconverting Bank Duties
1. As discussed in more detail in appendix D and the commentary to
Sec. 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 Sec. 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
[[Page 650]]
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 Sec. 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 agreement deposits substitute checks instead of the
original checks with its depositary bank. The depositary bank is the
reconverting bank with respect to the substitute checks and the
truncating bank with respect to the original checks. In accordance with
appendix D and with ANS X9.100-140, the bank must therefore be
identified on the front of the substitute checks as a reconverting bank
and as the truncating bank, and on the back of the substitute checks as
the depositary bank and a reconverting bank.
C. 229.51(c) Applicable Law
1. A substitute check that meets the requirements for legal
equivalence set forth in this section is subject to any provision of
federal or state law that applies to original checks, except to the
extent such provision is inconsistent with the Check 21 Act or subpart
D. A legally equivalent substitute check is subject to all laws that are
not preempted by the Check 21 Act in the same manner and to the same
extent as is an original check. Thus, any person could satisfy a law
that requires production of an original check by producing a substitute
check that is derived from the relevant original check and that meets
the legal equivalence requirements of Sec. 229.51(a).
2. A law is not inconsistent with the Check 21 Act or subpart D
merely because it allows for the recovery of a greater amount of
damages.
Example.
A drawer that suffers a loss with respect to a substitute check that
was improperly charged to its account and for which the drawer has an
indemnity claim but not a warranty claim would be limited under the
Check 21 Act to recovery of the amount of the substitute check plus
interest and expenses. However, if the drawer also suffered damages that
were proximately caused because the bank wrongfully dishonored
subsequently presented checks as a result of the improper substitute
check charge, the drawer could recover those losses under U.C.C. 4-402.
XXXI. Sec. 229.52 Substitute Check Warranties
A. 229.52(a) Warranty Content and Provision
1. The responsibility for providing the substitute check warranties
begins with the reconverting bank. In the case of a substitute check
created by a bank, the reconverting bank starts the flow of warranties
when it transfers, presents, or returns a substitute check for which it
receives consideration. 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
Sec. Sec. 229.52 and 229.53 by a bank that truncates the original check
and by agreement transfers the original check electronically to a
subsequent bank for consideration. However, parties may, by agreement,
allocate liabilities associated with the exchange of electronic check
information.
Example.
A bank that receives check information electronically and uses it to
create substitute checks is the reconverting bank and, when it
transfers, presents, or returns that substitute check, becomes the first
warrantor. However, that bank may protect itself by including in its
agreement with the sending bank provisions that specify the sending
bank's warranties and responsibilities to the receiving bank,
particularly with respect to the accuracy of the check image
[[Page 651]]
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 of only the first
substitute check. If a bank receives an electronic representation of a
substitute check and uses that representation to create a second
substitute check, the second reconverting bank and subsequent
transferees of the second substitute check (or a representation thereof)
warrant the legal equivalence of both the first and second substitute
checks. A reconverting bank would not be liable for a warranty breach
under Sec. 229.52 if the legal equivalence defect is the fault of a
subsequent bank that handled the substitute check, either as a
substitute check or in other paper or electronic form.
5. The warranty in Sec. 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.
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.
XXXII. Sec. 229.53 Substitute Check Indemnity
A. 229.53(a) Scope of Indemnity
1. Each bank that for consideration transfers, presents, or returns
a substitute check or a paper or electronic representation of a
substitute check is responsible for providing the substitute check
indemnity. 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
[[Page 652]]
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 Sec. 229.51(a)). Under these circumstances, the paying
bank could assert an indemnity claim against the bank that presented the
substitute check.
b. By contrast with the previous examples, the indemnity would not
apply if the characteristics of the presented substitute check were such
that the bank's security policies and procedures would not have detected
the fraud even if the original had been presented. For example, if the
check was under the threshold amount at which the bank subjects an item
to its fraud detection procedures, the bank would not have inspected the
item for security features regardless of the form of the item and
accordingly would have suffered a loss even if it had received the
original check.
c. A paying bank makes an erroneous payment based on an electronic
representation of a substitute check because the electronic cash letter
accompanying the electronic item included the wrong amount to be
charged. The paying bank would not have an indemnity claim associated
with that payment because its loss did not result from receipt of an
actual substitute check instead of the original check. However, the
paying bank could protect itself from such losses through its agreement
with the bank that sent the check to it electronically and may have
rights under other law.
d. A drawer has agreed with its bank that the drawer will not
receive paid checks with periodic account statements. The drawer
requested a copy of a paid check in order to prove payment and received
a photocopy of a substitute check. The photocopy that the bank provided
in response to this request was illegible, such that the drawer could
not prove payment. Any loss that the drawer suffered as a result of
receiving the blurry check image would not trigger an indemnity claim
because the loss was not caused by the receipt of a substitute check.
The drawer may, however, still have a warranty claim if he received a
copy of a substitute check, and may also have rights under the U.C.C.
B. 229.53(b) Indemnity Amount
1. If a recipient of a substitute check is making an indemnity claim
because a bank has breached one of the substitute check warranties, the
recipient can recover any losses proximately caused by that warranty
breach.
Examples.
a. A drawer discovers that its account has been charged for two
different substitute checks that were provided to the drawer and that
were associated with the same original check. As a result of this
duplicative charge, the paying bank dishonored several subsequently-
presented checks that it otherwise would have paid and charged the
drawer returned check fees. The payees of the returned checks also
charged the drawer returned check fees. The drawer would have a warranty
claim against any of the warranting banks, including its bank, for
breach of the warranty described in Sec. 229.52(a)(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
[[Page 653]]
and other costs incurred by the paying bank in settling the drawer's
claim.
2. If the recipient of the substitute check does not have a
substitute check warranty claim with respect to the substitute check,
the amount of the loss the recipient may recover under Sec. 229.53 is
limited to the amount of the substitute check, plus interest and
expenses. However, the indemnified person might be entitled to
additional damages under some other provision of law.
Examples.
a. A drawer received a substitute check that met all the legal
equivalence requirements and for which the drawer was only charged once,
but the drawer believed that the underlying original check was a
forgery. If the drawer suffered a loss because it could not prove the
forgery based on the substitute check, for example because proving the
forgery required analysis of pen pressure that could be determined only
from the original check, the drawer would have an indemnity claim.
However, the drawer would not have a substitute check warranty claim
because the substitute check was the legal equivalent of the original
check and no person was asked to pay the substitute check more than
once. In that case, the amount of the drawer's indemnity under Sec.
229.53 would be limited to the amount of the substitute check, plus
interest and expenses. However, the drawer could attempt to recover
additional losses, if any, under other law.
b. As described more fully in the commentary to Sec. 229.53(a)
regarding the scope of the indemnity, a paying bank could have an
indemnity claim if it paid a legally equivalent substitute check that
was created from a fraudulent cashier's check that the paying bank's
fraud detection procedures would have caught and that the bank would
have returned by its midnight deadline had it received the original
check. However, if the substitute check was not subject to a warranty
claim (because it met the legal equivalence requirements and there was
only one payment request) the paying bank's indemnity would be limited
to the amount of the substitute check plus interest and expenses.
3. The amount of an indemnity would be reduced in proportion to the
amount of any amount loss attributable to the indemnified person's
negligence or bad faith. This comparative negligence standard is
intended to allocate liability in the same manner as the comparative
negligence provision of Sec. 229.38(c).
4. An indemnifying bank may limit the losses for which it is
responsible under Sec. 229.53 by producing the original check or a
sufficient copy. However, production of the original check or a
sufficient copy does not absolve the indemnifying bank from liability
claims relating to a warranty the bank has provided under Sec. 229.52
or any other law, including but not limited to subpart C of this part or
the U.C.C.
C. 229.53(c) Subrogation of Rights
1. A bank that pays an indemnity claim is subrogated to the rights
of the person it indemnified, to the extent of the indemnity it
provided, so that it may attempt to recover that amount from another
person based on an indemnity, warranty, or other claim. The person that
the bank indemnified must comply with reasonable requests from the
indemnifying bank for assistance with respect to the subrogated claim.
Example.
A paying bank indemnifies a drawer for a substitute check that the
drawer alleged was a forgery that would have been detected had the
original check instead been presented. The bank that provided the
indemnity could pursue its own indemnity claim against the bank that
presented the substitute check, could attempt to recover from the
forger, or could pursue any claim that it might have under other law.
The bank also could request from the drawer any information that the
drawer might possess regarding the possible identity of the forger.
XXXIII. Sec. 229.54 Expedited Recredit for Consumers
A. 229.54(a) Circumstances Giving Rise to a Claim
1. A consumer may make a claim for expedited recredit under this
section only for a substitute check that he or she has received and for
which the bank charged his or her deposit account. As a result, checks
used to access loans, such as credit card checks or home equity line of
credit checks, that are reconverted to substitute checks would not give
rise to an expedited recredit claim, unless such a check was returned
unpaid and the bank charged the consumer's deposit account for the
amount of the returned check. In addition, a consumer who received only
a statement that contained images of multiple substitute checks per page
would not be entitled to make an expedited recredit claim, although he
or she could seek redress under other provisions of law, such as Sec.
229.52 or U.C.C. 4-401. However, a consumer who originally received only
a statement containing images of multiple substitute checks per page but
later received a substitute check, such as in response to a request for
a copy of a check shown in the statement, could bring a claim if the
other expedited recredit criteria were met. Although a consumer must at
some point have received a substitute check to make an expedited
recredit claim, the consumer need not be in possession of the substitute
check at the time he or she submits the claim.
[[Page 654]]
2. A consumer must in good faith assert that the bank improperly
charged the consumer's account for the substitute check or that the
consumer has a warranty claim for the substitute check (or both). The
warranty in question could be a substitute check warranty described in
Sec. 229.52 or any other warranty that a bank provides with respect to
a check under other law. A consumer could, for example, have a warranty
claim under Sec. 229.34(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 loss by bringing warranty, indemnity, or other
claim under this subpart or other applicable law.
Examples.
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 Sec. 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 40-day 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.
[[Page 655]]
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 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
Sec. 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 Sec. 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 Sec. 229.54(b) is not a claim for purposes of
Sec. 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 Sec.
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
[[Page 656]]
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 Sec.
229.54(c) is governed solely by Sec. 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 Sec.
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 Sec.
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 the delay because it is part of the amount recredited under
Sec. 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 Sec.
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 Sec. 229.54(d)(2) is the amount that the bank
recredits under Sec. 229.54(c)(3)(i) (including the interest component,
if any) pending its investigation of a claim.
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 Sec. 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, Sec. 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 Sec. 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 Sec. 229.54(e).
F. 229.54(f) Recredit Does Not Abrogate Other Liabilities
1. The amount that a consumer may recover under Sec. 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 Sec. 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
[[Page 657]]
Sec. 229.54's limitation on recovery, he or she could attempt to
recover additional amounts under U.C.C. 4-402.
XXXIV. Sec. 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 Sec. 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
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.
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, Sec. 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
Sec. 229.54.
3. The information that the claimant bank is required to provide
under Sec. 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 Sec. 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 (Sec. 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. Sec. 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 Sec. 229.53 because of a breach of a substitute
check warranty also may recover under Sec. 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 Sec. 229.38 for
damages associated with the illegibility of indorsements applied to
[[Page 658]]
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 Sec.
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 Sec. 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 Sec. 229.56(c), all actions under Sec. 229.56 must be
brought within one year of the date that the cause of action accrues.
XXXVI. Consumer Awareness
A. 229.57(a) General Disclosure Requirement and Content
1. A bank must provide the disclosure required by Sec. 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.
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 Sec. 229.55 may vary the terms of that
section by agreement, but otherwise no person
[[Page 659]]
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 Sec. 229.54 under non-exigent circumstances,
would not be a variation prohibited by Sec. 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 Sec.
229.13 exceptions, it may delete the references to those provisions.
Changes to the models may not be so extensive as to affect the
substance, clarity, or meaningful sequence of the models. Acceptable
changes include, for example:
a. Using ``customer'' and ``bank'' instead of pronouns.
b. Changing the typeface or size.
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 Sec. 229.21(e). Banks are encouraged, however, to
use current versions of the models when reordering or reprinting
supplies.
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 Sec. 229.16 and substitute check policy
disclosure described in Sec. 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 Sec. Sec. 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 Sec. 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
[[Page 660]]
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 Sec. 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 Sec. 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-by-case holds to statutory
limits, and Sec. 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 Sec. 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 Sec. 229.12 and to reserve the right to invoke the Sec.
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. 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 Sec. 229.12 and to reserve the right to invoke the Sec.
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 Sec. 229.57 explaining that a
substitute check is the legal equivalent of an original check and the
circumstances under which the consumer may make a claim for expedited
recredit.
C. Model Clauses, Models C-6 Through C-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 Sec. 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 Sec. 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 Sec. 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 Sec.
229.16(b)(5).
6. Model C-10 Cash withdrawal limitation. A bank that imposes cash
withdrawal limitations under Sec. 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 Sec. 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
[[Page 661]]
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 Sec. 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 Sec. 229.13(g) when a bank places a hold
based on a Sec. 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 Sec. 229.13(e).
3. Model C-13 Reasonable cause hold notice. This notice satisfies
the written notice required under Sec. 229.13(g) when a bank invokes
the reasonable cause exception under Sec. 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 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 Sec. 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
Sec. 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 Sec. 229.13(g)(3).
6. Model C-16 Case-by-case hold notice. This model satisfies the
notice required under Sec. 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
Sec. 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 Sec. 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 Sec. 229.18(c)(1).
9. Model C-20 Notice at automated teller machines (delayed receipt).
This model satisfies the ATM notice requirement of Sec. 229.18(c)(2)
when receipt of deposits at off-premises ATMs is delayed under Sec.
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 Sec. 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 Sec.
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
Sec. 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
Sec. 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
Sec. 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 Sec. 229.54(e)(2).
[[Page 662]]
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 Sec. 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 47317-47328, Aug. 4, 2004]
Effective Date Note: At 70 FR 71225, Nov. 28, 2005, appendix E to
part 229 was amended under paragraph II., Sec. 229.2, by revising
paragraph (OO) and by adding paragraph (FFF), and under paragraph XX.,
Sec. 229.34, by redesignating paragraphs D., E., and F. as paragraphs
E., F., and G., and adding paragraph D, effective July 1, 2006. For the
convenience of the user, the added and revised text is set forth as
follows:
Appendix E to Part 229--Commentary
* * * * *
II. Section 229.2 Definitions
* * * * *
OO. 229.2(oo) Interest Compensation
1. This calculation of interest compensation derives from U.C.C. 4A-
506(b). (See Sec. Sec. 229.34(e) and 229.36(f).)
* * * * *
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.
* * * * *
XX. Section 229.34 Warranties
* * * * *
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
[[Page 663]]
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 Sec.
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 Sec. 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 Sec. 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 Sec. 229.34(d) warranties apply to the date stated on the
remotely created check.
4. A bank making the Sec. 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.
* * * * *
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 (Sec. 229.10(a)(1)). Under Regulation CC, deposits
of cash that are not made in person to an employee of the depositary
bank must be made available by the second business day after the banking
day of deposit (Sec. 229.10(a)(2)). Therefore, this provision of the
U.C.C. may call for the availability of certain cash deposits in a
shorter time than provided in Regulation CC.
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 Sec.
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 Sec. 229.10(a) of Regulation CC.
California
Background
The Board has been requested, in accordance with Sec. 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.
Code tit. 10, Sec. Sec. 10.190401-10.190402) were promulgated by the
Superintendent of Banks. The regulations applicable to savings banks and
savings and loan associations (Cal. Admin. Code tit. 10, Sec. Sec.
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.
[[Page 664]]
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 Sec. 229.19(e) of Regulation CC,
Holds on other funds, the federal availability schedules may apply to
savings, time, and other accounts not defined as accounts under
Regulation CC in certain circumstances.)
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 four-day 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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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 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 Sec. 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.
[[Page 665]]
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 Sec. 229.20(c) and accompanying
Commentary), for deposits subject to the state availability schedules, a
state exception may be used to extend the state availability schedule up
to the federal availability schedule. Once the deposit is held up to the
federal availability schedule limit under a state exception, the
depositary bank may further extend the hold under any federal exception
that can be applied to the deposit. If no state exceptions exist, then
no exceptions holds may be placed on deposits covered by state
schedules. Thus, to the extent that California law provides for
exceptions to the California schedules that supersede Regulation CC,
those exceptions may be applied in order to extend the state
availability schedules up to the federal availability schedules or such
later time as is permitted by a federal exception.
Disclosures
California law (Cal. Fin. Code Sec. 866.2) requires depository
institutions to provide written disclosures of their general
availability policies to potential customers prior to opening any
deposit account. The law also requires that preprinted deposit slips and
ATM deposit envelopes contain a conspicuous summary of the general
policy. Finally, the law requires depository institutions to provide
specific notice of the time the customer may withdraw funds deposited by
check or similar instrument into a deposit account if the funds are not
available for immediate withdrawal.
Section 229.20(c)(2) of Regulation CC provides that inconsistency
may exist when a state law provides for disclosures or notices
concerning funds availability relating to accounts. California Financial
Code Sec. 866.2 requires disclosures that differ from those required by
Regulation CC and, therefore, is preempted to the extent that it applies
to accounts as defined in Regulation CC. 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 Sec.
229.19(e) of Regulation CC, Holds on other funds, the federal
availability schedules may apply to savings, time, and other accounts
not defined as accounts under Regulation CC in certain circumstances.)
Availability 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.
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.
Disclosures
California law (Cal. Fin. Code Sec. 866.2) requires depository
institutions to provide written disclosures of their general
availability policies to potential customers prior
[[Page 666]]
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 Sec.
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
Sec. 866.2, they are not preempted by, nor do they supersede, the
federal law. The state law continues to apply to savings accounts and
other non-transaction accounts not governed by Regulation CC disclosure
requirements.
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
-------------------------------------
Industrial Loan
Credit Union Company
------------------------------------------------------------------------
$100 or less checks; U.S. Treasury 1st day.......... 1st day
checks; state/local gov't checks.
On us checks; cashier's/certifies/ 2nd day.......... 2nd day
teller's/depository checks.
In-state checks................... 6th day.......... 6th day
out-of-state checks............... 10th 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 Sec. 229.19(e) of Regulation CC, Holds on other
funds, the federal availability schedules may apply to savings, time,
and other accounts not defined as accounts under Regulation CC in
certain circumstances.)
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 the
state regulations, the state law applies only to instruments that are
also checks as defined in Sec. 229.2(k) of Regulation CC.
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
Sec. 229.11(c) of Regulation CC, although it is not shorter than the
schedules for nonlocal checks set forth in Sec. 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 Sec. 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
[[Page 667]]
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 Sec. 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 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. 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 next-day availability for checks deposited in a
branch of the depositary bank and drawn on the same or another branch of
the same bank 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 beyond the time
periods otherwise permitted by law, it must give notice of the extended
hold to its customer in accordance with Sec. 229.13(g) of Regulation
CC.
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
[[Page 668]]
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
Background
The Board has been requested, in accordance with Sec. 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............................... 2nd day
In-state checks............................ 4th day
Out-of-state checks........................ 6th day
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 Sec.
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 Sec. 229.19(e) of Regulation CC, Holds on other funds, the
federal availability schedules may apply to savings, time, and other
accounts not defined as accounts under Regulation CC, in certain
circumstances.)
The Connecticut statute applies to items deposited in accounts. This
term encompasses instruments that are not defined as checks in
Regulation CC (Sec. 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, 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 Sec. 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
[[Page 669]]
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 Sec. 229.13(g) of Regulation CC.
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. (Sec.
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 Sec. 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 f