[Federal Register Volume 60, Number 191 (Tuesday, October 3, 1995)]
[Rules and Regulations]
[Pages 51669-51703]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-23755]
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FEDERAL RESERVE SYSTEM
12 CFR Part 229
[Regulation CC; Docket No. R-0895]
Availability of Funds and Collection of Checks
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rule; technical amendment.
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SUMMARY: The Board is publishing technical amendments to Regulation CC
to correct errors, delete obsolete provisions, and facilitate the
usefulness of the commentary. The Board's Regulation CC implements the
Expedited Funds Availability Act and requires banks to make funds
deposited into transaction accounts available for withdrawal within
specified time frames.
EFFECTIVE DATE: November 2, 1995.
FOR FURTHER INFORMATION CONTACT: Louise Roseman, Associate Director
(202/452-2789), Division of Reserve Bank Operations and Payment
Systems; Stephanie Martin, Senior Attorney (202/452-3198), Legal
Division; Manley Williams, Staff Attorney, (202/736-5565), Division of
Consumer and Community Affairs. For the hearing impaired only, contact
Dorothea Thompson, Telecommunications Device for the Deaf (TDD) (202/
452-3544), Board of Governors of the Federal Reserve System, 20th and C
Streets, N.W., Washington, DC 20551.
SUPPLEMENTARY INFORMATION: The Board's Regulation CC (12 CFR part 229)
implements the Expedited Funds Availability Act (12 U.S.C. 4001 et
seq.) and requires banks1 to make funds deposited into transaction
accounts available for withdrawal within specified time frames.
Regulation CC also contains disclosure requirements, as well as rules
governing the check collection and return process.
\1\The term bank refers to any depository institution, including
commercial banks, savings institutions, and credit unions.
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The Board is publishing technical amendments to Regulation CC to
correct minor errors, delete obsolete provisions, and facilitate use of
the Commentary by adding headings and paragraph numbers.
References to Temporary Schedule
Regulation CC provided temporary availability schedules that
applied to checks deposited during the period from September 1, 1988,
through August 31, 1990. The permanent availability schedule became
effective on September 1, 1990. These technical amendments update the
regulation, commentary, and model forms to remove obsolete references
to the temporary schedule. For example, the definitions of ``check
clearing association'' (Sec. 229.2(l)) and ``participant''
(Sec. 229.2(y)) were required only under the temporary schedule.
Accordingly, the Board has removed those sections from the regulation
and Commentary. The Commentary to Sec. 229.12, discussing the permanent
schedule, often referred back to the Commentary to Sec. 229.11. As the
Board is removing the Commentary to Sec. 229.11, major portions of that
Commentary have been incorporated into the Commentary to Sec. 229.12.
Throughout the regulation and appendices, the Board has removed
references to the temporary availability schedule, and deleted the word
[[Page 51670]]
``permanent'' as a modifier of ``availability schedule.''
Transitional Provisions
The Board has removed references to the effective date of
Sec. 229.36(e), regarding labeling of payable-through checks. Those
references were in the Commentary to Secs. 229.2(r) and 229.36(e).
Section 229.36(e) became effective on February 1, 1991.
The Board has also removed Sec. 229.17(b) of the regulation and
Commentary, as well as a sentence in the Commentary to Sec. 229.18(a),
which provided special disclosure rules for accounts in existence on
the effective date of the regulation. These provisions are now
obsolete.
Statutory Amendments
The definition of bank in Regulation CC is based on the definition
of depository institution in section 19 of the Federal Reserve Act (12
U.S.C. 461(b)(1)(A)). Congress, in the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 (``FIRREA,'' Pub. L. No. 101-73,
Title VII, section 744(i)(2), 103 Stat. 439 (1989)), amended the
definition of depository institution. The Board has amended Regulation
CC accordingly. In addition, in the Commentary to Sec. 229.2(t), the
Board is removing a reference to section 408 of the National Housing
Act, which was repealed in FIRREA.
In 1991, the Expedited Funds Availability Act was amended to treat
all deposits to nonproprietary automated teller machines as nonlocal
(see the Federal Deposit Insurance Corporation Improvement Act, Pub. L.
No. 102-242, section 227, 105 Stat. 2236 (1991)). The Board amended
Regulation CC and revised the Commentary accordingly (57 FR 36599, Aug.
14, 1992). As published, the revisions to the Commentary to
Sec. 229.12(f) contain an error, which the Board has corrected. In
addition, the Board has amended the definition of local paying bank in
Sec. 229.2(s) and the corresponding Commentary, as well as the
Commentary to Sec. 229.10, to reflect this statutory amendment.
The Uniform Commercial Code, section 4-202(b), was amended in 1990
to refer to a bank's duty to exercise ordinary care and timeliness
rather than a duty to act ``seasonably.'' The Board has amended the
Commentary to Secs. 229.2(cc) and 229.31(a) accordingly.
The New Mexico funds availability law was repealed, effective June
16, 1989. The Board is removing the preemption determination for New
Mexico in Appendix F.
Citations
The Board amended Regulation J (12 CFR part 210, 55 FR 4079,
October 5, 1990) effective in 1991, rendering the citation to
Regulation J in the Commentary to Sec. 229.10(b) incorrect. In
addition, the Commentary to Sec. 229.36(b) contains an incorrect cite
in the second sentence. The Board has corrected those Commentary
citations, as well as an incorrect citation in Sec. 229.2(11) of the
regulation.
Thomson Financial Publishing Inc. now publishes the guide referred
to in the Commentary to Secs. 229.2(dd), 229.32(a), and 229.36(b) and
in Appendix A. The Board has revised those provisions accordingly.
Commentary Reformat
The Board has revised the Commentary (Appendix E) by numbering each
paragraph and adding headings where appropriate. These revisions will
provide a consistent format within the Commentary and should make the
Commentary easier to use.
Public Comment Waiver
The amendments to Regulation CC and its Commentary are not
substantive, but rather remove obsolete provisions, correct minor
errors, conform the regulation to statutory changes, and reorganize
existing provisions. The Board finds that public comment on these
changes is unnecessary and contrary to the public interest. Thus, the
Board has determined that there is good cause for not following the
provisions of 5 U.S.C. 553(b) relating to notice and public
participation in connection with the adoption of these amendments.
List of Subjects in 12 CFR Part 229
Banks, banking, Federal Reserve System, Reporting and recordkeeping
requirements.
For the reasons set forth in the preamble, 12 CFR Part 229 is
amended as set forth below:
PART 229--AVAILABILITY OF FUNDS AND COLLECTION OF CHECKS
(REGULATION CC)
1. The authority citation for Part 229 continues to read as
follows:
Authority: 12 U.S.C. 4001 et seq.
2. In Sec. 229.1, paragraph (b)(2) is revised to read as follows:
Sec. 229.1 Authority and purpose; organization.
* * * * *
(b) * * *
(2) Subpart B of this part contains rules regarding the duty of
banks to make funds deposited into accounts available for withdrawal,
including availability schedules. Subpart B of this part also contains
rules regarding exceptions to the schedules, disclosure of funds
availability policies, payment of interest, liability of banks for
failure to comply with Subpart B of this part, and other matters.
* * * * *
3. In Sec. 229.2,
a. Paragraph (e)(6) is revised;
b. Paragraph (l) is removed and reserved;
c. Paragraph (s) is revised;
d. Paragraph (y) is removed and reserved; and
e. Paragraph (ll) is revised.
The revisions read as follows:
Sec. 229.2 Definitions.
* * * * *
(e) * * *
(6) A savings association as defined in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813) that is an insured depository
institution as defined in section 3 of that Act (12 U.S.C. 1813(c)(2))
or that is eligible to apply to become an insured depository
institution under section 5 of that Act (12 U.S.C. 1815); or
* * * * *
(l) [Reserved]
* * * * *
(s) Local paying bank means a paying bank that is located in the
same check processing region as the physical location of the branch or
proprietary ATM of the depositary bank in which that check was
deposited.
* * * * *
(y) [Reserved]
* * * * *
(ll) Wire transfer means an unconditional order to a bank to pay a
fixed or determinable amount of money to a beneficiary upon receipt or
on a day stated in the order, that is transmitted by electronic or
other means through Fedwire, the Clearing House Interbank Payments
System, other similar network, between banks, or on the books of a
bank. Wire transfer does not include an electronic fund transfer as
defined in section 903(6) of the Electronic Fund Transfer Act (15
U.S.C. 1693a(6)).
* * * * *
4. In Sec. 229.12, the section heading and paragraph (a) are
revised to read as follows:
Sec. 229.12 Availability schedule.
(a) Effective date. The availability schedule contained in this
section is effective September 1, 1990.
* * * * *
[[Page 51671]]
5. In Sec. 229.13,
a. Introductory text is added to paragraph (a);
b. Paragraph (a)(1)(iii) is revised; and
c. The undesignated text after paragraph (a)(1)(iii) is removed.
The addition and revision read as follows:
Sec. 229.13 Exceptions.
(a) New accounts. For purposes of this paragraph, checks subject to
Sec. 229.10(c)(1)(v) include traveler's checks.
(1) * * *
(iii) Is not subject to the availability requirements of
Secs. 229.10(c)(1)(vi) and (vii) and 229.12.
* * * * *
6. In Sec. 229.16, footnote 1 in paragraph (b)(2) is revised to
read as follows:
Sec. 229.16 Specific availability policy disclosure.
* * * * *
(b) * * *
(2) * * *1
\1\ A bank that distinguishes in its disclosure between local
and nonlocal checks based on the routing number on the check must
disclose that certain checks, such as some credit union share drafts
that are payable by one bank but payable through another bank, will
be treated as local or nonlocal checks based upon the location of
the bank by which they are payable and not on the basis of the
location of the bank whose routing number appears on the check. A
bank that makes funds from nonlocal checks available for withdrawal
within the time periods required for local checks under Secs. 229.12
and 229.13 is not required to provide this disclosure on payable-
through checks to its customers. The statement concerning payable-
through checks must describe how the customer can determine whether
these checks will be treated as local or nonlocal, or state that
special rules apply to such checks and that the customer may ask
about the availability of these checks.
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* * * * *
7. Section 229.17 is revised to read as follows:
Sec. 229.17 Initial disclosures.
Before opening a new account, a bank shall provide a potential
customer with the applicable specific availability policy disclosure
described in Sec. 229.16.
8. In Sec. 229.19, paragraphs (b) introductory text, (c)(4)(i),
(e)(1)(ii) and (e)(2)(ii) are revised to read as follows:
Sec. 229.19 Miscellaneous.
* * * * *
(b) Availability at start of business day. Except as otherwise
provided in Sec. 229.12(d), if any provision of this subpart requires
that funds be made available for withdrawal on any business day, the
funds shall be available for withdrawal by the later of:
* * * * *
(c) * * *
(4) * * *
(i) Is not dependent on the time the funds have been deposited in
the account, as long as the funds have been on deposit for the time
period specified in Secs. 229.10, 229.12, or 229.13; and
* * * * *
(e) * * *
(1) * * *
(ii) The funds are not made available for withdrawal within the
times specified in Secs. 229.10, 229.12, and 229.13.
(2) * * *
(ii) The funds are not made available for withdrawal within the
times specified in Secs. 229.10, 229.12, and 229.13.
* * * * *
9. In Sec. 229.36, paragraph (e) is revised and the undesignated
paragraph following paragraph (e)(2) is removed. The revision reads as
follows:
Sec. 229.36 Presentment and issuance of checks.
* * * * *
(e) Issuance of payable-through checks. (1) A bank that arranges
for checks payable by it to be payable through another bank shall
require that the following information be printed conspicuously on the
face of each check:
(i) The name, location, and first four digits of the nine-digit
routing number of the bank by which the check is payable; and
(ii) The words ``payable through'' followed by the name and
location of the payable-through bank.
(2) A bank is responsible for damages under Sec. 229.38 to the
extent that a check payable by it and not payable through another bank
is labelled as provided in this section.
* * * * *
10. In Appendix A to Part 229:
a. The appendix heading is revised;
b. The first and second undesignated paragraphs are revised;
c. Under the heading SECOND FEDERAL RESERVE DISTRICT and the
subheading East Rutherford Office, the number ``0270'' is removed; and
d. Under the heading FEDERAL HOME LOAN BANKS the numbers ``0215
0212 1'' and ``0530 1174 5'' are removed. The revisions read as
follows:
Appendix A to Part 229--Routing Number Guide to Next-Day Availability
Checks and Local Checks
A. Each bank is assigned a routing number by Thomson Financial
Publishing Inc., as agent for the American Bankers Association. The
routing number takes two forms: A fractional form and a nine-digit
form. A paying bank generally is identified on the face of a check
by its routing number in both the fractional form (which generally
appears in the upper right-hand corner of the check) and the nine-
digit form (which is printed in magnetic ink in a strip along the
bottom of the check). Where a check is payable by one bank but
payable through another bank, the routing number appearing on the
check is that of the payable-through bank, not the payor bank.
B. The first four digits of the nine-digit routing number and
the denominator of the fractional routing number form the ``Federal
Reserve routing symbol,'' which identifies the Federal Reserve
District, the Federal Reserve office, and the clearing arrangements
used by the paying bank.
* * * * *
Appendix B-1 to Part 229 [Removed]
11. Appendix B-1 to Part 229 is removed.
12. Appendix B-2 to Part 229 is redesignated Appendix B and the
appendix heading is revised to read as follows:
Appendix B to Part 229--Reduction of Schedules for Certain Nonlocal
Checks
* * * * *
13. In Appendix C to Part 229,
a. The appendix heading is revised;
b. The contents listing following the introductory text is revised;
c. Model Forms C-4 and C-6 and Model Clauses C-11 and C-11A are
removed;
d. Model Forms, Clauses, and Notices are redesignated as indicated
in the following table:
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Old New
------------------------------------------------------------------------
C-5........................................................... C-4
C-7........................................................... C-5
C-8........................................................... C-6
C-8A.......................................................... C-7
C-9........................................................... C-8
C-10.......................................................... C-9
C-11B......................................................... C-10
C-12.......................................................... C-11
C-13.......................................................... C-12
C-13A......................................................... C-13
C-13B......................................................... C-14
C-13C......................................................... C-15
C-14.......................................................... C-16
C-15.......................................................... C-17
C-15A......................................................... C-18
C-16.......................................................... C-19
C-17.......................................................... C-20
C-18.......................................................... C-21
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e. The words ``(permanent schedule)'', ``permanent schedule,'',
``(Permanent Schedule)'', and ``Permanent Schedule,'' are removed each
place they appear.
The revisions read as follows:
Appendix C to Part 229--Model Forms, Clauses, and Notices
* * * * *
[[Page 51672]]
Model Specific Policy Disclosure Forms
C-1 Next-day availability
C-2 Next-day availability and Sec. 229.13 exceptions
C-3 Next-day availability, case-by-case holds to statutory limits,
and Sec. 229.13 exceptions
C-4 Holds to statutory limits on all deposits (includes chart)
C-5 Holds to statutory limits on all deposits
Model Clauses
C-6 Holds on other funds (check cashing)
C-7 Holds on other funds (other account)
C-8 Appendix B availability (nonlocal checks)
C-9 Automated teller machine deposits (extended hold)
C-10 Cash withdrawal limitation
C-11 Credit union interest payment policy
Model Notices
C-12 Exception hold notice
C-13 Reasonable cause hold notice
C-14 One-time notice for large deposit and redeposited check
exception holds
C-15 One-time notice for repeated overdraft exception holds
C-16 Case-by-case hold notice
C-17 Notice at locations where employees accept consumer deposits
C-18 Notice at locations where employees accept consumer deposits
(case-by-case holds)
C-19 Notice at automated teller machines
C-20 Notice at automated teller machines (delayed receipt)
C-21 Deposit slip notice
* * * * *
14. Appendix E to Part 229 is revised to read as follows:
Appendix E to Part 229--Commentary
I. Introduction
A. Background
1. The Board interpretations, which are labeled ``Commentary''
and follow each section of Regulation CC (12 CFR Part 229), provide
background material to explain the Board's intent in adopting a
particular part of the regulation; the Commentary also provides
examples to aid in understanding how a particular requirement is to
work. Under section 611(e) of the Expedited Funds Availability Act
(12 U.S.C. 4010(e)), no provision of section 611 imposing any
liability shall apply to any act done or omitted in good faith
conformity with any rule, regulation, or interpretation thereof by
the Board of Governors of the Federal Reserve System,
notwithstanding the fact that after such act or omission has
occurred, such rule, regulation, or interpretation is amended,
rescinded, or determined by judicial or other authority to be
invalid for any reason. The Commentary is an ``interpretation'' of a
regulation by the Board within the meaning of section 611.
II. Section 229.2 Definitions
A. Background
1. Section 229.2 defines the terms used in the regulation. For
the most part, terms are defined as they are in section 602 of the
Expedited Funds Availability Act (12 U.S.C. 4001). The Board has
made a number of changes for the sake of clarity, to conform the
terminology to that which is familiar to the banking industry, to
define terms that are not defined in the Act, and to carry out the
purposes of the Act. The Board also has incorporated by reference
the definitions of the Uniform Commercial Code where appropriate.
Some of Regulation CC's definitions are self-explanatory and
therefore are not discussed in this Commentary.
B. 229.2(a) Account
1. The Act defines account to mean ``a demand deposit account or
similar transaction account at a depository institution.'' The
regulation defines account in terms of the definition of transaction
account in the Board's Regulation D (12 CFR part 204). The
definition of account in Regulation CC, however, excludes certain
deposits, such as nondocumentary obligations (see 12 CFR
204.2(a)(1)(vii)), that are covered under the definition of
transaction account in Regulation D. The definition applies to
accounts with general third party payment powers but does not cover
time deposits or savings deposits, including money market deposit
accounts, even though they may have limited third party payment
powers. The Board believes that it is appropriate to exclude these
accounts because of the reference to demand deposits in the Act,
which suggests that the Act is intended to apply only to accounts
that permit unlimited third party transfers.
2. The term account also differs from the definition of
transaction account in Regulation D because the term account refers
to accounts held at banks. Under Subparts A and C, the term bank
includes not only any depository institution, as defined in the Act,
but also any person engaged in the business of banking, such as a
Federal Reserve Bank, a Federal Home Loan Bank, or a private banker
that is not subject to Regulation D. Thus, accounts at these
institutions benefit from the expeditious return requirements of
Subpart C.
3. Interbank deposits, including accounts of offices of domestic
banks or foreign banks located outside the United States, and direct
and indirect accounts of the United States Treasury (including
Treasury General Accounts and Treasury Tax and Loan Deposit
Accounts) are exempt from Regulation CC.
C. 229.2(b) Automated Clearinghouse (ACH)
1. The Board has defined automated clearinghouse as a facility
that processes debit and credit transfers under rules established by
a Federal Reserve Bank operating circular governing automated
clearinghouse items or the rules of an ACH association. ACH credit
transfers are included in the definition of electronic payment.
2. The reference to ``debit and credit transfers'' does not
refer to the corresponding debit and credit entries that are part of
the same transaction, but to different kinds of ACH payments. In an
ACH credit transfer, the originator orders that its account be
debited and another account credited. In an ACH debit transfer, the
originator, with prior authorization, orders another account to be
debited and the originator's account to be credited.
3. A facility that handles only wire transfers (defined
elsewhere) is not an ACH.
D. 229.2(c) Automated Teller Machine (ATM)
1. ATM is not defined in the Act. The regulation defines an ATM
as an electronic device at which a natural person may make deposits
to an account by cash or check and perform other account
transactions. Point-of-sale terminals, machines that only dispense
cash, night depositories, and lobby deposit boxes are not ATMs
within the meaning of the definition, either because they do not
accept deposits of cash or checks (e.g., point-of-sale terminals and
cash dispensers) or because they only accept deposits (e.g., night
depositories and lobby boxes) and cannot perform other transactions.
A lobby deposit box or similar receptacle in which written payment
orders or deposits may be placed is not an ATM.
2. A facility may be an ATM within this definition even if it is
a branch under state or federal law, although an ATM is not a branch
as that term is used in this regulation.
E. 229.2(d) Available for Withdrawal
1. Under this definition, when funds become available for
withdrawal, the funds may be put to all uses for which the customer
may use actually and finally collected funds in the customer's
account under the customer's account agreement with the bank.
Examples of such uses include payment of checks drawn on the
account, certification of checks, electronic payments, and cash
withdrawals. Funds are available for these uses notwithstanding
provisions of other law that may restrict the use of uncollected
funds (e.g., 18 U.S.C. 1004; 12 U.S.C. 331).
2. If a bank makes funds available to a customer for a specific
purpose (such as paying checks that would otherwise overdraw the
customer's account and be returned for insufficient funds) before
the funds must be made available under the bank's policy or this
regulation, it may nevertheless apply a hold consistent with this
regulation to those funds for other purposes (such as cash
withdrawals). For purposes of this regulation, funds are considered
available for withdrawal even though they are being held by the bank
to satisfy an obligation of the customer other than the customer's
potential liability for the return of the check. For example, funds
are available for withdrawal even though they are being held by a
bank to satisfy a garnishment, tax levy, or court order restricting
disbursements from the account, or to satisfy the customer's
liability arising from the certification of a check, sale of a
cashier's or teller's check, guaranty or acceptance of a check, or
similar transaction.
F. 229.2(e) Bank
1. The Act uses the term depository institution, which it
defines by reference to section 19(b)(1)(A)(i) through (vi) of the
Federal Reserve Act (12 U.S.C. 461(b)(1)(A)(i) through (vi)). This
regulation uses the term bank, a term that conforms to the usage the
Board has previously adopted in Regulation J. Bank is also used in
Articles 4 and 4A of the Uniform Commercial Code.
[[Page 51673]]
2. Bank is defined to include depository institutions, such as
commercial banks, savings banks, savings and loan associations, and
credit unions as defined in the Act, and U.S. branches and agencies
of foreign banks. For purposes of Subpart B, the term does not
include corporations organized under section 25A of the Federal
Reserve Act, 12 U.S.C. 611-631 (Edge corporations) or corporations
having an agreement or undertaking with the Board under section 25
of the Federal Reserve Act, 12 U.S.C. 601-604a (agreement
corporations). For purposes of Subpart C, and in connection
therewith, Subpart A, any Federal Reserve Bank, Federal Home Loan
Bank, or any other person engaged in the business of banking is
regarded as a bank. The phrase ``any other person engaged in the
business of banking'' is derived from U.C.C. 1-201(4), and is
intended to cover entities that handle checks for collection and
payment, such as Edge and agreement corporations, commercial lending
companies under 12 U.S.C. 3101, certain industrial banks, and
private bankers, so that virtually all checks will be covered by the
same rules for forward collection and return, even though they may
not be covered by the requirements of Subpart B. For the purposes of
Subpart C, and in connection therewith, Subpart A, the term also may
include a state or a unit of general local government to the extent
that it pays warrants or other drafts drawn directly on the state or
local government itself, and the warrants or other drafts are sent
to the state or local government for payment or collection.
3. Unless otherwise specified, the term bank includes all of a
bank's offices in the United States. The regulation does not cover
foreign offices of U.S. banks.
G. 229.2(f) Banking Day and (g) Business Day
1. The Act defines business day as any day excluding Saturdays,
Sundays, and legal holidays. Legal holiday, however, is not defined,
and the variety of local holidays, together with the practice of
some banks to close midweek, makes the Act's definition difficult to
apply. The Board believes that two kinds of business days are
relevant. First, when determining the day when funds are deposited
or when a bank must perform certain actions (such as returning a
check), the focus should be on a day that the bank is actually open
for business. Second, when counting days for purposes of determining
when funds must be available under the regulation or when notice of
nonpayment must be received by the depositary bank, there would be
confusion and uncertainty in trying to follow the schedule of a
particular bank, and there is less need to identify a day when a
particular bank is open. Most banks that act as intermediaries
(large correspondents and Federal Reserve Banks) follow the same
holiday schedule. Accordingly, the regulation has two definitions:
Business day generally follows the standard Federal Reserve Bank
holiday schedule (which is followed by most large banks), and
banking day is defined to mean that part of a business day on which
a bank is open for substantially all of its banking activities.
2. The definition of banking day corresponds to the definition
of banking day in U.C.C. 4-104(a)(3), except that a banking day is
defined in terms of a business day. Thus, if a bank is open on
Saturday, Saturday might be a banking day for purposes of the
U.C.C., but it would not be a banking day for purposes of Regulation
CC because Saturday is never a business day under the regulation.
3. The definition of banking day is phrased in terms of when
``an office of a bank is open'' to indicate that a bank may observe
a banking day on a per-branch basis. A deposit made at an ATM or
off-premise facility (such as a remote depository or a lock box) is
considered made at the branch holding the account into which the
deposit is made for the purpose of determining the day of deposit.
All other deposits are considered made at the branch at which the
deposit is received. For example, under Sec. 229.19(a)(1), funds
deposited at an ATM are considered deposited at the time they are
received at the ATM. On a calendar day that is a banking day for the
branch or other location of the depositary bank at which the account
is maintained, a deposit received at an ATM before the ATM's cut-off
hour is considered deposited on that banking day, and a deposit
received at an ATM after the ATM's cut-off hour is considered
deposited on the next banking day of the branch or other location
where the account is maintained. On a calendar day that is not a
banking day for the account-holding location, all ATM deposits are
considered deposited on that location's next banking day. This rule
for determining the day of deposit also would apply to a deposit to
an off-premise facility, such as a night depository or lock box,
which is considered deposited when removed from the facility and
available for processing under Sec. 229.19(a)(3). If an unstaffed
facility, such as a night depository or lock box, is on branch
premises, the day of deposit is determined by the banking day at the
branch at which the deposit is received, whether or not it is the
branch at which the account is maintained.
H. 229.2(h) Cash
1. Cash means U.S. coins and currency. The phrase in the Act
``including Federal Reserve notes'' has been deleted as unnecessary.
(See 31 U.S.C. 5103.)
I. 229.2(i) Cashier's Check
1. The regulation adds to the second item in the Act's
definition of cashier's check the phrase, ``on behalf of the bank as
drawer,'' to clarify that the term cashier's check is intended to
cover only checks that a bank draws on itself. The definition of
cashier's check includes checks provided to a customer of the bank
in connection with customer deposit account activity, such as
account disbursements and interest payments. The definition also
includes checks acquired from a bank by noncustomers for remittance
purposes, such as certain loan disbursement checks. Cashier's checks
provided to customers or others are often labeled as ``cashier's
check,'' ``officer's check,'' or ``official check.'' The definition
excludes checks that a bank draws on itself for other purposes, such
as to pay employees and vendors, and checks issued by the bank in
connection with a payment service, such as a payroll or a bill-
paying service. Cashier's checks generally are sold by banks to
substitute the bank's credit for the customer's credit and thereby
enhance the collectibility of the checks. A check issued in
connection with a payment service generally is provided as a
convenience to the customer rather than as a guarantee of the
check's collectibility. In addition, such checks are often more
difficult to distinguish from other types of checks than are
cashier's checks as defined by this regulation.
J. 229.2(j) Certified Check
1. The Act defines a certified check as one to which a bank has
certified that the drawer's signature is genuine and that the bank
has set aside funds to pay the check. Under the Uniform Commercial
Code, certification of a check means the bank's signed agreement
that it will honor the check as presented (U.C.C. 3-409). The
regulation defines certified check to include both the Act's and
U.C.C.'s definitions.
K. 229.2(k) Check
1. Check is defined in section 602(7) of the Act as a negotiable
demand draft drawn on or payable through an office of a depository
institution located in the United States, excluding noncash items.
The regulation includes six categories of instruments within the
definition of check.
2. The first category is negotiable demand drafts drawn on, or
payable through or at, an office of a bank. As the definition of
bank includes only offices located in the United States, this
category is limited to checks drawn on, or payable through or at, a
banking office located in the United States.
3. The Act treats drafts payable through a bank as checks, even
though under the U.C.C. the payable-through bank is a collecting
bank to make presentment and generally is not authorized to make
payment (U.C.C. 4-106(a)). The Act does not expressly address items
that are payable at a bank. This regulation treats both payable-
through and payable-at demand drafts as checks. The Board believes
that treating demand drafts payable at a bank as checks will not
have a substantial effect on the operations of payable-at banks--by
far the largest proportion of payable-at items are not negotiable
demand drafts, but time items, such as commercial paper, bonds,
notes, bankers' acceptances, and securities. These time items are
not covered by the requirements of the Act or this regulation. (The
treatment of payable-through drafts is discussed in greater detail
in connection with the definitions of local check and paying bank.)
4. The second category is checks drawn on Federal Reserve Banks
and Federal Home Loan Banks. Principal and interest payments on
federal debt instruments often are paid with checks drawn on a
Federal Reserve Bank as fiscal agent of the United States, and these
fiscal agency checks are indistinguishable from other checks drawn
on Federal Reserve Banks. (See 31 CFR Part 355.) Federal Reserve
Bank checks also are used by some banks as substitutes for cashier's
or teller's checks. Similarly, savings and loan associations often
use checks drawn on Federal Home Loan Banks as teller's checks. The
definition of check includes
[[Page 51674]]
checks drawn on Federal Home Loan Banks and Federal Reserve Banks
because in many cases they are the functional equivalent of Treasury
checks or teller's checks.
5. The third and fourth categories of instrument included in the
definition of check refer to government checks. The Act refers to
checks drawn on the U.S. Treasury, even though these instruments are
not drawn on or payable through an office of a depository
institution, and checks drawn by state and local governments. The
Act also gives the Board authority to define functionally equivalent
instruments as depository checks.\1\ Thus, the Act is intended to
apply to instruments other than those that meet the strict
definition of check in section 602(7) of the Act. Checks and
warrants drawn by states and local governments often are used for
the purposes of making unemployment compensation payments and other
payments that are important to the recipients. Consequently, the
Board has expressly defined check to include drafts drawn on the
U.S. Treasury and drafts or warrants drawn by a state or a unit of
general local government on itself.
\1\Section 602(11) of the Act (12 U.S.C. 4001(11)) defines
``depository check'' as ``any cashier's check, certified check,
teller's check, and any other functionally equivalent instrument as
determined by the Board.''
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6. The fifth category of instrument included in the definition
of check is U.S. Postal Service money orders. These instruments are
defined as checks because they often are used as a substitute for
checks by consumers, even though money orders are not negotiable
under Postal Service regulations. The Board has not provided
specific rules for other types of money orders; these instruments
generally are drawn on or payable through or payable at banks and
are treated as checks on that basis.
7. The sixth and final category of instrument included in the
definition of check is traveler's checks drawn on or payable through
or at a bank. Traveler's check is defined in paragraph (hh) of this
section.
8. Finally, for the purposes of Subpart C, and in connection
therewith, Subpart A, the definition of check includes nonnegotiable
demand drafts because these instruments are often handled as cash
items in the forward collection process.
9. The definition of check does not include an instrument
payable in a foreign currency (i.e., other than in United States
money as defined in 31 U.S.C. 5101) or a credit card draft (i.e., a
sales draft used by a merchant or a draft generated by a bank as a
result of a cash advance), or an ACH debit transfer. The definition
of check includes a check that a bank may supply to a customer as a
means of accessing a credit line without the use of a credit card.
L. 229.2(l) [Reserved]
M. 229.2(m) Check Processing Region
1. The Act defines this term as ``the geographic area served by
a Federal Reserve bank check processing center or such larger area
as the Board may prescribe by regulations.'' The Board has defined
check processing region as the territory served by one of the 46
Federal Reserve head offices, branches, or regional check processing
centers. Appendix A includes a list of routing numbers arranged by
Federal Reserve Bank office. The definition of check processing
region is key to determining whether a check is considered local or
nonlocal.
N. 229.2(n) Consumer Account
1. Consumer account is defined as an account used primarily for
personal, family, or household purposes. An account that does not
meet the definition of consumer account is a nonconsumer account.
Both consumer and nonconsumer accounts are subject to the
requirements of this regulation, including the requirement that
funds be made available according to specific schedules and that the
bank make specified disclosures of its availability policies.
Section 229.18(b) (notices at branch locations) and Sec. 229.18(e)
(notice of changes in policy) apply only to consumer accounts.
Section 229.13(g)(2) (one-time exception notice) and Sec. 229.19(d)
(use of calculated availability) apply only to nonconsumer accounts.
O. 229.2(o) Depositary Bank
1. The regulation uses the term depositary bank rather than the
term receiving depository institution. Receiving depository
institution is a term unique to the Act, while depositary bank is
the term used in Article 4 of the U.C.C. and Regulation J.
2. A depositary bank includes the bank in which the check is
first deposited. If a foreign office of a U.S. or foreign bank sends
checks to its U.S. correspondent bank for forward collection, the
U.S. correspondent is the depositary bank because foreign offices of
banks are not included in the definition of bank.
3. If a customer deposits a check in its account at a bank, the
customer's bank is the depositary bank with respect to the check.
For example, if a person deposits a check into an account at a
nonproprietary ATM, the bank holding the account into which the
check is deposited is the depositary bank even though another bank
may service the nonproprietary ATM and send the check for
collection. (Under Sec. 229.35 the depositary bank may agree with
the bank servicing the nonproprietary ATM to have the servicing bank
place its own indorsement on the check as the depositary bank. For
the purposes of Subpart C, the bank applying its indorsement as the
depositary bank indorsement on the check is the depositary bank.)
4. For purposes of Subpart B, a bank may act as both the
depositary bank and the paying bank with respect to a check, if the
check is payable by the bank in which it was deposited, or if the
check is payable by a nonbank payor and payable through or at the
bank in which it was deposited. A bank also is considered a
depositary bank with respect to checks it receives as payee. For
example, a bank is a depositary bank with respect to checks it
receives for loan repayment, even though these checks are not
deposited in an account at the bank. Because these checks would not
be ``deposited to accounts,'' they would not be subject to the
availability or disclosure requirements of Subpart B.
P. 229.2(p) Electronic Payment
1. Electronic payment is defined to mean a wire transfer as
defined in Sec. 229.2(11) or an ACH credit transfer. The Act
requires that funds deposited by wire transfer be made available for
withdrawal on the business day following deposit but expressly
leaves the definition of the term wire transfer to the Board.
Because ACH credit transfers frequently involve important consumer
payments, such as wages, the regulation requires that funds
deposited by ACH credit transfers be available for withdrawal on the
business day following deposit.
2. ACH debit transfers, even though they may be transmitted
electronically, are not defined as electronic payments because the
receiver of an ACH debit transfer has the right to return the
transfer, which would reverse the credit given to the originator.
Thus, ACH debit transfers are more like checks than wire transfers.
Further, bank customers that receive funds by originating ACH debit
transfers are primarily large corporations, which generally would be
able to negotiate with their banks for prompt availability.
3. A point-of-sale transaction would not be considered an
electronic payment unless the transaction was effected by means of
an ACH credit transfer or wire transfer.
Q. 229.2(q) Forward Collection
1. Forward collection is defined to mean the process by which a
bank sends a check to the paying bank for payment as distinguished
from the process by which the check is returned after nonpayment.
Noncash collections are not included in the term forward collection.
R. 229.2(r) Local Check
1. Local check is defined as a check payable by or at a local
paying bank, or, in the case of nonbank payors, payable through a
local paying bank. A check payable by a local bank but payable
through a nonlocal bank is a local check. Conversely, a check
payable through a local bank but payable by a nonlocal bank is a
nonlocal check. Where two banks are named on a check and neither is
designated as a payable-through bank, the check is considered
payable by either bank and may be considered local or nonlocal
depending on the bank to which it is sent for payment. Generally,
the depositary bank may rely on the routing number to determine
whether a check is local or nonlocal. Appendix A includes a list of
routing numbers arranged by Federal Reserve Bank Office to assist
persons in determining whether or not such a check is local. If,
however, a check is payable by one bank but payable through another
bank, the routing number appearing on the check will be that of the
payable-through bank, not the paying bank. Many credit union share
drafts and certain other checks payable by banks are payable through
other banks. In such cases, the routing number cannot be relied on
to determine whether the check is local or nonlocal. For payable-
through checks that meet the labeling requirements of
Sec. 229.36(e), the depositary bank may rely on the four-digit
routing symbol of the paying bank that is printed on the face of the
check as required by that section, e.g., in the title plate, but not
[[Page 51675]]
on the first four digits of the payable-through bank's routing number
printed in magnetic ink in the MICR line or in fractional form, to
determine whether the check is local or nonlocal.
S. 229.2(s) Local Paying Bank
1. Local paying bank is defined as a paying bank located in the
same check processing region as the branch or proprietary ATM of the
depositary bank.
2. Examples.
a. If a check that is payable by a bank that is located in the
same check processing region as the depositary bank is payable
through a bank located in another check processing region, the check
is considered local or nonlocal depending on the location of the
bank by which it is payable even if the check is sent to the
nonlocal bank for collection.
b. The location of the depositary bank is determined by the
physical location of the branch or proprietary ATM at which a check
is deposited. If the branch of the depositary bank located in one
check processing region sends a check to the depositary bank's
central facility in another check processing region, and the central
facility is in the same check processing region as the paying bank,
the check is still considered nonlocal. (See Commentary on
definition of paying bank.)
T. 229.2(t) Merger Transaction
1. Merger transaction is a term used in Subparts B and C in
connection with transition rules for merged banks. It encompasses
mergers, consolidations, and purchase/assumption transactions of the
type that usually must be approved under the Bank Merger Act (12
U.S.C. 1828(c)) or similar statutes; it does not encompass
acquisitions of a bank under the Bank Holding Company Act (12 U.S.C.
1842) where an acquired bank maintains its separate corporate
existence.
2. Regulation CC adopts a one-year transition period for banks
that are party to a merger transaction during which the merged banks
will continue to be treated as separate entities. (See
Secs. 229.19(g) and 229.40.)
U. 229.2(u) Noncash Item
1. The Act defines the term check to exclude noncash items, and
defines noncash items to include checks to which another document is
attached, checks accompanied by special instructions, or any similar
item classified as a noncash item in the Board's regulation. To
qualify as a noncash item, an item must be handled as such and may
not be handled as a cash item by the depositary bank.
2. The regulation's definition of noncash item also includes
checks that consist of more than a single thickness of paper (except
checks that qualify for handling by automated check processing
equipment, e.g. those placed in carrier envelopes) and checks that
have not been preprinted or post-encoded in magnetic ink with the
paying bank's routing number, as well as checks with documents
attached or accompanied by special instructions. (In the context of
this definition, paying bank refers to the paying bank as defined
for purposes of Subpart C.)
3. A check that has been preprinted or post-encoded with a
routing number that has been retired (e.g., because of a merger) for
at least three years is a noncash item unless the current number is
added for processing purposes by placing the check in an encoded
carrier envelope or adding a strip to the check.
4. Checks that are accompanied by special instructions are also
noncash items. For example, a person concerned about whether a check
will be paid may request the depositary bank to send a check for
collection as a noncash item with an instruction to the paying bank
to notify the depositary bank promptly when the check is paid or
dishonored.
5. For purposes of forward collection, a copy of a check is
neither a check nor a noncash item, but may be treated as either.
For purposes of return, a copy is generally a notice in lieu of
return. (See Secs. 229.30(f) and 229.31(f).)
V. 229.2(v) [Reserved]
W. 229.2(w) [Reserved]
X. 229.2(x) [Reserved]
Y. 229.2(y) [Reserved]
Z. 229.2(z) Paying Bank
1. The regulation uses this term in lieu of the Act's
``originating depository institution.'' For purposes of Subpart B,
the term paying bank includes the payor bank, the payable-at bank to
which a check is sent, or, if the check is payable by a nonbank
payor, the bank through which the check is payable and to which it
is sent for payment or collection. For purposes of Subpart C, the
term includes the payable-through bank and the bank whose routing
number appears on the check regardless of whether the check is
payable by a different bank, provided that the check is sent for
payment or collection to the payable-through bank or the bank whose
routing number appears on the check.
2. Under Secs. 229.30 and 229.36(a), a bank designated as a
payable-through bank or payable-at bank and to which the check is
sent for payment or collection is responsible for the expedited
return of checks and notice of nonpayment requirements of Subpart C.
The payable-through or payable-at bank may contract with the payor
with respect to its liability in discharging these responsibilities.
The Board believes that the Act makes a clear connection between
availability and the time it takes for checks to be cleared and
returned. Allowing the payable-through bank additional time to
forward checks to the payor and await return or pay instructions
from the payor would delay the return of these checks, increasing
the risks to depositary banks. Subpart C places on payable-through
and payable-at banks the requirements of expeditious return based on
the time the payable-through or payable-at bank received the check
for forward collection.
3. If a check is sent for forward collection based on the
routing number, the bank associated with the routing number is a
paying bank for the purposes of Subpart C requirements, including
notice of nonpayment, even if the check is not drawn by a customer
of that bank or the check is fraudulent.
4. The phrase ``and to which [the check] is sent for payment or
collection'' includes sending not only the physical check, but
information regarding the check under a truncation arrangement.
5. Federal Reserve Banks and Federal Home Loan Banks are also
paying banks under all subparts of the regulation with respect to
checks payable by them, even though such banks are not defined as
banks for purposes of Subpart B.
AA. 229.2(aa) Proprietary ATM
1. All deposits at nonproprietary ATMs are treated as deposits
of nonlocal checks, and deposits at proprietary ATMs generally are
treated as deposits at banking offices. The Conference Report on the
Act indicates that the special availability rules for deposits
received through nonproprietary ATMs are provided because
``nonproprietary ATMs today do not distinguish among check deposits
or between check and cash deposits'' (H.R. Rep. No. 261, 100th
Cong., 1st Sess. at 179 (1987)). Thus, a deposit of any combination
of cash and checks at a nonproprietary ATM may be treated as if it
were a deposit of nonlocal checks, because the depositary bank does
not know the makeup of the deposit and consequently is unable to
place different holds on cash, local check, and nonlocal check
deposits made at the ATM.
2. A colloquy between Senators Proxmire and Dodd during the
floor debate on the Competitive Equality Banking Act (133 Cong. Rec.
S11289 (Aug. 4, 1987)) indicates that whether a bank operates the
ATM is the primary criterion in determining whether the ATM is
proprietary to that bank. Because a bank should be capable of
ascertaining the composition of deposits made to an ATM operated by
that bank, an exception to the availability schedules is not
warranted for these deposits. If more than one bank meets the ``owns
or operates'' criterion, the ATM is considered proprietary to the
bank that operates it. For the purpose of this definition, the bank
that operates an ATM is the bank that puts checks deposited into the
ATM into the forward collection stream. An ATM owned by one or more
banks, but operated by a nonbank servicer, is considered proprietary
to the bank or banks that own it.
3. The Act also includes location as a factor in determining
whether an ATM that is either owned or operated by a bank is
proprietary to that bank. The definition of proprietary ATM includes
an ATM located on the premises of the bank, either inside the branch
or on its outside wall, regardless of whether the ATM is owned or
operated by that bank. Because the Act also defines a proprietary
ATM as one that is ``in close proximity'' to the bank, the
regulation defines an ATM located within 50 feet of a bank to be
proprietary to that bank unless it is identified as being owned or
operated by another entity. The Board believes that the statutory
proximity test was designed to apply to situations where it would
appear to the depositor that the ATM is run by his or her bank,
because of the proximity of the ATM to the bank. The Board believes
that an ATM located within 50 feet of a banking office
[[Page 51676]]
would be presumed proprietary to that bank unless it is clearly
identified as being owned or operated by another entity.
BB. 229.2(bb) Qualified Returned Check
1. Subpart C requires the paying bank and returning bank(s) to
return checks in an expeditious manner. The banks may meet this
responsibility by returning a check to the depositary bank by the
same general means used for forward collection of a check from the
depositary bank to the paying bank. One way to speed the return
process is to prepare the returned check for automated processing.
Returned checks can be automated by either the paying bank or a
returning bank by placing the returned check in a carrier envelope
or by placing a strip on the bottom of the returned check and
encoding the envelope or strip with the routing number of the
depositary bank, the amount of the check, and a special return
identifier. Returned checks are identified by placing a ``2'' in
position 44 of the MICR line. (See American National Standards
Committee on Financial Services, Specification for the Placement and
Location of MICR Printing, X9.13 (Sept. 8, 1983) hereinafter
referred to as ``ANSI X9.13-1983.'')
2. Generally, under the standard of care imposed by Sec. 229.38,
a paying or returning bank would be liable for any damages incurred
due to misencoding of the routing number, the amount of the check,
or return identifier on a qualified returned check unless the error
was due to problems with the depositary bank's indorsement. (See
also discussion of Sec. 229.38(c).) A qualified returned check that
contains an encoding error would still be a qualified returned check
for purposes of the regulation.
3. A qualified returned check need not contain the elements of a
check drawn on the depositary bank, such as the name of the
depositary bank. Because indorsements and other information on
carrier envelopes or strips will not appear on a returned check
itself, banks will wish to retain carrier envelopes and/or microfilm
or other records of carrier envelopes or strips with their check
records.
CC. 229.2(cc) Returning Bank
1. Returning bank is defined to mean any bank (excluding the
paying bank and the depositary bank) handling a returned check. A
returning bank may or may not be a bank that handled the returned
check in the forward collection process. A returning bank includes a
bank that agrees to handle a returned check for expeditious return
to the depositary bank under Sec. 229.31(a). A returning bank is
also a collecting bank for the purpose of a collecting bank's duty
to exercise ordinary care under U.C.C. 4-202(b) and is analogous to
a collecting bank for purposes of final settlement. (See Commentary
to Sec. 229.35(b).)
DD. 229.2(dd) Routing Number
1. Each bank is assigned a routing number by Thomson Financial
Publishing Inc., as agent for the American Bankers Association. The
routing number takes two forms--a fractional form and a nine-digit
form. A paying bank is identified by both the fractional form
routing number (which normally appears in the upper right hand
corner of the check) and the nine-digit form. The nine-digit routing
number of the paying bank generally is printed in magnetic ink near
the bottom of the check (the MICR strip; see ANSI X9.13-1983).
Subpart C requires depositary banks and subsequent collecting banks
to place their routing numbers in nine-digit form in their
indorsements.
EE. 229.2(ee) [Reserved]
FF. 229.2(ff) [Reserved]
GG. 229.2(gg) Teller's Check
1. Teller's check is defined in the Act to mean a check issued
by a depository institution and drawn on another depository
institution. The definition in the regulation includes not only
checks drawn by a bank on another bank, but also checks payable
through or at a bank. This would include checks drawn on a nonbank,
as long as the check is payable through or at a bank. The definition
does not include checks that are drawn by a nonbank on a nonbank
even if payable through or at a bank. The definition includes checks
provided to a customer of the bank in connection with customer
deposit account activity, such as account disbursements and interest
payments. The definition also includes checks acquired from a bank
by a noncustomer for remittance purposes, such as certain loan
disbursement checks. The definition excludes checks used by the bank
to pay employees or vendors and checks issued by the bank in
connection with a payment service, such as a payroll or a bill-
paying service. Teller's checks generally are sold by banks to
substitute the bank's credit for the customer's credit and thereby
enhance the collectibility of the checks. A check issued in
connection with a payment service generally is provided as a
convenience to the customer rather than as a guarantee of the
check's collectibility. In addition, such checks are often more
difficult to distinguish from other types of checks than are
teller's checks as defined by this regulation.
HH. 229.2(hh) Traveler's Check
1. The Act and regulation require that traveler's checks be
treated as cashier's, teller's, or certified checks when a new
depositor opens an account. (See Sec. 229.13(a); 12 U.S.C.
4003(a)(1)(C).) The Act does not define traveler's check.
2. One element of the definition states that a traveler's check
is ``drawn on or payable through or at a bank.'' Traveler's checks
that are not issued by banks may not have any words on them
identifying a bank as drawee or paying agent, but may bear unique
routing numbers with an 8000 prefix that identifies a bank as paying
agent.
3. Because a traveler's check is payable by, at, or through a
bank, it is also a check for purposes of this regulation. When not
subject to the next-day availability requirement for new accounts, a
traveler's check should be treated as a local or nonlocal check
depending on the location of the paying bank. The depositary bank
may rely on the designation of the paying bank by the routing number
to determine whether local or nonlocal treatment is required.
II. 229.2(ii) Uniform Commercial Code
1. Uniform Commercial Code is defined as the version of the Code
adopted by the individual states. For purposes of uniform citation,
all citations to the U.C.C. in this part refer to the Official Text
as approved by the American Law Institute and the National
Conference of Commissioners on Uniform State Laws.
JJ. 229.2(jj) [Reserved]
KK. 229.2(kk) Unit of General Local Government
1. Unit of general local government is defined to include a
city, county, parish, town, township, village, or other general
purpose political subdivision of a state. The term does not include
special purpose units, such as school districts, water districts, or
Indian nations.
LL. 229.2(ll) Wire Transfer
1. The Act delegates to the Board the authority to define the
term wire transfer. The regulation defines wire transfer as an
unconditional order to a bank to pay a fixed or determinable amount
of money to a beneficiary, upon receipt or on a day stated in the
order, that is transmitted by electronic or other means over certain
networks or on the books of banks and that is used primarily to
transfer funds between commercial accounts. ``Unconditional'' means
that no condition, such as presentation of documents, must be met
before the bank receiving the order is to make payment. A wire
transfer may be transmitted by electronic or other means.
``Electronic means'' include computer-to-computer links, on-line
terminals, telegrams (including TWX, TELEX, or similar methods of
communication), telephone calls, or other similar methods. Fedwire
(the Federal Reserve's wire transfer network), CHIPS (Clearing House
Interbank Payments System, operated by the New York Clearing House),
and book transfers among banks or within one bank are covered by
this definition. Credits for credit and debit card transactions are
not wire transfers. The term wire transfer excludes electronic fund
transfers as that term is defined by the Electronic Fund Transfer
Act.
MM. 229.2(mm) [Reserved]
NN. 229.2(nn) Good Faith
1. This definition of good faith derives from U.C.C. 3-
103(a)(4).
OO. 229.2(oo) Interest Compensation
1. This calculation of interest compensation derives from U.C.C.
4A-506(b). (See Secs. 229.34(d) and 229.36(f).)
III. Section 229.3 Administrative Enforcement [Reserved]
IV. Section 229.10 Next-Day Availability
A. Business Days and Banking Days
1. This section, as well as other provisions of this subpart
governing the availability of funds, provides that funds must be
made available for withdrawal not later than a specified number of
business days following the banking day on which the funds are
deposited. Thus, a deposit is considered
[[Page 51677]]
made only on a banking day, i.e., a day that the bank is open to the
public for carrying on substantially all of its banking functions.
For example, if a deposit is made at an ATM on a Saturday, Sunday,
or other day on which the bank is closed to the public, the deposit
is considered received on that bank's next banking day.
2. Nevertheless, business days are used to determine the number
of days following the banking day of deposit that funds must be
available for withdrawal. For example, if a deposit of a local check
were made on a Monday, the availability schedule requires that funds
be available for withdrawal on the second business day after
deposit. Therefore, funds must be made available on Wednesday
regardless of whether the bank was closed on Tuesday for other than
a standard legal holiday as specified in the definition of business
day.
B. 229.10(a) Cash Deposits
1. This paragraph implements the Act's requirement for next-day
availability for cash deposits to accounts at a depositary bank
``staffed by individuals employed by such institution.''2 Under
this paragraph, cash deposited in an account at a staffed teller
station on a Monday must become available for withdrawal by the
start of business on Tuesday. It must become available for
withdrawal by the start of business on Wednesday if it is deposited
by mail, at a proprietary ATM, or by other means other than at a
staffed teller station.
\2\Nothing in the Act or this regulation affects terms of
account arrangements, such as negotiable order of withdrawal
accounts, which may require prior notice of withdrawal. (See 12 CFR
204.2(e)(2).)
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C. 229.10(b) Electronic Payments
1. The Act provides next-day availability for funds received for
deposit by wire transfer. The regulation uses the term electronic
payment, rather than wire transfer, to include both wire transfers
and ACH credit transfers under the next-day availability
requirement. (See discussion of definitions of automated
clearinghouse, electronic payment, and wire transfer in Sec. 229.2.)
2. The Act requires that funds received by wire transfer be
available for withdrawal not later than the business day following
the day a wire transfer is received. This paragraph clarifies what
constitutes receipt of an electronic payment. For the purposes of
this paragraph, a bank receives an electronic payment when the bank
receives both payment in finally collected funds and the payment
instructions indicating the customer accounts to be credited and the
amount to be credited to each account. For example, in the case of
Fedwire, the bank receives finally collected funds at the time the
payment is made. (See 12 CFR 210.31.) Finally collected funds
generally are received for an ACH credit transfer when they are
posted to the receiving bank's account on the settlement day. In
certain cases, the bank receiving ACH credit payments will not
receive the specific payment instructions indicating which accounts
to credit until after settlement day. In these cases, the payments
are not considered received until the information on the account and
amount to be credited is received.
3. This paragraph also establishes the extent to which an
electronic payment is considered made. Thus, if a participant on a
private network fails to settle and the receiving bank receives
finally settled funds representing only a partial amount of the
payment, it must make only the amount that it actually received
available for withdrawal.
4. The availability requirements of this regulation do not
preempt or invalidate other rules, regulations, or agreements which
require funds to be made available on a more prompt basis. For
example, the next-day availability requirement for ACH credits in
this section does not preempt ACH association rules and Treasury
regulations (31 CFR part 210), which provide that the proceeds of
these credit payments be available to the recipient for withdrawal
on the day the bank receives the funds.
D. 229.10(c) Certain Check Deposits
1. The Act generally requires that funds be made available on
the business day following the banking day of deposit for Treasury
checks, state and local government checks, cashier's checks,
certified checks, teller's checks, and ``on us'' checks, under
specified conditions. (Treasury checks are checks drawn on the
Treasury of the United States and have a routing number beginning
with the digits ``0000.'') This section also requires next-day
availability for additional types of checks not addressed in the
Act. Checks drawn on a Federal Reserve Bank or a Federal Home Loan
Bank and U.S. Postal Service money orders also must be made
available on the first business day following the day of deposit
under specified conditions. For the purposes of this section, all
checks drawn on a Federal Reserve Bank or a Federal Home Loan Bank
that contain in the MICR line a routing number that is listed in
Appendix A are subject to the next-day availability requirement if
they are deposited in an account held by a payee of the check and in
person to an employee of the depositary bank, regardless of the
purposes for which the checks were issued. For all new accounts,
even if the new account exception is not invoked, traveler's checks
must be included in the $5,000 aggregation of checks deposited on
any one banking day that are subject to the next-day availability
requirement. (See Sec. 229.13(a).)
2. Deposit in Account of Payee. One statutory condition to
receipt of next-day availability of Treasury checks, state and local
government checks, cashier's checks, certified checks, and teller's
checks is that the check must be ``endorsed only by the person to
whom it was issued.'' The Act could be interpreted to include a
check that has been indorsed in blank and deposited into an account
of a third party that is not named as payee. The Board believes that
such a check presents greater risks than a check deposited by the
payee and that Congress did not intend to require next-day
availability for such checks. The regulation, therefore, provides
that funds must be available on the business day following deposit
only if the check is deposited in an account held by a payee of the
check. For the purposes of this section, payee does not include
transferees other than named payees. The regulation also applies
this condition to Postal Service money orders and checks drawn on
Federal Reserve Banks and Federal Home Loan Banks.
3. Deposits Made to an Employee of the Depositary Bank.
a. In most cases, next-day availability of the proceeds of
checks subject to this section is conditioned on the deposit of
these checks in person to an employee of the depositary bank. If the
deposit is not made to an employee of the depositary bank on the
premises of such bank, the proceeds of the deposit must be made
available for withdrawal by the start of business on the second
business day after deposit, under paragraph (c)(2) of this section.
For example, second-day availability rather than next-day
availability would be allowed for deposits of checks subject to this
section made at a proprietary ATM, night depository, through the
mail or a lock box, or at a teller station staffed by a person who
is not an employee of the depositary bank. Second-day availability
also may be allowed for deposits picked up by an employee of the
depositary bank at the customer's premises; such deposits would be
considered made upon receipt at the branch or other location of the
depositary bank.
b. In the case of Treasury checks, the Act and regulation do not
condition the receipt of next-day availability to deposits at
staffed teller stations. Therefore, Treasury checks deposited at a
proprietary ATM must be accorded next-day availability, if the check
is deposited to an account of a payee of the check.
4. ``On Us'' Checks. The Act and regulation require next-day
availability for ``on us'' checks, i.e., checks deposited in a
branch of the depositary bank and drawn on the same or another
branch of the same bank, if both branches are located in the same
state or check processing region. Thus, checks deposited in one
branch of a bank and drawn on another branch of the same bank must
receive next-day availability even if the branch on which the checks
are drawn is located in another check processing region but in the
same state as the branch in which the check is deposited. For the
purposes of this requirement, deposits at facilities that are not
located on the premises of a brick-and-mortar branch of the bank,
such as off-premise ATMs and remote depositories, are not considered
deposits made at branches of the depositary bank.
5. First $100.
a. The Act and regulation also require that up to $100 of the
aggregate deposit by check or checks not subject to next-day
availability on any one banking day be made available on the next
business day. For example, if $70 were deposited in an account by
check(s) on a Monday, the entire $70 must be available for
withdrawal at the start of business on Tuesday. If $200 were
deposited by check(s) on a Monday, this section requires that $100
of the funds be available for withdrawal at the start of business on
Tuesday. The portion of the customer's deposit to which the $100
must be applied is at the discretion of the depositary bank, as long
as it is not applied to any checks subject to next-day availability.
The $100 next-day availability rule does not apply to deposits at
nonproprietary ATMs.
[[Page 51678]]
b. The $100 that must be made available under this rule is in
addition to the amount that must be made available for withdrawal on
the business day after deposit under other provisions of this
section. For example, if a customer deposits a $1,000 Treasury
check, and a $1,000 local check in its account on Monday, $1,100
must be made available for withdrawal on Tuesday--the proceeds of
the $1,000 Treasury check, as well as the first $100 of the local
check.
c. A depositary bank may aggregate all local and nonlocal check
deposits made by the customer on a given banking day for the
purposes of the $100 next-day availability rule. Thus, if a customer
has two accounts at the depositary bank, and on a particular banking
day makes deposits to each account, $100 of the total deposited to
the two accounts must be made available on the business day after
deposit. Banks may aggregate deposits to individual and joint
accounts for the purposes of this provision.
d. If the customer deposits a $500 local check, and gets $100
cash back at the time of deposit, the bank need not make an
additional $100 available for withdrawal on the following day.
Similarly, if the customer depositing the local check has a negative
book balance, or negative available balance in its account at the
time of deposit, the $100 that must be available on the next
business day may be made available by applying the $100 to the
negative balance, rather than making the $100 available for
withdrawal by cash or check on the following day.
6. Special Deposit Slips.
a. Under the Act, a depositary bank may require the use of a
special deposit slip as a condition to providing next-day
availability for certain types of checks. This condition was
included in the Act because many banks determine the availability of
their customers' check deposits in an automated manner by reading
the MICR-encoded routing number on the deposited checks. Using these
procedures, a bank can determine whether a check is a local or
nonlocal check, a check drawn on the Treasury, a Federal Reserve
Bank, a Federal Home Loan Bank, or a branch of the depositary bank,
or a U.S. Postal Service money order. Appendix A includes the
routing numbers of certain categories of checks that are subject to
next-day availability. The bank cannot require a special deposit
slip for these checks.
b. A bank cannot distinguish whether the check is a state or
local government check, cashier's check, certified check, or
teller's check by reading the MICR-encoded routing number, because
these checks bear the same routing number as other checks drawn on
the same bank that are not accorded next-day availability.
Therefore, a bank may require a special deposit slip for these
checks.
c. The regulation specifies that if a bank decides to require
the use of a special deposit slip (or a special deposit envelope in
the case of a deposit at an ATM or other unstaffed facility) as a
condition to granting next-day availability under paragraphs
(c)(1)(iv) or (c)(1)(v) of this section or second-day availability
under paragraph (c)(2) of this section, and if the deposit slip that
must be used is different from the bank's regular deposit slips, the
bank must either provide the special slips to its customers or
inform its customers how such slips may be obtained and make the
slips reasonably available to the customers.
d. A bank may meet this requirement by providing customers with
an order form for the special deposit slips and allowing sufficient
time for the customer to order and receive the slips before this
condition is imposed. If a bank provides deposit slips in its
branches for use by its customers, it also must provide the special
deposit slips in the branches. If special deposit envelopes are
required for deposits at an ATM, the bank must provide such
envelopes at the ATM.
e. Generally, a teller is not required to advise depositors of
the availability of special deposit slips merely because checks
requiring special deposit slips for next-day availability are
deposited without such slips. If a bank provides the special deposit
slips only upon the request of a depositor, however, the teller must
advise the depositor of the availability of the special deposit
slips, or the bank must post a notice advising customers that the
slips are available upon request. If a bank prepares a deposit for a
depositor, it must use a special deposit slip where appropriate. A
bank may require the customer to segregate the checks subject to
next-day availability for which special deposit slips could be
required, and to indicate on a regular deposit slip that such checks
are being deposited, if the bank so instructs its customers in its
initial disclosure.
V. Section 229.11 [Reserved]
VI. Section 229.12 Availability Schedule
A. 229.12(a) Effective Date
1. The availability schedule set forth in this section
supersedes the temporary schedule that was effective September 1,
1988, through August 31, 1990.
B. 229.12(b) Local Checks and Certain Other Checks
1. Local checks must be made available for withdrawal not later
than the second business day following the banking day on which the
checks were deposited.
2. In addition, the proceeds of Treasury checks and U.S. Postal
Service money orders not subject to next-day (or second-day)
availability under Sec. 229.10(c), checks drawn on Federal Reserve
Banks and Federal Home Loan Banks, checks drawn by a state or unit
of general local government, cashier's checks, certified checks, and
teller's checks not subject to next-day (or second-day) availability
under Sec. 229.10(c) and payable in the same check processing region
as the depositary bank, must be made available for withdrawal by the
second business day following deposit.
3. Exceptions are made for withdrawals by cash or similar means
and for deposits in banks located outside the 48 contiguous states.
Thus, the proceeds of a local check deposited on a Monday generally
must be made available for withdrawal on Wednesday.
C. 229.12(c) Nonlocal Checks
1. Nonlocal checks must be made available for withdrawal not
later than the fifth business day following deposit, i.e., proceeds
of a nonlocal check deposited on a Monday must be made available for
withdrawal on the following Monday. In addition, a check described
in Sec. 229.10(c) that does not meet the conditions for next-day
availability (or second-day availability) is treated as a nonlocal
check, if the check is drawn on or payable through or at a nonlocal
paying bank. Adjustments are made to the schedule for withdrawals by
cash or similar means and deposits in banks located outside the 48
contiguous states.
2. Reduction in Schedules.
a. Section 603(d)(1) of the Act (12 U.S.C. 4002(d)(1)) requires
the Board to reduce the statutory schedules for any category of
checks where most of those checks would be returned in a shorter
period of time than provided in the schedules. The conferees
indicated that ``if the new system makes it possible for two-thirds
of the items of a category of checks to meet this test in a shorter
period of time, then the Federal Reserve must shorten the schedules
accordingly.'' H.R. Rep. No. 261, 100th Cong., 1st Sess. at 179
(1987).
b. Reduced schedules are provided for certain nonlocal checks
where significant improvements can be made to the Act's schedules
due to transportation arrangements or proximity between the check
processing regions of the depositary bank and the paying bank,
allowing for faster collection and return. Appendix B sets forth the
specific reduction of schedules applicable to banks located in
certain check processing regions.
c. A reduction in schedules may apply even in those cases where
the determination that the check is nonlocal cannot be made based on
the routing number on the check. For example, a nonlocal credit
union payable-through share draft may be subject to a reduction in
schedules if the routing number of the payable-through bank that
appears on the draft is included in Appendix B, even though the
determination that the payable-through share draft is nonlocal is
based on the location of the credit union and not the routing number
on the draft.
D. 229.12(d) Time Period Adjustment for Withdrawal by Cash or Similar
Means
1. The Act provides an adjustment to the availability rules for
cash withdrawals. Funds from local and nonlocal checks need not be
available for cash withdrawal until 5:00 p.m. on the day specified
in the schedule. At 5:00 p.m., $400 of the deposit must be made
available for cash withdrawal. This $400 is in addition to the first
$100 of a day's deposit, which must be made available for withdrawal
at the start of business on the first business day following the
banking day of deposit. If the proceeds of local and nonlocal checks
become available for withdrawal on the same business day, the $400
withdrawal limitation applies to the aggregate amount of the funds
that became available for withdrawal on that day. The remainder of
the funds must be available for cash withdrawal at the start of
business on the business day following the business day specified in
the schedule.
2. The Act recognizes that the $400 that must be provided on the
day specified in the schedule may exceed a bank's daily ATM
[[Page 51679]]
cash withdrawal limit, and explicitly provides that the Act does not
supersede the bank's policy in this regard. The Board believes that
the rationale for accommodating a bank's ATM withdrawal limit also
applies to other cash withdrawal limits established by that bank.
Section 229.19(c)(4) of the regulation addresses the relation
between a bank's cash withdrawal limit (for over-the-counter cash
withdrawals as well as ATM cash withdrawals) and the requirements of
this subpart.
3. The Board believes that the Congress included this special
cash withdrawal rule to provide a depositary bank with additional
time to learn of the nonpayment of a check before it must make funds
available to its customer. If a customer deposits a local check on a
Monday, and that check is returned by the paying bank, the
depositary bank may not receive the returned check until Thursday,
the day after funds for a local check ordinarily must be made
available for withdrawal. The intent of the special cash withdrawal
rule is to minimize this risk to the depositary bank. For this rule
to minimize the depositary bank's risk, it must apply not only to
cash withdrawals, but also to withdrawals by other means that result
in an irrevocable debit to the customer's account or commitment to
pay by the bank on the customer's behalf during the day. Thus, the
cash withdrawal rule also includes withdrawals by electronic
payment, issuance of a cashier's or teller's check, certification of
a check, or other irrevocable commitment to pay, such as
authorization of an on-line point-of-sale debit. The rule also would
apply to checks presented over the counter for payment on the day of
presentment by the depositor or another person. Such checks could
not be dishonored for insufficient funds if an amount sufficient to
cover the check had became available for cash withdrawal under this
rule; however, payment of such checks would be subject to the bank's
cut-off hour established under U.C.C. 4-108. The cash withdrawal
rule does not apply to checks and other provisional debits presented
to the bank for payment that the bank has the right to return.
E. 229.12(e) Extension of Schedule for Certain Deposits in Alaska,
Hawaii, Puerto Rico, and the U.S. Virgin Islands
1. The Act and regulation provide an extension of the
availability schedules for check deposits at a branch of a bank if
the branch is located in Alaska, Hawaii, Puerto Rico, or the U.S.
Virgin Islands. The schedules for local checks, nonlocal checks
(including nonlocal checks subject to the reduced schedules of
Appendix B), and deposits at nonproprietary ATMs are extended by one
business day for checks deposited to accounts in banks located in
these jurisdictions that are drawn on or payable at or through a
paying bank not located in the same jurisdiction as the depositary
bank. For example, a check deposited in a bank in Hawaii and drawn
on a San Francisco paying bank must be made available for withdrawal
not later than the third business day following deposit. This
extension does not apply to deposits that must be made available for
withdrawal on the next business day.
2. The Congress did not provide this extension of the schedules
to checks drawn on a paying bank located in Alaska, Hawaii, Puerto
Rico, or the U.S. Virgin Islands and deposited in an account at a
depositary bank in the 48 contiguous states. Therefore, a check
deposited in a San Francisco bank drawn on a Hawaii paying bank must
be made available for withdrawal not later than the second rather
than the third business day following deposit.
F. 229.12(f) Deposits at Nonproprietary ATMs
1. The Act and regulation provide a special rule for deposits
made at nonproprietary ATMs. This paragraph does not apply to
deposits made at proprietary ATMs. All deposits at a nonproprietary
ATM must be made available for withdrawal by the fifth business day
following the banking day of deposit. For example, a deposit made at
a nonproprietary ATM on a Monday, including any deposit by cash or
checks that would otherwise be subject to next-day (or second-day)
availability, must be made available for withdrawal not later than
Monday of the following week. The provisions of
Sec. 229.10(c)(1)(vii) requiring a depositary bank to make up to
$100 of an aggregate daily deposit available for withdrawal on the
first business day after the banking day of deposit do not apply to
deposits at a nonproprietary ATM.
VII. Section 229.13 Exceptions
A. Introduction
1. While certain safeguard exceptions (such as those for new
accounts and checks the bank has reasonable cause to believe are
uncollectible) are established in the Act, the Congress gave the
Board the discretion to determine whether certain other exceptions
should be included in its regulations. Specifically, the Act gives
the Board the authority to establish exceptions to the schedules for
large or redeposited checks and for accounts that have been
repeatedly overdrawn. These exceptions apply to local and nonlocal
checks as well as to checks that must otherwise be accorded next-day
(or second-day) availability under Sec. 229.10(c).
2. Many checks will not be returned to the depositary bank by
the time funds must be made available for withdrawal under the next-
day (or second-day), local, and nonlocal schedules. In order to
reduce risk to depositary banks, the Board has exercised its
statutory authority to adopt these exceptions to the schedules in
the regulation to allow the depositary bank to extend the time
within which it is required to make funds available.
3. The Act also gives the Board the authority to suspend the
schedules for any classification of checks, if the schedules result
in an unacceptable level of fraud losses. The Board will adopt
regulations or issue orders to implement this statutory authority if
and when circumstances requiring its implementation arise.
B. 229.13(a) New Accounts
1. Definition of New Account.
a. The Act provides an exception to the availability schedule
for new accounts. An account is defined as a new account during the
first 30 calendar days after the account is opened. An account is
opened when the first deposit is made to the account. An account is
not considered a new account, however, if each customer on the
account has a transaction account relationship with the depositary
bank, including a dormant account, that is at least 30 calendar days
old or if each customer has had an established transaction account
with the depositary bank within the 30 calendar days prior to
opening the second account.
b. The following are examples of what constitutes, and does not
constitute, a new account:
i. If the customer has an established account with a bank and
opens a second account with the bank, the second account is not
subject to the new account exception.
ii. If a customer's account were closed and another account
opened as a successor to the original account (due, for example, to
the theft of checks or a debit card used to access the original
account), the successor account is not subject to the new account
exception, assuming the previous account relationship is at least 30
days old. Similarly, if a customer closes an established account and
opens a separate account within 30 days, the new account is not
subject to the new account exception.
iii. If a customer has a savings deposit or other deposit that
is not an account (as that term is defined in Sec. 229.2(a)) at the
bank, and opens an account, the account is subject to the new
account exception.
iv. If a person that is authorized to sign on a corporate
account (but has no other relationship with the bank) opens a
personal account, the personal account is subject to the new account
exception.
v. If a customer has an established joint account at a bank, and
subsequently opens an individual account with that bank, the
individual account is not subject to the new account exception.
vi. If two customers that each have an established individual
account with the bank open a joint account, the joint account is not
subject to the new account exception. If one of the customers on the
account has no current or recent established account relationship
with the bank, however, the joint account is subject to the new
account exception, even if the other individual on the account has
an established account relationship with the bank.
2. Rules Applicable to New Accounts.
a. During the new account exception period, the schedules for
local and nonlocal checks do not apply, and, unlike the other
exceptions provided in this section, the regulation provides no
maximum time frames within which the proceeds of these deposits must
be made available for withdrawal. Maximum times within which funds
must be available for withdrawal during the new account period are
provided, however, for certain other deposits. Deposits received by
cash and electronic payments must be made available for withdrawal
in accordance with Sec. 229.10.
b. Special rules also apply to deposits of Treasury checks, U.S.
Postal Service money orders, checks drawn on Federal Reserve Banks
and Federal Home Loan Banks, state and local government checks,
cashier's
[[Page 51680]]
checks, certified checks, teller's checks, and, for the purposes of the
new account exception only, traveler's checks. The first $5,000 of
funds deposited to a new account on any one banking day by these
check deposits must be made available for withdrawal in accordance
with Sec. 229.10(c). Thus, the first $5,000 of the proceeds of these
check deposits must be made available on the first business day
following deposit, if the deposit is made in person to an employee
of the depositary bank and the other conditions of next-day
availability are met. Funds must be made available on the second
business day after deposit for deposits that are not made over the
counter, in accordance with Sec. 229.10(c)(2). (Proceeds of Treasury
check deposits must be made available on the first business day
after deposit, even if the check is not deposited in person to an
employee of the depositary bank.) Funds in excess of the first
$5,000 deposited by these types of checks on a banking day must be
available for withdrawal not later than the ninth business day
following the banking day of deposit. The requirements of
Sec. 229.10(c)(1)(vi) and (vii) that ``on us'' checks and the first
$100 of a day's deposit be made available for withdrawal on the next
business day do not apply during the new account period.
3. Representation by Customer. The depositary bank may rely on
the representation of the customer that the customer has no
established account relationship with the bank, and has not had any
such account relationship within the past 30 days, to determine
whether an account is subject to the new account exception.
C. 229.13(b) Large Deposits
1. Under the large deposit exception, a depositary bank may
extend the hold placed on check deposits to the extent that the
amount of the aggregate deposit on any banking day exceeds $5,000.
This exception applies to local and nonlocal checks, as well as to
checks that otherwise would be made available on the next (or
second) business day after the day of deposit under Sec. 229.10(c).
Although the first $5,000 of a day's deposit is subject to the
availability otherwise provided for checks, the amount in excess of
$5,000 may be held for an additional period of time as provided in
Sec. 229.13(h). When the large deposit exception is applied to
deposits composed of a mix of checks that would otherwise be subject
to differing availability schedules, the depositary bank has the
discretion to choose the portion of the deposit to which it applies
the exception. Deposits by cash or electronic payment are not
subject to this exception for large deposits.
2. The following example illustrates the operation of the large
deposit exception. If a customer deposits $2,000 in cash and a
$9,000 local check on a Monday, $2,100 (the proceeds of the cash
deposit and $100 from the local check deposit) must be made
available for withdrawal on Tuesday. An additional $4,900 of the
proceeds of the local check must be available for withdrawal on
Wednesday in accordance with the local schedule, and the remaining
$4,000 may be held for an additional period of time under the large
deposit exception.
3. Where a customer has multiple accounts with a depositary
bank, the bank may apply the large deposit exception to the
aggregate deposits to all of the customer's accounts, even if the
customer is not the sole holder of the accounts and not all of the
holders of the customer's accounts are the same. Thus, a depositary
bank may aggregate the deposits made to two individual accounts in
the same name, to an individual and a joint account with one common
name, or to two joint accounts with at least one common name for the
purpose of applying the large deposit exception. Aggregation of
deposits to multiple accounts is permitted because the Board
believes that the risk to the depositary bank associated with large
deposits is similar regardless of how the deposits are allocated
among the customer's accounts.
D. 229.13(c) Redeposited Checks
1. The Act gives the Board the authority to promulgate an
exception to the schedule for checks that have been returned unpaid
and redeposited. Section 229.13(c) provides such an exception for
checks that have been returned unpaid and redeposited by the
customer or the depositary bank. This exception applies to local and
nonlocal checks, as well as to checks that would otherwise be made
available on the next (or second) business day after the day of
deposit under Sec. 229.10(c).
2. This exception addresses the increased risk to the depositary
bank that checks that have been returned once will be uncollectible
when they are presented to the paying bank a second time. The Board,
however, does not believe that this increased risk is present for
checks that have been returned due to a missing indorsement. Thus,
the exception does not apply to checks returned unpaid due to
missing indorsements and redeposited after the missing indorsement
has been obtained, if the reason for return indicated on the check
(see Sec. 229.30(d)) states that it was returned due to a missing
indorsement. For the same reason, this exception does not apply to a
check returned because it was postdated (future dated), if the
reason for return indicated on the check states that it was returned
because it was postdated, and if it is no longer postdated when
redeposited.
3. To determine when funds must be made available for
withdrawal, the banking day on which the check is redeposited is
considered to be the day of deposit. A depositary bank that made
$100 of a check available for withdrawal under
Sec. 229.10(c)(1)(vii) can charge back the full amount of the check,
including the $100, if the check is returned unpaid, and the $100
need not be made available again if the check is redeposited.
E. 229.13(d) Repeated Overdrafts
1. The Act gives the Board the authority to establish an
exception for ``deposit accounts which have been overdrawn
repeatedly.'' This paragraph provides two tests to determine what
constitutes repeated overdrafts. Under the first test, a customer's
accounts are considered repeatedly overdrawn if, on six banking days
within the preceding six months, the available balance in any
account held by the customer is negative, or the balance would have
become negative if checks or other charges to the account had been
paid, rather than returned. This test can be met based on separate
occurrences (e.g., checks that are returned for insufficient funds
on six different days), or based on one occurrence (e.g., a negative
balance that remains on the customer's account for six banking
days). If the bank dishonors a check that otherwise would have
created a negative balance, however, the incident is considered an
overdraft only on that day.
2. The second test addresses substantial overdrafts. Such
overdrafts increase the risk to the depositary bank of dealing with
the repeated overdrafter. Under this test, a customer incurs
repeated overdrafts if, on two banking days within the preceding six
months, the available balance in any account held by the customer is
negative in an amount of $5,000 or more, or would have become
negative in an amount of $5,000 or more if checks or other charges
to the account had been paid.
3. The exception relates not only to overdrafts caused by checks
drawn on the account, but also overdrafts caused by other debit
charges (e.g. ACH debits, point-of-sale transactions, returned
checks, account fees, etc.). If the potential debit is in excess of
available funds, the exception applies regardless of whether the
items were paid or returned unpaid. An overdraft resulting from an
error on the part of the depositary bank, or from the imposition of
overdraft charges for which the customer is entitled to a refund
under Secs. 229.13(e) or 229.16(c), cannot be considered in
determining whether the customer is a repeated overdrafter. The
exception excludes accounts with overdraft lines of credit, unless
the credit line has been exceeded or would have been exceeded if the
checks or other charges to the account had been paid.
4. This exception applies to local and nonlocal checks, as well
as to checks that otherwise would be made available on the next (or
second) business day after the day of deposit under Sec. 229.10(c).
When a bank places or extends a hold under this exception, it need
not make the first $100 of a deposit available for withdrawal on the
next business day, as otherwise would be required by
Sec. 229.10(c)(1)(vii).
F. 229.13(e) Reasonable Cause To Doubt Collectibility
1. In the case of certain check deposits, if the bank has
reasonable cause to believe the check is uncollectible, it may
extend the time funds must be made available for withdrawal. This
exception applies to local and nonlocal checks, as well as to checks
that would otherwise be made available on the next (or second)
business day after the day of deposit under Sec. 229.10(c). When a
bank places or extends a hold under this exception, it need not make
the first $100 of a deposit available for withdrawal on the next
business day, as otherwise would be required by
Sec. 229.10(c)(1)(vii). If the reasonable cause exception is
invoked, the bank must include in the notice to its customer,
required by Sec. 229.13(g), the reason that the bank believes that
the check is uncollectible.
[[Page 51681]]
2. The following are several examples of circumstances under
which the reasonable cause exception may be invoked:
a. If a bank received a notice from the paying bank that a check
was not paid and is being returned to the depositary bank, the
depositary bank could place a hold on the check or extend a hold
previously placed on that check, and notify the customer that the
bank had received notice that the check is being returned. The
exception could be invoked even if the notice were incomplete, if
the bank had reasonable cause to believe that the notice applied to
that particular check.
b. The depositary bank may have received information from the
paying bank, prior to the presentment of the check, that gives the
bank reasonable cause to believe that the check is uncollectible.
For example, the paying bank may have indicated that payment has
been stopped on the check, or that the drawer's account does not
currently have sufficient funds to honor the check. Such information
may provide sufficient basis to invoke this exception. In these
cases, the depositary bank could invoke the exception and disclose
as the reason the exception is being invoked the fact that
information from the paying bank indicates that the check may not be
paid.
c. The fact that a check is deposited more than six months after
the date on the check (i.e. a stale check) is a reasonable
indication that the check may be uncollectible, because under U.C.C.
4-404 a bank has no duty to its customer to pay a check that is more
than six months old. Similarly, if a check being deposited is
postdated (future dated), the bank may have a reasonable cause to
believe the check is uncollectible, because the check may not be
properly payable under U.C.C. 4-401. The bank, in its notice, should
specify that the check is stale-dated or postdated.
d. There are reasons that may cause a bank to believe that a
check is uncollectible that are based on confidential information.
For example, a bank could conclude that a check being deposited is
uncollectible based on its reasonable belief that the depositor is
engaging in kiting activity. Reasonable belief as to the insolvency
or pending insolvency of the drawer of the check or the drawee bank
and that the checks will not be paid also may justify invoking this
exception. In these cases, the bank may indicate, as the reason it
is invoking the exception, that the bank has confidential
information that indicates that the check might not be paid.
3. The Board has included a reasonable cause exception notice as
a model notice in Appendix C (C-13). The model notice includes
several reasons for which this exception may be invoked. The Board
does not intend to provide a comprehensive list of reasons for which
this exception may be invoked; another reason that does not appear
on the model notice may be used as the basis for extending a hold,
if the reason satisfies the conditions for invoking this exception.
A depositary bank may invoke the reasonable cause exception based on
a combination of factors that give rise to a reasonable cause to
doubt the collectibility of a check. In these cases, the bank should
disclose the primary reasons for which the exception was invoked in
accordance with paragraph (g) of this section.
4. The regulation provides that the determination that a check
is uncollectible shall not be based on a class of checks or persons.
For example, a depositary bank cannot invoke this exception simply
because the check is drawn on a paying bank in a rural area and the
depositary bank knows it will not have the opportunity to learn of
nonpayment of that check before funds must be made available under
the availability schedules. Similarly, a depositary bank cannot
invoke the reasonable cause exception based on the race or national
origin of the depositor.
5. If a depositary bank invokes this exception with respect to a
particular check and does not provide a written notice to the
depositor at the time of deposit, the depositary bank may not assess
any overdraft fee (such as an ``NSF'' charge) or charge interest for
use of overdraft credit, if the check is paid by the paying bank and
these charges would not have occurred had the exception not been
invoked. A bank may assess an overdraft fee under these
circumstances, however, if it provides notice to the customer, in
the notice of exception required by paragraph (g) of this section,
that the fee may be subject to refund, and refunds the charges upon
the request of the customer. The notice must state that the customer
may be entitled to a refund of any overdraft fees that are assessed
if the check being held is paid, and indicate where such requests
for a refund of overdraft fees should be directed.
G. 229.13(f) Emergency Conditions
1. Certain emergency conditions may arise that delay the
collection or return of checks, or delay the processing and updating
of customer accounts. In the circumstances specified in this
paragraph, the depositary bank may extend the holds that are placed
on deposits of checks that are affected by such delays, if the bank
exercises such diligence as the circumstances require. For example,
if a bank learns that a check has been delayed in the process of
collection due to severe weather conditions or other causes beyond
its control, an emergency condition covered by this section may
exist and the bank may place a hold on the check to reflect the
delay. This exception applies to local and nonlocal checks, as well
as checks that would otherwise be made available on the next (or
second) business day after the day of deposit under Sec. 229.10(c).
When a bank places or extends a hold under this exception, it need
not make the first $100 of a deposit available for withdrawal on the
next business day, as otherwise would be required by
Sec. 229.10(c)(1)(vii). In cases where the emergency conditions
exception does not apply, as in the case of deposits of cash or
electronic payments under Sec. 229.10 (a) and (b), the depositary
bank may not be liable for a delay in making funds available for
withdrawal if the delay is due to a bona fide error such as an
unavoidable computer malfunction.
H. 229.13(g) Notice of Exception
1. In general.
a. If a depositary bank invokes any of the safeguard exceptions
to the schedules listed above, other than the new account exception,
and extends the hold on a deposit beyond the time periods permitted
in Secs. 229.10(c) and 229.12, it must provide a notice to its
customer. Except in the cases described in paragraphs (g)(2) and
(g)(3) of this section, notices must be given each time an exception
hold is invoked and must state the customer's account number, the
date of deposit, the reason the exception was invoked, and the time
period within which funds will be available for withdrawal.
b. With respect to paragraph (g)(1), the requirement that the
notice state the time period within which the funds shall be made
available may be satisfied if the notice identifies the date the
deposit is received and information sufficient to indicate when
funds will be available and the amounts that will be available at
those times. For example, for a deposit involving more than one
check, the bank need not provide a notice that discloses when funds
from each individual check in the deposit will be available for
withdrawal; instead, the bank may provide a total dollar amount for
each of the time periods when funds will be available, or provide
the customer with an explanation of how to determine the amount of
the deposit that will be held and when the funds will be available
for deposit. Appendix C (C-12) contains a model notice.
c. For deposits made in person to an employee of the depositary
bank, the notice generally must be given to the person making the
deposit, i.e., the ``depositor'', at the time of deposit. The
depositor need not be the customer holding the account. For other
deposits, such as deposits received at an ATM, lobby deposit box,
night depository, or through the mail, notice must be mailed to the
customer not later than the close of the business day following the
banking day on which the deposit was made.
d. Notice to the customer also may be provided at a later time,
if the facts upon which the determination to invoke the exception do
not become known to the depositary bank until after notice would
otherwise have to be given. In these cases, the bank must mail the
notice to the customer as soon as practicable, but not later than
the business day following the day the facts become known. A bank is
deemed to have knowledge when the facts are brought to the attention
of the person or persons in the bank responsible for making the
determination, or when the facts would have been brought to their
attention if the bank had exercised due diligence.
e. If the depositary bank extends the hold placed on a deposit
due to an emergency condition, the notice requirement generally
applies; however, the regulation provides that the bank need not
provide a notice if the funds would be available for withdrawal
before the notice must be sent. For example, if on the last day of a
hold period the depositary bank experiences a computer failure and
customer accounts cannot be updated in a timely fashion to reflect
the funds as available balances, notices are not required if the
funds are made available before the notices must be sent.
f. In those cases described in paragraphs (g)(2) and (g)(3), the
depositary bank need not
[[Page 51682]]
provide a notice every time an exception hold is applied to a deposit.
When paragraph (g)(2) or (g)(3) requires disclosure of the time
period within which deposits subject to the exception generally will
be available for withdrawal, the requirement may be satisfied if the
one-time notice states when ``on us,'' local, and nonlocal checks
will be available for withdrawal if an exception is invoked.
2. One-time exception notice.
a. Under paragraph (g)(2), if a nonconsumer account (see
Commentary to Sec. 229.2(n)) is subject to the large deposit or
redeposited check exception, the depositary bank may give its
customer a single notice at or prior to the time notice must be
provided under paragraph (g)(1). Notices provided under paragraph
(g)(2) must contain the reason the exception may be invoked and the
time period within which deposits subject to the exception will be
available for withdrawal (see Model Notice C-14). A depositary bank
may provide a one-time notice to a nonconsumer customer under
paragraph (g)(2) only if each exception cited in the notice (the
large deposit and/or the redeposited check exception) will be
invoked for most check deposits to the customer's account to which
the exception could apply. A one-time notice may state that the
depositary bank will apply exception holds to certain subsets of
deposits to which the large deposit or redeposited check exception
may apply, and the notice should identify such subsets. For example,
the depositary bank may apply the redeposited check exception only
to checks that were redeposited automatically by the depositary bank
in accordance with an agreement with the customer, rather than to
all redeposited checks. In lieu of sending the one-time notice, a
depositary bank may send individual hold notices for each deposit
subject to the large deposit or redeposited check exception in
accordance with Sec. 229.13(g)(1) (see Model Notice C-12).
b. In the case of a deposit of multiple checks, the depositary
bank has the discretion to place an exception hold on any
combination of checks in excess of $5,000. The notice should enable
a customer to determine the availability of the deposit in the case
of a deposit of multiple checks. For example, if a customer deposits
a $5,000 local check and a $5,000 nonlocal check, under the large
deposit exception, the depositary bank may make funds available in
the amount of (1) $100 on the first business day after deposit,
$4,900 on the second business day after deposit (local check), and
$5,000 on the eleventh business day after deposit (nonlocal check
with 6-day exception hold), or (2) $100 on the first business day
after deposit, $4,900 on the fifth business day after deposit
(nonlocal check), and $5,000 on the seventh business day after
deposit (local check with 5-day exception hold). The notice should
reflect the bank's priorities in placing exception holds on next-day
(or second-day), local, and nonlocal checks.
3. Notice of repeated overdraft exception. Under paragraph
(g)(3), if an account is subject to the repeated overdraft
exception, the depositary bank may provide one notice to its
customer for each time period during which the exception will apply.
Notices sent pursuant to paragraph (g)(3) must state the customer's
account number, the fact the exception was invoked under the
repeated overdraft exception, the time period within which deposits
subject to the exception will be made available for withdrawal, and
the time period during which the exception will apply (see Model
Notice C-15). A depositary bank may provide a one-time notice to a
customer under paragraph (g)(3) only if the repeated overdraft
exception will be invoked for most check deposits to the customer's
account.
4. Record retention. A depositary bank must retain a record of
each notice of a reasonable cause exception for a period of two
years, or such longer time as provided in the record retention
requirements of Sec. 229.21. This record must contain a brief
description of the facts on which the depositary bank based its
judgment that there was reasonable cause to doubt the collectibility
of a check. In many cases, such as where the exception was invoked
on the basis of a notice of nonpayment received, the record
requirement may be met by retaining a copy of the notice sent to the
customer. In other cases, such as where the exception was invoked on
the basis of confidential information, a further description to the
facts, such as insolvency of drawer, should be included in the
record.
I. 229.13(h) Availability of Deposits Subject to Exceptions
1. If a depositary bank invokes any exception other than the new
account exception, the bank may extend the time within which funds
must be made available under the schedule by a reasonable period of
time. This provision establishes that an extension of up to one
business day for ``on us'' checks, five business days for local
checks, and six business days for nonlocal checks is reasonable.
Under certain circumstances, however, a longer extension of the
schedules may be reasonable. In these cases, the burden is placed on
the depositary bank to establish that a longer period is reasonable.
2. For example, assume a bank extended the hold on a local check
deposit by five business days based on its reasonable cause to
believe that the check is uncollectible. If, on the day before the
extended hold is scheduled to expire, the bank receives a
notification from the paying bank that the check is being returned
unpaid, the bank may determine that a longer hold is warranted, if
it decides not to charge back the customer's account based on the
notification. If the bank decides to extend the hold, the bank must
send a second notice, in accordance with paragraph (g) of this
section, indicating the new date that the funds will be available
for withdrawal.
3. With respect to Treasury checks, U.S. Postal Service money
orders, checks drawn on Federal Reserve Banks or Federal Home Loan
Banks, state and local government checks, cashier's checks,
certified checks, and teller's checks subject to the next-day (or
second-day) availability requirement, the depositary bank may extend
the time funds must be made available for withdrawal under the large
deposit, redeposited check, repeated overdraft, or reasonable cause
exception by a reasonable period beyond the delay that would have
been permitted under the regulation had the checks not been subject
to the next-day (or second-day) availability requirement. The
additional hold is added to the local or nonlocal schedule that
would apply based on the location of the paying bank.
4. One business day for ``on us'' checks, five business days for
local checks, and six business days for nonlocal checks, in addition
to the time period provided in the schedule, should provide adequate
time for the depositary bank to learn of the nonpayment of virtually
all checks that are returned. For example, if a customer deposits a
$7,000 cashier's check drawn on a nonlocal bank, and the depositary
bank applies the large deposit exception to that check, $5,000 must
be available for withdrawal on the first business day after the day
of deposit and the remaining $2,000 must be available for withdrawal
on the eleventh business day following the day of deposit (six
business days added to the five-day schedule for nonlocal checks),
unless the depositary bank establishes that a longer hold is
reasonable.
5. In the case of the application of the emergency conditions
exception, the depositary bank may extend the hold placed on a check
by not more than a reasonable period following the end of the
emergency or the time funds must be available for withdrawal under
Secs. 229.10(c) or 229.12, whichever is later.
6. This provision does not apply to holds imposed under the new
account exception. Under that exception, the maximum time period
within which funds must be made available for withdrawal is
specified for deposits that generally must be accorded next-day
availability under Sec. 229.10. This subpart does not specify the
maximum time period within which the proceeds of local and nonlocal
checks must be made available for withdrawal during the new account
period.
VIII. Section 229.14 Payment of Interest
A. 229.14(a) In General
1. This section requires that a depositary bank begin accruing
interest on interest-bearing accounts not later than the day on
which the depositary bank receives credit for the funds
deposited.3 A depositary bank
[[Page 51683]]
generally receives credit on checks within one or two days following
deposit. A bank receives credit on a cash deposit, an electronic
payment, and the deposit of a check that is drawn on the depositary
bank itself on the day the cash, electronic payment, or check is
received. In the case of a deposit at a nonproprietary ATM, credit
generally is received on the day the bank that operates the ATM
credits the depositary bank for the amount of the deposit.
\3\This section implements section 606 of the Act (12 U.S.C.
4005). The Act keys the requirement to pay interest to the time the
depositary bank receives provisional credit for a check. Provisional
credit is a term used in the U.C.C. that is derived from the Code's
concept of provisional settlement. (See U.C.C. 4-214 and 4-215.)
Provisional credit is credit that is subject to charge-back if the
check is returned unpaid; once the check is finally paid, the right
to charge back expires and the provisional credit becomes final.
Under Subpart C, a paying bank no longer has an automatic right to
charge back credits given in settlement of a check, and the concept
of provisional settlement is no longer useful and has been
eliminated by the regulation. Accordingly, this section uses the
term credit rather than provisional credit, and this section applies
regardless of whether a credit would be provisional or final under
the U.C.C. Credit does not include a bookkeeping entry (sometimes
referred to as deferred credit) that does not represent funds
actually available for the bank's use.
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2. Because account includes only transaction accounts, other
interest-bearing accounts of the depositary bank, such as money
market deposit accounts, savings deposits, and time deposits, are
not subject to this requirement; however, a bank may accrue interest
on such deposits in the same way that it accrues interest under this
paragraph for simplicity of operation. The Board intends the term
interest to refer to payments to or for the account of any customer
as compensation for the use of funds, but to exclude the absorption
of expenses incident to providing a normal banking function or a
bank's forbearance from charging a fee in connection with such a
service. (See 12 CFR 217.2(d).) Thus, earnings credits often applied
to corporate accounts are not interest payments for the purposes of
this section.
3. It may be difficult for a depositary bank to track which day
the depositary bank receives credit for specific checks in order to
accrue interest properly on the account to which the check is
deposited. This difficulty may be pronounced if the bank uses
different means of collecting checks based on the time of day the
check is received, the dollar amount of the check, and/or the paying
bank to which it must be sent. Thus, for the purpose of the interest
accrual requirement, a bank may rely on an availability schedule
from its Federal Reserve Bank, Federal Home Loan Bank, or
correspondent to determine when the depositary bank receives credit.
If availability is delayed beyond that specified in the availability
schedule, a bank may charge back interest erroneously accrued or
paid on the basis of that schedule.
4. This paragraph also permits a depositary bank to accrue
interest on checks deposited to all of its interest-bearing accounts
based on when the bank receives credit on all checks sent for
payment or collection. For example, if a bank receives credit on 20
percent of the funds deposited in the bank by check as of the
business day of deposit (e.g., ``on us'' checks), 70 percent as of
the business day following deposit, and 10 percent on the second
business day following deposit, the bank can apply these percentages
to determine the day interest must begin to accrue on check deposits
to all interest-bearing accounts, regardless of when the bank
received credit on the funds deposited in any particular account.
Thus, a bank may begin accruing interest on a uniform basis for all
interest-bearing accounts, without the need to track the type of
check deposited to each account.
5. This section is not intended to limit a policy of a
depositary bank that provides that interest accrues only on balances
that exceed a specified amount, or on the minimum balance maintained
in the account during a given period, provided that the balance is
determined based on the date that the depositary bank receives
credit for the funds. This section also is not intended to limit any
policy providing that interest accrues sooner than required by this
paragraph.
B. 229.14(b) Special Rule for Credit Unions
1. This provision implements a requirement in section 606(b) of
the Act, and provides an exemption from the payment-of-interest
requirements for credit unions that do not begin to accrue interest
or dividends on their customer accounts until a later date than the
day the credit union receives credit for those deposits, including
cash deposits. These credit unions are exempt from the payment-of-
interest requirements, as long as they provide notice of their
interest accrual policies in accordance with Sec. 229.16(d). For
example, if a credit union has a policy of computing interest on all
deposits received by the 10th of the month from the first of that
month, and on all deposits received after the 10th of the month from
the first of the next month, that policy is not superseded by this
regulation, if the credit union provides proper disclosure of this
policy to its customers.
2. The Act limits this exemption to credit unions; other types
of banks must comply with the payment-of-interest requirements. In
addition, credit unions that compute interest from the day of
deposit or day of credit should not change their existing practices
in order to avoid compliance with the requirement that interest
accrue from the day the credit union receives credit.
C. 229.14(c) Exception for Checks Returned Unpaid
1. This provision is based on section 606(c) of the Act (12
U.S.C. 4005(c)) and provides that interest need not be paid on funds
deposited in an interest-bearing account by check that has been
returned unpaid, regardless of the reason for return.
IX. Section 229.15 General Disclosure Requirements
A. 229.15(a) Form of Disclosures
1. This paragraph sets forth the general requirements for the
disclosures required under Subpart B. All of the disclosures must be
given in a clear and conspicuous manner, must be in writing, and, in
most cases, must be in a form the customer may keep. Disclosures
posted at locations where employees accept consumer deposits, at
ATMs, and on preprinted deposit slips need not be in a form that the
customer may keep. Appendix C of the regulation contains model
forms, clauses, and notices to assist banks in preparing
disclosures.
2. Disclosures concerning availability must be grouped together
and may not contain any information that is not related to the
disclosures required by this subpart. Therefore, banks may not
intersperse the required disclosures with other account disclosures,
and may not include other account information that is not related to
their availability policy within the text of the required
disclosures. Banks may, however, include information that is related
to their availability policies. For example, a bank may inform its
customers that, even when the bank has already made funds available
for withdrawal, the customer is responsible for any problem with the
deposit, such as the return of a deposited check.
3. The regulation does not require that the disclosures be
segregated from other account terms and conditions. For example,
banks may include the disclosure of their specific availability
policy in a booklet or pamphlet that sets out all of the terms and
conditions of the bank's accounts. The required disclosures must,
however, be grouped together and highlighted or identified in some
manner, for example, by use of a separate heading for the
disclosures, such as ``When Deposits are Available for Withdrawal.''
B. 229.15(b) Uniform Reference to Day of Availability
1. This paragraph requires banks to disclose in a uniform manner
when deposited funds will be available for withdrawal. Banks must
disclose when deposited funds are available for withdrawal by
stating the business day on which the customer may begin to withdraw
funds. The business day funds will be available must be disclosed as
``the ________________ business day after'' the day of deposit, or
substantially similar language. The business day of availability is
determined by counting the number of business days starting with the
business day following the banking day on which the deposit is
received, as determined under Sec. 229.19(a), and ending with the
business day on which the customer may begin to withdraw funds. For
example, a bank that imposes delays of four intervening business
days for nonlocal checks must describe those checks as being
available on ``the fifth business day after'' the day of the
deposit.
C. 229.15(c) Multiple Accounts and Multiple Account Holders
1. This paragraph clarifies that banks need not provide multiple
disclosures under the regulation. A single disclosure to a customer
that holds multiple accounts, or a single disclosure to one of the
account holders of a jointly held account, satisfies the disclosure
requirements of the regulation.
D. 229.15(d) Dormant or Inactive Accounts
1. This paragraph makes clear that banks need not provide
disclosure of their specific availability policies to customers that
hold accounts that are either dormant or inactive. The determination
that certain accounts are dormant or inactive must be made by the
bank. If a bank considers an account dormant or inactive for
purposes other than this regulation and no longer provides
statements and other mailings to an account for this reason, such an
account is considered dormant or inactive for purposes of this
regulation.
X. Section 229.16 Specific Availability Policy Disclosure
A. 229.16(a) General
1. This section describes the information that must be disclosed
by banks to comply with Secs. 229.17 and 229.18(d), which require
that banks furnish notices of their specific policy regarding
availability of deposited
[[Page 51684]]
funds. The disclosure provided by a bank must reflect the availability
policy followed by the bank in most cases, even though a bank may in
some cases make funds available sooner or impose a longer delay.
2. The disclosure must reflect the policy and practice of the
bank regarding availability as to most accounts and most deposits
into those accounts. In disclosing the availability policy that it
follows in most cases, a bank may provide a single disclosure that
reflects one policy to all its transaction account customers, even
though some of its customers may receive faster availability than
that reflected in the policy disclosure. Thus, a bank need not
disclose to some customers that they receive faster availability
than indicated in the disclosure. If, however, a bank has a policy
of imposing delays in availability on any customers longer than
those specified in its disclosure, those customers must receive
disclosures that reflect the longer applicable availability periods.
3. A bank may disclose that funds are available for withdrawal
on a given day notwithstanding the fact that the bank uses the funds
to pay checks received before that day. For example, a bank may
disclose that its policy is to make funds available from deposits of
local checks on the second business day following the day of
deposit, even though it may use the deposited funds to pay checks
prior to the second business day; the funds used to pay checks in
this example are not available for withdrawal until the second
business day after deposit because the funds are not available for
all uses until the second business day. (See the definition of
available for withdrawal in Sec. 229.2(d).)
B. 229.16(b) Content of Specific Policy Disclosure
1. This paragraph sets forth the items that must be included, as
applicable, in a bank's specific availability policy disclosure. The
information that must be disclosed by a particular bank will vary
considerably depending upon the bank's availability policy. For
example, a bank that makes deposited funds available for withdrawal
on the business day following the day of deposit need simply
disclose that deposited funds will be available for withdrawal on
the first business day after the day of deposit, the bank's business
days, and when deposits are considered received.
2. On the other hand, a bank that has a policy of routinely
delaying on a blanket basis the time when deposited funds are
available for withdrawal would have a more detailed disclosure. Such
blanket hold policies might be for the maximum time allowed under
the federal law or might be for shorter periods. These banks must
disclose the types of deposits that will be subject to delays, how
the customer can determine the type of deposit being made, and the
day that funds from each type of deposit will be available for
withdrawal.
3. Some banks may have a combination of next-day availability
and blanket delays. For example, a bank may provide next-day
availability for all deposits except for one or two categories, such
as deposits at nonproprietary ATMs and nonlocal personal checks over
a specified dollar amount. The bank would describe the categories
that are subject to delays in availability and tell the customer
when each category would be available for withdrawal, and state that
other deposits will be available for withdrawal on the first
business day after the day of deposit. Similarly, a bank that
provides availability on the second business day for most of its
deposits would need to identify the categories of deposits which,
under the regulation, are subject to next-day availability and state
that all other deposits will be available on the second business
day.
4. Because many banks' availability policies may be complex, a
bank must give a brief summary of its policy at the beginning of the
disclosure. In addition, the bank must describe any circumstances
when actual availability may be longer than the schedules disclosed.
Such circumstances would arise, for example, when the bank invokes
one of the exceptions set forth in Sec. 229.13 of the regulation, or
when the bank delays or extends the time when deposited funds are
available for withdrawal up to the time periods allowed by the
regulation on a case-by-case basis. Also, a bank that must make
certain checks available faster under Appendix B (reduction of
schedules for certain nonlocal checks) must state that some check
deposits will be available for withdrawal sooner because of special
rules and that a list of the pertinent routing numbers is available
upon request.
5. Generally, a bank that distinguishes in its disclosure
between local and nonlocal checks based on the routing number on the
check must disclose to its customers that certain checks, such as
some credit union payable-through drafts, will be treated as local
or nonlocal based on the location of the bank by which they are
payable (e.g., the credit union), and not on the basis of the
location of the bank whose routing number appears on the check. A
bank is not required to provide this disclosure, however, if it
makes the proceeds of both local and nonlocal checks available for
withdrawal within the time periods required for local checks in
Secs. 229.12 and 229.13.
6. The business day cut-off time used by the bank must be
disclosed and if some locations have different cut-off times the
bank must note this in the disclosure and state the earliest time
that might apply. A bank need not list all of the different cut-off
times that might apply.
7. A bank taking advantage of the extended time period for
making deposits at nonproprietary ATMs available for withdrawal
under Sec. 229.12(f) must explain this in the initial disclosure. In
addition, the bank must provide a list (on or with the initial
disclosure) of either the bank's proprietary ATMs or those ATMs that
are nonproprietary at which customers may make deposits. As an
alternative to providing such a list, the bank may label all of its
proprietary ATMs with the bank's name and state in the initial
disclosure that this has been done. Similarly, a bank taking
advantage of the cash withdrawal limitations of Sec. 229.12(d), or
the provision in Sec. 229.19(e) allowing holds to be placed on other
deposits when a deposit is made or a check is cashed, must explain
this in the initial disclosure.
8. A bank that provides availability based on when the bank
generally receives credit for deposited checks need not disclose the
time when a check drawn on a specific bank will be available for
withdrawal. Instead, the bank may disclose the categories of
deposits that must be available on the first business day after the
day of deposit (deposits subject to Sec. 229.10) and state the other
categories of deposits and the time periods that will be applicable
to those deposits. For example, a bank might disclose the four-digit
Federal Reserve routing symbol for local checks and indicate that
such checks as well as certain nonlocal checks will be available for
withdrawal on the first or second business day following the day of
deposit, depending on the location of the particular bank on which
the check is drawn, and disclose that funds from all other checks
will be available on the second or third business day. The bank must
also disclose that the customer may request a copy of the bank's
detailed schedule that would enable the customer to determine the
availability of any check and must provide such schedule upon
request. A change in the bank's detailed schedule would not trigger
the change in policy disclosure requirement of Sec. 229.18(e).
C. 229.16(c) Longer Delays on a Case-by-Case Basis
1. Notice in specific policy disclosure.
a. Banks that make deposited funds available for withdrawal
sooner than required by the regulation--for example, providing their
customers with immediate or next-day availability for deposited
funds--and delay the time when funds are available for withdrawal
only from time to time determined on a case-by-case basis, must
provide notice of this in their specific availability policy
disclosure. This paragraph outlines the requirements for that
notice.
b. In addition to stating what their specific availability
policy is in most cases, banks that may delay or extend the time
when deposits are available on a case-by-case basis must: state that
from time to time funds may be available for withdrawal later than
the time periods in their specific policy disclosure, disclose the
latest time that a customer may have to wait for deposited funds to
be available for withdrawal when a case-by-case hold is placed,
state that customers will be notified when availability of a deposit
is delayed on a case-by-case basis, and advise customers to ask if
they need to be sure of the availability of a particular deposit.
c. A bank that imposes delays on a case-by-case basis is still
subject to the availability requirements of this regulation. If the
bank imposes a delay on a particular deposit that is not longer than
the availability required by Sec. 229.12 for local and nonlocal
checks, the reason for the delay need not be based on the exceptions
provided in Sec. 229.13. If the delay exceeds the time periods
permitted under Sec. 229.12, however, then it must be based on an
exception provided in Sec. 229.13, and the bank must comply with the
Sec. 229.13 notice requirements. A bank that imposes delays on a
case-by-case basis may avail itself of the one-time notice
provisions in Sec. 229.13(g)(2) and (3) for deposits to which those
provisions apply.
[[Page 51685]]
2. Notice at time of case-by-case delay.
a. In addition to including the disclosures required by
paragraph (c)(1) of this section in their specific availability
policy disclosure, banks that delay or extend the time period when
funds are available for withdrawal on a case-by-case basis must give
customers a notice when availability of funds from a particular
deposit will be delayed or extended beyond the time when deposited
funds are generally available for withdrawal. The notice must state
that a delay is being imposed and indicate when the funds will be
available. In addition, the notice must include the account number,
the date and amount of the deposit, and the amount of the deposit
being delayed.
b. If notice of the delay was not given at the time the deposit
was made and the bank assesses overdraft or returned check fees on
accounts when a case-by-case hold has been placed, the case-by-case
hold notice provided to the customer must include a notice
concerning overdraft or returned check fees. The notice must state
that the customer may be entitled to a refund of any overdraft or
returned check fees that result from the deposited funds not being
available if the check that was deposited was in fact paid by the
payor bank, and explain how to request a refund of any fees. (See
Sec. 229.16(c)(3).)
c. The requirement that the case-by-case hold notice state the
day that funds will be made available for withdrawal may be met by
stating the date or the number of business days after deposit that
the funds will be made available. This requirement is satisfied if
the notice provides information sufficient to indicate when funds
will be available and the amounts that will be available at those
times. For example, for a deposit involving more than one check, the
bank need not provide a notice that discloses when funds from each
individual item in the deposit will be available for withdrawal.
Instead, the bank may provide a total dollar amount for each of the
time periods when funds will be available, or provide the customer
with an explanation of how to determine the amount of the deposit
that will be held and when the held funds will be available for
withdrawal.
d. For deposits made in person to an employee of the depositary
bank, the notice generally must be given at the time of the deposit.
The notice at the time of the deposit must be given to the person
making the deposit, that is, the ``depositor.'' The depositor need
not be the customer holding the account. For other deposits, such as
deposits received at an ATM, lobby deposit box, night depository,
through the mail, or by armored car, notice must be mailed to the
customer not later than the close of the business day following the
banking day on which the deposit was made. Notice to the customer
also may be provided not later than the close of the business day
following the banking day on which the deposit was made if the
decision to delay availability is made after the time of the
deposit.
3. Overdraft and returned check fees. If a depositary bank
delays or extends the time when funds from a deposited check are
available for withdrawal on a case-by-case basis and does not
provide a written notice to its depositor at the time of deposit,
the depositary bank may not assess any overdraft or returned check
fees (such as an insufficient funds charge) or charge interest for
use of an overdraft line of credit, if the deposited check is paid
by the paying bank and these fees would not have occurred had the
additional case-by-case delay not been imposed. A bank may assess an
overdraft or returned check fee under these circumstances, however,
if it provides notice to the customer in the notice required by
paragraph (c)(2) of this section that the fee may be subject to
refund, and refunds the fee upon the request of the customer when
required to do so. The notice must state that the customer may be
entitled to a refund of any overdraft or returned check fees that
are assessed if the deposited check is paid, and indicate where such
requests for a refund of overdraft fees should be directed.
Paragraph (c)(3) applies when a bank provides a case-by-case notice
in accordance with paragraph (c)(2) and does not apply if the bank
has provided an exception hold notice in accordance with
Sec. 229.13.
D. 229.16(d) Credit Union Notice of Interest Payment Policy
1. This paragraph sets forth the special disclosure requirement
for credit unions that delay accrual of interest or dividends for
all cash and check deposits beyond the date of receiving provisional
credit for checks being deposited. (The interest payment requirement
is set forth in Sec. 229.14(a).) Such credit unions are required to
describe their policy with respect to accrual of interest or
dividends on deposits in their specific availability policy
disclosure.
XI. Section 229.17 Initial Disclosures
A. This paragraph requires banks to provide a notice of their
availability policy to all potential customers prior to opening an
account. The requirement of a notice prior to opening an account
requires banks to provide disclosures prior to accepting a deposit
to open an account. Disclosures must be given at the time the bank
accepts an initial deposit regardless of whether the bank has opened
the account yet for the customer. If a bank, however, receives a
written request by mail from a person asking that an account be
opened and the request includes an initial deposit, the bank may
open the account with the deposit, provided the bank mails the
required disclosures to the customer not later than the business day
following the banking day on which the bank receives the deposit.
Similarly, if a bank receives a telephone request from a customer
asking that an account be opened with a transfer from a separate
account of the customer's at the bank, the disclosure may be mailed
not later than the business day following the banking day of the
request.
XII. Section 229.18 Additional Disclosure Requirements
A. 229.18(a) Deposit Slips
1. This paragraph requires banks to include a notice on all
preprinted deposit slips. The deposit slip notice need only state,
somewhere on the front of the deposit slip, that deposits may not be
available for immediate withdrawal. The notice is required only on
preprinted deposit slips--those printed with the customer's account
number and name and furnished by the bank in response to a
customer's order to the bank. A bank need not include the notice on
deposit slips that are not preprinted and supplied to the customer--
such as counter deposit slips--or on those special deposit slips
provided to the customer under Sec. 229.10(c). A bank is not
responsible for ensuring that the notice appear on deposit slips
that the customer does not obtain from or through the bank. This
paragraph applies to preprinted deposit slips furnished to customers
on or after September 1, 1988.
B. 229.18(b) Locations Where Employees Accept Consumer Deposits
1. This paragraph describes the statutory requirement that a
bank post in each location where its employees accept consumer
deposits a notice of its availability policy pertaining to consumer
accounts. The notice that is required must specifically state the
availability periods for the various deposits that may be made to
consumer accounts. The notice need not be posted at each teller
window, but the notice must be posted in a place where consumers
seeking to make deposits are likely to see it before making their
deposits. For example, the notice might be posted at the point where
the line forms for teller service in the lobby. The notice is not
required at any drive-through teller windows nor is it required at
night depository locations, or at locations where consumer deposits
are not accepted.
C. 229.18(c) Automated Teller Machines
1. This paragraph sets forth the required notices for ATMs.
Paragraph (c)(1) provides that the depositary bank is responsible
for posting a notice on all ATMs at which deposits can be made to
accounts at the depositary bank. The depositary bank may arrange for
a third party, such as the owner or operator of the ATM, to post the
notice and indemnify the depositary bank from liability if the
depositary bank is liable under Sec. 229.21 for the owner or
operator failing to provide the required notice.
2. The notice may be posted on a sign, shown on the screen, or
included on deposit envelopes provided at the ATM. This disclosure
must be given before the customer has made the deposit. Therefore, a
notice provided on the customer's deposit receipt or appearing on
the ATM's screen after the customer has made the deposit would not
satisfy this requirement.
3. Paragraph (c)(2) requires a depositary bank that operates an
off-premise ATM from which deposits are removed not more than two
times a week to make a disclosure of this fact on the off-premise
ATM. The notice must disclose to the customer the days on which
deposits made at the ATM will be considered received.
D. 229.18(d) Upon Request
1. This paragraph requires banks to provide written notice of
their specific availability policy to any person upon that person's
oral or written request. The notice must be sent within a reasonable
period of time following receipt of the request.
[[Page 51686]]
E. 229.18(e) Changes in Policy
1. This paragraph requires banks to send notices to their
customers when the banks change their availability policies with
regard to consumer accounts. A notice may be given in any form as
long as it is clear and conspicuous. If the bank gives notice of a
change by sending the customer a complete new availability
disclosure, the bank must direct the customer to the changed terms
in the disclosure by use of a letter or insert, or by highlighting
the changed terms in the disclosure.
2. Generally, a bank must send a notice at least 30 calendar
days before implementing any change in its availability policy. If
the change results in faster availability of deposits--for example,
if the bank changes its availability for nonlocal checks from the
fifth business day after deposit to the fourth business day after
deposit--the bank need not send advance notice. The bank must,
however, send notice of the change no later than 30 calendar days
after the change is implemented. A bank is not required to give a
notice when there is a change in Appendix B (reduction of schedules
for certain nonlocal checks).
3. A bank that has provided its customers with a list of ATMs
under Sec. 229.16(b)(5) shall provide its customers with an updated
list of ATMs once a year if there are changes in the list of ATMs
previously disclosed to the customers.
XIII. Section 229.19 Miscellaneous
A. 229.19(a) When Funds Are Considered Deposited
1. The time funds must be made available for withdrawal under
this subpart is determined by the day the deposit is made. This
paragraph provides rules to determine the day funds are considered
deposited in various circumstances.
2. Staffed facilities and ATMs. Funds received at a staffed
teller station or ATM are considered deposited when received by the
teller or placed in the ATM. Funds deposited to a deposit box in a
bank lobby that is accessible to customers only during regular
business hours generally are considered deposited when placed in the
lobby box; a bank may, however, treat deposits to lobby boxes the
same as deposits to night depositories (as provided in
Sec. 229.19(a)(3)), provided a notice appears on the lobby box
informing the customer when such funds will be considered deposited.
3. Mail. Funds mailed to the depositary bank are considered
deposited on the banking day they are received by the depositary
bank. The funds are received by the depositary bank at the time the
mail is delivered to the bank, even if it is initially delivered to
a mail room, rather than the check processing area.
4. Other facilities.
a. In addition to deposits at staffed facilities, at ATMs, and
by mail, funds may be deposited at a facility such as a night
depository or a lock box. A night depository is a receptacle for
receipt of deposits, typically used by corporate depositors when the
branch is closed. Funds deposited at a night depository are
considered deposited on the banking day the deposit is removed, and
the contents of the deposit are accessible to the depositary bank
for processing. For example, some businesses deposit their funds in
a locked bag at the night depository late in the evening, and return
to the bank the following day to open the bag. Other depositors may
have an agreement with their bank that the deposit bag must be
opened under the dual control of the bank and the depositor. In
these cases, the funds are considered deposited when the customer
returns to the bank and opens the deposit bag.
b. A lock box is a post office box used by a corporation for the
collection of bill payments or other check receipts. The depositary
bank generally assumes the responsibility for collecting the mail
from the lock box, processing the checks, and crediting the
corporation for the amount of the deposit. Funds deposited through a
lock box arrangement are considered deposited on the day the deposit
is removed from the lock box and are accessible to the depositary
bank for processing.
5. Certain off-premise ATMs. A special provision is made for
certain off-premise ATMs that are not serviced daily. Funds
deposited at such an ATM are considered deposited on the day they
are removed from the ATM, if the ATM is not serviced more than two
times each week. This provision is intended to address the practices
of some banks of servicing certain remote ATMs infrequently. If a
depositary bank applies this provision with respect to an ATM, a
notice must be posted at the ATM informing depositors that funds
deposited at the ATM may not be considered deposited until a future
day, in accordance with Sec. 229.18.
6. Banking day of deposit.
a. This paragraph also provides that a deposit received on a day
that the depositary bank is closed, or after the bank's cut-off
hour, may be considered made on the next banking day. Generally, for
purposes of the availability schedules of this subpart, a bank may
establish a cut-off hour of 2 p.m. or later for receipt of deposits
at its head office or branch offices. For receipt of deposits at
ATMs or off-premise facilities, such as night depositories or lock
boxes, the depositary bank may establish a cut-off hour of 12 noon
or later (either local time of the branch or other location of the
depositary bank at which the account is maintained or local time of
the ATM or off-premise facility). The depositary bank must use the
same timing method for establishing the cut-off hour for all ATMs
and off-premise facilities used by its customers. The choice of cut-
off hour must be reflected in the bank's internal procedures, and
the bank must inform its customers of the cut-off hour upon request.
This earlier cut-off for ATM or off-premise deposits is intended to
provide greater flexibility in the servicing of ATMs and other off-
premise facilities.
b. Different cut-off hours may be established for different
types of deposits. For example, a bank may establish a 2 p.m. cut-
off for the receipt of check deposits, but a later cut-off for the
receipt of wire transfers. Different cut-off hours also may be
established for deposits received at different locations. For
example, a different cut-off may be established for ATM deposits
than for over-the-counter deposits, or for different teller stations
at the same branch. With the exception of the 12 noon cut-off for
deposits at ATMs and off-premise facilities, no cut-off hour for
receipt of deposits for purposes of this subpart can be established
earlier than 2 p.m.
c. A bank is not required to remain open until 2 p.m. If a bank
closes before 2 p.m., deposits received after the closing may be
considered deposited on the next banking day. Further, as
Sec. 229.2(f) defines the term banking day as the portion of a
business day on which a bank is open to the public for substantially
all of its banking functions, a day, or a portion of a day, is not
necessarily a banking day merely because the bank is open for only
limited functions, such as keeping drive-in or walk-up teller
windows open, when the rest of the bank is closed to the public. For
example, a banking office that usually provides a full range of
banking services may close at 12 noon but leave a drive-in teller
window open for the limited purpose of receiving deposits and making
cash withdrawals. Under those circumstances, the bank is considered
closed and may consider deposits received after 12 noon as having
been received on the next banking day. The fact that a bank may
reopen for substantially all of its banking functions after 2 p.m.,
or that it continues its back office operations throughout the day,
would not affect this result. A bank may not, however, close
individual teller stations and reopen them for next-day's business
before 2 p.m. during a banking day.
B. 229.19(b) Availability at Start of Business Day
1. If funds must be made available for withdrawal on a business
day, the funds must be available for withdrawal by the later of 9
a.m. or the time the depositary bank's teller facilities, including
ATMs, are available for customer account withdrawals, except under
the special rule for cash withdrawals set forth in Sec. 229.12(d).
Thus, if a bank has no ATMs and its branch facilities are available
for customer transactions beginning at 10 a.m., funds must be
available for customer withdrawal beginning at 10 a.m. If the bank
has ATMs that are available 24 hours a day, rather than establishing
12:01 a.m. as the start of the business day, this paragraph sets 9
a.m. as the start of the day with respect to ATM withdrawals. The
Board believes that this rule provides banks with sufficient time to
update their accounting systems to reflect the available funds in
customer accounts for that day.
2. The start of business is determined by the local time of the
branch or other location of the depositary bank at which the account
is maintained. For example, if funds in a customer's account at a
west coast bank are first made available for withdrawal at the start
of business on a given day, and the customer attempts to withdraw
the funds at an east coast ATM, the depositary bank is not required
to make the funds available until 9 a.m. west coast time (12 noon
east coast time).
[[Page 51687]]
C. 229.19(c) Effect on Policies of Depositary Bank
1. This subpart establishes the maximum hold that may be placed
on customer deposits. A depositary bank may provide availability to
its customers in a shorter time than prescribed in this subpart. A
depositary bank also may adopt different funds availability policies
for different segments of its customer base, as long as each policy
meets the schedules in the regulation. For example, a bank may
differentiate between its corporate and consumer customers, or may
adopt different policies for its consumer customers based on whether
a customer has an overdraft line of credit associated with the
account.
2. This regulation does not affect a depositary bank's right to
accept or reject a check for deposit, to charge back the customer's
account based on a returned check or notice of nonpayment, or to
claim a refund for any credit provided to the customer. For example,
even if a check is returned or a notice of nonpayment is received
after the time by which funds must be made available for withdrawal
in accordance with this regulation, the depositary bank may charge
back the customer's account for the full amount of the check. (See
Sec. 229.33(d) and Commentary.)
3. Nothing in the regulation requires a depositary bank to have
facilities open for customers to make withdrawals at specified times
or on specified days. For example, even though the special cash
withdrawal rule set forth in Sec. 229.12(d) states that a bank must
make up to $400 available for cash withdrawals no later than 5 p.m.
on specific business days, if a bank does not participate in an ATM
system and does not have any teller windows open at or after 5 p.m.,
the bank need not join an ATM system or keep offices open. In this
case, the bank complies with this rule if the funds that are
required to be available for cash withdrawal at 5 p.m. on a
particular day are available for withdrawal at the start of business
on the following day. Similarly, if a depositary bank is closed for
customer transactions, including ATMs, on a day funds must be made
available for withdrawal, the regulation does not require the bank
to open.
4. The special cash withdrawal rule in the Act recognizes that
the $400 that must be made available for cash withdrawal by 5 p.m.
on the day specified in the schedule may exceed a bank's daily ATM
cash withdrawal limit and explicitly provides that the Act does not
supersede a bank's policy in this regard. As a result, if a bank has
a policy of limiting cash withdrawals from automated teller machines
to $250 per day, the regulation would not require that the bank
dispense $400 of the proceeds of the customer's deposit that must be
made available for cash withdrawal on that day.
5. Even though the Act clearly provides that the bank's ATM
withdrawal limit is not superseded by the federal availability rules
on the day funds must first be made available, the Act does not
specifically permit banks to limit cash withdrawals at ATMs on
subsequent days when the entire amount of the deposit must be made
available for withdrawal. The Board believes that the rationale
behind the Act's provision that a bank's ATM withdrawal limit is not
superseded by the requirement that funds be made available for cash
withdrawal applies on subsequent days. Nothing in the regulation
prohibits a depositary bank from establishing ATM cash withdrawal
limits that vary among customers of the bank, as long as the limit
is not dependent on the length of time funds have been in the
customer's account (provided that the permissible hold has expired).
6. Some small banks, particularly credit unions, due to lack of
secure facilities, keep no cash on their premises and hence offer no
cash withdrawal capability to their customers. Other banks limit the
amount of cash on their premises due to bonding requirements or cost
factors, and consequently reserve the right to limit the amount of
cash each customer can withdraw over-the-counter on a given day. For
example, some banks require advance notice for large cash
withdrawals in order to limit the amount of cash needed to be
maintained on hand at any time.
7. Nothing in the regulation is intended to prohibit a bank from
limiting the amount of cash that may be withdrawn at a staffed
teller station if the bank has a policy limiting the amount of cash
that may be withdrawn, and if that policy is applied equally to all
customers of the bank, is based on security, operating, or bonding
requirements, and is not dependent on the length of time the funds
have been in the customer's account (as long as the permissible hold
has expired). The regulation, however, does not authorize such
policies if they are otherwise prohibited by statutory, regulatory,
or common law.
D. 229.19(d) Use of Calculated Availability
1. A depositary bank may provide availability to its nonconsumer
accounts on a calculated availability basis. Under calculated
availability, a specified percentage of funds from check deposits
may be made available to the customer on the next business day, with
the remaining percentage deferred until subsequent days. The
determination of the percentage of deposited funds that will be made
available each day is based on the customer's typical deposit mix as
determined by a sample of the customer's deposits. Use of calculated
availability is permitted only if, on average, the availability
terms that result from the sample are equivalent to or more prompt
than the requirements of this subpart.
E. 229.19(e) Holds on Other Funds
1. Section 607(d) of the Act (12 U.S.C. 4006(d)) provides that
once funds are available for withdrawal under the Act, such funds
shall not be frozen solely due to the subsequent deposit of
additional checks that are not yet available for withdrawal. This
provision of the Act is designed to prevent evasion of the Act's
availability requirements.
2. This paragraph clarifies that if a customer deposits a check
in an account (as defined in Sec. 229.2(a)), the bank may not place
a hold on any of the customer's funds so that the funds that are
held exceed the amount of the check deposited or the total amount of
funds held are not made available for withdrawal within the times
required in this subpart. For example, if a bank places a hold on
funds in a customer's non transaction account, rather than a
transaction account, for deposits made to the customer's transaction
account, the bank may place such a hold only to the extent that the
funds held do not exceed the amount of the deposit and the length of
the hold does not exceed the time periods permitted by this
regulation.
3. These restrictions also apply to holds placed on funds in a
customer's account (as defined in Sec. 229.2(a)) if a customer
cashes a check at a bank (other than a check drawn on that bank)
over the counter. The regulation does not prohibit holds that may be
placed on other funds of the customer for checks cashed over the
counter, to the extent that the transaction does not involve a
deposit to an account. A bank may not, however, place a hold on any
account when an ``on us'' check is cashed over the counter. ``On
us'' checks are considered finally paid when cashed (see U.C.C. 4-
215(a)(1)).
F. 229.19(f) Employee Training and Compliance
1. The Act requires banks to take such actions as may be
necessary to inform fully each employee that performs duties subject
to the Act of the requirements of the Act, and to establish and
maintain procedures reasonably designed to assure and monitor
employee compliance with such requirements.
2. This paragraph requires a bank to establish procedures to
ensure compliance with these requirements and provide these
procedures to the employees responsible for carrying them out.
G. 229.19(g) Effect of Merger Transaction
1. After banks merge, there is often a period of adjustment
before their operations are consolidated. This paragraph
accommodates this adjustment period by allowing merged banks to be
treated as separate banks for purposes of this subpart for a period
of up to one year after consummation of the merger transaction,
except that a customer of any bank that is a party to the
transaction that has an established account with that bank may not
be treated as a new account holder for any other party to the
transaction for purposes of the new account exception of
Sec. 229.13(a), and a deposit in any branch of the merged bank is
considered deposited in the bank for purposes of the availability
schedules in accordance with Sec. 229.19(a).
2. This rule affects the status of the combined entity in
several areas. For example, this rule would affect when an ATM is a
proprietary ATM (Sec. 229.2(aa) and Sec. 229.12(b)) and when a check
is considered drawn on a branch of the depositary bank
(Sec. 229.10(c)(1)(vi)).
3. Merger transaction is defined in Sec. 229.2(t).
XIV. Section 229.20 Relation to State Law
A. 229.20(a) In General
1. Several states have enacted laws that govern when banks in
those states must make funds available to their customers. The Act
provides that any state law in effect on September 1, 1989, that
provides that funds
[[Page 51688]]
be made available in a shorter period of time than provided in this
regulation, will supersede the time periods in the Act and the
regulation. The Conference Report on the Act clarifies this
provision by stating that any state law enacted on or before
September 1, 1989, may supersede federal law to the extent that the
law relates to the time funds must be made available for withdrawal.
H.R. Rep. No. 261, 100th Cong. 1st Sess. at 182 (1987).
2. Thus, if a state had wished to adopt a law governing funds
availability, it had to have made that law effective on or before
September 1, 1989. Laws adopted after that date do not supersede
federal law, even if they provide for shorter availability periods
than are provided under federal law. If a state that had a law
governing funds availability in effect before September 1, 1989,
amended its law after that date, the amendment would not supersede
federal law, but an amendment deleting a state requirement would be
effective.
3. If a state provides for a shorter hold for a certain category
of checks than is provided for under federal law, that state
requirement will supersede the federal provision. For example, most
state laws base some hold periods on whether the check being
deposited is drawn on an in-state or out-of-state bank. If a state
contains more than one check processing region, the state's hold
period for in-state checks may be shorter than the federal maximum
hold period for nonlocal checks. Thus, the state schedule would
supersede the federal schedule to the extent that it applies to in-
state, nonlocal checks.
4. The Act also provides that any state law that provides for
availability in a shorter period of time than required by federal
law is applicable to all federally insured institutions in that
state, including federally chartered institutions. If a state law
provides shorter availability only for deposits in accounts in
certain categories of banks, such as commercial banks, the
superseding state law continues to apply only to those categories of
banks, rather than to all federally insured banks in the state.
B. 229.20(b) Preemption of Inconsistent Law
1. This paragraph reflects the statutory provision that other
provisions of state law that are inconsistent with federal law are
preempted. Preemption does not require a determination by the Board
to be effective.
C. 229.20(c) Standards for Preemption
1. This section describes the standards the Board uses in making
determinations on whether federal law will preempt state laws
governing funds availability. A provision of state law is considered
inconsistent with federal law if it permits a depositary bank to
make funds available to a customer in a longer period of time than
the maximum period permitted by the Act and this regulation. For
example, a state law that permits a hold of four business days or
longer for local checks permits a hold that is longer than that
permitted under the Act and this regulation, and therefore is
inconsistent and preempted. State availability schedules that
provide for availability in a shorter period of time than required
under Regulation CC supersede the federal schedule.
2. Under a state law, some categories of deposits could be
available for withdrawal sooner or later than the time required by
this subpart, depending on the composition of the deposit. For
example, the Act and this regulation (Sec. 229.10(c)(1)(vii))
require next-day availability for the first $100 of the aggregate
deposit of local or nonlocal checks on any day, and a state law
could require next-day availability for any check of $100 or less
that is deposited. Under the Act and this regulation, if either one
$150 check or three $50 checks are deposited on a given day, $100
must be made available for withdrawal on the next business day, and
$50 must be made available in accordance with the local or nonlocal
schedule. Under the state law, however, the two deposits would be
subject to different availability rules. In the first case, none of
the proceeds of the deposit would be subject to next-day
availability; in the second case, the entire proceeds of the deposit
would be subject to next-day availability. In this example, because
the state law would, in some situations, permit a hold longer than
the maximum permitted by the Act, this provision of state law is
inconsistent and preempted in its entirety.
3. In addition to the differences between state and federal
availability schedules, a number of state laws contain exceptions to
the state availability schedules that are different from those
provided under the Act and this regulation. The state exceptions
continue to apply only in those cases where the state schedule is
shorter than or equal to the federal schedule, and then only up to
the limit permitted by the Regulation CC schedule. Where a deposit
is subject to a state exception under a state schedule that is not
preempted by Regulation CC and is also subject to a federal
exception, the hold on the deposit cannot exceed the hold
permissible under the federal exception in accordance with
Regulation CC. In such cases, only one exception notice is required,
in accordance with Sec. 229.13(g). This notice need only include the
applicable federal exception as the reason the exception was
invoked. For those categories of checks for which the state schedule
is preempted by the federal schedule, only the federal exceptions
may be used.
4. State laws that provide maximum availability periods for
categories of deposits that are not covered by the Act would not be
preempted. Thus, state funds availability laws that apply to funds
in time and savings deposits are not affected by the Act or this
regulation. In addition, the availability schedules of several
states apply to ``items'' deposited to an account. The term items
may encompass deposits, such as nonnegotiable instruments, that are
not subject to the Regulation CC availability schedules. Deposits
that are not covered by Regulation CC continue to be subject to the
state availability schedules. State laws that provide maximum
availability periods for categories of institutions that are not
covered by the Act also would not be preempted. For example, a state
law that governs money market mutual funds would not be affected by
the Act or this regulation.
5. Generally, state rules governing the disclosure or notice of
availability policies applicable to accounts also are preempted, if
they are different from the federal rules. Nevertheless, a state law
requiring disclosure of funds availability policies that apply to
deposits other than ``accounts,'' such as savings or time deposits,
are not inconsistent with the Act and this subpart. Banks in these
states would have to follow the state disclosure rules for these
deposits.
D. 229.20(d) Preemption Determinations
1. The Board may issue preemption determinations upon the
request of an interested party in a state. The determinations will
relate only to the provisions of Subparts A and B; generally the
Board will not issue individual preemption determinations regarding
the relation of state U.C.C. provisions to the requirements of
Subpart C.
E. 229.20(e) Procedures for Preemption Determinations
1. This provision sets forth the information that must be
included in a request by an interested party for a preemption
determination by the Board.
XV. Section 229.21 Civil Liability
A. 229.21(a) Civil Liability
1. This paragraph sets forth the statutory penalties for failure
to comply with the requirements of this subpart. These penalties
apply to provisions of state law that supersede provisions of this
regulation, such as requirements that funds deposited in accounts at
banks be made available more promptly than required by this
regulation, but they do not apply to other provisions of state law.
(See Commentary to Sec. 229.20.)
B. 229.21(b) Class Action Awards
1. This paragraph sets forth the provision in the Act concerning
the factors that should be considered by the court in establishing
the amount of a class action award.
C. 229.21(c) Bona Fide Errors
1. A bank is shielded from liability under this section for a
violation of a requirement of this subpart if it can demonstrate, by
a preponderance of the evidence, that the violation resulted from a
bona fide error and that it maintains procedures designed to avoid
such errors. For example, a bank may make a bona fide error if it
fails to give next-day availability on a check drawn on the Treasury
because the bank's computer system malfunctions in a way that
prevents the bank from updating its customer's account; or if it
fails to identify whether a payable-through check is a local or
nonlocal check despite procedures designed to make this
determination accurately.
D. 229.21(d) Jurisdiction
1. The Act confers subject matter jurisdiction on courts of
competent jurisdiction and provides a time limit for civil actions
for violations of this subpart.
E. 229.21(e) Reliance on Board Rulings
1. This provision shields banks from civil liability if they act
in good faith in reliance on any rule, regulation, model form,
notice, or clause (if the disclosure actually corresponds to the
bank's availability policy), or interpretation of the Board, even if
it were
[[Page 51689]]
subsequently determined to be invalid. Banks may rely on this
Commentary, which is issued as an official Board interpretation, as
well as on the regulation itself.
F. 229.21(f) Exclusions
1. This provision clarifies that liability under this section
does not apply to violations of the requirements of Subpart C of
this regulation, or to actions for wrongful dishonor of a check by a
paying bank's customer.
G. 229.21(g) Record Retention
1. Banks must keep records to show compliance with the
requirements of this subpart for at least two years. This record
retention period is extended in the case of civil actions and
enforcement proceedings. Generally, a bank is not required to retain
records showing that it actually has given disclosures or notices
required by this subpart to each customer, but it must retain
evidence demonstrating that its procedures reasonably ensure the
customers' receipt of the required disclosures and notices. A bank
must, however, retain a copy of each notice provided pursuant to its
use of the reasonable cause exception under Sec. 229.13(g) as well
as a brief description of the facts giving rise to the availability
of that exception.
XVI. Section 229.30 Paying Bank's Responsibility for Return of
Checks
A. 229.30(a) Return of Checks
1. This section requires a paying bank (which, for purposes of
Subpart C, may include a payable-through and payable-at bank; see
Sec. 229.2(z)) that determines not to pay a check to return the
check expeditiously. Generally, a check is returned expeditiously if
the return process is as fast as the forward collection process.
This paragraph provides two standards for expeditious return, the
``two-day/four-day'' test, and the ``forward collection'' test.
2. Under the ``two-day/four-day'' test, if a check is returned
such that it would normally be received by the depositary bank two
business days after presentment where both the paying and depositary
banks are located in the same check processing region or four
business days after presentment where the paying and depositary
banks are not located in the same check processing region, the check
is considered returned expeditiously. In certain limited cases,
however, these times are shorter than the time it would normally
take a forward collection check deposited in the paying bank and
payable by the depositary bank to be collected. Therefore, the Board
has included a ``forward collection'' test, whereby a check is
nonetheless considered to be returned expeditiously if the paying
bank uses transportation methods and banks for return comparable to
those used for forward collection checks, even if the check is not
received by the depositary banks within the two-day or four-day
period.
3. Two-day/four-day test.
a. Under the first test, a paying bank must return the check so
that the check would normally be received by the depositary bank
within specified times, depending on whether or not the paying and
depositary banks are located in the same check processing region.
b. Where both banks are located in the same check processing
region, a check is returned expeditiously if it is returned to the
depositary bank by 4:00 p.m. (local time of the depositary bank) of
the second business day after the banking day on which the check was
presented to the paying bank. For example, a check presented on
Monday to a paying bank must be returned to a depositary bank
located in the same check processing region by 4 p.m. on Wednesday.
For a paying bank that is located in a different check processing
region than the depositary bank, the deadline to complete return is
4 p.m. (local time of the depositary bank) of the fourth business
day after the banking day on which the check was presented to the
paying bank. For example, a check presented to such a paying bank on
Monday must be returned to the depositary bank by 4:00 p.m. on
Friday.
c. This two-day/four-day test does not necessarily require
actual receipt of the check by the depositary bank within these
times. Rather, the paying bank must send the check so that the check
would normally be received by the depositary bank within the
specified time. Thus, the paying bank is not responsible for
unforeseeable delays in the return of the check, such as
transportation delays.
d. Often, returned checks will be delivered to the depositary
bank together with forward collection checks. Where the last day on
which a check could be delivered to a depositary bank under this
two-day/four-day test is not a banking day for the depositary bank,
a returning bank might not schedule delivery of forward collection
checks to the depositary bank on that day. Further, the depositary
bank may not process checks on that day. Consequently, if the last
day of the time limit is not a banking day for the depositary bank,
the check may be delivered to the depositary bank before the close
of the depositary bank's next banking day and the return will still
be considered expeditious. Ordinarily, this extension of time will
allow the returned checks to be delivered with the next shipment of
forward collection checks destined for the depositary bank.
e. The times specified in this two-day/four-day test are based
on estimated forward collection times, but take into account the
particular difficulties that may be encountered in handling returned
checks. It is anticipated that the normal process for forward
collection of a check coupled with these return requirements will
frequently result in the return of checks before the proceeds of
nonlocal checks, other than those covered by Sec. 229.10(c), must be
made available for withdrawal.
f. Under this two-day/four-day test, no particular means of
returning checks is required, thus providing flexibility to paying
banks in selecting means of return. The Board anticipates that
paying banks will often use returning banks (see Sec. 229.31) as
their agents to return checks to depositary banks. A paying bank may
rely on the availability schedule of the returning bank it uses in
determining whether the returned check would ``normally'' be
returned within the required time under this two-day/four-day test,
unless the paying bank has reason to believe that these schedules do
not reflect the actual time for return of a check.
4. Forward collection test.
a. Under the second, ``forward collection,'' test, a paying bank
returns a check expeditiously if it returns a check by means as
swift as the means similarly situated banks would use for the
forward collection of a check drawn on the depositary bank.
b. Generally, the paying bank would satisfy the ``forward
collection'' test if it uses a transportation method and collection
path for return comparable to that used for forward collection,
provided that the returning bank selected to process the return
agrees to handle the returned check under the standards for
expeditious return for returning banks under Sec. 229.31(a). This
test allows many paying banks a simple means of expeditious return
of checks and takes into account the longer time for return that
will be required by banks that do not have ready access to direct
courier transportation.
c. The paying bank's normal method of sending a check for
forward collection would not be expeditious, however, if it is
materially slower than that of other banks of similar size and with
similar check handling activity in its community.
d. Under the ``forward collection'' test, a paying bank must
handle, route, and transport a returned check in a manner designed
to be at least as fast as a similarly situated bank would collect a
forward collection check (1) of similar amount, (2) drawn on the
depositary bank, and (3) received for deposit by a branch of the
paying bank or a similarly situated bank by noon on the banking day
following the banking day of presentment of the returned check.
e. This test refers to similarly situated banks to indicate a
general community standard. In the case of a paying bank (other than
a Federal Reserve Bank), a similarly situated bank is a bank of
similar asset size, in the same community, and with similar check
handling activity as the paying bank. (See Sec. 229.2(ee).) A paying
bank has similar check handling activity to other banks that handle
similar volumes of checks for collection.
f. Under the forward collection test, banks that use means of
handling returned checks that are less efficient than the means used
by similarly situated banks must improve their procedures. On the
other hand, a bank with highly efficient means of collecting checks
drawn on a particular bank, such as a direct presentment of checks
to a bank in a remote community, is not required to use that means
for returned checks, i.e. direct return, if similarly situated banks
do not present checks directly to that depositary bank.
5. Examples.
a. If a check is presented to a paying bank on Monday and the
depositary bank and the paying bank are participants in the same
clearinghouse, the paying bank should arrange to have the returned
check received by the depositary bank by Wednesday. This would be
the same day the paying bank would deliver a forward collection
check to the depositary bank if the paying bank received the deposit
by noon on Tuesday.
[[Page 51690]]
b. i. If a check is presented to a paying bank on Monday and the
paying bank would normally collect checks drawn on the depositary
bank by sending them to a correspondent or a Federal Reserve Bank by
courier, the paying bank could send the returned check to its
correspondent or Federal Reserve Bank, provided that the
correspondent has agreed to handle returned checks expeditiously
under Sec. 229.31(a). (All Federal Reserve Banks agree to handle
returned checks expeditiously.)
ii. The paying bank must deliver the returned check to the
correspondent or Federal Reserve Bank by the correspondent's or
Federal Reserve Bank's appropriate cut-off hour. The appropriate
cut-off hour is the cut-off hour for returned checks that
corresponds to the cut-off hour for forward collection checks drawn
on the depositary bank that would normally be used by the paying
bank or a similarly situated bank. A returned check cut-off hour
corresponds to a forward collection cut-off hour if it provides for
the same or faster availability for checks destined for the same
depositary banks.
iii. In this example, delivery to the correspondent or a Federal
Reserve Bank by the appropriate cut-off hour satisfies the paying
bank's duty, even if use of the correspondent or Federal Reserve
Bank is not the most expeditious means of returning the check. Thus,
a paying bank may send a local returned check to a correspondent
instead of a Federal Reserve Bank, even if the correspondent then
sends the returned check to a Federal Reserve Bank the following day
as a qualified returned check. Where the paying bank delivers
forward collection checks by courier to the correspondent or the
Federal Reserve Bank, mailing returned checks to the correspondent
or Federal Reserve Bank would not satisfy the forward collection
test.
iv. If a paying bank ordinarily mails its forward collection
checks to its correspondent or Federal Reserve Bank in order to
avoid the costs of a courier delivery, but similarly situated banks
use a courier to deliver forward collection checks to their
correspondent or Federal Reserve Bank, the paying bank must send its
returned checks by courier to meet the forward collection test.
c. If a paying bank normally sends its forward collection checks
directly to the depositary bank, which is located in another
community, but similarly situated banks send forward collection
checks drawn on the depositary bank to a correspondent or a Federal
Reserve Bank, the paying bank would not have to send returned checks
directly to the depositary bank, but could send them to a
correspondent or a Federal Reserve Bank.
d. The dollar amount of the returned check has a bearing on how
it must be returned. If the paying bank and similarly situated banks
present large-dollar checks drawn on the depositary bank directly to
the depositary bank, but use a Federal Reserve Bank or a
correspondent to collect small-dollar checks, generally the paying
bank would be required to send its large-dollar returns directly to
the depositary bank (or through a returning bank, if the checks are
returned as quickly), but could use a Federal Reserve Bank or a
correspondent for its small-dollar returns.
6. Choice of returning bank. In meeting the requirements of the
forward collection test, the paying bank is responsible for its own
actions, but not for those of the depositary bank or returning
banks. (This is analogous to the responsibility of collecting banks
under U.C.C. 4-202(c).) For example, if the paying bank starts the
return of the check in a timely manner but return is delayed by a
returning bank (including delay to create a qualified returned
check), generally the paying bank has met its requirements. (See
Sec. 229.38.) If, however, the paying bank selects a returning bank
that the paying bank should know is not capable of meeting its
return requirements, the paying bank will not have met its
obligation of exercising ordinary care in selecting intermediaries
to return the check. The paying bank is free to use a method of
return, other than its method of forward collection, as long as the
alternate method results in delivery of the returned check to the
depositary bank as quickly as the forward collection of a check
drawn on the depositary bank or, where the returning bank takes a
day to create a qualified returned check under Sec. 229.31(a), one
day later than the forward collection time. If a paying bank returns
a check on its banking day of receipt without settling for the
check, as permitted under U.C.C. 4-302(a), and receives settlement
for the returned check from a returning bank, it must promptly pay
the amount of the check to the collecting bank from which it
received the check.
7. Qualified returned checks. Although paying banks may wish to
prepare qualified returned checks because they will be handled at a
lower cost by returning banks, the one business day extension
provided to returning banks is not available to paying banks because
of the longer time that a paying bank has to dispatch the check.
Normally, paying banks will be able to convert a check to a
qualified returned check at any time after the determination is made
to return the check until late in the day following presentment,
while a returning bank may receive returned checks late on one day
and be expected to dispatch them early the next morning.
8. Routing of returned checks.
a. In effect, under either test, the paying bank acts as an
agent or subagent of the depositary bank in selecting a means of
return. Under Sec. 229.30(a), a paying bank is authorized to route
the returned check in a variety of ways:
i. It may send the returned check directly to the depositary
bank by courier or other means of delivery, bypassing returning
banks; or
ii. It may send the returned check to any returning bank
agreeing to handle the returned check for expeditious return to the
depositary bank under Sec. 229.31(a), regardless of whether or not
the returning bank handled the check for forward collection.
b. If the paying bank elects to return the check directly to the
depositary bank, it is not necessarily required to return the check
to the branch of first deposit. The check may be returned to the
depositary bank at any location permitted under Sec. 229.32(a).
9. Midnight deadline.
a. Except for the extension permitted by Sec. 229.30(c),
discussed below, this section does not relieve a paying bank from
the requirement for timely return (i.e., midnight deadline) under
U.C.C. 4-301 and 4-302, which continue to apply. Under U.C.C. 4-302,
a paying bank is ``accountable'' for the amount of a demand item,
other than a documentary draft, if it does not pay or return the
item or send notice of dishonor by its midnight deadline. Under
U.C.C. 3-418(c) and 4-215(a), late return constitutes payment and
would be final in favor of a holder in due course or a person who
has in good faith changed his position in reliance on the payment.
Thus, retaining this requirement gives the paying bank an additional
incentive to make a prompt return.
b. The expeditious return requirement applies to a paying bank
that determines not to pay a check. This requirement applies to a
payable-through or a payable-at bank that is defined as a paying
bank (see Sec. 229.2(z)) and that returns a check. This requirement
begins when the payable-through or payable-at bank receives the
check during forward collection, not when the payor returns the
check to the payable-through or payable-at bank. Nevertheless, a
check sent for payment or collection to a payable-through or
payable-at bank is not considered to be drawn on that bank for
purposes of the midnight deadline provision of U.C.C. 4-301. (See
discussion of Sec. 229.36(a).)
c. The liability section of this subpart (Sec. 229.38) provides
that a paying bank is not subject to both ``accountability'' for
missing the midnight deadline under the U.C.C. and liability for
missing the timeliness requirements of this regulation. Also, a
paying bank is not responsible for failure to make expeditious
return to a party that has breached a presentment warranty under
U.C.C. 4-208, notwithstanding that the paying bank has returned the
check. (See Commentary to Sec. 229.33(a).)
10. U.C.C. provisions affected. This paragraph directly affects
the following provisions of the U.C.C., and may affect other
sections or provisions:
a. Section 4-301(d), in that instead of returning a check
through a clearinghouse or to the presenting bank, a paying bank may
send a returned check to the depositary bank or to a returning bank.
b. Section 4-301(a), in that time limits specified in that
section may be affected by the additional requirement to make an
expeditious return and in that settlement for returned checks is
made under Sec. 229.31(c), not by revocation of settlement.
B. 229.30(b) Unidentifiable Depositary Bank
1. In some cases, a paying bank will be unable to identify the
depositary bank through the use of ordinary care and good faith. The
Board expects that these cases will be unusual as skilled return
clerks will readily identify the depositary bank from the depositary
bank indorsement required under Sec. 229.35 and Appendix D. In cases
where the paying bank is unable to identify the depositary bank, the
paying bank may, in accordance with Sec. 229.30(a), send the
returned check to a returning bank that agrees to handle the
returned check for expeditious return to the depositary bank under
Sec. 229.31(a). The returning bank may be better able to identify
the depositary bank.
[[Page 51691]]
2. In the alternative, the paying bank may send the check back
up the path used for forward collection of the check. The presenting
bank and prior collecting banks normally will be able to trace the
collection path of the check through the use of their internal
records in conjunction with the indorsements on the returned check.
In these limited cases, the paying bank may send such a returned
check to any bank that handled the check for forward collection,
even if that bank does not agree to handle the returned check for
expeditious return to the depositary bank under Sec. 229.31(a). A
paying bank returning a check under this paragraph to a bank that
has not agreed to handle the check expeditiously must advise that
bank that it is unable to identify the depositary bank. This advice
must be conspicuous, such as a stamp on each check for which the
depositary bank is unknown if such checks are commingled with other
returned checks, or, if such checks are sent in a separate cash
letter, by one notice on the cash letter. This information will warn
the bank that this check will require special research and handling
in accordance with Sec. 229.31(b). The returned check may not be
prepared for automated return. The return of a check to a bank that
handled the check for forward collection is consistent with
Sec. 229.35(b), which requires a bank handling a check to take up
the check it is has not been paid.
3. The sending of a check to a bank that handled the check for
forward collection under this paragraph is not subject to the
requirements for expeditious return by the paying bank. Often, the
paying bank will not have courier or other expeditious means of
transportation to the collecting or presenting bank. Although the
lack of a requirement of expeditious return will create risks for
the depositary bank, in many cases the inability to identify the
depositary bank will be due to the depositary bank's, or a
collecting bank's, failure to use the indorsement required by
Sec. 229.35(a) and Appendix D. If the depositary bank failed to use
the proper indorsement, it should bear the risks of less than
expeditious return. Similarly, where the inability to identify the
depositary bank is due to indorsements or other information placed
on the back of the check by the depositary bank's customer or other
prior indorser, the depositary bank should bear the risk that it
cannot charge a returned check back to that customer. Where the
inability to identify the depositary bank is due to subsequent
indorsements of collecting banks, these collecting banks may be
liable for a loss incurred by the depositary bank due to less than
expeditious return of a check; those banks therefore have an
incentive to return checks sent to them under this paragraph
quickly.
4. This paragraph does not relieve a paying bank from the
liability for the lack of expeditious return in cases where the
paying bank is itself responsible for the inability to identify the
depositary bank, such as when the paying bank's customer has used a
check with printing or other material on the back in the area
reserved for the depositary bank's indorsement, making the
indorsement unreadable. (See Sec. 229.38(d).)
5. A paying bank's return under this paragraph is also subject
to its midnight deadline under U.C.C. 4-301, Regulation J (if the
check is returned through a Federal Reserve Bank), and the exception
provided in Sec. 229.30(c). A paying bank also may send a check to a
prior collecting bank to make a claim against that bank under
Sec. 229.35(b) where the depositary bank is insolvent or in other
cases as provided in Sec. 229.35(b). Finally, a paying bank may make
a claim against a prior collecting bank based on a breach of
warranty under U.C.C. 4-208.
C. 229.30(c) Extension of Deadline
1. This paragraph permits extension of the deadlines for
returning a check for which the paying bank previously has settled
(generally midnight of the banking day following the banking day on
which the check is received by the paying bank) and for returning a
check without settling for it (generally midnight of the banking day
on which the check is received by the paying bank, or such other
time provided by Sec. 210.9 of Regulation J (12 CFR part 210) or
Sec. 229.36(f)(2) of this part), but not of the duty of expeditious
return, in two circumstances:
a. A paying bank may have a courier that leaves after midnight
(or after any other applicable deadline) to deliver its forward
collection checks. This paragraph removes the constraint of the
deadline for returned checks if the returned check reaches either
the depositary bank or the returning bank to which it is sent on
that bank's banking day following the expiration of the applicable
deadline. The extension also applies if the check reaches the bank
to which it is sent later than the close of that bank's banking day,
if highly expeditious means of transportation are used. For example,
a West Coast paying bank may use this further extension to ship a
returned check by air courier directly to an East Coast depositary
bank even if the check arrives after the close of the depositary
bank's banking day.
b. A paying bank may observe a banking day, as defined in the
applicable U.C.C., on a Saturday, which is not a business day and
therefore not a banking day under Regulation CC. In such a case, the
U.C.C. deadline for returning checks received and settled for on
Friday, or for returning checks received on Saturday without
settling for them, might require the bank to return the checks by
midnight Saturday. However, the bank may not have couriers leaving
on Saturday to carry returned checks, and even if it did, the
returning or depositary bank to which the returned checks were sent
might not be open until Sunday night or Monday morning to receive
and process the checks. This paragraph extends the midnight deadline
if the returned checks reach the returning bank by a cut-off hour
(usually on Sunday night or Monday morning) that permits processing
during its next processing cycle or reach the depositary bank by the
cut-off hour on its next banking day following the Saturday midnight
deadline.
2. The time limits that are extended in each case are the paying
bank's midnight deadline for returning a check for which it has
already settled and the paying bank's deadline for returning a check
without settling for it in U.C.C. 4-301 and 4-302, Secs. 210.9 and
210.12 of Regulation J (12 CFR 210.9 and 210.12), and
Sec. 229.36(f)(2) of this part. As these extensions are designed to
speed (Sec. 229.30(c)(1)), or at least not slow (Sec. 229.30(c)(2)),
the overall return of checks, no modification or extension of the
expeditious return requirements in Sec. 229.30(a) is required.
3. The paying bank satisfies its midnight or other return
deadline by dispatching returned checks to another bank by courier,
including a courier under contract with the paying bank, prior to
expiration of the deadline.
4. This paragraph directly affects U.C.C. 4-301 and 4-302 and
Secs. 210.9 and 210.12 of Regulation J (12 CFR 210.9 and 210.12) to
the extent that this paragraph applies by its terms, and may affect
other provisions.
D. 229.30(d) Identification of Returned Check
1. Most paying banks currently use some form of stamp on a
returned check indicating the reason for return. This paragraph
makes this practice mandatory. No particular form of stamp is
required, but the stamp must indicate the reason for return. A check
is identified as a returned check by a reason for return stamp, even
though the stamp does not specifically state that the check is a
returned check. A reason such as ``Refer to Maker'' is permissible
in appropriate cases. If the paying bank places the returned check
in a carrier envelope, the carrier envelope should indicate that it
is a returned check, but need not repeat the reason for return
stated in the check if it in fact appears on the check.
E. 229.30(e) Depositary Bank Without Accounts
1. Subpart B of this regulation applies only to ``checks''
deposited in transaction-type ``accounts.'' Thus, a depositary bank
with only time or savings accounts need not comply with the
availability requirements of Subpart B. Collecting banks will not
have couriers delivering checks to these banks as paying banks,
because no checks are drawn on them. Consequently, the costs of
using a courier or other expedited means to deliver returned checks
directly to such a depositary bank may not be justified. Thus, the
expedited return requirement of Sec. 229.30(a) and the notice of
nonpayment requirement of Sec. 229.33 do not apply to checks being
returned to banks that do not hold accounts. The paying bank's
midnight deadline in U.C.C. 4-301 and 4-302 and Sec. 210.12 of
Regulation J (12 CFR 210.12) would continue to apply to these
checks. Returning banks also would be required to act on such checks
within their midnight deadline. Further, in order to avoid
complicating the process of returning checks generally, banks
without accounts are required to use the standard indorsement, and
their checks are returned by returning banks and paid for by the
depositary bank under the same rules as checks deposited in other
banks, with the exception of the expeditious return and notice of
nonpayment requirements of Secs. 229.30(a), 229.31(a), and 229.33.
2. The expeditious return requirements also apply to a check
deposited in a bank that is not a depository institution. Federal
Reserve Banks, Federal Home Loan Banks, private bankers, and
possibly certain
[[Page 51692]]
industrial banks are not depository institutions within the meaning of
the Act, and therefore are not subject to the expedited availability
and disclosure requirements of Subpart B. These banks do, however,
maintain accounts as defined in Sec. 229.2(a), and a paying bank
returning a check to one of these banks would be required to return
the check to the depositary bank, in accordance with the
requirements of this section.
F. 229.30(f) Notice in Lieu of Return
1. A check that is lost or otherwise unavailable for return may
be returned by sending a legible copy of both sides of the check or,
if such a copy is not available to the paying bank, a written notice
of nonpayment containing the information specified in
Sec. 229.33(b). The copy or written notice must clearly indicate it
is a notice in lieu of return and must be handled in the same manner
as other returned checks. Notice by telephone, telegraph, or other
electronic transmission, other than a legible facsimile or similar
image transmission of both sides of the check, does not satisfy the
requirements for a notice in lieu of return. The requirement for a
writing and the indication that the notice is a substitute for the
returned check is necessary so that the returning and depositary
banks are informed that the notice carries value. Notice in lieu of
return is permitted only when a bank does not have and cannot obtain
possession of the check or must retain possession of the check for
protest. A check is not unavailable for return if it is merely
difficult to retrieve from a filing system or from storage by a
keeper of checks in a truncation system. A notice in lieu of return
may be used by a bank handling a returned check that has been lost
or destroyed, including when the original returned check has been
charged back as lost or destroyed as provided in Sec. 229.35(b). A
bank using a notice in lieu of return gives a warranty under
Sec. 229.34(a)(4) that the original check has not been and will not
be returned.
2. The requirement of this paragraph supersedes the requirement
of U.C.C. 4-301(a) as to the form and information required of a
notice of dishonor or nonpayment. Reference in the regulation and
this commentary to a returned check includes a notice in lieu of
return unless the context indicates otherwise.
3. The notice in lieu of return is subject to the provisions of
Sec. 229.30 and is treated like a returned check for settlement
purposes. If the original check is over $2,500, the notice of
nonpayment under Sec. 229.33 is still required, but may be satisfied
by the notice in lieu of return if the notice in lieu meets the time
and information requirements of Sec. 229.33.
4. If not all of the information required by Sec. 229.33(b) is
available, the paying bank may make a claim against any prior bank
handling the check as provided in Sec. 229.35(b).
G. 229.30(g) Reliance on Routing Number
1. Although Sec. 229.35 and Appendix D require that the
depositary bank indorsement contain its nine-digit routing number,
it is possible that a returned check will bear the routing number of
the depositary bank in fractional, nine-digit, or other form. This
paragraph permits a paying bank to rely on the routing number of the
depositary bank as it appears on the check (in the depositary bank's
indorsement) when it is received by the paying bank.
2. If there are inconsistent routing numbers, the paying bank
may rely on any routing number designating the depositary bank. The
paying bank is not required to resolve the inconsistency prior to
processing the check. The paying bank remains subject to the
requirement to act in good faith and use ordinary care under
Sec. 229.38(a).
XVII. Section 229.31 Returning Bank's Responsibility for Return of
Checks
A. 229.31(a) Return of Checks
1. The standards for return of checks established by this
section are similar to those for paying banks in Sec. 229.30(a).
This section requires a returning bank to return a returned check
expeditiously if it agrees to handle the returned check for
expeditious return under this paragraph. In effect, the returning
bank is an agent or subagent of the paying bank and a subagent of
the depositary bank for the purposes of returning the check.
2. A returning bank agrees to handle a returned check for
expeditious return to the depositary bank if it:
a. Publishes or distributes availability schedules for the
return of returned checks and accepts the returned check for return;
b. Handles a returned check for return that it did not handle
for forward collection; or
c. Otherwise agrees to handle a returned check for expeditious
return.
3. Two-day/four-day test. As in the case of a paying bank, a
returning bank's return of a returned check is expeditious if it
meets either of two tests. Under the ``two-day/four-day'' test, the
check must be returned so that it would normally be received by the
depositary bank by 4:00 p.m. either two or four business days after
the check was presented to the paying bank, depending on whether or
not the paying bank is located in the same check processing region
as the depositary bank. This is the same test as the two-day/four-
day test applicable to paying banks. (See Commentary to
Sec. 229.30(a).) While a returning bank will not have first hand
knowledge of the day on which a check was presented to the paying
bank, returning banks may, by agreement, allocate with paying banks
liability for late return based on the delays caused by each. In
effect, the two-day/four day test protects all paying and returning
banks that return checks from claims that they failed to return a
check expeditiously, where the check is returned within the
specified time following presentment to the paying bank, or a later
time as would result from unforeseen delays.
4. Forward collection test.
a. The ``forward collection'' test is similar to the forward
collection test for paying banks. Under this test, a returning bank
must handle a returned check in the same manner that a similarly
situated collecting bank would handle a check of similar size drawn
on the depositary bank for forward collection. A similarly situated
bank is a bank (other than a Federal Reserve Bank) that is of
similar asset size and check handling activity in the same
community. A bank has similar check handling activity if it handles
a similar volume of checks for forward collection as the forward
collection volume of the returning bank.
b. Under the forward collection test, a returning bank must
accept returned checks, including both qualified and other returned
checks (``raw returns''), at approximately the same times and
process them according to the same general schedules as checks
handled for forward collection. Thus, a returning bank generally
must process even raw returns on an overnight basis, unless its time
limit is extended by one day to convert a raw return to a qualified
returned check.
5. Cut-off hours. A returning bank may establish earlier cut-off
hours for receipt of returned checks than for receipt of forward
collection checks, but the cut-off hour for returned checks may not
be earlier than 2:00 p.m. The returning bank also may set different
sorting requirements for returned checks than those applicable to
other checks. Thus, a returning bank may allow itself more
processing time for returns than for forward collection checks. All
returned checks received by a cut-off hour for returned checks must
be processed and dispatched by the returning bank by the time that
it would dispatch forward collection checks received at a
corresponding forward collection cut-off hour that provides for the
same or faster availability for checks destined for the same
depositary banks.
6. Examples.
a. If a returning bank receives a returned check by its cut-off
hour for returned checks on Monday and the depositary bank and the
returning bank are participants in the same clearinghouse, the
returning bank should arrange to have the returned check received by
the depositary bank by Tuesday. This would be the same day that it
would deliver a forward collection check drawn on the depositary
bank and received by the returning bank at a corresponding forward
collection cut-off hour on Monday.
b. i. If a returning bank receives a returned check, and the
returning bank normally would collect a forward collection check
drawn on the depositary bank by sending the forward collection check
to a correspondent or a Federal Reserve Bank by courier, the
returning bank could send the returned check in the same manner if
the correspondent has agreed to handle returned checks expeditiously
under Sec. 229.31(a). The returning bank would have to deliver the
check by the correspondent's or Federal Reserve Bank's cut-off hour
for returned checks that corresponds to its cut-off hour for forward
collection checks drawn on the depositary bank. A returning bank may
take a day to convert a check to a qualified returned check. Where
the forward collection checks are delivered by courier, mailing the
returned checks would not meet the duty established by this section
for returning banks.
ii. A returning bank must return a check to the depositary bank
by courier or other means as fast as a courier, if similarly
situated returning banks use couriers to deliver their forward
collection checks to the depositary bank.
[[Page 51693]]
iii. For some depositary banks, no community practice exists as
to delivery of checks. For example, a credit union whose customers
use payable-through drafts normally does not have checks presented
to it because the drafts are normally sent to the payable-through
bank for collection. In these circumstances, the community standard
is established by taking into account the dollar volume of the
checks being sent to the depositary bank and the location of the
depositary bank, and determining whether similarly situated banks
normally would deliver forward collection checks to the depositary
bank, taking into account the particular risks associated with
returned checks. Where the community standard does not require
courier delivery, other means of delivery, including mail, are
acceptable.
7. Qualified returned checks.
a. The expeditious return requirement for a returning bank in
this regulation is more stringent in many cases than the duty of a
collecting bank to exercise ordinary care under U.C.C. 4-202 in
returning a check. A returning bank is under a duty to act as
expeditiously in returning a check as it would in the forward
collection of a check. Notwithstanding its duty of expeditious
return, its midnight deadline under U.C.C. 4-202 and Sec. 210.12(a)
of Regulation J (12 CFR 210.12(a)), under the forward collection
test, a returning bank may take an extra day to qualify a returned
check. A qualified returned check will be handled by subsequent
returning banks more efficiently than a raw return. This paragraph
gives a returning bank an extra business day beyond the time that
would otherwise be required to return the returned check to convert
a returned check to a qualified returned check. The qualified
returned check must include the routing number of the depositary
bank, the amount of the check, and a return identifier encoded on
the check in magnetic ink.
b. If the returning bank is sending the returned check directly
to the depositary bank, this extra day is not available because
preparing a qualified returned check will not expedite handling by
other banks. If the returning bank makes an encoding error in
creating a qualified returned check, it may be liable under
Sec. 229.38 for losses caused by any negligence. The returning bank
would not lose the one-day extension available to it for creating a
qualified returned check because of an encoding error.
8. Routing of returned check.
a. Under Sec. 229.31(a), the returning bank is authorized to
route the returned check in a variety of ways:
i. It may send the returned check directly to the depositary
bank by courier or other expeditious means of delivery; or
ii. It may send the returned check to any returning bank
agreeing to handle the returned check for expeditious return to the
depositary bank under this section regardless of whether or not the
returning bank handled the check for forward collection.
b. If the returning bank elects to send the returned check
directly to the depositary bank, it is not required to send the
check to the branch of the depositary bank that first handled the
check. The returned check may be sent to the depositary bank at any
location permitted under Sec. 229.32(a).
9. Responsibilities of returning bank. In meeting the
requirements of this section, the returning bank is responsible for
its own actions, but not those of the paying bank, other returning
banks, or the depositary bank. (See U.C.C. 4-202(c) regarding the
responsibility of collecting banks.) For example, if the paying bank
has delayed the start of the return process, but the returning bank
acts in a timely manner, the returning bank may satisfy the
requirements of this section even if the delayed return results in a
loss to the depositary bank. (See Sec. 229.38.) A returning bank
must handle a notice in lieu of return as expeditiously as a
returned check.
10. U.C.C. sections affected. This paragraph directly affects
the following provisions of the U.C.C., and may affect other
sections or provisions:
a. Section 4-202(b), in that time limits required by that
section may be affected by the additional requirement to make an
expeditious return.
b. Section 4-214(a), in that settlement for returned checks is
made under Sec. 229.31(c) and not by charge-back of provisional
credit, and in that the time limits may be affected by the
additional requirement to make an expeditious return.
B. 229.31(b) Unidentifiable Depositary Bank
1. This section is similar to Sec. 229.30(b), but applies to
returning banks instead of paying banks. In some cases a returning
bank will be unable to identify the depositary bank with respect to
a check. Returning banks agreeing to handle checks for return to
depositary banks under Sec. 229.31(a) are expected to be expert in
identifying depositary bank indorsements. In the limited cases where
the returning bank cannot identify the depositary bank, the
returning bank may send the returned check to a returning bank that
agrees to handle the returned check for expeditious return under
Sec. 229.31(a), or it may send the returned check to a bank that
handled the check for forward collection, even if that bank does not
agree to handle the returned check expeditiously under
Sec. 229.31(a).
2. If the returning bank itself handled the check for forward
collection, it may send the returned check to a collecting bank that
was prior to it in the forward collection process, which will be
better able to identify the depositary bank. If there are no prior
collecting banks, the returning bank must research the collection of
the check and identify the depositary bank. As in the case of paying
banks under Sec. 229.30(b), a returning bank's sending of a check to
a bank that handled the check for forward collection under
Sec. 229.31(b) is not subject to the expeditious return requirements
of Sec. 229.31(a).
3. The returning bank's return of a check under this paragraph
is subject to the midnight deadline under U.C.C. 4-202(b). (See
definition of returning bank in Sec. 229.2(cc).)
4. Where a returning bank receives a check that it does not
agree to handle expeditiously under Sec. 229.31(a), such as a check
sent to it under Sec. 229.30(b), but the returning bank is able to
identify the depositary bank, the returning bank must thereafter
return the check expeditiously to the depositary bank. The returning
bank returns a check expeditiously under this paragraph if it
returns the check by the same means it would use to return a check
drawn on it to the depositary bank or by other reasonably prompt
means.
5. As in the case of a paying bank returning a check under
Sec. 229.30(b), a returning bank returning a check under this
paragraph to a bank that has not agreed to handle the check
expeditiously must advise that bank that it is unable to identify
the depositary bank. This advice must be conspicuous, such as a
stamp on each check for which the depositary bank is unknown if such
checks are commingled with other returned checks, or, if such checks
are sent in a separate cash letter, by one notice on the cash
letter. The returned check may not be prepared for automated return.
C. 229.31(c) Settlement
1. Under the U.C.C., a collecting bank receives settlement for a
check when it is presented to the paying bank. The paying bank may
recover the settlement when the paying bank returns the check to the
presenting bank. Under this regulation, however, the paying bank may
return the check directly to the depositary bank or through
returning banks that did not handle the check for forward
collection. On these more efficient return paths, the paying bank
does not recover the settlement made to the presenting bank. Thus,
this paragraph requires the returning bank to settle for a returned
check (either with the paying bank or another returning bank) in the
same way that it would settle for a similar check for forward
collection. To achieve uniformity, this paragraph applies even if
the returning bank handled the check for forward collection.
2. Any returning bank, including one that handled the check for
forward collection, may provide availability for returned checks
pursuant to an availability schedule as it does for forward
collection checks. These settlements by returning banks, as well as
settlements between banks made during the forward collection of a
check, are considered final when made subject to any deferment of
availability. (See Sec. 229.36(d) and Commentary to Sec. 229.35(b).)
3. A returning bank may vary the settlement method it uses by
agreement with paying banks or other returning banks. Special rules
apply in the case of insolvency of banks. (See Sec. 229.39.) If
payment cannot be obtained from a depositary or returning bank
because of its insolvency or otherwise, recovery can be had by
returning, paying, and collecting banks from prior banks on this
basis of the liability of prior banks under Sec. 229.35(b).
4. This paragraph affects U.C.C. 4-214(a) in that a paying or
collecting bank does not ordinarily have a right to charge back
against the bank from which it received the returned check, although
it is entitled to settlement if it returns the returned check to
that bank, and may affect other sections or provisions. Under
Sec. 229.36(d), a bank collecting a check remains liable to prior
collecting banks and
[[Page 51694]]
the depositary bank's customer under the U.C.C.
D. 229.31(d) Charges
1. This paragraph permits any returning bank, even one that
handled the check for forward collection, to impose a fee on the
paying bank or other returning bank for its service in handling a
returned check. Where a claim is made under Sec. 229.35(b), the bank
on which the claim is made is not authorized by this paragraph to
impose a charge for taking up a check. This paragraph preempts state
laws to the extent that these laws prevent returning banks from
charging fees for handling returned checks.
E. 229.31(e) Depositary Bank Without Accounts
1. This paragraph is similar to Sec. 229.30(e) and relieves a
returning bank of its obligation to make expeditious return to a
depositary bank that does not maintain any accounts. (See the
Commentary to Sec. 229.30(e).)
F. 229.31(f) Notice in Lieu of Return
1. This paragraph is similar to Sec. 229.30(f) and authorizes a
returning bank to originate a notice in lieu of return if the
returned check is unavailable for return. Notice in lieu of return
is permitted only when a bank does not have and cannot obtain
possession of the check or must retain possession of the check for
protest. A check is not unavailable for return if it is merely
difficult to retrieve from a filing system or from storage by a
keeper of checks in a truncation system. (See the Commentary to
Sec. 229.30(f).)
G. 229.31(g) Reliance on Routing Number
1. This paragraph is similar to Sec. 229.30(g) and permits a
returning bank to rely on routing numbers appearing on a returned
check such as routing numbers in the depositary bank's indorsement
or on qualified returned checks. (See the Commentary to
Sec. 229.30(g).)
XVIII. Section 229.32 Depositary Bank's Responsibility for
Returned Checks
A. 229.32(a) Acceptance of Returned Checks
1. This regulation seeks to encourage direct returns by paying
and returning banks and may result in a number of banks sending
checks to depositary banks with no preexisting arrangements as to
where the returned checks should be delivered. This paragraph states
where the depositary bank is required to accept returned checks and
written notices of nonpayment under Sec. 229.33. (These locations
differ from locations at which a depositary bank must accept
electronic notices.) It is derived from U.C.C. 3-111, which
specifies that presentment for payment may be made at the place
specified in the instrument or, if there is none, at the place of
business of the party to pay. In the case of returned checks, the
depositary bank does not print the check and can only specify the
place of ``payment'' of the returned check in its indorsement.
2. The paragraph specifies four locations at which the
depositary bank must accept returned checks:
a. The depositary bank must accept returned checks at any
location at which it requests presentment of forward collection
checks such as a processing center. A depositary bank does not
request presentment of forward collection checks at a branch of the
bank merely by paying checks presented over the counter.
b. i. If the depositary bank indorsement states the name and
address of the depositary bank, it must accept returned checks at
the branch, head office, or other location, such as a processing
center, indicated by the address. If the address is too general to
identify a particular location, then the depositary bank must accept
returned checks at any branch or head office consistent with the
address. If, for example, the address is ``New York, New York,''
each branch in New York City must accept returned checks.
ii. If no address appears in the depositary bank's indorsement,
the depositary bank must accept returned checks at any branch or
head office associated with the depositary bank's routing number.
The offices associated with the routing number of a bank are found
in American Bankers Association Key to Routing Numbers, published by
Thomson Financial Publishing Inc., which lists a city and state
address for each routing number.
iii. The depositary bank must accept returned checks at the
address in its indorsement and at an address associated with its
routing number in the indorsement if the written address in the
indorsement and the address associated with the routing number in
the indorsement are not in the same check processing region. Under
Secs. 229.30(g) and 229.31(g), a paying or returning bank may rely
on the depositary bank's routing number in its indorsement in
handling returned checks and is not required to send returned checks
to an address in the depositary bank's indorsement that is not in
the same check processing region as the address associated with the
routing number in the indorsement.
iv. If no routing number or address appears in its indorsement,
the depositary bank must accept a returned check at any branch or
head office of the bank. The indorsement requirement of Sec. 229.35
and Appendix D requires that the indorsement contain a routing
number, a name, and a location. Consequently, this provision, as
well as paragraph (a)(2)(ii) of this section, only applies where the
depositary bank has failed to comply with the indorsement
requirement.
3. For ease of processing, a depositary bank may require that
returning or paying banks returning checks to it separate returned
checks from forward collection checks being presented.
4. Under Sec. 229.33(d), a depositary bank receiving a returned
check or notice of nonpayment must send notice to its customer by
its midnight deadline or within a longer reasonable time.
B. 229.32(b) Payment
1. As discussed in the commentary to Sec. 229.31(c), under this
regulation a paying or returning bank does not obtain credit for a
returned check by charge-back but by, in effect, presenting the
returned check to the depositary bank. This paragraph imposes an
obligation to ``pay'' a returned check that is similar to the
obligation to pay a forward collection check by a paying bank,
except that the depositary bank may not return a returned check for
which it is the depositary bank. Also, certain means of payment,
such as remittance drafts, may be used only with the agreement of
the returning bank.
2. The depositary bank must pay for a returned check by the
close of the banking day on which it received the returned check.
The day on which a returned check is received is determined pursuant
to U.C.C. 4-108, which permits the bank to establish a cut-off hour,
generally not earlier than 2:00 p.m., and treat checks received
after that hour as being received on the next banking day. If the
depositary bank is unable to make payment to a returning or paying
bank on the banking day that it receives the returned check, because
the returning or paying bank is closed for a holiday or because the
time when the depositary bank received the check is after the close
of Fedwire, e.g., west coast banks with late cut-off hours, payment
may be made on the next banking day of the bank receiving payment.
3. Payment must be made so that the funds are available for use
by the bank returning the check to the depositary bank on the day
the check is received by the depositary bank. For example, a
depositary bank meets this requirement if it sends a wire transfer
of funds to the returning or paying bank on the day it receives the
returned check, even if the returning or paying bank has closed for
the day. A wire transfer should indicate the purpose of the payment.
4. The depositary bank may use a net settlement arrangement to
settle for a returned check. Banks with net settlement agreements
could net the appropriate credits and debits for returned checks
with the accounting entries for forward collection checks if they so
desired. If, for purposes of establishing additional controls or for
other reasons, the banks involved desired a separate settlement for
returned checks, a separate net settlement agreement could be
established.
5. The bank sending the returned check to the depositary bank
may agree to accept payment at a later date if, for example, it does
not believe that the amount of the returned check or checks warrants
the costs of same-day payment. Thus, a returning or paying bank may
agree to accept payment through an ACH credit or debit transfer that
settles the day after the returned check is received instead of a
wire transfer that settles on the same day.
6. This paragraph and this subpart do not affect the depositary
bank's right to recover a provisional settlement with its nonbank
customer for a check that is returned. (See also
Secs. 229.19(c)(2)(ii), 229.33(d) and 229.35(b).)
C. 229.32(c) Misrouted Returned Checks
1. This paragraph permits a bank receiving a check on the basis
that it is the depositary bank to send the misrouted returned check
to the correct depositary bank, if it can identify the correct
depositary bank, either directly or through a returning bank
agreeing to handle the check expeditiously under Sec. 229.30(a). In
these cases, the bank receiving the check is acting as a returning
bank. Alternatively, the bank receiving the misrouted returned check
must send the check back to the bank from
[[Page 51695]]
which it was received. In either case the bank to which the returned
check was misrouted could receive settlement for the check. The
depositary bank would be required to pay for the returned check
under Sec. 229.32(b), and any other bank to which the check is sent
under this paragraph would be required to settle for the check as a
returning bank under Sec. 229.31(c). If the check was originally
received ``free,'' that is, without a charge for the check, the bank
incorrectly receiving the check would have to return the check,
without a charge, to the bank from which it came. The bank to which
the returned check was misrouted is required to act promptly but is
not required to meet the expeditious return requirements of
Sec. 229.31(a); however, it must act within its midnight deadline.
This paragraph does not affect a bank's duties under Sec. 229.35(b).
D. 229.32(d) Charges
1. This paragraph prohibits a depositary bank from charging the
equivalent of a presentment fee for returned checks. A returning
bank, however, may charge a fee for handling returned checks. If the
returning bank receives a mixed cash letter of returned checks,
which includes some checks for which the returning bank also is the
depositary bank, the fee may be applied to all the returned checks
in the cash letter. In the case of a sorted cash letter containing
only returned checks for which the returning bank is the depositary
bank, however, no fee may be charged.
XIX. Section 229.33 Notice of Nonpayment
A. 229.33(a) Requirement
1. Notice of nonpayment as required by this section and written
notice in lieu of return as provided in Secs. 229.30(f) and
229.31(f) serve different functions. The two kinds of notice,
however, must meet the content requirements of this section. The
paying bank must send a notice of nonpayment if it decides not to
pay a check of $2,500 or more. A paying bank may rely on an amount
encoded on the check in magnetic ink to determine whether the check
is in the amount of $2,500 or more. The notice of nonpayment carries
no value, and the check itself (or the notice in lieu of return)
must be returned. The paying bank must ensure that the notice of
nonpayment is received by the depositary bank by 4:00 p.m. local
time on the second business day following presentment. A bank
identified by routing number as the paying bank is considered the
paying bank under this regulation and would be required to create a
notice of nonpayment even though that bank determined that the check
was not drawn by a customer of that bank. (See Commentary to the
definition of paying bank in Sec. 229.2(z).)
2. The paying bank should not send a notice of nonpayment until
it has finally determined not to pay the check. Under
Sec. 229.34(b), by sending the notice the paying bank warrants that
it has returned or will return the check. If a paying bank sends a
notice and subsequently decides to pay the check, the paying bank
may mitigate its liability on this warranty by notifying the
depositary bank that the check has been paid.
3. Because the return of the check itself may serve as the
required notice of nonpayment, in many cases no notice other than
the return of the check will be necessary. For example, in many
cases the return of a check through a clearinghouse to another
participant of the clearinghouse will be made in time to meet the
time requirements of this section. If the check normally will not be
received by the depositary bank within the time limits for notice,
the return of the check will not satisfy the notice requirement. In
determining whether the returned check will satisfy the notice
requirement, the paying bank may rely on the availability schedules
of returning banks as the time that the returned check is expected
to be delivered to the depositary bank, unless the paying bank has
reason to know the availability schedules are inaccurate.
4. Unless the returned check is used to satisfy the notice
requirement, the requirement for notice is independent of and does
not affect the requirements for timely and expeditious return of the
check under Sec. 229.30 and the U.C.C. (See Sec. 229.30(a).) If a
paying bank fails both to comply with this section and to comply
with the requirements for timely and expeditious return under
Sec. 229.30 and the U.C.C. and Regulation J (12 CFR part 210), the
paying bank shall be liable under either this section or such other
requirements, but not both. (See Sec. 229.38(b).) A paying bank is
not responsible for failure to give notice of nonpayment to a party
that has breached a presentment warranty under U.C.C. 4-208,
notwithstanding that the paying bank may have returned the check.
(See U.C.C. 4-208 and 4-302.)
B. 229.33(b) Content of Notices
1. This paragraph provides that the notice must at a minimum
contain eight elements which are specifically enumerated. In the
case of written notices, the name and routing number of the
depositary bank also are required.
2. If the paying bank cannot identify the depositary bank from
the check itself, it may wish to send the notice to the earliest
collecting bank it can identify and indicate that the notice is not
being sent to the depositary bank. The collecting bank may be able
to identify the depositary bank and forward the notice, but is under
no duty to do so. In addition, the collecting bank may actually be
the depositary bank.
C. 229.33(c) Acceptance of Notice
1. In the case of a written notice, the depositary bank is
required to accept notices at the locations specified in
Sec. 229.32(a). In the case of telephone notices, the bank may not
refuse to accept notices at the telephone numbers identified in this
section, but may transfer calls or use a recording device. Banks may
vary by agreement the location and manner in which notices are
received.
D. 229.33(d) Notification to Customer
1. This paragraph requires a depositary bank to notify its
customer of nonpayment upon receipt of a returned check or notice of
nonpayment, regardless of the amount of the check or notice. This
requirement is similar to the requirement under the U.C.C. as
interpreted in Appliance Buyers Credit Corp. v. Prospect National
Bank, 708 F.2d 290 (7th Cir. 1983), that a depositary bank may be
liable for damages incurred by its customer for its failure to give
its customer timely advice that it has received a notice of
nonpayment. Notice also must be given if a depositary bank receives
a notice of recovery under Sec. 229.35(b). The notice to the
customer required under this paragraph also may satisfy the notice
requirement of Sec. 229.13(g) if the depositary bank invokes the
reasonable cause exception of Sec. 229.13(e) due to the receipt of a
notice of nonpayment, provided the notice meets the other
requirements of Sec. 229.13(g).
XX. Section 229.34 Warranties
A. 229.34(a) Warranty of Returned Check
1. This paragraph includes warranties that a returned check,
including a notice in lieu of return, was returned by the paying
bank, or in the case of a check payable by a bank and payable
through another bank, the bank by which the check is payable, within
the deadline under the U.C.C., Regulation J, or Sec. 229.30(c); that
the paying or returning bank is authorized to return the check; that
the returned check has not been materially altered; and that, in the
case of a notice in lieu of return, the original check has not been
and will not be returned for payment. (See the Commentary to
Sec. 229.30(f).) The warranty does not include a warranty that the
bank complied with the expeditious return requirements of
Secs. 229.30(a) and 229.31(a). These warranties do not apply to
checks drawn on the United States Treasury, to U.S. Postal Service
money orders, or to checks drawn on a state or a unit of general
local government that are not payable through or at a bank. (See
Sec. 229.42.)
B. 229.34(b) Warranty of Notice of Nonpayment
1. This paragraph provides for warranties for notices of
nonpayment. This warranty does not include a warranty that the
notice is accurate and timely under Sec. 229.33. The requirements of
Sec. 229.33 that are not covered by the warranty are subject to the
liability provisions of Sec. 229.38. These warranties are designed
to give the depositary bank more confidence in relying on notices of
nonpayment. This paragraph imposes liability on a paying bank that
gives notice of nonpayment and then subsequently returns the check.
(See Commentary on Sec. 229.33(a).)
C. 229.34(c) Warranty of Settlement Amount, Encoding, and Offset
1. Paragraph (c)(1) provides that a bank that presents and
receives settlement for checks warrants to the paying bank that the
settlement it demands (e.g., as noted on the cash letter) equals the
total amount of the checks it presents. This paragraph gives the
paying bank a warranty claim against the presenting bank for the
amount of any excess settlement made on the basis of the amount
demanded, plus expenses. If the amount demanded is understated, a
paying bank discharges its settlement obligation under U.C.C. 4-301
by paying the amount demanded, but remains liable for the amount by
which the demand is understated; the presenting bank is nevertheless
liable for expenses in resolving the adjustment.
[[Page 51696]]
2. When checks or returned checks are transferred to a
collecting, returning, or depositary bank, the transferor bank is
not required to demand settlement, as is required upon presentment
to the paying bank. However, often the checks or returned checks
will be accompanied by information (such as a cash letter listing)
that will indicate the total of the checks or returned checks.
Paragraph (c)(2) provides that if the transferor bank includes
information indicating the total amount of checks or returned checks
transferred, it warrants that the information is correct (i.e.,
equals the actual total of the items).
3. Paragraph (c)(3) provides that a bank that presents or
transfers a check or returned check warrants the accuracy of the
magnetic ink encoding that was placed on the item after issue, and
that exists at the time of presentment or transfer, to any bank that
subsequently handles the check or returned check. Under U.C.C. 4-
209(a), only the encoder (or the encoder and the depositary bank, if
the encoder is a customer of the depositary bank) warrants the
encoding accuracy, thus any claims on the warranty must be directed
to the encoder. Paragraph (c)(3) expands on the U.C.C. by providing
that all banks that transfer or present a check or returned check
make the encoding warranty. In addition, under the U.C.C., the
encoder makes the warranty to subsequent collecting banks and the
paying bank, while paragraph (c)(3) provides that the warranty is
made to banks in the return chain as well.
4. A paying bank that settles for an overstated cash letter
because of a misencoded check may make a warranty claim against the
presenting bank under paragraph (c)(1) (which would require the
paying bank to show that the check was part of the overstated cash
letter) or an encoding warranty claim under paragraph (c)(3) against
the presenting bank or any preceding bank that handled the
misencoded check.
5. Paragraph (c)(4) provides that the paying bank may set off
any excess settlement made against settlement owed to the presenting
bank for checks presented subsequently.
D. 229.34(d) Damages
1. This paragraph adopts for the warranties in Sec. 229.34 (a),
(b), and (c) the damages provided in U.C.C. 4-207(c) and 4A-506(b).
(See definition of interest compensation in Sec. 229.2(oo).)
E. 229.34(e) Tender of Defense
1. This paragraph adopts for this regulation the vouching-in
provisions of U.C.C. 3-119.
XXI. Section 229.35 Indorsements
A. 229.35(a) Indorsement Standards
1. This section and Appendix D require banks to use a standard
form of indorsement when indorsing checks during the forward
collection and return process. The standard provides for
indorsements by all collecting and returning banks, plus a unique
standard for depositary bank indorsements. It is designed to
facilitate the identification of the depositary bank and the prompt
return of checks. The regulation places a duty on banks to ensure
that their indorsements are legible. The indorsement standard
specifies the information each indorsement must contain and its
location and ink color.
2. The indorsement standard requires that the nine-digit routing
number of the depositary bank be wholly contained in an area on the
back of the check from 3.0 inches from the leading edge to 1.5
inches from the trailing edge of the check. This permits banks to
use encoding equipment that measures from either the leading or
trailing edge of the check to place indorsements in this area. The
standard does not require that the entire depositary bank
indorsement be contained within the specified area, but checks will
be handled most efficiently if depositary banks place as much
information as possible within the designated area to ensure that
the information is protected from being overstamped by subsequent
indorsements. The location requirement for subsequent collecting
bank indorsements (not including returning bank indorsements) limits
these indorsements to the area on the back of the check from the
leading edge to 3.0 inches from the leading edge of the check. The
area from the trailing edge of the check to 1.5 inches from the
trailing edge is commonly used for the payee indorsement.
3. The standard requires depositary banks to use either purple
or black ink. The Board encourages depositary banks to indorse
checks in purple ink where possible, because use of a unique ink
color will facilitate the speedy identification of the depositary
bank. Black ink, however, may be used when use of purple ink is not
feasible, such as where a bank uses the same equipment to apply both
depositary bank and subsequent collecting bank indorsements, and the
equipment has only one source of ink.
4. The standard requires subsequent collecting banks to use an
ink color other than purple for their indorsements. The standard
also requires the depositary bank's indorsement to include its nine-
digit routing number set off by arrows, the bank's name and
location, and the indorsement date, and permits the indorsement to
include other identifying information.
5. The standard does not include the fractional routing number
for depositary banks; however, a bank may include its fractional
routing number or repeat its nine-digit routing number in its
indorsement. If a depositary bank includes its routing number in its
indorsement more than once, paying and returning banks will be able
to identify the depositary bank more readily. Depositary banks
should not include information that can be confused with required
information. For example, a nine-digit zip code could be confused
with the nine-digit routing number.
6. A depositary bank is not required to place a street address
in its indorsement; however, a bank may want to put an address in
its indorsement in order to limit the number of locations at which
it must accept returned checks. In instances where this address is
not consistent with the routing number in the indorsement, the
depositary bank is required to accept returned checks at a branch or
head office consistent with the routing number. Banks should note,
however, that Sec. 229.32 requires a depositary bank to accept
returned checks at the location(s) it accepts forward collection
checks. The inclusion of a depositary bank's telephone number where
it would receive notices of large-dollar returns in its indorsements
is optional.
7. Under the U.C.C., a specific guarantee of prior indorsement
is not necessary. (See U.C.C. 4-207(a) and 4-208(a).) Use of
guarantee language in indorsements, such as ``P.E.G.'' (``prior
endorsements guaranteed''), may result in reducing the type size
used in bank indorsements, thereby making them more difficult to
read. Use of this language may make it more difficult for other
banks to identify the depositary bank. Subsequent collecting bank
indorsements may not include this language.
8. The standard for returning banks requires a returning bank to
apply an indorsement that avoids the area on the back of the check
from 3.0 inches from the leading edge of the check to the trailing
edge--the area reserved for the payee and depositary bank
indorsements. Returning bank indorsements may differ from subsequent
collecting bank indorsements. The use of various methods to process
returns using a variety of equipment also may cause returning bank
indorsements to vary substantially in form, content, and placement
on the check. Thus, a returning bank indorsement may be on the face
of the check or on the back of the check. A returning bank
indorsement may not be in purple ink. No content requirements have
been adopted for the returning bank indorsement.
9. If the bank maintaining the account into which a check is
deposited agrees with another bank (a correspondent, ATM operator,
or lock box operator) to have the other bank accept returns and
notices of nonpayment for the bank of account, the indorsement
placed on the check as the depositary bank indorsement may be the
indorsement of the bank that acts as correspondent, ATM operator, or
lock box operator as provided in paragraph (d) of this section.
10. The backs of many checks bear pre-printed information or
blacked out areas for various reasons. For example, some checks are
printed with a carbon band across the back that allows the transfer
of information from the check to a ledger with one writing. Also,
contracts or loan agreements are printed on certain checks. Other
checks that are mailed to recipients may contain areas on the back
that are blacked out so that they may not be read through the
mailer. On the deposit side, the payee of the check may place its
indorsement or information identifying the drawer of the check in
the area specified for the depositary bank indorsement, thus making
the depositary bank indorsement unreadable.
11. The indorsement standard does not prohibit the use of a
carbon band or other printed or written matter on the backs of
checks and does not require banks to avoid placing their
indorsements in these areas. Nevertheless, checks will be handled
more efficiently if depositary banks design indorsement stamps so
that the nine-digit routing number avoids the carbon band area.
Indorsing parties other than banks, e.g., corporations, will benefit
from the faster return of checks if they protect the
[[Page 51697]]
identifiability and legibility of the depositary bank indorsement by
staying clear of the area reserved for the depositary bank
indorsement.
12. Section 229.38(d) allocates responsibility for loss
resulting from a delay in return of a check due to indorsements that
are unreadable because of material on the back of the check. The
depositary bank is responsible for a loss resulting from a delay in
return caused by the condition of the check arising after its
issuance until its acceptance by the depositary bank that made the
depositary bank's indorsement illegible. The paying bank is
responsible for loss resulting from a delay in return caused by
indorsements that are not readable because of other material on the
back of the check at the time that it was issued. Depositary and
paying banks may shift these risks to their customers by agreement.
13. The standard does not require the paying bank to indorse the
check; however, if a paying bank does indorse a check that is
returned, it should follow the indorsement standard for returning
banks. The standard requires collecting and returning banks to
indorse the check for tracing purposes.
B. 229.35(b) Liability of Bank Handling Check
1. When a check is sent for forward collection, the collection
process results in a chain of indorsements extending from the
depositary bank through any subsequent collecting banks to the
paying bank. This section extends the indorsement chain through the
paying bank to the returning banks, and would permit each bank to
recover from any prior indorser if the claimant bank does not
receive payment for the check from a subsequent bank in the
collection or return chain. For example, if a returning bank
returned a check to an insolvent depositary bank, and did not
receive the full amount of the check from the failed bank, the
returning bank could obtain the unrecovered amount of the check from
any bank prior to it in the collection and return chain including
the paying bank. Because each bank in the collection and return
chain could recover from a prior bank, any loss would fall on the
first collecting bank that received the check from the depositary
bank. To avoid circuity of actions, the returning bank could recover
directly from the first collecting bank. Under the U.C.C., the first
collecting bank might ultimately recover from the depositary bank's
customer or from the other parties on the check.
2. Where a check is returned through the same banks used for the
forward collection of the check, priority during the forward
collection process controls over priority in the return process for
the purpose of determining prior and subsequent banks under this
regulation.
3. Where a returning bank is insolvent and fails to pay the
paying bank or a prior returning bank for a returned check,
Sec. 229.39(a) requires the receiver of the failed bank to return
the check to the bank that transferred the check to the failed bank.
That bank then either could continue the return to the depositary
bank or recover based on this paragraph. Where the paying bank is
insolvent, and fails to pay the collecting bank, the collecting bank
also could recover from a prior collecting bank under this
paragraph, and the bank from which it recovered could in turn
recover from its prior collecting bank until the loss settled on the
depositary bank (which could recover from its customer).
4. A bank is not required to make a claim against an insolvent
bank before exercising its right to recovery under this paragraph.
Recovery may be made by charge-back or by other means. This right of
recovery also is permitted even where nonpayment of the check is the
result of the claiming bank's negligence such as failure to make
expeditious return, but the claiming bank remains liable for its
negligence under Sec. 229.38.
5. This liability is imposed on a bank handling a check for
collection or return regardless of whether the bank's indorsement
appears on the check. Notice must be sent under this paragraph to a
prior bank from which recovery is sought reasonably promptly after a
bank learns that it did not receive payment from another bank, and
learns the identity of the prior bank. Written notice reasonably
identifying the check and the basis for recovery is sufficient if
the check is not available. Receipt of notice by the bank against
which the claim is made is not a precondition to recovery by charge-
back or other means; however, a bank may be liable for negligence
for failure to provide timely notice. A paying or returning bank
also may recover from a prior collecting bank as provided in
Secs. 229.30(b) and 229.31(b). This provision is not a substitute
for a paying or returning bank making expeditious return under
Secs. 229.30(a) or 229.31(b). This paragraph does not affect a
paying bank's accountability for a check under U.C.C. 4-215(a) and
4-302. Nor does this paragraph affect a collecting bank's
accountability under U.C.C. 4-213 and 4-215(d). A collecting bank
becomes accountable upon receipt of final settlement as provided in
the foregoing U.C.C. sections. The term final settlement in
Secs. 229.31 (c), 229.32 (b), and 229.36(d) is intended to be
consistent with the use of the term final settlement in the U.C.C.
(e.g., U.C.C. 4-213, 4-214, and 4-215). (See also Sec. 229.2(cc) and
Commentary.)
6. This paragraph also provides that a bank may have the rights
of a holder based on the handling of the check for collection or
return. A bank may become a holder or a holder in due course
regardless of whether prior banks have complied with the indorsement
standard in Sec. 229.35(a) and Appendix D.
7. This paragraph affects the following provisions of the
U.C.C., and may affect other provisions:
a. Section 4-214(a), in that the right to recovery is not based
on provisional settlement, and recovery may be had from any prior
bank. Section 4-214(a) would continue to permit a depositary bank to
recover a provisional settlement from its customer. (See
Sec. 229.33(d).)
b. Section 3-415 and related provisions (such as section 3-503),
in that such provisions would not apply as between banks, or as
between the depositary bank and its customer.
C. 229.35(c) Indorsement by Bank
1. This section protects the rights of a customer depositing a
check in a bank without requiring the words ``pay any bank,'' as
required by the U.C.C. (See U.C.C. 4-201(b).) Use of this language
in a depositary bank's indorsement will make it more difficult for
other banks to identify the depositary bank. The indorsement
standard in Appendix D prohibits such material in subsequent
collecting bank indorsements. The existence of a bank indorsement
provides notice of the restrictive indorsement without any
additional words.
D. 229.35(d) Indorsement for Depositary Bank
1. This section permits a depositary bank to arrange with
another bank to indorse checks. This practice may occur when a
correspondent indorses for a respondent, or when the bank servicing
an ATM or lock box indorses for the bank maintaining the account in
which the check is deposited--i.e., the depositary bank. If the
indorsing bank applies the depositary bank's indorsement, checks
will be returned to the depositary bank. If the indorsing bank does
not apply the depositary bank's indorsement, by agreement with the
depositary bank it may apply its own indorsement as the depositary
bank indorsement. In that case, the depositary bank's own
indorsement on the check (if any) should avoid the location reserved
for the depositary bank. The actual depositary bank remains
responsible for the availability and other requirements of Subpart
B, but the bank indorsing as depositary bank is considered the
depositary bank for purposes of Subpart C. The check will be
returned, and notice of nonpayment will be given, to the bank
indorsing as depositary bank.
2. Because the depositary bank for Subpart B purposes will
desire prompt notice of nonpayment, its arrangement with the
indorsing bank should provide for prompt notice of nonpayment. The
bank indorsing as depositary bank may require the depositary bank to
agree to take up the check if the check is not paid even if the
depositary bank's indorsement does not appear on the check and it
did not handle the check. The arrangement between the banks may
constitute an agreement varying the effect of provisions of Subpart
C under Sec. 229.37.
XXII. Section 229.36 Presentment and Issuance of Checks
A. 229.36(a) Payable Through and Payable at Checks
1. For purposes of Subpart C, the regulation defines a payable-
through or payable-at bank (which could be designated the
collectible-through or collectible-at bank) as a paying bank. The
requirements of Sec. 229.30(a) and the notice of nonpayment
requirements of Sec. 229.33 are imposed on a payable-through or
payable-at bank and are based on the time of receipt of the forward
collection check by the payable-through or payable-at bank. This
provision is intended to speed the return of checks that are payable
through or at a bank to the depositary bank.
[[Page 51698]]
B. 229.36(b) Receipt at Bank Office or Processing Center
1. This paragraph seeks to facilitate efficient presentment of
checks to promote early return or notice of nonpayment to the
depositary bank and clarifies the law as to the effect of
presentment by routing number. This paragraph differs from
Sec. 229.32(a) because presentment of checks differs from delivery
of returned checks.
2. The paragraph specifies four locations at which the paying
bank must accept presentment of checks. Where the check is payable
through a bank and the check is sent to that bank, the payable-
through bank is the paying bank for purposes of this subpart,
regardless of whether the paying bank must present the check to
another bank or to a nonbank payor for payment.
a. Delivery of checks may be made, and presentment is considered
to occur, at a location (including a processing center) requested by
the paying bank. This is the way most checks are presented by banks
today. This provision adopts the common law rule of a number of
legal decisions that the processing center acts as the agent of the
paying bank to accept presentment and to begin the time for
processing of the check. (See also U.C.C. 4-204(c).) If a bank
designates different locations for the presentment of forward
collection checks bearing different routing numbers, for purposes of
this paragraph it requests presentment of checks bearing a
particular routing number only at the location designated for
receipt of forward collection checks bearing that routing number.
b. i. Delivery may be made at an office of the bank associated
with the routing number on the check. The office associated with the
routing number of a bank is found in American Bankers Association
Key to Routing Numbers, published by Thomson Financial Publishing
Inc., which lists a city and state address for each routing number.
Checks generally are handled by collecting banks on the basis of the
nine-digit routing number encoded in magnetic ink (or on the basis
of the fractional form routing number if the magnetic ink characters
are obliterated) on the check, rather than the printed name or
address. The definition of a paying bank in Sec. 229.2(z) includes a
bank designated by routing number, whether or not there is a name on
the check, and whether or not any name is consistent with the
routing number. Where a check is payable by one bank, but payable
through another, the routing number is that of the payable-through
bank, not that of the payor bank. As the payor bank has selected the
payable-through bank as the point through which presentment is to be
made, it is proper to treat the payable-through bank as the paying
bank for purposes of this section.
ii. There is no requirement in the regulation that the name and
address on the check agree with the address associated with the
routing number on the check. A bank generally may control the use of
its routing number, just as it does the use of its name. The address
associated with the routing number may be a processing center.
iii. In some cases, a paying bank may have several offices in
the city associated with the routing number. In such case, it would
not be reasonable or efficient to require the presenting bank to
sort the checks by more specific branch addresses that might be
printed on the checks, and to deliver the checks to each branch. A
collecting bank normally would deliver all checks to one location.
In cases where checks are delivered to a branch other than the
branch on which they may be drawn, computer and courier
communication among branches should permit the paying bank to
determine quickly whether to pay the check.
c. If the check specifies the name of the paying bank but no
address, the bank must accept delivery at any office. Where delivery
is made by a person other than a bank, or where the routing number
is not readable, delivery will be made based on the name and address
of the paying bank on the check. If there is no address, delivery
may be made at any office of the paying bank. This provision is
consistent with U.C.C. 3-111, which states that presentment for
payment may be made at the place specified in the instrument, or, if
there is none, at the place of business of the party to pay. Thus,
there is a trade-off for a paying bank between specifying a
particular address on a check to limit locations of delivery, and
simply stating the name of the bank to encourage wider currency for
the check.
d. If the check specifies the name and address of a branch or
head office, or other location (such as a processing center), the
check may be delivered by delivery to that office or other location.
If the address is too general to identify a particular office,
delivery may be made at any office consistent with the address. For
example, if the address is ``San Francisco, California,'' each
office in San Francisco must accept presentment. The designation of
an address on the check generally is in the control of the paying
bank.
3. This paragraph may affect U.C.C. 3-111 to the extent that the
U.C.C. requires presentment to occur at a place specified in the
instrument.
C. 229.36(c) Truncation
1. Truncation includes a variety of procedures in which the
physical check is held or delayed by the depositary or collecting
bank, and the information from the check is transmitted to the
paying bank electronically. Presentment takes place when the paying
bank receives the electronic transmission. This process has the
potential to improve the efficiency of check processing, and express
provision for truncation and electronic presentment is made in
U.C.C. 4-110 and 4-406(b). This paragraph allows truncation by
agreement with the paying bank; however, such agreement may not
prejudice the interests of prior parties to the check. For example,
a truncation agreement may not extend the paying bank's time for
return. Such an extension could damage the depositary bank, which
must make funds available to its customers under mandatory
availability schedules.
D. 229.36(d) Liability of Bank During Forward Collection
1. This paragraph makes settlement between banks during forward
collection final when made, subject to any deferment of credit, just
as settlements between banks during the return of checks are final.
In addition, this paragraph clarifies that this change does not
affect the liability scheme under U.C.C. 4-201 during forward
collection of a check. That U.C.C. section provides that, unless a
contrary intent clearly appears, a bank is an agent or subagent of
the owner of a check, but that Article 4 of the U.C.C. applies even
though a bank may have purchased an item and is the owner of it.
This paragraph preserves the liability of a collecting bank to prior
collecting banks and the depositary bank's customer for negligence
during the forward collection of a check under the U.C.C., even
though this paragraph provides that settlement between banks during
forward collection is final rather than provisional. Settlement by a
paying bank is not considered to be final payment for the purposes
of U.C.C. 4-215(a)(2) or (3), because a paying bank has the right to
recover settlement from a returning or depositary bank to which it
returns a check under this subpart. Other provisions of the U.C.C.
not superseded by this subpart, such as section 4-202, also continue
to apply to the forward collection of a check and may apply to the
return of a check. (See definition of returning bank in
Sec. 229.2(cc).)
E. 229.36(e) Issuance of Payable Through Checks
1. If a bank arranges for checks payable by it to be payable
through another bank, it must require its customers to use checks
that contain conspicuously on their face the name, location, and
first four digits of the nine-digit routing number of the bank by
which the check is payable and the legend ``payable through''
followed by the name and location of the payable-through bank. The
first four digits of the nine-digit routing number and the location
of the bank by which the check is payable must be associated with
the same check processing region. (This section does not affect
Sec. 229.36(b).) The required information is deemed conspicuous if
it is printed in a type size not smaller than six-point type and if
it is contained in the title plate, which is located in the lower
left quadrant of the check. The required information may be
conspicuous if it is located elsewhere on the check.
2. If a payable-through check does not meet the requirements of
this paragraph, the bank by which the check is payable may be liable
to the depositary bank or others as provided in Sec. 229.38. For
example, a bank by which a payable-through check is payable could be
liable to a depositary bank that suffers a loss, such as lost
interest or liability under Subpart B, that would not have occurred
had the check met the requirements of this paragraph. Similarly, a
bank may be liable under Sec. 229.38 if a check payable by it that
is not payable through another bank is labeled as provided in this
section. For example, a bank that holds checking accounts and
processes checks at a central location but has widely-dispersed
branches may be liable under this section if it labels all of its
checks as ``payable through'' a single branch and includes the name,
address, and four-digit routing symbol of another branch.
[[Page 51699]]
These checks would not be payable through another bank and should not
be labeled as payable-through checks. (All of a bank's offices
within the United States are considered part of the same bank; see
Sec. 229.2(e).) In this example, the bank by which the checks are
payable could be liable to a depositary bank that suffers a loss,
such as lost interest or liability under Subpart B, due to the
mislabeled check. The bank by which the check is payable may be
liable for additional damages if it fails to act in good faith.
F. 229.36(f) Same-Day Settlement
1. This paragraph provides that, under certain conditions, a
paying bank must settle with a presenting bank for a check on the
same day the check is presented in order to avail itself of the
ability to return the check on its next banking day under U.C.C. 4-
301 and 4-302. This paragraph does not apply to checks presented for
immediate payment over the counter. Settling for a check under this
paragraph does not constitute final payment of the check under the
U.C.C. This paragraph does not supersede or limit the rules
governing collection and return of checks through Federal Reserve
Banks that are contained in Subpart A of Regulation J (12 CFR part
210).
2. Presentment requirements.
a. Location and time.
i. For presented checks to qualify for mandatory same-day
settlement, information accompanying the checks must indicate that
presentment is being made under this paragraph--e.g. ``these checks
are being presented for same-day settlement''--and must include a
demand for payment of the total amount of the checks together with
appropriate payment instructions in order to enable the paying bank
to discharge its settlement responsibilities under this paragraph.
In addition, the check or checks must be presented at a location
designated by the paying bank for receipt of checks for same-day
settlement by 8:00 a.m. local time of that location. The designated
presentment location must be a location at which the paying bank
would be considered to have received a check under Sec. 229.36(b).
The paying bank may not designate a location solely for presentment
of checks subject to settlement under this paragraph; by designating
a location for the purposes of Sec. 229.36(f), the paying bank
agrees to accept checks at that location for the purposes of
Sec. 229.36(b).
ii. The designated presentment location also must be within the
check processing region consistent with the nine-digit routing
number encoded in magnetic ink on the check. A paying bank that uses
more than one routing number associated with a single check
processing region may designate, for purposes of this paragraph, one
or more locations in that check processing region at which checks
will be accepted, but the paying bank must accept any checks with a
routing number associated with that check processing region at each
designated location. A paying bank may designate a presentment
location for traveler's checks with an 8000-series routing number
anywhere in the country because these traveler's checks are not
associated with any check processing region. The paying bank,
however, must accept at that presentment location any other checks
for which it is paying bank that have a routing number consistent
with the check processing region of that location.
iii. If the paying bank does not designate a presentment
location, it must accept presentment for same-day settlement at any
location identified in Sec. 229.36(b), i.e., at an address of the
bank associated with the routing number on the check, at any branch
or head office if the bank is identified on the check by name
without address, or at a branch, head office, or other location
consistent with the name and address of the bank on the check if the
bank is identified on the check by name and address. A paying bank
and a presenting bank may agree that checks will be accepted for
same-day settlement at an alternative location (e.g., at an
intercept processor located in a different check processing region)
or that the cut-off time for same-day settlement be earlier or later
than 8:00 a.m. local time.
iv. In the case of a check payable through a bank but payable by
another bank, this paragraph does not authorize direct presentment
to the bank by which the check is payable. The requirements of same-
day settlement under this paragraph would apply to a payable-through
or payable-at bank to which the check is sent for payment or
collection.
b. Reasonable delivery requirements. A check is considered
presented when it is delivered to and payment is demanded at a
location specified in paragraph (f)(1). Ordinarily, a presenting
bank will find it necessary to contact the paying bank to determine
the appropriate presentment location and any delivery instructions.
Further, because presentment might not take place during the paying
bank's banking day, a paying bank may establish reasonable delivery
requirements to safeguard the checks presented, such as use of a
night depository. If a presenting bank fails to follow reasonable
delivery requirements established by the paying bank, it runs the
risk that it will not have presented the checks. However, if no
reasonable delivery requirements are established or if the paying
bank does not make provisions for accepting delivery of checks
during its non-business hours, leaving the checks at the presentment
location constitutes effective presentment.
c. Sorting of checks. A paying bank may require that checks
presented to it for same-day settlement be sorted separately from
other forward collection checks it receives as a collecting bank or
returned checks it receives as a returning or depositary bank. For
example, if a bank provides correspondent check collection services
and receives unsorted checks from a respondent bank that include
checks for which it is the paying bank and that would otherwise meet
the requirements for same-day settlement under this section, the
collecting bank need not make settlement in accordance with
paragraph (f)(2). If the collecting bank receives sorted checks from
its respondent bank, consisting only of checks for which the
collecting bank is the paying bank and that meet the requirements
for same-day settlement under this paragraph, the collecting bank
may not charge a fee for handling those checks and must make
settlement in accordance with this paragraph.
3. Settlement
a. If a bank presents a check in accordance with the time and
location requirements for presentment under paragraph (f)(1), the
paying bank either must settle for the check on the business day it
receives the check without charging a presentment fee or return the
check prior to the time for settlement. (This return deadline is
subject to extension under Sec. 229.30(c).) The settlement must be
in the form of a credit to an account designated by the presenting
bank at a Federal Reserve Bank (e.g., a Fedwire transfer). The
presenting bank may agree with the paying bank to accept settlement
in another form (e.g., credit to an account of the presenting bank
at the paying bank or debit to an account of the paying bank at the
presenting bank). The settlement must occur by the close of Fedwire
on the business day the check is received by the paying bank. Under
the provisions of Sec. 229.34(c), a settlement owed to a presenting
bank may be set off by adjustments for previous settlements with the
presenting bank. (See also Sec. 229.39(d).)
b. Checks that are presented after the 8 a.m. (local time)
presentment deadline for same-day settlement and before the paying
bank's cut-off hour are treated as if they were presented under
other applicable law and settled for or returned accordingly.
However, for purposes of settlement only, the presenting bank may
require the paying bank to treat such checks as presented for same-
day settlement on the next business day in lieu of accepting
settlement by cash or other means on the business day the checks are
presented to the paying bank. Checks presented after the paying
bank's cut-off hour or on non-business days, but otherwise in
accordance with this paragraph, are considered presented for same-
day settlement on the next business day.
4. Closed Paying Bank
a. There may be certain business days that are not banking days
for the paying bank. Some paying banks may continue to settle for
checks presented on these days (e.g., by opening their back office
operations or by using an intercept processor). In other cases, a
paying bank may be unable to settle for checks presented on a day it
is closed.
If the paying bank closes on a business day and checks are
presented to the paying bank in accordance with paragraph (f)(1),
the paying bank is accountable for the checks unless it settles for
or returns the checks by the close of Fedwire on its next banking
day. In addition, checks presented on a business day on which the
paying bank is closed are considered received on the paying bank's
next banking day for purposes of the U.C.C. midnight deadline
(U.C.C. 4-301 and 4-302) and this regulation's expeditious return
and notice of nonpayment provisions.
b. If the paying bank is closed on a business day voluntarily,
the paying bank must pay interest compensation, as defined in
Sec. 229.2(oo), to the presenting bank for the value of the float
associated with the check from the day of the voluntary closing
until
[[Page 51700]]
the day of settlement. Interest compensation is not required in the
case of an involuntary closing on a business day, such as a closing
required by state law. In addition, if the paying bank is closed on
a business day due to emergency conditions, settlement delays and
interest compensation may be excused under Sec. 229.38(e) or U.C.C.
4-109(b).
5. Good faith. Under Sec. 229.38(a), both presenting banks and
paying banks are held to a standard of good faith, defined in
Sec. 229.2(nn) to mean honesty in fact and the observance of
reasonable commercial standards of fair dealing. For example,
designating a presentment location or changing presentment locations
for the primary purpose of discouraging banks from presenting checks
for same-day settlement might not be considered good faith on the
part of the paying bank. Similarly, presenting a large volume of
checks without prior notice could be viewed as not meeting
reasonable commercial standards of fair dealing and therefore may
not constitute presentment in good faith. In addition, if banks, in
the general course of business, regularly agree to certain practices
related to same-day settlement, it might not be considered
consistent with reasonable commercial standards of fair dealing, and
therefore might not be considered good faith, for a bank to refuse
to agree to those practices if agreeing would not cause it harm.
6. U.C.C. sections affected. This paragraph directly affects the
following provisions of the U.C.C. and may affect other sections or
provisions:
a. Section 4-204(b)(1), in that a presenting bank may not send a
check for same-day settlement directly to the paying bank, if the
paying bank designates a different location in accordance with
paragraph (f)(1).
b. Section 4-213(a), in that the medium of settlement for checks
presented under this paragraph is limited to a credit to an account
at a Federal Reserve Bank and that, for checks presented after the
deadline for same-day settlement and before the paying bank's cut-
off hour, the presenting bank may require settlement on the next
business day in accordance with this paragraph rather than accept
settlement on the business day of presentment by cash.
c. Section 4-301(a), in that, to preserve the ability to
exercise deferred posting, the time limit specified in that section
for settlement or return by a paying bank on the banking day a check
is received is superseded by the requirement to settle for checks
presented under this paragraph by the close of Fedwire.
d. Section 4-302(a), in that, to avoid accountability, the time
limit specified in that section for settlement or return by a paying
bank on the banking day a check is received is superseded by the
requirement to settle for checks presented under this paragraph by
the close of Fedwire.
XXIII. Section 229.37 Variations by Agreement
A. This section is similar to U.C.C. 4-103, and permits
consistent treatment of agreements varying Article 4 or Subpart C,
given the substantial interrelationship of the two documents. To
achieve consistency, the official comment to U.C.C. 4-103(a) (which
in turn follows U.C.C. 1-201(3)) should be followed in construing
this section. For example, as stated in Official Comment 2 to
section 4-103, owners of items and other interested parties are not
affected by agreements under this section unless they are parties to
the agreement or are bound by adoption, ratification, estoppel, or
the like. In particular, agreements varying this subpart that delay
the return of a check beyond the times required by this subpart may
result in liability under Sec. 229.38 to entities not party to the
agreement. This section is consistent with the limits on truncation
agreements in Sec. 229.36(c).
B. The Board has not followed U.C.C. 4-103(b), which permits
Federal Reserve regulations and operating letters, clearinghouse
rules, and the like to apply to parties that have not specifically
assented. Nevertheless, this section does not affect the status of
such agreements under the U.C.C.
C. The following are examples of situations where variation by
agreement is permissible, subject to the limitations of this
section:
1. A depositary bank may authorize another bank to apply the
other bank's indorsement to a check as the depositary bank. (See
Sec. 229.35(d).)
2. A depositary bank may authorize returning banks to commingle
qualified returned checks with forward collection checks. (See
Sec. 229.32(a).)
3. A depositary bank may limit its liability to its customer in
connection with the late return of a deposited check where the
lateness is caused by markings on the check by the depositary bank's
customer or prior indorser in the area of the depositary bank
indorsement. (See Sec. 229.38(d).)
4. A paying bank may require its customer to assume the paying
bank's liability for delayed or missent checks where the delay or
missending is caused by markings placed on the check by the paying
bank's customer that obscured a properly placed indorsement of the
depositary bank. (See Sec. 229.38(d).)
5. A collecting or paying bank may agree to accept forward
collection checks without the indorsement of a prior collecting
bank. (See Sec. 229.35(a).)
6. A bank may agree to accept returned checks without the
indorsement of a prior bank. (See Sec. 229.35(a).)
7. A presenting bank may agree with a paying bank to present
checks for same-day settlement at a location that is not in the
check processing region consistent with the routing number on the
checks. (See Sec. 229.36(f)(1)(i).)
8. A presenting bank may agree with a paying bank to present
checks for same-day settlement by a deadline earlier or later than
8:00 a.m. (See Sec. 229.36(f)(1)(ii).)
D. The Board expects to review the types of variation by
agreement that develop under this section and will consider whether
it is necessary to limit certain variations.
XXIV. Section 229.38 Liability
A. 229.38(a) Standard of care; liability; measure of damages
1. The standard of care established by this section applies to
any bank covered by the requirements of Subpart C of the regulation.
Thus, the standard of care applies to a paying bank under
Secs. 229.30 and 229.33, to a returning bank under Sec. 229.31, to a
depositary bank under Secs. 229.32 and 229.33, to a bank erroneously
receiving a returned check or written notice of nonpayment as
depositary bank under Sec. 229.32(d), and to a bank indorsing a
check under Sec. 229.35. The standard of care is similar to the
standard imposed by U.C.C. 1-203 and 4-103(a) and includes a duty to
act in good faith, as defined in Sec. 229.2(nn) of this regulation.
2. A bank not meeting this standard of care is liable to the
depositary bank, the depositary bank's customer, the owner of the
check, or another party to the check. The depositary bank's customer
is usually a depositor of a check in the depositary bank (but see
Sec. 229.35(d)). The measure of damages stated derives from U.C.C.
4-103(e) and 4-202(c). This subpart does not absolve a collecting
bank of liability to prior collecting banks under U.C.C. 4-201.
3. Under this measure of damages, a depositary bank or other
person must show that the damage incurred results from the
negligence proved. For example, the depositary bank may not simply
claim that its customer will not accept a charge-back of a returned
check, but must prove that it could not charge back when it received
the returned check and could have charged back if no negligence had
occurred, and must first attempt to collect from its customer. (See
Marcoux v. Van Wyk, 572 F.2d 651 (8th Cir. 1978); Appliance Buyers
Credit Corp. v. Prospect Nat'l Bank, 708 F.2d 290 (7th Cir. 1983).)
Generally, a paying or returning bank's liability would not be
reduced because the depositary bank did not place a hold on its
customer's deposit before it learned of nonpayment of the check.
4. This paragraph also states that it does not affect a paying
bank's liability to its customer. Under U.C.C. 4-402, for example, a
paying bank is liable to its customer for wrongful dishonor, which
is different from failure to exercise ordinary care and has a
different measure of damages.
B. 229.38(b) Paying Bank's Failure To Make Timely Rreturn
1. Section 229.30(a) imposes requirements on the paying bank for
expeditious return of a check and leaves in place the U.C.C.
deadlines (as they may be modified by Sec. 229.30(c)), which may
allow return at a different time. This paragraph clarifies that the
paying bank could be liable for failure to meet either standard, but
not for failure to meet both. The regulation intends to preserve the
paying bank's accountability for missing its midnight or other
deadline under the U.C.C., (e.g., sections 4-215 and 4-302),
provisions that are not incorporated in this regulation, but may be
useful in establishing the time of final payment by the paying bank.
C. 229.38(c) Comparative negligence
1. This paragraph establishes a ``pure'' comparative negligence
standard for liability under Subpart C of this regulation. This
comparative negligence rule may have particular application where a
paying or returning bank delays in returning a check because of
difficulty in identifying the depositary bank. Some examples will
illustrate liability in such cases. In each
[[Page 51701]]
example, it is assumed that the returned check is received by the
depositary bank after it has made funds available to its customer,
that it may no longer recover the funds from its customer, and that
the inability to recover the funds from the customer is due to a
delay in returning the check contrary to the standards established
by Secs. 229.30(a) or 229.31(a).
2. Examples.
a. If a depositary bank fails to use the indorsement required by
this regulation, and this failure is caused by a failure to exercise
ordinary care, and if a paying or returning bank is delayed in
returning the check because additional time is required to identify
the depositary bank or find its routing number, the paying or
returning bank's liability to the depositary bank would be reduced
or eliminated.
b. If the depositary bank uses the standard indorsement, but
that indorsement is obscured by a subsequent collecting bank's
indorsement, and a paying or returning bank is delayed in returning
the check because additional time was required to identify the
depositary bank or find its routing number, the paying or returning
bank may not be liable to the depositary bank because the delay was
not due to its negligence. Nonetheless, the collecting bank may be
liable to the depositary bank to the extent that its negligence in
indorsing the check caused the paying or returning bank's delay.
c. If a depositary bank accepts a check that has printing, a
carbon band, or other material on the back of the check that existed
at the time the check was issued, and the depositary bank's
indorsement is obscured by the printing, carbon band, or other
material, and a paying or returning bank is delayed in returning the
check because additional time was required to identify the
depositary bank, the returning bank may not be liable to the
depositary bank because the delay was not due to its negligence.
Nonetheless, the paying bank may be liable to the depositary bank to
the extent that the printing, carbon band, or other material caused
the delay.
D. 229.38(d) Responsibility for Certain Aspects of Checks
1. Responsibility for back of check. The indorsement standard in
Sec. 229.35 is most effective if the back of the check remains clear
of other matter that may obscure bank indorsements. Because bank
indorsements are usually applied by automated equipment, it is not
possible to avoid pre-existing matter on the back of the check. For
example, bank indorsements are not required to avoid a carbon band
or printed, stamped, or written terms or notations on the back of
the check. Accordingly, this provision places responsibility on the
paying bank or depositary bank, as appropriate, for keeping the back
of the check clear for bank indorsements during forward collection
and return.
2. Responsibility for payable-through checks.
a. This paragraph provides that the bank by which a payable-
through check is payable is liable for damages under paragraph (a)
of this section to the extent that the check is not returned through
the payable-through bank as quickly as would have been necessary to
meet the requirements of Sec. 229.30(a)(1) (the 2-day/4-day test)
had the bank by which it is payable received the check as paying
bank on the day the payable-through bank received it. The location
of the bank by which a check is payable for purposes of the 2-day/4-
day test may be determined from the location or the first four
digits of the routing number of the bank by which the check is
payable. This information should be stated on the check. (See
Sec. 229.36(e) and accompanying Commentary.) Responsibility under
paragraph (d)(2) does not include responsibility for the time
required for the forward collection of a check to the payable-
through bank.
b. Generally, liability under paragraph (d)(2) will be limited
in amount. Under Sec. 229.33(a), a paying bank that returns the
amount of $2,500 or more is not returned through the payable-through
bank as quickly as would have been required had the check been
received by the bank by which it is payable, the depositary bank
should not suffer damages unless it has not received timely notice
of nonpayment. Thus, ordinarily the bank by which a payable-through
check is payable would be liable under paragraph (a) only for checks
in amounts up to $2,500, and the paying bank would be responsible
for notice of nonpayment for checks in the amount of $2,500 or more.
3. Responsibility under paragraphs (d)(1) and (d)(2) is treated
as negligence for comparative negligence purposes, and the
contribution to damages under paragraphs (d)(1) and (d)(2) is
treated in the same way as the degree of negligence under paragraph
(c) of this section.
E. 229.38(e) Timeliness of Action
1. This paragraph excuses certain delays. It adopts the standard
of U.C.C. 4-109(b).
F. 229.38(f) Exclusion
1. This paragraph provides that the civil liability and class
action provisions, particularly the punitive damage provisions of
sections 611(a) and (b), and the bona fide error provision of 611(c)
of the Act (12 U.S.C. 4010(a), (b), and (c)) do not apply to
regulatory provisions adopted to improve the efficiency of the
payments mechanism. Allowing punitive damages for delays in the
return of checks where no actual damages are incurred would only
encourage litigation and provide little or no benefit to the check
collection system. In view of the provisions of paragraph (a), which
incorporate traditional bank collection standards based on
negligence, the provision on bona fide error is not included in
Subpart C.
G. 229.38(g) Jurisdiction
1. The Act confers subject matter jurisdiction on courts of
competent jurisdiction and provides a time limit for civil actions
for violations of this subpart.
H. 229.38(h) Reliance on Board Rulings
1. This provision shields banks from civil liability if they act
in good faith in reliance on any rule, regulation, or interpretation
of the Board, even if it were subsequently determined to be invalid.
Banks may rely on the Commentary to this regulation, which is issued
as an official Board interpretation, as well as on the regulation
itself.
XXV. Section 229.39 Insolvency of Bank
A. Introduction
1. These provisions cover situations where a bank becomes
insolvent during collection or return and are derived from U.C.C. 4-
216. They are intended to apply to all banks.
B. 229.39(a) Duty of Receiver
1. This paragraph requires a receiver of a closed bank to return
a check to the prior bank if it does not pay for the check. This
permits the prior bank, as holder, to pursue its claims against the
closed bank or prior indorsers on the check.
C. 229.39(b) Preference Against Paying or Depositary Bank
1. This paragraph gives a bank a preferred claim against a
closed paying or depositary bank that finally pays a check without
settling for it. If the bank with a preferred claim under this
paragraph recovers from a prior bank or other party to the check,
the prior bank or other party to the check is subrogated to the
preferred claim.
D. 229.39(c) Preference Against Paying, Collecting, or Depositary Bank
1. This paragraph gives a bank a preferred claim against a
closed collecting, paying, or returning bank that receives
settlement but does not settle for a check. (See Commentary to
Sec. 229.35(b) for discussion of prior and subsequent banks.) As in
the case of Sec. 229.39(b), if the bank with a preferred claim under
this paragraph recovers from a prior bank or other party to the
check, the prior bank or other party to the check is subrogated to
the preferred claim.
E. 229.39(d) Preference Against Presenting Bank
1. This paragraph gives a paying bank a preferred claim against
a closed presenting bank in the event that the presenting bank
breaches an amount or encoding warranty as provided in
Sec. 229.34(c)(1) or (3) and does not reimburse the paying bank for
adjustments for a settlement made by the paying bank in excess of
the value of the checks presented. This preference is intended to
have the effect of a perfected security interest and is intended to
put the paying bank in the position of a secured creditor for
purposes of the receivership provisions of the Federal Deposit
Insurance Act and similar provisions of state law.
F. 229.39(e) Finality of Settlement
1. This paragraph provides that insolvency does not interfere
with the finality of a settlement, such as a settlement by a paying
bank that becomes final by expiration of the midnight deadline.
XXVI. Section 229.40 Effect on Merger Transaction
A. When banks merge, there is normally a period of adjustment
required before their operations are consolidated. To allow for this
adjustment period, the regulation provides that the merged banks may
be treated as separate banks for a period of up to one year after
the consummation of the transaction. The term merger transaction is
defined in
[[Page 51702]]
Sec. 229.2(t). This rule affects the status of the combined entity in a
number of areas in this subpart. For example:
1. The paying bank's responsibility for expeditious return
(Sec. 229.30).
2. The returning bank's responsibility for expeditious return
(Sec. 229.31).
3. Whether a returning bank is entitled to an extra day to
qualify a return that will be delivered directly to a depositary
bank that has merged with the returning bank (Sec. 229.31(a)).
4. Where the depositary bank must accept returned checks
(Sec. 229.32(a)).
5. Where the depositary bank must accept notice of nonpayment
(Sec. 229.33(c)).
6. Where a paying bank must accept presentment of checks
(Sec. 229.36(b)).
XXVII. Section 229.41 Relation to State Law
A. This section specifies that state law relating to the
collection of checks is preempted only to the extent that it is
inconsistent with this regulation. Thus, this regulation is not a
complete replacement for state laws relating to the collection or
return of checks.
XXVIII. Section 229.42 Exclusions
A. Checks drawn on the United States Treasury, U.S. Postal
Service money orders, and checks drawn on states and units of
general local government that are presented directly to the state or
unit of general local government and that are not payable through or
at a bank are excluded from the coverage of the expeditious return
and notice of nonpayment requirements of Subpart C of this
regulation. Other provisions of this subpart continue to apply to
the checks. This exclusion does not apply to checks drawn by the
U.S. government on banks.
XXIX. Appendix C--Model Forms, Clauses, and Notices
A. Introduction
1. Appendix C contains model forms, clauses, and notices that
may be used by banks to meet their disclosure responsibilities under
the regulation. Banks using the model forms, clauses, and notices
properly will be in compliance with the disclosure requirements of
the regulation.
2. Certain information that must be inserted by a bank using the
forms is italicized within parentheses in the text of the forms.
Some forms contain alternative clauses, and these are set forth in
brackets and separated by the word ``or.'' Banks may make certain
changes in the format or content of the model forms and delete
material that is inapplicable without losing the Act's protection
from liability for banks that use the forms properly. For example,
if a bank does not take advantage of the Sec. 229.13 exceptions, it
may delete the material relating to those exceptions. The
rearrangement of the model forms, clauses, or notices may not be so
extensive, however, as to affect the substance, clarity, or
meaningful sequence of the forms. Acceptable changes include, for
example:
a. Using ``customer'' and ``bank'' instead of pronouns.
b. Not using bold type for headings.
c. Incorporating certain state law ``plain English''
requirements.
3. Shorter time periods for availability may always be
substituted for time periods used in the model forms, clauses, or
notices.
4. Banks may also add information related to their availability
policies. For example, a bank might indicate that although funds
have been made available to a customer and the customer has
withdrawn them, the customer is still responsible for problems with
the deposit, such as checks that were deposited being returned
unpaid. Or a bank could provide in its disclosure a telephone number
to be used if a customer has an inquiry regarding a deposit.
5. Banks are cautioned against using the forms, clauses, or
notices without reviewing their own policies and practices, as well
as state and federal laws regarding the time periods for
availability of specific types of checks. A bank using a model form
will be in compliance with the Act and the regulation only if its
disclosures correspond to the bank's availability policy.
B. Models
1. Models C-1 through C-5 generally.
a. These forms are models for the specific availability policy
disclosure described in Sec. 229.16 of the regulation. The forms
accommodate a variety of availability policies, ranging from
policies of next-day availability to holds on a blanket basis up to
the maximum time allowed in the regulation. Model C-3 reflects the
additional disclosures discussed in Secs. 229.16(b) and (c) for
banks that have a policy of extending availability times on a case-
by-case basis.
b. As already noted, there are several places in the forms where
information must be inserted. This information includes the bank's
name and cut-off times, limitations relating to next-day
availability, and the first four digits of routing numbers for local
banks. In disclosing when funds will be available for withdrawal,
the bank must insert the original number (such as first, second,
etc.) of the business day the funds will become available.
c. Models C-1 through C-5 generally do not reflect any optional
provisions of the regulation, or those that apply only to certain
banks. Instead, disclosures for these provisions are included in the
model clauses (Models C-6 through C-11). A bank using one of the
model forms should also consider whether it must incorporate one or
more of the model clauses.
d. While Sec. 229.10(b) of the regulation requires next-day
availability for electronic payments, Treasury regulations (31 CFR
part 210) and ACH association rules require that preauthorized
credits (direct deposits) be made available on the day the bank
receives the funds. Model Forms C-l through C-5 reflect these rules.
Wire transfers, however, are not governed by Treasury or ACH rules,
but banks generally make funds from wire transfers available on the
day received or on the business day following receipt. Banks should
ensure that their disclosures reflect the availability given in most
cases for wire transfers.
e. Banks that have used earlier versions of the model forms,
clauses, or notices (such as those forms that gave Social Security
benefits and payroll payments as examples of preauthorized credits
available the day after deposit) are protected from civil liability
under Sec. 229.21(e). Banks are encouraged, however, to use current
versions of the forms when reordering or reprinting supplies of
forms.
2. Model C-1. A bank may use this form when its policy is to
make funds from all deposits available on the first business day
after a deposit is made. This form may also be used by banks that
provide immediate availability by substituting the word
``immediately'' in place of ``on the first business day after the
day we receive your deposit.''
3. Model C-2. A bank may use this form when its policy is to
make funds from all deposits available to its customers on the first
business day after the deposit is made, and to reserve the right to
invoke the new account and other exceptions in Sec. 229.13 of the
regulation.
4. Model C-3. A bank may use this form when its policy, in most
cases, is to make funds from all types of deposits available the day
after the deposit is made, but to delay availability on some
deposits on a case-by-case basis up to the maximum time periods
allowed under the regulation. A bank using this form also reserves
the right to invoke the exceptions listed in Sec. 229.13 of the
regulation. A bank reserving the right to impose the cash withdrawal
limitation in Sec. 229.12(d) should disclose that funds may not be
available until the sixth (rather than fifth) business day in the
first paragraph under the heading ``Longer Delays May Apply.''
5. Model C-4. A bank may use this form when its policy is the
same as that outlined in Model C-5. The only difference between
Model C-5 and Model C-4 is that in the latter a chart showing the
bank's availability policy for local and nonlocal checks is
substituted for the narrative description in the former.
6. Model C-5. A bank may use this form when its policy is to
impose delays to the full extent allowed by Sec. 229.12 and to
reserve the right to invoke the Sec. 229.13 exceptions.
7. Models C-6 through C-11 generally. These model clauses must
be incorporated into a bank's specific availability policy
disclosure under certain circumstances. The commentary to each
clause indicates when the clause is required.
8. Model C-6. This clause must be incorporated in the specific
availability policy disclosure by banks that reserve the right to
place a hold on funds already on deposit when they cash a check for
the customer, as discussed under Sec. 229.19(e).
9. Model C-7. This clause must be incorporated in the specific
availability disclosure by banks that reserve the right to place a
hold on funds in an account of the customer other than the account
into which the deposit is made, as discussed in Sec. 229.19(e).
10. Model C-8. This clause must be incorporated in the specific
availability policy disclosure by banks in check processing regions
where the availability schedules for certain nonlocal checks have
been reduced, as described in Appendix B of the regulation. Banks
using Model C-5 may insert this clause at the conclusion of the
discussion titled ``Nonlocal checks.''
[[Page 51703]]
11. Model C-9. This clause must be incorporated in the specific
availability policy disclosure by banks that reserve the right to
delay availability of deposits at nonproprietary ATMs until the
fifth business day following the date of deposit, as permitted by
section 229.12(f). A bank must choose among the alternative language
based on how it chooses to differentiate between proprietary and
nonproprietary ATMs, as required under Sec. 229.16(b)(5).
12. Model C-10. This clause may be used to disclose cash
withdrawal limitations under Sec. 229.12. Banks using Model C-5 to
disclose availability may substitute this clause for the sections
titled ``Local checks'' and ``Nonlocal checks.''
13. Model C-11. This clause must be incorporated in the specific
availability policy disclosure by credit unions seeking to satisfy
the notice requirement of Sec. 229.14(b). This model clause is only
an example of a hypothetical policy. Credit unions may follow any
policy for accrual provided the method of accruing interest is the
same for cash and check deposits.
14. Models C-12 through C-21 generally. These forms are models
for various notices required by the regulation.
15. Model C-12. This form satisfies the written notice required
under Sec. 229.13(g) when a bank places a hold based on a
Sec. 229.13 exception. If a hold is being placed on more than one
check in a deposit, each check need not be described, but if
different reasons apply, each reason must be indicated. A bank may
use the actual date when funds will be available for withdrawal
rather than the number of the business day following the day of
deposit. The bank must incorporate in the notice the material set
out in brackets if it imposes overdraft fees after invoking a
Sec. 229.13 exception.
16. Model C-13. This form satisfies the same requirement as
Model C-12, and the same instructions apply, except that Model C-13
is for use by a bank that invokes the reasonable cause exception in
Sec. 229.13. The form provides the bank with a list of specific
reasons that may be given for invoking the exception. If a hold is
being placed on more than one check in a deposit, each check must be
described separately, and if different reasons apply, each reason
must be indicated. Banks may disclose the reason for their doubting
collectibility by checking the appropriate reason on the form. If
the ``Other'' category is checked, the reason must be given.
17. Model C-14. This form satisfies the notice requirements of
Sec. 229.13(g)(2).
18. Model C-15. This form satisfies the notice requirements of
Sec. 229.13(g)(3).
19. Model C-16. This form satisfies the notice required under
Sec. 229.16(b)(2) when a bank with a case-by-case hold policy
imposes a delay on a deposit. This notice does not require a
statement of the specific reason for the hold, as is the case when a
Sec. 229.13 exception hold is placed. A bank may specify the actual
date when funds will be available for withdrawal rather than the
number of the business day following the day of deposit when funds
will be available. The bank must incorporate in the notice the
material set out in brackets if it imposes overdraft fees after
invoking a case-by-case hold.
20. Model C-17 and C-18. Either of these forms satisfies the
notice requirement of Sec. 229.18(b) (notice at locations where
employees accept consumer deposits). Model C-17 is based on an
availability policy that is the same as the schedule described in
Sec. 229.12 of the regulation and the policy reflected in models C-4
and C-5. Model C-18 may be used by a bank with a case-by-case
availability policy.
21. Model C-19. This form satisfies the ATM notice requirement
of Sec. 229.18(c)(1).
22. Model C-20. This form satisfies the ATM notice requirement
of Sec. 229.18(c)(2) when receipt of deposits at off-premise ATMs is
delayed under Sec. 229.19(a)(4). It is based on collection of
deposits once a week. If collections occur more or less frequently,
the description of when deposits are received must be adjusted
accordingly.
23. Model C-21. This form satisfies the notice requirements of
Sec. 229.18(a) for deposit slips.
15. In appendix F to part 229, the appendix heading is revised and
the New Mexico heading and all text under the New Mexico heading are
removed, to read as follows:
Appendix F to Part 229--Official Board Interpretations; Preemption
Determinations
* * * * *
By order of the Board of Governors of the Federal Reserve System,
acting through the Secretary of the Board under delegated authority,
September 20, 1995.
William W. Wiles,
Secretary of the Board.
[FR Doc. 95-23755 Filed 10-2-95; 8:45 am]
BILLING CODE 6210-01-P
