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branch, which is the area in which the Board 229.14 Payment of interest. evaluates our CRA performance in this com- 229.15 General disclosure requirements. munity; (2) information about our branches 229.16 Specific availability policy disclo- in this assessment area; (3) a list of services sure. we provide at those locations; (4) data on our 229.17 Initial disclosures. lending performance in this assessment area; 229.18 Additional disclosure requirements. and (5) copies of all written comments re- 229.19 Miscellaneous. ceived by us that specifically relate to our 229.20 Relation to state law. CRA performance in this assessment area, 229.21 Civil liability. and any responses we have made to those comments. If we are operating under an ap- Subpart C—Collection of Checks proved strategic plan, you may also have access to a copy of the plan. 229.30 Paying bank’s responsibility for re- [If you would like to review information turn of checks. about our CRA performance in other commu- 229.31 Returning bank’s responsibility for nities served by us, the public file for our en- return of checks. tire bank is available at (name of office lo- 229.32 Depositary bank’s responsibility for cated in state), located at (address).] returned checks. At least 30 days before the beginning of 229.33 Notice of nonpayment. each quarter, the Federal Reserve System 229.34 Warranties. publishes a list of the banks that are sched- 229.35 Indorsements. uled for CRA examination by the Reserve 229.36 Presentment and issuance of checks. Bank in that quarter. This list is available 229.37 Variation by agreement. from (title of responsible official), Federal 229.38 Liability. Reserve Bank of llll (address). You may 229.39 Insolvency of bank. send written comments about our perform- 229.40 Effect of merger transaction. ance in helping to meet community credit 229.41 Relation to State law. needs to (name and address of official at 229.42 Exclusions. bank) and (title of responsible official), Fed- 229.43 Checks payable in Guam, American eral Reserve Bank of llll (address). Your Samoa, and the Northern Mariana Is- letter, together with any response by us, will lands. be considered by the Federal Reserve System in evaluating our CRA performance and may Subpart D—Substitute Checks be made public. You may ask to look at any comments re- 229.51 General provisions governing sub- ceived by the Reserve Bank. You may also stitute checks. request from the Reserve Bank an announce- 229.52 Substitute check warranties. ment of our applications covered by the CRA 229.53 Substitute check indemnity. filed with the Reserve Bank. We are an affil- 229.54 Expedited recredit for consumers. iate of (name of holding company), a bank 229.55 Expedited recredit for banks. holding company. You may request from 229.56 Liability. (title of responsible official), Federal Reserve 229.57 Consumer awareness. Bank of llll (address) an announcement 229.58 Mode of delivery of information. of applications covered by the CRA filed by 229.59 Relation to other law. bank holding companies. 229.60 Variation by agreement. [Reg. BB, 60 FR 22200, May 4, 1995] APPENDIX A TO PART 229—ROUTING NUMBER GUIDE TO NEXT-DAY AVAILABILITY CHECKS AND LOCAL CHECKS PART 229—AVAILABILITY OF FUNDS APPENDIX B TO PART 229 [RESERVED] AND COLLECTION OF CHECKS APPENDIX C TO PART 229—MODEL AVAIL- (REGULATION CC) ABILITY POLICY DISCLOSURES, CLAUSES, AND NOTICES; MODEL SUBSTITUTE CHECK Subpart A—General POLICY DISCLOSURE AND NOTICES APPENDIX D TO PART 229—INDORSEMENT, RE- Sec. CONVERTING BANK IDENTIFICATION, AND 229.1 Authority and purpose; organization. TRUNCATING BANK IDENTIFICATION STAND- 229.2 Definitions. ARDS 229.3 Administrative enforcement. APPENDIX E TO PART 229—COMMENTARY APPENDIX F TO PART 229—OFFICIAL BOARD IN- Subpart B—Availability of Funds and TERPRETATIONS; PREEMPTION DETERMINA- Disclosure of Funds Availability Policies TIONS AUTHORITY: 12 U.S.C. 4001–4010, 12 U.S.C. 229.10 Next-day availability. 5001–5018. 229.11 [Reserved] 229.12 Availability schedule. SOURCE: 53 FR 19433, May 27, 1988, unless 229.13 Exceptions. otherwise noted.

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Subpart A—General and the disclosure and notices that banks must provide. § 229.1 Authority and purpose; organi- [53 FR 19433, May 27, 1988, as amended at 57 zation. FR 36598, Aug. 14, 1992; 57 FR 46972, Oct. 14, (a) Authority and purpose. This part is 1992; Reg. CC, 60 FR 51670, Oct. 3, 1995; 69 FR issued by the Board of Governors of the 47309, Aug. 4, 2004] Federal Reserve System (Board) to im- § 229.2 Definitions. plement the Expedited Funds Avail- As used in this part, and unless the ability Act (12 U.S.C. 4001–4010) (the context requires otherwise, the fol- EFA Act) and the Check Clearing for lowing terms have the meanings set the 21st Century Act (12 U.S.C. 5001– forth in this section, and the terms not 5018) (the Check 21 Act). defined in this section have the mean- (b) Organization. This part is divided ings set forth in the Uniform Commer- into subparts and appendices as fol- cial Code: lows— (a) Account. (1) Except as provided in (1) Subpart A contains general infor- paragraphs (a)(2) and (a)(3) of this sec- mation. It sets forth— tion, account means a deposit as de- (i) The authority, purpose, and orga- fined in 12 CFR 204.2(a)(1)(i) that is a nization; transaction account as described in 12 (ii) Definition of terms; and CFR 204.2(e). As defined in these sec- (iii) Authority for administrative en- tions, account generally includes ac- forcement of this part’s provisions. counts at a bank from which the ac- (2) Subpart B of this part contains count holder is permitted to make rules regarding the duty of banks to transfers or withdrawals by negotiable or transferable instrument, payment make funds deposited into accounts order of withdrawal, telephone trans- available for withdrawal, including fer, electronic payment, or other simi- availability schedules. Subpart B of lar means for the purpose of making this part also contains rules regarding payments or transfers to third persons exceptions to the schedules, disclosure or others. Account also includes ac- of funds availability policies, payment counts at a bank from which the ac- of interest, liability of banks for fail- count holder may make third party ure to comply with Subpart B of this payments at an ATM, remote service part, and other matters. unit, or other electronic device, includ- (3) Subpart C of this part contains ing by debit card, but the term does rules to expedite the collection and re- not include savings deposits or ac- turn of checks by banks. These rules counts described in 12 CFR 204.2(d)(2) cover the direct return of checks, the even though such accounts permit manner in which the paying bank and third party transfers. An account may returning banks must return checks to be in the form of— the depositary bank, notification of (i) A demand deposit account, nonpayment by the paying bank, (ii) A negotiable order of withdrawal indorsement and presentment of account, checks, same-day settlement for cer- (iii) A share draft account, tain checks, the liability of banks for (iv) An automatic transfer account, or failure to comply with subpart C of (v) Any other transaction account de- this part, and other matters. scribed in 12 CFR 204.2(e). (4) Subpart D of this part contains (2) For purposes of subpart B of this rules relating to substitute checks. part and, in connection therewith, this These rules address the creation and subpart A, account does not include an legal status of substitute checks; the account where the account holder is a substitute check warranties and in- bank, where the account holder is an demnity; expedited recredit procedures office of an institution described in for resolving improper charges and paragraphs (e)(1) through (e)(6) of this warranty claims associated with sub- section or an office of a ‘‘foreign bank’’ stitute checks provided to consumers; as defined in section 1(b) of the Inter- national Banking Act (12 U.S.C. 3101)

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that is located outside the United (6) A savings association as defined in States, or where the direct or indirect section 3 of the Federal Deposit Insur- account holder is the Treasury of the ance Act (12 U.S.C. 1813) that is an in- United States. sured depository institution as defined (3) For purposes of subpart D of this in section 3 of that Act (12 U.S.C. part and, in connection therewith, this 1813(c)(2)) or that is eligible to apply to subpart A, account means any deposit, become an insured depository institu- as defined in 12 CFR 204.2(a)(1)(i), at a tion under section 5 of that Act (12 bank, including a demand deposit or U.S.C. 1815); or other transaction account and a sav- (7) An agency or a branch of a foreign ings deposit or other time deposit, as bank as defined in section l(b) of the those terms are defined in 12 CFR 204.2. International Banking Act (12 U.S.C. (b) Automated clearinghouse or ACH 3101). means a facility that processes debit For purposes of subparts C and D of and credit transfers under rules estab- this part and, in connection therewith, lished by a Federal Reserve Bank oper- this subpart A, the term bank also in- ating circular on automated clearing- cludes any person engaged in the busi- house items or under rules of an auto- ness of banking, as well as a Federal mated clearinghouse association. Reserve Bank, a Federal Home Loan (c) Automated teller machine or ATM Bank, and a state or unit of general means an electronic device at which a local government to the extent that natural person may make deposits to the state or unit of general local gov- an account by cash or check and per- ernment acts as a paying bank. Unless form other account transactions. otherwise specified, the term bank includes all of a bank’s offices in the (d) Available for withdrawal with re- United States, but not offices located spect to funds deposited means avail- outside the United States. able for all uses generally permitted to the customer for actually and finally NOTE: For purposes of subpart D of this collected funds under the bank’s ac- part and, in connection therewith, this sub- count agreement or policies, such as part A, bank also includes the Treasury of the United States or the United States Post- for payment of checks drawn on the ac- al Service to the extent that the Treasury or count, certification of checks drawn on the Postal Service acts as a paying bank. the account, electronic payments, withdrawals by cash, and transfers be- (f) Banking day means that part of tween accounts. any business day on which an office of (e) Bank means— a bank is open to the public for carrying on substantially all of its bank- (1) An insured bank as defined in sec- ing functions. tion 3 of the Federal Deposit Insurance (g) Business day means a calendar day Act (12 U.S.C. 18I3) or a bank that is el- other than a Saturday or a Sunday, igible to apply to become an insured January 1, the third Monday in Janu- bank under section 5 of that Act (12 ary, the third Monday in February, the U.S.C. 1815); last Monday in May, July 4, the first (2) A mutual savings bank as defined Monday in September, the second Mon- in section 3 of the Federal Deposit In- day in October, November 11, the surance Act (12 U.S.C. 1813); fourth Thursday in November, or De- (3) A savings bank as defined in sec- cember 25. If January 1, July 4, Novem- tion 3 of the Federal Deposit Insurance ber 11, or December 25 fall on a Sunday, Act (12 U.S.C. 1813); the next Monday is not a business day. (4) An insured credit union as defined (h) Cash means United States coins in section 101 of the Federal Credit and currency. Union Act (12 U.S.C. 1752) or a credit (i) Cashier’s check means a check that union that is eligible to make applica- is— tion to become an insured credit union (1) Drawn on a bank; under section 201 of that Act (12 U.S.C. (2) Signed by an officer or employee 1781); of the bank on behalf of the bank as (5) A member as defined in section 2 of drawer; the Federal Home Loan Bank Act (12 (3) A direct obligation of the bank; U.S.C. 1422); and

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(4) Provided to a customer of the the bank holding the account into bank or acquired from the bank for re- which the check is deposited, even mittance purposes. though the check is physically received (j) Certified check means a check with and indorsed first by another bank. respect to which the drawee bank cer- (p) Electronic payment means a wire tifies by signature on the check of an transfer or an ACH credit transfer. officer or other authorized employee of (q) Forward collection means the proc- the bank that— ess by which a bank sends a check on a (1) (i) The signature of the drawer on cash basis to a collecting bank for set- the check is genuine; and tlement or to the paying bank for pay- (ii) The bank has set aside funds ment. that— (r) Local check means a check payable (A) Are equal to the amount of the by or at a local paying bank, or a check, and check payable by a nonbank payor and (B) Will be used to pay the check; or payable through a local paying bank. (2) The bank will pay the check upon (s) Local paying bank means a paying presentment. bank that is located in the same check- (k) Check means— processing region as the physical loca- (1) A negotiable demand draft drawn tion of the branch, contractual branch, on or payable through or at an office of or proprietary ATM of the depositary a bank; bank in which that check was depos- (2) A negotiable demand draft drawn ited. on a Federal Reserve Bank or a Federal (t) Merger transaction means— Home Loan Bank; (1) A merger or consolidation of two (3) A negotiable demand draft drawn or more banks; or on the Treasury of the United States; (2) The transfer of substantially all of (4) A demand draft drawn on a state the assets of one or more banks or government or unit of general local branches to another bank in consider- government that is not payable ation of the assumption by the acquir- through or at a bank; ing bank of substantially all of the li- (5) A United States Postal Service abilities of the transferring banks, in- money order; or cluding the deposit liabilities. (6) A traveler’s check drawn on or (u) Noncash item means an item that payable through or at a bank. would otherwise be a check, except (7) The term check includes an origi- that— nal check and a substitute check. (1) A passbook, certificate, or other NOTE: The term check does not include a document is attached; noncash item or an item payable in a me- (2) It is accompanied by special in- dium other than United States money. A structions, such as a request for special draft may be a check even though it is de- advice of payment or dishonor; scribed on its face by another term, such as money order. For purposes of subparts C and (3) It consists of more than a single D, and in connection therewith, subpart A, of thickness of paper, except a check that this part, the term check also includes a de- qualifies for handling by automated mand draft of the type described above that check processing equipment; or is nonnegotiable. (4) It has not been preprinted or post- (l) [Reserved] encoded in magnetic ink with the rout- (m) Check processing region means the ing number of the paying bank. geographical area served by an office of (v) Nonlocal check means a check pay- a Federal Reserve Bank for purposes of able by, through, or at a nonlocal pay- its check processing activities. ing bank. (n) Consumer account means any ac- (w) Nonlocal paying bank means a count used primarily for personal, fam- paying bank that is not a local paying ily, or household purposes. bank with respect to the depositary (o) Depositary bank means the first bank. bank to which a check is transferred (x) Nonproprietary ATM means an even though it is also the paying bank ATM that is not a proprietary ATM. or the payee. A check deposited in an (y) [Reserved] account is deemed to be transferred to (z) Paying bank means—

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(1) The bank by which a check is pay- turned check need not contain other able, unless the check is payable at an- elements of a check drawn on the de- other bank and is sent to the other positary bank, such as the name of the bank for payment or collection; depositary bank. (2) The bank at which a check is pay- (cc) Returning bank means a bank able and to which it is sent for pay- (other than the paying or depositary ment or collection; bank) handling a returned check or no- (3) The Federal Reserve Bank or Fed- tice in lieu of return. A returning bank eral Home Loan Bank by which a check is also a collecting bank for purposes of is payable; UCC 4–202(b). (4) The bank through which a check (dd) Routing number means— is payable and to which it is sent for (1) The number printed on the face of payment or collection, if the check is a check in fractional form on in nine- not payable by a bank; or digit form; or (5) The state or unit of general local (2) The number in a bank’s government on which a check is drawn indorsement in fractional or nine-digit and to which it is sent for payment or form. collection. (ee) Similarly situated bank means a For purposes of subparts C and D, and bank of similar size, located in the in connection therewith, subpart A, same community, and with similar paying bank includes the bank through check handling activities as the paying which a check is payable and to which bank or returning bank. the check is sent for payment or collec- (ff) State means a state, the District tion, regardless of whether the check is of Columbia, Puerto Rico, or the U.S. payable by another bank, and the bank Virgin Islands. For purposes of subpart whose routing number appears on a D of this part and, in connection there- check in fractional or magnetic form with, this subpart A, state also means and to which the check is sent for pay- Guam, American Samoa, the Trust ment or collection. Territory of the Pacific Islands, the Northern Mariana Islands, and any NOTE: For purposes of subpart D of this part and, in connection therewith, this sub- other territory of the United States. part A, paying bank also includes the Treas- (gg) Teller’s check means a check pro- ury of the United States or the United States vided to a customer of a bank or ac- Postal Service for a check that is payable by quired from a bank for remittance pur- that entity and that is sent to that entity poses, that is drawn by the bank, and for payment or collection. drawn on another bank or payable (aa) Proprietary ATM means an ATM through or at a bank. that is— (hh) Traveler’s check means an instru- (1) Owned or operated by, or operated ment for the payment of money that— exclusively for, the depositary bank; (1) Is drawn on or payable through or (2) Located on the premises (includ- at a bank; ing the outside wall) of the depositary (2) Is designated on its face by the bank; or term traveler’s check or by any substan- (3) Located within 50 feet of the tially similar term or is commonly premises of the depositary bank, and known and marketed as a traveler’s not identified as being owned or oper- check by a corporation or bank that is ated by another entity. an issuer of traveler’s checks; If more than one bank meets the (3) Provides for a specimen signature owned or operated criterion of para- of the purchaser to be completed at the graph (aa)(1) of this section, the ATM time of purchase; and is considered proprietary to the bank (4) Provides for a countersignature of that operates it. the purchaser to be completed at the (bb) Qualified returned check means a time of negotiation. returned check that is prepared for (ii) Uniform Commercial Code, Code, or automated return to the depositary U.C.C. means the Uniform Commercial bank by placing the check in a carrier Code as adopted in a state. envelope or placing a strip on the (jj) United States means the states, in- check and encoding the strip or enve- cluding the District of Columbia, the lope in magnetic ink. A qualified re- U.S. Virgin Islands, and Puerto Rico.

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(kk) Unit of general local government (uu) Indemnifying bank means a bank means any city, county, parish, town, that provides an indemnity under township, village, or other general pur- § 229.53 with respect to a substitute pose political subdivision of a state. check. The term does not include special pur- (vv) Magnetic ink character recognition pose units of government, such as line and MICR line mean the numbers, school districts or water districts. which may include the routing number, (ll) Wire transfer means an uncondi- account number, check number, check tional order to a bank to pay a fixed or amount, and other information, that determinable amount of money to a are printed near the bottom of a check beneficiary upon receipt or on a day in magnetic ink in accordance with stated in the order, that is transmitted American National Standard Specifica- by electronic or other means through tions for Placement and Location of Fedwire, the Clearing House Interbank MICR Printing, X9.13 (hereinafter ANS Payments System, other similar net- X9.13) for an original check and Amer- work, between banks, or on the books ican National Standard Specifications of a bank. Wire transfer does not infor an Image Replacement Document— clude an electronic fund transfer as de- IRD, X9.100–140 (hereinafter ANS fined in section 903(6) of the Electronic X9.100–140) for a substitute check (un- Fund Transfer Act (15 U.S.C. 1693a(6)). less the Board by rule or order deter- (mm) Fedwire has the same meaning mines that different standards apply). as that set forth in § 210.26(e) of this (ww) Original check means the first chapter. paper check issued with respect to a (nn) Good faith means honesty in fact particular payment transaction. and observance of reasonable commer- (xx) Paper or electronic representation cial standards of fair dealing. of a substitute check means any copy of (oo) Interest compensation means an or information related to a substitute amount of money calculated at the av- check that a bank handles for forward erage of the Federal Funds rates pub- collection or return, charges to a cus- lished by the Federal Reserve Bank of tomer’s account, or provides to a per- New York for each of the days for son as a record of a check payment which interest compensation is pay- made by the person. able, divided by 360. The Federal Funds (yy) Person means a natural person, rate for any day on which a published corporation, unincorporated company, rate is not available is the same as the partnership, government unit or in- published rate for the last preceding strumentality, trust, or any other enti- day for which there is a published rate. ty or organization. (pp) Contractual branch, with respect (zz) Reconverting bank means— to a bank, means a branch of another (1) The bank that creates a sub- bank that accepts a deposit on behalf stitute check; or of the first bank. (2) With respect to a substitute check (qq) Claimant bank means a bank that that was created by a person that is submits a claim for a recredit for a not a bank, the first bank that trans- substitute check to an indemnifying fers, presents, or returns that sub- bank under § 229.55. stitute check or, in lieu thereof, the (rr) Collecting bank means any bank first paper or electronic representation handling a check for forward collec- of that substitute check. tion, except the paying bank. (aaa) Substitute check means a paper (ss) Consumer means a natural person reproduction of an original check who— that— (1) With respect to a check handled (1) Contains an image of the front for forward collection, draws the check and back of the original check; on a consumer account; or (2) Bears a MICR line that, except as (2) With respect to a check handled provided under ANS X9.100–140 (unless for return, deposits the check into or the Board by rule or order determines cashes the check against a consumer that a different standard applies), con- account. tains all the information appearing on (tt) Customer means a person having the MICR line of the original check at an account with a bank. the time that the original check was

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issued and any additional information electronic image of the original check), that was encoded on the original whether with or without the subse- check’s MICR line before an image of quent delivery of the original check. the original check was captured; (eee) Truncating bank means— (3) Conforms in paper stock, dimen- (1) The bank that truncates the origi- sion, and otherwise with ANS X9.100– nal check; or 140 (unless the Board by rule or order (2) If a person other than a bank determines that a different standard truncates the original check, the first applies); and bank that transfers, presents, or re- (4) Is suitable for automated proc- turns, in lieu of such original check, a essing in the same manner as the origi- substitute check or, by agreement with nal check. the recipient, information relating to (bbb) Sufficient copy and copy. (1) A the original check (including data sufficient copy is a copy of an original taken from the MICR line of the origi- check that accurately represents all of nal check or an electronic image of the the information on the front and back original check), whether with or with- of the original check as of the time the out the subsequent delivery of the original check was truncated or is oth- original check. erwise sufficient to determine whether (fff) Remotely created check means a or not a claim is valid. check that is not created by the paying (2) A copy of an original check means bank and that does not bear a signa- any paper reproduction of an original ture applied, or purported to be ap- check, including a paper printout of an plied, by the person on whose account electronic image of the original check, the check is drawn. For purposes of a photocopy of the original check, or a this definition, ‘‘account’’ means an ac- substitute check. count as defined in paragraph (a) of (ccc) Transfer and consideration. The this section as well as a credit or other terms transfer and consideration have arrangement that allows a person to the meanings set forth in the Uniform draw checks that are payable by, Commercial Code and in addition, for through, or at a bank. purposes of subpart D— [53 FR 19433, May 27, 1988, as amended at 53 (1) The term transfer with respect to FR 31292, Aug. 18, 1988; 53 FR 44324, Nov. 2, a substitute check or a paper or elec- 1988; Reg. CC, 54 FR 13850, Apr. 6, 1989; 57 FR tronic representation of a substitute 46972, Oct. 14, 1992; 58 FR 2, Jan. 4, 1993; 60 FR check means delivery of the substitute 51670, Oct. 3, 1995; 62 FR 13809, Mar. 24, 1997; check or other representation of the 69 FR 47309, 47310, Aug. 4, 2004; 70 FR 71225, substitute check by a bank to a person Nov. 28, 2005] other than a bank; and (2) A bank that transfers a substitute § 229.3 Administrative enforcement. check or a paper or electronic rep- (a) Enforcement agencies. Compliance resentation of a substitute check di- with this part is enforced under— rectly to a person other than a bank (1) Section 8 of the Federal Deposit has received consideration for the sub- Insurance Act (12 U.S.C. 1818 et seq.) in stitute check or other paper or elec- the case of— tronic representation of the substitute (i) National banks, and Federal check if it has charged, or has the right branches and Federal agencies of for- to charge, the person’s account or oth- eign banks, by the Office of the Comp- erwise has received value for the origi- troller of the Currency; nal check, a substitute check, or a rep- (ii) Member banks of the Federal Re- resentation of the original check or serve System (other than national substitute check. banks), and offices, branches, and agen- (ddd) Truncate means to remove an cies of foreign banks located in the original check from the forward collec- United States (other than Federal tion or return process and send to a re- branches, Federal agencies, and insured cipient, in lieu of such original check, State branches of foreign banks), by a substitute check or, by agreement, the Board; and information relating to the original (iii) Banks insured by the Federal De- check (including data taken from the posit Insurance Corporation (other MICR line of the original check or an than members of the Federal Reserve

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System) and insured State branches of bank, any Federal Reserve Bank, or foreign banks, by the Board of Direc- any other person subject to the author- tors of the Federal Deposit Insurance ity of the Board from engaging in any Corporation; activity or transaction that directly or (2) Section 8 of the Federal Deposit indirectly involves such noncomplying Insurance Act, by the Director of the bank or person (including any activity Office of Thrift Supervision in the case or transaction involving the receipt, of savings associations the deposits of payment, collection, and clearing of which are insured by the Federal De- checks, and any related function of the posit Insurance Corporation; and payment system with respect to (3) The Federal Credit Union Act (12 checks). U.S.C. 1751 et seq.) by the National Credit Union Administration Board [53 FR 19433, May 27, 1988, as amended by Reg. CC, 55 FR 21855, May 30, 1990; 57 FR with respect to any federal credit 36600, Aug. 14, 1992; 69 FR 47310, Aug. 4, 2004] union or credit union insured by the National Credit Union Share Insurance Fund. Subpart B—Availability of Funds The terms used in paragraph (a)(1) of and Disclosure of Funds Avail- this section that are not defined in this ability Policies part or otherwise defined in section 3(s) § 229.10 Next-day availability. of the Federal Deposit Insurance Act (12 U.S.C. 1813(s)) shall have the mean- (a) Cash deposits. (1) A bank shall ing given to them in section 1(b) of the make funds deposited in an account by International Banking Act of 1978 (12 cash available for withdrawal not later U.S.C. 3101). than the business day after the bank- (b) Additional powers. (1) For the pur- ing day on which the cash is deposited, poses of the exercise by any agency re- if the deposit is made in person to an ferred to in paragraph (a) of this sec- employee of the depositary bank. tion of its powers under any statute re- (2) A bank shall make funds depos- ferred to in that paragraph, a violation ited in an account by cash available for of any requirement imposed under the withdrawal not later than the second EFA Act is deemed to be a violation of business day after the banking day on a requirement imposed under that stat- which the cash is deposited, if the de- ute. posit is not made in person to an em- (2) In addition to its powers under ployee of the depositary bank. any provision of law specifically re- (b) Electronic payments—(1) In general. ferred to in paragraph (a) of this sec- A bank shall make funds received for tion, each of the agencies referred to in deposit in an account by an electronic that paragraph may exercise, for pur- payment available for withdrawal not poses of enforcing compliance with any later than the business day after the requirement imposed under this part, banking day on which the bank re- any other authority conferred on it by ceived the electronic payment. law. (2) When an electronic payment is re- (c) Enforcement by the Board. (1) Ex- ceived. An electronic payment is re- cept to the extent that enforcement of ceived when the bank receiving the the requirements imposed under this payment has received both— part is specifically committed to some (i) Payment in actually and finally other government agency, the Board collected funds; and shall enforce such requirements. (ii) Information on the account and (2) If the Board determines that— amount to be credited. (i) Any bank that is not a bank de- A bank receives an electronic pay- scribed in paragraph (a) of this section; ment only to the extent that the bank or has received payment in actually and (ii) Any other person subject to the finally collected funds. authority of the Board under the EFA (c) Certain check deposits—(1) General Act and this part, rule. A depositary bank shall make has failed to comply with any require- funds deposited in an account by check ment imposed by this part, the Board available for withdrawal not later than may issue an order prohibiting any the business day after the banking day

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on which the funds are deposited, in posited in an account by check or the case of— checks available for withdrawal not (i) A check drawn on the Treasury of later than the second business day the United States and deposited in an after the banking day on which funds account held by a payee of the check; are deposited, in the case of a check de- (ii) A U.S. Postal Service money posit described in and that meets the order deposited— requirements of paragraphs (c)(1) (ii), (A) In an account held by a payee of (iii), (iv), and (v), of this section, ex- the money order; and cept that it is not deposited in person (B) In person to an employee of the to an employee of the depositary bank. depositary bank. (3) Special deposit slip. (i) As a condi- (iii) A check drawn on a Federal Re- tion to making the funds available for serve Bank or Federal Home Loan withdrawal in accordance with this Bank and deposited— section, a depositary bank may require (A) In an account held by a payee of that a state or local government check the check; and (B) In person to an employee of the or a cashier’s, certified, or teller’s depositary bank; check be deposited with a special de- (iv) A check drawn by a state or a posit slip or deposit envelope that iden- unit of general local government and tifies the type of check. deposited— (ii) If a depositary bank requires the (A) In an account held by a payee of use of a special deposit slip or deposit the check; envelope, the bank must either provide (B) In a depositary bank located in the special deposit slip or deposit enve- the state that issued the check, or the lope to its customers or inform its cus- same state as the unit of general local tomers how the slip or envelope may be government that issued the check; prepared or obtained and make the slip (C) In person to an employee of the or envelope reasonably available. depositary bank; and (D) With a special deposit slip or de- § 229.11 [Reserved] posit envelope, if such slip or envelope is required by the depositary bank § 229.12 Availability schedule. under paragraph (c)(3) of this section. (a) Effective date. The availability (v) A cashier’s, certified, or teller’s schedule contained in this section is ef- check deposited— fective September 1, 1990. (A) In an account held by a payee of (b) Local checks and certain other the check; checks. Except as provided in para- (B) In person to an employee of the graphs (d), (e), and (f) of this section, a depositary bank; and depository bank shall make funds de- (C) With a special deposit slip or deposited in an account by a check avail- posit envelope, if such slip or envelope able for withdrawal not later than the is required by the depositary bank second business day following the under paragraph (c)(3) of this section. banking day on which funds are depos- (vi) A check deposited in a branch of ited, in the case of— the depositary bank and drawn on the (1) A local check; same or another branch of the same bank if both branches are located in (2) A check drawn on the Treasury of the same state or the same check proc- the United States that is not governed essing region; and, by the availability requirements of (vii) The lesser of— § 229.10(c); (A) $100, or (3) A U.S. Postal Service money order (B) The aggregate amount deposited that is not governed by the availability on any one banking day to all accounts requirements of § 229.10(c); and of the customer by check or checks not (4) A check drawn on a Federal Re- subject to next-day availability under serve Bank or Federal Home Loan paragraphs (c)(1) (i) through (vi) of this Bank; a check drawn by a state or unit section. of general local government; or a cash- (2) Checks not deposited in person. A ier’s, certified, or teller’s check; if any depositary bank shall make funds de- check referred to in this paragraph

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(b)(4) is a local check that is not gov- ness day in the case of any deposit, erned by the availability requirements other than a deposit described in of § 229.10(c). § 229.10, that is— (c) Nonlocal checks—(1) In general. Ex- (1) Deposited in an account at a cept as provided in paragraphs (d), (e), branch of a depositary bank if the and (f) of this section, a depositary branch is located in Alaska, Hawaii, bank shall make funds deposited in an Puerto Rico, or the U.S. Virgin Islands; account by a check available for with- and drawal not later than the fifth business (2) Deposited by a check drawn on or day following the banking day on payable at or through a paying bank which funds are deposited, in the case not located in the same state as the de- of— positary bank. (i) A nonlocal check; and (f) Deposits at nonproprietary ATMs. A (ii) A check drawn on a Federal Re- depositary bank shall make funds de- serve Bank or Federal Home Loan posited in an account at a nonpropri- Bank; a check drawn by a state or unit etary ATM by cash or check available of general local government; a cash- for withdrawal not later than the fifth ier’s, certified, or teller’s check; or a business day following the banking day check deposited in a branch of the de- on which the funds are deposited. positary bank and drawn on the same or another branch of the same bank, if [53 FR 19433, May 27, 1988, as amended by any check referred to in this paragraph Reg. CC, 55 FR 50818, Dec. 11, 1990; 56 FR 7801, (c)(1)(ii) is a nonlocal check that is not Feb. 26, 1991; 56 FR 66343, Dec. 23, 1991; 57 FR 36601, Aug. 14, 1992; 60 FR 51670, Oct. 3, 1995] governed by the availability requirements of § 229.10(c). § 229.13 Exceptions. (2) Nonlocal checks specified in appendix B–2 to this part must be made (a) New accounts. For purposes of this available for withdrawal not later than paragraph, checks subject to the times prescribed in that appendix. § 229.10(c)(1)(v) include traveler’s (d) Time period adjustment for with- checks. drawal by cash or similar means. A de- (1) A deposit in a new account— positary bank may extend by one busi- (i) Is subject to the requirements of ness day the time that funds deposited § 229.10 (a) and (b) to make funds from in an account by one or more checks deposits by cash and electronic pay- subject to paragraphs (b), (c), or (f) of ments available for withdrawal on the this section are available for with- business day following the banking day drawal by cash or similar means. Simi- of deposit or receipt; lar means include electronic payment, (ii) Is subject to the requirements of issuance of a cashier’s or teller’s check, § 229.10(c)(1) (i) through (v) and or certification of a check, or other ir- § 229.10(c)(2) only with respect to the revocable commitment to pay, but do first $5,000 of funds deposited on any not include the granting of credit to a one banking day; but the amount of bank, a Federal Reserve Bank, or a the deposit in excess of $5,000 shall be Federal Home Loan Bank that presents available for withdrawal not later than a check to the depositary bank for pay- the ninth business day following the ment. A depositary bank shall, how- banking day on which funds are depos- ever, make $400 of these funds available ited; and for withdrawal by cash or similar (iii) Is not subject to the availability means not later than 5:00 p.m. on the requirements of §§ 229.10(c)(1)(vi) and business day on which the funds are (vii) and 229.12. available under paragraphs (b), (c), or (2) An account is considered a new (f) of this section. This $400 is in addi- account during the first 30 calendar tion to the $100 available under days after the account is established. § 229.10(c)(1)(vii). An account is not considered a new ac- (e) Extension of schedule for certain de- count if each customer on the account posits in Alaska, Hawaii, Puerto Rico, has had, within 30 calendar days before and the U.S. Virgin Islands. The deposi- the account is established, another ac- tary bank may extend the time periods count at the depositary bank for at set forth in this section by one busi- least 30 calendar days.

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(b) Large deposits. Sections 229.10(c) able cause to believe that the check is and 229.12 do not apply to the aggregate uncollectible from the paying bank. amount of deposits by one or more Reasonable cause to believe a check is checks to the extent that the aggre- uncollectible requires the existence of gate amount is in excess of $5,000 on facts that would cause a well-grounded any one banking. day. For customers belief in the mind of a reasonable per- that have multiple accounts at a depos- son. Such belief shall not be based on itary bank, the bank may apply this the fact that the check is of a par- exception to the aggregate deposits to ticular class or is deposited by a par- all accounts held by the customer, even ticular class of persons. The reason for if the customer is not the sole holder of the bank’s belief that the check is the accounts and not all of the holders uncollectible shall be included in the of the accounts are the same. notice required under paragraph (g) of (c) Redeposited checks. Sections this section. 229.10(c) and 229.12 do not apply to a (2) Overdraft and returned check fees. check that has been returned unpaid A depositary bank that extends the and redeposited by the customer or the time when funds will be available for depositary bank. This exception does withdrawal as described in paragraph not apply— (e)(1) of this section, and does not fur- (1) To a check that has been returned nish the depositor with written notice due to a missing indorsement and rede- at the time of deposit shall not assess posited after the missing indorsement any fees for any subsequent overdrafts has been obtained, if the reason for re- (including use of a line of credit) or return indication on the check states turn of checks of other debits to the that it was returned due to a missing account, if— indorsement; or (i) The overdraft or return of the (2) To a check that has been returned check would not have occurred except because it was post dated, if the reason for the fact that the deposited funds for return indicated on the check were delayed under paragraph (e)(1) of states that it was returned because it this section; and was post dated, and if the check is no (ii) The deposited check was paid by longer postdated when redeposited. the paying bank. (d) Repeated overdrafts. If any account or combination of accounts of a deposi- Notwithstanding the foregoing, the de- tary bank’s customer has been repeat- positary bank may assess an overdraft edly overdrawn, then for a period of six or returned check fee if it includes a months after the last such overdraft, notice concerning overdraft and re- §§ 229.10(c) and 229.12 do not apply to turned check fees with the notice of ex- any of the accounts. A depositary bank ception required in paragraph (g) of may consider a customer’s account to this section and, when required, re- be repeatedly overdrawn if— funds any such fees upon the request of (1) On six or more banking days with- the customer. The notice must state in the preceding six months, the ac- that the customer may be entitled to a count balance is negative, or the ac- refund of overdraft or returned check count balance would have become neg- fees that are assessed if the check sub- ative if checks or other charges to the ject to the exception is paid and how to account had been paid; or obtain a refund. (2) On two or more banking days (f) Emergency conditions. Sections within the preceding six months, the 229.10(c) and 229.12 do not apply to account balance is negative, or the ac- funds deposited by check in a deposi- count balance would have become neg- tary bank in the case of— ative, in the amount of $5,000 or more, (1) An interruption of communica- if checks or other charges to the actions or computer or other equipment count had been paid. facilities; (e) Reasonable cause to doubt collect- (2) A suspension of payments by an- ibility—(1) In general. Sections 229.10(c) other bank; and 229.12 do not apply to a check de- (3) A war; or posited in an account at a depositary (4) An emergency condition beyond bank if the depositary bank has reason- the control of the depositary bank,

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if the depositary bank exercises such check deposits in the account to which diligence as the circumstances require. the exception could apply. This notice (g) Notice of exception—(1) In general. shall be provided at or prior to the Subject to paragraphs (g)(2) and (g)(3) time notice must be provided under of this section, when a depositary bank paragraph (g)(1)(ii) of this section. extends the time when funds will be (3) Notice of repeated overdrafts excep- available for withdrawal based on the tion. In lieu of providing notice pursu- application of an exception contained ant to paragraph (g)(1) of this section, in paragraphs (b) through (e) of this a depositary bank that extends the section, it must provide the depositor time when funds deposited in an ac- with a written notice. count will be available for withdrawal (i) The notice shall include the fol- based on the exception contained in lowing information— paragraph (d) of this section may pro- (A) A number or code, which need not vide a notice to the customer for each exceed four digits, that identifies the time period during which the exception customer’s account; will be in effect. The notice shall in- (B) The date of the deposit; clude the following information— (C) The amount of the deposit that is (i) The account number of the cus- being delayed; tomer; (D) The reason the exception was in- (ii) The fact that the availability of voked; and funds deposited in the customer’s ac- (E) The time period within which the count will be delayed because the refunds will be available for withdrawal. peated overdrafts exception will be in- (ii) Timing of notice. The notice shall voked; be provided to the depositor at the (iii) The time period within which de- time of the deposit, unless the deposit posits subject to the exception gen- is not made in person to an employee erally will be available for withdrawal; of the depositary bank, or, if the facts and upon which a determination to invoke (iv) The time period during which the one of the exceptions in paragraphs (b) exception will apply. through (e) of this section to delay a This notice shall be provided at or deposit only become known to the de- prior to the time notice must be pro- positary bank after the time of the de- vided under paragraph (g)(1)(ii) of this posit. If the notice is not given at the section and only if the exception cited time of the deposit, the depositary in the notice will be invoked for most bank shall mail or deliver the notice to check deposits in the account. the customer as soon as practicable, (4) Emergency conditions exception no- but no later than the first business day tice. When a depositary bank extends following the day the facts become the time when funds will be available known to the depositary bank, or the for withdrawal based on the applica- deposit is made, whichever is later. tion of the emergency conditions ex- (2) One-time exception notice. In lieu of ception contained in paragraph (f) of providing notice pursuant to paragraph this section, it must provide the de- (g)(1) of this section, a depositary bank positor with notice in a reasonable that extends the time when the funds form and within a reasonable time deposited in a nonconsumer account given the circumstances. The notice will be available for withdrawal based shall include the reason the exception on an exception contained in paragraph was invoked and the time period within (b) or (c) of this section may provide a which funds shall be made available for single notice to the customer that in- withdrawal, unless the depositary cludes the following information— bank, in good faith, does not know at (i) The reason(s) the exception may the time the notice is given the dura- be invoked; and tion of the emergency and, con- (ii) The time period within which de- sequently, when the funds must be posits subject to the exception gen- made available. The depositary bank is erally will be available for withdrawal. not required to provide a notice if the This one-time notice shall be provided funds subject to the exception become only if each type of exception cited in available before the notice must be the notice will be invoked for most sent.

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(5) Record retention. A depositary the purposes of this section, the deposi- bank shall retain a record, in accord- tary bank may— ance with § 229.21(g), of each notice pro- (1) Rely on the availability schedule vided pursuant to its application of the of its Federal Reserve Bank, Federal reasonable cause exception under para- Home Loan Bank, or correspondent graph (e) of this section, together with bank to determine the time credit is a brief statement of the facts giving actually received; and rise to the bank’s reason to doubt the (2) Accrue interest or dividends on collectibility of the check. funds deposited in interest-bearing ac- (h) Availability of deposits subject to ex- counts by checks that the depositary ceptions. (1) If an exception contained bank sends to paying banks or subse- in paragraphs (b) through (f) of this quent collecting banks for payment or section applies, the depositary bank collection based on the availability of may extend the time periods estab- funds the depositary bank receives lished under §§ 229.10(c) and 229.12 by a from the paying or collecting banks. reasonable period of time. (b) Special rule for credit unions. Para- (2) If a depositary bank invokes an graph (a) of this section does not apply exception contained in paragraphs (b) to any account at a bank described in through (e) of this section with respect § 229.2(e)(4), if the bank— to a check described in § 229.10(c)(1) (i) (1) Begins the accrual of interest or through (v) or § 229.10(c)(2), it shall dividends at a later date than the date make the funds available for with- described in paragraph (a) of this sec- drawal not later than a reasonable pe- tion with respect to all funds, includ- riod after the day the funds would have ing cash, deposited in the account; and been required to be made available had (2) Provides notice of its interest or the check been subject to 229.12. dividend payment policy in the manner (3) If a depositary bank invokes an required under § 229.16(d). exception under paragraph (f) of this (c) Exception for checks returned un- section based on an emergency condi- paid. This subpart does not require a tion, the depositary bank shall make bank to pay interest or dividends on the funds available for withdrawal not funds deposited by a check that is re- later than a reasonable period after the turned unpaid. emergency has ceased or the period established in §§ 229.10(c) and 229.12, § 229.15 General disclosure require- whichever is later. ments. (4) For the purposes of this section, a (a) Form of disclosures. A bank shall ‘‘reasonable period’’ is an extension of make the disclosures required by this up to one business day for checks de- subpart clearly and conspicuously in scribed in § 229.10(c)(1)(vi), five business writing. Disclosures, other than those days for checks described in § 229.12(b) posted at locations where employees (1) through (4), and six business days accept consumer deposits and ATMs for checks described in § 229.12(c) (1) and the notice on preprinted deposit and (2) or § 229.12(f). A longer extension slips, must be in a form that the cus- may be reasonable, but the bank has tomer may keep. The disclosures shall the burden of so establishing. be grouped together and shall not contain any information not related to the [53 FR 19433, May 27, 1988, as amended by Reg. CC, 54 FR 13850, Apr. 6, 1989; Reg. CC, 55 disclosures required by this subpart. If FR 21855, May 30, 1990; 57 FR 3279, Jan. 29, contained in a document that sets 1992; 57 FR 36598, Aug. 14, 1992; 60 FR 51671, forth other account terms, the disclo- Oct. 3, 1995; Reg. CC, 62 FR 13809, Mar. 24, sures shall be highlighted within the 1997; 69 FR 47310, Aug. 4, 2004] document by, for example, use of a separate heading. § 229.14 Payment of interest. (b) Uniform reference to day of avail- (a) In general. A depositary bank ability. In its disclosure, a bank shall shall begin to accrue interest or divi- describe funds as being available for dends on funds deposited in an interest- withdrawal on ‘‘the lllll business bearing account not later than the day after’’ the day of deposit. In this business day on which the depositary calculation, the first business day is bank receives credit for the funds. For the business day following the banking

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day the deposit was received, and the (3) A description of any of the excep- last business day is the day on which tions in § 229.13 that may be invoked by the funds are made available. the bank, including the time following (c) Multiple accounts and multiple ac- a deposit that funds generally will be count holders. A bank need not give available for withdrawal and a state- multiple disclosures to a customer that ment that the bank will notify the cus- holds multiple accounts if the accounts tomer if the bank invokes one of the are subject to the same availability exceptions; policies. Similarly, a bank need not (4) A description, as specified in para- give separate disclosures to each cus- graph (c)(1) of this section, of any case- tomer on a jointly held account. by-case policy of delaying availability (d) Dormant or inactive accounts. A that may result in deposited funds bank need not give availability disclo- being available for withdrawal later sures to a customer that holds a dor- than the time periods stated in the mant or inactive account. bank’s availability policy; and (5) A description of how the customer § 229.16 Specific availability policy dis- can differentiate between a proprietary closure. and a nonproprietary ATM, if the bank (a) General. To meet the require- makes funds from deposits at non- ments of a specific availability policy proprietary ATMs available for with- disclosure under §§ 229.17 and 229.18(d), a drawal later than funds from deposits bank shall provide a disclosure describ- at proprietary ATMs. ing the bank’s policy as to when funds (c) Longer delays on a case-by-case deposited in an account are available basis—(1) Notice in specific policy disclo- for withdrawal. The disclosure must re- sure. A bank that has a policy of mak- flect the policy followed by the bank in ing deposited funds available for with- most cases. A bank may impose longer drawal sooner than required by this delays on a case-by-case basis or by in- subpart may extend the time when voking one of the exceptions in § 229.l3, funds are available up to the time peri- provided this is reflected in the disclo- ods allowed under this subpart on a sure. case-by-case basis, provided the bank (b) Content of specific availability pol- includes the following in its specific icy disclosure. The specific availability policy disclosure— policy disclosure shall contain the fol- (i) A statement that the time when lowing, as applicable— deposited funds are available for with- (1) A summary of the bank’s avail- drawal may be extended in some cases, ability policy; and the latest time following a deposit (2) A description of any categories of that funds will be available for with- deposits or checks used by the bank drawal; when it delays availability (such as local or nonlocal checks); how to deter- (ii) A statement that the bank will mine the category to which a par- notify the customer if funds deposited ticular deposit or check belongs; and in the customer’s account will not be when each category will be available available for withdrawal until later for withdrawal (including a description than the time periods stated in the of the bank’s business days and when a bank’s availability policy; and deposit is considered received);1 (iii) A statement that customers should ask if they need to be sure 1 A bank that distinguishes in its disclosure between local and nonlocal checks based withdrawal within the time periods required on the routing number on the check must for local checks under §§ 229.12 and 229.13 is disclose that certain checks, such as some not required to provide this disclosure on credit union share drafts that are payable by payable-through checks to its customers. one bank but payable through another bank, The statement concerning payable-through will be treated as local or nonlocal checks checks must describe how the customer can based upon the location of the bank by which determine whether these checks will be they are payable and not on the basis of the treated as local or nonlocal, or state that location of the bank whose routing number special rules apply to such checks and that appears on the check. A bank that makes the customer may ask about the availability funds from nonlocal checks available for of these checks.

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about when a particular deposit will be are assessed if the check subject to the available for withdrawal. delay is paid and how to obtain a re- (2) Notice at time of case-by-case fund. delay—(i) In general. When a depositary (d) Credit union notice of interest pay- bank extends the time when funds will ment policy. If a bank described in be available for withdrawal on a case- § 229.2(e)(4) begins to accrue interest or by-case basis, it must provide the de- dividends on all deposits made in an in- positor with a written notice. The no- terest-bearing account, including cash tice shall include the following infor- deposits, at a later time than the day mation— specified in § 229.14(a), the bank’s spe- (A) A number or code, which need not cific policy disclosures shall contain an exceed four digits, that identifies the explanation of when interest or divi- customer’s account. dends on deposited funds begin to ac- (B) The date of the deposit; crue. (C) The amount of the deposit that is [53 FR 19433, May 27, 1988, as amended at 53 being delayed; and FR 31292, Aug. 18, 1988; 53 FR 44324, Nov. 2, (D) The day the funds will be avail- 1988; Reg. CC, 54 FR 13850, Apr. 6, 1989; 60 FR able for withdrawal. 51671, Oct. 3, 1995; Reg. CC, 62 FR 13810, Mar. (ii) Timing of notice. The notice shall 24, 1997; 69 FR 47311, Aug. 4, 2004] be provided to the depositor at the time of the deposit, unless the deposit § 229.17 Initial disclosures. is not made in person to an employee Before opening a new account, a bank of the depositary bank or the decision shall provide a potential customer with to extend the time when the deposited the applicable specific availability pol- funds will be available is made after icy disclosure described in § 229.16. the time of the deposit. If notice is not [Reg. CC, 60 FR 51671, Oct. 3, 1995] given at the time of the deposit, the depositary bank shall mail or deliver the § 229.18 Additional disclosure require- notice to the customer not later than ments. the first business day following the (a) Deposit slips. A bank shall include banking day the deposit is made. on all preprinted deposit slips fur- (3) Overdraft and returned check fees. nished to its customers a notice that A depositary bank that extends the deposits may not be available for im- time when funds will be available for mediate withdrawal. withdrawal on a case-by-case basis and (b) Locations where employees accept does not furnish the depositor with consumer deposits. A bank shall post in written notice at the time of deposit a conspicuous place in each location shall not assess any fees for any subse- where its employees receive deposits to quent overdrafts (including use of a consumer accounts a notice that sets line of credit) or return of checks or forth the time periods applicable to the other debits to the account, if— availability of funds deposited in a con- (i) The overdraft or return of the sumer account. check or other debit would not have oc- (c) Automated teller machines. (1) A de- curred except for the fact that the depositary bank shall post or provide a posited funds were delayed under para- notice at each ATM location that funds graph (c)(1) of this section; and deposited in the ATM may not be avail- (ii) The deposited check was paid by able for immediate withdrawal. the paying bank. (2) A depositary bank that operates Notwithstanding the foregoing, the an off-premises ATM from which depos- depositary bank may assess an over- its are removed not more than two draft or returned check fee if it in- times each week, as described in cludes a notice concerning overdraft § 229.19(a)(4), shall disclose at or on the and returned check fees with the notice ATM the days on which deposits made required in paragraph (c)(2) of this sec- at the ATM will be considered received. tion and, when required, refunds any (d) Upon request. A bank shall provide such fees upon the request of the cus- to any person, upon oral or written re- tomer. The notice must state that the quest, a notice containing the applica- customer may be entitled to a refund ble specific availability policy disclo- of overdraft or returned check fees that sure described in § 229.l6.

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(e) Changes in policy. A bank shall (1) 9:00 a.m. (local time of the deposi- send a notice to holders of consumer tary bank); or accounts at least 30 days before imple- (2) The time the depositary bank’s menting a change to the bank’s avail- teller facilities (including ATMs) are ability policy regarding such accounts, available for customer account with- except that a change that expedites the drawals. availability of funds may be disclosed (c) Effect on policies of depositary not later than 30 days after implemen- bank. This part does not— tation. (1) Prohibit a depositary bank from making funds available to a customer § 229.19 Miscellaneous. for withdrawal in a shorter period of (a) When funds are considered depos- time than the time required by this ited. For the purposes of this subpart— subpart; (1) Funds deposited at a staffed facil- (2) Affect a depositary bank’s right— ity, ATM, or contractual branch are (i) To accept or reject a check for de- considered deposited when they are re- posit; ceived at the staffed facility, ATM, or (ii) To revoke any settlement made contractual branch; by the depositary bank with respect to a check accepted by the bank for de- (2) Funds mailed to the depositary posit, to charge back the customer’s bank are considered deposited on the account for the amount of a check day they are received by the depositary based on the return of the check or re- bank; ceipt of a notice of nonpayment of the (3) Funds deposited to a night deposi- check, or to claim a refund of such tory, lock box, or similar facility are credit; and considered deposited on the day on (iii) To charge back funds made which the deposit is removed from such available to its customer for an elec- facility and is available for processing tronic payment for which the bank has by the depositary bank; not received payment in actually and (4) Funds deposited at an ATM that finally collected funds; is not on, or within 50 feet of, the (3) Require a depositary bank to open premises of the depositary bank are or otherwise to make its facilities considered deposited on the day the available for customer transactions on funds are removed from the ATM, if a given business day; or funds normally are removed from the (4) Supersede any policy of a deposi- ATM not more than two times each tary bank that limits the amount of week; and cash a customer may withdraw from (5) Funds may be considered deposits account on any one day, if that pol- ited on the next banking day, in the icy— case of funds that are deposited— (i) Is not dependent on the time the (i) On a day that is not a banking day funds have been deposited in the ac- for the depositary bank; or count, as long as the funds have been (ii) After a cut-off hour set by the de- on deposit for the time period specified positary bank for the receipt of depos- in §§ 229.10, 229.12, or 229.13; and its of 2:00 p.m. or later, or, for the re- (ii) In the case of withdrawals made ceipt of deposits at ATMs, contractual in person to an employee of the deposi- branches, or off-premise facilities, of tary bank— 12:00 noon or later. Different cut-off (A) Is applied without discrimination hours later than these times may be es- to all customers of the bank; and tablished for the receipt of different (B) Is related to security, operating, types of deposits, or receipt of deposits or bonding requirements of the deposi- at different locations. tary bank. (b) Availability at start of business day. (d) Use of calculated availability. A de- Except as otherwise provided in positary bank may provide availability § 229.12(d), if any provision of this sub- to its nonconsumer accounts based on part requires that funds be made avail- a sample of checks that represents the able for withdrawal on any business average composition of the customer’s day, the funds shall be available for deposits, if the terms for availability withdrawal by the later of: based on the sample are equivalent to

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or more prompt than the availability quires funds deposited in an account at requirements of this subpart. a bank chartered by the state to be (e) Holds on other funds. (1) A deposi- made available for withdrawal in a tary bank that receives a check for de- shorter time than the time provided in posit in an account may not place a subpart B, and, in connection there- hold on any funds of the customer at with, subpart A, shall— the bank, where— (1) Supersede the provisions of the (i) The amount of funds that are held EFA Act and subpart B, and, in connec- exceeds the amount of the check; or tion therewith, subpart A, to the ex- (ii) The funds are not made available tent the provisions relate to the time for withdrawal within the times speci- by which funds deposited or received fied in §§ 229.10, 229.12, and 229.13. for deposit in an account are available (2) A depositary bank that cashes a for withdrawal; and check for a customer over the counter, (2) Apply to all federally insured other than a check drawn on the depos- banks located within the state. itary bank, may not place a hold on funds in an account of the customer at No amendment to a state law or regu- the bank, if— lation governing the availability of (i) The amount of funds that are held funds that becomes effective after Sep- exceeds the amount of the check; or tember 1, 1989, shall supersede the EFA (ii) The funds are not made available Act and subpart B, and, in connection for withdrawal within the times speci- therewith, subpart A, but unamended fied in §§ 229.10, 229.12, and 229.13. provisions of state law shall remain in (f) Employee training and compliance. effect. Each bank shall establish procedures (b) Preemption of inconsistent law. Ex- to ensure that the bank complies with cept as provided in paragraph (a), the the requirements of this subpart, and EFA Act and subpart B, and, in connec- shall provide each employee who per- tion therewith, subpart A, supersede forms duties subject to the require- any provision of inconsistent state law. ments of this subpart with a statement (c) Standards for preemption. A provi- of the procedures applicable to that sion of a state law in effect on or before employee. September 2, 1989, is not inconsistent (g) Effect of merger transaction—(1) In with the EFA Act, or subpart B, or in general. For purposes of this subpart, connection therewith, subpart A, if it except for the purposes of the new ac- requires that funds shall be available counts exception of § 229.13(a), and in a shorter period of time than the when funds are considered deposited time provided in this subpart. Incon- under § 229.19(a), two or more banks sistency with the EFA Act and subpart that have engaged in a merger trans- B, and in connection therewith, sub- action may be considered to be sepa- part A, may exist when state law— rate banks for a period of one year fol- (1) Permits a depositary bank to lowing the consummation of the merg- make funds deposited in an account by er transaction. cash, electronic payment, or check (2) Merger transactions on or after July available for withdrawal in a longer pe- 1, 1998, and before March 1, 2000. If riod of time than the maximum period banks have consummated a merger of time permitted under subpart B, transaction on or after July 1, 1998, and and, in connection therewith, subpart before March 1, 2000, the merged banks A; or may be considered separate banks until (2) Provides for disclosures or notices March 1, 2001. concerning funds availability relating [Reg. CC, 53 FR 19433, May 27, 1988, as amend- to accounts. ed by 54 FR 13850, Apr. 6, 1989; 60 FR 51671, (d) Preemption determinations. The Oct. 3, 1995; 62 FR 13810, Mar. 24, 1997; 64 FR Board may determine, upon the request 14577, Mar. 26, 1999] of any state, bank, or other interested party, whether the EFA Act and sub- § 229.20 Relation to state law. part B, and, in connection therewith, (a) In general. Any provision of a law subpart A, preempt provisions of state or regulation of any state in effect on laws relating to the availability of or before September 1, 1989, that refunds.

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(e) Procedures for preemption deter- (b) Class action awards. In determinations. A request for a preemption mining the amount of any award in determination shall include the fol- any class action, the court shall con- lowing— sider, among other relevant factors— (1) A copy of the full text of the state (1) The amount of any damages law in question, including any imple- awarded; menting regulations or judicial inter- (2) The frequency and persistence of pretations of that law; and failures of compliance; (2) A comparison of the provisions of (3) The resources of the bank; state law with the corresponding provi- (4) The number of persons adversely sions in the EFA Act and subparts A affected; and and B of this part, together with a discussion of the reasons why specific pro- (5) The extent to which the failure of visions of state law are either con- compliance was intentional. sistent or inconsistent with cor- (c) Bona fide errors—(1) General rule. A responding sections of the EFA Act and bank is not liable in any action subparts A and B of this part. brought under this section for a viola- A request for a preemption deter- tion of this subpart if the bank dem- mination shall be addressed to the Sec- onstrates by a preponderance of the retary, Board of Governors of the Fed- evidence that the violation was not in- eral Reserve System. tentional and resulted from a bona fide error, notwithstanding the mainte- [53 FR 19433, May 27, 1988, as amended at 69 nance of procedures reasonably adapted FR 47311, Aug. 4, 2004] to avoid any such error. § 229.21 Civil liability. (2) Examples. Examples of a bona fide error include clerical, calculation, (a) Civil liability. A bank that fails to computer malfunction and program- comply with any requirement imposed ming, and printing errors, except that under subpart B, and in connection an error of legal judgment with respect therewith, subpart A, of this part or to the bank’s obligation under this sub- any provision of state law that super- part is not a bona fide error. sedes any provision of subpart B, and in connection therewith, subpart A, (d) Jurisdiction. Any action under this with respect to any person is liable to section may be brought in any United that person in an amount equal to the States district court or in any other sum of— court of competent jurisdiction, and (1) Any actual damage sustained by shall be brought within one year after that person as a result of the failure; the date of the occurrence of the viola- (2) Such additional amount as the tion involved. court may allow, except that— (e) Reliance on Board rulings. No pro- (i) In the case of an individual action, vision of this subpart imposing any li- liability under this paragraph shall not ability shall apply to any act done or be less than $100 nor greater than omitted in good faith in conformity $1,000; and with any rule, regulation, or interpre- (ii) In the case of a class action— tation thereof by the Board, regardless (A) No minimum recovery shall be of whether such rule, regulation, or inapplicable to each member of the class; terpretation is amended, rescinded, or and determined by judicial or other author- (B) The total recovery under this ity to be invalid for any reason after paragraph in any class action or series the act or omission has occurred. of class actions arising out of the same (f) Exclusions. This section does not failure to comply by the same deposi- apply to claims that arise under sub- tary bank shall not be more than the part C of this part or to actions for lesser of $500,000 or 1 percent of the net wrongful dishonor. worth of the bank involved; and (g) Record retention. (1) A bank shall (3) In the case of a successful action retain evidence of compliance with the to enforce the foregoing liability, the requirements imposed by this subpart costs of the action, together with a for not less than two years. Records reasonable attorney’s fee as deter- may be stored by use of microfiche, mined by the court. microfilm, magnetic tape, or other

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methods capable of accurately retain- uated bank would normally handle a ing and reproducing information. check— (2) If a bank has actual notice that it (i) Of similar amount as the returned is being investigated, or is subject to check; an enforcement proceeding by an agen- (ii) Drawn on the depositary bank; cy charged with monitoring that and bank’s compliance with the EFA Act (iii) Deposited for forward collection and this subpart, or has been served in the similarly situated bank by noon with notice of an action filed under on the banking day following the bank- this section, it shall retain the records ing day on which the check was pre- pertaining to the action or proceeding sented to the paying bank. pending final disposition of the matter, Subject to the requirement for expedi- unless an earlier time is allowed by tious return, a paying bank may send a order of the agency or court. returned check to the depositary bank, or to any other bank agreeing to han- [53 FR 19433, May 27, 1988, as amended at 69 FR 47311, Aug. 4, 2004] dle the returned check expeditiously under § 229.31(a). A paying bank may convert a check to a qualified returned Subpart C—Collection of Checks check. A qualified returned check shall § 229.30 Paying bank’s responsibility be encoded in magnetic ink with the for return of checks. routing number of the depositary bank, the amount of the returned check, and (a) Return of checks. If a paying bank a ‘‘2’’ in the case of an original check determines not to pay a check, it shall (or a ‘‘5’’ in the case of a substitute return the check in an expeditious check) in position 44 of the qualified manner as provided in either paragraph return MICR line as a return identifier. (a)(1) or (a)(2) of this section. A qualified returned original check (1) Two-day/four-day test. A paying shall be encoded in accordance with bank returns a check in an expeditious ANS X9.13, and a qualified returned manner if it sends the returned check substitute check shall be encoded in in a manner such that the check would accordance with ANS X9.100–140. This normally be received by the depositary paragraph does not affect a paying bank not later than 4:00 p.m. (local bank’s responsibility to return a check time of the depositary bank) of— within the deadlines required by the (i) The second business day following U.C.C., Regulation J (12 CFR part 210), the banking day on which the check or § 229.30(c). was presented to the paying bank, if (b) Unidentifiable depositary bank. A the paying bank is located in the same paying bank that is unable to identify check processing region as the deposi- the depositary bank with respect to a tary bank; or check may send the returned check to (ii) The fourth business day following any bank that handled the check for the banking day on which the check forward collection even if that bank was presented to the paying bank, if does not agree to handle the check ex- the paying bank is not located in the peditiously under § 229.31(a). A paying same check processing region as the bank sending a returned check under depositary bank. this paragraph to a bank that handled If the last business day on which the the check for forward collection must paying bank may deliver a returned advise the bank to which the check is check to the depositary bank is not a sent that the paying bank is unable to banking day for the depositary bank, identify the depositary bank. The expe- the paying bank meets the two-day/ ditious return requirements in four-day test if the returned check is § 229.30(a) do not apply to the paying received by the depositary bank on or bank’s return of a check under this before the depositary bank’s next paragraph. banking day. (c) Extension of deadline. The deadline (2) Forward collection test. A paying for return or notice of nonpayment bank also returns a check in an expedi- under the U.C.C. or Regulation J (12 tious manner if it sends the returned CFR part 210), or § 229.36(f)(2) is ex- check in a manner that a similarly sit- tended to the time of dispatch of such

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return or notice of nonpayment where nating the depositary bank appearing a paying bank uses a means of delivery on the returned check in the deposi- that would ordinarily result in receipt tary bank’s indorsement. by the bank to which it is sent— [53 FR 19433, May 27, 1988, as amended at 53 (1) On or before the receiving bank’s FR 31292, Aug. 18, 1988; Reg. CC, 55 FR 21855, next banking day following the other- May 30, 1990; 57 FR 46972, Oct. 14, 1993; Reg. wise applicable deadline by the earlier CC, 62 FR 13810, Mar. 24, 1997; 69 FR 47311, of the close of that banking day or a Aug. 4, 2004] cutoff hour of 2 p.m. or later set by the receiving bank under U.C.C. 4–108, for § 229.31 Returning bank’s responsi- all deadlines other than those de- bility for return of checks. scribed in paragraph (c)(2) of this sec- (a) Return of checks. A returning bank tion; this deadline is extended further shall return a returned check in an ex- if a paying bank uses a highly expedi- peditious manner as provided in either tious means of transportation, even if paragraph (a)(1) or (a)(2) of this sec- this means of transportation would or- tion. dinarily result in delivery after the re- (1) Two-day/four-day test. A returning ceiving bank’s next cutoff hour or bank returns a check in an expeditious banking day referred to above; or manner if it sends the returned check (2) Prior to the cut-off hour for the in a manner such that the check would next processing cycle (if sent to a re- normally be received by the depositary turning bank), or on the next banking bank not later than 4:00 p.m. (local day (if sent to the depositary bank), for time) of— a deadline falling on a Saturday that is (i) The second business day following a banking day (as defined in the appli- the banking day on which the check cable U.C.C.) for the paying bank. was presented to the paying bank if the (d) Identification of returned check. A paying bank is located in the same paying bank returning a check shall check processing region as the deposi- clearly indicate on the front of the tary bank; or check that it is a returned check and (ii) The fourth business day following the reason for return. If the check is a the banking day on which the check substitute check, the paying bank shall was presented to the paying bank if the place this information within the paying bank is not located in the same image of the original check that ap- check processing region as the deposi- pears on the front of the substitute tary bank. check. (e) Depositary bank without accounts. If the last business day on which the The expeditious return requirements of returning bank may deliver a returned paragraph (a) of this section do not check to the depositary bank is not a apply to checks deposited in a deposi- banking day for the depositary bank, tary bank that does not maintain ac- the returning bank meets this require- counts. ment if the returned check is received (f) Notice in lieu of return. If a check by the depositary bank on or before the is unavailable for return, the paying depositary bank’s next banking day. bank may send in its place a copy of (2) Forward collection test. A returning the front and back of the returned bank also returns a check in an expedi- check, or, if no such copy is available, tious manner if it sends the returned a written notice of nonpayment con- check in a manner that a similarly sit- taining the information specified in uated bank would normally handle a § 229.33(b). The copy or notice shall check— clearly state that it constitutes a no- (i) Of similar amount as the returned tice in lieu of return. A notice in lieu check; of return is considered a returned (ii) Drawn on the depositary bank; check subject to the expeditious return and requirements of this section and to the (iii) Received for forward collection other requirements of this subpart. by the similarly situated bank at the (g) Reliance on routing number. A pay- time the returning bank received the ing bank may return a returned check returned check, except that a return- based on any routing number desig- ing bank may set a cut-off hour for the

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receipt of returned checks that is ear- tious return requirements in paragraph lier than the similarly situated bank’s (a) of this section do not apply to re- cut-off hour for checks received for for- turn of a check under this paragraph. A ward collection, if the cut-off hour is returning bank that receives a re- not earlier than 2:00 p.m. turned check from a paying bank under Subject to the requirement for expedi- § 229.30(b), or from a returning bank tious return, the returning bank may under this paragraph, but that is able send the returned check to the deposi- to identify the depositary bank, must tary bank, or to any bank agreeing to thereafter return the check expedi- handle the returned check expeditiously to the depositary bank. tiously under § 229.31(a). The returning (c) Settlement. A returning bank shall bank may convert the returned check settle with a bank sending a returned to a qualified returned check. A quali- check to it for return by the same fied returned check shall be encoded in means that it settles or would settle magnetic ink with the routing number with the sending bank for a check re- of the depositary bank, the amount of ceived for forward collection drawn on the returned check, and a ‘‘2’’ in the the depositary bank. This settlement is case of an original check (or a ‘‘5’’ in final when made. the case of a substitute check) in posi- (d) Charges. A returning bank may tion 44 of the qualified return MICR impose a charge on a bank sending a line as a return identifier. A qualified returned check for handling the re- returned original check shall be en- turned check. coded in accordance with ANS X9.13, (e) Depositary bank without accounts. and a qualified returned substitute The expeditious return requirements of check shall be encoded in accordance paragraph (a) of this section do not with ANS X9.100–140. The time for ex- apply to checks deposited with a depos- peditious return under the forward col- itary bank that does not maintain ac- lection test, and the deadline for re- counts. turn under the U.C.C. and Regulation J (f) Notice in lieu of return. If a check (12 CFR part 210), are extended by one is unavailable for return, the returning business day if the returning bank con- verts a returned check to a qualified bank may send in its place a copy of returned check. This extension does the front and back of the returned not apply to the two-day/four-day test check, or, if no copy is available, a specified in paragraph (a)(1) of this sec- written notice of nonpayment con- tion or when a returning bank is retaining the information specified in turning a check directly to the deposi- § 229.33(b). The copy or notice shall tary bank. clearly state that it constitutes a no- (b) Unidentifiable depositary bank. A tice in lieu of return. A notice in lieu returning bank that is unable to iden- of return is considered a returned tify the depositary bank with respect check subject to the expeditious return to a returned check may send the re- requirements of this section and to the turned check to— other requirements of this subpart. (1) Any collecting bank that handled (g) Reliance on routing number. A re- the check for forward collection if the turning bank may return a returned returning bank was not a collecting check based on any routing number bank with respect to the returned designating the depositary bank ap- check; or pearing on the returned check in the (2) A prior collecting bank, if the re- depositary bank’s indorsement or in turning bank was a collecting bank magnetic ink on a qualified returned with respect to the returned check; check. even if that collecting bank does not [53 FR 19433, May 27, 1988, as amended at 53 agree to handle the returned check ex- FR 31292, Aug. 18, 1988; Reg. CC, 54 FR 13850, peditiously under § 229.31(a). A return- Apr. 6, 1989; 69 FR 47311, Aug. 4, 2004] ing bank sending a returned check under this paragraph must advise the § 229.32 Depositary bank’s responsi- bank to which the check is sent that bility for returned checks. the returning bank is unable to iden- (a) Acceptance of returned checks. A tify the depositary bank. The expedi- depositary bank shall accept returned

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checks and written notices of non- (c) Misrouted returned checks and writ- payment ten notices of nonpayment. If a bank re- (1) At a location at which present- ceives a returned check or written no- ment of checks for forward collection tice of nonpayment on the basis that it is requested by the depositary bank; is the depositary bank, and the bank and determines that it is not the deposi- (2) (i) At a branch, head office, or tary bank with respect to the check or other location consistent with the notice, it shall either promptly send name and address of the bank in its the returned check or notice to the de- indorsement on the check; positary bank directly or by means of a (ii) If no address appears in the returning bank agreeing to handle the indorsement, at a branch or head office returned check expeditiously under associated with the routing number of § 229.31(a), or send the check or notice the bank in its indorsement on the back to the bank from which it was re- check; ceived. (iii) If the address in the indorsement (d) Charges. A depositary bank may is not in the same check processing re- not impose a charge for accepting and gion as the address associated with the paying checks being returned to it. routing number of the bank in its [53 FR 19433, May 27, 1988, as amended by indorsement on the check, at a loca- Reg. CC, 54 FR 13850, Apr. 6, 1989] tion consistent with the address in the indorsement and at a branch or head § 229.33 Notice of nonpayment. office associated with the routing num- (a) Requirement. If a paying bank de- ber in the bank’s indorsement; or termines not to pay a check in the (iv) If no routing number or address amount of $2,500 or more, it shall pro- appears in its indorsement on the vide notice of nonpayment such that check, at any branch or head office of the notice is received by the depositary the bank. bank by 4:00 p.m. (local time) on the A depositary bank may require that re- second business day following the turned checks be separated from for- banking day on which the check was ward collection checks. presented to the paying bank. If the (b) Payment. A depositary bank shall day the paying bank is required to pro- pay the returning or paying bank re- vide notice is not a banking day for the turning the check to it for the amount depositary bank, receipt of notice on of the check prior to the close of busi- the depositary bank’s next banking day ness on the banking day on which it re- constitutes timely notice. Notice may ceived the check (‘‘payment date’’) be provided by any reasonable means, by— including the returned check, a writing (1) Debit to an account of the deposi- (including a copy of the check), tele- tary bank on the books of the return- phone, Fedwire, telex, or other form of ing or paying bank; telegraph. (2) Cash; (b) Content of notice. Notice must in- (3) Wire transfer; or clude the— (4) Any other form of payment ac- (1) Name and routing number of the ceptable to the returning or paying paying bank; bank; (2) Name of the payee(s); provided that the proceeds of the pay- (3) Amount; ment are available to the returning or (4) Date of the indorsement of the de- paying bank in cash or by credit to an positary bank; account of the returning or paying (5) Account number of the cus- bank on or as of the payment date. If tomer(s) of the depositary bank; the payment date is not a banking day (6) Branch name or number of the de- for the returning or paying bank or the positary bank from its indorsement; depositary bank is unable to make the (7) Trace number associated with the payment on the payment date, pay- indorsement of the depositary bank; ment shall be made by the next day and that is a banking day for the returning (8) Reason for nonpayment. or paying bank. These payments are The notice may include other informa- final when made. tion from the check that may be useful

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in identifying the check being returned U.C.C., Regulation J (12 CFR part 210), and the customer, and, in the case of a or § 229.30(c) of this part; written notice, must include the name (2) It is authorized to return the and routing number of the depositary check; bank from its indorsement. If the pay- (3) The check has not been materially ing bank is not sure of an item of infor- altered; and mation, it shall include the informa- (4) In the case of a notice in lieu of tion required by this paragraph to the return, the original check has not and extent possible, and identify any item will not be returned. of information for which the bank is These warranties are not made with re- not sure of the accuracy. spect to checks drawn on the Treasury (c) Acceptance of notice. The deposi- of the United States, U.S. Postal Serv- tary bank shall accept notices during ice money orders, or checks drawn on a its banking day— state or a unit of general local govern- (1) Either at the telephone or tele- ment that are not payable through or graph number of its return check unit at a bank. indicated in the indorsement, or, if no (b) Warranty of notice of nonpayment. such number appears in the Each paying bank that gives a notice indorsement or if the number is illegi- of nonpayment warrants to the trans- ble, at the general purpose telephone or feree bank, to any subsequent trans- telegraph number of its head office or feree bank, to the depositary bank, and the branch indicated in the to the owner of the check that— indorsement; and (1) The paying bank, or in the case of (2) At any other number held out by a check payable by a bank and payable the bank for receipt of notice of non- through another bank, the bank by payment, and, in the case of written which the check is payable, returned or notice, as specified in § 229.32(a). will return the check within its dead- (d) Notification to customer. If the de- line under the U.C.C., Regulation J (12 positary bank receives a returned CFR part 210), or § 229.30(c) of this part; check or notice of nonpayment, it shall (2) It is authorized to send the notice; send or give notice to its customer of and the facts by midnight of the banking (3) The check has not been materially day following the banking day on altered. which it received the returned check or These warranties are not made with re- notice, or within a longer reasonable spect to checks drawn on a state or a time. unit of general local government that (e) Depositary bank without accounts. are not payable through or at a bank. The requirements of this section do not (c) Warranty of settlement amount, en- apply to checks deposited in a deposi- coding, and offset. (1) Each bank that tary bank that does not maintain ac- presents one or more checks to a pay- counts. ing bank and in return receives a settlement or other consideration war- [53 FR 19433, May 27, 1988, as amended at 69 rants to the paying bank that the total FR 47311, Aug. 4, 2004] amount of the checks presented is equal to the total amount of the settle- § 229.34 Warranties. ment demanded by the presenting bank (a) Warranties. Each paying bank or from the paying bank. returning bank that transfers a re- (2) Each bank that transfers one or turned check and receives a settlement more checks or returned checks to a or other consideration for it warrants collecting, returning, or depositary to the transferee returning bank, to bank and in return receives a settle- any subsequent returning bank, to the ment or other consideration warrants depositary bank, and to the owner of to the transferee bank that the accom- the check, that— panying information, if any, accurately (1) The paying bank, or in the case of indicates the total amount of the a check payable by a bank and payable checks or returned checks transferred. through another bank, the bank by (3) Each bank that presents or trans- which the check is payable, returned fers a check or returned check war- the check within its deadline under the rants to any bank that subsequently

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handles it that, at the time of present- tice of the litigation, and the bank no- ment or transfer, the information en- tified may then give similar notice to coded after issue in magnetic ink on any other prior bank. If the notice the check or returned check is correct. states that the bank notified may come For purposes of this paragraph, the in- in and defend and that failure to do so formation encoded after issue on the will bind the bank notified in an action check or returned check includes any later brought by the bank giving the information placed in the MICR line of notice as to any determination of fact a substitute check that represents that common to the two litigations, the check or returned check. bank notified is so bound unless after (4) If a bank settles with another seasonable receipt of the notice the bank for checks presented, or for re- bank notified does come in and defend. turned checks for which it is the depos- (g) Notice of claim. Unless a claimant itary bank, in amount exceeding the gives notice of a claim for breach of total amount of the checks, the set- warranty under this section to the tling bank may set off the excess set- bank that made the warranty within 30 tlement amount against subsequent days after the claimant has reason to settlements for checks presented, or know of the breach and the identity of for returned checks for which it is the the warranting bank, the warranting depositary bank, that it receives from bank is discharged to the extent of any the other bank. loss caused by the delay in giving no- (d) Transfer and presentment warran- tice of the claim. ties with respect to a remotely created [53 FR 19433, May 27, 1988, as amended by check. (1) A bank that transfers or pre- Reg. CC, 54 FR 13850, Apr. 6, 1989; 57 FR 46972, sents a remotely created check and re- Oct. 14, 1992; 62 FR 13810, Mar. 24, 1997; 69 FR ceives a settlement or other consider- 47311, Aug. 4, 2004; 70 FR 71225, Nov. 28, 2005] ation warrants to the transferee bank, any subsequent collecting bank, and § 229.35 Indorsements. the paying bank that the person on (a) Indorsement standards. A bank whose account the remotely created (other than a paying bank) that han- check is drawn authorized the issuance dles a check during forward collection of the check in the amount stated on or a returned check shall indorse the the check and to the payee stated on check in a manner that permits a per- the check. For purposes of this para- son to interpret the indorsement, in ac- graph (d)(1), ‘‘account’’ includes an accordance with the indorsement stand- count as defined in § 229.2(a) as well as ard set forth in appendix D of this part. a credit or other arrangement that al- (b) Liability of bank handling check. A lows a person to draw checks that are bank that handles a check for forward payable by, through, or at a bank. collection or return is liable to any (2) If a paying bank asserts a claim bank that subsequently handles the for breach of warranty under paragraph check to the extent that the subse- (d)(1) of this section, the warranting quent bank does not receive payment bank may defend by proving that the for the check because of suspension of customer of the paying bank is pre- payments by another bank or other- cluded under U.C.C. 4–406, as applica- wise. This paragraph applies whether ble, from asserting against the paying or not a bank has placed its bank the unauthorized issuance of the indorsement on the check. This liabil- check. ity is not affected by the failure of any (e) Damages. Damages for breach of bank to exercise ordinary care, but any these warranties shall not exceed the bank failing to do so remains liable. A consideration received by the bank bank seeking recovery against a prior that presents or transfers a check or bank shall send notice to that prior returned check, plus interest com- bank reasonably promptly after it pensation and expenses related to the learns the facts entitling it to recover. check or returned check, if any. A bank may recover from the bank (f) Tender of defense. If a bank is sued with which it settled for the check by for breach of a warranty under this sec- revoking the settlement, charging tion, it may give a prior bank in the back any credit given to an account, or collection or return chain written no- obtaining a refund. A bank may have

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the rights of a holder with respect to collecting bank, including the deposi- each check it handles. tary bank, and the depositary bank’s (c) Indorsement by a bank. After a customer. check has been indorsed by a bank, (e) Issuance of payable-through checks. only a bank may acquire the rights of (1) A bank that arranges for checks a holder— payable by it to be payable through an- (1) Until the check has been returned other bank shall require that the fol- to the person initiating collection; or lowing information be printed con- (2) Until the check has been specially spicuously on the face of each check: indorsed by a bank to a person who is (i) The name, location, and first four not a bank. digits of the nine-digit routing number (d) Indorsement for depositary bank. A of the bank by which the check is pay- depositary bank may arrange with an- able; and other bank to apply the other bank’s (ii) The words ‘‘payable through’’ fol- indorsement as the depositary bank lowed by the name of the payable- indorsement, provided that any through bank. indorsement of the depositary bank on (2) A bank is responsible for damages the check avoids the area reserved for under § 229.38 to the extent that a check the depositary bank indorsement as payable by it and not payable through specified in appendix D. The other bank another bank is labelled as provided in indorsing as depositary bank is consid- this section. ered the depositary bank for purposes (f) Same-day settlement. (1) A check is of subpart C of this part. considered presented, and a paying bank must settle for or return the [53 FR 19433, May 27, 1988, as amended by Reg. CC, 55 FR 21855, May 30, 1990; 69 FR check pursuant to paragraph (f)(2) of 47311, Aug. 4, 2004] this section, if a presenting bank delivers the check in accordance with rea- § 229.36 Presentment and issuance of sonable delivery requirements estab- checks. lished by the paying bank and demands (a) Payable through and payable at payment under this paragraph (f)— checks. A check payable at or through a (i) At a location designated by the paying bank is considered to be drawn paying bank for receipt of checks under on that bank for purposes of the expe- this paragraph (f) that is in the check ditious return and notice of non- processing region consistent with the payment requirements of this subpart. routing number encoded in magnetic (b) Receipt at bank office or processing ink on the check and at which the pay- center. A check is considered received ing bank would be considered to have by the paying bank when it is received: received the check under paragraph (b) (1) At a location to which delivery is of this section or, if no location is des- requested by the paying bank; ignated, at any location described in (2) At an address of the bank associ- paragraph (b) of this section; and ated with the routing number on the (ii) By 8 a.m. on a business day (local check, whether in magnetic ink or in time of the location described in para- fractional form; graph (f)(1)(i) of this section). (3) At any branch or head office, if A paying bank may require that the bank is identified on the check by checks presented for settlement pursu- name without address; or ant to this paragraph (f)(1) be sepa- (4) At a branch, head office, or other rated from other forward-collection location consistent with the name and checks or returned checks. address of the bank on the check if the (2) If presentment of a check meets bank is identified on the check by the requirements of paragraph (f)(1) of name and address. this section, the paying bank is ac- (c) [Reserved] countable to the presenting bank for (d) Liability of bank during forward the amount of the check unless, by the collection. Settlements between banks close of Fedwire on the business day it for the forward collection of a check receives the check, it either: are final when made; however, a col- (i) Settles with the presenting bank lecting bank handling a check for for- for the amount of the check by credit ward collection may be liable to a prior to an account at a Federal Reserve

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Bank designated by the presenting of damages for failure to exercise ordi- bank; or nary care is the amount of the loss in- (ii) Returns the check. curred, up to the amount of the check, (3) Notwithstanding paragraph (f)(2) reduced by the amount of the loss that of this section, if a paying bank closes party would have incurred even if the on a business day and receives present- bank had exercised ordinary care. A ment of a check on that day in accord- bank that fails to act in good faith ance with paragraph (f)(1) of this sec- under this subpart may be liable for tion, the paying bank is accountable to other damages, if any, suffered by the the presenting bank for the amount of party as a proximate consequence. Sub- the check unless, by the close of ject to a bank’s duty to exercise ordi- Fedwire on its next banking day, it ei- nary care or act in good faith in choos- ther: ing the means of return or notice of (i) Settles with the presenting bank nonpayment, the bank is not liable for for the amount of the check by credit the insolvency, neglect, misconduct, to an account at a Federal Reserve mistake, or default of another bank or Bank designated by the presenting person, or for loss or destruction of a bank; or check or notice of nonpayment in tran- (ii) Returns the check. sit or in the possession of others. This If the closing is voluntary, unless the section does not affect a paying bank’s paying bank settles for or returns the liability to its customer under the check in accordance with paragraph U.C.C. or other law. (f)(2) of this section, it shall pay inter- (b) Paying bank’s failure to make timely est compensation to the presenting return. If a paying bank fails both to bank for each day after the business comply with § 229.30(a) and to comply day on which the check was presented with the deadline for return under the until the paying bank settles for the U.C.C., Regulation J (12 CFR part 210), check, including the day of settlement. or § 229.30(c) in connection with a single [Reg. CC, 53 FR 19433, May 27, 1988, as amend- nonpayment of a check, the paying ed by 54 FR 32047, Aug. 4, 1989; 55 FR 21855, bank shall be liable under either May 30, 1990; 57 FR 46972, Oct. 14, 1992; 60 FR § 229.30(a) or such other provision, but 51671, Oct. 3, 1995; 62 FR 13810, Mar. 24, 1997; not both. 64 FR 59613, Nov. 3, 1999] (c) Comparative negligence. If a person, including a bank, fails to exercise ordi- § 229.37 Variation by agreement. nary care or act in good faith under The effect of the provisions of sub- this subpart in indorsing a check part C may be varied by agreement, ex- (§ 229.35), accepting a returned check or cept that no agreement can disclaim notice of nonpayment (§§ 229.32(a) and the responsibility of a bank for its own 229.33(c)), or otherwise, the damages in- lack of good faith or failure to exercise curred by that person under § 229.38(a) ordinary care, or can limit the measure shall be diminished in proportion to of damages for such lack or failure; but the amount of negligence or bad faith the parties may determine by agree- attributable to that person. ment the standards by which such re- (d) Responsibility for certain aspects of sponsibility is to be measured if such checks—(1) A paying bank, or in the standards are not manifestly unreason- case of a check payable through the able. paying bank and payable by another bank, the bank by which the check is § 229.38 Liability. payable, is responsible for damages (a) Standard of care; liability; measure under paragraph (a) of this section to of damages. A bank shall exercise ordi- the extent that the condition of the nary care and act in good faith in com- check when issued by it or its customer plying with the requirements of this adversely affects the ability of a bank subpart. A bank that fails to exercise to indorse the check legibly in accord- ordinary care or act in good faith ance with § 229.35. A depositary bank is under this subpart may be liable to the responsible for damages under para- depositary bank, the depositary bank’s graph (a) of this section to the extent customer, the owner of a check, or an- that the condition of the back of a other party to the check. The measure check arising after the issuance of the

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check and prior to acceptance of the the EFA Act (12 U.S.C. 4010 (a), (b), and check by it adversely affects the abil- (c)) do not apply to this subpart. ity of a bank to indorse the check leg- (g) Jurisdiction. Any action under this ibly in accordance with § 229.35. A re- subpart may be brought in any United converting bank is responsible for dam- States district court, or in any other ages under paragraph (a) of this section court of competent jurisdiction, and to the extent that the condition of the shall be brought within one year after back of a substitute check transferred, the date of the occurrence of the viola- presented, or returned by it— tion involved. (i) Adversely affects the ability of a (h) Reliance on Board rulings. No pro- subsequent bank to indorse the check vision of this subpart imposing any li- legibly in accordance with § 229.35; or ability shall apply to any act done or (ii) Causes an indorsement that previously was applied in accordance with omitted in good faith in conformity § 229.35 to become illegible. with any rule, regulation, or interpretation thereof by the Board, regardless NOTE: Responsibility under this paragraph of whether the rule, regulation, or in- (d) shall be treated as negligence of the pay- terpretation is amended, rescinded, or ing bank, depositary bank, or reconverting bank for purposes of paragraph (c) of this determined by judicial or other author- section. ity to be invalid for any reason after the act or omission has occurred. (2) Responsibility for payable through checks. In the case of a check that is [53 FR 19433, May 27, 1988, as amended by payable by a bank and payable through Reg. CC, 54 FR 13850, Apr. 6, 1989; 54 FR 32047, a paying bank located in a different Aug. 4, 1989; 69 FR 47311, Aug. 4, 2004] check processing region than the bank by which the check is payable, the § 229.39 lnsolvency of bank. bank by which the check is payable is (a) Duty of receiver. A check or re- responsible for damages under para- turned check in, or coming into, the graph (a) of this section, to the extent possession of a paying, collecting, de- that the check is not returned to the positary, or returning bank that sus- depositary bank through the payable pends payment, and which is not paid, through bank as quickly as the check shall be returned by the receiver, trust- would have been required to be re- ee, or agent in charge of the closed turned under § 229.30(a) had the bank by bank to the bank or customer that which the check is payable— transferred the check to the closed (i) Received the check as paying bank. bank on the day the payable through (b) Preference against paying or deposi- bank received the check; and If a paying bank finally pays (ii) Returned the check as paying tary bank. bank in accordance with § 229.30(a)(1). a check, or if a depositary bank becomes obligated to pay a returned Responsibility under this paragraph check, and suspends payment without shall be treated as negligence of the making a settlement for the check or bank by which the check is payable for returned check with the prior bank purposes of paragraph (c) of this sec- that is or becomes final, the prior bank tion. (e) Timeliness of action. If a bank is has a preferred claim against the pay- delayed in acting beyond the time lim- ing bank or the depositary bank. its set forth in this subpart because of (c) Preference against collecting, pay- interruption of communication or coming, or returning bank. If a collecting, puter facilities, suspension of pay- paying, or returning bank receives set- ments by a bank, war, emergency con- tlement from a subsequent bank for a ditions, failure of equipment, or other check or returned check, which settle- circumstances beyond its control, its ment is or becomes final, and suspends time for acting is extended for the time payments without making a settle- necessary to complete the action, if it ment for the check with the prior exercises such diligence as the cir- bank, which is or becomes final, the cumstances require. prior bank has a preferred claim (f) Exclusion. Section 229.21 of this against the collecting or returning part and section 611 (a), (b), and (c) of bank.

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(d) Preference against presenting bank. drawn on a state or a unit of general If a paying bank settles with a pre- local government that is not payable senting bank for one or more checks, through or at a bank. and if the presenting bank breaches a [Reg. CC, 62 FR 13810, Mar. 24, 1997] warranty specified in § 229.34(c) (1) or (3) with respect to those checks and § 229.43 Checks payable in Guam, suspends payments before satisfying American Samoa, and the Northern the paying bank’s warranty claim, the Mariana Islands. paying bank has a preferred claim (a) Definitions. The definitions in against the presenting bank for the § 229.2 apply to this section, unless oth- amount of the warranty claim. erwise noted. In addition, for the pur- (e) Finality of settlement. If a paying poses of this section— or depositary bank gives, or a col- (1) Pacific island bank means an office lecting, paying, or returning bank of an institution that would be a bank gives or receives, a settlement for a as defined in § 229.2(e) but for the fact check or returned check and thereafter that the office is located in Guam, suspends payment, the suspension does American Samoa, or the Northern Mar- not prevent or interfere with the set- iana Islands; tlement becoming final if such finality (2) Pacific island check means a de- occurs automatically upon the lapse of mand draft drawn on or payable a certain time or the happening of cer- through or at a Pacific island bank, tain events. which is not a check as defined in [Reg. CC, 53 FR 19433, May 27, 1988, as amend- § 229.2(k). ed at 57 FR 46973, Oct. 14, 1992; Reg. CC, 62 FR (b) Rules applicable to Pacific island 13810, Mar. 24, 1997] checks. To the extent a bank handles a Pacific island check as if it were a § 229.40 Effect of merger transaction. check defined in § 229.2(k), the bank is (a) In general. For purposes of this subject to the following sections of this subpart, two or more banks that have part (and the word ‘‘check’’ in each engaged in a merger transaction may such section is construed to include a be considered to be separate banks for Pacific island check)— a period of one year following the con- (1) § 229.31, except that the returning summation of the merger transaction. bank is not subject to the requirement (b) Merger transactions on or after July to return a Pacific island check in an 1, 1998, and before March 1, 2000. If expeditious manner; banks have consummated a merger (2) § 229.32; transaction on or after July 1, 1998, and (3) § 229.34(c)(2), (c)(3), (d), (e), and (f); before March 1, 2000, the merged banks (4) § 229.35; for purposes of § 229.35(c), may be considered separate banks until the Pacific island bank is deemed to be March 1, 2001. a bank; (5) § 229.36(d); [Reg. CC, 53 FR 19433, May 27, 1988, as amend- (6) § 229.37; ed at 64 FR 14577, Mar. 26, 1999] (7) § 229.38(a) and (c) through (h); (8) § 229.39(a), (b), (c) and (e); and § 229.41 Relation to State law. (9) §§ 229.40 through 229.42. The provisions of this subpart supersede any inconsistent provisions of the [Reg. CC, 62 FR 13810, Mar. 24, 1997, as U.C.C. as adopted in any state, or of amended at 70 FR 71225, Nov. 28, 2005] any other state law, but only to the extent of the inconsistency. Subpart D—Substitute Checks

§ 229.42 Exclusions. AUTHORITY: 12 U.S.C. 5001–5018.

The expeditious-return (§§ 229.30(a) SOURCE: 69 FR 47311, Aug. 4, 2004, unless and 229.31(a)), notice-of-nonpayment otherwise noted. (§ 229.33), and same-day settlement (§ 229.36(f)) requirements of this subpart § 229.51 General provisions governing do not apply to a check drawn upon the substitute checks. United States Treasury, to a U.S. Post- (a) Legal equivalence. A substitute al Service money order, or to a check check for which a bank has provided

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the warranties described in § 229.52 is (2) No depositary bank, drawee, draw- the legal equivalent of an original er, or indorser will receive presentment check for all persons and all purposes, or return of, or otherwise be charged including any provision of federal or for, the substitute check, the original state law, if the substitute check— check, or a paper or electronic rep- (1) Accurately represents all of the resentation of the substitute check or information on the front and back of original check such that that person the original check as of the time the will be asked to make a payment based original check was truncated; and on a check that it already has paid. (2) Bears the legend, ‘‘This is a legal (b) Warranty recipients. A bank makes copy of your check. You can use it the the warranties described in paragraph same way you would use the original (a) of this section to the person to check.’’ which the bank transfers, presents, or (b) Reconverting bank duties. A bank returns the substitute check or a paper shall ensure that a substitute check for or electronic representation of such which it is the reconverting bank— substitute check and to any subsequent (1) Bears all indorsements applied by recipient, which could include a col- parties that previously handled the lecting or returning bank, the deposi- check in any form (including the origi- tary bank, the drawer, the drawee, the nal check, a substitute check, or an- payee, the depositor, and any indorser. other paper or electronic representa- These parties receive the warranties tion of such original check or sub- regardless of whether they received the stitute check) for forward collection or substitute check or a paper or elec- return; tronic representation of a substitute check. (2) Identifies the reconverting bank in a manner that preserves any pre- § 229.53 Substitute check indemnity. vious reconverting bank identifications, in accordance with ANS X9.100– (a) Scope of indemnity. A bank that 140 and appendix D of this part; and transfers, presents, or returns a substitute check or a paper or electronic (3) Identifies the bank that truncated representation of a substitute check the original check, in accordance with for which it receives consideration ANS X9.100–140 and appendix D of this shall indemnify the recipient and any part. subsequent recipient (including a col- (c) Applicable law. A substitute check lecting or returning bank, the deposi- that is the legal equivalent of an origi- tary bank, the drawer, the drawee, the nal check under paragraph (a) of this payee, the depositor, and any indorser) section shall be subject to any provi- for any loss incurred by any recipient sion, including any provision relating of a substitute check if that loss oc- to the protection of customers, of this curred due to the receipt of a subpart, the U.C.C., and any other applica- stitute check instead of the original ble federal or state law as if such sub- check. stitute check were the original check, (b) Indemnity amount—(1) In general. to the extent such provision of law is Unless otherwise indicated by para- not inconsistent with the Check 21 Act graph (b)(2) or (b)(3) of this section, the or this subpart. amount of the indemnity under paragraph (a) of this section is as follows: § 229.52 Substitute check warranties. (i) If the loss resulted from a breach (a) Content and provision of substitute of a substitute check warranty pro- check warranties. A bank that transfers, vided under § 229.52, the amount of the presents, or returns a substitute check indemnity shall be the amount of any (or a paper or electronic representation loss (including interest, costs, reason- of a substitute check) for which it re- able attorney’s fees, and other expenses ceives consideration warrants to the of representation) proximately caused parties listed in paragraph (b) of this by the warranty breach. section that— (ii) If the loss did not result from a (1) The substitute check meets the breach of a substitute check warranty requirements for legal equivalence de- provided under § 229.52, the amount of scribed in § 229.51(a)(1)–(2); and the indemnity shall be the sum of—

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(A) The amount of the loss, up to the § 229.54 Expedited recredit for con- amount of the substitute check; and sumers. (B) Interest and expenses (including (a) Circumstances giving rise to a claim. costs and reasonable attorney’s fees A consumer may make a claim under and other expenses of representation) this section for a recredit with respect related to the substitute check. to a substitute check if the consumer (2) Comparative negligence. (i) If a loss asserts in good faith that— described in paragraph (a) of this sec- (1) The bank holding the consumer’s tion results in whole or in part from account charged that account for a the indemnified person’s negligence or substitute check that was provided to failure to act in good faith, then the in- the consumer (although the consumer demnity amount described in para- need not be in possession of that sub- graph (b)(1) of this section shall be re- stitute check at the time he or she sub- duced in proportion to the amount of mits a claim); negligence or bad faith attributable to (2) The substitute check was not the indemnified person. properly charged to the consumer ac- (ii) Nothing in this paragraph (b)(2) count or the consumer has a warranty reduces the rights of a consumer or any claim with respect to the substitute other person under the U.C.C. or other check; applicable provision of state or federal (3) The consumer suffered a resulting law. loss; and (3) Effect of producing the original (4) Production of the original check check or a sufficient copy— or a sufficient copy is necessary to de- (i) If an indemnifying bank produces termine whether or not the substitute the original check or a sufficient copy, check in fact was improperly charged the indemnifying bank shall— or whether the consumer’s warranty (A) Be liable under this section only claim is valid. for losses that are incurred up to the (b) Procedures for making claims. A time that the bank provides that origi- consumer shall make his or her claim nal check or sufficient copy to the infor a recredit under this section with demnified person; and the bank that holds the consumer’s ac- (B) Have a right to the return of any count in accordance with the timing, funds it has paid under this section in content, and form requirements of this excess of those losses. section. (ii) The production by the indem- (1) Timing of claim. (i) The consumer nifying bank of the original check or a shall submit his or her claim such that sufficient copy under paragraph the bank receives the claim by the end (b)(3)(i) of this section shall not ab- of the 40th calendar day after the later solve the indemnifying bank from any of the calendar day on which the bank liability under any warranty that the mailed or delivered, by a means agreed bank has provided under § 229.52 or to by the consumer— other applicable law. (A) The periodic account statement (c) Subrogation of rights—(1) In gen- that contains information concerning eral. An indemnifying bank shall be the transaction giving rise to the subrogated to the rights of the person claim; or that it indemnifies to the extent of the (B) The substitute check giving rise indemnity it has provided and may at- to the claim. tempt to recover from another person (ii) If the consumer cannot submit based on a warranty or other claim. his or her claim by the time specified (2) Duty of indemnified person for sub- in paragraph (b)(1)(i) of this section be- rogated claims. Each indemnified person cause of extenuating circumstances, shall have a duty to comply with all the bank shall extend the 40-calendar- reasonable requests for assistance from day period by an additional reasonable an indemnifying bank in connection amount of time. with any claim the indemnifying bank (iii) If a consumer makes a claim brings against a warrantor or other orally and the bank requires the claim person related to a check that forms to be in writing, the consumer’s claim the basis for the indemnification. is timely if the oral claim was received

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within the time described in para- (c) Action on claims. A bank that re- graphs (b)(1)(i)–(ii) of this section and ceives a claim that meets the require- the written claim was received within ments of paragraph (b) of this section the time described in paragraph shall act as follows: (b)(3)(ii) of this section. (1) Valid consumer claim. If the bank (2) Content of claim. (i) The con- determines that the consumer’s claim sumer’s claim shall include the fol- is valid, the bank shall— lowing information: (i) Recredit the consumer’s account (A) A description of the consumer’s for the amount of the consumer’s loss, claim, including the reason why the up to the amount of the substitute consumer believes his or her account check, plus interest if the account is an was improperly charged for the sub- interest-bearing account, no later than stitute check or the nature of his or the end of the business day after the her warranty claim with respect to banking day on which the bank makes such check; that determination; and (B) A statement that the consumer (ii) Send to the consumer the notice suffered a loss and an estimate of the required by paragraph (e)(1) of this sec- amount of that loss; tion. (C) The reason why production of the (2) Invalid consumer claim. If a bank original check or a sufficient copy is determines that the consumer’s claim necessary to determine whether or not is not valid, the bank shall send to the the charge to the consumer’s account consumer the notice described in para- was proper or the consumer’s warranty graph (e)(2) of this section. claim is valid; and (D) Sufficient information to allow (3) Recredit pending investigation. If the bank to identify the substitute the bank has not taken an action de- check and investigate the claim. scribed in paragraph (c)(1) or (c)(2) of (ii) If a consumer attempts to make a this section before the end of the 10th claim but fails to provide all the infor- business day after the banking day on mation in paragraph (b)(2)(i) of this which the bank received the claim, the section that is required to constitute a bank shall— claim, the bank shall inform the con- (i) By the end of that business day— sumer that the claim is not complete (A) Recredit the consumer’s account and identify the information that is for the amount of the consumer’s loss, missing. up to the lesser of the amount of the (3) Form and submission of claim; com- substitute check or $2,500, plus interest putation of time for bank action. The on that amount if the account is an in- bank holding the account that is the terest-bearing account; and subject of the consumer’s claim may, (B) Send to the consumer the notice in its discretion, require the consumer required by paragraph (e)(1) of this sec- to submit the information required by tion; and this section in writing. A bank that re- (ii) Recredit the consumer’s account quires a written submission— for the remaining amount of the con- (i) May permit the consumer to sub- sumer’s loss, if any, up to the amount mit the written claim electronically; of the substitute check, plus interest if (ii) Shall inform a consumer who sub- the account is an interest-bearing ac- mits a claim orally of the written count, no later than the end of the 45th claim requirement at the time of the calendar day after the banking day on oral claim and may require such con- which the bank received the claim and sumer to submit the written claim send to the consumer the notice re- such that the bank receives the written quired by paragraph (e)(1) of this sec- claim by the 10th business day after tion, unless the bank prior to that time the banking day on which the bank re- has determined that the consumer’s ceived the oral claim; and claim is or is not valid in accordance (iii) Shall compute the time periods with paragraph (c)(1) or (c)(2) of this for acting on the consumer’s claim de- section. scribed in paragraph (c) of this section (4) Reversal of recredit. A bank may from the date on which the bank re- reverse a recredit that it has made to a ceived the written claim. consumer account under paragraph

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(c)(1) or (c)(3) of this section, plus in- (3) Overdraft fees. A bank that delays terest that the bank has paid, if any, availability as permitted in paragraph on that amount, if the bank— (d)(2) of this section may not impose an (i) Determines that the consumer’s overdraft fee with respect to drafts claim was not valid; and drawn by the consumer on such recred- (ii) Notifies the consumer in accord- ited funds until the fifth calendar day ance with paragraph (e)(3) of this sec- after the calendar day on which the tion. bank sent the notice required by para- (d) Availability of recredit—(1) Next- graph (e)(1) of this section. day availability. Except as provided in (e) Notices relating to consumer expe- paragraph (d)(2) of this section, a bank dited recredit claims—(1) Notice of re- shall make any amount that it recredit. A bank that recredits a con- credits to a consumer account under sumer account under paragraph (c) of this section available for withdrawal this section shall send notice to the no later than the start of the business consumer of the recredit no later than day after the banking day on which the the business day after the banking day bank provides the recredit. on which the bank recredits the con- (2) Safeguard exceptions. A bank may sumer account. This notice shall de- delay availability to a consumer of a scribe— recredit provided under paragraph (i) The amount of the recredit; and (c)(3)(i) of this section until the start of (ii) The date on which the recredited the earlier of the business day after the funds will be available for withdrawal. banking day on which the bank deter- (2) Notice that the consumer’s claim is mines the consumer’s claim is valid or not valid. If a bank determines that a the 45th calendar day after the banking substitute check for which a consumer day on which the bank received the made a claim under this section was in oral or written claim, as required by fact properly charged to the consumer paragraph (b) of this section, if— account or that the consumer’s war- (i) The consumer submits the claim ranty claim for that substitute check during the 30-calendar-day period be- was not valid, the bank shall send no- ginning on the banking day on which tice to the consumer no later than the the consumer account was established; business day after the banking day on (ii) Without regard to the charge that which the bank makes that determina- gave rise to the recredit claim— tion. This notice shall— (A) On six or more business days dur- (i) Include the original check or a ing the six-month period ending on the sufficient copy, except as provided in calendar day on which the consumer § 229.58; submitted the claim, the balance in the (ii) Demonstrate to the consumer consumer account was negative or that the substitute check was properly would have become negative if checks charged or the consumer’s warranty or other charges to the account had claim is not valid; and been paid; or (iii) Include the information or docu- (B) On two or more business days ments (in addition to the original during such six-month period, the bal- check or sufficient copy), if any, on ance in the consumer account was neg- which the bank relied in making its de- ative or would have become negative in termination or a statement that the the amount of $5,000 or more if checks consumer may request copies of such or other charges to the account had information or documents. been paid; or (3) Notice of a reversal of recredit. A (iii) The bank has reasonable cause bank that reverses an amount it pre- to believe that the claim is fraudulent, viously recredited to a consumer ac- based on facts that would cause a well- count shall send notice to the con- grounded belief in the mind of a rea- sumer no later than the business day sonable person that the claim is fraud- after the banking day on which the ulent. The fact that the check in ques- bank made the reversal. This notice tion or the consumer is of a particular shall include the information listed in class may not be the basis for invoking paragraph (e)(2) of this section and also this exception. describe—

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(i) The amount of the reversal, in- (i) A description of the consumer’s cluding both the amount of the re- claim or the warranty claim related to credit (including the interest compo- the substitute check, including why nent, if any) and the amount of inter- the bank believes that the substitute est paid on the recredited amount, if check may not be properly charged to any, being reversed; and the consumer account; (ii) The date on which the bank made (ii) A statement that the claimant the reversal. bank is obligated to recredit a con- (f) Other claims not affected. Providing sumer account under § 229.54 or other- a recredit in accordance with this sec- wise has suffered a loss and an esti- tion shall not absolve the bank from li- mate of the amount of that recredit or ability for a claim made under any loss, including interest if applicable; other provision of law, such as a claim for wrongful dishonor of a check under (iii) The reason why production of the U.C.C., or from liability for addi- the original check or a sufficient copy tional damages, such as damages under is necessary to determine the validity § 229.53 or § 229.56 of this subpart or of the charge to the consumer account U.C.C. 4–402. or the warranty claim; and (iv) Sufficient information to allow § 229.55 Expedited recredit for banks. the indemnifying bank to identify the (a) Circumstances giving rise to a claim. substitute check and investigate the A bank that has an indemnity claim claim. under § 229.53 with respect to a sub- (3) Requirements relating to copies of stitute check may make an expedited substitute checks. If the information recredit claim against an indemnifying submitted by a claimant bank under bank if— paragraph (b)(2) of this section includes (1) The claimant bank or a bank that a copy of any substitute check, the the claimant bank has indemnified— claimant bank shall take reasonable (i) Has received a claim for expedited steps to ensure that the copy cannot be recredit from a consumer under § 229.54; mistaken for the legal equivalent of or the check under § 229.51(a) or sent or (ii) Would have been subject to such handled by any bank, including the in- a claim if the consumer account had demnifying bank, for forward collec- been charged for the substitute check; (2) The claimant bank is obligated to tion or return. provide an expedited recredit with re- (4) Form and submission of claim; com- spect to such substitute check under putation of time. The indemnifying bank § 229.54 or otherwise has suffered a re- may, in its discretion, require the sulting loss; and claimant bank to submit the informa- (3) The production of the original tion required by this section in writ- check or a sufficient copy is necessary ing, including a copy of the paper or to determine the validity of the charge electronic claim submitted by the con- to the consumer account or the valid- sumer, if any. An indemnifying bank ity of any warranty claim connected that requires a written submission— with such substitute check. (i) May permit the claimant bank to (b) Procedures for making claims. A submit the written claim electroni- claimant bank shall send its claim to cally; the indemnifying bank, subject to the (ii) Shall inform a claimant bank timing, content, and form require- that submits a claim orally of the writ- ments of this section. ten claim requirement at the time of (1) Timing of claim. The claimant the oral claim; and bank shall submit its claim such that (iii) Shall compute the 10-day time the indemnifying bank receives the claim by the end of the 120th calendar period for acting on the claim de- day after the date of the transaction scribed in paragraph (c) of this section that gave rise to the claim. from the date on which the bank re- (2) Content of claim. The claimant ceived the written claim. bank’s claim shall include the fol- (c) Action on claims. No later than the lowing information— 10th business day after the banking day

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on which the indemnifying bank re- (i) The amount of the loss suffered by ceives a claim that meets the require- the person as a result of the breach or ments of paragraph (b) of this section, failure, up to the amount of the sub- the indemnifying bank shall— stitute check; and (1) Recredit the claimant bank for (ii) Interest and expenses (including the amount of the claim, up to the costs and reasonable attorney’s fees amount of the substitute check, plus and other expenses of representation) interest if applicable; related to the substitute check. (2) Provide to the claimant bank the (2) Offset of recredits. The amount of original check or a sufficient copy; or damages a person receives under para- (3) Provide information to the claim- graph (a)(1) of this section shall be re- ant bank regarding why the indem- duced by any amount that the person nifying bank is not obligated to comply receives and retains as a recredit under with paragraph (c)(1) or (c)(2) of this § 229.54 or § 229.55. section. (3) Comparative negligence. (i) If a per- (d) Recredit does not abrogate other li- son incurs damages that resulted in abilities. Providing a recredit to a whole or in part from that person’s claimant bank under this section does negligence or failure to act in good not absolve the indemnifying bank faith, then the amount of any damages from liability for claims brought under due to that person under paragraph any other law or from additional dam- (a)(1) of this section shall be reduced in ages under § 229.53 or § 229.56. proportion to the amount of negligence (e) Indemnifying bank’s right to a re- or bad faith attributable to that per- fund. (1) If a claimant bank reverses a son. recredit it previously made to a con- (ii) Nothing in this paragraph (a)(3) sumer account under § 229.54 or other- reduces the rights of a consumer or any wise receives reimbursement for a sub- other person under the U.C.C. or other stitute check that formed the basis of applicable provision of federal or state its claim under this section, the claim- law. ant bank shall provide a refund promptly to any indemnifying bank (b) Timeliness of action. Delay by a that previously advanced funds to the bank beyond any time limits pre- claimant bank. The amount of the re- scribed or permitted by this subpart is fund to the indemnifying bank shall be excused if the delay is caused by inter- the amount of the reversal or reim- ruption of communication or computer bursement obtained by the claimant facilities, suspension of payments by bank, up to the amount previously ad- another bank, war, emergency condi- vanced by the indemnifying bank. tions, failure of equipment, or other (2) If the indemnifying bank provides circumstances beyond the control of the claimant bank with the original the bank and if the bank uses such dili- check or a sufficient copy under para- gence as the circumstances require. graph (c)(2) of this section, § 229.53(b)(3) (c) Jurisdiction. A person may bring governs the indemnifying bank’s enti- an action to enforce a claim under this tlement to repayment of any amount subpart in any United States district provided to the claimant bank that ex- court or in any other court of com- ceeds the amount of losses the claim- petent jurisdiction. Such claim shall be ant bank incurred up to that time. brought within one year of the date on which the person’s cause of action ac- § 229.56 Liability. crues. For purposes of this paragraph, a (a) Measure of damages—(1) In general. cause of action accrues as of the date Except as provided in paragraph (a)(2) on which the injured person first or (a)(3) of this section or § 229.53, any learns, or by which such person reason- person that breaches a warranty de- ably should have learned, of the facts scribed in § 229.52 or fails to comply and circumstances giving rise to the with any requirement of this subpart cause of action, including the identity with respect to any other person shall of the warranting or indemnifying be liable to that person for an amount bank against which the action is equal to the sum of— brought.

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(d) Notice of claims. Except as otherwise, the bank shall provide this disclo- wise provided in this paragraph (d), un- sure no later than the time at which less a person gives notice of a claim the bank provides a substitute check in under this section to the warranting or response to the consumer’s request. indemnifying bank within 30 calendar (ii) The bank shall provide the disclo- days after the person has reason to sure described in paragraph (a) of this know of both the claim and the iden- section to a consumer customer of the tity of the warranting or indemnifying bank who receives a returned sub- bank, the warranting or indemnifying stitute check, at the time the bank bank is discharged from liability in an provides such substitute check. action to enforce a claim under this (3) Multiple account holders. A bank subpart to the extent of any loss need not give separate disclosures to caused by the delay in giving notice of each customer on a jointly held ac- the claim. A timely recredit claim by a count. consumer under § 229.54 constitutes timely notice under this paragraph. § 229.58 Mode of delivery of information. § 229.57 Consumer awareness. A bank may deliver any notice or (a) General disclosure requirement and other information that it is required to content. Each bank shall provide, in ac- provide under this subpart by United cordance with paragraph (b) of this sec- States mail or by any other means tion, a brief disclosure to each of its through which the recipient has agreed consumer customers that describes— to receive account information. If a (1) That a substitute check is the bank is required to provide an original legal equivalent of an original check; check or a sufficient copy, the bank in- and stead may provide an electronic image (2) The consumer recredit rights that of the original check or sufficient copy apply when a consumer in good faith if the recipient has agreed to receive believes that a substitute check was that information electronically. not properly charged to his or her account. § 229.59 Relation to other law. (b) Distribution—(1) Disclosure to con- The Check 21 Act and this subpart su- sumers who receive paid checks with peri- persede any provision of federal or odic account statements. A bank shall state law, including the Uniform Com- provide the disclosure described in mercial Code, that is inconsistent with paragraph (a) of this section to a con- the Check 21 Act or this subpart, but sumer customer who receives paid only to the extent of the inconsistency. original checks or paid substitute checks with his or her periodic account § 229.60 Variation by agreement. statement— Any provision of § 229.55 may be var- (i) No later than the first regularly ied by agreement of the banks in- scheduled communication with the volved. No other provision of this sub- consumer after October 28, 2004, for part may be varied by agreement by each consumer who is a customer of any person or persons. the bank on that date; and (ii) At the time the customer rela- APPENDIX A TO PART 229—ROUTING tionship is initiated, for each customer NUMBER GUIDE TO NEXT-DAY AVAIL- relationship established after October ABILITY CHECKS AND LOCAL CHECKS 28, 2004. A. Each bank is assigned a routing number (2) Disclosure to consumers who receive by an agent of the American Bankers Asso- substitute checks on an occasional basis— ciation. The routing number takes two (i) The bank shall provide the disclo- forms: a fractional form and a nine-digit sure described in paragraph (a) of this form. A paying bank generally is identified section to a consumer customer of the on the face of a check by its routing number bank who requests an original check or in both the fractional form (which generally appears in the upper right-hand corner of the a copy of a check and receives a sub- check) and the nine-digit form (which is stitute check. If feasible, the bank printed in magnetic ink along the bottom of shall provide this disclosure at the the check). Where a check is payable by one time of the consumer’s request; other- bank but payable through another bank, the

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routing number appearing on the check is 0739 1223 that of the payable-through bank, not the 0740 1224 payor bank. 0749 1230 B. The first four digits of the nine-digit 0750 1231 routing number (and the denominator of the 0759 1232 fractional routing number) form the ‘‘Fed- 0810 1233 eral Reserve routing symbol,’’ and the first 0812 1240 two digits of the routing number identify the 0813 1241 Federal Reserve District in which the bank 0815 1242 is located. Thus, 01 will be the first two dig- 0819 1243 its of the routing number of a bank in the 0820 1250 First Federal Reserve District (Boston), and 0829 1251 12 will be the first two digits of the routing 0830 1252 number of a bank in the Twelfth District 0839 2111 (San Francisco). Adding 2 to the first digit 0840 2112 denotes a thrift institution. Thus, 21 identi- 0841 2113 fies a thrift in the First District, and 32 de- 0842 2114 notes a thrift in the Twelfth District. 0843 2115 0863 2116 FOURTH FEDERAL RESERVE DISTRICT 0865 2117 0910 2118 [Federal Reserve Bank of Cleveland] 0911 2119 0912 2210 Head Office 0913 2211 1 0110 0514 0914 2212 0111 0515 0915 2213 0112 0519 0918 2214 0113 0520 0919 2215 0114 0521 0920 2216 0115 0522 0921 2219 0116 0530 0929 2220 0117 0531 0960 2223 0118 0532 1010 2260 0119 0539 1011 2280 0210 0540 1012 2310 0211 0550 1019 2311 0212 0560 1020 2312 0213 0570 1021 2313 0214 0610 1022 2319 0215 0611 1023 2360 0216 0612 1030 2410 0219 0613 1031 2412 0220 0620 1039 2420 0223 0621 1040 2421 0260 0622 1041 2422 0280 0630 1049 2423 0310 0631 1070 2430 0311 0632 1110 2432 0312 0640 1111 2433 0313 0641 1113 2434 0319 0642 1119 2440 0360 0650 1120 2441 0410 0651 1122 2442 0412 0652 1123 2510 0420 0653 1130 2514 0421 0654 1131 2515 0422 0655 1140 2519 0423 0660 1149 2520 0430 0670 1163 2521 0432 0710 1210 2522 0433 0711 1211 2530 0434 0712 1212 2531 0440 0719 1213 2532 0441 0720 1220 2539 0442 0724 1221 2540 0510 0730 1222 2550

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2560 2915 FEDERAL RESERVE BANKS 2570 2918 0110 0001 5 0720 0029 0 2610 2919 0111 0048 1 0730 0033 8 2611 2920 0210 0120 8 0740 0020 1 2612 2921 0212 0400 5 0750 0012 9 2613 2929 0213 0500 1 2620 0810 0004 5 2960 0220 0026 6 2621 0820 0013 8 3010 0310 0004 0 2622 0830 0059 3 3011 0410 0001 4 2630 0840 0003 9 3012 0420 0043 7 2631 0910 0008 0 3019 0430 0030 0 2632 0920 0026 7 3020 0440 0050 3 2640 1010 0004 8 3021 0510 0003 3 2641 1020 0019 9 3022 0519 0002 3 2642 1030 0024 0 3023 0520 0027 8 2650 1040 0012 6 3030 0530 0020 6 2651 3031 0539 0008 9 1110 0003 8 2652 3039 0610 0014 6 1120 0001 1 2653 3040 0620 0019 0 1130 0004 9 2654 3041 0630 0019 9 1140 0072 1 2655 3049 0640 0010 1 1210 0037 4 2660 3070 0650 0021 0 1220 0016 6 2670 3110 0660 0010 9 1230 0001 3 2710 3111 0710 0030 1 1240 0031 3 2711 3113 0711 0711 0 1250 0001 1 2712 3119 2719 3120 FEDERAL HOME LOAN BANKS 2720 3122 2724 0110 0053 6 0740 0101 9 3123 2730 0212 0639 1 0810 0091 9 3130 2739 0260 0973 9 0910 0091 2 3131 2740 0410 0291 5 1010 0091 2 2749 3140 0420 0091 6 1011 0194 7 0430 0143 5 1110 1083 7 2750 3149 0430 1862 2 1119 1083 0 2759 3163 0610 0876 6 1210 0070 1 2810 3210 3211 0710 0450 1 1240 0287 4 2812 0730 0091 4 1250 0050 3 2813 3212 2815 3213 [53 FR 19433, May 27, 1988] 2819 3220 EDITORIAL NOTE: For FEDERAL REGISTER ci- 2820 3221 tations affecting appendix A to part 229, see 2829 3222 the List of CFR Sections Affected, which ap- 2830 3223 pears in the Finding Aids section of the 2839 3224 printed volume and at www.fdsys.gov. 2840 3230 2841 3231 2842 3232 APPENDIX B TO PART 229 [RESERVED] 2843 3233 2863 3240 APPENDIX C TO PART 229—MODEL 2865 3241 AVAILABILITY POLICY DISCLOSURES, 2910 3242 CLAUSES, AND NOTICES; MODEL SUB- 2911 3243 STITUTE CHECK POLICY DISCLOSURE 2912 3250 AND NOTICES 2913 3251 2914 3252 This appendix contains model availability 1 The first two digits identify the bank’s policy and substitute check policy disclo- Federal Reserve District. For example, 01 sures, clauses, and notices to facilitate com- identifies the First Federal Reserve District pliance with the disclosure and notice re- (Boston), and 12 identifies the Twelfth Dis- quirements of Regulation CC (12 CFR part trict (San Francisco). Adding 2 to the first 229). Although use of these models is not re- digit denotes a thrift institution. For exam- quired, banks using them properly (with the ple, 21 identifies a thrift in the First Dis- exception of models C–22 through C–25) to trict, and 32 denotes a thrift in the Twelfth make disclosures required by Regulation CC District. are deemed to be in compliance.

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Model Availability Policy Disclosures Saturdays, Sundays, and federal holidays. If you make a deposit before (time of day) on a C–1 Next-day availability business day that we are open, we will con- C–2 Next-day availability and § 229.13 excep- sider that day to be the day of your deposit. tions However, if you make a deposit after (time of C–3 Next-day availability, case-by-case day) or on a day we are not open, we will holds to statutory limits, and § 229.13 ex- consider that the deposit was made on the ceptions next business day we are open. C–4 Holds to statutory limits on all deposits (includes chart) C–2—Next-day availability and § 229.13 C–5 Holds to statutory limits on all depos- exceptions its C–5A Substitute check policy disclosure Your Ability To Withdraw Funds Model Clauses Our policy is to make funds from your cash and check deposits available to you on the C–6 Holds on other funds (check cashing) first business day after the day we receive C–7 Holds on other funds (other account) C–8 Appendix B availability (nonlocal your deposit. Electronic direct deposits will checks) be available on the day we receive the de- C–9 Automated teller machine deposits (ex- posit. Once they are available, you can with- tended hold) draw the funds in cash and we will use the C–10 Cash withdrawal limitation funds to pay checks that you have written. C–11 Credit union interest payment policy For determining the availability of your C–11A Availability of Funds Deposited at deposits, every day is a business day, except Other Locations Saturdays, Sundays, and federal holidays. If you make a deposit before (time of day) on a Model Notices business day that we are open, we will consider that day to be the day of your deposit. C–12 Exception hold notice However, if you make a deposit after (time of C–13 Reasonable cause hold notice day) or on a day we are not open, we will C–14 One-time notice for large deposit and consider that the deposit was made on the redeposited check exception holds next business day we are open. C–15 One-time notice for repeated overdraft exception holds Longer Delays May Apply C–16 Case-by-case hold notice C–17 Notice at locations where employees Funds you deposit by check may be de- accept consumer deposits layed for a longer period under the following C–18 Notice at locations where employees circumstances: accept consumer deposits (case-by-case • We believe a check you deposit will not holds) be paid. C–19 Notice at automated teller machines • You deposit checks totaling more than C–20 Notice at automated teller machines $5,000 on any one day. (delayed receipt) • You redeposit a check that has been re- C–21 Deposit slip notice turned unpaid. C–22 Expedited Recredit Claim, Valid Claim • You have overdrawn your account re- Refund Notice peatedly in the last six months. C–23 Expedited Recredit Claim, Provisional • There is an emergency, such as failure of Refund Notice computer or communications equipment. C–24 Expedited Recredit Claim, Denial No- We will notify you if we delay your ability tice to withdraw funds for any of these reasons, C–25 Expedited Recredit Claim, Reversal and we will tell you when the funds will be Notice available. They will generally be available Model Availability Policy Disclosures no later than the (number) business day after the day of your deposit. C–1—Next-Day Availability Special Rules for New Accounts Your Ability To Withdraw Funds If you are a new customer, the following Our policy is to make funds from your cash special rules will apply during the first 30 and check deposits available to you on the days your account is open. first business day after the day we receive Funds from electronic direct deposits to your deposit. Electronic direct deposits will your account will be available on the day we be available on the day we receive the de- receive the deposit. Funds from deposits of posit. Once the funds are available, you can cash, wire transfers, and the first $5,000 of a withdraw them in cash and we will use them day’s total deposits of cashier’s, certified, to pay checks that you have written. teller’s, traveler’s, and federal, state and For determining the availability of your local government checks will be available on deposits, every day is a business day, except the first business day after the day of your

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deposit if the deposit meets certain condi- • You deposit checks totaling more than tions. For example, the checks must be pay- $5,000 on any one day. able to you (and you may have to use a spe- • You redeposit a check that has been re- cial deposit slip). The excess over $5,000 will turned unpaid. be available on the ninth business day after • You have overdrawn your account re- the day of your deposit. If your deposit of peatedly in the last six months. these checks (other than a U.S. Treasury • There is an emergency, such as failure of check) is not made in person to one of our computer or communications equipment. employees, the first $5,000 will not be avail- We will notify you if we delay your ability able until the second business day after the to withdraw funds for any of these reasons, day of your deposit. and we will tell you when the funds will be Funds from all other check deposits will be available. They will generally be available available on the (number) business day after no later than the (number) business day after the day of your deposit. the day of your deposit. C–3—Next-Day Availability, Case-by-Case Special Rules for New Accounts Holds to Statutory Limits, and § 229.13 Ex- ceptions If you are a new customer, the following special rules will apply during the first 30 Your Ability To Withdraw Funds days your account is open. Funds from electronic direct deposits to Our policy is to make funds from your cash your account will be available on the day we and check deposits available to you on the receive the deposit. Funds from deposits of first business day after the day we receive cash, wire transfers, and the first $5,000 of a your deposit. Electronic direct deposits will day’s total deposits of cashier’s, certified, be available on the day we receive the de- teller’s, traveler’s, and federal, state and posit. Once they are available, you can with- local government checks will be available on draw the funds in cash and we will use the the first business day after the day of your funds to pay checks that you have written. deposit if the deposit meets certain condi- For determining the availability of your deposits, every day is a business day, except tions. For example, the checks must be pay- Saturdays, Sundays, and federal holidays. If able to you (and you may have to use a spe- you make a deposit before (time of day) on a cial deposit slip). The excess over $5,000 will business day that we are open, we will con- be available on the ninth business day after sider that day to be the day of your deposit. the day of your deposit. If your deposit of However, if you make a deposit after (time of these checks (other than a U.S. Treasury day) or on a day we are not open, we will check) is not made in person to one of our consider that the deposit was made on the employees, the first $5,000 will not be avail- next business day we are open. able until the second business day after the day of your deposit. Longer Delays May Apply Funds from all other check deposits will be available on the (number) business day after In some cases, we will not make all of the the day of your deposit. funds that you deposit by check available to you on the first business day after the day of C–4—Holds to Statutory Limits On All your deposit. Depending on the type of check Deposits (Includes Chart) that you deposit, funds may not be available until the fifth business day after the day of Your Ability To Withdraw Funds your deposit. The first $100 of your deposits, Our policy is to delay the availability of however, may be available on the first busi- funds from your cash and check deposits. ness day. During the delay, you may not withdraw the If we are not going to make all of the funds from your deposit available on the first busi- funds in cash and we will not use the funds ness day, we will notify you at the time you to pay checks that you have written. make your deposit. We will also tell you Determining the Availability of a Deposit when the funds will be available. If your deposit is not made directly to one of our em- The length of the delay is counted in busi- ployees, or if we decide to take this action ness days from the day of your deposit. after you have left the premises, we will mail Every day is a business day except Satur- you the notice by the day after we receive days, Sundays, and federal holidays. If you your deposit. make a deposit before (time of day) on a busi- If you will need the funds from a deposit ness day that we are open, we will consider right away, you should ask us when the that day to be the day of your deposit. How- funds will be available. ever, if you make a deposit after (time of day) In addition, funds you deposit by check or on a day we are not open, we will consider may be delayed for a longer period under the that the deposit was made on the next busi- following circumstances: ness day we are open. • We believe a check you deposit will not The length of the delay varies depending be paid. on the type of deposit and is explained below.

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Same-Day Availability • State and local government checks that are payable to you [if you use a special de- Funds from electronic direct deposits to posit slip available from (where deposit slip your account will be available on the day we may be obtained)]. receive the deposit. • Cashier’s, certified, and teller’s checks that are payable to you [if you use a special Next-Day Availability deposit slip available from (where deposit slip Funds from the following deposits are may be obtained)]. available on the first business day after the • Federal Reserve Bank checks, Federal day of your deposit: Home Loan Bank checks, and postal money • U.S. Treasury checks that are payable to orders, if these items are payable to you. you. If you do not make your deposit in person to one of our employees (for example, if you • Wire transfers. mail the deposit), funds from these deposits • Checks drawn on (bank name) [unless will be available on the second business day (any limitations related to branches in different after the day we receive your deposit. states or check processing regions)]. If you make the deposit in person to one of Other Check Deposits our employees, funds from the following de- To find out when funds from other check posits are also available on the first business deposits will be available, look at the first day after the day of your deposit: four digits of the routing number on the • Cash. check:

Some checks are marked ‘‘payable nine-digit number), not the routing number through’’ and have a four-or nine-digit num- on the bottom of the check, to determine if ber nearby. For these checks, use this four- these checks are local or nonlocal. Once you digit number (or the first four digits of the have determined the first four digits of the

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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 When funds are available if a deposit is number made on a Monday

[local numbers] ...... $100 on the first business day after the day of your Tuesday. deposit. Remaining funds on the second business day after Wednesday. the day of your deposit. All other numbers ...... $100 on the first business day after the day of your Tuesday. deposit. Remaining funds on the fifth business day after the Monday of the following week. day of your deposit.

If you deposit both categories of checks, Funds from all other check deposits will be $100 from the checks will be available on the available on the (number) business day after first business day after the day of your de- the day of your deposit. posit, not $100 from each category of check. C–5—Holds to Statutory Limits on All Longer Delays May Apply Deposits Funds you deposit by check may be de- Your Ability To Withdraw Funds layed for a longer period under the following circumstances: Our policy is to delay the availability of • We believe a check you deposit will not funds from your cash and check deposits. be paid. During the delay, you may not withdraw the • You deposit checks totaling more than funds in cash and we will not use the funds $5,000 on any one day. to pay checks that you have written. • You redeposit a check that has been re- Determining the Availability Of A Deposit turned unpaid. • You have overdrawn your account re- The length of the delay is counted in busi- peatedly in the last six months. ness days from the day of your deposit. • There is an emergency, such as failure of Every day is a business day except Satur- computer or communications equipment. days, Sundays, and federal holidays. If you We will notify you if we delay your ability make a deposit before (time of day) on a busi- to withdraw funds for any of these reasons, ness day that we are open, we will consider and we will tell you when the funds will be that day to be the day of your deposit. How- available. They will generally be available ever, if you make a deposit after (time of day) no later than the (number) business day after or on a day we are not open, we will consider the day of your deposit. that the deposit was made on the next business day we are open. Special Rules for New Accounts The length of the delay varies depending on the type of deposit and is explained below. If you are a new customer, the following special rules will apply during the first 30 Same-Day Availability days your account is open. Funds from electronic direct deposits to Funds from electronic direct deposits to your account will be available on the day we your account will be available on the day we receive the deposit. Funds from deposits of receive the deposit. cash, wire transfers, and the first $5,000 of a Next-Day Availability day’s total deposits of cashier’s, certified, teller’s, traveler’s, and federal, state and Funds from the following deposits are local government checks will be available on available on the first business day after the the first business day after the day of your day of your deposit: deposit if the deposit meets certain condi- • U.S. Treasury checks that are payable to tions. For example, the checks must be pay- you. able to you (and you may have to use a spe- • Wire transfers. cial deposit slip). The excess over $5,000 will • Checks drawn on (bank name) [unless be available on the ninth business day after (any limitations related to branches in different the day of your deposit. If your deposit of states or check processing regions)]. these checks (other than a U.S. Treasury If you make the deposit in person to one of check) is not made in person to one of our our employees, funds from the following de- employees, the first $5,000 will not be avail- posits are also available on the first business able until the second business day after the day after the day of your deposit: day of your deposit. • Cash.

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• State and local government checks that If you do not make your deposit in person are payable to you [if you use a special de- to one of our employees (for example, if you posit slip available from (where deposit slip mail the deposit), funds from these deposits may be obtained)]. will be available on the second business day • Cashier’s, certified, and teller’s checks after the day we receive your deposit. that are payable to you [if you use a special Other Check Deposits deposit slip available from (where deposit slip may be obtained)]. The delay for other check deposits depends • Federal Reserve Bank checks, Federal on whether the check is a local or a nonlocal Home Loan Bank checks, and postal money check. To see whether a check is a local or orders, if these items are payable to you. a nonlocal check, look at the routing number on the check:

If the first four digits of the routing num- check. Otherwise, the check is a nonlocal ber (1234 in the examples above) are (list of check. Some checks are marked ‘‘payable local numbers), then the check is a local

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through’’ and have a four- or nine-digit num- the first business day after the day of your ber nearby. For these checks, use the four- deposit if the deposit meets certain condi- digit number (or the first four digits of the tions. For example, the checks must be pay- nine-digit number), not the routing number able to you (and you may have to use a spe- on the bottom of the check, to determine if cial deposit slip). The excess over $5,000 will these checks are local or nonlocal. Our pol- be available on the ninth business day after icy is to make funds from local and nonlocal the day of your deposit. If your deposit of checks available as follows. these checks (other than a U.S. Treasury 1. Local checks. The first $100 from a de- check) is not made in person to one of our posit of local checks will be available on the employees, the first $5,000 will not be avail- first business day after the day of your de- able until the second business day after the posit. The remaining funds will be available day of your deposit. on the second business day after the day of Funds from all other check deposits will be your deposit. available on the (number) business day after For example, if you deposit a local check the day of your deposit. of $700 on a Monday, $100 of the deposit is available on Tuesday. The remaining $600 is C–5A—Substitute Check Policy Disclosure available on Wednesday. 2. Nonlocal checks. The first $100 from a Substitute Checks and Your Rights—[Impor- deposit of nonlocal checks will be available tant Information About Your Checking Ac- on the first business day after the day of count] your deposit. The remaining funds will be Substitute Checks and Your Rights available on the fifth business day after the day of your deposit. What Is a Substitute Check? For example, if you deposit a $700 nonlocal check on a Monday, $100 of the deposit is To make check processing faster, federal available on Tuesday. The remaining $600 is law permits banks to replace original checks available on Monday of the following week. with ‘‘substitute checks.’’ These checks are 3. Local and nonlocal checks. If you de- similar in size to original checks with a posit both categories of checks, $100 from the slightly reduced image of the front and back checks will be available on the first business of the original check. The front of a sub- day after the day of your deposit, not $100 stitute check states: ‘‘This is a legal copy of from each category of check. your check. You can use it the same way you would use the original check.’’ You may use Longer Delays May Apply a substitute check as proof of payment just Funds you deposit by check may be de- like the original check. layed for a longer period under the following Some or all of the checks that you receive circumstances: back from us may be substitute checks. This • We believe a check you deposit will not notice describes rights you have when you be paid. receive substitute checks from us. The rights • You deposit checks totaling more than in this notice do not apply to original checks $5,000 on any one day. or to electronic debits to your account. How- • You redeposit a check that has been re- ever, you have rights under other law with turned unpaid. respect to those transactions. • You have overdrawn your account repeatedly in the last six months. What Are My Rights Regarding Substitute • There is an emergency, such as failure of Checks? computer or communications equipment. In certain cases, federal law provides a spe- We will notify you if we delay your ability cial procedure that allows you to request a to withdraw funds for any of these reasons, refund for losses you suffer if a substitute and we will tell you when the funds will be check is posted to your account (for exam- available. They will generally be available ple, if you think that we withdrew the wrong no later than the (number) business day after amount from your account or that we with- the day of your deposit. drew money from your account more than once for the same check). The losses you Special Rules For New Accounts may attempt to recover under this procedure If you are a new customer, the following may include the amount that was withdrawn special rules will apply during the first 30 from your account and fees that were days your account is open. charged as a result of the withdrawal (for ex- Funds from electronic direct deposits to ample, bounced check fees). your account will be available on the day we The amount of your refund under this pro- receive the deposit. Funds from deposits of cedure is limited to the amount of your loss cash, wire transfers, and the first $5,000 of a or the amount of the substitute check, day’s total deposits of cashier’s, certified, whichever is less. You also are entitled to in- teller’s, traveler’s, and federal, state and terest on the amount of your refund if your local government checks will be available on account is an interest-bearing account. If

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your loss exceeds the amount of the sub- with us. The funds in the other account stitute check, you may be able to recover ad- would then not be available for withdrawal ditional amounts under other law. until the time periods that are described If you use this procedure, you may receive elsewhere in this disclosure for the type of up to (amount, not lower than $2,500) of your check that you deposited. refund (plus interest if your account earns interest) within (number of days, not more C–8—Appendix B Availability (Nonlocal than 10) business days after we received your Checks) claim and the remainder of your refund (plus interest if your account earns interest) not 3. Certain other checks. We can process later than (number of days, not more than 45) nonlocal checks drawn on financial institu- calendar days after we received your claim. tions in certain areas faster than usual. We may reverse the refund (including any Therefore, funds from deposits of checks interest on the refund) if we later are able to drawn on institutions in those areas will be demonstrate that the substitute check was available to you more quickly. Call us if you correctly posted to your account. would like a list of the routing numbers for these institutions. How Do I Make a Claim for a Refund? If you believe that you have suffered a loss C–9—Automated Teller Machine Deposits relating to a substitute check that you re- (Extended Hold) ceived and that was posted to your account, please contact us at (contact information, for Deposits at Automated Teller Machines example phone number, mailing address, e-mail Funds from any deposits (cash or checks) address). You must contact us within (number made at automated teller machines (ATMs) of days, not less than 40) calendar days of the we do not own or operate will not be avail- date that we mailed (or otherwise delivered able until the fifth business day after the by a means to which you agreed) the sub- day of your deposit. This rule does not apply stitute check in question or the account at ATMs that we own or operate. statement showing that the substitute check (A list of our ATMs is enclosed. or A list of was posted to your account, whichever is later. We will extend this time period if you ATMs where you can make deposits but that are were not able to make a timely claim be- not owned or operated by us is enclosed. or All cause of extraordinary circumstances. ATMs that we own or operate are identified as Your claim must include— our machines.) • A description of why you have suffered a loss (for example, you think the amount C–10—Cash Withdrawal Limitation withdrawn was incorrect); Cash Withdrawal Limitation • An estimate of the amount of your loss; • An explanation of why the substitute We place certain limitations on with- check you received is insufficient to confirm drawals in cash. In general, $100 of a deposit that you suffered a loss; and is available for withdrawal in cash on the • A copy of the substitute check [and/or] first business day after the day of deposit. In the following information to help us identify addition, a total of $400 of other funds be- the substitute check: (identifying information, coming available on a given day is available for example the check number, the name of the for withdrawal in cash at or after (time no person to whom you wrote the check, the later than 5:00 p.m.) on that day. Any remain- amount of the check). ing funds will be available for withdrawal in Model Clauses cash on the following business day. C–6—Holds on Other Funds (Check Cashing) C–11—Credit Union Interest Payment Policy

If we cash a check for you that is drawn on Interest Payment Policy another bank, we may withhold the availability of a corresponding amount of funds If we receive a deposit to your account on that are already in your account. Those or before the tenth of the month, you begin funds will be available at the time funds earning interest on the deposit (whether it from the check we cashed would have been was a deposit of cash or checks) as of the available if you had deposited it. first day of that month. If we receive the deposit after the tenth of the month, you begin C–7—Holds on Other Funds (Other Account) earning interest on the deposit as of the first If we accept for deposit a check that is of the following month. For example, a de- drawn on another bank, we may make funds posit made on June 7 earns interest from from the deposit available for withdrawal June l, while a deposit made on June 17 immediately but delay your availability to earns interest from July 1. withdraw a corresponding amount of funds that you have on deposit in another account

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C–11A—Availability of Funds Deposited at —We are unable to verify the endorsement of Other Locations a joint payee. —Some information on the check is not con- Deposits at Other Locations sistent with other information on the This availability policy only applies to check. funds deposited at (location). Please inquire —There are erasures or other apparent alter- for information about the availability of ations on the check. funds deposited at other locations. —The routing number of the paying bank is not a current routing number. Model Notices —The check is postdated or has a stale date. —Information from the paying bank indi- C–12—Exception Hold Notice cates that the check may not be paid. Notice of Hold —We have been notified that the check has been lost or damaged in collection. Account number: (number) —Other: Date of deposit: (date) llllllllllllllllllllllll We are delaying the availability of (amount [If you did not receive this notice at the being held) from this deposit. These funds time you made the deposit and the check will be available on the (number) business you deposited is paid, we will refund to you day after the day of your deposit. any fees for overdrafts or returned checks We are taking this action because: that result solely from the additional delay —A check you deposited was previously re- that we are imposing. To obtain a refund of turned unpaid. such fees, (description of procedure for obtain- —You have overdrawn your account repeat- ing refund).] edly in the last six months. —The checks you deposited on this day ex- C–14—One-Time Notice for Large Deposit and ceed $5,000. Redeposited Check Exception Holds —An emergency, such as failure of computer or communications equipment, has oc- Notice of Hold curred. If you deposit into your account: —We believe a check you deposited will not • Checks totaling more than $5,000 on any be paid for the following reasons [*]: one day, the first $5,000 deposited on any one llllllllllllllllllllllll banking day will be available to you accord- llllllllllllllllllllllll ing to our general policy. The amount in excess of $5,000 will generally be available on llllllllllllllllllllllll the (number) business day after the day of de- [*If you did not receive this notice at the posit for checks drawn on (bank name), the time you made the deposit and the check (number) business day after the day of de- you deposited is paid, we will refund to you posit for local checks and (number) business any fees for overdrafts or returned checks day after the day of deposit for nonlocal that result solely from the additional delay checks. If checks (not drawn on us) that oth- that we are imposing. To obtain a refund of erwise would receive next-day availability such fees, (description of procedure for obtain- exceed $5,000, the excess will be treated as ei- ing refund).] ther local or nonlocal checks depending on the location of the paying bank. If your C–13—Reasonable Cause Hold Notice check deposit, exceeding $5,000 on any one day, is a mix of local checks, nonlocal Notice of Hold checks, checks drawn on (bank name), or Account number: (number) checks that generally receive next-day availability, the excess will be calculated by first Date of deposit: (date) adding together the (type of check), then the We are delaying the availability of the (type of check), then the (type of check), then funds you deposited by the following check: the (type of check). (description of check, such as amount and • A check that has been returned unpaid, drawer.) the funds will generally be available on the These funds will be available on the (number) business day after the day of de- (number) business day after the day of your posit for checks drawn on (bank name), the deposit. The reason for the delay is explained (number) business day after the day of de- below: posit for local checks and the (number) busi- —We received notice that the check is being ness day after the day of deposit for nonlocal returned unpaid. checks. Checks (not drawn on us) that other- —We have confidential information that in- wise would receive next-day availability will dicates that the check may not be paid. be treated as either local or nonlocal checks —The check is drawn on an account with re- depending on the location of the paying peated overdrafts. bank.

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C–15—One-Time Notice for Repeated C–18—Notice at locations where employees Overdraft Exception Hold accept consumer deposits (case-by-case holds) Notice of Hold FUNDS AVAILABILITY POLICY Account Number: (number) Date of Notice: (date) Our general policy is to allow you to withdraw funds deposited in your account on the We are delaying the availability of checks (number) business day after the day we redeposited into your account due to repeated ceive your deposit. Funds from electronic di- overdrafts of your account. For the next six rect deposits will be available on the day we months, deposits will generally be available receive the deposit. In some cases, we may on the (number) business day after the day of delay your ability to withdraw funds beyond your deposit for checks drawn on (bank the (number) business day. Then, the funds name), the (number) business day after the will generally be available by the fifth busi- day of your deposit for local checks, and the ness day after the day of deposit. (number) business day after the day of deposit for nonlocal checks. Checks (not drawn C–19—Notice at Automated Teller Machines on us) that otherwise would have received AVAILABILITY OF DEPOSITS next-day availability will be treated as either local or nonlocal checks depending on Funds from deposits may not be available the location of the paying bank. for immediate withdrawal. Please refer to your institution’s rules governing funds C–16—Case-by-Case Hold Notice availability for details.

Notice of Hold C–20—Notice at Automated Teller Machines (Delayed Receipt) Account number: (number) Date of deposit: (date) NOTICE We are delaying the availability of (amount Deposits at this ATM between (day) and being held) from this deposit. These funds (day) will not be considered received until will be available on the (number) business (day). The availability of funds from the de- day after the day of your deposit [(subject to posit may be delayed as a result. our cash withdrawal limitation policy)]. [If you did not receive this notice at the C–21—Deposit Slip Notice time you made the deposit and the check Deposits may not be available for imme- you deposited is paid, we will refund to you diate withdrawal. any fees for overdrafts or returned checks that result solely from the additional delay C–22—Expedited Recredit Claim, Valid Claim that we are imposing. To obtain a refund of Refund Notice such fees, (description of procedure for obtaining refund).] Notice of Valid Claim and Refund We have determined that your substitute C–17—Notice at locations where employees check claim is valid. We are refunding accept consumer deposits (amount) [of which [(amount) represents fees] [and] [(amount) represents accrued interest]] FUNDS AVAILABILITY POLICY to your account. You may withdraw these When funds can be with- funds as of (date). [This refund is the amount Description of deposit drawn by cash or check in excess of the $2,500 [plus interest] that we credited to your account on (date).] Direct deposits ...... The day we receive the deposit C–23—Expedited Recredit Claim, Provisional Cash, wire transfers, cash- The first business day after Refund Notice ier’s, certified, teller’s, or the day of deposit. government checks, checks Notice of Provisional Refund on (bank name) [unless (any limitation reIated to In response to your substitute check claim, branches in different check we are refunding (amount) [of which processing regions)], and [(amount) represents fees] [and] [(amount) the first $100 of a day’s de- represents accrued interest]] to your ac- posits of other checks. count, while we complete our investigation Local checks ...... The second business day of your claim. You may withdraw these after the day of deposit. funds as of (date). [Unless we determine that Nonlocal checks ...... The fifth business day after the day of deposit. 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.]

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If, based on our investigation, we deter- and pointing toward the number, and, if the mine that your claim is not valid, we will re- depositary bank is a reconverting bank with verse the refund by withdrawing the amount respect to the check, an asterisk outside the of the refund [plus interest that we have paid arrow at each end of the routing number to you on that amount] from your account. We identify the bank as a reconverting bank; will notify you within one day of any such (B) The indorsement date; and reversal. (C) The bank’s name or location, if the depositary bank applies the indorsement phys- C–24—Expedited Recredit Claim, Denial ically. Notice (ii) The indorsement also may contain— (A) A branch identification; Denial of Claim (B) A trace or sequence number; Based on our review, we are denying your (C) A telephone number for receipt of noti- substitute check claim. As the enclosed (type fication of large-dollar returned checks; and of document, for example original check or suffi- (D) Other information, provided that the cient) shows, (describe reason for denial, for ex- inclusion of such information does not inter- ample the check was properly posted, the signa- fere with the readability of the indorsement. ture is authentic, there was no warranty (iii) The indorsement, if applied to an ex- breach). isting paper check, shall be placed on the [We have also enclosed a copy of the other back of the check so that the routing num- information we used to make our decision.] ber is wholly contained in the area 3.0 inches [Upon your request, we will send you a copy from the leading edge of the check to 1.5 of the other information that we used to inches from the trailing edge of the check. 31 make our decision.] (iv) When printing its depositary bank indorsement (or a depositary bank C–25—Expedited Recredit Claim, Reversal indorsement that previously was applied Notice electronically) onto a substitute check at the time that the substitute check is cre- Reversal of Refund ated, a reconverting bank shall place the In response to your substitute check claim, indorsement on the back of the check be- we provided a refund of (amount) by crediting tween 1.88 and 2.74 inches from the leading your account on (date(s)). We now have deter- edge of the check. The reconverting bank mined that your substitute check claim was may omit the depositary bank’s name and not valid. As the enclosed (type of document, location from the indorsement. for example original check or sufficient copy) (2) Each subsequent collecting bank or re- shows, (describe reason for reversal, for example turning bank indorser shall protect the iden- the check was properly posted, the signature is tifiability and legibility of the depositary authentic, there was no warranty breach). As a bank indorsement by indorsing an original result, we have reversed the refund to your check or substitute check according to the following specifications: account [plus interest that we have paid you (i) The indorsement shall contain only— on that amount] by withdrawing (amount) (A) The bank’s nine-digit routing number from your account on (date). (without arrows) and, if the collecting bank [We have also enclosed a copy of the other or returning bank is a reconverting bank information we used to make our decision.] with respect to the check, an asterisk at [Upon your request, we will send you a copy each end of the number to identify the bank of the information we used to make our deci- as a reconverting bank; sion.] (B) The indorsement date, and [53 FR 19433, May 27, 1988, as amended at 53 (C) An optional trace or sequence number. FR 31293, Aug. 18, 1988; Reg. CC, 55 FR 21855, (ii) The indorsement, if applied to an exist- May 30, 1990; 55 FR 50818, Dec. 11, 1990; 56 FR ing paper check, shall be placed on the back 7802, Feb. 26, 1991; 57 FR 3280, Jan. 29, 1992; 60 of the check from 0.0 inches to 3.0 inches FR 51671, Oct. 3, 1995; 62 FR 13811, Mar. 24, from the leading edge of the check. 1997; 62 FR 48752, Sept. 17, 1997; 69 FR 47315, (iii) When printing its collecting bank or 47316, Aug. 4, 2004] returning bank indorsement (or a collecting bank or returning bank indorsement that APPENDIX D TO PART 229— previously was applied electronically) onto a INDORSEMENT, RECONVERTING BANK substitute check at the time that the substitute check is created, a reconverting bank IDENTIFICATION, AND TRUNCATING BANK IDENTIFICATION STANDARDS 31 The leading edge is definded as the right (1) The depositary bank shall indorse an side of the check looking at it from the original check or substitute check according front. The trailing edge is defined as the left to the following specifications: side of the check looking at it from the (i) The indorsement shall contain— front. See American National Standards (A) The bank’s nine-digit routing number, Specifications for the Placement and Loca- set off by an arrow at each end of the number tion of MICR Printing, X9.13.

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shall place the indorsement on the back of II. Section 229.2 Definitions the check between 0.25 and 2.50 inches from the trailing edge of the check. A. Background (3) A reconverting bank shall comply with 1. Section 229.2 defines the terms used in the following specifications when creating a the regulation. For the most part, terms are substitute check: defined as they are in section 602 of the Ex- (i) If it is a depositary bank, collecting pedited Funds Availability Act (12 U.S.C. bank, or returning bank with respect to the 4001). The Board has made a number of substitute check, the reconverting bank changes for the sake of clarity, to conform shall place its own indorsement onto the the terminology to that which is familiar to back of the check as specified in this appen- the banking industry, to define terms that dix. are not defined in the EFA Act, and to carry (ii) A reconverting bank that also is the out the purposes of the EFA Act. The Board paying bank with respect to the substitute also has incorporated by reference the defini- check shall so identify itself by placing on tions of the Uniform Commercial Code where the back of the check, between 0.25 and 2.50 appropriate. Some of Regulation CC’s defini- inches from the trailing edge of the check, tions are self-explanatory and therefore are its nine-digit routing number (without ar- not discussed in this Commentary. rows) and an asterisk at each end of the number. B. 229.2(a) Account (iii) The reconverting bank shall place on the front of the check, outside the image of 1. The EFA Act defines account to mean ‘‘a the original check, its nine-digit routing demand deposit account or similar trans- number (without arrows) and an asterisk at action account at a depository institution.’’ each end of the number, in accordance with The regulation defines account, for purposes ANS X9.100–140. other than subpart D, in terms of the defini- (iv) The reconverting bank shall place on tion of ‘‘transaction account’’ in the Board’s the front of the check, outside the image of Regulation D (12 CFR part 204). This defini- the original check, the truncating bank’s tion of account, however, excludes certain nine-digit routing number (without arrows) deposits, such as nondocumentary obliga- and a bracket at each end of the number, in tions (see 12 CFR 204.2(a)(1)(vii)), that are accordance with ANS X9.100–140. covered under the definition of ‘‘transaction (4) Any indorsement, reconverting bank account’’ in Regulation D. The definition ap- identification, or truncating bank identifica- plies to accounts with general third party tion placed on an original check or sub- payment powers but does not cover time de- stitute check shall be printed in black ink. posits or savings deposits, including money market deposit accounts, even though they [69 FR 47316, Aug. 4, 2004] may have limited third party payment powers. The Board believes that it is appropriate APPENDIX E TO PART 229—COMMENTARY to exclude these accounts because of the reference to demand deposits in the EFA Act, I. Introduction which suggests that the EFA Act is intended to apply only to accounts that permit unlim- A. Background ited third party transfers. 1. The Board interpretations, which are la- 2. The term account also differs from the beled ‘‘Commentary’’ and follow each section definition of transaction account in Regula- of Regulation CC (12 CFR Part 229), provide tion D because the term account refers to ac- background material to explain the Board’s counts held at banks. Under Subparts A and intent in adopting a particular part of the C, the term bank includes not only any de- regulation; the Commentary also provides pository institution, as defined in the EFA examples to aid in understanding how a par- Act, but also any person engaged in the busi- ticular requirement is to work. Under sec- ness of banking, such as a Federal Reserve tion 611(e) of the Expedited Funds Avail- Bank, a Federal Home Loan Bank, or a pri- ability Act (12 U.S.C. 4010(e)), no provision of vate banker that is not subject to Regula- section 611 imposing any liability shall apply tion D. Thus, accounts at these institutions to any act done or omitted in good faith con- benefit from the expeditious return require- formity with any rule, regulation, or inter- ments of Subpart C. pretation thereof by the Board of Governors 3. Interbank deposits, including accounts of the Federal Reserve System, notwith- of offices of domestic banks or foreign banks standing the fact that after such act or omis- located outside the United States, and direct sion has occurred, such rule, regulation, or and indirect accounts of the United States interpretation is amended, rescinded, or de- Treasury (including Treasury General Ac- termined by judicial or other authority to be counts and Treasury Tax and Loan deposits) invalid for any reason. The Commentary is are exempt from subpart B and, in connec- an ‘‘interpretation’’ of a regulation by the tion therewith, subpart A. However, inter- Board within the meaning of section 611. bank deposits are included as accounts for

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purposes of subparts C and D and, in connec- customer’s account agreement with the tion therewith, subpart A. bank. Examples of such uses include pay- 4. The Check 21 Act defines account to ment of checks drawn on the account, cer- mean any deposit account at a bank. There- tification of checks, electronic payments, fore, for purposes of subpart D and, in con- and cash withdrawals. Funds are available nection therewith, subpart A, account means for these uses notwithstanding provisions of any deposit, as that term is defined by other law that may restrict the use of uncol- § 204.2(a)(1)(i) of Regulation D, at a bank. lected funds (e.g., 18 U.S.C. 1004; 12 U.S.C. Many deposits that are not accounts for pur- 331). poses of the other subparts of Regulation CC, 2. If a bank makes funds available to a cus- such as savings deposits, are accounts for tomer for a specific purpose (such as paying purposes of subpart D. checks that would otherwise overdraw the C. 229.2(b) Automated Clearinghouse (ACH) customer’s account and be returned for insufficient funds) before the funds must be 1. The Board has defined automated clear- made available under the bank’s policy or inghouse as a facility that processes debit this regulation, it may nevertheless apply a and credit transfers under rules established hold consistent with this regulation to those by a Federal Reserve Bank operating cir- funds for other purposes (such as cash with- cular governing automated clearinghouse drawals). For purposes of this regulation, items or the rules of an ACH association. funds are considered available for with- ACH credit transfers are included in the defi- drawal even though they are being held by nition of electronic payment. the bank to satisfy an obligation of the cus- 2. The reference to ‘‘debit and credit trans- tomer other than the customer’s potential li- fers’’ does not refer to the corresponding ability for the return of the check. For ex- debit and credit entries that are part of the ample, a bank does not violate its obliga- same transaction, but to different kinds of tions under this subpart by holding funds to ACH payments. In an ACH credit transfer, satisfy a garnishment, tax levy, or court the originator orders that its account be deb- order restricting disbursements from the ac- ited and another account credited. In an count; or to satisfy the customer’s liability ACH debit transfer, the originator, with arising from the certification of a check, prior authorization, orders another account sale of a cashier’s or teller’s check, guaranty to be debited and the originator’s account to or acceptance of a check, or similar trans- be credited. action to be debited from the customer’s ac- 3. A facility that handles only wire trans- count. fers (defined elsewhere) is not an ACH. D. 229.2(c) Automated Teller Machine (ATM) F. 229.2(e) Bank 1. ATM is not defined in the EFA Act. The 1. The EFA Act uses the term depository regulation defines an ATM as an electronic institution, which it defines by reference to device at which a natural person may make section 19(b)(1)(A)(i) through (vi) of the Fed- deposits to an account by cash or check and eral Reserve Act (12 U.S.C. 461(b)(1)(A)(i) perform other account transactions. Point- through (vi)). This regulation uses the term of-sale terminals, machines that only dis- bank, a term that conforms to the usage the pense cash, night depositories, and lobby de- Board has previously adopted in Regulation posit boxes are not ATMs within the mean- J. Bank is also used in Articles 4 and 4A of ing of the definition, either because they do the Uniform Commercial Code. not accept deposits of cash or checks (e.g., 2. Bank is defined to include depository in- point-of-sale terminals and cash dispensers) stitutions, such as commercial banks, sav- or because they only accept deposits (e.g., ings banks, savings and loan associations, night depositories and lobby boxes) and can- and credit unions as defined in the EFA Act, not perform other transactions. A lobby de- and U.S. branches and agencies of foreign posit box or similar receptacle in which writ- banks. For purposes of Subpart B, the term ten payment orders or deposits may be does not include corporations organized placed is not an ATM. under section 25A of the Federal Reserve 2. A facility may be an ATM within this Act, 12 U.S.C. 611–631 (Edge corporations) or definition even if it is a branch under state corporations having an agreement or under- or federal law, although an ATM is not a taking with the Board under section 25 of the branch as that term is used in this regula- Federal Reserve Act, 12 U.S.C. 601–604a tion. (agreement corporations). For purposes of Subparts C and D, and in connection there- E. 229.2(d) Available for Withdrawal with, Subpart A, any Federal Reserve Bank, 1. Under this definition, when funds be- Federal Home Loan Bank, or any other per- come available for withdrawal, the funds son engaged in the business of banking is re- may be put to all uses for which the cus- garded as a bank. The phrase ‘‘any other per- tomer may use actually and finally collected son engaged in the business of banking’’ is funds in the customer’s account under the derived from U.C.C. 1–201(4), and is intended

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to cover entities that handle checks for col- might be a banking day for purposes of the lection and payment, such as Edge and U.C.C., but it would not be a banking day for agreement corporations, commercial lending purposes of Regulation CC because Saturday companies under 12 U.S.C. 3101, certain in- is never a business day under the regulation. dustrial banks, and private bankers, so that 3. The definition of banking day is phrased virtually all checks will be covered by the in terms of when ‘‘an office of a bank is same rules for forward collection and return, open’’ to indicate that a bank may observe a even though they may not be covered by the banking day on a per-branch basis. A deposit requirements of Subpart B. For the purposes made at an ATM or off-premise facility (such of Subparts C and D, and in connection as a remote depository or a lock box) is con- therewith, Subpart A, the term also may in- sidered made at the branch holding the ac- clude a state or a unit of general local gov- count into which the deposit is made for the ernment to the extent that it pays warrants purpose of determining the day of deposit. or other drafts drawn directly on the state or local government itself, and the warrants or All other deposits are considered made at the other drafts are sent to the state or local branch at which the deposit is received. For government for payment or collection. example, under § 229.19(a)(1), funds deposited 3. Unless otherwise specified, the term at an ATM are considered deposited at the bank includes all of a bank’s offices in the time they are received at the ATM. On a cal- United States. The regulation does not cover endar day that is a banking day for the foreign offices of U.S. banks. branch or other location of the depositary 4. For purposes of subpart D and, in con- bank at which the account is maintained, a nection therewith, subpart A, the term bank deposit received at an ATM before the ATM’s also includes the Treasury of the United cut-off hour is considered deposited on that States and the United States Postal Service banking day, and a deposit received at an to the extent that they act as paying banks ATM after the ATM’s cut-off hour is consid- because the Check 21 Act includes these two ered deposited on the next banking day of entities in the definition of the term bank to the branch or other location where the ac- the extent that they act as payors. count is maintained. On a calendar day that is not a banking day for the account-holding G. 229.2(f) Banking Day and (g) Business Day location, all ATM deposits are considered de- 1. The EFA Act defines business day as any posited on that location’s next banking day. day excluding Saturdays, Sundays, and legal This rule for determining the day of deposit holidays. Legal holiday, however, is not de- also would apply to a deposit to an off- fined, and the variety of local holidays, to- premise facility, such as a night depository gether with the practice of some banks to or lock box, which is considered deposited close midweek, makes the EFA Act’s defini- when removed from the facility and avail- tion difficult to apply. The Board believes able for processing under § 229.19(a)(3). If an that two kinds of business days are relevant. unstaffed facility, such as a night depository First, when determining the day when funds or lock box, is on branch premises, the day of are deposited or when a bank must perform deposit is determined by the banking day at certain actions (such as returning a check), the branch at which the deposit is received, the focus should be on a day that the bank is whether or not it is the branch at which the actually open for business. Second, when account is maintained. counting days for purposes of determining when funds must be available under the reg- H. 229.2(h) Cash ulation or when notice of nonpayment must be received by the depositary bank, there 1. Cash means U.S. coins and currency. The would be confusion and uncertainty in trying phrase in the EFA Act ‘‘including Federal to follow the schedule of a particular bank, Reserve notes’’ has been deleted as unneces- and there is less need to identify a day when sary. (See 31 U.S.C. 5103.) a particular bank is open. Most banks that act as intermediaries (large correspondents I. 229.2(i) Cashier’s Check and Federal Reserve Banks) follow the same 1. The regulation adds to the second item holiday schedule. Accordingly, the regulation has two definitions: Business day gen- in the EFA Act’s definition of cashier’s erally follows the standard Federal Reserve check the phrase, ‘‘on behalf of the bank as Bank holiday schedule (which is followed by drawer,’’ to clarify that the term cashier’s most large banks), and banking day is de- check is intended to cover only checks that fined to mean that part of a business day on a bank draws on itself. The definition of which a bank is open for substantially all of cashier’s check includes checks provided to a its banking activities. customer of the bank in connection with cus- 2. The definition of banking day cor- tomer deposit account activity, such as ac- responds to the definition of banking day in count disbursements and interest payments. U.C.C. 4–104(a)(3), except that a banking day The definition also includes checks acquired is defined in terms of a business day. Thus, from a bank by noncustomers for remittance if a bank is open on Saturday, Saturday purposes, such as certain loan disbursement

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checks. Cashier’s checks provided to cus- ments of the EFA Act or this regulation. tomers or others are often labeled as ‘‘cash- (The treatment of payable-through drafts is ier’s check,’’ ‘‘officer’s check,’’ or ‘‘official discussed in greater detail in connection check.’’ The definition excludes checks that with the definitions of local check and pay- a bank draws on itself for other purposes, ing bank.) such as to pay employees and vendors, and 4. The second category is checks drawn on checks issued by the bank in connection Federal Reserve Banks and Federal Home with a payment service, such as a payroll or Loan Banks. Principal and interest pay- a bill-paying service. Cashier’s checks gen- ments on federal debt instruments often are erally are sold by banks to substitute the paid with checks drawn on a Federal Reserve bank’s credit for the customer’s credit and Bank as fiscal agent of the United States, thereby enhance the collectibility of the and these fiscal agency checks are indistin- checks. A check issued in connection with a guishable from other checks drawn on Fed- payment service generally is provided as a eral Reserve Banks. (See 31 CFR Part 355.) convenience to the customer rather than as Federal Reserve Bank checks also are used a guarantee of the check’s collectibility. In by some banks as substitutes for cashier’s or addition, such checks are often more dif- teller’s checks. Similarly, savings and loan ficult to distinguish from other types of associations often use checks drawn on Fed- checks than are cashier’s checks as defined eral Home Loan Banks as teller’s checks. by this regulation. The definition of check includes checks J. 229.2(j) Certified Check drawn on Federal Home Loan Banks and Federal Reserve Banks because in many 1. The EFA Act defines a certified check as cases they are the functional equivalent of one to which a bank has certified that the Treasury checks or teller’s checks. drawer’s signature is genuine and that the 5. The third and fourth categories of in- bank has set aside funds to pay the check. strument included in the definition of check Under the Uniform Commercial Code, certifi- refer to government checks. The EFA Act re- cation of a check means the bank’s signed fers to checks drawn on the U.S. Treasury, agreement that it will honor the check as even though these instruments are not presented (U.C.C. 3–409). The regulation de- drawn on or payable through an office of a fines certified check to include both the EFA depository institution, and checks drawn by Act’s and U.C.C.’s definitions. state and local governments. The EFA Act K. 229.2(k) Check also gives the Board authority to define functionally equivalent instruments as de- 1. Check is defined in section 602(7) of the pository checks. 1 Thus, the EFA Act is in- EFA Act as a negotiable demand draft drawn tended to apply to instruments other than on or payable through an office of a deposi- those that meet the strict definition of tory institution located in the United check in section 602(7) of the EFA Act. States, excluding noncash items. The regula- Checks and warrants drawn by states and tion includes six categories of instruments local governments often are used for the pur- within the definition of check. poses of making unemployment compensa- 2. The first category is negotiable demand tion payments and other payments that are drafts drawn on, or payable through or at, an important to the recipients. Consequently, office of a bank. As the definition of bank in- the Board has expressly defined check to includes only offices located in the United clude drafts drawn on the U.S. Treasury and States, this category is limited to checks drafts or warrants drawn by a state or a unit drawn on, or payable through or at, a bank- of general local government on itself. ing office located in the United States. 6. The fifth category of instrument in- 3. The EFA Act treats drafts payable cluded in the definition of check is U.S. through a bank as checks, even though under Postal Service money orders. These instru- the U.C.C. the payable-through bank is a col- ments are defined as checks because they lecting bank to make presentment and gen- often are used as a substitute for checks by erally is not authorized to make payment consumers, even though money orders are (U.C.C. 4–106(a)). The EFA Act does not ex- not negotiable under Postal Service regula- pressly address items that are payable at a tions. The Board has not provided specific bank. This regulation treats both payable- rules for other types of money orders; these through and payable-at demand drafts as instruments generally are drawn on or pay- checks. The Board believes that treating de- able through or payable at banks and are mand drafts payable at a bank as checks will treated as checks on that basis. not have a substantial effect on the operations of payable-at banks—by far the larg- est proportion of payable-at items are not 1 Section 602(11) of the EFA Act (12 U.S.C. negotiable demand drafts, but time items, 4001(11)) defines ‘‘depository check’’ as ‘‘any such as commercial paper, bonds, notes, cashier’s check, certified check, teller’s bankers’ acceptances, and securities. These check, and any other functionally equivalent time items are not covered by the require- instrument as determined by the Board.’’

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7. The sixth and final category of instru- requirements of this regulation, including ment included in the definition of check is the requirement that funds be made avail- traveler’s checks drawn on or payable able according to specific schedules and that through or at a bank. Traveler’s check is de- the bank make specified disclosures of its fined in paragraph (hh) of this section. availability policies. Section 229.18(b) (no- 8. Finally, for the purposes of Subparts C tices at branch locations) and § 229.18(e) (no- and D, and in connection therewith, Subpart tice of changes in policy) apply only to con- A, the definition of check includes nonnego- sumer accounts. Section 229.13(g)(2) (one- tiable demand drafts because these instru- time exception notice) and § 229.19(d) (use of ments are often handled as cash items in the calculated availability) apply only to non- forward collection process. consumer accounts. 9. A substitute check as defined in § 229.2(aaa) is a check for purposes of Regula- O. 229.2(o) Depositary Bank tion CC and the U.C.C., even if that sub- 1. The regulation uses the term depositary stitute check does not meet the require- bank rather than the term receiving deposi- ments for legal equivalence set forth in tory institution. Receiving depository insti- § 229.51(a). tution is a term unique to the EFA Act, 10. The definition of check does not include while depositary bank is the term used in an instrument payable in a foreign currency Article 4 of the U.C.C. and Regulation J. (i.e., other than in United States money as 2. A depositary bank includes the bank in defined in 31 U.S.C. 5101) or a credit card which the check is first deposited. If a for- draft (i.e., a sales draft used by a merchant eign office of a U.S. or foreign bank sends or a draft generated by a bank as a result of checks to its U.S. correspondent bank for a cash advance), or an ACH debit transfer. forward collection, the U.S. correspondent is The definition of check includes a check that the depositary bank because foreign offices a bank may supply to a customer as a means of banks are not included in the definition of of accessing a credit line without the use of bank. a credit card. 3. If a customer deposits a check in its ac- L. 229.2(l) [Reserved] count at a bank, the customer’s bank is the depositary bank with respect to the check. M. 229.2(m) Check Processing Region For example, if a person deposits a check 1. The EFA Act defines this term as ‘‘the into an account at a nonproprietary ATM, geographic area served by a Federal Reserve the bank holding the account into which the bank check processing center or such larger check is deposited is the depositary bank area as the Board may prescribe by regula- even though another bank may service the tions.’’ The Board has defined check proc- nonproprietary ATM and send the check for essing region as the territory served by one collection. (Under § 229.35 the depositary of the Federal Reserve head offices, bank may agree with the bank servicing the branches, or regional check processing cen- nonproprietary ATM to have the servicing ters. Appendix A includes a list of routing bank place its own indorsement on the check numbers arranged by Federal Reserve Bank as the depositary bank. For the purposes of office. The definition of check processing re- Subpart C, the bank applying its gion is key to determining whether a check indorsement as the depositary bank is considered local or nonlocal. indorsement on the check is the depositary bank.) N. 229.2(n) Consumer Account 4. For purposes of Subpart B, a bank may act as both the depositary bank and the pay- 1. Consumer account is defined as an account used primarily for personal, family, or ing bank with respect to a check, if the household purposes. An account that does check is payable by the bank in which it was not meet the definition of consumer account deposited, or if the check is payable by a is a nonconsumer account. A clearing ac- nonbank payor and payable through or at count maintained at a bank directly by a the bank in which it was deposited. A bank brokerage firm is not a consumer account, also is considered a depositary bank with re- even if the account is used to pay checks spect to checks it receives as payee. For ex- drawn by consumers using the funds in that ample, a bank is a depositary bank with re- account. The bank’s relationship is with the spect to checks it receives for loan repay- brokerage firm, and the account is used by ment, even though these checks are not de- the brokerage firm to facilitate the clearing posited in an account at the bank. Because of its customers’ checks. Because for pur- these checks would not be ‘‘deposited to ac- poses of Regulation CC the term account in- counts,’’ they would not be subject to the cludes only deposit accounts, a consumer’s availability or disclosure requirements of revolving credit relationship or other line of Subpart B. credit with a bank is not a consumer ac- P. 229.2(p) Electronic Payment count, even if the consumer draws on such credit lines by using a check. Both consumer 1. Electronic payment is defined to mean a and nonconsumer accounts are subject to the wire transfer as defined in § 229.2(11) or an

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ACH credit transfer. The EFA Act requires through other banks. In such cases, the rout- that funds deposited by wire transfer be ing number cannot be relied on to determine made available for withdrawal on the busi- whether the check is local or nonlocal. For ness day following deposit but expressly payable-through checks that meet the label- leaves the definition of the term wire trans- ing requirements of § 229.36(e), the depositary fer to the Board. Because ACH credit trans- bank may rely on the four-digit routing sym- fers frequently involve important consumer bol of the paying bank that is printed on the payments, such as wages, the regulation re- face of the check as required by that section, quires that funds deposited by ACH credit e.g., in the title plate, but not on the first transfers be available for withdrawal on the four digits of the payable-through bank’s business day following deposit. routing number printed in magnetic ink in 2. ACH debit transfers, even though they the MICR line or in fractional form, to deter- may be transmitted electronically, are not mine whether the check is local or nonlocal. defined as electronic payments because the receiver of an ACH debit transfer has the S. 229.2(s) Local Paying Bank right to return the transfer, which would re- 1. ‘‘Local paying bank’’ is defined as a pay- verse the credit given to the originator. ing bank located in the same check-proc- Thus, ACH debit transfers are more like essing region as the branch, contractual checks than wire transfers. Further, bank branch, or proprietary ATM of the deposi- customers that receive funds by originating tary bank. For example, a check deposited at ACH debit transfers are primarily large cor- a contractual branch would be deemed local porations, which generally would be able to or nonlocal based on the location of the con- negotiate with their banks for prompt avail- tractual branch with respect to the location ability. of the paying bank. 3. A point-of-sale transaction would not be Examples. considered an electronic payment unless the a. If a check that is payable by a bank that transaction was effected by means of an ACH is located in the same check processing recredit transfer or wire transfer. gion as the depositary bank is payable through a bank located in another check Q. 229.2(q) Forward Collection processing region, the check is considered 1. Forward collection is defined to mean local or nonlocal depending on the location the process by which a bank sends a check to of the bank by which it is payable even if the the paying bank for collection, including check is sent to the nonlocal bank for collec- sending the check to an intermediary col- tion. lecting bank for settlement, as distinguished b. The location of the depositary bank is from the process by which the check is re- determined by the physical location of the turned unpaid. Noncash collections are not branch or proprietary ATM at which a check included in the term forward collection. is deposited, regardless of whether the deposit is made in person, by mail, or other- R. 229.2(r) Local Check wise. For example, if a branch of the deposi- 1. Local check is defined as a check pay- tary bank located in one check-processing able by or at a local paying bank, or, in the region sends a check that was deposited at case of nonbank payors, payable through a that branch to the depositary bank’s central local paying bank. A check payable by a facility in another check-processing region, local bank but payable through a nonlocal and the central facility is in the same check- bank is a local check. Conversely, a check processing region as the paying bank, the payable through a local bank but payable by check is still considered nonlocal. (See the a nonlocal bank is a nonlocal check. Where commentary to the definition of ‘‘paying two banks are named on a check and neither bank.’’) is designated as a payable-through bank, the c. If a person deposits a check to an ac- check is considered payable by either bank count by mailing or otherwise sending the and may be considered local or nonlocal de- check to a facility or office that is not a pending on the bank to which it is sent for bank, the check is considered local or payment. Generally, the depositary bank nonlocal depending on the location of the may rely on the routing number to deter- bank whose indorsement appears on the mine whether a check is local or nonlocal. check as the depositary bank. Appendix A includes a list of routing num- T. 229.2(t) Merger Transaction bers arranged by Federal Reserve Bank Of- fice to assist persons in determining whether 1. Merger transaction is a term used in or not such a check is local. If, however, a Subparts B and C in connection with transi- check is payable by one bank but payable tion rules for merged banks. It encompasses through another bank, the routing number mergers, consolidations, and purchase/as- appearing on the check will be that of the sumption transactions of the type that usu- payable-through bank, not the paying bank. ally must be approved under the Bank Merg- Many credit union share drafts and certain er Act (12 U.S.C. 1828(c)) or similar statutes; other checks payable by banks are payable it does not encompass acquisitions of a bank

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under the Bank Holding Company Act (12 V. 229.2(v) [Reserved] U.S.C. 1842) where an acquired bank maintains its separate corporate existence. W. 229.2(w) [Reserved] 2. Regulation CC adopts a one-year transi- X. 229.2(x) [Reserved] tion period for banks that are party to a merger transaction during which the merged Y. 229.2(y) [Reserved] banks will continue to be treated as separate Z. 229.2(z) Paying Bank entities. (See §§ 229.19(g) and 229.40.) 1. The regulation uses this term in lieu of U. 229.2(u) Noncash Item the EFA Act’s ‘‘originating depository insti- 1. The EFA Act defines the term check to tution.’’ For purposes of all subparts of Reg- ulation CC, the term paying bank includes exclude noncash items, and defines noncash the bank by which a check is payable, the items to include checks to which another payable-at bank to which a check is sent, or, document is attached, checks accompanied if the check is payable by a nonbank payor, by special instructions, or any similar item the bank through which the check is payable classified as a noncash item in the Board’s and to which it is sent for payment or collec- regulation. To qualify as a noncash item, an tion. For purposes of subparts C and D, the item must be handled as such and may not term paying bank also includes the payable- be handled as a cash item by the depositary through bank and the bank whose routing bank. number appears on the check, regardless of 2. The regulation’s definition of noncash whether the check is payable by a different item also includes checks that consist of bank, provided that the check is sent for more than a single thickness of paper (except payment or collection to the payable checks that qualify for handling by auto- through bank or the bank whose routing mated check processing equipment, e.g. number appears on the check. those placed in carrier envelopes) and checks 2. Under §§ 229.30 and 229.36(a), a bank des- that have not been preprinted or post-en- ignated as a payable-through bank or pay- coded in magnetic ink with the paying able-at bank and to which the check is sent bank’s routing number, as well as checks for payment or collection is responsible for with documents attached or accompanied by the expedited return of checks and notice of nonpayment requirements of Subpart C. The special instructions. (In the context of this payable-through or payable-at bank may definition, paying bank refers to the paying contract with the payor with respect to its bank as defined for purposes of Subpart C.) liability in discharging these responsibil- 3. A check that has been preprinted or ities. The Board believes that the EFA Act post-encoded with a routing number that has makes a clear connection between avail- been retired (e.g., because of a merger) for at ability and the time it takes for checks to be least three years is a noncash item unless cleared and returned. Allowing the payable- the current number is added for processing through bank additional time to forward purposes by placing the check in an encoded checks to the payor and await return or pay carrier envelope or adding a strip to the instructions from the payor would delay the check. return of these checks, increasing the risks 4. Checks that are accompanied by special to depositary banks. Subpart C places on instructions are also noncash items. For ex- payable-through and payable-at banks the ample, a person concerned about whether a requirements of expeditious return based on check will be paid may request the deposi- the time the payable-through or payable-at tary bank to send a check for collection as a bank received the check for forward collec- noncash item with an instruction to the pay- tion. 3. If a check is sent for forward collection ing bank to notify the depositary bank based on the routing number, the bank asso- promptly when the check is paid or dishon- ciated with the routing number is a paying ored. bank for the purposes of Subparts C and D 5. For purposes of forward collection, a requirements, including notice of non- copy of a check is neither a check nor a payment, even if the check is not drawn by noncash item, but may be treated as either. a customer of that bank or the check is For purposes of return, a copy is generally a fraudulent. notice in lieu of return. (See §§ 229.30(f) and 4. The phrase ‘‘and to which [the check] is 229.31(f).) 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

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though such banks are not defined as banks prietary ATM includes an ATM located on for purposes of Subpart B. the premises of the bank, either inside the 6. In accordance with the Check 21 Act, for branch or on its outside wall, regardless of purposes of subpart D and, in connection whether the ATM is owned or operated by therewith, subpart A, paying bank includes that bank. Because the EFA Act also defines the Treasury of the United States or the a proprietary ATM as one that is ‘‘in close United States Postal Service with respect to proximity’’ to the bank, the regulation de- a check payable by that entity and sent to fines an ATM located within 50 feet of a bank that entity for payment or collection, even to be proprietary to that bank unless it is though the Treasury and Postal Service are identified as being owned or operated by an- not defined as banks for purposes of subparts other entity. The Board believes that the B and C. Because the Federal Reserve Banks statutory proximity test was designed to act as fiscal agents for the Treasury and the apply to situations where it would appear to U.S. Postal Service and in that capacity are the depositor that the ATM is run by his or designated as presentment locations for her bank, because of the proximity of the Treasury checks and U.S. Postal Service ATM to the bank. The Board believes that an money orders, a Treasury check or U.S. ATM located within 50 feet of a banking of- Postal Service money order presented to a fice would be presumed proprietary to that Federal Reserve Bank is considered to be bank unless it is clearly identified as being presented to the Treasury or U.S. Postal owned or operated by another entity. Service, respectively. BB. 229.2(bb) Qualified Returned Check AA. 229.2(aa) Proprietary ATM 1. Subpart C requires the paying bank and 1. All deposits at nonproprietary ATMs are returning bank(s) to return checks in an ex- treated as deposits of nonlocal checks, and peditious manner. The banks may meet this deposits at proprietary ATMs generally are responsibility by returning a check to the treated as deposits at banking offices. The depositary bank by the same general means Conference Report on the EFA Act indicates used for forward collection of a check from that the special availability rules for depos- the depositary bank to the paying bank. One its received through nonproprietary ATMs way to speed the return process is to prepare are provided because ‘‘nonproprietary ATMs the returned check for automated proc- today do not distinguish among check depos- essing. Qualified returned checks are identi- its or between check and cash deposits’’ fied by placing a ‘‘2’’ in the case of an origi- (H.R. Rep. No. 261, 100th Cong., 1st Sess. at nal check (or a ‘‘5’’ in the case of a sub- 179 (1987)). Thus, a deposit of any combina- stitute check) in position 44 of the qualified tion of cash and checks at a nonproprietary return MICR line as a return identifier in ac- ATM may be treated as if it were a deposit of nonlocal checks, because the depositary cordance with American National Standard bank does not know the makeup of the de- Specifications for Placement and Location of posit and consequently is unable to place dif- MICR Printing, X9.13 (hereinafter ‘‘ANS ferent holds on cash, local check, and X9.13’’) for original checks or American Na- nonlocal check deposits made at the ATM. tional Standard Specifications for an Image 2. A colloquy between Senators Proxmire Replacement Document—IRD, X9.100–140 and Dodd during the floor debate on the (hereinafter ‘‘ANS X9.100–140’’) for substitute Competitive Equality Banking Act (133 Cong. checks. Rec. S11289 (Aug. 4, 1987)) indicates that 2. Generally, under the standard of care whether a bank operates the ATM is the pri- imposed by § 229.38, a paying or returning mary criterion in determining whether the bank would be liable for any damages in- ATM is proprietary to that bank. Because a curred due to misencoding of the routing bank should be capable of ascertaining the number, the amount of the check, or return composition of deposits made to an ATM op- identifier on a qualified returned check un- erated by that bank, an exception to the less the error was due to problems with the availability schedules is not warranted for depositary bank’s indorsement. (See also dis- these deposits. If more than one bank meets cussion of § 229.38(c).) A qualified returned the ‘‘owns or operates’’ criterion, the ATM is check that contains an encoding error would considered proprietary to the bank that op- still be a qualified returned check for pur- erates it. For the purpose of this definition, poses of the regulation. the bank that operates an ATM is the bank 3. A qualified returned check need not con- that puts checks deposited into the ATM tain the elements of a check drawn on the into the forward collection stream. An ATM depositary bank, such as the name of the de- owned by one or more banks, but operated by positary bank. Because indorsements and a nonbank servicer, is considered proprietary other information on carrier envelopes or to the bank or banks that own it. strips will not appear on a returned check 3. The EFA Act also includes location as a itself, banks will wish to retain carrier enve- factor in determining whether an ATM that lopes and/or microfilm or other records of is either owned or operated by a bank is pro- carrier envelopes or strips with their check prietary to that bank. The definition of pro- records.

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CC. 229.2(cc) Returning Bank checks. A check issued in connection with a payment service generally is provided as a 1. Returning bank is defined to mean any convenience to the customer rather than as bank (excluding the paying bank and the de- a guarantee of the check’s collectibility. In positary bank) handling a returned check. A addition, such checks are often more dif- returning bank may or may not be a bank ficult to distinguish from other types of that handled the returned check in the for- checks than are teller’s checks as defined by ward collection process. A returning bank in- this regulation. cludes a bank that agrees to handle a returned check for expeditious return to the HH. 229.2(hh) Traveler’s Check depositary bank under § 229.31(a). A returning bank is also a collecting bank for the pur- 1. The EFA Act and regulation require that pose of a collecting bank’s duty to exercise traveler’s checks be treated as cashier’s, ordinary care under U.C.C. 4–202(b) and is teller’s, or certified checks when a new de- analogous to a collecting bank for purposes positor opens an account. (See § 229.13(a); 12 of final settlement. (See Commentary to U.S.C. 4003(a)(1)(C).) The EFA Act does not § 229.35(b).) define traveler’s check. 2. One element of the definition states that DD. 229.2(dd) Routing Number a traveler’s check is ‘‘drawn on or payable through or at a bank.’’ Sometimes traveler’s 1. Each bank is assigned a routing number checks that are not issued by banks do not by an agent of the American Bankers Asso- have any words on them identifying a bank ciation. The routing number takes two as drawee or paying agent, but instead bear forms—a fractional form and a nine-digit unique routing numbers with an 8000 prefix form. A paying bank is identified by both the that identifies a bank as paying agent. fractional form routing number (which nor- 3. Because a traveler’s check is payable by, mally appears in the upper right hand corner at, or through a bank, it is also a check for of the check) and the nine-digit form. The purposes of this regulation. When not subject nine-digit routing number of the paying to the next-day availability requirement for bank generally is printed in magnetic ink new accounts, a traveler’s check should be near the bottom of the check (the MICR treated as a local or nonlocal check depend- strip; see ANSI X9.13–1983). Subpart C re- ing on the location of the paying bank. The quires depositary banks and subsequent col- depositary bank may rely on the designation lecting banks to place their routing numbers of the paying bank by the routing number to in nine-digit form in their indorsements. determine whether local or nonlocal treat- EE. 229.2(ee) [Reserved] ment is required. FF. 229.2(ff) [Reserved] II. 229.2(ii) Uniform Commercial Code 1. Uniform Commercial Code is defined as GG. 229.2(gg) Teller’s Check the version of the Code adopted by the indi- 1. Teller’s check is defined in the EFA Act vidual states. For purposes of uniform cita- to mean a check issued by a depository insti- tion, all citations to the U.C.C. in this part tution and drawn on another depository in- refer to the Official Text as approved by the stitution. The definition in the regulation American Law Institute and the National includes not only checks drawn by a bank on Conference of Commissioners on Uniform another bank, but also checks payable State Laws. through or at a bank. This would include checks drawn on a nonbank, as long as the JJ. 229.2(jj) [Reserved] check is payable through or at a bank. The KK. 229.2(kk) Unit of General Local definition does not include checks that are Government drawn by a nonbank on a nonbank even if payable through or at a bank. The definition 1. Unit of general local government is de- includes checks provided to a customer of fined to include a city, county, parish, town, the bank in connection with customer de- township, village, or other general purpose posit account activity, such as account dis- political subdivision of a state. The term bursements and interest payments. The defi- does not include special purpose units, such nition also includes checks acquired from a as school districts, water districts, or Indian bank by a noncustomer for remittance pur- nations. poses, such as certain loan disbursement LL. 229.2(ll) Wire Transfer checks. The definition excludes checks used by the bank to pay employees or vendors and 1. The EFA Act delegates to the Board the checks issued by the bank in connection authority to define the term wire transfer. with a payment service, such as a payroll or The regulation defines wire transfer as an a bill-paying service. Teller’s checks gen- unconditional order to a bank to pay a fixed erally are sold by banks to substitute the or determinable amount of money to a bene- bank’s credit for the customer’s credit and ficiary, upon receipt or on a day stated in thereby enhance the collectibility of the the order, that is transmitted by electronic

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or other means over certain networks or on WW. 229.2(ww) Original Check the books of banks and that is used pri- 1. The definition of original check distin- marily to transfer funds between commercial guishes the first paper check signed or other- accounts. ‘‘Unconditional’’ means that no wise authorized by the drawer to effect a condition, such as presentation of docu- particular payment transaction from a sub- ments, must be met before the bank receiv- stitute check or other paper or electronic ing the order is to make payment. A wire representation that is derived from an origi- transfer may be transmitted by electronic or nal check or substitute check. There is only other means. ‘‘Electronic means’’ include one original check for any particular pay- computer-to-computer links, on-line termi- ment transaction. However, multiple sub- nals, telegrams (including TWX, TELEX, or stitute checks could be created to represent similar methods of communication), tele- that original check at various points in the phone calls, or other similar methods. check collection and return process. Fedwire (the Federal Reserve’s wire transfer network), CHIPS (Clearing House Interbank XX. 229.2(xx) Paper or Electronic Payments System, operated by the New Representation of a Substitute Check York Clearing House), and book transfers among banks or within one bank are covered 1. Receipt of a paper or electronic represen- by this definition. Credits for credit and tation of a substitute check does not trigger debit card transactions are not wire trans- indemnity or expedited recredit rights, al- fers. The term wire transfer excludes elec- though the recipient nonetheless could have tronic fund transfers as that term is defined a warranty claim or a claim under other by the Electronic Fund Transfer Act. check law with respect to that document or the underlying payment transaction. A paper MM. 229.2(mm) [Reserved] or electronic representation of a substitute check would include a representation of a NN. 229.2(nn) Good Faith substitute check that was drawn on an ac- 1. This definition of good faith derives from count, as well as a representation of a sub- U.C.C. 3–103(a)(4). stitute traveler’s check, credit card check, or other item that meets the substitute OO. 229.2(oo) Interest Compensation check definition. The following examples illustrate the scope of the definition. 1. This calculation of interest compensation derives from U.C.C. 4A–506(b). (See §§ 229.34(e) Examples. and 229.36(f).) a. A bank receives electronic presentment PP. 229.2(pp) Contractual Branch of a substitute check that has been converted to electronic form and charges the 1. When one bank arranges for another customer’s account for that electronic item. bank to accept deposits on its behalf, the The periodic account statement that the second bank is a contractual branch of the bank provides to the customer includes in- first bank. For further discussion of contrac- formation about the electronically-presented tual branch deposits and related disclosures, substitute check in a line-item list describ- see §§ 229.2(s) and 229.19(a) of the regulation ing all the checks the bank charged to the and the commentary to §§ 229.2(s), 229.10(c), customer’s account during the previous 229.14(a), 229.16(a), 229.18(b), and 229.19(a). month. The electronic file that the bank re- QQ. 229.2(qq) [Reserved] ceived for presentment and charged to the customer’s account would be an electronic RR. 229.2(rr) [Reserved] representation of a substitute check, and the line-item appearing on the customer’s ac- SS. 229.2(ss) [Reserved] count statement would be a paper representation of a substitute check. TT. 229.2(tt) [Reserved] b. A paying bank receives and settles for a substitute check and then realizes that its UU. 229.2(uu) [Reserved] settlement was for the wrong amount. The VV. 229.2(vv) MICR Line paying bank sends an adjustment request to the presenting bank to correct the error. The 1. Information in the MICR line of a check adjustment request is not a paper or elec- must be printed in accordance with ANS tronic representation of a substitute check X9.13 for original checks and ANS X9.100–140 under the definition because it is not being for substitute checks. These standards could handled for collection or return as a check. vary the requirements for printing the MICR Rather, it is a separate request that is re- line, such as by indicating circumstances lated to a check. As a result, no substitute under which the use of magnetic ink is not check warranty, indemnity, or expedited re- required. credit rights attach to the adjustment.

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YY. 229.2(yy) [Reserved] reconverting bank when it transfers or presents that substitute check for collection. ZZ. 229.2(zz) Reconverting Bank 2. In some cases there will be one or more 1. A substitute check is ‘‘created’’ when banks between the truncating bank and the and where a paper reproduction of an origi- reconverting bank. nal check that meets the requirements of Example. § 229.2(aaa) is physically printed. A bank is a reconverting bank if it creates a substitute A depositary bank truncates the original check directly or if another person by agree- check and sends an electronic representation ment creates a substitute check on the of the original check for collection to an bank’s behalf. A bank also is a reconverting intermediary bank. The intermediary bank bank if it is the first bank that receives a sends the electronic representation of the substitute check created by a nonbank and original check to the presenting bank, which transfers, presents, or returns that sub- creates a substitute check to present to the stitute check or, in lieu thereof, the first paying bank. The presenting bank is the re- paper or electronic representation of such converting bank. substitute check. 3. A check could move from electronic form to substitute check form several times Examples. during the collection and return process. It a. Bank A, by agreement, sends an elec- therefore is possible that there could be mul- tronic check file for collection to Bank B. tiple substitute checks, and thus multiple re- Bank B chooses to use that file to print a converting banks, with respect to the same substitute check that meets the require- underlying payment. ments of § 229.2(aaa). Bank B is the recon- AAA. 229.2(aaa) Substitute Check verting bank as of the time it prints the substitute check. 1. ‘‘A paper reproduction of an original b. Company A, which is not a bank, by check’’ could include a reproduction created agreement receives check information elec- directly from the original check or a repro- tronically from Bank A. Bank A becomes the duction of the original check that is created reconverting bank when Company A prints a from some other source that contains an substitute check on behalf of Bank A in ac- image of the original check, such as an elec- cordance with that agreement. tronic representation of an original check or c. A depositary bank’s customer, which is substitute check, or a previous substitute a nonbank business, receives a check for pay- check. ment, truncates that original check, and cre- 2. Because a substitute check must be a ates a substitute check to deposit with its piece of paper, an electronic file or elec- bank. The depositary bank receives that sub- tronic check image that has not yet been stitute check from its customer and is the printed in accordance with the substitute first bank to handle the substitute check. check definition is not a substitute check. The depositary bank becomes the recon- 3. Because a substitute check must be a verting bank as of the time that it transfers representation of a check, a paper reproduc- or presents the substitute check (or in lieu tion of something that is not a check cannot thereof the first paper or electronic rep- be a substitute check. For example, a sav- resentation of the substitute check) for for- ings bond or a check drawn on a non-U.S. ward collection. branch of a foreign bank cannot be recon- d. A bank is the payable-through bank for verted to a substitute check. checks that are drawn on a nonbank payor, 4. As described in § 229.51(b) and the com- which is the bank’s customer. When the cus- mentary thereto, a reconverting bank is re- tomer decides not to pay a check that is pay- quired to ensure that a substitute check con- able through the bank, the customer creates tains all indorsements applied by previous a substitute check for purposes of return. parties that handled the check in any form. The payable-through bank becomes the re- Therefore, the image of the original check converting bank when it returns the sub- that appears on the back of a substitute stitute check (or in lieu thereof the first check would include indorsements that were paper or electronic representation of the sub- physically applied to the original check be- stitute check) to a returning bank or the de- fore an image of the original check was cap- positary bank. tured. An indorsement that was applied e. A paying bank returns a substitute physically to the original check after an check to the depositary bank, which in turn image of the original check was captured gives that substitute check back to its would be conveyed as an electronic nonbank customer. That customer then rede- indorsement (see paragraph 3 of the com- posits the substitute check for collection at mentary to § 229.35(a)). The back of the sub- a different bank. Because the substitute stitute check would contain a physical rep- check was already transferred by a bank, the resentation of any indorsements that were second depositary bank does not become a applied electronically to the check after an

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image of the check was captured but before check was converted to electronic form but creation of the substitute check. before creation of the subsequent substitute check. Example. b. Because information could have been Bank A, which is the depositary bank, cap- physically added to the image of the front of tures an image of an original check, indorses the original check that appeared on the pre- it electronically and, by agreement, trans- vious substitute check, the original check mits to Bank B an electronic image of the image that appears on the front of a subse- check accompanied by the electronic quent substitute check could contain infor- indorsement. Bank B then creates a sub- mation in addition to that which appeared stitute check to send to Bank C. The back of on the original check at the time it was the substitute check created by Bank B must truncated. contain a representation of the indorsement 6. The MICR line applied to a substitute previously applied electronically by Bank A check must contain information in all fields and Bank B’s own indorsement. (For more of the MICR line that were encoded on the information on indorsement requirements, original check at any time before an image see § 229.35, appendix D, and the commentary of the original check was captured. This in- thereto.) cludes all the MICR-line information that 5. Some substitute checks will not be cre- was preprinted on the original check, plus ated directly from the original check, but any additional information that was added to the MICR line before the image of the rather will be created from a previous sub- original check was captured (for example, stitute check. The back of a subsequent sub- the amount of the check). The information stitute check will contain an image of the in each field of the substitute check’s MICR full length of the back of the previous sub- line must be the same information as in the stitute check. ANS X9.100–140 requires pres- corresponding field of the MICR line of the ervation of the full length of the back of the original check, except as provided by ANS previous substitute check in order to pre- X9.100–140 (unless the Board by rule or order serve previous indorsements and recon- determines that a different standard ap- verting bank identifications. By contrast, plies). Industry standards may not, however, the front of a subsequent substitute check vary the requirement that a substitute will not contain an image of the entire pre- check at the time of its creation must bear vious substitute check. Rather, the image a full-field MICR line. field of the subsequent substitute check will 7. ANS X9.100–140, provides that a sub- contain the image of the front of the original stitute check must have a ‘‘4’’ in position 44 check that appeared on the previous sub- and that a qualified returned substitute stitute check at the time the previous sub- check must have a ‘‘4’’ in position 44 of the stitute check was converted to electronic forward-collection MICR line as well as a ‘‘5’’ form. The portions of the front of the subse- in position 44 of the qualified return MICR quent substitute check other than the image line. The ‘‘4’’ and ‘‘5’’ indicate that the docu- field will contain information applied by the ment is a substitute check so that the size of subsequent reconverting bank, such as its re- the check image remains constant through- converting bank identification, the MICR out the collection and return process, re- line, the legal equivalence legend, and op- gardless of the number of substitute checks tional security information. created that represent the same original check (see also §§ 229.30(a)(2) and 229.31(a)(2) Examples. and the commentary thereto regarding re- a. The back of a subsequent substitute quirements for qualified returned substitute check would contain the following checks). An original check generally has a indorsements, all of which would be pre- blank position 44 for forward collection. Be- served through the image of the back of the cause a reconverting bank must encode posi- previous substitute check: (1) The tion 44 of a substitute check’s forward collec- indorsements that were applied physically to tion MICR line with a ‘‘4,’’ the reconverting the original check before an image of the bank must vary any character that appeared original check was captured; (2) a physical in position 44 of the forward-collection MICR representation of indorsements that were ap- line of the original check. A bank that plied electronically to the original check misencodes or fails to encode position 44 at after an image of the original check was cap- the time it attempts to create a substitute tured but before creation of the first sub- check has failed to create a substitute check. stitute check; and (3) indorsements that A bank that receives a properly-encoded sub- were applied physically to the previous substitute check may further encode that item stitute check. In addition, the reconverting but does so subject to the encoding warran- bank for the subsequent substitute check ties in Regulation CC and the U.C.C. must overlay onto the back of that sub- 8. A substitute check’s MICR line could stitute check a physical representation of contain information in addition to the infor- any indorsements that were applied elec- mation required at the time the substitute tronically after the previous substitute check is created. For example, if the amount

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field of the original check was not encoded on both the front and back of the original and the substitute check therefore did not, check also could be a sufficient copy if such when created, have an encoded amount field, copy contained all the information necessary the MICR line of the substitute check later to determine the validity of the relevant could be amount-encoded. claim. For instance, if a consumer received a 9. A bank may receive a substitute check substitute check that contained a blurry that contains a MICR-line variation but image of a legible original check, the con- nonetheless meets the MICR-line replication sumer might seek an expedited recredit be- requirements of § 229.2(aaa)(2) because that cause his or her account was charged for variation is permitted by ANS X9.100–140. If $1,000, but he or she believed that the check such a substitute check contains a MICR- was written for only $100. If the amount that line error, a bank that receives it may, but appeared on the front of the original check is not required to, repair that error. Such a was legible, an accurate copy of only the repair must be made in accordance with ANS front of the original check that showed the X9.100–140 for repairing a MICR line, which amount of the check would be sufficient to generally allows a bank to correct an error determine whether or not the consumer’s by applying a strip that may or may not con- claim regarding the amount of the check was tain information in all fields encoded on the valid. check’s MICR line. A bank’s repair of a MICR-line error on a substitute check is sub- CCC. 229.2(ccc) Transfer and Consideration ject to the encoding warranties in Regula- tion CC and the U.C.C. 1. Under §§ 229.52 and 229.53, a bank is re- 10. A substitute check must conform to all sponsible for the warranties and indemnity the generally applicable industry standards when it transfers, presents, or returns a sub- for substitute checks set forth in ANS stitute check (or a paper or electronic rep- X9.100–140, which incorporates other industry resentation thereof) for consideration. Draw- standards by reference. Thus, multiple sub- ers and other nonbank persons that receive stitute check images contained on the same checks from a bank are not transferees that page of an account statement are not sub- receive consideration as those terms are de- stitute checks. fined in the U.C.C. However, the Check 21 Act clearly contemplates that such nonbank BBB. 229.2(bbb) Sufficient Copy and Copy persons that receive substitute checks (or 1. A copy must be a paper reproduction of representations thereof) from a bank will re- a check. An electronic image therefore is not ceive the warranties and indemnity from all a copy or a sufficient copy. However, if a cus- previous banks that handled the check. To tomer has agreed to receive such informa- ensure that these parties are covered by the tion electronically, a bank that is required substitute check warranties and indemnity to provide an original check or sufficient in the manner contemplated by the Check 21 copy may satisfy that requirement by pro- Act, § 229.2(ccc) incorporates the U.C.C. defi- viding an electronic image in accordance nitions of the term transfer and consider- with § 229.58 and the commentary thereto. ation by reference and expands those defini- 2. A bank under § 229.53(b)(3) may limit its tions to cover a broader range of situations. liability for an indemnity claim and under Delivering a check to a nonbank that is act- §§ 229.54(e)(2) and 229.55(c)(2) may respond to ing on behalf of a bank (such as a third-party an expedited recredit claim by providing the check processor or presentment point) is a claimant with a copy of a check that accu- transfer of the check to that bank. rately represents all of the information on the front and back of the original check as of Examples. the time the original check was truncated or a. A paying bank pays a substitute check that otherwise is sufficient to determine the and then provides that paid substitute check validity of the claim against the bank. (or a representation thereof) to a drawer with a periodic statement. Under the ex- Examples. panded definitions, the paying bank thereby a. A copy of an original check that accu- transfers the substitute check (or represen- rately represents all the information on the tation thereof) to the drawer for consider- front and back of the original check as of the ation and makes the substitute check war- time of truncation would constitute a suffi- ranties described in § 229.52. A drawer that cient copy if that copy resolved the claim. suffers a loss due to receipt of a substitute For example, if resolution of the claim re- check may have warranty, indemnity, and, if quired accurate payment and indorsement the drawer is a consumer, expedited recredit information, an accurate copy of the front rights under the Check 21 Act and subpart D. and back of a legible original check (includ- A drawer that suffers a loss due to receipt of ing but not limited to a substitute check) a paper or electronic representation of a sub- would be a sufficient copy. stitute check would receive the substitute b. A copy of the original check that does check warranties but would not have indem- not accurately represent all the information nity or expedited recredit rights.

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b. The expanded definitions also operate FFF. 229.2(fff) Remotely Created Check such that a paying bank that pays an origi- 1. A check authorized by a consumer over nal check (or a representation thereof) and the telephone that is not created by the pay- then creates a substitute check to provide to ing bank and bears a legend on the signature the drawer with a periodic statement trans- line, such as ‘‘Authorized by Drawer,’’ is an fers the substitute check for consideration example of a remotely created check. A and thereby provides the warranties and in- check that bears the signature applied, or demnity. purported to be applied, by the person on c. The expanded definitions ensure that a whose account the check is drawn is not a bank that receives a returned check in any remotely created check. A typical forged form and then provides a substitute check to check, such as a stolen personal check fraud- the depositor gives the substitute check war- ulently signed by a person other than the ranties and indemnity to the depositor. drawer, is not covered by the definition of a d. The expanded definitions apply to sub- remotely created check. stitute checks representing original checks 2. The term signature as used in this defi- that are not drawn on deposit accounts, such nition has the meaning set forth at U.C.C. 3– 401. The term ‘‘applied by’’ refers to the as checks used to access a credit card or a physical act of placing the signature on the home equity line of credit. check. DDD. 229.2(ddd) Truncate 3. The definition of a ‘‘remotely created check’’ differs from the definition of a ‘‘re- 1. Truncate means to remove the original motely created consumer item’’ under the check from the forward collection or return U.C.C. A ‘‘remotely created check’’ may be process and to send in lieu of the original drawn on an account held by a consumer, check either a substitute check or, by agree- corporation, unincorporated company, partment, information relating to the original nership, government unit or instrumen- check. Truncation does not include removal tality, trust, or any other entity or organiza- of a substitute check from the check collection. A ‘‘remotely created consumer item’’ tion or return process. under the U.C.C., however, must be drawn on a consumer account. EEE. 229.2(eee) Truncating Bank 4. Under Regulation CC (12 CFR part 229), the term ‘‘check’’ includes a negotiable de- 1. A bank is a truncating bank if it trun- mand draft drawn on or payable through or cates an original check or if it is the first at an office of a bank. In the case of a ‘‘pay- bank to transfer, present, or return another able through’’ or ‘‘payable at’’ check, the form of an original check that was truncated signature of the person on whose account the by a person that is not a bank. check is drawn would include the signature of the payor institution or the signatures of Example. the customers who are authorized to draw checks on that account, depending on the ar- a. A bank’s customer that is a nonbank rangements between the ‘‘payable through’’ business receives a check for payment and or ‘‘payable at’’ bank, the payor institution, deposits either a substitute check or an elec- and the customers. tronic representation of the original check 5. The definition of a remotely created with its depositary bank instead of the origi- check includes a remotely created check nal check. That depositary bank is the trun- that has been reconverted to a substitute cating bank when it transfers, presents, or check. returns the substitute check or electronic representation in lieu of the original check. III. Section 229.3 Administrative Enforcement That bank also would be the reconverting [Reserved] bank if it were the first bank to transfer, IV. Section 229.10 Next-Day Availability present, or return a substitute check that it received from (or created from the informa- A. Business Days and Banking Days tion given by) its nonbank customer (see 1. This section, as well as other provisions § 229.2(yy) and the commentary thereto). of this subpart governing the availability of 2. A truncating bank does not make the funds, provides that funds must be made subpart D warranties and indemnity unless available for withdrawal not later than a it also is the reconverting bank. Therefore, a specified number of business days following bank that truncates the original check and the banking day on which the funds are de- sends an electronic file to a collecting bank posited. Thus, a deposit is considered made does not provide subpart D protections to only on a banking day, i.e., a day that the the recipient of that electronic item. How- bank is open to the public for carrying on ever, a recipient of an electronic item may substantially all of its banking functions. protect itself against losses associated with For example, if a deposit is made at an ATM that item by agreement with the truncating on a Saturday, Sunday, or other day on bank. which the bank is closed to the public, the

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deposit is considered received on that bank’s bank receiving ACH credit payments will not next banking day. receive the specific payment instructions in- 2. Nevertheless, business days are used to dicating which accounts to credit until after determine the number of days following the settlement day. In these cases, the payments banking day of deposit that funds must be are not considered received until the infor- available for withdrawal. For example, if a mation on the account and amount to be deposit of a local check were made on a Mon- credited is received. day, the availability schedule requires that 3. This paragraph also establishes the ex- funds be available for withdrawal on the sec- tent to which an electronic payment is con- ond business day after deposit. Therefore, sidered made. Thus, if a participant on a pri- funds must be made available on Wednesday vate network fails to settle and the receiving regardless of whether the bank was closed on bank receives finally settled funds rep- Tuesday for other than a standard legal holi- resenting only a partial amount of the pay- day as specified in the definition of business ment, it must make only the amount that it day. actually received available for withdrawal. 4. The availability requirements of this B. 229.10(a) Cash Deposits regulation do not preempt or invalidate 1. This paragraph implements the EFA other rules, regulations, or agreements Act’s requirement for next-day availability which require funds to be made available on for cash deposits to accounts at a depositary a more prompt basis. For example, the next- bank ‘‘staffed by individuals employed by day availability requirement for ACH credits such institution.’’ 2 Under this paragraph, in this section does not preempt ACH asso- cash deposited in an account at a staffed ciation rules and Treasury regulations (31 teller station on a Monday must become CFR part 210), which provide that the pro- available for withdrawal by the start of busi- ceeds of these credit payments be available ness on Tuesday. It must become available to the recipient for withdrawal on the day for withdrawal by the start of business on the bank receives the funds. Wednesday if it is deposited by mail, at a D. 229.10(c) Certain Check Deposits proprietary ATM, or by other means other than at a staffed teller station. 1. The EFA Act generally requires that funds be made available on the business day C. 229.10(b) Electronic Payments following the banking day of deposit for 1. The EFA Act provides next-day avail- Treasury checks, state and local government ability for funds received for deposit by wire checks, cashier’s checks, certified checks, transfer. The regulation uses the term elec- teller’s checks, and ‘‘on us’’ checks, under tronic payment, rather than wire transfer, to specified conditions. (Treasury checks are include both wire transfers and ACH credit checks drawn on the Treasury of the United transfers under the next-day availability re- States and have a routing number beginning quirement. (See discussion of definitions of with the digits ‘‘0000.’’) This section also re- automated clearinghouse, electronic pay- quires next-day availability for additional ment, and wire transfer in § 229.2.) types of checks not addressed in the EFA 2. The EFA Act requires that funds re- Act. Checks drawn on a Federal Reserve ceived by wire transfer be available for with- Bank or a Federal Home Loan Bank and U.S. drawal not later than the business day fol- Postal Service money orders also must be lowing the day a wire transfer is received. made available on the first business day fol- This paragraph clarifies what constitutes re- lowing the day of deposit under specified ceipt of an electronic payment. For the pur- conditions. For the purposes of this section, poses of this paragraph, a bank receives an all checks drawn on a Federal Reserve Bank electronic payment when the bank receives or a Federal Home Loan Bank that contain both payment in finally collected funds and in the MICR line a routing number that is the payment instructions indicating the cus- listed in appendix A are subject to the next- tomer accounts to be credited and the day availability requirement if they are de- amount to be credited to each account. For posited in an account held by a payee of the example, in the case of Fedwire, the bank re- check and in person to an employee of the ceives finally collected funds at the time the depositary bank, regardless of the purposes payment is made. (See 12 CFR 210.31.) Fi- for which the checks were issued. For all new nally collected funds generally are received accounts, even if the new account exception for an ACH credit transfer when they are is not invoked, traveler’s checks must be included in the $5,000 aggregation of checks de- posted to the receiving bank’s account on posited on any one banking day that are sub- the settlement day. In certain cases, the ject to the next-day availability requirement. (See § 229.13(a).) 2 Nothing in the EFA Act or this regulation 2. Deposit in Account of Payee. One statu- affects terms of account arrangements, such tory condition to receipt of next-day avail- as negotiable order of withdrawal accounts, ability of Treasury checks, state and local which may require prior notice of with- government checks, cashier’s checks, cer- drawal. (See 12 CFR 204.2(e)(2).) tified checks, and teller’s checks is that the

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check must be ‘‘endorsed only by the person another branch of the same bank must re- to whom it was issued.’’ The EFA Act could ceive next-day availability even if the be interpreted to include a check that has branch on which the checks are drawn is lo- been indorsed in blank and deposited into an cated in another check processing region but account of a third party that is not named as in the same state as the branch in which the payee. The Board believes that such a check check is deposited. For the purposes of this presents greater risks than a check deposited requirement, deposits at facilities that are by the payee and that Congress did not in- not located on the premises of a brick-and- tend to require next-day availability for such mortar branch of the bank, such as off- checks. The regulation, therefore, provides premise ATMs and remote depositories, are that funds must be available on the business not considered deposits made at branches of day following deposit only if the check is de- the depositary bank. posited in an account held by a payee of the 5. First $100. check. For the purposes of this section, a. The EFA Act and regulation also require payee does not include transferees other that up to $100 of the aggregate deposit by than named payees. The regulation also ap- check or checks not subject to next-day plies this condition to Postal Service money availability on any one banking day be made orders and checks drawn on Federal Reserve available on the next business day. For ex- Banks and Federal Home Loan Banks. ample, if $70 were deposited in an account by 3. Deposits Made to an Employee of the De- check(s) on a Monday, the entire $70 must be positary Bank. available for withdrawal at the start of busi- a. In most cases, next-day availability of ness on Tuesday. If $200 were deposited by the proceeds of checks subject to this section check(s) on a Monday, this section requires is conditioned on the deposit of these checks that $100 of the funds be available for within person to an employee of the depositary drawal at the start of business on Tuesday. bank. If the deposit is not made to an em- The portion of the customer’s deposit to ployee of the depositary bank on the prem- which the $100 must be applied is at the dis- ises of such bank, the proceeds of the deposit cretion of the depositary bank, as long as it must be made available for withdrawal by is not applied to any checks subject to next- the start of business on the second business day availability. The $100 next-day avail- day after deposit, under paragraph (c)(2) of this section. For example, second-day availability rule does not apply to deposits at ability rather than next-day availability nonproprietary ATMs. would be allowed for deposits of checks sub- b. The $100 that must be made available ject to this section made at a proprietary under this rule is in addition to the amount ATM, night depository, through the mail or that must be made available for withdrawal a lock box, or at a teller station staffed by a on the business day after deposit under other person who is not an employee of the deposi- provisions of this section. For example, if a tary bank. Second-day availability also may customer deposits a $1,000 Treasury check, be allowed for deposits picked up by an em- and a $1,000 local check in its account on ployee of the depositary bank at the cus- Monday, $1,100 must be made available for tomer’s premises; such deposits would be withdrawal on Tuesday—the proceeds of the considered made upon receipt at the branch $1,000 Treasury check, as well as the first or other location of the depositary bank. $100 of the local check. Employees of a contractual branch would c. A depositary bank may aggregate all not be considered employees of the deposi- local and nonlocal check deposits made by tary bank for the purposes of this regulation, the customer on a given banking day for the and deposits at contractual branches would purposes of the $100 next-day availability be treated the same as deposits to a propri- rule. Thus, if a customer has two accounts at etary ATM for the purposes of this regula- the depositary bank, and on a particular tion. (See also, Commentary to § 229.19(a).) banking day makes deposits to each account, b. In the case of Treasury checks, the EFA $100 of the total deposited to the two ac- Act and regulation do not condition the re- counts must be made available on the busi- ceipt of next-day availability to deposits at ness day after deposit. Banks may aggregate staffed teller stations. Therefore, Treasury deposits to individual and joint accounts for checks deposited at a proprietary ATM must the purposes of this provision. be accorded next-day availability, if the d. If the customer deposits a $500 local check is deposited to an account of a payee check, and gets $100 cash back at the time of of the check. deposit, the bank need not make an addi- 4. ‘‘On Us’’ Checks. The EFA Act and regu- tional $100 available for withdrawal on the lation require next-day availability for ‘‘on following day. Similarly, if the customer de- us’’ checks, i.e., checks deposited in a branch positing the local check has a negative book of the depositary bank and drawn on the balance, or negative available balance in its same or another branch of the same bank, if account at the time of deposit, the $100 that both branches are located in the same state must be available on the next business day or check processing region. Thus, checks de- may be made available by applying the $100 posited in one branch of a bank and drawn on to the negative balance, rather than making

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the $100 available for withdrawal by cash or that the slips are available upon request. check on the following day. Such notice need not be posted at each teller 6. Special Deposit Slips. window, but the notice must be posted in a a. Under the EFA Act, a depositary bank place where consumers seeking to make de- may require the use of a special deposit slip posits are likely to see it before making as a condition to providing next-day avail- their deposits. For example, the notice ability for certain types of checks. This con- might be posted at the point where the line dition was included in the EFA Act because forms for teller service in the lobby. The no- many banks determine the availability of tice is not required at any drive-through their customers’ check deposits in an auto- teller windows nor is it required at night de- mated manner by reading the MICR-encoded pository locations, or at locations where routing number on the deposited checks. consumer deposits are not accepted. If a Using these procedures, a bank can deter- bank prepares a deposit for a depositor, it mine whether a check is a local or nonlocal must use a special deposit slip where appro- check, a check drawn on the Treasury, a priate. A bank may require the customer to Federal Reserve Bank, a Federal Home Loan segregate the checks subject to next-day Bank, or a branch of the depositary bank, or availability for which special deposit slips a U.S. Postal Service money order. Appendix could be required, and to indicate on a reg- A includes the routing numbers of certain ular deposit slip that such checks are being categories of checks that are subject to next- deposited, if the bank so instructs its cus- day availability. The bank cannot require a tomers in its initial disclosure. special deposit slip for these checks. b. A bank cannot distinguish whether the V. Section 229.11 [Reserved] check is a state or local government check, cashier’s check, certified check, or teller’s VI. Section 229.12 Availability Schedule check by reading the MICR-encoded routing number, because these checks bear the same A. 229.12(a) Effective Date routing number as other checks drawn on the same bank that are not accorded next- 1. The availability schedule set forth in day availability. Therefore, a bank may re- this section supersedes the temporary sched- quire a special deposit slip for these checks. ule that was effective September 1, 1988, c. The regulation specifies that if a bank through August 31, 1990. decides to require the use of a special deposit slip (or a special deposit envelope in the case B. 229.12(b) Local Checks and Certain Other of a deposit at an ATM or other unstaffed fa- Checks cility) as a condition to granting next-day 1. Local checks must be made available for availability under paragraphs (c)(1)(iv) or withdrawal not later than the second busi- (c)(1)(v) of this section or second-day avail- ness day following the banking day on which ability under paragraph (c)(2) of this section, the checks were deposited. and if the deposit slip that must be used is 2. In addition, the proceeds of Treasury different from the bank’s regular deposit checks and U.S. Postal Service money orders slips, the bank must either provide the spe- not subject to next-day (or second-day) cial slips to its customers or inform its cus- availability under § 229.10(c), checks drawn tomers how such slips may be obtained and on Federal Reserve Banks and Federal Home make the slips reasonably available to the Loan Banks, checks drawn by a state or unit customers. of general local government, cashier’s d. A bank may meet this requirement by checks, certified checks, and teller’s checks providing customers with an order form for not subject to next-day (or second-day) the special deposit slips and allowing suffi- availability under § 229.10(c) and payable in cient time for the customer to order and re- the same check processing region as the de- ceive the slips before this condition is im- positary bank, must be made available for posed. If a bank provides deposit slips in its withdrawal by the second business day fol- branches for use by its customers, it also lowing deposit. must provide the special deposit slips in the 3. Exceptions are made for withdrawals by branches. If special deposit envelopes are re- cash or similar means and for deposits in quired for deposits at an ATM, the bank banks located outside the 48 contiguous must provide such envelopes at the ATM. states. Thus, the proceeds of a local check e. Generally, a teller is not required to ad- deposited on a Monday generally must be vise depositors of the availability of special made available for withdrawal on Wednes- deposit slips merely because checks requir- day. ing special deposit slips for next-day availability are deposited without such slips. If a C. 229.12(c) Nonlocal Checks bank provides the special deposit slips only upon the request of a depositor, however, the 1. Nonlocal checks must be made available teller must advise the depositor of the avail- for withdrawal not later than the fifth busi- ability of the special deposit slips, or the ness day following deposit, i.e., proceeds of a bank must post a notice advising customers nonlocal check deposited on a Monday must

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be made available for withdrawal on the fol- of the funds that became available for with- lowing Monday. In addition, a check de- drawal on that day. The remainder of the scribed in § 229.10(c) that does not meet the funds must be available for cash withdrawal conditions for next-day availability (or sec- at the start of business on the business day ond-day availability) is treated as a nonlocal following the business day specified in the check, if the check is drawn on or payable schedule. through or at a nonlocal paying bank. Ad- 2. The EFA Act recognizes that the $400 justments are made to the schedule for with- that must be provided on the day specified in drawals by cash or similar means and depos- the schedule may exceed a bank’s daily ATM its in banks located outside the 48 contig- cash withdrawal limit, and explicitly pro- uous states. vides that the EFA Act does not supersede 2. Reduction in Schedules. the bank’s policy in this regard. The Board a. Section 603(d)(1) of the EFA Act (12 believes that the rationale for accommo- U.S.C. 4002(d)(1)) requires the Board to re- dating a bank’s ATM withdrawal limit also duce the statutory schedules for any cat- applies to other cash withdrawal limits es- egory of checks where most of those checks tablished by that bank. Section 229.19(c)(4) of would be returned in a shorter period of time the regulation addresses the relation be- than provided in the schedules. The con- tween a bank’s cash withdrawal limit (for ferees indicated that ‘‘if the new system over-the-counter cash withdrawals as well as makes it possible for two-thirds of the items ATM cash withdrawals) and the require- of a category of checks to meet this test in ments of this subpart. a shorter period of time, then the Federal 3. The Board believes that the Congress in- Reserve must shorten the schedules accord- cluded this special cash withdrawal rule to ingly.’’ H.R. Rep. No. 261, 100th Cong., 1st provide a depositary bank with additional Sess. at 179 (1987). time to learn of the nonpayment of a check b. Reduced schedules are provided for cer- before it must make funds available to its tain nonlocal checks where significant im- customer. If a customer deposits a local provements can be made to the EFA Act’s check on a Monday, and that check is re- schedules due to transportation arrange- turned by the paying bank, the depositary ments or proximity between the check proc- bank may not receive the returned check essing regions of the depositary bank and the until Thursday, the day after funds for a paying bank, allowing for faster collection local check ordinarily must be made avail- and return. Appendix B sets forth the spe- able for withdrawal. The intent of the special cific reduction of schedules applicable to cash withdrawal rule is to minimize this risk banks located in certain check processing re- to the depositary bank. For this rule to min- gions. c. A reduction in schedules may apply even imize the depositary bank’s risk, it must in those cases where the determination that apply not only to cash withdrawals, but also the check is nonlocal cannot be made based to withdrawals by other means that result in on the routing number on the check. For ex- an irrevocable debit to the customer’s ac- ample, a nonlocal credit union payable- count or commitment to pay by the bank on through share draft may be subject to a re- the customer’s behalf during the day. Thus, duction in schedules if the routing number of the cash withdrawal rule also includes with- the payable-through bank that appears on drawals by electronic payment, issuance of a the draft is included in appendix B, even cashier’s or teller’s check, certification of a though the determination that the payable- check, or other irrevocable commitment to through share draft is nonlocal is based on pay, such as authorization of an on-line the location of the credit union and not the point-of-sale debit. The rule also would apply routing number on the draft. to checks presented over the counter for payment on the day of presentment by the de- D. 229.12(d) Time Period Adjustment for positor or another person. Such checks could Withdrawal by Cash or Similar Means not be dishonored for insufficient funds if an amount sufficient to cover the check had be- 1. The EFA Act provides an adjustment to came available for cash withdrawal under the availability rules for cash withdrawals. Funds from local and nonlocal checks need this rule; however, payment of such checks not be available for cash withdrawal until would be subject to the bank’s cut-off hour 5:00 p.m. on the day specified in the schedule. established under U.C.C. 4–108. The cash At 5:00 p.m., $400 of the deposit must be made withdrawal rule does not apply to checks and available for cash withdrawal. This $400 is in other provisional debits presented to the addition to the first $100 of a day’s deposit, bank for payment that the bank has the which must be made available for with- right to return. drawal at the start of business on the first E. 229.12(e) Extension of Schedule for Cer- business day following the banking day of tain Deposits in Alaska, Hawaii, Puerto deposit. If the proceeds of local and nonlocal Rico, and the U.S. Virgin Islands checks become available for withdrawal on the same business day, the $400 withdrawal 1. The EFA Act and regulation provide an limitation applies to the aggregate amount extension of the availability schedules for

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check deposits at a branch of a bank if the to the schedules for large or redeposited branch is located in Alaska, Hawaii, Puerto checks and for accounts that have been re- Rico, or the U.S. Virgin Islands. The sched- peatedly overdrawn. These exceptions apply ules for local checks, nonlocal checks (in- to local and nonlocal checks as well as to cluding nonlocal checks subject to the re- checks that must otherwise be accorded duced schedules of appendix B), and deposits next-day (or second-day) availability under at nonproprietary ATMs are extended by one § 229.10(c). business day for checks deposited to ac- 2. Many checks will not be returned to the counts in banks located in these jurisdic- depositary bank by the time funds must be tions that are drawn on or payable at or made available for withdrawal under the through a paying bank not located in the next-day (or second-day), local, and nonlocal same jurisdiction as the depositary bank. schedules. In order to reduce risk to deposi- For example, a check deposited in a bank in tary banks, the Board has exercised its stat- Hawaii and drawn on a San Francisco paying utory authority to adopt these exceptions to bank must be made available for withdrawal the schedules in the regulation to allow the not later than the third business day fol- depositary bank to extend the time within lowing deposit. This extension does not which it is required to make funds available. apply to deposits that must be made avail- 3. The EFA Act also gives the Board the able for withdrawal on the next business day. authority to suspend the schedules for any 2. The Congress did not provide this exten- classification of checks, if the schedules re- sion of the schedules to checks drawn on a sult in an unacceptable level of fraud losses. paying bank located in Alaska, Hawaii, The Board will adopt regulations or issue or- Puerto Rico, or the U.S. Virgin Islands and ders to implement this statutory authority deposited in an account at a depositary bank if and when circumstances requiring its im- in the 48 contiguous states. Therefore, a plementation arise. check deposited in a San Francisco bank B. 229.13(a) New Accounts drawn on a Hawaii paying bank must be made available for withdrawal not later than 1. Definition of New Account. the second rather than the third business a. The EFA Act provides an exception to day following deposit. the availability schedule for new accounts. An account is defined as a new account dur- F. 229.12(f) Deposits at Nonproprietary ing the first 30 calendar days after the ac- ATMs count is opened. An account is opened when the first deposit is made to the account. An 1. The EFA Act and regulation provide a account is not considered a new account, special rule for deposits made at nonpropri- however, if each customer on the account etary ATMs. This paragraph does not apply has a transaction account relationship with to deposits made at proprietary ATMs. All the depositary bank, including a dormant ac- deposits at a nonproprietary ATM must be count, that is at least 30 calendar days old or made available for withdrawal by the fifth if each customer has had an established business day following the banking day of transaction account with the depositary deposit. For example, a deposit made at a bank within the 30 calendar days prior to nonproprietary ATM on a Monday, including opening the second account. any deposit by cash or checks that would b. The following are examples of what con- otherwise be subject to next-day (or second- stitutes, and does not constitute, a new ac- day) availability, must be made available for count: withdrawal not later than Monday of the fol- i. If the customer has an established ac- lowing week. The provisions of count with a bank and opens a second ac- § 229.10(c)(1)(vii) requiring a depositary bank count with the bank, the second account is to make up to $100 of an aggregate daily de- not subject to the new account exception. posit available for withdrawal on the first ii. If a customer’s account were closed and business day after the banking day of deposit another account opened as a successor to the do not apply to deposits at a nonproprietary original account (due, for example, to the ATM. theft of checks or a debit card used to access the original account), the successor account VII. Section 229.13 Exceptions is not subject to the new account exception, A. Introduction assuming the previous account relationship is at least 30 days old. Similarly, if a cus- 1. While certain safeguard exceptions (such tomer closes an established account and as those for new accounts and checks the opens a separate account within 30 days, the bank has reasonable cause to believe are new account is not subject to the new ac- uncollectible) are established in the EFA count exception. Act, the Congress gave the Board the discre- iii. If a customer has a savings deposit or tion to determine whether certain other ex- other deposit that is not an account (as that ceptions should be included in its regula- term is defined in § 229.2(a)) at the bank, and tions. Specifically, the EFA Act gives the opens an account, the account is subject to Board the authority to establish exceptions the new account exception.

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iv. If a person that is authorized to sign on ‘‘on us’’ checks and the first $100 of a day’s a corporate account (but has no other rela- deposit be made available for withdrawal on tionship with the bank) opens a personal ac- the next business day do not apply during count, the personal account is subject to the the new account period. new account exception. 3. Representation by Customer. The deposi- v. If a customer has an established joint tary bank may rely on the representation of account at a bank, and subsequently opens the customer that the customer has no es- an individual account with that bank, the in- tablished account relationship with the dividual account is not subject to the new bank, and has not had any such account rela- account exception. tionship within the past 30 days, to deter- vi. If two customers that each have an es- mine whether an account is subject to the tablished individual account with the bank new account exception. open a joint account, the joint account is not subject to the new account exception. If one C. 229.13(b) Large Deposits of the customers on the account has no current or recent established account relation- 1. Under the large deposit exception, a de- ship with the bank, however, the joint ac- positary bank may extend the hold placed on count is subject to the new account excep- check deposits to the extent that the tion, even if the other individual on the ac- amount of the aggregate deposit on any count has an established account relation- banking day exceeds $5,000. This exception ship with the bank. applies to local and nonlocal checks, as well 2. Rules Applicable to New Accounts. as to checks that otherwise would be made a. During the new account exception pe- available on the next (or second) business riod, the schedules for local and nonlocal day after the day of deposit under § 229.10(c). checks do not apply, and, unlike the other Although the first $5,000 of a day’s deposit is exceptions provided in this section, the regu- subject to the availability otherwise pro- lation provides no maximum time frames vided for checks, the amount in excess of within which the proceeds of these deposits $5,000 may be held for an additional period of must be made available for withdrawal. Max- time as provided in § 229.13(h). When the imum times within which funds must be large deposit exception is applied to deposits available for withdrawal during the new ac- composed of a mix of checks that would oth- count period are provided, however, for cer- erwise be subject to differing availability tain other deposits. Deposits received by schedules, the depositary bank has the dis- cash and electronic payments must be made cretion to choose the portion of the deposit available for withdrawal in accordance with to which it applies the exception. Deposits § 229.10. by cash or electronic payment are not sub- b. Special rules also apply to deposits of ject to this exception for large deposits. Treasury checks, U.S. Postal Service money orders, checks drawn on Federal Reserve 2. The following example illustrates the op- Banks and Federal Home Loan Banks, state eration of the large deposit exception. If a and local government checks, cashier’s customer deposits $2,000 in cash and a $9,000 checks, certified checks, teller’s checks, and, local check on a Monday, $2,100 (the proceeds for the purposes of the new account excep- of the cash deposit and $100 from the local tion only, traveler’s checks. The first $5,000 check deposit) must be made available for of funds deposited to a new account on any withdrawal on Tuesday. An additional $4,900 one banking day by these check deposits of the proceeds of the local check must be must be made available for withdrawal in ac- available for withdrawal on Wednesday in cordance with § 229.10(c). Thus, the first $5,000 accordance with the local schedule, and the of the proceeds of these check deposits must remaining $4,000 may be held for an addi- be made available on the first business day tional period of time under the large deposit following deposit, if the deposit is made in exception. person to an employee of the depositary 3. Where a customer has multiple accounts bank and the other conditions of next-day with a depositary bank, the bank may apply availability are met. Funds must be made the large deposit exception to the aggregate available on the second business day after deposits to all of the customer’s accounts, deposit for deposits that are not made over even if the customer is not the sole holder of the counter, in accordance with § 229.10(c)(2). the accounts and not all of the holders of the (Proceeds of Treasury check deposits must customer’s accounts are the same. Thus, a be made available on the first business day depositary bank may aggregate the deposits after deposit, even if the check is not depos- made to two individual accounts in the same ited in person to an employee of the deposi- name, to an individual and a joint account tary bank.) Funds in excess of the first $5,000 with one common name, or to two joint ac- deposited by these types of checks on a counts with at least one common name for banking day must be available for with- the purpose of applying the large deposit ex- drawal not later than the ninth business day ception. Aggregation of deposits to multiple following the banking day of deposit. The re- accounts is permitted because the Board be- quirements of § 229.10(c)(1)(vi) and (vii) that lieves that the risk to the depositary bank

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associated with large deposits is similar re- remains on the customer’s account for six gardless of how the deposits are allocated banking days). If the bank dishonors a check among the customer’s accounts. that otherwise would have created a negative balance, however, the incident is consid- D. 229.13(c) Redeposited Checks ered an overdraft only on that day. 1. The EFA Act gives the Board the author- 2. The second test addresses substantial ity to promulgate an exception to the sched- overdrafts. Such overdrafts increase the risk ule for checks that have been returned un- to the depositary bank of dealing with the paid and redeposited. Section 229.13(c) pro- repeated overdrafter. Under this test, a cus- vides such an exception for checks that have tomer incurs repeated overdrafts if, on two been returned unpaid and redeposited by the banking days within the preceding six customer or the depositary bank. This excep- months, the available balance in any action applies to local and nonlocal checks, as count held by the customer is negative in an well as to checks that would otherwise be amount of $5,000 or more, or would have be- made available on the next (or second) busi- come negative in an amount of $5,000 or more ness day after the day of deposit under if checks or other charges to the account had § 229.10(c). been paid. 2. This exception addresses the increased 3. The exception relates not only to over- risk to the depositary bank that checks that drafts caused by checks drawn on the ac- have been returned once will be uncollectible count, but also overdrafts caused by other when they are presented to the paying bank debit charges (e.g. ACH debits, point-of-sale a second time. The Board, however, does not transactions, returned checks, account fees, believe that this increased risk is present for etc.). If the potential debit is in excess of checks that have been returned due to a available funds, the exception applies regard- missing indorsement. Thus, the exception less of whether the items were paid or re- does not apply to checks returned unpaid due turned unpaid. An overdraft resulting from to missing indorsements and redeposited an error on the part of the depositary bank, after the missing indorsement has been ob- or from the imposition of overdraft charges tained, if the reason for return indicated on for which the customer is entitled to a re- the check (see § 229.30(d)) states that it was fund under §§ 229.13(e) or 229.16(c), cannot be returned due to a missing indorsement. For considered in determining whether the cus- the same reason, this exception does not tomer is a repeated overdrafter. The excep- apply to a check returned because it was tion excludes accounts with overdraft lines postdated (future dated), if the reason for re- of credit, unless the credit line has been ex- turn indicated on the check states that it ceeded or would have been exceeded if the was returned because it was postdated, and if checks or other charges to the account had it is no longer postdated when redeposited. been paid. 3. To determine when funds must be made 4. This exception applies to local and available for withdrawal, the banking day on nonlocal checks, as well as to checks that which the check is redeposited is considered otherwise would be made available on the to be the day of deposit. A depositary bank next (or second) business day after the day of that made $100 of a check available for with- deposit under § 229.10(c). When a bank places drawal under § 229.10(c)(1)(vii) can charge or extends a hold under this exception, it back the full amount of the check, including need not make the first $100 of a deposit the $100, if the check is returned unpaid, and available for withdrawal on the next busi- the $100 need not be made available again if ness day, as otherwise would be required by the check is redeposited. § 229.10(c)(1)(vii). E. 229.13(d) Repeated Overdrafts F. 229.13(e) Reasonable Cause To Doubt Collectibility 1. The EFA Act gives the Board the authority to establish an exception for ‘‘deposit ac- 1. In the case of certain check deposits, if counts which have been overdrawn repeat- the bank has reasonable cause to believe the edly.’’ This paragraph provides two tests to check is uncollectible, it may extend the determine what constitutes repeated over- time funds must be made available for with- drafts. Under the first test, a customer’s ac- drawal. This exception applies to local and counts are considered repeatedly overdrawn nonlocal checks, as well as to checks that if, on six banking days within the preceding would otherwise be made available on the six months, the available balance in any ac- next (or second) business day after the day of count held by the customer is negative, or deposit under § 229.10(c). When a bank places the balance would have become negative if or extends a hold under this exception, it checks or other charges to the account had need not make the first $100 of a deposit been paid, rather than returned. This test available for withdrawal on the next busi- can be met based on separate occurrences ness day, as otherwise would be required by (e.g., checks that are returned for insuffi- § 229.10(c)(1)(vii). If the reasonable cause ex- cient funds on six different days), or based on ception is invoked, the bank must include in one occurrence (e.g., a negative balance that the notice to its customer, required by

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§ 229.13(g), the reason that the bank believes which this exception may be invoked; an- that the check is uncollectible. other reason that does not appear on the 2. The following are several examples of model notice may be used as the basis for ex- circumstances under which the reasonable tending a hold, if the reason satisfies the cause exception may be invoked: conditions for invoking this exception. A de- a. If a bank received a notice from the pay- positary bank may invoke the reasonable ing bank that a check was not paid and is cause exception based on a combination of being returned to the depositary bank, the factors that give rise to a reasonable cause depositary bank could place a hold on the to doubt the collectibility of a check. In check or extend a hold previously placed on these cases, the bank should disclose the pri- that check, and notify the customer that the mary reasons for which the exception was in- bank had received notice that the check is voked in accordance with paragraph (g) of being returned. The exception could be in- this section. voked even if the notice were incomplete, if 4. The regulation provides that the deter- the bank had reasonable cause to believe mination that a check is uncollectible shall that the notice applied to that particular not be based on a class of checks or persons. check. For example, a depositary bank cannot in- b. The depositary bank may have received voke this exception simply because the information from the paying bank, prior to check is drawn on a paying bank in a rural the presentment of the check, that gives the area and the depositary bank knows it will bank reasonable cause to believe that the not have the opportunity to learn of non- check is uncollectible. For example, the pay- payment of that check before funds must be ing bank may have indicated that payment made available under the availability sched- has been stopped on the check, or that the ules. Similarly, a depositary bank cannot in- drawer’s account does not currently have voke the reasonable cause exception based sufficient funds to honor the check. Such in- on the race or national origin of the deposi- formation may provide sufficient basis to in- tor. voke this exception. In these cases, the de- 5. If a depositary bank invokes this excep- positary bank could invoke the exception tion with respect to a particular check and and disclose as the reason the exception is does not provide a written notice to the de- being invoked the fact that information from positor at the time of deposit, the depositary the paying bank indicates that the check bank may not assess any overdraft fee (such may not be paid. as an ‘‘NSF’’ charge) or charge interest for c. The fact that a check is deposited more use of overdraft credit, if the check is paid than six months after the date on the check (i.e. a stale check) is a reasonable indication by the paying bank and these charges would that the check may be uncollectible, because not have occurred had the exception not under U.C.C. 4–404 a bank has no duty to its been invoked. A bank may assess an over- customer to pay a check that is more than draft fee under these circumstances, how- six months old. Similarly, if a check being ever, if it provides notice to the customer, in deposited is postdated (future dated), the the notice of exception required by para- bank may have a reasonable cause to believe graph (g) of this section, that the fee may be the check is uncollectible, because the check subject to refund, and refunds the charges may not be properly payable under U.C.C. 4– upon the request of the customer. The notice 401. The bank, in its notice, should specify must state that the customer may be enti- that the check is stale-dated or postdated. tled to a refund of any overdraft fees that d. There are reasons that may cause a bank are assessed if the check being held is paid, to believe that a check is uncollectible that and indicate where such requests for a refund are based on confidential information. For of overdraft fees should be directed. example, a bank could conclude that a check G. 229.13(f) Emergency Conditions being deposited is uncollectible based on its reasonable belief that the depositor is engag- 1. Certain emergency conditions may arise ing in kiting activity. Reasonable belief as that delay the collection or return of checks, to the insolvency or pending insolvency of or delay the processing and updating of cus- the drawer of the check or the drawee bank tomer accounts. In the circumstances speci- and that the checks will not be paid also fied in this paragraph, the depositary bank may justify invoking this exception. In these may extend the holds that are placed on de- cases, the bank may indicate, as the reason posits of checks that are affected by such it is invoking the exception, that the bank delays, if the bank exercises such diligence has confidential information that indicates as the circumstances require. For example, if that the check might not be paid. a bank learns that a check has been delayed 3. The Board has included a reasonable in the process of collection due to severe cause exception notice as a model notice in weather conditions or other causes beyond appendix C (C–13). The model notice includes its control, an emergency condition covered several reasons for which this exception may by this section may exist and the bank may be invoked. The Board does not intend to place a hold on the check to reflect the provide a comprehensive list of reasons for delay. This exception applies to local and

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nonlocal checks, as well as checks that mine the amount of the deposit that will be would otherwise be made available on the held and when the funds will be available for next (or second) business day after the day of deposit. Appendix C (C–12) contains a model deposit under § 229.10(c). When a bank places notice. or extends a hold under this exception, it c. For deposits made in person to an em- need not make the first $100 of a deposit ployee of the depositary bank, the notice available for withdrawal on the next busi- generally must be given to the person mak- ness day, as otherwise would be required by ing the deposit, i.e., the ‘‘depositor’’, at the § 229.10(c)(1)(vii). In cases where the emer- time of deposit. The depositor need not be gency conditions exception does not apply, the customer holding the account. For other as in the case of deposits of cash or elec- deposits, such as deposits received at an tronic payments under § 229.10 (a) and (b), the ATM, lobby deposit box, night depository, or depositary bank may not be liable for a through the mail, notice must be mailed to delay in making funds available for with- the customer not later than the close of the drawal if the delay is due to a bona fide error business day following the banking day on such as an unavoidable computer malfunc- which the deposit was made. tion. d. Notice to the customer also may be provided at a later time, if the facts upon which H. 229.13(g) Notice of Exception the determination to invoke the exception do not become known to the depositary bank 1. In general. until after notice would otherwise have to be a. If a depositary bank invokes any of the given. In these cases, the bank must mail the safeguard exceptions to the schedules listed notice to the customer as soon as prac- above, other than the new account or emer- ticable, but not later than the business day gency conditions exception, and extends the following the day the facts become known. A hold on a deposit beyond the time periods bank is deemed to have knowledge when the permitted in §§ 229.10(c) and 229.12, it must facts are brought to the attention of the per- provide a notice to its customer. Except in son or persons in the bank responsible for the cases described in paragraphs (g)(2) and making the determination, or when the facts (g)(3) of this section, notices must be given would have been brought to their attention each time an exception hold is invoked and if the bank had exercised due diligence. must state the customer’s account number, e. In those cases described in paragraphs the date of deposit, the reason the exception (g)(2) and (g)(3), the depositary bank need was invoked, and the time period within not provide a notice every time an exception which funds will be available for withdrawal. hold is applied to a deposit. When paragraph For a customer that is not a consumer, a de- (g)(2) or (g)(3) requires disclosure of the time positary bank satisfies the written-notice re- period within which deposits subject to the quirement by sending an electronic notice exception generally will be available for that displays the text and is in a form that withdrawal, the requirement may be satis- the customer may keep, if the customer fied if the one-time notice states when ‘‘on agrees to such means of notice. Information us,’’ local, and nonlocal checks will be avail- is in a form that the customer may keep if, able for withdrawal if an exception is infor example, it can be downloaded or printed. voked. For a customer who is a consumer, a deposi- 2. One-time exception notice. tary bank satisfies the written-notice re- a. Under paragraph (g)(2), if a nonconsumer quirement by sending an electronic notice in account (see Commentary to § 229.2(n)) is compliance with the requirements of the subject to the large deposit or redeposited Electronic Signatures in Global and National check exception, the depositary bank may Commerce Act (12 U.S.C. 7001 et seq.), which give its customer a single notice at or prior include obtaining the consumer’s affirmative to the time notice must be provided under consent to such means of notice. paragraph (g)(1). Notices provided under b. With respect to paragraph (g)(1), the re- paragraph (g)(2) must contain the reason the quirement that the notice state the time pe- exception may be invoked and the time period within which the funds shall be made riod within which deposits subject to the ex- available may be satisfied if the notice iden- ception will be available for withdrawal (see tifies the date the deposit is received and in- Model Notice C–14). A depositary bank may formation sufficient to indicate when funds provide a one-time notice to a nonconsumer will be available and the amounts that will customer under paragraph (g)(2) only if each be available at those times. For example, for exception cited in the notice (the large de- a deposit involving more than one check, the posit and/or the redeposited check exception) bank need not provide a notice that discloses will be invoked for most check deposits to when funds from each individual check in the customer’s account to which the excep- the deposit will be available for withdrawal; tion could apply. A one-time notice may instead, the bank may provide a total dollar state that the depositary bank will apply ex- amount for each of the time periods when ception holds to certain subsets of deposits funds will be available, or provide the cus- to which the large deposit or redeposited tomer with an explanation of how to deter- check exception may apply, and the notice

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should identify such subsets. For example, same manner and within the same time as the depositary bank may apply the redepos- required for other exception notices. On the ited check exception only to checks that other hand, if a depositary bank experiences were redeposited automatically by the de- a weather or power outage emergency that positary bank in accordance with an agree- affects its own operations, it may be reason- ment with the customer, rather than to all able for the depositary bank to provide a redeposited checks. In lieu of sending the general notice to all depositors via postings one-time notice, a depositary bank may send at branches and ATMs, or through news- individual hold notices for each deposit sub- paper, television, or radio notices. ject to the large deposit or redeposited check b. If the depositary bank extends the hold exception in accordance with § 229.13(g)(1) placed on a deposit due to an emergency con- (see Model Notice C–12). dition, the bank need not provide a notice if b. In the case of a deposit of multiple the funds would be available for withdrawal checks, the depositary bank has the discre- before the notice must be sent. For example, tion to place an exception hold on any com- if on the last day of a hold period the deposi- bination of checks in excess of $5,000. The no- tary bank experiences a computer failure tice should enable a customer to determine and customer accounts cannot be updated in the availability of the deposit in the case of a timely fashion to reflect the funds as avail- a deposit of multiple checks. For example, if able balances, notices are not required if the a customer deposits a $5,000 local check and funds are made available before the notices a $5,000 nonlocal check, under the large de- must be sent. posit exception, the depositary bank may 5. Record retention. A depositary bank make funds available in the amount of (1) must retain a record of each notice of a rea- $100 on the first business day after deposit, sonable cause exception for a period of two $4,900 on the second business day after de- years, or such longer time as provided in the posit (local check), and $5,000 on the eleventh record retention requirements of § 229.21. business day after deposit (nonlocal check This record must contain a brief description with 6-day exception hold), or (2) $100 on the of the facts on which the depositary bank first business day after deposit, $4,900 on the based its judgment that there was reasonable fifth business day after deposit (nonlocal cause to doubt the collectibility of a check. check), and $5,000 on the seventh business In many cases, such as where the exception day after deposit (local check with 5-day ex- was invoked on the basis of a notice of non- ception hold). The notice should reflect the payment received, the record requirement bank’s priorities in placing exception holds may be met by retaining a copy of the notice on next-day (or second-day), local, and sent to the customer. In other cases, such as nonlocal checks. where the exception was invoked on the 3. Notice of repeated overdraft exception. basis of confidential information, a further Under paragraph (g)(3), if an account is sub- description to the facts, such as insolvency ject to the repeated overdraft exception, the of drawer, should be included in the record. depositary bank may provide one notice to its customer for each time period during I. 229.13(h) Availability of Deposits Subject which the exception will apply. Notices sent to Exceptions pursuant to paragraph (g)(3) must state the 1. If a depositary bank invokes any excep- customer’s account number, the fact the ex- tion other than the new account exception, ception was invoked under the repeated over- the bank may extend the time within which draft exception, the time period within funds must be made available under the which deposits subject to the exception will schedule by a reasonable period of time. This be made available for withdrawal, and the provision establishes that an extension of up time period during which the exception will to one business day for ‘‘on us’’ checks, five apply (see Model Notice C–15). A depositary business days for local checks, and six busi- bank may provide a one-time notice to a cus- ness days for nonlocal checks and checks de- tomer under paragraph (g)(3) only if the re- posited in a nonproprietary ATM is reason- peated overdraft exception will be invoked able. Under certain circumstances, however, for most check deposits to the customer’s ac- a longer extension of the schedules may be count. reasonable. In these cases, the burden is 4. Emergency conditions exception notice. placed on the depositary bank to establish a. If an account is subject to the emer- that a longer period is reasonable. gency conditions exception under § 229.13(f), 2. For example, assume a bank extended the depositary bank must provide notice in a the hold on a local check deposit by five reasonable form within a reasonable time, business days based on its reasonable cause depending on the circumstances. For exam- to believe that the check is uncollectible. If, ple, a depositary bank may learn of a weath- on the day before the extended hold is sched- er emergency or a power outage that affects uled to expire, the bank receives a notifica- the paying bank’s operations. Under these tion from the paying bank that the check is circumstances, it likely would be reasonable being returned unpaid, the bank may deter- for the depositary bank to provide an emer- mine that a longer hold is warranted, if it gency conditions exception notice in the decides not to charge back the customer’s

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account based on the notification. If the VIII. Section 229.14 Payment of Interest bank decides to extend the hold, the bank must send a second notice, in accordance A. 229.14(a) In General with paragraph (g) of this section, indicating 1. This section requires that a depositary the new date that the funds will be available bank begin accruing interest on interest- for withdrawal. bearing accounts not later than the day on 3. With respect to Treasury checks, U.S. which the depositary bank receives credit for Postal Service money orders, checks drawn the funds deposited. 3 A depositary bank gen- on Federal Reserve Banks or Federal Home erally receives credit on checks within one Loan Banks, state and local government or two days following deposit. A bank receives credit on a cash deposit, an electronic checks, cashier’s checks, certified checks, payment, and the deposit of a check that is and teller’s checks subject to the next-day drawn on the depositary bank itself on the (or second-day) availability requirement, the day the cash, electronic payment, or check is depositary bank may extend the time funds received. In the case of a deposit at a non- must be made available for withdrawal under proprietary ATM, credit generally is re- the large deposit, redeposited check, received on the day the bank that operates the peated overdraft, or reasonable cause excep- ATM credits the depositary bank for the tion by a reasonable period beyond the delay amount of the deposit. In the case of a de- that would have been permitted under the posit at a contractual branch, credit is re- regulation had the checks not been subject ceived on the day the depositary bank re- to the next-day (or second-day) availability ceives credit for the amount of the deposit, requirement. The additional hold is added to which may be different from the day the con- the local or nonlocal schedule that would tractual branch receives credit for the de- apply based on the location of the paying posit. bank. 2. Because account includes only trans- 4. One business day for ‘‘on us’’ checks, five action accounts, other interest-bearing accounts of the depositary bank, such as business days for local checks, and six busi- money market deposit accounts, savings de- ness days for nonlocal checks or checks deposits, and time deposits, are not subject to posited in a nonproprietary ATM, in addition this requirement; however, a bank may ac- to the time period provided in the schedule, crue interest on such deposits in the same should provide adequate time for the deposi- way that it accrues interest under this para- tary bank to learn of the nonpayment of vir- graph for simplicity of operation. The Board tually all checks that are returned. For ex- intends the term interest to refer to pay- ample, if a customer deposits a $7,000 cash- ments to or for the account of any customer ier’s check drawn on a nonlocal bank, and as compensation for the use of funds, but to the depositary bank applies the large deposit exclude the absorption of expenses incident exception to that check, $5,000 must be avail- to providing a normal banking function or a able for withdrawal on the first business day after the day of deposit and the remaining 3 This section implements section 606 of the $2,000 must be available for withdrawal on EFA Act (12 U.S.C. 4005). The EFA Act keys the eleventh business day following the day the requirement to pay interest to the time of deposit (six business days added to the the depositary bank receives provisional five-day schedule for nonlocal checks), un- credit for a check. Provisional credit is a less the depositary bank establishes that a term used in the U.C.C. that is derived from longer hold is reasonable. the Code’s concept of provisional settlement. 5. In the case of the application of the (See U.C.C. 4–214 and 4–215.) Provisional cred- emergency conditions exception, the deposi- it is credit that is subject to charge-back if tary bank may extend the hold placed on a the check is returned unpaid; once the check check by not more than a reasonable period is finally paid, the right to charge back ex- following the end of the emergency or the pires and the provisional credit becomes time funds must be available for withdrawal final. Under Subpart C, a paying bank no under §§ 229.10(c) or 229.12, whichever is later. longer has an automatic right to charge back credits given in settlement of a check, 6. This provision does not apply to holds and the concept of provisional settlement is imposed under the new account exception. no longer useful and has been eliminated by Under that exception, the maximum time pe- the regulation. Accordingly, this section riod within which funds must be made avail- uses the term credit rather than provisional able for withdrawal is specified for deposits credit, and this section applies regardless of that generally must be accorded next-day whether a credit would be provisional or availability under § 229.10. This subpart does final under the U.C.C. Credit does not in- not specify the maximum time period within clude a bookkeeping entry (sometimes re- which the proceeds of local and nonlocal ferred to as deferred credit) that does not checks must be made available for with- represent funds actually available for the drawal during the new account period. bank’s use.

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bank’s forbearance from charging a fee in These credit unions are exempt from the connection with such a service. (See 12 CFR payment-of-interest requirements, as long as 217.2(d).) Thus, earnings credits often applied they provide notice of their interest accrual to corporate accounts are not interest pay- policies in accordance with § 229.16(d). For ments for the purposes of this section. example, if a credit union has a policy of 3. It may be difficult for a depositary bank computing interest on all deposits received to track which day the depositary bank re- by the 10th of the month from the first of ceives credit for specific checks in order to that month, and on all deposits received accrue interest properly on the account to after the 10th of the month from the first of which the check is deposited. This difficulty the next month, that policy is not super- may be pronounced if the bank uses different seded by this regulation, if the credit union means of collecting checks based on the time provides proper disclosure of this policy to of day the check is received, the dollar its customers. amount of the check, and/or the paying bank 2. The EFA Act limits this exemption to to which it must be sent. Thus, for the pur- credit unions; other types of banks must pose of the interest accrual requirement, a comply with the payment-of-interest re- bank may rely on an availability schedule quirements. In addition, credit unions that from its Federal Reserve Bank, Federal compute interest from the day of deposit or Home Loan Bank, or correspondent to deter- day of credit should not change their exist- mine when the depositary bank receives ing practices in order to avoid compliance credit. If availability is delayed beyond that with the requirement that interest accrue specified in the availability schedule, a bank from the day the credit union receives cred- may charge back interest erroneously ac- it. crued or paid on the basis of that schedule. 4. This paragraph also permits a depositary C. 229.14(c) Exception for Checks Returned bank to accrue interest on checks deposited Unpaid to all of its interest-bearing accounts based on when the bank receives credit on all 1. This provision is based on section 606(c) checks sent for payment or collection. For of the EFA Act (12 U.S.C. 4005(c)) and pro- example, if a bank receives credit on 20 per- vides that interest need not be paid on funds cent of the funds deposited in the bank by deposited in an interest-bearing account by check as of the business day of deposit (e.g., check that has been returned unpaid, regard- ‘‘on us’’ checks), 70 percent as of the business less of the reason for return. day following deposit, and 10 percent on the IX. Section 229.15 General Disclosure second business day following deposit, the bank can apply these percentages to deter- Requirements mine the day interest must begin to accrue A. 229.15(a) Form of Disclosures on check deposits to all interest-bearing accounts, regardless of when the bank received 1. This paragraph sets forth the general recredit on the funds deposited in any par- quirements for the disclosures required ticular account. Thus, a bank may begin ac- under Subpart B. All of the disclosures must cruing interest on a uniform basis for all in- be given in a clear and conspicuous manner, terest-bearing accounts, without the need to must be in writing, and, in most cases, must track the type of check deposited to each ac- be in a form the customer may keep. A dis- count. closure is in a form that the customer may 5. This section is not intended to limit a keep if, for example, it can be downloaded or policy of a depositary bank that provides printed. For a customer that is not a con- that interest accrues only on balances that sumer, a depositary bank satisfies the writ- exceed a specified amount, or on the min- ten-disclosure requirement by sending an imum balance maintained in the account electronic disclosure that displays the text during a given period, provided that the bal- and is in a form that the customer may keep, ance is determined based on the date that if the customer agrees to such means of dis- the depositary bank receives credit for the closure. For a customer who is a consumer, funds. This section also is not intended to a depositary bank satisfies the written-no- limit any policy providing that interest ac- tice requirement by sending an electronic crues sooner than required by this para- notice in compliance with the requirements graph. of the Electronic Signatures in Global and National Commerce Act (12 U.S.C. 7001 et B. 229.14(b) Special Rule for Credit Unions seq.), which include obtaining the consumer’s 1. This provision implements a require- affirmative consent to such means of notice. ment in section 606(b) of the EFA Act, and Disclosures posted at locations where em- provides an exemption from the payment-of- ployees accept consumer deposits, at ATMs, interest requirements for credit unions that and on preprinted deposit slips need not be in do not begin to accrue interest or dividends a form that the customer may keep. Appen- on their customer accounts until a later date dix C of the regulation contains model forms, than the day the credit union receives credit clauses, and notices to assist banks in pre- for those deposits, including cash deposits. paring disclosures.

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2. Disclosures concerning availability must that holds multiple accounts, or a single dis- be grouped together and may not contain closure to one of the account holders of a any information that is not related to the jointly held account, satisfies the disclosure disclosures required by this subpart. There- requirements of the regulation. fore, banks may not intersperse the required disclosures with other account disclosures, D. 229.15(d) Dormant or Inactive Accounts and may not include other account informa- 1. This paragraph makes clear that banks tion that is not related to their availability need not provide disclosure of their specific policy within the text of the required disclo- availability policies to customers that hold sures. Banks may, however, include informa- accounts that are either dormant or inac- tion that is related to their availability poli- tive. The determination that certain ac- cies. For example, a bank may inform its counts are dormant or inactive must be customers that, even when the bank has al- made by the bank. If a bank considers an ac- ready made funds available for withdrawal, count dormant or inactive for purposes other the customer is responsible for any problem than this regulation and no longer provides with the deposit, such as the return of a de- statements and other mailings to an account posited check. for this reason, such an account is consid- 3. The regulation does not require that the ered dormant or inactive for purposes of this disclosures be segregated from other account regulation. terms and conditions. For example, banks may include the disclosure of their specific X. Section 229.16 Specific Availability Policy availability policy in a booklet or pamphlet Disclosure that sets out all of the terms and conditions A. 229.16(a) General of the bank’s accounts. The required disclosures must, however, be grouped together 1. This section describes the information and highlighted or identified in some man- that must be disclosed by banks to comply ner, for example, by use of a separate head- with §§ 229.17 and 229.18(d), which require that ing for the disclosures, such as ‘‘When Depos- banks furnish notices of their specific policy its are Available for Withdrawal.’’ regarding availability of deposited funds. 4. A bank may, by agreement or at the con- The disclosure provided by a bank must re- sumer’s request, provide any disclosure or flect the availability policy followed by the notice required by subpart B in a language bank in most cases, even though a bank may other than English, provided that the bank in some cases make funds available sooner or makes a complete disclosure available in impose a longer delay. English at the customer’s request. 2. The disclosure must reflect the policy and practice of the bank regarding avail- B. 229.15(b) Uniform Reference to Day of ability as to most accounts and most depos- Availability its into those accounts. In disclosing the 1. This paragraph requires banks to dis- availability policy that it follows in most close in a uniform manner when deposited cases, a bank may provide a single disclosure funds will be available for withdrawal. Banks that reflects one policy to all its transaction account customers, even though some of its must disclose when deposited funds are customers may receive faster availability available for withdrawal by stating the busi- than that reflected in the policy disclosure. ness day on which the customer may begin Thus, a bank need not disclose to some cus- to withdraw funds. The business day funds tomers that they receive faster availability will be available must be disclosed as ‘‘the than indicated in the disclosure. If, however, llllllll business day after’’ the day a bank has a policy of imposing delays in of deposit, or substantially similar language. availability on any customers longer than The business day of availability is deter- those specified in its disclosure, those cus- mined by counting the number of business tomers must receive disclosures that reflect days starting with the business day fol- the longer applicable availability periods. A lowing the banking day on which the deposit bank may establish different availability is received, as determined under § 229.19(a), policies for different groups of customers, and ending with the business day on which such as customers in a particular geographic the customer may begin to withdraw funds. area or customers of a particular branch. For For example, a bank that imposes delays of purposes of providing a specific availability four intervening business days for nonlocal policy, the bank may allocate customers checks must describe those checks as being among groups through good faith use of a available on ‘‘the fifth business day after’’ reasonable method. A bank may also estab- the day of the deposit. lish different availability policies for depos- C. 229.15(c) Multiple Accounts and Multiple its at different locations, such as deposits at a contractual branch. Account Holders 3. A bank may disclose that funds are 1. This paragraph clarifies that banks need available for withdrawal on a given day not- not provide multiple disclosures under the withstanding the fact that the bank uses the regulation. A single disclosure to a customer funds to pay checks received before that day.

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For example, a bank may disclose that its ules disclosed. Such circumstances would policy is to make funds available from depos- arise, for example, when the bank invokes its of local checks on the second business one of the exceptions set forth in § 229.13 of day following the day of deposit, even the regulation, or when the bank delays or though it may use the deposited funds to pay extends the time when deposited funds are checks prior to the second business day; the available for withdrawal up to the time peri- funds used to pay checks in this example are ods allowed by the regulation on a case-by- not available for withdrawal until the second case basis. Also, a bank that must make cer- business day after deposit because the funds tain checks available faster under appendix are not available for all uses until the second B (reduction of schedules for certain business day. (See the definition of available nonlocal checks) must state that some check for withdrawal in § 229.2(d).) deposits will be available for withdrawal sooner because of special rules and that a B. 229.16(b) Content of Specific Policy list of the pertinent routing numbers is Disclosure available upon request. 1. This paragraph sets forth the items that 5. Generally, a bank that distinguishes in must be included, as applicable, in a bank’s its disclosure between local and nonlocal specific availability policy disclosure. The checks based on the routing number on the information that must be disclosed by a par- check must disclose to its customers that ticular bank will vary considerably depend- certain checks, such as some credit union ing upon the bank’s availability policy. For payable-through drafts, will be treated as example, a bank that makes deposited funds local or nonlocal based on the location of the available for withdrawal on the business day bank by which they are payable (e.g., the following the day of deposit need simply dis- credit union), and not on the basis of the lo- close that deposited funds will be available cation of the bank whose routing number ap- for withdrawal on the first business day after pears on the check. A bank is not required to the day of deposit, the bank’s business days, provide this disclosure, however, if it makes and when deposits are considered received. the proceeds of both local and nonlocal 2. On the other hand, a bank that has a pol- checks available for withdrawal within the icy of routinely delaying on a blanket basis time periods required for local checks in the time when deposited funds are available §§ 229.12 and 229.13. for withdrawal would have a more detailed 6. The business day cut-off time used by disclosure. Such blanket hold policies might the bank must be disclosed and if some loca- be for the maximum time allowed under the tions have different cut-off times the bank federal law or might be for shorter periods. must note this in the disclosure and state These banks must disclose the types of de- the earliest time that might apply. A bank posits that will be subject to delays, how the need not list all of the different cut-off times customer can determine the type of deposit that might apply. If a bank does not have a being made, and the day that funds from cut-off time prior to its closing time, the each type of deposit will be available for bank need not disclose a cut-off time. withdrawal. 7. A bank taking advantage of the extended 3. Some banks may have a combination of time period for making deposits at non- next-day availability and blanket delays. proprietary ATMs available for withdrawal For example, a bank may provide next-day under § 229.12(f) must explain this in the ini- availability for all deposits except for one or tial disclosure. In addition, the bank must two categories, such as deposits at non- provide a list (on or with the initial disclo- proprietary ATMs and nonlocal personal sure) of either the bank’s proprietary ATMs checks over a specified dollar amount. The or those ATMs that are nonproprietary at bank would describe the categories that are which customers may make deposits. As an subject to delays in availability and tell the alternative to providing such a list, the bank customer when each category would be avail- may label all of its proprietary ATMs with able for withdrawal, and state that other de- the bank’s name and state in the initial dis- posits will be available for withdrawal on the closure that this has been done. Similarly, a first business day after the day of deposit. bank taking advantage of the cash with- Similarly, a bank that provides availability drawal limitations of § 229.12(d), or the provi- on the second business day for most of its de- sion in § 229.19(e) allowing holds to be placed posits would need to identify the categories on other deposits when a deposit is made or of deposits which, under the regulation, are a check is cashed, must explain this in the subject to next-day availability and state initial disclosure. that all other deposits will be available on 8. A bank that provides availability based the second business day. on when the bank generally receives credit 4. Because many banks’ availability poli- for deposited checks need not disclose the cies may be complex, a bank must give a time when a check drawn on a specific bank brief summary of its policy at the beginning will be available for withdrawal. Instead, the of the disclosure. In addition, the bank must bank may disclose the categories of deposits describe any circumstances when actual that must be available on the first business availability may be longer than the sched- day after the day of deposit (deposits subject

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to § 229.10) and state the other categories of § 229.13(g)(2) and (3) for deposits to which deposits and the time periods that will be ap- those provisions apply. plicable to those deposits. For example, a 2. Notice at time of case-by-case delay. bank might disclose the four-digit Federal a. In addition to including the disclosures Reserve routing symbol for local checks and required by paragraph (c)(1) of this section in indicate that such checks as well as certain their specific availability policy disclosure, nonlocal checks will be available for with- banks that delay or extend the time period drawal on the first or second business day when funds are available for withdrawal on a following the day of deposit, depending on case-by-case basis must give customers a no- the location of the particular bank on which tice when availability of funds from a par- the check is drawn, and disclose that funds ticular deposit will be delayed or extended from all other checks will be available on beyond the time when deposited funds are the second or third business day. The bank generally available for withdrawal. The no- must also disclose that the customer may re- tice must state that a delay is being imposed quest a copy of the bank’s detailed schedule and indicate when the funds will be avail- that would enable the customer to determine able. In addition, the notice must include the the availability of any check and must pro- account number, the date of the deposit, and vide such schedule upon request. A change in the amount of the deposit being delayed. the bank’s detailed schedule would not trig- b. If notice of the delay was not given at ger the change in policy disclosure require- the time the deposit was made and the bank ment of § 229.18(e). assesses overdraft or returned check fees on accounts when a case-by-case hold has been C. 229.16(c) Longer Delays on a Case-by-Case placed, the case-by-case hold notice provided Basis to the customer must include a notice con- 1. Notice in specific policy disclosure. cerning overdraft or returned check fees. The a. Banks that make deposited funds avail- notice must state that the customer may be able for withdrawal sooner than required by entitled to a refund of any overdraft or re- the regulation—for example, providing their turned check fees that result from the depos- customers with immediate or next-day avail- ited funds not being available if the check ability for deposited funds—and delay the that was deposited was in fact paid by the time when funds are available for withdrawal payor bank, and explain how to request a re- only from time to time determined on a fund of any fees. (See § 229.16(c)(3).) case-by-case basis, must provide notice of c. The requirement that the case-by-case this in their specific availability policy dis- hold notice state the day that funds will be closure. This paragraph outlines the require- made available for withdrawal may be met ments for that notice. by stating the date or the number of business b. In addition to stating what their specific days after deposit that the funds will be availability policy is in most cases, banks made available. This requirement is satisfied that may delay or extend the time when de- if the notice provides information sufficient posits are available on a case-by-case basis to indicate when funds will be available and must: state that from time to time funds the amounts that will be available at those may be available for withdrawal later than times. For example, for a deposit involving the time periods in their specific policy dis- more than one check, the bank need not pro- closure, disclose the latest time that a cus- vide a notice that discloses when funds from tomer may have to wait for deposited funds each individual item in the deposit will be to be available for withdrawal when a case- available for withdrawal. Instead, the bank by-case hold is placed, state that customers may provide a total dollar amount for each will be notified when availability of a de- of the time periods when funds will be avail- posit is delayed on a case-by-case basis, and able, or provide the customer with an expla- advise customers to ask if they need to be nation of how to determine the amount of sure of the availability of a particular de- the deposit that will be held and when the posit. held funds will be available for withdrawal. c. A bank that imposes delays on a case- d. For deposits made in person to an em- by-case basis is still subject to the avail- ployee of the depositary bank, the notice ability requirements of this regulation. If generally must be given at the time of the the bank imposes a delay on a particular de- deposit. The notice at the time of the deposit posit that is not longer than the availability must be given to the person making the de- required by § 229.12 for local and nonlocal posit, that is, the ‘‘depositor.’’ The depositor checks, the reason for the delay need not be need not be the customer holding the ac- based on the exceptions provided in § 229.13. count. For other deposits, such as deposits If the delay exceeds the time periods per- received at an ATM, lobby deposit box, night mitted under § 229.12, however, then it must depository, through the mail, or by armored be based on an exception provided in § 229.13, car, notice must be mailed to the customer and the bank must comply with the § 229.13 not later than the close of the business day notice requirements. A bank that imposes following the banking day on which the de- delays on a case-by-case basis may avail posit was made. Notice to the customer also itself of the one-time notice provisions in may be provided not later than the close of

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the business day following the banking day tomer not later than the business day fol- on which the deposit was made if the deci- lowing the banking day on which the bank sion to delay availability is made after the receives the deposit. Similarly, if a bank re- time of the deposit. ceives a telephone request from a customer 3. Overdraft and returned check fees. If a asking that an account be opened with a depositary bank delays or extends the time transfer from a separate account of the cus- when funds from a deposited check are avail- tomer’s at the bank, the disclosure may be able for withdrawal on a case-by-case basis mailed not later than the business day fol- and does not provide a written notice to its lowing the banking day of the request. depositor at the time of deposit, the depositary bank may not assess any overdraft or XII. Section 229.18 Additional Disclosure returned check fees (such as an insufficient Requirements funds charge) or charge interest for use of an overdraft line of credit, if the deposited A. 229.18(a) Deposit Slips check is paid by the paying bank and these fees would not have occurred had the addi- 1. This paragraph requires banks to include tional case-by-case delay not been imposed. a notice on all preprinted deposit slips. The A bank may assess an overdraft or returned deposit slip notice need only state, some- check fee under these circumstances, how- where on the front of the deposit slip, that ever, if it provides notice to the customer in deposits may not be available for immediate the notice required by paragraph (c)(2) of withdrawal. The notice is required only on this section that the fee may be subject to preprinted deposit slips—those printed with refund, and refunds the fee upon the request the customer’s account number and name of the customer when required to do so. The and furnished by the bank in response to a notice must state that the customer may be customer’s order to the bank. A bank need entitled to a refund of any overdraft or re- not include the notice on deposit slips that turned check fees that are assessed if the de- are not preprinted and supplied to the cus- posited check is paid, and indicate where tomer—such as counter deposit slips—or on such requests for a refund of overdraft fees those special deposit slips provided to the should be directed. Paragraph (c)(3) applies customer under § 229.10(c). A bank is not re- when a bank provides a case-by-case notice sponsible for ensuring that the notice appear in accordance with paragraph (c)(2) and does not apply if the bank has provided an excep- on deposit slips that the customer does not tion hold notice in accordance with § 229.13. obtain from or through the bank. This paragraph applies to preprinted deposit slips fur- D. 229.16(d) Credit Union Notice of Interest nished to customers on or after September 1, Payment Policy 1988.

1. This paragraph sets forth the special dis- B. 229.18(b) Locations Where Employees closure requirement for credit unions that Accept Consumer Deposits delay accrual of interest or dividends for all cash and check deposits beyond the date of 1. This paragraph describes the statutory receiving provisional credit for checks being requirement that a bank post in each loca- deposited. (The interest payment require- tion where its employees accept consumer ment is set forth in § 229.14(a).) Such credit deposits a notice of its availability policy unions are required to describe their policy pertaining to consumer accounts. The notice with respect to accrual of interest or divi- that is required must specifically state the dends on deposits in their specific avail- availability periods for the various deposits ability policy disclosure. that may be made to consumer accounts. XI. Section 229.17 Initial Disclosures The notice need not be posted at each teller window, but the notice must be posted in a A. This paragraph requires banks to pro- place where consumers seeking to make de- vide a notice of their availability policy to posits are likely to see it before making all potential customers prior to opening an their deposits. For example, the notice account. The requirement of a notice prior might be posted at the point where the line to opening an account requires banks to provide disclosures prior to accepting a deposit forms for teller service in the lobby. The no- to open an account. Disclosures must be tice is not required at any drive-through given at the time the bank accepts an initial teller windows nor is it required at night de- deposit regardless of whether the bank has pository locations, or at locations where opened the account yet for the customer. If consumer deposits are not accepted. A bank a bank, however, receives a written request that acts as a contractual branch at a par- by mail from a person asking that an ac- ticular location must include the avail- count be opened and the request includes an ability policy that applies to its own cus- initial deposit, the bank may open the ac- tomers but need not include the policy that count with the deposit, provided the bank applies to the customers of the bank for mails the required disclosures to the cus- which it is acting as a contractual branch.

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C. 229.18(c) Automated Teller Machines (reduction of schedules for certain nonlocal checks). 1. This paragraph sets forth the required 3. A bank that has provided its customers notices for ATMs. Paragraph (c)(1) provides with a list of ATMs under § 229.16(b)(5) shall that the depositary bank is responsible for provide its customers with an updated list of posting a notice on all ATMs at which depos- ATMs once a year if there are changes in the its can be made to accounts at the deposi- list of ATMs previously disclosed to the cus- tary bank. The depositary bank may arrange tomers. for a third party, such as the owner or operator of the ATM, to post the notice and in- XIII. Section 229.19 Miscellaneous demnify the depositary bank from liability if the depositary bank is liable under § 229.21 A. 229.19(a) When Funds Are Considered for the owner or operator failing to provide Deposited the required notice. 2. The notice may be posted on a sign, 1. The time funds must be made available shown on the screen, or included on deposit for withdrawal under this subpart is deter- envelopes provided at the ATM. This disclo- mined by the day the deposit is made. This sure must be given before the customer has paragraph provides rules to determine the made the deposit. Therefore, a notice pro- day funds are considered deposited in various vided on the customer’s deposit receipt or circumstances. appearing on the ATM’s screen after the cus- 2. Staffed facilities and ATMs. Funds re- tomer has made the deposit would not sat- ceived at a staffed teller station or ATM are isfy this requirement. considered deposited when received by the 3. Paragraph (c)(2) requires a depositary teller or placed in the ATM. Funds received bank that operates an off-premise ATM from at a contractual branch are considered de- which deposits are removed not more than posited when received by a teller at the con- two times a week to make a disclosure of tractual branch or deposited into a propri- this fact on the off-premise ATM. The notice etary ATM of the contractual branch. (See must disclose to the customer the days on also, Commentary to § 229.10(c) on deposits which deposits made at the ATM will be con- made to an employee of the depositary sidered received. bank.) Funds deposited to a deposit box in a bank lobby that is accessible to customers D. 229.18(d) Upon Request only during regular business hours generally are considered deposited when placed in the 1. This paragraph requires banks to provide lobby box; a bank may, however, treat depos- written notice of their specific availability its to lobby boxes the same as deposits to policy to any person upon that person’s oral night depositories (as provided in or written request. The notice must be sent § 229.19(a)(3)), provided a notice appears on within a reasonable period of time following the lobby box informing the customer when receipt of the request. such funds will be considered deposited. 3. Mail. Funds mailed to the depositary E. 229.18(e) Changes in Policy bank are considered deposited on the bank- 1. This paragraph requires banks to send ing day they are received by the depositary notices to their customers when the banks bank. The funds are received by the deposi- change their availability policies with retary bank at the time the mail is delivered gard to consumer accounts. A notice may be to the bank, even if it is initially delivered given in any form as long as it is clear and to a mail room, rather than the check proc- conspicuous. If the bank gives notice of a essing area. change by sending the customer a complete 4. Other facilities. new availability disclosure, the bank must a. In addition to deposits at staffed facili- direct the customer to the changed terms in ties, at ATMs, and by mail, funds may be de- the disclosure by use of a letter or insert, or posited at a facility such as a night deposi- by highlighting the changed terms in the dis- tory or a lock box. A night depository is a re- closure. ceptacle for receipt of deposits, typically 2. Generally, a bank must send a notice at used by corporate depositors when the least 30 calendar days before implementing branch is closed. Funds deposited at a night any change in its availability policy. If the depository are considered deposited on the change results in faster availability of depos- banking day the deposit is removed, and the its—for example, if the bank changes its contents of the deposit are accessible to the availability for nonlocal checks from the depositary bank for processing. For example, fifth business day after deposit to the fourth some businesses deposit their funds in a business day after deposit—the bank need locked bag at the night depository late in not send advance notice. The bank must, the evening, and return to the bank the fol- however, send notice of the change no later lowing day to open the bag. Other depositors than 30 calendar days after the change is im- may have an agreement with their bank that plemented. A bank is not required to give a the deposit bag must be opened under the notice when there is a change in appendix B dual control of the bank and the depositor.

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In these cases, the funds are considered de- For example, a different cut-off may be es- posited when the customer returns to the tablished for ATM deposits than for over- bank and opens the deposit bag. the-counter deposits, or for different teller b. A lock box is a post office box used by a stations at the same branch. With the excep- corporation for the collection of bill pay- tion of the 12 noon cut-off for deposits at ments or other check receipts. The deposi- ATMs and off-premise facilities, no cut-off tary bank generally assumes the responsi- hour for receipt of deposits for purposes of bility for collecting the mail from the lock this subpart can be established earlier than 2 box, processing the checks, and crediting the p.m. corporation for the amount of the deposit. Funds deposited through a lock box arrange- c. A bank is not required to remain open ment are considered deposited on the day the until 2 p.m. If a bank closes before 2 p.m., de- deposit is removed from the lock box and are posits received after the closing may be con- accessible to the depositary bank for proc- sidered deposited on the next banking day. essing. Further, as § 229.2(f) defines the term bank- 5. Certain off-premise ATMs. A special pro- ing day as the portion of a business day on vision is made for certain off-premise ATMs which a bank is open to the public for sub- that are not serviced daily. Funds deposited stantially all of its banking functions, a day, at such an ATM are considered deposited on or a portion of a day, is not necessarily a the day they are removed from the ATM, if banking day merely because the bank is open the ATM is not serviced more than two for only limited functions, such as keeping times each week. This provision is intended drive-in or walk-up teller windows open, to address the practices of some banks of when the rest of the bank is closed to the servicing certain remote ATMs infrequently. public. For example, a banking office that If a depositary bank applies this provision usually provides a full range of banking serv- with respect to an ATM, a notice must be posted at the ATM informing depositors that ices may close at 12 noon but leave a drive- funds deposited at the ATM may not be con- in teller window open for the limited purpose sidered deposited until a future day, in ac- of receiving deposits and making cash with- cordance with § 229.18. drawals. Under those circumstances, the 6. Banking day of deposit. bank is considered closed and may consider a. This paragraph also provides that a de- deposits received after 12 noon as having posit received on a day that the depositary been received on the next banking day. The bank is closed, or after the bank’s cut-off fact that a bank may reopen for substan- hour, may be considered made on the next tially all of its banking functions after 2 banking day. Generally, for purposes of the p.m., or that it continues its back office op- availability schedules of this subpart, a bank erations throughout the day, would not af- may establish a cut-off hour of 2 p.m. or fect this result. A bank may not, however, later for receipt of deposits at its head office close individual teller stations and reopen or branch offices. For receipt of deposits at them for next-day’s business before 2 p.m. ATMs, contractual branches, or other off- during a banking day. premise facilities, such as night depositories or lock boxes, the depositary bank may es- B. 229.19(b) Availability at Start of Business tablish a cut-off hour of 12:00 noon or later Day (either local time of the branch or other location of the depositary bank at which the 1. If funds must be made available for with- account is maintained or local time of the drawal on a business day, the funds must be ATM, contractual branch, or other off- available for withdrawal by the later of 9 premise facility). The depositary bank must a.m. or the time the depositary bank’s teller use the same timing method for establishing facilities, including ATMs, are available for the cut-off hour for all ATMs, contractual customer account withdrawals, except under branches, and other off-premise facilities the special rule for cash withdrawals set used by its customers. The choice of cut-off forth in § 229.12(d). Thus, if a bank has no hour must be reflected in the bank’s internal ATMs and its branch facilities are available procedures, and the bank must inform its for customer transactions beginning at 10 customers of the cut-off hour upon request. a.m., funds must be available for customer This earlier cut-off for ATM, contractual branch, or other off-premise deposits is in- withdrawal beginning at 10 a.m. If the bank tended to provide greater flexibility in the has ATMs that are available 24 hours a day, servicing of these facilities. rather than establishing 12:01 a.m. as the b. Different cut-off hours may be estab- start of the business day, this paragraph sets lished for different types of deposits. For ex- 9 a.m. as the start of the day with respect to ample, a bank may establish a 2 p.m. cut-off ATM withdrawals. The Board believes that for the receipt of check deposits, but a later this rule provides banks with sufficient time cut-off for the receipt of wire transfers. Dif- to update their accounting systems to reflect ferent cut-off hours also may be established the available funds in customer accounts for for deposits received at different locations. that day.

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2. The start of business is determined by 4. The special cash withdrawal rule in the the local time of the branch or other loca- EFA Act recognizes that the $400 that must tion of the depositary bank at which the ac- be made available for cash withdrawal by 5 count is maintained. For example, if funds in p.m. on the day specified in the schedule a customer’s account at a west coast bank may exceed a bank’s daily ATM cash with- are first made available for withdrawal at drawal limit and explicitly provides that the the start of business on a given day, and the EFA Act does not supersede a bank’s policy customer attempts to withdraw the funds at in this regard. As a result, if a bank has a an east coast ATM, the depositary bank is policy of limiting cash withdrawals from not required to make the funds available automated teller machines to $250 per day, until 9 a.m. west coast time (12 noon east the regulation would not require that the coast time). bank dispense $400 of the proceeds of the cus- C. 229.19(c) Effect on Policies of Depositary tomer’s deposit that must be made available Bank for cash withdrawal on that day. 5. Even though the EFA Act clearly pro- 1. This subpart establishes the maximum vides that the bank’s ATM withdrawal limit hold that may be placed on customer depos- is not superseded by the federal availability its. A depositary bank may provide availability to its customers in a shorter time rules on the day funds must first be made than prescribed in this subpart. A depositary available, the EFA Act does not specifically bank also may adopt different funds avail- permit banks to limit cash withdrawals at ability policies for different segments of its ATMs on subsequent days when the entire customer base, as long as each policy meets amount of the deposit must be made avail- the schedules in the regulation. For example, able for withdrawal. The Board believes that a bank may differentiate between its cor- the rationale behind the EFA Act’s provision porate and consumer customers, or may that a bank’s ATM withdrawal limit is not adopt different policies for its consumer cus- superseded by the requirement that funds be tomers based on whether a customer has an made available for cash withdrawal applies overdraft line of credit associated with the on subsequent days. Nothing in the regula- account. tion prohibits a depositary bank from estab- 2. This regulation does not affect a deposi- lishing ATM cash withdrawal limits that tary bank’s right to accept or reject a check vary among customers of the bank, as long for deposit, to charge back the customer’s as the limit is not dependent on the length of account based on a returned check or notice time funds have been in the customer’s ac- of nonpayment, or to claim a refund for any count (provided that the permissible hold credit provided to the customer. For exam- has expired). ple, even if a check is returned or a notice of 6. Some small banks, particularly credit nonpayment is received after the time by unions, due to lack of secure facilities, keep which funds must be made available for withdrawal in accordance with this regula- no cash on their premises and hence offer no tion, the depositary bank may charge back cash withdrawal capability to their cus- the customer’s account for the full amount tomers. Other banks limit the amount of of the check. (See § 229.33(d) and Com- cash on their premises due to bonding re- mentary.) quirements or cost factors, and consequently 3. Nothing in the regulation requires a de- reserve the right to limit the amount of cash positary bank to have facilities open for cus- each customer can withdraw over-the- tomers to make withdrawals at specified counter on a given day. For example, some times or on specified days. For example, banks require advance notice for large cash even though the special cash withdrawal rule withdrawals in order to limit the amount of set forth in § 229.12(d) states that a bank cash needed to be maintained on hand at any must make up to $400 available for cash time. withdrawals no later than 5 p.m. on specific 7. Nothing in the regulation is intended to business days, if a bank does not participate prohibit a bank from limiting the amount of in an ATM system and does not have any cash that may be withdrawn at a staffed tell- teller windows open at or after 5 p.m., the er station if the bank has a policy limiting bank need not join an ATM system or keep the amount of cash that may be withdrawn, offices open. In this case, the bank complies and if that policy is applied equally to all with this rule if the funds that are required customers of the bank, is based on security, to be available for cash withdrawal at 5 p.m. on a particular day are available for with- operating, or bonding requirements, and is drawal at the start of business on the fol- not dependent on the length of time the lowing day. Similarly, if a depositary bank is funds have been in the customer’s account closed for customer transactions, including (as long as the permissible hold has expired). ATMs, on a day funds must be made avail- The regulation, however, does not authorize able for withdrawal, the regulation does not such policies if they are otherwise prohibited require the bank to open. by statutory, regulatory, or common law.

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D. 229.19(d) Use of Calculated Availability F. 229.19(f) Employee Training and Compliance 1. A depositary bank may provide availability to its nonconsumer accounts on a cal- 1. The EFA Act requires banks to take culated availability basis. Under calculated such actions as may be necessary to inform availability, a specified percentage of funds fully each employee that performs duties from check deposits may be made available subject to the EFA Act of the requirements to the customer on the next business day, of the EFA Act, and to establish and main- with the remaining percentage deferred until tain procedures reasonably designed to as- subsequent days. The determination of the sure and monitor employee compliance with percentage of deposited funds that will be such requirements. made available each day is based on the cus- 2. This paragraph requires a bank to estab- tomer’s typical deposit mix as determined by lish procedures to ensure compliance with a sample of the customer’s deposits. Use of these requirements and provide these proce- calculated availability is permitted only if, dures to the employees responsible for car- on average, the availability terms that re- rying them out. sult from the sample are equivalent to or more prompt than the requirements of this G. 229.19(g) Effect of Merger Transaction subpart. 1. After banks merge, there is often a period of adjustment before their operations E. 229.19(e) Holds on Other Funds are consolidated. This paragraph accommo- 1. Section 607(d) of the EFA Act (12 U.S.C. dates this adjustment period by allowing 4006(d)) provides that once funds are avail- merged banks to be treated as separate able for withdrawal under the EFA Act, such banks for purposes of this subpart for a pe- funds shall not be frozen solely due to the riod of up to one year after consummation of subsequent deposit of additional checks that the merger transaction, except that a cus- are not yet available for withdrawal. This tomer of any bank that is a party to the provision of the EFA Act is designed to pre- transaction that has an established account vent evasion of the EFA Act’s availability with that bank may not be treated as a new requirements. account holder for any other party to the 2. This paragraph clarifies that if a cus- transaction for purposes of the new account tomer deposits a check in an account (as de- exception of § 229.13(a), and a deposit in any fined in § 229.2(a)), the bank may not place a branch of the merged bank is considered de- hold on any of the customer’s funds so that posited in the bank for purposes of the avail- the funds that are held exceed the amount of ability schedules in accordance with the check deposited or the total amount of § 229.19(a). funds held are not made available for with- 2. This rule affects the status of the com- drawal within the times required in this sub- bined entity in several areas. For example, part. For example, if a bank places a hold on this rule would affect when an ATM is a pro- funds in a customer’s non transaction ac- prietary ATM (§ 229.2(aa) and § 229.12(b)) and count, rather than a transaction account, for when a check is considered drawn on a deposits made to the customer’s transaction branch of the depositary bank account, the bank may place such a hold (§ 229.10(c)(1)(vi)). only to the extent that the funds held do not 3. Merger transaction is defined in exceed the amount of the deposit and the § 229.2(t). length of the hold does not exceed the time periods permitted by this regulation. XIV. Section 229.20 Relation to State Law 3. These restrictions also apply to holds A. 229.20(a) In General placed on funds in a customer’s account (as defined in § 229.2(a)) if a customer cashes a 1. Several states have enacted laws that check at a bank (other than a check drawn govern when banks in those states must on that bank) over the counter. The regula- make funds available to their customers. tion does not prohibit holds that may be The EFA Act provides that any state law in placed on other funds of the customer for effect on September 1, 1989, that provides checks cashed over the counter, to the ex- that funds be made available in a shorter petent that the transaction does not involve a riod of time than provided in this regulation, deposit to an account. A bank may not, how- will supersede the time periods in the EFA ever, place a hold on any account when an Act and the regulation. The Conference Re- ‘‘on us’’ check is cashed over the counter. port on the EFA Act clarifies this provision ‘‘On us’’ checks are considered finally paid by stating that any state law enacted on or when cashed (see U.C.C. 4–215(a)(1)). When a before September 1, 1989, may supersede fed- customer cashes a check over the counter eral law to the extent that the law relates to and the bank places a hold on an account of the time funds must be made available for the customer, the bank must give whatever withdrawal. H.R. Rep. No. 261, 100th Cong. notice would have been required under 1st Sess. at 182 (1987). §§ 229.13 or 229.16 had the check been depos- 2. Thus, if a state had wished to adopt a ited in the account. law governing funds availability, it had to

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have made that law effective on or before sooner or later than the time required by September 1, 1989. Laws adopted after that this subpart, depending on the composition date do not supersede federal law, even if of the deposit. For example, the EFA Act they provide for shorter availability periods and this regulation (§ 229.10(c)(1)(vii)) require than are provided under federal law. If a next-day availability for the first $100 of the state that had a law governing funds avail- aggregate deposit of local or nonlocal checks ability in effect before September 1, 1989, on any day, and a state law could require amended its law after that date, the amend- next-day availability for any check of $100 or ment would not supersede federal law, but an less that is deposited. Under the EFA Act amendment deleting a state requirement and this regulation, if either one $150 check would be effective. or three $50 checks are deposited on a given 3. If a state provides for a shorter hold for day, $100 must be made available for with- a certain category of checks than is provided drawal on the next business day, and $50 for under federal law, that state requirement must be made available in accordance with will supersede the federal provision. For ex- the local or nonlocal schedule. Under the ample, most state laws base some hold peri- state law, however, the two deposits would ods on whether the check being deposited is be subject to different availability rules. In drawn on an in-state or out-of-state bank. If the first case, none of the proceeds of the de- a state contains more than one check proc- posit would be subject to next-day avail- essing region, the state’s hold period for inability; in the second case, the entire pro- state checks may be shorter than the federal ceeds of the deposit would be subject to next- maximum hold period for nonlocal checks. day availability. In this example, because Thus, the state schedule would supersede the the state law would, in some situations, per- federal schedule to the extent that it applies mit a hold longer than the maximum per- to in-state, nonlocal checks. mitted by the EFA Act, this provision of 4. The EFA Act also provides that any state law is inconsistent and preempted in state law that provides for availability in a its entirety. shorter period of time than required by fed- 3. In addition to the differences between eral law is applicable to all federally insured state and federal availability schedules, a institutions in that state, including federally number of state laws contain exceptions to chartered institutions. If a state law pro- the state availability schedules that are dif- vides shorter availability only for deposits in ferent from those provided under the EFA accounts in certain categories of banks, such Act and this regulation. The state exceptions as commercial banks, the superseding state continue to apply only in those cases where law continues to apply only to those cat- the state schedule is shorter than or equal to egories of banks, rather than to all federally the federal schedule, and then only up to the insured banks in the state. limit permitted by the Regulation CC schedule. Where a deposit is subject to a state ex- B. 229.20(b) Preemption of Inconsistent Law ception under a state schedule that is not preempted by Regulation CC and is also sub- 1. This paragraph reflects the statutory ject to a federal exception, the hold on the provision that other provisions of state law deposit cannot exceed the hold permissible that are inconsistent with federal law are under the federal exception in accordance preempted. Preemption does not require a with Regulation CC. In such cases, only one determination by the Board to be effective. exception notice is required, in accordance with § 229.13(g). This notice need only include C. 229.20(c) Standards for Preemption the applicable federal exception as the rea- 1. This section describes the standards the son the exception was invoked. For those Board uses in making determinations on categories of checks for which the state whether federal law will preempt state laws schedule is preempted by the federal sched- governing funds availability. A provision of ule, only the federal exceptions may be used. state law is considered inconsistent with fed- 4. State laws that provide maximum avail- eral law if it permits a depositary bank to ability periods for categories of deposits that make funds available to a customer in a are not covered by the EFA Act would not be longer period of time than the maximum pe- preempted. Thus, state funds availability riod permitted by the EFA Act and this reg- laws that apply to funds in time and savings ulation. For example, a state law that per- deposits are not affected by the EFA Act or mits a hold of four business days or longer this regulation. In addition, the availability for local checks permits a hold that is longer schedules of several states apply to ‘‘items’’ than that permitted under the EFA Act and deposited to an account. The term items this regulation, and therefore is inconsistent may encompass deposits, such as nonnego- and preempted. State availability schedules tiable instruments, that are not subject to that provide for availability in a shorter pe- the Regulation CC availability schedules. riod of time than required under Regulation Deposits that are not covered by Regulation CC supersede the federal schedule. CC continue to be subject to the state avail- 2. Under a state law, some categories of de- ability schedules. State laws that provide posits could be available for withdrawal maximum availability periods for categories

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of institutions that are not covered by the the bank from updating its customer’s ac- EFA Act also would not be preempted. For count; or if it fails to identify whether a pay- example, a state law that governs money able-through check is a local or nonlocal market mutual funds would not be affected check despite procedures designed to make by the EFA Act or this regulation. this determination accurately. 5. Generally, state rules governing the disclosure or notice of availability policies ap- D. 229.21(d) Jurisdiction plicable to accounts also are preempted, if 1. The EFA Act confers subject matter ju- they are different from the federal rules. risdiction on courts of competent jurisdic- Nevertheless, a state law requiring disclo- tion and provides a time limit for civil ac- sure of funds availability policies that apply tions for violations of this subpart. to deposits other than ‘‘accounts,’’ such as savings or time deposits, are not incon- E. 229.21(e) Reliance on Board Rulings sistent with the EFA Act and this subpart. 1. This provision shields banks from civil Banks in these states would have to follow liability if they act in good faith in reliance the state disclosure rules for these deposits. on any rule, regulation, model form, notice, D. 229.20(d) Preemption Determinations or clause (if the disclosure actually corresponds to the bank’s availability policy), 1. The Board may issue preemption deter- or interpretation of the Board, even if it minations upon the request of an interested were subsequently determined to be invalid. party in a state. The determinations will re- Banks may rely on this Commentary, which late only to the provisions of Subparts A and is issued as an official Board interpretation, B; generally the Board will not issue indi- as well as on the regulation itself. vidual preemption determinations regarding the relation of state U.C.C. provisions to the F. 229.21(f) Exclusions requirements of Subpart C. 1. This provision clarifies that liability E. 229.20(e) Procedures for Preemption under this section does not apply to viola- Determinations tions of the requirements of Subpart C of this regulation, or to actions for wrongful 1. This provision sets forth the information dishonor of a check by a paying bank’s cus- that must be included in a request by an in- tomer. terested party for a preemption determination by the Board. G. 229.21(g) Record Retention XV. Section 229.21 Civil Liability 1. Banks must keep records to show compliance with the requirements of this sub- A. 229.21(a) Civil Liability part for at least two years. This record retention period is extended in the case of civil 1. This paragraph sets forth the statutory actions and enforcement proceedings. Gen- penalties for failure to comply with the re- erally, a bank is not required to retain quirements of this subpart. These penalties records showing that it actually has given apply to provisions of state law that super- disclosures or notices required by this sub- sede provisions of this regulation, such as re- part to each customer, but it must retain quirements that funds deposited in accounts evidence demonstrating that its procedures at banks be made available more promptly reasonably ensure the customers’ receipt of than required by this regulation, but they do the required disclosures and notices. A bank not apply to other provisions of state law. must, however, retain a copy of each notice (See Commentary to § 229.20.) provided pursuant to its use of the reason- B. 229.21(b) Class Action Awards able cause exception under § 229.13(g) as well as a brief description of the facts giving rise 1. This paragraph sets forth the provision to the availability of that exception. in the EFA Act concerning the factors that should be considered by the court in estab- XVI. Section 229.30 Paying Bank’s lishing the amount of a class action award. Responsibility for Return of Checks C. 229.21(c) Bona Fide Errors A. 229.30(a) Return of Checks 1. A bank is shielded from liability under 1. This section requires a paying bank this section for a violation of a requirement (which, for purposes of Subpart C, may in- of this subpart if it can demonstrate, by a clude a payable-through and payable-at preponderance of the evidence, that the vio- bank; see § 229.2(z)) that determines not to lation resulted from a bona fide error and pay a check to return the check expedi- that it maintains procedures designed to tiously. Generally, a check is returned expe- avoid such errors. For example, a bank may ditiously if the return process is as fast as make a bona fide error if it fails to give the forward collection process. This para- next-day availability on a check drawn on graph provides two standards for expeditious the Treasury because the bank’s computer return, the ‘‘two-day/four-day’’ test, and the system malfunctions in a way that prevents ‘‘forward collection’’ test.

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2. Under the ‘‘two-day/four-day’’ test, if a test is not a banking day for the depositary check is returned such that it would nor- bank, a returning bank might not schedule mally be received by the depositary bank delivery of forward collection checks to the two business days after presentment where depositary bank on that day. Further, the both the paying and depositary banks are lo- depositary bank may not process checks on cated in the same check processing region or that day. Consequently, if the last day of the four business days after presentment where time limit is not a banking day for the de- the paying and depositary banks are not lo- positary bank, the check may be delivered to cated in the same check processing region, the depositary bank before the close of the the check is considered returned expedi- depositary bank’s next banking day and the tiously. In certain limited cases, however, return will still be considered expeditious. these times are shorter than the time it Ordinarily, this extension of time will allow would normally take a forward collection the returned checks to be delivered with the check deposited in the paying bank and pay- next shipment of forward collection checks able by the depositary bank to be collected. destined for the depositary bank. Therefore, the Board has included a ‘‘forward e. The times specified in this two-day/four- collection’’ test, whereby a check is nonethe- day test are based on estimated forward col- less considered to be returned expeditiously if the paying bank uses transportation meth- lection times, but take into account the par- ods and banks for return comparable to ticular difficulties that may be encountered those used for forward collection checks, in handling returned checks. It is antici- even if the check is not received by the de- pated that the normal process for forward positary banks within the two-day or four- collection of a check coupled with these re- day period. turn requirements will frequently result in 3. Two-day/four-day test. the return of checks before the proceeds of a. Under the first test, a paying bank must nonlocal checks, other than those covered by return the check so that the check would § 229.10(c), must be made available for with- normally be received by the depositary bank drawal. within specified times, depending on whether f. Under this two-day/four-day test, no par- or not the paying and depositary banks are ticular means of returning checks is re- located in the same check processing region. quired, thus providing flexibility to paying b. Where both banks are located in the banks in selecting means of return. The same check processing region, a check is re- Board anticipates that paying banks will turned expeditiously if it is returned to the often use returning banks (see § 229.31) as depositary bank by 4:00 p.m. (local time of their agents to return checks to depositary the depositary bank) of the second business banks. A paying bank may rely on the avail- day after the banking day on which the ability schedule of the returning bank it uses check was presented to the paying bank. For in determining whether the returned check example, a check presented on Monday to a would ‘‘normally’’ be returned within the re- paying bank must be returned to a deposi- quired time under this two-day/four-day test, tary bank located in the same check proc- unless the paying bank has reason to believe essing region by 4 p.m. on Wednesday. For a that these schedules do not reflect the actual paying bank that is located in a different time for return of a check. check processing region than the depositary 4. Forward collection test. bank, the deadline to complete return is 4 a. Under the second, ‘‘forward collection,’’ p.m. (local time of the depositary bank) of test, a paying bank returns a check expedi- the fourth business day after the banking tiously if it returns a check by means as day on which the check was presented to the swift as the means similarly situated banks paying bank. For example, a check presented would use for the forward collection of a to such a paying bank on Monday must be returned to the depositary bank by 4:00 p.m. check drawn on the depositary bank. on Friday. b. Generally, the paying bank would sat- c. This two-day/four-day test does not nec- isfy the ‘‘forward collection’’ test if it uses a essarily require actual receipt of the check transportation method and collection path by the depositary bank within these times. for return comparable to that used for for- Rather, the paying bank must send the ward collection, provided that the returning check so that the check would normally be bank selected to process the return agrees to received by the depositary bank within the handle the returned check under the stand- specified time. Thus, the paying bank is not ards for expeditious return for returning responsible for unforeseeable delays in the banks under § 229.31(a). This test allows return of the check, such as transportation many paying banks a simple means of expe- delays. ditious return of checks and takes into ac- d. Often, returned checks will be delivered count the longer time for return that will be to the depositary bank together with for- required by banks that do not have ready ac- ward collection checks. Where the last day cess to direct courier transportation. on which a check could be delivered to a de- c. The paying bank’s normal method of positary bank under this two-day/four-day sending a check for forward collection would

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not be expeditious, however, if it is materi- off hour for returned checks that cor- ally slower than that of other banks of simi- responds to the cut-off hour for forward col- lar size and with similar check handling ac- lection checks drawn on the depositary bank tivity in its community. that would normally be used by the paying d. Under the ‘‘forward collection’’ test, a bank or a similarly situated bank. A re- paying bank must handle, route, and trans- turned check cut-off hour corresponds to a port a returned check in a manner designed forward collection cut-off hour if it provides to be at least as fast as a similarly situated for the same or faster availability for checks bank would collect a forward collection destined for the same depositary banks. check (1) of similar amount, (2) drawn on the iii. In this example, delivery to the cor- depositary bank, and (3) received for deposit respondent or a Federal Reserve Bank by the by a branch of the paying bank or a simi- appropriate cut-off hour satisfies the paying larly situated bank by noon on the banking bank’s duty, even if use of the correspondent day following the banking day of present- or Federal Reserve Bank is not the most ex- ment of the returned check. peditious means of returning the check. e. This test refers to similarly situated Thus, a paying bank may send a local re- banks to indicate a general community turned check to a correspondent instead of a standard. In the case of a paying bank (other Federal Reserve Bank, even if the cor- than a Federal Reserve Bank), a similarly respondent then sends the returned check to situated bank is a bank of similar asset size, a Federal Reserve Bank the following day as in the same community, and with similar a qualified returned check. Where the paying check handling activity as the paying bank. bank delivers forward collection checks by (See § 229.2(ee).) A paying bank has similar courier to the correspondent or the Federal check handling activity to other banks that Reserve Bank, mailing returned checks to handle similar volumes of checks for collec- the correspondent or Federal Reserve Bank tion. would not satisfy the forward collection test. f. Under the forward collection test, banks iv. If a paying bank ordinarily mails its that use means of handling returned checks forward collection checks to its cor- that are less efficient than the means used respondent or Federal Reserve Bank in order by similarly situated banks must improve to avoid the costs of a courier delivery, but their procedures. On the other hand, a bank similarly situated banks use a courier to de- with highly efficient means of collecting liver forward collection checks to their cor- checks drawn on a particular bank, such as a respondent or Federal Reserve Bank, the direct presentment of checks to a bank in a paying bank must send its returned checks remote community, is not required to use by courier to meet the forward collection that means for returned checks, i.e. direct test. return, if similarly situated banks do not c. If a paying bank normally sends its for- present checks directly to that depositary ward collection checks directly to the depos- bank. itary bank, which is located in another com- 5. Examples. munity, but similarly situated banks send a. If a check is presented to a paying bank forward collection checks drawn on the de- on Monday and the depositary bank and the positary bank to a correspondent or a Fed- paying bank are participants in the same eral Reserve Bank, the paying bank would clearinghouse, the paying bank should ar- not have to send returned checks directly to range to have the returned check received by the depositary bank, but could send them to the depositary bank by Wednesday. This a correspondent or a Federal Reserve Bank. would be the same day the paying bank d. The dollar amount of the returned check would deliver a forward collection check to has a bearing on how it must be returned. If the depositary bank if the paying bank re- the paying bank and similarly situated ceived the deposit by noon on Tuesday. banks present large-dollar checks drawn on b. i. If a check is presented to a paying the depositary bank directly to the deposi- bank on Monday and the paying bank would tary bank, but use a Federal Reserve Bank normally collect checks drawn on the deposi- or a correspondent to collect small-dollar tary bank by sending them to a cor- checks, generally the paying bank would be respondent or a Federal Reserve Bank by required to send its large-dollar returns di- courier, the paying bank could send the re- rectly to the depositary bank (or through a turned check to its correspondent or Federal returning bank, if the checks are returned as Reserve Bank, provided that the cor- quickly), but could use a Federal Reserve respondent has agreed to handle returned Bank or a correspondent for its small-dollar checks expeditiously under § 229.31(a). (All returns. Federal Reserve Banks agree to handle re- 6. Choice of returning bank. In meeting the turned checks expeditiously.) requirements of the forward collection test, ii. The paying bank must deliver the re- the paying bank is responsible for its own ac- turned check to the correspondent or Fed- tions, but not for those of the depositary eral Reserve Bank by the correspondent’s or bank or returning banks. (This is analogous Federal Reserve Bank’s appropriate cut-off to the responsibility of collecting banks hour. The appropriate cut-off hour is the cut- under U.C.C. 4–202(c).) For example, if the

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paying bank starts the return of the check in not necessarily required to return the check a timely manner but return is delayed by a to the branch of first deposit. The check may returning bank (including delay to create a be returned to the depositary bank at any lo- qualified returned check), generally the pay- cation permitted under § 229.32(a). ing bank has met its requirements. (See 9. Midnight deadline. § 229.38.) If, however, the paying bank selects a. Except for the extension permitted by a returning bank that the paying bank § 229.30(c), discussed below, this section does should know is not capable of meeting its re- not relieve a paying bank from the require- turn requirements, the paying bank will not ment for timely return (i.e., midnight dead- have met its obligation of exercising ordi- line) under U.C.C. 4–301 and 4–302, which con- nary care in selecting intermediaries to re- tinue to apply. Under U.C.C. 4–302, a paying turn the check. The paying bank is free to bank is ‘‘accountable’’ for the amount of a use a method of return, other than its meth- demand item, other than a documentary od of forward collection, as long as the alter- draft, if it does not pay or return the item or nate method results in delivery of the re- send notice of dishonor by its midnight dead- turned check to the depositary bank as line. Under U.C.C. 3–418(c) and 4–215(a), late quickly as the forward collection of a check return constitutes payment and would be drawn on the depositary bank or, where the final in favor of a holder in due course or a returning bank takes a day to create a quali- person who has in good faith changed his po- fied returned check under § 229.31(a), one day sition in reliance on the payment. Thus, re- later than the forward collection time. If a taining this requirement gives the paying paying bank returns a check on its banking bank an additional incentive to make a day of receipt without settling for the check, prompt return. as permitted under U.C.C. 4–302(a), and re- b. The expeditious return requirement ap- ceives settlement for the returned check plies to a paying bank that determines not from a returning bank, it must promptly pay to pay a check. This requirement applies to the amount of the check to the collecting a payable-through or a payable-at bank that bank from which it received the check. is defined as a paying bank (see § 229.2(z)) and 7. Qualified returned checks. Although that returns a check. This requirement be- paying banks may wish to prepare qualified returned checks because they will be handled gins when the payable-through or payable-at at a lower cost by returning banks, the one bank receives the check during forward col- business day extension provided to returning lection, not when the payor returns the banks is not available to paying banks be- check to the payable-through or payable-at cause of the longer time that a paying bank bank. Nevertheless, a check sent for pay- has to dispatch the check. Normally, paying ment or collection to a payable-through or banks will be able to convert a check to a payable-at bank is not considered to be qualified returned check at any time after drawn on that bank for purposes of the mid- the determination is made to return the night deadline provision of U.C.C. 4–301. (See check until late in the day following present- discussion of § 229.36(a).) ment, while a returning bank may receive c. The liability section of this subpart returned checks late on one day and be ex- (§ 229.38) provides that a paying bank is not pected to dispatch them early the next subject to both ‘‘accountability’’ for missing morning. A check that is converted to a the midnight deadline under the U.C.C. and qualified returned check must be encoded in liability for missing the timeliness require- accordance with ANS X9.13 for original ments of this regulation. Also, a paying bank checks or ANS X9.100–140 for substitute is not responsible for failure to make expedi- checks. tious return to a party that has breached a 8. Routing of returned checks. presentment warranty under U.C.C. 4–208, a. In effect, under either test, the paying notwithstanding that the paying bank has bank acts as an agent or subagent of the de- returned the check. (See Commentary to positary bank in selecting a means of return. § 229.33(a).) Under § 229.30(a), a paying bank is authorized 10. U.C.C. provisions affected. This para- to route the returned check in a variety of graph directly affects the following provi- ways: sions of the U.C.C., and may affect other sec- i. It may send the returned check directly tions or provisions: to the depositary bank by courier or other a. Section 4–301(d), in that instead of re- means of delivery, bypassing returning turning a check through a clearinghouse or banks; or to the presenting bank, a paying bank may ii. It may send the returned check to any send a returned check to the depositary bank returning bank agreeing to handle the re- or to a returning bank. turned check for expeditious return to the b. Section 4–301(a), in that time limits depositary bank under § 229.31(a), regardless specified in that section may be affected by of whether or not the returning bank han- the additional requirement to make an expe- dled the check for forward collection. ditious return and in that settlement for re- b. If the paying bank elects to return the turned checks is made under § 229.31(c), not check directly to the depositary bank, it is by revocation of settlement.

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B. 229.30(b) Unidentifiable Depositary Bank risks of less than expeditious return. Simi- larly, where the inability to identify the de- 1. In some cases, a paying bank will be un- positary bank is due to indorsements or able to identify the depositary bank through other information placed on the back of the the use of ordinary care and good faith. The check by the depositary bank’s customer or Board expects that these cases will be un- other prior indorser, the depositary bank usual as skilled return clerks will readily should bear the risk that it cannot charge a identify the depositary bank from the depos- returned check back to that customer. itary bank indorsement required under Where the inability to identify the deposi- § 229.35 and appendix D. In cases where the tary bank is due to subsequent indorsements paying bank is unable to identify the deposi- of collecting banks, these collecting banks tary bank, the paying bank may, in accord- may be liable for a loss incurred by the de- ance with § 229.30(a), send the returned check positary bank due to less than expeditious to a returning bank that agrees to handle return of a check; those banks therefore the returned check for expeditious return to have an incentive to return checks sent to the depositary bank under § 229.31(a). The re- them under this paragraph quickly. turning bank may be better able to identify 4. This paragraph does not relieve a paying the depositary bank. bank from the liability for the lack of expe- 2. In the alternative, the paying bank may ditious return in cases where the paying send the check back up the path used for for- bank is itself responsible for the inability to ward collection of the check. The presenting identify the depositary bank, such as when bank and prior collecting banks normally the paying bank’s customer has used a check will be able to trace the collection path of with printing or other material on the back the check through the use of their internal in the area reserved for the depositary records in conjunction with the bank’s indorsement, making the indorsements on the returned check. In these indorsement unreadable. (See § 229.38(d).) limited cases, the paying bank may send 5. A paying bank’s return under this para- such a returned check to any bank that han- graph is also subject to its midnight deadline dled the check for forward collection, even if under U.C.C. 4–301, Regulation J (if the check that bank does not agree to handle the re- is returned through a Federal Reserve Bank), turned check for expeditious return to the and the exception provided in § 229.30(c). A depositary bank under § 229.31(a). A paying paying bank also may send a check to a prior bank returning a check under this paragraph collecting bank to make a claim against to a bank that has not agreed to handle the that bank under § 229.35(b) where the deposi- check expeditiously must advise that bank tary bank is insolvent or in other cases as that it is unable to identify the depositary provided in § 229.35(b). Finally, a paying bank bank. This advice must be conspicuous, such may make a claim against a prior collecting as a stamp on each check for which the de- bank based on a breach of warranty under positary bank is unknown if such checks are U.C.C. 4–208. commingled with other returned checks, or, if such checks are sent in a separate cash let- C. 229.30(c) Extension of Deadline ter, by one notice on the cash letter. This in- 1. This paragraph permits extension of the formation will warn the bank that this deadlines for returning a check for which the check will require special research and han- paying bank previously has settled (gen- dling in accordance with § 229.31(b). The re- erally midnight of the banking day following turned check may not be prepared for auto- the banking day on which the check is re- mated return. The return of a check to a ceived by the paying bank) and for returning bank that handled the check for forward col- a check without settling for it (generally lection is consistent with § 229.35(b), which midnight of the banking day on which the requires a bank handling a check to take up check is received by the paying bank, or the check it is has not been paid. such other time provided by § 210.9 of Regula- 3. The sending of a check to a bank that tion J (12 CFR part 210) or § 229.36(f)(2) of this handled the check for forward collection part), but not of the duty of expeditious re- under this paragraph is not subject to the return, in two circumstances: quirements for expeditious return by the a. A paying bank may have a courier that paying bank. Often, the paying bank will not leaves after midnight (or after any other ap- have courier or other expeditious means of plicable deadline) to deliver its forward-col- transportation to the collecting or pre- lection checks. This paragraph removes the senting bank. Although the lack of a require- constraint of the midnight deadline for re- ment of expeditious return will create risks turned checks if the returned check reaches for the depositary bank, in many cases the the receiving bank on or before the receiving inability to identify the depositary bank will bank’s next banking day following the other- be due to the depositary bank’s, or a col- wise applicable deadline by the earlier of the lecting bank’s, failure to use the close of that banking day or a cutoff hour of indorsement required by § 229.35(a) and ap- 2 p.m. or later set by the receiving bank pendix D. If the depositary bank failed to use under U.C.C. 4–108. The extension also ap- the proper indorsement, it should bear the plies if the check reaches the bank to which

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it is sent later than the time described in the D. 229.30(d) Identification of Returned previous sentence if highly expeditious Check means of transportation are used. For exam- 1. The reason for the return must be clear- ple, a West Coast paying bank may use this ly indicated. A check is identified as a re- further extension to ship a returned check turned check if the front of that check indi- by air courier directly to an East Coast re- cates the reason for return, even though it turning bank even if the check arrives after does not specifically state that the check is the returning bank’s cutoff hour. This para- a returned check. A reason such as ‘‘Refer to graph applies to the extension of all mid- Maker’’ is permissible in appropriate cases. night deadlines except Saturday midnight If the returned check is a substitute check, deadlines (see paragraph XVI.C.1.b of this ap- the reason for return must be placed within pendix). the image of the original check that appears b. A paying bank may observe a banking on the front of the substitute check so that day, as defined in the applicable U.C.C., on a the information is retained on any subse- Saturday, which is not a business day and quent substitute check. If the paying bank places the returned check in a carrier enve- therefore not a banking day under Regula- lope, the carrier envelope should indicate tion CC. In such a case, the U.C.C. deadline that it is a returned check but need not re- for returning checks received and settled for peat the reason for return stated on the on Friday, or for returning checks received check if it in fact appears on the check. on Saturday without settling for them, might require the bank to return the checks E. 229.30(e) Depositary Bank Without by midnight Saturday. However, the bank Accounts may not have couriers leaving on Saturday 1. Subpart B of this regulation applies only to carry returned checks, and even if it did, to ‘‘checks’’ deposited in transaction-type the returning or depositary bank to which ‘‘accounts.’’ Thus, a depositary bank with the returned checks were sent might not be only time or savings accounts need not com- open until Sunday night or Monday morning ply with the availability requirements of to receive and process the checks. This para- Subpart B. Collecting banks will not have graph extends the midnight deadline if the couriers delivering checks to these banks as returned checks reach the returning bank by paying banks, because no checks are drawn a cut-off hour (usually on Sunday night or on them. Consequently, the costs of using a Monday morning) that permits processing courier or other expedited means to deliver during its next processing cycle or reach the returned checks directly to such a deposi- depositary bank by the cut-off hour on its tary bank may not be justified. Thus, the ex- next banking day following the Saturday pedited return requirement of § 229.30(a) and midnight deadline. This paragraph applies the notice of nonpayment requirement of § 229.33 do not apply to checks being returned exclusively to the extension of Saturday to banks that do not hold accounts. The pay- midnight deadlines. ing bank’s midnight deadline in U.C.C. 4–301 2. The time limits that are extended in and 4–302 and § 210.12 of Regulation J (12 CFR each case are the paying bank’s midnight 210.12) would continue to apply to these deadline for returning a check for which it checks. Returning banks also would be re- has already settled and the paying bank’s quired to act on such checks within their deadline for returning a check without set- midnight deadline. Further, in order to avoid tling for it in U.C.C. 4–301 and 4–302, §§ 210.9 complicating the process of returning checks and 210.12 of Regulation J (12 CFR 210.9 and generally, banks without accounts are re- 210.12), and § 229.36(f)(2) of this part. As these quired to use the standard indorsement, and extensions are designed to speed their checks are returned by returning banks (§ 229.30(c)(1)), or at least not slow and paid for by the depositary bank under (§ 229.30(c)(2)), the overall return of checks, the same rules as checks deposited in other no modification or extension of the expedi- banks, with the exception of the expeditious tious return requirements in § 229.30(a) is re- return and notice of nonpayment require- quired. ments of §§ 229.30(a), 229.31(a), and 229.33. 3. The paying bank satisfies its midnight 2. The expeditious return requirements or other return deadline by dispatching re- also apply to a check deposited in a bank that is not a depository institution. Federal turned checks to another bank by courier, Reserve Banks, Federal Home Loan Banks, including a courier under contract with the private bankers, and possibly certain indus- paying bank, prior to expiration of the dead- trial banks are not depository institutions line. within the meaning of the EFA Act, and 4. This paragraph directly affects U.C.C. 4– therefore are not subject to the expedited 301 and 4–302 and §§ 210.9 and 210.12 of Regula- availability and disclosure requirements of tion J (12 CFR 210.9 and 210.12) to the extent Subpart B. These banks do, however, main- that this paragraph applies by its terms, and tain accounts as defined in § 229.2(a), and a may affect other provisions. paying bank returning a check to one of

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these banks would be required to return the fractional, nine-digit, or other form. This check to the depositary bank, in accordance paragraph permits a paying bank to rely on with the requirements of this section. the routing number of the depositary bank as it appears on the check (in the depositary F. 229.30(f) Notice in Lieu of Return bank’s indorsement) when it is received by 1. A check that is lost or otherwise un- the paying bank. available for return may be returned by 2. If there are inconsistent routing num- sending a legible copy of both sides of the bers, the paying bank may rely on any rout- check or, if such a copy is not available to ing number designating the depositary bank. the paying bank, a written notice of non- The paying bank is not required to resolve payment containing the information speci- the inconsistency prior to processing the fied in § 229.33(b). The copy or written notice check. The paying bank remains subject to must clearly indicate it is a notice in lieu of the requirement to act in good faith and use return and must be handled in the same ordinary care under § 229.38(a). manner as other returned checks. Notice by XVII. Section 229.31 Returning Bank’s telephone, telegraph, or other electronic Responsibility for Return of Checks transmission, other than a legible facsimile or similar image transmission of both sides A. 229.31(a) Return of Checks of the check, does not satisfy the require- 1. The standards for return of checks estab- ments for a notice in lieu of return. The re- lished by this section are similar to those for quirement for a writing and the indication paying banks in § 229.30(a). This section re- that the notice is a substitute for the requires a returning bank to return a returned turned check is necessary so that the return- check expeditiously if it agrees to handle the ing and depositary banks are informed that returned check for expeditious return under the notice carries value. Notice in lieu of re- this paragraph. In effect, the returning bank turn is permitted only when a bank does not is an agent or subagent of the paying bank have and cannot obtain possession of the and a subagent of the depositary bank for check or must retain possession of the check the purposes of returning the check. for protest. A check is not unavailable for re- 2. A returning bank agrees to handle a return if it is merely difficult to retrieve from turned check for expeditious return to the a filing system or from storage by a keeper depositary bank if it: of checks in a truncation system. A notice in a. Publishes or distributes availability lieu of return may be used by a bank han- schedules for the return of returned checks dling a returned check that has been lost or and accepts the returned check for return; destroyed, including when the original re- b. Handles a returned check for return that turned check has been charged back as lost it did not handle for forward collection; or or destroyed as provided in § 229.35(b). A bank c. Otherwise agrees to handle a returned using a notice in lieu of return gives a war- check for expeditious return. ranty under § 229.34(a)(4) that the original 3. Two-day/four-day test. As in the case of check has not been and will not be returned. a paying bank, a returning bank’s return of 2. The requirement of this paragraph su- a returned check is expeditious if it meets persedes the requirement of U.C.C. 4–301(a) as either of two tests. Under the ‘‘two-day/four- to the form and information required of a no- day’’ test, the check must be returned so tice of dishonor or nonpayment. Reference in that it would normally be received by the de- the regulation and this commentary to a re- positary bank by 4:00 p.m. either two or four turned check includes a notice in lieu of re- business days after the check was presented turn unless the context indicates otherwise. to the paying bank, depending on whether or 3. The notice in lieu of return is subject to not the paying bank is located in the same the provisions of § 229.30 and is treated like a check processing region as the depositary returned check for settlement purposes. If bank. This is the same test as the two-day/ the original check is over $2,500, the notice four-day test applicable to paying banks. of nonpayment under § 229.33 is still required, (See Commentary to § 229.30(a).) While a re- but may be satisfied by the notice in lieu of turning bank will not have first hand knowl- return if the notice in lieu meets the time edge of the day on which a check was pre- and information requirements of § 229.33. sented to the paying bank, returning banks 4. If not all of the information required by may, by agreement, allocate with paying § 229.33(b) is available, the paying bank may banks liability for late return based on the make a claim against any prior bank han- delays caused by each. In effect, the two-day/ dling the check as provided in § 229.35(b). four day test protects all paying and returning banks that return checks from claims G. 229.30(g) Reliance on Routing Number that they failed to return a check expedi- 1. Although § 229.35 and appendix D require tiously, where the check is returned within that the depositary bank indorsement con- the specified time following presentment to tain its nine-digit routing number, it is pos- the paying bank, or a later time as would re- sible that a returned check will bear the sult from unforeseen delays. routing number of the depositary bank in 4. Forward collection test.

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a. The ‘‘forward collection’’ test is similar tiously under § 229.31(a). The returning bank to the forward collection test for paying would have to deliver the check by the cor- banks. Under this test, a returning bank respondent’s or Federal Reserve Bank’s cut- must handle a returned check in the same off hour for returned checks that cor- manner that a similarly situated collecting responds to its cut-off hour for forward col- bank would handle a check of similar size lection checks drawn on the depositary drawn on the depositary bank for forward bank. A returning bank may take a day to collection. A similarly situated bank is a convert a check to a qualified returned bank (other than a Federal Reserve Bank) check. Where the forward collection checks that is of similar asset size and check han- are delivered by courier, mailing the re- dling activity in the same community. A turned checks would not meet the duty es- bank has similar check handling activity if tablished by this section for returning it handles a similar volume of checks for for- banks. ward collection as the forward collection ii. A returning bank must return a check volume of the returning bank. to the depositary bank by courier or other b. Under the forward collection test, a re- means as fast as a courier, if similarly situ- turning bank must accept returned checks, ated returning banks use couriers to deliver including both qualified and other returned their forward collection checks to the depos- checks (‘‘raw returns’’), at approximately itary bank. the same times and process them according iii. For some depositary banks, no commu- to the same general schedules as checks han- nity practice exists as to delivery of checks. dled for forward collection. Thus, a returning For example, a credit union whose customers bank generally must process even raw re- use payable-through drafts normally does turns on an overnight basis, unless its time not have checks presented to it because the limit is extended by one day to convert a raw drafts are normally sent to the payable- return to a qualified returned check. through bank for collection. In these cir- 5. Cut-off hours. A returning bank may establish earlier cut-off hours for receipt of re- cumstances, the community standard is es- turned checks than for receipt of forward tablished by taking into account the dollar collection checks, but the cut-off hour for re- volume of the checks being sent to the de- turned checks may not be earlier than 2:00 positary bank and the location of the deposi- p.m. The returning bank also may set dif- tary bank, and determining whether simi- ferent sorting requirements for returned larly situated banks normally would deliver checks than those applicable to other forward collection checks to the depositary checks. Thus, a returning bank may allow bank, taking into account the particular itself more processing time for returns than risks associated with returned checks. Where for forward collection checks. All returned the community standard does not require checks received by a cut-off hour for re- courier delivery, other means of delivery, in- turned checks must be processed and dis- cluding mail, are acceptable. patched by the returning bank by the time 7. Qualified returned checks. that it would dispatch forward collection a. The expeditious return requirement for checks received at a corresponding forward a returning bank in this regulation is more collection cut-off hour that provides for the stringent in many cases than the duty of a same or faster availability for checks des- collecting bank to exercise ordinary care tined for the same depositary banks. under U.C.C. 4–202 in returning a check. A re- 6. Examples. turning bank is under a duty to act as expe- a. If a returning bank receives a returned ditiously in returning a check as it would in check by its cut-off hour for returned checks the forward collection of a check. Notwith- on Monday and the depositary bank and the standing its duty of expeditious return, its returning bank are participants in the same midnight deadline under U.C.C. 4–202 and clearinghouse, the returning bank should ar- § 210.12(a) of Regulation J (12 CFR 210.12(a)), range to have the returned check received by under the forward collection test, a return- the depositary bank by Tuesday. This would ing bank may take an extra day to qualify a be the same day that it would deliver a for- returned check. A qualified returned check ward collection check drawn on the deposi- will be handled by subsequent returning tary bank and received by the returning banks more efficiently than a raw return. bank at a corresponding forward collection This paragraph gives a returning bank an cut-off hour on Monday. extra business day beyond the time that b. i. If a returning bank receives a returned would otherwise be required to return the re- check, and the returning bank normally turned check to convert a returned check to would collect a forward collection check a qualified returned check. The qualified re- drawn on the depositary bank by sending the turned check must include the routing num- forward collection check to a correspondent ber of the depositary bank, the amount of or a Federal Reserve Bank by courier, the re- the check, and a return identifier encoded on turning bank could send the returned check the check in magnetic ink. A check that is in the same manner if the correspondent has converted to a qualified returned check must agreed to handle returned checks expedi- be encoded in accordance with ANS X9.13 for

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original checks or ANS X9.100–140 for sub- B. 229.31(b) Unidentifiable Depositary Bank stitute checks. 1. This section is similar to § 229.30(b), but b. If the returning bank is sending the re- applies to returning banks instead of paying turned check directly to the depositary banks. In some cases a returning bank will bank, this extra day is not available because be unable to identify the depositary bank preparing a qualified returned check will not with respect to a check. Returning banks expedite handling by other banks. If the re- agreeing to handle checks for return to de- turning bank makes an encoding error in creating a qualified returned check, it may positary banks under § 229.31(a) are expected be liable under § 229.38 for losses caused by to be expert in identifying depositary bank any negligence or under § 229.34(c)(3) for indorsements. In the limited cases where the breach of an encoding warranty. The return- returning bank cannot identify the deposi- ing bank would not lose the one-day exten- tary bank, the returning bank may send the sion available to it for creating a qualified returned check to a returning bank that returned check because of an encoding error. agrees to handle the returned check for expe- 8. Routing of returned check. ditious return under § 229.31(a), or it may a. Under § 229.31(a), the returning bank is send the returned check to a bank that han- authorized to route the returned check in a dled the check for forward collection, even if variety of ways: that bank does not agree to handle the re- i. It may send the returned check directly turned check expeditiously under § 229.31(a). to the depositary bank by courier or other 2. If the returning bank itself handled the expeditious means of delivery; or check for forward collection, it may send the ii. It may send the returned check to any returned check to a collecting bank that was returning bank agreeing to handle the re- prior to it in the forward collection process, turned check for expeditious return to the which will be better able to identify the de- depositary bank under this section regard- positary bank. If there are no prior col- less of whether or not the returning bank lecting banks, the returning bank must re- handled the check for forward collection. search the collection of the check and iden- b. If the returning bank elects to send the tify the depositary bank. As in the case of returned check directly to the depositary paying banks under § 229.30(b), a returning bank, it is not required to send the check to bank’s sending of a check to a bank that the branch of the depositary bank that first handled the check for forward collection handled the check. The returned check may under § 229.31(b) is not subject to the expedi- be sent to the depositary bank at any loca- tious return requirements of § 229.31(a). tion permitted under § 229.32(a). 3. The returning bank’s return of a check 9. Responsibilities of returning bank. In under this paragraph is subject to the mid- meeting the requirements of this section, the night deadline under U.C.C. 4–202(b). (See def- returning bank is responsible for its own ac- inition of returning bank in § 229.2(cc).) tions, but not those of the paying bank, 4. Where a returning bank receives a check other returning banks, or the depositary that it does not agree to handle expedi- bank. (See U.C.C. 4–202(c) regarding the re- tiously under § 229.31(a), such as a check sent sponsibility of collecting banks.) For exam- to it under § 229.30(b), but the returning bank ple, if the paying bank has delayed the start is able to identify the depositary bank, the of the return process, but the returning bank returning bank must thereafter return the acts in a timely manner, the returning bank check expeditiously to the depositary bank. may satisfy the requirements of this section The returning bank returns a check expedi- even if the delayed return results in a loss to tiously under this paragraph if it returns the the depositary bank. (See § 229.38.) A return- check by the same means it would use to re- ing bank must handle a notice in lieu of return a check drawn on it to the depositary turn as expeditiously as a returned check. bank or by other reasonably prompt means. 10. U.C.C. sections affected. This paragraph 5. As in the case of a paying bank return- directly affects the following provisions of ing a check under § 229.30(b), a returning the U.C.C., and may affect other sections or bank returning a check under this paragraph provisions: to a bank that has not agreed to handle the a. Section 4–202(b), in that time limits re- check expeditiously must advise that bank quired by that section may be affected by that it is unable to identify the depositary the additional requirement to make an expe- bank. This advice must be conspicuous, such ditious return. as a stamp on each check for which the de- b. Section 4–214(a), in that settlement for positary bank is unknown if such checks are returned checks is made under § 229.31(c) and commingled with other returned checks, or, not by charge-back of provisional credit, and if such checks are sent in a separate cash let- in that the time limits may be affected by ter, by one notice on the cash letter. The re- the additional requirement to make an expe- turned check may not be prepared for auto- ditious return. mated return.

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C. 229.31(c) Settlement returning banks from charging fees for handling returned checks. 1. Under the U.C.C., a collecting bank receives settlement for a check when it is pre- E. 229.31(e) Depositary Bank Without sented to the paying bank. The paying bank Accounts may recover the settlement when the paying bank returns the check to the presenting 1. This paragraph is similar to § 229.30(e) bank. Under this regulation, however, the and relieves a returning bank of its obliga- paying bank may return the check directly tion to make expeditious return to a deposi- to the depositary bank or through returning tary bank that does not maintain any ac- banks that did not handle the check for for- counts. (See the Commentary to § 229.30(e).) ward collection. On these more efficient re- F. 229.31(f) Notice in Lieu of Return turn paths, the paying bank does not recover the settlement made to the presenting bank. 1. This paragraph is similar to § 229.30(f) Thus, this paragraph requires the returning and authorizes a returning bank to originate bank to settle for a returned check (either a notice in lieu of return if the returned with the paying bank or another returning check is unavailable for return. Notice in bank) in the same way that it would settle lieu of return is permitted only when a bank for a similar check for forward collection. To does not have and cannot obtain possession achieve uniformity, this paragraph applies of the check or must retain possession of the even if the returning bank handled the check check for protest. A check is not unavailable for forward collection. for return if it is merely difficult to retrieve 2. Any returning bank, including one that from a filing system or from storage by a handled the check for forward collection, keeper of checks in a truncation system. may provide availability for returned checks (See the Commentary to § 229.30(f).) pursuant to an availability schedule as it does for forward collection checks. These G. 229.31(g) Reliance on Routing Number settlements by returning banks, as well as 1. This paragraph is similar to § 229.30(g) settlements between banks made during the and permits a returning bank to rely on forward collection of a check, are considered routing numbers appearing on a returned final when made subject to any deferment of check such as routing numbers in the deposi- availability. (See § 229.36(d) and Commentary tary bank’s indorsement or on qualified re- to § 229.35(b).) turned checks. (See the Commentary to 3. A returning bank may vary the settle- § 229.30(g).) ment method it uses by agreement with paying banks or other returning banks. Special XVIII. Section 229.32 Depositary Bank’s rules apply in the case of insolvency of Responsibility for Returned Checks banks. (See § 229.39.) If payment cannot be obtained from a depositary or returning A. 229.32(a) Acceptance of Returned Checks bank because of its insolvency or otherwise, 1. This regulation seeks to encourage di- recovery can be had by returning, paying, rect returns by paying and returning banks and collecting banks from prior banks on and may result in a number of banks sending this basis of the liability of prior banks checks to depositary banks with no pre- under § 229.35(b). existing arrangements as to where the re- 4. This paragraph affects U.C.C. 4–214(a) in turned checks should be delivered. This para- that a paying or collecting bank does not or- graph states where the depositary bank is re- dinarily have a right to charge back against quired to accept returned checks and written the bank from which it received the returned notices of nonpayment under § 229.33. (These check, although it is entitled to settlement locations differ from locations at which a de- if it returns the returned check to that bank, positary bank must accept electronic no- and may affect other sections or provisions. tices.) It is derived from U.C.C. 3–111, which Under § 229.36(d), a bank collecting a check specifies that presentment for payment may remains liable to prior collecting banks and be made at the place specified in the instru- the depositary bank’s customer under the ment or, if there is none, at the place of busi- U.C.C. ness of the party to pay. In the case of returned checks, the depositary bank does not D. 229.31(d) Charges print the check and can only specify the 1. This paragraph permits any returning place of ‘‘payment’’ of the returned check in bank, even one that handled the check for its indorsement. forward collection, to impose a fee on the 2. The paragraph specifies four locations at paying bank or other returning bank for its which the depositary bank must accept re- service in handling a returned check. Where turned checks: a claim is made under § 229.35(b), the bank on a. The depositary bank must accept re- which the claim is made is not authorized by turned checks at any location at which it re- this paragraph to impose a charge for taking quests presentment of forward collection up a check. This paragraph preempts state checks such as a processing center. A deposi- laws to the extent that these laws prevent tary bank does not request presentment of

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forward collection checks at a branch of the B. 229.32(b) Payment bank merely by paying checks presented 1. As discussed in the commentary to over the counter. § 229.31(c), under this regulation a paying or b. i. If the depositary bank indorsement returning bank does not obtain credit for a states the name and address of the deposi- returned check by charge-back but by, in ef- tary bank, it must accept returned checks at fect, presenting the returned check to the the branch, head office, or other location, depositary bank. This paragraph imposes an such as a processing center, indicated by the obligation to ‘‘pay’’ a returned check that is address. If the address is too general to iden- similar to the obligation to pay a forward tify a particular location, then the deposi- collection check by a paying bank, except tary bank must accept returned checks at that the depositary bank may not return a any branch or head office consistent with the returned check for which it is the depositary address. If, for example, the address is ‘‘New bank. Also, certain means of payment, such York, New York,’’ each branch in New York as remittance drafts, may be used only with City must accept returned checks. the agreement of the returning bank. ii. If no address appears in the depositary 2. The depositary bank must pay for a re- bank’s indorsement, the depositary bank turned check by the close of the banking day must accept returned checks at any branch on which it received the returned check. The or head office associated with the depositary day on which a returned check is received is bank’s routing number. The offices associ- determined pursuant to U.C.C. 4–108, which ated with the routing number of a bank are permits the bank to establish a cut-off hour, generally not earlier than 2:00 p.m., and found in American Bankers Association Key to treat checks received after that hour as Routing Numbers, published by an agent of being received on the next banking day. If the American Bankers Association, which the depositary bank is unable to make pay- lists a city and state address for each rout- ment to a returning or paying bank on the ing number. banking day that it receives the returned iii. The depositary bank must accept re- check, because the returning or paying bank turned checks at the address in its is closed for a holiday or because the time indorsement and at an address associated when the depositary bank received the check with its routing number in the indorsement is after the close of Fedwire, e.g., west coast if the written address in the indorsement and banks with late cut-off hours, payment may the address associated with the routing num- be made on the next banking day of the bank ber in the indorsement are not in the same receiving payment. check processing region. Under §§ 229.30(g) 3. Payment must be made so that the funds and 229.31(g), a paying or returning bank are available for use by the bank returning may rely on the depositary bank’s routing the check to the depositary bank on the day number in its indorsement in handling re- the check is received by the depositary bank. turned checks and is not required to send re- For example, a depositary bank meets this turned checks to an address in the deposi- requirement if it sends a wire transfer of tary bank’s indorsement that is not in the funds to the returning or paying bank on the same check processing region as the address day it receives the returned check, even if associated with the routing number in the the returning or paying bank has closed for indorsement. the day. A wire transfer should indicate the iv. If no routing number or address appears purpose of the payment. in its indorsement, the depositary bank must 4. The depositary bank may use a net set- accept a returned check at any branch or tlement arrangement to settle for a returned head office of the bank. The indorsement re- check. Banks with net settlement agree- quirement of § 229.35 and appendix D requires ments could net the appropriate credits and debits for returned checks with the account- that the indorsement contain a routing num- ing entries for forward collection checks if ber, a name, and a location. Consequently, they so desired. If, for purposes of estab- this provision, as well as paragraph (a)(2)(ii) lishing additional controls or for other rea- of this section, only applies where the depos- sons, the banks involved desired a separate itary bank has failed to comply with the settlement for returned checks, a separate indorsement requirement. net settlement agreement could be estab- 3. For ease of processing, a depositary bank lished. may require that returning or paying banks 5. The bank sending the returned check to returning checks to it separate returned the depositary bank may agree to accept checks from forward collection checks being payment at a later date if, for example, it presented. does not believe that the amount of the re- 4. Under § 229.33(d), a depositary bank returned check or checks warrants the costs of ceiving a returned check or notice of non- same-day payment. Thus, a returning or pay- payment must send notice to its customer by ing bank may agree to accept payment its midnight deadline or within a longer rea- through an ACH credit or debit transfer that sonable time. settles the day after the returned check is

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received instead of a wire transfer that set- must send a notice of nonpayment if it de- tles on the same day. cides not to pay a check of $2,500 or more. A 6. This paragraph and this subpart do not paying bank may rely on an amount encoded affect the depositary bank’s right to recover on the check in magnetic ink to determine a provisional settlement with its nonbank whether the check is in the amount of $2,500 customer for a check that is returned. (See or more. The notice of nonpayment carries also §§ 229.19(c)(2)(ii), 229.33(d) and 229.35(b).) no value, and the check itself (or the notice in lieu of return) must be returned. The pay- C. 229.32(c) Misrouted Returned Checks ing bank must ensure that the notice of non- 1. This paragraph permits a bank receiving payment is received by the depositary bank a check on the basis that it is the depositary by 4:00 p.m. local time on the second busi- bank to send the misrouted returned check ness day following presentment. A bank to the correct depositary bank, if it can iden- identified by routing number as the paying tify the correct depositary bank, either di- bank is considered the paying bank under rectly or through a returning bank agreeing this regulation and would be required to cre- to handle the check expeditiously under ate a notice of nonpayment even though that § 229.30(a). In these cases, the bank receiving bank determined that the check was not the check is acting as a returning bank. Al- drawn by a customer of that bank. (See Com- ternatively, the bank receiving the mentary to the definition of paying bank in misrouted returned check must send the § 229.2(z).) 2. The paying bank should not send a no- check back to the bank from which it was re- tice of nonpayment until it has finally deter- ceived. In either case the bank to which the mined not to pay the check. Under § 229.34(b), returned check was misrouted could receive by sending the notice the paying bank war- settlement for the check. The depositary rants that it has returned or will return the bank would be required to pay for the re- check. If a paying bank sends a notice and turned check under § 229.32(b), and any other subsequently decides to pay the check, the bank to which the check is sent under this paying bank may mitigate its liability on paragraph would be required to settle for the this warranty by notifying the depositary check as a returning bank under § 229.31(c). If bank that the check has been paid. the check was originally received ‘‘free,’’ 3. Because the return of the check itself that is, without a charge for the check, the may serve as the required notice of nonbank incorrectly receiving the check would payment, in many cases no notice other than have to return the check, without a charge, the return of the check will be necessary. to the bank from which it came. The bank to For example, in many cases the return of a which the returned check was misrouted is check through a clearinghouse to another required to act promptly but is not required participant of the clearinghouse will be to meet the expeditious return requirements made in time to meet the time requirements of § 229.31(a); however, it must act within its of this section. If the check normally will midnight deadline. This paragraph does not not be received by the depositary bank with- affect a bank’s duties under § 229.35(b). in the time limits for notice, the return of the check will not satisfy the notice require- D. 229.32(d) Charges ment. In determining whether the returned 1. This paragraph prohibits a depositary check will satisfy the notice requirement, bank from charging the equivalent of a pre- the paying bank may rely on the availability sentment fee for returned checks. A return- schedules of returning banks as the time ing bank, however, may charge a fee for han- that the returned check is expected to be de- dling returned checks. If the returning bank livered to the depositary bank, unless the receives a mixed cash letter of returned paying bank has reason to know the avail- checks, which includes some checks for ability schedules are inaccurate. which the returning bank also is the deposi- 4. Unless the returned check is used to sat- tary bank, the fee may be applied to all the isfy the notice requirement, the requirement returned checks in the cash letter. In the for notice is independent of and does not af- case of a sorted cash letter containing only fect the requirements for timely and expedi- returned checks for which the returning tious return of the check under § 229.30 and bank is the depositary bank, however, no fee the U.C.C. (See § 229.30(a).) If a paying bank may be charged. fails both to comply with this section and to comply with the requirements for timely and XIX. Section 229.33 Notice of Nonpayment expeditious return under § 229.30 and the U.C.C. and Regulation J (12 CFR part 210), A. 229.33(a) Requirement the paying bank shall be liable under either 1. Notice of nonpayment as required by this section or such other requirements, but this section and written notice in lieu of re- not both. (See § 229.38(b).) A paying bank is turn as provided in §§ 229.30(f) and 229.31(f) not responsible for failure to give notice of serve different functions. The two kinds of nonpayment to a party that has breached a notice, however, must meet the content re- presentment warranty under U.C.C. 4–208, quirements of this section. The paying bank notwithstanding that the paying bank may

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have returned the check. (See U.C.C. 4–208 provided the notice meets all the require- and 4–302.) ments of § 229.13(g).

B. 229.33(b) Content of Notices XX. Section 229.34 Warranties

1. This paragraph provides that the notice A. 229.34(a) Warranty of Returned Check must at a minimum contain eight elements which are specifically enumerated. In the 1. This paragraph includes warranties that case of written notices, the name and rout- a returned check, including a notice in lieu ing number of the depositary bank also are of return, was returned by the paying bank, required. or in the case of a check payable by a bank 2. If the paying bank cannot identify the and payable through another bank, the bank depositary bank from the check itself, it by which the check is payable, within the may wish to send the notice to the earliest deadline under the U.C.C. (subject to any collecting bank it can identify and indicate claims or defenses under the U.C.C., such as that the notice is not being sent to the de- breach of a presentment warranty), Regula- positary bank. The collecting bank may be tion J (12 CFR part 210), or § 229.30(c); that able to identify the depositary bank and for- the paying or returning bank is authorized ward the notice, but is under no duty to do to return the check; that the returned check so. In addition, the collecting bank may ac- has not been materially altered; and that, in tually be the depositary bank. the case of a notice in lieu of return, the 3. A bank must identify an item of infor- original check has not been and will not be mation if the bank is uncertain as to that returned for payment. (See the Commentary item’s accuracy. A bank may make this to § 229.30(f).) The warranty does not include identification by setting the item off with a warranty that the bank complied with the question marks, asterisks, or other symbols expeditious return requirements of designated for this purpose by generally ap- §§ 229.30(a) and 229.31(a). These warranties do plicable industry standards. not apply to checks drawn on the United States Treasury, to U.S. Postal Service C. 229.33(c) Acceptance of Notice money orders, or to checks drawn on a state or a unit of general local government that 1. In the case of a written notice, the de- are not payable through or at a bank. (See positary bank is required to accept notices § 229.42.) at the locations specified in § 229.32(a). In the case of telephone notices, the bank may not B. 229.34(b) Warranty of Notice of refuse to accept notices at the telephone Nonpayment numbers identified in this section, but may transfer calls or use a recording device. 1. This paragraph provides for warranties Banks may vary by agreement the location for notices of nonpayment. This warranty and manner in which notices are received. does not include a warranty that the notice is accurate and timely under § 229.33. The re- D. 229.33(d) Notification to Customer quirements of § 229.33 that are not covered by the warranty are subject to the liability pro- 1. This paragraph requires a depositary visions of § 229.38. These warranties are de- bank to notify its customer of nonpayment signed to give the depositary bank more con- upon receipt of a returned check or notice of fidence in relying on notices of nonpayment. nonpayment, regardless of the amount of the This paragraph imposes liability on a paying check or notice. This requirement is similar bank that gives notice of nonpayment and to the requirement under the U.C.C. as inter- then subsequently returns the check. (See preted in Appliance Buyers Credit Corp. v. Commentary on § 229.33(a).) Prospect National Bank, 708 F.2d 290 (7th Cir. 1983), that a depositary bank may be liable C. 229.34(c) Warranty of Settlement for damages incurred by its customer for its Amount, Encoding, and Offset failure to give its customer timely advice that it has received a notice of nonpayment. 1. Paragraph (c)(1) provides that a bank Notice also must be given if a depositary that presents and receives settlement for bank receives a notice of recovery under checks warrants to the paying bank that the § 229.35(b). A bank that chooses to provide settlement it demands (e.g., as noted on the the notice required by § 229.33(d) in writing cash letter) equals the total amount of the may send the notice by e-mail or facsimile if checks it presents. This paragraph gives the the bank sends the notice to the e-mail ad- paying bank a warranty claim against the dress or facsimile number specified by the presenting bank for the amount of any ex- customer for that purpose. The notice to the cess settlement made on the basis of the customer required under this paragraph also amount demanded, plus expenses. If the may satisfy the notice requirement of amount demanded is understated, a paying § 229.13(g) if the depositary bank invokes the bank discharges its settlement obligation reasonable-cause exception of § 229.13(e) due under U.C.C. 4–301 by paying the amount de- to the receipt of a notice of nonpayment, manded, but remains liable for the amount

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by which the demand is understated; the pre- payee stated on the check. The warranties senting bank is nevertheless liable for ex- are given only by banks and only to subse- penses in resolving the adjustment. quent banks in the collection chain. The 2. When checks or returned checks are warranties ultimately shift liability for the transferred to a collecting, returning, or de- loss created by an unauthorized remotely positary bank, the transferor bank is not re- created check to the depositary bank. The quired to demand settlement, as is required depositary bank cannot assert the transfer upon presentment to the paying bank. How- and presentment warranties against a de- ever, often the checks or returned checks positor. However, a depositary bank may, by will be accompanied by information (such as agreement, allocate liability for such an a cash letter listing) that will indicate the item to the depositor and also may have a total of the checks or returned checks. Para- graph (c)(2) provides that if the transferor claim under other laws against that person. bank includes information indicating the 2. The transfer and presentment warranties total amount of checks or returned checks for remotely created checks supplement the transferred, it warrants that the information Federal Trade Commission’s Telemarketing is correct (i.e., equals the actual total of the Sales Rule, which requires telemarketers items). that submit checks for payment to obtain 3. Paragraph (c)(3) provides that a bank the customer’s ‘‘express verifiable authoriza- that presents or transfers a check or re- tion’’ (the authorization may be either in turned check warrants the accuracy of the writing or tape recorded and must be made magnetic ink encoding that was placed on available upon request to the customer’s the item after issue, and that exists at the bank). 16 CFR 310.3(a)(3). The transfer and time of presentment or transfer, to any bank presentment warranties shift liability to the that subsequently handles the check or re- depositary bank only when the remotely cre- turned check. Under U.C.C. 4–209(a), only the ated check is unauthorized, and would not encoder (or the encoder and the depositary apply when the customer initially authorizes bank, if the encoder is a customer of the de- a check but then experiences ‘‘buyer’s re- positary bank) warrants the encoding accu- morse’’ and subsequently tries to revoke the racy, thus any claims on the warranty must authorization by asserting a claim against be directed to the encoder. Paragraph (c)(3) expands on the U.C.C. by providing that all the paying bank under U.C.C. 4–401. If the de- banks that transfer or present a check or re- positary bank suspects ‘‘buyer’s remorse,’’ it turned check make the encoding warranty. may obtain from its customer the express In addition, under the U.C.C., the encoder verifiable authorization of the check by the makes the warranty to subsequent collecting paying bank’s customer, required under the banks and the paying bank, while paragraph Federal Trade Commission’s Telemarketing (c)(3) provides that the warranty is made to Sales Rule, and use that authorization as a banks in the return chain as well. Paragraph defense to the warranty claim. (c)(3) applies to all MICR-line encoding on a 3. The scope of the transfer and present- substitute check. ment warranties for remotely created checks 4. A paying bank that settles for an over- differs from that of the corresponding U.C.C. stated cash letter because of a misencoded warranty provisions in two respects. The check may make a warranty claim against U.C.C. warranties differ from the § 229.34(d) the presenting bank under paragraph (c)(1) warranties in that they are given by any per- (which would require the paying bank to son, including a nonbank depositor, that show that the check was part of the over- transfers a remotely created check and not stated cash letter) or an encoding warranty just to a bank, as is the case under § 229.34(d). claim under paragraph (c)(3) against the pre- In addition, the U.C.C. warranties state that senting bank or any preceding bank that the person on whose account the item is handled the misencoded check. 5. Paragraph (c)(4) provides that a paying drawn authorized the issuance of the item in bank or a depositary bank may set off excess the amount for which the item is drawn. The settlement paid to another bank against set- § 229.34(d) warranties specifically cover the tlement owed to that bank for checks pre- amount as well as the payee stated on the sented or returned checks received (for check. Neither the U.C.C. warranties, nor the which it is the depositary bank) subsequent § 229.34(d) warranties apply to the date stated to the excess settlement. on the remotely created check. 4. A bank making the § 229.34(d) warranties D. 229.34(d) Transfer and Presentment may defend a claim asserting violation of Warranties the warranties by proving that the customer 1. A bank that transfers or presents a re- of the paying bank is precluded by U.C.C. 4– motely created check and receives a settle- 406 from making a claim against the paying ment or other consideration warrants that bank. This may be the case, for example, if the person on whose account the check is the customer failed to discover the unau- drawn authorized the issuance of the check thorized remotely created check in a timely in the amount stated on the check and to the manner.

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5. The transfer and presentment warranties of a check does not constitute ‘‘an for a remotely created check apply to a re- indorsement that previously was applied motely created check that has been recon- electronically.’’ To accommodate these two verted to a substitute check. indorsement scenarios, the appendix includes two indorsement location specifications: one E. 229.34(d) Damages standard applies to banks spraying 1. This paragraph adopts for the warranties indorsements onto existing paper original in § 229.34 (a), (b), and (c) the damages pro- checks and substitute checks, and another vided in U.C.C. 4–207(c) and 4A–506(b). (See applies to reconverting banks overlaying definition of interest compensation in indorsements that previously were applied § 229.2(oo).) electronically and their own indorsements onto substitute checks at the time the sub- F. 229.34(e) Tender of Defense stitute checks are created. 3. A bank might use check processing 1. This paragraph adopts for this regula- equipment that captures an image of a check tion the vouching-in provisions of U.C.C. 3– prior to spraying an indorsement onto that 119. item. If the bank truncates that item, it G. 229.34(f) Notice of Claim should ensure that it also applies an indorsement to the item electronically. A re- 1. This paragraph adopts the notice provi- converting bank satisfies its obligation to sions of U.C.C. sections 4–207(d) and 4–208(e). preserve all previously applied indorsements The time limit set forth in this paragraph by overlaying a bank’s indorsement that pre- applies to notices of claims for warranty viously was applied electronically onto a breaches only. As provided in § 229.38(g), all substitute check that the reconverting bank actions under this section must be brought creates. within one year after the date of the occur- 4. The location of an indorsement applied rence of the violation involved. to an original paper check in accordance with appendix D may shift if that check is XXI. Section 229.35 Indorsements truncated and later reconverted to a sub- A. 229.35(a) Indorsement Standards stitute check. If an indorsement applied to the original check in accordance with appen- 1. This section and appendix D require dix D is overwritten by a subsequent banks to use a standard form of indorsement indorsement applied to the substitute check when indorsing checks during the forward in accordance with appendix D, then one or collection and return process. The standard both of those indorsements could be rendered provides for indorsements by all collecting illegible. As explained in § 229.38(d) and the and returning banks, plus a unique standard commentary thereto, a reconverting bank is for depositary bank indorsements. It is de- liable for losses associated with signed to facilitate the identification of the indorsements that are rendered illegible as a depositary bank and the prompt return of result of check substitution. checks. The regulation places a duty on 5. To ensure that indorsements can be eas- banks to ensure that their indorsements can ily read and would remain legible after an be interpreted by any person. The image of a check is captured, the standard indorsement standard specifies the informa- requires all indorsements applied to original tion each indorsement must contain and its checks and substitute checks to be printed in location and ink color. black ink as of January 1, 2006. 2. Banks generally apply indorsements to a 6. The standard requires the depositary paper check in one of two ways: (1) banks bank’s indorsement to include (1) its nine- print or ‘‘spray’’ indorsements onto a check digit routing number set off by an arrow at when the check is processed through the each end of the routing number and, if the banks’’ automated check sorters (regardless depositary bank is a reconverting bank with of whether the checks are original checks or respect to the check, an asterisk outside the substitute checks), and (2) reconverting arrow at each end of the routing number to banks print or ‘‘overlay’’ previously applied identify the bank as a reconverting bank; (2) electronic indorsements and their own the indorsement date; and (3) if the indorsements and identifications onto a sub- indorsement is applied physically, name or stitute check at the time that the substitute location information. The standard also per- check is created. If a subsequent substitute mits but does not require the indorsement to check is created in the course of collection include other identifying information. The or return, that substitute check will contain, standard requires a collecting bank’s or re- in its image of the back of the previous sub- turning bank’s indorsement to include only stitute check, reproductions of indorsements (1) the bank’s nine digit routing number that were sprayed or overlaid onto the pre- (without arrows) and, if the collecting bank vious item. For purposes of the indorsement or returning bank is a reconverting bank standard set forth in appendix D, a reproduc- with respect to the check, an asterisk at tion of a previously applied sprayed or over- each end of the number to identify the bank laid indorsement contained within an image as a reconverting bank, (2) the indorsement

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date, and (3) an optional trace or sequence mailed to recipients may contain areas on number. the back that are blacked out so that they 7. Depositary banks should not include in- may not be read through the mailer. On the formation that can be confused with required deposit side, the payee of the check may information. For example, a nine-digit zip place its indorsement or information identi- code could be confused with the nine-digit fying the drawer of the check in the area routing number. specified for the depositary bank 8. A depositary bank may want to include indorsement, thus making the depositary an address in its indorsement in order to bank indorsement unreadable. limit the number of locations at which it 13. The indorsement standard does not pro- must receive returned checks. In instances hibit the use of a carbon band or other print- where this address is not consistent with the ed or written matter on the backs of checks routing number in the indorsement, the de- and does not require banks to avoid placing positary bank is required to receive returned their indorsements in these areas. Neverthe- checks at a branch or head office consistent less, checks will be handled more efficiently with the routing number. Banks should note, if depositary banks design indorsement however, that § 229.32 requires a depositary stamps so that the nine-digit routing num- bank to receive returned checks at the loca- ber avoids the carbon band area. Indorsing tion(s) at which it receives forward-collec- parties other than banks, e.g., corporations, tion checks. will benefit from the faster return of checks 9. In addition to indorsing a substitute if they protect the identifiability and leg- check in accordance with appendix D, a re- ibility of the depositary bank indorsement converting bank must identify itself and the by staying clear of the area reserved for the truncating bank by applying its routing depositary bank indorsement. number and the routing number of the trun- 14. Section 229.38(d) allocates responsi- cating bank to the front of the check in ac- bility for loss resulting from a delay in re- cordance with appendix D and ANS X9.100– turn of a check due to indorsements that are 140. Further, if the reconverting bank is the unreadable because of material on the back paying bank, it also must identify itself by of the check. The depositary bank is respon- applying its routing number to the back of sible for a loss resulting from a delay in re- the check in accordance with appendix D. In turn caused by the condition of the check these instances, the reconverting bank and arising after its issuance until its acceptance truncating bank routing numbers are for by the depositary bank that made the depos- identification purposes only and are not itary bank’s indorsement illegible. The pay- indorsements or acceptances. ing bank is responsible for loss resulting 10. Under the U.C.C., a specific guarantee from a delay in return caused by of prior indorsement is not necessary. (See indorsements that are not readable because U.C.C. 4–207(a) and 4–208(a).) Use of guarantee of other material on the back of the check at language in indorsements, such as ‘‘P.E.G.’’ the time that it was issued. Depositary and (‘‘prior endorsements guaranteed’’), may re- paying banks may shift these risks to their sult in reducing the type size used in bank customers by agreement. indorsements, thereby making them more 15. The standard does not require the pay- difficult to read. Use of this language may ing bank to indorse the check; however, if a make it more difficult for other banks to paying bank does indorse a check that is re- identify the depositary bank. Subsequent turned, it should follow the indorsement collecting bank indorsements may not in- standard for collecting banks and returning clude this language. banks. The standard requires collecting and 11. If the bank maintaining the account returning banks to indorse the check for into which a check is deposited agrees with tracing purposes. With respect to the identi- another bank (a correspondent, ATM oper- fication of a paying bank that is also a re- ator, or lock box operator) to have the other converting bank, see the commentary to bank accept returns and notices of non- § 229.51(b)(2). payment for the bank of account, the indorsement placed on the check as the de- B. 229.35(b) Liability of Bank Handling positary bank indorsement may be the Check indorsement of the bank that acts as cor- 1. When a check is sent for forward collec- respondent, ATM operator, or lock box oper- tion, the collection process results in a chain ator as provided in paragraph (d) of this sec- of indorsements extending from the deposi- tion. tary bank through any subsequent collecting 12. The backs of many checks bear pre- banks to the paying bank. This section ex- printed information or blacked out areas for tends the indorsement chain through the various reasons. For example, some checks paying bank to the returning banks, and are printed with a carbon band across the would permit each bank to recover from any back that allows the transfer of information prior indorser if the claimant bank does not from the check to a ledger with one writing. receive payment for the check from a subse- Also, contracts or loan agreements are print- quent bank in the collection or return chain. ed on certain checks. Other checks that are For example, if a returning bank returned a

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check to an insolvent depositary bank, and recover from a prior collecting bank as pro- did not receive the full amount of the check vided in §§ 229.30(b) and 229.31(b). This provi- from the failed bank, the returning bank sion is not a substitute for a paying or re- could obtain the unrecovered amount of the turning bank making expeditious return check from any bank prior to it in the col- under §§ 229.30(a) or 229.31(b). This paragraph lection and return chain including the pay- does not affect a paying bank’s accounting bank. Because each bank in the collec- ability for a check under U.C.C. 4–215(a) and tion and return chain could recover from a 4–302. Nor does this paragraph affect a col- prior bank, any loss would fall on the first lecting bank’s accountability under U.C.C. 4– collecting bank that received the check from 213 and 4–215(d). A collecting bank becomes the depositary bank. To avoid circuity of ac- accountable upon receipt of final settlement tions, the returning bank could recover di- as provided in the foregoing U.C.C. sections. rectly from the first collecting bank. Under The term final settlement in §§ 229.31 (c), the U.C.C., the first collecting bank might 229.32 (b), and 229.36(d) is intended to be con- ultimately recover from the depositary sistent with the use of the term final settle- bank’s customer or from the other parties on ment in the U.C.C. (e.g., U.C.C. 4–213, 4–214, the check. and 4–215). (See also § 229.2(cc) and Com- 2. Where a check is returned through the mentary.) same banks used for the forward collection 6. This paragraph also provides that a bank of the check, priority during the forward col- may have the rights of a holder based on the lection process controls over priority in the handling of the check for collection or re- return process for the purpose of deter- turn. A bank may become a holder or a hold- mining prior and subsequent banks under er in due course regardless of whether prior this regulation. banks have complied with the indorsement 3. Where a returning bank is insolvent and standard in § 229.35(a) and appendix D. fails to pay the paying bank or a prior re- 7. This paragraph affects the following pro- turning bank for a returned check, § 229.39(a) visions of the U.C.C., and may affect other requires the receiver of the failed bank to re- provisions: turn the check to the bank that transferred a. Section 4–214(a), in that the right to re- the check to the failed bank. That bank then covery is not based on provisional settle- either could continue the return to the de- ment, and recovery may be had from any positary bank or recover based on this para- prior bank. Section 4–214(a) would continue graph. Where the paying bank is insolvent, to permit a depositary bank to recover a pro- and fails to pay the collecting bank, the col- visional settlement from its customer. (See lecting bank also could recover from a prior § 229.33(d).) collecting bank under this paragraph, and b. Section 3–415 and related provisions the bank from which it recovered could in (such as section 3–503), in that such provi- turn recover from its prior collecting bank sions would not apply as between banks, or until the loss settled on the depositary bank as between the depositary bank and its cus- (which could recover from its customer). tomer. 4. A bank is not required to make a claim against an insolvent bank before exercising C. 229.35(c) Indorsement by Bank its right to recovery under this paragraph. Recovery may be made by charge-back or by 1. This section protects the rights of a cus- other means. This right of recovery also is tomer depositing a check in a bank without permitted even where nonpayment of the requiring the words ‘‘pay any bank,’’ as re- check is the result of the claiming bank’s quired by the U.C.C. (See U.C.C. 4–201(b).) negligence such as failure to make expedi- Use of this language in a depositary bank’s tious return, but the claiming bank remains indorsement will make it more difficult for liable for its negligence under § 229.38. other banks to identify the depositary bank. 5. This liability is imposed on a bank han- The indorsement standard in appendix D pro- dling a check for collection or return regard- hibits such material in subsequent collecting less of whether the bank’s indorsement ap- bank indorsements. The existence of a bank pears on the check. Notice must be sent indorsement provides notice of the restric- under this paragraph to a prior bank from tive indorsement without any additional which recovery is sought reasonably prompt- words. ly after a bank learns that it did not receive D. 229.35(d) Indorsement for Depositary payment from another bank, and learns the Bank identity of the prior bank. Written notice reasonably identifying the check and the 1. This section permits a depositary bank basis for recovery is sufficient if the check is to arrange with another bank to indorse not available. Receipt of notice by the bank checks. This practice may occur when a cor- against which the claim is made is not a pre- respondent indorses for a respondent, or condition to recovery by charge-back or when the bank servicing an ATM or lock box other means; however, a bank may be liable indorses for the bank maintaining the ac- for negligence for failure to provide timely count in which the check is deposited—i.e., notice. A paying or returning bank also may the depositary bank. If the indorsing bank

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applies the depositary bank’s indorsement, present the check to another bank or to a checks will be returned to the depositary nonbank payor for payment. bank. If the indorsing bank does not apply a. Delivery of checks may be made, and the depositary bank’s indorsement, by agree- presentment is considered to occur, at a lo- ment with the depositary bank it may apply cation (including a processing center) re- its own indorsement as the depositary bank quested by the paying bank. This is the way indorsement. In that case, the depositary most checks are presented by banks today. bank’s own indorsement on the check (if This provision adopts the common law rule any) should avoid the location reserved for of a number of legal decisions that the proc- the depositary bank. The actual depositary essing center acts as the agent of the paying bank remains responsible for the availability bank to accept presentment and to begin the and other requirements of Subpart B, but the time for processing of the check. (See also bank indorsing as depositary bank is consid- U.C.C. 4–204(c).) If a bank designates dif- ered the depositary bank for purposes of Sub- ferent locations for the presentment of for- part C. The check will be returned, and no- ward collection checks bearing different tice of nonpayment will be given, to the routing numbers, for purposes of this para- bank indorsing as depositary bank. graph it requests presentment of checks 2. Because the depositary bank for Subpart bearing a particular routing number only at B purposes will desire prompt notice of non- the location designated for receipt of for- payment, its arrangement with the indorsing ward collection checks bearing that routing bank should provide for prompt notice of number. nonpayment. The bank indorsing as deposi- b. i. Delivery may be made at an office of tary bank may require the depositary bank the bank associated with the routing number to agree to take up the check if the check is on the check. The office associated with the not paid even if the depositary bank’s routing number of a bank is found in Amer- indorsement does not appear on the check ican Bankers Association Key to Routing Num- and it did not handle the check. The arrange- bers, published by an agent of the American ment between the banks may constitute an Bankers Association, which lists a city and agreement varying the effect of provisions of state address for each routing number. Subpart C under § 229.37. Checks generally are handled by collecting banks on the basis of the nine-digit routing XXII. Section 229.36 Presentment and Issuance number encoded in magnetic ink (or on the of Checks basis of the fractional form routing number if the magnetic ink characters are obliter- A. 229.36(a) Payable Through and Payable ated) on the check, rather than the printed at Checks name or address. The definition of a paying 1. For purposes of Subpart C, the regula- bank in § 229.2(z) includes a bank designated tion defines a payable-through or payable-at by routing number, whether or not there is a bank (which could be designated the collect- name on the check, and whether or not any ible-through or collectible-at bank) as a pay- name is consistent with the routing number. ing bank. The requirements of § 229.30(a) and Where a check is payable by one bank, but the notice of nonpayment requirements of payable through another, the routing num- § 229.33 are imposed on a payable-through or ber is that of the payable-through bank, not payable-at bank and are based on the time of that of the payor bank. As the payor bank receipt of the forward collection check by has selected the payable-through bank as the the payable-through or payable-at bank. point through which presentment is to be This provision is intended to speed the re- made, it is proper to treat the payable- turn of checks that are payable through or through bank as the paying bank for pur- at a bank to the depositary bank. poses of this section. ii. There is no requirement in the regula- B. 229.36(b) Receipt at Bank Office or tion that the name and address on the check Processing Center agree with the address associated with the 1. This paragraph seeks to facilitate effi- routing number on the check. A bank gen- cient presentment of checks to promote erally may control the use of its routing early return or notice of nonpayment to the number, just as it does the use of its name. depositary bank and clarifies the law as to The address associated with the routing the effect of presentment by routing number. number may be a processing center. This paragraph differs from § 229.32(a) be- iii. In some cases, a paying bank may have cause presentment of checks differs from de- several offices in the city associated with the livery of returned checks. routing number. In such case, it would not be 2. The paragraph specifies four locations at reasonable or efficient to require the pre- which the paying bank must accept present- senting bank to sort the checks by more spe- ment of checks. Where the check is payable cific branch addresses that might be printed through a bank and the check is sent to that on the checks, and to deliver the checks to bank, the payable-through bank is the pay- each branch. A collecting bank normally ing bank for purposes of this subpart, regard- would deliver all checks to one location. In less of whether the paying bank must cases where checks are delivered to a branch

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other than the branch on which they may be bank is not considered to be final payment drawn, computer and courier communication for the purposes of U.C.C. 4–215(a)(2) or (3), among branches should permit the paying because a paying bank has the right to re- bank to determine quickly whether to pay cover settlement from a returning or deposi- the check. tary bank to which it returns a check under c. If the check specifies the name of the this subpart. Other provisions of the U.C.C. paying bank but no address, the bank must not superseded by this subpart, such as sec- accept delivery at any office. Where delivery tion 4–202, also continue to apply to the for- is made by a person other than a bank, or ward collection of a check and may apply to where the routing number is not readable, the return of a check. (See definition of re- delivery will be made based on the name and turning bank in § 229.2(cc).) address of the paying bank on the check. If there is no address, delivery may be made at E. 229.36(e) Issuance of Payable Through any office of the paying bank. This provision Checks is consistent with U.C.C. 3–111, which states 1. If a bank arranges for checks payable by that presentment for payment may be made it to be payable through another bank, it at the place specified in the instrument, or, if there is none, at the place of business of must require its customers to use checks the party to pay. Thus, there is a trade-off that contain conspicuously on their face the for a paying bank between specifying a par- name, location, and first four digits of the ticular address on a check to limit locations nine-digit routing number of the bank by of delivery, and simply stating the name of which the check is payable and the legend the bank to encourage wider currency for the ‘‘payable through’’ followed by the name of check. the payable-through bank. The first four dig- d. If the check specifies the name and ad- its of the nine-digit routing number and the dress of a branch or head office, or other lo- location of the bank by which the check is cation (such as a processing center), the payable must be associated with the same check may be delivered by delivery to that check processing region. (This section does office or other location. If the address is too not affect § 229.36(b).) The required informa- general to identify a particular office, deliv- tion is deemed conspicuous if it is printed in ery may be made at any office consistent a type size not smaller than six-point type with the address. For example, if the address and if it is contained in the title plate, which is ‘‘San Francisco, California,’’ each office in is located in the lower left quadrant of the San Francisco must accept presentment. The check. The required information may be con- designation of an address on the check gen- spicuous if it is located elsewhere on the erally is in the control of the paying bank. check. 3. This paragraph may affect U.C.C. 3–111 2. If a payable-through check does not to the extent that the U.C.C. requires pre- meet the requirements of this paragraph, the sentment to occur at a place specified in the bank by which the check is payable may be instrument. liable to the depositary bank or others as provided in § 229.38. For example, a bank by C. [Reserved] which a payable-through check is payable could be liable to a depositary bank that suf- D. 229.36(d) Liability of Bank During fers a loss, such as lost interest or liability Forward Collection under Subpart B, that would not have oc- 1. This paragraph makes settlement be- curred had the check met the requirements tween banks during forward collection final of this paragraph. Similarly, a bank may be when made, subject to any deferment of liable under § 229.38 if a check payable by it credit, just as settlements between banks that is not payable through another bank is during the return of checks are final. In ad- labeled as provided in this section. For ex- dition, this paragraph clarifies that this ample, a bank that holds checking accounts change does not affect the liability scheme and processes checks at a central location under U.C.C. 4–201 during forward collection but has widely-dispersed branches may be of a check. That U.C.C. section provides liable under this section if it labels all of its that, unless a contrary intent clearly ap- checks as ‘‘payable through’’ a single branch pears, a bank is an agent or subagent of the and includes the name, address, and four- owner of a check, but that Article 4 of the digit routing symbol of another branch. U.C.C. applies even though a bank may have These checks would not be payable through purchased an item and is the owner of it. another bank and should not be labeled as This paragraph preserves the liability of a payable-through checks. (All of a bank’s of- collecting bank to prior collecting banks and fices within the United States are considered the depositary bank’s customer for neg- part of the same bank; see § 229.2(e).) In this ligence during the forward collection of a example, the bank by which the checks are check under the U.C.C., even though this payable could be liable to a depositary bank paragraph provides that settlement between that suffers a loss, such as lost interest or li- banks during forward collection is final rath- ability under Subpart B, due to the mis- er than provisional. Settlement by a paying labeled check. The bank by which the check

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is payable may be liable for additional dam- checks for which it is paying bank that have ages if it fails to act in good faith. a routing number consistent with the check processing region of that location. F. 229.36(f) Same-Day Settlement iii. If the paying bank does not designate a 1. This paragraph provides that, under cer- presentment location, it must accept pre- tain conditions, a paying bank must settle sentment for same-day settlement at any lo- with a presenting bank for a check on the cation identified in § 229.36(b), i.e., at an ad- same day the check is presented in order to dress of the bank associated with the routing avail itself of the ability to return the check number on the check, at any branch or head on its next banking day under U.C.C. 4–301 office if the bank is identified on the check and 4–302. This paragraph does not apply to by name without address, or at a branch, checks presented for immediate payment head office, or other location consistent with over the counter. Settling for a check under the name and address of the bank on the this paragraph does not constitute final pay- check if the bank is identified on the check ment of the check under the U.C.C. This by name and address. A paying bank and a paragraph does not supersede or limit the presenting bank may agree that checks will rules governing collection and return of be accepted for same-day settlement at an checks through Federal Reserve Banks that alternative location (e.g., at an intercept are contained in Subpart A of Regulation J processor located in a different check proc- (12 CFR part 210). essing region) or that the cut-off time for 2. Presentment requirements. same-day settlement be earlier or later than a. Location and time. 8:00 a.m. local time. i. For presented checks to qualify for man- iv. In the case of a check payable through datory same-day settlement, information ac- a bank but payable by another bank, this companying the checks must indicate that paragraph does not authorize direct present- presentment is being made under this para- ment to the bank by which the check is pay- graph—e.g. ‘‘these checks are being pre- able. The requirements of same-day settle- sented for same-day settlement’’—and must ment under this paragraph would apply to a include a demand for payment of the total payable-through or payable-at bank to which amount of the checks together with appro- the check is sent for payment or collection. priate payment instructions in order to en- b. Reasonable delivery requirements. A able the paying bank to discharge its settle- check is considered presented when it is de- ment responsibilities under this paragraph. livered to and payment is demanded at a lo- In addition, the check or checks must be pre- cation specified in paragraph (f)(1). Ordi- sented at a location designated by the pay- narily, a presenting bank will find it nec- ing bank for receipt of checks for same-day essary to contact the paying bank to deter- settlement by 8:00 a.m. local time of that lo- mine the appropriate presentment location cation. The designated presentment location must be a location at which the paying bank and any delivery instructions. Further, be- would be considered to have received a check cause presentment might not take place dur- under § 229.36(b). The paying bank may not ing the paying bank’s banking day, a paying designate a location solely for presentment bank may establish reasonable delivery re- of checks subject to settlement under this quirements to safeguard the checks pre- paragraph; by designating a location for the sented, such as use of a night depository. If purposes of § 229.36(f), the paying bank agrees a presenting bank fails to follow reasonable to accept checks at that location for the pur- delivery requirements established by the poses of § 229.36(b). paying bank, it runs the risk that it will not ii. The designated presentment location have presented the checks. However, if no also must be within the check processing re- reasonable delivery requirements are estab- gion consistent with the nine-digit routing lished or if the paying bank does not make number encoded in magnetic ink on the provisions for accepting delivery of checks check. A paying bank that uses more than during its non-business hours, leaving the one routing number associated with a single checks at the presentment location con- check processing region may designate, for stitutes effective presentment. purposes of this paragraph, one or more loca- c. Sorting of checks. A paying bank may tions in that check processing region at require that checks presented to it for same- which checks will be accepted, but the pay- day settlement be sorted separately from ing bank must accept any checks with a other forward collection checks it receives routing number associated with that check as a collecting bank or returned checks it re- processing region at each designated loca- ceives as a returning or depositary bank. For tion. A paying bank may designate a pre- example, if a bank provides correspondent sentment location for traveler’s checks with check collection services and receives an 8000-series routing number anywhere in unsorted checks from a respondent bank the country because these traveler’s checks that include checks for which it is the pay- are not associated with any check processing ing bank and that would otherwise meet the region. The paying bank, however, must ac- requirements for same-day settlement under cept at that presentment location any other this section, the collecting bank need not

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make settlement in accordance with para- close of Fedwire on its next banking day. In graph (f)(2). If the collecting bank receives addition, checks presented on a business day sorted checks from its respondent bank, con- on which the paying bank is closed are con- sisting only of checks for which the col- sidered received on the paying bank’s next lecting bank is the paying bank and that banking day for purposes of the U.C.C. mid- meet the requirements for same-day settle- night deadline (U.C.C. 4–301 and 4–302) and ment under this paragraph, the collecting this regulation’s expeditious return and no- bank may not charge a fee for handling those tice of nonpayment provisions. checks and must make settlement in accord- b. If the paying bank is closed on a busi- ance with this paragraph. ness day voluntarily, the paying bank must 3. Settlement pay interest compensation, as defined in a. If a bank presents a check in accordance § 229.2(oo), to the presenting bank for the with the time and location requirements for value of the float associated with the check presentment under paragraph (f)(1), the pay- from the day of the voluntary closing until ing bank either must settle for the check on the day of settlement. Interest compensation the business day it receives the check with- is not required in the case of an involuntary out charging a presentment fee or return the closing on a business day, such as a closing check prior to the time for settlement. (This required by state law. In addition, if the pay- return deadline is subject to extension under ing bank is closed on a business day due to § 229.30(c).) The settlement must be in the emergency conditions, settlement delays and form of a credit to an account designated by interest compensation may be excused under the presenting bank at a Federal Reserve § 229.38(e) or U.C.C. 4–109(b). Bank (e.g., a Fedwire transfer). The pre- 5. Good faith. Under § 229.38(a), both presenting bank may agree with the paying senting banks and paying banks are held to bank to accept settlement in another form a standard of good faith, defined in § 229.2(nn) (e.g., credit to an account of the presenting to mean honesty in fact and the observance bank at the paying bank or debit to an ac- of reasonable commercial standards of fair count of the paying bank at the presenting dealing. For example, designating a present- bank). The settlement must occur by the ment location or changing presentment loca- close of Fedwire on the business day the tions for the primary purpose of discour- check is received by the paying bank. Under aging banks from presenting checks for the provisions of § 229.34(c), a settlement same-day settlement might not be consid- owed to a presenting bank may be set off by ered good faith on the part of the paying adjustments for previous settlements with bank. Similarly, presenting a large volume the presenting bank. (See also § 229.39(d).) of checks without prior notice could be b. Checks that are presented after the 8 viewed as not meeting reasonable commer- a.m. (local time) presentment deadline for cial standards of fair dealing and therefore same-day settlement and before the paying may not constitute presentment in good bank’s cut-off hour are treated as if they faith. In addition, if banks, in the general were presented under other applicable law course of business, regularly agree to certain and settled for or returned accordingly. How- practices related to same-day settlement, it ever, for purposes of settlement only, the might not be considered consistent with rea- presenting bank may require the paying sonable commercial standards of fair deal- bank to treat such checks as presented for ing, and therefore might not be considered same-day settlement on the next business good faith, for a bank to refuse to agree to day in lieu of accepting settlement by cash those practices if agreeing would not cause it or other means on the business day the harm. checks are presented to the paying bank. 6. U.C.C. sections affected. This paragraph Checks presented after the paying bank’s directly affects the following provisions of cut-off hour or on non-business days, but the U.C.C. and may affect other sections or otherwise in accordance with this paragraph, provisions: are considered presented for same-day settle- a. Section 4–204(b)(1), in that a presenting ment on the next business day. bank may not send a check for same-day set- 4. Closed Paying Bank tlement directly to the paying bank, if the a. There may be certain business days that paying bank designates a different location are not banking days for the paying bank. in accordance with paragraph (f)(1). Some paying banks may continue to settle b. Section 4–213(a), in that the medium of for checks presented on these days (e.g., by settlement for checks presented under this opening their back office operations or by paragraph is limited to a credit to an ac- using an intercept processor). In other cases, count at a Federal Reserve Bank and that, a paying bank may be unable to settle for for checks presented after the deadline for checks presented on a day it is closed. same-day settlement and before the paying If the paying bank closes on a business day bank’s cut-off hour, the presenting bank may and checks are presented to the paying bank require settlement on the next business day in accordance with paragraph (f)(1), the pay- in accordance with this paragraph rather ing bank is accountable for the checks unless than accept settlement on the business day it settles for or returns the checks by the of presentment by cash.

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c. Section 4–301(a), in that, to preserve the 5. A collecting or paying bank may agree ability to exercise deferred posting, the time to accept forward collection checks without limit specified in that section for settlement the indorsement of a prior collecting bank. or return by a paying bank on the banking (See § 229.35(a).) day a check is received is superseded by the 6. A bank may agree to accept returned requirement to settle for checks presented checks without the indorsement of a prior under this paragraph by the close of Fedwire. bank. (See § 229.35(a).) d. Section 4–302(a), in that, to avoid ac- 7. A presenting bank may agree with a pay- countability, the time limit specified in that ing bank to present checks for same-day set- section for settlement or return by a paying tlement at a location that is not in the bank on the banking day a check is received check processing region consistent with the is superseded by the requirement to settle routing number on the checks. (See for checks presented under this paragraph by § 229.36(f)(1)(i).) the close of Fedwire. 8. A presenting bank may agree with a paying bank to present checks for same-day set- XXIII. Section 229.37 Variations by Agreement tlement by a deadline earlier or later than A. This section is similar to U.C.C. 4–103, 8:00 a.m. (See § 229.36(f)(1)(ii).) and permits consistent treatment of agree- 9. A presenting bank and a paying bank ments varying Article 4 or Subpart C, given may agree that presentment takes place the substantial interrelationship of the two when the paying bank receives an electronic documents. To achieve consistency, the offi- transmission of information describing the cial comment to U.C.C. 4–103(a) (which in check rather than upon delivery of the phys- turn follows U.C.C. 1–201(3)) should be fol- ical check. (See § 229.36(b).) lowed in construing this section. For exam- 10. A depositary bank may agree with a ple, as stated in Official Comment 2 to sec- paying or returning bank to accept an image tion 4–103, owners of items and other inter- or other notice in lieu of a returned check ested parties are not affected by agreements even when the check is available for return under this section unless they are parties to under this part. Except to the extent that the agreement or are bound by adoption, other parties interested in the check assent ratification, estoppel, or the like. In par- to or are bound by the variation of the no- ticular, agreements varying this subpart tice-in-lieu provisions of this part, banks en- that delay the return of a check beyond the tering into such an agreement may be re- times required by this subpart may result in sponsible under this part or other applicable liability under § 229.38 to entities not party law to other interested parties for any losses to the agreement. caused by the handling of a returned check B. The Board has not followed U.C.C. 4– under the agreement. (See §§ 229.30(f), 103(b), which permits Federal Reserve regu- 229.31(f), 229.38(a).) lations and operating letters, clearinghouse D. The Board expects to review the types rules, and the like to apply to parties that of variation by agreement that develop have not specifically assented. Nevertheless, under this section and will consider whether this section does not affect the status of it is necessary to limit certain variations. such agreements under the U.C.C. XXIV. Section 229.38 Liability C. The following are examples of situations where variation by agreement is permissible, A. 229.38(a) Standard of care; liability; subject to the limitations of this section: measure of damages 1. A depositary bank may authorize another bank to apply the other bank’s 1. The standard of care established by this indorsement to a check as the depositary section applies to any bank covered by the bank. (See § 229.35(d).) requirements of Subpart C of the regulation. 2. A depositary bank may authorize return- Thus, the standard of care applies to a paying banks to commingle qualified returned ing bank under §§ 229.30 and 229.33, to a re- checks with forward collection checks. (See turning bank under § 229.31, to a depositary § 229.32(a).) bank under §§ 229.32 and 229.33, to a bank er- 3. A depositary bank may limit its liability roneously receiving a returned check or to its customer in connection with the late written notice of nonpayment as depositary return of a deposited check where the late- bank under § 229.32(d), and to a bank indors- ness is caused by markings on the check by ing a check under § 229.35. The standard of the depositary bank’s customer or prior care is similar to the standard imposed by indorser in the area of the depositary bank U.C.C. 1–203 and 4–103(a) and includes a duty indorsement. (See § 229.38(d).) to act in good faith, as defined in § 229.2(nn) 4. A paying bank may require its customer of this regulation. to assume the paying bank’s liability for de- 2. A bank not meeting this standard of care layed or missent checks where the delay or is liable to the depositary bank, the deposi- missending is caused by markings placed on tary bank’s customer, the owner of the the check by the paying bank’s customer check, or another party to the check. The that obscured a properly placed indorsement depositary bank’s customer is usually a de- of the depositary bank. (See § 229.38(d).) positor of a check in the depositary bank

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(but see § 229.35(d)). The measure of damages of difficulty in identifying the depositary provided in this section (loss incurred up to bank. Some examples will illustrate liability amount of check, less amount of loss party in such cases. In each example, it is assumed would have incurred even if bank had exer- that the returned check is received by the cised ordinary care) is based on U.C.C. 4– depositary bank after it has made funds 103(e) (amount of the item reduced by an available to its customer, that it may no amount that could not have been realized by longer recover the funds from its customer, the exercise of ordinary care), as limited by and that the inability to recover the funds 4–202(c) (bank is liable only for its own neg- from the customer is due to a delay in re- ligence and not for actions of subsequent turning the check contrary to the standards banks in chain of collection). This subpart established by §§ 229.30(a) or 229.31(a). does not absolve a collecting bank of liabil- 2. Examples. ity to prior collecting banks under U.C.C. 4– a. If a depositary bank fails to use the 201. indorsement required by this regulation, and 3. Under this measure of damages, a deposi- this failure is caused by a failure to exercise tary bank or other person must show that ordinary care, and if a paying or returning the damage incurred results from the neg- bank is delayed in returning the check be- ligence proved. For example, the depositary cause additional time is required to identify bank may not simply claim that its cus- the depositary bank or find its routing num- tomer will not accept a charge-back of a re- ber, the paying or returning bank’s liability turned check, but must prove that it could to the depositary bank would be reduced or not charge back when it received the re- eliminated. turned check and could have charged back if b. If the depositary bank uses the standard no negligence had occurred, and must first indorsement, but that indorsement is ob- attempt to collect from its customer. (See scured by a subsequent collecting bank’s Marcoux v. Van Wyk, 572 F.2d 651 (8th Cir. indorsement, and a paying or returning bank 1978); Appliance Buyers Credit Corp. v. Prospect is delayed in returning the check because ad- Nat’l Bank, 708 F.2d 290 (7th Cir. 1983).) Gen- ditional time was required to identify the de- erally, a paying or returning bank’s liability positary bank or find its routing number, the would not be reduced because the depositary paying or returning bank may not be liable bank did not place a hold on its customer’s to the depositary bank because the delay was deposit before it learned of nonpayment of not due to its negligence. Nonetheless, the the check. collecting bank may be liable to the deposi- 4. This paragraph also states that it does tary bank to the extent that its negligence not affect a paying bank’s liability to its in indorsing the check caused the paying or customer. Under U.C.C. 4–402, for example, a returning bank’s delay. paying bank is liable to its customer for c. If a depositary bank accepts a check wrongful dishonor, which is different from that has printing, a carbon band, or other failure to exercise ordinary care and has a material on the back of the check that ex- different measure of damages. isted at the time the check was issued, and the depositary bank’s indorsement is ob- B. 229.38(b) Paying Bank’s Failure To Make scured by the printing, carbon band, or other Timely Rreturn material, and a paying or returning bank is 1. Section 229.30(a) imposes requirements delayed in returning the check because addi- on the paying bank for expeditious return of tional time was required to identify the de- a check and leaves in place the U.C.C. dead- positary bank, the returning bank may not lines (as they may be modified by § 229.30(c)), be liable to the depositary bank because the which may allow return at a different time. delay was not due to its negligence. Nonethe- This paragraph clarifies that the paying less, the paying bank may be liable to the bank could be liable for failure to meet ei- depositary bank to the extent that the print- ther standard, but not for failure to meet ing, carbon band, or other material caused both. The regulation intends to preserve the the delay. paying bank’s accountability for missing its midnight or other deadline under the U.C.C., D. 229.38(d) Responsibility for Certain (e.g., sections 4–215 and 4–302), provisions Aspects of Checks that are not incorporated in this regulation, 1. Responsibility for back of check. The but may be useful in establishing the time of indorsement standard in § 229.35 is most ef- final payment by the paying bank. fective if the back of the check remains clear of other matter that may obscure bank C. 229.38(c) Comparative negligence indorsements. Because bank indorsements 1. This paragraph establishes a ‘‘pure’’ are usually applied by automated equipment, comparative negligence standard for liabil- it is not possible to avoid pre-existing mat- ity under Subpart C of this regulation. This ter on the back of the check. For example, comparative negligence rule may have par- bank indorsements are not required to avoid ticular application where a paying or return- a carbon band or printed, stamped, or writing bank delays in returning a check because ten terms or notations on the back of the

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check. Accordingly, this provision places re- the return been expeditious, the recon- sponsibility on the paying bank, depositary verting bank bears the liability for that loss. bank, or reconverting bank, as appropriate, 3. Responsibility for payable-through for keeping the back of the check clear for checks. bank indorsements during forward collection a. This paragraph provides that the bank and return. by which a payable-through check is payable 2. ANS X9.100–140 provides that an image of is liable for damages under paragraph (a) of an original check must be reduced in size this section to the extent that the check is when placed on the first substitute check as- not returned through the payable-through sociated with that original check. (The bank as quickly as would have been nec- image thereafter would be constant in size essary to meet the requirements of on any subsequent substitute check that § 229.30(a)(1) (the 2-day/4-day test) had the might be created.) Because of this size reduc- bank by which it is payable received the tion, the location of an indorsement, par- check as paying bank on the day the pay- ticularly a depositary bank indorsement, ap- able-through bank received it. The location plied to an original paper check likely will of the bank by which a check is payable for change when the first reconverting bank cre- purposes of the 2-day/4-day test may be de- ates a substitute check that contains that termined from the location or the first four digits of the routing number of the bank by indorsement within the image of the original which the check is payable. This information paper check. If the indorsement was applied should be stated on the check. (See § 229.36(e) to the original paper check in accordance and accompanying Commentary.) Responsi- with appendix D’s location requirements for bility under paragraph (d)(2) does not include indorsements applied to existing paper responsibility for the time required for the checks, and if the size reduction of the image forward collection of a check to the payable- causes the placement of the indorsement to through bank. no longer be consistent with the appendix’s b. Generally, liability under paragraph requirements, then the reconverting bank (d)(2) will be limited in amount. Under bears the liability for any loss that results § 229.33(a), a paying bank that returns a from the shift in the placement of the check in the amount of $2,500 or more must indorsement. Such a loss could result either provide notice of nonpayment to the deposi- because the original indorsement applied in tary bank by 4:00 p.m. on the second business accordance with appendix D is rendered il- day following the banking day on which the legible by a subsequent indorsement that check is presented to the paying bank. Even later is applied to the substitute check in ac- if a payable-through check in the amount of cordance with appendix D, or because the $2,500 or more is not returned through the subsequent bank cannot apply its payable-through bank as quickly as would indorsement to the substitute check legibly have been required had the check been re- in accordance with appendix D as a result of ceived by the bank by which it is payable, the shift in the previous indorsement. the depositary bank should not suffer damages unless it has not received timely notice Example. of nonpayment. Thus, ordinarily the bank by In accordance with appendix D’s specifica- which a payable-through check is payable tions, a depositary bank sprays its would be liable under paragraph (a) only for indorsement onto a business-sized original checks in amounts up to $2,500, and the pay- check between 3.0 inches from the leading ing bank would be responsible for notice of edge of the check and 1.5 inches from the nonpayment for checks in the amount of trailing edge of the check. The check’s con- $2,500 or more. version to electronic form and subsequent re- 4. Responsibility under paragraphs (d)(1) conversion to paper form causes the location and (d)(2) is treated as negligence for com- of the depositary bank indorsement, now parative negligence purposes, and the con- contained within the image of the original tribution to damages under paragraphs (d)(1) check, to change such that it is less than 3.0 and (d)(2) is treated in the same way as the inches from the leading edge of the sub- degree of negligence under paragraph (c) of stitute check. In accordance with appendix this section. D’s specifications, a subsequent collecting E. 229.38(e) Timeliness of Action bank sprays its indorsement onto the substitute check between the leading edge of the 1. This paragraph excuses certain delays. It check and 3.0 inches from the leading edge of adopts the standard of U.C.C. 4–109(b). the check and the indorsement happens to be on top of the shifted depositary bank F. 229.38(f) Exclusion indorsement. If the check is returned unpaid 1. This paragraph provides that the civil li- and the return is not expeditious because of ability and class action provisions, particu- the illegibility of the depositary bank larly the punitive damage provisions of sec- indorsement, and the depositary bank incurs tions 611(a) and (b), and the bona fide error a loss that it would not have incurred had provision of 611(c) of the EFA Act (12 U.S.C.

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4010(a), (b), and (c)) do not apply to regu- § 229.39(b), if the bank with a preferred claim latory provisions adopted to improve the ef- under this paragraph recovers from a prior ficiency of the payments mechanism. Allow- bank or other party to the check, the prior ing punitive damages for delays in the return bank or other party to the check is sub- of checks where no actual damages are in- rogated to the preferred claim. curred would only encourage litigation and provide little or no benefit to the check col- E. 229.39(d) Preference Against Presenting lection system. In view of the provisions of Bank paragraph (a), which incorporate traditional 1. This paragraph gives a paying bank a bank collection standards based on neg- preferred claim against a closed presenting ligence, the provision on bona fide error is bank in the event that the presenting bank not included in Subpart C. breaches an amount or encoding warranty as provided in § 229.34(c)(1) or (3) and does not G. 229.38(g) Jurisdiction reimburse the paying bank for adjustments 1. The EFA Act confers subject matter ju- for a settlement made by the paying bank in risdiction on courts of competent jurisdic- excess of the value of the checks presented. tion and provides a time limit for civil ac- This preference is intended to have the effect tions for violations of this subpart. of a perfected security interest and is intended to put the paying bank in the posi- H. 229.38(h) Reliance on Board Rulings tion of a secured creditor for purposes of the 1. This provision shields banks from civil receivership provisions of the Federal De- liability if they act in good faith in reliance posit Insurance Act and similar provisions of on any rule, regulation, or interpretation of state law. the Board, even if it were subsequently de- F. 229.39(e) Finality of Settlement termined to be invalid. Banks may rely on the Commentary to this regulation, which is 1. This paragraph provides that insolvency issued as an official Board interpretation, as does not interfere with the finality of a set- well as on the regulation itself. tlement, such as a settlement by a paying bank that becomes final by expiration of the XXV. Section 229.39 Insolvency of Bank midnight deadline. A. Introduction XXVI. Section 229.40 Effect on Merger 1. These provisions cover situations where Transaction a bank becomes insolvent during collection A. When banks merge, there is normally a or return and are derived from U.C.C. 4–216. period of adjustment required before their They are intended to apply to all banks. operations are consolidated. To allow for B. 229.39(a) Duty of Receiver this adjustment period, the regulation provides that the merged banks may be treated 1. This paragraph requires a receiver of a as separate banks for a period of up to one closed bank to return a check to the prior year after the consummation of the trans- bank if it does not pay for the check. This action. The term merger transaction is de- permits the prior bank, as holder, to pursue fined in § 229.2(t). This rule affects the status its claims against the closed bank or prior of the combined entity in a number of areas indorsers on the check. in this subpart. For example: 1. The paying bank’s responsibility for ex- C. 229.39(b) Preference Against Paying or peditious return (§ 229.30). Depositary Bank 2. The returning bank’s responsibility for 1. This paragraph gives a bank a preferred expeditious return (§ 229.31). claim against a closed paying bank that fi- 3. Whether a returning bank is entitled to nally pays a check without settling for it or an extra day to qualify a return that will be a closed depositary bank that becomes obli- delivered directly to a depositary bank that gated to pay a returned check without set- has merged with the returning bank tling for it. If the bank with a preferred (§ 229.31(a)). claim under this paragraph recovers from a 4. Where the depositary bank must accept prior bank or other party to the check, the returned checks (§ 229.32(a)). prior bank or other party to the check is 5. Where the depositary bank must accept subrogated to the preferred claim. notice of nonpayment (§ 229.33(c)). 6. Where a paying bank must accept pre- D. 229.39(c) Preference Against Paying, sentment of checks (§ 229.36(b)). Collecting, or Depositary Bank XXVII. Section 229.41 Relation to State Law 1. This paragraph gives a bank a preferred claim against a closed collecting, paying, or A. This section specifies that state law re- returning bank that receives settlement but lating to the collection of checks is pre- does not settle for a check. (See Com- empted only to the extent that it is incon- mentary to § 229.35(b) for discussion of prior sistent with this regulation. Thus, this regu- and subsequent banks.) As in the case of lation is not a complete replacement for

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state laws relating to the collection or re- check for deposit (or otherwise accepts the turn of checks. check as transferee) and collects the Pacific island check in the same manner as other XXVIII. Section 229.42 Exclusions checks, the bank is subject to the provisions A. Checks drawn on the United States of § 229.32, including the provisions regarding Treasury, U.S. Postal Service money orders, time and manner of settlement for returned and checks drawn on states and units of gen- checks in § 229.32(b), in the event the Pacific eral local government that are presented di- island check is returned by a returning bank. rectly to the state or unit of general local If the depositary bank receives the returned government and that are not payable Pacific island check directly from the Pa- through or at a bank are excluded from the cific island bank, however, the provisions of coverage of the expeditious-return, notice-of- § 229.32(b) do not apply, because the Pacific nonpayment, and same-day settlement re- island bank is not a paying bank under Reg- quirements of subpart C of this part. Other ulation CC. The depositary bank is not sub- provisions of this subpart continue to apply ject to the notice of nonpayment provisions to the checks. This exclusion does not apply in § 229.33 for Pacific island checks. to checks drawn by the U.S. government on 4. Banks that handle Pacific island checks banks. in the same manner as other checks are subject to the indorsement provisions of § 229.35. XXIX. Section 229.43 Checks Payable in Guam, Section 229.35(c) eliminates the need for the American Samoa, and the Northern Mariana restrictive indorsement ‘‘pay any bank.’’ For Islands purposes of § 229.35(c), the Pacific island bank is deemed to be a bank. A. 229.43(a) Definitions 5. Pacific island checks will often be inter- mingled with other checks in a single cash 1. Bank offices in Guam, American Samoa, letter. Therefore, a bank that handles Pa- and the Northern Mariana Islands (which cific island checks in the same manner as Regulation CC defines as Pacific island other checks is subject to the transfer war- banks) do not meet the definition of bank in ranty provision in § 229.34(c)(2) regarding ac- § 229.2(e) because they are not located in the curate cash letter totals and the encoding United States. Some checks drawn on Pacific warranty in § 229.34(c)(3). A bank that acts as island banks (defined as Pacific island a returning bank for a Pacific island check is checks) bear U.S. routing numbers and are not subject to the warranties in § 229.34(a). collected and returned by banks in the same Similarly, because the Pacific island bank is manner as checks payable in the U.S. not a ‘‘bank’’ or a ‘‘paying bank’’ under Reg- B. 229.43(b) Rules Applicable to Pacific ulation CC, § 229.34(b), (c)(1), and (c)(4) do not Island Checks apply. For the same reason, the provisions of § 229.36 governing paying bank responsibil- 1. When a bank handles a Pacific island ities such as place of receipt and same-day check as if it were a check as defined in settlement do not apply to checks presented § 229.2(k), the bank is subject to certain pro- to a Pacific island bank, and the liability visions of Regulation CC, as provided in this provisions applicable to paying banks in section. Because the Pacific island bank is § 229.38 do not apply to Pacific island banks. not a bank as defined in § 229.2(e), it is not a Section 229.36(d), regarding finality of settle- paying bank as defined in § 229.2(z) (unless ment between banks during forward collec- otherwise noted in this section). Pacific is- tion, applies to banks that handle Pacific island banks are not subject to the provisions land checks in the same manner as other of Regulation CC. checks, as do the liability provisions of 2. A bank may agree to handle a Pacific is- § 229.38, to the extent the banks are subject land check as a returned check under § 229.31 to the requirements of Regulation CC as pro- and may convert the returned Pacific island vided in this section, and §§ 229.37 and 229.39 check to a qualified returned check. The re- through 229.42. turning bank is not, however, subject to the expeditious-return requirements of § 229.31. XXX. § 229.51 General provisions governing The returning bank may receive the Pacific substitute checks island check directly from a Pacific island A. § 229.51(a) Legal Equivalence bank or from another returning bank. As a Pacific island bank is not a paying bank 1. Section 229.51(a) states that a substitute under Regulation CC, § 229.31(c) does not check for which a bank has provided the sub- apply to a returning bank settling with the stitute check warranties is the legal equiva- Pacific island bank. lent of the original check for all purposes 3. A depositary bank that handles a Pacific and all persons if it meets the accuracy and island check is not subject to the provisions legend requirements. Where the law (or a of subpart B of Regulation CC, including the contract) requires production of the original availability, notice, and interest accrual re- check, production of a legally equivalent quirements, with respect to that check. If, substitute check would satisfy that require- however, a bank accepts a Pacific island ment. A person that receives a substitute

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check cannot be assessed costs associated tation of the word ‘‘void’’ that will appear with the creation of the substitute check, more clearly on a photocopied or electronic absent agreement to the contrary. image of the check. Provided the inclusion of the clearer version of the word on the image Examples. used to create a substitute check did not ob- a. A presenting bank presents a substitute scure the required information listed above, check that meets the legal equivalence re- a substitute check that contained such infor- quirements to a paying bank. The paying mation could be the legal equivalent of an bank cannot refuse presentment of the sub- original check under § 229.51(a). However, if a stitute check on the basis that it is a sub- person suffered a loss due to receipt of such stitute check, because the substitute check a substitute check instead of the original is the legal equivalent of the original check. check, that person could have an indemnity b. A depositor’s account agreement with a claim under § 229.53 and, in the case of a con- bank provides that the depositor is entitled sumer, an expedited recredit claim under to receive original cancelled checks back § 229.54. with his or her periodic account statement. 4. To be the legal equivalent of the original The bank may honor that agreement by pro- check, a substitute check must bear the viding original checks, substitute checks, or legal equivalence legend described in a combination thereof. However, a bank may § 229.51(a)(2). A bank may not vary the lan- not honor such an agreement by providing guage of the legal equivalence legend and something other than an original check or a must place the legend on the substitute substitute check. check as specified by generally applicable in- c. A mortgage company argues that a con- dustry standards for substitute checks consumer missed a monthly mortgage payment tained in ANS X9.100–140. that the consumer believes she made. A le- 5. In some cases, the original check used to gally equivalent substitute check concerning create a substitute check could be forged or that mortgage payment could be used in the otherwise fraudulent. A substitute check same manner as the original check to prove created from a fraudulent original check the payment. would have the same status under Regula- 2. A person other than a bank that creates tion CC and the U.C.C. as the original fraud- a substitute check could transfer, present, or ulent check. For example, a substitute check return that check only by agreement unless of a fraudulent original check would not be and until a bank provided the substitute properly payable under U.C.C. 4–401 and check warranties. would be subject to the transfer and present- 3. To be the legal equivalent of the original ment warranties in U.C.C. 4–207 and 4–208. check, a substitute check must accurately represent all the information on the front B. 229.51(b) Reconverting Bank Duties and back of the check as of the time the original check was truncated. An accurate 1. As discussed in more detail in appendix representation of information that was il- D and the commentary to § 229.35, a recon- legible on the original check would satisfy verting bank must indorse (or, if it is a pay- this requirement. The payment instructions ing bank with respect to the check, identify placed on the check by, or as authorized by, itself on) the back of a substitute check in a the drawer, such as the amount of the check, manner that preserves all indorsements ap- the payee, and the drawer’s signature, must plied, whether physically or electronically, be accurately represented, because that in- by persons that previously handled the check formation is an essential element of a nego- in any form for forward collection or return. tiable instrument. Other information that Indorsements applied physically to the origi- must be accurately represented includes (1) nal check before an image of the check was the information identifying the drawer and captured would be preserved through the the paying bank that is preprinted on the image of the back of the original check that check, including the MICR line; and (2) other a substitute check must contain. information placed on the check prior to the Indorsements applied physically to the origi- time an image of the check is captured, such nal check after an image of the original as any required identification written on the check was captured would be conveyed as front of the check and any indorsements ap- electronic indorsements (see paragraph 3 of plied to the back of the check. A substitute the commentary to § 229.35(a)). If check need not capture other characteristics indorsements were applied electronically of the check, such as watermarks, micro- after an image of the original check was cap- printing, or other physical security features tured or were applied electronically after a that cannot survive the imaging process or previous substitute check was converted to decorative images, in order to meet the ac- electronic form, the reconverting bank must curacy requirement. Conversely, some secu- apply those indorsements physically to the rity features that are latent on the original substitute check. A reconverting bank is not check might become visible as a result of the responsible for obtaining indorsements that check imaging process. For example, the persons that previously handled the check original check might have a faint represen- should have applied but did not apply.

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2. A reconverting bank also must identify Example. itself as such on the front and back of the substitute check and must preserve on the A drawer that suffers a loss with respect to back of the substitute check the identifica- a substitute check that was improperly charged to its account and for which the tions of any previous reconverting banks in drawer has an indemnity claim but not a accordance with appendix D. The presence on warranty claim would be limited under the the back of a substitute check of Check 21 Act to recovery of the amount of indorsements that were applied by previous the substitute check plus interest and ex- reconverting banks and identified with aster- penses. However, if the drawer also suffered isks in accordance with appendix D would damages that were proximately caused be- satisfy the requirement that the recon- cause the bank wrongfully dishonored subse- verting bank preserve the identification of quently presented checks as a result of the previous reconverting banks. As discussed in improper substitute check charge, the draw- more detail in the commentary to § 229.35, er could recover those losses under U.C.C. 4– the reconverting bank and truncating bank 402. routing numbers on the front of a substitute check and, if the reconverting bank is the XXXI. § 229.52 Substitute Check Warranties paying bank, the reconverting bank’s routing number on the back of a substitute check A. 229.52(a) Warranty Content and Provision are for identification only and are not indorsements or acceptances. 1. The responsibility for providing the substitute check warranties begins with the re- 3. The reconverting bank must place the converting bank. In the case of a substitute routing number of the truncating bank sur- check created by a bank, the reconverting rounded by brackets on the front of the sub- bank starts the flow of warranties when it stitute check in accordance with appendix D transfers, presents, or returns a substitute and ANS X9.100–140. check for which it receives consideration. A Example. bank that receives a substitute check created by a nonbank starts the flow of warran- A bank’s customer, which is a nonbank ties when it transfers, presents, or returns business, receives checks for payment and by for consideration either the substitute check agreement deposits substitute checks in- it received or an electronic or paper rep- stead of the original checks with its deposi- resentation of that substitute check. To en- tary bank. The depositary bank is the recon- sure that warranty protections flow all the verting bank with respect to the substitute way through to the ultimate recipient of a checks and the truncating bank with respect substitute check or paper or electronic rep- to the original checks. In accordance with resentation thereof, any subsequent bank appendix D and with ANS X9.100–140, the that transfers, presents, or returns for con- bank must therefore be identified on the sideration either the substitute check or a front of the substitute checks as a recon- paper or electronic representation of the sub- verting bank and as the truncating bank, stitute check is responsible to subsequent and on the back of the substitute checks as transferees for the warranties. Any warranty the depositary bank and a reconverting recipient could bring a claim for a breach of bank. a substitute check warranty if it received either the actual substitute check or a paper C. 229.51(c) Applicable Law or electronic representation of a substitute 1. A substitute check that meets the re- check. quirements for legal equivalence set forth in 2. The substitute check warranties and in- this section is subject to any provision of demnity are not given under §§ 229.52 and federal or state law that applies to original 229.53 by a bank that truncates the original checks, except to the extent such provision check and by agreement transfers the origi- is inconsistent with the Check 21 Act or sub- nal check electronically to a subsequent part D. A legally equivalent substitute check bank for consideration. However, parties is subject to all laws that are not preempted may, by agreement, allocate liabilities asso- by the Check 21 Act in the same manner and ciated with the exchange of electronic check to the same extent as is an original check. information. Thus, any person could satisfy a law that re- Example. quires production of an original check by producing a substitute check that is derived A bank that receives check information from the relevant original check and that electronically and uses it to create sub- meets the legal equivalence requirements of stitute checks is the reconverting bank and, § 229.51(a). when it transfers, presents, or returns that 2. A law is not inconsistent with the Check substitute check, becomes the first war- 21 Act or subpart D merely because it allows rantor. However, that bank may protect for the recovery of a greater amount of dam- itself by including in its agreement with the ages. sending bank provisions that specify the

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sending bank’s warranties and responsibil- check even if the demand for duplicative ities to the receiving bank, particularly with payment results from a fraudulent sub- respect to the accuracy of the check image stitute check about which the warranting and check data transmitted under the agree- bank had no knowledge. ment. 3. A bank need not affirmatively make the Example. warranties because they attach automati- A nonbank depositor truncates a check and cally when a bank transfers, presents, or re- in lieu thereof sends an electronic version of turns the substitute check (or a representa- that check to both Bank A and Bank B. tion thereof) for which it receives consider- Bank A and Bank B each uses the check in- ation. Because a substitute check trans- formation that it received electronically to ferred, presented, or returned for consider- create a substitute check, which it presents ation is warranted to be the legal equivalent to Bank C for payment. Bank A and Bank B of the original check and thereby subject to each is a reconverting bank that made the existing laws as if it were the original check, substitute check warranties when it pre- all U.C.C. and other Regulation CC warran- sented a substitute check to and received ties that apply to the original check also payment from Bank C. Bank C could pursue apply to the substitute check. a warranty claim for the loss it suffered as a 4. The legal equivalence warranty by defi- result of the duplicative payment against ei- nition must be linked to a particular sub- ther Bank A or Bank B. stitute check. When an original check is truncated, the check may move from elec- B. 229.52(b) Warranty Recipients tronic form to substitute check form and then back again, such that there would be 1. A reconverting bank makes the warran- multiple substitute checks associated with ties to the person to which it transfers, pre- one original check. When a check changes sents, or returns the substitute check for form multiple times in the collection or re- consideration and to any subsequent recipi- turn process, the first reconverting bank and ent that receives either the substitute check subsequent banks that transfer, present, or or a paper or electronic representation de- return the first substitute check (or a paper rived from the substitute check. These sub- or electronic representation of the first subsequent recipients could include a subse- stitute check) warrant the legal equivalence quent collecting or returning bank, the de- of only the first substitute check. If a bank positary bank, the drawer, the drawee, the receives an electronic representation of a payee, the depositor, and any indorser. The substitute check and uses that representa- paying bank would be included as a warranty tion to create a second substitute check, the recipient, for example because it would be second reconverting bank and subsequent the drawee of a check or a transferee of a transferees of the second substitute check check that is payable through it. (or a representation thereof) warrant the 2. The warranties flow with the substitute legal equivalence of both the first and second check to persons that receive a substitute substitute checks. A reconverting bank check or a paper or electronic representation would not be liable for a warranty breach of a substitute check. The warranties do not under § 229.52 if the legal equivalence defect flow to a person that receives only the origi- is the fault of a subsequent bank that han- nal check or a representation of an original dled the substitute check, either as a sub- check that was not derived from a substitute stitute check or in other paper or electronic check. However, a person that initially han- form. dled only the original check could become a 5. The warranty in § 229.52(a)(2), which ad- warranty recipient if that person later re- dresses multiple payment requests for the ceives a returned substitute check or a paper same check, is not linked to a particular or electronic representation of a substitute substitute check but rather is given by each check that was derived from that original bank handling the substitute check, an elec- check. tronic representation of a substitute check, or a subsequent substitute check created XXXII. § 229.53 Substitute Check Indemnity from an electronic representation of a sub- A. 229.53(a) Scope of Indemnity stitute check. All banks that transfer, present, or return a substitute check (or a 1. Each bank that for consideration trans- paper or electronic representation thereof) fers, presents, or returns a substitute check therefore provide the warranty regardless of or a paper or electronic representation of a whether the ultimate demand for double pay- substitute check is responsible for providing ment is based on the original check, the sub- the substitute check indemnity. The indem- stitute check, or some other electronic or nity covers losses due to any subsequent re- paper representation of the substitute or cipient’s receipt of the substitute check in- original check, and regardless of the order in stead of the original check. The indemnity which the duplicative payment requests therefore covers the loss caused by receipt of occur. This warranty is given by the banks the substitute check as well as the loss that that transfer, present, or return a substitute a bank incurs because it pays an indemnity

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to another person. A bank that pays an in- fered as a result of receiving the blurry demnity would in turn have an indemnity check image would not trigger an indemnity claim regardless of whether it received the claim because the loss was not caused by the substitute check or a paper or electronic rep- receipt of a substitute check. The drawer resentation of the substitute check The in- may, however, still have a warranty claim if demnity would not apply to a person that he received a copy of a substitute check, and handled only the original check or a paper or may also have rights under the U.C.C. electronic version of the original check that was not derived from a substitute check. B. 229.53(b) Indemnity Amount Examples. 1. If a recipient of a substitute check is making an indemnity claim because a bank a. A paying bank makes payment based on has breached one of the substitute check a substitute check that was derived from a warranties, the recipient can recover any fraudulent original cashier’s check. The losses proximately caused by that warranty amount and other characteristics of the breach. original cashier’s check are such that, had the original check been presented instead, Examples. the paying bank would have inspected the a. A drawer discovers that its account has original check for security features. The been charged for two different substitute paying bank’s fraud detection procedures checks that were provided to the drawer and were designed to detect the fraud in question that were associated with the same original and allow the bank to return the fraudulent check. As a result of this duplicative charge, check in a timely manner. However, the se- the paying bank dishonored several subse- curity features that the bank would have in- quently-presented checks that it otherwise spected were security features that did not would have paid and charged the drawer re- survive the imaging process (see the com- turned check fees. The payees of the re- mentary to § 229.51(a)). Under these cir- turned checks also charged the drawer re- cumstances, the paying bank could assert an turned check fees. The drawer would have a indemnity claim against the bank that pre- warranty claim against any of the war- sented the substitute check. ranting banks, including its bank, for breach b. By contrast with the previous examples, the indemnity would not apply if the charac- of the warranty described in § 229.52(a)(2). teristics of the presented substitute check The drawer also could assert an indemnity were such that the bank’s security policies claim. Because there is only one original and procedures would not have detected the check for any payment transaction, if the fraud even if the original had been presented. collecting and presenting bank had collected For example, if the check was under the the original check instead of using a sub- threshold amount at which the bank subjects stitute check the bank would have been an item to its fraud detection procedures, asked to make only one payment. The draw- the bank would not have inspected the item er could assert its warranty and indemnity for security features regardless of the form claims against the paying bank, because that of the item and accordingly would have suf- is the bank with which the drawer has a cus- fered a loss even if it had received the origi- tomer relationship and the drawer has re- nal check. ceived an indemnity from that bank. The c. A paying bank makes an erroneous pay- drawer could recover from the indemnifying ment based on an electronic representation bank the amount of the erroneous charge, as of a substitute check because the electronic well as the amount of the returned check cash letter accompanying the electronic fees charged by both the paying bank and item included the wrong amount to be the payees of the returned checks. If the charged. The paying bank would not have an drawer’s account were an interest-bearing indemnity claim associated with that pay- account, the drawer also could recover any ment because its loss did not result from re- interest lost on the erroneously debited ceipt of an actual substitute check instead of amount and the erroneous returned check the original check. However, the paying fees. The drawer also could recover its ex- bank could protect itself from such losses penditures for representation in connection through its agreement with the bank that with the claim. Finally, the drawer could re- sent the check to it electronically and may cover any other losses that were proximately have rights under other law. caused by the warranty breach. d. A drawer has agreed with its bank that b. In the example above, the paying bank the drawer will not receive paid checks with that received the duplicate substitute checks periodic account statements. The drawer re- also would have a warranty claim against quested a copy of a paid check in order to the previous transferor(s) of those substitute prove payment and received a photocopy of a checks and could seek an indemnity from substitute check. The photocopy that the that bank (or either of those banks). The in- bank provided in response to this request demnifying bank would be responsible for was illegible, such that the drawer could not compensating the paying bank for all the prove payment. Any loss that the drawer suf- losses proximately caused by the warranty

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breach, including representation expenses provided under § 229.52 or any other law, in- and other costs incurred by the paying bank cluding but not limited to subpart C of this in settling the drawer’s claim. part or the U.C.C. 2. If the recipient of the substitute check does not have a substitute check warranty C. 229.53(c) Subrogation of Rights claim with respect to the substitute check, the amount of the loss the recipient may re- 1. A bank that pays an indemnity claim is cover under § 229.53 is limited to the amount subrogated to the rights of the person it in- of the substitute check, plus interest and ex- demnified, to the extent of the indemnity it penses. However, the indemnified person provided, so that it may attempt to recover might be entitled to additional damages that amount from another person based on under some other provision of law. an indemnity, warranty, or other claim. The person that the bank indemnified must com- Examples. ply with reasonable requests from the indemnifying bank for assistance with respect to a. A drawer received a substitute check the subrogated claim. that met all the legal equivalence requirements and for which the drawer was only Example. charged once, but the drawer believed that the underlying original check was a forgery. A paying bank indemnifies a drawer for a If the drawer suffered a loss because it could substitute check that the drawer alleged was not prove the forgery based on the substitute a forgery that would have been detected had check, for example because proving the for- the original check instead been presented. gery required analysis of pen pressure that The bank that provided the indemnity could could be determined only from the original pursue its own indemnity claim against the check, the drawer would have an indemnity bank that presented the substitute check, claim. However, the drawer would not have a could attempt to recover from the forger, or substitute check warranty claim because the could pursue any claim that it might have substitute check was the legal equivalent of under other law. The bank also could request the original check and no person was asked from the drawer any information that the to pay the substitute check more than once. drawer might possess regarding the possible In that case, the amount of the drawer’s in- identity of the forger. demnity under § 229.53 would be limited to the amount of the substitute check, plus in- XXXIII. § 229.54 Expedited Recredit for terest and expenses. However, the drawer Consumers could attempt to recover additional losses, if any, under other law. A. 229.54(a) Circumstances Giving Rise to a b. As described more fully in the com- Claim mentary to § 229.53(a) regarding the scope of the indemnity, a paying bank could have an 1. A consumer may make a claim for expe- indemnity claim if it paid a legally equiva- dited recredit under this section only for a lent substitute check that was created from substitute check that he or she has received a fraudulent cashier’s check that the paying and for which the bank charged his or her de- bank’s fraud detection procedures would posit account. As a result, checks used to ac- have caught and that the bank would have cess loans, such as credit card checks or returned by its midnight deadline had it re- home equity line of credit checks, that are ceived the original check. However, if the reconverted to substitute checks would not substitute check was not subject to a war- give rise to an expedited recredit claim, un- ranty claim (because it met the legal equiva- less such a check was returned unpaid and lence requirements and there was only one the bank charged the consumer’s deposit ac- payment request) the paying bank’s indem- count for the amount of the returned check. nity would be limited to the amount of the In addition, a consumer who received only a substitute check plus interest and expenses. statement that contained images of multiple 3. The amount of an indemnity would be substitute checks per page would not be enti- reduced in proportion to the amount of any tled to make an expedited recredit claim, al- amount loss attributable to the indemnified though he or she could seek redress under person’s negligence or bad faith. This com- other provisions of law, such as § 229.52 or parative negligence standard is intended to U.C.C. 4–401. However, a consumer who origi- allocate liability in the same manner as the nally received only a statement containing comparative negligence provision of images of multiple substitute checks per § 229.38(c). page but later received a substitute check, 4. An indemnifying bank may limit the such as in response to a request for a copy of losses for which it is responsible under a check shown in the statement, could bring § 229.53 by producing the original check or a a claim if the other expedited recredit cri- sufficient copy. However, production of the teria were met. Although a consumer must original check or a sufficient copy does not at some point have received a substitute absolve the indemnifying bank from liability check to make an expedited recredit claim, claims relating to a warranty the bank has the consumer need not be in possession of

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the substitute check at the time he or she the substitute was derived was a forgery. submits the claim. The forgery was good enough that analysis 2. A consumer must in good faith assert of the original check was necessary to verify that the bank improperly charged the con- whether the signature is that of the consumer’s account for the substitute check or sumer. Under those circumstances, the con- that the consumer has a warranty claim for sumer, if acting in good faith, could assert the substitute check (or both). The warranty that the charge was improper, that he or she in question could be a substitute check war- therefore had incurred a loss in the amount ranty described in § 229.52 or any other war- of the check (plus foregone interest if the ac- ranty that a bank provides with respect to a check under other law. A consumer could, count was an interest-bearing account), and for example, have a warranty claim under that he or she needed the original check to § 229.34(b), which contains returned check determine the validity of the forgery claim. warranties that are made to the owner of the By contrast, if the signature on the sub- check. stitute check obviously was forged (for ex- 3. A consumer’s recovery under the expe- ample, if the forger signed a name other than dited recredit section is limited to the that of the account holder) and there was no amount of his or her loss, up to the amount other defect with the substitute check, the of the substitute check subject to the claim, consumer would not need the original check plus interest if the consumer’s account is an or a sufficient copy to determine the fact of interest-bearing account. The consumer’s the forgery and thus would not be able to loss could include fees that resulted from the make an expedited recredit claim under this allegedly incorrect charge, such as bounced section. However, the consumer would have a check fees that were imposed because the claim under U.C.C. 4–401 if the item was not improper charge caused the bank to dishonor properly payable. subsequently presented checks that it otherwise would have honored. A consumer who B. 229.54(b) Procedures for Making Claims suffers a total loss greater than the amount of the substitute check plus interest could 1. The consumer must submit his or her ex- attempt to recover the remainder of that pedited recredit claim to the bank within 40 loss by bringing warranty, indemnity, or calendar days of the later of the day on other claim under this subpart or other ap- which the bank mailed or delivered, by a plicable law. means agreed to by the consumer, (1) the periodic account statement containing infor- Examples. mation concerning the transaction giving a. A consumer who received a substitute rise to the claim, or (2) the substitute check check believed that he or she wrote the giving rise to the claim. The mailing or de- check for $150, but the bank charged his or livery of a substitute check could be in con- her account for $1,500. The amount on the nection with a regular account statement, in substitute check the consumer received is il- response to a consumer’s specific request for legible. If the substitute check contained a a copy of a check, or in connection with the blurry image of what was a legible original check, the consumer could have a claim for return of a substitute check to the payee. a breach of the legal equivalence warranty in 2. Section 229.54(b) contemplates more than addition to an improper charge claim. Be- one possible means of delivering an account cause the amount of the check cannot be de- statement or a substitute check to the con- termined from the substitute check provided sumer. The time period for making a claim to the consumer, the consumer, if acting in thus could be triggered by the mailed, in-per- good faith, could assert that the production son, or electronic delivery of an account of the original check or a better copy of the statement or by the mailed or in-person de- original check is necessary to determine the livery of a substitute check. In-person deliv- validity of the claim. The consumer in this ery would include, for example, making an case could attempt to recover his or her account statement or substitute check avail- losses by using the expedited recredit proce- able at the bank for the consumer’s retrieval dure. The consumer’s losses recoverable under an arrangement agreed to by the con- under § 229.54 could include the $1,350 he or sumer. In the case of a mailed statement or she believed was incorrectly charged plus substitute check, the 40-day period should be any improperly charged fees associated with that charge, up to $150 (plus foregone inter- calculated from the postmark on the enve- est on the amount of the consumer’s loss if lope. In the case of in-person delivery, the 40- the account was an interest-bearing ac- day period should be calculated from the ear- count). The consumer could recover any ad- lier of the calendar day on which delivery oc- ditional losses, if any, under other law, such curred or the bank first made the statement as U.C.C. 4–401 and 4–402. or substitute check available for the con- b. A consumer received a substitute check sumer’s retrieval. for which his or her account was charged and believed that the original check from which

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3. A bank must extend the consumer’s time cation to which such a written claim should for submitting a claim for a reasonable pe- be sent. If the consumer attempts to make a riod if the consumer is prevented from sub- claim orally, the bank must inform the con- mitting his or her claim within 40 days be- sumer at that time of the written notice re- cause of extenuating circumstances. Extenu- quirement. A bank that receives a timely ating circumstances could include, for exam- oral claim and then requires the consumer to ple, the extended travel or illness of the con- submit the claim in writing may require the sumer. consumer to submit the written claim within 4. For purposes of determining the timeli- 10 business days of the bank’s receipt of the ness of a consumer’s actions, a consumer’s timely oral claim. If the consumer’s oral claim is considered received on the banking claim was timely and the consumer’s written day on which the consumer’s bank receives a claim was received within the 10-day period complete claim in person or by telephone or for submitting the claim in writing, the con- on the banking day on which the consumer’s sumer would satisfy the requirement of bank receives a letter or e-mail containing a § 229.54(b)(1) to submit his or her claim with- complete claim. (But see paragraphs 9–11 of in 40 days, even if the bank received the this section for a discussion of time periods written claim after that 40-day period. related to oral claims that the bank requires 10. A bank may permit but may not require to be put in writing.) a consumer to submit a written claim elec- 5. A consumer who makes an untimely tronically. claim would not be entitled to recover his or 11. If a bank requires a consumer to submit her losses using the expedited recredit proce- a claim in writing, the bank may compute dure. However, he or she still could have time periods for the bank’s action on the rights under other law, such as a warranty or claim from the date that the bank received indemnity claim under subpart D, a claim the written claim. Thus, if a consumer called for an improper charge to his or her account the bank to make an expedited recredit under U.C.C. 4–401, or a claim for wrongful claim and the bank required the consumer to dishonor under U.C.C. 4–402. submit the claim in writing, the time at 6. A consumer’s claim must include the which the bank must take action on the reason why the consumer believes that his or claim would be determined based on the date her account was charged improperly or why on which the bank received the written he or she has a warranty claim. A charge claim, not the date on which the consumer could be improper, for example, if the bank made the oral claim. charged the consumer’s account for an 12. Regardless of whether the consumer’s amount different than the consumer believes communication with the bank is oral or he or she authorized or charged the consumer more than once for the same check, or written, a consumer complaint that does not if the check in question was a forgery or oth- contain all the elements described in erwise fraudulent. § 229.54(b) is not a claim for purposes of 7. A consumer also must provide a reason § 229.54. If the consumer attempts to submit why production of the original check or a a claim but does not provide all the required sufficient copy is necessary to determine the information, then the bank has a duty to in- validity of the claim identified by the conform the consumer that the complaint does sumer. For example, if the consumer be- not constitute a claim under § 229.54 and lieved that the bank charged his or her ac- identify what information is missing. count for the wrong amount, the original C. 229.54(c) Action on Claims check might be necessary to prove this claim if the amount of the substitute check were 1. If the bank has not determined whether illegible. Similarly, if the consumer believed or not the consumer’s claim is valid by the that his or her signature had been forged, the end of the 10th business day after the bank- original check might be necessary to con- ing day on which the consumer submitted firm the forgery if, for example, pen pressure the claim, the bank must by that time re- or similar analysis were necessary to deter- credit the consumer’s account for the mine the genuineness of the signature. amount of the consumer’s loss, up to the 8. The information that the consumer is re- lesser of the amount of the substitute check quired to provide under § 229.54(b)(2)(iv) to fa- or $2,500, plus interest if the account is an in- cilitate the bank’s investigation of the claim terest-bearing account. A bank must provide could include, for example, a copy of the al- the recredit pending investigation for each legedly defective substitute check or infor- substitute check for which the consumer mation related to that check, such as the submitted a claim, even if the consumer sub- number, amount, and payee. mitted multiple substitute check claims in 9. A bank may accept an expedited recredit the same communication. claim in any form but could in its discretion 2. A bank that provides a recredit to the require the consumer to submit the claim in consumer, either provisionally or after de- writing. A bank that requires a recredit termining that the consumer’s claim is claim to be in writing must inform the con- valid, may reverse the amount of the re- sumer of that requirement and provide a lo- credit if the bank later determines that the

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claim in fact was not valid. A bank that re- through which the consumer has agreed to verses a recredit also may reverse the receive account information. amount of any interest that it has paid on 2. A bank that denies the consumer’s re- the previously recredited amount. A bank’s credit claim must demonstrate to the con- time for reversing a recredit may be limited sumer that the substitute check was prop- by a statute of limitations. erly charged or that the warranty claim was not valid, such as by explaining the reason D. 229.54(d) Availability of Recredit that the substitute check charge was proper 1. The availability of a recredit provided by or the consumer’s warranty claim was not a bank under § 229.54(c) is governed solely by valid. For example, if a consumer has § 229.54(d) and therefore is not subject to the claimed that the bank charged its account availability provisions of subpart B. A bank for an improper amount, the bank denying generally must make a recredit available for that claim must explain why it determined withdrawal no later than the start of the that the charged amount was proper. business day after the banking day on which 3. A bank denying a recredit claim also the bank provided the recredit. However, a must provide the original check or a suffi- bank may delay the availability of up to the cient copy, unless the bank is providing the first $2,500 that it provisionally recredits to claim denial notice electronically and the consumer has agreed to receive that type of a consumer account under § 229.54(c)(3)(i) if information electronically. In that case, (1) the account is a new account, (2) without § 229.58 allows the bank instead to provide an regard to the substitute check giving rise to image of the original check or an image of the recredit claim, the account has been re- the sufficient copy that the bank would have peatedly overdrawn during the six month pe- sent to the consumer had the bank provided riod ending on the date the bank received the notice by mail. the claim, or (3) the bank has reasonable 4. A bank that relies on information or cause to believe that the claim is fraudulent. documents in addition to the original check These first two exceptions are meant to op- or sufficient copy when denying a consumer erate in the same manner as the cor- expedited recredit claim also must either responding new account and repeated over- provide such information or documents to draft exceptions in subpart B, as described in the consumer or inform the consumer that § 229.13(a) and (d) and the commentary there- he or she may request copies of such infor- to regarding application of the exceptions. mation or documents. This requirement does When a recredit amount for which a bank not apply to a bank that relies only on the delays availability contains an interest com- original check or a sufficient copy to make ponent, that component also is subject to its determination. the delay because it is part of the amount re- 5. Models C–22 through C–25 in appendix C credited under § 229.54(c)(3)(i). However, in- contain model language for each of three no- terest continues to accrue during the hold tices described in § 229.54(e). A bank may, but period. is not required to, use the language listed in 2. Section 229.54(d)(2) describes the max- the appendix. The Check 21 Act does not pro- imum period of time that a bank may delay vide banks that use these models with a safe availability of a recredit provided under harbor. However, the Board has published § 229.54(c). The bank may delay availability these models to aid banks’ efforts to comply under one of the three listed exceptions until with § 229.54(e). the business day after the banking day on which the bank determines that the con- F. 229.54(f) Recredit Does Not Abrogate Other sumer’s claim is valid or the 45th calendar Liabilities day after the banking day on which the bank 1. The amount that a consumer may re- received the consumer’s claim, whichever is cover under § 229.54 is limited to the lesser of earlier. The only portion of the recredit that the amount of his or her loss or the amount is subject to delay under § 229.54(d)(2) is the of the substitute check, plus interest on that amount that the bank recredits under amount if his or her account earns interest. § 229.54(c)(3)(i) (including the interest compo- However, a consumer’s total loss associated nent, if any) pending its investigation of a with the substitute check could exceed that claim. amount, and the consumer could be entitled E. 229.54(e) Notices Relating to Consumer to additional damages under other law. For Expedited Recredit Claims example, if a consumer’s loss exceeded the amount of the substitute check plus interest 1. A bank must notify a consumer of its ac- and he or she had both a warranty and an in- tion regarding a recredit claim no later than demnity claim with respect to the substitute the business day after the banking day that check, he or she would be entitled to addi- the bank makes a recredit, determines a tional damages under § 229.53 of this subpart. claim is not valid, or reverses a recredit, as Similarly, if a consumer was charged appropriate. As provided in § 229.58, a bank bounced check fees as a result of an improp- may provide any notice required by this sec- erly charged substitute check and could not tion by U.S. mail or by any other means recover all of those fees because of the

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§ 229.54’s limitation on recovery, he or she 2. When estimating the amount of its loss, could attempt to recover additional amounts § 229.55(b)(2)(ii) states that the claimant bank under U.C.C. 4–402. should include ‘‘interest if applicable.’’ The quoted phrase refers to any interest that the XXXIV. § 229.55 Expedited Recredit Procedures claimant bank or a bank that the claimant for Banks bank indemnified paid to a consumer who has an interest-bearing account in connec- A. 229.55(a) Circumstances Giving Rise to a tion with an expedited recredit under § 229.54. Claim 3. The information that the claimant bank 1. This section allows a bank to make an is required to provide under § 229.55(b)(2)(iv) expedited recredit claim under two sets of to facilitate investigation of the claim could include, for example, a copy of any written circumstances: first, because it is obligated claim that a consumer submitted under to provide a recredit, either to the consumer § 229.54 or any written record the bank may or to another bank that is obligated to pro- have of a claim the consumer submitted vide a recredit in connection with the con- orally. The information also could include a sumer’s claim; and second, because the bank copy of the defective substitute check or in- detected a problem with the substitute check formation relating to that check, such as the that, if uncaught, could have given rise to a number, amount, and payee of the check. consumer claim. However, a claimant bank that provides a 2. The loss giving rise to an interbank re- copy of the substitute check must take rea- credit claim could be the recredit that the sonable steps to ensure that the copy is not claimant bank provided directly to its con- mistaken for a legal equivalent of the origi- sumer customer under § 229.54 or a loss in- nal check or handled for forward collection curred because the claimant bank was re- or return. quired to indemnify another bank that pro- 4. The indemnifying bank’s right to require vided an expedited recredit to either a con- a claimant bank to submit a claim in writing sumer or a bank. and the computation of time from the date of the written submission parallel the cor- Examples. responding provision in the consumer re- a. A paying bank charged a consumer’s ac- credit section (§ 229.54(b)(3)). However, the in- count based on a substitute check that con- demnifying bank also may require the claim- tained a blurry image of a legible original ant bank to submit a copy of the written or check, and the consumer whose account was electronic claim submitted by the consumer charged made an expedited recredit claim under that section, if any. against the paying bank because the con- C. 229.55(c) Action on Claims sumer suffered a loss and needed the original check or a sufficient copy to determine the 1. An indemnifying bank that responds to validity of his or her claim. The paying bank an interbank expedited recredit claim by would have a warranty claim against the providing the original check or a sufficient presenting bank that transferred the defec- copy of the original check need not dem- tive substitute check to it and against any onstrate why that claim or the underlying previous transferring bank(s) that handled consumer expedited recredit claim is or is that substitute check or another paper or not valid. electronic representation of the check. The XXXV. § 229.56 Liability paying bank therefore would meet each of the requirements necessary to bring an A. 229.56(a) Measure of Damages interbank expedited recredit claim. b. Continuing with the example in para- 1. In general, a person’s recovery under graph a, if the presenting bank determined this section is limited to the amount of the that the paying bank’s claim was valid and loss up to the amount of the substitute provided a recredit, the presenting bank check that is the subject of the claim, plus would have suffered a loss in the amount of interest and expenses (including costs and the recredit it provided and could, in turn, reasonable attorney’s fees and other ex- make an expedited recredit claim against penses of representation) related to that sub- the bank that transferred the defective substitute check. However, a person that is entitled to an indemnity under § 229.53 because of stitute check to it. a breach of a substitute check warranty also B. 229.55(b) Procedures for Making Claims may recover under § 229.53 any losses proximately caused by the warranty breach, in- 1. An interbank recredit claim under this cluding interest, costs, wrongfully-charged section must be brought within 120 calendar fees imposed as a result of the warranty days of the transaction giving rise to the breach, reasonable attorney’s fees, and other claim. For purposes of computing this pe- expenses of representation. riod, the transaction giving rise to the claim 2. A reconverting bank also may be liable is the claimant bank’s settlement for the under § 229.38 for damages associated with substitute check in question. the illegibility of indorsements applied to

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substitute checks if that illegibility results this section. A bank that uses the model lan- because the reduction of the original check guage is deemed to comply with the disclo- image and its placement on the substitute sure content requirement(s) for which it uses check shifted a previously-applied the model language, provided the informa- indorsement that, when applied, complied tion in the disclosure accurately describes with appendix D. For more detailed discus- the bank’s policies and practices. A bank sion of this topic, see § 229.38 and the accom- also may include in its disclosure additional panying commentary. information relating to substitute checks B. 229.56(b) Timeliness of Action that is not required by this section. 3. A bank may, by agreement or at the con- 1. A bank’s delay beyond the time limits sumer’s request, provide the disclosure re- prescribed or permitted by any provision of quired by this section in a language other subpart D is excused if the delay is caused by than English, provided that the bank makes certain circumstances beyond the bank’s a complete English notice available at the control. This parallels the standard of U.C.C. consumer’s request. 4–109(b). B. 229.57(b) Distribution C. 229.56(c) Jurisdiction 1. The Check 21 Act confers subject matter 1. A consumer may request a check or a jurisdiction on courts of competent jurisdic- copy of a check on an occasional basis, such tion and provides a time limit for civil ac- as to prove that he or she made a particular tions for violations of subpart D. payment. A bank that responds to the consumer’s request by providing a substitute D. 229.56(d) Notice of Claims check must provide the required disclosure at the time of the consumer’s request if fea- 1. This paragraph is designed to adopt the notice of claim provisions of U.C.C. 4–207(d) sible. Otherwise, the bank must provide the and 4–208(e), with an added provision that a disclosure no later than the time at which timely § 229.54 expedited recredit claim satis- the bank provides a substitute check in re- fies the generally-applicable notice require- sponse to the consumer’s request. It would ment. The time limit described in this para- not be feasible for a bank to provide notice graph applies only to notices of warranty to the consumer at the time of the request if, and indemnity claims. As provided in for example, the bank did not know at the § 229.56(c), all actions under § 229.56 must be time of the request whether it would provide brought within one year of the date that the a substitute check in response to that re- cause of action accrues. quest, regardless of the form of the consumer’s request. It also would not be feasible XXXVI. Consumer Awareness for a bank to provide notice at the time of the request if the consumer’s request was A. 229.57(a) General Disclosure Requirement mailed to the bank or made by telephone, and Content even if the bank knew when it received the 1. A bank must provide the disclosure re- request that it would provide a substitute quired by § 229.57 under two circumstances. check in response. A bank’s provision to the First, each bank must provide the disclosure consumer of something other a substitute to each of its consumer customers who re- check, such as a photocopy of a check or a ceives paid checks with his or her account statement containing images of multiple statement. This requirement does not apply substitute checks per page, does not trigger if the bank provides with the account state- the notice requirement. ment something other than paid original 2. A consumer who does not routinely re- checks, paid substitute checks, or a com- ceive paid checks might receive a returned bination thereof. For example, this require- substitute check. For example, a consumer ment would not apply if a bank provided deposits an original check that is payable to with the account statement only a document him or her into his or her deposit account. that contained multiple check images per The paying bank returns the check unpaid page. Second, a bank also must provide the and the depositary bank returns the check to disclosure when it (a) provides a substitute the depositor in the form of a substitute check to a consumer in response to that con- check. A depositary bank that provides a re- sumer’s request for a check or check copy or turned substitute check to a consumer de- (b) returns a substitute check to a consumer positor must provide the substitute check depositor. A bank must provide the disclo- disclosure at that time. sure each time it provides a substitute check to a consumer on an occasional basis, regard- XXXVII. Variation by Agreement less of whether the bank previously provided the disclosure to that consumer. Section 229.60 provides that banks involved 2. A bank may, but is not required to, use in an interbank expedited recredit claim the model disclosure in appendix C–5A to sat- under § 229.55 may vary the terms of that sec- isfy the disclosure content requirements of tion by agreement, but otherwise no person

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may vary the terms of subpart D by agree- bank’s disclosures correspond to its avail- ment. A bank’s decision to provide more gen- ability policy. erous protections for consumers than this 7. Banks that have used earlier versions of subpart requires, such as by providing con- the models (such as those models that gave sumers additional time to submit expedited Social Security benefits and payroll pay- claims under § 229.54 under non-exigent cir- ments as examples of preauthorized credits cumstances, would not be a variation prohib- available the day after deposit, or that did ited by § 229.60. not address the cash withdrawal limitation) are protected from civil liability under XXXVIII. Appendix C—Model Availability Pol- § 229.21(e). Banks are encouraged, however, to icy Disclosures, Clauses, and Notices; and use current versions of the models when re- Model Substitute Check Policy Disclosure and ordering or reprinting supplies. Notices B. Model Availability Policy and Substitute A. Introduction Check Policy Disclosures, Models C–1 through C–5A 1. Appendix C contains model disclosure, clauses, and notices that may be used by 1. Models C–1 through C–5 generally. banks to meet their disclosure and notice re- a. Models C–1 through C–5A are models for sponsibilities under the regulation. Banks the availability policy disclosures described using the models (except models C–22 in § 229.16 and substitute check policy disclo- through C–25) properly will be deemed in sure described in § 229.57. The models accom- compliance with the regulation’s disclosure modate a variety of availability policies, requirements. ranging from next-day availability to holds 2. Information that must be inserted by a to statutory limits on all deposits. Model C– bank using the models is italicized within 3 reflects the additional disclosures dis- parentheses in the text of the models. Op- cussed in §§ 229.16 (b) and (c) for banks that tional information is enclosed in brackets. have a policy of extending availability times 3. Banks may make certain changes to the on a case-by-case basis. format or content of the models, including b. As already noted, there are several deleting material that is inapplicable, with- places in the models where information must out losing the EFA Act’s protection from li- be inserted. This information includes the ability for banks that use the models prop- bank’s cut-off times, limitations relating to erly. For example, if a bank does not have a next-day availability, and the first four dig- cut-off hour prior to it’s closing time, or if a its of routing numbers for local banks. In bank does not take advantage of the § 229.13 disclosing when funds will be available for exceptions, it may delete the references to withdrawal, the bank must insert the ordinal those provisions. Changes to the models may number (such as first, second, etc.) of the business day after deposit that the funds will not be so extensive as to affect the sub- become available. stance, clarity, or meaningful sequence of c. Models C–1 through C–5A generally do the models. Acceptable changes include, for not reflect any optional provisions of the example: regulation, or those that apply only to cer- a. Using ‘‘customer’’ and ‘‘bank’’ instead of tain banks. Instead, disclosures for these pronouns. provisions are included in Models C–6 b. Changing the typeface or size. through C–11A. A bank using one of the c. Incorporating certain state law ‘‘plain model availability policy disclosures should English’’ requirements. also consider whether it must incorporate 4. Shorter time periods for availability one or more of Models C–6 through C–11A. may always be substituted for time periods d. While § 229.10(b) requires next-day avail- used in the models. ability for electronic payments, Treasury 5. Banks may also add related information. regulations (31 CFR part 210) and ACH asso- For example, a bank may indicate that al- ciation rules require that preauthorized though funds have been made available to a credits (’’direct deposits’’) be made available customer and the customer has withdrawn on the day the bank receives the funds. Mod- them, the customer is still responsible for els C–1 through C–5 reflect these rules. Wire problems with the deposit, such as checks transfers, however, are not governed by that were deposited being returned unpaid. Treasury or ACH rules, but banks generally Or a bank could include a telephone number make funds from wire transfers available on to be used if a customer has an inquiry re- the day received or on the business day fol- garding a deposit. lowing receipt. Banks should ensure that 6. Banks are cautioned against using the their disclosures reflect the availability models without reviewing their own policies given in most cases for wire transfers. and practices, as well as state and federal 2. Model C–1 Next-day availability. A bank laws regarding the time periods for avail- may use this model when its policy is to ability of specific types of checks. A bank make funds from all deposits available on using the models will be in compliance with the first business day after a deposit is made. the EFA Act and the regulation only if the This model may also be used by banks that

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provide immediate availability by sub- The commentary to each clause indicates stituting the word ‘‘immediately’’ in place of when a clause similar to the model clause is ‘‘on the first business day after the day we required. receive your deposit.’’ 2. Model C–6 Holds on other funds (check 3. Model C–2 Next-day availability and cashing). A bank that reserves the right to § 229.13 exceptions. A bank may use this model place a hold on funds already on deposit when its policy is to make funds from all de- when it cashes a check for a customer, as ad- posits available to its customers on the first dressed in § 229.19(e), must incorporate this business day after the deposit is made, and type of clause in its availability policy dis- to reserve the right to invoke the new ac- closure. count and other exceptions in § 229.13. In dis- 3. Model C–7 Holds on other funds (other ac- closing that a longer delay may apply, a count). A bank that reserves the right to bank may disclose when funds will generally place a hold on funds in an account of the be available based on when the funds would customer other than the account into which be available if the deposit were of a nonlocal the deposit is made, as addressed in check. § 229.19(e), must incorporate this type of 4. Model C–3 Next-day availability, case-by- clause in its availability policy disclosure. case holds to statutory limits, and § 229.13 excep- 4. Model C–8 Appendix B availability tions. A bank may use this model when its (nonlocal checks). A bank in a check proc- policy, in most cases, is to make funds from essing region where the availability sched- all types of deposits available the day after ules for certain nonlocal checks have been the deposit is made, but to delay availability reduced, as described in appendix B of Regu- on some deposits on a case-by-case basis up lation CC, must incorporate this type of to the maximum time periods allowed under clause in its availability policy disclosure. the regulation. A bank using this model also Banks using Model C–5 may insert this reserves the right to invoke the exceptions clause at the conclusion of the discussion ti- listed in § 229.13. In disclosing that a longer tled ‘‘Nonlocal checks.’’ delay may apply, a bank may disclose when 5. Model C–9 Automated teller machine de- funds will generally be available based on posits (extended holds). A bank that reserves when the funds would be available if the de- the right to delay availability of deposits at posit were of a nonlocal check. nonproprietary ATMs until the fifth business 5. Model C–4 Holds to statutory limits on all day following the date of deposit, as per- deposits. A bank may use this model when its mitted by § 229.12(f), must incorporate this policy is to impose delays to the full extent type of clause in its availability policy dis- allowed under § 229.12 and to reserve the closure. A bank must choose among the al- right to invoke the § 229.13 exceptions. In dis- ternative language based on how it chooses closing that a longer delay may apply, a to differentiate between proprietary and bank may disclose when funds will generally nonproprietary ATMs, as required under be available based on when the funds would § 229.16(b)(5). be available if the deposit were of a nonlocal 6. Model C–10 Cash withdrawal limitation. A check. Model C–4 uses a chart to show the bank that imposes cash withdrawal limita- bank’s availability policy for local and tions under § 229.12 must incorporate this nonlocal checks and Model C–5 uses a nar- type of clause in its availability policy dis- rative description. closure. Banks reserving the right to impose 6. Model C–5 Holds to statutory limits on all the cash withdrawal limitation and using deposits. A bank may use this model when its Model C–3 should disclose that funds may policy is to impose delays to the full extent not be available until the sixth (rather than allowed under § 229.12 and to reserve the fifth) business day in the first paragraph right to invoke the § 229.13 exceptions. In dis- under the heading ‘‘Longer Delays May closing that a longer delay may apply, a Apply.’’ bank may disclose when funds will generally 7. Model C–11 Credit union interest payment be available based on when the funds would policy. A credit union subject to the notice be available if the deposit were of a nonlocal requirement of § 229.14(b)(2) must incorporate check. this type of clause in its availability policy 7. Model C–5A A bank may use this form disclosure. This model clause is only an ex- when it is providing the disclosure to its con- ample of a hypothetical policy. Credit unions sumers required by § 229.57 explaining that a may follow any policy for accrual provided substitute check is the legal equivalent of an the method of accruing interest is the same original check and the circumstances under for cash and check deposits. which the consumer may make a claim for 8. Model C–11A Availability of funds depos- expedited recredit. ited at other locations. A clause similar to Model C–11A should be used if a bank bases C. Model Clauses, Models C–6 Through C–11A the availability of funds on the location 1. Models C–6 through C–11A generally. Cer- where the funds are deposited (for example, tain clauses like those in the models must be at a contractual or other branch located in a incorporated into a bank’s availability pol- different check processing region). Simi- icy disclosure under certain circumstances. larly, a clause similar to Model C–11A should

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be used if a bank distinguishes between local specific reason for the hold, as is the case and non-local checks (for example, a bank when a § 229.13 exception hold is placed. A using model availability policy disclosure C– bank may specify the actual date when funds 4 or C–5), and accepts deposits in more than will be available for withdrawal rather than one check processing region. the number of the business day following the day of deposit when funds will be available. D. Model Notices, Models C–12 through C–25 A bank must incorporate in the notice the 1. Models C–12 through C–25 generally. Mod- material set out in brackets if it imposes els C–12 through C–25 provide models of the overdraft fees after invoking a case-by-case various notices required by the regulation. A hold. bank that cashes a check and places a hold 7. Model C–17 Notice at locations where em- on funds in an account of the customer (see ployees accept consumer deposits and Model C– § 229.19(e)) should modify the model hold no- 18 Notice at locations where employees accept tice accordingly. For example, the bank consumer deposits (case-by-case holds). These could replace the word ‘‘deposit’’ with the models satisfy the notice requirement of word ‘‘transaction’’ and could add the phrase § 229.18(b). Model C–17 reflects an availability ‘‘or cashed’’ after the word ‘‘deposited.’’ policy of holds to statutory limits on all de- 2. Model C–12 Exception hold notice. This posits, and Model C–18 reflects a case-by-case model satisfies the written notice required availability policy. under § 229.13(g) when a bank places a hold 8. Model C–19 Notice at automated teller ma- based on a § 229.13 exception. If a hold is chines. This model satisfies the ATM notice being placed on more than one check in a de- requirement of § 229.18(c)(1). posit, each check need not be described, but 9. Model C–20 Notice at automated teller ma- if different reasons apply, each reason must chines (delayed receipt). This model satisfies be indicated. A bank may use the actual date the ATM notice requirement of § 229.18(c)(2) when funds will be available for withdrawal when receipt of deposits at off-premises rather than the number of the business day ATMs is delayed under § 229.19(a)(4). It is following the day of deposit. A bank must in- based on collection of deposits once a week. corporate in the notice the material set out If collections occur more or less frequently, in brackets if it imposes overdraft or re- the description of when deposits are received turned check fees after invoking the reason- must be adjusted accordingly. able cause exception under § 229.13(e). 10. Model C–21 Deposit slip notice. This 3. Model C–13 Reasonable cause hold notice. model satisfies the notice requirements of This notice satisfies the written notice re- § 229.18(a) for deposit slips. quired under § 229.13(g) when a bank invokes 11. Models C–22 through C–25 generally. Mod- the reasonable cause exception under els C–22 through C–25 provide models for the § 229.13(e). The notice provides the bank with various notices required when a consumer a list of specific reasons that may be given who receives substitute checks makes an ex- for invoking the exception. If a hold is being pedited recredit claim under § 229.54 for a loss placed on more than one check in a deposit, related to a substitute check. The Check 21 each check must be described separately, and Act does not provide banks that use these if different reasons apply, each reason must models with a safe harbor. However, the be indicated. A bank may disclose its reason Board has published these models to aid for doubting collectibility by checking the banks’ efforts to comply with § 229.54(e). appropriate reason on the model. If the 12. Model C–22 Valid Claim Refund Notice. A ‘‘Other’’ category is checked, the reason bank may use this model when crediting the must be given. A bank may use the actual entire amount or the remaining amount of a date when funds will be available for with- consumer’s expedited recredit claim after de- drawal rather than the number of the busi- termining that the consumer’s claim is ness day following the day of deposit. A bank valid. This notice could be used when the must incorporate in the notice the material bank provides the consumer a full recredit set out in brackets if it imposes overdraft or based on a valid claim determination within returned check fees after invoking the rea- ten days of the receipt of the consumer’s sonable cause exception under § 229.13(e). claim or when the bank recredits the re- 4. Model C–14 One-time notice for large de- maining amount of a consumer’s expedited posit and redeposited check exception holds. recredit claim by the 45th calendar day after This model satisfies the notice requirements receiving the consumer’s claim, as required of § 229.13(g)(2) concerning nonconsumer ac- under § 229.54(e)(1). counts. 13. Model C–23 Provisional Refund Notice. A 5. Model C–15 One-time notice for repeated bank may use this model when providing a overdraft exception hold. This model satisfies full or partial expedited recredit to a con- the notice requirements of § 229.13(g)(3). sumer pending further investigation of the 6. Model C–16 Case-by-case hold notice. This consumer’s claim, as required under model satisfies the notice required under § 229.54(e)(1). § 229.16(c)(2) when a bank with a case-by-case 14. Model C–24 Denial Notice. A bank may hold policy imposes a hold on a deposit. This use this model when denying a claim for an notice does not require a statement of the expedited recredit under § 229.54(e)(2).

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15. Model C–25 Reversal Notice. A bank may California has four separate sets of regula- use this model when reversing an expedited tions establishing maximum availability recredit that was credited to a consumer’s schedules. The regulations applicable to account under § 229.54(e)(3). commercial banks and branches of foreign [Reg. CC, 60 FR 51672, Oct. 3, 1995, as amend- banks located in California (Cal. Admin. ed by Reg. CC, 62 FR 13816, Mar. 24, 1997; 64 Code tit. 10, §§ 10.190401–10.190402) were pro- FR 59613, Nov. 3, 1999; 68 FR 52078, Sept. 2, mulgated by the Superintendent of Banks. 2003; 68 FR 53672, Sept. 12, 2003; 69 FR 47317– The regulations applicable to savings banks 47328, Aug. 4, 2004; 70 FR 71225, Nov. 28, 2005] and savings and loan associations (Cal. Admin. Code tit. 10, §§ 106.200–106.202) were APPENDIX F TO PART 229—OFFICIAL adopted by the Savings and Loan Commis- BOARD INTERPRETATIONS; PREEMP- sioner. The regulations applicable to credit TION DETERMINATIONS unions (Cal. Admin. Code tit. 10, section 901) and to industrial loan companies (Cal. Uniform Commercial Code, Section 4–213(5) Admin. Code tit. 10, section 1101) were adopt- Section 4–213(5) of the Uniform Commer- ed by the Commissioner of Corporations. cial Code (‘‘U.C.C.’’) provides that money de- All the regulations were adopted pursuant posited in a bank is available for withdrawal to California Financial Code section 866.5 as of right at the opening of business of the and California Commercial Code section banking day after deposit. Although the lan- 4213(4)(a), under which the appropriate state guage ‘‘deposited in a bank’’ is unclear, argu- regulatory agency for each depository insti- ably it is broader than the language ‘‘made tution must issue administrative regulations in person to an employee of the depositary to define a reasonable time for permitting bank’’, which conditions the next-day avail- customers to draw on items received for de- ability of cash under Regulation CC posit in the customer’s account. California (§ 229.10(a)(1)). Under Regulation CC, deposits Financial Code section 867 also establishes of cash that are not made in person to an availability periods for funds deposited by employee of the depositary bank must be cashier’s check, certified check, teller’s made available by the second business day check, or depository check under certain cir- after the banking day of deposit cumstances. Finally, California Financial (§ 229.10(a)(2)). Therefore, this provision of the U.C.C. may call for the availability of Code section 866.2 establishes disclosure re- certain cash deposits in a shorter time than quirements. provided in Regulation CC. The Board’s determination with respect to This provision of the U.C.C., however, is these California laws and regulations gov- subject to Section 4–103(1), which provides, in erning the funds availability requirements part, that ‘‘the effect of the provisions of applicable to depository institutions in Cali- this Article may be varied by agree- fornia are as follows. ment * * *.’’ (The Regulation CC funds availability requirements may not be varied by Commercial Banks and Branches of Foreign agreement.) U.C.C. Section 4–213(5) super- Banks sedes the Regulation CC provision in § 229.10(a)(2), but a depositary bank may not Coverage agree with its customer under section 4– The California State Banking Department 103(1) of the Code to extend availability be- regulations, which apply to California state yond the time periods provided in § 229.10(a) commercial banks, California national of Regulation CC. banks, and California branch offices of for- California eign banks, provide that a depositary bank shall make funds deposited into a deposit ac- Background count available for withdrawal as provided in The Board has been requested, in accord- Regulation CC with certain exceptions. The ance with § 229.20(d) of Regulation CC (12 funds availability schedules in Regulation CFR part 229), to determine whether the Ex- CC apply only to accounts as defined in Regu- pedited Funds Availability Act (the ‘‘Act’’) lation CC, which generally consist of trans- and subpart B (and in connection therewith, action accounts. The California funds avail- subpart A) of Regulation CC preempt the ability law and regulations apply to ac- provisions of California law concerning counts as defined by Regulation CC as well availability of funds. This preemption deter- as savings accounts (other than time ac- mination specifies those provisions of the counts), as defined in the Board’s Regulation California funds availability law that super- D (12 CFR 204.2(d)). (Note, however, that sede the Act and Regulation CC. (See also under § 229.19(e) of Regulation CC, Holds on the Board’s preemption determination re- other funds, the federal availability schedules garding the Uniform Commercial Code, sec- may apply to savings, time, and other action 4–213(5), pertaining to availability of counts not defined as accounts under Regula- cash deposits.) tion CC in certain circumstances.)

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Availability Schedules 1220 bank would be shorter than and would supersede the federal schedules. Temporary schedule. Regulation CC provides that, until September 1, 1990, nonlocal The California regulations do not specify checks must be made available for with- whether the state schedules apply to depos- drawal by the seventh business day after the its of checks at nonproprietary ATMs. Under banking day of deposit, except for certain the temporary schedules in Regulation CC, nonlocal checks listed in appendix B–1, deposits at nonproprietary ATMs must be which must be made available within a made available for withdrawal by the sev- shorter time (by the fifth business day fol- enth business day following deposit. To the lowing deposit for those California checks extent that the California schedules provide listed). Under the temporary schedule in the for shorter availability for deposits at non- California regulations, a depositary bank proprietary ATMs, they would supersede the with a four-digit routing symbol of 1210 temporary schedule in Regulation CC for de- (‘‘1210 bank’’) or of 1220 (‘‘1220 bank’’) that re- posits at nonproprietary ATMs specified in ceives for deposit a check drawn on a § 229.11(d). nonlocal, in-state commercial bank or for- Permanent schedule. Regulation CC provides eign bank branch 1 must make the funds that, as of September 1, 1990, nonlocal checks available for withdrawal by the fourth busi- must be made available for withdrawal by ness day after the day of deposit. The Cali- the fifth business day after the banking day fornia regulations provide that 1210 and 1220 of deposit. Under the permanent schedule in banks must make deposited checks drawn on the California regulations, a depositary bank nonlocal in-state thrifts (defined as savings with a four-digit routing symbol of 1210 or of and loan associations, savings banks, and 1220 that receives for deposit a check drawn credit unions) available by the fifth business on a nonlocal, in-state commercial bank or day after deposit. In addition, California law foreign bank branch must make the funds provides that all other depositary banks available for withdrawal by the fourth busi- must make deposited checks drawn on a ness day after the day of deposit. These state nonlocal in-state commercial bank or for- schedules provide for shorter hold periods eign bank branch available by the fifth busi- than and thus supersede the federal sched- ness day after deposit and checks drawn on ules. nonlocal in-state thrifts available by the Second-day availability. Section 867 of the sixth business day after deposit. To the ex- California Financial Code requires deposi- tent that these schedules provide for shorter tory institutions to make funds deposited by holds than Regulation CC and its appendix cashier’s check, teller’s check, certified B–1, the state schedules supersede the federal check, or depository check available for schedules. 2 For example, the California four- withdrawal on the second business day fol- day schedule that applies to checks drawn on lowing deposit, if certain conditions are met. in-state nonlocal commercial banks or for- The Regulation CC next-day availability re- eign bank branches and deposited in a 1210 or quirement for cashier’s checks and teller’s checks applies only to those checks issued to 1 The California regulation uses the term a customer of the bank or acquired from the paying bank when describing the institution bank for remittance purposes. To the extent on which these checks are drawn, but does that the state second-day availability re- not define paying bank or bank. Regulation quirement applies to cashier’s and teller’s CC’s definitions of paying bank and bank in- checks issued to a non-customer of the bank clude savings institutions and credit unions for other than remittance purposes, the state as well as commercial banks and branches of two-day requirement supersedes the federal foreign banks. However, because the Cali- local and nonlocal schedules. fornia regulation makes separate provisions Availability at start of day. The California for checks drawn on savings institutions and regulations do not specify when during the credit unions, the Board concludes that the day funds must be made available for with- term paying bank, as used in the California drawal. Section 229.19(b) of Regulation CC regulation, includes only commercial banks provides that funds must be made available and foreign bank branches. at the start of the business day. In those 2 Appendix B–1 of Regulation CC provides cases where federal and state law provide for that the federal schedules will be the same holds for the same number of days, to the ex- as the California schedules (5 days) in the tent that the California regulations allow following cases: A depositary bank bearing a funds to be made available later in the day 1210 routing number receiving for deposit than does Regulation CC, the federal law checks bearing a 3220 or a 3223 routing num- would preempt state law. ber, and a depositary bank bearing a 1220 Exceptions to the availability schedules. routing number receiving for deposit checks Under the state preemption standards of bearing a 3210 routing number. In the cases Regulation CC (see § 229.20(c) and accom- where federal and state law are the same, the panying Commentary), for deposits subject state law is not preempted by, nor does it su- to the state availability schedules, a state persede, the federal law. exception may be used to extend the state

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availability schedule up to the federal avail- time, and other accounts not defined as ac- ability schedule. Once the deposit is held up counts under Regulation CC in certain cir- to the federal availability schedule limit cumstances.) under a state exception, the depositary bank may further extend the hold under any fed- Availability Schedules eral exception that can be applied to the de- Second-day availability. Section 867 of the posit. If no state exceptions exist, then no California Financial Code requires deposi- exceptions holds may be placed on deposits tory institutions to make funds deposited by covered by state schedules. Thus, to the ex- cashier’s check, teller’s check, certified tent that California law provides for excep- check, or depository check available for tions to the California schedules that super- withdrawal on the second business day fol- sede Regulation CC, those exceptions may be lowing deposit, if certain conditions are met. applied in order to extend the state availability schedules up to the federal avail- The Regulation CC next-day availability re- ability schedules or such later time as is per- quirement for cashier’s checks and teller’s mitted by a federal exception. checks applies only to those checks issued to a customer of the bank or acquired from the Disclosures bank for remittance purposes. To the extent that the state second-day availability re- California law (Cal. Fin. Code § 866.2) requirement applies to cashier’s and teller’s quires depository institutions to provide checks issued to a non-customer of the bank written disclosures of their general avail- for other than remittance purposes, the state ability policies to potential customers prior two-day requirement supersedes the federal to opening any deposit account. The law also local and nonlocal schedules. requires that preprinted deposit slips and Temporary and permanent schedules. Other ATM deposit envelopes contain a con- than the provisions of Section 867 discussed spicuous summary of the general policy. Fi- above, California law incorporates the Regu- nally, the law requires depository institu- lation CC availability requirements with re- tions to provide specific notice of the time spect to deposits to accounts covered by Reg- the customer may withdraw funds deposited ulation CC. Because the state requirements by check or similar instrument into a de- are consistent with the federal requirements, posit account if the funds are not available the California regulation is not preempted for immediate withdrawal. by, nor does it supersede, the federal law. Section 229.20(c)(2) of Regulation CC provides that inconsistency may exist when a Disclosures state law provides for disclosures or notices concerning funds availability relating to ac- California law (Cal. Fin. Code § 866.2) re- counts. California Financial Code § 866.2 requires depository institutions to provide quires disclosures that differ from those re- written disclosures of their general avail- quired by Regulation CC and, therefore, is ability policies to potential customers prior preempted to the extent that it applies to ac- to opening any deposit account. The law also counts as defined in Regulation CC. The state requires that preprinted deposit slips and law continues to apply to savings accounts ATM deposit envelopes contain a con- and other accounts not governed by Regula- spicuous summary of the general policy. Fi- tion CC disclosure requirements. nally, the law requires depository institutions to provide specific notice of the time Savings Institutions the customer may withdraw funds deposited by check or similar instrument into a de- Coverage posit account if the funds are not available The California Department of Savings and for immediate withdrawal. Section Loan regulations, which apply to California 229.20(c)(2) of Regulation CC provides that in- savings and loan associations and California consistency may exist when a state law pro- savings banks, provide that a depositary vides for disclosures or notices concerning bank shall make funds deposited into a funds availability relating to accounts. To transaction or non-transaction account the extent that California Financial Code available for withdrawal as provided in Reg- § 866.2 requires disclosures that differ from ulation CC. The funds availability schedules those required by Regulation CC and apply in Regulation CC apply only to accounts as to accounts as defined in Regulation CC (gen- defined in Regulation CC, which generally erally, transaction accounts), the California consist of transaction accounts. The Cali- law is preempted by Regulation CC. fornia funds availability law and regulations The Department of Savings and Loan regu- apply to accounts as defined by Regulation lations provide that for those non-trans- CC as well as savings accounts as defined in action accounts covered by state law but not the Board’s Regulation D (12 CFR 204.2(d)). by federal law, disclosures in accordance (Note, however, that under § 229.19(e) of Reg- with Regulation CC will be deemed to com- ulation CC, Holds on other funds, the federal ply with the state law disclosure require- availability schedules may apply to savings, ments. To the extent that the Department of

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Savings and Loan regulations permit reli- payment of money even though it is not nego- ance on Regulation CC disclosures for trans- tiable * * * (Cal. Com. Code section 4104(g)). action accounts and to the extent the state This term is broader in scope than the defini- regulations survive the preemption of Cali- tion of check in the Act and Regulation CC. fornia Financial Code § 866.2, they are not The Commissioner’s regulations, however, preempted by, nor do they supersede, the fed- define the term item to include checks, nego- eral law. The state law continues to apply to tiable orders of withdrawal, share drafts, savings accounts and other non-transaction warrants, and money orders. As limited by accounts not governed by Regulation CC dis- the state regulations, the state law applies closure requirements. only to instruments that are also checks as defined in § 229.2(k) of Regulation CC. Credit Unions and Industrial Loan Companies Availability Schedules Each credit union and federally-insured in- Temporary schedule. The California regula- dustrial loan company that maintains an of- tions provide that in-state nonlocal checks fice in California for the acceptance of depos- must be made available for withdrawal not its must make funds deposited by check later than the sixth business day following available for withdrawal in accordance with deposit. This time period is shorter than the the following table: seventh business day availability required for nonlocal checks under § 229.11(c) of Regu- Availability lation CC, although it is not shorter than the schedules for nonlocal checks set forth in Industrial Credit Union Loan Com- § 229.11(c)(2) and appendix B–1 of Regulation pany CC. Thus, the state scheduled for in-state nonlocal checks supersede the federal sched- $100 or less checks; U.S. 1st day ...... 1st day ule to the extent that they apply to an item Treasury checks; state/local payable by a California institution that is gov’t checks. defined as a nonlocal check under Regula- On us checks; cashier’s/cer- 2nd day ...... 2nd day tion CC, and is not subject to reduced sched- tifies/teller’s/depository checks. ules under § 229.11(c)(2) and appendix B–1. In-state checks ...... 6th day ...... 6th day Under the California regulations, credit out-of-state checks ...... 10th day ...... 12th day unions and industrial loan companies must provide next-day availability to first-in- NOTE: These time periods are stated in terms of availability for withdrawal not later than the Xth business day following dorsed items issued by any federally-insured the banking day of deposit to facilitate comparison with Regu- institution. This regulatory requirement, lation CC. State regulations are stated in terms of availability however, has been superseded by section 867 at the start of the business day subsequent to the number of days specified in the regulation. of the California Financial Code, which requires depository institutions to make funds Coverage deposited by cashier’s check, teller’s check, certified checks, or depository check avail- The California law and regulations govern able for withdrawal on the second business the availability of funds to ‘‘demand depos- day following deposit, if certain conditions its, negotiable order of withdrawal draft ac- are met. This requirement became effective counts, savings deposits subject to auto- January 1, 1988. matic transfers, share draft accounts, and all The Regulation CC next-day availability savings deposits and share accounts, other requirement for cashier’s checks and teller’s than time deposits.’’ (California Financial checks applies only to those checks issued Code section 886(b)) The federal preemption for remittance purposes. To the extent that of state funds availability laws only applies the state second business day availability re- to accounts subject to Regulation CC, which quirement applies to cashier’s and teller’s generally includes transaction accounts. checks issued for other than remittance pur- Thus, the California funds availability regu- poses, the state two-day requirement super- lations continue to apply to deposits in sav- sedes the federal local and nonlocal sched- ings and other accounts (such as accounts in ules. which the account-holder is another bank) The California regulations do not specify that are no accounts under Regulation CC. whether they apply to deposits of checks at (Note, however, that under § 229.19(e) of Reg- nonproprietary ATMs. Under the temporary ulation CC, Holds on other funds, the federal schedule in Regulation CC, deposits at non- availability schedules may apply to savings, proprietary ATMs must be made available time, and other accounts not defined as ac- for withdrawal at the start of the seventh counts under Regulation CC in certain cir- business day after deposit. To the extent cumstances.) that the California schedules provide for The California law applies to any Item shorter availability for deposits at non- (California Financial Code section 866.5 and proprietary ATMs, they would supersede the California Commercial Code section temporary schedule in Regulation CC for de- 4213(4)(a)). The California Commercial Code posits at nonproprietary ATMs specified in defines item to mean any instrument for the § 229.11(d).

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Permanent schedule. Under the California may be used to extend the state availability regulations, credit unions and industrial schedule up to the federal availability sched- loan companies must provide next-day avail- ule. Once the deposit is held up to the federal ability to first-indorsed items issued by any availability limit under a state exception, federally-insured institution. This regu- the depositary bank may further extend the latory requirement, however, has been super- hold under any federal exception that can be seded by section 867 of the California Finan- applied to the deposit. Any time a depositary cial Code, which requires depository institu- bank invokes an exception to extend a hold tions to make funds deposited by cashier’s beyond the time periods otherwise permitted check, teller’s check, certified check, or de- by law, it must give notice of the extended pository check available for withdrawal on hold to its customer in accordance with the second business day following deposit, if § 229.13(g) of Regulation CC. certain conditions are met. This requirement Business day/banking day. The definitions of became effective January 1, 1988. business day and banking day in the Cali- The Regulation CC next-day availability fornia regulations are preempted by the Reg- requirement for cashier’s and teller’s checks ulation CC definition of those terms. Thus, applies only to those checks issued for remit- for determining the permissible hold under tance purposes. To the extent that the state the California schedules that supersede the second business day availability requirement applies to cashier’s and teller’s checks issued Regulation CC schedule, deposits are consid- for other than remittance purposes, the state ered made on the specified number of busi- two-day requirement supersedes the federal ness days following the banking day of de- local and nonlocal schedules. posit. Next-day availability. Credit unions and in- Disclosures dustrial loan companies in California are required to give next-day availability to items California law (Cal. Fin. Code section 866.2) drawn by the State of California or any of its requires depository institutions to provide departments, agencies, or political subdivi- written disclosures of their general avail- sions. California law supersedes the fedeal ability policies to potential customers prior law in that the state law does not condition to opening any deposit account. The law also next-day availability on receipt at a staffed requires that preprinted deposit slips and teller station or use of a special deposit slip. ATM deposit envelopes contain a con- California credit unions and industrial spicuous summary of the general policy. Fi- loan companies must provide second business nally, the law requires a depository institu- day availability to checks drawn on the de- tion to provide specific notice of the time positary bank. Regulation CC requires next- the customer may withdraw funds deposited day availability for checks deposited in a by check or similar instrument into a de- branch of the depositary bank and drawn on posit account if the funds are not available the same or another branch of the same bank for immediate withdrawal. if both branches are located in the same state or the same check processing region. Section 229.20(c)(2) of Regulation CC pro- Thus, generally, the Regulation CC rule for vides that inconsistency may exist when a availability of on us checks preempts the state law provides for disclosures or notices California regulations. To the extent, how- concerning funds availability relating to ac- ever, that an on us check is (1) drawn on an counts. California Financial Code section out-of-state branch of the depositary bank 866.2 requires disclosures that differ from that is not in the same check processing re- those required by Regulation CC, and there- gion as the branch in which it was deposited, fore is preempted to the extent that it ap- or (2) deposited at an off-premises ATM or plies to accounts as defined in Regulation CC. another facility of the depositary bank that The state law continues to apply to savings is not considered a branch under federal law, accounts and other accounts not governed by the state regulation supersedes the Regula- Regulation CC disclosure requirements. tion CC availability requirements. Connecticut Exceptions to the availability schedules. Cali- fornia law provides exceptions to the state Background availability schedules for large deposits, new accounts, repeated overdrafters, doubtful The Board has been requested, in accord- collectibility, foreign items, and emergency ance with § 229.20(d) of Regulation CC (12 conditions. In all cases where the federal CFR part 229), to determine whether the Ex- availability schedule preempts the state pedited Funds Availability Act (the ‘‘Act’’) schedule, only the federal exceptions will and subpart B (and in connection therewith, apply. For deposits that are covered by the subpart A) of Regulation CC, preempt provi- state availability schedule (e.g., in-state sions of Connecticut law relating to the nonlocal checks under the temporary sched- availability of funds. This preemption deter- ule; cashier’s or teller’s checks that are not mination specifies those provisions of the deposited with a special deposit slip or at a Connecticut funds availability law that su- staff teller station), the state exceptions persede the Act and Regulation CC. (See also

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the Board’s preemption determination re- Availability Schedules garding the Uniform Commercial Code, sec- Temporary schedule. Connecticut law pro- tion 4–213(5), pertaining to availability of vides that certain checks that are nonlocal cash deposits.) under Regulation CC must be available in a In 1987, Connecticut amended its statute shorter time (sixth business day after de- governing funds availability (Conn. Gen. posit for checks payable by depository insti- Stat. section 36–9v), which requires Con- tutions not located in Connecticut) than necticut depository institutions to make under the federal regulation (seventh busi- funds deposited in a checking, time, interest, ness day after deposit under the temporary or savings account available for withdrawal schedule for nonlocal checks). Accordingly, with specified periods. the Connecticut law supersedes Regulation Generally, the Connecticut statute, as CC with respect to nonlocal checks (other amended, provides that items deposited in a than checks covered by appendix B–1) depos- checking, time, interest, or savings account ited in accounts until the federal permanent at a depository institution must be available availability schedules take effect on Sep- for withdrawal in accordance with the fol- tember 1, 1990. lowing table: The Connecticut statute does not specify whether it applies to deposits of checks at Availability nonproprietary ATMs. Under the temporary schedule in Regulation CC, deposits at non- On us checks ...... 2nd day proprietary ATMs must be made available In-state checks ...... 4th day for withdrawal at the start of the seventh Out-of-state checks ...... 6th day business day after deposit. To the extent that the Connecticut schedules provide for Exceptions to the schedules are provided shorter availability for deposits at non- for items received for deposit for the purpose proprietary ATMs, they would supersede the of opening an account and for items that the temporary schedule in Regulation CC for de- depositary bank has reason to believe will posits at nonproprietary ATMs specified in not clear. The Connecticut statute also re- § 229.11(d). quires availability policy disclosures to de- Exceptions to the availability schedule. The positors in the form of written notices and Connecticut law provides exceptions for notices posted conspicuously at each branch. items received for deposit for the purpose of Coverage opening new accounts and for items that the depositary bank has reason to believe will The Connecticut statute governs the avail- not clear. In all cases where the federal ability of funds deposited in savings and availability schedule preempts the state time accounts, as well as accounts as defined schedule, only the federal exceptions will in § 229.2(a) of Regulation CC. The federal apply. For deposits that are covered by the preemption of state funds availability re- state availability schedule (e.g., nonlocal quirements only applies to accounts subject out-of-state checks under the temporary to Regulation CC, which generally consist of schedule), the state exceptions may be used trasaction accounts. Regulation CC does not to extend the state availability schedule (of affect the Connecticut statute to the extent six business days) to meet the federal avail- that the state law applies to deposits in sav- ability schedule (of seven business days). ings and other accounts (including trans- Once the deposit is held up to the federal action accounts where the account holder is availability schedule limit under a state ex- a bank, foreign bank or the U.S. Treasury) ception, the depositary bank may further ex- that are not accounts under Regulation CC. tend the hold under any federal exception (Note, however, that under § 229.19(e) of Reg- that can be applied to the deposit. Any time ulation CC, Holds on other funds, the federal a depositary bank invokes an exception to availability schedules may apply to savings, extend a hold beyond the time periods other- time, and other accounts not defined as ac- wise permitted by law, it must give notice of counts under Regulation CC, in certain cir- the extended hold to its customer, in accord- cumstances.) ance with § 229.13(g) of Regulation CC. The Connecticut statute applies to items Disclosures deposited in accounts. This term encompasses instruments that are not defined as The Connecticut statute (Conn. Gen. Stat. checks in Regulation CC (§ 229.2(k)), such as Section 36–9v(b)) requires written notice to nonnegotiable instruments, and are there- depositors of an institution’s check hold pol- fore not subject to Regulation CC’s provi- icy and requires a notice of the policy to be sions governing funds availability. Those posted in each branch. items that are subject to Connecticut law Regulation CC preempts state disclosure but are not subject to Regulation CC will requirements concerning funds availability continue to be covered by the state avail- that relate to accounts that are inconsistent ability schedules and exceptions. with the federal requirements. The state

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requriements are different from, and there- ting forth time limitations and disclosure re- fore inconsistent with, the federal disclosure quirements governing funds availability. rules. (§ 229.20(c)(2)). Thus, the Connecticut The Superintendent of Banking issued reg- statute is preempted by Regulation CC to ulations implementing the Maine funds the extent that these disclosure provisions availability statute, effective July 1, 1987 apply to accounts as defined by Regulation (Regulation 18(IV)), and adopted amend- CC. The Connecticut disclosure rules would ments to this regulation, effective Sep- continue to apply to accounts, such as sav- tember 1, 1988. Under the revised regulation, ings and time accounts, not governed by the funds deposited to any deposit account in a Regulation CC disclosure requirements. Maine financial institution must be made available for withdrawal in accordance with Illinois the Act and Regulation CC (Regulation 18– The Board has been requested, in accord- IV(A)(1)). The state regulation provides that ance with § 229.20(d) of Regulation CC (12 an institution’s funds availability policies CFR part 229), to determine whether the Ex- for accounts subject to Regulation CC be dis- pedited Funds Availability Act and subpart closed in a manner consistent with the Regu- B, and, in connection therewith, subpart A, lation CC requirements. Funds availability of Regulation CC, preempt provisions of Illi- policies for accounts not subject to Regula- nois law relating to the availability of funds. tion CC must be disclosed in accordance with Section 4–213(5) of the Uniform Commercial the state regulation (Regulation 18–IV(A)(2)). Code as adopted in Illinois (Illinois Revised Coverage Statutes Chapter 26, paragraph 4–213(5), enacted July 26, 1988) provides that: The Maine law and regulation govern the Time periods after which deposits must be availability of funds to any deposit account, available for withdrawal shall be determined as defined in the Board’s Regulation D (12 by the provisions of the federal Expedited CFR 204.2(a)). This coverage is broader than Funds Availability Act (Title VI of the Com- the accounts covered in Regulation CC. The petitive Equality Banking Act of 1987) and Maine law continues to apply to all deposit the regulations promulgated by the Federal accounts, including those that are not ac- Reserve Board for the implementation of counts under Regulation CC. (Note, however, that Act. that under § 229.19(e) of Regulation CC, Holds on other funds, the federal availability sched- Section 4–213(5) of the Illinois law does not ules may apply to savings, time, and other supersede Regulation CC; and, because this accounts not defined as accounts under Regu- provision of Illinois law does not permit lation CC, in certain circumstances.) funds to be made available for withdrawal in a longer period of time than required under Availability Schedules and Disclosures the Act and Regulation, it is not preempted by Regulation CC. The Maine regulation incorporates the Regulation CC availability and disclosure re- Maine quirements with respect to deposits to accounts covered by Regulation CC. Because Background the state requirements are consistent with The Board has been requested, in accord- the federal requirements, the Maine regula- ance with § 229.20(d) of Regulation CC (12 tion is not preempted by, nor does it super- CFR part 229), to determine whether the Ex- sede, the federal law. pedited Funds Availability Act (the ‘‘Act’’) Massachusetts and subpart B (and in connection therewith, subpart A) of Regulation CC, preempt the Background provisions of Maine law concerning the availability of funds. This preemption deter- The Board has been requested, in accord- mination addresses the relation of the Act ance with § 229.20(d) of Regulation CC (12 and Regulation CC to the Maine funds avail- CFR part 229), to determine whether the Ex- ability law. (See also the Board’s preemption pedited Funds Availability Act (the ‘‘Act’’) determination regarding the Uniform Com- and subpart B (and in connection therewith, mercial Code, section 4–213(5), pertaining to subpart A) of Regulation CC, preempt provi- availability of cash deposits.) sions of Massachusetts law relating to the In 1985, Maine adopted a statute governing availability of funds. This preemption deter- funds availability (Title 9–B MRSA section mination addresses the relationship of the 241(5)), which requires Maine financial insti- Act and Regulation CC to the Massachusetts tutions to make funds deposited in a trans- funds availability law. (See also the Board’s action account, savings account, or time ac- preemption determination regarding the count available for withdrawal within a rea- Uniform Commercial Code, section 4–213(5), sonable period. The Maine statute gives the pertaining to availability of cash deposits.) Superintendent of Banking for the State of In 1988, Massachusetts amended its statute Maine the authority to promulgate rules set- governing funds availability (Mass. Gen. L.

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ch. 167D, section 35), to require Massachu- New Jersey setts banking institutions to make funds available for withdrawal and disclose their Background availability policies in accordance with the The Board has been requested, in accord- Act and Regulation CC. The Massachusetts ance with § 229.20(d) of Regulation CC (12 law, however, provides that ‘‘local origi- CFR part 229), to determine whether the Ex- nating depository institution’’ is to be de- pedited Funds Availability Act (the ‘‘Act’’) fined as any originating depository institu- and subpart B (and in connection therewith, tion located in the Commonwealth. subpart A) of Regulation CC preempt the provisions of New Jersey law concerning dis- Coverage closure of a bank’s funds availability policy. (See also the Board’s preemption determina- The Massachusetts statute governs the tion regarding the Uniform Commercial availability of funds deposited in ‘‘any de- Code, section 4–213(5), pertaining to avail- mand deposit, negotiable order of withdrawal ability of cash deposits.) account, savings deposit, share account or New Jersey does not have a law or regula- other asset account.’’ Regulation CC applies tion establishing the maximum time periods only to accounts as defined in § 229.2(a). Regu- within which funds deposited by check or lation CC does not affect the Massachusetts electronic payment must be made available statute to the extent that the state law ap- for withdrawal. New Jersey does, however, plies to deposits in savings and other ac- have regulations concerning the disclosure of counts (including transaction accounts a banking institution’s availability policy where the account holder is a bank, foreign (N.J.A.C. 3:1–15.1 et seq.). bank, or the U.S. Treasury) that are not accounts under Regulation CC. (Note, however, Disclosures that under § 229.19(e) of Regulation CC, Holds New Jersey law requires every banking in- on other funds, the federal availability sched- stitution (defined as any state or federally ules may apply to savings, time, and other chartered commercial bank, savings bank, or accounts not defined as accounts under Regu- savings and loan association) to provide lation CC, in certain circumstances.) written disclosure to all holders of and appli- cants for deposit accounts which describes Availability Schedules the institution’s funds availability policy. Institutions must also disclose to their cus- The Massachusetts definition of local origi- tomers any significant changes to their nating depository institution (local paying availability policy. bank in Regulation CC terminology) requires Regulation CC preempts state disclosure that in-state checks that are nonlocal requirements concerning funds availability checks under Regulation CC be made avail- that relates to accounts that are inconsistent able in accordance with the Regulation CC with the federal requirements. The state re- local schedule. The Massachusetts law super- quirements are different from, and therefore sedes Regulation CC under the temporary inconsistent with, the federal disclosure and permanent schedule with respect to rules. (§ 229.20(c)(2)). Thus, the New Jersey nonlocal checks payable by banks located in statute (N.J.A.C. sections 3:1–15.1 et seq.) is Massachusetts and deposited into accounts. preempted by Regulation CC to the extent Regulation CC preempts the Massachusetts that these disclosure provisions apply to ac- law, however, to the extent the state law counts as defined by Regulation CC. The New does not define banks located outside of Mas- Jersey disclosure rules would continue to sachusetts, but in the same check processing apply to other deposit accounts, as defined by region as the paying bank, as local originating New Jersey law, including money market ac- depository institutions. counts and savings accounts established by a natural person for personal or family pur- Disclosures poses, which are not governed by the Regula- tion CC disclosure requirements. The Massachusetts regulation incorporates the Regulation CC disclosure requirements New York with respect to both accounts covered by Regulation CC and savings and other ac- Background counts not governed by the federal regula- The Board has been requested, in accord- tion. Because the state requirements are ance with § 229.20(d) of Regulation CC (12 consistent with the federal requirements, the CFR part 229), to determine whether the Ex- Massachusetts regulation is not preempted pedited Funds Availability Act (the ‘‘Act’’) by, nor does it supersede, the federal law. and subpart B (and in connection therewith, The Massachusetts disclosure rules would subpart A) of Regulation CC, preempt the continue to apply to accounts not governed provisions of New York law concerning the by the Regulation CC disclosure require- availability of funds. This preemption deter- ments. mination addresses the relation of the Act

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and Regulation CC to the New York funds Availability Schedules availability law. (See also the Board’s pre- The provisions of New York law governing emption determination regarding the Uni- the availability of in-state nonlocal items form Commercial Code, section 4–213(5), per- provide for shorter hold than is provided taining to availability of cash deposits.) under Regulation CC, and supersede that fed- In 1983, the New York State Banking De- eral availability requirements. With the ex- partment, pursuant to section 14–d of the ception of these provisions, the New York New York Banking law, issued regulations requiring that funds deposited in an account regulation does not apply to deposits to ac- be made available for withdrawal within counts covered by Regulation CC. specified time periods, and provided certain Temporary schedule. The time periods for exceptions to those availability schedules. the availability of in-state nonlocal checks, Part 34 of the New York State Banking De- contained in part 34.4 (a)(2) and (b)(2), are partment’s General Regulations established shorter that the seventh business day avail- time frames within which commercial banks, ability required for nonlocal checks under trust companies, and branches of foreign § 229.11(c) of Regulation CC, although they banks (banks); and savings banks, savings are not necessarily shorter than the sched- and loan associations, and credit unions ules for nonlocal checks set forth in (savings institutions) must make funds depos- § 229.11(c)(2) and appendix B–1 of Regulation ited in customer accounts available for with- CC. Thus, these state schedules supersede drawal. the federal schedule to the extent that they The Banking Department amended part 34, apply to an item payable by a New York effective September 1, 1988, generally to ex- bank or savings institution that is defined as clude accounts covered by Regulation CC a nonlocal checks under Regulation CC and from the scope of the state regulation. Part the applicable state schedule is less than the 34.4 (a)(2) and (b)(2) of the revised New York applicable schedule specified in § 229.11(c) and rules, however, continue to apply to checks appendix B–1. deposited to accounts, as defined in Regula- Permanent schedule. The New York sched- tion CC. These provisions require that the ule for banks supersedes the Regulation CC proceeds of nonlocal checks payable by a requirement in the permanent schedule, ef- New York institution be made available for fective September 1, 1990, that nonlocal withdrawal not later than the start of the checks be made available for withdrawal by fourth business day following deposit, if de- the start of the fifth business day following posited in a bank, or the fifth business day deposit, to the extent that the in-state following deposit, if deposited in a savings checks are defined as nonlocal under Regula- institution. The revised regulation also pro- tion CC, and the Regulation CC schedule for vides that, with respect to savings accounts nonlocal checks is not shortened under and time deposits, New York institutions § 229.12(c)(2) and appendix B–2 of Regulation could elect to comply with either the state CC. In addition, the New York schedule for or federal availability and disclosure re- savings institutions supersedes the Regula- quirements. tion CC time period adjustment for with- This preemption determination supersedes drawal by cash or similar means in the per- the determination issued by the Board on manent schedule, to the extent that the in- August 18, 1988 (53 FR 32357 (August 24, 1988)). state checks are defined as nonlocal under Regulation CC, and the Regulation CC sched- Coverage ule for nonlocal checks is not shortened The New York law and regulation govern under § 229.12(c)(2) and appendix B–2. the availability of funds in savings accounts Exceptions to the availability schedules. New and time deposits, as well as accounts as de- York law provides exceptions to the state fined in § 229.2(a) of Regulation CC. The New availability schedules for large deposits, new York law continues to apply to deposits to accounts, repeated overdrafters, doubtful savings accounts and time deposits that are collectibility, foreign items, and emergency not accounts under Regulation CC. (Note, conditions (part 34.4). The state exceptions however, that under § 229.19(e) of Regulation apply only with respect to deposits of in- CC, Hold on other funds, the federal avail- state nonlocal checks that are subject to the ability schedules may apply to savings, time, state availability schedule. For these depos- and other accounts not defined as accounts its, the depositary bank may invoke a state under Regulation CC, in certain cir- exception and place a hold on the deposit up cumstances.) to the federal availability schedule limit for The New York law and regulation apply to that type of deposit. Once the federal avail- items deposited to accounts. Part 34.3(e) de- ability schedule limit is reached, the deposi- fines item as a check, negotiable order of with- tary bank may further extend the hold under drawal or money order deposited into an ac- any of the federal exceptions that apply to count. The Board interprets the definition of that deposit. Any time a depositary bank in- item in New York law to be consistent with vokes an exception to extend a hold beyond the definition of check in Regulation CC the time periods otherwise permitted by law, (§ 229.2(k)). it must give notice of the extended hold to

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its customer in accordance with § 229.12(g) of to apply to accounts, as defined in § 229.2(a), Regulation CC. that are not personal transaction accounts. The Rhode Island statute applies to items, Disclosures defined as checks, negotiable orders of with- The revised New York regulation does not drawal, or money orders. The Board inter- contain funds availability disclosure require- prets the definition of item to be consistent ments applicable to accounts subject to Reg- with the definition of check in Regulation CC ulation CC. (§ 299.2(k)). Rhode Island Availability Schedules Temporary schedule. Rhode Island law re- Background quires availability for certain checks in the The Board has been requested, in accord- same time as does Regulation CC. Thus, in ance with § 229.20(d) of Regulation CC (12 these instances, the federal law does not pre- CFR part 229), to determine whether the Ex- empt the state law. Rhode Island law re- pedited Funds Availability Act (the ‘‘Act’’) quires commercial banks (but not thrift in- and subpart B (and in connection therewith, stitutions) to make checks payable by a de- subpart A) of Regulation CC, supersede pro- positary institution that uses the same in- visions of Rhode Island law relating to the state clearing facility as the depositary bank availability of funds. This preemption deter- available for withdrawal on the third busi- mination specifies those provisions in the ness day following the day of the deposit. Rhode Island funds availability law that su- This is the same time period contained in persede the Act and Regulation CC. (See also Regulation CC for local checks payable by a the Board’s preemption determination re- bank that is a member of the same local garding the Uniform Commercial Code, sec- clearinghouse as the depositary bank. (The tion 4–213(5), pertaining to availability of Board views the definition of the same in-state cash deposits.) clearing facility as having the same meaning In 1986, Rhode Island adopted a statute as the term the same check clearinghouse asso- governing funds availability (R.I. Gen. Laws ciation in the federal law’s provision that al- tit. 6A, sections 4–601 through 4–608), which lows banks to limit the customer’s ability to requires Rhode Island depository institu- withdraw cash on the third business day if tions to make checks deposited in a personal the local check being deposited is payable by transaction account available for withdrawal a bank that is not a member of the same within certain specific periods. Commercial local clearinghouse as the depositary bank.) banks and thrift institutions (mutual sav- Since the Rhode Island law and the federal ings banks, savings banks, savings and loan law both require the funds to be made avail- institutions and credit unions) must make able no later than the third business day, the funds available for withdrawal in accordance state law is not preempted by the federal with the following table: law. The Rhode Island law also requires com- Commer- Thrift insti- mercial banks and savings institutions to cial banks tutions make checks payable by a depository insti- Treasury checks, Rhode Island 2nd ...... 2nd tution located in the First or Second Federal Government checks, first-indorsed. Reserve District (outside of Rhode Island) In-state cashier’s checks less than 2nd ...... 2nd available on the seventh business day fol- $2,500. lowing deposit. To the extent that this provi- On-us checks ...... 2nd ...... 3rd sion applies to checks payable by institu- In-state clearinghouse checks ...... 3rd ...... 4th tions located outside the Boston check proc- In-state nonclearinghouse checks ... 5th ...... 6th 1st or 2nd Federal Reserve District 7th ...... 7th essing region, it provides for availability in checks (out-of-state). the same time as required for nonlocal Other checks ...... 9th ...... 10th checks under the temporary federal schedule, and thus is not preempted by the federal NOTE: These time periods are stated in terms of availability for withdrawal not later than the Xth business day following law. the banking day of deposit to facilitate comparison with Regu- The Rhode Island statute does not specify lation CC. State regulations are stated in terms of availability whether it applies to deposits of checks at at the start of the business day subsequent to the number of days specified in the regulation. nonproprietary ATMs. Under the temporary schedule in Regulation CC, deposits at non- The Rhode Island statute also provides re- proprietary ATMs must be made available strictions and exceptions to the schedules for withdrawal at the opening of the seventh and requires institutions to make certain business day after deposit. To the extent disclosures to their customers. that the Rhode Island schedules provide for Coverage shorter availability for deposits at nonproprietary ATMs, they would supersede the The Rhode Island statute governing the temporary schedule. availability of funds deposited in personal Exceptions to the availability schedules. The transaction accounts, a term not defined in Rhode Island law contains exceptions for the statute. The federal law would continue reason to doubt collectibility or ability of

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the depositor to reimburse the depositary tion regarding the Uniform Commercial bank, for new accounts, for large checks, and Code, section 4–213(5), pertaining to avail- for foreign checks. In all cases where the fed- ability of cash deposits.) eral availability schedule preempts the state Wisconsin Statutes sections 404.213(4m), schedule, only the federal exceptions will 215.136, and 186.117 require Wisconsin banks, apply. For deposits that are covered by the savings and loan associations, and credit state availability schedule, the state excep- unions, respectively, to make funds depos- tions may be used to extend the state avail- ited in accounts available for withdrawal ability schedule to meet the federal avail- within specified time frames. Generally, ability schedule. Once the deposit is held up checks drawn on the U.S. Treasury, the to the federal availability schedule limit State of Wisconsin, or on a local government under a state exception, the depositary bank located in Wisconsin must be made available may further extend the hold under any fed- for withdrawal by the second day following eral exception that can be applied to the de- deposit. (The law governing commercial posit. Thus, if the state and federal avail- banks determines availability based on ability schedules are the same for a par- banking day; the laws governing savings and ticular deposit, both a state and a federal ex- loan associations and credit unions deter- ception must be applicable to that deposit in mine availability based on business days.) order to extend the hold beyond the sched- In-state and out-of-state checks must be ule. Any time a depositary bank invokes an made available for withdrawal within five exception to extend a hold beyond the time days and eight days following deposit, re- periods otherwise permitted by law, it must spectively. Exceptions are provided for new give notice of the extended hold to its cus- accounts and reason to doubt collectibility. tomer, in accordance with § 229.13(g) of Regu- In addition, Wisconsin Statutes section lation CC. 404.103 permits commercial banks to vary Business day/banking day. The Rhode Island these availability requirements by agree- statute defines business day as excluding Sat- ment. urday, Sunday and legal holidays. This definition is preempted by the Regulation CC Coverage definitions of business day and banking day. Thus, for determining the permissible hold Wisconsin law defines account, with respect under the Rhode Island schedules that super- to the rules governing commercial banks, as sede the Regulation CC schedule, deposits any account with a bank and includes a check- are considered made on the specified number ing, time, interest or savings account (Wis- of business days following the banking day of consin Statutes section 404.104(1)(a)). The deposit. statutes relating to the funds availability requirements applicable to savings and loan Disclosures associations and credit unions do not define The Rhode Island statute requires written the term account. The Federal preemption of notice to depositors of an institution’s check state funds availability requirements applies hold policy and requires a notice on deposit only to accounts subject to Regulation CC, slips. Regulation CC preempts state disclo- which generally consist of transaction ac- sure requirements concerning funds avail- counts. Regulation CC does not affect the ability that relate to accounts that are in- Wisconsin law to the extent that the state consistent with the federal requirements. law applies to deposits in savings, time, and The state reuirements are different from, other accounts (including transaction ac- and therefore inconsistent with, the federal counts where the account holder is a bank, rules. (§ 229.20(c)(2)) Thus, Regulation CC pre- foreign bank, or the U.S. Treasury) that are empts the Rhode Island disclosure require- not accounts under Regulation CC. (Note, ments concerning funds availability. however, that under § 229.19(e) of Regulation CC, Holds on Other Funds, the federal avail- Wisconsin ability schedules may apply to savings, time, and other accounts not defined as accounts Background under Regulation CC in certain cir- The Board has been requested, in accord- cumstances.) ance with § 229.20(d) of Regulation CC (12 The Wisconsin statute applies to items de- CFR part 229), to determine whether the Ex- posited in accounts. This term encompasses pedited Funds Availability Act (the Act) and instruments that are not defined as checks in subpart B (and in connection therewith, sub- Regulation CC (§ 229.2(k)), such as nonnego- part A) of Regulation CC preempt the provi- tiable instruments, and are therefore not sions of Wisconsin law concerning avail- subject to Regulation CC’s provisions gov- ability of funds. This preemption determina- erning funds availability. Those items that tion specifies those provisions of the Wis- are subject to Wisconsin law but are not sub- consin funds availability law that are not ject to Regulation CC will continue to be preempted by the Act and Regulation CC. covered by the state availability schedules (See also the Board’s preemption determina- and exceptions.

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Availability Schedules 404.213(4m)(b); 215.136(2); and 186.117(2)). The Temporary schedule. The Wisconsin statute state availability law also permits commer- requires that in-state nonlocal checks be cial banks to vary the funds availability re- made available for withdrawal not later than quirements by agreement (Wisconsin Statute the fifth day following deposit (Wisconsin section 404.103(1)). In all cases where the Fed- Statutes sections 404.213(4m)(b)(2); eral schedule preempts the state schedule, 215.136(2)(b); 186.117(2)(b)). This time period is only the Federal exceptions apply. For de- shorter than the seventh business day avail- posits that are covered by the state availability required for nonlocal checks under ability schedule (e.g., in-state nonlocal § 229.11(c) of Regulation CC, although it is checks), a state exception must apply in not shorter than the schedules for nonlocal order to extend the state availability sched- checks set forth in § 229.11(c)(2) and appendix ule up to the Federal availability schedule. B–1 of Regulation CC. Thus, the state sched- Once the deposit is held up to the Federal ule for in-state nonlocal checks supersedes availability limit under a state exception, the Federal schedule to the extent that it ap- the depositary bank may further extend the plies to an item payable by a Wisconsin bank hold only if a Federal exception can be ap- that is defined as a nonlocal check under plied to the deposit. Any time a depositary Regulation CC and is not subject to reduced bank invokes an exception to extend a hold schedules under § 229.11(c)(2) and appendix B– beyond the time periods otherwise permitted 1. by law, it must give notice of the extended Permanent Schedule. Under the Federal per- hold to its customer in accordance with manent availability schedule, nonlocal § 229.13(g) of Regulation CC. checks must be made available for with- Business day/banking day. The definitions of drawal not later than the fifth business day business day and banking day in the Wis- following deposit. The fifth day availability consin statutes are preempted by the Regu- requirement for in-state items in the Wis- lation CC definition of those terms. For de- consin statute supersedes the Regulation CC termining the permissible hold under the time period adjustment for withdrawal by Wisconsin schedules that supersede the Reg- cash or similar means in the permanent ulation CC schedule, deposits are considered schedule, to the extent that the in-state checks are defined as nonlocal under Regula- available for withdrawal on the specified tion CC. number of business days following the bank- Next-day availability. Under the Wisconsin ing day of deposit. statute, the proceeds of state and local gov- Wisconsin law considers funds to be depos- ernment checks must be made available for ited, for the purpose of determining when withdrawal by the second day following de- they must be made available for withdrawal, posit, if the check is endorsed only by the when an item is ‘‘received at the proof and person to whom it was issued (Wisconsin transit facility of the depository.’’ For the Statutes sections 404.213(4m)(b)(1); purposes of this preemption determination, 215.136(2)(b); and 186.117(2)(a)). Regulation CC funds are considered deposited under Wis- requires next-day availability for these consin law in accordance with the rules set checks if they are (1) deposited in an account forth in § 229.19(a) of Regulation CC. of a payee of the check, (2) deposited in a depositary bank located in the same state as Disclosures the state or local government that issued the The Wisconsin statute does not require dis- check, (3) deposited in person to an employee closure of a bank’s funds availability policy. of the depositary bank, and (4) deposited The state law does require, however, that a with a special deposit slip, if the depositary bank give notice to its customer if it extends bank informed its customers that use of such the time within which funds will be available a slip is a condition to next-day availability. for withdrawal due to the bank’s doubt as to Under the Federal law, if a state or local the collectibility of the item (Wisconsin government check is not deposited in person to an employee of the depositary bank, but Statutes sections 404.213(4m)(b); 215.136(2); meets the other conditions set forth in and 186.117(2)). § 229.10(c)(1)(iv), the funds must be made Regulation CC preempts state disclosure available for withdrawal not later than the requirements concerning funds availability second business day following deposit. The that relate to accounts that are inconsistent Wisconsin statute supersedes Regulation CC with the Federal requirements. The state re- to the extent that the state law does not per- quirement is different from, and therefore mit the use of a special deposit slip as a con- inconsistent with, the Federal disclosure dition to receipt of second-day availability. rules (§ 229.20(c)(2)). Thus, the Wisconsin stat- Exceptions to the schedules. Wisconsin law ute is preempted by Regulation CC to the ex- provides exceptions to the state availability tent that the state notice requirement ap- schedules for new accounts (those opened plies to accounts as defined by Regulation less than 90 days) and reason to doubt col- CC. The Wisconsin requirement would con- lectibility (Wisconsin Statutes sections tinue to apply to accounts, such as savings

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and time accounts, not governed by the Reg- ulation CC disclosure requirements. [53 FR 32356, Aug. 24, 1988, as amended at 53 FR 44328, Nov. 2, 1988; 53 FR 47524, Nov. 22, 1988; 53 FR 51748, Dec. 23, 1988; Reg. CC, 54 FR 13838, Apr. 6, 1989; 55 FR 11358, Mar. 28, 1990; 60 FR 51703, Oct. 3, 1995]

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