16862 Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules

FEDERAL RESERVE SYSTEM Reserve System, 20th Street and Board authority to regulate any aspect of Constitution Avenue, NW., Washington, the payment system and any related 12 CFR Part 229 DC 20551. function of the payment system with 4 [Regulation CC; Docket No. R–1409] All public comments are available respect to checks. Subpart C includes from the Board’s Web site at http:// rules to speed the collection and return RIN No. 7100–AD68 www.federalreserve.gov/generalinfo/ of checks, such as rules covering the foia/ProposedRegs.cfm as submitted, expeditious return responsibilities of Availability of Funds and Collection of paying and returning banks, Checks except as necessary for technical reasons. Accordingly, your comments authorization of direct returns, AGENCY: Board of Governors of the will not be edited to remove any notification of nonpayment of large- Federal Reserve System. identifying or contact information. dollar returns, check indorsement ACTION: Proposed rule, request for Public comments may also be viewed standards, and same-day settlement of comment. electronically or in paper in Room MP– checks presented to the paying bank. 500 of the Board’s Martin Building (20th Subpart C’s provisions presume that SUMMARY: The Board of Governors and C Streets, NW.) between 9 a.m. and banks generally handle checks in paper (Board) is proposing amendments to 5 p.m. on weekdays. form. Since the provisions were adopted in 1988, however, banks have largely facilitate the banking industry’s ongoing FOR FURTHER INFORMATION CONTACT: migrated to an electronic interbank transition to fully-electronic interbank Dena L. Milligan, Attorney, (202/452– check collection and return system.5 check collection and return, including 3900), Legal Division; or Joseph P. proposed amendments to condition a This migration was facilitated by the Baressi, Financial Services Project Check 21 Act,6 which became effective depositary bank’s right of expeditious Leader (202/452–3959), Division of return on the depositary bank agreeing in October 2004 and is implemented in Reserve Bank Operations and Payment subparts A and D of Regulation CC. The to accept returned checks electronically Systems; for users of either directly or indirectly from the Check 21 Act permits banks to use a Telecommunication Devices for the Deaf properly prepared substitute check in paying bank. The Board also is (TDD) only, contact 202/263–4869. proposing amendments to the funds place of the original check, which SUPPLEMENTARY INFORMATION: availability schedule provisions to enables banks to take the original check reflect the fact that there are no longer Background out of the collection and return process and to handle check images for much of any nonlocal checks. The Board Regulation CC (12 CFR part 229) proposes to revise the model forms that the check collection and return process implements the Expedited Funds without having to retain the original banks may use in disclosing their funds- Availability Act (EFA Act) and the availability policies to their customers check. The Check 21 Act has been a Check Clearing for the 21st Century Act catalyst for rapid growth in banks’ and to update the preemption 1 (Check 21 Act). The Board electronic handling of checks over the determinations. Finally, the Board is implemented the EFA Act in subparts requesting comment on whether it last 5 years. For example, at year-end A, B, and C of Regulation CC. The EFA 2005, the Reserve Banks received about should consider future changes to the Act was enacted to provide depositors regulation to improve the check 4 percent of checks deposited with them of checks with prompt funds availability for collection in electronic form and collection system, such as decreasing and to foster improvements in the check the time afforded to a paying bank to presented approximately 28 percent of collection and return processes. Subpart their checks in electronic form.7 In decide whether to pay a check in order A of Regulation CC contains general to reduce the risk to a depositary bank December 2010, the Reserve Banks information, such as definitions of received about 99.7 percent of checks of having to make funds available for terms. Subpart B of Regulation CC withdrawal before learning whether a deposited for forward collection specifies availability schedules within electronically, and presented about 98.4 deposited check has been returned which banks must make funds available unpaid. percent of checks electronically. In for withdrawal. Subpart B also includes addition, at the end of 2005 virtually all DATES: Comments on the proposed rule rules regarding exceptions to the returned checks handled by the Reserve must be received not later than June 3, schedules, disclosure of funds Banks were sent to and from the Reserve 2011. availability policies, and payment of Banks in paper form. By December ADDRESSES: You may submit comments, interest. These provisions implement 2010, the Reserve Banks received 97.1 identified by Docket No. R–1409 and specific requirements set forth in the percent of returned checks RIN No. 7100–AD68, by any of the EFA Act. The provisions of subpart C following methods: were adopted by the Board pursuant to regulation, that * * * the Federal Reserve banks • Agency Web Site: http:// the authority granted to it in §§ 609(b) and depository institutions take such actions as are www.federalreserve.gov. Follow the and (c) of the EFA Act.2 Section 609(b) necessary to automate the process of returning instructions for submitting comments at directs the Board to consider requiring unpaid checks.’’ 12 U.S.C. 4008(b)(4). 4 Section 609(c)(1) states that ‘‘[i]n order to carry http://www.federalreserve.gov/ that depository institutions and Federal out the provisions of this title, the Board of generalinfo/foia/ProposedRegs.cfm. Reserve Banks take certain steps to Governors of the Federal Reserve System shall have • Federal eRulemaking Portal: http:// improve the check-processing system, the responsibility to regulate—(A) any aspect of the www.regulations.gov. Follow the such by taking steps necessary to payment system, including the receipt, payment, collection, or clearing of checks.’’ 12 U.S.C. instructions for submitting comments. automate the check-return process 4008(c)(1). • 3 E-mail: (§ 609(b)(4)). Section 609(c) grants the 5 Certain provisions, such as the same-day [email protected]. settlement provisions in § 229.36(f), were adopted Include docket number in the subject 1 Expedited Funds Availability Act, 12 U.S.C. at later times. line of the message. 4001 et seq.; Check Clearing for the 21st Century 6 Public Law 108–100, 117 Stat. 1177 (codified at • FAX: 202/452–3819 or 202/452– Act, 12 U.S.C. 5001 et seq. 12 U.S.C. 5001–5018) (2003). 2 12 U.S.C. 4008 (b) and (c). 7 Prior to the Check 21 Act, the Reserve Banks 3102. 3 • Section 609(b)(4) states that ‘‘[i]n order to presented about 20 to 25 percent of their check Mail: Jennifer J. Johnson, Secretary, improve the check processing system, the Board volume electronically, primarily under MICR- Board of Governors of the Federal shall consider (among other proposals) requiring, by presentment programs.

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electronically, and delivered about 76.7 collection test’’ ((§ 229.30(a)(2)).10 To expense to deliver returned checks to percent of returned checks to depositary meet the two-day/four-day test, a paying the banks that continue to require that banks electronically.8 Based on bank must send a returned local check paper checks be returned. Moreover, as information from banking industry in a manner such that the check would technology has improved, the Board sources, the Board believes that these normally be received by the depositary understands that the initial trends with respect to checks handled bank not later than 4 p.m. local time of implementation and ongoing costs by the Reserve Banks are representative the depositary bank on the second incurred by a depositary bank to receive of trends nationwide.9 business day following the banking day returned items electronically have on which the check was presented to decreased substantially. For example, Overview of the Proposal the paying bank. For nonlocal checks, a the Reserve Banks now provide I. Amendments To Encourage paying bank must send a returned check electronic copies of returned checks in Electronic Check Clearing and Check in a manner such that the check would .pdf files to small depositary banks, Return normally be received by the depositary which can use the .pdf file to print bank not later than 4 p.m. local time of substitute checks on their own premises As a general matter, the Board the depositary bank on the fourth if necessary. Compared to alternative believes that electronic check-clearing business day following the banking day means of receiving electronic returns, and check-return methods improve the on which the check was presented to this approach involves only minimal efficiency of the check system. the paying bank. Because there now is upfront costs to a depositary bank, such Electronic methods are faster and more only one Federal Reserve Bank check- as the purchase of a printer capable of resilient, and, at the same time, they are processing region, there are no longer double-sided printing and magnetic-ink less costly and less error prone. Despite any nonlocal checks, and the four-day toner cartridges.13 After printing the the increasing number of checks test applies to a null set of checks.11 electronic copies, the depositary bank presented and returned electronically, The forward-collection test is satisfied can process them in the same way it some banks continue to demand paper if a paying bank sends the returned processes paper checks that are returned checks or present paper checks check in a manner that a similarly physically delivered to it. for same-day settlement under situated bank would send a check (i) of § 229.36(f) of Regulation CC. The full similar amount as the returned check, 2. Proposed Expeditious Return benefits and cost savings of the (ii) drawn on the depositary bank, and Requirement electronic methods, however, cannot be (iii) deposited for forward collection in The Board believes that a fully- realized so long as some banks continue the similarly situated bank by noon on electronic check-return system benefits to employ paper-processing methods. the banking day following the banking the nation’s payment system, as well as Accordingly, under its authority day on which the check was presented consumers and businesses. provided in § 609(c) of the EFA Act, the to the paying bank.12 Additionally, the Board believes that Board is proposing amendments to When these tests were adopted in the electronic check return substantially subpart C of Regulation CC to provide late 1980s, the expeditious-return reduces risks to the check system and incentives for depositary banks to standard presumed that banks could use that the costs to a bank to receive receive, and paying banks to send, the same modes of transportation for returned checks electronically have returned checks electronically. The returned checks that they used for markedly declined. Therefore, the Board Board also is proposing amendments to forward-collection checks. Delivering believes that it is appropriate for the risk the same-day settlement provisions to returned checks in the same time and of non-expeditious return to rest with a promote electronic presentment of manner as forward checks would satisfy depositary bank that chooses not to checks. Further, based on experience the regulation’s expeditious-return accept electronic returns. Accordingly, since the Check 21 Act became effective, requirements. Today, by contrast, to encourage depositary banks to agree the Board is proposing minor forward-check collection is almost to receive returned checks amendments to subpart D of Regulation entirely electronic, and the dedicated air electronically, and to avoid imposing CC with respect to substitute checks. and ground transportation for paper increased cost on paying banks to return checks has largely been discontinued. checks expeditiously to depositary A. Expeditious-Return Rule Some depositary banks, however, banks that do not accept electronic 1. Current Rule continue to require that returned checks returns, the Board proposes to amend be delivered to them in paper form, Regulation CC to provide that a Regulation CC currently provides that making it difficult for paying banks and depositary bank would not be entitled to if a paying bank determines not to pay returning banks to meet the expeditious- expeditious return unless it agrees to a check, it must return the check in an return requirement. Accordingly, the receive electronic returns directly or expeditious manner, as provided under full benefits and cost savings of indirectly from the paying bank either the ‘‘two-day/four-day test’’ electronic check-return methods cannot returning the check.14 The Board (§ 229.30(a)(1)), or the ‘‘forward- be realized if paying banks and proposes to define a new term, returning banks must incur substantial 8 The proportion of returned checks the Reserve 13 Prior to developing the capability of providing Banks delivered electronically to the depositary 10 Section 229.31(a) sets forth similar tests for the electronic .pdf copies, it may have been bank increased from 28 percent in June 2009 to 76.7 returning banks. necessary for a depositary bank, or its processor, to percent in December 2010. The proportion of 11 A local check is a check drawn on a paying develop systems capable of automated processing of depositary banks to which the Reserve Banks bank located in the same check-processing region incoming electronic data files (e.g., X9.100–187 deliver returns electronically, while lower, has also as the depositary bank. 12 CFR 229.2(r). A nonlocal files) representing returned checks and to integrate increased, from 8 percent in June 2009 to 52 percent check is a check drawn on a paying bank located these systems with the bank’s other existing in December 2010. in a different check-processing region as the systems, such as the bank’s demand-deposit- 9 The Electronic Check Clearing House depositary bank. 12 CFR 229.2(v). account systems that maintain the bank’s customer Organization (ECCHO) collects data from various 12 The forward-collection test is satisfied if the balances. check-clearing intermediaries, including the paying bank ‘‘returns a check by means as swift as 14 The paying bank initiating the return would Reserve Banks, to estimate the percent of interbank the means similarly situated banks would use for still be subject to the midnight deadline for all checks that are presented electronically. See http:// the forward collection of a check drawn on the returned checks. See Uniform Commercial Code www.eccho.org/check_ps.php. depositary bank.’’ See commentary to § 229.30(a)(2). (UCC) § 4–302.

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‘‘electronic return,’’ and to establish business days of a check’s presentment Nonetheless, the Board requests requirements for an item to qualify as an to the paying bank. Accordingly, the comment on the desirability of these electronic return.15 Under the proposal, Board believes that the forward- and other alternatives to the Board’s an electronic return would be treated as collection test is not necessary in light proposal. if it were a check for purposes of of the Board’s proposal. B. Notice of Nonpayment Requirement subpart C of the regulation (See § 229.33 Additionally, because there are no in the section-by-section analysis).16 longer nonlocal checks (see the Under current § 229.33(a), if a paying Sections 229.30(a) and 229.31(a), discussion below in section III), the bank determines not to pay a check in respectively, would continue to set forth four-day test for expeditious return of a the amount of $2,500 or more, it must the general expeditious return rule for nonlocal check no longer applies to any provide notice of nonpayment such that paying banks and returning banks. checks, and the Board proposes to the notice is received by the depositary Proposed §§ 229.30(b) and 229.31(b) eliminate that test as well. Under the bank by 4 p.m. (local time) on the would set forth the exceptions to the Board’s proposed rule, the two-day test second business day following the expeditious return requirements, one of for expeditious return will be the only banking day on which the check was which would be a new exception: There test in §§ 229.30(a) and 229.31(a). presented to the paying bank. Return of is no expeditious return requirement if Therefore, a paying bank or returning the check itself satisfies the notice of the depositary bank has not agreed to bank would have to send the returned nonpayment requirement if the return accept the returned check electronically check expeditiously such that the meets the timeframe requirement for a as described in proposed § 229.32(a). depositary bank would normally receive notice of nonpayment. The current two- Under proposed § 229.32(a), a the check no later than 4 p.m. (local day timeframe for notice of nonpayment depositary bank may agree to receive an time of the depositary bank) on the is the same as the two-day timeframe for ‘‘electronic return’’ from the paying bank second business day following the expeditious return set forth in proposed so as to be entitled to expeditious banking day on which the check was §§ 229.30(a) and 229.31(a). Accordingly, return: (1) Directly from the paying presented to the paying bank. because a depositary bank should bank; (2) directly from a returning bank receive the returned check within the that holds itself out as willing to accept 3. Alternate Approaches Considered current notice-of-nonpayment electronic returns directly or indirectly The Board requests comment on timeframe, the Board proposes to delete from the paying bank and has agreed to alternate approaches to revising the the notice of nonpayment provision as return checks expeditiously under expeditious return rule to encourage unnecessary. § 229.31(a); or (3) as otherwise agreed electronic returns. One possible Under the Board’s proposal, a with the paying bank, such as through alternate approach would require a bank depositary bank that does not agree to a network provided by a clearing house that holds itself out as a returning bank receive electronic returns from the or other third party. to accept an electronic return from any paying bank, as specified in § 229.32(a), The Board proposes to delete the other bank that similarly holds itself out will not receive expeditious return or a forward-collection test for expeditious as a returning bank. This approach notice of nonpayment. The Board, return from §§ 229.30(a) and 229.31(a). would ensure that even if the paying however, believes that the proposed This test was originally included bank and depositary bank had electronic changes give depositary banks a strong because paying banks and returning return agreements with different incentive to make arrangements to banks were in some cases (such as that returning banks, the electronic return receive returns electronically. The of a remote depositary bank) not able to could reach the depositary bank. This Board requests comment on whether the meet the two-day/four-day test, and the approach, however, may be costly for notice-of-nonpayment requirement forward-collection test provided that in returning banks to implement, because should be retained for banks that do not these cases paying banks and returning they would have to establish electronic agree to accept electronic returns in a banks nonetheless satisfied the return connections and agreements with nearly all-electronic environment. expeditious return requirement so long every other returning bank. A second C. Same-Day Settlement Rule as the returned check was delivered to alternative would require an electronic the depositary bank in the same time Section 229.36(f) requires a paying return to be returned through the and manner that a forward-collection bank to provide same-day settlement for forward-collection chain (essentially check would be delivered to the bank checks presented in accordance with reverting to the pre-Regulation CC rule). (in its role as paying bank). Given that reasonable delivery requirements Some depositary banks, however, have under the Board’s proposal, however, a established by the paying bank and arrangements under which returned paying bank or returning bank must presented at a location designated by satisfy the expeditious return checks are delivered to a different the paying bank and by 8 a.m. (local requirement only if the depositary bank location than that from which the time of the paying bank) on a business depositary bank sends its checks for day. Prior to the Regulation CC same- agrees to receive electronic returns, a 17 paying bank or returning bank should forward collection. The second day settlement rule, which became always be able to satisfy the two-day test alternative might impose barriers to effective in 1994, private-sector with respect to a depositary bank to these arrangements. Both of these collecting banks sometimes (1) did not which the test applies. Specifically, alternatives therefore appeared to be obtain settlement from the paying bank geographic remoteness of a depositary more operationally complex and costly until the day after presentment or (2) bank from the paying bank should not than the proposed approach. were charged ‘‘presentment fees’’ by the preclude an electronic return from paying bank, which the paying bank 17 For example, a depositary bank may collect reaching the depositary bank within two checks through a correspondent bank or processor, would deduct from the amount it paid but have returned checks delivered directly to the in settlement of the checks presented to 15 See proposed § 229.2(v) (definition of depositary bank itself. Conversely, a depositary it.18 By contrast, under §§ 13(1) and ‘‘electronic return’’) in the section-by-section bank may arrange with another bank to apply the 16(13) of the Federal Reserve Act and analysis. other bank’s indorsement as the depositary-bank 16 See proposed § 229.34 in the section-by-section indorsement, such that depositary bank’s returned § 210.9(b)(1) of Regulation J (12 CFR analysis for warranties made with respect to checks are handled by the other bank. See electronic returns. § 229.35(d). 18 57 FR 46956 (Oct. 14, 1992).

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part 210), the Reserve Banks obtain To encourage the banking industry’s requirements of the Check 21 Act and same-day settlement at par for checks ongoing transition to fully-electronic Regulation CC.22 As a practical matter, presented to a paying bank before its interbank check clearing, the Board a bank (including perhaps the cut-off hour, which is generally 2:00 proposes to allow a paying bank to depositary bank) receiving an p.m. or later.19 To reduce the require checks presented for same-day electronically-created item cannot competitive disparity between the settlement to be presented electronically distinguish the item from any other Reserve Banks and other collecting as ‘‘electronic collection items.’’ A image of a check that it receives banks, and to more equitably balance paying bank, however, must have agreed electronically. The bank, nonetheless, the bargaining power between collecting to receive electronic collection items may transfer the image as if it were an and paying banks, the same-day from the presenting bank under electronic collection item or electronic settlement rule (1) required a paying proposed § 229.36(a). Similar to return, or produce a paper item that is bank to provide same-day settlement to electronic returns, the Board proposes to indistinguishable from a substitute a private-sector collecting bank, define a new term, ‘‘electronic collection check (although not a valid substitute provided that presentment was made by item,’’ and to establish substantive check because the item never existed in 8 a.m. in accordance with reasonable requirements for an item to qualify as an paper). A bank that transfers an image delivery requirements established by the electronic collection item. Under the as if it were an electronic collection paying bank and (2) prohibited the proposal, the timeframes, deadlines, and item or electronic return may be liable paying bank from deducting fees from settlement methods for same-day under the proposed new warranties (see the amount of its settlement for checks settlement presentments of electronic proposed § 229.34) related to electronic presented in accordance with the terms collection items would be the same as collection items and electronic returns, of the rule.20 those currently in effect for same-day or may be liable for breach of the Check As noted above, the Check 21 Act settlement presentments of paper 21 Act’s warranty that a substitute check facilitated substantial changes in the checks. The proposed definition of an accurately represents all of the manner in which checks are collected in electronic collection item and the ways information from the original check as the United States. In December 2010, by which a paying bank agrees to accept of the time the original check was the Reserve Banks received about 99.7 electronic presentment items from a truncated. In order to protect a bank that percent of check-collection volume presenting bank are discussed more receives an electronically-created item electronically, and presented about 98.4 below in the section-by-section analysis from another bank from potential percent of their volume electronically. of proposed §§ 229.2(s) and 229.36(a), liability, the Board proposes that any Many paying banks that receive check respectively. bank transferring an electronically- The proposed rule would not presentments electronically have created image and related information preclude interbank presentment of indicated that they prefer to receive all as either an electronic collection item or checks in paper form; settlement for of their interbank check presentments an electronic return would make any such presentments would be subject to electronically, so that they can warranty the bank would make if the the UCC, § 229.36(d) if the paying bank streamline their back-office operations electronically-created item were in fact has not specified that checks presented and eliminate the costs associated with an electronic collection item or an for same-day settlement be presented as processing paper-check presentments. electronic return (in other words, as if electronic collection items, or Some collecting banks, however, the item were derived from a paper Regulation J.21 The Board requests continue to present paper checks to check). As discussed in the section-by- comment on the proposed modification section analysis of proposed § 229.34, these paying banks under the Regulation to the same-day settlement rule. CC same-day settlement rule. the proposal would apply the same II. Electronic Items Not Derived From warranties to electronic collection items 19 Times are stated as local time of the paying Checks and electronic returns that would apply bank. The Board is aware of industry had those items been handled as paper 20 In April 1988 the Board requested comment on checks (including remotely created a proposal requiring paying banks to settle on the practices in which an electronic image of a ‘‘check’’ is created, but a check never checks) or substitute checks. day of presentment for checks presented by any As a result of these proposed new bank prior to 2 p.m., i.e., the same timeframe as is existed in paper (‘‘electronically-created warranties, a bank receiving a warranty applicable to the Reserve Banks. (53 FR 11911 (Apr. items’’). For example, payees collect 11, 1988)) The overwhelming majority of claim related to an electronic collection payment by means of electronically- commenters, however, objected to the proposed 2 item, electronic return, or a created items (i.e., items that never p.m. deadline because they believed that it would nonconforming substitute check could severely disrupt corporate cash management and existed in paper form) that resemble pass back its liability for the item to the controlled disbursement services, as well as paying images of remotely created checks. banks’ operations. See 57 FR 46956, 46957 (Oct. 14, bank from which it had received the Similarly, the drawer’s bank (the paying 1992). electronically-created image and bank) might supply a smart-phone Further, in March 1998, the Board requested information. Although in some application through which the drawer is comment on the effect of the same-day settlement instances the first bank to make the rule, and on whether remaining legal discrepancies able to execute a ‘‘handwritten’’ warranty also may not know whether an between the Reserve Banks and private-sector signature on the phone’s screen, and collecting banks, such as the 8 a.m. versus 2 p.m. image and information came from a through which the signature is attached presentment time for same-day settlement, should paper instrument, the Board believes to an electronic ‘‘check’’ that the drawer be further reduced (63 FR 12700, Mar. 16, 1998). that that bank is in the best position to Most commenters did not believe that the six-hour sends via the Internet to the payee, for difference in presentment deadlines or other the payee’s subsequent electronic remaining legal disparities were a significant 22 Under the terms of the Check 21 Act, a impediment to the ability of private-sector deposit with its bank. substitute check is a paper reproduction of an collecting banks to compete with the Reserve An electronically-created item is not original check that contains an image of the front Banks. See 63 FR 68701, 68703 (Dec. 14, 1998). The derived from an original paper check, and back of the original check. Regulation CC Board concluded that the costs associated with and therefore it cannot be used to create defines original check as ‘‘the first paper check reducing the remaining legal disparities would issued with respect to a particular payment outweigh any payments system efficiency gains, a substitute check that meets the transaction.’’ In the case of an electronically created and therefore decided not to propose any specific item, there is no original check of which a regulatory changes. 21 See UCC 4–213 and 4–301. substitute check can be a reproduction.

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know and to protect itself contractually Monetary Control Act of 1980, the disclosure provisions in subpart B and against the risk that it did not. Federal Reserve Banks have ceased to update the model funds-availability As noted above, a bank often cannot check-processing operations at all of forms set forth in appendix C to the distinguish between electronic items their check-processing offices except regulation.28 The Board proposes that a derived from paper checks and one.24 bank basing its disclosures on the electronically-created items. Therefore, The EFA Act’s and Regulation CC’s models currently in the appendix would under the proposal, banks might treat funds-availability schedule continue to receive a safe harbor for electronically-created items as if they differentiates between ‘‘local checks’’ doing so up to 12 months after a final were electronic collection items or and ‘‘nonlocal checks,’’ which are rule becomes effective, provided that ‘‘ electronic returns. The Board requests defined in terms of which check- the disclosures accurately reflect the comment on whether, in addition to the processing region’’ the paying bank is bank’s policies and practices. Finally, proposed warranties discussed above, it located in relative to the depositary the Board proposes to update the should in the future consider making an bank.25 The EFA Act and Regulation CC electronically-created item subject to define a ‘‘check-processing region’’ in preemption determinations, with subpart C of Regulation CC as if it were terms of the geographical area served by respect to states’ funds-availability laws, a check. Such a change would result, for a Federal Reserve Bank check- that are set forth in appendix F to the 29 example, in the paying bank to which processing center.26 The Reserve Banks’ regulation. the item is presented being subject to office closures have had the effect of IV. Dodd-Frank Act Amendments the regulation’s expeditious-return reducing to one the number of check- requirement. The Board emphasizes that processing regions. Accordingly, there A. EFA Act Dollar Amounts the proposed warranties, as well as are no more ‘‘nonlocal checks,’’ because making electronically-created items all paying banks and depositary banks Section 1086 of the Dodd-Frank Wall subject to subpart C as if they were are located in the same check- Street Reform and Consumer Protection checks, would not necessarily affect any processing region.27 Act of 2010 (Dodd-Frank Act) amends future determinations by the Board or Because there are no more nonlocal the EFA Act by increasing from $100 to the Bureau of Consumer Financial checks, certain provisions in the $200 the amount of deposited funds that Protection as to whether such regulation can be substantially banks must make available for electronically-created items are simplified. Specifically, the Board withdrawal by opening of business on electronic fund transfers subject to proposes to delete the definitions in the next day.30 The effective date of this Regulation E (12 CFR part 205). subpart A that relate to distinguishing provision of the act is the ‘‘designated The Board proposes that the existing local from nonlocal checks (specifically, transfer date,’’ which the Secretary of warranties related to remotely created the definitions of ‘‘check-processing the Treasury has determined to be July checks be extended to electronically- region,’’ ‘‘local check,’’ ‘‘local paying 21, 2011.31 This provision of the EFA created items that resemble images of bank,’’ ‘‘nonlocal check,’’ and ‘‘nonlocal Act is implemented in remotely created checks. As a general paying bank’’), as well as the related § 229.10(c)(1)(vii). Additionally, the matter, the Board is not aware of reliable portions of appendix A to the model disclosure forms set forth in data regarding the prevalence of regulation. The Board also proposes to current appendix C reflect the remotely created checks and similar streamline the funds-availability and requirement that a bank must make 23 electronically-created items. The $100 of the deposit available on the next Board requests comment on the 24 In 2003, the Reserve Banks had 45 check- processing offices. Cleveland became the sole business day. When the Dodd-Frank frequency of use of these types of checks Act’s increase to $200 becomes and items, the rate at which they are remaining Reserve Bank check-processing office on February 27, 2010. Historically, appendix A to effective, banks should ensure that their returned unpaid, and the extent to Regulation CC identified each Federal Reserve Bank disclosures reflect the new funds- which payees have valid reasons to check-processing office and listed under each office obtain payment by means of these items, the first four digits of the routing numbers of the availability schedule and that customers as opposed to using an ACH debit depository institutions served by that office. are notified of the changes in policy in Appendix A thereby helped depositary banks accordance with § 229.18(e). transaction or other means. determine whether a deposited check’s paying bank was local or nonlocal. In conjunction with the Specifically, effective July 21, 2011, a III. Amendments Related to the Reserve Banks’ cessation of check-processing bank basing its funds-availability Elimination of Nonlocal Checks activities at each office, the Board published disclosure on current model C–3, C–4, conforming amendments to appendix A so that the In response to the continued appendix accurately reflected which institutions or C–5 must ensure that its disclosure nationwide decline in check usage and were served by each remaining office. With indicates that the first $200 (rather than banks’ rapidly increasing use of Cleveland now the sole office, all paying banks’ $100) of a check deposit will be electronic check-clearing methods since routing symbols are listed under it. 25 12 CFR 229.2(r) and 229.2(v). A ‘‘local check’’ 28 the Check 21 Act, as well as to meet the is one that is payable by a bank located in the same The proposed updates to the model forms in cost recovery requirements of the check-processing region as the depositary bank. By appendix C are based on consumer testing of the contrast, a ‘‘nonlocal check’’ is one that is payable forms, and are discussed in more detail in the section-by-section analysis below. A detailed report 23 Banks cannot readily differentiate remotely by a bank located in a different check-processing regarding the consumer testing is available on the created checks and electronically-created items that region than the depositary bank. resemble remotely created checks from regular 26 Section 602(9) of EFA Act defines check Board’s public Web site, http:// checks, which makes data regarding these items processing region as ‘‘the geographical area served www.federalreserve.gov, along with this proposed difficult to obtain. by a Federal Reserve bank check processing center rule. 29 In March 2008, the Reserve Banks published an or such larger area as the Board may prescribe by See Regulation CC § 229.20 and EFA Act § 608. estimate, based on visual inspection of a sample of regulations.’’ Section 229.2(m) defines check A state’s funds-availability law must have been in about 35,000 checks, that about one percent of all processing region as ‘‘the geographical area served effect on or before September 1, 1989, to not be checks in 2007 were remotely created. See page 33 by an office of a Federal Reserve Bank for purposes preempted by the regulation. of the Reserve Banks’ 2007 Check Sample Study: of its check-processing activities.’’ 30 See § 1086(e) of the Dodd-Frank Act, Public http://www.frbservices.org/files/communications/ 27 A deposit of a ‘‘local check’’ receives two-day Law 111–203, 124 Stat. 1376 (2010). pdf/research/2007_check_sample_study.pdf. The funds availability under the regulation, whereas 31 See § 1062 of the Dodd-Frank Act. The study’s definition of the item in question was nonlocal checks received five-day availability. The designated transfer date is subject to an extension somewhat different than Regulation CC’s definition elimination of nonlocal checks therefore has to up to 18 months after the Dodd-Frank Act’s date of a remotely created check. improved funds availability for banks’ customers. of enactment.

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available on the next business day after Currency.34 Accordingly, as of the substance by this proposed clarifying the day of deposit.32 transfer date, compliance with part 229 definitional change. Section 1086 amends the EFA Act to will be enforced by the Office of the require the Board, jointly with the Comptroller of the Currency in the case 2. Section 229.2(c)—Automated Teller Bureau of Consumer Financial of savings associations with deposits Machine or ATM Protection (Bureau), to update the dollar insured by the Federal Deposit The Board proposes to clarify that an amounts to reflect inflation every five Insurance Corporation. The automated teller machine (ATM) 33 years after December 31, 2011. These administrative enforcement provisions includes only those devices at which a amounts include the amount of funds a are contained in § 229.3. person may make deposits by cash or depositary bank must make available V. Other Proposed Amendments paper check. For example, a remote from a deposit of a check not subject to deposit capture device would not be next-day availability The Board proposes other considered an ATM because a bank’s (§ 229.10(c)(1)(vii)), by cash or similar amendments to the provisions of customer would be depositing an image means (§ 229.12(b)), and under the new- Regulation CC and its commentary. of the check, not the paper check, into account and large-deposit exceptions These proposed changes are discussed the account. The Board proposes (§§ 229.13(a) and (b)). These amounts in the section-by-section analysis below. conforming amendments to the also include the EFA Act’s damage Section-by-Section Analysis commentary of this section. limitations (§ 229.21(a)). To facilitate Additionally, the Board proposes to future amendments to the regulation in Paragraph citations in this section-by- provide an example of the ‘‘other this regard, the proposed amendments section analysis are as proposed to be account transactions’’ that may be minimize the number of references to renumbered, unless otherwise explicitly performed at an automated teller specific dollar amounts. For example, in stated. Sections not discussed below are machine (ATM); specifically, making the future, the $100 (which increases to either unchanged or have only technical cash withdrawals from an account. $200 as of the transfer date) mentioned or conforming amendments. The Board above would be considered ‘‘the requests comment on all aspects of the 3. Section 229.2(r)—Depositary Bank minimum amount of a deposit that must proposed rule. be made available on the next day.’’ The The Board proposes to clarify that a I. Subpart A Board plans to seek comment on bank that rejects a check submitted for proposed methods of indexing the A. Section 229.1—Authority and deposit is not a depositary bank. The amounts to inflation jointly with the Purpose, Organization rationale for this proposed change is Bureau at a later date. discussed in more detail below in this The Board proposes to add to section-by-section analysis under B. Rule-Writing Authority § 229.1(b) descriptions of the § 229.52. Section 1086 also amends the Board’s appendices to the regulation, as well as 4. Section 229.2(s)—Electronic rule-writing authority under the EFA amendments to conform § 229.1(b) to Collection Item Act by making certain rule-writing amendments proposed in this notice. authorities joint with the Bureau. B. Section 229.2—Definitions The Board proposes in new § 229.2(s) Specifically, as of the transfer date, the to define the new term ‘‘electronic Board’s authority to implement the EFA The definitions of terms in § 229.2 were incorporated into the regulation at collection item’’ as an electronic image Act’s provisions (EFA Act § 609(a)), of and information related to a check reduce hold periods (EFA Act different times and are not currently in alphabetical order. The Board proposes that a bank sends for forward collection § 603(d)(1)), establish exceptions to the and that a paying bank has agreed to funds-availability schedule (EFA Act that the paragraphs in this section be renumbered so that defined terms are in receive under § 229.36(a), and that is § 604(f)), and publish model disclosure sufficient to create a substitute check.35 provisions (EFA Act § 605(f)(1)) will alphabetical order. Similarly, the Board proposes to renumber the paragraphs in Under the proposed definition, the become joint with the Bureau. image and information must conform to Accordingly, after the transfer date, any the commentary to reflect the proposed renumbering. American National Standard rules promulgated pursuant to these Specifications for Electronic Exchange authorities will be done so jointly with 1. Section 229.2(b)—Automated of Check and Image Data—X9.100–187, the Bureau. Clearinghouse (ACH) Credit Transfer in conjunction with its Universal C. Administrative Enforcement Because the regulation uses the term Companion Document, (hereinafter collectively referred to as ANS X9.100– The Dodd-Frank Act eliminates the ACH only within other definitions, the 187), unless the parties otherwise Office of Thrift Supervision as of July Board proposes to delete the definition agree.36 If an electronic collection item 21, 2011, the ‘‘transfer date’’ provided in of the term ‘‘automated clearinghouse’’ § 311 of the Dodd-Frank Act, and and replace it with a new defined term, satisfies the requirements set forth in transfers enforcement authority for ‘‘automated clearinghouse (ACH) credit proposed § 229.2(s), then, as stated in insured savings associations under § 8 transfer.’’ This phrase is used in the proposed § 229.33, the provisions of of the Federal Deposit Insurance Act to definition of electronic payment subpart C would apply to the electronic the Office of the Comptroller of the (§ 229.2(t)) and in the commentary to collection item as if it were a check. § 229.10(b), which requires a bank to (See proposed commentary to 32 Per § 229.18(e), a bank must provide a change- make funds received for deposit by an in-terms notice to existing consumer customers by electronic payment available for 35 The agreement to receive an electronic August 21, 2011. withdrawal the next day. The Board collection item could be in the form of a Federal 33 The amounts are indexed to the Consumer intends no change to the regulation’s Reserve Bank operating circular or a clearinghouse Price Index for Urban Wage Earners and Clerical rule. Workers (CPI–W), as published by the Bureau of 36 X9.100–187 is available from http:// Labor Statistics (BLS), rounded to the nearest 34 The transfer date is subject to an extension of www.x9.org. The UCD for X9.100–187 is available multiple of $25. See § 1086(f) of the Dodd-Frank up to 18 months after the Dodd-Frank Act’s date of at http://www.checkimagecentral.org/pdf/ Act. enactment. See § 311 of the Dodd-Frank Act. UCD_X9_100-187-2008_Version_1.2.pdf.

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§ 229.2(s)).37 Some electronic 6. Section 229.2(v)—Electronic Return check and conforms to ANS X9.100– presentment agreements, however, may The Board proposes in new § 229.2(v) 187, or another format to which the not require an image of the check. to define the new term ‘‘electronic parties agreed. Electronic items presented under these return’’ as an electronic image of and 9. Section 229.2(pp)—Routing Number agreements would not be electronic information related to a check that a The Board proposes to add to the collection items because they are not paying bank has determined not to pay sufficient to create a substitute check, definition a new subparagraph and that a depositary bank has agreed to providing that the term also includes nor would they be treated as checks for receive under § 229.32(a), and that is the bank-identification number purposes of subpart C. The proposed sufficient to create a substitute check. contained in the electronic image of or commentary also explains that an The image and information must information related to a check. Further, electronic collection item that contains conform to ANS X9.100–187, unless the the Board also proposes to move the two an image of the front and back of a parties otherwise agree. The proposed introductory paragraphs in appendix A, substitute check (as opposed to an commentary explains that if an which provide general information original check) would be an electronic electronic return satisfies the about routing numbers, to the representation of a substitute check, as requirements set forth in § 229.2(v), then commentary to the definition of routing that phrase is defined in proposed the provisions of subpart C apply to the number. § 229.2(hh) (current § 229.2(xx)). Not all electronic return as if it were a check electronic representations of substitute (See proposed § 229.33).38 10. Deleted Terms checks, however, would qualify as an The proposed commentary to Check-processing region, local check, electronic collection item, because, to be § 229.2(v) explains that a depositary local paying bank, nonlocal check, and an electronic collection item, an bank’s agreement with a returning bank nonlocal paying bank. Because there is electronic representation of a substitute to accept .pdf files that are sufficient to now only one nationwide check- check must contain sufficient create substitute checks would be one processing region, there are no longer information to create a substitute check. example of banks varying by agreement any nonlocal checks, and the definitions the regulation’s requirement that an in the regulation implementing the The Board believes that ANS X9.100– electronic return conform with ANS distinctions between local and nonlocal 187 is the most prevalent industry X9.100–187. By agreeing with a checks are no longer necessary. standard for electronic images and returning bank to accept an electronic Accordingly, the Board proposes to information that will enable the return in the form of a .pdf file, a delete from the regulation the receiving bank to create a substitute depositary bank would thereby be definitions of ‘‘check-processing region check. The Board recognizes, however, entitled to expeditious return. The (current § 229.2(m)), ‘‘local check’’ that certain banks may use a different Board requests comment on the (current § 229.2(r)), ‘‘local paying bank’’ standard and that, as is the case with proposed standard for an electronic (current § 229.2(s)), and ‘‘nonlocal many technology standards, the return and whether any other standard paying bank’’ (current § 229.2(w)), and standard likely will evolve. To the should be specified in the regulation. the commentary thereto. extent that banks use a different Similarly situated bank. The only 7. Section 229.2(w)—Electronic Return standard, the proposed definition of place the current regulation uses this Point electronic collection item would permit term is in the forward-collection test for parties to agree to a standard other than The Board proposes in new § 229.2(w) expeditious return. Because the Board ANS X9.100–187 and still have the item to define electronic return point as the proposes to delete that test from the qualify as an electronic collection item electronic location that the depositary regulation (as discussed below in this that is treated as a check for purposes bank has designated for receiving section-by-section analysis under of subpart C, provided that the item is electronic returns. The proposed §§ 229.30(a) and 229.31(a)), the sufficient to create a substitute check. commentary notes that an electronic regulation’s definition of similarly The Board requests comment on the return point may be an e-mail address situated bank is no longer necessary and proposed standard for an electronic or other electronic address that a the Board proposes to delete current collection item and whether any other depositary bank has designated as the § 229.2(ee). standard should be specified in the place to which electronic returns must II. Subpart B regulation. be delivered. The Board requests comment on whether this definition Throughout subpart B and the 5. Section 229.2(u)—Electronic provides enough specificity. commentary thereto, the Board proposes Presentment Point to eliminate all references to ‘‘check- 8. Section 229.2(hh)—Paper or processing regions,’’ ‘‘local checks,’’ The Board proposes in new § 229.2(u) Electronic Representation of a ‘‘local paying banks,’’ ‘‘nonlocal checks,’’ to define electronic presentment point Substitute Check and ‘‘nonlocal paying banks.’’ as the electronic location that the paying The Board proposes to modify the A. Section 229.10(c)—Next-Day bank has designated for receiving commentary to the definition of this Availability of Certain Check Deposits electronic collection items. This point term to note that an electronic may be either an e-mail address or other representation of a substitute check may 1. Section 229.10(c)(1)(vi) electronic address. The Board requests also be an electronic collection item or Given that there is only one comment on whether this definition electronic return if the electronic nationwide check-processing region, the provides enough specificity. representation contains sufficient Board proposes in § 229.10(c)(1)(vi) to information for creating a substitute delete the phrase ‘‘if both branches are 37 For example, a paying bank receiving located in the same state or check- presentment of an electronic collection item would 38 Like an electronic collection item, an electronic processing region.’’ As a result, the be subject to the regulation’s expeditious-return return may be an electronic representation of a requirement, provided the depositary bank has substitute check, but not all electronic subparagraph would require a agreed to accept electronic returns from the paying representations of substitute checks would qualify depositary bank to provide next-day bank under § 229.32(a). as an electronic return. availability for a check deposited in a

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branch of the depositary bank and the banking day of deposit. Proposed a time as possible and equal to the drawn on the same or another branch of new § 229.12(a) is derived from current period of time achievable under the the same bank. § 229.12(b), which sets forth local check improved check clearing system for a availability. In the absence of a receiving depository institution to 2. Section 229.10(c)(1)(vii) distinction between local checks and reasonably expect to learn of the Section 1086(e) of the Dodd-Frank Act nonlocal checks, current § 229.12(b)(1), nonpayment of most items for each increases from $100 to $200 the (2), (3), and (4) are subsumed within category of checks.’’ The statute’s minimum amount of funds deposited by this general rule, and the Board legislative history recommends a check or checks on a given business day proposes to delete them.40 Similarly, quantitative benchmark for the Board to that a bank must make available by current § 229.12(c) applies to nonlocal use to determine whether to reduce opening of business on the next checks, which is now a null set, and the these hold periods: a receiving bank business day pursuant to § 603(a)(2)(D) Board proposes to delete § 229.12(c) and could reasonably expect to learn of the of the EFA Act. That provision of the commentary thereto. return of two-thirds of the checks in a EFA Act is implemented in given category before a bank must make 2. Section 229.12(b)—Withdrawal by § 229.10(c)(1)(vii) of Regulation CC, and the deposited funds available for Cash or Similar Means the increase is expected to take effect on withdrawal at the opening of business.42 July 21, 2011, regardless of whether the Section 229.12(b) implements the As mentioned above, in December Board and the Bureau have amended EFA Act’s permissive adjustment to the 2010 the Reserve Banks received about Regulation CC. Accordingly, the Board funds-availability rules for withdrawals 99.7 percent of deposited for forward proposes to amend the commentary to by cash or similar means. In part, a bank collection electronically, presented 98.4 § 229.10(c)(1)(vii) to facilitate future may delay availability for withdrawal by percent of their checks electronically, amendments to the minimum amount of cash or similar means by one business received 97.1 percent of returned checks a deposited check a bank must make day, provided that the bank makes $400 electronically, and delivered about 76.7 available on the business day following of the deposited funds available for percent of returned checks to depositary the banking day of deposit. Specifically, withdrawal not later than 5 p.m. on the banks electronically. Thus, about 73.0 the Board proposes to replace references business days on which the funds must percent of checks cleared and returned to ‘‘$100’’ with references to ‘‘the be made available under the funds- through the Reserve Banks complete the minimum amount.’’ The Board proposes available schedule. Like other amounts roundtrip from the depositary bank to to make this amendment throughout the specified in the EFA Act, this $400 will the paying bank and back again in commentary, as well as in the model be adjusted every five years for electronic form. It is reasonable to forms. inflation. In order to facilitate future expect that a check cleared and returned adjustments to the amount, the Board entirely in electronic form would 3. Section 229.10(c)(2) proposes to amend the commentary to complete this roundtrip in three The Board proposes to delete current § 229.12(b) by replacing references to business days. For example, if a check § 229.10(c)(2), which states that a ‘‘$400’’ with references to ‘‘the cash is deposited on Monday and collected depositary bank shall make funds withdrawal amount.’’ The Board electronically, the check would available by the second business day proposes to make similar amendments generally be presented to the paying after the banking day on which a check throughout the commentary and model bank on Tuesday. The paying bank is deposited in the case of a check forms. would generally send the return deposit that meets the requirements of 3. Section 229.12(d)—Deposits at electronically to a returning bank on the §§ 229.10(c)(1)(ii), (iii), (iv), or (v), Nonproprietary ATMs night between Wednesday and except the check is not deposited in Thursday, which would electronically As indicated in the EFA Act’s person.39 In the absence of nonlocal deliver the returned check to the legislative history, Congress adopted the checks, the checks described depositary bank on Thursday. five-day maximum hold on § 229.10(c)(2) are subject to the same The Board therefore proposes to nonproprietary ATM deposits to match rule as the general rule set forth in reduce in proposed § 229.12(d) (current the five-day maximum hold on a proposed § 229.12. Section 229.10(c)(2) § 229.12(f)) the maximum hold period nonlocal check deposit, because the is therefore no longer necessary. for nonproprietary ATM deposits from depositary bank did not know the 5 business days to 4 business days. Four B. Section 229.12—Availability composition of a nonproprietary ATM business days will provide the Schedule deposit (that is, whether the deposit depositary bank with reasonable consisted of cash, local checks, nonlocal 1. Proposed § 229.12(a)—In General opportunity to learn of the nonpayment checks, etc.).41 In the absence of of a check deposited at a nonproprietary The Board proposes to delete current nonlocal checks, however, there is no ATM before it must make the funds § 229.12(a). It specifies the effective date longer any class of check that is subject available for withdrawal.43 In the (September 1, 1990) for § 229.12 and is to a maximum five-day hold. example above, the depositary bank can no longer necessary. EFA Act § 603(d)(1) states that ‘‘The reasonably expect to learn of an unpaid The Board proposes that new Board shall, by regulation, reduce the electronically returned check on § 229.12(a) set forth the general funds- time periods established under Thursday, and will be required under availability rule for deposits of checks: subsections (b), (c), and (e) to as short the proposed 4-business-day hold Unless subject to one of the enumerated period to make funds deposited by 40 exceptions, funds from a check deposit Current § 229.12(b) states which checks are check at a nonproprietary ATM must be made available for withdrawal subject to second-day availability. These checks include local checks and checks that meet the by the second business day following requirements of §§ 229.10(c)(1)(ii), (iii), (iv), or (v), 42 Conference Report on H.R. 27 (H. Rept. 100– except the check is not deposited in person. 261), 100th Congress, 1st session, 179 (1987), pp. 39 These checks include U.S. Postal Service 41 The EFA Act conference report states that H6906–7. money orders, checks drawn on Federal Reserve ‘‘nonproprietary ATMs today do not distinguish 43 Section 229.19(b) requires that funds be made Banks or Federal Home Loan Banks, checks drawn among check deposits or between check and cash available for withdrawal by the opening of business by state or local governments, or cashier’s checks, deposits’’ (H.R. Rep. No. 261, 100th Cong., 1st Sess. on the day on which funds are required to be made certified checks, or teller’s checks. 179 (1987)). available for withdrawal.

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available for withdrawal at the opening transactions. The Board proposes to add specify the day funds will be made of business on Friday.44 a new paragraph, § 229.13(d)(3), available instead of ‘‘the time period As mentioned above, Congress clarifying that the exception does not within which’’ the funds will be recognized in the EFA Act legislative include an attempted debit card available for withdrawal. The Board history that depositary banks generally transaction for which the depositary proposes conforming changes to do not know the composition of bank declined the authorization request, proposed model notice C–9. deposits made at nonproprietary ATMs because in that case no debit card Section 229.13(g)(1)(ii) states that if (that is, whether the deposit consisted of transaction has occurred. the notice is not given at the time of the cash, local checks, nonlocal checks, deposit, the depositary bank shall mail etc.), and therefore adopted a five-day 3. Section 229.13(e)—Reasonable Cause or deliver the notice to the customer as maximum hold on nonproprietary ATM to Doubt Collectability soon as practicable, but no later than the deposits to match the five-day Section 229.13(e) provides the first business day following the day the maximum hold on a nonlocal check depositary bank with an exception to facts become known to the depositary deposit. Currently, however, all cash the § 229.12 general availability bank, or the deposit is made, whichever deposits not made in person to an schedule if the depositary bank has is later. With the elimination of employee of the depositary bank and reasonable cause to believe that the nonlocal checks, depositary banks must check deposits must be made available check is uncollectible from the paying generally make check deposits available for withdrawal by the second business bank. The commentary currently states by opening of business on the second day following deposit. The Board that a depositary bank cannot invoke business day following the banking day requests comment on whether the this exception simply because a check is of deposit. The Board believes that it is funds-availability schedule’s distinction drawn on a bank in a rural area and the desirable for a customer to learn that its between deposits to proprietary ATMs depositary bank knows it will not have bank is extending a hold before the and deposits to nonproprietary ATMs the opportunity to learn of the customer would expect the funds to continues to make sense in an nonpayment of the check before funds become available under the bank’s environment where all in-person cash must be made available. If a check is generally applicable availability policy. deposits and check deposits must be collected and returned electronically, Further, it has become more feasible for made available for withdrawal by the however, the rural location of a paying banks to provide notices to their second business day following deposit. bank will not affect the time required to customers electronically, which results collect and return the check. The Board in near instant receipt of the notice to C. Section 229.13—Exceptions proposes to update the example in the customer. The Board therefore 1. Section 229.13(b)—Large Deposits paragraph (4) of the commentary to proposes that, if the customer has § 229.13(e). Specifically, a depositary Section 229.13(b) sets forth an agreed to accept notices electronically, bank may not invoke this exception exception to the funds-availability the depositary bank is required to send simply because a paying bank demands the notice such that the bank may schedule for the aggregate amount of paper presentment and the depositary reasonably expect the customer to deposited checks totaling more than bank believes it is unlikely to receive receive it no later than the first business $5,000 on any one banking day to the the return prior to the time by which it day following the day the deposit is extent the aggregate amount exceeds must make the deposited funds made or the facts become known to the $5,000. Like other amounts specified in available. depositary bank, whichever is later. For the EFA Act, this $5,000 threshold will example, the bank could e-mail notice be adjusted every five years for 3. Section 229.13(g)—Notice of of the hold to the customer. The Board inflation. In order to facilitate future Exception requests comment on whether providing adjustments to the amount, the Board A depositary bank must provide a notice in this fashion is practical. proposes to amend the commentary to notice to its customer when it invokes Finally, § 229.13(g)(4) describes the § 229.13(b) by replacing references to one of the exceptions in § 229.13 to notice that a depositary bank must ‘‘$5,000’’ with references to ‘‘the large- apply an extended hold to a deposit. provide when it applies an emergency- deposit amount.’’ The Board proposes to Section 229.13(g)(1)(i) sets forth the conditions hold. The Board proposes to make similar amendments throughout information that the notice must update the commentary to § 229.13(g) to the commentary and model forms. include. Currently, the notice must explain that a depositary bank may 2. Section 229.13(d)—Repeated include the amount of the deposit that provide notice via postings to the Overdrafts is being delayed. During consumer depositary bank’s website or through a testing of the model forms, however, directed e-mail. Section 229.13(d) provides the consumers were more readily able to depositary bank with an exception to recall the deposited check for which the 4. Section 229.13(h)—Availability of the general availability schedule in funds were being held when the notice Deposits Subject to Exceptions § 229.12 for a check deposited into an included the total amount of the If a check deposit is subject to an account that has been repeatedly deposit, rather than only the amount exception hold, § 229.13(h)(4) provides overdrawn in the preceding six months. being held. Accordingly, the Board that a reasonable period for a hold The exception relates not only to proposes to require that the notice of an extension is one business day (for a total overdrafts caused by checks, but also exception hold contain the total amount of two) for a deposit of on-us checks, those caused by, for example, debit card of the deposit, in addition to the amount five business days (for a total of seven) of the deposit being held. Additionally, for local checks, and six business days 44 The Board is proposing to follow the analysis it set forth in 1999 that it would reduce the consumers more readily understood (for a total of eleven) for nonlocal availability schedules in Regulation CC only after when funds would be made available if checks and deposits into nonproprietary determining that the depositary bank can the notice stated the day on which the ATMs. The Board proposes that the safe reasonably expect to learn of an unpaid check on funds will be made available, rather harbor for the reasonable hold extension the business day before the day on which the bank must make funds available for withdrawal at the than explain availability in reference to for a deposit of on-us checks remain one opening of business. See 64 FR 37712 (July 13, the date of deposit. Therefore, the Board business day, and that safe harbor for 1999). proposes to require that the notice the reasonable hold extension for other

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checks be reduced to two business days depositary bank may have a claim for delete the requirement that banks that (from five or six business days), for a any losses it incurs due to the failure of distinguish between local and nonlocal total of four business days for all other the paying bank to send the returned checks in their availability policy checks.45 check expeditiously. disclose that a check payable through Section 229.13(h)(4) would continue one bank (the bank whose routing D. Section 229.15—General Disclosure to permit a bank to apply a longer hold number appears in the MICR line) and Requirements extension than this, but the bank would payable by another bank would be have the burden of establishing that the 1. Section 229.15(a) considered local or nonlocal on the longer hold extension is reasonable. The Section 229.15(a) sets forth the form basis of the location of the bank by Board is proposing conforming changes requirements for disclosures under which the check is payable. In the to the commentary to § 229.13(h). subpart B. In general, there are two absence of nonlocal checks, that In adopting Regulation CC’s types of disclosures under subpart B— disclosure requirement is obsolete. permanent availability schedules, the funds-availability policy disclosures Board stated that the reasonable 2. Section 229.16(c)(2) and delayed availability notices. Both extended-hold periods are ‘‘designed to Section 229.16(c)(2) sets forth the types of disclosures must be written and provide adequate time for the depositary information required in a notice when a in a form the customer may keep. The bank to learn of the nonpayment of bank invokes a case-by-case hold. These Board proposes to amend § 229.15(a) to virtually all checks that are returned.’’ 46 information requirements are similar to clarify that the form requirements apply If a check is cleared and returned the information requirements for to both funds-availability policy electronically, the depositary bank exception-hold notices under disclosures and delayed availability should receive the returned check in § 229.13(g). Consumer testing notices required by subpart B. three business days. Checks that are not demonstrated that consumers are both cleared and returned entirely in 2. Section 229.15(b)(1) able to recall the deposit to which the electronic form, however, will typically Section 229.15(b) states that ‘‘[i]n its hold is being applied if the notice states take longer to be returned to the disclosure, a bank shall describe funds the total deposit amount and able to depositary bank. The Reserve Banks, as being available on ‘the _____ business understand more readily the day on however, project that by year-end 2011, day after’ the day of deposit.’’ The which funds will be made available if 97 percent of their checks will be Board’s consumer testing of the model given a specific date. Therefore, the cleared and returned entirely in disclosures in Appendix C (discussed in Board proposes to amend the case-by- electronic form, which the Board more detail below), however, indicated case notice requirements in believes is representative of the industry § 229.16(c)(2)(i) to require that a case- 47 that consumers may more readily as a whole. Therefore, depositary understand alternative formulations of by-case notice include the total amount of the deposit and the specific date on banks will receive virtually all returned statements of when deposited funds will which funds will be made available. checks by the third business day after be available for withdrawal. The Board Further, in the absence of nonlocal the day of deposit, with the depositary therefore proposes in § 229.15(b)(1) to bank making funds available at opening checks, the case-by-case hold period is provide banks with more flexibility of business on the fourth day. Although so short that a paper notice of the hold regarding this description.48 The the proposed reasonable extended-hold sent through the mail may not reach the proposal requires a bank in its period of two business days (four customer until after the hold has been disclosure or notice to specify the business days total) may increase risk lifted. The Board therefore proposes to business day on which funds are for a depositary bank that does not amend § 229.16(c)(2)(ii) and the related available for withdrawal by describing accept electronic returns, the Board commentary to provide that, if the that day in relation to the banking day believes that the reduction in the customer has agreed to accept notices on which the deposit is received, and to exception hold safe harbor is warranted electronically, a bank that invokes a use in this description language given that it will provide faster case-by-case hold after the time of availability for depositors as well as an substantially similar to that set forth in deposit be required to deliver the notice incentive for depositary banks to take proposed § 229.15(b)(1). Under the such that the bank may reasonably advantage of electronic check-return proposal, for example, the banking day expect the notice to be received by the ‘‘ infrastructure. of receipt may be described as the same customer not later than the first If the paying bank does not return business day,’’ and the business day business day following the banking day checks electronically, the time required after the banking day of receipt may be of deposit. For example, the bank could for a check to be delivered from the described as ‘‘the next business day,’’ or e-mail notice of the hold to the customer depositary bank to the paying bank and described using either cardinal or on the business day after the banking back again may be greater than three ordinal numbers, such as ‘‘2 business day of deposit. The Board requests business days. A paying bank that does days’’ or ‘‘the second business day.’’ comment on whether providing a notice not send returned checks electronically, E. Section 229.16—Specific Availability in this fashion is practical. however, generally will not meet its Policy Disclosure In addition, the Board requests expeditious return requirement, and the comment on the extent to which banks 1. Section 229.16(b)(2) continue to find it useful to apply case- 45 As described above, the Board proposes to Because the Board is eliminating by-case holds to check deposits and on reduce the generally-applicable hold period for references to local and nonlocal checks whether the regulation’s provision for nonproprietary ATM deposits from five business days to four. The proposed reasonable hold throughout the regulation and case-by-case holds should be deleted. In extension of two business days would therefore commentary, the Board proposes to the absence of nonlocal checks, the provide a total of six business days for extra hold period that a depositary bank nonproprietary ATM deposits. 48 Under the Board’s proposal, a bank that bases may obtain by applying a case-by-case 46 See 55 FR 21848, 21850 (May 30, 1990). its availability-policy disclosure on the models hold is generally not sufficient for the 47 See the Board’s Federal Register notice currently provided in Appendix C will continue to announcing its approval of the Federal Reserve receive a safe harbor for doing so. See the bank to learn that a deposited check has Banks’ 2011 fee schedules for priced services, 75 FR discussion of Appendix C below in this section-by- been returned unpaid before making 67740 (Nov. 3, 2010). section analysis. funds available to the depositor.

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F. Section 229.19—Miscellaneous delete certain listed routing numbers of public comments received on this the Federal Reserve Banks and Federal proposal, as appropriate. 1. Section 229.19(e)(2) Home Loan Banks that have been 2. Model Disclosures Generally Section 229.19(e)(2) limits the ability retired. of a depositary bank that cashes a check Citations below are to the forms in the for a customer to place a hold on other I. Appendix C, Model Availability-Policy appendix as they are proposed to be funds of the customer. The Board Disclosures, Clauses and Notices renumbered, unless otherwise explicitly proposes to amend § 229.19(e)(2) to 1. Consumer Testing Process stated. Forms not discussed below are clarify that a depositary bank that either unchanged or have only technical cashes a check for a customer over the The model availability-policy forms or conforming amendments. counter may place a hold on funds in in appendix C of Regulation CC include In the absence of nonlocal checks, the an account of the customer only if the numerous obsolete provisions related to Board proposes throughout appendix C check is not drawn on the depositary nonlocal checks. Additionally, the to delete all references to the nonlocal- bank. In contrast, if a depositary bank model forms were first published over check and local-check categories. cashes a check drawn on itself, the 20 years ago, when Regulation CC was Instead, the Board proposes that the check is considered finally paid when first promulgated. More recently, the forms, as applicable, specify the types of cashed under the U.C.C.49 The Board Board has tested with consumers the check deposits that receive next-day intends no change to the substance of model forms included with its other availability, and then state the this provision. regulations.51 In this instance, the Board availability that will be provided for used ICF Macro, a research and checks ‘‘other than those specified.’’ 2. Section 229.19(g)(2) consulting firm that specializes in The Board proposes to modify the The Board proposes to delete as designing and testing documents, to format of the model disclosures from a obsolete the provision regarding mergers conduct consumer testing to help the mostly narrative form to a more tabular between July 1, 1998, and March 1, Board’s review of the model availability- form. For example, the Board proposes 2000. policy forms proposed in this notice. that the portions of the model ICF Macro prepared a detailed report of disclosures specifying funds availability G. Section 229.21(g)—Record Retention the results of the testing, which is for deposits to established accounts and Current § 229.21(g) requires a bank to available on the Board’s Web site for deposits to new accounts (accounts maintain records evidencing (http://www.federalreserve.gov) along open for 30 days or less) be presented compliance with subpart B’s with this proposed rule. within tables. The Board’s testing on requirements for not less than two years, The consumer testing consisted of two forms under other rules has consistently and states that a bank may store records rounds of in-depth interviews with 9 indicated that consumers more readily using, among other media, ‘‘microfiche, consumers in Alexandria, Virginia, on understand information presented in a microfilm, [and] magnetic tape.’’ These August 19 and 20, 2010, and 11 tabular form.54 listed examples in § 229.21(g) of the consumers in Denver, Colorado, on The Board is not proposing any types of media on which a bank may September 13 and 14, 2010. Consumer changes to the model substitute-check- store records are obsolete, and the Board participants were recruited to ensure the policy disclosure and notices in the proposes to replace them with a more selection of a range of participants in appendix. general provision that a bank may store terms of gender, education, ethnicity, i. Format of Banks’ Funds-availability records using ‘‘electronic storage and checking and savings account Disclosures and Notices media,’’ among other media. balances.52 While the interview protocol The Board proposes to add to the H. Appendix A—Routing Number Guide varied slightly between rounds, the commentary to appendix C a new to Next-Day-Availability Checks general structure and most of the paragraph A(4) discussing banks’ questions were the same. formatting of disclosures and notices In the absence of nonlocal checks, it based on the proposed model funds- is no longer necessary to retain the Prior to the first round of interviews, availability disclosures and notices in portion of appendix A that lists under Board staff and ICF Macro the appendix. Specifically, although the the single remaining Reserve Bank collaboratively revised the forms from 53 regulation does not require banks to use check-processing office (the head office those currently found in appendix C. For example, the format was a certain paper size for their funds- of the Federal Reserve Bank of availability disclosures and notices, the Cleveland) all banks’ four-digit routing substantially modified; provisions related to nonlocal checks were proposed model funds-availability symbols. The Board proposes to delete policy disclosures are generally this portion of the appendix, as well as eliminated; and language was added designed to be printed on an 81⁄2 x 11 the reference to the Federal Reserve regarding a bank’s right to charge back a customer’s account if a deposited inch sheet of paper with black text on Bank of Cleveland. The Board proposes a white background, so as to increase to retain in the appendix the lists of check is returned unpaid. Based on the results of each round of interviews, the their readability for consumers. Further, nine-digit routing numbers associated § 229.15(a) requires that banks generally with certain next-day-availability forms were again revised. The Board plans to conduct additional consumer provide disclosures and notices in a checks.50 The Board also proposes to testing of the forms in response to form that the customer may keep.55 The proposed commentary notes that a bank 49 See UCC 4–215 and commentary to Regulation CC § 229.19(e). 51 See Interim Final Rule on Mortgage Disclosures that provides a disclosure or notice 50 Treasury checks, postal money orders, and (Regulation Z), 75 FR 58470 (Sept. 24, 2010). checks drawn on the Federal Reserve Banks and 52 A sample of the screening instrument used to 54 See 75 FR 58539 at 58542 (September 24, 2010) Federal Home Loan Banks can be identified by recruit interview participants is included as and ICF Macro report, p. 4. routing number, and these routing numbers will Appendix A to the ICF Macro report. Appendix B 55 The commentary to § 229.13(g) indicates that continue to be listed in appendix A. Next-day- to the report provides a summary of the notice of an extended hold should be provided in availability checks such as cashier’s, certified, and demographics of the interview participants. a form the customer may keep. The proposed teller’s checks cannot be identified by routing 53 The sample forms used during the consumer commentary to § 229.16(c)(2) indicates that notice number, however, and are not listed in the interviews are included as Appendix C to the ICF of a case-by-case hold should be provided in this appendix. Macro report. form as well.

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electronically to a customer would ordinal numbers would continue to be (if not immediate) availability for cash comport with the formatting permitted (see proposed § 229.15(b)). deposits and wire transfers. specifications of the proposed model The Board therefore proposes that iv. Inclusion of Optional Information disclosures and notices by providing a model funds-availability disclosures disclosure or notice in a file format, The Board proposes model C–1 through C–3B, which are designed such as a .pdf file format, that availability-policy disclosures that for banks that generally make deposits electronically represents an 81⁄2 x 11 would reflect certain provisions of the available by the next day (and are inch sheet of paper with black text and regulation that apply only to certain discussed in more detail below), be a white background. In addition, a bank banks, depending on the banks’ policies modified to indicate that funds from may vary (either enlarge or decrease) the and practices. For example, the cash deposits and wire transfers will be font size of the model forms. As proposed model disclosures would available for withdrawal on the same explained in the proposed commentary, include language about use of special business day that the bank receives the a bank that uses too small a font may deposit slips as a condition for next-day funds. The proposed commentary states not be in compliance with § 229.15(a)’s availability for certain types of check that a bank basing its disclosure on one clear-and-conspicuous requirement. deposits (see § 229.10(c)(2) and language of these models should modify its disclosure to indicate that funds from ii. Charge Back After Making Funds similar to the appendix’s current model cash deposits and wire transfers will be From Check Deposits Available clauses C–6 and C–7 related to check cashing, immediate availability, and available the next day if that reflects the Paragraph 5 of the commentary to holds on other funds (see § 229.19(e)).57 bank’s practice. appendix C states that banks may add The text of these portions of the In contrast, proposed models C–4A information related to funds availability disclosures would be enclosed within and C–4B, which are designed for banks to the model forms. One of the examples brackets to indicate that a bank should that hold funds from deposits to the currently provided is that a bank’s include it in the bank’s disclosures only statutory limits, indicate that funds from disclosure may state that although funds if it is applicable given the bank’s cash deposits and wire transfers will be have become available and the customer policies and practices. The Board available on the business day following has withdrawn them, the customer proposes that paragraph B(1)(c) of the receipt. The proposed commentary remains responsible for deposited commentary to appendix C be modified states that a bank that bases its checks that are returned unpaid. The accordingly. disclosures on one of these models but Board believes that all banks reserve the that makes funds from cash deposits right to charge back a customer’s v. Same-Day Availability and wire transfers available the same account if a deposited check is returned Although § 229.10(a) of the regulation day they are received—i.e., a bank that 56 unpaid. The Board proposes to requires next-day availability for cash places holds to statutory limits only on incorporate language to this effect deposits, and § 229.10(b) requires next- check deposits—should modify its within the model availability-policy day availability for electronic payments disclosures accordingly. disclosures themselves and to delete (as defined in § 229.2(t)), the model 3. Model C–1—Next-Day Availability this as an example from paragraph A(5) availability-policy disclosures in of the commentary and add a provision appendix C include clauses that state Proposed model C–1 may be used by to paragraph B(1)(a) describing the that funds from electronic direct a bank that has a policy of making funds charge-back statement in the proposed deposits are available on the day the from all deposits available by the first model disclosures. The Board requests bank receives the funds. As indicated in business day after a deposit is made, but comment on whether this proposed paragraph B(1)(b) of the commentary to not reserving the right to invoke the revision reflects the practice of most the appendix, this is because U.S. new-account and other exceptions in banks. Treasury regulations and ACH § 229.13. The Board requests comment iii. Reference to Day of Availability association rules require that on whether any banks have such a preauthorized credits, such as direct policy and on whether model C–1 can The Board is proposing model be deleted from Appendix C. availability-policy disclosures that in deposits, be made available on the day many cases would use cardinal the bank receives the funds. 4. Model C–2—Next-Day Availability numbers, instead of ordinal numbers, to During the Board’s consumer testing, and § 229.13 Exceptions many consumers expressed surprise that describe the business day on which Proposed model C–2 may be used by the sample disclosures indicated that funds will be available in relation to the a bank that has a policy of making funds funds from cash deposits and wire day on which funds are deposited. For from deposits available by the first transfers (defined in § 229.2(bbb)) would example, the Board proposes in many business day after a deposit is made, but not be available until the next day. cases to use ‘‘2’’ in place of ‘‘second,’’ reserves the right to invoke the new- When the models in Appendix C were because consumers readily perceived account and other exceptions in first published over 20 years ago, most that formulation. In addition, the Board § 229.13. proposes that the disclosures refer to the banks updated their demand-deposit- ‘‘next’’ business day after a deposit, account systems on an overnight basis, 5. Model C–3A—Next-Day Availability, rather than the ‘‘first’’ business day. The such that a cash deposit or incoming Case-by-Case Holds to Statutory Limits Board proposes to modify paragraph wire transfer would not be reflected in Without Cash-Withdrawal Limitation, B(1)(b) of the commentary accordingly. the receiving customer’s account and § 229.13 Exceptions; and Model C– Notwithstanding the language used in balance until opening of business the 3B—Next-Day Availability, Case-by- the proposed model forms, use of next day. The Board believes, however, Case Holds to Statutory Limits With that most banks now provide same-day Cash-Withdrawal Limitation, and 56 See § UCC 4–214, which generally permits a § 229.13 Exceptions collecting bank that has made provisional 57 Because the Board proposes to incorporate the The Board proposes to include in the settlement with its customer to revoke the information set forth in current model clauses settlement (e.g., charge back the amount or obtain C–6 and C–7 as bracketed information within the appendix two versions of model C–3. a refund) if the bank itself fails to receive model disclosures, the Board proposes to delete The first version, proposed C–3A, settlement. model clauses C–6 and C–7 from the appendix. would be used by a bank that, when it

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delays availability on a case-by-case availability of funds deposited at other 8. Proposed Model Notices basis, does not impose the cash- locations (proposed C–8). i. Format withdrawal limitation permitted by 6. Model C–4A—Holds to Statutory § 229.12(b). The second version, As with the proposed model funds- Limits on All Deposits Without Cash- proposed C–3B, would be used by a availability policy disclosures, the Withdrawal Limitation; and Model C– bank that does impose this limitation Board proposes to modify the format of 4B—Holds to Statutory Limits on All when it delays availability on a case-by- the model notices, where appropriate, Deposits With Cash-Withdrawal case basis. The additional text that is from a mostly narrative form to a more Limitation included in proposed C–3B, but not tabular form. For example, the Board C–3A, related to the cash-withdrawal The Board proposes to remove current proposes to convert current model limitation, derives from current model model disclosures C–4 (holds to notice C–18 (notice at locations where clause C–10, modified to promote statutory limits on all deposits (includes employees accept consumer deposits consumer comprehension on the basis chart)) and C–5 (holds to statutory limits (case-by-case holds)) (proposed C–14) to of the Board’s testing.58 The Board on all deposits), because those models a table. proposes that this text be structured as are no longer necessary in the absence ii. Proposed Model C–9—Exception or a bulleted list, because the Board’s of nonlocal checks. The Board proposes Reasonable-Cause Hold Notice testing indicated that consumers better to add new model disclosures C–4A and Current models C–12 and C–13 each noticed and understood the cash- C–4B for a bank to use if the bank’s include a checklist of reasons for which withdrawal limitation (and the policy is to hold funds on all deposits a bank may apply an exception hold. distinction between other uses of funds) up to the statutory limits. The Board’s consumer testing on other when it is in this form rather than in a Proposed model disclosure C–4A disclosures has found that consumers 59 text paragraph. would be used by a bank that delays may be confused by a listing of reasons, Proposed models C–3A and C–3B availability as allowed under § 229.12 even though only one reason is checked include in brackets language similar to but does not impose the cash- and the others do not apply to the current model clauses C–6 and C–7, withdrawal limitation permitted by consumer’s situation.61 The Board related to check cashing, immediate § 229.12(b), whereas proposed model C– therefore proposes model notices that availability, and holds on other funds, 4B would be used by a bank that delays describe only one reason for the hold, modified on the basis of the Board’s availability as allowed under § 229.12 instead of a checklist of reasons. A bank testing to promote consumer and does impose the cash-withdrawal using proposed model C–9 would insert comprehension. A bank that bases its limitation permitted by § 229.12(b). The the reason for the hold that is applicable disclosure on proposed model C–3A or Board proposes the position of the text to the consumer’s situation in the C–3B would need to include this related to the cash-withdrawal location designated by ‘‘(reason for bracketed text in its disclosure only if limitation in C–4B because the Board’s hold).’’ The checklist of reasons that is the text corresponds to the bank’s policy testing indicated that consumers better included in the current model would be and practice. A bank that has such a noticed and understood the information moved to the proposed commentary, policy would include the proposed when placed at the proposed location with proposed revisions for clarity. The bracketed text in the same location as in and in the proposed format within the proposed commentary also states that a the proposed model. Testing indicated disclosure. Banks that base their bank may insert, in place of ‘‘(reason for that consumers notice and retain the availability-policy disclosure on hold),’’ a reason other than those listed information presented in these clauses proposed model disclosure C–4A or in the commentary. better if the location of the clauses is C–4B and whose availability policy Current model C–12 (proposed C–9) early in the disclosure.60 necessitates incorporation of one or indicates that a bank’s notice of an Banks that base their availability- more of the proposed appendix’s exception hold should refer to the dollar policy disclosure on model disclosure remaining model clauses (proposed amount being held from a deposit.62 The C–3A or C–3B and whose availability C–6, C–7, or C–8) would append those Board proposes that proposed models policy necessitates incorporation of one model clauses to the end of the second C–12 also refer to the dollar amount of or more of the proposed appendix’s page of proposed model C–4A or C–4B. the deposit from which funds are being remaining model clauses (proposed held. During the Board’s testing, C–6, C–7, and C–8; current C–9, C–11, 7. Proposed Model Clauses consumers more readily understood this or C–11A) would append those model The Board proposes to delete current approach and thought that the amount clauses to the end of the second page of model clauses C–6 (holds on other of the deposit would be more helpful in proposed model C–3A or C–3B. The funds (check cashing)), C–7 (holds on remembering the deposit in question.63 appendix’s remaining model clauses other funds (other account)), and C–10 iii. Proposed Model C–12A—Case-by- pertain to a bank’s funds-availability (cash-withdrawal limitation), all of Case Hold Notice Without Cash- policy for deposits at ATMs (proposed which the Board proposes to be Withdrawal Limitation and Proposed C–6), a credit union’s interest-payment incorporated into other model forms. Model C–12B, Case-by-Case Hold Notice policy (proposed C–7), and the The Board also proposes to delete With Cash-Withdrawal Limitation current model clause C–8 (Appendix B Current model C–16 (case-by-case 58 Because the Board proposes to incorporate into availability (nonlocal checks)) because it hold notice) states that the day on C–3B and C–4B (discussed below) the information is obsolete in the absence of nonlocal set forth in current model clause C–10, the Board checks. Within current model clause C– proposes to delete model clause C–10 from the 61 See 75 FR 58539 at 58560 (September 24, appendix. 9 (Automated Teller Machine Deposits 2010), discussing the results of the Board’s testing 59 See p. vii of the ICF Macro report. (Extended Hold)) (proposed C–6), the of model forms related to the suspension or 60 The Board proposes to take an identical Board proposes to change ‘‘fifth business reduction of a home equity line of credit. See also approach in proposed model disclosures C–4A and day’’ to ‘‘fourth business day’’ to conform the ICF Macro report, page viii. C–4B. Specifically, a bank that bases its disclosure 62 Specifically, the model reads ‘‘We are delaying on proposed model C–4A or C–4B would include to the changes in proposed § 229.12(d), the availability of $(amount being held) from this the bracketed text in its disclosure only if the text discussed above in this section-by- deposit.’’ corresponds to the bank’s policy and practice. section analysis. 63 See ICF Macro report, p. ix.

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which funds will be available for and wire transfers available on the day III. Subpart C withdrawal may be ‘‘([subject to our they are received would modify the A. Section 229.30—Paying Bank’s cash-withdrawal limitation policy]).’’ notice accordingly. Responsibility for Return of Checks The limitation is material to the length A bank using either notice that of the hold, and, without additional imposes cash-withdrawal limitations 1. Section 229.30(a)—Expeditious inquiry, consumers may not know what under proposed § 229.12(b) would Return of Checks the limitation is. Accordingly, the Board proposes to include in appendix C two indicate that funds from check deposits i. Section 229.30(a)(1) versions of a model case-by-case hold will generally be available by the third, Section 229.30(a)(1) sets forth the notice: proposed C–12A may be used by rather than second, business day after a bank that imposes a case-by-case hold, the day of deposit, by replacing proposed test for expeditious return of but does not have a policy of imposing ‘‘(number)’’ in the lower-right-hand box a check by the paying bank. The current the cash-withdrawal limitation, whereas of the tables in the proposed models rule provides that if a paying bank proposed model notice C–12B may be with ‘‘third,’’ rather than ‘‘second.’’ determines not to pay a check, it must used by a bank that imposes such a hold return the check in an expeditious J. Appendix F—Official Board and does have such a policy. Each of the manner, as provided under either the Interpretations; Preemption two proposed versions would two-day/four-day test or the forward- incorporate the specific days by which Determinations collection test. For the reasons funds would be available. Section 608 of the EFA Act provides discussed above, the Board proposes to Current model C–16 indicates that a that any state law in effect on September eliminate the forward-collection test bank’s notice of an exception hold and the four-day test for expeditious 1, 1989, that provides that funds be should refer to the dollar amount being return of a check by the paying bank. As made available in a shorter period of held from a deposit. The Board proposes a result, the Board proposes that the time than provided in Regulation CC that proposed models C–12A, and C– two-day test for expeditious return be will supersede the time periods in the 12B also refer to the dollar amount of the only test for expeditious return in Act and regulation. Section 229.20 of the deposit from which funds are being § 229.30(a)(1) (and § 229.31(a)(1)). In the regulation implements § 608, and held, because consumers thought that general, the paying bank may satisfy any § 229.20(e) sets forth the procedures by the amount of the deposit would be expeditious return requirement by which a state may submit to the Board more helpful in remembering the sending an electronic return if the 64 a request for a preemption deposit in question. depositary bank has agreed to receive determination. In response to states’ iv. Proposed Model C–13—Notice at electronic returns from the paying bank requests, the Board issued Locations Where Employees Accept under proposed § 229.32(a), a paper determinations specifying the Consumer Deposits and Proposed Model check or a notice in lieu if the check is C–14—Notice at Locations Where provisions of the funds availability laws unavailable. The exceptions to this Employees Accept Consumer Deposits in California, Connecticut, Illinois, general rule, including where the (Case-by-Case Holds) Maine, Massachusetts, New Jersey, New depositary bank has not agreed to accept York, Rhode Island, and Wisconsin that Current models C–17 and C–18 electronic returns from the paying bank, supersede the EFA Act and Regulation (proposed C–13 and C–14) are notices are set forth in proposed § 229.30(b). CC. These determinations are contained that are designed to be posted, for ii. Section 229.30(a)(3) example, on a wall near a teller window in appendix F to the regulation. in a bank branch, and set forth a brief Since September 1, 1989, The Board proposes to amend summary of a bank’s funds-availability Connecticut, New Jersey, Rhode Island, § 229.30(a)(3) to clarify that a paying policy. Current model C–17 may be and Wisconsin have repealed all state- bank may send a returned check to any used by a bank that has a policy of specific funds availability provisions. bank that handled the check for forward placing holds to statutory limits on California has repealed the funds collection if the paying bank is unable deposits, whereas current model C–18 availability provisions applicable to to identify the depositary bank. may be used by a bank that has a policy credit unions. In addition, the of placing case-by-case holds on check elimination of nonlocal checks under iii. Section 229.30(a)(6) deposits. the EFA Act and Regulation CC affect The Board proposes to modify current The Board proposes to move current the regulation’s preemption of states’ § 229.36(a), which states that a check model notice C–18 (proposed C–14) to laws. The Board notes that the Dodd- indicate that funds from cash deposits payable at or through a paying bank is Frank Act’s increase from $100 to $200 and wire transfers will be available for considered to be drawn on that bank for of the minimum amount of check withdrawal on the same business day purposes of the expeditious-return deposits that banks must make available that the bank receives the funds. requirement of this subpart, to proposed Therefore, a bank with a case-by-case by the next business day may affect the § 229.30(a)(6). availability policy that makes cash EFA Act and Regulation CC preemption of state law. The Board therefore 2. Section 229.30(b)—Exceptions to deposits and wire transfers available the Expeditious Return of Checks next business day would modify the proposes to update the preemption notice accordingly. By contrast, current determinations in the appendix. The i. Section 229.30(b)(1) model C–17 (proposed C–14) indicates proposed determinations would that funds from cash deposits and wire supersede any previous determinations The Board proposes to group together transfers will be available on the next made by the Board. the exceptions to a paying bank’s duty business day. A bank that holds check of expeditious return in § 229.30(b)(1). deposits up to the statutory limits but Currently, the requirement does not that makes funds from cash deposits apply if a paying bank is unable to identify the depositary bank or if the 64 See ICF Macro report, p. ix. depositary bank does not maintain

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accounts.65 As described above, the bank from which the depositary bank to a bank that handled the check for Board proposes that a paying bank have has agreed to accept electronic returns forward collection, the paying bank may a duty of expeditious return only if the has either not held itself out as willing under § 229.30(b)(2) send the electronic depositary bank has agreed to accept to accept electronic returns directly or return to that bank, subject to that electronic returns from the paying bank indirectly from the paying bank or has agreement. Such a bank may be better under proposed § 229.32(a). The Board not agreed to return checks able to identify the depositary bank. In proposes to set forth this rule as an expeditiously, then the paying bank general, the paying bank must advise exception to the general rule stated in would not be subject to the expeditious the bank to which the return is sent that proposed § 229.30(a)(1). Accordingly, return requirement under the proposal. it is unable to identify the depositary proposed § 229.30(b)(1)(i) states that a bank. The Board proposes to clarify in ii. Section 229.30(b)(2) paying bank need not return a check the commentary that, in the case of expeditiously if a depositary bank has Proposed § 229.30(b)(2) addresses the electronic returns, the paying bank not agreed to accept electronic returns situation in which the requirement to meets this requirement by inserting the from the paying bank under § 229.32(a). return a check expeditiously does not routing number of the bank to which it Although not imposing an expeditious apply because the paying bank is unable is sending the return where the paying return requirement on the paying bank to identify the depositary bank. In most bank otherwise would have inserted the in this situation will expose the cases in today’s predominantly routing number of the depositary bank. depositary bank to risk, the Board electronic check-clearing environment, The Board requests comment on believes that risk should rest with the the depositary bank’s indorsement will whether the regulation and commentary bank choosing not to take advantage of accompany an electronic check as an provide the appropriate level of detail an electronic infrastructure that addenda record associated with the with respect to paying banks’ provides expeditious return. check, and the paying bank will be able preparation and addressing of electronic The proposed commentary to to route an electronic return to the returns in cases where it is unable to § 229.30(b)(1) includes an example of depositary bank in a highly automated identify the depositary bank. when the paying bank’s duty of manner.66 expeditious return would and would In some cases, the depositary bank’s 3. Section 229.30(c)—Extension of not apply. For example, assume that a indorsement may not be in the Deadline depositary bank has not agreed to accept accompanying addenda record, and the The Board proposes amending electronic returns directly from the paying bank will be unable to rely on § 229.30(c), which extends the paying paying bank, but has agreed to accept purely automated returns. The Board bank’s deadline to initiate the return of electronic returns from Returning Bank proposes to clarify in the commentary a check. The current rule generally A, which has agreed to handle returns that a paying bank is not ‘‘unable’’ to extends the deadline to the time at expeditiously under § 229.31(a). If identify the depositary bank where the which a paying bank dispatches the Returning Bank A has not held itself out depositary bank’s indorsement is not in return, if the paying bank uses a means as willing accept electronic returns an addenda record associated with the of delivery that ordinarily would result directly or indirectly from the paying electronic image, but is legibly included in receipt by the bank to which the bank (e.g., the returning bank has not within the image of a check presented return is sent on or before the receiving published electronic return service set- electronically to the paying bank. In bank’s next banking day following the up guides), the depositary bank has not these cases, the paying bank may day of the applicable deadline by the agreed to accept electronic returns from visually review the image of the check earlier of the close of that banking day the paying bank under proposed to determine the identity of the or a 2 p.m. cutoff hour (or such later § 229.32(a). If a check is presented to the depositary bank and create an electronic time as set by the receiving bank under paying bank on Monday, the paying return addressed to the depositary bank UCC 4–108).67 The provision allows the bank would not need to send the or a returning bank agreeing to handle paying bank an extension, provided that returned check such that the depositary it on the basis of that indorsement the paying bank sends the return such bank normally would receive the within the image. Provided the that it would ordinarily be received by returned check by 4 p.m. (local time of depositary bank accepts electronic the depositary bank within the the depositary bank) on Wednesday. returns (directly or indirectly) from the timeframes mandated by the The paying bank, however, must paying bank under § 229.32(a), the regulation’s current tests for expeditious comply with any deadlines under the expeditious-return requirement would return. Uniform Commercial Code, Regulation J apply in this situation. As discussed above, the Board (if sent through the Reserve Banks), or In other cases, however, the proposes to eliminate the forward- § 229.30(c). depositary bank’s indorsement may not collection test and the four-day test for Under the proposed approach, a be in an addenda record associated with expeditious return of a nonlocal check, paying bank that returns checks in an electronic image, and also may be such that the two-day test for paper form would be subject to the absent from or illegible within the image expeditious return would be the only expeditious return requirement if the of the check that is presented to the remaining test. Correspondingly, the depositary bank has agreed to accept paying bank. In these cases, the paying Board proposes to simplify the electronic returns from a returning bank bank may be unable to identify the extension in § 229.30(c): The paying that holds itself out as willing to accept depositary bank and the expeditious- bank’s deadline for return would be electronic returns directly or indirectly return requirement would not apply to extended to the time of dispatch if the from the paying bank and agrees to the paying bank. If the paying bank has paying bank sends the return such that return checks expeditiously. The Board, an agreement to send electronic returns however, notes that if the returning 67 The current paragraph provides a further 66 As is discussed below under § 229.35(a) and extension if the paying bank uses a ‘‘highly 65 In the current regulation. these exceptions to a appendix D, the Board proposes to require a expeditious’’ means of return, or if the paying paying bank’s duty of expeditious return are set depositary bank that transfers an electronic bank’s deadline for return falls on a Saturday that forth, respectively, in §§ 229.30(b) and 229.30(e). collection item to apply its indorsement in is a banking day for the paying bank under the UCC. The exceptions to a returning bank’s duty are in accordance with ANS X9.100–187, unless the (Saturday is never a banking day under Regulation §§ 229.31(b) and 229.31(e). parties otherwise agree. CC.)

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it reaches the depositary bank by 4 p.m. of the substitute check is captured.68 as a reason for return, because ‘‘refer to on the second business day after the The change to the standard is intended maker’’ is an instruction to the recipient banking day on which the check was to make it less likely that the return- of the returned check and not a reason presented to the paying bank; i.e., such reason information will obscure for return (e.g., insufficient funds). A that the return would ordinarily reach underlying data from the original check, paying bank may use ‘‘refer to maker’’ in the depositary bank within the time such as the name of the payee or the addition to the reason for return. The required by the two-day expeditious- amount of the check, while continuing Board requests comment on whether return test. The proposed 4 p.m. to ensure that the reason for the return there are circumstances in which it is deadline would correspond to the is retained in any captured image of the appropriate to use only ‘‘refer to maker’’ expeditious return deadline in proposed substitute check, as well as on any when returning a check. §§ 229.30(a). As noted in the proposed subsequent substitute check. The current commentary explains that 5. Section 229.30(e)—Notice in Lieu of commentary, a paying bank may rely on Return the return schedules of a returning bank § 229.30(d) specifies where to place the return-reason information on a returned Section 229.30(f) currently states that in determining whether the returned substitute check in order to ensure that if a check is unavailable for return, the check or electronic return would ‘‘the information is retained on any paying bank may send in its place a ‘‘ordinarily’’ reach the depositary bank subsequent substitute check.’’ The copy of the front and back of the by 4 p.m. on the second business day revised industry standard, ANS X9.100– returned check, or, if no such copy is after the banking day on which the 140, is consistent with this purpose. available, a written notice of check was presented to the paying bank. Accordingly, the Board proposes to nonpayment containing the information Alternatively, the Board requests modify the § 229.30(d) to state that ‘‘[i]f specified in current § 229.33(b). comment on whether a paying bank that the check is a substitute check or Historically, notices in lieu of return sends a returned check to a returning electronic return, the paying bank shall were used when an original check was bank and relies on this extension should place this information [the reason for lost or destroyed. Following bear the risk that the returning bank the return] such that the information implementation of the Check 21 Act, may not return the check expeditiously. would be retained on any subsequent however, the unavailability of an Specifically, the Board requests substitute check.’’ Further, the Board original check does not prevent return comment on whether it should modify proposes to amend the commentary to of the check, provided that an image of the extension such that the return must state that the requirement to place the the check sufficient to create a actually reach the depositary bank return-reason information such that it is substitute check is available. The Board within the two-day timeframe for retained on any subsequent substitute therefore proposes to revise the expeditious return in order for the check could be met by placing the § 229.30(e) commentary to provide that a bank may send a notice in lieu of extension to apply. Such a modification information (1) in the location on the return only where neither the check to the extension might further encourage front of the substitute check that is itself nor an image of and information paying banks to initiate return of a specified by ANS X9.100–140 or (2) related to the check sufficient to create check in a timely fashion. within the image of the original check that appears on the front of the a substitute check is available. 4. Section 229.30(d)—Identification of a substitute check. The Board believes it The commentary states that notice by Returned Check is necessary for the regulation to electronic transmission, other than a continue to permit this latter possibility legible facsimile or similar image of i. Placement of Reason for Return on a in order to encompass situations in both sides of a check, does not satisfy Substitute Check which a paying bank presented with a the requirements for a notice in lieu of return. The Board proposes to amend Section 229.30(d) currently states that previously-created substitute check opts the commentary to § 229.30(e) to ‘‘[a] paying bank returning a check shall to physically stamp the reason for the provide that, if no image of both sides clearly indicate on the face of the check return on the substitute check. of the check is available, the notice in that it is a returned check and the ii. Refer-to-Maker Reason for Return lieu of return may be sent by means of reason for return. If the check is a Current commentary to § 229.30(d) an electronic transmission, so long as it substitute check, the paying bank shall states that ‘‘refer to maker’’ may be a contains the required information. For place this information within the image permissible reason for return in example, the notice may be sent by ACH of the original check that appears on the appropriate cases but does not elaborate payment record if permitted by front of the substitute check.’’ When as to which cases may be appropriate. applicable ACH rules, or by an current § 229.30(d) became effective in The Board, however, does not believe electronic check record if permitted by 2004, the placement on substitute that ‘‘refer to maker,’’ by itself, is an applicable rules and standards. These checks was consistent with the industry appropriate reason for return in any records are similar to the currently- standard for substitute checks, case. ‘‘Refer to maker’’ is an instruction permitted written notices of American National Standard rather than a reason for return. Alone, nonpayment where legible copies of Specifications for an Image Replacement it does not provide the depositary bank both sides of the check are unavailable. Document—IRD, X9.100–140 (ANS with sufficient information to determine The Board requests comment, however, X9.100–140). Under the terms of the whether it should represent the check. on whether a bank would ever have the revised industry standard, however, the Accordingly, the Board proposes to information necessary for a notice in reason for return of a substitute check amend the commentary to § 229.30(d) to lieu of return if it had neither the check must be placed above a substitute state that ‘‘refer to maker’’ is insufficient nor an image of both sides of the check. check’s image of the original check— As under the current rule, notice by i.e., not within the image of the original 68 In addition to the image of the front of the telephone or other similar oral check that appears on the front of the original check, the portion of the front of the transmission would not be permitted. substitute check, but nonetheless within substitute check that is clipped includes the area on Because notice in lieu of return must the portion of the front of the substitute the check above the original check image and the routing number of the truncating bank to the left of include the information required for a check that is ‘‘clipped’’ when an image the image. notice of nonpayment, and the Board

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proposes to eliminate the notice of provision for notice in lieu of return that handled the check for forward nonpayment requirement, the Board continues to be necessary. collection if it was not a collecting bank with respect to the check, or to a prior proposes to move the information 6. Section 229.30(f)—Reliance on collecting bank if it was a collecting requirements for a notice in lieu of Routing Number return from current § 229.33(b) to new bank. The regulation currently provides that § 229.30(e)(2). The Board proposes that iii. Section 229.31(a)(4) the information requirements for a a paying bank may return a check based notice in lieu of return remain on any routing number designating the The substance of proposed unchanged. depositary bank appearing on the check § 229.31(a)(4) (currently in § 229.31(a)) in the depositary bank’s indorsement. currently provides that a returning Currently, a notice in lieu is not The Board proposes in § 229.30(f) to add bank’s time for expeditious return under required to contain the check’s original that the paying bank may also rely on the forward-collection test and its MICR line. The Board understands, any routing number designating the deadline for return are extended by one however, that a depositary bank can depositary bank in the electronic image business day if the returning bank often use the data from the original of or information related to the check. converts a returned check to a qualified MICR line of a returned check to find in returned check.71 This extension does B. Section 229.31—Returning Bank’s its computer systems an image of the not apply to the two-day/four-day test, item, which the depositary bank Responsibility for Return of Checks and it does not apply when the captured when it took the check for 1. Section 229.31(a)—Expeditious returning bank sends the check directly deposit, and which the depositary bank Return of Checks to the depositary bank, because in that can either re-clear or charge back to its i. Section 229.31(a)(1) case qualifying the check does not customer’s account.69 The Board expedite its handling by the bank to requests comment on whether the For the reasons discussed above which it is sent. information-content specifications for a under § 229.30(a)(1), the Board proposes The Board proposes to eliminate this notice in lieu of return should be to make conforming amendments to extension. The extension does not apply modified to reflect these capabilities by § 229.31(a) and eliminate the forward- to the two-day test for expeditious requiring that a notice in lieu of return collection test and the four-day test for return, which the Board proposes to be include the check’s original MICR line. expeditious return of a check by the the sole test. Further, the extension, if returning bank, such that the two-day retained, might benefit returning banks As an alternative to the proposed test for expeditious return would be the that choose to qualify and send paper approach, the Board requests comment only test in § 229.31(a)(1). Further, a returned checks destined for depositary on whether the regulation’s provision returning bank would be subject to the banks that have agreed to accept returns for notice in lieu of return should be expeditious return requirement if it electronically; a result that is deleted. Specifically, the only factual agrees to return checks expeditiously. inconsistent with the policy of scenario in which a notice in lieu of The Board proposes to amend the encouraging electronic return of checks. return may be necessary under the commentary to § 229.31(a)(1) to explain In addition, if a returned check is proposal is where a paper check is that a returning bank may condition its destined for a depositary bank that does presented to the paying bank and the agreement to return checks not accept returned checks paying bank loses the check, but has expeditiously on receiving an electronic electronically (i.e., if the returned check access to a copy that is not in the proper return from the paying bank or returning is one to which the proposed two-day format to permit creation of a substitute bank. The Board also proposes to amend test does not apply), the Board believes check or electronic return. Forward the commentary to § 229.31(a)(1), by that a returning bank’s midnight interbank check collection, however, removing as an example of when a deadline affords it sufficient time to including presentment to the paying returning bank agrees to return checks process and send the returned check, bank, is almost always electronic, and, expeditiously a returning bank handling irrespective of whether the returning furthermore, paying banks initiate a returned check for return that it did bank qualifies the returned check or not. almost all check returns electronically. not handle for forward collection. While A qualified return check is prepared Given the overwhelming prevalence of the Board intends a paying bank to for automated return by placing the electronic presentment and electronic continue to be able to send a returned check in a carrier envelope or placing a initiation of return, the paying bank check to a returning bank that did not strip on the check. According to current almost always will be able to return an handle the check for forward collection, industry practice, however, such electronic collection item that was the Board does not believe that a envelopes should be used only in presented to it. Therefore, it may no returning bank that receives such a situations in which the check has been longer be necessary for paying banks to check should be deemed to agree to mutilated and cannot be imaged or use notices in lieu of return.70 The handle the returned check handled by automated check-processing Board requests comment on whether a expeditiously. Under this proposed equipment. Therefore, the Board change, for example, a returning bank requests comment on whether the regulation should continue to allow a 69 If the depositary bank chooses to re-clear a may accept a paper returned check that check on the basis of an image of the check it it did not handle for forward collection, bank to prepare a check for automated captured when it took the check for deposit, it while not being deemed to have agreed return by placing the check in a carrier should ensure that the re-cleared check reflects the to handle it for expeditious return. envelope. Further, in today’s fact that the check has already been returned one predominantly electronic check-clearing time. ii. Section 229.31(a)(3) 70 If an electronic collection item presented to the environment, qualification of paper paying bank contained an illegible image of the The Board proposes to clarify in check and the paying bank decided to return the proposed § 229.31(a)(3) (currently in 71 A qualified returned check is ‘‘a returned check item (perhaps for an unrelated reason, such as § 229.31(a)) that if the returning bank is that is prepared for automated return to the insufficient funds), the paying bank could return depositary bank by placing the check in a carrier the electronic collection item as an electronic unable to identify the depositary bank envelope or placing a strip on the check and return, instead of initiating a notice in lieu of with respect to a returned check, it may encoding the strip or envelope in magnetic ink.’’ return. send the returned check to any bank Current 12 CFR 229.2(bb).

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returned checks happens only rarely check on the bank that sent the returned holds itself out as willing to accept and it is not clear that qualification check to it, rather than another party. electronic returns directly or indirectly continues to be a means of expediting from the paying bank. Specifically, a 4. Section 229.31(e)—Notice in Lieu of returned checks’ delivery to the returning bank would be considered to Return depositary bank because carrier hold itself out as willing to accept envelope’s inhibit check imaging. The The Board proposes to make electronic returns if it published Board requests comment on whether the amendments to § 229.31(e) to conform information about its generally available regulation’s provisions for qualifying of with proposed amendments to electronic return service, such as paper returned checks by paying banks § 229.30(e). information about signing up for the and returning banks should be deleted. 5. Section 229.31(f)—Reliance on service and fees. The Board requests 2. Section 229.31(b)—Exceptions to Routing Number comment on whether it should provide Expeditious Return of Checks more specificity as to under what The regulation currently provides that circumstances a returning bank is The Board proposes changes to a returning bank may return a check deemed to hold itself out as willing to § 229.31(b) similar to those discussed based on any routing number accept electronic returns directly or above under § 229.30(b). Specifically, designating the depositary bank indirectly from a paying bank. appearing on the check in the the Board proposes to group together the Third, a depositary bank may have depositary bank’s indorsement or in current exceptions to a returning bank’s otherwise agreed with the paying bank magnetic ink on a qualified returned duty of expeditious return in to receive an electronic return. The check. The Board proposes to add that § 229.31(b)(1) and to provide that, in proposed commentary indicates that the returning bank may also rely on any addition to the exceptions currently one example of such an agreement routing number designating the provided in the regulation, the returning would be where the depositary bank depositary bank in the electronic image bank’s duty of expeditious return does and paying bank are both members of or information included in an electronic not apply if the depositary bank has not the same check clearing house, through return. agreed to accept electronic returns from which the depositary bank has agreed to the paying bank under § 229.32(a). C. Section 229.32—Depositary Bank’s accept electronic returns from the A returning bank does not have a duty Responsibility for Returned Checks paying bank. to expeditiously return the check if the returning bank is not able to identify the 1. Section 229.32(a)—Acceptance of ii. Section 229.32(a)(2) depositary bank with respect to a Electronic Returns Proposed § 229.32(a)(2) establishes returned check. Section 229.31(b) of the i. Section 229.32(a)(1) that a depositary bank receives an regulation currently provides, however, electronic return when the return is that if a paying bank is not able to The Board proposes in § 229.32(a)(1) delivered to the electronic return point identify the depositary bank with three different circumstances under designated by the bank or, by respect to a returned check and sends which a depositary bank would be agreement, otherwise is made available the returned check under the terms of deemed to have agreed to accept an to the bank for retrieval or review. For § 229.30(b) to a returning bank, but the electronic return from the paying bank. example, if a depositary bank designates returning bank can identify the The depositary bank must accept an an e-mail address as its electronic depositary bank (for example, on the electronic return in at least one of these receipt address, the depositary bank has basis of its records from the forward ways so as to be entitled to expeditious received the electronic return when it is collection of the check), then the return under the Board’s proposal. The delivered to that e-mail address. In returning bank must thereafter return first way in which a depositary bank is contrast, if the depositary bank has an the check expeditiously to the considered to have agreed to accept arrangement with a returning bank depositary bank. The Board proposes to electronic returns from the paying bank whereby the returning bank sends the remove this requirement from the is by having a direct contractual electronic return to its storage device regulation (proposed § 229.31(b)(1)(iv)), relationship with the paying bank under and then provides the depositary bank because it may be difficult for a which it agrees to accept electronic with access to the storage device for returning bank to meet the two-day test returns from the paying bank (proposed retrieving electronic returns, the for expeditious return where the paying § 229.32(a)(1)(i)). Secondly, under proposed electronic return is received by the bank likely sent the return as if the § 229.32(a)(1)(ii), a depositary bank depositary bank when the returning return was not subject to the could have a direct contractual bank makes the electronic return expeditious return requirement. In the relationship with a returning bank to available for the depositary bank to absence of an expeditious-return accept electronic returns. In turn, that retrieve or review from the storage requirement, the UCC would returning bank must hold itself out as device in accordance with the nonetheless require a returning bank in willing to accept electronic returns agreement between the depositary bank this situation to use ordinary care when directly or indirectly (e.g., from another and the returning bank. returning the item.72 returning bank) from the paying bank iii. Section 229.32(a)(3) 3. Section 229.31(d)—Charges and must have agreed to handle The Board proposes to clarify in returned checks expeditiously under Proposed § 229.32(a)(3) would permit § 229.31(d) that a returning bank may § 229.31(a) in order for the depositary a depositary bank to require that impose a charge for handling a returned bank to have agreed to receive electronic electronic returns be separated from returns from the paying bank under electronic collection items. This 72 UCC § 4–202 states that a collecting bank § 229.32(a). The proposed commentary proposed rule is similar to the exercises ordinary care ‘‘by taking proper action to proposed § 229.32(a) provides an undesignated paragraph in existing before its midnight deadline following receipt of an example of such an arrangement. The § 229.32(a) (proposed § 229.32(b)(2)) item, notice, or settlement. Taking proper action that permits a depositary bank to require within a reasonably longer time may constitute the Board proposes to provide examples in exercise of ordinary care, but the bank has the the proposed commentary to proposed that returned checks be separated from burden of establishing timeliness.’’ § 229.32(a) of how a returning bank forward-collection checks.

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2. Section 229.32(b)—Acceptance of 3. Section 229.32(e)—Charges F. Section 229.34—Warranties and Paper Returned Checks In § 229.32(e), the Board proposes to Indemnities The Board proposes to clarify that clarify that a depositary bank may not 1. Section 229.34(a)—Transfer and current § 229.32(a) (proposed to be impose a charge for accepting and Presentment Warranties With Respect to redesignated as § 229.32(b)) is limited to paying the check on the bank returning an Electronic Collection Item or an setting forth the locations at which a a check to it, as opposed to other parties Electronic Return depositary bank must accept paper on which it is permitted to impose Proposed § 229.34(a) sets forth the returned checks. Further, because there charges. warranties that a bank makes when it are no more nonlocal checks, the Board 4. Section 229.32(f)—Notification to transfers or presents an electronic proposes to delete current Customer collection item or electronic return and § 229.32(a)(2)(iii) from the regulation, receives consideration. The Board which states that if the address in the Current § 229.33(d) states that if the proposes that the bank warrant that (1) depositary bank’s indorsement is not in depositary bank receives a returned the electronic image accurately the same check-processing region as the check, it must provide notice of the facts represents all of the information on the address associated with the routing to its customer by midnight of the front and back of the original check as number in its indorsement, the banking day following the banking day of the time that the original check was depositary bank must accept returned on which it received the returned check, truncated and the electronic information checks both at a location consistent with or within a longer reasonable time. The contains an accurate record of all MICR the address in the indorsement and at Board proposes to redesignate current line information required for a an office associated with the routing § 229.33(d) as § 229.32(f). The substitute check under § 229.2(rr) and number.73 Under the proposal, a commentary to this section is proposed the amount of the check; and (2) no depositary bank that includes its to be revised to remove outdated person will receive a transfer, address in its indorsement is required to provisions. presentment, or return of, or otherwise receive paper returned checks at a D. Current § 229.33—Notice of be charged for, an electronic collection location consistent with the address Nonpayment item, an electronic return, the original (proposed § 229.32(b)(1)(ii)(A)) and at a check, a substitute check, or a paper or location, if any, at which it requests For the reasons discussed above, the electronic representation of a substitute presentment of paper checks (proposed Board proposes to delete the check such that the person will be asked § 229.32(b)(1)(i)). Moreover, the requirement in current § 229.33 that a to make payment based on a check it depositary bank may structure its paying bank provide notice of has already paid. Each bank that operations such that these two locations nonpayment of a check in the amount transfers or presents an electronic are the same, i.e., such that the of $2,500 or more. Further, the Board collection item would make the depositary bank accepts paper returned proposes, where appropriate, to delete warranties to the transferee bank, any checks at only one location. references to notices of nonpayment subsequent collecting bank, the paying The Board proposes that a depositary throughout subpart C. bank, and the drawer. Each bank that bank is entitled to expeditious return E. Section 229.33—Electronic Returns transfers an electronic return would only if it agrees to accept an electronic and Collection Items make the warranties to the transferee return under § 229.32(a). The Board returning bank, any subsequent anticipates that virtually all depositary The Board’s proposal defines two new returning bank, the depositary bank, and banks will agree to do so, and that a items: electronic returns and electronic the owner of the check. depositary bank that accepts electronic collection items. The proposal permits These warranties are similar to the returns will generally prefer to receive paying banks to send electronic returns warranty that the transferor of a all returns in electronic form. Further, to depositary banks that have agreed to substitute check or paper or electronic return of a paper check to such a receive them, either directly or representation of a substitute check depositary bank should be rare, because indirectly, from the paying bank; the makes under the terms of the Check 21 under the Board’s proposal a paper proposal also permits paying banks to Act and § 229.52 of Regulation CC. returned check must be delivered to the require that items presented for same- These warranties would, for example, bank within the two-day timeframe for day settlement be presented as protect a bank that may need to create expeditious return, and delivery of a electronic collection items. Because a substitute check from an electronic paper check within that timeframe is such items are intended to take the collection item or electronic return that generally difficult and costly. The Board place of original paper checks or it receives. The proposed warranties believes it is therefore appropriate for a substitute checks, proposed new would not apply to electronic items depositary bank to be able to limit to § 229.33 provides that electronic transferred or presented pursuant to an one the number of locations at which it collection items and electronic returns agreement that does not require the must accept returned checks. If the bank are subject to the requirements of items to include an image of the check, specifies a location for delivery of paper subpart C as if they were checks, unless because such items would not purport returned checks that is difficult to reach, the subpart provides otherwise. For to meet the proposed definition of an and the depositary bank has not agreed example, if a paying bank receives electronic collection item or electronic to accept electronic returns from the presentment of an electronic collection return and the receiving bank would not paying bank, the risk of any delay falls item and returns it unpaid, it would be expect to be able create a legally mainly on the depositary bank itself. subject to the regulation’s expeditious- equivalent substitute check from the return requirement, provided the item. 73 The Board also proposes to delete the second depositary bank has agreed to accept sentence of paragraph 8 of the commentary to electronic returns from the paying bank 2. Current § 229.34(b)—Warranty of § 229.35(a), which states that if the address in the under § 229.32(a). Similarly, a Notice of Nonpayment indorsement is not consistent with the routing Because the Board proposes to delete number, then the depositary bank must accept depositary bank that receives an returned checks at a branch or head office electronic return must so notify its the regulation’s provision for notice of consistent with the routing number. customer, as required under § 229.32(f). nonpayment, the Board proposes to

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delete the warranty applicable to such 5. Section 229.34(d)—Warranties With related electronic information notice that is set forth in current Respect to a Returned Check transferred as electronic collection items § 229.34(b). Proposed § 229.34(d) contains the or electronic returns should be subject to the same warranties as electronic 3. Proposed § 229.34(b)—Settlement warranties set forth in current collection items and electronic returns, Amount, Encoding, and Offset § 229.34(a). The Board proposes to and therefore, the same warranties as Warranties delete from these warranties the warranty of return of a check within the checks and returned checks (see The Board proposes that the encoding proposed § 229.34(a)). warranty in current § 229.34(c)(3) deadline specified in Regulation J. The (proposed § 229.34(b)(3)) be extended to Regulation J warranties apply only to G. Section 229.35(a)—Indorsement information encoded after issue as those returned checks subject to the Standards; Appendix D—Indorsement, electronic information. For purposes of terms of that regulation, and need not be Reconverting-Bank Identification, and this paragraph, information encoded specified in Regulation CC. Truncating-Bank Identification Standards after issue includes any information in 6. Section 229.34(e)—Electronic Image the electronic information of an and Information Transferred as an Section 229.35(a) requires a bank electronic collection item or electronic Electronic Collection Item or Electronic (other than the paying bank) that return. Return handles a check to indorse the check in a manner that permits a person to 4. Proposed § 229.34(c)—Transfer and Under proposed § 229.34(e), a bank interpret the indorsement. Since Presentment Warranties With Respect to that transfers or presents an electronic implementation of the Check 21 Act, a Remotely Created Check image and related electronic banks have increasingly complied with Under current § 229.34(d), a bank that information as if it were an electronic this requirement by associating their transfers or presents a remotely created collection item or electronic return electronic indorsements with items that check and receives settlement or would make all the warranties in they handle electronically. consideration for it warrants that the § 229.34 as if the image and information In appendix D, the Board proposes to person on whose account the remotely were an electronic collection item or require a depositary bank that transfers created check is drawn authorized the electronic return. In turn, because an electronic collection item to another issuance of the check in the amount electronic collection items and bank to apply its indorsement to that stated on the check and to the payee electronic returns would be treated as if item electronically in accordance with stated on the check. The Board proposes they were checks or returned checks ANS X9.100–187, unless the parties to amend the commentary to proposed under § 229.33, a bank also would make otherwise agree.74 Similarly, the Board § 229.34(c) to clarify that under the warranties in § 229.34 as if the also proposes to require a collecting proposed § 229.34(e), the warranty images and related electronic bank that transfers an electronic would apply to an electronic image and information were checks or returned collection item, or a returning bank that information that purport to be derived checks. This proposal protects transfers an electronic return, to another from a remotely created check, even recipients of these items that likely will bank to apply its indorsement were they not in fact derived from a not be able to distinguish them from electronically in accordance with ANS paper check. For example, a depositary similar items that originated as paper X9.100–187, unless the parties bank transferring an electronic image checks and therefore meet the otherwise agree. In general, the Board and information that, upon inspection, definitions of ‘‘electronic collection believes that inclusion of banks’ appear to be derived from a check that item’’ and ‘‘electronic return.’’ indorsements as addenda records meets the regulation’s definition of In order for a substitute check to be accompanying electronic collection remotely created check would make the the legal equivalent of the original items and electronic returns will warranty of authorization for a remotely check, the image and information facilitate the automated handling of the created check even if no original check contained in the substitute check must items by subsequent banks. In existed with respect to the transaction be of a paper check. Accordingly, the particular, inclusion of the depositary in question. Further, a paying bank Board proposes definitions that require bank’s indorsement as an addenda receiving presentment of such an item electronic collection items and record accompanying an electronic would receive from the presenting bank electronic returns be derived from an collection item will facilitate the a warranty that the item was authorized item that existed as paper. In some automated routing of electronic returns by the person on whose account the cases, a bank may receive an electronic by paying banks and returning banks. item is drawn. image and electronic information that Currently, a bank that transfers a looks like an electronic collection item H. Section 229.36—Presentment and remotely created check makes the or electronic return, but is neither, Issuance of Checks current § 229.34(e) warranty to the because it was originally created 1. Section 229.36(a)—Receipt of transferee bank, any subsequent electronically and there was never a Electronic Collection Items collecting bank, and the paying bank. paper check. Banks that receive such i. Section 229.36(a)(1) The Board’s proposed warranties with images and related electronic respect to electronic collection items information usually cannot differentiate Proposed § 229.36(a)(1) sets forth two (which could be derived from remotely them from actual electronic collection circumstances in which a paying bank created checks) extend to the drawer; items or electronic returns. Nonetheless, is deemed to have agreed to accept an similarly, the current notice of a bank that unknowingly receives an electronic collection item from the nonpayment and returned check electronic image and related electronic presenting bank. First, a paying bank warranties extend to the owner of the information not derived from a paper may agree to accept the electronic check. The Board requests comment on instrument may nonetheless transfer the whether the remotely created check image and related electronic 74 This new requirement would not alter the flexibility provided by § 229.35(d) to a depositary warranties should extend to the person information as if it were derived from a bank to arrange with another bank to apply the on whose account the remotely created paper instrument. Therefore, the Board other bank’s indorsement as the depositary-bank check is drawn. believes that electronic images and indorsement.

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collection item directly from the 3. Section 229.36(d)—Same-Day L. Section 229.43—Checks Payable in presenting bank. Second, a paying bank Settlement Guam, American Samoa, and the Northern Mariana Islands may have otherwise agreed with the For the reasons discussed above in the presenting bank to accept an electronic overview of the proposal, the Board The Board proposes to modify collection item. The proposed proposes in § 229.36(d)(2) to permit a § 229.43 to reflect how the proposed commentary indicates that one example paying bank to require that checks warranties for electronic collection of such an agreement would be where presented for same-day settlement be items and electronic returns in § 229.34 the paying bank and presenting bank are presented as electronic collection items would apply to checks payable in both members of the same check to a designated electronic presentment Guam, American Samoa, and the clearing house, under the rules of which point. Northern Mariana Islands. Specifically, the paying bank has agreed to accept a bank that handles Pacific island 4. Section 229.36(e)—Issuance of electronic collection items from the checks in the same manner as other Payable-Through Checks presenting bank. checks may transfer electronic images Current § 229.36(e) requires a bank and electronic information as electronic ii. Section 229.36(a)(2) that arranges for checks payable by it to collection items or electronic returns be payable through another bank to derived from Pacific island checks. Similar to proposed § 229.32(a)(2), Accordingly, such a bank would make proposed § 229.36(a)(2) sets forth when print conspicuously on the face of the check the name, location, and first four the warranties in §§ 229.34(a) and (b) a bank is considered to receive an digits of the routing number of the bank with respect to Pacific island checks. electronic collection item. A bank by which the check is payable. The receives an electronic collection item IV. Subpart D purpose of this provision is to alert the when it is delivered to the electronic depositary bank receiving a check for A. Section 229.52—Substitute-Check presentment point designated by the deposit that it could not rely on the Warranties bank or, by agreement, otherwise is routing number in the MICR line of the Sometimes a check submitted for made available to the bank for retrieval check to determine whether the check deposit is subsequently ‘‘rejected’’ by the or review. For example, if a paying bank was local or nonlocal. Because there are bank that receives the check. For designates an Internet protocol (IP) no longer any nonlocal checks, the example, a bank’s customer might address as its electronic presentment Board believes that § 229.36(e) is no submit a check at an ATM that captures point, the paying bank has received an longer necessary and proposes to delete an image of the check and sends the electronic collection item when it is it. image electronically to the bank. In turn, delivered to that address. In contrast, the bank may provide provisional credit I. Section 229.37—Variation by the paying bank may have an to the customer and review the item. For Agreement arrangement with the collecting bank various reasons, the bank’s review of the whereby electronic collection items are The commentary to § 229.37 provides item might result in the item being received by the paying bank when the examples of situations where variation rejected—for example, the bank might collecting bank makes the items by agreement is permissible. The Board determine that the item is not payable available for the paying bank to retrieve proposes to amend the commentary to to the customer who submitted it for or review from a storage device in § 229.37 to include as an example of deposit. It is costly for the bank to accordance with the agreement between permissible variation by agreement the obtain the check from the ATM to the collecting bank and the paying bank. situation where a depositary bank and a provide it back to the customer; paying bank or returning bank agree to moreover, the check may have been iii. Section 229.36(a)(3) send electronic returns even where the destroyed. Accordingly, banks item is available for return. Similarly, sometimes provide the rejected item to Similar to proposed § 229.32(a)(2), the Board proposes to amend the the customer in the form of a substitute proposed § 229.36(a)(3) permits a paying commentary by adding an example that check. In such a scenario, the bank bank, for ease of processing, to require permits a presenting bank and paying would be both the reconverting bank that electronic collection items be bank to agree that presentment takes (the bank that created the substitute separated from electronic returns. place upon receipt of an electronic check) and the truncating bank (the 2. Section 229.36(b)—Receipt of Paper collection item. bank that truncated the original check). Under the terms of § 229.52(a), a bank Checks J. Section 229.38—Liability makes the Check 21 Act warranties with The Board proposes in § 229.36(b)(2) Section 229.38(d)(2) makes drawee respect to a substitute check when it that a paying bank be permitted to banks liable to the extent they issue transfers the substitute check for require that forward-collection checks payable-through checks that are payable consideration, as the terms ‘‘transfer’’ be separated from returned checks. A through a bank located in a different and ‘‘consideration’’ are defined in similar provision in current check-processing region and that current § 229.2(ccc) (proposed to be § 229.36(f)(1) is limited to checks circumstance causes a delay in return. redesignated as § 229.2(tt)). However, a Because there is now only one check- bank may not have received presented for same-day settlement and processing region, this liability consideration for a substitute check it permits a paying bank to require that provision is obsolete and the Board provides to its customer after it has paper checks presented for same-day proposes to delete it. rejected an original check submitted for settlement be separated from other deposit. forward-collection checks or returned K. Section 229.40—Mergers As noted in the commentary to the checks. The Board requests comment on The Board proposes to delete as definition of transfer and consideration, whether a requirement that paper obsolete the provision in § 229.40(b) the Check 21 Act contemplates that a checks presented for same-day regarding mergers consummated on or nonbank person that receives a settlement be separated from other after July 1, 1998, and before March 1, substitute check from a bank will checks presentments remains necessary. 2000. receive warranties and indemnities with

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respect to that check. Therefore, in order proposes to add to § 229.53(a) a new unless one of the time-period to prevent a bank from being able to subsection stating that a bank that adjustments in § 229.12 or one of the transfer a check that the bank truncated rejects a check submitted for deposit exceptions in § 229.13 is applicable. and then reconverted without providing and sends back to its customer a Even assuming that banks collect and the substitute-check warranties and substitute check provides the indemnity return all checks electronically, indemnity, the Board proposes to add to set forth in § 229.53(a) regardless of depositary banks will in many cases § 229.52(a) a new subsection stating that whether the bank received nonetheless be required to make the a bank that rejects a check submitted for consideration. The Board also proposes funds represented by a check deposit deposit and sends back to its customer to modify the commentary to reflect the available for withdrawal before learning a substitute check (or a paper or fact that a bank that transfers and whether the check has been returned electronic representation of a substitute receives consideration for an electronic unpaid. The Board therefore requests check) makes the warranties in collection item or electronic return that comment on whether this risk is § 229.52(a) regardless of whether it is an electronic representation of a significant and whether there are received consideration for the substitute substitute check is responsible for feasible means to help reduce any risk check. Because the bank would make providing the indemnity in § 229.53. to depositary banks. For example, the these warranties, the substitute check deadline in the UCC by which a paying would be the legal equivalent of the Other Requests for Comment bank must initiate return of an unpaid rejected original check, provided that I. Effective Date check is generally midnight of the the substitute check meets the banking day following the banking day The Board proposes that the revised requirements for legal equivalence set of receipt of the check by the paying subparts A and B take effect 30 days forth in § 229.51(a).75 If the substitute bank, except as the deadline may be following publication of the final rule. check does not meet the requirements extended by § 229.30(c) of Regulation The Board recognizes that some banks for legal equivalence, then the substitute CC. As delivery of forward-collection may wish to use the model forms soon check recipient would have a Check 21 and returned checks becomes after the rule becomes effective, as part warranty claim against the bank. increasingly electronic, this amount of Because the bank is both the of their normal reordering or reprinting time (typically about 36 hours) afforded truncating bank and the reconverting cycle for their funds-availability to the paying bank takes up a substantial bank with respect to the check, the bank disclosures. In order to minimize the portion of the total time required for a must identify itself on the front of the compliance costs, the Board proposes check to be sent from the depositary substitute check as the truncating bank that banks would have 12 months to bank to the paying bank and back again. and on the front and back of the check comply with the amendments to subpart The Board requests comment on as the reconverting bank, in accordance B and the model forms in appendix C. whether it would be desirable to reduce with the terms of § 229.51(b). The bank The Board proposes that the the amount of time afforded to the is not, however, a depositary bank, amendments to subparts C and D paying bank to decide whether or not to collecting bank, or returning bank with become effective six months following pay a check that has been presented to respect to the check, and the Board publication of the final rule. As it. The Board also requests comment on proposes to add a clarifying statement to discussed above, these amendments whether there are other, preferable, that effect in proposed § 229.2(r) provide, among other things, that a ways to reduce this risk to depositary (current § 229.2(o), the regulation’s depositary bank must accept electronic banks. returns in order to be entitled to definition of depositary bank). Paperwork Reduction Act Moreover, the bank’s identification of expeditious return. The time required itself on the back of the check as a for depositary banks that currently In accordance with the Paperwork reconverting bank does not constitute accept paper returned checks to Reduction Act of 1995 (PRA) (44 U.S.C. the bank’s indorsement of the check. To implement the operational changes 3506; 5 CFR part 1320 Appendix A.1), address this latter point, the Board necessary for receiving electronic the Board reviewed the proposed proposes changes to the commentaries returns generally should not be rulemaking under the authority to §§ 229.35(a) and 229.51(b), and to significant. Many of these depositary delegated to the Board by the Office of paragraph 3(ii) of appendix D. banks are small and receive a small Management and Budget (OMB). The The Board also proposes to modify number of returned checks. collection of information that is the commentary to reflect the fact that Accordingly, receiving returns as .pdfs, proposed by this rulemaking is found in a bank that transfers and receives for example, should not require 12 CFR 229. The Board may not conduct consideration for an electronic substantial changes. The Board does not or sponsor, and an organization is not collection item or electronic return that expect that other changes to subpart C, required to respond to, this information is an electronic representation of a such as the proposed provisions for collection unless it displays a currently substitute check makes the warranties in electronic same-day settlement, would valid OMB control number. The OMB § 229.52. impose a significant transition burden control number is 7100–0235. given that almost all checks are already The EFA Act, as amended, and the B. Section 229.53—Substitute-Check presented electronically. Further, under Check 21 Act authorizes the Board to Indemnity the proposal a collecting bank may issue regulations to carry out the In addition to imposing the substitute continue to present paper checks under provisions of those Acts (12 U.S.C. 4008 check warranties on a bank that rejects the terms of the UCC and Regulation J. and 12 U.S.C. 5014, respectively). a check for deposit, the Board similarly Because the Federal Reserve does not II. Potential Future Changes To Reduce collect any information, no issue of Risks to Depositary Banks 75 These requirements are that the substitute confidentiality arises. However, if, check (1) accurately represents all of the Given that there are no longer any during a compliance examination of a information on the front and back of the original nonlocal checks, a depositary bank must financial institution, a violation or check as of the time the original check was possible violation of the EFA Act or the truncated; and (2) bears the legend, ‘‘This is a legal make funds available to the depositor copy of your check. You can use it the same way for withdrawal by the second business Check 21 Act is noted then information you would use the original check.’’ day after the banking day of deposit, regarding such violation may be kept

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confidential pursuant to Section (b)(8) information technology. Comments on returned checks, which the banks can of the Freedom of Information Act. 5 the collection of information should be print on their own premises if U.S.C. 552(b)(8). This information sent to Cynthia Ayouch, Acting Federal necessary.76 To receive returned checks collection is mandatory. Reserve Clearance Officer, Division of in this fashion, a depositary bank may Regulation CC applies to all banks, Research and Statistics, Mail Stop 95–A, need to establish and maintain an not just State Member Banks (SMBs). Board of Governors of the Federal electronic connection to the Reserve However, under the PRA, the Board Reserve System, Washington, DC 20551, Banks, or another returning bank that accounts for the burden of the with copies of such comments sent to offers a similar service, and to purchase paperwork associated with the the Office of Management and Budget, certain equipment, such as a printer regulation only for entities that are Paperwork Reduction Project (7100– capable of double-sided printing and supervised by the Federal Reserve. The 0235), Washington, DC 20503. magnetic-ink toner cartridges. Board accounts for the paperwork Regulatory Flexibility Act Depending on the volume of returned burden only for SMBs and uninsured checks that a small depositary bank state branches and agencies of foreign In accordance with section 3(a) of the receives, the Board estimates that this banks. Other Federal financial agencies Regulatory Flexibility Act (RFA), 5 transition would cost a small depositary are responsible for estimating and U.S.C. 601–612, the Board is publishing bank approximately $5,000 in net- reporting to OMB the total paperwork an initial regulatory flexibility analysis present-value terms.77 Conversely, a burden for the institutions for which for the proposed amendments to small depositary bank that does not they have administrative enforcement Regulation CC. The RFA requires an choose to accept returned checks authority. agency either to provide an initial electronically would, under the The current annual burden to comply regulatory flexibility analysis with a proposal, incur additional risk with the provisions of Regulation CC is proposed rule or to certify that the associated with that decision. estimated to be 202,396 hours for the proposed rule will not have a significant Specifically, the bank would not retain 1,060 institutions supervised by the economic impact on a substantial its right to expeditious return of a check, Federal Reserve and that are deemed to number of small entities. In accordance and a returned check may not be be respondents for the purposes of the with section 3(a) of the RFA, the Board delivered to the bank in a timely PRA. has reviewed the proposed regulation. fashion. While this risk is difficult to As discussed above, the Board While the Board believes that the quantify, it is reasonable to expect that proposes to amend model disclosures, proposed rule likely would not have a each small depositary bank will weigh clauses, and notices, in appendix C that significant economic impact on a the costs and benefits of whether to banks may use in disclosing their funds- substantial number of small entities (5 accept returns electronically. If the bank availability policies to their customers U.S.C. 605(b)), the Board has prepared determines that the net present value of and to update the preemption an Initial Regulatory Flexibility the risk is greater than the cost to determinations in appendix F to Analysis in accordance with 5 U.S.C. receive returned checks electronically, incorporate content requirements 603. The Board will, if necessary, then the bank can minimize its cost prescribed by section 1086 of the Dodd- conduct a final regulatory flexibility associated with the Board’s proposal by Frank Act. analysis after consideration of accepting returned checks The Board estimates that the proposed comments received during the public rule would impose a one-time increase comment period. electronically. in the total annual burden under The Board is proposing the foregoing The proposed updates to the model Regulation CC. The 1,060 respondents amendments to Regulation CC pursuant funds-availability policy disclosures would take, on average, 80 hours (two to its authority under the EFA Act and and notices in appendix C should not business weeks) to update their systems the Check 21 Act. The proposed impose significant cost on small banks. to comply with the proposed disclosure amendments would apply to all banks Under the proposal, a bank that bases its requirements addressed in 12 CFR part regardless of their size, and the Board disclosures and notices on the current 229. This one-time revision would anticipates that the proposal would models in the appendix will continue to increase the burden by 84,800 hours. reduce banks’ overall costs of collecting receive a safe harbor for 12 months after The Board estimates that, on a and returning checks. the final rule becomes effective, continuing basis, the revision to the rule By providing that a depositary bank provided that the bank’s disclosures and would have a negligible effect on the preserves its right to expeditious return notices accurately reflect the bank’s annual burden. The total annual burden only of it agrees to receive returned policies and practices. Moreover, a bank for the Regulation CC information checks electronically, the proposed rule that chooses to update its disclosures on collection is estimated to increase from would encourage, but not require, the basis of the proposal would not 202,396 to 287,196 hours. depositary banks to accept check returns generally need to redeliver disclosures Comments are invited on: (1) Whether in electronic form. A depositary bank to all of its existing customers if the the proposed collection of information that currently receives returned checks bank’s underlying funds-availability is necessary for the proper performance in paper form and that chooses, as of the Board’s functions; including encouraged by the proposal, to begin to 76 After printing the .pdf files, the depositary bank would be able to process the checks exactly as it whether the information has practical receive returned checks electronically, would process paper checks physically delivered to utility; (2) the accuracy of the Board’s will incur some cost associated with it. estimate of the burden of the proposed that transition. The Board expects that 77 This estimate takes into account the cost to a information collection, including the these costs would be relatively low for small depositary bank to establish and maintain an electronic connection to the Reserve Banks, which cost of compliance; (3) ways to enhance a small depositary bank, which typically is estimated to be $110 per month. See 75 FR 67731 the quality, utility, and clarity of the would receive only a small volume of at 67747 (Nov. 3, 2010). Some small banks, information to be collected; and (4) returned checks. For example, as however, may already have such a connection. ways to minimize the burden of mentioned above, the Federal Reserve Further, a small depositary bank may choose to receive its returns electronically in a manner that information collection on respondents, Banks now offer a product under which does not require this connection, such as through including through the use of automated they deliver electronically to small a different returning bank, an electronic check collection techniques or other forms of depositary banks copies (.pdf files) of clearinghouse, or a nonbank processor.

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policies did not change; instead, in arrangements to receive electronic check (b) Organization. This part is divided accordance with the regulation, a bank returns by the time the Board adopts a into subparts and appendices as would need to provide the disclosures final rule. The Board specifically follows— at the time a customer opens an requests comment on the cost of its (1) Subpart A contains general account, and upon request. proposed rule to a small depository information. It sets forth— Any costs to a small bank that may institution. (i) The authority, purpose, and result from the rule will be offset to The Board notes that subpart A of organization; some extent by savings to the bank in (ii) Definition of terms; and Regulation J overlaps with the proposed (iii) Authority for administrative other areas. For example, receiving rule with respect to checks collected or returned checks electronically may enforcement of this part’s provisions. returned through the Reserve Banks. (2) Subpart B of this part contains enable a small bank to reduce its The provisions of Regulation J ongoing operating costs associated with rules regarding the duty of banks to supersede any inconsistent provisions make funds deposited into accounts receiving and processing returned of Regulation CC, but only to the extent checks. Further, as other banks with available for withdrawal, including of the inconsistency.80 which the small bank does business also availability schedules. Subpart B of this begin to receive returned checks Text of Proposed Revisions part also contains rules regarding electronically, the small bank, in its role exceptions to the schedules, disclosure as paying bank, may experience lower Certain conventions have been used of funds availability policies, payment costs associated with sending returned to highlight the proposed changes to the of interest, liability of banks for failure checks to other banks, because a paying text of the regulation and commentary. to comply with Subpart B of this part, bank typically pays a higher fee to With the exception of appendices C and and other matters. deliver a returned check in paper form F to the regulation, new language is (3) Subpart C of this part contains to a depositary bank, as compared to shown inside flbold-faced arrowsfi, rules to expedite the collection and delivering a returned check while language proposed to be deleted return of checks by banksfl, including ø ¿ electronically to the depositary bank. In is set off with bold-faced brackets . In provisions that accommodate electronic addition, the proposed provisions for appendix C, each proposed new model presentment and return of checksfi. electronic same-day settlement may form is set forth in its entirety and the These rules cover the direct return of reduce a small bank’s costs associated corresponding current form is deleted in checks, the manner in which the paying with receiving check presentments, its entirety, because the convention bank and returning banks must return because it should further reduce the described above for the changes to the checks to the depositary bank, number of paper check presentments text within each of the forms would ønotification of nonpayment by the that it receives. render illegible the formatting of the paying bank,¿ indorsement and According to the Small Business proposed forms. The Board proposes to presentment of checks, same-day Administration size standards defining replace the text of appendix F in its settlement for certain checks, the small entities, a commercial bank, entirety. Paragraphs in the commentary liability of banks for failure to comply savings association, or credit union is are numbered to comply with Federal with subpart C of this part, and other considered a ‘‘small entity’’ if it has Register publication rules. matters. 78 assets of $175 million or less. The List of Subjects in 12 CFR Part 229 (4) Subpart D of this part contains Board can identify through data from rules relating to substitute checks. These Reports of Condition and Income (‘‘call Banks, Banking, Federal Reserve rules address the creation and legal reports’’) the approximate number of System, Reporting and recordkeeping status of substitute checks; the small depository institutions that would requirements. substitute check warranties and be subject to the proposed rule if indemnity; expedited recredit Authority and Issuance finalized.79 Based on September 2010 procedures for resolving improper call report data, there are approximately For the reasons set forth in the charges and warranty claims associated 11,030 depository institutions that have preamble, the Board proposes to amend with substitute checks provided to total domestic assets of $175 million or 12 CFR part 229 as follows: consumers; and the disclosure and less and thus are considered small notices that banks must provide. entities for purposes of the RFA. Based PART 229—AVAILABILITY OF FUNDS fl(5) Appendix A of this part on December 2010 data regarding AND COLLECTIONS OF CHECKS contains a routing number guide to checks returned through the Reserve (REGULATION CC) next-day-availability checks. The guide Banks, the Board estimates that 41 lists the routing numbers of checks percent of small depository institutions Subpart A—General drawn on Federal Reserve Banks and had at that time made arrangements to Federal Home Loan Banks, and U.S. receive returned checks electronically, 1. Section 229.1 is revised to read as Treasury checks and Postal money whereas 59 percent had not. Banks are follows: orders that are subject to next-day steadily adopting electronic check § 229.1 Authority and purpose; availability. handling methods, however, and the organization. (6) Appendix C of this part contains Board expects that a substantially higher model funds-availability policy percentage of small depository (a) Authority and purpose. This part disclosures, clauses, and notices and a institutions will have made is issued by the Board of Governors of model disclosure and notices related to the Federal Reserve System (Board) to substitute-check policies. 78 U.S. Small Business Administration, Table of implement the Expedited Funds (7) Appendix D of this part contains Small Business Size Standards Matched to North Availability Act (12 U.S.C. 4001–4010) indorsement standards and standards American Industry Classification System Codes, (the EFA Act) and the Check Clearing for identifying the reconverting bank available at http://www.sba.gov/idc/groups/public/ for the 21st Century Act (12 U.S.C. _ _ _ and truncating bank. documents/sba homepage/serv sstd tablepdf.pdf. 5001–5018) (the Check 21 Act). 79 The proposed rule would not impose costs on (8) Appendix E of this part contains any small entities other than depository Board interpretations, which are labeled institutions. 80 See 12 CFR 210.3(f). ‘‘Commentary,’’ of the provisions of this

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part. The Commentary provides States, or where the direct or indirect ø(5)¿fl(v)fi A member as defined in background material to explain the account holder is the Treasury of the section 2 of the Federal Home Loan Board’s intent in adopting a particular United States. Bank Act (12 U.S.C. 1422); part of the regulation and provides (3) For purposes of subpart D of this ø(6)¿fl(vi)fi A savings association as examples to aid in understanding how part and, in connection therewith, this defined in section 3 of the Federal a particular requirement is to work. The subpart A, account means any deposit, Deposit Insurance Act (12 U.S.C. 1813) Commentary is an official Board as defined in 12 CFR 204.2(a)(1)(i), at a that is an insured depository institution interpretation under section 611(e) of bank, including a demand deposit or as defined in section 3 of that Act (12 the EFA Act (12 U.S.C. 4010(e)). other transaction account and a savings U.S.C. 1813(c)(2)) or that is eligible to (9) Appendix F of this part contains deposit or other time deposit, as those apply to become an insured depository the Board’s determinations of the EFA terms are defined in 12 CFR 204.2. institution under section 5 of that Act Act and Regulation CC’s preemption of (b) øAutomated clearinghouse or ACH (12 U.S.C. 1815); or ø ¿fl fi state laws that were in effect on means a facility that processes debit and (7) (vii) An agency or a branch September 1, 1989.fi credit transfers under rules established of a foreign bank as defined in section 2. Section 229.2 is revised to read as by a Federal Reserve Bank operating l(b) of the International Banking Act (12 follows: circular on automated clearinghouse U.S.C. 3101). fl(2)fi For purposes of subparts C items or under rules of an automated § 229.2 Definitions. and D of this part and, in connection clearinghouse association.¿ As used in this part, and unless the therewith, this subpart A, the term bank flAutomated clearinghouse (ACH) context requires otherwise, the also includes any person engaged in the credit transfer means a transfer whereby following terms have the meanings set business of banking, as well as a Federal the originator orders that its account be forth in this section, and the terms not Reserve Bank, a Federal Home Loan debited and another account be credited defined in this section have the Bank, and a state or unit of general local through the ACH, which is a facility that meanings set forth in the Uniform government to the extent that the state processes debit and credit transfers Commercial Code: or unit of general local government acts under rules established by a Federal (a) Account. (1) Except as provided in as a paying bank. Unless otherwise Reserve Bank operating circular on ACH paragraphs (a)(2) and (a)(3) of this specified, the term bank includes all of items or under rules of an ACH section, account means a deposit as a bank’s offices in the United States, but association or similar interbank defined in 12 CFR 204.2(a)(1)(i) that is not offices located outside the United agreement.fi a transaction account as described in 12 States. CFR 204.2(e). As defined in these (c) Automated teller machine or ATM øNote:¿ fl(3)fi For purposes of sections, account generally includes means an electronic device at which a subpart D of this part and, in connection flanfi accountøs¿ at a bank from natural person may make deposits to an therewith, this subpart A, bank also which the account holder is permitted account by cash or flpaperfi check and includes the Treasury of the United to make transfers or withdrawals by perform other account transactionsfl, States or the United States Postal negotiable or transferable instrument, for example, making cash withdrawals Service to the extent that the Treasury payment order of withdrawal, telephone from an account.fi or the Postal Service acts as a paying transfer, electronic payment, or other (d) Available for withdrawal with bank. similar means for the purpose of making respect to funds deposited means (f) Banking day means that part of any payments or transfers to third persons or available for all uses generally permitted business day on which an office of a others. Account also includes flanfi to the customer for actually and finally bank is open to the public for carrying accountøs¿ at a bank from which the collected funds under the bank’s on substantially all of its banking account holder may make third party account agreement or policies, such as functions. payments at an ATM, remote service for payment of checks drawn on the (g) Business day means a calendar day unit, or other electronic device, account, certification of checks drawn other than a Saturday or a Sunday, including by debit card, but the term on the account, electronic payments, January 1, the third Monday in January, does not include flafi savings withdrawals by cash, and transfers the third Monday in February, the last depositøs¿or accountøs¿ described in 12 between accounts. Monday in May, July 4, the first Monday CFR 204.2(d)(2) even though such (e)fl(1)fi Bank means— in September, the second Monday in accounts permit third party transfers. ø(1)¿fl(i)fi An insured bank as October, November 11, the fourth An account may be in the form of— defined in section 3 of the Federal Thursday in November, or December 25. (i) A demand deposit account, Deposit Insurance Act (12 U.S.C. 1813) If January 1, July 4, November 11, or (ii) A negotiable order of withdrawal or a bank that is eligible to apply to December 25 fall on a Sunday, the next account, become an insured bank under section Monday is not a business day. (iii) A share draft account, 5 of that Act (12 U.S.C. 1815); (h) Cash means United States coins (iv) An automatic transfer account, or ø ¿ and currency. (v) Any other transaction account (2) fl(ii)fi A mutual savings bank as defined in section 3 of the Federal (i) Cashier’s check means a check that described in 12 CFR 204.2(e). is— (2) For purposes of subpart B of this Deposit Insurance Act (12 U.S.C. 1813); ø ¿ (1) Drawn on a bank; part and, in connection therewith, this (3) fl(iii)fi A savings bank as (2) Signed by an officer or employee subpart A, account does not include an defined in section 3 of the Federal of the bank on behalf of the bank as account where the account holder is a Deposit Insurance Act (12 U.S.C. 1813); drawer; bank, where the account holder is an ø(4)¿fl(iv)fi An insured credit union (3) A direct obligation of the bank; office of an institution described in as defined in section 101 of the Federal and paragraphs (e)(1) through (e)(6) of this Credit Union Act (12 U.S.C. 1752) or a (4) Provided to a customer of the bank section or an office of a ‘‘foreign bank’’ credit union that is eligible to make or acquired from the bank for remittance as defined in section 1(b) of the application to become an insured credit purposes. International Banking Act (12 U.S.C. union under section 201 of that Act (12 (j) Certified check means a check with 3101) that is located outside the United U.S.C. 1781); respect to which the drawee bank

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certifies by signature on the check of an bank that accepts a deposit on behalf of bank.¿ flElectronic return point means officer or other authorized employee of the first bank. the electronic location that the the bank that— (q) Customer means a person having depositary bank has designated for (1) (i) The signature of the drawer on an account with a bank. receiving electronic returns.fi ø the check is genuine; and (r) Local check means a check (x) Fedwire has the same meaning as (ii) The bank has set aside funds payable by or at a local paying bank, or that set forth in § 210.26(e) of this that— a check payable by a nonbank payor and chapter. (A) Are equal to the amount of the ¿ payable through a local paying bank. (y) Forward collection means the check, and Depositary bank means the first bank to process by which a bank sends a check (B) Will be used to pay the check; or which a check is transferred even on a cash basis to a collecting bank for (2) The bank will pay the check upon though it is also the paying bank or the presentment. settlement or to the paying bank for payee. A check deposited in an account payment. (k)fl(1)fi Check means— is deemed to be transferred to the bank ø ¿fl fi (z) Good faith means honesty in fact (1) (i) A negotiable demand holding the account into which the and observance of reasonable draft drawn on or payable through or at check is deposited, even though the commercial standards of fair dealing. an office of a bank; check is physically received and ø(2)¿fl(ii)fi A negotiable demand indorsed first by another bank. flA (aa) Indemnifying bank means a bank draft drawn on a Federal Reserve Bank bank that rejects a check submitted for that provides an indemnity under or a Federal Home Loan Bank; § 229.53 with respect to a substitute ø(3)¿fl(iii)fi A negotiable demand deposit is not a depositary bank with fi check. draft drawn on the Treasury of the respect to that check. (s) øLocal paying bank means a (bb) Interest compensation means an United States; amount of money calculated at the ø(4)¿fl(iv)fi A demand draft drawn paying bank that is located in the same check processing region as the physical average of the Federal Funds rates on a state government or unit of general published by the Federal Reserve Bank local government that is not payable location of the branch, contractual branch, or proprietary ATM of the of New York for each of the days for through or at a bank; which interest compensation is payable, ø(5)¿fl(v)fi A United States Postal depositary bank in which that check was deposited.¿ flElectronic collection divided by 360. The Federal Funds rate Service money order; or for any day on which a published rate ø(6)¿fl(vi)fi A traveler’s check item means an electronic image of and is not available is the same as the drawn on or payable through or at a information related to a check that a published rate for the last preceding day bank. bank sends for forward collection and ø(7)¿fl(2)fi The term check includes that— for which there is a published rate. an original check and a substitute check. (1) A paying bank has agreed to (cc) Magnetic ink character fl(3)fi The term check does not receive under § 229.36(a); recognition line and MICR line mean the include a noncash item or an item (2) Is sufficient to create a substitute numbers, which may include the payable in a medium other than United check; and routing number, account number, check States money. (3) Conforms with American National number, check amount, and other fl(4)fi A draft may be a check even Standard Specifications for Electronic information, that are printed near the though it is described on its face by Exchange of Check and Image Data— bottom of a check in magnetic ink in another term, such as money order. X9.100–187, in conjunction with its accordance with American National fl(5)fi For purposes of subparts C Universal Companion Document Standard Specifications for Placement and D, and in connection therewith, (hereinafter collectively referred to as and Location of MICR Printing, X9.13 subpart A, of this part, the term check ANS X9.100–187), unless the Board by (hereinafter ANS X9.13) for an original also includes a demand draft of the type rule or order determines that different check and American National Standard described above that is nonnegotiable. standard applies or the parties Specifications for an Image Replacement (l) ø[Reserved]¿ flClaimant bank otherwise agree.fi Document—IRD, X9.100–140 means a bank that submits a claim for (t) Electronic payment means a wire (hereinafter ANS X9.100–140) for a a recredit for a substitute check to an transfer or an ACH credit transfer. substitute check (unless the Board by indemnifying bank under § 229.55.fi (u) flElectronic presentment point rule or order determines that different (m) øCheck processing region means means the electronic location that a standards apply). the geographical area served by an office paying bank has designated for (dd) Merger transaction means— of a Federal Reserve Bank for purposes receiving electronic collection items.fi (1) A merger or consolidation of two ¿ ø of its check processing activities. (v) Nonlocal check means a check or more banks; or payable by, through, or at a nonlocal Collecting bank means any bank (2) The transfer of substantially all of handling a check for forward collection, paying bank.¿ flElectronic return means an electronic image of and the assets of one or more banks or except the paying bank. branches to another bank in (n) Consumer means a natural person information related to a check that a consideration of the assumption by the who— paying bank determines not to pay and (1) With respect to a check handled that— acquiring bank of substantially all of the for forward collection, draws the check (1) A depositary bank has agreed to liabilities of the transferring banks, on a consumer account; or receive under § 229.32(a); including the deposit liabilities. ø (2) With respect to a check handled (2) Is sufficient to create a substitute (ee) Similarly situated bank means a for return, deposits the check into or check; and bank of similar size, located in the same cashes the check against a consumer (3) Conforms with ANS X9.100–187, community, and with similar check account. unless the Board by rule or order handling activities as the paying bank or (o) Consumer account means any determines that a different standard returning bank.¿ Noncash item means account used primarily for personal, applies or the parties otherwise agree.fi an item that would otherwise be a family, or household purposes. (w) øNonlocal paying bank means a check, except that— (p) Contractual branch, with respect paying bank that is not a local paying (1) A passbook, certificate, or other to a bank, means a branch of another bank with respect to the depositary document is attached;

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(2) It is accompanied by special ø(1)¿fl(i)fi Owned or operated by, or Virgin Islands. For purposes of subpart instructions, such as a request for operated exclusively for, the depositary D of this part and, in connection special advice of payment or dishonor; bank; therewith, this subpart A, state also (3) It consists of more than a single ø(2)¿fl(ii)fi Located on the premises means Guam, American Samoa, øthe thickness of paper, except a check that (including the outside wall) of the Trust Territory of the Pacific Islands,¿ qualifies for handling by automated depositary bank; or the Northern Mariana Islands, and any check processing equipment; or ø(3)¿fl(iii)fi Located within 50 feet other territory of the United States. (4) It has not been preprinted or post- of the premises of the depositary bank, (rr) Substitute check means a paper encoded in magnetic ink with the and not identified as being owned or reproduction of an original check that— routing number of the paying bank. operated by another entity. (1) Contains an image of the front and (ff) Nonproprietary ATM means an fl(2)fi If more than one bank meets back of the original check; ATM that is not a proprietary ATM. the owned or operated criterion of (2) Bears a MICR line that, except as (gg) Original check means the first paragraph ø(aa)¿fl(kk)fi(1) of this provided under ANS X9.100–140 paper check issued with respect to a section, the ATM is considered (unless the Board by rule or order particular payment transaction. proprietary to the bank that operates it. determines that a different standard (hh) Paper or electronic (ll) Qualified returned check means a applies), contains all the information representation of a substitute check returned check that is prepared for appearing on the MICR line of the means any copy of or information automated return to the depositary bank original check at the time that the related to a substitute check that a bank by placing the check in a carrier original check was issued and any handles for forward collection or return, envelope or placing a strip on the check additional information that was charges to a customer’s account, or and encoding the strip or envelope in encoded on the original check’s MICR provides to a person as a record of a magnetic ink. A qualified returned line before an image of the original check payment made by the person. check need not contain other elements check was captured; (ii)fl(1)fi Paying bank means— of a check drawn on the depositary (3) Conforms in paper stock, ø(1)¿fl(i)fi The bank by which a bank, such as the name of the depositary dimension, and otherwise with ANS check is payable, unless the check is bank. X9.100–140 (unless the Board by rule or payable at another bank and is sent to (mm) Reconverting bank means— order determines that a different the other bank for payment or (1) The bank that creates a substitute standard applies); and collection; check; or (4) Is suitable for automated ø(2)¿fl(ii)fi The bank at which a (2) With respect to a substitute check processing in the same manner as the check is payable and to which it is sent that was created by a person that is not original check. for payment or collection; a bank, the first bank that transfers, (ss) Sufficient copy and copy. (1) A ø(3)¿ fl(iii)fi The Federal Reserve presents, or returns that substitute check sufficient copy is a copy of an original Bank or Federal Home Loan Bank by or, in lieu thereof, the first paper or check that accurately represents all of which a check is payable; electronic representation of that the information on the front and back of ø(4)¿fl(iv)fi The bank through substitute check. the original check as of the time the which a check is payable and to which (nn) Remotely created check means a original check was truncated or is it is sent for payment or collection, if check that is not created by the paying otherwise sufficient to determine the check is not payable by a bank; or bank and that does not bear a signature whether or not a claim is valid. ø(5)¿fl(v)fi The state or unit of applied, or purported to be applied, by (2) A copy of an original check means general local government on which a the person on whose account the check any paper reproduction of an original check is drawn and to which it is sent is drawn. For purposes of this check, including a paper printout of an for payment or collection. definition, ‘‘account’’ means an account electronic image of the original check, a fl(2)fi For purposes of subparts C as defined in paragraph (a) of this photocopy of the original check, or a and D, and in connection therewith, section as well as a credit or other substitute check. subpart A, paying bank includes the arrangement that allows a person to (tt) Teller’s check means a check bank through which a check is payable draw checks that are payable by, provided to a customer of a bank or and to which the check is sent for through, or at a bank. acquired from a bank for remittance payment or collection, regardless of (oo) Returning bank means a bank purposes, that is drawn by the bank, and whether the check is payable by another (other than the paying or depositary drawn on another bank or payable bank, and the bank whose routing bank) handling a returned check or through or at a bank. number appears on a check in fractional notice in lieu of return. A returning (uu) Transfer and consideration. The or magnetic form and to which the bank is also a collecting bank for terms transfer and consideration have check is sent for payment or collection. purposes of UCC 4–202(b). the meanings set forth in the Uniform øNote:¿ fl(3)fi For purposes of (pp) Routing number means— Commercial Code and in addition, for subpart D of this part and, in connection (1) The flbank-identificationfi purposes of subpart D— therewith, this subpart A, paying bank number printed on the face of a check (1) The term transfer with respect to also includes the Treasury of the United in fractional form or in nine-digit form; a substitute check or a paper or States or the United States Postal øor¿ electronic representation of a substitute Service for a check that is payable by (2) The flbank-identificationfi check means delivery of the substitute that entity and that is sent to that entity number in a bank’s indorsement in check or other representation of the for payment or collection. fractional or nine-digit formø.¿fl; or substitute check by a bank to a person (jj) Person means a natural person, (3) In the case of an electronic other than a bank; and corporation, unincorporated company, collection item or electronic return, the (2) A bank that transfers a substitute partnership, government unit or bank-identification number contained in check or a paper or electronic instrumentality, trust, or any other the electronic image of or information representation of a substitute check entity or organization. related to a check.fi directly to a person other than a bank (kk) Proprietary ATM means an ATM (qq) State means a state, the District has received consideration for the that is fl(1)fi — of Columbia, Puerto Rico, or the U.S. substitute check or other paper or

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electronic representation of the by electronic or other means through received for deposit in an account by an substitute check if it has charged, or has Fedwire, the Clearing House Interbank electronic payment available for the right to charge, the person’s account Payments System, other similar withdrawal not later than the business or otherwise has received value for the network, between banks, or on the day after the banking day on which the original check, a substitute check, or a books of a bank. Wire transfer does not bank received the electronic payment. representation of the original check or include an electronic fund transfer as (2) When an electronic payment is substitute check. defined in section 903(6) of the received. An electronic payment is (vv) Traveler’s check means an Electronic Fund Transfer Act (15 U.S.C. received when the bank receiving the instrument for the payment of money 1693a(6)). payment has received both— that— 3. In § 229.3, paragraph (a) is revised (i) Payment in actually and finally (1) Is drawn on or payable through or as follows: collected funds; and at a bank; (ii) Information on the account and (2) Is designated on its face by the § 229.3 Administrative enforcement. amount to be credited. term traveler’s check or by any (a) Enforcement agencies. Compliance fl(3) Extent of payment received.fi A substantially similar term or is with this part is enforced under— bank receives an electronic payment commonly known and marketed as a (1) Section 8 of the Federal Deposit only to the extent that the bank has traveler’s check by a corporation or bank Insurance Act (12 U.S.C. 1818 et seq.) in received payment in actually and finally that is an issuer of traveler’s checks; the case of— collected funds. (3) Provides for a specimen signature (i) National banks, Federal branches (c) Certain check deposits—(1) of the purchaser to be completed at the and Federal agencies of foreign banks, øGeneral rule¿flIn generalfi. A time of purchase; and by the Office of the Comptroller of the depositary bank shall make funds (4) Provides for a countersignature of Currency; deposited in an account by check the purchaser to be completed at the (ii) Member banks of the Federal available for withdrawal not later than time of negotiation. Reserve System (other than national the business day after the banking day (ww) Truncate means to remove an banks), and offices, branches, and on which the funds are deposited, in the original check from the forward agencies of foreign banks located in the case of— collection or return process and send to United States (other than Federal (i) A check drawn on the Treasury of a recipient, in lieu of such original branches, Federal agencies, and insured the United States and deposited in an check, a substitute check or, by State branches of foreign banks), by the account held by a payee of the check; agreement, information relating to the Board; and (ii) A U.S. Postal Service money order original check (including data taken (iii) Banks insured by the Federal deposited— from the MICR line of the original check Deposit Insurance Corporation (other (A) In an account held by a payee of or an electronic image of the original than members of the Federal Reserve the money order; and check), whether with or without the System) and insured State branches of (B) In person to an employee of the subsequent delivery of the original foreign banks, by the Board of Directors depositary bank. check. of the Federal Deposit Insurance (iii) A check drawn on a Federal (xx) Truncating bank means— Corporation; Reserve Bank or Federal Home Loan (1) The bank that truncates the (2) Section 8 of the Federal Deposit Bank and deposited— original check; or Insurance Act, by the Director of the (A) In an account held by a payee of (2) If a person other than a bank Office of Thrift Supervision in the case the check; and truncates the original check, the first of savings associations the deposits of (B) In person to an employee of the bank that transfers, presents, or returns, which are insured by the Federal depositary bank; in lieu of such original check, a Deposit Insurance Corporation; and (iv) A check drawn by a state or a unit substitute check or, by agreement with (3) The Federal Credit Union Act (12 of general local government and the recipient, information relating to the U.S.C. 1751 et seq.) by the National deposited— original check (including data taken Credit Union Administration Board (A) In an account held by a payee of from the MICR line of the original check with respect to any Federal credit union the check; or an electronic image of the original or credit union insured by the National (B) In a depositary bank located in the check), whether with or without the Credit Union Share Insurance Fund. state that issued the check, or the same subsequent delivery of the original fl(4)fiThe terms used in paragraph state as the unit of general local check. (a)(1) of this section that are not defined government that issued the check; (yy) Uniform Commercial Code, Code, in this part or otherwise defined in (C) In person to an employee of the or U.C.C. means the Uniform section 3(s) of the Federal Deposit depositary bank; and Commercial Code as adopted in a state. Insurance Act (12 U.S.C. 1813(s)) shall (D) With a special deposit slip or (zz) United States means the states, have the meaning given to them in deposit envelope, if such slip or including the District of Columbia, the section 1(b) of the International Banking envelope is required by the depositary U.S. Virgin Islands, and Puerto Rico. Act of 1978 (12 U.S.C. 3101). bank under paragraph (c)ø(3)¿fl(2)fi of (aaa) Unit of general local government * * * * * this section. means any city, county, parish, town, (v) A cashier’s, certified, or teller’s township, village, or other general Subpart B—Availability of Funds and check deposited— purpose political subdivision of a state. Disclosure of Funds Availability (A) In an account held by a payee of The term does not include special Policies the check; purpose units of government, such as 4. In § 229.10, revise paragraphs (b) (B) In person to an employee of the school districts or water districts. and (c) as follows: depositary bank; and (bbb) Wire transfer means an (C) With a special deposit slip or unconditional order to a bank to pay a § 229.10 Next-Day availability. deposit envelope, if such slip or fixed or determinable amount of money * * * * * envelope is required by the depositary to a beneficiary upon receipt or on a day (b) Electronic payments—(1) In bank under paragraph (c)ø(3)¿fl(2)fi of stated in the order, that is transmitted general. A bank shall make funds this section.

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(vi) A check deposited in a branch of (4) A check drawn on a Federal (1) Deposited in an account at a the depositary bank and drawn on the Reserve Bank or Federal Home Loan branch of a depositary bank if the same or another branch of the same Bank; a check drawn by a state or unit branch is located in Alaska, Hawaii, bank [if both branches are located in the of general local government; or a Puerto Rico, or the U.S. Virgin Islands; same state or the same check processing cashier’s, certified, or teller’s check; if and region]; and, any check referred to in this paragraph (2) Deposited by a check drawn on or (vii) The lesser of— (b)(4) is a local check that is not payable at or through a paying bank not (A) $100, or governed by the availability located in the same state as the (B) The aggregate amount deposited requirements of § 229.10(c).¿ depositary bank. on any one banking day to all accounts ø(c) Nonlocal checks—(1) In general. ø(f)¿fl(d)fi Deposits at of the customer by check or checks not Except as provided in paragraphs (d), nonproprietary ATMs. A depositary subject to next-day availability under (e), and (f) of this section, a depositary bank shall make funds deposited in an paragraphs (c)(1)(i) through (vi) of this bank shall make funds deposited in an account at a nonproprietary ATM by section. account by a check available for cash or check available for withdrawal ø(2) Checks not deposited in person. withdrawal not later than the fifth not later than the øfifth¿ flfourthfi A depositary bank shall make funds business day following the banking day business day following the banking day deposited in an account by check or on which funds are deposited, in the on which the funds are deposited. checks available for withdrawal not case of— 6. Section 229.13 is revised as later than the second business day after (i) A nonlocal check; and follows: the banking day on which funds are (ii) A check drawn on a Federal deposited, in the case of a check deposit Reserve Bank or Federal Home Loan § 229.13 Exceptions. described in and that meets the Bank; a check drawn by a state or unit (a) New accounts. For purposes of this requirements of paragraphs (c)(1)(ii), of general local government; a cashier’s, paragraph, checks subject to (iii), (iv), and (v), of this section, except certified, or teller’s check; or a check § 229.10(c)(1)(v) include traveler’s that it is not deposited in person to an deposited in a branch of the depositary checks. employee of the depositary bank.¿ bank and drawn on the same or another (1) A deposit in a new account— ø(3)¿fl(2)fi Special deposit slip. (i) branch of the same bank, if any check (i) Is subject to the requirements of As a condition to making the funds referred to in this paragraph (c)(1)(ii) is § 229.10(a) and (b) to make funds from available for withdrawal in accordance a nonlocal check that is not governed by deposits by cash and electronic with this section, a depositary bank may the availability requirements of payments available for withdrawal on require that a state or local government § 229.10(c). the business day following the banking check or a cashier’s, certified, or teller’s (2) Nonlocal checks specified in day of deposit or receipt; appendix B–2 to this part must be made (ii) Is subject to the requirements of check be deposited with a special ø deposit slip or deposit envelope that available for withdrawal not later than § 229.10(c)(1)(i) through (v) and the times prescribed in that appendix.¿ § 229.10(c)(2)¿ only with respect to the identifies the type of check. ø ¿ (ii) If a depositary bank requires the (d) fl(b)fi Time period adjustment first $5,000 of funds deposited on any use of a special deposit slip or deposit for withdrawal by cash or similar one banking day; but the amount of the envelope, the bank must either provide means. A depositary bank may extend deposit in excess of $5,000 shall be the special deposit slip or deposit by one business day the time that funds available for withdrawal not later than deposited in an account by one or more the ninth business day following the envelope to its customers or inform its ø customers how the slip or envelope may checks subject to paragraphs (b), (c), or banking day on which funds are ¿ fl fi be prepared or obtained and make the (f) (a) or (d) of this section are deposited; and slip or envelope reasonably available. available for withdrawal by cash or (iii) Is not subject to the availability 5. Section 229.12 is revised to read as similar means. Similar means include requirements of §§ 229.10(c)(1)(vi) and follows: electronic payment, issuance of a (vii) and 229.12. cashier’s or teller’s check, øor¿ (2) An account is considered a new § 229.12 Availability schedule. certification of a check, or other account during the first 30 calendar ø(a) Effective date. The availability irrevocable commitment to pay, but do days after the account is established. An schedule contained in this section is not include the granting of credit to a account is not considered a new account effective September 1, 1990.¿ bank, a Federal Reserve Bank, or a if each customer on the account has ø(b) Local checks and certain other Federal Home Loan Bank that presents had, within 30 calendar days before the checks¿fl(a) In generalfi. Except as a check to the depositary bank for account is established, another account provided in fl§ 229.10(c),fi paragraphs payment. A depositary bank shall, at the depositary bank for at least 30 fl(b), (c), andfi (d)ø, (e), and (f)¿ of this however, make $400 of these funds calendar days. section, fland in § 229.13,fi a available for withdrawal by cash or (b) Large deposits. Sections 229.10(c) depository bank shall make funds similar means not later than 5 p.m. on and 229.12 do not apply to the aggregate deposited in an account by a check the business day on which the funds are amount of deposits by one or more available for withdrawal not later than available under paragraphøs (b), (c), or checks to the extent that the aggregate the second business day following the (f)¿ fl(a) or (d)fi of this section. This amount is in excess of $5,000 on any banking day on which funds are $400 is in addition to the $100 available one banking day. For customers that deposited.fiø, in the case of—¿ under § 229.10(c)(1)(vii). have multiple accounts at a depositary ø(1) A local check; ø(e)¿fl(c)fi Extension of schedule for bank, the bank may apply this exception (2) A check drawn on the Treasury of certain deposits in Alaska, Hawaii, to the aggregate deposits to all accounts the United States that is not governed by Puerto Rico, and the U.S. Virgin Islands. held by the customer, even if the the availability requirements of The depositary bank may extend the customer is not the sole holder of the § 229.10(c); time periods set forth in this section by accounts and not all of the holders of (3) A U.S. Postal Service money order one business day in the case of any the accounts are the same. that is not governed by the availability deposit, other than a deposit described (c) Redeposited checks. Sections requirements of § 229.10(c); and in § 229.10, that is— 229.10(c) and 229.12 do not apply to a

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check that has been returned unpaid not furnish the depositor with written of the deposit, unless the deposit is not and redeposited by the customer or the notice at the time of deposit shall not made in person to an employee of the depositary bank. This exception does assess any fees for any subsequent depositary bank, or, if the facts upon not apply— overdrafts (including use of a line of which a determination to invoke one of (1) To a check that has been returned credit) or return of checks of other the exceptions in paragraphs (b) through due to a missing indorsement and debits to the account, if— (e) of this section to delay a deposit only redeposited after the missing ø(i)¿fl(A)fi The overdraft or return become known to the depositary bank indorsement has been obtained, if the of the check would not have occurred after the time of the deposit. If the reason for return indication on the except for the fact that the deposited notice is not given at the time of the check states that it was returned due to funds were delayed under paragraph deposit, the depositary bank shall mail a missing indorsement; or (e)(1) of this section; and or deliver the notice to the customer as (2) To a check that has been returned ø(ii)¿fl(B)fi The deposited check soon as practicable, but no later than the because it was post dated, if the reason was paid by the paying bank. first business day following the day the for return indicated on the check states fl(ii)fi Notwithstanding the facts become known to the depositary that it was returned because it was post foregoing, the depositary bank may bank, or the deposit is made, whichever dated, and if the check is no longer post assess an overdraft or returned check fee is later. flIf the customer has agreed to dated when redeposited. if it includes a notice concerning accept notices electronically, the bank (d) Repeated overdrafts. fl(1)fi If any overdraft and returned check fees with shall send the notice such that the bank account or combination of accounts of a the notice of exception required in may reasonably expect it to be received depositary bank’s customer has been paragraph (g) of this section and, when by the customer no later than the first repeatedly overdrawn, then for a period required, refunds any such fees upon business day following the day the facts of six months after the last such the request of the customer. The notice become known to the depositary bank, overdraft, §§ 229.10(c) and 229.12 do must state that the customer may be or the deposit is made, whichever is not apply to any of the accounts. entitled to a refund of overdraft or later.fi fl(2)fi A depositary bank may returned check fees that are assessed if (2) One-time exception notice. fl(i)fi consider a customer’s account to be the check subject to the exception is In lieu of providing notice pursuant to repeatedly overdrawn if— paid and how to obtain a refund. paragraph (g)(1) of this section, a ø(1)¿fl(i)fi On six or more banking (f) Emergency conditions. Sections depositary bank that extends the time days within the preceding six months, 229.10(c) and 229.12 do not apply to when the funds deposited in a the account balance is negative, or the funds deposited by check in a nonconsumer account will be available account balance would have become depositary bankfl, if the depositary for withdrawal based on an exception negative if checks or other charges to the bank exercises such diligence as the contained in paragraph (b) or (c) of this account had been paid; or circumstances require,fi in the case section may provide a single notice to ø ¿ (2) fl(ii)fi On two or more banking of— the customer that includes the following days within the preceding six months, (1) An interruption of information— the account balance is negative, or the communications or computer or other ø(i)¿fl(A)fi The reason(s) the account balance would have become equipment facilities; exception may be invoked; and negative, in the amount of $5,000 or (2) A suspension of payments by ø(ii)¿fl(B)fi The time period within more, if checks or other charges to the another bank; which deposits subject to the exception account had been paid. (3) A war; or generally will be available for fl (4) An emergency condition beyond (iii) For purposes of this paragraph ø withdrawal. (d)(2), such other charges to the account the control of the depositary bank , if fl(ii)fi This one-time notice shall be the depositary bank exercises such shall not include attempted charges ¿ provided only if each type of exception initiated by debit card that the diligence as the circumstances require . cited in the notice will be invoked for (g) Notice of exception—(1) In depositary bank declines to authorize.fi most check deposits in the account to general. Subject to paragraphs (g)(2) and (e) Reasonable cause to doubt which the exception could apply. This (g)(3) of this section, when a depositary collectibility—(1) In general. Sections notice shall be provided at or prior to bank extends the time when funds will 229.10(c) and 229.12 do not apply to a the time notice must be provided under check deposited in an account at a be available for withdrawal based on the application of an exception contained in paragraph (g)(1)(ii) of this section. depositary bank if the depositary bank (3) Notice of repeated overdrafts paragraphs (b) through (e) of this has reasonable cause to believe that the exception. fl(i)fi In lieu of providing section, it must provide the depositor check is uncollectible from the paying notice pursuant to paragraph (g)(1) of bank. Reasonable cause to believe a with a written notice. (i) The notice shall include the this section, a depositary bank that check is uncollectible requires the following information— extends the time when funds deposited existence of facts that would cause a (A) A number or code, which need in an account will be available for well-grounded belief in the mind of a not exceed four digits, that identifies the withdrawal based on the exception reasonable person. Such belief shall not customer’s account; contained in paragraph (d) of this be based on the fact that the check is of (B) The date of the deposit; section may provide a notice to the a particular class or is deposited by a fl(C) The total amount of the customer for each time period during particular class of persons. The reason deposit;fi which the exception will be in effect. for the bank’s belief that the check is ø(C)¿fl(D)fi The amount of the The notice shall include the following uncollectible shall be included in the deposit that is being delayed; information— notice required under paragraph (g) of ø(D)¿fl(E)fi The reason the ø(i)¿fl(A)fi øThe account number of this section. exception was invoked; and the customer¿flA number or code, (2) Overdraft and returned check fees. ø(E)¿fl(F)fi The øtime period within which need not exceed four digits, that fl(i)fi A depositary bank that extends which¿fldayfi the funds will be identifies the customer’s accountfi; the time when funds will be available available for withdrawal. ø(ii)¿fl(B)fi The fact that the for withdrawal as described in (ii) Timing of notice. The notice shall availability of funds deposited in the paragraph (e)(1) of this section, and does be provided to the depositor at the time customer’s account will be delayed

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because the repeated overdrafts established in §§ 229.10(c) and 229.12, deposits and ATMs and the notice on exception will be invoked; whichever is later. preprinted deposit slips, must be in a ø(iii)¿fl(C)fi The time period within (4) For the purposes of this section, a form that the customer may keep. The which deposits subject to the exception ‘‘reasonable period’’ is an extension of disclosures shall be grouped together generally will be available for up to one business day for checks and shall not contain any information withdrawal; and described in § 229.10(c)(1)(vi)ø,¿ fland not related to the disclosures required ø(iv)¿fl(D)fi The time period during twofi øfive¿ business days for øchecks by this subpart. If contained in a which the exception will apply. described in § 229.12(b) (1) through (4), document that sets forth other account fl(ii)fi This notice shall be provided and six business days for checks terms, the disclosures shall be at or prior to the time notice must be described in § 229.12(c) (1) and (2) or highlighted within the document by, for provided under paragraph (g)(1)(ii) of § 229.12(f)¿flall other checksfi. A example, use of a separate heading. this section and only if the exception longer extension may be reasonable, but (b) øUniform r¿ flRfieference to day cited in the notice will be invoked for the bank has the burden of so of availability. In its disclosurefls and most check deposits in the account. establishing. noticesfi, a bank shall ødescribe funds (4) Emergency conditions exception 7. Section 229.14 is revised to read as as being available for withdrawal on notice. When a depositary bank extends follows: ‘‘the lll business day after’’ the day the time when funds will be available of deposit. In this calculation, the first for withdrawal based on the application § 229.14 Payment of interest. business day is the business day of the emergency conditions exception (a) In general. A depositary bank shall following the banking day the deposit contained in paragraph (f) of this begin to accrue interest or dividends on was received, and the last business day section, it must provide the depositor funds deposited in an interest-bearing is the day on which the funds are made with notice in a reasonable form and account not later than the business day available.¿ flspecify the business day within a reasonable time given the on which the depositary bank receives on which funds are available for circumstances. The notice shall include credit for the funds. For the purposes of withdrawal by describing that day in the reason the exception was invoked this section, the depositary bank may— relation to the banking day on which the and the time period within which funds (1) Rely on the availability schedule bank received the deposit. A bank shall ø shall be made available for withdrawal, of its Federal Reserve Bank , Federal use the following, or substantially ¿ unless the depositary bank, in good Home Loan Bank, or correspondent similar, language— faith, does not know at the time the bank to determine the time credit is (1) The banking day of receipt may be notice is given the duration of the actually received; and described as ‘‘the same business day;’’ emergency and, consequently, when the (2) Accrue interest or dividends on (2) The business day after the banking funds must be made available. The funds deposited in interest-bearing day of receipt may be described as ‘‘the depositary bank is not required to accounts by checks that the depositary next business day;’’ and provide a notice if the funds subject to bank sends to paying banks or (3) A business day after the banking the exception become available before subsequent collecting banks for day of receipt may be described using a the notice must be sent. payment or collection based on the phrase that includes–– (5) Record retention. A depositary availability of funds the depositary bank (i) A cardinal number, such as ‘‘1 bank shall retain a record, in accordance receives from the paying or collecting business day’’ or ‘‘2 business days;’’ or with § 229.21(g), of each notice banks. (ii) An ordinal number, such as ‘‘the provided pursuant to its application of (b) Special rule for credit unions. first business day’’ or ‘‘the second the reasonablefl-ficause exception Paragraph (a) of this section does not business day.’’fi under paragraph (e) of this section, apply to any account at a bank (c) Multiple accounts and multiple together with a brief statement of the described in § 229.2(e)(4), if the bank— account holders. A bank need not give facts giving rise to the bank’s reason to (1) Begins the accrual of interest or multiple disclosures to a customer that doubt the collectibility of the check. dividends at a later date than the date holds multiple accounts if the accounts (h) Availability of deposits subject to described in paragraph (a) of this are subject to the same availability exceptions. (1) If an exception contained section with respect to all funds, policies. Similarly, a bank need not give in paragraphs (b) through (f) of this including cash, deposited in the separate disclosures to each customer section applies, the depositary bank account; and on a jointly held account. may extend the time periods established (2) Provides notice of its interest or (d) Dormant or inactive accounts. A under §§ 229.10(c) and 229.12 by a dividend payment policy in the manner bank need not give availability reasonable period of time. required under § 229.16(d). disclosures to a customer that holds a (2) If a depositary bank invokes an (c) Exception for checks returned dormant or inactive account. exception contained in paragraphs (b) unpaid. This subpart does not require a 9. Section 229.16 is revised to read as through (e) of this section with respect bank to pay interest or dividends on follows: to a check described in § 229.10(c)(1) (i) funds deposited by a check that is through (v) [or § 229.10(c)(2)], it shall returned unpaid. § 229.16 Specific availability policy disclosure. make the funds available for withdrawal 8. Section 229.15 is revised to read as ø ¿ not later than a reasonable period after follows: (a) General flIn generalfi. To meet the day the funds would have been the requirements of a specific required to be made available had the § 229.15 General disclosure fland availability policy disclosure under check been subject to fl§ fi229.12. noticefi requirements. §§ 229.17 and 229.18(d), a bank shall (3) If a depositary bank invokes an (a) Form of disclosures fland provide a disclosure describing the exception under paragraph (f) of this noticesfi. A bank shall make the bank’s policy as to when funds section based on an emergency disclosures fland noticesfi required by deposited in an account are available for condition, the depositary bank shall this subpart clearly and conspicuously withdrawal. The disclosure must reflect make the funds available for withdrawal in writing. Disclosures fland noticesfi, the policy followed by the bank in most not later than a reasonable period after other than those posted at locations cases. A bank may impose longer delays the emergency has ceased or the period where employees accept consumer on a case-by-case basis or by invoking

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one of the exceptions in § 229.13, (c) Longer delays on a case-by-case and does not furnish the depositor with provided this is reflected in the basis—(1) Notice in specific policy written notice at the time of deposit disclosure. disclosure. A bank that has a policy of shall not assess any fees for any (b) Content of specific availability making deposited funds available for subsequent overdrafts (including use of policy disclosure. The specific withdrawal sooner than required by this a line of credit) or return of checks or availability policy disclosure shall subpart may extend the time when other debits to the account, if— contain the following, as applicable— funds are available up to the time ø(i)¿fl(A)fi The overdraft or return (1) A summary of the bank’s periods allowed under this subpart on a of the check or other debit would not availability policy; case-by-case basis, provided the bank have occurred except for the fact that (2) A description of any categories of includes the following in its specific the deposited funds were delayed under deposits or checks flthat are subject to policy disclosure— paragraph (c)(1) of this section; and ø differingfi used by the bank when it (i) A statement that the time when ø(ii)¿fl(B)fi The deposited check ¿ ø delays availability (such as local or deposited funds are available for was paid by the paying bank. ¿ nonlocal flnext-day-availabilityfi withdrawal may be extended in some fl(ii)fi Notwithstanding the ø checks fland other checksfi) ; how to cases, and the latest time following a foregoing, the depositary bank may determine the category to which a deposit that funds will be available for assess an overdraft or returned check fee ¿ particular deposit or check belongs; withdrawal; if it includes a notice concerning and when each category will be (ii) A statement that the bank will overdraft and returned check fees with available for withdrawal (including a notify the customer if funds deposited the notice required in paragraph (c)(2) of description of the bank’s business days in the customer’s account will not be this section and, when required, refunds and when a deposit is considered available for withdrawal until later than any such fees upon the request of the ø1¿ received); the time periods stated in the bank’s customer. The notice must state that the ø1 A bank that distinguishes in its availability policy; and customer may be entitled to a refund of disclosure between local and nonlocal (iii) A statement that customers overdraft or returned check fees that are checks based on the routing number on should ask if they need to be sure about assessed if the check subject to the delay the check must disclose that certain when a particular deposit will be is paid and how to obtain a refund. checks, such as some credit union share available for withdrawal. (d) Credit union notice of interest drafts that are payable by one bank but (2) Notice at time of case-by-case payment policy. If a bank described in payable through another bank, will be delay—(i) In general. When a depositary § 229.2(e)(4) begins to accrue interest or treated as local or nonlocal checks based bank extends the time when funds will dividends on all deposits made in an upon the location of the bank by which be available for withdrawal on a case- interest-bearing account, including cash they are payable and not on the basis of by-case basis, it must provide the deposits, at a later time than the day the location of the bank whose routing depositor with a written notice. The specified in § 229.14(a), the bank’s number appears on the check. A bank notice shall include the following specific policy disclosures shall contain that makes funds from nonlocal checks information— an explanation of when interest or available for withdrawal within the time (A) A number or code, which need dividends on deposited funds begin to periods required for local checks under not exceed four digits, that identifies the accrue. §§ 229.12 and 229.13 is not required to customer’s account. 10. § 229.17 is republished to read as provide this disclosure on payable- (B) The date of the deposit; follows: through checks to its customers. The fl(C) The total amount of the § 229.17 Initial disclosures. statement concerning payable-through depositfi Before opening a new account, a bank checks must describe how the customer ø(C)¿fl(D)fi The amount of the shall provide a potential customer with can determine whether these checks deposit that is being delayed; and the applicable specific availability will be treated as local or nonlocal, or ø(D)¿fl(E)fi The day the funds will policy disclosure described in § 229.16. state that special rules apply to such be available for withdrawal. (ii) Timing of notice. The notice shall 11. § 229.18 is republished to read as checks and that the customer may ask follows: about the availability of these checks.¿ be provided to the depositor at the time (3) A description of any of the of the deposit, unless the deposit is not § 229.18 Additional disclosure exceptions in § 229.13 that may be made in person to an employee of the requirements. invoked by the bank, including the time depositary bank or the decision to (a) Deposit slips. A bank shall include following a deposit that funds generally extend the time when the deposited on all preprinted deposit slips furnished will be available for withdrawal and a funds will be available is made after the to its customers a notice that deposits statement that the bank will notify the time of the deposit. If notice is not given may not be available for immediate customer if the bank invokes one of the at the time of the deposit, the depositary withdrawal. exceptions; bank shall mail or deliver the notice to (b) Locations where employees accept (4) A description, as specified in the customer not later than the first consumer deposits. A bank shall post in paragraph (c)(1) of this section, of any business day following the banking day a conspicuous place in each location case-by-case policy of delaying the deposit is made. flIf the customer where its employees receive deposits to availability that may result in deposited has agreed to accept notices consumer accounts a notice that sets funds being available for withdrawal electronically, the bank shall send the forth the time periods applicable to the later than the time periods stated in the notice such that the bank may availability of funds deposited in a bank’s availability policy; and reasonably expect it to be received by consumer account. (5) A description of how the customer the customer not later than the first (c) Automated teller machines. (1) A can differentiate between a proprietary business day following the banking day depositary bank shall post or provide a and a nonproprietary ATM, if the bank the deposit is made.fi notice at each ATM location that funds makes funds from deposits at (3) Overdraft and returned check fees. deposited in the ATM may not be nonproprietary ATMs available for fl(i)fi A depositary bank that extends available for immediate withdrawal. withdrawal later than funds from the time when funds will be available (2) A depositary bank that operates an deposits at proprietary ATMs. for withdrawal on a case-by-case basis off-premises ATM from which deposits

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are removed not more than two times business day flafter the banking day of (ii) The funds are ønot¿ made each week, as described in depositfi, the funds shall be available available for withdrawal within the § 229.19(a)(4), shall disclose at or on the for withdrawal by the later of: times specified in §§ 229.10, 229.12, and ATM the days on which deposits made (1) 9 a.m. (local time of the depositary 229.13. at the ATM will be considered received. bank); or (2) A depositary bank that cashes a (d) Upon request. A bank shall (2) The time the depositary bank’s check for a customer over the counter ø, provide to any person, upon oral or teller facilities (including ATMs) are other than a check drawn on the written request, a notice containing the available for customer account depositary bank,¿ may ønot¿ place a applicable specific availability policy withdrawals. hold on funds in an account of the disclosure described in § 229.16. (c) Effect on policies of depositary customer at the bank, flonlyfi if— (e) Changes in policy. A bank shall bank. This part does not— (i) The amount of funds that are held send a notice to holders of consumer (1) Prohibit a depositary bank from fldoes notfi exceedøs¿ the amount of accounts at least 30 days before making funds available to a customer for the check; øor¿ implementing a change to the bank’s withdrawal in a shorter period of time (ii) The funds are ønot¿ made availability policy regarding such than the time required by this subpart; available for withdrawal within the accounts, except that a change that (2) Affect a depositary bank’s right— times specified in §§ 229.10, 229.12, and (i) To accept or reject a check for expedites the availability of funds may 229.13ø.¿fl; and deposit; (iii) The check is not drawn on the be disclosed not later than 30 days after (ii) To revoke any settlement made by depositary bank. fi implementation. the depositary bank with respect to a 13. Section 229.19 is revised to read (f) Employee training and compliance. check accepted by the bank for deposit, Each bank shall establish procedures to as follows: to charge back the customer’s account ensure that the bank complies with the for the amount of a check based on the § 229.19 Miscellaneous. requirements of this subpart, and shall return of the check or receipt of a notice (a) When funds are considered provide each employee who performs of nonpayment of the check, or to claim deposited. For the purposes of this duties subject to the requirements of a refund of such credit; and subpart— this subpart with a statement of the (1) Funds deposited at a staffed (iii) To charge back funds made available to its customer for an procedures applicable to that employee. facility, ATM, or contractual branch are (g) Effect of merger transaction—ø(1) electronic payment for which the bank considered deposited when they are In general¿. For purposes of this received at the staffed facility, ATM, or has not received payment in actually and finally collected funds; subpart, except for the purposes of the contractual branch; new accounts exception of § 229.13(a), (2) Funds mailed to the depositary (3) Require a depositary bank to open or otherwise to make its facilities and when funds are considered bank are considered deposited on the available for customer transactions on a deposited under § 229.19(a), two or day they are received by the depositary given business day; or more banks that have engaged in a bank; (4) Supersede any policy of a merger transaction may be considered to (3) Funds deposited to a night depositary bank that limits the amount be separate banks for a period of one depository, lock box, or similar facility of cash a customer may withdraw from year following the consummation of the are considered deposited on the day on its account on any one day, if that merger transaction. which the deposit is removed from such ø policy— (2) Merger transactions on or after facility and is available for processing (i) Is not dependent on the time the July 1, 1998, and before March 1, 2000. by the depositary bank; funds have been deposited in the If banks have consummated a merger (4) Funds deposited at an ATM that account, as long as the funds have been transaction on or after July 1, 1998, and is not on, or within 50 feet of, the on deposit for the time period specified before March 1, 2000, the merged banks premises of the depositary bank are in §§ 229.10, 229.12, or 229.13; and may be considered separate banks until considered deposited on the day the (ii) In the case of withdrawals made March 1, 2001.¿ funds are removed from the ATM, if in person to an employee of the 13a. Section 229.20 is revised to read funds normally are removed from the depositary bank— as follows: ATM not more than two times each (A) Is applied without discrimination week; and to all customers of the bank; and § 229.20 Relation to state law. (5) Funds may be considered (B) Is related to security, operating, or (a) In general. fl(1)fi Any provision deposited on the next banking day, in bonding requirements of the depositary of a law or regulation of any state in the case of funds that are deposited— bank. effect on or before September 1, 1989, (i) On a day that is not a banking day (d) Use of calculated availability. A that requires funds deposited in an for the depositary bank; or depositary bank may provide account at a bank chartered by the state (ii) After a cut-off hour set by the availability to its nonconsumer accounts to be made available for withdrawal in depositary bank for the receipt of based on a sample of checks that a shorter time than the time provided in deposits of 2 p.m. or later, or, for the represents the average composition of subpart B, and, in connection therewith, receipt of deposits at ATMs, contractual the customer’s deposits, if the terms for subpart A, shall— branches, or off-premise facilities, of 12 availability based on the sample are ø(1)¿fl(i)fi Supersede the provisions noon or later. Different cut-off hours equivalent to or more prompt than the of the EFA Act and subpart B, and, in later than these times may be availability requirements of this subpart. connection therewith, subpart A, to the established for the receipt of different (e) Holds on other funds. (1) A extent the provisions relate to the time types of deposits, or receipt of deposits depositary bank that receives a check for by which funds deposited or received at different locations. deposit in an account may ønot¿ place for deposit in an account are available (b) Availability at start of business a hold on any funds of the customer at for withdrawal; and day. Except as otherwise provided in the bank, øwhere¿flonly iffi — ø(2)¿fl(ii)fi Apply to all federally § 229.12ø(d)¿fl(b)fi, if any provision of (i) The amount of funds that are held insured banks located within the state. this subpart requires that funds be made fldoes notfi exceedøs¿ the amount of fl(2)fi No amendment to a state law available for withdrawal on any the check; øor¿ flandfi or regulation governing the availability

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of funds that becomes effective after subpartflsfi C flor Dfi of this part or returned check is received by the September 1, 1989, shall supersede the to actions for wrongful dishonor. depositary bank on or before the EFA Act and subpart B, and, in (g) Record retention. (1) A bank shall depositary bank’s next banking day. connection therewith, subpart A, but retain evidence of compliance with the ø(2) Forward collection test. A paying unamended provisions of state law shall requirements imposed by this subpart bank also returns a check in an remain in effect. for not less than two years. Records may expeditious manner if it sends the (b) Preemption of inconsistent law. be stored by use of ømicrofiche, returned check in a manner that a Except as provided in paragraph (a), the microfilm, magnetic tape,¿flelectronic similarly situated bank would normally EFA Act and subpart B, and, in storage mediafi or other methods handle a check— connection therewith, subpart A, capable of accurately retaining and (i) Of similar amount as the returned supersede any provision of inconsistent reproducing information. check; state law. (2) If a bank has actual notice that it (ii) Drawn on the depositary bank; (c) Standards for preemption. A is being investigated, or is subject to an and provision of a state law in effect on or enforcement proceeding by an agency (iii) Deposited for forward collection before September 1, 1989, is not charged with monitoring that bank’s in the similarly situated bank by noon inconsistent with the EFA Act, or compliance with the EFA Act and this on the banking day following the subpart, or has been served with notice banking day on which the check was subpart B, or in connection therewith, ¿ subpart A, if it requires that funds shall of an action filed under this section, it presented to the paying bank. fl fiø be available in a shorter period of time shall retain the records pertaining to the (3) Subject to the requirement ¿ fl fi than the time provided in this subpart. action or proceeding pending final for expeditious return, a A paying disposition of the matter, unless an bank may send a returned check to the Inconsistency with the EFA Act and ø ¿ subpart B, and in connection therewith, earlier time is allowed by order of the depositary bank, or to any other bank subpart A, may exist when state law— agency or court. agreeing to handle the returned check expeditiously under § 229.31(a)fl, or, (1) Permits a depositary bank to make Subpart C—Collection of Checks funds deposited in an account by cash, under § 229.30(b)(2), to any bank that electronic payment, or check available 15. Revise § 229.30 to read as follows: handled the check for forward fi for withdrawal in a longer period of collection . § 229.30 Paying bank’s responsibility for fl(4)fi A paying bank may convert a time than the maximum period of time return of checks. check to a qualified returned check. A permitted under subpart B, and, in (a) flExpeditiousfi øR¿flrfieturn of qualified returned check shall be connection therewith, subpart A; or checks. fl(1)fiIf a paying bank encoded in magnetic ink with the (2) Provides for disclosures or notices determines not to pay a check øit shall routing number of the depositary bank, concerning funds availability relating to return the check in an expeditious the amount of the returned check, and accounts. manner as provided in either paragraph a ‘‘2’’ in the case of an original check (or (d) Preemption determinations. The (a)(1) or (a)(2) of this section¿fl, the a ‘‘5’’ in the case of a substitute check) Board may determine, upon the request paying bank shall send the returned in position 44 of the qualified return of any state, bank, or other interested check expeditiously such that the MICR line as a return identifier. A party, whether the EFA Act and subpart depositary bank normally would receive qualified returned original check shall B, and, in connection therewith, subpart the returned check no later than 4 p.m. be encoded in accordance with ANS A, preempt provisions of state laws (local time of the depositary bank) on X9.13, and a qualified returned relating to the availability of funds. the second business day following the substitute check shall be encoded in (e) Procedures for preemption banking day on which the check was accordance with ANS X9.100–140. determinations.fl(1)fi A request for a presented to the paying bankfi. fl(5)fi This paragraph fl(a)fi does preemption determination shall include ø(1) Two-day/four-day test. A paying not affect a paying bank’s responsibility the following— bank returns a check in an expeditious to return a check within the deadlines ø ¿ (1) fl(i)fi A copy of the full text of manner if it sends the returned check in required by the U.C.C., Regulation J (12 the state law in question, including any a manner such that the check would CFR part 210), or § 229.30(c). implementing regulations or judicial normally be received by the depositary fl(6) A check payable at or through interpretations of that law; and bank not later than 4 p.m. (local time of a paying bank is considered to be drawn ø(2)¿fl(ii)fi A comparison of the the depositary bank) of— on that bank for purposes of the provisions of state law with the (i) The second business day following expeditious return requirement of this corresponding provisions in the EFA the banking day on which the check was subpart.fi Act and subparts A and B of this part, presented to the paying bank, if the (b) øUnidentifiable depositary together with a discussion of the reasons paying bank is located in the same bank.¿flExceptions to expeditious why specific provisions of state law are check processing region as the return of checks. (1) The expeditious either consistent or inconsistent with depositary bank; or return requirement of paragraph (a) of corresponding sections of the EFA Act (ii) The fourth business day following this section does not apply if— and subparts A and B of this part. the banking day on which the check was (i) The depositary bank has not agreed fl(2)fi A request for a preemption presented to the paying bank, if the to accept electronic returns from the determination shall be addressed to the paying bank is not located in the same paying bank under § 229.32(a); Secretary, Board of Governors of the check processing region as the (ii) The check is deposited in a Federal Reserve System. depositary bank.¿ depositary bank that does not maintain 14. Amend § 229.21 by revising fl(2)fiIf the last business day on accounts; or paragraphs (f) and (g) to read as follows: which the paying bank may deliver a (iii) A paying bank is unable to returned check to the depositary bank is identify the depositary bank with § 229.21 Civil liability. not a banking day for the depositary respect to a check. * * * * * bank, the paying bank ømeets the two- (2)fi A paying bank that is unable to (f) Exclusions. This section does not day/four-day test¿flsatisfies its identify the depositary bank øwith apply to claims that arise under expeditious return requirementfi if the respect to a check¿ may send the

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returned check to any bank that handled is a substitute check flor electronic § 229.31 Returning bank’s responsibility the check for forward collection even if returnfi, the paying bank shall place for return of checks. that bank does not agree to handle the this information øwithin the image of (a) flExpeditious øR¿flrfieturn of check expeditiously under § 229.31(a). the original check that appears on the checks. fl(1)fi øA¿ flIf the returning A paying bank sending a returned check front of the substitute check¿ flsuch bank agrees to handle the return under this paragraph fl(b)(2)fi to a that the information would be retained expeditiously, thefi returning bank bank that handled the check for forward on any subsequent substitute check.fi shall øreturn a returned check in an collection must advise the bank to ø(e) Depositary bank without expeditious manner as provided in which the check is sent that the paying accounts. The expeditious return either paragraph (a)(1) or (a)(2) of this bank is unable to identify the depositary requirements of paragraph (a) of this section¿flsend the returned check bank. øThe expeditious-return section does not apply to checks expeditiously such that the depositary requirements in § 229.30(a) do not apply deposited in a depositary bank that does bank normally would receive the to the paying bank’s return of a check not maintain accounts.¿ returned check no later than 4 p.m. under this paragraph.¿ ø(f)¿fl(e)fi Notice in lieu of return. (local time of the depositary bank) on (c) Extension of deadline. fl(1)fiThe fl(1)fi If a check is unavailable for the second business day following the deadline for return øor notice of return, the paying bank may send in its banking day on which the check was nonpayment¿ under the U.C.C. or place a copy of the front and back of the presented to the paying bankfi. Regulation J (12 CFR part 210), or returned check, or, if no such copy is ø(1) Two-day/four-day test. A ø§ 229.36(f)(2)¿ fl§ 229.36(d)(3)fi is available, a written notice of returning bank returns a check in an extended to the time of dispatch of such nonpayment containing the information expeditious manner if it sends the return [or notice of nonpayment] where specified in ø§ 229.33(b)¿flparagraph returned check in a manner such that a paying bank uses a means of delivery (e)(2) of this sectionfi. The copy or the check would normally be received that would ordinarily result in receipt notice shall clearly state that it by the depositary bank not later than 4 by the fldepositaryfi bank øto which constitutes a notice in lieu of return. A p.m. (local time) of— it is sent¿ flby 4 p.m. (local time of the notice in lieu of return is considered a (i) The second business day following depositary bank) on the second business returned check subject to the the banking day on which the check was day after the banking day on which the expeditious return requirements of this presented to the paying bank if the check was presented to the paying section and to the other paying bank is located in the same ø bank.fi — ørequirements¿flprovisionsfi of this check processing region as the (1) On or before the receiving bank’s subpart. depositary bank; or next banking day following the fl(2) The notice must include, if (ii) The fourth business day following otherwise applicable deadline by the available, the— the banking day on which the check was earlier of the close of that banking day (i) Name and routing number of the presented to the paying bank if the or a cutoff hour of 2 p.m. or later set by paying bank; paying bank is not located in the same the receiving bank under U.C.C. 4–108, (ii) Name of the payee(s); check processing region as the for all deadlines other than those (iii) Amount of the returned check; depositary bank.¿ described in paragraph (c)(2) of this (iv) Date of the indorsement of the (2) If the last business day on which section; this deadline is extended depositary bank; the returning bank may deliver a further if a paying bank uses a highly (v) Account number of the returned check to the depositary bank is expeditious means of transportation, customer(s) of the depositary bank; not a banking day for the depositary even if this means of transportation (vi) Branch name or number of the bank, the returning bank meets this would ordinarily result in delivery after depositary bank from its indorsement; requirement if the returned check is the receiving bank’s next cutoff hour or (vii) Trace number associated with the received by the depositary bank on or banking day referred to above; or indorsement of the depositary bank; and before the depositary bank’s next (2) [Prior to the cut-off hour for the (viii) Reason for return. banking day. next processing cycle (if sent to a (3) The notice may include other ø(2) Forward collection test. A returning bank), or on the next banking information from the check that may be returning bank also returns a check in day (if sent to the depositary bank), for useful in identifying the check being an expeditious manner if it sends the a deadline falling on a Saturday that is returned and the customer and must returned check in a manner that a a banking day (as defined in the include the name and routing number of similarly situated bank would normally applicable U.C.C.) for the paying bank.¿ the depositary bank from its handle a check— flIf the last business day on which indorsement. (i) Of similar amount as the returned the paying bank may deliver a returned (4) If the paying bank is not sure of check; check to the depositary bank is not a an item of information, it shall include (ii) Drawn on the depositary bank; banking day for the depositary bank, the the information required by this and paying bank’s deadline under the U.C.C. paragraph to the extent possible, and (iii) Received for forward collection or Regulation J (12 CFR part 210), or identify any item of information for by the similarly situated bank at the § 229.36(d)(3) is extended to the time of which the bank is not sure of the time the returning bank received the dispatch of such return where a paying accuracy.fi returned check, except that a returning bank uses a means of delivery such that ø(g)¿fl(f)fi Reliance on routing bank may set a cut-off hour for the the returned check would ordinarily be number. A paying bank may receipt of returned checks that is earlier received by the depositary bank on or øreturn¿flsendfi a returned check than the similarly situated bank’s cut-off before the depositary bank’s next based on any routing number hour for checks received for forward banking day.fi designating the depositary bank collection, if the cut-off hour is not (d) Identification of returned check. A appearing on the øreturned¿ check in earlier than 2 p.m.¿ paying bank returning a check shall the depositary bank’s indorsement flor fl(3)fi øSubject to the requirement clearly indicate on the øface¿ flfrontfi in the electronic image of or information for expeditious return, t¿flTfihe of the check that it is a returned check related to the checkfi. returning bank may send the returned and the reason for return. If the check 16. Revise § 229.31 to read as follows: check to the depositary bank, øor¿ to

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any bank agreeing to handle the (1) Any collecting bank that handled § 229.32 Depositary bank’s responsibility returned check expeditiously under the check for forward collection if the for returned checks. § 229.31(a)fl, or, under § 229.31(b)(2), returning bank was not a collecting bank fl(a) Acceptance of electronic to any bank that handled the check for with respect to the returned check; or returns. (1) A depositary bank agrees to forward collectionfi. (2) A prior collecting bank, if the accept an electronic return from a fl(4)fi The returning bank may returning bank was a collecting bank paying bank if it has agreed to receive convert the returned check to a qualified with respect to the returned check; the electronic return— returned check. A qualified returned A returning bank sending a returned (i) Directly from the paying bank; check shall be encoded in magnetic ink check under this paragraph must advise (ii) Directly from a returning bank that with the routing number of the the bank to which the check is sent that has held itself out as willing to accept depositary bank, the amount of the the returning bank is unable to identify electronic returns directly or indirectly returned check, and a ‘‘2’’ in the case of the depositary bank. from the paying bank and has agreed to an original check (or a ‘‘5’’ in the case The expeditious return requirements return checks expeditiously under of a substitute check) in position 44 of in paragraph (a) of this section do not § 229.31(a); or the qualified return MICR line as a apply to return of a check under this (iii) As otherwise agreed with the return identifier. A qualified returned paragraph. A returning bank that paying bank. original check shall be encoded in receives a returned check from a paying (2) When electronic return received. A accordance with ANS X9.13, and a bank under § 229.30(b), or from a depositary bank receives an electronic qualified returned substitute check shall returning bank under this paragraph, return when the return is delivered to be encoded in accordance with ANS but that is able to identify the depositary the electronic return point designated X9.100–140. øThe time for expeditious bank, must thereafter return the check ¿ by the depositary bank or, by agreement, return under the forward collection test, expeditiously to the depositary bank. otherwise is made available to the (c) Settlement. A returning bank shall and the deadline for return under the depositary bank for retrieval or review. settle with a bank sending a returned U.C.C. and Regulation J (12 CFR part (3) A depositary bank may require check to it for return by the same means 210), are extended by one business day that electronic returns be separated from that it settles or would settle with the if the returning bank converts a returned electronic collection items.fi sending bank for a check received for check to a qualified returned check. ø(a)¿fl(b)fi Acceptance of forward collection drawn on the This extension does not apply to the flpaperfi returned checks. fl(1)fiA depositary bank. This settlement is final two-day/four-day test specified in depositary bank shall accept flpaperfi when made. paragraph (a)(1) of this section or when returned checks øand written notices of a returning bank is returning a check (d) Charges. A returning bank may ¿ ¿ impose a charge flon a bank sending a nonpayment . directly to the depositary bank. ø(1)¿fl(i)fiAt a location fl, if any,fi fl(b) Exceptions to expeditious return returned checkfi for handling the at which presentment of flpaperfi of checks. (1) The expeditious return returned check. ø checks for forward collection is requirement of paragraph (a) of this (e) Depositary bank without requested by the depositary bank; and section does not apply if— accounts. The expeditious return ø(2)(i)¿fl(ii)(A)fi At a branch, head (i) The depositary bank has not agreed requirement[s] of paragraph (a) of this office, or other location consistent with to accept electronic returns from the section does not apply to checks the name and address of the bank in its paying bank under § 229.32(a); deposited with a depositary bank that does not maintain accounts.¿ indorsement on the check; (ii) The check is deposited in a ø ¿ depositary bank that does not maintain ø(f)¿fl(e)fi Notice in lieu of return. If (ii) fl(B)fi If no address appears in accounts; a check is unavailable for return, the the indorsement, at a branch or head (iii) A returning bank is unable to returning bank may send in its place a office associated with the routing identify the depositary bank with copy of the front and back of the number of the bank in its indorsement respect to a check; or returned check, or, if no copy is on the check; (iv) The returning bank received the available, a written notice of ø(iii) If the address in the indorsement returned check pursuant to paragraph nonpayment containing the information is not in the same check processing (b)(2) of this section or § 229.30(b)(2). specified in region as the address associated with (2) If a returning bank is unable to ø§ 229.33(b)¿fl§ 229.30(e)(2)fi. The the routing number of the bank in its identify the depositary bank, the copy or notice shall clearly state that it indorsement on the check, at a location returning bank may send the returned constitutes a notice in lieu of return. A consistent with the address in the check to any bank that handled the notice in lieu of return is considered a indorsement and at a branch or head check for forward collection, if the returned check subject to the office associated with the routing returning bank was not a collecting bank expeditious return requirements of this number in the bank’s indorsement;¿ or with respect to the returned check; or a section and to the other ø(iv)¿fl(C)fi If no routing number or prior collecting bank, if the returning ørequirements¿flprovisionsfi of this address appears in its indorsement on bank was a collecting bank with respect subpart. the check, at any branch or head office to the returned check. A returning bank ø(g)¿fl(f)fi Reliance on routing of the bank. sending a returned check under this number. A returning bank may fl(2)fi A depositary bank may paragraph (b)(2) to a bank that handled øreturn¿flsendfi a returned check require that returned checks be the check for forward collection must based on any routing number separated from forward collection advise the bank to which the check is designating the depositary bank checks. sent that the returning bank is unable to appearing on the returned check in the ø(b)¿fl(c)fi Payment. fl(1)fi A identify the depositary bank.fi depositary bank’s indorsementfl,fi depositary bank shall pay the returning ø(b) Unidentifiable depositary bank. øor¿ in magnetic ink on a qualified flbankfi or paying bank returning the A returning bank that is unable to returned checkfl, or in the electronic check to it for the amount of the check identify the depositary bank with image or information included in the prior to the close of business on the respect to a returned check may send electronic returnfi. banking day on which it received the the returned check to— 17. Revise § 229.32 to read as follows: check (‘‘payment date’’) by—

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ø(1)¿fl(i)fi Debit to an account of the an electronic collection item or an (2) Each bank that transfers one or depositary bank on the books of the electronic return and receives a more checks or returned checks to a returning flbankfi or paying bank; settlement or other consideration for it collecting flbankfi, returning ø(2)¿fl(ii)fi Cash; warrants that— flbankfi, or depositary bank and in ø(3)¿fl(iii)fi Wire transfer; or (i) The electronic image accurately return receives a settlement or other [(4)]fl(iv)fi Any other form of represents all of the information on the consideration warrants to the transferee payment acceptable to the returning front and back of the original check as bank that the accompanying flbankfi or paying bankø;¿fl.fi of the time that the original check was information, if any, accurately indicates fl(2)fi [provided that t] flTfihe truncated and the electronic information the total amount of the checks or proceeds of the payment øare¿ flmust contains an accurate record of all MICR returned checks transferred. befi available to the returning line information required for a (3) Each bank that presents or flbankfi or paying bank in cash or by substitute check under § 229.2(rr) of this transfers a check or returned check credit to an account of the returning part and the amount of the check, and warrants to any bank that subsequently flbankfi or paying bank on or as of the (ii) No person will receive a transfer, handles it that, at the time of payment date. If the payment date is not presentment, or return of, or otherwise presentment or transfer, the information a banking day for the returning be charged for, an electronic collection encoded after issue in magnetic ink flor flbankfi or paying bank or the item, an electronic return, the original as electronic informationfi on the depositary bank is unable to make the check, a substitute check, or a paper or check or returned check is ø ¿ payment on the payment date, payment electronic representation of a substitute correct flaccuratefi. For purposes of shall be made by the next day that is a check such that the person will be asked this paragraph, the information encoded banking day for the returning flbankfi to make payment based on a check it after issue on the check or returned or paying bank. These payments are has already paid. check includes any information placed final when made. (2) Each bank that transfers or in the MICR line of a substitute check ø(c)¿fl(d)fi Misrouted returned presents an electronic collection item fl or in the electronic information of an checks øand written notices of makes the warranties in paragraph (a)(1) electronic collection item or electronic nonpayment¿. If a bank receives a returnfiøthat represents that check or of this section to the transferee bank, ¿ returned check øor written notice of any subsequent collecting bank, the returned check . (4) If a bank settles with another bank nonpayment¿ on the basis that it is the paying bank, and the drawer; and for checks presented, or for returned depositary bank, and the bank (3) Each bank that transfers an checks for which it is the depositary determines that it is not the depositary electronic return makes the warranties ø bank, in amount exceeding the total bank with respect to the check or in paragraph (a)(1) of this section to the ¿ amount of the checks, the settling bank notice , it shall either promptly send transferee returning bank, any ø ¿ may set off the excess settlement the returned check or notice to the subsequent returning bank, the depositary bank directly or by means of amount against subsequent settlements depositary bank, and the owner of the for checks presented, or for returned a returning bank agreeing to handle the check.fi ø checks for which it is the depositary returned check expeditiously under ø(b) Warranty of notice of ¿ ø bank, that it receives from the other § 229.31(a) , or send the check or nonpayment. Each paying bank that notice¿ back to the bank from which it bank. gives a notice of nonpayment warrants ø(d)¿fl(c)fi Transfer and was received. to the transferee bank, to any ø(d)¿fl(e)fi Charges. A depositary presentment warranties with respect to subsequent transferee bank, to the a remotely created check. (1) A bank bank may not impose flon the bank depositary bank, and to the owner of the returning the checkfi a charge for that transfers or presents a remotely check that— created check and receives a settlement accepting and paying checks being (1) The paying bank, or in the case of or other consideration warrants to the returned to it. a check payable by a bank and payable transferee bank, any subsequent fl(f) Notification to customer. If the through another bank, the bank by depositary bank receives a returned collecting bank, and the paying bank which the check is payable, returned or that the person on whose account the check, it shall send or give notice to its will return the check within its deadline customer of the facts by midnight of the remotely created check is drawn under the U.C.C., Regulation J (12 CFR authorized the issuance of the check in banking day following the banking day part 210), or § 229.30(c) of this part; on which it received the returned check, the amount stated on the check and to (2) It is authorized to send the notice; the payee stated on the check. For or within a longer reasonable time.fi and 18. Revise § 229.33 to read as follows. purposes of this paragraph (d)(1), (3) The check has not been materially ‘‘account’’ includes an account as fl§ 229.33 Electronic collection items and altered. defined in § 229.2(a) as well as a credit electronic returns. These warranties are not made with or other arrangement that allows a (a) Checks under this subpart. respect to checks drawn on a state or a person to draw checks that are payable Electronic collection items and unit of general local government that are by, through, or at a bank. ¿ electronic returns are subject to the not payable through or at a bank. (2) If a paying bank asserts a claim for ø ¿ provisions of this subpart as if they were (c) Warranty of s fl(b) Sfiettlement breach of warranty under paragraph checks or returned checks, unless amount, encoding, and offset (d)(1) of this section, the warranting otherwise provided in this subpart. flwarranties for all itemsfi. (1) Each bank may defend by proving that the (b) [Reserved]fi bank that presents one or more checks customer of the paying bank is 19. Revise § 229.34 to read as follows: to a paying bank and in return receives precluded under U.C.C. 4–406, as a settlement or other consideration applicable, from asserting against the § 229.34 Warranties. warrants to the paying bank that the paying bank the unauthorized issuance fl(a) Transfer and presentment total amount of the checks presented is of the check. warranties with respect to an electronic equal to the total amount of the ø(a) Warranties¿fl(d) Warranty of collection item or an electronic return. settlement demanded by the presenting returned checkfi. fl(1)fiEach paying (1) Each bank that transfers or presents bank from the paying bank. bank or returning bank that transfers a

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returned check and receives a bank is discharged to the extent of any received by the paying bank when it is settlement or other consideration for it loss caused by the delay in giving notice received: warrants to the transferee returning of the claim. ø(1)¿fl(i)fi At a location to which bank, to any subsequent returning bank, 23. In § 229.35, paragraph (b) is delivery is requested by the paying to the depositary bank, and to the owner revised to read as follows: bank; of the check, that— ø(4)¿fl(ii)fi At a branch, head office, ø(1)¿fl(i)fiThe paying bank, or in § 229.35 Indorsements. or other location consistent with the the case of a check payable by a bank * * * * * name and address of the bank on the and payable through another bank, the (b) Liability of bank handling check. check if the bank is identified on the bank by which the check is payable, A bank that handles a check for forward check by name and addressfl;fi returned the check within its deadline collection or return is liable to any bank ø(2)¿fl(iii)fi At an address of the under the U.C.C. [, or Regulation J (12 that subsequently handles the check to bank associated with the routing CFR part 210),] or § 229.30(c) [of this the extent that the subsequent bank does number on the check, whether in part]; not receive payment for the check magnetic ink or in fractional formfl, or ø ¿ (2) fl(ii)fi It is authorized to return because of suspension of payments by in the electronic image of or electronic the check; another bank or otherwise. This ø ¿ information related to the checkfi; or (3) fl(iii)fi The check has not been paragraph applies whether or not a bank ø(3)¿fl(iv)fi At any branch or head materially altered; and has øplaced its indorsement office, if the bank is identified on the ø(4)¿fl(iv)fi In the case of a notice in on¿flindorsedfi the check. This check by name without address. lieu of return, the [original] check has liability is not affected by the failure of fl(2) A paying bank may require that not and will not be returned. any bank to exercise ordinary care, but fl(2)fi These warranties are not forward collection checks be separated any bank failing to do so remains liable. fi made with respect to checks drawn on from returned checks. A bank seeking recovery against a prior ø(c) Reserved¿ the Treasury of the United States, U.S. bank shall send notice to that prior bank ø ¿ Postal Service money orders, or checks (d) fl(c)fi Liability of bank during reasonably promptly after it learns the forward collection. Settlements between drawn on a state or a unit of general facts entitling it to recover. A bank may local government that are not payable banks for the forward collection of a recover from the bank with which it check are final when made; however, a through or at a bank. settled for the check by revoking the fl(e) Electronic image and collecting bank handling a check for settlement, charging back any credit information transferred as an electronic forward collection may be liable to a given to an account, or obtaining a collection item or electronic return. A prior collecting bank, including the refund. A bank may have the rights of bank that transfers or presents an depositary bank, and the depositary a holder with respect to each check it electronic image and related electronic bank’s customer. handles. ø information as if it were an electronic (e) Issuance of payable-through collection item or electronic return * * * * * checks. (1) A bank that arranges for makes the warranties in this section as 24. Revise § 229.36 to read as follows: checks payable by it to be payable if the image and information were an through another bank shall require that § 229.36 Presentment [and issuance] of the following information be printed electronic collection item or electronic checks. return.fi conspicuously on the face of each ø(a) Payable through and payable at ø(e)¿fl(f)fi Damages. Damages for check: checks. A check payable at or through breach of these warranties shall not (i) The name, location, and first four a paying bank is considered to be drawn exceed the consideration received by digits of the nine-digit routing number on that bank for purposes of the the bank that presents or transfers a of the bank by which the check is expeditious return and notice of check or returned check, plus interest payable; and nonpayment requirements of this (ii) The words ‘‘payable through’’ compensation and expenses related to ¿ subpart . followed by the name of the payable- the check or returned check, if any. ø ¿ ø ø ¿fl fi (b) fl(a)fi Receipt at bank office through bank. (f) (g) Tender of defense. If a ¿ bank is sued for breach of a warranty or processing center flReceipt of (2) A bank is responsible for damages under this section, it may give a prior electronic collection items. (1) A paying under § 229.38 to the extent that a check bank in the collection or return chain bank agrees to receive an electronic payable by it and not payable through written notice of the litigation, and the collection item from a presenting bank another bank is labeled as provided in bank notified may then give similar if it has agreed to receive the electronic this section.¿ notice to any other prior bank. If the collection item— ø(f)¿fl(d)fi Same-day settlement. (1) notice states that the bank notified may (i) Directly from the presenting bank; A check is considered presented, and a come in and defend and that failure to or paying bank must settle for or return the do so will bind the bank notified in an (ii) As otherwise agreed with the check pursuant to paragraph action later brought by the bank giving presenting bank. ø(f)(2)¿fl(d)(3)fi of this section, iffl,fi the notice as to any determination of (2) When electronic collection item øa presenting bank delivers the check¿ fact common to the two litigations, the received. A bank receives an electronic in accordance with reasonable delivery bank notified is so bound unless after collection item when the item is requirements established by the paying seasonable receipt of the notice the bank delivered to the electronic presentment bankfl, a presenting bank delivers the notified does come in and defend. point designated by the bank or, by checkfi and demands payment under ø(g)¿fl(h)fi Notice of claim. Unless a agreement, otherwise is made available this paragraph ø(f)¿fl(d)fi — claimant gives notice of a claim for to the bank for retrieval or review. (i) fl(A) As an electronic collection breach of warranty under this section to (3) A paying bank may require that item to the electronic presentment point the bank that made the warranty within electronic collection items be separated designated by the paying bank, if the 30 days after the claimant has reason to from electronic returns.fi paying bank agrees to receive electronic know of the breach and the identity of fl(b) Receipt of paper checks. (1)fi A collection items from the presenting the warranting bank, the warranting check flin paper formfi is considered bank under § 229.36(a); orfi

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fl(B)fi At a location designated by § 229.38 Liability. a check arising after the issuance of the the paying bank for receipt of checks (a) Standard of care; liability; measure check and prior to acceptance of the under this paragraph ø(f)¿fl(d)fi øthat of damages. A bank shall exercise check by it adversely affects the ability is in the check processing region ordinary care and act in good faith in of a bank to indorse the check legibly in consistent with the routing number complying with the requirements of this accordance with § 229.35. A encoded in magnetic ink on the check subpart. A bank that fails to exercise reconverting bank is responsible for and¿ at which the paying bank would ordinary care or act in good faith under damages under paragraph (a) of this be considered to have received the this subpart may be liable to the section to the extent that the condition check under paragraph (b)fl(1)fi of depositary bank, the depositary bank’s of the back of a substitute check this section or, if no location is customer, the owner of a check, or transferred, presented, or returned by designated, at any location described in another party to the check. The measure it— paragraph (b)fl(1)fi of this section; and of damages for failure to exercise (i) Adversely affects the ability of a (ii) By 8 a.m. on a business day (local ordinary care is the amount of the loss subsequent bank to indorse the check time of the location described in incurred, up to the amount of the check, legibly in accordance with § 229.35; or paragraph [(f)(1)(i)]fl(d)(1)(i)fi of this reduced by the amount of the loss that (ii) Causes an indorsement that section). party would have incurred even if the previously was applied in accordance fl(2) A paying bank may require that bank had exercised ordinary care. A with § 229.35 to become illegible. checks presented under paragraph (d)(1) bank that fails to act in good faith under øNote:¿fl(2)fi Responsibility under for settlement pursuant to paragraph this subpart may be liable for other this paragraph (d) shall be treated as (d)(3) of this section be presented as damages, if any, suffered by the party as negligence of the paying bank, electronic collection items and be a proximate consequence. Subject to a depositary bank, or reconverting bank presented electronically to a designated bank’s duty to exercise ordinary care or for purposes of paragraph (c) of this electronic presentment point.fi act in good faith in choosing the means section. øA paying bank may require that of return øor notice of nonpayment¿, the ø(2) Responsibility for payable checks presented for settlement bank is not liable for the insolvency, through checks. In the case of a check pursuant to this paragraph (f)(1) be neglect, misconduct, mistake, or default that is payable by a bank and payable separated from other forward-collection of another bank or person, or for loss or through a paying bank located in a checks or returned checks.¿ destruction of a check øor notice of different check processing region than ø(2)¿fl(3)fi If presentment of a check nonpayment¿ in transit or in the the bank by which the check is payable, meets the requirements of paragraph possession of others. This section does the bank by which the check is payable ø(f)(1)¿fl(d)(1)fi of this section, the not affect a paying bank’s liability to its is responsible for damages under paying bank is accountable to the customer under the U.C.C. or other law. paragraph (a) of this section, to the presenting bank for the amount of the (b) Paying bank’s failure to make extent that the check is not returned to check unless, by the close of Fedwire on timely return. If a paying bank fails both the depositary bank through the payable the business day it receives the check, to comply with § 229.30(a) and to through bank as quickly as the check it either: comply with the deadline for return would have been required to be (i) Settles with the presenting bank for under the U.C.C., Regulation J (12 CFR returned under § 229.30(a) had the bank the amount of the check by credit to an part 210), or § 229.30(c) in connection by which the check is payable— account at a Federal Reserve Bank with a single nonpayment of a check, (i) Received the check as paying bank designated by the presenting bank; or the paying bank shall be liable under on the day the payable through bank (ii) Returns the check. either § 229.30(a) or such other received the check; and ø(3)¿fl(4)fi Notwithstanding provision, but not both. (ii) Returned the check as paying bank paragraph ø(f)(2)¿fl(d)(3)fi of this (c) Comparative negligence. If a in accordance with § 229.30(a)(1). section, if a paying bank closes on a person, including a bank, fails to Responsibility under this paragraph business day and receives presentment exercise ordinary care or act in good shall be treated as negligence of the of a check on that day in accordance faith under this subpart in indorsing a bank by which the check is payable for with paragraph [(f)(1)]fl(d)(1)fi of this check (§ 229.35), accepting a returned purposes of paragraph (c) of this section, the paying bank is accountable check øor notice of nonpayment¿ section.¿ to the presenting bank for the amount of (§§ 229.32(a) and ø229.33(c)¿fl(b)fi), (e) Timeliness of action. If a bank is the check unless, by the close of or otherwise, the damages incurred by delayed in acting beyond the time limits Fedwire on its next banking day, it that person under § 229.38(a) shall be set forth in this subpart because of either: diminished in proportion to the amount interruption of communication or (i) Settles with the presenting bank for of negligence or bad faith attributable to computer facilities, suspension of the amount of the check by credit to an that person. payments by a bank, war, emergency account at a Federal Reserve Bank (d) Responsibility for certain aspects conditions, failure of equipment, or designated by the presenting bank; or of checks—(1) A paying bank, or in the other circumstances beyond its control, (ii) Returns the check. case of a check payable through the its time for acting is extended for the fl(5)fi If the closing flin paragraph paying bank and payable by another time necessary to complete the action, if (d)(4)fi is voluntary, unless the paying bank, the bank by which the check is it exercises such diligence as the bank settles for or returns the check in payable, is responsible for damages circumstances require. accordance with paragraph under paragraph (a) of this section to the (f) Exclusion. Section 229.21 of this ø(f)(2)¿fl(d)(3)fi of this section, it shall extent that the condition of the check part and section 611 (a), (b), and (c) of pay interest compensation to the when issued by it or its customer the EFA Act (12 U.S.C. 4010 (a), (b), and presenting bank for each day after the adversely affects the ability of a bank to (c)) do not apply to this subpart. business day on which the check was indorse the check legibly in accordance (g) Jurisdiction. Any action under this presented until the paying bank settles with § 229.35. A depositary bank is subpart may be brought in any United for the check, including the day of responsible for damages under States district court, or in any other settlement. paragraph (a) of this section to the court of competent jurisdiction, and 25. Revise § 229.38 to read as follows: extent that the condition of the back of shall be brought within one year after

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the date of the occurrence of the 30. Revise § 229.43 to read as follows: fl(2) A bank that rejects a check violation involved. submitted for deposit and returns to its (h) Reliance on Board rulings. No § 229.43 Checks payable in Guam, customer a substitute check (or a paper American Samoa, and the Northern Mariana provision of this subpart imposing any Islands. or electronic representation of a liability shall apply to any act done or substitute check) makes the warranties (a) Definitions. The definitions in omitted in good faith in conformity with described in paragraph (a)(1) of this § 229.2 apply to this section, unless any rule, regulation, or interpretation section regardless of whether the bank otherwise noted. In addition, for the thereof by the Board, regardless of received consideration.fi whether the rule, regulation, or purposes of this section— (1) Pacific island bank means an * * * * * interpretation is amended, rescinded, or office of an institution that would be a 32. In § 229.53, revise paragraph (a) to determined by judicial or other bank as defined in § 229.2(e) but for the read as follows: authority to be invalid for any reason fact that the office is located in Guam, after the act or omission has occurred. § 229.53 Substitute check indemnity. American Samoa, or the Northern 26. In § 229.39, revise paragraph (c) to (a) Scope of indemnity. fl(1)fi A read as follows: Mariana Islands; (2) Pacific island check means a bank that transfers, presents, or returns a substitute check or a paper or § 229.39 Insolvency of bank. demand draft drawn on or payable through or at a Pacific island bank, electronic representation of a substitute * * * * * check for which it receives (c) Preference against collecting, which is not a check as defined in § 229.2(k). consideration shall indemnify the paying, or returning bank. If a recipient and any subsequent recipient collecting, paying, or returning bank (b) Rules applicable to Pacific island checks. To the extent a bank handles a (including a collecting or returning receives settlement from a subsequent bank, the depositary bank, the drawer, bank for a check or returned check, Pacific island check as if it were a check defined in § 229.2(k), the bank is subject the drawee, the payee, the depositor, which settlement is or becomes final, and any indorser) for any loss incurred and suspends payments without making to the following sections of this part by any recipient of a substitute check if a settlement for the check with the prior (and the word ‘‘check’’ in each such that loss occurred due to the receipt of bank, which is or becomes final, the section is construed to include a Pacific a substitute check instead of the original prior bank has a preferred claim against island check)— check. fl fi (1) § 229.31, except that the returning the collecting bank or returning fl(2) A bank that rejects a check bank. bank is not subject to the requirement to return a Pacific island check in an submitted for deposit and returns to its * * * * * customer a substitute check (or a paper 27. Revise § 229.40 to read as follows: expeditious manner; (2) § 229.32; or electronic representation of a § 229.40 Effect of merger transaction. (3) § 229.34 fl(a), (b),fi (c)(2), (c)(3), substitute check) shall indemnify the ø ¿ ø(a) In general.¿ For purposes of this (d), [ (e), and (f)fl, and (g)fi; recipient as described in paragraph subpart, two or more banks that have (4) § 229.35; for purposes of (a)(1) of this section regardless of engaged in a merger transaction may be § 229.35(c), the Pacific island bank is whether the bank received deemed to be a bank; consideration.fi considered to be separate banks for a ø ¿ period of one year following the (5) [§ 229.36(d) ]fl§ 229.36(b)fi; * * * * * consummation of the merger (6) § 229.37; 33. Revise Appendix A to Part 229 to (7) § 229.38(a) and (c) through (h); transaction. read as follows: ø (8) § 229.39(a), (b), (c) and (e); and (b) Merger transactions on or after (9) §§ 229.40 through 229.42. Appendix A to Part 229—Routing July 1, 1998, and before March 1, 2000. Number Guide to Next-Day-Availability If banks have consummated a merger Subpart D—Substitute Checks Checks [and Local Checks] transaction on or after July 1, 1998, and before March 1, 2000, the merged banks 31. In § 229.52, revise paragraph (a) to øA. Each bank is assigned a routing may be considered separate banks until read as follows: number by an agent of the American Bankers ¿ March 1, 2001. § 229.52 Substitute check warranties. Association. The routing number takes two 28. Revise § 229.41 to read as follows: forms: a fractional form and a nine-digit (a) Content and provision of substitute form. A paying bank generally is identified § 229.41 Relation to [S]flsfitate law. check warranties. fl(1)fi A bank that on the face of a check by its routing number The provisions of this subpart transfers, presents, or returns a in both the fractional form (which generally supersede any inconsistent provisions substitute check (or a paper or appears in the upper right-hand corner of the of the U.C.C. as adopted in any state, or electronic representation of a substitute check) and the nine-digit form (which is printed in magnetic ink along the bottom of of any other state law, but only to the check) for which it receives consideration warrants to the parties the check). Where a check is payable by one extent of the inconsistency. bank but payable through another bank, the 29. Revise § 229.42 to read as follows: listed in paragraph (b) of this section routing number appearing on the check is that— that of the payable-through bank, not the § 229.42 Exclusions. [1] (i) The substitute check meets the payor bank. The expeditious-return (§§ 229.30(a) requirements for legal equivalence B. The first four digits of the nine-digit and 229.31(a))ø, notice-of-nonpayment described in § 229.51(a)(1)–(2); and routing number (and the denominator of the (§ 229.33),¿ and same-day settlement [2] (ii) No depositary bank, drawee, fractional routing number) form the ‘‘Federal ø(§ 229.36(f))¿fl(§ 229.36(d))fi drawer, or indorser will receive Reserve routing symbol,’’ and the first two requirements of this subpart do not presentment or return of, or otherwise digits of the routing number identify the apply to a check drawn upon the United be charged for, the substitute check, the Federal Reserve District in which the bank is States Treasury, to a U.S. Postal Service original check, or a paper or electronic located. Thus, 01 will be the first two digits of the routing number of a bank in the First money order, or to a check drawn on a representation of the substitute check or Federal Reserve District (Boston), and 12 will state or a unit of general local original check such that that person will be the first two digits of the routing number government that is not payable through be asked to make a payment based on of a bank in the Twelfth District (San or at a bank. a check that it already has paid. Francisco). Adding 2 to the first digit denotes

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a thrift institution. Thus, 21 identifies a thrift 0929 1123 3020 3210 in the First District, and 32 denotes a thrift 1130 1251 3021 3211 in the Twelfth District. 1131 1252 3022 3212 1140 2111 Fourth Federal Reserve District 3023 3213 1149 2112 3030 3220 Federal Reserve Bank of Cleveland 1163 2113 3031 3221 Head Office 1210 2114 3039 3222 1211 2115 1 3040 3223 0110 0215 1212 2116 3041 3224 0111 0216 1213 2117 3049 3230 0112 0219 1220 2118 0113 0220 1221 2119 3070 3231 0114 0223 1222 2210 3110 3232 0115 0260 1223 2211 3111 3233 0116 0280 1224 2212 3113 3240 0117 0310 1230 2213 3119 3241 0118 0311 1231 2214 3120 3242 0119 0312 1232 2215 3122 3243 0210 0313 1233 2216 3250 3252 0211 0319 1240 2219 3251 0212 0360 1241 2220 1 0213 0410 The first two digits identify the bank’s 1242 2223 Federal Reserve District. For example, 01 0214 0412 1243 2260 identifies the First Federal Reserve District 0420 0441 1250 2280 (Boston), and 12 identifies the Twelfth Dis- 0421 0442 2310 2520 trict (San Francisco). Adding 2 to the first 0422 0510 2311 2521 digit denotes a thrift institution. For exam- 0423 0514 ple, 21 identifies a thrift in the First District, 2312 2522 0430 0515 and 32 denotes a thrift in the Twelfth 2313 2530 0432 0519 District.¿ 2319 2531 0433 0520 Federal Reserve Banks 0434 ...... 2360 2532 0440 2410 2539 0110 0001 5 0539 0008 9 0521 0650 2412 2540 0111 0048 1 0610 0014 6 0522 0651 2420 2550 0210 0120 8 0620 0019 0 0530 0652 2421 2560 0212 0400 5 0630 0019 9 0531 0653 2422 2570 0213 0500 1 0640 0010 1 0532 0654 2423 2610 0220 0026 6 0650 0021 0 0539 0655 2430 2611 0310 0004 0 0660 0010 9 0540 0660 2432 2612 0410 0001 4 0710 0030 1 0550 0670 2433 2613 0420 0043 7 ø0711 0711 0¿ 0560 0710 2434 2620 0430 0030 0 0720 0029 0 0570 0711 2440 2621 0440 0050 3 0730 0033 8 0610 0712 2441 2622 0510 0003 3 ø0740 0020 1¿ 0611 0719 2442 2630 0519 0002 3 ...... 2510 2631 0612 0720 0520 0027 8 ø0750 0012 9¿ 2514 2632 0613 0724 0530 0020 6 0810 0004 5 2515 2640 0620 0730 0820 0013 8 1120 0001 1 2519 2641 0621 0739 0830 0059 3 1130 0004 9 0622 0740 2642 2813 2650 2815 0840 0003 9 1140 0072 1 0630 0749 0910 0008 0 1210 0037 4 0631 0750 2651 2819 0920 0026 7 1220 0016 6 0632 0759 2652 2820 1010 0004 8 1230 0001 3 0640 0810 2653 2829 0641 0812 2654 2830 1020 0019 9 1240 0031 3 0642 0813 2655 2839 1030 0024 0 1250 0001 1 0815 0960 2660 2840 1040 0012 6 0819 1010 2670 2841 1110 0003 8 0820 1011 2710 2842 Federal Home Loan Banks 0829 1012 2711 2843 0110 0053 6 0740 0101 9 0830 1019 2712 2863 ø ¿ 2719 2865 0212 0639 1 0810 0091 9 0839 1020 ø ¿ 2720 2910 0260 0973 9 0910 0091 2 0840 1021 ø ¿ 0841 1022 2724 2911 0410 0291 5 1010 0091 2 0842 1023 2730 2912 0420 0091 6 1011 0194 7 0843 1030 2739 2913 0430 0143 5 1110 1083 7 0863 1031 2740 2914 ø0430 1862 2¿ 1119 1083 0 0865 1039 2749 2915 0610 0876 6 1210 0070 1 0910 1040 2750 2918 0710 0450 1 1240 0287 4 0911 1041 2759 2919 0730 0091 4 1250 0050 3 0912 1049 2810 2920 flU.S. Treasury 0000 0051 8 0913 1070 2812 2921 Checks and Postal 0914 1110 2929 3123 Money Orders Postal Money Orders 0915 1111 2960 3130 U.S. Treasury Checks 0000 0119 3 0918 1113 3010 3131 0000 0050 5 0000 0800 2fi 0919 1119 3011 3140 0920 1120 3012 3149 34. Revise Appendix C to Part 229 to 0921 1122 3019 3163 read as follows:

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Appendix C to Part 229—Model C–ø24¿fl20fi Expedited-Recredit Claim, a day’s total deposits of cashier’s, certified, Availability-Policy Disclosures, Denial Notice teller’s, traveler’s, and federal, state and local ø ¿ Clauses, and Notices; Model Substitute- C– 25 fl21fi Expedited-Recredit Claim, government checks will be available on the Reversal Notice first business day after the day of your Check-Policy Disclosure and Notices øC–1 Next-Day Availability deposit if the deposit meets certain This appendix contains model availability- YOUR ABILITY TO WITHDRAW FUNDS conditions. For example, the checks must be policy and substitute-check-policy payable to you (and you may have to use a disclosures, clauses, and notices to facilitate Our policy is to make funds from your cash special deposit slip). The excess over $5,000 compliance with the disclosure and notice and check deposits available to you on the will be available on the ninth business day requirements of Regulation CC (12 CFR part first business day after the day we receive after the day of your deposit. If your deposit 229). Although use of these models is not your deposit. Electronic direct deposits will of these checks (other than a U.S. Treasury required, banks using them properly (with be available on the day we receive the check) is not made in person to one of our the exception of models C–22 through C–25) deposit. Once the funds are available, you employees, the first $5,000 will not be to make disclosures required by Regulation can withdraw them in cash and we will use available until the second business day after CC are deemed to be in compliance. them to pay checks that you have written. the day of your deposit. For determining the availability of your Funds from all other check deposits will be Model Disclosures deposits, every day is a business day, except available on the (number) business day after C–1 Next-day availability Saturdays, Sundays, and Federal holidays. If the day of your deposit. you make a deposit before (time of day) on C–2 Next-day availability and section C–3—Next-Day Availability, Case-by-Case a business day that we are open, we will 229.13 exceptions Holds to Statutory Limits, and Section 229.13 consider that day to be the day of your C–3flAfi Next-day availability, case-by- Exceptions case holds to statutory limits flwithout deposit. However, if you make a deposit after cash-withdrawal limitationfi, and (time of day) or on a day we are not open, YOUR ABILITY TO WITHDRAW FUNDS section 229.13 exceptions we will consider that the deposit was made Our policy is to make funds from your cash flC–3B Next-day availability, case-by-case on the next business day we are open. and check deposits available to you on the holds to statutory limits with cash- C–2—Next-Day Availability and Section first business day after the day we receive withdrawal limitation, and section 229.13 Exceptions your deposit. Electronic direct deposits will 229.13 exceptionsfi YOUR ABILITY TO WITHDRAW FUNDS be available on the day we receive the fl fi C–4 A Holds to statutory limits on all Our policy is to make funds from your cash deposit. Once they are available, you can ø ¿ fl deposits (includes chart) without and check deposits available to you on the withdraw the funds in cash and we will use fi cash-withdrawal limitation first business day after the day we receive the funds to pay checks that you have ø ¿fl fi C– 5 4B Holds to statutory limits on your deposit. Electronic direct deposits will written. For determining the availability of fl all deposits with cash-withdrawal be available on the day we receive the your deposits, every day is a business day, limitationfi except Saturdays, Sundays, and Federal ø ¿ deposit. Once they are available, you can C–5 A Substitute-Check-Policy Disclosure withdraw the funds in cash and we will use holidays. If you make a deposit before (time Model the funds to pay checks that you have of day) on a business day that we are open, we will consider that day to be the day of Model Clauses written. For determining the availability of your your deposit. However, if you make a deposit øC–6 Holds on other funds (check cashing)¿ deposits, every day is a business day, except after (time of day) or on a day we are not øC–7 Holds on other funds (other account)¿ Saturdays, Sundays, and Federal holidays. If open, we will consider that the deposit was øC–8 Appendix B availability (nonlocal you make a deposit before (time of day) on made on the next business day we are open. checks)¿ a business day that we are open, we will Longer Delays May Apply C–ø9¿fl6fi Automated teller machine consider that day to be the day of your deposits (extended hold) In some cases, we will not make all of the deposit. However, if you make a deposit after øC–10 Cash-withdrawal limitation¿ funds that you deposit by check available to (time of day) or on a day we are not open, C–ø11¿fl7fi Credit union interest-payment you on the first business day after the day of we will consider that the deposit was made policy your deposit. Depending on the type of check on the next business day we are open. C–ø11A¿fl8fi Availability of funds that you deposit, funds may not be available deposited at other locations Longer Delays May Apply until the fifth business day after the day of your deposit. The first $100 of your deposits, Model Notices Funds you deposit by check may be delayed for a longer period under the however, will be available on the first ø ¿ C– 12 fl9fi Exception flor reasonable- following circumstances: business day. causefi hold notice • We believe a check you deposit will not If we are not going to make all of the funds ø ¿ C–13 Reasonable-cause hold notice be paid. from your deposit available on the first ø ¿ C– 14 fl10fi One-time notice for large- • You deposit checks totaling more than business day, we will notify you at the time deposit and redeposited-check exception $5,000 on any one day. you make your deposit. We will also tell you holds • You redeposit a check that has been when the funds will be available. If your ø ¿ C– 15 fl11fi One-time notice for returned unpaid. deposit is not made directly to one of our repeated-overdraft exception holds • You have overdrawn your account employees, or if we decide to take this action ø ¿ C– 16 fl12Afi Case-by-case hold notice repeatedly in the last six months. after you have left the premises, we will mail flwithout cash-withdrawal limitation • There is an emergency, such as failure of you the notice by the day after we receive ø ¿ C–16 B fl12Bfi Case-by-case hold notice computer or communications equipment. your deposit. If you will need the funds from with cash-withdrawal limitationfi We will notify you if we delay your ability a deposit right away, you should ask us when ø ¿ C– 17 fl13fi Notice at locations where to withdraw funds for any of these reasons, the funds will be available. employees accept consumer deposits and we will tell you when the funds will be In addition, funds you deposit by check ø ¿ C– 18 fl14fi Notice at locations where available. They will generally be available no may be delayed for a longer period under the employees accept consumer deposits following circumstances: later than the (number) business day after the • (case-by-case holds) day of your deposit. We believe a check you deposit will not C–ø19¿fl15fi Notice at automated teller be paid. machines Special Rules for New Accounts • You deposit checks totaling more than C–ø20¿fl16fi Notice at automated teller If you are a new customer, the following $5,000 on any one day. machines (delayed receipt) special rules will apply during the first 30 • You redeposit a check that has been C–ø21¿fl17fi Deposit-slip notice days your account is open. returned unpaid. C–ø22¿fl18fi Expedited-Recredit Claim, Funds from electronic direct deposits to • You have overdrawn your account Valid-Claim Refund Notice your account will be available on the day we repeatedly in the last six months. C–ø23¿fl19fi Expedited-Recredit Claim, receive the deposit. Funds from deposits of • There is an emergency, such as failure of Provisional-Refund Notice cash, wire transfers, and the first $5,000 of computer or communications equipment.

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We will notify you if we delay your ability C–4—Holds to Statutory Limits on All • U.S. Treasury checks that are payable to to withdraw funds for any of these reasons, Deposits (Includes Chart) you and we will tell you when the funds will be • Wire transfers YOUR ABILITY TO WITHDRAW FUNDS available. They will generally be available no • Checks drawn on (bank name) [unless later than the (number) business day after the Our policy is to delay the availability of (any limitations related to branches in day of your deposit. funds from your cash and check deposits. different states or check-processing regions)] During the delay, you may not withdraw the Special Rules for New Accounts If you make the deposit in person to one funds in cash and we will not use the funds of our employees, funds from the following If you are a new customer, the following to pay checks that you have written. deposits are also available on the first special rules will apply during the first 30 Determining the Availability of a Deposit business day after the day of your deposit: days your account is open. The length of the delay is counted in • Cash Funds from electronic direct deposits to business days from the day of your deposit. • State and local government checks that your account will be available on the day we Every day is a business day except Saturdays, are payable to you [if you use a special receive the deposit. Funds from deposits of Sundays, and federal holidays. If you make deposit slip available from (where deposit cash, wire transfers, and the first $5,000 of a deposit before (time of day) on a business slip may be obtained)] a day’s total deposits of cashier’s, certified, day that we are open, we will consider that • Cashier’s, certified, and teller’s checks teller’s, traveler’s, and federal, state and local day to be the day of your deposit. However, that are payable to you [if you use a special government checks will be available on the if you make a deposit after (time of day) or deposit slip available from (where deposit first business day after the day of your on a day we are not open, we will consider slip may be obtained)] deposit if the deposit meets certain that the deposit was made on the next • Federal Reserve Bank checks, Federal conditions. For example, the checks must be business day we are open. Home Loan Bank checks, and postal money payable to you (and you may have to use a The length of the delay varies depending orders, if these items are payable to you special deposit slip). The excess over $5,000 on the type of deposit and is explained If you do not make your deposit in person will be available on the ninth business day below. to one of our employees (for example, if you after the day of your deposit. If your deposit Same-Day Availability mail the deposit), funds from these deposits of these checks (other than a U.S. Treasury Funds from electronic direct deposits to will be available on the second business day check) is not made in person to one of our your account will be available on the day we after the day we receive your deposit. employees, the first $5,000 will not be receive the deposit. available until the second business day after Other Check Deposits the day of your deposit. Funds from all other Next-Day Availability To find out when funds from other check check deposits will be available on the Funds from the following deposits are deposits will be available, look at the first (number) business day after the day of your available on the first business day after the four digits of the routing number on the deposit. day of your deposit: check:

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Some checks are marked ‘‘payable through’’ bottom of the check, to determine if these the check will be available. If you deposit and have a four- or nine-digit number nearby. checks are local or nonlocal. Once you have both categories of checks, $100 from the For these checks, use this four-digit number determined the first four digits of the routing checks will be available on the first business (or the first four digits of the nine-digit number (1234 in the examples above), the day after the day of your deposit, not $100 number), not the routing number on the chart below will show you when funds from from each category of check.

Longer Delays May Apply of these checks (other than a U.S. Treasury Next-Day Availability Funds you deposit by check may be check) is not made in person to one of our Funds from the following deposits are delayed for a longer period under the employees, the first $5,000 will not be available on the first business day after the following circumstances: available until the second business day after day of your deposit: • We believe a check you deposit will not the day of your deposit. Funds from all other • U.S. Treasury checks that are payable to be paid. check deposits will be available on the you • You deposit checks totaling more than (number) business day after the day of your • Wire transfers $5,000 on any one day. deposit. • Checks drawn on (bank name) [unless • You redeposit a check that has been C–5—Holds to Statutory Limits on All (any limitations related to branches in returned unpaid. different states or check-processing regions)] • Deposits You have overdrawn your account If you make the deposit in person to one repeatedly in the last six months. YOUR ABILITY TO WITHDRAW FUNDS • of our employees, funds from the following There is an emergency, such as failure of Our policy is to delay the availability of deposits are also available on the first computer or communications equipment. funds from your cash and check deposits. business day after the day of your deposit: We will notify you if we delay your ability During the delay, you may not withdraw the • Cash to withdraw funds for any of these reasons, funds in cash and we will not use the funds • State and local government checks that and we will tell you when the funds will be are payable to you [if you use a special available. They will generally be available no to pay checks that you have written. later than the (number) business day after the Determining the Availability of a Deposit deposit slip available from (where deposit day of your deposit. slip may be obtained)] The length of the delay is counted in • Cashier’s, certified, and teller’s checks Special Rules for New Accounts business days from the day of your deposit. that are payable to you [if you use a special If you are a new customer, the following Every day is a business day except Saturdays, deposit slip available from (where deposit special rules will apply during the first 30 Sundays, and Federal holidays. If you make slip may be obtained)] days your account is open. a deposit before (time of day) on a business • Federal Reserve Bank checks, Federal Funds from electronic direct deposits to day that we are open, we will consider that Home Loan Bank checks, and postal money your account will be available on the day we day to be the day of your deposit. However, orders, if these items are payable to you receive the deposit. Funds from deposits of if you make a deposit after (time of day) or If you do not make your deposit in person cash, wire transfers, and the first $5,000 of on a day we are not open, we will consider to one of our employees (for example, if you a day’s total deposits of cashier’s, certified, that the deposit was made on the next mail the deposit), funds from these deposits teller’s, traveler’s, and federal, state and local business day we are open. will be available on the second business day government checks will be available on the The length of the delay varies depending after the day of your deposit. first business day after the day of your on the type of deposit and is explained Other Check Deposits deposit if the deposit meets certain below. conditions. For example, the checks must be The delay for other check deposits depends payable to you (and you may have to use a Same-Day Availability on whether the check is a local or a nonlocal special deposit slip). The excess over $5,000 Funds from electronic direct deposits to check. To see whether a check is a local or will be available on the ninth business day your account will be available on the day we a nonlocal check, look at the routing number after the day of your deposit. If your deposit receive the deposit. on the check:

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If the first four digits of the routing number For example, if you deposit a $700 after the day of your deposit, not $100 from (1234 in the examples above) are (list of local nonlocal check on a Monday, $100 of the each category of check. numbers), then the check is a local check. deposit is available on Tuesday. The Special Rules for New Accounts Otherwise, the check is a nonlocal check. remaining $600 is available on Monday of the Some checks are marked ‘‘payable through’’ following week. If you are a new customer, the following and have a four- or nine-digit number nearby. special rules will apply during the first 30 Longer Delays May Apply For these checks, use the four-digit number days your account is open. (or the first four digits of the nine-digit Funds you deposit by check may be Funds from electronic direct deposits to number), not the routing number on the delayed for a longer period under the your account will be available on the day we bottom of the check, to determine if these following circumstances: receive the deposit. Funds from deposits of checks are local or nonlocal. Our policy is to • We believe a check you deposit will not cash, wire transfers, and the first $5,000 of make fundsfrom local and nonlocal checks be paid. a day’s total deposits of cashier’s, certified, available as follows. • You deposit checks totaling more than teller’s, traveler’s, and federal, state and local 1. Local checks. The first $100 from a $5,000 on any one day. government checks will be available on the deposit of local checks will be available on • You redeposit a check that has been the first business day after the day of your returned unpaid. first business day after the day of your deposit. The remaining funds will be • You have overdrawn your account deposit if the deposit meets certain available on the second business day after the repeatedly in the last six months. conditions. For example, the checks must be day of your deposit. For example, if you • There is an emergency, such as failure of payable to you (and you may have to use a deposit a local check of $700 on a Monday, special deposit slip). The excess over $5,000 $100 of the deposit is available on Tuesday. computer or communications equipment. will be available on the ninth business day The remaining $600 is available on We will notify you if we delay your ability Wednesday. to withdraw funds for any of these reasons, after the day of your deposit. If your deposit 2. Nonlocal checks. The first $100 from a and we will tell you when the funds will be of these checks (other than a U.S. Treasury deposit of nonlocal checks will be available available. They will generally be available no check) is not made in person to one of our on the first business day after the day of your later than the (number) business day after the employees, the first $5,000 will not be deposit. The remaining funds will be day of your deposit. If you deposit both available until the second business day after available on the fifth business day after the categories of checks, $100 from the checks the day of your deposit. day of your deposit. will be available on the first business day

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Funds from all other check deposits will be available on the (number) business day after the day of your deposit. BILLING CODE 6210–01–P

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BILLING CODE 6210–01–C check states: ‘‘This is a legal copy of your What are my rights regarding substitute fiC–5øA¿—Substitute-Check-Policy check. You can use it the same way you checks? Disclosure would use the original check.’’ You may use In certain cases, Federal law provides a a substitute check as proof of payment just Substitute Checks and Your Rights special procedure that allows you to request like the original check. a refund for losses you suffer if a substitute [IMPORTANT INFORMATION ABOUT Some or all of the checks that you receive YOUR CHECKING ACCOUNT] check is posted to your account (for example, back from us may be substitute checks. This if you think that we withdrew the wrong Substitute Checks and Your Rights notice describes rights you have when you amount from your account or that we receive substitute checks from us. The rights What is a substitute check? withdrew money from your account more in this notice do not apply to original checks than once for the same check). The losses you To make check processing faster, federal or to electronic debits to your account. may attempt to recover under this procedure law permits banks to replace original checks However, you have rights under other law may include the amount that was withdrawn with ‘‘substitute checks.’’ These checks are with respect to those transactions. similar in size to original checks with a from your account and fees that were charged slightly reduced image of the front and back as a result of the withdrawal (for example, of the original check. The front of a substitute bounced-check fees).

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The amount of your refund under this øC–8—Appendix B Availability (Nonlocal _____ The checks you deposited on this day procedure is limited to the amount of your Checks) exceed $5,000. loss or the amount of the substitute check, 3. Certain other checks. We can process _____ An emergency, such as failure of whichever is less. You also are entitled to nonlocal checks drawn on financial computer or communications equipment, interest on the amount of your refund if your institutions in certain areas faster than usual. has occurred. account is an interest-bearing account. If your Therefore, funds from deposits of checks _____ We believe a check you deposited will loss exceeds the amount of the substitute drawn on institutions in those areas will be not be paid for the following reasons:[*] check, you may be able to recover additional available to you more quickly. Call us if you lllllllllllllllllllll amounts under other law. would like a list of the routing numbers for lllllllllllllllllllll If you use this procedure, you may receive these institutions.¿ lllllllllllllllllllll up to (amount, not lower than $2,500) of your C–ø9¿fl6fi—Automated Teller Machine refund (plus interest if your account earns Deposits (Extended Hold) lllllllllllllllllllll interest) within (number of days, not more Funds from any deposits (cash or checks) lllllllllllllllllllll than 10) business days after we received your made at automated teller machines (ATMs) lllllllllllllllllllll claim and the remainder of your refund (plus we do not own or operate will not be interest if your account earns interest) not ø ¿ [* If you did not receive this notice at the available until the fifth flfourthfi business time you made the deposit and the check you later than (number of days, not more than 45) day after the day of your deposit. This rule calendar days after we received your claim. deposited is paid, we will refund to you any does not apply at ATMs that we own or fees for overdrafts or returned checks that We may reverse the refund (including any operate. interest on the refund) if we later are able to result solely from the additional delay that (A list of our ATMs is enclosed. or A list we are imposing. To obtain a refund of such demonstrate that the substitute check was of ATMs where you can make deposits but correctly posted to your account. fees, (description of procedure for obtaining that are not owned or operated by us is refund).] enclosed. or All ATMs that we own or How do I make a claim for a refund? C–13—Reasonable-Cause Hold Notice operate are identified as our machines.) If you believe that you have suffered a loss øC–10—Cash-Withdrawal Limitation relating to a substitute check that you NOTICE OF HOLD received and that was posted to your CASH-WITHDRAWAL LIMITATION Account number: Date of deposit: account, please contact us at (contact We place certain limitations on (number) (date) information, for example phone number, withdrawals in cash. In general, $100 of a We are delaying the availability of the mailing address, e-mail address). You must deposit is available for withdrawal in cash on funds you deposited by the following check: contact us within (number of days, not less the first business day after the day of deposit. description of check, such as amount and than 40) calendar days of the date that we In addition, a total of $400 of other funds drawer) mailed (or otherwise delivered by a means to becoming available on a given day is These funds will be available on the which you agreed) the substitute check in available for withdrawal in cash at or after (number) business day after the day of your question or the account statement showing (time no later than 5 p.m.) on that day. Any deposit. The reason for the delay is explained that the substitute check was posted to your remaining funds will be available for below: account, whichever is later. We will extend withdrawal in cash on the following business _____ this time period if you were not able to make We received notice that the check is day.¿ a timely claim because of extraordinary being returned unpaid. C–ø11¿fl7fi—Credit-Union Interest- _____ circumstances. We have confidential information that Payment Policy Your claim must include— indicates that the check may not be paid. • A description of why you have suffered INTEREST-PAYMENT POLICY _____ The check is drawn on an account with a loss (for example, you think the amount repeated overdrafts. If we receive a deposit to your account on _____ withdrawn was incorrect); or before the tenth of the month, you begin We are unable to verify the • indorsement of a joint payee. An estimate of the amount of your loss; earning interest on the deposit (whether it • _____ Some information on the check is not An explanation of why the substitute was a deposit of cash or checks) as of the first consistent with other information on the check you received is insufficient to confirm day of that month. If we receive the deposit check. that you suffered a loss; and after the tenth of the month, you begin • _____ There are erasures or other apparent A copy of the substitute check [and/or] earning interest on the deposit as of the first alterations on the check. the following information to help us identify of the following month. For example, a _____ The routing number of the paying bank the substitute check: (identifying deposit made on June 7 earns interest from is not a current routing number. information, for example the check number, June 1, while a deposit made on June 17 the name of the person to whom you wrote _____ The check is postdated or has a stale earns interest from July 1. date. the check, the amount of the check). ø ¿fl fi C– 11A 8 —Availability of Funds _____ Information from the paying bank øC–6—Holds on Other Funds (Check Deposited at Other Locations Cashing) indicates that the check may not be paid. DEPOSITS AT OTHER LOCATIONS _____ We have been notified that the check If we cash a check for you that is drawn This availability policy only applies to has been lost or damaged in collection. on another bank, we may withhold the _____ funds deposited at (location). Please inquire Other: availability of a corresponding amount of lllllllllllllllllllll funds that are already in your account. Those for information about the availability of funds will be available at the time funds from funds deposited at other locations. lllllllllllllllllllll the check we cashed would have been øC–12—Exception Hold Notice lllllllllllllllllllll available if you had deposited it.¿ NOTICE OF HOLD lllllllllllllllllllll øC–7—Holds on Other Funds (Other [If you did not receive this notice at the Account number: Date of deposit: Account) time you made the deposit and the check you (number) (date) If we accept for deposit a check that is deposited is paid, we will refund to you any drawn on another bank, we may make funds We are delaying the availability of fees for overdrafts or returned checks that from the deposit available for withdrawal $(amount being held) from this deposit. result solely from the additional delay that immediately but delay your availability to These funds will be available on the we are imposing. To obtain a refund of such withdraw a corresponding amount of funds (number) business day after the day of your fees, (description of procedure for obtaining ¿ that you have on deposit in another account deposit. refund). with us. The funds in the other account We are taking this action because: C–14—One-Time Notice for Large-Deposit would then not be available for withdrawal _____ A check you deposited was previously and Redeposited-Check Exception Holds until the time periods that are described returned unpaid. elsewhere in this disclosure for the type of _____ You have overdrawn your account NOTICE OF HOLD check that you deposited.¿ repeatedly in the last six months. If you deposit into your account:

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• Checks totaling more than $5,000 on any (number) business day after the day of drawn on us) that otherwise would have one day, the first $5,000 deposited on any deposit for checks drawn on (bank name), the received next-day availability will be treated one banking day will be available to you (number) business day after the day of as either local or nonlocal checks depending according to our general policy. The amount deposit for local checks and the (number) on the location of the paying bank. in excess of $5,000 will generally be available business day for nonlocal checks. Checks C–16—Case-by-Case Hold Notice on the (number) business day after the day (not drawn on us) that otherwise would of deposit for checks drawn on (bank name), receive next-day availability will be treated NOTICE OF HOLD the (number) business day after the day of as either local or nonlocal checks depending Account number: Date of deposit: deposit for local checks and (number) on the location of the paying bank. (number) (date) business day after the day of deposit for C–15—One-Time Notice for Repeated- nonlocal checks after the day of your deposit. We are delaying the availability of Overdraft Exception Holds If checks (not drawn on us) that otherwise $(amount being held) from this deposit. These funds will be available on the would receive next-day availability exceed NOTICE OF HOLD $5,000, the excess will be treated as either (number) business day after the day of your Account number: Date of deposit: local or nonlocal checks depending on the deposit ([subject to our cash-withdrawal location of the paying bank. If your check (number) (date) limitation policy]). deposit, exceeding $5,000 on any one day, is We are delaying the availability of checks [If you did not receive this notice at the a mix of local checks, nonlocal checks, deposited into your account due to repeated time you made the deposit and the check you checks drawn on (bank name), or checks that overdrafts of your account. For the next six deposited is paid, we will refund to you any generally receive next-day availability, the months, deposits will generally be available fees for overdrafts or returned checks that excess will be calculated by first adding on the (number) business day after the day result solely from the additional delay that together the (type of check), then the (type of of your deposit for checks drawn on (bank we are imposing. To obtain a refund of such check), then the (type of check), then the name), the (number) business day after the fees, (description of procedure for obtaining (type of check). day of your deposit for local checks, and the refund).] • A check that has been returned unpaid, (number) business day after the day of C–17—Notice at Locations Where Employees the funds will generally be available on the deposit for nonlocal checks. Checks (not Accept Consumer Deposits

C–18—Notice at Locations Where Employees on the (number) business day after the day funds will generally be available by the fifth Accept Consumer Deposits (Case-by-Case we receive your deposit. Funds from business day after the day of deposit.¿ Holds) electronic deposits will be available on the BILLING CODE 6210–01–P FUNDS—AVAILABILITY POLICY day we receive the deposit. In some cases, we may delay your ability to withdraw funds Our general policy is to allow you to withdraw funds deposited in your account beyond the (number) business day. Then, the

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BILLING CODE 6210–01–C amount in excess of the $2,500 [plus interest] of document, for example original check or fiC–ø19¿fl15fi—Notice at Automated that we credited to your account on (date).] sufficient copy) shows, (describe reason for Teller Machines denial, for example the check was properly C–ø23¿fl19fi—Expedited-Recredit Claim, posted, the signature is authentic, there was AVAILABILITY OF DEPOSITS Provisional-Refund Notice no warranty breach). Funds from deposits may not be available Notice of Provisional Refund [We have also enclosed a copy of the other for immediate withdrawal. Please refer to your institution’s rules governing funds In response to your substitute-check claim, information we used to make our decision.] availability for details. we are refunding (amount) [of which [Upon your request, we will send you a copy [(amount) represents fees] [and] [(amount) of the other information that we used to make ø ¿fl fi C– 20 16 —Notice at Automated Teller represents accrued interest]] to your account, our decision.] Machines (Delayed Receipt) while we complete our investigation of your C–ø25¿fl21fi—Expedited-Recredit Claim, NOTICE claim. You may withdraw these funds as of Reversal Notice (date). [Unless we determine that your claim Deposits at this ATM between (day) and Reversal of Refund (day) will not be considered received until is not valid, we will credit the remaining (day). The availability of funds from the amount of your refund to your account no In response to your substitute-check claim, deposit may be delayed as a result. later than the 45th calendar day after we we provided a refund of (amount) by received your claim.] crediting your account on (date(s)). We now ø ¿fl fi C– 21 17 —Deposit-Slip Notice If, based on our investigation, we have determined that your substitute check Deposits may not be available for determine that your claim is not valid, we claim was not valid. As the enclosed (type of immediate withdrawal. will reverse the refund by withdrawing the document, for example original check or ø ¿ amount of the refund [plus interest that we sufficient copy) shows, (describe reason for C– 22 fl18fi—Expedited-Recredit Claim, have paid you on that amount] from your Valid-Claim Refund Notice reversal, for example the check was properly account. We will notify you within one day posted, the signature is authentic, there was Notice of Valid Claim and Refund of any such reversal. no warranty breach). As a result, we have ø We have determined that your substitute- C–ø24¿fl20fi—Expedited-Recredit Claim, reversed the refund to your account plus check claim is valid. We are refunding Denial Notice interest that we have paid you on that (amount) [of which [(amount) represents amount¿ by withdrawing (amount) from your fees] [and] [(amount) represents accrued Denial of Claim account on (date). interest]] to your account. You may withdraw Based on our review, we are denying your øWe have also enclosed a copy of the other these funds as of (date). [This refund is the substitute-check claim. As the enclosed (type information we used to make our decision.¿

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øUpon your request, we will send you a copy (ii) The indorsement, if applied to an B. In Section XII, revise paragraphs A. of the information we used to make our existing paper check, shall be placed on the and E. ¿ decision. back of the check from 0.0 inches to 3.0 C. Revise Sections XIII through 35. Appendix D to Part 229 is revised inches from the leading edge of the check. XXVIII. (iii) When printing its collecting bank or D. In Section XXIX, revise paragraph to read as follows: returning bank indorsement (or a collecting B. Appendix D to Part 229—Indorsement, bank or returning bank indorsement that E. Revise Sections XXX through Reconverting Bank Identification, and previously was applied electronically) onto a XXXIII. Truncating Bank Identification substitute check at the time that the substitute check is created, a reconverting F. Revise Section XXXVIII. Standards bank shall place the indorsement on the back The revisions read as follows: (1) The depositary bank shall indorse an of the check between 0.25 and 2.50 inches original check or substitute check according from the trailing edge of the check. Appendix E to Part 229—Commentary to the following specifications: (3) A reconverting bank shall comply with I. Introduction (i) The indorsement shall contain— the following specifications when creating a A. Background (A) The bank’s nine-digit routing number, substitute check: set off by an arrow at each end of the number (i)fl(A)fi If it is a depositary bank, 1. The Board interpretations, which are and pointing toward the number, and, if the collecting bank, or returning bank with labeled ‘‘Commentaryfl,fi’’ øand depositary bank is a reconverting bank with respect to the substitute check, the follow¿floffi each section of Regulation CC respect to the check, an asterisk outside the reconverting bank shall place its own (12 CFR part 229)ø,¿ provide background arrow at each end of the routing number to indorsement onto the back of the check as material to explain the Board’s intent in identify the bank as a reconverting bank; specified in this appendix. adopting a particular part of the regulation; (B) The indorsement date; and ø(ii)¿fl(B) If it is a paying bank with the Commentary also provides examples to (C) The bank’s name or location, if the respect to the substitute check or a bank that aid in understanding how a particular depositary bank applies the indorsement rejected a check submitted for deposit,fi requirement is to work. Under section 611(e) physically. øA¿flthefi reconverting bank øthat also is of the Expedited Funds Availability Act (12 (ii) The indorsement also may contain— the paying bank with respect to the substitute U.S.C. 4010(e)) fl(the EFA Act)fi, no (A) A branch identification; check¿ shall so identify itself by placing on provision of section 611 imposing any (B) A trace or sequence number; the back of the check, between 0.25 and 2.50 liability shall apply to any act done or ø(C) A telephone number for receipt of inches from the trailing edge of the check, its omitted in good faith conformity with any notification of large-dollar returned checks;¿ nine-digit routing number (without arrows) rule, regulation, or interpretation thereof by and and an asterisk at each end of the number. the Board of Governors of the Federal ø(D)¿fl(C)fi Other information, provided ø(iii)¿fl(ii)fi The reconverting bank shall Reserve System, notwithstanding the fact that that the inclusion of such information does place on the front of the check, outside the after such act or omission has occurred, such not interfere with the readability of the image of the original checkø,¿fl--fi rule, regulation, or interpretation is amended, indorsement. fl(A)fi its nine-digit routing number rescinded, or determined by judicial or other (iii)fl(A)fi The indorsement, if applied to (without arrows) and an asterisk at each end authority to be invalid for any reason. The an existing paper check, shall be placed on of the number, in accordance with ANS Commentary is an ‘‘interpretation’’ of a the back of the check so that the routing X9.100–140ø.¿fl, andfi regulation by the Board within the meaning number is wholly contained in the area 3.0 ø(iv)¿fl(B)fi øThe reconverting bank shall of section 611. inches from the leading edge of the check to place on the front of the check, outside the II. Section 229.2 Definitions 1.5 inches from the trailing edge of the image of the original check,¿ the truncating ø31¿ check. bank’s nine-digit routing number (without A. Background ø31¿ fl(B) The leading edge is defined as arrows) and a bracket at each end of the 1. Section 229.2 defines the terms used in the right side of the check looking at it from number, in accordance with ANS X9.100– the regulation. For the most part, terms are the front. The trailing edge is defined as the 140. defined as they are in section 602 of the left side of the check looking at it from the (4) Any indorsement, reconverting bank øExpedited Funds Availability¿ flEFAfi front. See American National Standards identification, or truncating bank Act (12 U.S.C. 4001) flor in section 3 of the Specifications for the Placement and identification placed on an original check or Check 21 Act (12 U.S.C. 5002)fi. The Board Location of MICR Printing, X9.13.fi substitute check shall be printed in black ink. has made a number of changes for the sake (iv) When printing its depositary bank fl(5) A depositary bank shall indorse an of clarity, to conform the terminology to that indorsement (or a depositary bank electronic collection item in accordance with which is familiar to the banking industry, to indorsement that previously was applied ANS X9.100–187, unless the parties define terms that are not defined in the EFA electronically) onto a substitute check at the otherwise agree, and according to the Act flor the Check 21 Actfi, and to carry time that the substitute check is created, a following specifications— out the purposes of the EFA Act fland the reconverting bank shall place the (i) The electronic indorsement shall Check 21 Actfi. The Board also has indorsement on the back of the check contain— incorporated by reference the definitions of between 1.88 and 2.74 inches from the (A) The depositary bank’s nine-digit the Uniform Commercial Code where leading edge of the check. The reconverting routing number; and appropriate. Some of Regulation CC’s bank may omit the depositary bank’s name (B) The indorsement date. definitions are self-explanatory and therefore and location from the indorsement. (ii) The electronic indorsement also may are not discussed in this Commentary. (2) Each subsequent collecting bank or contain other information, provided that the B. 229.2(a) Account returning bank indorser shall protect the inclusion of such information does not identifiability and legibility of the depositary interfere with the readability of the 1. The EFA Act defines account to mean bank indorsement by indorsing an original indorsement. ‘‘a demand deposit account or similar check or substitute check according to the (6) Each subsequent collecting bank or transaction account at a depository following specifications: returning bank indorser shall protect the institution.’’ The regulation defines account, (i) The indorsement shall contain only— identifiability and legibility of the depositary for purposes other than subpart D, in terms (A) The bank’s nine-digit routing number bank indorsement by indorsing an electronic of the definition of ‘‘transaction account’’ in (without arrows) and, if the collecting bank collection item or electronic return in the Board’s Regulation D (12 CFR part 204). or returning bank is a reconverting bank with accordance with ANS X9.100–187, unless the This definition of account, however, respect to the check, an asterisk at each end parties otherwise agree.fi excludes certain deposits, such as of the number to identify the bank as a nondocumentary obligations (see 12 CFR reconverting bank; 36. Amend Appendix E to Part 229 as 204.2(a)(1)(vii)), that are covered under the (B) The indorsement date, and follows: definition of ‘‘transaction account’’ in (C) An optional trace or sequence number. A. Revise Sections II through XI. Regulation D. The definition applies to

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accounts with general third party payment different kinds of ACH payments. In an ACH F. 229.2(e) Bank powers but does not cover time deposits or credit transfer, the originator orders that its 1. The EFA Act uses the term depository savings deposits, including money market account be debited and another account institution, which it defines by reference to deposit accounts, even though they may have credited. In an ACH debit transfer, the ø section 19(b)(1)(A)(i) through (vi) of the limited third party payment powers. The originator, with prior authorization, orders Federal Reserve Act (12 U.S.C. 461(b)(1)(A)(i) Board believes that it is appropriate to another account to be debited and the ¿ ¿ through (vi)). This regulation uses the term exclude t flTfihese accounts flare originator’s account to be credited. bank, a term that conforms to the usage the ø ¿fl fi excludedfi because of the reference to 3 2 . A facility that handles only wire Board has previously adopted in Regulation demand deposits in the EFA Act, which transfers (defined elsewhere) is not an ACH. J fl(12 CFR part 210)fi. Bank is also used suggests that the EFA Act is intended to D. 229.2(c) Automated Teller Machine (ATM) in Articles 4 and 4A of the Uniform apply only to accounts that permit unlimited ø Commercial Code. third party transfers. 1. ATM is not defined in the EFA Act. ¿fl fi 2. Bank is defined to include depository 2. The term account also differs from the The regulation defines a A n ATM øas¿flisfi an electronic device at which a institutions, such as commercial banks, definition of transaction account in savings banks, savings and loan associations, Regulation D because the term account refers natural person may make deposits to an fl fi and credit unions as defined in the EFA Act, to accounts held at banks. Under account by cash or paper check and perform other account transactionsfl, such and U.S. branches and agencies of foreign øS¿flsfiubparts A and C, the term bank as cash withdrawalsfi. Point-of-sale banks. For purposes of øS¿flsfiubpart B, includes not only any depository institution, terminals, machines that only dispense cash, the term does not include corporations as defined in the EFA Act, but also any night depositories, and lobby deposit boxes organized under section 25A of the Federal person engaged in the business of banking, are not ATMs within the meaning of the Reserve Act, 12 U.S.C. 611–631 (Edge such as a Federal Reserve Bank, a Federal definition, either because they do not accept corporations) or corporations having an Home Loan Bank, or a private banker that is deposits of cash or checks (e.g., point-of-sale agreement or undertaking with the Board not subject to Regulation D. Thus, accounts terminals and cash dispensers) or because under section 25 of the Federal Reserve Act, at these institutions benefit from the they only accept deposits (e.g., night 12 U.S.C. 601–604a (agreement corporations). expeditious return requirements of depositories and lobby boxes) and cannot For purposes of øS¿flsfiubparts C and D, ø ¿fl fi S s ubpart C. fldispense cash andfi perform other and in connection therewith, 3. Interbank deposits, including accounts transactions. A lobby deposit box or similar øS¿flsfiubpart A, any Federal Reserve of offices of domestic banks or foreign banks receptacle in which written payment orders Bank, Federal Home Loan Bank, or any other located outside the United States, and direct or deposits may be placed is not an ATM. person engaged in the business of banking is and indirect accounts of the United States flFinally, a remote deposit capture device is regarded as a bank. The phrase ‘‘any other Treasury (including Treasury General not an ATM because a natural person can person engaged in the business of banking’’ Accounts and Treasury Tax and Loan deposit neither cash nor paper checks into an is derived from U.C.C. 1–201fl(b)fi(4), and deposits) are exempt from subpart B and, in account using the device.fi is intended to cover entities that handle connection therewith, subpart A. However, 2. A facility may be an ATM within this checks for collection and payment, such as interbank deposits are included as accounts definition even if it is a branch under state Edge and agreement corporations, for purposes of subparts C and D and, in or federal law, although an ATM is not a commercial lending companies under 12 connection therewith, subpart A. branch as that term is used in this regulation. 4. The Check 21 Act defines account to U.S.C. 3101, certain industrial banks, and mean any deposit account at a bank. E. 229.2(d) Available for Withdrawal private bankers, so that virtually all checks Therefore, for purposes of subpart D and, in 1. Under this definition, when funds will be covered by the same rules for forward connection therewith, subpart A, account become available for withdrawal, the funds collection and return, even though they may not be covered by the requirements of means any deposit, as that term is defined by may be put to all uses for which the customer ø ¿ may use actually and finally collected funds S flsfiubpart B. For the purposes of § 204.2(a)(1)(i) of Regulation D, at a bank. ø ¿ in the customer’s account under the S flsfiubparts C and D, and in connection Many deposits that are not accounts for ø ¿ purposes of the other subparts of Regulation customer’s account agreement with the bank. therewith, S flsfiubpart A, the term also CC, such as savings deposits, are accounts for Examples of such uses include payment of may include a state or a unit of general local purposes of subpart D. checks drawn on the account, certification of government to the extent that it pays checks, electronic payments, and cash warrants or other drafts drawn directly on the C. 229.2(b) Automated Clearinghouse (ACH) withdrawals. Funds are available for these state or local government itself, and the flCredit Transferfi uses notwithstanding provisions of other law warrants or other drafts are sent to the state 1. flAutomated Clearinghouse (ACH) that may restrict the use of uncollected funds or local government for payment or credit transfers are included in the definition (e.g., 18 U.S.C. 1004; 12 U.S.C. 331). collection. of electronic payment.fi øThe Board has 2. If a bank makes funds available to a 3. Unless otherwise specified, the term defined automated clearinghouse as¿ flAn customer for a specific purpose (such as bank includes all of a bank’s offices in the ACH isfi a facility that processes debit and paying checks that would otherwise United States. The regulation does not cover credit transfers under rules established by a overdraw the customer’s account and be foreign offices of U.S. banks. Federal Reserve Bank operating circular returned for insufficient funds) before the 4. For purposes of subpart D and, in governing øautomated funds must be made available under the connection therewith, subpart A, the term clearinghouse¿flACHfi items or the rules of bank’s policy or this regulation, it may bank also includes the Treasury of the United an ACH association flor similar interbank nevertheless apply a hold consistent with States and the United States Postal Service to agreementfi. øACH credit transfers are this regulation to those funds for other the extent that they act as paying banks included in the definition of electronic purposes (such as cash withdrawals). For because the Check 21 Act includes these two payment.¿ flThe reference to ‘‘debit and purposes of this regulation, funds are entities in the definition of the term bank to credit transfers’’ does not refer to the considered available for withdrawal even the extent that they act as payors. corresponding debit and credit entries that though they are being held by the bank to G. 229.2(f) Banking Day and (g) Business Day are part of the same transaction, but to the satisfy an obligation of the customer other different kinds of ACH payments. In an ACH than the customer’s potential liability for the 1. The EFA Act fland the Check 21 Actfi credit transfer, the originator orders that its return of the check. For example, a bank does defineøs¿ business day as any day excluding account be debited and another account not violate its obligations under this subpart Saturdays, Sundays, and legal holidays. Legal credited. In contrast, in an ACH debit by holding funds to satisfy a garnishment, tax holiday, however, is not defined, and the transfer, the originator, with prior levy, or court order restricting disbursements variety of local holidays, together with the authorization, orders another account to be from the account; or to satisfy the customer’s practice of some banks to close midweek, debited and the originator’s account to be liability arising from the certification of a makes the EFA Act’s definition difficult to credited.fi ø2. The reference to ‘‘debit and check, sale of a cashier’s or teller’s check, apply. øThe Board believes that t¿flTfiwo credit transfers’’ does not refer to the guaranty or acceptance of a check, or similar kinds of business days are relevant. First, corresponding debit and credit entries that transaction to be debited from the customer’s when determining the day when funds are are part of the same transaction, but to the account. deposited or when a bank must perform

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certain actions (such as returning a check), I. 229.2(i) Cashier’s Check payable-through bank is a collecting bank to the focus should be on a day that the bank 1. The regulation adds to the second item make presentment and generally is not is actually open for business. Second, when in the EFA Act’s definition of cashier’s check authorized to make payment (U.C.C. 4– counting days for purposes of determining 106(a)). øThe¿ flNeither thefi EFA Act the phrase, ‘‘on behalf of the bank as drawer,’’ ø ¿ when funds must be available under the to clarify that the term cashier’s check is flnor the Check 21 Actfi does not ø regulation or when notice of nonpayment intended to cover only checks that a bank expressly address items that are payable at a ¿ must be received by the depositary bank , draws on itself. The definition of cashier’s bank. This regulation treats both payable- there would be confusion and uncertainty in check includes checks provided to a through and payable-at demand drafts as trying to follow the schedule of a particular checks. øThe Board believes that customer of the bank in connection with ¿ bank, and there is less need to identify a day customer deposit account activity, such as t flTfireating demand drafts payable at a ø ¿fl fi when a particular bank is open. Most banks account disbursements and interest bank as checks will should not have a that act as intermediaries (large payments. The definition also includes substantial effect on the operations of correspondents and Federal Reserve Banks) checks acquired from a bank by payable-at banks—by far the largest follow the same holiday schedule. noncustomers for remittance purposes, such proportion of payable-at items are not negotiable demand drafts, but time items, Accordingly, the regulation has two as certain loan disbursement checks. such as commercial paper, bonds, notes, definitions: Business day generally follows Cashier’s checks provided to customers or bankers’ acceptances, and securities. These the standard Federal Reserve Bank holiday others are often labeled as ‘‘cashier’s check,’’ time items are not covered by the schedule (which is followed by most large ‘‘officer’s check,’’ or ‘‘official check.’’ The requirements of the EFA Act or this banks), and banking day is defined to mean definition excludes checks that a bank draws regulation. ø(The treatment of payable- that part of a business day on which a bank on itself for other purposes, such as to pay through drafts is discussed in greater detail is open for substantially all of its banking employees and vendors, and checks issued in connection with the definitions of local activities. by the bank in connection with a payment check and paying bank.)¿ 2. The definition of banking day service, such as a payroll or a bill-paying corresponds to the definition of banking day 4. The second category is checks drawn on service. Cashier’s checks generally are sold Federal Reserve Banks and Federal Home in U.C.C. 4–104(a)(3), except that a banking by banks to substitute the bank’s credit for day is defined in terms of a business day. Loan Banks. Principal and interest payments the customer’s credit and thereby enhance ø ¿ Thus, if a bank is open on Saturday, Saturday on federal debt instruments often are the collectibility of the checks. A check flmay befi paid with checks drawn on a might be a banking day for purposes of the issued in connection with a payment service U.C.C., but it would not be a banking day for Federal Reserve Bank as fiscal agent of the generally is provided as a convenience to the United Statesø, and these fiscal agency purposes of Regulation CC because Saturday customer rather than as a guarantee of the is never a business day under the regulation. checks are indistinguishable from other check’s collectibility. In addition, such checks drawn on Federal Reserve Banks¿. 3. The definition of banking day is phrased checks are often more difficult to distinguish ø in terms of when ‘‘an office of a bank is open’’ (See 31 CFR part 355.) Federal Reserve Bank from other types of checks than are cashier’s checks also are used by some banks as to indicate that a bank may observe a banking checks as defined by this regulation. day on a per-branch basis. A deposit made substitutes for cashier’s or teller’s checks. J. 229.2(j) Certified Check Similarly, s¿flSfiavings and loan at an ATM or off-premise facility (such as a ø ¿ remote depository or a lock box) is 1. The EFA Act defines a certified check associations often flmayfi use checks considered made at the branch holding the as one to which a bank has certified that the drawn on Federal Home Loan Banks as account into which the deposit is made for drawer’s signature is genuine and that the teller’s checks. The definition of check the purpose of determining the day of bank has set aside funds to pay the check. includes checks drawn on Federal Home deposit. All other deposits are considered Under the Uniform Commercial Code, Loan Banks and Federal Reserve Banks made at the branch at which the deposit is certification of a check means the bank’s because in many cases they are the functional received. For example, under § 229.19(a)(1), signed agreement that it will honor the check equivalent of Treasury checks or teller’s funds deposited at an ATM are considered as presented (U.C.C. 3–409). The regulation checks. deposited at the time they are received at the defines certified check to include both the 5. The third and fourth categories of ATM. On a calendar day that is a banking EFA Act’s and U.C.C.’s definitions. instrument included in the definition of check refer to government checks. The EFA day for the branch or other location of the K. 229.2(k) Check depositary bank at which the account is Act refers to checks drawn on the U.S. maintained, a deposit received at an ATM 1. Check is defined in section 602(7) of the Treasury, even though these instruments are before the ATM’s cut-off hour is considered EFA Act as a negotiable demand draft drawn not drawn on or payable through an office of deposited on that banking day, and a deposit on or payable through an office of a a depository institution, and checks drawn received at an ATM after the ATM’s cut-off depository institution located in the United by state and local governments. The EFA Act States, excluding noncash items. The also øgives the Board authority to hour is considered deposited on the next ¿ banking day of the branch or other location regulation includes six categories of define flprovides thatfi functionally where the account is maintained. On a instruments within the definition of check. equivalent instruments flmay be defined in ø1¿ calendar day that is not a banking day for the flCheck is defined in section 3 of the Check the regulationfi as depository checks. account-holding location, all ATM deposits 21 Act as including nonnegotiable demand fl(See Section 602(11) of the EFA Act (12 are considered deposited on that location’s drafts. Because these instruments are often U.S.C. 4001(11)).fi Thus, the EFA Act is next banking day. This rule for determining handled as cash items in the forward intended to apply to instruments other than the day of deposit also would apply to a collection process, for the purposes of those that meet the strict definition of check deposit to an off-premise facility, such as a subparts C and D, and in connection in section 602(7) of the EFA Act. Checks and night depository or lock box, which is therewith, subpart A, the definition of check warrants drawn by states and local considered deposited when removed from includes nonnegotiable demand drafts drawn governments often are used for the purposes the facility and available for processing on or payable through a bank, drawn on a of making unemployment compensation under § 229.19(a)(3). If an unstaffed facility, Federal Reserve Bank or Federal Home Loan payments and other payments that are such as a night depository or lock box, is on Bank, or drawn on the Treasury of the United important to the recipients. Consequently, ø branch premises, the day of deposit is States.fi the Board has expressly ¿ determined by the banking day at the branch 2. The first category is negotiable demand defined flRegulation CC definesfi check to at which the deposit is received, whether or drafts drawn on, or payable through or at, an include drafts drawn on the U.S. Treasury not it is the branch at which the account is office of a bank. As the definition of bank and drafts or warrants drawn by a state or a maintained. includes only offices located in the United unit of general local government on itself. States, this category is limited to checks ø1 Section 602(11) of the EFA Act (12 H. 229.2(h) Cash drawn on, or payable through or at, a banking U.S.C. 4001(11)) defines ‘‘depository check’’ 1. Cash means U.S. coins and currency. office located in the United States. as ‘‘any cashier’s check, certified check, The phrase in the EFA Act ‘‘including 3. The EFA Act fland the Check 21 Actfi teller’s check, and any other functionally Federal Reserve notes’’ has been deleted as treatøs¿ drafts payable through a bank as equivalent instrument as determined by the unnecessary. (See 31 U.S.C. 5103.) checks, even though under the U.C.C. the Board.’’¿

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6. The fifth category of instrument of Regulation CC the term account includes while depositary bank is the term used in included in the definition of check is U.S. only deposit accounts, a consumer’s Article 4 of the U.C.C. and Regulation J fl(12 Postal Service money orders. These revolving credit relationship or other line of CFR part 210). The Check 21 Act uses the instruments are defined as checks because credit with a bank is not a consumer account, term depositary bank.fi they often are used as a substitute for checks even if the consumer draws on such credit 2. A depositary bank includes the bank in by consumers, even though money orders are lines by using a check. Both consumer and which the check is first deposited. If a foreign not negotiable under Postal Service nonconsumer accounts are subject to the office of a U.S. or foreign bank sends checks regulations. øThe Board has not requirements of this regulation, including the to its U.S. correspondent bank for forward provided¿flRegulation CC does not requirement that funds be made available collection, the U.S. correspondent is the providefi specific rules for other types of according to specific schedules and that the depositary bank because foreign offices of money orders; these instruments generally bank make specified disclosures of its banks are not included in the definition of are drawn on or payable through or payable availability policies. Section 229.18(b) bank. at banks and are treated as checks on that (notices at branch locations) and § 229.18(e) 3. If a customer deposits a check in its basis. (notice of changes in policy) apply only to account at a bank, the customer’s bank is the 7. The sixth and final category of consumer accounts. Section 229.13(g)(2) depositary bank with respect to the check. instrument included in the definition of (one-time exception notice) and § 229.19(d) For example, if a person deposits a check check is traveler’s checks drawn on or (use of calculated availability) apply only to into an account at a nonproprietary ATM, the payable through or at a bank. Traveler’s nonconsumer accounts. bank holding the account into which the ø ¿ check is deposited is the depositary bank check is defined in paragraph (hh) P. 229.2(p) Contractual Branch fl(vv)fi øof this section¿. even though another bank may service the ø8. Finally, for the purposes of Subparts C 1. When one bank arranges for another nonproprietary ATM and send the check for and D, and in connection therewith, Subpart bank to accept deposits on its behalf, the collection. (Under § 229.35 the depositary A, the definition of check includes second bank is a contractual branch of the bank may agree with the bank servicing the nonnegotiable demand drafts because these first bank. For further discussion of nonproprietary ATM to have the servicing instruments are often handled as cash items contractual branch deposits and related bank place its own indorsement on the check in the forward collection process.¿ disclosures, see § [§ 229.2(s) and] 229.19(a) of as the depositary bank. For the purposes of ø9¿fl8fi. A substitute check as defined in the regulation and the commentary to øS¿flsfiubpart C, the bank applying its § 229.2ø(aaa)¿fl(rr)fi is a check for purposes § [§ 229.2(s),] 229.10(c), 229.14(a), 229.16(a), indorsement as the depositary bank of Regulation CC and the U.C.C., even if that 229.18(b), and 229.19(a). indorsement on the check is the depositary substitute check does not meet the Q. 229.2(q) [Reserved] bank.) requirements for legal equivalence set forth 4. For purposes of øS¿flsfiubpart B, a ø in § 229.51(a). R. 229.2(r) 229.2(r) Local Check bank may act as both the depositary bank and ø10¿fl9fi. The definition of check does 1. Local check is defined as a check the paying bank with respect to a check, if not include an instrument payable in a payable by or at a local paying bank, or, in the check is payable by the bank in which foreign currency (i.e., other than in United the case of nonbank payors, payable through it was deposited, or if the check is payable States money as defined in 31 U.S.C. 5101) a local paying bank. A check payable by a by a nonbank payor and payable through or or a credit card draft (i.e., a sales draft used local bank but payable through a nonlocal at the bank in which it was deposited. A by a merchant or a draft generated by a bank bank is a local check. Conversely, a check bank also is considered a depositary bank as a result of a cash advance), or an ACH payable through a local bank but payable by with respect to checks it receives as payee. debit transfer. The definition of check a nonlocal bank is a nonlocal check. Where For example, a bank is a depositary bank includes a check that a bank may supply to two banks are named on a check and neither with respect to checks it receives for loan a customer as a means of accessing a credit is designated as a payable-through bank, the repayment, even though these checks are not line without the use of a credit card. check is considered payable by either bank deposited in an account at the bank. Because L. 229.2(l) øReserved¿ and may be considered local or nonlocal these checks would not be ‘‘deposited to accounts,’’ they would not be subject to the ø ¿ depending on the bank to which it is sent for M. 229.2(m) Check Processing Region payment. Generally, the depositary bank may availability or disclosure requirements of ø ¿ ø1. The EFA Act defines this term as ‘‘the rely on the routing number to determine S flsfiubpart B. geographic area served by a Federal Reserve whether a check is local or nonlocal. fl5. A bank is not a depositary bank with bank check processing center or such larger Appendix A includes a list of routing respect to a check if the bank receives the area as the Board may prescribe by numbers arranged by Federal Reserve Bank check for deposit but then rejects the check. regulations.’’ The Board has defined check Office to assist persons in determining For example, if a bank’s customer submits a processing region as the territory served by whether or not such a check is local. If, check for deposit into an ATM and the bank one of the Federal Reserve head offices, however, a check is payable by one bank but subsequently reviewed the item and branches, or regional check processing payable through another bank, the routing determined not to accept the item for deposit, centers. Appendix A includes a list of routing number appearing on the check will be that that bank is not a depositary bank with numbers arranged by Federal Reserve Bank of the payable-through bank, not the paying respect to the check it rejected. Accordingly, office. The definition of check processing bank. Many credit union share drafts and such a bank does not take on the liabilities of a depositary bank under this part.fi region is key to determining whether a check certain other checks payable by banks are is considered local or payable through other banks. In such cases, øS. 229.2(s) Local Paying Bank ¿ nonlocal. fl[Reserved]fi the routing number cannot be relied on to 1. ‘‘Local paying bank’’ is defined as a N. 229.2(n) [Reserved] determine whether the check is local or paying bank located in the same check- nonlocal. For payable-through checks that processing region as the branch, contractual O. 229.2(o) Consumer Account meet the labeling requirements of § 229.36(e), branch, or proprietary ATM of the depositary 1. Consumer account is defined as an the depositary bank may rely on the four- bank. For example, a check deposited at a account used primarily for personal, family, digit routing symbol of the paying bank that contractual branch would be deemed local or or household purposes. An account that does is printed on the face of the check as required nonlocal based on the location of the not meet the definition of consumer account by that section, e.g., in the title plate, but not contractual branch with respect to the is a nonconsumer account. A clearing on the first four digits of the payable-through location of the paying bank. account maintained at a bank directly by a bank’s routing number printed in magnetic Examples. brokerage firm is not a consumer account, ink in the MICR line or in fractional form, to a. If a check that is payable by a bank that even if the account is used to pay checks determine whether the check is local or is located in the same check processing drawn by consumers using the funds in that nonlocal.¿ Depositary Bank region as the depositary bank is payable account. The bank’s relationship is with the 1. The regulation uses the term depositary through a bank located in another check brokerage firm, and the account is used by bank rather than the term receiving processing region, the check is considered the brokerage firm to facilitate the clearing of depository institution. Receiving depository local or nonlocal depending on the location its customers’ checks. Because for purposes institution is a term unique to the EFA Act, of the bank by which it is payable even if the

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check is sent to the nonlocal bank for 187, unless the parties agree to a different and information. Accordingly, the parties collection. standard.fi may agree to return checks as electronic b. The location of the depositary bank is T. 229.2(t) Electronic Payment images and information that conform to a determined by the physical location of the different standard. For example, the branch or proprietary ATM at which a check 1. Electronic payment is defined to mean depositary bank may agree to receive the is deposited, regardless of whether the a wire transfer as defined in electronic image and information sufficient ø ¿ deposit is made in person, by mail, or § 229.2 (ll) fl(bbb)fi or an ACH credit for creating a substitute check in a .pdf, otherwise. For example, if a branch of the transfer flas defined in § 229.2(b)fi. The rather than in accordance with ANS X9.100– depositary bank located in one check- EFA Act requires that funds deposited by 187. processing region sends a check that was wire transfer be made available for 3. An electronic image and information deposited at that branch to the depositary withdrawal on the business day following related to a check the paying bank bank’s central facility in another check- deposit but expressly leaves the definition of determines not to pay is subject to the processing region, and the central facility is the term wire transfer to the provisions of subpart C only if the depositary ø ¿ in the same check-processing region as the Board flregulationfi. Because ACH credit bank has agreed to receive the electronic ø paying bank, the check is still considered transfers frequently involve important return in accordance with § ¿ 229.32(a) (See nonlocal. ( See the commentary to the consumer payments, such as wages flpose § 229.32(a) and accompanying commentary). definition of ‘‘paying bank.’’) little risk of return to the depositary bankfi, 4. Electronic returns that contain images of c. If a person deposits a check to an the regulation requires that funds deposited the front and back of a substitute check also account by mailing or otherwise sending the by ACH credit transfers be available for are electronic representations of a substitute check to a facility or office that is not a bank, withdrawal on the business day following check (See § 229.2(hh)). Not all electronic the check is considered local or nonlocal deposit. representations of substitute checks, depending on the location of the bank whose 2. ACH debit transfers, even though they however, are electronic returns. To be an indorsement appears on the check as the may be transmitted electronically, are not electronic return, the electronic depositary bank.¿ defined as electronic payments because the representation of a substitute check must receiver of an ACH debit transfer has the flS. 229.2(s) Electronic Collection Item satisfy the requirements for electronic right to return the transfer, which would returns—it must contain sufficient 1. Banks often enter into agreements under reverse the credit given to the originator. information to create a substitute check and which a check may be transferred or Thus, ACH debit transfers are more like must conform to ANS X9.100–187.fi presented by sending an electronic image of checks than wire transfers. Further, bank the check and electronic information related customers that receive funds by originating flW. 229.2(w) Electronic Return Point to the check (e.g., MICR-line information). ACH debit transfers are primarily large 1. The term ‘‘electronic return point’’ means The terms of the agreements may vary. If, corporations, which generally would be able the e-mail address or other electronic address however, an electronic collection item to negotiate with their banks for prompt that a depositary bank has designated as the satisfies all the requirements set forth in availability. place to which electronic returns must be § 229.2(s), then the provisions of subpart C 3. A point-of-sale transaction would not be delivered. apply to the electronic collection item as if considered an electronic payment unless the 2. The electronic return point may be it were a check subject to that subpart. transaction was effected by means of an ACH different from the electronic presentment a. The agreement to receive an electronic credit transfer or wire transfer. point designated by a bank for presentment collection item may be either bilateral or fl of electronic collection items.fi through a Federal Reserve Bank operating U. 229.2(u) Electronic Presentment Point X. 229.2(x) [Reserved] circular, clearinghouse rule, or other 1. The term ‘‘electronic presentment point’’ interbank agreement. (See UCC § 4–110). means the electronic address that a paying Y. 229.2(y) Forward Collection bank has designated as the place to which b. The electronic image of the front and 1. Forward collection is defined to mean electronic collection items be presented. This back of the original check or substitute check the process by which a bank sends a check address may be either an e-mail address or as well as electronic information related to to the paying bank for collection, including other electronic address.fi the check must be sufficient to create a sending the check to an intermediary substitute check. Electronic information flV. 229.2(v) Electronic Return collecting bank for settlement, as related to the check includes information distinguished from the process by which the contained in the MICR line of the check prior 1. Many paying banks have entered into check is returned unpaid. Noncash to truncation. Some banks’ agreements to agreements with returning banks, depositary collections are not included in the term receive items electronically may not require banks, clearinghouses, or other parties to forward collection. an electronic image of the front and back of return checks electronically. For purposes of an original check. Electronic items received subpart C, the term ‘‘electronic return’’ means Z. 229.2(z) Good Faith an electronic image of and electronic under these agreements would not be 1. This definition of good faith derives information related to a check the paying electronic collection items under this part. from U.C.C. 3–103(a)(4). c. ANS X9.100–187 is the most prevalent bank determines not to pay and that is industry standard for electronic images and sufficient for a subsequent bank to create a AA. 229.2(aa) [Reserved] information that will enable a bank to create substitute check (See § 229.2(rr) and BB. 229.2(bb) Interest Compensation a substitute check. Multiple standards may, accompanying commentary). To be sufficient 1. This calculation of interest however, exist that would enable a bank to to create a substitute check, the electronic compensation derives from U.C.C. 4A– create a substitute check from an electronic image must include an image of both the 506(b). (See §§ 229.34ø(e)¿fl(f)fi and image and information. Accordingly, the front and back of the check. The electronic 229.36ø(f)¿fl(d)fi.) parties may agree to send and receive checks information, typically contained in an as electronic images and information that electronic record accompanying the CC. 229.2(cc) øMICR Line¿ flMagnetic ink conform to a different standard. electronic image, must include information character recognition line or MICR linefi d. Electronic collection items that contain from the MICR line of the check at the time 1. Information in the MICR line of a check images of the front and back of a substitute it was truncated. The electronic record may must be printed in accordance with ANS check also are electronic representations of a include information in addition to MICR-line X9.13 for original checks and ANS X9.100– substitute check (see § 229.2(hh)). Not all related information. 140 for substitute checks. These standards electronic representations of substitute 2. ANS X9.100–187 is the most prevalent could vary the requirements for printing the checks, however, are electronic collection industry standard for electronic images and MICR line, such as by indicating items. To be an electronic collection item, the information that will enable a subsequent circumstances under which the use of electronic representation of a substitute bank to create a substitute check (i.e., in magnetic ink is not required. check must satisfy the requirements for accordance with ANS X9.100–140). Similar electronic collection items—it must contain to electronic presentment, multiple standards DD. 229.2(dd) Merger Transaction sufficient information to create a substitute may exist that would enable a bank to create 1. Merger transaction is a term used in check and it must conform to ANS X9.100– a substitute check from an electronic image øS¿flsfiubparts B and C in connection with

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transition rules for merged banks. It only one original check for any particular II. 229.2(ii) Paying Bank encompasses mergers, consolidations, and payment transaction. However, multiple 1. The regulation uses this term in lieu of purchase/assumption transactions of the type substitute checks could be created to the EFA Act’s ‘‘originating depository that usually must be approved under the represent that original check at various institution.’’ flThe Check 21 Act also uses Bank Merger Act (12 U.S.C. 1828(c)) or points in the check collection and return the term ‘‘paying bank.’’fi For purposes of all similar statutes; it does not encompass process. subparts of Regulation CC, the term paying acquisitions of a bank under the Bank HH. 229.2(hh) Paper or Electronic bank includes the bank by which a check is Holding Company Act (12 U.S.C. 1842) Representation of a Substitute Check payable, the payable-at bank to which a where an acquired bank maintains its check is sent, or, if the check is payable by separate corporate existence. 1. Receipt of a paper or electronic a nonbank payor, the bank through which the 2. Regulation CC adopts a one-year representation of a substitute check does not check is payable and to which it is sent for transition period for banks that are party to trigger indemnity or expedited recredit payment or collection. For purposes of a merger transaction during which the rights, although the recipient nonetheless subparts C and D, the term paying bank also merged banks will continue to be treated as could have a warranty claim or a claim under includes the payable-through bank and the separate entities. (See §§ 229.19(g) and other check law with respect to that bank whose routing number appears on the 229.40.) document or the underlying payment check, regardless of whether the check is EE. 229.2(ee) Noncash Item transaction. A paper or electronic payable by a different bank, provided that the representation of a substitute check would 1. The EFA Act defines the term check to check is sent for payment or collection to the include a representation of a substitute check payable through bank or the bank whose exclude noncash items, and defines noncash that was drawn on an account, as well as a routing number appears on the check. items to include checks to which another representation of a substitute traveler’s 2. Under §§ fl fi ø ¿ document is attached, checks accompanied 229.30 (a) and 229.36(a) , check, credit card check, or other item that a bank designated as a payable-through bank by special instructions, or any similar item meets the substitute check definition. The or payable-at bank and to which the check is classified as a noncash item in the øBoard’s¿ sent for payment or collection is responsible regulation. To qualify as a noncash item, an following examples illustrate the scope of the for the expedited return of checks øand item must be handled as such and may not definition. notice of nonpayment requirements be handled as a cash item by the depositary Examples. of¿flunderfi øS¿flsfiubpart C. The bank. a. A bank receives electronic presentment payable-through or payable-at bank may 2. The regulation’s definition of noncash of a substitute check that has been converted contract with the payor with respect to its item also includes checks that consist of to electronic form and charges the customer’s liability in discharging these responsibilities. more than a single thickness of paper (except account for that electronic item. The periodic øThe Board believes that the EFA Act makes checks that qualify for handling by account statement that the bank provides to ø the customer includes information about the a clear connection between availability and automated check processing equipment , e.g. the time it takes for checks to be cleared and those placed in carrier envelopes¿) and electronically-presented substitute check in a ¿ line-item list describing all the checks the returned. Allowing the payable-through checks that have not been preprinted or post- bank additional time to forward checks to the encoded in magnetic ink with the paying bank charged to the customer’s account during the previous month. The electronic payor and await return or pay instructions bank’s routing number, as well as checks from the payor would delay the return of with documents attached or accompanied by file that the bank received for presentment and charged to the customer’s account would these checks, increasing the risks to special instructions. (In the context of this depositary banks. Subpart C places on be an electronic representation of a substitute definition, paying bank refers to the paying payable-through and payable-at banks the check, and the line-item appearing on the bank as defined for purposes of requirements of expeditious return based on ø ¿ customer’s account statement would be a S flsfiubpart C.) the time the payable-through or payable-at paper representation of a substitute check. 3. A check that has been preprinted or bank received the check for forward post-encoded with a routing number that has b. A paying bank receives and settles for collection. been retired (e.g., because of a merger) for at a substitute check and then realizes that its 3. If a check is sent for forward collection least three years is a noncash item unless the settlement was for the wrong amount. The based on the routing number, the bank current number is added for processing paying bank sends an adjustment request to associated with the routing number is a ø purposes by placing the check in an the presenting bank to correct the error. The paying bank for the purposes of encoded carrier envelope or adding a strip to adjustment request is not a paper or øS¿flsfiubparts C and D requirementsø, ¿ the check . electronic representation of a substitute including notice of nonpayment,¿ even if the 4. Checks that are accompanied by special check under the definition because it is not check is not drawn by a customer of that instructions are also noncash items. For being handled for collection or return as a bank or the check is fraudulent. example, a person concerned about whether check. Rather, it is a separate request that is 4. The phrase ‘‘and to which øthe check¿ a check will be paid may request the related to a check. As a result, no substitute is sent for payment or collection’’ includes depositary bank to send a check for check warranty, indemnity, or expedited sending not only the physical check, but collection as a noncash item with an recredit rights attach to the adjustment. information regarding the check under a instruction to the paying bank to notify the fl2. An electronic representation of a truncation arrangement. depositary bank promptly when the check is substitute check also may be an electronic 5. Federal Reserve Banks and Federal paid or dishonored. collection item or an electronic return if the Home Loan Banks are also paying banks 5. For purposes of forward collection, a electronic representation of the substitute under all subparts of the regulation with copy of a check is neither a check nor a check otherwise satisfies their requirements respect to checks payable by them, even noncash item, but may be treated as either. (see § 229.2(s) and (v)). though such banks are not defined as banks For purposes of return, a copy is generally a Example. for purposes of øS¿flsfiubpart B. notice in lieu of return. (See A bank receives electronic presentment of 6. In accordance with the Check 21 Act, for §§ 229.30ø(f)¿fl(e)fi and a substitute check that has been converted to purposes of subpart D and, in connection 229.31ø(f)¿fl(e)fi.) electronic form. If the electronic file that the therewith, subpart A, paying bank includes FF. 229.2(ff) [Reserved] bank receives for presentment contains an the Treasury of the United States or the electronic image of and information related United States Postal Service with respect to GG. 229.2(gg) Original Check to the substitute check that are sufficient for a check payable by that entity and sent to 1. The definition of original check creating a substitute check and the electronic that entity for payment or collection, even distinguishes the first paper check signed or image and information conform to ANS though the Treasury and Postal Service are otherwise authorized by the drawer to effect X9.100–187, or another format to which the not defined as banks for purposes of subparts a particular payment transaction from a parties agree, that electronic file would be an B and C. Because the Federal Reserve Banks substitute check or other paper or electronic electronic collection item in addition to an act as fiscal agents for the Treasury and the representation that is derived from an electronic representation of a substitute U.S. Postal Service and in that capacity are original check or substitute check. There is check.fi designated as presentment locations for

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Treasury checks and U.S. Postal Service LL. 229.2(ll) Qualified Returned Check and information related to the paper checkfi money orders, a Treasury check or U.S. 1. Subpart C requires the paying bank and for collection to Bank B. Bank B chooses to Postal Service money order presented to a use that file to print a substitute check that returning bank(s) to return checks in an ø Federal Reserve Bank is considered to be fl meets the requirements of § 229.2 (pp) expeditious manner under certain ¿ presented to the Treasury or U.S. Postal circumstancesfi. øThe banks may meet this fl(rr)fi. Bank B is the reconverting bank as Service, respectively. responsibility by returning a check to the of the time it prints the substitute check. JJ. 229.2(jj) [Reserved] depositary bank by the same general means b. Company A, which is not a bank, by used for forward collection of a check from agreement receives check information KK. 229.2(kk) Proprietary ATM the depositary bank to the paying bank. electronically from Bank A. Bank A becomes ø1. All deposits at nonproprietary ATMs One¿flWhile the primaryfi way to speed the reconverting bank when Company A are treated as deposits of nonlocal checks, the return process is to flsend the return prints a substitute check on behalf of Bank and deposits at proprietary ATMs generally electronically, a bank also couldfi prepare A in accordance with that agreement. are treated as deposits at banking offices. The the returned check for automated flpaperfi c. A depositary bank’s customer, which is Conference Report on the EFA Act indicates processing. øReturned checks can be a nonbank business, receives a check for that the special availability rules for deposits automated by either the paying bank or a payment, truncates that original check, and received through nonproprietary ATMs are returning bank by placing the return in a creates a substitute check to deposit with its provided because ‘‘nonproprietary ATMs carrier envelope or by placing a strip on the bank. The depositary bank receives that today do not distinguish among check bottom of the return, and encoding the substitute check from its customer and is the deposits or between check and cash deposits’’ envelope or strip with the routing number of first bank to handle the substitute check. The (H.R. Rep. No. 261, 100th Cong., 1st Sess. at the depositary bank, the amount of the check, depositary bank becomes the reconverting 179 (1987)). Thus, a deposit of any and a special return identifier.¿ Qualified bank as of the time that it transfers or combination of cash and checks at a returned checks are identified by placing a presents the substitute check (or in lieu nonproprietary ATM may be treated as if it ‘‘2’’ in the case of an original check (or a ‘‘5’’ thereof the first paper or electronic were a deposit of nonlocal checks, because in the case of a substitute check) in position representation of the substitute check) for the depositary bank does not know the 44 of the qualified-return MICR line as a forward collection. makeup of the deposit and consequently is return identifier in accordance with d. A bank is the payable-through bank for unable to place different holds on cash, local American National Standard Specifications checks that are drawn on a nonbank payor, check, and nonlocal check deposits made at for Placement and Location of MICR Printing, which is the bank’s customer. When the the ATM.¿ X9.13 (hereinafter ‘‘ANS X9.13’’) for original customer decides not to pay a check that is fl1.fiø2.¿ A colloquy between Senators checks or American National Standard payable through the bank, the customer Proxmire and Dodd during the floor debate Specifications for an Image Replacement creates a substitute check for purposes of on the Competitive Equality Banking Act Document—IRD, X9.100–140 (hereinafter return. The payable-through bank becomes (133 Cong. Rec. S11289 (Aug. 4, 1987)) ‘‘ANS X9.100–140’’) for substitute checks. the reconverting bank when it returns the indicates that whether a bank operates the fl (See § 229.2(w) and accompanying substitute check (or in lieu thereof the first ATM is the primary criterion in determining commentary for a discussion of standards for paper or electronic representation of the whether the ATM is proprietary to that bank. electronic returns.)fi substitute check) to a returning bank or the Because a bank should be capable of 2. Generally, under the standard of care depositary bank. ascertaining the composition of deposits imposed by § 229.38, a paying flbankfi or e. A paying bank returns a substitute check made to an ATM operated by that bank, an returning bank would be liable for any to the depositary bank, which in turn gives exception to the availability schedules is not damages incurred due to misencoding of the that substitute check back to its nonbank warranted for these deposits. If more than routing number, the amount of the check, or customer. That customer then redeposits the one bank meets the ‘‘owns or operates’’ return identifier on a qualified returned substitute check for collection at a different criterion, the ATM is considered proprietary check unless the error was due to problems bank. Because the substitute check was to the bank that operates it. For the purpose with the depositary bank’s indorsement. (See already transferred by a bank, the second of this definition, the bank that operates an also discussion of § 229.38(c).) A qualified depositary bank does not become a ATM is the bank that puts checks deposited returned check that contains an encoding reconverting bank when it transfers or into the ATM into the forward collection error would still be a qualified returned presents that substitute check for collection. check for purposes of the regulation. 2. In some cases there will be one or more stream. An ATM owned by one or more ø banks, but operated by a nonbank servicer, is 3. A qualified returned check need not banks between the truncating bank and the considered proprietary to the bank or banks contain the elements of a check drawn on the reconverting bank. that own it. depositary bank, such as the name of the Example. fl2.fiø3.¿ The EFA Act also includes depositary bank. Because indorsements and A depositary bank truncates the original location as a factor in determining whether other information on carrier envelopes or check and sends an electronic representation an ATM that is either owned or operated by strips will not appear on a returned check of the original check for collection to an intermediary bank. The intermediary bank a bank is proprietary to that bank. The itself, banks will wish to retain carrier sends the electronic representation of the definition of proprietary ATM includes an envelopes and/or microfilm or other records of carrier envelopes or strips with their check original check to the presenting bank, which ATM located on the premises of the bank, records.¿ creates a substitute check to present to the either inside the branch or on its outside paying bank. The presenting bank is the wall, regardless of whether the ATM is MM. 229.2(mm) Reconverting Bank reconverting bank. owned or operated by that bank. Because the 1. A substitute check is ‘‘created’’ when and 3. A check could move from electronic EFA Act also defines a proprietary ATM as where a paper reproduction of an original form to substitute check form several times one that is ‘‘in close proximity’’ to the bank, check that meets the requirements of during the collection and return process. It ø ¿ the regulation defines an ATM located within § 229.2 (pp) fl(rr)fi is physically printed. therefore is possible that there could be 50 feet of a bank to be proprietary to that A bank is a reconverting bank if it creates a multiple substitute checks, and thus multiple bank unless it is identified as being owned substitute check directly or if another person ø reconverting banks, with respect to the same or operated by another entity. The Board by agreement creates a substitute check on underlying payment. believes that the¿ statutory proximity test the bank’s behalf. A bank also is a was designed to apply to situations where it reconverting bank if it is the first bank that NN. 229.2(nn) Remotely Created Check would appear to the depositor that the ATM receives a substitute check created by a 1. A check authorized by a consumer over is run by his or her bank, because of the nonbank and transfers, presents, or returns the telephone that is not created by the proximity of the ATM to the bank. øThe that substitute check or, in lieu thereof, the paying bank and bears a legend on the Board believes that a¿flAfin ATM located first paper or electronic representation of signature line, such as ‘‘Authorized by within 50 feet of a banking office would be such substitute check. Drawer,’’ is an example of a remotely created presumed proprietary to that bank unless it Examples. check. A check that bears the signature is clearly identified as being owned or a. Bank A, by agreement, sends an applied, or purported to be applied, by the operated by another entity. øelectronic check file¿ flelectronic image person on whose account the check is drawn

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is not a remotely created check. A typical check (in nine-digit form).fi Subpart C contrast, the front of a subsequent substitute forged check, such as a stolen personal check requires depositary banksfl,fi øand¿ check will not contain an image of the entire fraudulently signed by a person other than subsequent collecting banksfl, and returning previous substitute check. Rather, the image the drawer, is not covered by the definition banksfi to place their routing numbers in field of the subsequent substitute check will of a remotely created check. nine-digit form in their indorsements. contain the image of the front of the original 2. The term signature as used in this QQ. 229.2(qq) [Reserved] check that appeared on the previous definition has the meaning set forth at U.C.C. substitute check at the time the previous 3–401. The term ‘‘applied by’’ refers to the RR. 229.2(rr) Substitute Check substitute check was converted to electronic physical act of placing the signature on the 1. ‘‘A paper reproduction of an original form. The portions of the front of the check. check’’ could include a reproduction created subsequent substitute check other than the 3. The definition of a ‘‘remotely created directly from the original check or a image field will contain information applied check’’ differs from the definition of a reproduction of the original check that is by the subsequent reconverting bank, such as ‘‘remotely created consumer item’’ under the created from some other source that contains its reconverting bank identification, the U.C.C. A ‘‘remotely created check’’ may be an image of the original check, such as an MICR line, the legal equivalence legend, and drawn on an account held by a consumer, electronic representation of an original check optional security information. corporation, unincorporated company, or substitute check, or a previous substitute Examples. partnership, government unit or check. a. The back of a subsequent substitute instrumentality, trust, or any other entity or 2. Because a substitute check must be a check would contain the following organization. A ‘‘remotely created consumer piece of paper, an electronic file or electronic indorsements, all of which would be item’’ under the U.C.C., however, must be check image that has not yet been printed in preserved through the image of the back of drawn on a consumer account. accordance with the substitute check the previous substitute check: (1) The 4. Under Regulation CC (12 CFR part 229), definition is not a substitute check. indorsements that were applied physically to the term ‘‘check’’ includes a negotiable 3. Because a substitute check must be a the original check before an image of the demand draft drawn on or payable through representation of a check, a paper original check was captured; (2) a physical or at an office of a bank. In the case of a reproduction of something that is not a check representation of indorsements that were ‘‘payable through’’ or ‘‘payable at’’ check, the cannot be a substitute check. For example, a applied electronically to the original check signature of the person on whose account the savings bond or a check drawn on a non-U.S. after an image of the original check was check is drawn would include the signature branch of a foreign bank cannot be captured but before creation of the first of the payor institution or the signatures of reconverted to a substitute check. substitute check; and (3) indorsements that the customers who are authorized to draw 4. As described in § 229.51(b) and the were applied physically to the previous checks on that account, depending on the commentary thereto, a reconverting bank is substitute check. In addition, the arrangements between the ‘‘payable through’’ required to ensure that a substitute check reconverting bank for the subsequent or ‘‘payable at’’ bank, the payor institution, contains all indorsements applied by substitute check must overlay onto the back and the customers. previous parties that handled the check in of that substitute check a physical 5. The definition of a remotely created any form. Therefore, the image of the original representation of any indorsements that were check includes a remotely created check that check that appears on the back of a substitute applied electronically after the previous has been reconverted to a substitute check. check would include indorsements that were substitute check was converted to electronic OO. 229.2(oo) Returning Bank physically applied to the original check form but before creation of the subsequent substitute check. 1. Returning bank is defined to mean any before an image of the original check was b. Because information could have been bank (excluding the paying bank and the captured. An indorsement that was applied depositary bank) handling a returned check. physically to the original check after an physically added to the image of the front of A returning bank may or may not be a bank image of the original check was captured the original check that appeared on the that handled the returned check in the would be conveyed as an electronic previous substitute check, the original check forward collection process. A returning bank indorsement (see paragraph 3 of the image that appears on the front of a includes a bank that agrees to handle a commentary to § 229.35(a)). The back of the subsequent substitute check could contain returned check for expeditious return to the substitute check would contain a physical information in addition to that which depositary bank under § 229.31(a). A representation of any indorsements that were appeared on the original check at the time it returning bank is also a collecting bank for applied electronically to the check after an was truncated. the purpose of a collecting bank’s duty to image of the check was captured but before 6. The MICR line applied to a substitute exercise ordinary care under U.C.C. 4–202(b) creation of the substitute check. check must contain information in all fields and is analogous to a collecting bank for Example. of the MICR line that were encoded on the purposes of final settlement. (See Bank A, which is the depositary bank, original check at any time before an image of Commentary to § 229.35(b).) captures an image of an original check, the original check was captured. This indorses it electronically and, by agreement, includes all the MICR-line information that PP. 229.2(pp) Routing Number transmits to Bank B an electronic image of was preprinted on the original check, plus 1. Each bank is assigned a routing number the check accompanied by the electronic any additional information that was added to by an agent of the American Bankers indorsement. Bank B then creates a substitute the MICR line before the image of the original Association. The routing number takes two check to send to Bank C. The back of the check was captured (for example, the amount forms—a fractional form and a nine-digit substitute check created by Bank B must of the check). The information in each field form. A paying bank is identified by both the contain a representation of the indorsement of the substitute check’s MICR line must be fractional form routing number (which previously applied electronically by Bank A the same information as in the corresponding normally appears in the upper right hand and Bank B’s own indorsement. (For more field of the MICR line of the original check, corner of the check) and the nine-digit form. information on indorsement requirements, except as provided by ANS X9.100–140 The nine-digit routing number of the paying see § 229.35, appendix D, and the (unless the Board by rule or order determines bank generally is printed in magnetic ink commentary thereto.) that a different standard applies). Industry near the bottom of the check (the MICR 5. Some substitute checks will not be standards may not, however, vary the østrip¿fllinefi; see ANSøI¿ X9.13ø–1983¿). created directly from the original check, but requirement that a substitute check at the flWhere a check is payable by one bank but rather will be created from a previous time of its creation must bear a full-field payable through another bank, the routing substitute check. The back of a subsequent MICR line. number appearing on the check is that of the substitute check will contain an image of the 7. ANS X9.100–140 provides that a payable through bank, not the payor bank. In full length of the back of the previous substitute check must have a ‘‘4’’ in position the case of an electronic collection item, the substitute check. ANS X9.100–140 requires 44 and that a qualified returned substitute routing number of the paying bank is preservation of the full length of the back of check must have a ‘‘4’’ in position 44 of the contained in the electronic image of the the previous substitute check in order to forward-collection MICR line as well as a ‘‘5’’ check (in fractional form or nine-digit form) preserve previous indorsements and in position 44 of the qualified return MICR or in the electronic information related to the reconverting bank identifications. By line. The ‘‘4’’ and ‘‘5’’ indicate that the

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document is a substitute check so that the accurately represents all of the information when it transfers, presents, or returns a size of the check image remains constant on the front and back of the original check substitute check (or a paper or electronic throughout the collection and return process, as of the time the original check was representation thereof) for consideration. regardless of the number of substitute checks truncated or that otherwise is sufficient to Drawers and other nonbank persons that created that represent the same original determine the validity of the claim against receive checks from a bank are not check (see also §§ 229.30(a)ø(2)¿fl(3)fi and the bank. transferees that receive consideration as 229.31(a)ø(2)¿fl(3)fi and the commentary Examples. those terms are defined in the U.C.C. thereto regarding requirements for qualified a. A copy of an original check that However, the Check 21 Act clearly returned substitute checks). An original accurately represents all the information on contemplates that such nonbank persons that check generally has a blank position 44 for the front and back of the original check as of receive substitute checks (or representations forward collection. Because a reconverting the time of truncation would constitute a thereof) from a bank will receive the bank must encode position 44 of a substitute sufficient copy if that copy resolved the warranties and indemnity from all previous check’s forward collection MICR line with a claim. For example, if resolution of the claim banks that handled the check. To ensure that ‘‘4,’’ the reconverting bank must vary any required accurate payment and indorsement these parties are covered by the substitute character that appeared in position 44 of the information, an accurate copy of the front check warranties and indemnity in the forward-collection MICR line of the original and back of a legible original check manner contemplated by the Check 21 Act, check. A bank that misencodes or fails to (including but not limited to a substitute § 229.2ø(ccc)¿fl(uu)fi incorporates the encode position 44 at the time it attempts to check) would be a sufficient copy. U.C.C. definitions of the terms transfer and create a substitute check has failed to create b. A copy of the original check that does consideration by reference and flfor a substitute check. A bank that receives a not accurately represent all the information purposes of subpart Dfi expands those properly-encoded substitute check may on both the front and back of the original definitions to cover a broader range of further encode that item but does so subject check also could be a sufficient copy if such situations. Delivering a check to a nonbank to the encoding warranties in Regulation CC copy contained all the information necessary that is acting on behalf of a bank (such as a and the U.C.C. to determine the validity of the relevant third-party check processor or presentment 8. A substitute check’s MICR line could claim. For instance, if a consumer received point) is a transfer of the check to that bank. contain information in addition to the a substitute check that contained a blurry flIn subpart C, the terms transfer and information required at the time the image of a legible original check, the consideration have the meaning that they substitute check is created. For example, if consumer might seek an expedited recredit have in the UCC.fi the amount field of the original check was because his or her account was charged for Examples. not encoded and the substitute check $1,000, but he or she believed that the check a. A paying bank pays a substitute check therefore did not, when created, have an was written for only $100. If the amount that and then provides that paid substitute check encoded amount field, the MICR line of the appeared on the front of the original check (or a representation thereof) to a drawer with substitute check later could be amount- was legible, an accurate copy of only the a periodic statement. Under the expanded encoded. front of the original check that showed the definitions, the paying bank thereby transfers 9. A bank may receive a substitute check amount of the check would be sufficient to the substitute check (or representation that contains a MICR-line variation but determine whether or not the consumer’s thereof) to the drawer for consideration and nonetheless meets the MICR-line replication claim regarding the amount of the check was makes the substitute check warranties requirements of § 229.2ø(aaa)(2)¿ fl(rr)(2)fi valid. described in § 229.52. A drawer that suffers because that variation is permitted by ANS TT. 229.2(tt) Teller’s Check a loss due to receipt of a substitute check X9.100–140. If such a substitute check 1. Teller’s check is defined in the EFA Act may have warranty, indemnity, and, if the contains a MICR-line error, a bank that to mean a check issued by a depository drawer is a consumer, expedited recredit receives it may, but is not required to, repair institution and drawn on another depository rights under the Check 21 Act and subpart D. that error. Such a repair must be made in institution. The definition in the regulation A drawer that suffers a loss due to receipt of accordance with ANS X9.100–140 for includes not only checks drawn by a bank on a paper or electronic representation of a repairing a MICR line, which generally another bank, but also checks payable substitute check would receive the substitute allows a bank to correct an error by applying through or at a bank. This would include check warranties but would not have a strip that may or may not contain checks drawn on a nonbank, as long as the indemnity or expedited recredit rights. information in all fields encoded on the check is payable through or at a bank. The b. The expanded definitions also operate check’s MICR line. A bank’s repair of a definition does not include checks that are such that a paying bank that pays an original MICR-line error on a substitute check is drawn by a nonbank on a nonbank even if check (or a representation thereof) and then subject to the encoding warranties in payable through or at a bank. The definition creates a substitute check to provide to the Regulation CC and the U.C.C. includes checks provided to a customer of drawer with a periodic statement transfers 10. A substitute check must conform to all the bank in connection with customer the substitute check for consideration and the generally applicable industry standards deposit account activity, such as account thereby provides the warranties and for substitute checks set forth in ANS disbursements and interest payments. The indemnity. X9.100–140, which incorporates other definition also includes checks acquired from c. The expanded definitions ensure that a industry standards by reference. Thus, a bank by a noncustomer for remittance bank that receives a returned check in any multiple substitute check images contained purposes, such as certain loan disbursement form and then provides a substitute check to on the same page of an account statement are checks. The definition excludes checks used the depositor gives the substitute check not substitute checks. by the bank to pay employees or vendors and warranties and indemnity to the depositor. SS. 229.2(ss) Sufficient Copy and Copy checks issued by the bank in connection with d. The expanded definitions apply to a payment service, such as a payroll or a bill- substitute checks representing original 1. A copy must be a paper reproduction of paying service. Teller’s checks generally are checks that are not drawn on deposit a check. An electronic image therefore is not sold by banks to substitute the bank’s credit accounts, such as checks used to access a a copy or a sufficient copy. However, if a for the customer’s credit and thereby enhance credit card or a home equity line of credit. customer has agreed to receive such the collectibility of the checks. A check VV. 229.2(vv) Traveler’s Check information electronically, a bank that is issued in connection with a payment service required to provide an original check or generally is provided as a convenience to the 1. The EFA Act and regulation require that sufficient copy may satisfy that requirement customer rather than as a guarantee of the traveler’s checks be treated as cashier’s, by providing an electronic image in check’s collectibility. In addition, such teller’s, or certified checks when a new accordance with § 229.58 and the checks are often more difficult to distinguish depositor opens an account. (See § 229.13(a); commentary thereto. from other types of checks than are teller’s 12 U.S.C. 4003(a)(1)(C).) The EFA Act does 2. A bank under § 229.53(b)(3) may limit its checks as defined by this regulation. not define traveler’s check. liability for an indemnity claim and under 2. One element of the definition states that §§ 229.54(e)(2) and 229.55(c)(2) may respond UU. 229.2(uu) Transfer and Consideration a traveler’s check is ‘‘drawn on or payable to an expedited recredit claim by providing 1. Under §§ 229.52 and 229.53, a bank is through or at a bank.’’ Sometimes traveler’s the claimant with a copy of a check that responsible for the warranties and indemnity checks that are not issued by banks do not

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have any words on them identifying a bank purpose political subdivision of a state. The for cash deposits to accounts at a depositary as drawee or paying agent, but instead bear term does not include special purpose units, bank ‘‘staffed by individuals employed by unique routing numbers with an 8000 prefix such as school districts, water districts, or such institution.’’ø2¿ Under this paragraph, that identifies a bank as paying agent. Indian nations. cash deposited in an account at a staffed 3. Because a traveler’s check is payable by, BBB. 229.2(bbb) Wire Transfer teller station on a Monday must become available for withdrawal by the start of at, or through a bank, it is also a check for ø 1. The EFA Act delegates to the Board the business on Tuesday. It must become purposes of this regulation. When not subject ¿ authority to define flpermitsfi the term available for withdrawal by the start of to the next-day availability requirement for ø ¿ new accounts, a traveler’s check should be fl‘‘fiwire transfer . fl’’ to be defined by business on Wednesday if it is deposited by treated as a ølocal or nonlocal¿ regulation.fi The regulation defines wire mail, at a proprietary ATM, or by other checkødepending on the location of the transfer as an unconditional order to a bank means other than at a staffed teller station. paying bank¿ flunder § 229.12fi. øThe to pay a fixed or determinable amount of fl2. Nothing in the EFA Act or this depositary bank may rely on the designation money to a beneficiary, upon receipt or on regulation affects terms of account of the paying bank by the routing number to a day stated in the order, that is transmitted arrangements, such as negotiable order of determine whether local or nonlocal by electronic or other means over certain withdrawal accounts, which may require treatment is required.¿ networks or on the books of banks and that prior notice of withdrawal. (See 12 CFR is used primarily to transfer funds between 204.2(e)(2).)fi WW. 229.2(ww) Truncate ø ¿ commercial flnonconsumerfi accounts. ø2 Nothing in the EFA Act or this 1. Truncate means to remove the original ‘‘Unconditional’’ means that no condition, regulation affects terms of account check from the forward collection or return such as presentation of documents, must be arrangements, such as negotiable order of process and to send in lieu of the original met before the bank receiving the order is to withdrawal accounts, which may require check either a substitute check or, by make payment. A wire transfer may be prior notice of withdrawal. (See 12 CFR agreement, information relating to the transmitted by electronic or other means. 204.2(e)(2).)¿ original check. Truncation does not include ‘‘Electronic means’’ include computer-to- removal of a substitute check from the check computer links, on-line terminals, øtelegrams C. 229.10(b) Electronic Payments collection or return process. (including TWX, TELEX, or similar methods 1. The EFA Act provides next-day ¿ XX. 229.2(xx) Truncating Bank of communication), telephone calls, or other availability for funds received for deposit by similar methods. flThefi Fedwire flFunds wire transfer. The regulation uses the term 1. A bank is a truncating bank if it Servicefi (the Federal Reserve’s wire transfer electronic payment, rather than wire transfer, truncates an original check or if it is the first network), CHIPS (Clearing House Interbank to include both wire transfers and ACH credit bank to transfer, present, or return another Payments System, operated by øt¿flTfihe transfers under the next-day availability form of an original check that was truncated øNew York¿ Clearing House), and book requirement. (See discussion of definitions of by a person that is not a bank. transfers among banks or within one bank are øautomated clearinghouse¿ flACH credit Example. covered by this definition. Credits for credit transferfi, electronic payment, and wire a. A bank’s customer that is a nonbank and debit card transactions are not wire transfer in § 229.2.) business receives a check for payment and transfers. The term wire transfer excludes 2. The EFA Act requires that funds deposits either a substitute check or an electronic fund transfers as that term is received by wire transfer be available for electronic representation of the original defined by the Electronic Fund Transfer Act. withdrawal not later than the business day check with its depositary bank instead of the following the day a wire transfer is received. original check. That depositary bank is the III. Administrative Liability and Enforcement This paragraph clarifies what constitutes truncating bank when it transfers, presents, [Reserved] receipt of an electronic payment. For the or returns the substitute check or electronic IV. Section 229.10—Next-Day Availability purposes of this paragraph, a bank receives representation in lieu of the original check. an electronic payment when the bank That bank also would be the reconverting A. Business Days and Banking Days receives both payment in finally collected bank if it were the first bank to transfer, 1. This section, as well as other provisions funds and the payment instructions present, or return a substitute check that it of this subpart governing the availability of indicating the customer accounts to be received from (or created from the funds, provides that funds must be made credited and the amount to be credited to information given by) its nonbank customer available for withdrawal not later than a each account. For example, in the case of ø(see § 229.2 (yy) and the commentary specified number of business days following flafi Fedwire flFunds transferfi, the bank thereto)¿. the banking day on which the funds are receives finally collected funds at the time 2. A truncating bank does not make the deposited. Thus, a deposit is considered the payment is made. (See 12 CFR 210.31.) subpart D warranties and indemnity unless it made only on a banking day, i.e., a day that Finally collected funds generally are received also is the reconverting bank. Therefore, a the bank is open to the public for carrying for an ACH credit transfer when they are bank that truncates the original check and on substantially all of its banking functions. posted to the receiving bank’s account on the sends an electronic file to a collecting bank For example, if a deposit is made at an ATM settlement day. In certain cases, the bank does not provide subpart D protections to the on a Saturday, Sunday, or other day on receiving ACH credit payments will not recipient of that electronic item. However, a which the bank is closed to the public, the receive the specific payment instructions recipient of an electronic item may protect deposit is considered received on that bank’s indicating which accounts to credit until itself against losses associated with that item next banking day. after settlement day. In these cases, the by agreement with the truncating bank. 2. Nevertheless, business days are used to payments are not considered received until YY. 229.2(yy) Uniform Commercial Code determine the number of days following the the information on the account and amount banking day of deposit that funds must be to be credited is received. 1. Uniform Commercial Code is defined as available for withdrawal. For example, if a 3. This paragraph also establishes the the version of the Code adopted by the deposit of a ølocal¿ check were made on a extent to which an electronic payment is individual states. For purposes of uniform Monday, the availability schedule considered made. Thus, if a participant on a citation, all citations to the U.C.C. in this part flgenerallyfi requires that funds be private network fails to settle and the refer to the Official Text as approved by the available for withdrawal on the second receiving bank receives finally settled funds American Law Institute and the National business day after deposit. Therefore, funds representing only a partial amount of the Conference of Commissioners on Uniform must be made available on Wednesday payment, it must make only the amount that State Laws. regardless of whether the bank was closed on it actually received available for withdrawal. ZZ. 229.2(zz) [Reserved] Tuesday for other than a standard legal 4. The availability requirements of this regulation do not preempt or invalidate other AAA. 229.2(aaa) Unit of General Local holiday as specified in the definition of business day. rules, regulations, or agreements which Government require funds to be made available on a more 1. Unit of general local government is B. 229.10(a) Cash Deposits prompt basis. For example, the next-day defined to include a city, county, parish, 1. This paragraph implements the EFA availability requirement for ACH credits in town, township, village, or other general Act’s requirement for next-day availability this section does not preempt ACH

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association rules and Treasury regulations øparagraph (c)(2) of this the discretion of the depositary bank, as long (31 CFR part 210), which provide that the section¿fl§ 229.12fi. For example, second- as it is not applied to any checks subject to proceeds of these credit payments be day availability rather than next-day next-day availability. The ø$100¿ next-day available to the recipient for withdrawal on availability would be allowed for deposits of availability rule flfor the minimum the day the bank receives the funds. checks subject to this section made at a amountfi does not apply to deposits at D. 229.10(c) Certain Check Deposits proprietary ATM, night depository, through nonproprietary ATMs. the mail or a lock box, or at a teller station b. The ø$100¿flminimum amountfi that 1. The EFA Act generally requires that staffed by a person who is not an employee must be made available under this rule is in funds be made available on the business day of the depositary bank. Second-day addition to the amount that must be made following the banking day of deposit for availability also may be allowed for deposits available for withdrawal on the business day Treasury checks, state and local government picked up by an employee of the depositary after deposit under other provisions of this checks, cashier’s checks, certified checks, bank at the customer’s premises; such section. For example, if a customer deposits teller’s checks, and ‘‘on us’’ checks, under deposits would be considered made upon a $1,000 Treasury checkø,¿ and a $1,000 specified conditions. (Treasury checks are receipt at the branch or other location of the ølocal¿check flnot subject to paragraphs checks drawn on the Treasury of the United depositary bank. Employees of a contractual (c)(1)(i) through (vi)fi in its account on States and have a routing number beginning branch would not be considered employees Monday, ø$1,100 must be made available for with the digits ‘‘0000.’’) This section also of the depositary bank for the purposes of withdrawal on Tuesday—¿ the proceeds of requires next-day availability for additional this regulation, and deposits at contractual the $1,000 Treasury check, as well as the types of checks not addressed in the EFA branches would be treated the same as øfirst $100¿flminimum amount fromfi øof¿ Act. Checks drawn on a Federal Reserve deposits to a proprietary ATM for the the ølocal¿flotherfi check flmust be made Bank or a Federal Home Loan Bank and U.S. purposes of this regulation. (See also, available for withdrawal on Tuesdayfi. Postal Service money orders also must be Commentary to § 229.19(a).) c. A depositary bank may aggregate all ø ¿ made available on the first business day b. In the case of Treasury checks, the EFA local and nonlocal check deposits made by following the day of deposit under specified Act and regulation do not condition the the customer on a given banking day for the ø ¿ conditions. For the purposes of this section, receipt of next-day availability to deposits at purposes of the $100 flminimum amount all checks drawn on a Federal Reserve Bank staffed teller stations. Therefore, Treasury fi next-day availability rule. Thus, if a or a Federal Home Loan Bank that contain in checks deposited at a proprietary ATM must customer has two accounts at the depositary the MICR line a routing number that is listed be accorded next-day availability, if the bank, and on a particular banking day makes fl in appendix A are subject to the next-day check is deposited to an account of a payee deposits to each account that exceed the availability requirement if they are deposited fi ø ¿fl of the check. minimum amount , $100 the minimum in an account held by a payee of the check fi ø ¿ fl fi 4. ‘‘On Us’’ Checks. The EFA Act øand amount from of the total checks and in person to an employee of the deposited to the two accounts must be made regulation¿ requireflsfi next-day depositary bank, regardless of the purposes available on the business day after deposit. availability for ‘‘on us’’ checks, i.e., checks for which the checks were issued. For all Banks may aggregate deposits to individual deposited in a branch of the depositary bank new accounts, even if the new account and joint accounts for the purposes of this and drawn on the same or another branch of exception is not invoked, traveler’s checks provision. the same bank, if both branches are located must be included in the $5,000 aggregation d. If the customer deposits a ø$500 local¿ in the same state or flgeographical area of checks deposited on any one banking day check fl not subject to paragraphs (c)(1)(i) served by a Federal Reserve Bank check that are subject to the next-day availability through (vi) that exceeds the minimum ‘‘fi requirement. (See § 229.13(a).) processing center ( check processing amountfi, and gets ø$100¿ cash back flin fl’’ fi ø 2. Deposit in Account of Payee. One region ) . Thus, checks deposited in one an amount equal to or greater than the statutory condition to receipt of next-day branch of a bank and drawn on another minimum amountfi at the time of deposit, availability of Treasury checks, state and branch of the same bank must receive next- the bank need not make an additional local government checks, cashier’s checks, day availability even if the branch on which ø$100¿flamountfi available for withdrawal certified checks, and teller’s checks is that the checks are drawn is located in another on the following day. Similarly, if the the check must be ‘‘endorsed only by the check processing region but in the same state customer depositing the ølocal¿ check has a ’’ as the branch in which the check is negative book balance, or negative available person to whom it was issued. The EFA Act ¿ could be interpreted to include a check that deposited . flAs there is now only one balance in its account at the time of deposit, has been indorsed in blank and deposited check processing center, all ‘‘on-us’’ checks the ø$100¿flminimum amountfi that must into an account of a third party that is not deposited in the U.S. must receive next-day be available on the next business day may be named as payee. øThe Board believes that availability.fi For the purposes of this made available by applying the s¿flSfiuch a check presents greater risks requirement, deposits at facilities that are not ø$100¿flminimum amountfi to the negative than a check deposited by the payee and that located on the premises of a brick-and-mortar balance, rather than making the Congress did not intend to require next-day branch of the bank, such as off-premise ø$100¿flminimum amountfi available for availability for such checks. The regulation, ATMs and remote depositories, are not withdrawal by cash or check on the following therefore, provides that funds must be considered deposits made at branches of the day. available on the business day following depositary bank. 6. Special Deposit Slips. ø ¿ deposit only if the check is deposited in an 5. First $100 flThe minimum amountfi. a. Under the EFA Act, a depositary bank account held by a payee of the check. For the a. The EFA Act and regulation also require may require the use of a special deposit slip purposes of this section, payee does not that øup to¿ flat leastfi $100 fl(‘‘the as a condition to providing next-day include transferees other than named payees. minimum amount’’)fi of the aggregate availability for certain types of checks. This The regulation also applies this condition to deposit by check or checks not subject to condition was included in the EFA Act Postal Service money orders and checks next-day availability on any one banking day because many banks determine the drawn on Federal Reserve Banks and Federal be made available on the next business day. availability of their customers’ check Home Loan Banks. For example, if ø$70¿flless than the deposits in an automated manner by reading 3. Deposits Made to an Employee of the minimum amountfi were deposited in an the øMICR-encoded¿ routing number on the Depositary Bank. account by check(s) on a Monday, the entire deposited checks. Using these procedures, a a. In most cases, next-day availability of ø$70¿flamount of the depositfi must be bank can determine whether a check is øa the proceeds of checks subject to this section available for withdrawal at the start of local or nonlocal check, a check¿ drawn on is conditioned on the deposit of these checks business on Tuesday. If ø$200¿fl more than the Treasury, a Federal Reserve Bank, a in person to an employee of the depositary the minimum amountfi were deposited by Federal Home Loan Bank, or a branch of the bank. If the deposit is not made to an check(s) on a Monday, this section requires depositary bank, or a U.S. Postal Service employee of the depositary bank on the that ø$100 of the funds¿ flthe minimum money order. Appendix A includes the premises of such bank, the proceeds of the amountfi be available for withdrawal at the routing numbers of certain categories of deposit must be made available for start of business on Tuesday. The portion of checks that are subject to next-day withdrawal by the start of business on the the customer’s deposit to which the ø$100¿ availability. The bank cannot require a second business day after deposit, under flminimum amountfi must be applied is at special deposit slip for these checks.

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b. A bank cannot distinguish whether the A. 229.12ø(b)¿fl(a)fi øLocal Checks and that the check is nonlocal cannot be made check is a state or local government check, Certain Other Checks¿flIn general.fi based on the routing number on the check. cashier’s check, certified check, or teller’s 1. øLocal¿flExcept as provided in For example, a nonlocal credit union check by reading the øMICR-encoded¿ § 229.10(c), § 229.12(b), (c) and (d), and payable-through share draft may be subject to routing number, because these checks bear § 229.13fi checks must be made available for a reduction in schedules if the routing the same routing number as other checks withdrawal not later than the second number of the payable-through bank that drawn on the same bank that are not business day following the banking day on appears on the draft is included in appendix accorded next-day availability. Therefore, a which the checks were deposited. flThus, B, even though the determination that the bank may require a special deposit slip for the proceeds of a check deposited on a payable-through share draft is nonlocal is these checks. Monday generally must be made available for based on the location of the credit union and c. The regulation specifies that if a bank withdrawal on Wednesday.fi not the routing number on the draft.¿ decides to require the use of a special deposit ø2. In addition, the proceeds of Treasury B. 229.12ø(d)¿fl(b)fi Time Period slip (or a special deposit envelope in the case checks and U.S. Postal Service money orders Adjustment for Withdrawal by Cash or of a deposit at an ATM or other unstaffed not subject to next-day (or second-day) Similar Means facility) as a condition to granting next-day availability under § 229.10(c), checks drawn 1. The EFA Act provides an adjustment to availability under paragraphs (c)(1)(iv) or on Federal Reserve Banks and Federal Home the availability rules for cash withdrawals. (c)(1)(v) of this section øor second-day Loan Banks, checks drawn by a state or unit Funds from ølocal and nonlocal¿ checks availability under paragraph (c)(2) of this of general local government, cashier’s checks, fl(other than checks subject to § 229.10(c))fi section¿, and if the deposit slip that must be certified checks, and teller’s checks not need not be available for cash withdrawal used is different from the bank’s regular subject to next-day (or second-day) until 5 p.m. on the day specified in the deposit slips, the bank must either provide availability under § 229.10(c) and payable in schedule. At 5 p.m., $400 of the deposit must the special slips to its customers or inform the same check processing region as the be made available for cash withdrawalfl(the ø ¿ its customers how such slips may be depositary bank, must be made available for ‘‘cash withdrawal amount’’)fi. This $400 obtained and make the slips reasonably withdrawal by the second business day flThe cash withdrawal amountfi is in ¿ ø ¿ available to the customers. following deposit. addition to the first $100 fl minimum ø ¿ d. A bank may meet this requirement by 3 fl2fi. Exceptions are made for amountfi of a day’s deposit flunder providing customers with an order form for withdrawals by cash or similar meansfl,fi § 229.10(c)(1)(vii)fi, which must be made ø ¿ the special deposit slips and allowing and for deposits in banks located outside available for withdrawal at the start of sufficient time for the customer to order and the 48 contiguous statesfl, for checks business on the first business day following receive the slips before this condition is deposited in a nonproprietary ATM, and for the banking day of deposit. If the proceeds ø ø ¿ imposed. If a bank provides deposit slips in the reasons set forth in § 229.13fi. Thus, of local and nonlocal checks become its branches for use by its customers, it also the proceeds of a local check deposited on a available for withdrawal on the same ø must provide the special deposit slips in the Monday generally must be made available for business day, the $400 withdrawal ¿ ¿ branches. If special deposit envelopes are withdrawal on Wednesday. limitation applies to flcash withdrawal ø required for deposits at an ATM, the bank C. 229.12(c) Nonlocal Checks amount is based onfi the aggregate amount must provide such envelopes at the ATM. 1. Nonlocal checks must be made available of the funds that became available for e. Generally, a teller is not required to for withdrawal not later than the fifth withdrawal on that day. The remainder of the advise depositors of the availability of special business day following deposit, i.e., proceeds funds must be available for cash withdrawal deposit slips merely because checks of a nonlocal check deposited on a Monday at the start of business on the business day requiring special deposit slips for next-day must be made available for withdrawal on following the business day specified in the availability are deposited without such slips. the following Monday. In addition, a check schedule. If a bank provides the special deposit slips described in § 229.10(c) that does not meet 2. The EFA Act recognizes that the ø ¿ only upon the request of a depositor, the conditions for next-day availability (or $400 flcash withdrawal amountfi that however, the teller must advise the depositor second-day availability) is treated as a must be provided on the day specified in the of the availability of the special deposit slips, nonlocal check, if the check is drawn on or schedule may exceed a bank’s daily ATM or the bank must post a notice advising payable through or at a nonlocal paying bank. cash withdrawal limit, and explicitly customers that the slips are available upon Adjustments are made to the schedule for provides that the EFA Act does not supersede ø request. Such notice need not be posted at withdrawals by cash or similar means and the bank’s policy in this regard. The Board ¿ each teller window, but the notice must be deposits in banks located outside the 48 believes that the rationale for posted in a place where consumers seeking contiguous states. accommodating a bank’s ATM withdrawal ø to make deposits are likely to see it before 2. Reduction in Schedules. limit also applies to other cash withdrawal making their deposits. For example, the a. Section 603(d)(1) of the EFA Act (12 limits established by that bank. Section notice might be posted at the point where the U.S.C. 4002(d)(1)) requires the Board to 229.19(c)(4) of the regulation addresses the line forms for teller service in the lobby. The reduce the statutory schedules for any relation between a bank’s cash withdrawal notice is not required at any drive-through category of checks where most of those limit (for over-the-counter cash withdrawals teller windows nor is it required at night checks would be returned in a shorter period as well as ATM cash withdrawals) and the depository locations, or at locations where of time than provided in the schedules. The requirements of this subpart. ø ¿ consumer deposits are not accepted. If a bank conferees indicated that ‘‘if the new system 3. The Board believes that the Congress prepares a deposit for a depositor, it must use makes it possible for two-thirds of the items included this special cash withdrawal rule to a special deposit slip where appropriate. A of a category of checks to meet this test in provide a depositary bank with additional bank may require the customer to segregate a shorter period of time, then the Federal time to learn of the nonpayment of a check the checks subject to next-day availability for Reserve must shorten the schedules before it must make funds available to its ø ¿ which special deposit slips could be accordingly.’’ H.R. Rep. No. 261, 100th Cong., customer. If a customer deposits a local required, and to indicate on a regular deposit 1st Sess. at 179 (1987). check on a Monday, and that check is slip that such checks are being deposited, if b. Reduced schedules are provided for returned by the paying bank, the depositary the bank so instructs its customers in its certain nonlocal checks where significant bank may not receive the returned check initial disclosure. improvements can be made to the EFA Act’s until Thursday, the day after funds for a schedules due to transportation arrangements ølocal¿ check ordinarily must be made V. Section 229.11—[Reserved] or proximity between the check processing available for withdrawal. The intent of the VI. Section 229.12—Availability Schedule regions of the depositary bank and the paying special cash withdrawal rule is to minimize bank, allowing for faster collection and this risk to the depositary bank. For this rule ø A. 229.12(a) Effective Date return. Appendix B sets forth the specific to minimize the depositary bank’s risk, it 1. The availability schedule set forth in this reduction of schedules applicable to banks must apply not only to cash withdrawals, but section supersedes the temporary schedule located in certain check processing regions. also to withdrawals by other means that that was effective September 1, 1988, through c. A reduction in schedules may apply result in an irrevocable debit to the August 31, 1990.¿ even in those cases where the determination customer’s account or commitment to pay by

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the bank on the customer’s behalf during the to make up to $100 of an aggregate daily the original account), the successor account day. Thus, the cash withdrawal rule also deposit¿ flsetting forth the minimum is not subject to the new account exception, includes withdrawals by electronic payment, amount of a deposit that must be madefi assuming the previous account relationship issuance of a cashier’s or teller’s check, available for withdrawal on the first business is at least 30 days old. Similarly, if a certification of a check, or other irrevocable day after the banking day of deposit do not customer closes an established account and commitment to pay, such as authorization of apply to deposits at a nonproprietary ATM. opens a separate account within 30 days, the an on-line point-of-sale debit. The rule also new account is not subject to the new would apply to checks presented over the VII. Section 229.13—Exceptions account exception. counter for payment on the day of A. Introduction iii. If a customer has a savings deposit or presentment by the depositor or another 1. While certain safeguard exceptions (such other deposit that is not an account (as that person. Such checks could not be dishonored as those for new accounts and checks the term is defined in § 229.2(a)) at the bank, and for insufficient funds if an amount sufficient bank has reasonable cause to believe are opens an account, the account is subject to to cover the check had became available for uncollectible) are established in the EFA Act, the new account exception. cash withdrawal under this rule; however, øthe Congress gave the Board the discretion iv. If a person that is authorized to sign on payment of such checks would be subject to to determine whether certain other a corporate account (but has no other the bank’s cut-off hour established under exceptions should be included in its relationship with the bank) opens a personal U.C.C. 4–108. The cash withdrawal rule does regulations. Specifically,¿ the EFA Act øgives account, the personal account is subject to not apply to checks and other provisional the Board the authority to the new account exception. debits presented to the bank for payment that establish¿flpermits other exceptions to be v. If a customer has an established joint the bank has the right to return. established by regulation, specificallyfi account at a bank, and subsequently opens an ø ¿ C. 229.12 (e) fl(c)fi Extension of exceptions to the schedules for large or individual account with that bank, the Schedule for Certain Deposits in Alaska, redeposited checks and for accounts that individual account is not subject to the new Hawaii, Puerto Rico, and the U.S. Virgin have been repeatedly overdrawn. These account exception. Islands exceptions apply to ølocal and nonlocal¿ vi. If two customers that each have an 1. The EFA Act and regulation provide an checks subject to the general availability established individual account with the bank extension of the availability schedules for schedule in § 229.12 as well as to checks that open a joint account, the joint account is not check deposits at a branch of a bank if the must otherwise be accorded next-day ø(or subject to the new account exception. If one branch is located in Alaska, Hawaii, Puerto second-day)¿ availability under § 229.10(c). of the customers on the account has no Rico, or the U.S. Virgin Islands. The 2. Many checks will not be returned to the current or recent established account ø ¿ schedules for local checks fl(other than depositary bank by the time funds must be relationship with the bank, however, the those subject to next-day availability under made available for withdrawal øunder the joint account is subject to the new account ø § 229.10(c))fi , nonlocal checks (including next-day (or second-day), local and nonlocal exception, even if the other individual on the nonlocal checks subject to the reduced schedules¿. In order to reduce risk to account has an established account ¿ schedules of appendix B), and deposits at depositary banks, øthe Board has exercised relationship with the bank. nonproprietary ATMs are extended by one its statutory authority to adopt¿flRegulation 2. Rules Applicable to New Accounts. business day for checks deposited to CC containsfi these exceptions to the a. During the newfl-fiaccount exception ø ¿ accounts in banks located in these schedules in the regulation to allow the period, the flgeneralfi schedule s for ø ¿ jurisdictions that are drawn on or payable at depositary bank to extend the time within local and nonlocal checks flin § 229.12fi or through a paying bank not located in the which it is required to make funds available. doflesfi not apply, and, unlike the other same jurisdiction as the depositary bank. For ø3. The EFA Act also gives the Board the exceptions provided in this section, the example, a check deposited in a bank in authority to suspend the schedules for any regulation provides no maximum time frames Hawaii and drawn on a San Francisco paying classification of checks, if the schedules within which the proceeds of these deposits bank must be made available for withdrawal result in an unacceptable level of fraud must be made available for withdrawal. not later than the third business day losses. The Board will adopt regulations or Maximum times within which funds must be following deposit. This extension does not issue orders to implement this statutory available for withdrawal during the new apply to deposits that must be made available authority if and when circumstances account period are provided, however, for for withdrawal on the next business day. requiring its implementation arise.¿ certain other deposits. Deposits received by 2. The Congress did not provide this cash and electronic payments must be made extension of the schedules to checks drawn B. 229.13(a) New Accounts available for withdrawal in accordance with on a paying bank located in Alaska, Hawaii, 1. Definition of New Account. § 229.10. Puerto Rico, or the U.S. Virgin Islands and a. The EFA Act provides an exception to b. Special rules also apply to deposits of deposited in an account at a depositary bank the availability schedule for new accounts. Treasury checks, U.S. Postal Service money in the 48 contiguous states. Therefore, a An account is defined as a new account orders, checks drawn on Federal Reserve check deposited in a San Francisco bank during the first 30 calendar days after the Banks and Federal Home Loan Banks, state drawn on a Hawaii paying bank must be account is opened. An account is opened and local government checks, cashier’s made available for withdrawal not later than when the first deposit is made to the account. checks, certified checks, teller’s checks, and, the second rather than the third business day An account is not considered a new account, for the purposes of the new account following deposit. however, if each customer on the account has exception only, traveler’s checks. The first D. 229.12ø(f)¿fl(d)fi Deposits at a transaction account relationship with the $5,000 of funds deposited to a new account Nonproprietary ATMs depositary bank, including a dormant on any one banking day by these check 1. The EFA Act and regulation provide a account, that is at least 30 calendar days old deposits must be made available for special rule for deposits made at or if each customer has had an established withdrawal in accordance with § 229.10(c)ø. nonproprietary ATMs. This paragraph does transaction account with the depositary bank Thus, the first $5,000 of the proceeds of these not apply to deposits made at proprietary within the 30 calendar days prior to opening check deposits must be made available¿fl; ATMs. All deposits at a nonproprietary ATM the second account. that is,fi on the first business day following must be made available for withdrawal by the b. The following are examples of what deposit, if the deposit is made in person to øfifth¿ flfourthfi business day following the constitutes, and does not constitute, a new an employee of the depositary bank and the banking day of deposit. For example, a account: other conditions of next-day availability are deposit made at a nonproprietary ATM on a i. If the customer has an established met. øFunds must be made available on the Monday, including any deposit by cash or account with a bank and opens a second second business day after deposit for checks that would otherwise be subject to account with the bank, the second account is deposits that are not made over the counter, next-day (or second-day) availability, must be not subject to the new account exception. in accordance with § 229.10(c)(2).¿ (Proceeds made available for withdrawal not later than ii. If a customer’s account were closed and of Treasury check deposits must be made øMonday of the following week¿flFriday.fi another account opened as a successor to the available on the first business day after fl2.fi The provisions of section original account (due, for example, to the deposit, even if the check is not deposited in 229.10(c)(1)(vii) ørequiring a depositary bank theft of checks or a debit card used to access person to an employee of the depositary

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bank.) Funds in excess of the first $5,000 the deposits made to two individual accounts been paid, rather than returned. This test can deposited by these types of checks on a in the same name, to an individual and a be met based on separate occurrences (e.g., banking day must be available for withdrawal joint account with one common name, or to checks that are returned for insufficient not later than the ninth business day two joint accounts with at least one common funds on six different days), or based on one following the banking day of deposit. The name for the purpose of applying the largefl- occurrence (e.g., a negative balance that requirements of § 229.10(c)(1)(vi) and (vii) fideposit exception. Aggregation of deposits remains on the customer’s account for six that ‘‘on us’’ checks and the øfirst to multiple accounts is permitted because banking days). If the bank dishonors a check $100¿flminimum amountfi of a day’s øthe Board believes that¿ the risk to the that otherwise would have created a negative deposit be made available for withdrawal on depositary bank associated with large balance, however, the incident is considered the next business day do not apply during deposits is similar regardless of how the an overdraft only on that day. the new account period. deposits are allocated among the customer’s 2. The second test addresses substantial 3. Representation by Customer. The accounts. overdrafts. Such overdrafts increase the risk depositary bank may rely on the D. 229.13(c) Redeposited Checks to the depositary bank of dealing with the representation of the customer that the repeated overdrafter. Under this test, a ø customer has no established account 1. The EFA Act gives the Board the customer incurs repeated overdrafts if, on ¿ relationship with the bank, and has not had authority to promulgate flprovides that the two banking days within the preceding six any such account relationship within the regulation may includefi an exception to the months, the available balance in any account past 30 days, to determine whether an schedule for checks that have been returned held by the customer is negative in an account is subject to the new account unpaid and redeposited. Section 229.13(c) amount of $5,000 or more, or would have exception. provides such an exception for checks that become negative in an amount of $5,000 or have been returned unpaid and redeposited C. 229.13(b) Large Deposits more if checks or other charges to the by the customer or the depositary bank. This account had been paid. ø ¿ 1. Under the largefl-fideposit exception, exception applies to local and nonlocal 3. The exception relates not only to a depositary bank may extend the hold checks flsubject to § 229.12fi, as well as to overdrafts caused by checks drawn on the placed on check deposits to the extent that checks that would otherwise be made account, but also overdrafts caused by other ø ¿ the amount of the aggregate deposit on any available on the next (or second) business debit charges (e.g. ACH debits, point-of-sale banking day exceeds $5,000fl(the ‘‘large- day after the day of deposit under § 229.10(c). transactions, returned checks, account fees, deposit amount’’)fi. This exception applies 2. This exception addresses the increased etc.). If the potential debit is in excess of ø ¿ to local and nonlocal checks flunder risk to the depositary bank that checks that available funds, the exception applies § 229.12fi, as well as to checks that have been returned once will be uncollectible regardless of whether the items were paid or otherwise would be made available on the when they are presented to the paying bank returned unpaid. ø ¿ ø next (or second) business day after the day a second time. The Board, however, does fl4. Under either test described above, the ø ¿ of deposit under § 229.10(c). Although the not believe that t flTfihis increased risk is ‘‘other charges to the account’’ that would ¿ first $5,000 of a day’s deposit flany amount flnotfi present for checks that have been have created an overdraft had they been paid under the large-deposit amountfi is subject returned due to a missing indorsement. Thus, do not include attempted debit card to the availability otherwise provided for the exception does not apply to checks transactions for which the depositary bank checks, the amount in excess of returned unpaid due to missing indorsements has declined the authorization request, ø ¿ $5,000 flthe large-deposit thresholdfi may and redeposited after the missing because there is no transaction that has be held for an additional period of time as indorsement has been obtained, if the reason occurred.fi provided in § 229.13(h). When the largefl- for return indicated on the check (see fl5.fi An overdraft resulting from an error fideposit exception is applied to deposits § 229.30(d)) states that it was returned due to on the part of the depositary bank, or from composed of a mix of checks that would a missing indorsement. For the same reason, the imposition of overdraft charges for which otherwise be subject to differing availability this exception does not apply to a check the customer is entitled to a refund under schedules, the depositary bank has the returned because it was postdated (future §§ 229.13(e) or 229.16(c), cannot be discretion to choose the portion of the dated), if the reason for return indicated on considered in determining whether the deposit to which it applies the exception. the check states that it was returned because customer is a repeated overdrafter. The Deposits by cash or electronic payment are it was postdated, and if it is no longer exception excludes accounts with overdraft not subject to this exception for large postdated when redeposited. lines of credit, unless the credit line has been deposits. 3. To determine when funds must be made exceeded or would have been exceeded if the 2. The following example illustrates the available for withdrawal, the banking day on checks or other charges to the account had operation of the largefl-fideposit exception. which the check is redeposited is considered been paid. If a customer deposits $2,000 in cash and a to be the day of deposit. A depositary bank ø4.¿fl6.fiThis exception applies to ølocal ø ¿ ø ¿ $9,000 local check on a Monday flthat is that made $100 flthe minimum amountfi and nonlocal¿ checks flsubject to not subject to next-day availabilityfi, of a check available for withdrawal under § 229.12fi, as well as to checks that ø ¿ $2,100 ( the proceeds of the cash deposit § 229.10(c)(1)(vii) can charge back the full otherwise would be made available on the ø ¿ and $100 flthe minimum amount under amount of the check, including the next ø(or second)¿ business day after the day ø ¿ § 229.10(c)fi from the local check ø$100¿flthe minimum amount made of deposit under § 229.10(c). When a bank ø ¿ deposit ) must be made available for availablefi, if the check is returned unpaid, places or extends a hold under this ø withdrawal on Tuesday. An additional and the ø$100¿ flminimum amountfi need exception, it need not make the øfirst ¿ $4,900 of the proceeds of the local check not be made available again if the check is $100¿flminimum amountfi of a deposit flThe amount under the large-deposit redeposited. available for withdrawal on the next business threshold less the minimum amount under E. 229.13(d) Repeated Overdrafts day, as otherwise would be required by § 229.10(c)fi must be available for § 229.10(c)(1)(vii). withdrawal on Wednesday in accordance 1. The EFA Act øgives the Board the with the ølocal¿ flgeneralfi schedule, and authority to establish¿flprovides that the F. 229.13(e) Reasonable Cause To Doubt the remaining ø$4,000¿flamount over the regulation may includefi an exception for Collectibility large-deposit thresholdfi may be held for an ‘‘deposit accounts which have been 1. In the case of certain check deposits, if additional period of time under the largefl- overdrawn repeatedly.’’ This paragraph the bank has reasonable cause to believe the fideposit exception. provides two tests to determine what check is uncollectible, it may extend the time 3. Where a customer has multiple accounts constitutes repeated overdrafts. Under the funds must be made available for with a depositary bank, the bank may apply first test, a customer’s accounts are withdrawal. This exception applies to ølocal the largefl-fideposit exception to the considered repeatedly overdrawn if, on six and nonlocal¿ checks flunder § 229.12fi, as aggregate deposits to all of the customer’s banking days within the preceding six well as to checks that would otherwise be accounts, even if the customer is not the sole months, the available balance in any account made available on the next ø(or second)¿ holder of the accounts and not all of the held by the customer is negative, or the business day after the day of deposit under holders of the customer’s accounts are the balance would have become negative if § 229.10(c). When a bank places or extends same. Thus, a depositary bank may aggregate checks or other charges to the account had a hold under this exception, it need not make

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the øfirst $100¿flminimum amountfi of a not intend to provide¿flcommentary list is deposit available for withdrawal on the next deposit available for withdrawal on the next notfi a comprehensive list of reasons for business day, as otherwise would be required business day, as otherwise would be required which this exception may be invoked; by § 229.10(c)(1)(vii). In cases where the by § 229.10(c)(1)(vii). If the reasonablefl- another reason that does not appear flin the emergencyfl-ficonditions exception does ficause exception is invoked, the bank must commentary to thefi øon¿ the model notice not apply, as in the case of deposits of cash include in the notice to its customer, may be used as the basis for extending a or electronic payments under § 229.10 (a) and required by § 229.13(g), the reason that the hold, if the reason satisfies the conditions for (b), the depositary bank may not be liable for bank believes that the check is uncollectible. invoking this exception. A depositary bank a delay in making funds available for 2. The following are several examples of may invoke the reasonablefl-ficause withdrawal if the delay is due to a bona fide circumstances under which the exception based on a combination of factors error such as an unavoidable computer reasonablefl-ficause exception may be that give rise to a reasonable cause to doubt malfunction. invoked: the collectibility of a check. In these cases, H. 229.13(g) Notice of Exception a. If a bank received a notice from the the bank should disclose the primary reasons paying bank that a check was not paid and for which the exception was invoked in 1. In general. is being returned to the depositary bank, the accordance with paragraph (g) of this section. a. If a depositary bank invokes any of the depositary bank could place a hold on the 4. The regulation provides that the safeguard exceptions to the schedules listed check or extend a hold previously placed on determination that a check is uncollectible above, other than the newfl-fiaccount or that check, and notify the customer that the shall not be based on a class of checks or emergencyfl-ficonditions exception, and bank had received notice that the check is persons. For example, a depositary bank extends the hold on a deposit beyond the being returned. The exception could be cannot invoke this exception simply because time periods permitted in §§ 229.10(c) and invoked even if the notice were incomplete, øthe check is drawn on a paying bank in a 229.12, it must provide a notice to its if the bank had reasonable cause to believe rural area¿fla paying bank demands paper customer. Except in the cases described in that the notice applied to that particular presentmentfi and the depositary bank paragraphs (g)(2) and (g)(3) of this section, check. knows it will not have the opportunity to notices must be given each time an exception ø ¿ fl b. The depositary bank may have received learn of nonpayment of that check before hold is invoked and must state the a fi information from the paying bank, prior to funds must be made available under the number or code that identifies the customer’s account ønumber¿, the date of the presentment of the check, that gives the availability schedules. Similarly, a depositary deposit, flthe total amount of the deposit, bank reasonable cause to believe that the bank cannot invoke the reasonable cause the amount of the deposit that is being check is uncollectible. For example, the exception based on the race or national origin delayed,fi the reason the exception was paying bank may have indicated that of the depositor. invoked, and the time period within which payment has been stopped on the check, or 5. If a depositary bank invokes this funds will be available for withdrawal. For a that the drawer’s account does not currently exception with respect to a particular check customer that is not a consumer, a depositary have sufficient funds to honor the check. and does not provide a written notice to the bank satisfies the written-notice requirement Such information may provide sufficient depositor at the time of deposit, the by sending an electronic notice that displays basis to invoke this exception. In these cases, depositary bank may not assess any overdraft the text and is in a form that the customer the depositary bank could invoke the fee (such as an ‘‘NSF’’ charge) or charge interest for use of overdraft credit, if the may keep, if the customer agrees to such exception and disclose as the reason the means of notice. Information is in a form that exception is being invoked the fact that check is paid by the paying bank and these charges would not have occurred had the the customer may keep if, for example, it can information from the paying bank indicates be downloaded or printed. For a customer that the check may not be paid. exception not been invoked. A bank may assess an overdraft fee under these who is a consumer, a depositary bank c. The fact that a check is deposited more satisfies the written-notice requirement by than six months after the date on the check circumstances, however, if it provides notice to the customer, in the notice of exception sending an electronic notice in compliance (i.e.fl,fi a stale check) is a reasonable with the requirements of the Electronic indication that the check may be required by paragraph (g) of this section, that the fee may be subject to refund, and refunds Signatures in Global and National Commerce uncollectible, because under U.C.C. 4–404 a Act (12 U.S.C. 7001 et seq.), which include bank has no duty to its customer to pay a the charges upon the request of the customer. The notice must state that the customer may obtaining the consumer’s affirmative consent check that is more than six months old. to such means of notice. Similarly, if a check being deposited is be entitled to a refund of any overdraft fees that are assessed if the check being held is b. With respect to paragraph (g)(1), the postdated (future dated), the bank may have ø paid, and indicate where such requests for a requirement that the notice state the time a reasonable cause to believe the check is ¿ refund of overdraft fees should be directed. period within flday onfi which the funds uncollectible, because the check may not be shall be made available may be satisfied øif properly payable under U.C.C. 4–401. The G. 229.13(f) Emergency Conditions the notice identifies the date the deposit is bank, in its notice, should specify that the 1. Certain emergency conditions may arise received and information sufficient to check is stale-dated or postdated. that delay the collection or return of checks, indicate when funds will be available and the d. There are reasons that may cause a bank or delay the processing and updating of amounts that will be available at those times. to believe that a check is uncollectible that customer accounts. In the circumstances For example,¿ for a deposit involving more are based on confidential information. For specified in this paragraph, the depositary than one check, fliffi øthe bank need not example, a bank could conclude that a check bank may extend the holds that are placed on provide a notice that discloses when funds being deposited is uncollectible based on its deposits of checks that are affected by such from each individual check in the deposit reasonable belief that the depositor is delays, if the bank exercises such diligence will be available for withdrawal; instead,¿ engaging in kiting activity. Reasonable belief as the circumstances require. For example, if the bank ømay¿ provideflsfi a total dollar as to the insolvency or pending insolvency of a bank learns that a check has been delayed amount for each of the øtime periods the drawer of the check or the drawee bank in the process of collection due to øsevere when¿fldays on which thefi funds will be and that the checks will not be paid also may weather conditions¿ flan interruption of availableø, or provide the customer with an justify invoking this exception. In these computer facilitiesfi or other causes beyond explanation of how to determine the amount cases, the bank may indicate, as the reason its control, an emergency condition covered of the deposit that will be held and when the it is invoking the exception, that the bank has by this section may exist and the bank may funds will be available for deposit.¿ confidential information that indicates that place a hold on the check to reflect the delay. Appendix C (C–ø12¿fl9fi) contains a model the check might not be paid. This exception applies to ølocal and notice. 3. øThe Board has included a¿flAppendix nonlocal¿ checks flsubject to § 229.12fi, as c. For deposits made in person to an C contains a model reasonablefl-ficause well as fltofi checks that would otherwise employee of the depositary bank, the notice exception notice as a model notice in be made available on the next ø(or second)¿ generally must be given to the person making appendix C (C–ø13¿fl9fi). The business day after the day of deposit under the deposit, i.e., the ‘‘depositorfl,fi’’ø,¿ at flcommentary in appendix C to thefi model § 229.10(c). When a bank places or extends the time of deposit. The depositor need not notice includes several reasons for which this a hold under this exception, it need not make be the customer holding the account. For exception may be invoked. The øBoard does the øfirst $100¿flminimum amountfi of a other deposits, such as deposits received at

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an ATM, lobby deposit box, night depository, individual hold notices for each deposit ATMs, or through newspaper, television, or or through the mail, notice must be ømailed¿ subject to the largefl-fideposit or radio notices. flsentfi to the customer not later than the redepositedfl-ficheck exception in b. If the depositary bank extends the hold close of the business day following the accordance with § 229.13(g)(1) (see Model placed on a deposit due to an emergency banking day on which the deposit was made. Notice C–ø12¿fl9fi). condition, the bank need not provide a notice d. Notice to the customer also may be b. In the case of a deposit of multiple if the funds would be available for provided at a later time, if the facts upon checks, the depositary bank has the withdrawal before the notice must be sent. which the determination to invoke the discretion to place an exception hold on any For example, if on the last day of a hold exception flis madefi do not become combination of checks in excess of period the depositary bank experiences a known to the depositary bank until after ø$5,000¿flthe large-deposit thresholdfi. computer failure and customer accounts notice would otherwise have to be given. In The notice should enable a customer to cannot be updated in a timely fashion to these cases, the bank must ømail¿ flsendfi determine the availability of the deposit in reflect the funds as available balances, the notice to the customer as soon as the case of a deposit of multiple checks notices are not required if the funds are made practicable, but not later than the business flsubject to differing hold periodsfi. øFor available before the notices must be sent. day following the day the facts become example, if a customer deposits a $5,000 5. Record retention. A depositary bank known. A bank is deemed to have knowledge local check and a $5,000 nonlocal check, must retain a record of each notice of a when the facts are brought to the attention of under the large deposit exception, the reasonablefl-ficause exception for a period the person or persons in the bank responsible depositary bank may make funds available in of two years, or such longer time as provided for making the determination, or when the the amount of (1) $100 on the first business in the record retention requirements of facts would have been brought to their day after deposit, $4,900 on the second § 229.21. This record must contain a brief attention if the bank had exercised due business day after deposit (local check), and description of the facts on which the diligence. $5,000 on the eleventh business day after depositary bank based its judgment that there fle. If the customer has agreed to accept deposit (nonlocal check with 6-day exception was reasonable cause to doubt the notices electronically, the bank shall send the hold), or (2) $100 on the first business day collectibility of a check. In many cases, øsuch notice such that the bank may reasonably after deposit, $4,900 on the fifth business day as where the exception was invoked on the expect it to be received by the customer no after deposit (nonlocal check), and $5,000 on basis of a notice of nonpayment received,¿ later than the first business day following the the seventh business day after deposit (local the record requirement may be met by day the facts become known to the depositary check with 5-day exception hold).¿ The retaining a copy of the notice sent to the bank, or the deposit is made, whichever is notice flalsofi should reflect the bank’s customer. In other cases, such as where the later.fi priorities in placing exception holds on next- exception was invoked on the basis of øe¿flffi. In those cases described in day ø(or second-day), local, and nonlocal¿ confidential information, a further paragraphs (g)(2) and (g)(3), the depositary fland otherfi checks. description to the facts, such as insolvency bank need not provide a notice every time an 3. Notice of repeatedfl-fioverdraft of drawer, should be included in the record. exception hold is applied to a deposit. When exception. Under paragraph (g)(3), if an I. 229.13(h) Availability of Deposits Subject paragraph (g)(2) or (g)(3) requires disclosure account is subject to the repeatedfl- to Exceptions of the time period within which deposits fioverdraft exception, the depositary bank 1. If a depositary bank invokes any subject to the exception generally will be may provide one notice to its customer for exception other than the newfl-fiaccount available for withdrawal, the requirement each time period during which the exception exception, the bank may extend the time may be satisfied if the one-time notice states will apply. Notices sent pursuant to within which funds must be made available when ‘‘on usø,¿’’ ølocal, and nonlocal¿ fland paragraph (g)(3) must state the customer’s ø ¿ under the schedule by a reasonable period of otherfi checks will be available for account number flidentifierfi, the fact time. This provision establishes that an withdrawal if an exception is invoked. the exception was invoked under the extension of up to one business day for ‘‘on 2. One-time exception notice. repeatedfl-fioverdraft exception, the time us’’ checksø,¿ fland twofi øfive¿ business a. Under paragraph (g)(2), if a period within which deposits subject to the days for ølocal checks, and six business days nonconsumer account (see Commentary to exception will be made available for ¿ fl fi ø ¿ for nonlocal checks all other checks § 229.2 (n) fl(o)fi) is subject to the largefl- withdrawal, and the time period during øand checks deposited in a nonproprietary fideposit or redepositedfl-ficheck which the exception will apply (see Model ATM¿ is reasonable. Under certain ø ¿ exception, the depositary bank may give its Notice C– 15 fl11fi). A depositary bank circumstances, however, a longer extension customer a single notice at or prior to the may provide a one-time notice to a customer of the schedules may be reasonable. In these time notice must be provided under under paragraph (g)(3) only if the repeatedfl- cases, the burden is placed on the depositary paragraph (g)(1). Notices provided under fioverdraft exception will be invoked for bank to establish that a longer period is paragraph (g)(2) must contain the reason the most check deposits to the customer’s reasonable. exception may be invoked and the time account. 2. For example, assume a bank extended period within which deposits subject to the 4. Emergencyfl-ficonditions exception the hold on a ølocal¿ check deposit by exception will be available for withdrawal notice. fltwofi øfive¿ business days based on its (see Model Notice C–ø14¿fl10fi). A a. If an account is subject to the reasonable cause to believe that the check is depositary bank may provide a one-time emergencyfl-ficonditions exception under uncollectible. If, on the day before the notice to a nonconsumer customer under § 229.13(f), the depositary bank must provide extended hold is scheduled to expire, the paragraph (g)(2) only if each exception cited notice in a reasonable form within a bank øreceives a notification from the paying in the notice (the large deposit and/or the reasonable time, depending on the bank¿ fllearnsfi that the check is being redeposited check exception) will be invoked circumstances. For example, a depositary returned unpaid, the bank may determine for most check deposits to the customer’s bank may learn of a weather emergency or a that a longer hold is warrantedø, if it decides account to which the exception could apply. power outage that affects the paying bank’s not to charge back the customer’s account A one-time notice may state that the operations. Under these circumstances, it based on the notification¿. If the bank depositary bank will apply exception holds likely would be reasonable for the depositary decides to extend the hold, the bank must to certain subsets of deposits to which the bank to provide an emergencyfl- send a second notice, in accordance with largefl-fideposit or redepositedfl-ficheck ficonditions exception notice in the same paragraph (g) of this section, indicating the exception may apply, and the notice should manner and within the same time as required new date that the funds will be available for identify such subsets. For example, the for other exception notices. On the other withdrawal. depositary bank may apply the hand, if a depositary bank experiences a 3. With respect to Treasury checks, U.S. redepositedfl-ficheck exception only to weather or power outage emergency that Postal Service money orders, checks drawn checks that were redeposited automatically affects its own operations, it may be on Federal Reserve Banks or Federal Home by the depositary bank in accordance with an reasonable for the depositary bank to provide Loan Banks, state and local government agreement with the customer, rather than to a general notice to all depositors via postings checks, cashier’s checks, certified checks, all redeposited checks. In lieu of sending the flon the depositary bank’s website or and teller’s checks subject to the next-day one-time notice, a depositary bank may send through a directed e-mailfi, at branches and ø(or second-day)¿ availability requirement,

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the depositary bank may extend the time contractual branch, credit is received on the credit on all checks sent for payment or funds must be made available for withdrawal day the depositary bank receives credit for collection. For example, if a bank receives under the largefl-fideposit, redepositedfl- the amount of the deposit, which may be credit on 20 percent of the funds deposited ficheck, repeatedfl-fioverdraft, or different from the day the contractual branch in the bank by check as of the business day reasonablefl-ficause exception by a receives credit for the deposit. of deposit (e.g., ‘‘on us’’ checks), 70 percent reasonable period beyond the delay that ø3¿ fl2.fi This section implements as of the business day following deposit, and would have been permitted under the section 606 of the EFA Act (12 U.S.C. 4005). 10 percent on the second business day regulation had the checks not been subject to The EFA Act keys the requirement to pay following deposit, the bank can apply these the next-day ø(or second-day)¿ availability interest to the time the depositary bank percentages to determine the day interest requirement. The additional hold is added to receives provisional credit for a check. must begin to accrue on check deposits to all the ølocal or nonlocal¿ flgeneralfi schedule øProvisional credit is a term used in the interest-bearing accounts, regardless of when øthat would apply based on the location of U.C.C. that is derived from the Code’s the bank received credit on the funds the paying bank¿ flin § 229.12fi. concept of provisional settlement. (See deposited in any particular account. Thus, a 4. One business day for ‘‘on us’’ checks U.C.C. 4–214 and 4–215.)¿ Provisional credit bank may begin accruing interest on a fland twofi ø, five¿ business days for ølocal is credit that is subject to charge-back if the uniform basis for all interest-bearing checks, and six business days for nonlocal check is returned unpaid; once the check is accounts, without the need to track the type checks or checks deposited in a finally paid, the right to charge back expires of check deposited to each account. nonproprietary ATM¿ flall other checksfi, and the provisional credit becomes final ø5¿fl6fi. This section is not intended to in addition to the time period provided in the fl(See U.C.C. 4–214 and 4–215)fi. Under limit a policy of a depositary bank that schedule, should provide adequate time for øS¿flsfiubpart C, a paying bank no longer provides that interest accrues only on flafiøthe¿ depositary bank flthat accepts has an automatic right to charge back credits balances that exceed a specified amount, or electronic returns under § 229.32(a)fi to given in settlement of a check, and the on the minimum balance maintained in the learn of the nonpayment of virtually all concept of provisional settlement is no longer account during a given period, provided that checks that are returned. øFor example, if a useful and has been eliminated by the the balance is determined based on the date customer deposits a $7,000 cashier’s check regulation. Accordingly, this section uses the that the depositary bank receives credit for drawn on a nonlocal bank, and the term credit rather than provisional credit, the funds. This section also is not intended depositary bank applies the large deposit and this section applies regardless of whether to limit any policy providing that interest exception to that check, $5,000 must be a credit would be provisional or final under accrues sooner than required by this available for withdrawal on the first business the U.C.C. Credit does not include a paragraph. day after the day of deposit and the bookkeeping entry (sometimes referred to as B. 229.14(b) Special Rule for Credit Unions remaining $2,000 must be available for deferred credit) that does not represent funds 1. This provision implements a withdrawal on the eleventh business day actually available for the bank’s use. requirement in section 606(b) of the EFA Act, following the day of deposit (six business ø2¿fl3fi. Because account includes only and provides an exemption from the days added to the five-day schedule for transaction accounts, other interest-bearing payment-of-interest requirements for credit nonlocal checks), unless the depositary bank accounts of the depositary bank, such as unions that do not begin to accrue interest or establishes that a longer hold is reasonable.¿ money market deposit accounts, savings dividends on their customer accounts until a 5. In the case of the application of the deposits, and time deposits, are not subject later date than the day the credit union emergency conditions exception, the to this requirement; however, a bank may receives credit for those deposits, including depositary bank may extend the hold placed accrue interest on such deposits in the same on a check by not more than a reasonable cash deposits. These credit unions are way that it accrues interest under this exempt from the payment-of-interest period following the end of the emergency or paragraph for simplicity of operation. The the time funds must be available for ø ¿ ø ¿ requirements, as long as they provide notice Board intends the term interest to of their interest accrual policies in withdrawal under §§ 229.10(c) or 229.12, referflsfi to payments to or for the account whichever is later. accordance with § 229.16(d). For example, if of any customer as compensation for the use a credit union has a policy of computing 6. This provision does not apply to holds of funds, but øto¿ excludeflsfi the imposed under the newfl-fiaccount interest on all deposits received by the 10th absorption of expenses incident to providing of the month from the first of that month, and exception. Under that exception, the a normal banking function or a bank’s maximum time period within which funds on all deposits received after the 10th of the forbearance from charging a fee in connection month from the first of the next month, that must be made available for withdrawal is with such a service. ø(See 12 CFR 217.2(d).)¿ specified for deposits that generally must be policy is not superseded by this regulation, Thus, earnings credits often applied to if the credit union provides proper disclosure accorded next-day availability under corporate accounts are not interest payments § 229.10. This subpart does not specify the of this policy to its customers. for the purposes of this section. 2. The EFA Act limits this exemption to maximum time period within which the ø ¿ 3 fl4fi. It may be difficult for a credit unions; other types of banks must proceeds of ølocal and nonlocal¿ flotherfi ø depositary bank to track which day the comply with the payment-of-interest checks must be made available for ¿ depositary bank flitfi receives credit for requirements. In addition, credit unions that withdrawal during the new account period. specific checks in order to accrue interest compute interest from the day of deposit or VIII. Section 229.14 Payment of Interest properly on the account to which the check day of credit should not change their existing is deposited. This difficulty may be A. 229.14(a) In General practices in order to avoid compliance with pronounced if the bank uses different means the requirement that interest accrue from the 1. This section requires that a depositary of collecting checks based on the time of day day the credit union receives credit. bank begin accruing interest on interest- the check is received, the dollar amount of C. 229.14(c) Exception for Checks Returned bearing accounts not later than the day on the check, and/or the paying bank to which Unpaid which the depositary bank receives credit for it must be sent. Thus, for the purpose of the the funds deposited.ø3¿ A depositary bank interest accrual requirement, a bank may rely 1. This provision is based on section 606(c) generally receives credit on checks øwithin on an availability schedule from its Federal of the EFA Act (12 U.S.C. 4005(c)) and one or two days¿ flon the business dayfi Reserve Bankø, Federal Home Loan Bank,¿ or provides that interest need not be paid on following deposit. A bank receives credit on correspondent to determine when the funds deposited in an interest-bearing a cash deposit, an electronic payment, and depositary bank receives credit. If availability account by check that has been returned the deposit of a check that is drawn on the is delayed beyond that specified in the unpaid, regardless of the reason for return. depositary bank itself on the day the cash, availability schedule, a bank may charge back IX. Section 229.15 General Disclosure electronic payment, or check is received. In interest erroneously accrued or paid on the Requirements the case of a deposit at a nonproprietary basis of that schedule. ATM, credit generally is received on the day ø4¿fl5fi. This paragraph also permits a A. 229.15(a) Form of Disclosures fland the bank that operates the ATM credits the depositary bank to accrue interest on checks Noticesfi depositary bank for the amount of the deposited to all of its interest-bearing 1. This paragraph sets forth the general deposit. In the case of a deposit at a accounts based on when the bank receives requirements for the disclosures fland

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noticesfi required under øS¿flsfiubpart B. customer may begin to withdraw funds flin that reflected in the policy disclosure. Thus, All of the disclosures fland noticesfi must relation to the banking day on which the a bank need not disclose to some customers be given in a clear and conspicuous manner, bank received the depositfi. øThe business that they receive faster availability than must be in writing, and, in most cases, must day funds will be available must be disclosed indicated in the disclosure. If, however, a be in a form the customer may keep. A as ‘‘the llll business day after’’ the day bank has a policy of imposing delays in disclosure flor noticefi is in a form that the of deposit, or substantially similar language.¿ availability on any customers longer than customer may keep if, for example, it can be The business day of availability is those specified in its disclosure, those downloaded or printed. For a customer that determined by counting the number of customers must receive disclosures that is not a consumer, a depositary bank satisfies business days starting with the øbusiness day reflect the longer applicable availability the written-disclosure flor noticefi following the¿ banking day on which the periods. A bank may establish different requirement by sending an electronic deposit is received, as determined under availability policies for different groups of disclosure flor noticefi that displays the § 229.19(a), and ending with the business day customers, such as customers in a particular text and is in a form that the customer may on which the customer may begin to geographic area or customers of a particular keep, if the customer agrees to such means withdraw funds. For example, a bank that branch. For purposes of providing a specific of disclosure flor noticefi. For a customer flmakes electronic direct deposits available availability policy, the bank may allocate who is a consumer, a depositary bank on the banking day they are received may customers among groups through good faith satisfies the written-fldisclosure orfi notice describe the deposits as being available ‘‘the use of a reasonable method. A bank may also requirement by sending an electronic same business day.’’ A bank that makes check establish different availability policies for fldisclosure orfi notice in compliance with deposits available on the business day after deposits at different locations, such as the requirements of the Electronic Signatures the banking day they are received may deposits at a contractual branch. in Global and National Commerce Act (12 describe the deposits as being available ‘‘the 3. A bank may disclose that funds are U.S.C. 7001 et seq.), which include obtaining next day.’’ A bank thatfi imposes delays of available for withdrawal on a given day the consumer’s affirmative consent to such øfour¿flonefi intervening business dayøs¿ notwithstanding the fact that the bank uses means of fldisclosure orfi notice. flbetween the banking day of receipt and the the funds to pay checks received before that Disclosures posted at locations where business day of availabilityfi for ønonlocal¿ day. For example, a bank may disclose that employees accept consumer deposits, at checks must describe those checks as being its policy is to make funds available from ATMs, and on preprinted deposit slips need available on ‘‘the øfifth¿ flsecondfi business deposits of ølocal¿ checks on the second not be in a form that the customer may keep. day after’’ the day of the deposit flor ‘‘2 business day following the day of deposit, Appendix C of the regulation contains model business days’’ after the day of the depositfi. even though it may use the deposited funds forms, clauses, and notices to assist banks in C. 229.15(c) Multiple Accounts and Multiple to pay checks prior to the second business preparing disclosures. Account Holders day; the funds used to pay checks in this 2. Disclosures concerning availability must example are not available for withdrawal be grouped together and may not contain any 1. This paragraph clarifies that banks need until the second business day after deposit information that is not related to the not provide multiple disclosures under the because the funds are not available for all disclosures required by this subpart. regulation. A single disclosure to a customer uses until the second business day. (See the Therefore, banks may not intersperse the that holds multiple accounts, or a single definition of available for withdrawal in required disclosures with other account disclosure to one of the account holders of § 229.2(d).) disclosures, and may not include other a jointly held account, satisfies the disclosure requirements of the regulation. B. 229.16(b) Content of Specific Policy account information that is not related to Disclosure their availability policy within the text of the D. 229.15(d) Dormant or Inactive Accounts 1. This paragraph sets forth the items that required disclosures. Banks may, however, 1. This paragraph makes clear that banks include information that is related to their must be included, as applicable, in a bank’s need not provide disclosure of their specific specific availability policy disclosure. The availability policies. For example, a bank availability policies to customers that hold may inform its customers that, even when the information that must be disclosed by a accounts that are either dormant or inactive. particular bank will vary considerably bank has already made funds available for The determination that certain accounts are withdrawal, the customer is responsible for depending upon the bank’s availability dormant or inactive must be made by the policy. For example, a bank that makes any problem with the deposit, such as the bank. If a bank considers an account dormant return of a deposited check. flSee Model deposited funds available for withdrawal on or inactive for purposes other than this the business day following the day of deposit Forms C1–C4.fi regulation and no longer provides statements 3. The regulation does not require that the need simply disclose that deposited funds and other mailings to an account for this will be available for withdrawal on the first disclosures be segregated from other account reason, such an account is considered terms and conditions. For example, banks business day after the day of deposit, the dormant or inactive for purposes of this bank’s business days, and when deposits are may include the disclosure of their specific regulation. availability policy in a booklet or pamphlet considered received. that sets out all of the terms and conditions X. Section 229.16 Specific Availability Policy 2. On the other hand, a bank that has a of the bank’s accounts. The required Disclosure policy of routinely delaying on a blanket basis the time when flsomefi deposited disclosures must, however, be grouped A. 229.16(a) General together and highlighted or identified in funds are available for withdrawal would some manner, for example, by use of a 1. This section describes the information have a more detailed disclosure. Such separate heading for the disclosures, such as that must be disclosed by banks to comply blanket hold policies might be for the ø ‘‘When Deposits are Available for with §§ 229.17 and 229.18(d), which require maximum time allowed under the federal ¿ Withdrawal.’’ that banks furnish notices of their specific law flthis regulationfi or might be for 4. A bank may, by agreement or at the policy regarding availability of deposited shorter periods. These banks must disclose consumer’s request, provide any disclosure funds. The disclosure provided by a bank the types of deposits that will be subject to or notice required by subpart B in a language must reflect the availability policy followed delays, how the customer can determine the other than English, provided that the bank by the bank in most cases, even though a type of deposit being made, and the day that makes a complete disclosure available in bank may in some cases make funds available funds from each type of deposit will be English at the customer’s request. sooner or impose a longer delay. available for withdrawal. ø ¿ 2. The disclosure must reflect the policy 3. Some banks may have a combination of B. 229.15(b) Uniform Reference to Day of and practice of the bank regarding next-day availability and blanket delays. For Availability availability as to most accounts and most example, a bank may provide next-day 1. This paragraph requires banks to deposits into those accounts. In disclosing availability for all deposits except for one or disclose in a uniform manner when the availability policy that it follows in most two categories, such as deposits at deposited funds will be available for cases, a bank may provide a single disclosure nonproprietary ATMs and ønonlocal¿ withdrawal. Banks must disclose when that reflects one policy to all its transaction personal checks over a specified dollar deposited funds are available for withdrawal account customers, even though some of its amount. The bank would describe the by stating the business day on which the customers may receive faster availability than categories that are subject to delays in

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availability and tell the customer when each ø8¿fl7fi. A bank that provides and (3) for deposits to which those category would be available for withdrawal, availability based on when the bank provisions apply. and state that other deposits will be available generally receives credit for deposited checks 2. Notice at time of case-by-case delay. for withdrawal on the first business day after need not disclose the time when a check a. In addition to including the disclosures the day of deposit. Similarly, a bank that drawn on a specific bank will be available for required by paragraph (c)(1) of this section in provides availability on the second business withdrawal. Instead, the bank may disclose their specific availability policy disclosure, day for most of its deposits would need to the categories of deposits that must be banks that delay or extend the time period identify the categories of deposits which, available on the first business day after the when funds are available for withdrawal on under the regulation, are subject to next-day day of deposit (deposits subject to § 229.10) a case-by-case basis must give customers a availability and state that all other deposits and state the other categories of deposits and flwrittenfi notice when availability of will be available on the second business day. funds from a particular deposit will be ø the time periods that will be applicable to 4. Because many banks’ availability those deposits. øFor example, a bank might delayed or extended beyond the time when policies may be complex, a bank must give disclose the four-digit Federal Reserve deposited funds are generally available for a brief summary of its policy at the beginning withdrawal. The notice must state that a ¿ routing symbol for local checks and indicate of the disclosure. In addition, t flTfihe that such checks as well as certain nonlocal delay is being imposed and indicate when bank must describe any circumstances when checks will be available for withdrawal on the funds will be available. In addition, the ø ¿ actual availability may be longer than the the first or second business day following the notice must include the fla number or schedules disclosed. Such circumstances day of deposit, depending on the location of code that identifies the customer’sfi account would arise, for example, when the bank ø ¿ the particular bank on which the check is number , the date of the deposit, flthe total invokes one of the exceptions set forth in ø ¿ drawn, and disclose that funds from all other amount of the deposit,fi and the amount § 229.13 of the regulation, or when the bank checks will be available on the second or of the deposit being delayedfl, and the day delays or extends the time when deposited the funds will be available for withdrawal.fi funds are available for withdrawal up to the third business day. The bank must also disclose that the customer may request a b. If notice of the delay was not given at time periods allowed by the regulation on a the time the deposit was made and the bank ø copy of the bank’s detailed schedule that case-by-case basis. Also, a bank that must assesses overdraft or returned check fees on make certain checks available faster under would enable the customer to determine the availability of any check and must provide accounts when a case-by-case hold has been appendix B (reduction of schedules for placed, the case-by-case hold notice provided certain nonlocal checks) must state that some such schedule upon request. A change in the bank’s detailed schedule would not trigger to the customer must include a notice check deposits will be available for concerning overdraft or returned check fees. withdrawal sooner because of special rules the change in policy disclosure requirement ¿ The notice must state that the customer may and that a list of the pertinent routing of § 229.18(e). ¿ be entitled to a refund of any overdraft or numbers is available upon request. C. 229.16(c) Longer Delays on a Case-by-Case returned check fees that result from the ø5. Generally, a bank that distinguishes in Basis deposited funds not being available if the its disclosure between local and nonlocal 1. Notice in specific policy disclosure. check that was deposited was in fact paid by checks based on the routing number on the a. Banks that make deposited funds the payor bank, and explain how to request check must disclose to its customers that available for withdrawal sooner than a refund of any fees. (See § certain checks, such as some credit union 229.16(c)(3).) required by the regulation—for example, payable-through drafts, will be treated as c. The requirement that the case-by-case local or nonlocal based on the location of the providing their customers with immediate or hold notice state the day that funds will be bank by which they are payable (e.g., the next-day availability for deposited funds— made available for withdrawal may be met by credit union), and not on the basis of the and delay the time when funds are available stating the date or the number of business location of the bank whose routing number for withdrawal only from time to time days after deposit that the funds will be made appears on the check. A bank is not required determined on a case-by-case basis, must available. This requirement is satisfied if the to provide this disclosure, however, if it provide notice of this in their specific notice provides information sufficient to makes the proceeds of both local and availability policy disclosure. This paragraph indicate when funds will be available and the nonlocal checks available for withdrawal outlines the requirements for that notice. amounts that will be available at those times. within the time periods required for local b. In addition to stating what their specific For example, for a deposit involving more checks in §§ 229.12 and 229.13.¿ availability policy is in most cases, banks than one check, the bank need not provide ø6¿fl5fi. The business day cut-off time that may delay or extend the time when a notice that discloses when funds from each used by the bank must be disclosed and if deposits are available on a case-by-case basis individual item in the deposit will be some locations have different cut-off times must state that from time to time funds may available for withdrawal. Instead, the bank the bank must note this in the disclosure and be available for withdrawal later than the may provide a total dollar amount for each state the earliest time that might apply. A time periods in their specific policy of the time periods when funds will be bank need not list all of the different cut-off disclosure, disclose the latest time that a available, or provide the customer with an times that might apply. If a bank does not customer may have to wait for deposited explanation of how to determine the amount have a cut-off time prior to its closing time, funds to be available for withdrawal when a of the deposit that will be held and when the the bank need not disclose a cut-off time. case-by-case hold is placed, state that held funds will be available for withdrawal. ø7¿fl6fi. A bank taking advantage of the customers will be notified when availability d. For deposits made in person to an extended time period for making deposits at of a deposit is delayed on a case-by-case employee of the depositary bank, the notice nonproprietary ATMs available for basis, and advise customers to ask if they generally must be given at the time of the withdrawal under § 229.12ø(f)¿fl(d)fi must need to be sure of the availability of a deposit. The notice at the time of the deposit explain this in the initial disclosure. In particular deposit. must be given to the person making the addition, the bank must provide a list (on or c. A bank that imposes delays on a case- deposit, that is, the ‘‘depositor.’’ The with the initial disclosure) of either the by-case basis is still subject to the availability depositor need not be the customer holding bank’s proprietary ATMs or those ATMs that requirements of this regulation. If the bank the account. For other deposits, such as are nonproprietary at which customers may imposes a delay on a particular deposit that deposits received at an ATM, lobby deposit make deposits. As an alternative to providing is not longer than the availability required by box, night depository, through the mail, or by such a list, the bank may label all of its § 229.12 for ølocal and nonlocal¿ checks, the armored car, notice must be ømailed¿ proprietary ATMs with the bank’s name and reason for the delay need not be based on the flsentfi to the customer not later than the state in the initial disclosure that this has exceptions provided in § 229.13. If the delay close of the business day following the been done. Similarly, a bank taking exceeds the time periods permitted under banking day on which the deposit was made. advantage of the cash withdrawal limitations § 229.12, however, then it must be based on Notice to the customer also ømay¿ flmustfi of § 229.12 ø(d)¿fl(b)fi, or the provision in an exception provided in § 229.13, and the be øprovided¿ flsentfi not later than the § 229.19(e) allowing holds to be placed on bank must comply with the § 229.13 notice close of the business day following the other deposits when a deposit is made or a requirements. A bank that imposes delays on banking day on which the deposit was made check is cashed, must explain this in the a case-by-case basis may avail itself of the if the decision to delay availability is made initial disclosure. one-time notice provisions in § 229.13(g)(2) after the time of the deposit. flIf the

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customer has agreed to accept notices mailed not later than the business day considered deposited when received by the electronically, the bank shall send the notice following the banking day of the request. teller or placed in the ATM. Funds received such that the bank may reasonably expect it at a contractual branch are considered XII. Section 229.18 Additional Disclosure to be received by the customer not later than deposited when received by a teller at the Requirements the first business day following the banking contractual branch or deposited into a day the deposit is made.fi A. 229.18(a) Deposit Slips proprietary ATM of the contractual branch. 3. Overdraft and returned check fees. If a 1. This paragraph requires banks to include (See also, Commentary to § 229.10(c) on depositary bank delays or extends the time a notice on all preprinted deposit slips. The deposits made to an employee of the when funds from a deposited check are deposit slip notice need only state, depositary bank.) Funds deposited to a available for withdrawal on a case-by-case somewhere on the front of the deposit slip, deposit box in a bank lobby that is accessible basis and does not provide a written notice that deposits may not be available for to customers only during regular business to its depositor at the time of deposit, the immediate withdrawal. The notice is hours generally are considered deposited depositary bank may not assess any overdraft required only on preprinted deposit slips— when placed in the lobby box; a bank may, or returned check fees (such as an those printed with the customer’s account however, treat deposits to lobby boxes the same as deposits to night depositories (as insufficient funds charge) or charge interest number and name and furnished by the bank provided in § 229.19(a)(3)), provided a notice for use of an overdraft line of credit, if the in response to a customer’s order to the bank. A bank need not include the notice on appears on the lobby box informing the deposited check is paid by the paying bank customer when such funds will be and these fees would not have occurred had deposit slips that are not preprinted and supplied to the customer—such as counter considered deposited. the additional case-by-case delay not been 3. Mail. Funds mailed to the depositary deposit slips—or on those special deposit imposed. A bank may assess an overdraft or bank are considered deposited on the slips provided to the customer under returned check fee under these banking day they are received by the § 229.10(c). A bank is not responsible for circumstances, however, if it provides notice depositary bank. The funds are received by ensuring that the notice appearflsfi on to the customer in the notice required by the depositary bank at the time the mail is deposit slips that the customer does not paragraph (c)(2) of this section that the fee delivered to the bank, even if it is initially obtain from or through the bank. øThis may be subject to refund, and refunds the fee delivered to a mail room, rather than the paragraph applies to preprinted deposit slips upon the request of the customer when check processing area. required to do so. The notice must state that furnished to customers on or after September ¿ 4. Other facilities. the customer may be entitled to a refund of 1, 1988. a. In addition to deposits at staffed any overdraft or returned check fees that are * * * * * facilities, at ATMs, and by mail, funds may assessed if the deposited check is paid, and E. 229.18(e) Changes in Policy be deposited at a facility such as a night indicate where such requests for a refund of depository or a lock box. A night depository overdraft fees should be directed. Paragraph 1. This paragraph requires banks to send is a receptacle for receipt of deposits, (c)(3) applies when a bank provides a case- notices to their customers when the banks typically used by corporate depositors when by-case notice in accordance with paragraph change their availability policies with regard the branch is closed. Funds deposited at a (c)(2) and does not apply if the bank has to consumer accounts. A notice may be given night depository are considered deposited on provided an exception hold notice in in any form as long as it is clear and the banking day the deposit is removed, and accordance with § 229.13. conspicuous. If the bank gives notice of a the contents of the deposit are accessible to change by sending the customer a complete the depositary bank for processing. For D. 229.16(d) Credit Union Notice of Interest new availability disclosure, the bank must Payment Policy example, some businesses deposit their funds direct the customer to the changed terms in in a locked bag at the night depository late 1. This paragraph sets forth the special the disclosure by use of a letter or insert, or in the evening, and return to the bank the disclosure requirement for credit unions that by highlighting the changed terms in the following day to open the bag. Other delay accrual of interest or dividends for all disclosure. depositors may have an agreement with their cash and check deposits beyond the date of 2. Generally, a bank must send a notice at bank that the deposit bag must be opened receiving provisional credit for checks being least 30 calendar days before implementing under the dual control of the bank and the deposited. (The interest payment any change in its availability policy. If the depositor. In these cases, the funds are requirement is set forth in § 229.14(a).) Such change results in faster availability of ø considered deposited when the customer credit unions are required to describe their deposits —for example, if the bank changes returns to the bank and opens the deposit policy with respect to accrual of interest or its availability for nonlocal checks from the bag. dividends on deposits in their specific fifth business day after deposit to the fourth ¿ b. A lock box is a post office box used by availability policy disclosure. business day after deposit— the bank need a corporation for the collection of bill not send advance notice. The bank must, XI. Section 229.17 Initial Disclosures payments or other check receipts. The however, send notice of the change no later depositary bank generally assumes the A. This paragraph requires banks to than 30 calendar days after the change is ø responsibility for collecting the mail from the provide a notice of their availability policy to implemented. A bank is not required to give lock box, processing the checks, and all potential customers prior to opening an a notice when there is a change in appendix crediting the corporation for the amount of account. The requirement of a notice prior to B (reduction of schedules for certain nonlocal ¿ the deposit. Funds deposited through a lock opening an account requires banks to provide checks). box arrangement are considered deposited on disclosures prior to accepting a deposit to 3. A bank that has provided its customers the day the deposit is removed from the lock open an account. Disclosures must be given with a list of ATMs under § 229.16(b)(5) shall box and are accessible to the depositary bank at the time the bank accepts an initial deposit provide its customers with an updated list of for processing. regardless of whether the bank has opened ATMs once a year if there are changes in the 5. Certain off-premise ATMs. A special the account yet for the customer. If a bank, list of ATMs previously disclosed to the provision is made for certain off-premise however, receives a written request by mail customers. ATMs that are not serviced daily. Funds from a person asking that an account be XIII. Section 229.19 Miscellaneous deposited at such an ATM are considered opened and the request includes an initial deposited on the day they are removed from deposit, the bank may open the account with A. 229.19(a) When Funds Are Considered the ATM, if the ATM is not serviced more the deposit, provided the bank ømails¿ Deposited than two times each week. This provision is flsendsfi the required disclosures to the 1. The time funds must be made available intended to address the practices of some customer not later than the business day for withdrawal under this subpart is banks of servicing certain remote ATMs following the banking day on which the bank determined by the day the deposit is made. infrequently. If a depositary bank applies this receives the deposit. Similarly, if a bank This paragraph provides rules to determine provision with respect to an ATM, a notice receives a telephone request from a customer the day funds are considered deposited in must be posted at the ATM informing asking that an account be opened with a various circumstances. depositors that funds deposited at the ATM transfer from a separate account of the 2. Staffed facilities and ATMs. Funds may not be considered deposited until a customer’s at the bank, the disclosure may be received at a staffed teller station or ATM are future day, in accordance with § 229.18.

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6. Banking day of deposit. B. 229.19(b) Availability at Start of Business amount availablefi no later than 5fl:00fi a. This paragraph also provides that a Day p.m. on specific business days, if a bank does deposit received on a day that the depositary 1. If funds must be made available for not participate in an ATM system and does bank is closed, or after the bank’s cut-off withdrawal on a business day flunder not have any teller windows open at or after hour, may be considered made on the next subpart Bfi, the funds must be available for 5fl:00fi p.m., the bank need not join an banking day. Generally, for purposes of the withdrawal by the later of 9fl:00fi a.m. or ATM system or keep offices open. In this availability schedules of this subpart, a bank the time the depositary bank’s teller facilities, case, the bank complies with this rule if the fl fi may establish a cut-off hour of 2 :00 p.m. including ATMs, are available for customer funds that are required to be available for or later for receipt of deposits at its head account withdrawals, except under the cash withdrawal at 5fl:00fi p.m. on a office or branch offices. For receipt of special rule for cash withdrawals set forth in particular day are available for withdrawal at deposits at ATMs, contractual branches, or § 229.12ø(d)¿fl(b)fi. Thus, if a bank has no the start of business on the following day. other off-premise facilities, such as night ATMs and its branch facilities are available Similarly, if a depositary bank is closed for depositories or lock boxes, the depositary for customer transactions beginning at customer transactions, including ATMs, on a bank may establish a cut-off hour of 12 noon 10fl:00fi a.m., funds must be available for day funds must be made available for or later (either local time of the branch or customer withdrawal beginning at 10fl:00fi withdrawal, the regulation does not require other location of the depositary bank at a.m. If the bank has ATMs that are available the bank to open. which the account is maintained or local 24 hours a day, rather than establishing 12:01 4. The special cash withdrawal rule in the time of the ATM, contractual branch, or other ø ¿ a.m. as the start of the business day, this EFA Act recognizes that the $400 flthe off-premise facility). The depositary bank paragraph sets 9fl:00fi a.m. as the start of cash withdrawal amountfi that must be must use the same timing method for the day with respect to ATM withdrawals. made available for cash withdrawal by establishing the cut-off hour for all ATMs, The Board believes that this rule provides 5fl:00fi p.m. on the day specified in the contractual branches, and other off-premise schedule may exceed a bank’s daily ATM facilities used by its customers. The choice banks with sufficient time to update their accounting systems to reflect the available cash withdrawal limit and explicitly of cut-off hour must be reflected in the bank’s provides that the EFA Act does not supersede internal procedures, and the bank must funds in customer accounts for that day. 2. The start of business is determined by a bank’s policy in this regard. As a result, if inform its customers of the cut-off hour upon a bank has a policy of limiting fldailyfi request. This earlier cut-off for ATM, the local time of the branch or other location of the depositary bank at which the account cash withdrawals from automated teller contractual branch, or other off-premise ø ¿ is maintained. For example, if funds in a machines to $250 per day flless than the deposits is intended to provide greater cash withdrawal amountfi, the regulation flexibility in the servicing of these facilities. customer’s account at a west coast bank are first made available for withdrawal at the would not require that the bank dispense b. Different cut-off hours may be ø$400 of the proceeds of the customer’s established for different types of deposits. start of business on a given day, and the deposit¿flthe full amountfi that must be For example, a bank may establish a customer attempts to withdraw the funds at made available for cash withdrawal on that 2fl:00fi p.m. cut-off for the receipt of check an east coast ATM, the depositary bank is not day. deposits, but a later cut-off for the receipt of required to make the funds available until 5. Even though the EFA Act clearly wire transfers. Different cut-off hours also 9fl:00fi a.m. øwest coast time¿ (12fl:00fi provides that the bank’s ATM withdrawal may be established for deposits received at noon øeast coast¿ flEasternfi time). different locations. For example, a different limit is not superseded by the federal C. 229.19(c) Effect on Policies of Depositary availability rules on the day funds must first cut-off may be established for ATM deposits Bank than for over-the-counter deposits, or for be made available, the EFA Act does not different teller stations at the same branch. 1. This subpart establishes the maximum specifically permit banks to limit cash With the exception of the 12fl:00fi noon hold that may be placed on customer withdrawals at ATMs on subsequent days cut-off for deposits at ATMs and off-premise deposits. A depositary bank may provide when the entire amount of the deposit must facilities, no cut-off hour for receipt of availability to its customers in a shorter time be made available for withdrawal. The Board deposits for purposes of this subpart can be than prescribed in this subpart. A depositary believes that the rationale behind the EFA established earlier than 2fl:00fi p.m. bank also may adopt different funds Act’s provision that a bank’s ATM c. A bank is not required to remain open availability policies for different segments of withdrawal limit is not superseded by the until 2fl:00fi p.m. If a bank closes before its customer base, as long as each policy requirement that funds be made available for 2fl:00fi p.m., deposits received after the meets the schedules in the regulation. For cash withdrawal applies on subsequent days. closing may be considered deposited on the example, a bank may differentiate between Nothing in the regulation prohibits a next banking day. Further, as § 229.2(f) its corporate and consumer customers, or depositary bank from establishing ATM cash defines the term banking day as the portion may adopt different policies for its consumer withdrawal limits that vary among customers of a business day on which a bank is open customers based on whether a customer has of the bank, as long as the limit is not to the public for substantially all of its an overdraft line of credit associated with the dependent on the length of time funds have banking functions, a day, or a portion of a account. been in the customer’s account (provided day, is not necessarily a banking day merely 2. This regulation does not affect a that the permissible hold has expired). because the bank is open for only limited depositary bank’s right to accept or reject a 6. Some small banks, particularly credit functions, such as keeping drive-in or walk- check for deposit, to charge back the unions, due to lack of secure facilities, keep up teller windows open, when the rest of the customer’s account based on a returned no cash on their premises and hence offer no bank is closed to the public. For example, a check or notice of nonpayment, or to claim cash withdrawal capability to their banking office that usually provides a full a refund for any credit provided to the customers. Other banks limit the amount of range of banking services may close at customer. For example, even if a check is cash on their premises due to bonding 12fl:00fi noon but leave a drive-in teller returned or a notice of nonpayment is requirements or cost factors, and window open for the limited purpose of received after the time by which funds must consequently reserve the right to limit the receiving deposits and making cash be made available for withdrawal in amount of cash each customer can withdraw withdrawals. Under those circumstances, the accordance with this regulation, the over-the-counter on a given day. For bank is considered closed and may consider depositary bank may charge back the example, some banks require advance notice deposits received after 12fl:00fi noon as customer’s account for the full amount of the for large cash withdrawals in order to limit having been received on the next banking check. ø(See § 229.33(d) and Commentary.)¿ the amount of cash needed to be maintained day. The fact that a bank may reopen for 3. Nothing in the regulation requires a on hand at any time. substantially all of its banking functions after depositary bank to have facilities open for 7. Nothing in the regulation is intended to 2fl:00fi p.m., or that it continues its back customers to make withdrawals at specified prohibit a bank from limiting the amount of office operations throughout the day, would times or on specified days. For example, even cash that may be withdrawn at a staffed teller not affect this result. A bank may not, though the special cash withdrawal rule set station if the bank has a policy limiting the however, close individual teller stations and forth in § 229.12ø(d)¿fl(b)fi states that a amount of cash that may be withdrawn, and reopen them for next-day’s business before bank must make øup to $400 available for if that policy is applied equally to all 2fl:00fi p.m. during a banking day. cash withdrawals¿flthe cash withdrawal customers of the bank, is based on security,

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operating, or bonding requirements, and is the bank must give whatever notice would effect before September 1, 1989, amended its not dependent on the length of time the have been required under §§ 229.13 or 229.16 law after that date, the amendment would not funds have been in the customer’s account had the check been deposited in the supersede Federal law, but an amendment (as long as the permissible hold has expired). account.¿ deleting a state requirement would be The regulation, however, does not authorize F. 229.19(f) Employee Training and effective. such policies if they are otherwise prohibited Compliance 3. If a state provides for a shorter hold for by statutory, regulatory, or common law. a certain category of checks than is provided 1. The EFA Act requires banks to take such D. 229.19(d) Use of Calculated Availability for under Federal law, that state requirement actions as may be necessary to inform fully will supersede the federal provision. øFor 1. A depositary bank may provide each employee that performs duties subject example, most state laws base some hold availability to its nonconsumer accounts on to the EFA Act of the requirements of the periods on whether the check being a calculated availability basis. Under EFA Act, and to establish and maintain deposited is drawn on an in-state or out-of- calculated availability, a specified percentage procedures reasonably designed to ø ¿ state bank. If a state contains more than one of funds from check deposits may be made assure flensurefi and monitor employee check processing region, the state’s hold available to the customer on the next compliance with such requirements. period for in-state checks may be shorter than business day, with the remaining percentage 2. This paragraph requires a bank to the Federal maximum hold period for ø ¿ deferred until flthefi subsequent day s . establish procedures to ensure compliance nonlocal checks. Thus, the state schedule The determination of the percentage of with these requirements and provide these would supersede the Federal schedule to the deposited funds that will be made available procedures to the employees responsible for extent that it applies to in-state, nonlocal each day is based on the customer’s typical carrying them out. checks. deposit mix as determined by a sample of the G. 229.19(g) Effect of Merger Transaction 4.¿ The EFA Act also provides that any customer’s deposits. Use of calculated 1. After banks merge, there is often a state law that provides for availability in a availability is permitted only if, on average, shorter period of time than required by the availability terms that result from the period of adjustment before their operations are consolidated. This paragraph Federal law is applicable to all federally sample are equivalent to or more prompt insured institutions in that state, including than the requirements of this subpart. accommodates this adjustment period by allowing merged banks to be treated as federally chartered institutions. If a state law E. 229.19(e) Holds on Other Funds separate banks for purposes of this subpart provides shorter availability only for deposits 1. Section 607(d) of the EFA Act (12 U.S.C. for a period of up to one year after in accounts in certain categories of banks, 4006(d)) provides that once funds are consummation of the merger transaction, such as commercial banks, the superseding available for withdrawal under the EFA Act, except that a customer of any bank that is a state law continues to apply only to those such funds shall not be frozen solely due to party to the transaction that has an categories of banks, rather than to all the subsequent deposit of additional checks established account with that bank may not federally insured banks in the state. that are not yet available for withdrawal. This be treated as a newfl-fiaccount holder for B. 229.20(b) Preemption of Inconsistent Law provision of the EFA Act is designed to any other party to the transaction for 1. This paragraph reflects the statutory prevent evasion of the EFA Act’s availability purposes of the newfl-fiaccount exception provision that other provisions of state law requirements. of § 229.13(a), and a deposit in any branch of that are inconsistent with federal law are 2. This paragraph clarifies that if a the merged bank is considered deposited in preempted. Preemption does not require a customer deposits a check in an account (as the bank for purposes of the availability determination by the Board to be effective. defined in § 229.2(a)), the bank may not place schedules in accordance with § 229.19(a). a hold on any of the customer’s funds so that 2. This rule affects the status of the C. 229.20(c) Standards for Preemption the funds that are held exceed the amount of combined entity in several areas. For 1. This section describes the standards øthe the check deposited or the total amount of example, this rule would affect when an Board uses in¿flforfi making funds held are not made available for ATM is a proprietary ATM determinations on whether federal law will withdrawal within the times required in this (§ 229.2ø(aa)¿fl(kk)fi and preempt state laws governing funds subpart. For example, if a bank places a hold § 229.12ø(b)¿fl(d)fi) and when a check is availability. A provision of state law is on funds in a customer’s considered drawn on a branch of the considered inconsistent with federal law if it nonfl-fitransaction account, rather than a depositary bank (§ 229.10(c)(1)(vi)). permits a depositary bank to make funds transaction account, for deposits made to the 3. Merger transaction is defined in available to a customer in a longer period of customer’s transaction account, the bank may § 229.2ø(t)¿fl(dd)fi. time than the maximum period permitted by place such a hold only to the extent that the the EFA Act and this regulation. For funds held do not exceed the amount of the XIV. Section 229.20 Relation to State Law example, a state law that permits a hold of deposit and the length of the hold does not A. 229.20(a) In General øfour¿flthreefi business days or longer for ø ¿ exceed the time periods permitted by this 1. Several states have enacted laws that local checks permits a hold that is longer regulation. govern when banks in those states must make than that permitted under the EFA Act and 3. These restrictions also apply to holds funds available to their customers. The EFA this regulation, and therefore is inconsistent placed on funds in a customer’s account (as Act provides that any state law in effect on and preempted. State availability schedules defined in § 229.2(a)) if a customer cashes a September 1, 1989, that provides that funds that provide for availability in a shorter check at a bank (other than a check drawn be made available in a shorter period of time period of time than required under on that bank) over the counter. The than provided in this regulation, will Regulation CC supersede the federal regulation does not prohibit holds that may supersede the time periods in the EFA Act schedule. be placed on other funds of the customer for and the regulation. øThe Conference Report 2. Under a state law, some categories of checks cashed over the counter, to the extent on the EFA Act clarifies this provision by deposits could be available for withdrawal that the transaction does not involve a stating that any state law enacted on or before sooner or later than the time required by this deposit to an account. flWhen a customer September 1, 1989, may supersede federal subpart, depending on the composition of the cashes a check over the counter and the bank law to the extent that the law relates to the deposit. For example, the EFA Act and this places a hold on an account of the customer, time funds must be made available for regulation (§ 229.10(c)(1)(vii)) require next- the bank must give whatever notice would withdrawal. H.R. Rep. No. 261, 100th Cong. day availability for øthe first $100¿fla have been required under §§ 229.13 or 229.16 1st Sess. at 182 (1987).¿ minimum amountfi of the aggregate deposit had the check been deposited in the 2. Thus, if a state had wished to adopt a of ølocal or nonlocal¿ checks on any day, and account.fi A bank may not, however, place law governing funds availability, it had to a state law could require next-day availability a hold on any account when an ‘‘on us’’ check have made that law effective on or before for any check of ø$100¿flthe minimum is cashed over the counter. ‘‘On us’’ checks September 1, 1989. Laws adopted after that amount under § 229.10(c)fi or less that is are considered finally paid when cashed (see date do not supersede federal law, even if deposited. Under the EFA Act and this U.C.C. 4–215(a)(1)). øWhen a customer they provide for shorter availability periods regulation, if flon a given dayfi either one cashes a check over the counter and the bank than are provided under federal law. If a state ø$150¿ check flthat is greater than the places a hold on an account of the customer, that had a law governing funds availability in minimum amount or three checks that are

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each less than the minimum amount, but that with the EFA Act and this subpart. Banks in versions of the model forms (i.e., those not combined are more than the minimum these states would have to follow the state currently in appendix C) after ødate that is amount, are depositedfiøor three $50 checks disclosure rules for these deposits. 12 months after the effective date of the ¿ ø ¿ ¿ are deposited on a given day , $100 flthe D. 229.20(d) Preemption Determinations rule .fi minimum amount under § 229.10(c)fi must F. 229.21(f) Exclusions be made available for withdrawal on the next 1. The Board may issue preemption business day, and ø$50¿flthe remaining determinations upon the request of an 1. This provision clarifies that liability amountfi must be made available in interested party in a state. The under this section does not apply to accordance with the ølocal or nonlocal¿ determinations will relate only to the violations of the requirements of ø ¿fl fi ø ¿ flgeneralfi schedule. Under the state law, provisions of S s ubparts A and B; S flsfiubpart C flor Dfi of this however, the two deposits would be subject generally the Board will not issue individual regulation, or to actions for wrongful to different availability rules. In the first case, preemption determinations regarding the dishonor of a check by a paying bank’s relation of state U.C.C. provisions to the none of the proceeds of the deposit would be customer. requirements of øS¿flsfiubpart C flor Dfi. subject to next-day availability; in the second G. 229.21(g) Record Retention E. 229.20(e) Procedures for Preemption case, the entire proceeds of the deposit 1. Banks must keep records to show Determinations would be subject to next-day availability. In compliance with the requirements of this this example, because the state law would, in 1. This provision sets forth the information subpart for at least two years. This record some situations, permit a hold longer than that must be included in a request by an retention period is extended in the case of the maximum permitted by the EFA Act, this interested party for a preemption civil actions and enforcement proceedings. provision of state law is inconsistent and determination øby the Board¿. Generally, a bank is not required to retain preempted in its entirety. XV. Section 229.21 Civil Liability records showing that it actually has given 3. In addition to the differences between disclosures or notices required by this state and federal availability schedules, a A. 229.21(a) Civil Liability subpart to each customer, but it must retain number of state laws contain exceptions to 1. This paragraph sets forth the statutory evidence demonstrating that its procedures the state availability schedules that are penalties for failure to comply with the reasonably ensure the customers’ receipt of different from those provided under the EFA requirements of this subpart. These penalties the required disclosures and notices. A bank Act and this regulation. The state exceptions apply to provisions of state law that must, however, retain a copy of each notice continue to apply only in those cases where supersede provisions of this regulation, such provided pursuant to its use of the the state schedule is shorter than or equal to as requirements that funds deposited in reasonablefl-ficause exception under the federal schedule, and then only up to the accounts at banks be made available more § 229.13(g) as well as a brief description of limit permitted by the Regulation CC promptly than required by this regulation, the facts giving rise to the availability of that schedule. Where a deposit is subject to a state but they do not apply to other provisions of exception. exception under a state schedule that is not state law. (See Commentary to § 229.20.) preempted by Regulation CC and is also XVI. Section 229.30 Paying Bank’s B. 229.21(b) Class Action Awards subject to a federal exception, the hold on the Responsibility for Return of Checks deposit cannot exceed the hold permissible 1. This paragraph sets forth the provision A. 229.30(a) Return of Checks under the federal exception in accordance in the EFA Act concerning the factors that should be considered by the court in 1. This section requires a paying bank with Regulation CC. In such cases, only one (which, for purposes of øS¿flsfiubpart C, exception notice is required, in accordance establishing the amount of a class action award. may include a payable-through and payable- with § 229.13(g). This notice need only at bank; see ø§ 229.2(z)¿ fl§ 229.2(ii)fi) that include the applicable federal exception as C. 229.21(c) Bona Fide Errors determines not to pay a check to return the the reason the exception was invoked. For 1. A bank is shielded from liability under check expeditiously. øGenerally, a check¿ those categories of checks for which the state this section for a violation of a requirement flA returned check, including the original schedule is preempted by the federal of this subpart if it can demonstrate, by a check, substitute check, and electronic schedule, only the federal exceptions may be preponderance of the evidence, that the return,fi is returned expeditiously if øthe used. violation resulted from a bona fide error and return process is as fast as the forward 4. State laws that provide maximum that it maintains procedures designed to collection process. This paragraph provides availability periods for categories of deposits avoid such errors. For example, a bank may two standards for expeditious return, the that are not covered by the EFA Act would make a bona fide error if it fails to give next- ‘‘two-day/four-day’’ test, and the ‘‘forward not be preempted. Thus, state funds day availability on a check drawn on the collection’’ test¿flpaying bank sends the availability laws that apply to funds in time Treasury because the bank’s computer system return such that the depositary bank and savings deposits are not affected by the malfunctions in a way that prevents the bank normally would receive the returned check EFA Act or this regulation. In addition, the from updating its customer’s accountø; or if no later than 4 p.m. (local time of the availability schedules of several states apply it fails to identify whether a payable-through depositary bank) two business days after to ‘‘items’’ deposited to an account. The term check is a local or nonlocal check despite presentment to the paying bank. See items may encompass fltypes offi deposits procedures designed to make this § 229.30(b) and commentary thereto for the ¿ ø, such as nonnegotiable instruments,¿ that determination accurately . exceptions to this general rule. If the paying are not subject to the Regulation CC D. 229.21(d) Jurisdiction bank need not return the check expeditiously availability schedules. Deposits that are not 1. The EFA Act confers subject matter under § 229.30(a), the paying bank, covered by Regulation CC continue to be nonetheless, must return the check within its subject to the state availability schedules. jurisdiction on courts of competent jurisdiction and provides a time limit for deadlines under the Uniform Commercial State laws that provide maximum availability civil actions for violations of this subpart. Code, Regulation J (12 CFR part 210) or periods for categories of institutions that are § 229.36(d)(2), or § 229.30(c) for returning the not covered by the EFA Act also would not E. 229.21(e) Reliance on Board Rulings item or notice (See § 229.30(a)(4) and be preempted. For example, a state law that 1. This provision shields banks from civil accompanying commentary).fi governs money market mutual funds would liability if they act in good faith in reliance ø2. Under the ‘‘two-day/four-day’’ test, if a not be affected by the EFA Act or this on any rule, regulation, model form, notice, check is returned such that it would regulation. or clause (if the disclosure actually normally be received by the depositary bank 5. Generally, state rules governing the corresponds to the bank’s availability policy), two business days after presentment where disclosure or notice of availability policies or interpretation of the Board, even if it were both the paying and depositary banks are applicable to accounts also are preempted, if subsequently determined to be invalid. Banks located in the same check processing region they are different from the federal rules. may rely on this Commentary, which is or four business days after presentment Nevertheless, a state law requiring disclosure issued as an official Board interpretation, as where the paying and depositary banks are of funds availability policies that apply to well as on the regulation itself. not located in the same check processing deposits other than ‘‘accounts,’’ such as fl2. This provision does not shield a bank region, the check is considered returned savings or time deposits, are not inconsistent from civil liability if the bank relies on earlier expeditiously. In certain limited cases,

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however, these times are shorter than the øe. The times specified in this two-day/ in the same community, and with similar time it would normally take a forward four-day test are based on estimated forward- check handling activity as the paying bank. collection check deposited in the paying collection times, but take into account the (See § 229.2(ee).) A paying bank has similar bank and payable by the depositary bank to particular difficulties that may be check handling activity to other banks that be collected. Therefore, the Board has encountered in handling checks. It is handle similar volumes of checks for included a ‘‘forward collection’’ test, whereby anticipated that the normal process of collection. a check is nonetheless considered to be forward collection of a check coupled with f. Under the forward collection test, banks returned expeditiously if the paying bank these return requirements will result in the that use means of handling returned checks uses transportation methods and banks for return of checks before the proceeds of local that are less efficient than the means used by return comparable to those used for forward and nonlocal checks, other than those similarly situated banks must improve their collection checks, even if the check is not covered by section 229.10(c), must be made procedures. On the other hand, a bank with received by the depositary banks within the available for withdrawal.¿ highly efficient means of collecting checks two-day or four-day period. fl3. In order to satisfy its expeditious drawn on a particular bank, such as a direct 3. Two-day/four-day test. return requirement, a paying bank may return presentment of checks to a bank in a remote a. Under the first test, a paying bank must either an electronic return or a paper community, is not required to use that means return the check so that the check would check.fi for returned checks, i.e. direct return, if normally be received by the depositary bank øf.¿ fl4.fi øUnder this two-day/four-day similarly situated banks do not present within specified times, depending on test, no¿ flNofi particular checks directly to that depositary bank.¿ whether or not the paying and depositary ømeans¿flpathfi of returning checks is 5. Examples. banks are located in the same check required, thus providing flexibility to paying fla. The depositary bank has agreed to processing region. banks in selecting ømeans¿flthe pathfi of accept electronic returns directly from a b. Where both banks are located in the return. The Board anticipates that paying paying bank. If a check is presented to that same check processing region, a check is banks will often use returning banks (see paying bank on Monday, the paying bank returned expeditiously if it is returned to the § 229.31) as their agents to return checks to must send the returned check such that the depositary bank by 4 p.m. (local time of the depositary banks. A paying bank may rely on depositary bank normally would receive the depositary bank) of the second business day the availability schedule of the returning returned check by 4 p.m. (local time of the after the banking day on which the check was bank it uses in determining whether the depositary bank) on Wednesday. presented to the paying bank. For example, returned check would ‘‘normally’’ be returned b. The depositary bank has not agreed to a check presented on Monday to a paying within the required time øunder this two- accept electronic returns directly from the bank must be returned to a depositary bank day/four-day test¿, unless the paying bank paying bank, but has agreed to accept located in the same check processing region has reason to believe that these schedules do electronic returns from Returning Bank A, by 4 p.m. on Wednesday. For a paying bank not reflect the actual time for return of a which holds itself as willing to accept that is located in a different check processing check. electronic returns directly or indirectly from region than the depositary bank, the deadline ø4. Forward collection test. the paying bank and has agreed to handle to complete return is 4 p.m. (local time of the a. Under the second, ‘‘forward collection,’’ returns expeditiously under § 229.31(a). If a depositary bank) of the fourth business day test, a paying bank returns a check check is presented to the paying bank on after the banking day on which the check was expeditiously if it returns a check by means Monday, the paying bank must send the presented to the paying bank. For example, as swift as the means similarly situated banks returned check such that the depositary bank a check presented to such a paying bank on would use for the forward collection of a normally would receive the returned check Monday must be returned to the depositary check drawn on the depositary bank. by 4:00 p.m. (local time of the depositary bank by 4 p.m. on Friday. b. Generally, the paying bank would satisfy bank) on Wednesday. The paying bank may c. This two-day/four-day test does not the ‘‘forward collection’’ test if it uses a rely on Returning Bank A’s schedules for necessarily require actual receipt of the check transportation method and collection path for sending returned checks in determining by the depositary bank within these times. return comparable to that used for forward whether the depositary bank normally would Rather, the paying bank must send the check collection, provided that the returning bank receive the returned check by 4 p.m. on so that the check would normally be received selected to process the return agrees to Wednesday. by the depositary bank within the specified handle the returned check under the c. The depositary bank has not agreed to time. Thus, the paying bank is not standards for expeditious return for returning accept electronic returns directly from the responsible for unforeseeable delays in the banks under § 229.31(a). This test allows paying bank, but has agreed to accept return of the check, such as transportation many paying banks a simple means of electronic returns from Returning Bank A, delays.¿ expeditious return of checks and takes into which holds itself as willing to accept ød¿fl2fi. øOften, returned checks will be account the longer time for return that will electronic returns directly or indirectly from delivered to the depositary bank together be required by banks that do not have ready the paying bank and has agreed to handle with forward collection checks.¿ Where the access to direct courier transportation. returns expeditiously under § 229.31(a). last day on which a check could be delivered c. The paying bank’s normal method of Returning Bank A, however, does not have an to a depositary bank under øthis two-day/ sending a check for forward collection would agreement with the paying bank to accept four-day test¿ § 229.30(a) is not a banking not be expeditious, however, if it is returns; rather Returning Bank B has agreed day for the depositary bank, øa returning materially slower than that of other banks of to accept returns from the paying bank and bank might not schedule delivery of forward similar size and with similar check handling to handle such returns expeditiously. collection checks to the depositary bank on activity in its community. Returning Bank A has agreed to accept that day. Further,¿ the depositary bank may d. Under the ‘‘forward collection’’ test, a returns from Returning Bank B. If a check is not process checks on that day. paying bank must handle, route, and presented to the paying bank on Monday, the Consequently, if the last day of the time limit transport a returned check in a manner paying bank must send the returned check business day following the banking day after designed to be at least as fast as a similarly such that the depositary bank normally which the check was presented is not a situated bank would collect a forward would receive the returned check by 4 p.m. banking day for the depositary bank, the collection check (1) of similar amount, (2) (local time of the depositary bank) on check electronic return may be delivered to drawn on the depositary bank, and (3) Wednesday. the depositary bank sent such that it is received for deposit by a branch of the paying d. The depositary bank and paying bank received by the depositary bank before the bank or a similarly situated bank by noon on are members of the same clearinghouse, close of the depositary bank’s next banking the banking day following the banking day of through which both have agreed to accept day and the return will still be considered presentment of the returned check. electronic returns. If a check is presented to expeditious. øOrdinarily, this extension of e. This test refers to similarly situated that paying bank on Monday, the paying time will allow the returned checks to be banks to indicate a general community bank must send an electronic return such delivered with the next shipment of forward standard. In the case of a paying bank (other that the depositary bank normally would collection checks destined for the depositary than a Federal Reserve Bank), a similarly receive the returned check by 4 p.m. (local bank.¿ situated bank is a bank of similar asset size, time of the depositary bank) on Wednesday.

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e. In each example, the paying bank must correspondent or Federal Reserve Bank in qualified returned check at any time after the send the returned check such that the order to avoid the costs of a courier delivery, determination is made to return the check depositary bank normally would receive the but similarly situated banks use a courier to until late in the day following presentment, check by 4 p.m. (local time of the depositary deliver forward collection checks to their while a returning bank may receive returned bank) on Wednesday. The paying bank may correspondent or Federal Reserve Bank, the checks late on one day and be expected to satisfy its obligation by sending either an paying bank must send its returned checks by dispatch them early the next morning. A electronic return or a paper check by such courier to meet the forward collection test. check that is converted to a qualified time. Additionally, if the paying bank sends c. If a paying bank normally sends its returned check must be encoded in the returned check in a manner such that the forward collection checks directly to the accordance with ANS X9.13 for original depositary bank normally would receive the depositary bank, which is located in another checks or ANS X9.100–140 for substitute returned check by 4 p.m. on Wednesday, but community, but similarly situated banks checks.¿ the depositary bank does not receive the send forward collection checks drawn on the ø8¿fl7fi. Routing of returned checks. returned check by that time due to an depositary bank to a correspondent or a a. øIn effect, under either test, tøflTfihe operational difficulty of the depositary bank Federal Reserve Bank, the paying bank would paying bank acts as an agent or subagent of or returning bank, the paying bank has not have to send returned checks directly to the depositary bank in selecting a means of satisfied its expeditious return the depositary bank, but could send them to return. Under § 229.30(a), a paying bank is requirement.fi a correspondent or a Federal Reserve Bank. authorized to route the returned checkfl, øIf a check is presented to a paying bank d. The dollar amount of the returned check including an electronic return,fi in a variety on Monday and the depositary bank and the has a bearing on how it must be returned. If of ways: paying bank are participants in the same the paying bank and similarly situated banks i. It may send the returned check directly clearinghouse and the depositary bank has present large-dollar checks drawn on the to the depositary bank by courier or other agreed to receive returns electronically depositary bank directly to the depositary means of deliveryø,¿ flor it may send the through the clearinghouse, the paying bank bank, but use a Federal Reserve Bank or a electronic return directly to the depositary should arrange to have the returned check correspondent to collect small-dollar checks, bank if the depositary bank has agreed to received by the depositary bank by generally the paying bank would be required accept electronic returns from the paying Wednesday. This would be the same day the to send its large-dollar returns directly to the bank, therebyfi bypassing returning banks; paying bank would deliver a forward depositary bank (or through a returning bank, or collection check to the depositary bank if the if the checks are returned as quickly), but ii. It may send the returned check flor paying bank received the deposit by noon on could use a Federal Reserve Bank or a electronic returnfi to any returning bank Tuesday.¿ correspondent for its small-dollar returns.¿ agreeing to handle the returned check flor øb. i. If a check is presented to a paying 6. Choice of returning bank. electronic returnfi for expeditious return to bank on Monday and the paying bank would In meeting the requirements of øthe the depositary bank under § 229.31(a), normally collect checks drawn on the forward collection test¿ fl§ 229.30(a)fi, the regardless of whether or not the returning depositary bank by sending them to a paying bank is responsible for its own bank handled the check for forward correspondent or a Federal Reserve Bank by actions, but not for those of the depositary collection. flIn determining whether a courier, the paying bank could send the bank or returning banks. (This is analogous depositary bank has agreed to accept an returned check to its correspondent or to the responsibility of collecting banks electronic return from a returning bank, a Federal Reserve Bank, provided that the under U.C.C. 4–202(c).) For example, if the paying bank may rely on a returning bank’s correspondent has agreed to handle returned paying bank starts the return of the check in published list of depositary banks to which checks expeditiously under § 229.31(a). (All a timely manner but return is delayed by a it delivers electronic returns.fi Federal Reserve Banks agree to handle returning bank ø(including delay to create a b. If the paying bank elects to return the returned checks expeditiously.) qualified returned check)¿, generally the check directly to the depositary bank, it is ii. The paying bank must deliver the paying bank has met its flexpeditious not necessarily required to return the check returned check to the correspondent or returnfi requirementøs¿. (See § 229.38.) If, to the branch of first deposit. The check may Federal Reserve Bank by the correspondent’s however, the paying bank selects a returning be returned to the depositary bank at any or Federal Reserve Bank’s appropriate cut-off bank that the paying bank should know is not flphysicalfi location permitted under hour. The appropriate cut-off hour is the cut- capable of meeting its return requirements, ø§ 229.32(a)¿ fl§ 229.32(b). If the paying off hour for returned checks that corresponds the paying bank will not have met its bank elects to send an electronic return to the cut-off hour for forward collection obligation of exercising ordinary care in directly to the depositary bank, it must send checks drawn on the depositary bank that selecting intermediaries to return the check. the electronic return to the electronic return would normally be used by the paying bank øThe paying bank is free to use a method of point designated by the depositary bankfi. or a similarly situated bank. A returned return, other than its method of forward 9. Midnight deadline. check cut-off hour corresponds to a forward collection, as long as the alternate method a. Except for the extension permitted by collection cut-off hour if it provides for the results in delivery of the returned check to § 229.30(c), discussed below, this section same or faster availability for checks destined the depositary bank as quickly as the forward does not relieve a paying bank from the for the same depositary banks. collection of a check drawn on the depositary requirement for timely return (i.e., midnight iii. In this example, delivery to the bank or, where the returning bank takes a day deadline) under U.C.C. 4–301 and 4–302, correspondent or a Federal Reserve Bank by to create a qualified returned check under which continue to apply. Under U.C.C. the appropriate cut-off hour satisfies the § 229.31(a), one day later than the forward 4–302, a paying bank is ‘‘accountable’’ for the paying bank’s duty, even if use of the collection time.¿ If a paying bank returns a amount of a demand item, other than a correspondent or Federal Reserve Bank is not check on its banking day of receipt without documentary draft, if it does not pay or the most expeditious means of returning the settling for the check, as permitted under return the item or send notice of dishonor by check. Thus, a paying bank may send a local U.C.C. 4–302(a), and receives settlement for its midnight deadline. Under U.C.C. 3–418(c) returned check to a correspondent instead of the returned check from a returning bank, it and 4–215(a), late return constitutes payment a Federal Reserve Bank, even if the must promptly pay the amount of the check and would be final in favor of a holder in due correspondent then sends the returned check to the collecting bank from which it received course or a person who has in good faith to a Federal Reserve Bank the following day the check. changed his position in reliance on the as a qualified returned check. Where the ø7. Qualified returned checks. Although payment. Thus, retaining this requirement paying bank delivers forward collection paying banks may wish to prepare qualified gives the paying bank an additional incentive checks by courier to the correspondent or the returned checks because they will be handled to make a prompt return. Federal Reserve Bank, mailing returned at a lower cost by returning banks, the one b. The expeditious return requirement checks to the correspondent or Federal business day extension provided to returning applies to a paying bank that determines not Reserve Bank would not satisfy the forward banks is not available to paying banks to pay a check. This requirement applies to collection test. because of the longer time that a paying bank a payable-through or a payable-at bank that iv. If a paying bank ordinarily mails its has to dispatch the check. Normally, paying is defined as a paying bank (see forward collection checks to its banks will be able to convert a check to a ø§ 229.2(z)¿fl§ 229.2(ii)fi) and that returns

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a check. This requirement begins when the returning banks. Under these facts, the nor within the image of the check. A paying payable-through or payable-at bank receives depositary bank has not agreed to accept bank, however, would not be ‘‘unable’’ to the check during forward collection, not electronic returns from the paying bank identify the depositary bank merely because when the payor returns the check to the under § 229.32(a), and therefore the paying the depositary bank’s indorsement is not payable-through or payable-at bank. bank need not send the returned check attached as an addenda record, and therefore Nevertheless, a check sent for payment or expeditiously to the depositary bank. The requires the paying bank to retrieve the collection to a payable-through or payable-at paying bank, however, must comply with any image.fi bank is not considered to be drawn on that deadlines under the Uniform Commercial flb.fi In cases where the paying bank is bank for purposes of the midnight deadline Code, Regulation J (12 CFR part 210), or unable to identify the depositary bank, the provision of U.C.C. 4–301. (See discussion of § 229.30(c).fi paying bank may, in accordance with ø§ 229.36(a)¿fl§ 229.30(a)(5)fi.) 3. Depositary bank without accounts § 229.30(a), send the returned check to a c. The liability section of this subpart a. Subpart B of this regulation applies only returning bank that agrees to handle the (§ 229.38) provides that a paying bank is not to ‘‘checks’’ deposited in transaction returned check for expeditious return to the subject to both ‘‘accountability’’ for missing ‘‘accounts.’’ Thus, a depositary bank with depositary bank under § 229.31(a). The the midnight deadline under the U.C.C. and only time or savings accounts need not returning bank may be better able to identify liability for missing the timeliness comply with the availability requirements of the depositary bank. requirements of this regulation. Also, a subpart B. Collecting banks may not have an ø2.¿flc.fi In the alternative, the paying paying bank is not responsible for failure to electronic connection with these banks as bank may send the check back up the path make expeditious return to a party that has paying banks because no checks are drawn used for forward collection of the check. The breached a presentment warranty under on them. Consequently, the costs of using presenting bank and prior collecting banks U.C.C. 4–208fl.fiø, notwithstanding that the expedited means to deliver returned checks normally will be able to trace the collection paying bank has returned the check. (See directly to such a depositary bank may not path of the check through the use of their Commentary to § 229.33(a).)¿ be justified. Thus, the expeditious-return internal records in conjunction with the 10. U.C.C. provisions affected. This requirement of § 229.30(a) does not apply to indorsements on the returned check. In these paragraph directly affects the following checks being returned to banks that do not limited cases, the paying bank may send such provisions of the U.C.C., and may affect other hold accounts. The paying bank’s midnight a returned check to any bank that handled sections or provisions: deadline in U.C.C. 4–301 and 4–302 the check for forward collection, even if that a. Section 4–301(d), in that instead of øand¿fl,fi § 210.12 of Regulation J (12 CFR bank does not agree to handle the returned returning a check through a clearinghouse or 210.12)fl, and the extension in § 229.30(c)fi check for expeditious return to the depositary to the presenting bank, a paying bank may would continue to apply to these checks. bank under § 229.31(a). flThe return of a send a returned check to the depositary bank Returning banks also would be required to check to a bank that handled the check for or to a returning bank. act on such checks within their midnight forward collection is consistent with b. Section 4–301(a), in that time limits deadline. Further, in order to avoid § 229.35(b), which requires a bank handling specified in that section may be affected by complicating the process of returning checks a check to take up the check if it is has not the additional requirement to make an generally, banks without accounts are been paid.fi expeditious return and in that settlement for required to use the standard indorsement, fld. If the paying bank has an agreement returned checks is made under § 229.31(c), and their checks are returned by returning to send electronic returns to a bank that not by revocation of settlement. banks and paid for by the depositary bank handled the check for forward collection, the fl11. Payable-through and payable at under the same rules as checks deposited in paying bank may send an electronic return to checks other banks, with the exception of the that bank.fi A paying bank returning a check a. For purposes of subpart C, the regulation expeditious-return requirements of under this paragraph [to a bank that has not defines a payable-through and or payable-at §§ 229.30(a) and 229.31(a). agreed to handle the check expeditiously] bank (which could be designated the b. The expeditious-return requirement must advise that bank that it is unable to collectible-through or collectible-at bank) as applies to a check deposited in a bank that identify the depositary bank. This advice a paying bank. The requirements of is not a depository institution. Federal must be conspicuous, such as a stamp on § 229.30(a) are imposed on a payable-through Reserve Banks, Federal Home Loan Banks, each check for which the depositary bank is or payable-at bank and are based on the time private bankers, and possibly certain unknown if such checks are commingled of receipt of the forward collection check by industrial banks are not depository with other returned checks, or, if such checks the payable-through or payable-at bank. This institutions within the meaning of the EFA are sent in a separate cash letter, by one provision is intended to speed the return of Act, and therefore are not subject to the notice on the cash letter. flIn the case of an checks that are payable through or at a bank expedited availability and disclosure electronic return, the advice requirement to the depositary bank.fi requirements of subpart B. These banks do, may be satisfied by the paying bank inserting B. 229.30(b) øUnidentifiable Depositary however, maintain accounts as defined in the routing number of the bank to which it Bank¿flExceptions to Expeditious Return of § 229.2(a), and a paying bank returning a is sending the return where the paying bank Checksfi check to one of these banks would be otherwise would have inserted the routing 1. flThis paragraph sets forth the required to return the check to the depositary number of the depositary bank.fi This circumstances under which a paying bank is bank, in accordance with the expeditious- information will warn the bank that this not required to return the check to the return requirement. check will require special research and depositary bank in accordance with 4. Unidentifiable depositary bank handling in accordance with § 229.31(b). The § 229.30(a).fi a. For most checks presented returned check may not be prepared øfor fl2. The depositary bank has not agreed to electronically, the depositary bank’s automated¿ flas a qualifiedfi return. øThe accept electronic returns from the paying indorsement will accompany the electronic return of a check to a bank that handled the bank. image and information related to the check, check for forward collection is consistent a. In the circumstances where a depositary either as an addenda record or within the with § 229.35(b), which requires a bank bank has not agreed to accept electronic image of the check.fi In some cases, a paying handling a check to take up the check it is returns from the paying bank under bank will be unable to identify the depositary has not been paid.¿ § 229.32(a), the paying bank should send a bank through the use of ordinary care and ø3.¿fle.fi The sending of a check to a paper return directly to the depositary bank good faith. The Board expects that these bank that handled the check for forward or send an electronic return to a returning cases will be unusual as skilled return collection under this paragraph is not subject bank, which would then be required to send øclerks¿ flstaff generallyfi will readily to the requirements for expeditious return by a paper return to the depositary bank. identify the depositary bank from the the paying bank. øOften, the paying bank will b. Example. The depositary bank has depositary bank indorsement required under not have courier or other expeditious means agreed to accept electronic returns from § 229.35 and appendix D. flFor example, a of transportation to the collecting or Returning Bank A. Returning Bank A does paying bank would be unable to identify the presenting bank.¿ flBecause the paying bank not hold itself out as accepting electronic depositary bank if the depositary bank’s is unable to identify the depositary bank, the returns from either the paying bank or other indorsement is in neither an addenda record paying bank will not know whether the

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depositary bank has agreed to accept an applicable) deadline is extended to the time 302, §§ 210.9 and 210.12 of Regulation J (12 electronic return from the paying bank under it dispatches the electronic return so long as CFR 210.9 and 210.12), and § 229.32(a). Moreover, returning the check the depositary bank would ordinarily receive § 229.36ø(f)(2)¿fl(d)(3)fi of this part. As through the forward collection chain may the electronic return by 4 p.m. (local time of these extensions are designed to speed require handling by more banks, and thus the depositary bank) on the second business ø(§ 229.30(c)(1)), or at least not slow may take more time.fi Although the lack of day following the banking day on which the (§ 229.30(c)(2)),¿ the overall return of checks, a requirement of expeditious return will paying bank received the check. A paying no modification or extension of the create risks for the depositary bank, in many bank may rely on its returning bank’s expeditious return requirements in cases the inability to identify the depositary electronic return delivery schedules in § 229.30(a) is required. bank will be due to the depositary bank’s, or determining when the depositary bank would ø3øfl5fi. The paying bank satisfies its a collecting bank’s, failure to use the ordinarily receive an electronic return.fi midnight or other return deadline by indorsement required by § 229.35(a) and øa¿fl3fi. A paying bank may have a dispatching returned checks to another bank appendix D. If the depositary bank failed to courier that leaves after midnight (or after by courier, including a courier under contract use the proper indorsement, it should bear any other applicable deadline) to deliver its with the paying bank, prior to expiration of the risks of less than expeditious return. forward-collection checks. This paragraph the deadline. Similarly, where the inability to identify the removes the constraint of the midnight ø4¿fl6fi. This paragraph directly affects depositary bank is due to indorsements or deadline for returned checks if the returned U.C.C. 4–301 and 4–302 and §§ 210.9 and other information placed on the back of the check øreaches the receiving bank on or 210.12 of Regulation J (12 CFR 210.9 and check by the depositary bank’s customer or before the receiving bank’s next banking day 210.12) to the extent that this paragraph other prior indorser, the depositary bank following the otherwise applicable deadline applies by its terms, and may affect other should bear the risk that it cannot charge a by the earlier of the close of that banking day provisions. returned check back to that customer. Where or a cutoff hour of 2 p.m. or later set by the D. 229.30(d) Identification of Returned Check the inability to identify the depositary bank receiving bank under U.C.C. 4–108¿flwould is due to subsequent indorsements of ordinarily reach the depositary bank by 1. The reason for the return must be clearly collecting banks, these collecting banks may 4 p.m. (local time of the depositary bank) on indicated. A check is identified as a returned be liable for a loss incurred by the depositary the second business day following the check if the front of that check indicates the bank due to less than expeditious return of banking day on which the paying bank reason for return, even though it does not a check; those banks therefore have an specifically state that the check is a returned received the check. A paying bank may rely ø incentive to return checks sent to them under check. A reason such as ‘‘Refer to Maker’’ is on its returning bank’s delivery schedules in ¿ this paragraph quickly. determining when the depositary bank would permissible in appropriate cases. fl‘‘Refer ’’ ø4.¿flf.fi This paragraph does not relieve ordinarily receive the returned checkfi. to Maker is an instruction to the recipient a paying bank from the liability for the lack øThe extension also applies if the check of the returned check and not a reason for ‘‘ ’’ of expeditious return in cases where the reaches the bank to which it is sent later than return. Therefore, Refer to Maker is ‘‘ paying bank is itself responsible for the the time described in the previous sentence insufficient as a reason for return. Refer to Maker’’ may be used in addition to the reason inability to identify the depositary bank, such if highly expeditious means of transportation for return.fi If the returned check is a as when the paying bank’s customer has used are used. For example, a West Coast paying substitute check, flthe requirement to a check with printing or other material on the bank may use this further extension to ship placefi the reason for return flinformation back in the area reserved for the depositary a returned check by air courier directly to an such that it is retained on any subsequent bank’s indorsement, making the indorsement East Coast returning bank even if the check substitute check could be met by placing the unreadable. (See § 229.38(d).) arrives after the returning bank’s cutoff hour. ø ¿ information (1) in the location on the front 5. flg.fi A paying bank’s return under This paragraph applies to the extension of all of the substitute check that is specified by this paragraph is also subject to its midnight midnight deadlines except Saturday ANS X9.100–140 or (2)fi ømust be placed¿ deadline under U.C.C. 4–301, Regulation J (if midnight deadlines (see paragraph C.1.b. within the image of the original check that the check is returned through a Federal below).¿ Reserve Bank), and the exception provided in ø appears on the front of the substitute check b. A paying bank may observe a banking so that the information is retained on any § 229.30(c). A paying bank also may send a day, as defined in the applicable U.C.C., on check to a prior collecting bank to make a subsequent substitute check. If the paying a Saturday, which is not a business day and bank places the returned check in a carrier claim against that bank under § 229.35(b) therefore not a banking day under Regulation where the depositary bank is insolvent or in envelope, the carrier envelope should CC. In such a case, the U.C.C. deadline for indicate that it is a returned check but need other cases as provided in § 229.35(b). returning checks received and settled for on Finally, a paying bank may make a claim not repeat the reason for return stated on the Friday, or for returning checks received on check if it in fact appears on the check. against a prior collecting bank based on a Saturday without settling for them, might ø ¿ breach of warranty under U.C.C. 4–208. require the bank to return the checks by F. 229.30(f) flE. 229.30(e)fi Notice in Lieu C. 229.30(c) Extension of Deadline midnight Saturday. However, the bank may of Return 1. This paragraph permits extension of the not have couriers leaving on Saturday to fl1. A notice in lieu of return may be used deadlines flin the U.C.C., Regulation J carry returned checks, and even if it did, the by a bank handling a returned check that has (12 CFR part 210) and § 229.36(d)(3) of this returning or depositary bank to which the been lost or destroyed, including when the partfi for returning a check for which the returned checks were sent might not be open original returned check has been charged paying bank previously has settled (generally until Sunday night or Monday morning to back as lost or destroyed as provided in midnight of the banking day following the receive and process the checks. This § 229.35(b). Notice in lieu of return is banking day on which the check is received paragraph extends the midnight deadline if permitted only when a bank does not have by the paying bank) and for returning a check the returned checks reach the returning bank and cannot obtain possession of the check (or without settling for it (generally midnight of by a cut-off hour (usually on Sunday night must retain possession of the check for the banking day on which the check is or Monday morning) that permits processing protest) and does not have sufficient received by the paying bank, or such other during its next processing cycle or reach the information to create a substitute check. For time provided by § 210.9 of Regulation J depositary bank by the cut-off hour on its example, a bank may have an image of both (12 CFR part 210) or next banking day following the Saturday sides of the check, but the image may be § 229.36ø(f)(2)¿fl(d)(3)fi of this part)ø, but midnight deadline. This paragraph applies insufficient, or may not be in the proper not of the duty of expeditious return, in two exclusively to the extension of Saturday format, to create a substitute check. A bank circumstances:¿flif the paying bank returns midnight deadlines.¿ using a notice in lieu of return gives a the check using a means of delivery such that ø2¿fl4fi. The time limits that are warranty under § 229.34(e)(1)(iv) that the the depositary bank would ordinarily receive extended øin each case¿ are the paying øoriginal¿ check has not been and will not the return within the timeframe specified in bank’s midnight deadline for returning a be returned.fi § 229.30(a).fi check for which it has already settled and the ø1¿fl2fi. A check that is lost or otherwise fl2. If a paying bank sends an electronic paying bank’s deadline for returning a check unavailable for return may be returned by return, the paying bank’s midnight (or other without settling for it in U.C.C. 4–301 and 4– sending a legible copy of both sides of the

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check or, if such a copy is not available to must identify the item of information, but a that returning bank that has not agreed to the paying bank, a written notice of bank may make this identification by setting return checks expeditiously. nonpayment containing the information the item off with question marks, asterisks, 5. The returning bank’s return of a check specified in ø§ 229.33(b)¿fl§ 229.30(e)(2)fi. or other symbols designated for this purpose under this paragraph is subject to the The copy or written notice must clearly by generally applicable industry standards.fi midnight deadline under U.C.C. 4–202(b). ø indicate it is a notice in lieu of return and øG. 229.30(g)¿flF. 229.30(f)fi Reliance on (See definition of returning bank in must be handled in the same manner as other Routing Number § 229.2(mm)). returned checks¿. flNotice by a legible 6. In the case of electronic returns, a facsimile or electronic transmission of the 1. Although § 229.35 and appendix D returning bank agrees to handle the image of both sides of the check may satisfy require that the depositary bank indorsement electronic return expeditiously if the the requirements for a notice in lieu of contain its nine-digit routing number, it is returning bank has an agreement with the return. If no image of both sides of the check possible that a returned check will bear the paying bank for accepting electronic returns, is available, the notice may be sent by other routing number of the depositary bank in and handling such returns expeditiously, and means, but notfi øNotice¿ by telephoneø, fractional, nine-digit, or other form. This the returning bank accepts the electronic telegraph,¿ or other øelectronic¿ floralfi paragraph permits a paying bank to rely on return.fi transmissionø,other than a legible facsimile the routing number of the depositary bank as ø3¿fl7fi. øTwo-day/four-day test.¿ As in or similar image transmission of both sides it appears on the check (in the depositary the case of a paying bank, a returning bank’s of the check, does not satisfy the bank’s indorsement) flor in the electronic return of a returned check is expeditious if requirements for a notice in lieu of return¿. image or information included in the it ømeets either of two tests. Under the ‘‘two- The requirement for a writing and the electronic collection itemfi when it is day/four-day’’ test, the check must be indication that the notice is a substitute for received by the paying bank. returned so that it¿ flis sent in a manner the returned check is necessary so that the 2. If there are inconsistent routing such that itfi would normally be received by returning and depositary banks are informed numbers, the paying bank may rely on any the depositary bank by 4 p.m. øeither¿ ø that the notice carries value. Notice in lieu routing number designating the depositary fl(local time of the depositary bank)fi two of return is permitted only when a bank does bank. The paying bank is not required to øor four¿ business days after the check was not have and cannot obtain possession of the resolve the inconsistency prior to processing presented to the paying bankø, depending on check or must retain possession of the check the check. The paying bank remains subject whether or not the paying bank is located in for protest. A check is not unavailable for to the requirement to act in good faith and the same check processing region as the return if it is merely difficult to retrieve from use ordinary care under § 229.38(a). depositary bank¿. øThis is the same test as a filing system or from storage by a keeper XVII. Section 229.31 Returning Bank’s the two-day/four-day test applicable to of checks in a truncation system. A notice in paying banks. (See Commentary to lieu of return may be used by a bank Responsibility for Return of Checks § 229.30(a).)¿ While a returning bank will not handling a returned check that has been lost A. 229.31(a) Return of Checks have first hand knowledge of the day on or destroyed, including when the original 1. The standards for return of checks which a check was presented to the paying returned check has been charged back as lost established by this section are similar to bank, returning banks may, by agreement, or destroyed as provided in § 229.35(b). A those for paying banks in § 229.30(a). This bank using a notice in lieu of return gives a allocate with paying banks liability for late section requires a returning bank to øreturn return based on the delays caused by each. warranty under § 229.34(a)(4) that the ø original check has not been and will not be a returned check expeditiously if it agrees to In effect, the two-day/four day test protects returned.¿ handle the returned check for expeditious all paying and returning banks that return ¿ fl ø2¿fl3fi. The requirement of this return under this paragraph send a checks from claims that they failed to return paragraph supersedes the requirement of returned check expeditiously if the returning a check expeditiously, where the check is U.C.C. 4–301(a) as to the form and bank has agreed to do sofi. In effect, the returned within the specified time following information required of a notice of dishonor returning bank is an agent or subagent of the presentment to the paying bank, or a later or nonpayment. Reference in the regulation paying bank and a subagent of the depositary time as would result from unforeseen bank for the purposes of returning the check. delays.¿ and this commentary to a returned check ø includes a notice in lieu of return unless the flA returning bank may satisfy its 4. Forward collection test. context indicates otherwise. expeditious return requirement by returning a. The ‘‘forward collection’’ test is similar ø3¿fl4fi. The notice in lieu of return is either an electronic return or returned check to the forward collection test for paying subject to the provisions of § 229.30 and is within the timeframe. The exceptions to this banks. Under this test, a returning bank must treated like a returned check for settlement requirement are set out in § 229.31(b).fi handle a returned check in the same manner ø purposes. øIf the original check is over 2. A returning bank agrees to handle a that a similarly situated collecting bank $2,500, the notice of nonpayment under returned check for expeditious would handle a check of similar size drawn ¿ § 229.33 is still required, but may be satisfied return flreturn checks expeditiouslyfi to on the depositary bank for forward by the notice in lieu of return if the notice the depositary bank if it: collection. A similarly situated bank is a in lieu meets the time and information a. Publishes or distributes availability bank (other than a Federal Reserve Bank) that requirements of § 229.33.¿ schedules for the return of flelectronic is of similar asset size and check handling ø4¿fl5fi. If not all of the information returns orfi returned checks and accepts the activity in the same community. A bank has required by ø§ 229.33(b)¿ fl§ 229.30(e)(2)fi flelectronic return orfi returned check for similar check handling activity if it handles is available, the paying bank may make a return; a similar volume of checks for forward claim against any prior bank handling the øb. Handles a returned check for return collection as the forward collection volume check as provided in § 229.35(b). that it did not handle for forward collection;¿ of the returning bank. fl6. Content of notices or b. Under the forward collection test, a a. This paragraph provides that the notice øc¿flbfi. Otherwise agrees to handle a returning bank must accept returned checks, must contain, if available, specified items of returned check for expeditious return. including both qualified and other returned information that would enable a depositary fl3. A returning bank may agree to handle checks (‘‘raw returns’’), at approximately the bank to identify the check to which the only certain types of returns expeditiously. same times and process them according to notice relates. For example, a returning bank may agree to the same general schedules as checks b. If the paying bank cannot identify the handle electronic returns expeditiously, handled for forward collection. Thus, a depositary bank from the check itself, the while not agreeing to handle returned checks returning bank generally must process even paying bank should treat the notice in lieu expeditiously. raw returns on an overnight basis, unless its as if it were a returned check for which the 4. If a returning bank has not agreed to time limit is extended by one day to convert paying bank cannot identify the depositary return checks expeditiously, the returning a raw return to a qualified returned check.¿ bank (see § 229.30(b)(2) and accompanying bank has no expeditious return requirement ø5¿fl8fi. Cut-off hours. A returning bank commentary). with respect to the check. Therefore, a paying may establish earlier cut-off hours for receipt c. If a bank is uncertain as to the accuracy bank will not satisfy its expeditious return of returned checks than for receipt of forward of an item of information, it nevertheless requirement by sending a returned check to collection checks, but the cut-off hour for

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returned checks may not be earlier than 2 ø7¿fl9fi. Qualified returned checks. ø9¿fl11fi. Responsibilities of returning p.m. fl(local time of the returning bank).fi a. The expeditious return requirement for bank. In meeting the requirements of this The returning bank also may set different a returning bank in this regulation is more section, the returning bank is responsible for sorting requirements for returned checks than stringent in many cases than the duty of a its own actions, but not those of the paying those applicable to other checks. Thus, a collecting bank to exercise ordinary care bank, other returning banks, or the depositary returning bank may allow itself more under U.C.C. 4–202 in returning a check. øA bank. (See U.C.C. 4–202(c) regarding the processing time for returns than for forward returning bank is under a duty to act as responsibility of collecting banks.) For collection checks. øAll returned checks expeditiously in returning a check as it example, if the paying bank has delayed the received by a cut-off hour for returned checks would in the forward collection of a check. start of the return process, but the returning must be processed and dispatched by the Notwithstanding its duty of expeditious bank acts in a timely manner, the returning returning bank by the time that it would return, its midnight deadline under U.C.C. 4– bank may satisfy the requirements of this dispatch forward collection checks received 202 and § 210.12(a) of Regulation J (12 CFR section even if the delayed return results in at a corresponding forward collection cut-off 210.12(a)), under the forward collection test, a loss to the depositary bank. (See § 229.38.) hour that provides for the same or faster a returning bank may take an extra day to A returning bank must handle a notice in lieu availability for checks destined for the same qualify a returned check.¿ A qualified of return øas¿ expeditiously øas a returned depositary banks.¿ returned check will be handled by check¿. ø6. Examples. subsequent returning banks more efficiently ø10¿fl12fi. U.C.C. sections affected. This a. If a returning bank receives a returned than a raw return. øThis paragraph gives a paragraph directly affects the following check by its cut-off hour for returned checks returning bank an extra business day beyond provisions of the U.C.C., and may affect other on Monday and the depositary bank and the the time that would otherwise be required to sections or provisions: returning bank are participants in the same return the returned check to convert a a. Section 4–202(b), in that time limits clearinghouse, the returning bank should returned check to a qualified returned required by that section may be affected by ¿ arrange to have the returned check received check. The qualified returned check must the additional requirement to make an by the depositary bank by Tuesday. This include the routing number of the depositary expeditious return. would be the same day that it would deliver bank, the amount of the check, and a return b. Section 4–214(a), in that settlement for a forward collection check drawn on the identifier encoded on the check in magnetic returned checks is made under § 229.31(c) depositary bank and received by the ink. A check that is converted to a qualified and not by charge-back of provisional credit, returning bank at a corresponding forward returned check must be encoded in and in that the time limits may be affected collection cut-off hour on Monday. accordance with ANS X9.13 for original by the additional requirement to make an b. i. If a returning bank receives a returned checks or ANS X9.100–140 for substitute expeditious return. check, and the returning bank normally checks. ø øb. If the returning bank is sending the B. 229.31(b) Unidentifiable Depositary would collect a forward collection check ¿ returned check directly to the depositary Bank flExceptions to Expeditious Return of drawn on the depositary bank by sending the bank, this extra day is not available because Checksfi forward collection check to a correspondent preparing a qualified returned check will not 1. This section is similar to § 229.30(b), but or a Federal Reserve Bank by courier, the expedite handling by other banks.¿ If the applies to returning banks instead of paying returning bank could send the returned check returning bank makes an encoding error in banks. øIn some cases a returning bank will in the same manner if the correspondent has creating a qualified returned check, it may be be unable to identify the depositary bank agreed to handle returned checks liable under § 229.38 for losses caused by any with respect to a check.¿ flIn general, in expeditiously under § 229.31(a). The negligence or under § 229.34(c)(3) for breach circumstances where the paying bank is not returning bank would have to deliver the of an encoding warranty. øThe returning subject to the expeditious return requirement check by the correspondent’s or Federal bank would not lose the one-day extension (see § 229.30(b)), the returning bank may not Reserve Bank’s cut-off hour for returned available to it for creating a qualified receive the returned check in a timeframe checks that corresponds to its cut-off hour for returned check because of an encoding that enables it to return the check to the forward collection checks drawn on the error.¿ depositary bank by the second business day depositary bank. A returning bank may take ø8¿fl10fi. Routing of returned check. following the banking day on which the a day to convert a check to a qualified a. Under § 229.31(a), the returning bank is check was presented to the paying bank. returned check. Where the forward collection authorized to route the returned check in a Moreover, the same circumstances that make checks are delivered by courier, mailing the variety of ways: expeditious return of a check difficult for a returned checks would not meet the duty i. It may send flan electronic return if the paying bank also are likely to make established by this section for returning depositary bank has agreed to accept an expeditious return of a check difficult for a banks. electronic return from the returning bank or returning bank.fi ii. A returning bank must return a check to it may sendfi the returned check directly to fl2. Depositary bank has not agreed to the depositary bank by courier or other the depositary bank by courier or other accept electronic returns under § 229.32(a). means as fast as a courier, if similarly øexpeditious¿ means of delivery; øor¿ a. A returning bank is not subject to the situated returning banks use couriers to ii. flIt may send an electronic return to expeditious return requirement in § 229.31(a) deliver their forward collection checks to the any other returning bank that has agreed to with respect to a check if the depositary bank depositary bank. accept an electronic return from the returning has not agreed to accept an electronic return iii. For some depositary banks, no bank; or from the paying bank under § 229.32(a), in community practice exists as to delivery of iii.fi It may send the returned check to any which case the paying bank is not required checks. For example, a credit union whose returning bank agreeing to handle the to return the check expeditiously under customers use payable-through drafts returned check for expeditious return to the § 229.30(a). If a depositary bank has not normally does not have checks presented to depositary bank under this section regardless agreed to accept electronic returns, a it because the drafts are normally sent to the of whether or not the returning bank handled returning bank is unlikely to be able to return payable-through bank for collection. In these the check for forward collection. a paper check to the depositary bank in an circumstances, the community standard is b. If the returning bank elects to send the expeditious manner. established by taking into account the dollar returned check directly to the depositary 3. Unidentifiable depositary banks volume of the checks being sent to the bank, it is not required to send the check to a.fi Returning banks agreeing to handle depositary bank and the location of the the branch of the depositary bank that first checks for return to depositary banks under depositary bank, and determining whether handled the check. The returned check may § 229.31(a) are expected to be expert in similarly situated banks normally would be sent to the depositary bank at any location identifying depositary bank indorsements. In deliver forward collection checks to the permitted under § 229.32(b). flIf the the limited cases where the returning bank depositary bank, taking into account the returning bank elects to send the electronic cannot identify the depositary bank, fliffi particular risks associated with returned return directly to the depositary bank, it must the returning bank fldid not handle the checks. Where the community standard does send the electronic return to the electronic check for forward collection, itfi may send not require courier delivery, other means of return point designated by the depositary the returned check to øa returning bank that delivery, including mail, are acceptable.¿ bankfi. agrees to handle the returned check for

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expeditious return under § 229.31(a), or it bank. The paying bank may recover the does not have sufficient information to create may send the returned check to a¿flany settlement when the paying bank returns the a substitute checkfi. øA check is not collectingfi bank that handled the returned check to the presenting bank. Under this unavailable for return if it is merely difficult check for forward collectionfl.fi ø, even if regulation, however, the paying bank may to retrieve from a filing system or from that bank does not agree to handle the check return the check directly to the depositary storage by a keeper of checks in a truncation expeditiously under section 229.31(a). bank or through returning banks that did not system.¿ (See the Commentary to 2.¿ Iffl, on the other hand,fi the returning handle the check for forward collection. On ø§ 229.30(f)¿fl§ 229.30(e)fi.) bank itself handled the check for forward these more efficient return paths, the paying øG. 229.31(g)¿ flF. 229.31(f)fi Reliance on collection, it may send the returned check to bank does not recover the settlement made to Routing Number a collecting bank that was prior to it in the the presenting bank. Thus, this paragraph forward-collection process, which will be requires the returning bank to settle for a 1. This paragraph is similar to ø ¿ better able to identify the depositary bank. If returned check (either with the paying bank § 229.30(g) fl§ 229.30(f)fi and permits a there are no prior collecting banks, the or another returning bank) in the same way returning bank to rely on routing numbers returning bank must research the collection that it would settle for a similar check for appearing on a returned check such as of the check and identify the depositary forward collection. To achieve uniformity, routing numbers in the depositary bank’s ø ¿ bank. this paragraph applies even if the returning indorsementfl,fi or on qualified returned flb.fi As in the case of paying banks bank handled the check for forward checksfl, or in the electronic image or under § 229.30(b), a returning bankø’s collection. information included in the electronic return sending of a check to a bank that handled the 2. Any returning bank, including one that when it is received by the returning bankfi. check for forward collection under handled the check for forward collection, (See the Commentary to ø ¿ § 229.31(b)¿ flthat cannot identify the may provide availability for returned checks § 229.30(g) fl§ 229.30(f)fi.) depositary bankfi is not subject to the pursuant to an availability schedule as it XVIII. Section 229.32 Depositary Bank’s expeditious return requirements of does for forward collection checks. These Responsibility for Returned Checks § 229.31(a). settlements by returning banks, as well as ø3. The returning bank’s return of a check settlements between banks made during the flA. 229.32(a) Acceptance of Electronic under this paragraph is subject to the forward collection of a check, are considered Returns midnight deadline under U.C.C. 4–202(b). final when made subject to any deferment of 1. A paying bank and a returning bank (See definition of returning bank in availability. (See must satisfy the expeditious return ¿ § 229.2(cc).) ø§ 229.36(d)¿fl§ 229.36(c)fi and requirements under §§ 229.30(a) and ø 4. Where a returning bank receives a Commentary to § 229.35(b).) 229.31(a) only if the depositary bank has check that it does not agree to handle 3. A returning bank may vary the agreed to accept an electronic return from the expeditiously under § 229.31(a), such as a settlement method it uses by agreement with paying bank. This section sets forth the check sent to it under § 229.30(b), but the paying banks or other returning banks. circumstances under which a depositary returning bank is able to identify the Special rules apply in the case of insolvency bank has agreed to accept an electronic depositary bank, the returning bank must of banks. (See § 229.39.) If payment cannot be return from the paying bank for purposes of thereafter return the check expeditiously to obtained from a depositary or returning bank subpart C, and therefore the circumstances the depositary bank. The returning bank because of its insolvency or otherwise, under which the paying bank and returning returns a check expeditiously under this recovery can be had by returning, paying, banks have a duty to return the check paragraph if it returns the check by the same and collecting banks from prior banks on this expeditiously. means it would use to return a check drawn basis of the liability of prior banks under 2. There are three different ways a on it to the depositary bank or by other § 229.35(b). depositary bank can agree to accept ¿ reasonably prompt means . 4. This paragraph affects U.C.C. 4–214(a) in electronic returns from the paying bank for ø ¿ 5 flcfi. As in the case of a paying bank that a paying or collecting bank does not purposes of subpart C: returning a check under § 229.30(b)), a ordinarily have a right to charge back against a. First, a depositary bank may have a returning bank returning a check under øthis the bank from which it received the returned ¿ direct contractual relationship with the paragraph fl§ 229.30(b)(2)fi to a bank that check, although it is entitled to settlement if paying bank under which it has agreed to has not agreed to handle the check it returns the returned check to that bank, accept electronic returns directly from the expeditiously must advise that bank that it is and may affect other sections or provisions. paying bank. ø ¿ unable to identify the depositary bank. This Under § 229.36(d) fl§ 229.36(c)fi, a bank b. Second, a depositary bank may have a advice must be conspicuous, such as a stamp collecting a check remains liable to prior ø direct contractual relationship with a on each check for which the depositary collecting banks and the depositary bank’s returning bank under which the depositary bank is unknown if such checks are customer under the U.C.C. bank accepts electronic returns directly from commingled with other returned checks, or, D. 229.31(d) Charges the returning bank. In turn, that returning if such checks are sent in a separate cash bank must hold itself out as willing to accept letter, by one¿ flthe check or afi notice on 1. This paragraph permits any returning electronic returns directly or indirectly from the cash letter. øThe returned check may not bank, even one that handled the check for the paying bank and agrees to return checks be prepared for automated return.¿ flIn the forward collection, to impose a fee on the expeditiously. For example, the returning case of an electronic return, the advice paying bank or other returning bank for its bank may hold itself out as willing to enter requirement may be satisfied by the returning service in handling a returned check. Where into a direct contractual relationship with the bank inserting the routing number of the a claim is made under § 229.35(b), the bank paying bank to accept electronic returns or bank to which it is sending the return where on which the claim is made is not authorized returned checks for expeditious return to the the returning bank otherwise would have by this paragraph to impose a charge for depositary bank. Alternatively, that returning inserted the routing number of the depositary taking up a check. This paragraph preempts bank may hold itself out as willing to accept bank.fi state laws to the extent that these laws fl3. Depositary banks without accounts prevent returning banks from charging fees electronic returns from other returning banks a. Section 229.31(b)(3) is similar to for handling returned checks. that accept electronic returns from the paying bank. A depositary bank is deemed to have § 229.30(b)(3) and relieves the returning bank øF. 229.31(f)¿flE. 229.31(e)fi Notice in Lieu of its obligation to make expeditious return agreed to accept electronic returns under of Return § 229.32(a)(1)(ii) if the returning bank holds to a depositary bank that does not maintain ø ¿ any accounts. (See the commentary to 1. This paragraph is similar to § 229.30(f) itself out as willing to accept electronic § 229.30(b).fi fl§ 229.30(e)fi and authorizes a returning returns directly or indirectly from the paying bank to originate a notice in lieu of return if bank, notwithstanding the fact that the C. 229.31(c) Settlement the returned check is unavailable for return. paying bank has no actual agreement with 1. Under the U.C.C., a collecting bank Notice in lieu of return is permitted only the returning bank to send electronic returns. receives settlement for a check øwhen when a bank does not have and cannot obtain c. Third, a depositary bank may have it¿flby midnight of the banking day on possession of the check fl(fior must retain otherwise agreed with the paying bank to which the checkfi is presented to the paying possession of the check for protestfl) and accept electronic returns. For example, the

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depositary bank and paying bank may both 2. The paragraph specifies four locations at to its customer by its midnight deadline or be members of the same clearing house, which the depositary bank must accept within a longer reasonable time. under the rules of which the depositary bank returned flpaperfi checks: øB. 229.32(b)¿flC. 229.32(c)fi Payment has agreed to accept electronic returns from a. The depositary bank must accept 1. As discussed in the commentary to the paying bank. returned flpaperfi checks at any location at which it requests presentment of forward § 229.31(c), under this regulation a paying d. The paying bank or returning bank must flbankfi or returning bank does not obtain deliver the electronic return to the electronic collection checksfl,fi such as a processing center. A depositary bank does not request credit for a returned check by charge-back location designated by the depositary bank. but by, in effect, øpresenting¿ Accordingly, regardless of the means by presentment of forward collection checks at a branch of the bank merely by paying checks fl‘‘presenting’’fi the returned check to the which a depositary bank agrees to accept depositary bank. This paragraph imposes an electronic returns from the paying bank, the presented over the counter. b. i. If the depositary bank indorsement obligation to ‘‘pay’’ a returned check that is depositary bank’s agreement with the paying similar to the obligation to pay a forward bank or returning bank must designate an states the name and address of the depositary bank, it must accept returned flpaperfi collection check by a paying bank, except electronic return point. checks at the branch, head office, or other that the depositary bank may not return a 3. A returning bank holds itself out as location, such as a processing center, returned check for which it is the depositary willing to accept electronic returns from a indicated by the address. If the address is too bank. Also, certain means of payment, such paying bank by publishing information about as remittance drafts, may be used only with general to identify a particular location, then ø ¿ its generally available electronic return the depositary bank must accept returned the agreement of the returning bank service, including how to enroll in the checks at any branch or head office fl‘‘presenting’’ the returned checkfi. returning bank’s electronic return service and consistent with the address. If, for example, 2. The depositary bank must pay for a fees for the service. For example, a returning the address is ‘‘New York, New York,’’ each returned check by the close of the banking bank may publish on its Web site electronic branch in New York City must accept day on which it received the returned check. return service set-up guides for a paying bank returned flpaperfi checks. flAccordingly, a The day on which a returned check is to complete. depositary bank may limit the locations at received is determined pursuant to U.C.C. 4. This section also sets forth when a which it must accept returned paper checks 4–108, which permits the bank to establish depositary bank receives an electronic return. by specifying a branch or head office in its a cut-off hour, generally not earlier than 2 A depositary bank ‘‘receives’’ an electronic indorsement.fi p.m., and treat checks received after that hour as being received on the next banking return when that electronic return is ii. If no address appears in the depositary day. If the depositary bank is unable to make delivered to the electronic return point bank’s indorsement, the depositary bank payment to a returning flbankfi or paying designated by the bank or when the must accept returned flpaperfi checks at bank on the banking day that it receives the electronic return is otherwise made available any branch or head office associated with the returned check, because the returning for retrieval or review in accordance with an depositary bank’s routing number. The flbankfi or paying bank is closed for a agreement between the depositary bank and offices associated with the routing number of holiday or because the time when the the delivering paying bank or returning bank. a bank are found in American Bankers depositary bank received the check is after For example, if a depositary bank designates Association Key to Routing Numbers, the close of Fedwire, e.g., west coast banks an e-mail address as its electronic return published by an agent of the American with late cut-off hours, payment may be point, the depositary bank has received the Bankers Association, which lists a city and made on the next banking day of the bank electronic return when it is delivered to that state address for each routing number. ø receiving payment. e-mail address. In contrast, if the depositary iii. The depositary bank must accept 3. Payment must be made so that the funds bank has an arrangement with a returning returned checks at the address in its are available for use by the bank returning bank whereby the returning bank sends the indorsement and at an address associated the check to the depositary bank on the day electronic return to its storage device and with its routing number in the indorsement the check is received by the depositary bank. then provides the depositary bank with if the written address in the indorsement and For example, a depositary bank meets this access to the storage device for retrieving the address associated with the routing requirement if it sends a wire transfer of electronic returns, the electronic return is number in the indorsement are not in the funds to the returning flbankfi or paying received by the depositary bank when the same check processing region. Under bank on the day it receives the returned returning bank makes the electronic return §§ 229.30(g) and 229.31(g), a paying or check, even if the returning flbankfi or available for the depositary bank to retrieve returning bank may rely on the depositary paying bank has closed for the day. A wire or review from the storage device in bank’s routing number in its indorsement in transfer should indicate the purpose of the accordance with the agreement between the handling returned checks and is not required payment. returning bank and the depositary bank.fi to send returned checks to an address in the 4. The depositary bank may use a net øA. 229.32(a)¿flB. 229.32(b)fi Acceptance depositary bank’s indorsement that is not in settlement arrangement to settle for a of flPaperfi Returned Checks the same check processing region as the returned check. Banks with net settlement address associated with the routing number ø agreements could net the appropriate credits 1. This regulation seeks to encourage in the indorsement.¿ and debits for returned checks with the direct returns by paying and returning banks øiv¿fliiifi. If no routing number or accounting entries for forward collection and may result in a number of banks sending address appears in its indorsement, the checks if they so desired. If, for purposes of checks to depositary banks with no depositary bank must accept a returned establishing additional controls or for other preexisting arrangements as to where the flpaperfi check at any branch or head office ¿ reasons, the banks involved desired a returned checks should be delivered. This of the bank. The indorsement requirement of separate settlement for returned checks, a paragraph states where the depositary bank is § 229.35 and appendix D requires that the separate net settlement agreement could be required to accept returned flpaperfi indorsement contain a routing number, a established. ø checks and written notices of nonpayment name, and a location. Consequently, this 5. The bank sending the returned check to ¿ under § 229.33 . (These locations differ from provision, as well as paragraph (a)(2)(ii) of the depositary bank may agree to accept locations at which a depositary bank flmay this section, only applies where the payment at a later date if, for example, it does accept electronic returnsfiøor must accept depositary bank has failed to comply with not believe that the amount of the returned electronic notices¿.) It is derived from U.C.C. the indorsement requirement. check or checks warrants the costs of same- 3–111, which specifies that presentment for 3. For ease of processing, a depositary bank day payment. Thus, a returning flbankfi or payment may be made at the place specified may require that returning flbanksfi or paying bank may agree to accept payment in the instrument or, if there is none, at the paying banks returning checks to it separate through an ACH credit or debit transfer that place of business of the party to pay. In the returned checks from forward collection settles the day after the returned check is case of returned checks, the depositary bank checks being presented. received instead of a wire transfer that settles does not print the check and can only specify 4. Under ø§ 229.33(d)¿fl§ 229.32(f)fi, a on the same day. the place of ‘‘payment’’ of the returned check depositary bank receiving a returned check 6. This paragraph and this subpart do not in its indorsement. øor notice of nonpayment¿ must send notice affect the depositary bank’s right to recover

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a provisional settlement with its nonbank flXIX. Section 229.33 Electronic returns øC. 229.34(c)¿flB. 229.34(b)fi Warranty of customer for a check that is returned. (See and collection items Settlement Amount, Encoding, and Offset also §§ 229.19(c)(2)(ii), A. 229.33(a) Checks under this subpart 1. Paragraph ø(c)¿fl(b)fi(1) provides that ø229.33(d)¿fl229.32(f)fi and 229.35(b).) 1. If a depositary bank has agreed to accept a bank that presents and receives settlement ø ø C. 229.32(c) flD. 229.32(d)fi Misrouted an electronic return, that electronic return is for checks warrants to the paying bank that the settlement it demands (e.g., as noted on Returned Checks subject to the provisions of this subpart as if the cash letter) equals the total amount of the it were a returned check. For example, a 1. This paragraph permits a bank receiving checks it presents. This paragraph gives the a check on the basis that it is the depositary depositary bank that receives an electronic paying bank a warranty claim against the bank to send the misrouted returned check to return must notify its customer by midnight presenting bank for the amount of any excess the correct depositary bank, if it can identify of the banking day following the banking day settlement made on the basis of the amount the correct depositary bank, either directly or on which it received the electronic return, or demanded, plus expenses. If the amount through a returning bank agreeing to handle within a longer reasonable time. (See demanded is understated, a paying bank the check expeditiously under § 229.32(f)). discharges its settlement obligation under ø§ 229.30(a)¿fl§ 229.31(a)fi. In these cases, 2. Similarly, if a bank has agreed to accept U.C.C. 4–301 by paying the amount the bank receiving the check is acting as a an electronic collection item from another demanded, but remains liable for the amount returning bank. Alternatively, the bank bank (either under the same-day settlement by which the demand is understated; the receiving the misrouted returned check must provisions of § 229.36(d) or otherwise), the presenting bank is nevertheless liable for send the check back to the bank from which electronic collection item is subject to the expenses in resolving the adjustment. it was received. In either case the bank to provisions of this subpart as it were a check. 2. When checks or returned checks are which the returned check was misrouted For example, if a paying bank receives transferred to a collecting flbankfi, fl fi could receive settlement for the check. The presentment of an electronic collection item, returning bank , or depositary bank, the it is subject to the expeditious return transferor bank is not required to demand depositary bank would be required to pay for requirements of this subpart, provided the settlement, as is required upon presentment the returned check under depositary bank has agreed to accept to the paying bank. However, often the ø§ 229.32(b)¿fl§ 229.32(c)fi, and any other electronic returns from the paying bank checks or returned checks will be bank to which the check is sent under this under § 229.32(a).fi accompanied by information (such as a cash paragraph would be required to settle for the letter listing) that will indicate the total of the check as a returning bank under § 229.31(c). XX. Section 229.34 Warranties checks or returned checks. Paragraph If the check was originally received ‘‘free,’’ flA. Transfer and presentment warranties ø(c)¿fl(b)fi(2) provides that if the transferor that is, without a charge for the check, the with respect to an electronic collection item bank includes information indicating the bank incorrectly receiving the check would and electronic return. total amount of checks or returned checks have to return the check, without a charge, 1. Paragraph (a) sets forth the warranties transferred, it warrants that the information to the bank from which it came. The bank to that a bank makes when transferring an is correct (i.e., equals the actual total of the which the returned check was misrouted is electronic collection item or electronic return items). required to act promptly but is not required and receives settlement or other 3. Paragraph ø(c)¿fl(b)fi(3) provides that to meet the expeditious return requirements consideration for it. Electronic collection a bank that presents or transfers a check or ø of § 229.31(a); however, it must act within its items and electronic returns are treated as returned check warrants the accuracy of the midnight deadline. This paragraph does not checks subject to the provisions of subpart C, magnetic ink encoding that was placed on ¿ affect a bank’s duties under § 229.35(b). and therefore the warranties in § 229.34(a) the item flinformation encoded on the item in magnetic ink or provided electronicallyfi øD. 229.32(d)¿flE. 229.32(e)fi Charges are in addition to any warranties a bank makes under paragraphs (b), (c), or (d). after issue, and that exists at the time of 1. This paragraph prohibits a depositary 2. The first warranty in § 229.34(a) relates presentment or transfer, to any bank that bank from charging the equivalent of a to the requirements for substitute checks. A subsequently handles the check or returned presentment fee for returned checks. A bank that transfers an electronic collection check. Under U.C.C. 4–209(a), only the returning bank, however, may charge a fee for item or electronic return warrants that the encoder (or the encoder and the depositary handling returned checks. If the returning electronic image accurately represents all of bank, if the encoder is a customer of the depositary bank) warrants the encoding bank receives a mixed cash letter of returned the information on the front and back of the accuracy, thus any claims on the warranty checks, which includes some checks for original check as of the time the original must be directed to the encoder. Paragraph which the returning bank also is the check was truncated and that the electronic ø(c)¿fl(b)fi(3) expands on the U.C.C. by depositary bank, the fee may be applied to all information contains a record of all MICR- providing that all banks that transfer or the returned checks in the cash letter. In the line information required for a substitute case of a sorted cash letter containing only present a check or returned check make the check under § 229.2(rr) of this part and the encoding warranty. In addition, under the returned checks for which the returning bank amount of the check. This paragraph U.C.C., the encoder makes the warranty to is the depositary bank, however, no fee may provides a bank that creates a substitute subsequent collecting banks and the paying be charged. check from an electronic collection item or bank, while paragraph ø(c)¿fl(b)fi(3) flF. 229.32(f) Notification to Customer electronic return with a warranty claim provides that the warranty is made to banks against the bank that transferred the in the return chain as well. Paragraph 1. This paragraph requires a depositary electronic collection item or electronic return ø ¿ bank to notify its customer of nonpayment (c) fl(b)fi(3) applies to all MICR-line to it or any prior transferor of the electronic fl upon receipt of a returned check. Notice also encoding on a substitute check and, in the collection item or electronic return. case of an electronic collection item or must be given if a depositary bank receives 3. A bank that transfers an electronic electronic return, to the electronic a notice of recovery under § 229.35(b). A collection item or an electronic return also information related to a check fi. bank that chooses to provide the notice warrants that no person will receive a 4. A paying bank that settles for an required by § 229.32(f) in writing may send transfer, return of, or otherwise be charged overstated cash letter because of a the notice by e-mail or facsimile if the bank for, an electronic collection item, an misencoded check may make a warranty sends the notice to the e-mail address or electronic return, the original check, a claim against the presenting bank under facsimile number specified by the customer substitute check, or a paper or electronic paragraph ø(c)¿fl(b)fi(1) (which would for that purpose. The notice to the customer representation of a substitute check such that require the paying bank to show that the required under this paragraph also may the person will be asked to make payment check was part of the overstated cash letter) satisfy the notice requirement of § 229.13(g) based on a check it has already paid. A bank or an encoding warranty claim under if the depositary bank invokes the that transfers an electronic collection item or paragraph ø(c)¿fl(b)fi(3) against the reasonable-cause exception of § 229.13(e) due electronic return that is an electronic presenting bank or any preceding bank that to learning of nonpayment, provided the representation of a substitute check also handled the misencoded check. notice meets all the requirements of makes the warranties and indemnity in 5. Paragraph ø(c)¿fl(b)fi(4) provides that § 229.13(g).fi §§ 229.52 and 229.53.fi a paying bank or a depositary bank may set

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off excess settlement paid to another bank warranties by proving that the customer of electronically created image and related against settlement owed to that bank for the paying bank is precluded by U.C.C. 4–406 information may produce a paper item that checks presented or returned checks received from making a claim against the paying bank. is indistinguishable from a substitute check (for which it is the depositary bank) This may be the case, for example, if the (although the item is not a substitute check subsequent to the excess settlement. customer failed to discover the unauthorized because the item never existed in paper). øD. 229.34(d)¿flC. 229.34(c)fi Transfer remotely created check in a timely manner. Therefore, a bank that transfers the paper and Presentment Warranties flWith Respect 5. The transfer and presentment warranties item may be liable for a breach of the to a Remotely Created Checkfi for a remotely created check apply to a substitute check warranties. The warranties 1. A bank that transfers or presents a remotely created check that has been in § 229.34(e) enable a bank that receives a remotely created check and receives a reconverted to a substitute checkfl, to an nonconforming substitute check to pass back settlement or other consideration warrants electronic collection item derived from a liability to the bank from which it received that the person on whose account the check remotely created check, and to an electronic the electronic image and related information, is drawn authorized the issuance of the check image and information transferred as an notwithstanding the fact that the image and in the amount stated on the check and to the electronic collection item derived from a information did not derive from a paper payee stated on the check. The warranties are remotely created check.fi check.fi given only by banks and only to subsequent øA. 229.34(a)¿flD. 229.34(d)fi Warranty of øB. 229.34(b) Warranty of Notice of banks in the collection chain. The warranties Returned Check Nonpayment ultimately shift liability for the loss created 1. This paragraph provides for warranties by an unauthorized remotely created check to 1. This paragraph includes warranties that for notices of nonpayment. This warranty the depositary bank. The depositary bank a returned check, including a notice in lieu does not include a warranty that the notice cannot assert the transfer and presentment of return fland electronic returnfi, was is accurate and timely under § 229.33. The warranties against a depositor. However, a returned by the paying bank, or in the case of a check payable by a bank and payable requirements of § 229.33 that are not covered depositary bank may, by agreement, allocate by the warranty are subject to the liability liability for such an item to the depositor and through another bank, the bank by which the check is payable, within the deadline under provisions of § 229.38. These warranties are also may have a claim under other laws designed to give the depositary bank more against that person. the U.C.C. (subject to any claims or defenses under the U.C.C., such as breach of a confidence in relying on notices of 2. The transfer and presentment warranties ø nonpayment. This paragraph imposes for remotely created checks supplement the presentment warranty) , Regulation J (12 CFR part 210),¿ or § 229.30(c); that the liability on a paying bank that gives notice Federal Trade Commission’s Telemarketing of nonpayment and then subsequently Sales Rule, which requires telemarketers that paying or returning bank is authorized to return the check; that the returned check has returns the check. (See Commentary on submit checks for payment to obtain the § 229.33(a).)¿ customer’s ‘‘express verifiable authorization’’ not been materially altered; and that, in the øE. 229.34(d)¿flF. 229.34(f)fi Damages (the authorization may be either in writing or case of a notice in lieu of return, the øoriginal¿ check has not been and will not tape recorded and must be made available 1. This paragraph adopts for the warranties be returned for payment. (See the upon request to the customer’s bank). 16 CFR in § 229.34 (a), (b), øand¿ (c)fl, (d) and (e)fi Commentary to ø§ 229.30(f)¿ 310.3(a)(3). The transfer and presentment the damages provided in U.C.C. 4–207(c) and fl§ 229.30(e)fi.) fl‘‘Check’’ includes the warranties shift liability to the depositary 4A–506(b). (See definition of interest original check, a substitute check, an bank only when the remotely created check compensation in electronic return, and notice in lieu of is unauthorized, and would not apply when ø§ 229.2(oo)¿fl§ 229.2(bb)fi.) return.fi The warranty does not include a the customer initially authorizes a check but ø ¿ warranty that the bank complied with the F. 229.34(e) flG. 229.34(g)fi Tender of then experiences ‘‘buyer’s remorse’’ and expeditious return requirements of Defense subsequently tries to revoke the authorization §§ 229.30(a) and 229.31(a). These warranties 1. This paragraph adopts for this regulation by asserting a claim against the paying bank do not apply to checks drawn on the United the vouching-in provisions of U.C.C. 3–119. under U.C.C. 4–401. If the depositary bank States Treasury, to U.S. Postal Service money ø ¿ suspects ‘‘buyer’s remorse,’’ it may obtain G. 229.34(f) flH. 229.34(h)fi Notice of orders, or to checks drawn on a state or a unit Claim from its customer the express verifiable of general local government that are not authorization of the check by the paying payable through or at a bank. (See § 229.42.) 1. This paragraph adopts the notice bank’s customer, required under the Federal provisions of U.C.C. sections 4–207(d) and 4– Trade Commission’s Telemarketing Sales flE. 229.34(e) Electronic image and 208(e). The time limit set forth in this Rule, and use that authorization as a defense information transferred as an electronic paragraph applies to notices of claims for to the warranty claim. collection item or electronic return warranty breaches only. As provided in 3. The scope of the transfer and 1. Paragraph (e) sets forth the warranties § 229.38(g), all actions under this section presentment warranties for remotely created that a bank makes when transferring an must be brought within one year after the checks differs from that of the corresponding electronic image and related information as date of the occurrence of the violation U.C.C. warranty provisions in two respects. if it were an electronic collection item or involved. The U.C.C. warranties differ from the electronic return. These warranties are the XXI. Section 229.35 Indorsements ø§ 229.34(d)¿fl§ 229.34(c)fi warranties in same warranties made for electronic that øthey¿flthe U.C.C. warrantiesfi are collection items and electronic returns A. 229.35(a) Indorsement Standards given by any person, including a nonbank throughout § 229.34 and carry the same 1. This section and appendix D require depositor, that transfers a remotely created conditions, such as the requirement for banks to use a standard form of indorsement check and not just to a bank, as is the case receiving settlement or other consideration when indorsing checks during the forward under ø§ 229.34(d)¿fl§ 229.34(c)fi. In where applicable. Applying the § 229.34 collection and return process. The standard addition, the U.C.C. warranties state that the warranties to all images and related provides for indorsements by all collecting person on whose account the item is drawn information transferred as if they were and returning banks, plus a unique standard authorized the issuance of the item in the electronic collection items or electronic for depositary bank indorsements. It is amount for which the item is drawn. The returns protects a transferee bank in the event designed to facilitate the identification of the ø§ 229.34(d)¿fl§ 229.34(c)fi warranties it creates a substitute check from an depositary bank and the prompt return of specifically cover the amount as well as the electronic image and related information that checks. The regulation places a duty on payee stated on the check. Neither the U.C.C. does not represent an item that existed in banks to ensure that their indorsements can warrantiesø,¿ nor the paper (i.e., an electronically created item). be interpreted by any person. The ø§ 229.34(d)¿fl§ 229.34(c)fi warranties 2. As a practical matter, a bank receiving indorsement standard specifies the apply to the date stated on the remotely an electronically created image and related information each indorsement must contain created check. information generally cannot distinguish the and its location and ink colorfl, if applied 4. A bank making the image and related information from an image to a paper checkfi. ø§ 229.34(d)¿fl§ 229.34(c)fi warranties may and related information that derived from a 2. Banks generally apply indorsements to defend a claim asserting violation of the paper check. In turn, the bank receiving the a paper check in one of two ways: (1) Banks

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print or ‘‘spray’’ indorsements onto a check the indorsement date; and (3) if the 11. If the bank maintaining the account when the check is processed through the indorsement is applied physically, name or into which a check is deposited agrees with banks’ automated check sorters (regardless of location information. The standard also another bank (a correspondent, ATM whether the checks are original checks or permits but does not require the indorsement operator, or lock box operator) to have the substitute checks), and (2) reconverting banks to include other identifying information. The other bank accept returns øand notices of print or ‘‘overlay’’ previously applied standard requires a collecting bank’s or nonpayment¿ for the bank of account, the electronic indorsements and their own returning bank’s indorsement to include only indorsement placed on the check as the (1) the bank’s nine digit routing number indorsements and identifications onto a depositary bank indorsement may be the (without arrows) and, if the collecting bank substitute check at the time that the indorsement of the bank that acts as substitute check is created. If a subsequent or returning bank is a reconverting bank with correspondent, ATM operator, or lock box substitute check is created in the course of respect to the check, an asterisk at each end operator as provided in paragraph (d) of this collection or return, that substitute check of the number to identify the bank as a reconverting bank, (2) the indorsement date, section. will contain, in its image of the back of the ø ¿ previous substitute check, reproductions of and (3) an optional trace or sequence 12. The backs of many flsomefi checks indorsements that were sprayed or overlaid number. flThe information required to be bear pre-printed information or blacked out onto the previous item. For purposes of the included in the depositary bank’s areas for various reasons. For example, some indorsement standard set forth in appendix indorsement of an electronic collection item, checks are printed with a carbon band across D, a reproduction of a previously applied and the information that may be included, is the back that allows the transfer of sprayed or overlaid indorsement contained the same as set forth above. The formatting information from the check to a ledger with within an image of a check does not of the information, however, should be in one writing. Also, contracts or loan constitute ‘‘an indorsement that previously accordance with ANS X9.100–187.fi agreements are printed on certain checks. was applied electronically.’’ To accommodate 7. Depositary banks should not include Other checks that are mailed to recipients these two indorsement scenarios, the information that can be confused with may contain areas on the back that are required information. For example, a nine- appendix includes two indorsement location blacked out so that they may not be read digit zip code could be confused with the specifications: one standard applies to banks through the mailer. On the deposit side, the spraying indorsements onto existing paper nine-digit routing number. 8. A depositary bank may want to include payee of the check may place its indorsement original checks and substitute checks, and or information identifying the drawer of the another applies to reconverting banks an address in its indorsement in order to limit the number of locations at which it check in the area specified for the depositary overlaying indorsements that previously ø bank indorsement, thus making the were applied electronically and their own must receive returned checks. In instances depositary bank indorsement unreadable. indorsements onto substitute checks at the where this address is not consistent with the routing number in the indorsement, the 13. The indorsement standard does not time the substitute checks are created. depositary bank is required to receive prohibit the use of a carbon band or other 3. A bank might use check processing returned checks at a branch or head office equipment that captures an image of a check printed or written matter on the backs of consistent with the routing number.¿ Banks prior to spraying an indorsement onto that checks and does not require banks to avoid should note, however, that § 229.32 requires fl fi ø ¿ placing their indorsements in these areas. check item . If the bank truncates that a depositary bank to receive returned checks flcheckfi øitem¿, it should ensure that it Nevertheless, checks will be handled more at the location(s) at which it receives efficiently if depositary banks design also applies an indorsement to the item forward-collection checksø.¿ flas well as the electronically flin accordance with ANS indorsement stamps so that the nine-digit other locations enumerated in § 229.32(b) routing number avoids the carbon band area. X9.100–187, unless the parties otherwise (see § 229.32(b) and accompanying Indorsing parties other than banks, e.g., agreefi. A reconverting bank satisfies its commentary). If a depositary bank includes corporations, will benefit from the faster obligation to preserve all previously applied an e-mail address or other electronic address return of checks if they protect the indorsements by overlaying a bank’s for delivery of electronic returns, and has indorsement that previously was applied agreed to accept electronic returns from the identifiability and legibility of the depositary electronically onto a substitute check that the paying bank or returning bank, the paying bank indorsement by staying clear of the area reconverting bank creates. bank or returning bank may send electronic reserved for the depositary bank 4. The location of an indorsement applied returns to such address.fi indorsement. to an original paper check in accordance with 9. In addition to indorsing a substitute 14. Section 229.38(d) allocates appendix D may shift if that check is check in accordance with appendix D, a responsibility for loss resulting from a delay truncated and later reconverted to a reconverting bank must identify itself and the in return of a check due to indorsements that substitute check. If an indorsement applied truncating bank by applying its routing are unreadable because of material on the to the original check in accordance with number and the routing number of the back of the check. The depositary bank is appendix D is overwritten by a subsequent truncating bank to the front of the check in responsible for a loss resulting from a delay indorsement applied to the substitute check accordance with appendix D and ANS in return caused by the condition of the in accordance with appendix D, then one or X9.100–140. Further, if the reconverting bank check arising after its issuance until its both of those indorsements could be is the paying bank, flor a bank that rejected acceptance by the depositary bank that made rendered illegible. As explained in a check submitted for deposit,fi it also must the depositary bank’s indorsement illegible. § 229.38(d) and the commentary thereto, a identify itself by applying its routing number The paying bank is responsible for loss reconverting bank is liable for losses to the back of the check in accordance with resulting from a delay in return caused by associated with indorsements that are appendix D. In these instances, the indorsements that are not readable because of rendered illegible as a result of check reconverting bank and truncating bank other material on the back of the check at the substitution. routing numbers are for identification time that it was issued. Depositary and 5. To ensure that indorsements can be purposes only and are not indorsements or paying banks may shift these risks to their easily read and would remain legible after an acceptances. customers by agreement. image of a check is captured, the standard 10. Under the U.C.C., a specific guarantee requires all indorsements applied to original of prior indorsement is not necessary. (See 15. The standard does not require the checks and substitute checks to be printed in U.C.C. 4–207(a) and 4–208(a).) Use of paying bank to indorse the check; however, black ink øas of January 1, 2006¿. guarantee language in indorsements, such as if a paying bank does indorse a check that is 6. The standard requires the depositary ‘‘P.E.G.’’ (‘‘prior endorsements guaranteed’’), returned, it should follow the indorsement bank’s indorsement to include (1) its nine- may result in reducing the type size used in standard for collecting banks and returning digit routing number set off by an arrow at bank indorsements, thereby making them banks. The standard requires collecting and each end of the routing number and, if the more difficult to read. Use of this language returning banks to indorse the check for depositary bank is a reconverting bank with may make it more difficult for other banks to tracing purposes. With respect to the respect to the check, an asterisk outside the identify the depositary bank. Subsequent identification of a paying bank that is also a arrow at each end of the routing number to collecting bank indorsements may not reconverting bank, see the commentary to identify the bank as a reconverting bank; (2) include this language. § 229.51(b)(2).

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B. 229.35(b) Liability of Bank Handling notice reasonably identifying the check and i.e., the depositary bank. If the indorsing Check the basis for recovery is sufficient if the bank applies the depositary bank’s 1. When a check is sent for forward check is not available. Receipt of notice by indorsement, checks will be returned to the collection, the collection process results in a the bank against which the claim is made is depositary bank. If the indorsing bank does chain of indorsements extending from the not a precondition to recovery by charge-back not apply the depositary bank’s indorsement, depositary bank through any subsequent or other means; however, a bank may be by agreement with the depositary bank it may apply its own indorsement as the depositary collecting banks to the paying bank. This liable for negligence for failure to provide bank indorsement. In that case, the section extends the indorsement chain timely notice. A paying or returning bank depositary bank’s own indorsement on the through the paying bank to the returning also may recover from a prior collecting bank check (if any) should avoid the location banks, and would permit each bank to as provided in §§ 229.30(b) and 229.31(b) reserved for the depositary bank. The actual recover from any prior indorser if the fl(in those cases where the paying bank or depositary bank remains responsible for the claimant bank does not receive payment for returning bank is unable to identify the availability and other requirements of the check from a subsequent bank in the depositary bank)fi. This provision is not a øS¿flsfiubpart B, but the bank indorsing as collection or return chain. For example, if a substitute for a paying or returning bank depositary bank is considered the depositary returning bank returned a check to an making expeditious return under §§ 229.30(a) or 229.31ø(b)¿fl(a)fi. This paragraph does bank for purposes of øS¿flsfiubpart C. The insolvent depositary bank, and did not check will be returnedø, and notice of receive the full amount of the check from the not affect a paying bank’s accountability for a check under U.C.C. 4–215(a) and 4–302. nonpayment will be given,¿ to the bank failed bank, the returning bank could obtain indorsing as depositary bank. the unrecovered amount of the check from Nor does this paragraph affect a collecting bank’s accountability under U.C.C. 4–213 2. Because the depositary bank for any bank prior to it in the collection and øS¿flsfiubpart B purposes will desire return chain including the paying bank. and 4–215(d). A collecting bank becomes accountable upon receipt of final settlement prompt notice of nonpayment, its Because each bank in the collection and arrangement with the indorsing bank should return chain could recover from a prior bank, as provided in the foregoing U.C.C. sections. The term final settlement in §§ 229.31(c), provide for prompt notice of nonpayment. any loss would fall on the first collecting ø ¿ ø The bank indorsing as depositary bank may bank that received the check from the 229.32 (b) fl229.32(c)fi, and 229.36 (d)¿fl229.36(c)fiis intended to be consistent require the depositary bank to agree to take depositary bank. To avoid circuity of actions, up the check if the check is not paid even the returning bank could recover directly with the use of the term final settlement in the U.C.C. (e.g., U.C.C. 4–213, 4–214, and if the depositary bank’s indorsement does not from the first collecting bank. Under the ø ¿ appear on the check and it did not handle the U.C.C., the first collecting bank might 4–215). (See also § 229.2 (oo) fl(bb)fi and Commentary.) check. The arrangement between the banks ultimately recover from the depositary bank’s may constitute an agreement varying the customer or from the other parties on the 6. This paragraph also provides that a bank ø ¿ may have the rights of a holder based on the effect of provisions of S flsfiubpart C check. under § 229.37. 2. Where a check is returned through the handling of the check for collection or return. same banks used for the forward collection A bank may become a holder or a holder in XXII. Section 229.36 Presentment and of the check, priority during the forward due course regardless of whether prior banks Issuance of Checks collection process controls over priority in have complied with the indorsement ø standard in § 229.35(a) and appendix D. A. 229.36(a) Payable Through and Payable the return process for the purpose of at Checks determining prior and subsequent banks 7. This paragraph affects the following under this regulation. provisions of the U.C.C., and may affect other 1. For purposes of Subpart C, the 3. Where a returning bank is insolvent and provisions: regulation defines a payable-through or fails to pay the paying bank or a prior a. Section 4–214(a), in that the right to payable-at bank (which could be designated returning bank for a returned check, recovery is not based on provisional the collectible-through or collectible-at bank) § 229.39(a) requires the receiver of the failed settlement, and recovery may be had from as a paying bank. The requirements of bank to return the check to the bank that any prior bank. Section 4–214(a) would § 229.30(a) and the notice of nonpayment transferred the check to the failed bank. That continue to permit a depositary bank to requirements of § 229.33 are imposed on a recover a provisional settlement from its payable-through or payable-at bank and are bank then either could continue the return to ø ¿ the depositary bank or recover based on this customer. (See § 229.33(d) fl§ 229.32(f)fi.) based on the time of receipt of the forward paragraph. Where the paying bank is b. Section 3–415 and related provisions collection check by the payable-through or insolvent, and fails to pay the collecting (such as section 3–503), in that such payable-at bank. This provision is intended provisions would not apply as between to speed the return of checks that are payable bank, the collecting bank also could recover ¿ from a prior collecting bank under this banks, or as between the depositary bank and through or at a bank to the depositary bank. paragraph, and the bank from which it its customer. flA. 229.36(a) Receipt of Electronic recovered could in turn recover from its prior C. 229.35(c) Indorsement by Bank Collection Items collecting bank until the loss settled on the 1. This section protects the rights of a 1. This paragraph sets forth the depositary bank (which could recover from customer depositing a check in a bank circumstances under which a paying bank its customer). without requiring the words ‘‘pay any bank,’’ has agreed to accept an electronic collection 4. A bank is not required to make a claim as required by the U.C.C. (See U.C.C. 4– item from the presenting bank for purposes against an insolvent bank before exercising 201(b).) Use of this language in a depositary of subpart C. There are two different ways a its right to recovery under this paragraph. bank’s indorsement will make it more paying bank can agree to accept an electronic Recovery may be made by charge-back or by difficult for other banks to identify the collection item from the presenting bank for other means. This right of recovery also is depositary bank. The indorsement standard purposes of subpart C: permitted even where nonpayment of the in appendix D prohibits such material in a. First, a paying bank may have a direct check is the result of the claiming bank’s subsequent collecting bank indorsements. contractual relationship with the presenting negligence such as failure to make The existence of a bank indorsement bank under which it has agreed to accept expeditious return, but the claiming bank provides notice of the restrictive indorsement electronic collection items directly from the remains liable for its negligence under without any additional words. presenting bank. § 229.38. b. Second, a paying bank may have D. 229.35(d) Indorsement for Depositary 5. This liability is imposed on a bank otherwise agreed with the presenting bank to handling a check for collection or return Bank accept electronic collection items. For regardless of whether the bank’s indorsement 1. This section permits a depositary bank example, the presenting bank and paying appears on the check. Notice must be sent to arrange with another bank to indorse bank may both be members of the same under this paragraph to a prior bank from checks. This practice may occur when a clearing house, under the rules of which the which recovery is sought reasonably correspondent indorses for a respondent, or paying bank has agreed to accept electronic promptly after a bank learns that it did not when the bank servicing an ATM or lock box collection items from the presenting bank. receive payment from another bank, and indorses for the bank maintaining the 2. The presenting bank must deliver the learns the identity of the prior bank. Written account in which the check is deposited— electronic collection item to the electronic

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location designated by the paying bank. ød¿flbfi. If the check specifies the name check. If there is no address, delivery may be Accordingly, regardless of the means by and address of a branch or head office, or made at any office of the paying bank. This which a paying bank agrees to accept other location (such as a processing center), provision is consistent with U.C.C. 3–111, electronic collection items from the the check may be delivered by delivery to which states that presentment for payment presenting bank, the paying bank’s agreement that office or other location. If the address is may be made at the place specified in the with the presenting bank must designate an too general to identify a particular office, instrument, or, if there is none, at the place electronic presentment point. delivery may be made at any office consistent of business of the party to pay. Thus, there 3. This paragraph also sets forth when a with the address. For example, if the address is a trade-off for a paying bank between paying bank receives an electronic collection is ‘‘San Francisco, California,’’ each office in specifying a particular address on a check to item. A bank ‘‘receives’’ an electronic San Francisco must accept presentment. The limit locations of delivery, and simply stating collection item when that item is delivered designation of an address on the check the name of the bank to encourage wider to the electronic presentment point generally is in the control of the paying bank. currency for the check. designated by the bank or when the øb¿flcfi. i. Delivery may be made at an 3. This paragraph may affect U.C.C. 3–111 electronic collection item is otherwise made office of the bank associated with the routing to the extent that the U.C.C. requires available for retrieval or review in number on the check. The office associated presentment to occur at a place specified in accordance with an agreement between the with the routing number of a bank is found the instrument. paying bank and the presenting bank. For in American Bankers Association Key to C. ø[Reserved] example, if a paying bank designates an Routing Numbers, published by an agent of D. 229.36(d)¿fl229.36(c)fi Liability of Bank Internet protocol (IP) address as its electronic the American Bankers Association, which During Forward Collection presentment point, the paying bank has lists a city and state address for each routing received the electronic collection item when number. Checks generally are handled by 1. This paragraph makes settlement between banks during forward collection it is delivered to that address. In contrast, if collecting banks on the basis of the nine-digit final when made, subject to any deferment of the paying bank has an arrangement with a routing number encoded in magnetic ink (or credit, just as settlements between banks presenting bank whereby the presenting bank on the basis of the fractional form routing during the return of checks are final. In sends the electronic collection item to its number if the magnetic ink characters are addition, this paragraph clarifies that this storage device and then provides the paying obliterated) on the check, rather than the change does not affect the liability scheme bank with access to the storage device for printed name or address. flIn the case of a under U.C.C. 4–201 during forward retrieving electronic collection items, the substitute check derived from an electronic collection of a check. That U.C.C. section electronic collection item is received by the collection item, delivery may be made at an provides that, unless a contrary intent clearly paying bank when the presenting bank makes office of the bank associated with the routing number in the electronic image of or appears, a bank is an agent or subagent of the the electronic collection item available for owner of a check, but that Article 4 of the electronic information related to the check.fi the paying bank to retrieve or review from U.C.C. applies even though a bank may have The definition of a paying bank in storage device in accordance with the purchased an item and is the owner of it. ø§ 229.2(z)¿fl§ 229.2(ii)fi includes a bank agreement between the presenting bank and This paragraph preserves the liability of a designated by routing number, whether or the paying bank.fi collecting bank to prior collecting banks and not there is a name on the check, and ø the depositary bank’s customer for negligence B. 229.36(b) Receipt at Bank Office or whether or not any name is consistent with ¿ during the forward collection of a check Processing Center flReceipt of paper the routing number. Where a check is under the U.C.C., even though this paragraph checks.fi payable by one bank, but payable through provides that settlement between banks ø another, the routing number is that of the 1. This paragraph seeks to facilitate during forward collection is final rather than efficient presentment of checks to promote payable-through bank, not that of the payor ø ¿ provisional. Settlement by a paying bank is early return or notice of nonpayment to the bank. As the payor bank has selected the not considered to be final payment for the depositary bank and clarifies the law as to payable-through bank as the point through purposes of U.C.C. 4–215(a)(2) or (3), because the effect of presentment by routing number. which presentment is to be made, it is proper a paying bank has the right to recover This paragraph differs from § 229.32(a) to treat the payable-through bank as the settlement from a returning or depositary because presentment of checks differs from paying bank for purposes of this section. bank to which it returns a check under this delivery of returned checks.¿ ii. There is no requirement in the ø ¿ subpart. Other provisions of the U.C.C. not 2 fl1fi. The paragraph specifies four regulation that the name and address on the superseded by this subpart, such as section locations at which the paying bank must check agree with the address associated with 4–202, also continue to apply to the forward accept presentment of flpaperfi checks. the routing number on the check. A bank collection of a check and may apply to the Where the check is payable through a bank generally may control the use of its routing return of a check. (See definition of returning and the check is sent to that bank, the number, just as it does the use of its name. bank in ø§ 229.2(cc)¿fl§ 229.2(oo)fi.) payable-through bank is the paying bank for The address associated with the routing ø purposes of this subpart, regardless of number may be a processing center. E. 229.36(e) Issuance of Payable Through whether the paying bank must present the iii. In some cases, a paying bank may have Checks check to another bank or to a nonbank payor several offices in the city associated with the 1. If a bank arranges for checks payable by for payment. routing number. In such case, it would not it to be payable through another bank, it must a. Delivery of checks may be made, and be reasonable or efficient to require the require its customers to use checks that presentment is considered to occur, at a presenting bank to sort the checks by more contain conspicuously on their face the location (including a processing center) specific branch addresses that might be name, and location, and first four digits of requested by the paying bank. øThis is the printed on the checks, and to deliver the the nine-digit routing number of the bank by way most checks are presented by banks checks to each branch. A collecting bank which the check is payable and the legend today.¿ This provision adopts the common normally would deliver all checks to one ‘‘payable through’’ followed by the name of law rule of a number of legal decisions that location. In cases where checks are delivered the payable-through bank. The first four the processing center acts as the agent of the to a branch other than the branch on which digits of the nine-digit routing number and paying bank to accept presentment and to they may be drawn, computer and courier the location of the bank by which the check begin the time for processing of the check. communication among branches should is payable must be associated with the same (See also U.C.C. 4–204(c).) If a bank permit the paying bank to determine quickly check processing region. (This section does designates different locations for the whether to pay the check. not affect § 229.36(b).) The required presentment of forward collection checks øc¿fldfi. If the check specifies the name information is deemed conspicuous if it is bearing different routing numbers, for of the paying bank but no address, the bank printed in a type size not smaller than six- purposes of this paragraph it requests must accept delivery at any office. Where point type and if it is contained in the title presentment of checks bearing a particular delivery is made by a person other than a plate, which is located in the lower left routing number only at the location bank, or where the routing number is not quadrant of the check. The required designated for receipt of forward collection readable, delivery will be made based on the information may be conspicuous if it is checks bearing that routing number. name and address of the paying bank on the located elsewhere on the check.

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2. If a payable-through check does not meet designating a location for the purposes of check by name without address, or at a the requirements of this paragraph, the bank § 229.36(f), the paying bank agrees to accept branch, head office, or other location by which the check is payable may be liable checks at that location for purposes of consistent with the name and address of the to the depositary bank or others as provided § 229.36(b).¿ bank on the check if the bank is identified in § 229.38. For example, a bank by which a flii. Electronic presentment. A paying on the check by name and address.¿ fliv.fi payable-through check is payable could be bank may require that checks presented for A paying bank and a presenting bank may liable to a depositary bank that suffers a loss, same-day settlement under this paragraph be agree that checks will be accepted for same- such as lost interest or liability under presented as electronic collection items to a day settlement at an alternative location (e.g., Subpart B, that would not have occurred had designated electronic presentment point. If a at an intercept processor located in a the check met the requirements of this paying bank so requires, the presenting bank different check processing region) or that the paragraph. Similarly, a bank may be liable must present checks for same-day settlement cut-off time for same-day settlement be under § 229.38 if a check payable by it that as electronic collection items, and may not earlier or later than 8:00 a.m. local time. is not payable through another bank is present paper checks to physical locations for øiv¿flvfi. In the case of a check payable labeled as provided in this section. For receiving same-day settlement under this through a bank but payable by another bank, example, a bank that holds checking section. An electronic collection item this paragraph does not authorize direct accounts and processes checks at a central presented for same-day settlement is subject presentment to the bank by which the check location but has widely-dispersed branches to the provisions of this subpart as if it were is payable. The requirements of same-day may be liable under this section if it labels a check (See § 229.33). Therefore, references settlement under this paragraph would apply all of its checks as ‘‘payable through’’ a single to checks in this subpart include electronic to a payable-through or payable-at bank to branch and includes the name, address, and collection items presented under § 229.36(d). which the check is sent for payment or four-digit routing symbol of another branch. iii. A paying bank may designate a collection. These checks would not be payable through presentment location for paper checks, but b. Reasonable delivery requirements. A another bank and should not be labeled as the designated presentment location must be check is considered presented when it is payable-through checks. (All of a bank’s a location at which the paying bank would delivered to and payment is demanded at a offices within the United States are be considered to have received a check under location specified in paragraph considered part of the same bank; see § 229.36(b). If the paying bank does not ø(f)(1)¿fl(d)(1)fi. Ordinarily, a presenting § 229.2(e).) In this example, the bank by designate any presentment location, it must bank will find it necessary to contact the which the checks are payable could be liable accept presentment for same-day settlement paying bank to determine the appropriate to a depositary bank that suffers a loss, such at any location identified in § 229.36(b), i.e., presentment location and any delivery as lost interest or liability under Subpart B, at an address of the bank associated with the instructions. Further, because presentment due to the mislabeled check. The bank by routing number on the check, at any branch might not take place during the paying bank’s which the check is payable may be liable for or head office if the bank is identified on the banking day, a paying bank may establish additional damages if it fails to act in good check by name without address, or at a reasonable delivery requirements to faith.¿ branch, head office, or other location safeguard the checks presented, such as use øF. 229.36(f)¿flD. 229.36(d)fi Same-Day consistent with the name and address of the of a night depository. If a presenting bank Settlement bank on the check if the bank is identified fails to follow reasonable delivery on the check by name and address. With the requirements established by the paying bank, 1. This paragraph provides that, under exception of receiving electronic collection it runs the risk that it will not have presented certain conditions, a paying bank must settle the checks. However, if no reasonable with a presenting bank for a check on the items, the paying bank may not designate a same day the check is presented in order to location solely for presentment of checks delivery requirements are established or if avail itself of the ability to return the check subject to settlement under this paragraph; by the paying bank does not make provisions for on its next banking day under U.C.C. 4–301 designating a location for the purposes of accepting delivery of checks during its non- and 4–302. This paragraph does not apply to § 229.36(d), the paying bank agrees to accept business hours, leaving the checks at the checks presented for immediate payment checks at that location for the purposes of presentment location constitutes effective § 229.36(b).fi presentment. over the counter. Settling for a check under ø this paragraph does not constitute final ii. The designated presentment location c. Sorting of checks. A paying bank may payment of the check under the U.C.C. This also must be within the check processing require that checks presented to it for same- paragraph does not supersede or limit the region consistent with the nine-digit routing day settlement be sorted separately from rules governing collection and return of number encoded in magnetic ink on the other forward collection checks it receives as checks through Federal Reserve Banks that check. A paying bank that uses more than a collecting bank or returned checks it are contained in Subpart A of Regulation J one routing number associated with a single receives as a returning or depositary bank. (12 CFR part 210). check processing region may designate, for For example, if a bank provides 2. Presentment requirements. purposes of this paragraph, one or more correspondent check collection services and a. Location and time. locations in that check processing region at receives unsorted checks from a respondent i. For presented checks to qualify for which checks will be accepted, but the bank that include checks for which it is the mandatory same-day settlement, information paying bank must accept any checks with a paying bank and that would otherwise meet accompanying the checks must indicate that routing number associated with that check the requirements for same-day settlement presentment is being made under this processing region at each designated under this section, the collecting bank need paragraph—e.g. ‘‘these checks are being location. A paying bank may designate a not make settlement in accordance with presented for same-day settlement’’—and presentment location for traveler’s checks paragraph ø(f)(2)¿fl(d)(3)fi. If the collecting must include a demand for payment of the with an 8000-series routing number bank receives sorted checks from its total amount of the checks together with anywhere in the country because these respondent bank, consisting only of checks appropriate payment instructions in order to traveler’s checks are not associated with any for which the collecting bank is the paying enable the paying bank to discharge its check processing region. The paying bank, bank and that meet the requirements for settlement responsibilities under this however, must accept at that presentment same-day settlement under this paragraph, paragraph. In addition, the check or checks location any other checks for which it is the collecting bank may not charge a fee for must be presented at a location designated by paying bank that have a routing number handling those checks and must make the paying bank for receipt of checks for consistent with the check processing region settlement in accordance with this paragraph. same-day settlement by 8:00 a.m. local time of that location.¿ 3. Settlement of that location. øThe designated øiii If the paying bank does not designate a. If a bank presents a check in accordance presentment location must be a location at a presentment location, it must accept with the time and location requirements for which the paying bank would be considered presentment for same-day settlement at any presentment under paragraph to have received a check under § 229.36(b). location identified in § 229.36(b), i.e., at an ø(f)(1)¿fl(d)(1)fi, the paying bank either The paying bank may not designate a address of the bank associated with the must settle for the check on the business day location solely for presentment of checks routing number on the check, at any branch it receives the check without charging a subject to settlement under this paragraph; by or head office if the bank is identified on the presentment fee or return the check prior to

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the time for settlement. (This return deadline to a standard of good faith, defined in that delay the return of a check beyond the is subject to extension under § 229.30(c).) ø§ 229.2(nn)¿fl§ 229.2(z)fi to mean honesty times required by this subpart may result in The settlement must be in the form of a credit in fact and the observance of reasonable liability under § 229.38 to entities not party to an account designated by the presenting commercial standards of fair dealing. For to the agreement. bank at a Federal Reserve Bank (e.g., a example, designating a presentment location B. The Board has not followed U.C.C. 4– Fedwire transfer). The presenting bank may or changing presentment locations for the 103(b), which permits Federal Reserve agree with the paying bank to accept primary purpose of discouraging banks from regulations and operating letters, settlement in another form (e.g., credit to an presenting checks for same-day settlement clearinghouse rules, and the like to apply to account of the presenting bank at the paying might not be considered good faith on the parties that have not specifically assented. bank or debit to an account of the paying part of the paying bank. Similarly, presenting Nevertheless, this section does not affect the bank at the presenting bank). The settlement a large volume of checks without prior notice status of such agreements under the U.C.C. must occur by the close of Fedwire on the could be viewed as not meeting reasonable C. The following are examples of situations business day the check is received by the commercial standards of fair dealing and where variation by agreement is permissible, paying bank. Under the provisions of therefore may not constitute presentment in subject to the limitations of this section: § 229.34(c), a settlement owed to a presenting good faith. In addition, if banks, in the fl1. A depositary bank may agree with a bank may be set off by adjustments for general course of business, regularly agree to paying bank or a returning bank to accept previous settlements with the presenting certain practices related to same-day electronic returns even when the item is bank. (See also § 229.39(d).) settlement, it might not be considered available for return. (See § 229.32(a).)fi b. Checks that are presented after the 8 a.m. consistent with reasonable commercial ø1¿fl2fi. A depositary bank may (local time flof the paying bankfi) standards of fair dealing, and therefore might authorize another bank to apply the other presentment deadline for same-day not be considered good faith, for a bank to bank’s indorsement to a check as the settlement and before the paying bank’s cut- refuse to agree to those practices if agreeing depositary bank. (See § 229.35(d).) off hour are treated as if they were presented would not cause it harm. ø2¿fl3fi. A depositary bank may under other applicable law and settled for or 6. U.C.C. sections affected. This paragraph authorize returning banks to commingle returned accordingly. However, for purposes directly affects the following provisions of qualified returned checks with forward of settlement only, the presenting bank may the U.C.C. and may affect other sections or collection checks. (See require the paying bank to treat such checks provisions: ø§ 229.32(a)¿fl§ 229.32(b)fi.) as presented for same-day settlement on the a. Section 4–204(b)(1), in that a presenting ø3¿fl4fi. A depositary bank may limit its next business day in lieu of accepting bank may not send a check for same-day liability to its customer in connection with settlement by cash or other means on the settlement directly to the paying bank, if the the late return of a deposited check where the business day the checks are presented to the paying bank designates a different location in lateness is caused by markings on the check paying bank. Checks presented after the by the depositary bank’s customer or prior paying bank’s cut-off hour or on non- accordance with paragraph ø ¿fl fi indorser in the area of the depositary bank business days, but otherwise in accordance (f)(1) (d)(1) . indorsement. (See § 229.38(d).) with this paragraph, are considered b. Section 4–213(a), in that the medium of ø4¿fl5fi. A paying bank may require its presented for same-day settlement on the settlement for checks presented under this next business day. paragraph is limited to a credit to an account customer to assume the paying bank’s 4. Closed Paying Bank at a Federal Reserve Bank and that, for liability for delayed or missent checks where a. There may be certain business days that checks presented after the deadline for same- the delay or missending is caused by are not banking days for the paying bank. day settlement and before the paying bank’s markings placed on the check by the paying Some paying banks may continue to settle for cut-off hour, the presenting bank may require bank’s customer that obscured a properly checks presented on these days (e.g., by settlement on the next business day in placed indorsement of the depositary bank. accordance with this paragraph rather than (See § 229.38(d).) opening their back office operations or by ø ¿ using an intercept processor). In other cases, accept settlement on the business day of 5 fl6fi. A collecting or paying bank may a paying bank may be unable to settle for presentment by cash. agree to accept forward collection checks checks presented on a day it is closed. c. Section 4–301(a), in that, to preserve the without the indorsement of a prior collecting If the paying bank closes on a business day ability to exercise deferred posting, the time bank. (See § 229.35(a).) ø ¿ and checks are presented to the paying bank limit specified in that section for settlement 6 fl7fi. A bank may agree to accept in accordance with paragraph or return by a paying bank on the banking returned checks without the indorsement of ø(f)(1)¿fl(d)(1)fi, the paying bank is day a check is received is superseded by the a prior bank. (See § 229.35(a).) ø accountable for the checks unless it settles requirement to settle for checks presented 7. A presenting bank may agree with a for or returns the checks by the close of under this paragraph by the close of Fedwire. paying bank to present checks for same-day Fedwire on its next banking day. In addition, d. Section 4–302(a), in that, to avoid settlement at a location that is not in the checks presented on a business day on which accountability, the time limit specified in check processing region consistent with the the paying bank is closed are considered that section for settlement or return by a routing number on the checks. (See ¿ received on the paying bank’s next banking paying bank on the banking day a check is § 229.36(f)(1)(i).) day for purposes of the U.C.C. midnight received is superseded by the requirement to 8. A presenting bank may agree with a deadline (U.C.C. 4–301 and 4–302) and this settle for checks presented under this paying bank to present checks for same-day regulation’s expeditious return [and notice of paragraph by the close of Fedwire. settlement by a deadline earlier or later than nonpayment] provisions. 8:00 a.m. (See XXIII. Section 229.37 Variations by b. If the paying bank is closed on a ø§ 229.36(f)(1)(ii)¿fl§ 229.36(d)(1)(ii)fi.) Agreement business day voluntarily, the paying bank 9. A presenting bank and a paying bank must pay interest compensation, as defined A. This section is similar to U.C.C. 4–103, may agree that presentment takes place when in ø§ 229.2(oo)¿fl§ 229.2(bb)fi, to the and permits consistent treatment of the paying bank receives an øelectronic presenting bank for the value of the float agreements varying Article 4 or Subpart C, transmission of information describing the associated with the check from the day of the given the substantial interrelationship of the check rather than upon delivery of the voluntary closing until the day of settlement. two documents. To achieve consistency, the physical check¿ flelectronic collection Interest compensation is not required in the official comment to U.C.C. 4–103(a) (which itemfi. (See § 229.36ø(b)¿fl(a)fi.) case of an involuntary closing on a business in turn follows U.C.C. 1–201(3)) should be ø10. A depositary bank may agree with a day, such as a closing required by state law. followed in construing this section. For paying or returning bank to accept an image In addition, if the paying bank is closed on example, as stated in Official Comment 2 to or other notice in lieu of a returned check a business day due to emergency conditions, section 4–103, owners of items and other even when the check is available for return settlement delays and interest compensation interested parties are not affected by under this part. Except to the extent that may be excused under § 229.38(e) or U.C.C. agreements under this section unless they are other parties interested in the check assent to 4–109(b). parties to the agreement or are bound by or are bound by the variation of the notice- 5. Good faith. Under § 229.38(a), both adoption, ratification, estoppel, or the like. In in-lieu provisions of this part, banks entering presenting banks and paying banks are held particular, agreements varying this subpart into such an agreement may be responsible

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under this part or other applicable law to B. 229.38(b) Paying Bank’s Failure To Make D. 229.38(d) Responsibility for Certain other interested parties for any losses caused Timely Return Aspects of Checks by the handling of a returned check under 1. Section 229.30(a) imposes requirements 1. Responsibility for back of check. The the agreement. (See §§ 229.30(f), 229.31(f), on the paying bank for expeditious return of ¿ indorsement standard in § 229.35 is most 229.38(a).) a check and leaves in place the U.C.C. effective if the back of the check remains D. The Board expects to review the types deadlines (as they may be modified by clear of other matter that may obscure bank of variation by agreement that develop under § 229.30(c)), which may allow return at a indorsements. Because bank indorsements this section and will consider whether it is different time. This paragraph clarifies that are usually applied by automated equipment, necessary to limit certain variations. the paying bank could be liable for failure to it is not possible to avoid pre-existing matter XXIV. Section 229.38 Liability meet either standard, but not for failure to on the back of the check. For example, bank meet both. The regulation intends to preserve indorsements are not required to avoid a A. 229.38(a) Standard of care; liability; the paying bank’s accountability for missing carbon band or printed, stamped, or written measure of damages its midnight or other deadline under the terms or notations on the back of the check. 1. The standard of care established by this U.C.C., (e.g., sections 4–215 and 4–302), Accordingly, this provision places section applies to any bank covered by the provisions that are not incorporated in this ø ¿ responsibility on the paying bank, depositary requirements of S flsfiubpart C of the regulation, but may be useful in establishing bank, or reconverting bank, as appropriate, regulation. Thus, the standard of care applies the time of final payment by the paying bank. for keeping the back of the check clear for to a paying bank under §§ 229.30 øand ¿ C. 229.38(c) Comparative Negligence bank indorsements during forward collection 229.33 , to a returning bank under § 229.31, and return. ø 1. This paragraph establishes a ‘‘pure’’ to a depositary bank under §§ 229.32 and 2. ANS X9.100–140 provides that an image ¿ comparative negligence standard for liability 229.33 , to a bank erroneously receiving a of an original check must be reduced in size ø under øS¿flsfiubpart C of this regulation. returned check or written notice of when placed on the first substitute check ¿ This comparative negligence rule may have nonpayment as depositary bank under associated with that original check. (The particular application where a paying or § 229.32(d), and to a bank indorsing a check image thereafter would be constant in size on under § 229.35. The standard of care is returning bank delays in returning a check because of difficulty in identifying the any subsequent substitute check that might similar to the standard imposed by U.C.C. 1– be created.) Because of this size reduction, 203 and 4–103(a) and includes a duty to act depositary bank. Some examples will illustrate liability in such cases. In each the location of an indorsement, particularly in good faith, as defined in a depositary bank indorsement, applied to an ø§ 229.2(nn)¿fl§ 229.2(z)fi of this example, it is assumed that the returned check is received by the depositary bank after original paper check likely will change when regulation. the first reconverting bank creates a 2. A bank not meeting this standard of care it has made funds available to its customer, that it may no longer recover the funds from substitute check that contains that is liable to the depositary bank, the indorsement within the image of the original depositary bank’s customer, the owner of the its customer, and that the inability to recover the funds from the customer is due to a delay paper check. If the indorsement was applied check, or another party to the check. The in returning the check contrary to the to the original paper check in accordance depositary bank’s customer is usually a standards established by §§ 229.30(a) or with appendix D’s location requirements for depositor of a check in the depositary bank 229.31(a). indorsements applied to existing paper (but see § 229.35(d)). The measure of 2. Examples. checks, and if the size reduction of the image damages provided in this section (loss a. If a depositary bank fails to use the causes the placement of the indorsement to incurred up to amount of check, less amount indorsement required by this regulation, and no longer be consistent with the appendix’s of loss party would have incurred even if this failure is caused by a failure to exercise requirements, then the reconverting bank bank had exercised ordinary care) is based on ordinary care, and if a paying or returning bears the liability for any loss that results U.C.C. 4–103(e) (amount of the item reduced bank is delayed in returning the check from the shift in the placement of the by an amount that could not have been because additional time is required to indorsement. Such a loss could result either realized by the exercise of ordinary care), as identify the depositary bank or find its because the original indorsement applied in limited by 4–202(c) (bank is liable only for routing number, the paying or returning accordance with appendix D is rendered its own negligence and not for actions of bank’s liability to the depositary bank would illegible by a subsequent indorsement that subsequent banks in chain of collection). be reduced or eliminated. later is applied to the substitute check in This subpart does not absolve a collecting b. If the depositary bank uses the standard accordance with appendix D, or because the bank of liability to prior collecting banks indorsement, but that indorsement is subsequent bank cannot apply its under U.C.C. 4–201. obscured by a subsequent collecting bank’s indorsement to the substitute check legibly in 3. Under this measure of damages, a indorsement, and a paying or returning bank accordance with appendix D as a result of the depositary bank or other person must show is delayed in returning the check because shift in the previous indorsement. that the damage incurred results from the additional time was required to identify the Example. negligence proved. For example, the depositary bank or find its routing number, In accordance with appendix D’s depositary bank may not simply claim that the paying or returning bank may not be specifications, a depositary bank sprays its its customer will not accept a charge-back of liable to the depositary bank because the indorsement onto a business-sized original a returned check, but must prove that it delay was not due to its negligence. check between 3.0 inches from the leading could not charge back when it received the Nonetheless, the collecting bank may be edge of the check and 1.5 inches from the returned check and could have charged back liable to the depositary bank to the extent trailing edge of the check. The check’s if no negligence had occurred, and must first that its negligence in indorsing the check conversion to electronic form and subsequent attempt to collect from its customer. (See caused the paying or returning bank’s delay. reconversion to paper form causes the Marcoux v. Van Wyk, 572 F.2d 651 (8th Cir. c. If a depositary bank accepts a check that location of the depositary bank indorsement, 1978); Appliance Buyers Credit Corp. v. has printing, a carbon band, or other material now contained within the image of the Prospect Nat’l Bank, 708 F.2d 290 (7th Cir. on the back of the check that existed at the original check, to change such that it is less 1983).) Generally, a paying or returning time the check was issued, and the than 3.0 inches from the leading edge of the bank’s liability would not be reduced depositary bank’s indorsement is obscured by substitute check. In accordance with because the depositary bank did not place a the printing, carbon band, or other material, appendix D’s specifications, a subsequent hold on its customer’s deposit before it and a paying or returning bank is delayed in collecting bank sprays its indorsement onto learned of nonpayment of the check. returning the check because additional time the substitute check between the leading 4. This paragraph also states that it does was required to identify the depositary bank, edge of the check and 3.0 inches from the not affect a paying bank’s liability to its the returning bank may not be liable to the leading edge of the check and the customer. Under U.C.C. 4–402, for example, depositary bank because the delay was not indorsement happens to be on top of the a paying bank is liable to its customer for due to its negligence. Nonetheless, the paying shifted depositary bank indorsement. If the wrongful dishonor, which is different from bank may be liable to the depositary bank to check is returned unpaid and the return is failure to exercise ordinary care and has a the extent that the printing, carbon band, or not expeditious because of the illegibility of different measure of damages. other material caused the delay. the depositary bank indorsement, and the

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depositary bank incurs a loss that it would collection system. In view of the provisions the receivership provisions of the Federal not have incurred had the return been of paragraph (a), which incorporate Deposit Insurance Act and similar provisions expeditious, the reconverting bank bears the traditional bank collection standards based of state law. liability for that loss. on negligence, the provision on bona fide F. 229.39(e) Finality of Settlement ø3. Responsibility for payable-through error is not included in øS¿flsfiubpart C. 1. This paragraph provides that insolvency checks. G. 229.38(g) Jurisdiction a. This paragraph provides that the bank by does not interfere with the finality of a which a payable-through check is payable is 1. The EFA Act confers subject matter settlement, such as a settlement by a paying liable for damages under paragraph (a) of this jurisdiction on courts of competent bank that becomes final by expiration of the section to the extent that the check is not jurisdiction and provides a time limit for midnight deadline. civil actions for violations of this subpart. returned through the payable-through bank XXVI. Section 229.40 Effect on Merger as quickly as would have been necessary to H. 229.38(h) Reliance on Board Rulings Transaction meet the requirements of § 229.30(a)(1) (the 1. This provision shields banks from civil A. When banks merge, there is normally a 2-day/4-day test) had the bank by which it is liability if they act in good faith in reliance period of adjustment required before their payable received the check as paying bank on on any rule, regulation, or interpretation of the day the payable-through bank received it. operations are consolidated. To allow for this the Board, even if it were subsequently adjustment period, the regulation provides The location of the bank by which a check determined to be invalid. Banks may rely on is payable for purposes of the 2-day/4-day that the merged banks may be treated as the Commentary to this regulation, which is separate banks for a period of up to one year test may be determined from the location or issued as an official Board interpretation, as the first four digits of the routing number of after the consummation of the transaction. well as on the regulation itself. The term merger transaction is defined in the bank by which the check is payable. This ø ¿ information should be stated on the check. XXV. Section 229.39 Insolvency of Bank § 229.2(t) fl§ 229.2(dd)fi. This rule affects the status of the combined entity in a number (See § 229.36(e) and accompanying A. Introduction Commentary.) Responsibility under of areas in this subpart. For example: paragraph (d)(2) does not include 1. These provisions cover situations where 1. The paying bank’s responsibility for responsibility for the time required for the a bank becomes insolvent during collection expeditious return (§ 229.30). forward collection of a check to the payable- or return and are derived from U.C.C. 4–216. 2. The returning bank’s responsibility for through bank. They are intended to apply to all banks. expeditious return (§ 229.31). ø b. Generally, liability under paragraph B. 229.39(a) Duty of Receiver 3. Whether a returning bank is entitled to an extra day to qualify a return that will be (d)(2) will be limited in amount. Under 1. This paragraph requires a receiver of a delivered directly to a depositary bank that § 229.33(a), a paying bank that returns a closed bank to return a check to the prior has merged with the returning bank check in the amount of $2,500 or more must bank if it does not pay for the check. This (§ 229.31(a)).¿ provide notice of nonpayment to the permits the prior bank, as holder, to pursue depositary bank by 4:00 p.m. on the second ø4¿fl3fi. Where the depositary bank must its claims against the closed bank or prior ø ¿ business day following the banking day on indorsers on the check. accept returned checks (§ 229.32(a)) which the check is presented to the paying fl§ 229.32(b)fi. bank. Even if a payable-through check in the C. 229.39(b) Preference Against Paying or ø5. Where the depositary bank must accept amount of $2,500 or more is not returned Depositary Bank notice of nonpayment (§ 229.33(c)).¿ through the payable-through bank as quickly 1. This paragraph gives a bank a preferred ø6¿fl4fi. Where a paying bank must as would have been required had the check claim against a closed paying bank that accept presentment of checks (§ 229.36(b)). been received by the bank by which it is finally pays a check without settling for it or XXVII. Section 229.41 Relation to State Law payable, the depositary bank should not a closed depositary bank that becomes suffer damages unless it has not received obligated to pay a returned check without A. This section specifies that state law timely notice of nonpayment. Thus, settling for it. If the bank with a preferred relating to the collection of checks is ordinarily the bank by which a payable- claim under this paragraph recovers from a preempted only to the extent that it is through check is payable would be liable prior bank or other party to the check, the inconsistent with this regulation. Thus, this under paragraph (a) only for checks in prior bank or other party to the check is regulation is not a complete replacement for amounts up to $2,500, and the paying bank subrogated to the preferred claim. state laws relating to the collection or return would be responsible for notice of D. 229.39(c) Preference Against Paying, of checks. nonpayment for checks in the amount of Collecting, or Depositary Bank XXVIII. Section 229.42 Exclusions $2,500 or more.¿ ø4¿fl3fi. Responsibility under 1. This paragraph gives a bank a preferred A. Checks drawn on the United States paragraphøs¿ (d)(1) øand (d)(2)¿ is treated as claim against a closed collecting, paying, or Treasury, U.S. Postal Service money orders, negligence for comparative negligence returning bank that receives settlement but and checks drawn on states and units of purposes, and the contribution to damages does not settle for a check. (See Commentary general local government that are presented under paragraphøs¿ (d)(1) øand (d)(2)¿ is to § 229.35(b) for discussion of prior and directly to the state or unit of general local treated in the same way as the degree of subsequent banks.) As in the case of government and that are not payable through negligence under paragraph (c) of this § 229.39(b), if the bank with a preferred claim or at a bank are excluded from the coverage section. under this paragraph recovers from a prior of the expeditious-returnø, notice-of- bank or other party to the check, the prior nonpayment,¿ and same-day settlement E. 229.38(e) Timeliness of Action bank or other party to the check is subrogated requirements of subpart C of this part. Other 1. This paragraph excuses certain delays. It to the preferred claim. provisions of this subpart continue to apply adopts the standard of U.C.C. 4–109(b). E. 229.39(d) Preference Against Presenting to the checks. This exclusion does not apply F. 229.38(f) Exclusion Bank to checks drawn by the U.S. government on banks. 1. This paragraph provides that the civil 1. This paragraph gives a paying bank a liability and class action provisions, preferred claim against a closed presenting XXIX. Section 229.43 Checks Payable in particularly the punitive damage provisions bank in the event that the presenting bank Guam, American Samoa, and the Northern of sections 611(a) and (b), and the bona fide breaches an amount or encoding warranty as Mariana Islands error provision of 611(c) of the EFA Act (12 provided in § 229.34(c)(1) or (3) and does not * * * * * U.S.C. 4010(a), (b), and (c)) do not apply to reimburse the paying bank for adjustments regulatory provisions adopted to improve the for a settlement made by the paying bank in B. 229.43(b) Rules Applicable to Pacific efficiency of the payments mechanism. excess of the value of the checks presented. Island Checks Allowing punitive damages for delays in the This preference is intended to have the effect 1. When a bank handles a Pacific island return of checks where no actual damages are of a perfected security interest and is check as if it were a check as defined in incurred would only encourage litigation and intended to put the paying bank in the § 229.2(k), the bank is subject to certain provide little or no benefit to the check position of a secured creditor for purposes of provisions of Regulation CC, as provided in

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this section. Because the Pacific island bank (c)fi do not apply. For the same reason, the information is an essential element of a is not a bank as defined in § 229.2(e), it is not provisions of § 229.36 governing paying bank negotiable instrument. Other information that a paying bank as defined in responsibilities such as place of receipt and must be accurately represented includes (1) ø§ 229.2(z)¿fl§ 229.2(ii)fi (unless otherwise same-day settlement do not apply to checks the information identifying the drawer and noted in this section). Pacific island banks presented to a Pacific island bank, and the the paying bank that is preprinted on the are not subject to the provisions of liability provisions applicable to paying check, including the MICR line; and (2) other Regulation CC. banks in § 229.38 do not apply to Pacific information placed on the check prior to the 2. A bank may agree to handle a Pacific island banks. Section 229.36ø(d)¿ fl(c)fi, time an image of the check is captured, such island check as a returned check under regarding finality of settlement between as any required identification written on the § 229.31 and may convert the returned banks during forward collection, applies to front of the check and any indorsements Pacific island check to a qualified returned banks that handle Pacific island checks in the applied to the back of the check. A substitute check. The returning bank is not, however, same manner as other checks, as do the check need not capture other characteristics subject to the expeditious-return liability provisions of § 229.38, to the extent of the check, such as watermarks, requirements of § 229.31. The returning bank the banks are subject to the requirements of microprinting, or other physical security may receive the Pacific island check directly Regulation CC as provided in this section, features that cannot survive the imaging from a Pacific island bank or from another and §§ 229.37 and 229.39 through 229.42. process or decorative images, in order to returning bank. As a Pacific island bank is meet the accuracy requirement. Conversely, not a paying bank under Regulation CC, XXX. § 229.51 General Provisions some security features that are latent on the § 229.31(c) does not apply to a returning bank Governing Substitute Checks original check might become visible as a settling with the Pacific island bank. A. 229.51(a) Legal Equivalence result of the check imaging process. For 3. A depositary bank that handles a Pacific 1. Section 229.51(a) states that a substitute example, the original check might have a island check is not subject to the provisions check for which a bank has provided the faint representation of the word ‘‘void’’ that of subpart B of Regulation CC, including the substitute check warranties is the legal will appear more clearly on a photocopied or availability, notice, and interest accrual equivalent of the original check for all electronic image of the check. Provided the requirements, with respect to that check. If, purposes and all persons if it meets the inclusion of the clearer version of the word however, a bank accepts a Pacific island accuracy and legend requirements. Where the on the image used to create a substitute check check for deposit (or otherwise accepts the law (or a contract) requires production of the did not obscure the required information check as transferee) and collects the Pacific original check, production of a legally listed above, a substitute check that island check in the same manner as other equivalent substitute check would satisfy contained such information could be the checks, the bank is subject to the provisions that requirement. A person that receives a legal equivalent of an original check under of § 229.32, including the provisions substitute check cannot be assessed costs § 229.51(a). However, if a person suffered a regarding time and manner of settlement for associated with the creation of the substitute loss due to receipt of such a substitute check returned checks in check, absent agreement to the contrary. instead of the original check, that person ø§ 229.32(b)¿fl§ 229.32(c)fi, in the event Examples. could have an indemnity claim under the Pacific island check is returned by a a. A presenting bank presents a substitute § 229.53 and, in the case of a consumer, an returning bank. If the depositary bank check that meets the legal equivalence expedited recredit claim under § 229.54. receives the returned Pacific island check requirements to a paying bank. The paying 4. To be the legal equivalent of the original directly from the Pacific island bank, bank cannot refuse presentment of the check, a substitute check must bear the legal however, the provisions of substitute check on the basis that it is a equivalence legend described in ø§ 229.32(b)¿fl§ 229.32(c)fi do not apply, substitute check, because the substitute § 229.51(a)(2). A bank may not vary the because the Pacific island bank is not a check is the legal equivalent of the original language of the legal equivalence legend and paying bank under Regulation CC. øThe check. must place the legend on the substitute check depositary bank is not subject to the notice b. A depositor’s account agreement with a as specified by generally applicable industry of nonpayment provisions in § 229.33 for bank provides that the depositor is entitled standards for substitute checks contained in Pacific island checks.¿ to receive original cancelled checks back ANS X9.100–140.5. In some cases, the 4. Banks that handle Pacific island checks with his or her periodic account statement. original check used to create a substitute in the same manner as other checks are The bank may honor that agreement by check could be forged or otherwise subject to the indorsement provisions of providing original checks, substitute checks, fraudulent. A substitute check created from § 229.35. Section 229.35(c) eliminates the or a combination thereof. However, a bank a fraudulent original check would have the need for the restrictive indorsement ‘‘pay any may not honor such an agreement by same status under Regulation CC and the bank.’’ For purposes of § 229.35(c), the Pacific providing something other than an original U.C.C. as the original fraudulent check. For island bank is deemed to be a bank. check or a substitute check. example, a substitute check of a fraudulent 5. Pacific island checks will often be c. A mortgage company argues that a original check would not be properly payable intermingled with other checks in a single consumer missed a monthly mortgage under U.C.C. 4–401 and would be subject to cash letter. Therefore, a bank that handles payment that the consumer believes she the transfer and presentment warranties in U.C.C. 4–207 and 4–208. Pacific island checks in the same manner as made. A legally equivalent substitute check 5. In some cases, the original check used other checks is subject to the transfer concerning that mortgage payment could be to create a substitute check could be forged warranty provision in § 229.34(c)(2) used in the same manner as the original or otherwise fraudulent. A substitute check regarding accurate cash letter totals and the check to prove the payment. created from a fraudulent original check encoding warranty in § 229.34(c)(3). 2. A person other than a bank that creates would have the same status under Regulation flSimilarly, a bank that handles Pacific a substitute check could transfer, present, or CC and the U.C.C. as the original fraudulent island checks in the same manner as other return that check only by agreement unless check. For example, a substitute check of a checks may transfer electronic collection and until a bank provided the substitute fraudulent original check would not be items, electronic returns, or electronic images check warranties. properly payable under U.C.C. 4–401 and 3. To be the legal equivalent of the original and related electronic information as if they would be subject to the transfer and were electronic collection items or electronic check, a substitute check must accurately presentment warranties in U.C.C. 4–207 and returns derived from Pacific island checks. represent all the information on the front and 4–208. Accordingly, a bank makes the warranties in back of the check as of the time the original §§ 229.34(a) and (e) with respect to Pacific check was truncated. An accurate B. 229.51(b) Reconverting-Bank Duties island checks.fi A bank that acts as a representation of information that was 1. As discussed in more detail in appendix returning bank for a Pacific island check is illegible on the original check would satisfy D and the commentary to section 229.35, a not subject to the warranties in this requirement. The payment instructions reconverting bank must indorse (or, if it is a § 229.34ø(a)¿fl(e)fi. Similarly, because the placed on the check by, or as authorized by, paying bank with respect to the check, Pacific island bank is not a ‘‘bank’’ or a the drawer, such as the amount of the check, identify itself on) the back of a substitute ‘‘paying bank’’ under Regulation CC, § 229.34 the payee, and the drawer’s signature, must check in a manner that preserves all ø(b), (c)(1), and (c)(4)¿ fl(b)(1), (b)(4), and be accurately represented, because that indorsements applied, whether physically or

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electronically, by persons that previously manner and to the same extent as is an transfers, presents, or returns that substitute handled the check in any form for forward original check. Thus, any person could check, becomes the first warrantor. However, collection or return. Indorsements applied satisfy a law that requires production of an that bank may protect itself by including in physically to the original check before an original check by producing a substitute its agreement with the sending bank image of the check was captured would be check that is derived from the relevant provisions that specify the sending bank’s preserved through the image of the back of original check and that meets the legal warranties and responsibilities to the the original check that a substitute check equivalence requirements of § 229.51(a). receiving bank, particularly with respect to must contain. Indorsements applied 2. A law is not inconsistent with the Check the accuracy of the check image and check physically to the original check after an 21 Act or subpart D merely because it allows data transmitted under the agreement. image of the original check was captured for the recovery of a greater amount of ø3¿fl4fi. A bank need not affirmatively would be conveyed as electronic damages. make the warranties because they attach indorsements (see paragraph 3 of the Example. automatically when a bank transfers, commentary to section 229.35(a)). If A drawer that suffers a loss with respect to presents, or returns the substitute check (or indorsements were applied electronically a substitute check that was improperly a representation thereof) for which it receives after an image of the original check was charged to its account and for which the consideration. Because a substitute check captured or were applied electronically after drawer has an indemnity claim but not a transferred, presented, or returned for a previous substitute check was converted to warranty claim would be limited under the consideration is warranted to be the legal electronic form, the reconverting bank must Check 21 Act to recovery of the amount of equivalent of the original check and thereby apply those indorsements physically to the the substitute check plus interest and subject to existing laws as if it were the substitute check. A reconverting bank is not expenses. However, if the drawer also original check, all U.C.C. and other responsible for obtaining indorsements that suffered damages that were proximately Regulation CC warranties that apply to the persons that previously handled the check caused because the bank wrongfully original check also apply to the substitute should have applied but did not apply. dishonored subsequently presented checks as check. ø ¿ 2. A reconverting bank also must identify a result of the improper substitute check 4 fl5fi. The legal equivalence warranty itself as such on the front and back of the charge, the drawer could recover those losses by definition must be linked to a particular substitute check and must preserve on the under U.C.C. 4–402. substitute check. When an original check is back of the substitute check the truncated, the check may move from identifications of any previous reconverting XXXI. § 229.52 Substitute Check Warranties electronic form to substitute check form and banks in accordance with appendix D. The A. 229.52(a) Warranty Content and Provision then back again, such that there would be multiple substitute checks associated with presence on the back of a substitute check of 1. The responsibility for providing the indorsements that were applied by previous one original check. When a check changes substitute check warranties begins with the form multiple times in the collection or reconverting banks and identified with reconverting bank. In the case of a substitute asterisks in accordance with appendix D return process, the first reconverting bank check created by a bank, the reconverting and subsequent banks that transfer, present, would satisfy the requirement that the bank starts the flow of warranties when it reconverting bank preserve the identification or return the first substitute check (or a paper transfers, presents, or returns a substitute or electronic representation of the first of previous reconverting banks. As discussed check for which it receives consideration in more detail in the commentary to section substitute check) warrant the legal flor when it rejects a check submitted for equivalence of only the first substitute check. 229.35, the reconverting-bank and truncating- deposit and returns to its customer a bank routing numbers on the front of a If a bank receives an electronic substitute checkfi. A bank that receives a representation of a substitute check and uses substitute check and, if the reconverting bank substitute check created by a nonbank starts is the paying bank flor a bank that rejected that representation to create a second the flow of warranties when it transfers, substitute check, the second reconverting a check submitted for depositfi, the presents, or returns for consideration either reconverting bank’s routing number on the bank and subsequent transferees of the the substitute check it received or an second substitute check (or a representation back of a substitute check are for electronic or paper representation of that identification only and are not indorsements thereof) warrant the legal equivalence of both substitute check. flA bank that transfers and the first and second substitute checks. A or acceptances. receives consideration for an electronic 3. The reconverting bank must place the reconverting bank would not be liable for a collection item or electronic return that is an warranty breach under § 229.52 if the legal routing number of the truncating bank electronic representation of a substitute surrounded by brackets on the front of the equivalence defect is the fault of a check also makes the warranties.fi subsequent bank that handled the substitute substitute check in accordance with fl2.fi To ensure that warranty protections appendix D and ANS X9.100–140. check, either as a substitute check or in other flow all the way through to the ultimate paper or electronic form. Example recipient of a substitute check or paper or ø ¿ A bank’s customer, which is a nonbank 5 fl6fi. The warranty in electronic representation thereof, any § 229.52(a)ø(2)¿fl(1)(ii)fi, which addresses business, receives checks for payment and by subsequent bank that transfers, presents, or agreement deposits substitute checks instead multiple payment requests for the same returns for consideration either the substitute check, is not linked to a particular substitute of the original checks with its depositary check or a paper or electronic representation bank. The depositary bank is the reconverting check but rather is given by each bank of the substitute check is responsible to handling the substitute check, an electronic bank with respect to the substitute checks subsequent transferees for the warranties. and the truncating bank with respect to the representation of a substitute check, or a Any warranty recipient could bring a claim original checks. In accordance with appendix subsequent substitute check created from an for a breach of a substitute check warranty if D and with ANS X9.100–140, the bank must electronic representation of a substitute it received either the actual substitute check therefore be identified on the front of the check. All banks that transfer, present, or or a paper or electronic representation of a substitute checks as a reconverting bank and return a substitute check (or a paper or substitute check. as the truncating bank, and on the back of the electronic representation thereof) therefore ø2.¿ fl3.fi The substitute check substitute checks as the depositary bank and provide the warranty regardless of whether warranties and indemnity are not given a reconverting bank. the ultimate demand for double payment is under §§ 229.52 and 229.53 by a bank that based on the original check, the substitute C. 229.51(c) Applicable Law truncates the original check and by check, or some other electronic or paper 1. A substitute check that meets the agreement transfers the original check representation of the substitute or original requirements for legal equivalence set forth electronically to a subsequent bank for check, and regardless of the order in which in this section is subject to any provision of consideration. However, parties may, by the duplicative payment requests occur. This federal or state law that applies to original agreement, allocate liabilities associated with warranty is given by the banks that transfer, checks, except to the extent such provision the exchange of electronic check information. present, or return a substitute check even if is inconsistent with the Check 21 Act or Example. the demand for duplicative payment results subpart D. A legally equivalent substitute A bank that receives check information from a fraudulent substitute check about check is subject to all laws that are not electronically and uses it to create substitute which the warranting bank had no preempted by the Check 21 Act in the same checks is the reconverting bank and, when it knowledge.

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Example. could become a warranty recipient if that regardless of the form of the item and A nonbank depositor truncates a check and person later receives a returned substitute accordingly would have suffered a loss even in lieu thereof sends an electronic version of check or a paper or electronic representation if it had received the original check. that check to both Bank A and Bank B. Bank of a substitute check that was derived from c. A paying bank makes an erroneous A and Bank B each uses the check that original check. payment based on an electronic information that it received electronically to fl3. A reconverting bank also makes the representation of a substitute check because create a substitute check, which it presents warranties to a person to whom the bank the electronic cash letter accompanying the to Bank C for payment. Bank A and Bank B transfers a substitute check that the bank has electronic item included the wrong amount each is a reconverting bank that made the rejected for deposit regardless of whether the to be charged. The paying bank would not substitute check warranties when it bank received consideration.fi have an indemnity claim associated with that presented a substitute check to and received payment because its loss did not result from payment from Bank C. Bank C could pursue XXXII. § 229.53 Substitute Check Indemnity receipt of an actual substitute check instead a warranty claim for the loss it suffered as a A. 229.53(a) Scope of Indemnity of the original check. However, the paying result of the duplicative payment against 1. Each bank that for consideration bank could protect itself from such losses either Bank A or Bank B. transfers, presents, or returns a substitute through its agreement with the bank that sent fl7. A bank that rejects a check for deposit check or a paper or electronic representation the check to it electronically and may have and instead of the original check provides its of a substitute check is responsible for rights under other law. customer with a substitute check makes the providing the substitute check indemnity. d. A drawer has agreed with its bank that warranties in § 229.52(a)(1). As noted in the flA bank that transfers and receives the drawer will not receive paid checks with commentary to § 229. 2(uu), the Check 21 Act consideration for an electronic collection periodic account statements. The drawer contemplates that nonbank persons that item or electronic return that is an electronic requested a copy of a paid check in order to receive substitute checks (or representations representation of a substitute check also is prove payment and received a photocopy of thereof) from a bank will receive warranties responsible for providing the indemnity.fi a substitute check. The photocopy that the and indemnities with respect to the checks. fl2.fiThe indemnity covers losses due to bank provided in response to this request A reconverting bank that provides a any subsequent recipient’s receipt of the was illegible, such that the drawer could not substitute check to its depositor after it has substitute check instead of the original check. prove payment. Any loss that the drawer rejected the check for deposit may not have The indemnity therefore covers the loss suffered as a result of receiving the blurry received consideration for the substitute caused by receipt of the substitute check as check image would not trigger an indemnity check. In order to prevent banks from being well as the loss that a bank incurs because claim because the loss was not caused by the able to transfer a check the bank truncated it pays an indemnity to another person. A receipt of a substitute check. The drawer and then reconverted without providing bank that pays an indemnity would in turn may, however, still have a warranty claim if substitute check warranties, the regulation have an indemnity claim regardless of he received a copy of a substitute check, and provides that a bank that rejects a check for whether it received the substitute check or a may also have rights under the U.C.C. deposit but provides its customer with a paper or electronic representation of the B. 229.53(b) Indemnity Amount substitute check makes the warranties set substitute check The indemnity would not 1. If a recipient of a substitute check is forth in § 229.52(a)(1) regardless of whether apply to a person that handled only the the bank received consideration. making an indemnity claim because a bank original check or a paper or electronic has breached one of the substitute check Example. version of the original check that was not A bank’s customer submits a check at an warranties, the recipient can recover any derived from a substitute check. losses proximately caused by that warranty ATM that captures an image of the check and fl3. A reconverting bank also provides the sends the image electronically to the bank. breach. substitute check indemnity to a person to Examples. After reviewing the item, the bank rejects the whom the bank transfers a substitute check item submitted for deposit. Instead of a. A drawer discovers that its account has that the bank has rejected for deposit been charged for two different substitute providing the original check to its customer, regardless of whether the bank providing the the bank provides a substitute check to its checks that were provided to the drawer and indemnity has received consideration.fi that were associated with the same original customer. This bank is the reconverting bank Examples. with respect to the substitute check and check. As a result of this duplicative charge, a. A paying bank makes payment based on the paying bank dishonored several makes the warranties described in a substitute check that was derived from a § 229.52(a)(1) regardless of whether the bank subsequently-presented checks that it fraudulent original cashier’s check. The otherwise would have paid and charged the previously extended credit to its customer. amount and other characteristics of the (See commentary to § 229.2(uu).)fi drawer returned check fees. The payees of original cashier’s check are such that, had the the returned checks also charged the drawer B. 229.52(b) Warranty Recipients original check been presented instead, the returned check fees. The drawer would have 1. A reconverting bank makes the paying bank would have inspected the a warranty claim against any of the warranties to the person to which it transfers, original check for security features. The warranting banks, including its bank, for presents, or returns the substitute check for paying bank’s fraud detection procedures breach of the warranty described in consideration and to any subsequent were designed to detect the fraud in question § 229.52(a)ø(2)¿fl(1)(ii)fi. The drawer also recipient that receives either the substitute and allow the bank to return the fraudulent could assert an indemnity claim. Because check or a paper or electronic representation check in a timely manner. However, the there is only one original check for any derived from the substitute check. These security features that the bank would have payment transaction, if the collecting and subsequent recipients could include a inspected were security features that did not presenting bank had collected the original subsequent collecting or returning bank, the survive the imaging process (see the check instead of using a substitute check the depositary bank, the drawer, the drawee, the commentary to § 229.51(a)). Under these bank would have been asked to make only payee, the depositor, and any indorser. The circumstances, the paying bank could assert one payment. The drawer could assert its paying bank would be included as a warranty an indemnity claim against the bank that warranty and indemnity claims against the recipient, for example because it would be presented the substitute check. paying bank, because that is the bank with the drawee of a check or a transferee of a b. By contrast with the previous examples, which the drawer has a customer check that is payable through it. the indemnity would not apply if the relationship and the drawer has received an 2. The warranties flow with the substitute characteristics of the presented substitute indemnity from that bank. The drawer could check to persons that receive a substitute check were such that the bank’s security recover from the indemnifying bank the check or a paper or electronic representation policies and procedures would not have amount of the erroneous charge, as well as of a substitute check. The warranties do not detected the fraud even if the original had the amount of the returned check fees flow to a person that receives only the been presented. For example, if the check charged by both the paying bank and the original check or a representation of an was under the threshold amount at which the payees of the returned checks. If the drawer’s original check that was not derived from a bank subjects an item to its fraud detection account were an interest-bearing account, the substitute check. However, a person that procedures, the bank would not have drawer also could recover any interest lost on initially handled only the original check inspected the item for security features the erroneously debited amount and the

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erroneous returned check fees. The drawer § 229.53 by producing the original check or warranty described in § 229.52 or any other also could recover its expenditures for a sufficient copy. However, production of the warranty that a bank provides with respect to representation in connection with the claim. original check or a sufficient copy does not a check under other law. A consumer could, Finally, the drawer could recover any other absolve the indemnifying bank from liability for example, have a warranty claim under losses that were proximately caused by the claims relating to a warranty the bank has § 229.34ø(b)¿fl(a) or (d)fi, which contains warranty breach. provided under § 229.52 or any other law, returned-check warranties that are made to b. In the example above, the paying bank including but not limited to subpart C of this the owner of the check. that received the duplicate substitute checks part or the U.C.C. * * * * * also would have a warranty claim against the C. 229.53(c) Subrogation of Rights previous transferor(s) of those substitute XXXVIII. Appendix C—Model Availability- checks and could seek an indemnity from 1. A bank that pays an indemnity claim is Policy Disclosures, Clauses, and Notices; and that bank (or either of those banks). The subrogated to the rights of the person it Model Substitute-Check-Policy Disclosure indemnifying bank would be responsible for indemnified, to the extent of the indemnity and Notices it provided, so that it may attempt to recover compensating the paying bank for all the A. Introduction losses proximately caused by the warranty that amount from another person based on an breach, including representation expenses indemnity, warranty, or other claim. The 1. Appendix C contains model disclosures, and other costs incurred by the paying bank person that the bank indemnified must clauses, and notices that may be used by in settling the drawer’s claim. comply with reasonable requests from the banks to meet their disclosure and notice 2. If the recipient of the substitute check indemnifying bank for assistance with responsibilities under the regulation. Banks does not have a substitute check warranty respect to the subrogated claim. using the models (except models C– claim with respect to the substitute check, Example. ø22¿fl18fi through C–ø25¿fl21fi) the amount of the loss the recipient may A paying bank indemnifies a drawer for a properly will be deemed in compliance with recover under § 229.53 is limited to the substitute check that the drawer alleged was the regulation’s disclosure requirements. amount of the substitute check, plus interest a forgery that would have been detected had 2. Information that must be inserted by a and expenses. However, the indemnified the original check instead been presented. bank using the models is (italicized) within person might be entitled to additional The bank that provided the indemnity could parentheses in the text of the models. damages under some other provision of law. pursue its own indemnity claim against the Optional informationfl, and information the Examples. bank that presented the substitute check, inclusion of which is dependent on a bank’s a. A drawer received a substitute check could attempt to recover from the forger, or policies and practices,fi is enclosed in that met all the legal equivalence could pursue any claim that it might have brackets. requirements and for which the drawer was under other law. The bank also could request 3. Banks may make certain changes to the only charged once, but the drawer believed from the drawer any information that the format or content of the models, including that the underlying original check was a drawer might possess regarding the possible deleting material that is inapplicable, forgery. If the drawer suffered a loss because identity of the forger. without losing the EFA Act’s protection from it could not prove the forgery based on the liability for banks that use the forms substitute check, for example because XXXIII. § 229.54 Expedited Recredit for properly. For example, if a bank does not proving the forgery required analysis of pen Consumers have a cutoff hour prior to its closing time, pressure that could be determined only from A. 229.54(a) Circumstances Giving Rise to a or if a bank does not take advantage of the the original check, the drawer would have an Claim section 229.13 exceptions, it may delete the indemnity claim. However, the drawer would references to those provisions. Changes to the not have a substitute check warranty claim 1. A consumer may make a claim for models may not be so extensive as to affect because the substitute check was the legal expedited recredit under this section only for the substance, clarity, or meaningful equivalent of the original check and no a substitute check that he or she has received sequence of the models. Acceptable changes person was asked to pay the substitute check and for which the bank charged his or her include, for example— more than once. In that case, the amount of deposit account. As a result, checks used to a. Using ‘‘customer’’ and ‘‘bank’’ instead of the drawer’s indemnity under § 229.53 would access loans, such as credit card checks or pronouns be limited to the amount of the substitute home equity line of credit checks, that are b. Changing the typeface or sizefl, check, plus interest and expenses. However, reconverted to substitute checks would not although a materially smaller size may not the drawer could attempt to recover give rise to an expedited recredit claim, meet the clear and conspicuous standard of additional losses, if any, under other law. unless such a check was returned unpaid and section 229.15(a)fi b. As described more fully in the the bank charged the consumer’s deposit c. Incorporating certain state-law plain- commentary to § 229.53(a) regarding the account for the amount of the returned check. English requirements scope of the indemnity, a paying bank could In addition, a consumer who received only fl4. a. Although banks are not required to have an indemnity claim if it paid a legally a statement that contained images of multiple use a certain paper size for their disclosures equivalent substitute check that was created substitute checks per page would not be and notices, model funds-availability from a fraudulent cashier’s check that the entitled to make an expedited recredit claim, disclosures C–1, C–2, C–3A, C–3B, C–4A, paying bank’s fraud detection procedures although he or she could seek redress under and C–4B and notices C–9, C–10, C–11, C– would have caught and that the bank would other provisions of law, such as § 229.52 or 12A, and C–12B are designed to be provided have returned by its midnight deadline had U.C.C. 4–401. However, a consumer who to customers on an 81⁄2 x 11 inch sheet of it received the original check. However, if the originally received only a statement paper. In addition, the following formatting substitute check was not subject to a containing images of multiple substitute techniques ensure that the information is warranty claim (because it met the legal checks per page but later received a readable: equivalence requirements and there was only substitute check, such as in response to a i. A readable font style and font size one payment request) the paying bank’s request for a copy of a check shown in the ii. Sufficient spacing between lines of the indemnity would be limited to the amount of statement, could bring a claim if the other text the substitute check plus interest and expedited recredit criteria were met. iii. Adequate spacing between paragraphs, expenses. Although a consumer must at some point as appropriate 3. The amount of an indemnity would be have received a substitute check to make an iv. Sufficient white space and margins reduced in proportion to the amount of any expedited recredit claim, the consumer need above, below and to the sides of the text amount loss attributable to the indemnified not be in possession of the substitute check v. Sufficient contrast between the text and person’s negligence or bad faith. This at the time he or she submits the claim. the background, such as black text on white comparative negligence standard is intended 2. A consumer must in good faith assert paper to allocate liability in the same manner as the that the bank improperly charged the b. While the regulation does not require comparative negligence provision of consumer’s account for the substitute check banks to use the above formatting techniques § 229.38(c). or that the consumer has a warranty claim for in presenting the information in these 4. An indemnifying bank may limit the the substitute check (or both). The warranty disclosures and notices, banks are losses for which it is responsible under in question could be a substitute-check encouraged to consider these techniques

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when deciding how to disclose information. available for withdrawal, fl a bank that indicate that funds from cash deposits and A bank that provides a disclosure or notice makes funds available on the business day wire transfers will be available on the electronically to a customer comports with the deposit was received may describe the business day following receipt. A bank that the models’ formatting techniques by funds as being available ‘‘the same business uses one of these models but that makes providing a disclosure or notice in a file day.’’ A bank that makes funds available on funds from cash deposits and wire transfers format, such as the .pdf file format, that a business day after the business day of available the same day they are received— electronically represents an 81⁄2 x 11 inch receiptfi øthe bank¿ must insert øthe¿ fla i.e., a bank that places holds to statutory sheet of paper with black text and a white cardinal number (1, 2, etc.),fi ordinal limits only on check deposits—may modify background.fi number (such as first, second, etc.)fl, or the the forms accordingly to reflect the bank’s fl5fiø4¿. Shorter time periods for word ‘‘next’’ to describefi øof¿ the business practice.fi availability may always be substituted for day after deposit that the funds will become 2. Model C–1, Next-Day Availability. A time periods used in the models. available. bank may use this model when its policy is fl6fiø5¿. Banks may also add related c. Models C–1 through C–ø5A generally do to make funds from all flcheckfi deposits information. For example, a bank may not reflect any optional provisions of the available øon the first¿ flby the nextfi øindicate that although funds have been regulation, or those that apply only to certain business day after a deposit is made. This made available to a customer and the banks¿ fl4B reflect some information the model may also be used by banks that customer has withdrawn them, the customer inclusion of which depends on a bank’s provide øimmediate availability¿ flsame- is still responsible for problems with the policies and practices, such as placing a hold day for check depositsfi by substituting the deposit, such as checks that were deposited on funds already on deposit when it cashes øword ‘‘immediately’’¿ flphrase ‘‘the same being returned unpaid. Or a bank could¿ a check for a customer or makes funds business day’’fi in place of øon the first include a telephone number to be used if a immediately available to a customer (see business day after the day we receive your customer has an inquiry regarding a deposit. § 229.19(e) of the regulation), and requiring deposit.’’¿ fl‘‘the next business day.’’fi fl7fiø6¿. Banks are cautioned against special deposit slips as a condition for next- 3. Model C–2, Next-Day Availability and using the models without reviewing their day availability for deposits of certain types Section 229.13. Exceptions. A bank may use own policies and practices, as well as state of checks (see § 229.10(c)(2)). This this model when its policy is to make funds and federal laws fland regulationsfi information in the model availability-policy from all flcheckfi deposits available to its regarding the time periods for availability of disclosures is placed within brackets to customers øon the first¿ flby the nextfi specific types of checks. A bank using the indicate that whether a bank should include business day after the deposit is made, and models will be in compliance with the EFA the text in its availability-policy disclosure is to reserve the right to invoke the new- Act and the regulation only if the bank’s dependent on the bank’s funds-availability account and other exceptions in section disclosures correspond to its availability policies and practices. Additionally, certain 229.13. In disclosing that a longer delay may policy. other provisions of the regulation that apply apply, a bank may disclose when funds will ø 7. Banks that have used earlier versions only to certain banks are reflectedfi generally be available based on when the of the models (such as those models that gave øInstead, disclosures for these provisions are funds would be available if the deposit were Social Security benefits and payroll included¿ in modeløs C–6 through C–11A¿ of flchecks other than next-day-availability payments as examples of preauthorized flclauses C–6, C–7, and C–8fi. A bank using checksfi øa nonlocal check¿. credits available the day after deposit, or that one of the model availability-policy 4. Modelflsfi C–3flAfi, Next-Day did not address the cash-withdrawal disclosures should also consider whether it Availability, Case-by-Case Holds to Statutory limitation) are protected from civil liability must incorporate one or more of ømodels C– Limits flon Check Deposits Without Cash- under section 229.21(e). Banks are 6 through C–11A.¿ flthese model clauses. A Withdrawal Limitationfi, and Section 229.13 encouraged, however, to use current versions bank for which one or more of these clauses Exceptionsfl; and C–3B, Next-Day of the models when reordering or reprinting Availability, Case-by-Case Holds to Statutory ¿ is applicable would append the clause(s) to supplies. the end of its availability-policy Limits on Check Deposits With Cash- B. Model Availability-Policy and Substitute- disclosure.fi Withdrawal Limitation, and Section 229.13 Check-Policy Disclosures, Models C–1 d. While section 229.10(b) of the regulation Exceptionsfi through C–5øA¿ requires next-day availability for electronic a. A bank may use øthis model¿ flthese 1. Models C–1 Through C–5øA¿ Generally payments, Treasury regulations (31 CFR 210) modelsfi when its policy, in most cases, is a. Models C–1 through C–ø5A¿fl4Bfi are and ACH association rules require that to make funds from all types of deposits models for the availability-policy disclosures preauthorized credits (direct deposits) be available flbyfi the day after the deposit is described in section 229.16 and flmodel C– made available on the day the bank receives made, but to delay availability on some ø ¿ 5 is a model for thefi substitute-check-policy the funds. Models C–1 through C–5 flC– flcheckfi deposits on a case-by-case basis ø disclosure described in section 229.57. The 4Bfi reflect these rules. Wire transfers , up to the maximum time periods allowed ¿ ø flfunds-availabilityfi models accommodate however, fland cash depositsfi are not under the regulation. A bank using this ¿ a variety of availability policies, ranging from governed by Treasury or ACH rules, but model flthese modelsfi also reserves the next-day availability to holds to statutory banks generally make funds from øwire right to invoke the exceptions listed in limits on all deposits. Modelflsfi C–3flA transfers¿ flthese types of depositsfi section 229.13. øA bank using this model and C–3Bfi reflectøs¿ the additional available on the day received or on the also reserves the right to invoke the disclosures discussed in section 229.16(b) business day following receipt. Banks should exceptions listed in section 229.13.¿ In and (c) for banks that have a policy of ensure that their disclosures reflect the disclosing that a longer delay may apply, a extending availability times on a case-by-case availability given in most cases for øwire bank may disclose when funds will generally basis. flAll of the funds-availability models transfers.¿ flthese types of deposits. A bank be available based on when the funds would indicate that a bank’s policy may provide that makes the proceeds of cash deposits or be available if the deposit were of flchecks that although funds have been made wire transfers available for withdrawal on the other than next-day-availability checksfi øa available to a customer and the customer has banking day they are received may specify in nonlocal check¿. withdrawn them, the customer is still its disclosure that these types of deposits are flb. Model availability-policy disclosure responsible for problems with the deposit, available ‘‘the same business day’’ C–3A may be used by a bank that, when it such as checks that were deposited being notwithstanding that the funds were not delays availability of a check deposit on a returned unpaid. (See § 229.19(c)(2) of the available at the opening of business on that case-by-case basis, does not impose the cash- regulation.)fi day. Models C–1 through C–3B indicate that withdrawal limitation permitted by section b. As already noted, there are several funds from these types of deposits will be 229.12(b), whereas model availability-policy places in the forms where information must available on the day received. A bank that disclosure C–3B may be used by a bank that be inserted. This information includes the uses one of these models should modify its does impose this limitation when it delays bank’s cutoff times flandfiø,¿ limitations disclosure to indicate that funds from cash availability on a case-by-case basis. relating to next-day availabilityø, and the deposits and wire transfers will be available c. Models C–3A and C–3B include in first four digits of routing numbers for local on the next day if that reflects the bank’s brackets language related to check cashing, banks¿. In disclosing when funds will be practice. In contrast, models C–4A and C–4B immediate availability, and holds on other

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funds. A bank that bases its disclosure on explaining that a substitute check is the legal provided the method of accruing interest is model C–3A or C–3B would include this equivalent of an original check and the the same for cash and check deposits. bracketed text in its disclosure only if the circumstances under which the consumer fl4fiø8¿. Model C–ø11A¿fl8fi, text corresponds to the bank’s policy and may make a claim for expedited recredit. Availability of Funds Deposited at Other practice. A bank that has such a policy, and Locations. A clause similar to model C– C. Model Clauses, Models C–6 through C– ø ¿ that therefore includes this text in its ø11A¿fl8fi 11A fl8fi should be used if a bank bases the availability of funds on the location disclosure, would include the text in the ø ¿ location indicated by the model. A bank that 1. Models C–6 through C- 11A fl8fi. where the funds are deposited ø(for example, bases its availability-policy disclosure on Generally. Certain clauses like those in the at a contractual or other branch located in a model disclosure C–3A or C–3B and whose models must be incorporated into a bank’s different check-processing region). Similarly, availability policy necessitates incorporation availability-policy disclosure under certain a clause similar to model C–ø11A¿fl8fi of one or more of the appendix’s model circumstances. The commentary to each should be used if a bank distinguishes clauses (C–9, C–11, or C–11A) would append clause indicates when a clause similar to the between local and nonlocal checks (for those model clauses to the end of the second model clause is required. flA bank for which example, a bank using model availability- page of model C–3A or C–3B.fi one or more of these clauses is applicable policy disclosure C–4flAfi and C– 5. Modelflsfi C–4flAfi, Holds to would append the clause(s) to the end of its ø5¿fl4Bfi), and accepts deposits in more availability-policy disclosure.fi than one check-processing region¿. Statutory Limits on All Deposits flWithout ø Cash-Withdrawal Limitation; and C–4B, 2. Model C–6, Holds on Other Funds ø ¿ (Check Cashing) D. Model Notices, Models C– 12 fl9fi Holds to Statutory Limits on All Deposits through C–ø25¿fl21fi With Cash-Withdrawal Limitationfi A bank that reserves the right to place a ø ¿fl fi fla.fi A bank may use øthis model¿ hold on funds already on deposit when it 1. Model Notices C– 12 9 through C– ø ¿fl fi ø ¿fl fi flthese modelsfi when its policy is to cashes a check for a customer, as addressed 25 21 Generally. Models C– 12 9 ø ¿fl fi øimpose delays to the full extent¿ fldelay in section 229.19(e), must incorporate this through C– 25 21 provide models for the various notices required by the availability asfi allowed under section type of clause in its availability-policy regulation. A bank that cashes a check and 229.12 and to reserve the right to invoke the disclosure. places a hold on funds in an account of the section 229.13 exceptions. In disclosing that 3. Model C–7, Holds on Other Funds (Other Account) customer (see section 229.19(e)) should a longer delay may apply, a bank may A bank that reserves the right to place a modify the model hold notice accordingly. disclose when funds will generally be hold on funds in an account of the customer For example, the bank could replace the available based on when the funds would be other than the account into which the deposit word ‘‘deposit’’ with the word ‘‘transaction’’ available if the deposit were of flchecks is made, as addressed in section 229.19(e), and could add the phrase ‘‘or cashed’’ after other than next-day-availabilityfi øa must incorporate this type of clause in its the word ‘‘deposited.’’ nonlocal check¿. availability-policy disclosure. 2. Model C–ø12¿fl9fi, Exceptionø–¿ flor flb. Model availability-policy disclosure 4. Model C–8, Appendix B Availability Reasonable-Causefi Hold Notice. C–4A may be used by a bank that delays (Nonlocal Checks) fla. i.fi This model satisfies the written availability as allowed under section 229.12 A bank in a check-processing region where notice required under section 229.13(g) when but does not impose the cash-withdrawal the availability schedules for certain nonlocal a bank places a hold based on a section limitation permitted by section 229.12(b), checks have been reduced, as described in 229.13 exceptionfl, including the whereas model availability-policy disclosure appendix B of Regulation CC, must reasonable-cause exception. The model C–4B may be used by a bank that delays incorporate this type of clause in its notice includes a location, indicated by availability as allowed under section 229.12 availability-policy disclosure. Banks using ‘‘(reason for hold),’’ in which the bank must and does impose the cash-withdrawal model C–5 may insert this clause at the insert the reason for placing the hold. The limitation permitted by section 229.12(b). conclusion of the discussion titled ‘‘Nonlocal bulleted list below contains examples of c. Models C–4A and C–4B include in Checks.’’ reasons a bank may place a hold that could brackets language related to check cashing, 5.¿ fl2.fi Model C–ø9¿fl6fi, Automated be inserted into the notice: immediate availability, and holds on other Teller Machine Deposits (Extended Holds). A (1) A check you deposited was previously funds. A bank that bases its disclosure on bank that reserves the right to delay returned unpaid. model C–4A or C–4B would include this availability of deposits at nonproprietary (2) You have overdrawn your account bracketed text in its disclosure only if the ATMs until the flfourthfiøfifth¿ business repeatedly in the last six months. text corresponds to the bank’s policy and day following the date of deposit, as (3) The checks you deposited on this day practice. A bank that has such a policy and permitted by section 229.12(flbfiøf¿), must exceeded $5,000. that therefore includes this text in its incorporate this type of clause in its (4) There is an emergency, such as a failure disclosure would include the text in the availability-policy disclosure. A bank must of computer or communications equipment. location indicated by the model. A bank that choose among the alternative language based (5) We believe a check you deposited will bases its availability-policy disclosure on on how it chooses to differentiate between not be paid, because (e.g., a reason from model disclosure C–4A or C–4B and whose proprietary and nonproprietary ATMs, as paragraph b). availability policy necessitates incorporation required under section 229.16(b)(5). ii.fiIf a hold is being placed on more than of one or more of the appendix’s model ø6. Model C–10, Cash-Withdrawal one check in a deposit, each check need not clauses (C–9, C–11, or C–11A) would append Limitation be described, but if different reasons apply, those model clauses to the end of the second A bank that imposes cash-withdrawal each reason must be indicated. A bank may page of model C–4A or C–4B.fi øModel C– limitations under section 229.12 must use the actual date when funds will be 4 uses a chart to show the bank’s availability incorporate this type of clause in its available for withdrawal rather than the policy for local and nonlocal checks, and availability-policy disclosure. Banks number of the business day following the day model C–5 uses a narrative description. reserving the right to impose the cash- of deposit. A bank ømust incorporate in the 6. Model C–5A bank may use this form withdrawal limitation and using model C–3 notice¿flmay usefi the material set out in when its policy is to impose delays to the full should disclose that funds may not be brackets if it imposes overdraft or returned- extent allowed by section 229.12 and to available until the sixth (rather than fifth) check fees after invoking the reasonable- reserve the right to invoke the section 229.13 business day in the first paragraph under the cause exception under section 229.13(e). exceptions. In disclosing that a longer delay heading ‘‘Longer Delays May Apply.’’¿ ø3. Model C–13,¿flb.fi Reasonable-Cause may apply, a bank may disclose when funds fl3fiø7¿. Model C–ø11¿fl7fi, Credit Hold Notice. øThis¿fli. Modelfi notice will generally be available based on when the Union Interest-Payment Policy. A credit flC–9 alsofi satisfies the written notice funds would be available if the deposit were union subject to the notice requirement of required under section 229.13(g) when a of a nonlocal check.¿ section 229.14(b)(2) must incorporate this bank invokes the reasonable-cause exception 7. Model C–5øA¿fl, Substitute-Check- type of clause in its availability-policy under section 229.13(e). The ønotice Policy Disclosurefi A bank may use this disclosure. This model clause is only an provides the bank with a list of¿ flmodel form when it is providing the disclosure to example of a hypothetical policy. Credit notice includes a location, indicated by its consumers required by section 229.57 unions may follow any policy for accrual ‘‘(reason for hold),’’ in which the bank would

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insert thefi specific reasonøs that may be be used by a bank that imposes such a hold receives substitute checks makes an given¿ for invoking the exception. øIf a hold and does have such a policy. expedited recredit claim under section is being placed on more than one check in Section 229.16(c)(2)fi øThis notice¿ does 229.54 for a loss related to a substitute check. a deposit, each check must be described not require a statement of the specific reason The Check 21 Act does not provide banks separately, and if different reasons apply, for the hold, as is the case when a section that use these models with a safe harbor. each reason must be indicated. A bank may 229.13 exception hold is placed. A bank may However, the Board has published these disclose its reason for doubting collectibility specify the actual date when funds will be models to aid banks’ efforts to comply with by checking the appropriate reason on the available for withdrawal rather than the section 229.54(e). model. If the ‘‘Other’’ category is checked, the number of the business day following the day ø12¿fl11fi. Model C–ø22¿fl18fi, Valid- reason must be given.¿ flThe list below of deposit when funds will be available. A Claim Refund Noticefl.fi A bank may use provides examples of reasons that a bank bank must incorporate in the notice the this model when crediting the entire amount could insert into the notice as its reason for material set out in brackets if it imposes or the remaining amount of a consumer’s doubting collectability: overdraft fees after invoking a case-by-case expedited-recredit claim after determining (1) We received notice that the check is hold. that the consumer’s claim is valid. This being returned unpaid. ø7¿fl6fi. Model C–ø17¿fl13fi, Notice at notice could be used when the bank provides (2) We have confidential information that Locations Where Employees Accept the consumer a full recredit based on a valid- indicates that the check may not be paid. Consumer Depositsfl;fiø,¿ and Model C– claim determination within ten days of the (3) The check is drawn on an account with ø18¿fl14fi, Notice at Locations Where receipt of the consumer’s claim or when the repeated overdrafts. Employees Accept Consumer Deposits (Case- bank recredits the remaining amount of a (4) We are unable to verify a signature on by-Case Holds) consumer’s expedited-recredit claim by the the back of the check. fla.fi These models satisfy the notice 45th calendar day after receiving the (5) Some information on the check is not requirement of section 229.18(b). Model C– consumer’s claim, as required under section consistent with other information on the ø17¿fl13fi reflects an availability policy of 229.54(e)(1). check. holds to statutory limits on all deposits, and ø13¿fl12fi. Model C–ø23¿fl19fi, (6) There are apparent alterations on the model C–ø18¿fl14fi reflects a case-by-case Provisional-Refund Noticefl.fi A bank may check. availability policy. use this model when providing a full or (7) The routing number of the paying bank flb. i. Model C–13 indicates that funds partial expedited recredit to a consumer is not a current routing number. from cash deposits and wire transfers will be pending further investigation of the (8) The check is postdated. available on the business day following consumer’s claim, as required under section (9) The check has a stale date, that is, it receipt. A bank that uses this model but that 229.54(e)(1). was written too long ago and is expired. makes funds from these types of deposits ø14¿fl13fi. Model C–ø24¿fl20fi, Denial (10) We have been notified that the check available the same day they are received— Noticefl.fi A bank may use this model has been lost or damaged in collection. i.e., a bank that places holds to statutory when denying a claim for an expedited ii. The above list is not intended to be limits only on check deposits—may modify recredit under section 229.54(e)(2). comprehensive; another reason that does not the form accordingly to reflect the bank’s ø15¿fl14fi. Model C–ø25¿fl21fi, appear in the list may be inserted in place practice. In contrast, model C–14 indicates Reversal Noticefl.fi A bank may use this of (‘‘reason for hold’’) provided the reason that funds from cash deposits and wire model when reversing an expedited recredit satisfies the conditions for invoking the transfers will be available on the day that was credited to a consumer’s account reasonable cause exception. received. A bank that uses this model should under section 229.54(e)(3). iii. If a hold is being placed on more than modify its disclosure to indicate that funds 37. Revise Appendix F to Part 229 to one check in a deposit, each check should be from these types of deposits will be available read as follows: described separately, and if different reasons on the next day if that reflects the bank’s apply, each reason should be indicated.fi A practice. A bank should ensure that its notice flAppendix F to Part 229—Official bank may use the actual date when funds reflects the availability given in most cases Board Interpretations; Preemption will be available for withdrawal rather than for these types of deposits. Determinations the number of the business day following the ii. A bank that imposes cash-withdrawal day of deposit. A bank ømust incorporate in limitations under section 229.12(b) should Uniform Commercial Code, Section 4–213(5) the notice¿flmay usefi the material set out indicate that funds will generally be available 1. State provision that may supersede in brackets if it imposes overdraft or by the third, rather than second, business day Regulation CC returned-check fees after invoking the after the day of deposit, by replacing Section 4–213(5) of the Uniform reasonable-cause exception under section ‘‘(number)’’ in the lower-right-hand box of the Commercial Code (‘‘U.C.C.’’) provides that 229.13(e). tables in the models with ‘‘third’’ (rather than money deposited in a bank is available for ø4¿fl3fi. Model C–ø14¿fl10fi, One- second).fi withdrawal as of right at the opening of Time Notice for Large-Deposit and ø8¿fl7fi. Model C–ø19¿fl15fi, Notice at business of the banking day after deposit. Redeposited-Check Exception Holds. This Automated Teller Machinesfl.fi This model Although the language ‘‘deposited in a bank’’ model satisfies the notice requirements of satisfies the ATM notice requirement of is unclear, arguably it is broader than the section 229.13(g)(2) concerning nonconsumer section 229.18(c)(1). language ‘‘made in person to an employee of accounts. ø9¿fl8fi. Model C–ø20¿fl16fi, Notice at the depositary bank,’’ which conditions the ø5¿fl4fi. Model C–ø15¿fl11fi, One- Automated Teller Machines (Delayed next-day availability of cash under Time Notice for Repeated-Overdraft Receipt)fl.fi This model satisfies the ATM Regulation CC (§ 229.10(a)(1)). Under Exception Hold. This model satisfies the notice requirement of section 229.18(c)(2) Regulation CC, deposits of cash that are not notice requirements of section 229.13(g)(3). when receipt of deposits at off-premises made in person to an employee of the ø6¿fl5fi. Modelflsfi C–ø16¿fl12Afi, ATMs is delayed under section 229.19(a)(4). depositary bank must be made available by Case-by-Case Hold Notice flWithout Cash- It is based on collection of deposits once a the second business day after the banking Withdrawal Limitation; and C– week. If collections occur more or less day of deposit (§ 229.10(a)(2)). Therefore, this ø16B¿fl12Bfi, Case-by-Case Hold Notice frequently, the description of when deposits provision of the U.C.C. may call for the With Cash-Withdrawal Limitation.fi øThis are received must be adjusted accordingly. availability of certain cash deposits in a model¿ flThese modelsfi satisfies the ø10¿fl9fi. Model C–ø21¿fl22fi, Deposit- shorter time than provided in Regulation CC. notice required under section 229.16(c)(2) Slip Noticefl.fi This model satisfies the To the extent that section 4–213(5) of the when a bank with a case-by-case hold policy notice requirements of section 229.18(a) for U.C.C. requires certain cash deposits in a imposes a hold on a deposit. flModel case- deposit slips. shorter time than provided in Regulation CC, by-case hold notice C–12A may be used by ø11¿fl10fi. Models C–ø22¿fl18fi that section supersedes Regulation CC. a bank that imposes a case-by-case hold, but Through C–ø25¿fl21fi Generallyfl.fi 2. State provision superseded by does not have a policy of imposing the cash- Models C–ø22¿fl18fi through C– Regulation CC withdrawal limitation permitted by section ø25¿fl21fi provide models for the various Section 4–213(5) of the U.C.C., however, is 229.12(b), whereas model notice C–12B may notices required when a consumer who subject to Section 4–103(1), which provides,

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in part, that ‘‘the effect of the provisions of Checks drawn on in-state bank with a determination sets forth the provisions of this Article may be varied by agreement different four-digit routing symbol. California state law that supersede federal law and ***.’’ The Regulation CC funds availability regulations require banks (not including those that are preempted by it. requirements may not be varied by savings institutions) to provide fourth Check of $100 or less. California agreement. Therefore, a depositary bank may business day availability of funds deposited regulations require industrial loan companies agree to extend availability beyond the into a bank with a four-digit routing symbol to give next-day availability to a check of requirement of section 4–213(5), but may not of 1210 (‘‘1210 bank’’) by a check drawn on $100 or less. Therefore, the California agree with its customer under section 4– an in-state bank with a four-digit routing provision supersedes the Regulation CC 103(1) of the Code to extend availability symbol of 1220 (‘‘1220 bank’’). Similarly, a provision if on a single banking day multiple beyond the time periods provided in 1220 bank that receives a check drawn on a checks, each under $100, are deposited. § 229.10(a) of Regulation CC. 1210, in-state bank may make the funds U.S. Treasury, state and local government Other preemption determinations available for withdrawal by the fourth checks. California regulations require California business day after the day of deposit. industrial loan companies to give next-day California has three separate sets of Regulation CC, however, provides that availability to items drawn by the State of regulations establishing maximum checks must be made available for California or any of its departments, agencies, availability schedules, all adopted pursuant withdrawal by the second business day after or political subdivisions. Regulation CC to California Financial Code section 866.5 the banking day of deposit. Because conditions next-day availability on receipt of (which requires the banking commissioners California’s regulations permit depositary the deposit at a staffed teller station or use to promulgate regulations establishing a banks to make funds available within a of a special deposit slip. Therefore, California reasonable period of time within which a longer period of time than the federal law supersedes the federal law in that the depository institution must make deposited schedules, California’s regulations are state law does not condition next-day funds available to customers) and California superseded by the EFA Act and subpart B of availability on receipt at a staffed teller Commercial Code section 4–213(4)(a), that Regulation CC. station or use of a special deposit slip. were in effect on or before September 1, Paying bank. The California regulation On-us checks. California regulations 1989. The regulations applicable to uses the term paying bank when describing require industrial loan companies to provide commercial banks and branches of foreign the institution on which these checks are second business day availability to checks banks (collectively, banks) located in drawn, but does not define paying bank or drawn on the depositary bank. Regulation CC California (Cal. Admin. Code tit. 10, bank. Regulation CC’s definitions of paying requires next-day availability for checks §§ 10.190401–10.190402) were promulgated bank and bank include savings institutions deposited in a branch of the depositary bank by the superintendent of banks. The and credit unions as well as commercial and drawn on the same or another branch of regulations applicable to savings banks and banks and branches of foreign banks. the same bank. Thus, generally, the savings and loan associations (collectively, However, because the California regulation Regulation CC rule for availability of on-us savings institutions) (Cal. Admin. Code tit. makes separate provisions for checks drawn checks preempts the California regulations. 10, §§ 106.200–106.202) were promulgated on savings institutions and credit unions, the To the extent, however, that an on-us check by the savings and loan commissioner. The Board concludes that the term paying bank, is deposited at an off-premises ATM or regulations applicable to industrial loan as used in the California regulation, includes another facility of the depositary bank that is companies (Cal. Admin. Code tit. 10, only commercial banks and foreign bank not considered a branch under federal law, § 40.101) were promulgated by the branches. the state regulation supersedes the Commissioner of Corporations. California Regulation CC availability requirements. Financial Code section 867 also establishes Exceptions to the availability schedules. availability periods for funds deposited by Under the state preemption standards of Cashier’s checks, teller’s checks, certified cashier’s check, certified check, teller’s Regulation CC (see § 229.20(c) and checks, or depository checks. Section 867 of check, or depository check under certain accompanying Commentary), for deposits the California Financial Code requires circumstances. Finally, California Financial subject to the state availability schedules, a depository institutions to make funds Code section 866.2 establishes disclosure state exception may be used to extend the deposited by cashier’s check, teller’s check, requirements. state availability schedule up to the federal certified check, or depository check available 1. Funds availability periods availability schedule. Once the deposit is for withdrawal on the second business day A. Banks and savings institutions. held up to the federal availability schedule following deposit, if certain conditions are The regulations applicable to California limit under a state exception, the depositary met. The Regulation CC next-day availability banks and savings institutions provide that a bank may further extend the hold under any requirement for cashier’s checks and teller’s depositary bank shall make funds deposited federal exception that can be applied to the checks applies only to those checks issued to into a deposit account available for deposit. If no state exceptions exist, then no a customer of the bank or acquired from the withdrawal as provided in Regulation CC, exceptions holds may be placed on deposits bank for remittance purposes. To the extent subject to the following: covered by state schedules. Thus, to the that the state second-day availability Cashier’s checks, teller’s checks, certified extent that California law provides for requirement applies to cashier’s and teller’s checks, or depository checks. Section 867 of exceptions to the California schedules that checks issued to a non-customer of the bank the California Financial Code requires supersede Regulation CC, those exceptions for other than remittance purposes, the state depository institutions to make funds may be applied in order to extend the state two-day requirement provides for holds of deposited by cashier’s check, teller’s check, availability schedules up to the federal the same number of days as the federal certified check, or depository check available availability schedules or such later time as is schedules and therefore supersedes the for withdrawal on the second business day permitted by a federal exception. federal local and nonlocal schedules if the following deposit, if certain conditions are B. Industrial loan companies. California regulations do not allow the funds met. The Regulation CC next-day availability Section 229.2(e)(1)(i) of Regulation CC, the to be made available later in the day than requirement for cashier’s checks and teller’s term bank includes an insured bank as does Regulation CC. checks applies only to those checks issued to defined in section 3 of the Federal Deposit In-state and out-of-state checks. California a customer of the bank or acquired from the Insurance Act (12 U.S.C. 1813). That Act regulations require industrial loan companies bank for remittance purposes. To the extent defines bank to include any State bank (12 to make funds deposited by a check drawn that the state’s second-day availability U.S.C. 1813(a)(1)(A)) and, in turn, defines on a depository institution in California requirement applies to cashier’s and teller’s State bank to include an industrial bank or available no later than the sixth business day checks issued to a non-customer of the bank similar depository institution that receives after deposit. Industrial loan companies are for other than remittance purposes, the state deposits and is incorporated under the laws required to make funds deposited by a check two-day requirement provides for holds of of any state (12 U.S.C. 1813(a)(2)). The drawn on a depository institution outside of the same number of days as the federal California regulations applicable to industrial California available no later than the twelfth schedules and therefore supersedes the loan companies set forth a funds availability business day after deposit. Regulation CC, federal schedules if the California regulations schedule that does not incorporate the however, generally requires depositary banks do not allow the funds to be made available periods set forth in Regulation CC. to make funds deposited by a check drawn later in the day than does Regulation CC. Accordingly, the following preemption on any depository bank available no later

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than the second business day after deposit. transaction accounts not governed by Illinois law does not supersede Regulation Accordingly, California’s regulation Regulation CC disclosure requirements. CC; and, because this provision of Illinois permitting longer holds by industrial loan 3. Other general provisions law does not permit funds to be made companies is preempted by Regulation CC. Accounts. The California funds availability available for withdrawal in a longer period of Exceptions to the availability schedules. laws and regulations apply to accounts as time than required under the Act and California regulations provide exceptions to defined by Regulation CC as well as savings Regulation, it is not preempted by Regulation the state availability schedules applicable to accounts, as defined in the Board’s CC. industrial loan companies for large deposits, Regulation D (12 CFR 204.2(d)), negotiable Maine new accounts, repeated overdrafters, order of withdrawal draft accounts, share Maine’s funds availability (Title 9–B doubtful collectibility, foreign items, and draft accounts and other share accounts MRSA section 241(5), adopted in 1985) emergency conditions. In all cases where the (other than time accounts). (California requires Maine financial institutions to make federal availability schedule preempts the Financial Code section 886(b)) The funds funds deposited in a transaction account, state schedule, only the federal exceptions availability schedules in Regulation CC apply savings account, or time account available for will apply. For deposits that are covered by only to accounts as defined in Regulation CC, withdrawal within a reasonable period. The the state’s availability schedule (e.g., which generally consist of transaction Maine statute gives the Superintendent of cashier’s or teller’s checks that are not accounts. The California funds availability Banking for the State of Maine the authority deposited with a special deposit slip or at a regulations continue to apply to deposits in to promulgate rules setting forth time staff teller station and on-us checks deposited savings and other accounts (such as accounts limitations and disclosure requirements at an off-premises ATM or another facility of in which the account-holder is another bank) governing funds availability. Under the the depositary bank that is not considered a that are not accounts under Regulation CC. Superintendent of Banking’s regulations, branch under federal law), the state Under § 229.19(e) of Regulation CC (Holds on effective July 1, 1987 (Regulation 18(IV)), and exceptions may be used to extend the state other funds), however, the federal availability adopted amendments to this regulation, availability schedule up to the federal schedules may apply to savings, time, and effective September 1, 1988, funds deposited availability schedule. Once the deposit is other accounts not defined as accounts under to any deposit account in a Maine financial held up to the federal availability limit under Regulation CC in certain circumstances. institution must be made available for a state exception, the depositary bank may Business day/banking day. The definitions withdrawal in accordance with the Act and further extend the hold under any federal of business day and banking day in the Regulation CC (Regulation 18–IV(A)(1), 02– exception that can be applied to the deposit. California regulations are preempted by the 029–118 Me. Code. R. § IV). The state Any time a depositary bank invokes an Regulation CC definition of those terms. regulation provides that an institution’s exception to extend a hold beyond the time Thus, for determining whether the funds availability policies for accounts periods otherwise permitted by law, it must permissible hold under the California subject to Regulation CC be disclosed in a give notice of the extended hold to its schedules supersedes the Regulation CC manner consistent with the Regulation CC customer in accordance with § 229.13(g) of schedule, deposits are considered made on requirements. Funds availability policies for Regulation CC. the specified number of business days accounts not subject to Regulation CC must 2. Disclosures following the banking day of deposit. be disclosed in accordance with the state California law (Cal. Fin. Code § 866.2) Availability at start of day. The California regulation (Regulation 18–IV(A)(2)). requires depository institutions to provide regulations do not specify when during the Funds availability and disclosures. The written disclosures of their general day funds must be made available for Maine regulation incorporates the Regulation availability policies to potential customers withdrawal. Section 229.19(b) of Regulation CC availability and disclosure requirements prior to opening any deposit account. The CC provides that funds must be made with respect to deposits to accounts covered law also requires that preprinted deposit available at the start of the business day. In by Regulation CC. Because the state slips and ATM deposit envelopes contain a those cases where federal and state law requirements are consistent with the federal conspicuous summary of the general policy. provide for holds for the same number of requirements, the Maine regulation is not Finally, the law requires depository days, to the extent that the California preempted by, nor does it supersede, the institutions to provide specific notice of the regulations allow funds to be made available federal law. time the customer may withdraw funds later in the day than does Regulation CC, the Accounts. The Maine funds availability deposited by check or similar instrument into federal law would preempt state law. law and regulations apply to accounts as a deposit account if the funds are not Checks. The California law applies to any defined by Regulation CC as well as savings available for immediate withdrawal. Item (California Financial Code section 866.5 accounts, as defined in the Board’s Section 229.20(c)(2) of Regulation CC and California Commercial Code section Regulation D (12 CFR 204.2(d)). The funds provides that inconsistency may exist when 4213(4)(a)). The California Commercial Code availability schedules in Regulation CC apply a state law provides for disclosures defines item to mean any instrument for the only to accounts as defined in Regulation CC, concerning funds availability relating to payment of money even though it is not which generally consist of transaction accounts. California Financial Code § 866.2 negotiable * * * (Cal. Com. Code section accounts. The Maine funds availability law requires disclosures that differ from those 4104(g)). This term is broader in scope than and regulations continue to apply to deposits required by Regulation CC and, therefore, is the definition of check in the Act and in all accounts, including those that are not preempted to the extent that it applies to Regulation CC. All of the regulations, accounts under Regulation CC. Under accounts as defined in Regulation CC. Thus, however, define the term item to include § 229.19(e) of Regulation CC (Holds on other the state law continues to apply to savings checks, negotiable orders of withdrawal, funds), however, the federal availability accounts and other accounts not governed by share drafts, warrants, and money orders. As schedules may apply to savings, time, and Regulation CC disclosure requirements. limited by the state regulations, the state law other accounts not defined as accounts under The Department of Savings and Loan applies only to instruments that are also Regulation CC in certain circumstances. regulations provide that for those non- checks as defined in § 229.2(k) of Regulation Massachusetts transaction accounts covered by state law but CC. In 1988, Massachusetts amended its statute not by federal law, disclosures in accordance Illinois governing funds availability (Mass. Gen. L. with Regulation CC will be deemed to Section 4–213(5) of the U.C.C. as adopted ch. 167D, section 35). comply with the state law disclosure in Illinois (Illinois Revised Statutes Chapter 1. Funds availability periods requirements. To the extent that the 26, paragraph 4–213(5), enacted July 26, Massachusetts requires banking Department of Savings and Loan regulations 1988) provides that funds from deposits must institutions to make funds available for permit reliance on Regulation CC disclosures be available in accordance with the withdrawal in accordance with the EFA Act for transaction accounts and to the extent the provisions of the federal Expedited Funds and Regulation CC. Massachusetts defines state regulations survive the preemption of Availability Act (Title VI of the Competitive local originating depository institution (local California Financial Code § 866.2, they are Equality Banking Act of 1987) and the paying bank in Regulation CC terminology) not preempted by, nor do they supersede, the regulations promulgated by the Federal as a depository institution located in federal law. The state law continues to apply Reserve Board for the implementation of that Massachusetts (as distinguished from a to savings accounts and other non- Act. Therefore, Section 4–213(5) of the depository institution located in the same

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check-processing region—the terminology not defined as accounts under Regulation CC, from 34.4). In all cases where the federal the EFA Act uses). Regulation CC no longer in certain circumstances. availability schedule preempts the state distinguishes between ‘‘local’’ and ‘‘nonlocal’’ New York schedule, only the federal exceptions will originating depository institutions, and In 1983, the New York State Banking apply. Because the federal availability therefore, the term ‘‘local originating Department, pursuant to section 14–d of the schedule preempts the state schedule for all depository institution’’ is no longer relevant New York Banking law, issued regulations cases, the New York exceptions do not apply. for purposes of funds availability. Because requiring that funds deposited in an account 2. Disclosures the Massachusetts statute incorporates the be made available for withdrawal within The revised New York regulation does not Regulation CC availability requirements, the specified time periods, and provided certain contain funds availability disclosure state requirements are consistent with the exceptions to those availability schedules. requirements applicable to accounts subject federal requirements, and the Massachusetts Part 34 of the New York State Banking to Regulation CC. Department’s General Regulations statute is not preempted by, nor does it 3. Other provisions established time frames within which supersede, the federal law. Accounts. The New York statute governs 2. Disclosures commercial banks, trust companies, and branches of foreign banks (collectively, the availability of funds deposited in savings The Massachusetts regulation incorporates banks); and savings banks, savings and loan accounts and time deposits, as well as the Regulation CC disclosure requirements associations, and credit unions (collectively, accounts as defined in § 229.2(a) of with respect to both accounts covered by savings institutions) must make funds Regulation CC. Regulation CC applies only to Regulation CC and savings and other deposited in customer accounts available for accounts as defined in § 229.2(a). Regulation accounts not governed by the federal withdrawal. CC does not affect the New York statute to regulation. Because the state requirements 1. Funds availability periods the extent that the state law applies to are consistent with the federal requirements, The Banking Department amended part 34, deposits in savings accounts and time the Massachusetts regulation is not effective September 1, 1988, generally to deposits, which are not accounts under preempted by, nor does it supersede, the exclude accounts covered by Regulation CC Regulation CC. Under § 229.19(e) of federal law. The Massachusetts disclosure from the scope of the state regulation, except Regulation CC, Holds on other funds, the rules would continue to apply to accounts for deposits drawn on non-local, but in-state, federal availability schedules may apply to not governed by the Regulation CC disclosure banks. The New York schedule for banks and savings, time, and other accounts not defined requirements. savings institutions permits maximum holds as accounts under Regulation CC, in certain 3. Other general provisions on funds deposited by checks drawn on a circumstances. Accounts. The Massachusetts statute nonlocal, but in state, bank or savings Items. The New York law and regulation governs the availability of funds deposited in institution ranging from no later than the apply to items deposited to accounts. Part ‘‘any demand deposit, negotiable order of fourth business day (in the case of banks) to 34.3(e) defines item as a check, negotiable withdrawal account, savings deposit, share no later than the fifth business day (in the order of withdrawal or money order account or other asset account.’’ Regulation case of savings institutions). Because deposited into an account. The Board CC applies only to accounts as defined in Regulation CC requires funds to be made interprets the definition of item in New York § 229.2(a). Regulation CC does not affect the available no later than the second business law to be consistent with the definition of Massachusetts statute to the extent that the day (unless an exception applies, as check in Regulation CC (§ 229.2(k)). state law applies to deposits in savings and discussed below), Regulation CC preempts other accounts (including transaction the New York schedule for funds availability. By order of the Board of Governors of the accounts where the account holder is a bank, Exceptions to the availability schedules. Federal Reserve System, March 3, 2011. foreign bank, or the U.S. Treasury) that are New York law provides exceptions to the Robert deV Frierson, not accounts under Regulation CC. Under state availability schedules for large deposits, Deputy Secretary of the Board. § 229.19(e) of Regulation CC, Holds on other new accounts, repeated overdrafters, funds, the federal availability schedules may doubtful collectibility, foreign items, and [FR Doc. 2011–5449 Filed 3–24–11; 8:45 am] apply to savings, time, and other accounts emergency conditions (part 34.5, renumbered BILLING CODE 6210–01–P

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