Introduction

The Expedited Funds Availability Act (EFA) was enacted in August 1987
and became effective in September 1988. The Check Clearing for the
21^st^ Century Act (Check 21) was enacted October 28, 2003 with an
effective date of October 28, 2004. Regulation CC (12 C.F.R. Part 229)
issued by the Board of Governors of the Federal Reserve System
implements the EFA act in Subparts A through C and Check 21 in Subpart
D. Regulation CC sets forth the requirements that depository
institutions make funds deposited into transaction accounts available
according to specified time schedules and that they disclose their funds
availability policies to their customers. The regulation also
establishes rules designed to speed the collection and return of unpaid
checks. The Check 21 section of the regulation describes requirements
that affect banks that create or receive substitute checks, including
consumer disclosures and expedited recredit procedures.

Regulation CC contains four subparts:

-   Subpart A -- Defines terms and provides for administrative
    enforcement.

-   Subpart B -- Specifies availability schedules or time frames within
    which banks must make funds available for withdrawal. It also
    includes rules regarding exceptions to the schedules, disclosure of
    funds availability policies, and payment of interest.

-   Subpart C -- Sets forth rules concerning the expeditious return of
    checks, the responsibilities of paying and returning banks,
    authorization of direct returns, notification of nonpayment of
    large-dollar returns by the paying bank, check-indorsement
    standards, and other related changes to the check collection system.

-   Subpart D -- Contains provisions concerning requirements a
    substitute check must meet to be the legal equivalent of an original
    check; bank duties, warranties, and indemnities associated with
    substitute checks; expedited recredit procedures for consumers and
    banks; and consumer disclosures regarding substitute checks.

The appendixes to the regulation provide additional information:

-   Appendixes A and B -- routing number guides

-   Appendix C -- model forms and clauses that banks may be use to meet
    their disclosure responsibilities under the regulation

-   Appendix D -- standards on how a bank shall indorse a check

Subpart A  General Definitions

The term "**bank**" refers to all banks, mutual savings banks, savings
banks and savings associations that are insured by the FDIC, and
federally-insured credit unions. "Bank" also refers to non-federally
insured banks, credit unions and thrifts, as well as agencies and
branches of foreign banks and Federal Home Loan Bank (FHLB) members. For
purposes of subparts C and D, "bank" also includes any person engaged in
the business of banking, Federal Reserve Banks, FHLBs, and state/local
governments to the extent that the government unit pays checks. For
purposes of subpart D only, "bank" also refers to the U.S. Treasury and
the United States Postal Service (USPS) to the extent that they act as
payors.

-   The term "**paying bank**" refers to any bank at which or through
    which a check is payable and to which it is sent for payment or
    collection. For purposes of subpart D, "paying bank" also includes
    the U.S. Treasury and USPS. The term "paying bank" also includes the
    Federal Reserve Banks, FHLBs, state/local governments, and, if a
    check is not payable by a bank, the bank through which a check is
    payable.

-   A "**reconverting bank**" is the bank that creates a substitute
    check or is the first bank to transfer or present a substitute check
    to another party.

    The term "**check**" includes both original checks and substitute
    checks.[^1]

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-   An "**original check**" is the first paper check issued with respect
    to a particular payment transaction.

-   A "**substitute check**" is a paper reproduction of an original
    check that:

    -   Contains an image of the front and back of the original check;

    -   Bears a MICR line containing all of the information encoded on
        the original check's MICR line, except as provided in the
        industry standard for substitute checks; [^2]

    -   Conforms in dimension, paper stock, and otherwise with industry
        standards for substitute checks; and

    -   Is suitable for automated processing in the same manner as the
        original check.

> A substitute check for which a bank has provided the warranties
> described in §229.52 is the legal equivalent of an original check if
> the substitute check accurately represents all of the information on
> the front and back of the original check and bears the legend "This is
> a legal copy of your check. You can use it the same way you would use
> the original check."

-   A "**copy**" of an original check is any paper reproduction of an
    original check, including a paper printout of an electronic image, a
    photocopy, or a substitute check. A "**sufficient copy**" is a copy
    of an original check that accurately represents all of the
    information on the front and back of the check at the time of
    truncation or is otherwise sufficient to establish the validity of a
    claim.

The term "**truncate**" means to remove an original check from the
forward collection or return process and replace it with a substitute
check or, by agreement, information relating to the original check. The
truncating bank may or may not choose to provide subsequent delivery of
the original check.

A "**local**" check is a check deposited in a location of the depository
bank that is located in the same Federal Reserve check processing region
as the paying bank. A "**non-local**" check is a check deposited in a
different check processing region than the paying bank.

An "**account**" for purposes of subparts B and C is a "deposit" as
defined in 12 CFR 204.2(a)(1)(i) that is a "transaction account" as
defined in 12 CFR 204.2(e) (12 CFR 204 is the Federal Reserve Board's
Regulation D). It encompasses consumer and corporate accounts and
includes accounts from which the account holder is permitted to make
transfers or withdrawals by:

-   Negotiable instrument;

-   Payment order of withdrawal;

-   Telephone transfer; or

-   Electronic payment.

    However, for the purpose of subpart B, "account" does not include
    accounts where the account holder is a bank or a foreign bank, or
    where the account holder is the Treasury of the United States.

    For the purpose of subpart D, "account" means any deposit at a bank,
    including a demand deposit or other transaction account and a
    savings deposit or other time deposit. Many deposits that are not
    accounts for purposes of the other subparts of Regulation CC, such
    as savings deposits, are accounts for purposes of subpart D.

    A "**consumer**" means a natural person who draws a check on a
    consumer account or cashes or deposits a returned check against a
    consumer account.

    A "**consumer account**" means an account used primarily for
    personal, family, or household purposes.

    A "**customer**" means a person who has an account with a bank.

    "**Business day**" and "**banking day**" are defined as follows:

-   "Business day"-any day excluding Saturdays, Sundays and legal
    holidays (standard Federal Reserve holiday schedule).

-   "Banking day"-a business day in which a bank is open for
    substantially all of its banking activities.

    Even though a bank may be open for regular business on a Saturday or
    Sunday, it is not a banking day for the purpose of Regulation CC
    because Saturday and Sunday are never a \'business day\' under the
    regulation. The fact that one branch is open to the public for
    substantially all of its banking activities does not necessarily
    mean that day is a banking day for other branches.

# Administrative Enforcement§229.3 {#administrative-enforcement229.3 .TAH.DocHead-2 .unnumbered}

The regulation is to be enforced for banks through Section 8 of the
Federal Deposit Insurance Act (12 U.S.C. 1818) and for credit unions
through the Federal Credit Union Act (12 U.S.C. 1751 et seq.). In
addition, a supervisory agency may enforce compliance though any other
authority conferred on it by law. The Federal Reserve Board shall
enforce the requirements of the regulation for depository institutions
that are not specifically committed to some other government agency.

Subpart B  Availability of Funds And Disclosure of Funds Availability\
Policies

# Next-Day Availability§229.10 {#next-day-availability229.10 .TAH.DocHead-2 .unnumbered}

Cash, electronic payments, and certain check deposits must generally be
made available for withdrawal the business day after the banking day on
which they were received. Among the covered check deposits are
cashier\'s, certified, and teller\'s checks, government checks
(including U.S. Treasury checks, U.S. Postal money orders, state and
local government checks, checks drawn on Federal Reserve or Federal Home
Loan Banks), and certain "on us" checks (checks drawn on the same bank
or a branch thereof).

Generally, to qualify for next-day availability, the deposit must be:

-   Made at a staffed teller station; and

-   Deposited into an account held by the payee of the check.

    However, two types of deposits, U.S. Treasury checks and "on us"
    checks, must receive next-day availability even if the deposit is
    not made at a staffed teller station. Other next-day check deposits,
    and cash deposits, that are not made at staffed teller stations must
    be available for withdrawal on the second business day after the day
    of deposit under §229.10(a)(2) and §229.10(c)(2).

# Additional Rules {#additional-rules .TAH.DocHead3 .unnumbered}

Under §229.10(c)(1)(iv-v), for state and local government checks to
receive next-day availability, the depository bank must be located in
the same state as the governmental unit issuing the check. Further,
under §229.10(c)(3), the depository bank may require special deposit
slips or envelopes for these deposits, as well as for cashier\'s,
certified and teller\'s check deposits. If the depository bank requires
the use of special deposit slips, it must either provide the slips or
inform customers how they may be obtained.

For "on us" checks to receive next-day availability, the checks must be
drawn on the same or another branch of the bank where the check is
deposited. In addition, both branches must be located in the same state
or check processing region.

# \$100 Rule {#rule .TAH.DocHead3 .unnumbered}

Section 229.10(c)(1)(vii) of the regulation contains a special \$100
rule for check deposits not subject to next-day availability. Under the
rule, the depository bank must make available for withdrawal the lesser
of \$100 or the aggregate amount deposited to all accounts, including
individual and joint accounts, held by the same customer on any one
banking day. The \$100 rule does not apply to deposits received at
nonproprietary ATMs.

# Availability Schedule§229.12 {#availability-schedule229.12 .TAH.DocHead-2 .unnumbered}

The permanent availability schedule became effective on September 1,
1990. (See Permanent Funds Availability Schedule-Figures A & B). Under
this schedule local check deposits must be made available no later than
the second business day following the banking day of deposit. Deposits
of nonlocal checks must be made available no later than the fifth
business day following the banking day of deposit. Funds, including cash
and all checks, deposited at nonproprietary ATMs must be made available
no later than the fifth business day following the banking day on which
the funds were deposited.

Checks that would normally receive next-day availability are treated as
local or non-local check deposits if they do not meet all the criteria
for next-day availability under §229.10(c). (As mentioned earlier,
certain checks generally deposited at a staffed teller station and into
an account held by the payee of the check receive next-day availability.
However, state, local government and certain "on us" checks are subject
to additional rules).

U.S. Treasury checks and U.S. Postal Money orders that do not meet all
the requirements for next-day or second day availability as outlined in
§229.10(c) receive funds availability as if they were "local" checks.
Cashiers, certified, teller\'s, state and local government and checks
drawn on the Federal Reserve or Federal Home Loan Banks that do not meet
all the requirements in §229.10(c), receive funds availability as either
local or non-local checks, according to the location of the bank on
which they are drawn.

# Cash Withdrawals {#cash-withdrawals .TAH.DocHead3 .unnumbered}

Special rules apply to cash withdrawals from local and non-local check
deposits. While §229.12 (d) allows the depository bank to extend the
availability schedule for cash or similar withdrawals by one day, the
customer must still be allowed to withdraw the first \$100 of any check
deposit not subject to next-day availability on the business day
following the day of deposit. In addition to the first \$100, a customer
must also be allowed to withdraw \$400 of the deposited funds (or the
maximum amount that can be withdrawn from an ATM, but not more than
\$400) no later than 5 p.m. on the day funds become available for check
withdrawals. The remainder of deposited funds would be available for
cash withdrawal on the following business day.

# Extension of the Schedule for Certain Deposits {#extension-of-the-schedule-for-certain-deposits .TAH.DocHead3 .unnumbered}

Section 229.12(e) provides that banks in Alaska, Hawaii, Puerto Rico, or
the Virgin Islands receiving checks drawn on or payable through banks
located in another state may extend the availability schedules for local
and non-local checks by one day. This exception, however, does not apply
to checks drawn on banks in these states or territories and deposited in
banks located in the continental U.S.

# Exceptions§229.13 {#exceptions229.13 .TAH.DocHead-2 .unnumbered}

The regulation provides six exceptions that allow banks to exceed the
maximum hold periods in the availability schedules. The regulation
regards the exceptions as "safeguards" to the maximum availability time
frames because they are intended to offer the institution a means of
reducing risk based on the size of the deposit, past performance of the
depositor, lack of depositor performance history, or belief that the
deposit may not be collectible. These exceptions include:

-   New accounts;

-   Deposits in excess of \$5,000 on any one day;

-   Checks that have been returned unpaid and are being redeposited;

-   Deposits to accounts that have been repeatedly overdrawn;

-   Cases in which the bank has a reasonable cause to believe the check
    being deposited is uncollectable; and

-   Emergency conditions.

    While banks may exceed the time frames for availability in these
    cases, the exceptions may generally not be invoked if the deposit
    would ordinarily receive next-day availability.

# New Accounts Exception {#new-accounts-exception .TAH.DocHead3 .unnumbered}

An account is considered a "new account" under §229.13(a) for the first
30 days after it is established. An account is not considered "new" if
each customer on the account had another established account at the bank
for at least 30 calendar days. The new account exception applies only
during the 30-day period, beginning on the date the account is
established, and does not cover all deposits made to the account.

Although the regulation exempts new accounts from the availability
schedules for local and non-local checks, next-day availability is
required for deposits of cash and for electronic payments. Additionally,
the first \$5,000 of a day\'s aggregate deposits of government checks
(including federal, state, and local governments), cashier\'s,
certified, teller\'s, depository or traveler\'s checks must be given
next-day availability. The amount in excess of \$5,000 must be made
available no later than the ninth business day following the day of
deposit.

To qualify for next-day availability, deposits into a new account must
generally be made in person to an employee of the depository bank. If
the deposits are not made in person to an employee of the depository
bank, such as an ATM deposit, availability may be provided on the second
business day after the day of deposit. U.S. Treasury check deposits,
however, must be given next-day availability regardless of whether they
are made at staffed teller stations or proprietary ATMs. Banks are not
required to make the first \$100 of a day\'s deposits of local and
non-local checks or funds from "on us" checks available on the next
business day.

# Large Deposit Exception (Deposits over \$5,000) {#large-deposit-exception-deposits-over-5000 .TAH.DocHead3 .unnumbered}

Under §229.13(b), the large deposit exception, a depository bank may
extend hold schedules when deposits other than cash or electronic
payments exceed \$5,000 on any one day. A hold may be applied to the
amount in excess of \$5,000. To apply the rule, the depository bank may
aggregate deposits made to multiple accounts held by the same customer,
even if the customer is not the sole owner of the accounts.

# Redeposited Check Exception {#redeposited-check-exception .TAH.DocHead3 .unnumbered}

Under §229.13(c), the depository bank may delay the availability of
funds from a check if the check had previously been deposited and
returned unpaid. This exception does not apply to checks that were
previously returned unpaid because of a missing indorsement or because
the check was postdated when presented.

# Repeated Overdraft Exception {#repeated-overdraft-exception .TAH.DocHead3 .unnumbered}

Section 229.13(d), provides that if a customer\'s account, or accounts,
have been repeatedly overdrawn during the preceding six months, the bank
may delay the availability of funds from checks. A customer\'s account
may be considered "repeatedly overdrawn" in two ways. First, the
exception may be applied if the account (or accounts) have been
overdrawn, or would have been overdrawn had checks or other charges been
paid, for six or more banking days during the preceding six months.

Second, the exception may be applied to customers who incur overdrafts
on two banking days within the preceding six month period if the
negative balance in the account(s) is equal to or greater than \$5,000.
This exception may also apply if the account would have been overdrawn
by \$5,000 or more had checks or other charges been paid.

# Reasonable Cause to Doubt Collectability Exception {#reasonable-cause-to-doubt-collectability-exception .TAH.DocHead3 .unnumbered}

This exception, in §229.13(e), may be applied to all checks. To trigger
this exception, the depository institution must have "reasonable cause"
to believe that the check is not collectible and must disclose the basis
for the extended hold to the customer. For example, reasonable cause may
include communication with the paying bank indicating that:

-   There has been a stop payment placed on the check;

-   There are insufficient funds in the drawer\'s account to cover the
    check; or

-   The check will be returned unpaid.

    The "reasonable cause" exception may also be invoked in cases where:

-   The check is deposited six months after the date of the check (stale
    date);

-   The check is postdated (future date);

-   The depository bank believes that the depositor may be engaged in
    check kiting.

    The "reasonable cause" exception may not be invoked because of:

-   The race or national origin of the depositor; or

-   The fact that the paying bank is located in a rural area and the
    depository bank will not have time to learn of nonpayment of the
    check before the funds have to be made available under the
    availability schedules in place.

    Whenever this exception is used, the bank must notify the customer,
    in writing, at the time of deposit. If the deposit is not made in
    person or the decision to place the hold is based on facts that
    become known to the bank at a later date, the bank must mail the
    notice by the first business day after the day the deposit is made
    or the facts become known. The notice must indicate that
    availability is being delayed and must include the reason that the
    bank believes the funds are uncollectable. If a hold is placed on
    the basis of confidential information, as when check kiting is
    suspected, the depository bank need only disclose to the customer
    that the hold is based on confidential information that the check
    may not be paid.

    If the bank asserts that the hold was placed due to confidential
    information, the bank must note the reason on the notice it retains
    as a record of compliance. The depository bank must maintain a
    record of each exception notice for a period of two years. This
    record should contain a brief description of the facts or any
    documents supporting the "reasonable cause" exception.

# Overdraft and Returned Check Fees {#overdraft-and-returned-check-fees .TAH.DocHead3 .unnumbered}

Under §229.13(e)(2), if a depository bank invokes the "reasonable cause"
exception and does not inform the customer in writing at the time of the
deposit, the bank may not charge the customer any overdraft or returned
check fees resulting from the hold if:

-   The deposited check is paid by the paying bank; and

-   The overdraft or returned check would not have occurred had the
    depository bank not imposed the reasonable cause hold.

    However, the depository bank may assess overdraft or returned check
    fees if, on the exception hold notice, it states that the customer
    may be entitled to a refund of any overdraft or return check fees
    imposed and describes how the customer may obtain such a refund. It
    must then refund the fees upon request.

# Emergency Conditions {#emergency-conditions .TAH.DocHead3 .unnumbered}

Section 229.13(f) of the regulation also permits institutions to suspend
the availability schedules under emergency conditions. Emergency
situations include:

-   Any interruption of communication facilities;

-   Suspension of payments by another depository institution;

-   War; or

-   Any emergency condition beyond the control of the receiving
    depository institution.

# Notice of Exception {#notice-of-exception .TAH.DocHead3 .unnumbered}

Whenever a bank invokes one of the exceptions (excluding new accounts)
to the availability schedules, it must notify the customer in writing in
accordance with §229.13(g). Banks may send notices that comply solely
with §229.13(g)(1), or may comply with two alternative notice
requirements discussed below.

# General Notice Requirements {#general-notice-requirements .TAH.DocHead3 .unnumbered}

Banks complying with §229.13(g)(1) must send notices which include:

-   The customer\'s account number;

-   The date and amount of the deposit;

-   The amount of the deposit that will be delayed;

-   The reason the exception was invoked; and

-   The day the funds will be available for withdrawal (unless unknown,
    as in an emergency situation).

    If the deposit is made at a staffed facility, the written exception
    notice may be given to the person making the deposit regardless of
    whether the "depositor" is the customer who holds the account. If
    the deposit is not made at a staffed facility, the exception notice
    may be mailed to the customer no later than the business day
    following the banking day of deposit. If however, the depository
    bank discovers a reason to delay the funds, subsequent to the time
    the notice should have been given, the bank must notify the customer
    of the hold as soon as possible, but not later than the business day
    after the facts become known. In certain instances, exception holds
    based on "emergency" situations do not require notification to
    customers. For example, if deposited funds, subject to holds placed
    during an "emergency", become available for withdrawal before the
    notices are required to be sent, the depository bank is not required
    to send the notices to its customers.

# Exception Notice for Nonconsumer Accounts {#exception-notice-for-nonconsumer-accounts .TAH.DocHead3 .unnumbered}

If most check deposits to a nonconsumer account permit the bank to
invoke either the large dollar or redeposited check exception, the bank
may send a notice complying with §229.13(g)(1), or may send a one-time
notice in accordance with §229.13(g)(2). The one-time notice must be
sent when the first exception is invoked, or can be delivered before
that time. The notice must state:

-   The reason the exception may be invoked; and

-   The time period when the funds will generally be made available.

# Exception Notice for Repeated Overdrafts {#exception-notice-for-repeated-overdrafts .TAH.DocHead3}

If most check deposits to an account permit the bank to invoke the
repeated overdraft exception, the bank may send a notice complying with
§229.13(g)(1), or may send a notice in accordance with §229.13(g)(3).
The notice must be sent when the overdraft exception is first invoked.
The notice must state:

-   The customer\'s account number;

-   The fact that funds are being delayed because the repeated overdraft
    exception will be invoked;

-   The time period the exception will be invoked; and

-   The time period when the funds will generally be made available.

# Availability of Deposits Subject to Exceptions {#availability-of-deposits-subject-to-exceptions .TAH.DocHead3 .unnumbered}

For exceptions (other than new accounts), §229.13(h) allows the
depository bank to delay availability for a "reasonable" time beyond the
schedule. Generally, a "reasonable" period will be considered to be no
more than one business day for "on-us" checks, five business days for
local checks and six business days for non-local checks. If a depository
bank extends its availability beyond these time frames, it must be able
to prove that such a delay is "reasonable".

# Payment of Interest§229.14 {#payment-of-interest229.14 .TAH.DocHead-2 .unnumbered}

# General Rule {#general-rule .TAH.DocHead3 .unnumbered}

A depository bank must begin accruing interest on interest-bearing
accounts no later than the business day on which it receives provisional
credit for the deposited funds. A depository bank typically receives
credit on checks within one or two days following deposit. A bank
receives credit on a cash deposit, an electronic payment, and a check
that is drawn on itself on the day the cash, check or electronic payment
is received. If a nonproprietary ATM is involved, credit is usually
received on the day the bank that operates the ATM credits the
depository bank for the amount of deposit.

Section 229.14(a)(1) permits a bank to rely on the availability schedule
from its Federal Reserve Bank, Federal Home Loan Bank, or correspondent
bank to determine when the depository bank receives credit. If
availability is delayed beyond what is specified in the schedule, a bank
may charge back interest, erroneously paid or accrued, on the basis of
that schedule.

Section 229.14(a)(2) permits a depository bank to accrue interest on
checks deposited to all of its interest-bearing accounts based on an
average of when the bank receives credit for all checks sent for payment
or collection. For example, if a bank receives credit on 20 percent of
the funds deposited by check as of the business day of deposit (e.g.,
"on us" checks), 70 percent as of the business day following deposit,
and ten percent on the second business day following deposit, the bank
can apply these percentages to determine the day interest must begin to
accrue for check deposits on all interest-bearing accounts, regardless
of when the bank received credit for funds deposited in any particular
account. Consequently, a bank may begin accruing interest on a uniform
basis for all interest-bearing accounts, without having to track the
type of check deposited to each account.

Nothing in §229.14(a) limits a depository bank policy that provides that
interest can only accrue on balances that exceed a specified amount, or
on the minimum balance maintained in the account during a given period.
However, the balance must be determined according to the date the
depository bank receives credit for the funds. This section also does
not limit any policy providing that interest can accrue sooner than
required by the regulation.

Money market deposit accounts, savings deposits, and time deposits, are
not subject to the general rule concerning the timing of interest
payment. However, for simplicity of operation, a bank may accrue
interest on such deposits in the same manner that it accrues interest on
transaction accounts.

# Exemption for Certain Credit Unions {#exemption-for-certain-credit-unions .TAH.DocHead3 .unnumbered}

Section 229.14(b) contains an exemption from the payment of interest
requirements for credit unions that do not begin to accrue interest or
dividends on their member 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 §229.14(a) as long as they
provide notice of their interest accrual policies in accordance with
§229.16(d).

Section 229.14(c) provides an exception to the general rule in
§229.14(a) for checks that are returned unpaid. Essentially, interest
need not be paid on funds deposited in an interest-bearing account by a
check that has been returned unpaid, regardless of the reason for
return.

# General Disclosure Requirements§229.15 {#general-disclosure-requirements229.15 .TAH.DocHead-2 .unnumbered}

# Form of disclosure {#form-of-disclosure .TAH.DocHead3 .unnumbered}

A bank must disclose its specific availability policy to its customers.
The required disclosures must be clear and conspicuous, and must also be
in writing under §229.15(a). Disclosures, other than those posted at
locations where employees accept consumer deposits, at ATMs or on
preprinted deposit slips, must be in a form that the customer may keep.
These disclosures must not contain information unrelated to the
requirements of the regulation. If other account terms are included in
the same document, disclosures pertinent to this regulation should be
highlighted such as, under a separate heading.

*Uniform Reference to Day of Availability*

§229.15(b) requires banks to refer to the day funds will be available
for withdrawal in a uniform manner in all of their disclosures.
Disclosures must refer to when funds will be available for withdrawal as
on "the\_\_\_\_\_\_ business day after" the day of deposit. The first
business day is the business day following the banking day the deposit
was received, and the last business day is the day on which the funds
are made available.

# Multiple Accounts and Multiple Account Holders {#multiple-accounts-and-multiple-account-holders .TAH.DocHead3 .unnumbered}

A bank does not need to give multiple disclosures to customers who have
more than one account if the accounts are subject to the same
availability policies. In addition, the bank does not have to give
separate disclosures to joint account holders. A single disclosure to
one of the holders of the joint account is permissible under §229.15(c).

# Dormant or Inactive Accounts {#dormant-or-inactive-accounts .TAH.DocHead3 .unnumbered}

Section 229.15(d) provides that the bank does not have to give
disclosures to customers who have dormant or inactive accounts.

# Specific Availability Policy Disclosure§229.16 {#specific-availability-policy-disclosure229.16 .TAH.DocHead-2 .unnumbered}

A bank must provide its customers with a disclosure that describes its
funds availability policy. The disclosure must reflect the policy
followed by the institution in most cases; however, the institution may
impose longer delays on a case-by-case basis or by invoking one of the
exceptions in §229.13, provided this is reflected in the disclosure.

# Content of Specific Availability Policy Disclosure {#content-of-specific-availability-policy-disclosure .TAH.DocHead3 .unnumbered}

The specific availability policy disclosure in §229.16(b) must include,
as applicable, the following:

-   A summary of the bank\'s availability policy;

-   A description of the categories of deposits or checks used by the
    bank when it delays availability, such as local or nonlocal checks;
    how to determine the category to which a particular deposit or check
    belongs; and when each category will be available for withdrawal
    (including a description of the bank\'s business days and when a
    deposit is considered received);

-   A description of any of the exceptions in Section 229.13 that may be
    invoked by the bank, including the time the deposited funds will
    generally become available for withdrawal and a statement that the
    bank will notify the customer if the bank invokes one of the
    exceptions;

-   A description of any case-by-case policy of delaying availability
    which may result in deposited funds being available for withdrawal
    later than the time periods stated in the bank\'s availability
    policy (see specific requirements under §229.16(c)(1)); and

-   A description of how the customer can differentiate between a
    proprietary and nonproprietary ATM, if the bank makes funds from
    deposits at nonproprietary ATMs available later than funds from
    deposits at proprietary ATMs.

# Longer Delays on a Case-by-Case Basis {#longer-delays-on-a-case-by-case-basis .TAH.DocHead3 .unnumbered}

A bank that has a policy of making deposited funds available for
withdrawal sooner than required, may extend the time when funds are
available up to the time periods allowed under the regulation on a
case-by-case basis. However, the bank must include the following in its
specific policy disclosure under §229.16(c):

-   A statement that the time when deposited funds are available for
    withdrawal may be extended in some cases, and the latest time
    deposited funds will be available for withdrawal;

-   A statement that the bank will notify the customer if funds
    deposited in the customer\'s account will not be available for
    withdrawal until after the time periods stated in the bank\'s
    availability policy; and

-   A statement that customers should ask if they need to know when a
    particular deposit will be available for withdrawal.

    When a depository bank extends the time that funds will be available
    for withdrawal, on a case-by-case basis, it must provide the
    depositor with a written notice. The notice shall include the
    following information:

-   The customer\'s account number;

-   The date and amount of the deposit;

-   The amount of the deposit being delayed; and

-   The day the funds will be available for withdrawal.

    The notice must be provided at the time of the deposit, unless the
    deposit is not made in person to an employee of the depository bank,
    or when the decision to delay availability is made after the time of
    the deposit. If notice is not given at the time of the deposit, the
    depository bank must mail or deliver the notice to the customer no
    later than the first business day following the banking day the
    deposit is made.

    A depository bank that extends the time when funds will be available
    for withdrawal on a case-by-case basis and does not furnish the
    depositor with written notice at the time of deposit may not assess
    any fees for any subsequent overdrafts (including use of a line of
    credit) or return of checks or other debits to the account, if:

-   The overdraft or return of the check or other debit would not have
    occurred except for the fact that the deposited funds were delayed
    under §229.16(c)(1) of the regulation; and

-   The deposited check was paid by the paying bank.

    However, the depository bank may assess an overdraft or returned
    check fee if it includes a notice concerning overdraft and returned
    check fees with the disclosure required in §229.16(c)(2) and, when
    required, refunds any such fees upon the request of the customer.
    The overdraft and returned check notice must state that the customer
    may be entitled to a refund of overdraft or returned check fees that
    are assessed if the check subject to the delay is paid, and state
    how to obtain a refund.

# Credit Union Notice of Interest Payment Policy {#credit-union-notice-of-interest-payment-policy .TAH.DocHead3 .unnumbered}

Under §229.16(d), if a credit union begins to accrue interest or
dividends on all deposits made in an interest-bearing account, including
cash deposits, at a later time than the day specified in §229.14(a), the
institution\'s specific policy disclosures must contain an explanation
of when interest or dividends on deposited funds will begin to accrue.

# Initial Disclosures§229.17 {#initial-disclosures229.17 .TAH.DocHead-2 .unnumbered}

# New Accounts {#new-accounts .TAH.DocHead3 .unnumbered}

Section 229.17(a) states a bank must provide potential customers with
the disclosures described in §229.16 before an account is opened.

Additional Disclosure Requirements§229.18

# Deposit Slips {#deposit-slips .TAH.DocHead3 .unnumbered}

Under §229.18(a), all preprinted deposit slips given to customers must
include a notice that deposits may not be available for immediate
withdrawal.

# Location Where Employees Accept Consumer Deposits {#location-where-employees-accept-consumer-deposits .TAH.DocHead3 .unnumbered}

Section 229.18(b) provides that a bank must post, at a conspicuous place
at each location where its employees receive deposits to consumer
accounts, a notice that sets forth the time periods applicable to the
availability of funds deposited.

# Automated Teller Machines {#automated-teller-machines .TAH.DocHead3}

Under §229.18(c), a depository bank must post or provide a notice at
each ATM location that funds deposited in the ATM may not be available
for immediate withdrawal. A depository bank that operates an
off-premises ATM from which deposits are removed not more than two times
each week, as described in §229.19(a)(4), must disclose at or on the ATM
the days in which deposits made at the ATM will be considered received.

# Upon Request {#upon-request .TAH.DocHead3 .unnumbered}

Section 229.18(d) states a bank must provide a copy of its specific
availability policy disclosure described in §229.16 to any person who
requests it.

# Changes in Policy {#changes-in-policy .TAH.DocHead3 .unnumbered}

Thirty days prior to implementation, a bank must send notification of a
change to the bank\'s availability policy to all account holders, if
adversely affected by the change. Under §229.18(e), changes that result
in faster availability may be disclosed no later than 30 days after
implementation.

# Miscellaneous§229.19 {#miscellaneous229.19 .TAH.DocHead-2 .unnumbered}

# When Funds are Considered Deposited {#when-funds-are-considered-deposited .TAH.DocHead3 .unnumbered}

Section 229.19(a) provides rules that govern when funds are considered,
deposited for purposes of Subpart B of the regulation. The time that
funds must be made available for withdrawal is measured from the day the
deposit is "received. " Funds received at a staffed teller station or
ATM are considered deposited when received by the teller or placed in
the ATM. Funds mailed to the depository bank are considered deposited on
the banking day they are received by the depository bank. The funds are
received by the depository bank at the time the mail is delivered to the
bank, even if the mail is initially delivered to a mail room, rather
than the check processing area.

Funds, however, may also be deposited at an unstaffed facility such as a
night depository or lock box. 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 depository 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.

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 depository bank for processing. A lock box is typically used by a
corporation for the collection of bill payments or other check receipts.

The regulation contains a special rule for off-premise ATMs that are not
serviced daily. Funds deposited at these ATMs 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 special provision is geared toward
those banks whose practice is to service remote ATMs infrequently. If a
depository bank uses this provision, it must post a notice at the ATM
informing depositors that funds deposited at the ATM may not be
considered received on the date of deposit.

Funds deposited on a day the depository bank is closed, or after the
bank\'s cut-off hour, may be considered made on the next banking day.
Generally, a bank may establish a cut-off hour of 2:00 p.m. or later for
receipt of deposits at its main office or branch offices. A cut-off hour
of 12:00 noon or later may be established for deposits made to ATMs,
lock boxes, night depositories, or other off-premises facilities. (As
specified in the commentary to §229.19(a), the noon cut-off period
relates to the local time of the branch or other location of the
depository bank where the account is maintained or the local time of the
ATM or off-premise facility).

Different cut-off hours may be established for different types of
deposits. For example, a 2:00 p.m. cut-off for receipt of check deposits
and a later time for receipt of wire transfers is permissible. Location
can also play a role in the establishment of cut-off hours. For example,
a different cut-off hour 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 12:00 noon cut-off hour for deposits
at ATMs and off-premise facilities, no cut-off hour for receipt of
deposits can be established earlier than 2:00 p.m.

# When Funds Must Be Made Available {#when-funds-must-be-made-available .TAH.DocHead3 .unnumbered}

Section 229.19(b) discusses funds availability at the start of a
business day. Generally, funds must be available for withdrawal by the
later of 9:00 a.m. or the time a depository bank\'s teller facilities
including ATMs are available for customer account withdrawals. (Under
certain circumstances, there is a special exception for cash
withdrawals-see §229.12(d)). Thus, if a bank has no ATMs and its branch
facilities are available for customer transactions beginning at 10:00
a.m., funds must be available for withdrawal by 10:00 a.m. If a bank has
24 hour ATM service, funds must be available by 9:00 a.m. for ATM
withdrawals.

The start of business is determined by the local time where the branch
or depository bank holding the account is located. For example, if funds
in an account at a west coast bank are first made available at the start
of business on a given day, and a customer attempts to withdraw the
funds at an east coast ATM, the depository bank is not required to make
funds available until 9:00 a.m. west coast time (12:00 noon east coast
time).

# Effects of the Regulation on Policies {#effects-of-the-regulation-on-policies .TAH.DocHead3 .unnumbered}

Section 229.19(c) describes the effects of the regulation on the
policies of a depository bank. Essentially, a depository bank is
permitted to provide availability to its customers in a shorter time
than that prescribed in the regulation. It may also 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, it 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.

The regulation does not affect a depository 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.

Nothing in the regulation requires a depository bank to have its
facilities open for customers to make withdrawals at specific times or
on specific days. For example, even though the special cash withdrawal
rule set forth in §229.12(d) states that a bank must make up to \$400
available for cash withdrawals no later than 5:00 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 5:00 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 5:00 p.m. on a particular day are available for
withdrawal at the start of business on the following day. Similarly, if
a depository 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.

If a bank has a policy of limiting cash withdrawals at ATMs 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.

Some small financial institutions do not keep cash on their premises and
offer no cash withdrawal capability to their customers. Others limit the
amount of cash on-premises for bonding purposes, and reserve the right
to limit the amount of cash that a customer can withdraw on a given day,
or require advance notice for large cash withdrawals. Nothing in the
regulation is intended to prohibit these practices if they are applied
uniformly and are based on security, operating, or bonding requirements,
and are not dependent upon 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.

# Calculated Availability for Nonconsumer Accounts {#calculated-availability-for-nonconsumer-accounts .TAH.DocHead3 .unnumbered}

Section 229.19(d) contains the rules for using calculated availability
on nonconsumer accounts. 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 or more prompt than the requirements of this regulation.

# Holds on Other Funds {#holds-on-other-funds .TAH.DocHead3 .unnumbered}

Section 229.19(e) clarifies that, if a customer deposits a check, the
bank may place a hold on any of the customer\'s funds to the extent that
the funds held do not exceed the amount of the check deposited, and the
total amount of funds held are made available for withdrawal within the
times required in this regulation. For example, if a customer cashes a
check (other than an "on us" check) over-the-counter, the depository
bank may place a hold on any of the customer\'s funds to the extent that
the funds held do not exceed the amount of the cashed check.

# Employee Training and Compliance {#employee-training-and-compliance .TAH.DocHead3 .unnumbered}

Section 229.19(f) contains the requirements for employee training and
compliance. The EFA Act requires banks to inform each employee who
performs duties subject to the Act about its requirements. The EFA Act
and Regulation CC also require banks to establish and maintain
procedures designed to ensure and monitor employee compliance with such
requirements.

# Effects of Mergers {#effects-of-mergers .TAH.DocHead3 .unnumbered}

Section 229.19(g) explains the effect of a merger transaction. Merged
banks may be treated as separate banks for a period of up to one year
after consummation of the merger transaction. However, a customer of any
bank that is a party to the merger transaction, and has an established
account with the merging bank, may not be treated as a new account
holder under the new account exception of §229.13(a). A deposit in any
branch of the merged bank is considered deposited in the bank for
purposes of the availability schedules in accordance with §220.19(a).
This rule affects the status of the combined entity in a number of
areas. For example:

-   When the resulting bank is a "participant" in a check clearinghouse
    association;

-   When an ATM is a "proprietary ATM"; and

-   When a check is drawn on a branch of the depository bank.

# Relation to State Law §229.20 {#relation-to-state-law-229.20 .TAH.DocHead-2 .unnumbered}

# General Rule {#general-rule-1 .TAH.DocHead3 .unnumbered}

Section 229.20(a) contains the general rule as to how Regulation CC
relates to state laws addressing expedited funds availability.

If a state has 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 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. Accordingly, the
state schedule would supersede the federal schedule to the extent that
is applies to in-state, nonlocal checks.

The EFA Act also indicates that any state law providing 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.

# Preemption of Inconsistent Law {#preemption-of-inconsistent-law .TAH.DocHead3 .unnumbered}

Section 229.20(b) provides that other provisions of state laws that are
inconsistent with federal law are preempted. State laws requiring
disclosure of availability policies for transaction accounts are
preempted by the regulation. Preemption does not require a determination
of the Federal Reserve Board in order to be effective.

# Preemption Standards and Determinations {#preemption-standards-and-determinations .TAH.DocHead3 .unnumbered}

The Federal Reserve Board may issue a preemption determination upon the
request of an interested party in a state. The determination will only
relate to the provisions of Subparts A and B of the regulation.

# Civil Liability§229.21 {#civil-liability229.21 .TAH.DocHead-2 .unnumbered}

# Statutory Penalties {#statutory-penalties .TAH.DocHead3 .unnumbered}

Section 229.21(a) sets forth the statutory penalties that can be imposed
as a result of a successful individual or class action suit brought for
violations of Subpart B of the regulation. Basically, a bank could be
held liable for:

-   Actual damages;

-   Not less than \$100 nor more than \$1,000 in the case of an
    individual action;

-   The lesser of \$500,000 or one percent of the net worth of the bank
    involved in the case of a class action; and/or

-   The costs of the action together with reasonable attorney\'s fees as
    determined by the court.

These penalties also 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 Appendix D, §229.20)

# Bona Fide Errors {#bona-fide-errors .TAH.DocHead3}

Section 229.21(c) states that a bank will not be considered liable for
violations of the regulation if it can demonstrate, by a preponderance
of evidence, that violations resulted from bona fide errors and that it
maintains procedures designed to avoid such errors.

# Reliance on Federal Reserve Board Rulings {#reliance-on-federal-reserve-board-rulings .TAH.DocHead3}

Section 229.21(e) provides that a bank will not be held liable if it
acts in good faith in reliance on any rule, regulation, model form (if
the disclosure actually corresponds to the bank\'s availability policy),
or interpretation of the Federal Reserve Board, even if it were
subsequently determined to be invalid. Banks may rely on the commentary
as well as on the regulation itself.

# Exclusions {#exclusions .TAH.DocHead3}

The liability established by this section does not apply to violations
of Subpart C (Collection of Checks) of the regulation, or to actions for
wrongful dishonor of a check by a paying bank\'s customer. (Separate
liability provisions applying to Subpart C are found in §229.38)

Subpart CCollection of Checks

Subpart C covers the check collection system and includes rules to speed
the collection and return of checks. Basically, these rules cover the
return responsibilities of paying and returning banks, authorization of
direct returns, notification of nonpayment on large-dollar returns of
the paying bank, and mandatory check indorsement standards.

Sections 229.30 and 229.31 require paying and returning banks to return
checks expeditiously using one of two standards: the "two-day/four-day"
test and the "forward collection" test. Under the "two-day/four-day"
test a local check is received by the depository bank two business days
after presentment and a nonlocal bank four business days after
presentment. The "forward collection" test is when the paying bank uses
comparable transportation methods and banks, for returns, as those used
for forward collection. The paying bank can return checks directly to
the depository bank of any bank agreeing to process the returns,
including the Federal Reserve.

Subpart C, in §229.33, also requires a bank to provide notification of
nonpayment if it determines not to pay a check of \$2,500 or more,
regardless of the channel of collection. The regulation addresses the
depository bank\'s duty to notify its customers that a check is being
returned and the paying bank\'s responsibility for giving notice of
nonpayment.

Other areas that are covered in Subpart C are indorsement standards,
warranties by paying and returning banks, bona fide errors and
liability, variations by agreement, insolvency of banks, and the effect
of merger transactions.

The provisions of Subpart C §229.41 supersede any state law, but only to
the extent that it is inconsistent with Regulation CC.

The expeditious return requirements of §229.42 do not apply to 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 units of general local government
and that are not payable through or at a bank.

Subpart D  Substitute Checks

# General Provisions Governing Substitute Checks§229.51 {#general-provisions-governing-substitute-checks229.51 .TAH.DocHead-2}

A substitute check for which a bank has provided the warranties
described in §229.52[^3] is the legal equivalent of an original check if
the substitute check:

-   Accurately represents all of the information on the front and back
    of the original check; and

```{=html}
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-   Bears the legend "This is a legal copy of your check. You can use it
    the same way you would use the original check."[^4]

The reconverting bank must adhere to Regulation CC's standards for
preserving bank indorsements and identifications. A reconverting bank
that receives consideration for a substitute check that it transfers,
presents, or returns also is the first bank to provide the warranties
described in §229.52 and the indemnity described in §229.53.

# Substitute Check Warranties and Indemnity§§229.52 and 229.53 {#substitute-check-warranties-and-indemnity229.52-and-229.53 .TAH.DocHead-2}

Starting with the reconverting bank, any bank that transfers, presents,
or returns a substitute check (or a paper or electronic representation
of a substitute check) and receives consideration for that check
warrants that the substitute check meets the legal equivalence
requirements and that a check that has already been paid will not be
presented for subsequent payment.

Such a bank also provides an indemnity to cover losses that the
recipient and any subsequent recipient of the substitute check incurs
due to the receipt of a substitute check instead of the original check.

# Expedited Recredit for Consumers§229.54 {#expedited-recredit-for-consumers229.54 .TAH.DocHead-2}

Section 229.54(a) sets forth the conditions under which a consumer may
make an expedited recredit claim for losses associated with the
consumer's receipt of a substitute check. To use the expedited recredit
procedure, the consumer must be able to assert in good faith that:

-   the consumer's account was charged for a substitute check that was
    provided to the consumer;

-   the consumer's account was improperly charged or the consumer has a
    warranty claim;

-   the consumer suffered a loss; and

-   the consumer needs the original check or a sufficient copy to
    determine the validity of the claim.

To make a claim, the consumer must comply with the timing, content, and
form requirements in §229.54(b). This section generally provides that a
consumer's claim must be received by the bank that holds the consumer's
account no later than the fortieth calendar day after the later of:

-   the calendar day on which the bank mailed (or delivered by a means
    agreed to by the consumer) the periodic statement describing the
    contested transaction; or

-   the calendar day on which the bank mailed (or delivered by a means
    agreed to by the consumer) the substitute check itself.

Section 229.54(b)(1)(ii) requires the bank to give the consumer an
additional, reasonable period of time if the consumer experiences
"extenuating circumstances" that prevent timely submission of the claim.

The commentary to §229.60 provides that the bank may voluntarily give
the consumer more time to submit a claim than the rule allows.

Under §229.54(b)(2)(ii), a complaint is not considered complete, and
thus does not constitute a claim, until it contains all of the required
information the rule requires. The rule requires the claim to
contain:[^5]

-   a description of why the consumer believes the account was
    improperly charged or the nature of the consumer's warranty claim;

-   a statement that the consumer has suffered a loss and an estimate of
    the amount of the loss;

-   a reason why the original check (or a copy of the check that is
    better than the substitute check the consumer already received) is
    necessary to determine whether the consumer's claim is valid; and

-   sufficient information to allow the bank to identify the substitute
    check and investigate the claim.

A bank, in its discretion, may require the consumer to submit the claim
in writing. If a consumer makes an oral claim to a bank that requires a
written claim, the bank must inform the consumer of the in-writing
requirement at that time. Under those circumstances, the bank must
receive the written claim by the later of ten business days from the
date of an oral claim or the expiration of the consumer's initial 40-day
period for submitting a timely claim. As long as the original oral claim
fell within the 40-day requirement for notification and a complete
written claim was received within the additional ten-day window, the
claim meets the timing requirements (§§229.54(b)(1) and 229.54(b)(3)),
even if the written claim was received after the expiration of the
initial 40-day period.

# The Bank's Action on Claims {#the-banks-action-on-claims .TAH.DocHead3}

Section 229.54(c) requires a bank to act on the consumer's claim no
later than the tenth business day after the banking day on which it
received the consumer's claim:

-   If the bank determines that the consumer's claim is valid, it must
    recredit the consumer's account no later than the end of the
    business day after the banking day on which it makes that
    determination. The amount of the recredit should be for the amount
    of the consumer's loss, up to the amount of the substitute check,
    plus interest on that amount if the account is an interest-bearing
    account. The bank must then notify the consumer of the recredit
    using the notice discussed below (*Notices Relating to Expedited
    Recredit Claims)*.

-   If the bank determines that the consumer's claim is invalid, it must
    notify the consumer of that decision using the notice discussed
    below (*Notices Relating to Expedited Recredit Claims)*.

-   If the bank has not determined the validity of the consumer's claim
    by the tenth business day after the banking day on which the bank
    received the claim, the bank must recredit the consumer's account
    for the amount of the consumer's loss, up to the amount of the
    substitute check or \$2,500, whichever is less. The bank also must
    recredit interest on that amount if the consumer's account is an
    interest-bearing account. The bank must send a notice to that effect
    to the consumer using the notice discussed below (*Notices Relating
    to Expedited Recredit Claims)*. If the consumer's loss was more than
    \$2,500, the bank has until the end of the forty-fifth calendar day
    from the date of the claim to recredit any remaining amount of the
    consumer's loss, up to the amount of the substitute check (plus
    interest), unless it determines prior to that time that the claim
    was invalid and notifies the consumer of that decision.

Section 229.54(d) generally requires that recredited funds receive next
day availability. However, a bank that provisionally recredits funds
pending further investigation may invoke safeguard exceptions to delay
availability of the recredit under the limited circumstances described
in §229.54(d)(2). The safeguard exceptions apply to new accounts and
repeatedly overdrawn accounts, or if the bank has reasonable cause to
suspect the claim is fraudulent. A bank may delay availability of a
provisionally-recredited amount until the start of the earlier of the
business day after the banking day on which the bank determines the
consumer's claim is valid or the 45^th^ calendar day after the banking
day on which the bank received the claim if the account is new, the
account is overdrawn, or the bank has reasonable cause to believe that
the claim is fraudulent. When the bank delays availability under this
section, it may not impose overdraft fees on checks drawn against the
provisionally-credited funds until the fifth calendar day after the day
on which the bank sent the notice regarding the delayed availability.

If, after providing the recredit, the bank determines that the
consumer's claim was invalid, the bank may reverse the recredit. This
reversal must be accompanied by a consumer notification using the notice
discussed below (*Notices Relating to Expedited Recredit Claims)*.

# Notices Relating to Expedited Recredit Claims {#notices-relating-to-expedited-recredit-claims .TAH.DocHead3}

Section 229.54(e) outlines the requirements for providing consumer
notices related to expedited recredit:

-   The bank must send the notice of recredit no later than the business
    day after the banking day on which the bank recredits the consumer's
    account. This notice must include the amount of the recredit and the
    date the recredited funds will be available for withdrawal.

-   The bank must send notice that the consumer's claim is not valid no
    later than the business day after the banking day on which the bank
    makes this determination. This notice must include the original
    check or a sufficient copy of it. (Except as provided in §229.58,
    see below). The notice must demonstrate to the consumer why the
    claim is not valid. The notice also must include either any
    information or document that the bank used in making its
    determination or an indication that the consumer may request copies
    of this information.

-   The bank must send the notice of a reversal of recredit no later
    than the business day after the banking day on which the bank made
    the reversal. The notice must include all of the information
    required in a notice of invalid claim plus the amount (including
    interest) and date of the reversal. §229.54(e)(3)(i).

Appendix C to Reg. CC contains model forms (models C-23 through C-25)
that a bank may use to craft the various notices required §229.54(e).
Although there is no statutory safe harbor for appropriate use of these
models, the Board published them to assist banks in complying with
§229.54(e).

# Expedited Recredit for Banks§229.55 {#expedited-recredit-for-banks229.55 .TAH.DocHead-2}

Section 229.55 sets forth expedited recredit procedures applicable
between banks. A claimant bank must adhere to the timing, content, and
form requirements of §229.55(b) in order for the claim to be valid. A
bank against which an interbank recredit claim is made has ten business
days within which to act on the claim (§229.55(c)). The provisions of
§229.55 may be varied by agreement. (No other provisions of subpart D
may be varied by agreement).

# Liability§229.56 {#liability229.56 .TAH.DocHead-2}

Section 229.56 describes the damages for which a bank or person would be
liable in the event of breach of warranty or failure to comply with
subpart D:

-   The amount of the actual loss, up to the amount of the substitute
    check, resulting from the breach or failure, and

-   Interest and expenses (including costs, reasonable attorney's fees,
    and other expenses of representation) related to the substitute
    check.

These amounts could be reduced in the event of negligence or failure to
act in good faith. It is also important to note that §229.56 has a
specific exception that allows for greater recovery as provided in the
indemnity section. Thus, a person that had an indemnity claim that also
involves a breach of a substitute check warranty could recover all
damages proximately caused by the warranty breach.

Section 229.56(b) excuses failure to meet this subpart's time limits
because of circumstances beyond a bank's control. Section 229.56(c)
provides that an action to enforce a claim under this subpart may be
brought in any United States district court. Section 229.56(c) also
provides the subpart's statute of limitations: one year from the date on
which a person's cause of action accrues.[^6] Section 229.56(d) states
that if a person fails to provide notice of a claim for more than 30
days from the date on which a cause of action accrues, the warranting or
indemnifying bank is discharged from liability *to the extent of any
loss caused by the delay in giving notice of the claim.*

# Consumer Awareness§229.57 {#consumer-awareness229.57 .TAH.DocHead-2}

#  {#section .TAH.DocHead-2}

*Content requirements*

A bank must provide its consumer customers with a disclosure that
explains that a substitute check is the legal equivalent of the original
check and describes the consumer's recredit rights for substitute
checks. A bank may, but is not required, to use the Board's model form
(model C-5A in appendix C to Reg. CC) to meet the content requirements
for this notice. A bank that uses the model form appropriately is deemed
to be in compliance with the content requirement(s) for which it uses
language from the model form. A bank may provide the notice required by
§ 229.57 along with other information.

*Distribution to consumer customers who receive cancelled checks with
periodic account statements*

Under §229.57(b)(1), a bank must provide this disclosure to existing
consumer customers who routinely receive their cancelled checks in their
periodic statement no later than the first statement after October 28,
2004. For customer relationships established after that date, a bank
must provide the disclosure to a new consumer customer who routinely
will receive cancelled checks in periodic statements at the time the
customer relationship is established.

*Distribution to consumer customers who receive a substitute check on an
occasional basis*

Under §229.57(b)(2), a bank also must provide the disclosure to a
consumer customer who receives a substitute check on an occasional
basis, including when a consumer receives a substitute check in response
to a request for a check or a copy of a check, or when a check deposited
by the consumer is returned to the consumer as an unpaid item in the
form of a substitute check. A bank must provide the disclosure to a
consumer customer in these cases even if the bank previously provided
the disclosure to the consumer.

When the consumer contacts the bank to request a check or a copy of a
check and the bank responds by providing a substitute check, the bank
must provide this disclosure at the time of the request, if feasible.
Otherwise, the bank must provide the disclosure no later than when the
bank provides a substitute check in response to the consumer's request.
It would not be feasible to provide the disclosure at the time of the
request if, for example, the consumer made his or her request by
telephone or if the bank did not know at the time of the request whether
it would provide a substitute check or some other document in response.
A bank is not required to provide the disclosure if the bank responds to
the consumer's request by providing something other than an actual
substitute check (such as a photocopy of an original check or a
substitute check).

When a bank returns a deposited item unpaid to a consumer in the form of
a substitute check, the bank must provide the disclosure when it
provides the substitute check.

# Mode of Delivery of Information§229.58 {#mode-of-delivery-of-information229.58 .TAH.DocHead-2}

#  {#section-1 .TAH.DocHead-2}

Section 229.58 provides that banks may deliver any notice or other
information required under this subpart by United States mail or by any
other means to which the recipient has agreed to receive account
information, including electronically. A bank that is required to
provide an original check or a sufficient copy (each of which is defined
as a specific paper document) instead may provide an electronic image of
the original check or sufficient copy if the recipient has agreed to
receive that information electronically.

I. Examination Objectives

# Subparts A and B {#subparts-a-and-b .TAH.DocHead-2}

# \[Note: Subpart C of Regulation CC, "Collection of Checks", has been omitted. It addresses exclusively payment systems issues among financial institutions. There are no consumer--related regulatory compliance issues to review during the course of an examination. Subpart D, "Substitute Checks" begins on page 34.\] {#note-subpart-c-of-regulation-cc-collection-of-checks-has-been-omitted.-it-addresses-exclusively-payment-systems-issues-among-financial-institutions.-there-are-no-consumerrelated-regulatory-compliance-issues-to-review-during-the-course-of-an-examination.-subpart-d-substitute-checks-begins-on-page-34. .TAH.DocHead-2}

1.  Determine that the financial institution\'s funds availability
    policies comply with Regulation CC.

2.  Determine that the financial institution has established internal
    controls for compliance with Regulation CC's provisions relating to
    funds availability.

3.  Determine that the financial institution has established a training
    program for applicable employees addressing Regulation CC
    responsibilities.

4.  Determine that the financial institution maintains records of
    compliance with Regulation CC for a period of two years.

    Examination Procedures

A financial institution may delay funds availability for some deposits
on a case-by-case basis and on other deposits on an automatic basis. In
addition, the institution may make decisions concerning holds and may
maintain records at branches as well as the main office. Therefore, to
check for compliance with the hold policies, the examiner must determine
the types of holds employed and how the decisions are made and where the
records are maintained. If a branch makes its decision and maintains its
own records, such as in a decentralized structure, sampling may be done
at the branch. If the decision to delay availability is either
centralized or made at a regional processing center and records are
maintained there, sampling for compliance may be made at that location.

# General {#general .TAH.DocHead-2}

1\. Determine the types of transaction accounts, as defined in
Regulation D \[204.2(e)\] (e.g., demand deposits, NOW accounts, ATS
accounts) offered by the financial institution.

2\. Obtain copies of the forms used by the financial institution for
transaction accounts, including but not limited to the following:

-   Specific availability policy disclosures

-   Exception hold notices

-   Case-by-case hold notices

-   Special deposit slips

-   Change in terms notices

    3\. Determine, by account type, the institution\'s specific funds
    availability policies with regard to deposits.

    4\. Determine which individuals actually perform the various
    activities necessary to comply with the different provisions of
    Regulation CC, Subpart B. This would include, for example, personnel
    engaged in

-   Distributing disclosure statements

-   Employee training

-   Internal reviews

-   Computer program development for deposit accounts (not necessarily a
    computer programmer)

-   Deposit operations

-   Overdraft administration

-   ATM deposit processing

-   Private (personal) banking

-   Determining case-by-case holds or exceptions

5\. Review the financial institution\'s training manual, internal audit
or similar reports for Regulation CC, written procedures given to
employees detailing their responsibilities under the regulation, and
other similar materials.

6\. Determine the extent and adequacy of the instruction and training
received by the individuals listed above to enable them to carry out
their assigned responsibilities under Regulation CC.

7\. Verify that the institution provides employees with a written copy
of the Regulation CC procedures corresponding to their area of
responsibility. \[229.19(f)(2)\]

# Initial Disclosures and Subsequent Changes {#initial-disclosures-and-subsequent-changes .TAH.DocHead3}

1\. Review the financial institution\'s specific availability policy
disclosure. Determine if the disclosure accurately reflects the
financial institution\'s funds availability policies and meets the
requirements under §229.16 for content.

2\. Determine if the financial institution provides the initial
disclosure statement prior to accepting funds to open a new transaction
account or mails the disclosures within one business day of receiving a
written request by mail, or a telephone request, to open a new account.
\[§229.17(a)\]

3\. Determine if the financial institution provides its funds
availability policy upon an oral or written request within a reasonable
time period. \[§229.18(d)\]

4\. Determine if the financial institution has made changes to its
availability policies since the last examination. If yes, determine
whether the depositor was notified in accordance with §229.18(e).

# Automatic (and/or Automated) Hold Policies {#automatic-andor-automated-hold-policies .TAH.DocHead3}

1\. Review the financial institution\'s schedules or other materials
outlining funds availability time periods for the following types of
deposits:

-   Cash \[§229.10(a)\]

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-   Electronic payments \[§229.10(b)\]

-   U.S. Treasury checks \[§229.10(c)(1)(i) and 229.12(b)(2)\]

-   U.S. Postal Service Money Orders \[§229.10(c)(1)(ii), 229.10(c)(2)
    and 229. 12(b)(3)\]

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```
-   Checks drawn on Federal Reserve Banks or Federal Home Loan Banks
    \[§229.10(c)(1)(iii), 229.10(c)(2), 229.12 (b)(4) and
    229.12(c)(1)(ii)\]

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-   State or local government checks \[§229.10(c)(1)(iv), 229.10(c)(2),
    229.12(b)(4) and 229.12(c)(1)(ii)\]

-   Cashier\'s, certified, and teller\'s checks \[§229.10(c)(1)(v),
    229.10(c)(2), 229.12(b)(4) and 229.12(c)(1)(ii)\]

-   "On us" checks (checks drawn on the same bank or a branch thereof)
    \[§229.10(c)(1)(vi) and 229.11(c)(1)(ii)\]

-   Local checks (checks deposited from within same Federal Reserve
    check processing region as the paying bank) \[§229.12(b)(1)\]

-   Non-local checks (checks from a different check processing region)
    \[§229.12(c)(1)(i)\]

-   Credit union share draft accounts \[commentary to §229.16(b)\]

2\. Determine that the financial institution\'s policy for providing
funds availability is in accordance with regulatory requirements.

3\. Determine the financial institution\'s procedures for placing holds.

4\. Selectively sample each of the types of deposits listed in question
one and verify the funds availability time frames. Determine, for each
deposit category, whether the financial institution\'s procedures
provide funds availability within the required time periods. Determine
that the procedures and disclosed policy are the same.

# ATM Deposits - Nonproprietary \[§229.12(f)\] {#atm-deposits---nonproprietary-229.12f .TAH.DocHead3}

(See also §§229.19(a)(4), 229.19(a)(5)(ii) and commentary to 229.19(a),
(b) for off-premises ATMs).

1\. Determine that the institution makes funds deposited in an account
at a nonproprietary ATM by cash or check available for withdrawal not
later than the fifth business day following the day of deposit.

# Availability Rules\$100 and \$400 \[§229.10(c)(1)(vii), and 229.12(d)\] {#availability-rules100-and-400-229.10c1vii-and-229.12d .TAH.DocHead3}

1\. Determine the financial institution\'s procedures for complying with
the \$100 availability rule and, if applicable, the \$400 cash
withdrawal rule.

2\. Review records which detail holds placed on accounts. Determine if
holds are in accordance with the regulation.

3\. Sample deposit accounts with deposits subject to these rules and
verify the institution\'s compliance with the rules. Verify that actual
practices and policies match.

# Extended Holds {#extended-holds .TAH.DocHead-2}

# Case-by-Case Holds {#case-by-case-holds .TAH.DocHead3}

1\. Determine if the financial institution places holds on a
case-by-case basis. If yes, review the institution\'s procedures for
placing case-by-case holds.

2\. Review the specific availability policy disclosures to determine
whether the case-by-case hold policy has been disclosed.

3\. Review any physical records and/or reports generated from holds
placed. (Sample should include records from the main office, as well as
branch offices, depending on type of branch system operated).

4\. Sample a few of the case-by-case holds and determine whether the
financial institution makes the funds available for withdrawal within
the required time frames.

5\. Determine whether the financial institution provides the customer
with a notice of the case-by-case hold as required by §229.16(c)(2).
Determine if the notices meet the timing and content requirements.

6\. If the institution does not provide the notice at the time of
deposit, determine whether it either discloses the availability of
refunds of overdraft and returned check fees, or does not assess these
fees, when the requirements of §229.16(c)(3) are met.

# Exception Holds \[§229.13\] {#exception-holds-229.13 .TAH.DocHead3}

1\. Determine whether the financial institution places holds on an
exception basis. If yes, review procedures for placing exception holds.

2\. Review the specific availability policy disclosures to determine
whether the institution has disclosed its exception holds policy.

3\. Review any physical records and/or reports generated from holds
placed. (Sample should include records from the main office, as well as
branch offices, depending on type of branch system operated).

4\. Sample a few of the exception holds and determine when the financial
institution makes the funds available for withdrawal. Determine that the
financial institution does not add more than one business day for
"on-us" checks, five business days for local checks, and six business
days for nonlocal checks to the maximum time periods in the federal
availability schedule for the deposit, unless it can show that a longer
delay is reasonable. \[§229.13(h)\]

5\. With the exception of new accounts, determine whether the financial
institution provides the customer with an exception hold notice as
required by §229.13(g).

6\. Review hold notices. Determine if the notices meet the timing and
content requirements for each type of exception hold. (Note:
institutions are required to retain copies of "reasonable cause" hold
notices for a two-year time period).

# New Accounts \[§229.13(a)\] {#new-accounts-229.13a .TAH.DocHead3}

1\. Review financial institution policies for new accounts.

2\. Determine how the financial institution defines a "new account"
relationship. Determine if the financial institution\'s definition is in
compliance with Regulation CC §229.13(a).

3\. Review the specific availability policy disclosure to determine
whether the institution has disclosed its availability policy regarding
new accounts.

4\. Review a new account report or listing of new account holders.
Determine if any holds were placed on the accounts.

5\. Sample new deposit accounts and request that the financial
institution provide documentation concerning the composition of the
opening deposit.

6\. Review holds placed and determine if holds are within regulatory
limits with respect to time and amount. See §229.13(a)(1). (Note: No
regulatory time limits are set forth for funds availability for local
and nonlocal check deposits into new accounts).

# Large Deposits \[§229.13(b)\] {#large-deposits-229.13b .TAH.DocHead3}

1\. Determine whether the financial institution has procedures and a
special hold policy for "large deposits". If yes, determine whether the
institution considers a large deposit, for purposes of the large deposit
exception, to be a day\'s aggregate deposit of checks exceeding \$5,000.

2\. Determine that the financial institution does not invoke the large
deposit exception for cash or electronic payments.

3\. Review at least one account deposit on which a large deposit hold
was placed and ensure that the hold was placed only on the amount by
which a day\'s deposit of checks exceeds \$5,000.

4\. Determine if the financial institution provided the customer with a
written exception notice that meets the requirements of §229.13(g)(1) or
(g)(2).

5\. Determine if the notice was provided within the prescribed time
frames of §229.13(g)(1) or (g)(2).

# Redeposited Checks \[§229.13(c)\] {#redeposited-checks-229.13c .TAH.DocHead3}

1\. Determine if the financial institution has procedures and a special
hold policy for redeposited checks.

2\. If yes, determine if the institution refrains from imposing this
exception solely because of a missing indorsement or because the check
was postdated.

3.  Determine if the financial institution provided the customer with a
    written exception notice that meets the requirements of
    §229.13(g)(1) or (g)(2).

4\. Determine if the notice was provided within the prescribed time
frames of §229.13(g)(1) or (g)(2).

# Repeated Overdrafts \[§229.13(d)\] {#repeated-overdrafts-229.13d .TAH.DocHead3}

1\. Determine whether the financial institution has procedures or a
special hold policy for customers with repeated overdrafts.

2\. If yes, review the financial institution\'s definition for accounts
"repeatedly overdrawn" and determine whether it meets the regulatory
definition in §229.13(d).

3\. Determine that the financial institution returns the account to the
financial institution\'s normal account status when the account has not
been repeatedly overdrawn for a six-month period following the time the
account was characterized as repeatedly overdrawn.

4\. Review the financial institution\'s overdraft account holder list.
(Note*:* this may or may not be the same overdraft list maintained in
the ordinary course of business. The financial institution may maintain
a list of recent overdrafts, as well as a list of customers repeatedly
overdrawn).

5\. Review an account classified as repeatedly overdrawn. Determine if
the financial institution properly classified the account and followed
the regulatory procedures outlined in §229.13(d).

6\. Determine the date the account was placed in "repeated overdraft"
exception status. Review account statements for the six months prior to
the date the account was identified as an overdraft exception.

7\. Determine whether the financial institution provided the customer
with an exception notice when an exception hold was placed on the
account. If so, review the content of the notice and determine if it
meets the requirements of §229.13(g)(1) or (g)(3).

8\. Determine if notice was given within the required time frames.
\[§229.12(g)(1) or (g)(3)\]

# Reasonable Cause to Doubt Collectability \[§229.13(e)\] {#reasonable-cause-to-doubt-collectability-229.13e .TAH.DocHead3}

1\. Determine if the financial institution has procedures or a special
policy for placing "reasonable cause" holds.

2\. If yes, determine who initiates "reasonable cause" holds.

3\. Obtain a listing of accounts or checks where this exception was
applied. Review the exception notice given to the customer.

4\. Determine if the reason for invoking the exception was "reasonable".

5\. Review the content of the notice and determine if it meets the
requirements of §229.13(g)(1).

6\. Determine if notice was given within the required time frames.
\[§229.13(g)(1)\]

7\. If the institution imposes a "reasonable cause" exception hold and
does not provide the notice at the time of deposit, determine whether it
either discloses the availability of refunds of overdraft and returned
check fees, or does not assess these fees, when the requirements of
§229.13(e)(2) are met.

# Emergency Conditions \[§229.13(f)\] {#emergency-conditions-229.13f .TAH.DocHead3}

1\. Determine if the financial institution has procedures or a special
policy for placing "emergency condition" holds. If yes, review the
institution\'s procedures for placing these holds.

2\. Determine whether the institution invokes this exception only under
the conditions specified in §229.13(f).

3\. Determine whether the institution makes the funds available for
withdrawal within a reasonable time period from either the termination
of the emergency or the period in which the deposit would normally be
available for withdrawal, whichever is later. (Note: a reasonable period
for on-us checks is one business day. A reasonable time for local checks
is five business days. For nonlocal checks, six days is usually
considered reasonable). \[§229.13(h)(3), 229.13(h)(4)\]

# Miscellaneous Provisions {#miscellaneous-provisions .TAH.DocHead-2}

# Special Deposit Slips \[§229.10(c)(3)\] {#special-deposit-slips-229.10c3 .TAH.DocHead3}

1\. Determine if the financial institution requires a special deposit
slip for state or local government checks, cashier\'s, certified, or
teller\'s checks in order to provide next business day availability on
the deposits. \[§229.10(c)(3)(i)\]

2\. If the financial institution requires a special deposit slip,
determine that the financial institution \[§229.10(c)(3)(ii)\]

-   Provides the deposit slip to its customers,

-   Informs the customers how to obtain and prepare the slips, or

-   Makes the special deposit slips "reasonably available".

# Additional Disclosure Requirements \[§229.18\] {#additional-disclosure-requirements-229.18 .TAH.DocHead3}

1\. Determine if the financial institution displays a notice of its
availability policy in a conspicuous place at locations where employees
receive consumer deposits. \[§229.18(b)\] (Note: Drive-up windows and
night depositories do not require the notice. See commentary to
§229.18(b).)

2\. Determine if the financial institution displays a notice at each of
its proprietary ATMs stating that the funds deposited in the ATM may not
be available for immediate withdrawal. \[§229.18(c)(1)\]

3\. If the financial institution has off-premises ATMs from which funds
are not collected more than twice a week, determine if the institution
discloses on or at the ATM, the days upon which the deposits made at the
ATM will be considered "received". \[§229.18(c)(2)\]

4\. Determine if the institution includes a notice on all preprinted
deposit slips that the deposited funds may not be available for
immediate withdrawal. \[§229.18(a)\]

# Payment of Interest \[§229.14\] {#payment-of-interest-229.14 .TAH.DocHead3}

1\. Determine whether the financial institution pays interest as of the
date of the deposit, or as of the date provisional credit is granted.

2.  If the financial institution pays interest as of the date
    provisional credit is granted, review the financial institution\'s
    schedule for provisional credit. (This schedule may be from a
    Federal Reserve Bank or may be based on the time credit is generally
    received from a correspondent bank). Select an interest-bearing
    account statement and ask the financial institution to detail the
    interest rate calculation.

3\. Review the financial institution\'s method for calculating interest
on deposits reviewed. Select another interest-bearing account and, using
the financial institution\'s procedures for calculating interest, verify
that the financial institution accrues interest as of the date
provisional credit is received.

# Calculated AvailabilityNon-consumer Transaction Accounts \[§229.19(d)\] {#calculated-availabilitynon-consumer-transaction-accounts-229.19d .TAH.DocHead3}

1\. Determine if the financial institution uses a formula for
calculating funds availability for non-consumer transaction accounts.

2\. Review a copy of the financial institution\'s formula.

3\. Select a large corporate account subject to the formula. Ask the
financial institution to demonstrate how funds are made available to the
customer. Determine whether it appears that the formula accurately
reflects the type of deposit mix reasonably expected for this type of
account holder. (For example, a local grocery store may have 90% of its
deposits made up of local check deposits. Therefore, a formula providing
a deposit mix of at least 90% availability within two days may be
reasonable. A mail order firm, on the other hand, may have a large
percent of nonlocal checks in its check deposits. Therefore, its formula
may allow for lengthier availability schedules).

# Record Retention \[§229.21(g) and 229.13(g)(4)\] {#record-retention-229.21g-and-229.13g4 .TAH.DocHead3}

1.  Determine that the financial institution retains for two years
    records to show compliance with this section of the regulation.
    Also, the bank should retain a copy of each notice provided when a
    "reasonable cause" exception is invoked, along with a brief
    description of the facts giving rise to the availability of that
    exception.

II\. Examination Objectives

# Subpart D {#subpart-d .TAH.DocHead-2}

1.  Determine the financial institution's compliance with Subpart D
    notice content and timing requirements (general consumer awareness
    disclosures regarding substitute checks and notices that respond to
    a consumer's expedited recredit claim regarding a substitute check
    error).

2.  Ascertain whether the financial institution complies with timing
    requirements for acting on a substitute check expedited recredit
    claim.

    Examination Procedures

Whether a financial institution will or will not function as a
"reconverting bank",[^7] the interlinked nature of the payments system
virtually guarantees that every financial institution will at some time
receive a substitute check that is subject to the provisions of Subpart
D, the "Check 21" section of Regulation CC. While some financial
institutions will rapidly migrate toward electronic check exchange,
others will proceed more hesitantly. Regardless, because the Check 21
Act provides that a properly prepared substitute check is the "legal
equivalent of the original check for all purposes," all banks must be
prepared to *accept* a substitute check in place of the original after
the Act's effective date of October 28, 2004.

One of a bank's regulatory compliance obligations will be to apprise
consumer customers who receive cancelled checks with their periodic
account statements or who otherwise receive substitute checks on an
occasional basis of their rights under the new law through a consumer
awareness disclosure. A bank that provides a substitute check to a
consumer also must be prepared to comply with the Check 21 Act's
expedited recredit procedure for addressing errors relating to
substitute checks. Even if the customer does not receive actual
cancelled checks in a monthly statement but instead receives a truncated
summary, the individual may eventually receive a substitute check,
either in response to a request for a check or a copy of a check or
because a check that the consumer deposited was returned unpaid to the
consumer in the form of a substitute check. Some increase in the
potential for duplicate posting (substitute check and original) may also
involve a degree of consumer education and explanation. The regulation
specifies the appropriate timing for the distribution of the consumer
awareness disclosure and also provides model language. Finally,
institutions will likely want to train their personnel so that they can
adequately convey to customers the impact of this new instrument in the
payments system.

**General**

1\. Obtain copies of the documents associated with the institution's
Check 21 compliance, including but not limited to the following:

-   Consumer awareness disclosure(s)

-   Sample (test) substitute checks, *if available*

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-   Direct mail correspondence, statement stuffers, etc., describing
    Check 21/substitute check implementation to consumer customers

-   Notices relating to expedited recredit claims:

    -   Notice of valid claim and refund

    -   Notice of provisional refund

    -   Denial of claim

    -   Reversal of refund

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-   Any other relevant documents

2\. Determine the individuals within the institution who may have
responsibilities associated with Check 21. The following represents a
non-exhaustive listing:

-   New accounts personnel

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-   Employee training department

-   Internal auditors, reviewers

-   Deposit operations, bookkeeping

3\. Review the financial institution\'s training manual, internal audit
or similar reports for Regulation CC, written procedures given to
employees detailing their responsibilities under the regulation, and
other similar materials.

4\. Determine the training methods employed by the institution in
conveying specific responsibilities to employees. Are written procedures
distributed to employees?

**Consumer Awareness \[§229.57\]**

\[**[Note]{.underline}**: Model disclosure language is provided in
Appendix C of the Regulation\]

Determine whether the bank distributes only a single version of its
Consumer Awareness Disclosure or whether variations, depending on the
circumstances giving rise to distribution, are maintained. Each notice
should reflect the following:

1\. *General Disclosure Content*

Determine whether the disclosure notice states

-   That a substitute check is the legal equivalent of an original
    check; \[§229.57(a)(1)\] and

-   the consumer recredit rights that apply when a consumer in good
    faith believes that a substitute check was not properly charged to
    his or her account. \[§229.57(a)(2)\]

2\. *Timing and Distribution*

> A bank is required to provide its consumer customers with a Consumer
> Awareness Disclosure prior to the receipt of a substitute check.

-   For those who receive cancelled checks with periodic statements:

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-   *Existing customers as of October 28, 2004*

> Determine that the bank provided the disclosure no later than the
> first regularly scheduled communication with the consumer after
> October 28, 2004 (for each consumer who is a customer of the bank on
> that date). \[§229.57(b)(1)(i)\]

-   *New customers after October 28, 2004*

> Determine that the bank provided the disclosure at the time the
> customer relationship was established. \[§229.57(b)(1)(ii)\]

-   For those who do not receive cancelled checks with periodic
    statements and who will receive substitute checks on an occasional
    basis only

    -   *Upon customer request for an original check or a copy of a
        check*

> Determine that the bank provide the disclosure to a consumer customer
> who requested an original check or a copy of a check and received a
> substitute check in response. \[§229.57(b)(2)(i)\]

-   *Upon customer's receipt of a returned substitute check*

> Determine that the bank provide the disclosure to a consumer customer
> of the bank who receives a returned substitute check (at the time the
> bank provides such substitute check). \[§229.57(b)(2)(ii)\]

3.  *Mode of Delivery of Information* \[§229.58\]

> Determine whether the bank employed one of the following in delivering
> its Consumer Awareness Disclosure(s) and expedited recredit notice(s)

-   U.S. mail

-   Any other means to which the recipient agreed to receive account
    information, including electronically

**Expedited Recredit for Consumers \[§229.54\]**

1.  Determine whether any financial institution customer has raised a
    Check 21-related claim of loss since the last examination. If yes,
    review for the following. \[In financial institutions where multiple
    Check 21-related claims have been raised and resolved, the examiner
    need only review a sampling sufficient to ensure that the bank's
    processing is consistent and in compliance with Subpart D.\]

-   *Necessary pre-conditions -- consumer must allege **all** of these*
    \[§§229.54(a)(1)-(4)\]

    -   Was the consumer's account charged for a substitute check *that
        was provided to the consumer*? \[The consumer need not be in
        possession of the substitute check at the time of claim
        submission\]

    -   Was the consumer's account not properly charged?
        \[Alternatively, a consumer's account could be properly charged
        yet still give rise to a warranty claim, for example, in the
        case of a substitute check image that is illegible.\]

    -   Did the consumer suffer a resulting financial loss?

    -   Was the production of the original check or a sufficient copy
        necessary to determine whether or not the consumer's claim was
        valid?

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-   *Procedural steps for consumer's claim*

    -   Did the consumer submit a timely claim? \[§229.54(b)(1)\]

    -   Did the claim contain a description of the claim, a statement
        and estimate of loss, the reason why the original check or a
        sufficient copy is necessary, and sufficient information for the
        bank to investigate? \[§229.54(b)(2)\]

    -   If a consumer attempted to make a claim but failed to provide
        all of the necessary information (as listed above), did the bank
        inform the consumer that the claim was incomplete and identify
        the information that was missing? \[§229.54(b)(2)(D)(ii)\]

    -   Was the claim submitted in a form acceptable to the financial
        institution? Did the bank compute the time for action
        accurately? \[§229.54(b)(3)\]

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-   *Procedural steps for financial institution response*

> If the financial institution concluded that (1) all necessary
> prerequisites to the filing of a consumer claim existed; and (2) that
> the consumer followed the appropriate steps in filing the claim,
> verify that the bank provided the following appropriate response:
>
> *Claim deemed **valid**:*
>
> In the event of a valid consumer claim, did the bank

-   Recredit the account for the amount of the loss, up to the amount of
    the substitute check (plus interest, if applicable), no later than
    the end of the business day after the banking day on which the bank
    made its determination, \[§229.54(c)(1)(i)\] and

-   Draft a notice of recredit stating (1) the amount of the
    recredit, (2) the date on which funds will be available for
    withdrawal, \[§229.54(e)(1)(i) and (ii)\] and

-   Send the notice no later than the business day after the banking day
    on which the bank recredit occurs? \[§229.54(e)(1)\]

> *Claim deemed **invalid***:
>
> In the event of an invalid consumer claim, determine whether the bank

-   Sent a notice stating that the claim was invalid and include the
    original check or a sufficient copy, \[§229.54(e)(2)(i)\]

-   Demonstrated to the consumer that the substitute check was properly
    charged (or that the consumer's warranty claim is not valid),
    \[§229.54(e)(2)(ii)\] and

-   Included the information or documents (in addition to the original
    check), if any, relied upon by the bank in making its determination
    (or a statement that the consumer may request such).
    \[§229.54(e)(2)(iii)\]

> *Claim **not resolved** within initial 10 days, pending further
> investigation*:
>
> If the bank could not resolve the claim before the end of the 10^th^
> business day after the banking day on which the bank received the
> claim, determine whether the bank

-   Recredited the consumer's account for the amount of the loss, up to
    the lesser of the amount of the substitute check or \$2,500 (plus
    interest, if applicable) \[§229.54(c)(3)(i)(A)\];

-   Drafted a notice of recredit stating (1) the amount of the
    recredit, (2) the date on which funds will be available for
    withdrawal; \[§229.54(e)(1)(i) and (ii)\]

-   Recredited the consumer's account for the remaining amount of the
    loss, if any, up to the amount of the substitute check (plus
    interest, if applicable), no later than the end of the 45^th^
    calendar day after the banking day on which the bank received the
    claim \[§229.54(c)(3)(ii)\]; and

-   Sent the notice of recredit no later than the business day after the
    banking day on which the bank recredit occurs. \[§229.54(e)(1)\]

> *Claim resulting in **reversal of recredit***:
>
> In some instances it may be necessary for a bank to reverse a recredit
> made previously to a consumer's account (plus any interest paid, if
> applicable). If such a circumstance has occurred, determine whether
> the bank

-   Concluded that the consumer's claim was not valid;
    \[§229.54(c)(4)(i)\] and

-   Drafted a notice of reversal of recredit \[§229.54(e)(3)\],
    accompanied by the following:

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-   The original check or a sufficient copy \[§229.54(e)(2)(i)\],

-   Information or explanation to demonstrate to the consumer that the
    substitute check was properly charged (or that the consumer's
    warranty claim is not valid), \[§229.54(e)(2)(ii)\]

-   Information or documents (in addition to the original check or a
    sufficient copy), if any, on which the bank relied in making its
    determination (or a statement that the consumer can request such),
    \[§229.54(e)(2)(iii)\]

-   A description of the amount of the reversal, including both the
    amount of the recredit and the amount of interest paid on the
    recredited amount, if any, being reversed \[§229.54(e)(3)(i)\], and

-   The date on which the bank made the reversal \[§229.54(e)(3)(ii)\]

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-   Send the notice no later than the business day after the banking day
    on which the bank made the reversal. \[§229.54(e)(3)\]

    -   *Availability of recredited funds*

> Under circumstances detailed above, where the financial institution
> determined that it was appropriate to recredit its consumer customer's
> account, determine whether the bank took the following actions:

-   *Next day availability* -- Did the bank make any recredited amount
    available for withdrawal no later than the start of the business day
    after the banking day on which the recredit was provided?
    \[§229.54(d)(1)\]

-   *Safeguard exceptions* -- If necessary for reasons of (1) new
    account status, (2) overdrawn account status, or (3) well-reasoned
    suspicion of fraud, did the bank invoke its right to delay immediate
    availability of recredited funds? If so, was the delay invoked
    because the bank had not yet determined the validity of the claim?
    Were the funds made available no later than the business day after
    the banking day on which the final determination was made
    **[OR]{.underline}** the 45th calendar day after the bank received
    the claim, whichever occurred earlier? \[§229.54(d)(2)\]

-   *Overdraft fees* -- If the bank chose to invoke its right to delay
    immediate availability of recredited funds, did it refrain from
    imposing an overdraft fee until the appropriate five-day period had
    elapsed? \[§229.54(d)(3)\]

[^1]: The term "check" does not include checks drawn in a foreign
    currency or checks drawn on a bank located outside the United
    States.

[^2]: Magnetic ink character recognition (MICR) line means the numbers,
    which may include the routing number, account number, check number,
    and check amount, that are printed across the bottom of a check in
    magnetic ink. The industry standard for substitute checks is
    American National Standard Specifications for an Image Replacement
    Document -- IRD, X9.100-140. ANS X9.100-140 specifies ways in which
    the content of a substitute check's MICR line may vary from the
    content of the original check's MICR line. ANS X9.100-140 also
    specifies circumstances in which a substitute check MICR line need
    not be printed in magnetic ink.

[^3]: A person other than a bank that creates a substitute check could
    transfer that check only by agreement unless and until a bank
    provides the substitute check warranties.

[^4]: A bank may not vary the language of the legal equivalence legend.

[^5]: If a consumer submits an incomplete complaint, the bank must so
    inform the consumer and must tell the consumer what information is
    missing.

[^6]: For purposes of this paragraph, a cause of action accrues as of
    the date on which the injured person first learns, or reasonably
    should have learned, of the facts giving rise to the claim,
    including the identity of the warranting or indemnifying bank
    against which the action is brought.

[^7]: A reconverting bank is the bank that creates a substitute check;
    if a nonbank creates a substitute check, the reconverting bank is
    the first bank to transfer, present, or return the substitute check
    (or the first paper or electronic representation of that substitute
    check) for consideration.