Title 12—Banks and Banking--Volume 1
PART 210—COLLECTION OF CHECKS AND OTHER ITEMS BY FEDERAL RESERVE BANKS AND FUNDS TRANSFERS THROUGH THE FEDWIRE FUNDS SERVICE AND THE FEDNOW SERVICE (REGULATION J)
§ 210.1   Authority, purpose, and scope.
The Board of Governors of the Federal Reserve System (Board) has issued this subpart pursuant to the Federal Reserve Act, sections 11 (i) and (j) (12 U.S.C. 248 (i) and (j)), section 13 (12 U.S.C. 342), section 16 (12 U.S.C. 248(o) and 360), and section 19(f) (12 U.S.C. 464); the Expedited Funds Availability Act (12 U.S.C. 4001 et seq. ); the Check Clearing for the 21st Century Act (12 U.S.C. 5001-5018) and other laws. This subpart governs the collection of checks and other cash and noncash items and the handling of returned checks by Federal Reserve Banks. Its purpose is to provide rules for collecting and returning items and settling balances.
§ 210.2   Definitions.
As used in this subpart, unless the context otherwise requires:
Account means an account on the books of a Federal Reserve Bank. A subaccount is an informational record of a subset of transactions that affect an account and is not a separate account.
Actually and finally collected funds means cash or any other form of payment that is, or has become, final and irrevocable.
Administrative Reserve Bank with respect to an entity means the Reserve Bank in whose District the entity is located, as determined under the procedure described in § 204.3(g) of this chapter (Regulation D), even if the entity is not otherwise subject to that section.
Bank means any person engaged in the business of banking. A branch or separate office of a bank is a separate bank to the extent provided in the Uniform Commercial Code.
Bank draft means a check drawn by one bank on another bank.
Banking day means the part of a day on which a bank is open to the public for carrying on substantially all of its banking functions.
Cash item means—
(1) A check other than one classified as a noncash item under this section; or
(2) Any other item payable on demand and collectible at par that the Reserve Bank that receives the item is willing to accept as a cash item. Cash item does not include a returned check.
Check means a check or an electronic check, as those terms are defined in § 229.2 of this chapter (Regulation CC).
Clock hour and clock half-hour. (1) Clock hour means a time that is on the hour, such as 1:00, 2:00, etc.
(2) Clock half-hour means a time that is on the half-hour, such as 1:30, 2:30, etc.
Fedwire Funds Service and Fedwire have the same meaning as that set forth in § 210.26.
Item. (1) Means—
(i) An instrument or a promise or order to pay money, whether negotiable or not, that is—
(A) Payable in a Federal Reserve District 1 (District);
1 For purposes of this subpart, the Virgin Islands and Puerto Rico are deemed to be in the Second District, and Guam, American Samoa, and the Northern Mariana Islands in the Twelfth District.
(B) Sent by a sender to a Reserve Bank for handling under this subpart; and
(C) Collectible in funds acceptable to the Reserve Bank of the District in which the instrument is payable; or
(ii) A check.
(2) Unless otherwise indicated, item includes both a cash and a noncash item, and includes a returned check sent by a paying or returning bank. Item does not include a check that cannot be collected at par, or a payment order as defined in § 210.26(i) and handled under subpart B of this part. The term also does not include an electronically-created item as defined in § 229.2 of this chapter (Regulation CC).
Nonbank payor means a payor of an item, other than a bank.
Noncash item means an item that a receiving Reserve Bank classifies in its operating circulars as requiring special handling. The term also means an item normally received as a cash item if a Reserve Bank decides that special conditions require that it handle the item as a noncash item.
Paying bank means—
(1) The bank by which an item is payable unless the item is payable or collectible at or through another bank and is sent to the other bank for payment or collection;
(2) The bank at or through which an item is payable or collectible and to which it sent for payment or collection; or
(3) The bank whose routing number appears on a check in the MICR line or in fractional form (or in the MICR-line information that accompanies an electronic item) and to which the check is sent for payment or collection.
Returned check means a cash item returned by a paying bank, including an electronic returned check as defined in § 229.2 of this chapter (Regulation CC) and a notice of nonpayment in lieu of a returned check, whether or not a Reserve Bank handled the check for collection.
Sender means any of the following entities that sends an item to a Reserve Bank for forward collection—
(1) A depository institution, as defined in section 19(b) of the Federal Reserve Act (12 U.S.C. 461(b));
(2) A member bank, as defined in section 1 of the Federal Reserve Act (12 U.S.C. 221);
(3) A clearing institution, defined as—
(i) An institution that is not a depository institution but that maintains with a Reserve Bank the balance referred to in the first paragraph of section 13 of the Federal Reserve Act (12 U.S.C. 342); or
(ii) An Edge corporation or agreement corporation that maintains an account with a Reserve Bank in conformity with part 211 of this chapter (Regulation K);
(4) Another Reserve Bank;
(5) An international organization for which a Reserve Bank is empowered to act as depositary or fiscal agent and maintains an account;
(6) A foreign correspondent, defined as any of the following entities for which a Reserve Bank maintains an account: A foreign bank or banker, a foreign state as defined in section 25(b) of the Federal Reserve Act (12 U.S.C. 632), or a foreign correspondent or agency referred to in section 14(e) of that act (12 U.S.C. 358); or
(7) A branch or agency of a foreign bank maintaining reserves under section 7 of the International Banking Act of 1978 (12 U.S.C. 347d, 3105).
State means a State of the United States, the District of Columbia, Puerto Rico, or a territory, possession, or dependency of the United States.
Uniform Commercial Code and U.C.C. mean the Uniform Commercial Code as adopted in a state
Terms not defined in this section. Unless the context otherwise requires—
(1) The terms not defined herein have the meanings set forth in § 229.2 of this chapter applicable to subpart C or D of part 229 of this chapter (Regulation CC), as appropriate; and
(2) The terms not defined herein or in § 229.2 of this chapter have the meanings set forth in the Uniform Commercial Code.
§ 210.3   General provisions.
(a) General. Each Reserve Bank shall receive and handle items in accordance with this subpart, and shall issue operating circulars governing the details of its handling of items and other matters deemed appropriate by the Reserve Bank. The circulars may, among other things, classify cash items and noncash items, require separate sorts and letters, provide different closing times for the receipt of different classes or types of items, provide for instructions by an Administrative Reserve Bank to other Reserve Banks, set forth terms of services, and establish procedures for adjustments on a Reserve Bank's books, including amounts, waiver of expenses, and payment of compensation. As deemed appropriate by the Reserve Bank, the circulars may also require the sender to provide warranties and indemnities that only items and any noncash items the Reserve Banks have agreed to handle will be sent to the Reserve Banks. The Reserve Banks may provide to a subsequent collecting bank and to the paying bank any warranties and indemnities provided by the sender pursuant to this paragraph (a).
(b) Binding effect. This subpart, together with subparts C and D of part 229 and the operating circulars of the Reserve Banks, are binding on all parties interested in an item handled by any Reserve Bank.
(c) Government items. As depositaries and fiscal agents of the United States, Reserve Banks handle certain items payable by the United States or certain Federal agencies as cash or noncash items. To the extent provided by regulations issued by, and arrangements made with, the United States Treasury Department and other Government departments and agencies, the handling of such items is governed by this subpart. The Reserve Banks shall include in their operating circulars such information regarding these regulations and arrangements as the Reserve Banks deem appropriate.
(d) Government senders. Except as otherwise provided by statutes of the United States, or regulations issued or arrangements made thereunder, this subpart and the operating circulars of the Reserve Banks apply to the following when acting as a sender: a department, agency, instrumentality, independent establishment, or office of the United States, or a wholly owned or controlled Government corporation, that maintains or uses an account with a Reserve Bank.
(e) Foreign items. A Reserve Bank also may receive and handle certain items payable outside a Federal Reserve District, as provided in its operating circulars. The handling of such items in a state is governed by this subpart, and the handling of such items outside a state is governed by the local law.
(f) Relation to other law. The provisions of this subpart supersede any inconsistent provisions of the Uniform Commercial Code, of any other state law, or of part 229 of this title, but only to the extent of the inconsistency.
§ 210.4   Sending items to Reserve Banks.
(a) Sending of items. A sender's Administrative Reserve Bank may direct a sender other than a Reserve Bank to send any item to a specified Reserve Bank, whether or not the item is payable in the Reserve Bank's district.
(b) Handling of items. (1) The following parties, in the following order, are deemed to have handled an item that is sent to a Reserve Bank for collection:
(i) The initial sender;
(ii) The initial sender's Administrative Reserve Bank (which is deemed to have accepted deposit of the item from the initial sender);
(iii) The Reserve Bank that receives the item from the initial sender (if different from the initial sender's Administrative Reserve Bank); and
(iv) Another Reserve Bank, if any, that receives the item from a Reserve Bank.
(2) A Reserve Bank that is not described in paragraph (b)(1) of this section is not a person that handles an item and is not a collecting bank with respect to an item.
(3) The identity and order of the parties under paragraph (b)(1) of this section determine the relationships and the rights and liabilities of the parties under this subpart, part 229 of this chapter (Regulation CC), section 13(1) and section 16(13) of the Federal Reserve Act, and the Uniform Commercial Code. An initial sender's Administrative Reserve Bank that is deemed to accept an item for deposit or handle an item is also deemed to be a sender with respect to that item. The Reserve Banks that are deemed to handle an item are deemed to be agents or subagents of the owner of the item, as provided in § 210.6(a).
(c) Checks received at par. The Reserve Banks shall receive cash items and other checks at par.
§ 210.5   Sender's agreement; recovery by Reserve Bank.
(a) Sender's agreement. The warranties, indemnities, authorizations, and agreements made pursuant to this paragraph (a) may not be disclaimed and are made whether or not the item bears an indorsement of the sender. By sending an item to a Reserve Bank, the sender does all of the following.
(1) Authorization to handle item. The sender authorizes the sender's Administrative Reserve Bank and any other Reserve Bank or collecting bank to which the item is sent to handle the item (and authorizes any Reserve Bank that handles settlement for the item to make accounting entries), subject to this subpart and to the Reserve Banks' operating circulars, and warrants its authority to give this authorization.
(2) Warranties for all items. The sender warrants to each Reserve Bank handling the item that—
(i) The sender is a person entitled to enforce the item or authorized to obtain payment of the item on behalf of a person entitled to enforce the item;
(ii) The item has not been altered; and
(iii) The item bears all indorsements applied by parties that previously handled the item for forward collection or return.
(3) Warranties and indemnities as set forth in Regulation CC and U.C.C. As applicable and unless otherwise provided, the sender of an item makes to each Reserve Bank that handles the item all the warranties and indemnities set forth in and subject to the terms of subparts C and D of part 229 of this chapter (Regulation CC) and Article 4 of the U.C.C. The sender makes all the warranties set forth in and subject to the terms of 4-207 of the U.C.C. for an electronic check as if it were an item subject to the U.C.C.
(4) Warranties and indemnities as set forth in Reserve Bank operating circulars. The sender makes any warranties and indemnities regarding the sending of items as set forth in an operating circular issued in accordance with § 210.3(a).
(5) Sender's liability to Reserve Bank. (i) Except as provided in paragraphs (a)(5)(ii) and (iii) of this section, the sender agrees to indemnify each Reserve Bank for any loss or expense sustained (including attorneys' fees and expenses of litigation) resulting from—
(A) The sender's lack of authority to make the warranty in paragraph (a)(1) of this section;
(B) Any action taken by the Reserve Bank within the scope of its authority in handling the item; or
(C) Any warranty or indemnity made by the Reserve Bank under § 210.6(b), part 229 of this chapter, the U.C.C., or, regarding the sending of items, an operating circular issued in accordance with § 210.3(a).
(ii) A sender's liability for warranties and indemnities that the Reserve Bank makes for a substitute check, a paper or electronic representation thereof, or for an electronic check is subject to the following conditions and limitations—
(A) A sender of an original check shall not be liable under paragraph (a)(5)(i) of this section for any amount that the Reserve Bank pays under subpart D of part 229 of this chapter, or under § 229.34 of this chapter with respect to an electronic check, absent the sender's agreement to the contrary; and
(B) Nothing in this subpart alters the liability of a sender of a substitute check or paper or electronic representation of a substitute check under subpart D of part 229 of this chapter, or a sender of an electronic check under § 229.34 of this chapter.
(iii) A sender shall not be liable for any amount that the Reserve Bank pays under this subpart or part 229 of this chapter that is attributable to the Reserve Bank's own lack of good faith or failure to exercise ordinary care.
(b) Sender's liability under other law. Nothing in paragraph (a) of this section limits any warranty or indemnity by a sender (or a person that handled an item prior to the sender) arising under state law or regulation (such as the U.C.C.), other federal law or regulation (such as part 229 of this chapter), or an agreement with a Reserve Bank.
(c) Recovery by Reserve Bank. (1) A Reserve Bank that has handled an item may recover as provided in paragraph (c)(2) of this section if an action or proceeding is brought against (or if defense is tendered to) the Reserve Bank based on—
(i) The alleged failure of the sender to have the authority to make the warranty and agreement in paragraph (a)(1) of this section;
(ii) Any action by the Reserve Bank within the scope of its authority in handling the item; or
(iii) Any warranty or indemnity made by the Reserve Bank under § 210.6(b), part 229 of this chapter, or the U.C.C.
(2) Upon entry of a final judgment or decree in an action or proceeding described in paragraph (c)(1) of this section, a Reserve Bank may recover from the sender the amount of attorneys' fees and other expenses of litigation incurred, as well as any amount the Reserve Bank is required to pay because of the judgment or decree or the tender of defense, together with interest thereon.
(d) Methods of recovery. (1) The Reserve Bank may recover the amount stated in paragraph (c) of this section by charging any account on its books that is maintained or used by the sender (or by charging a Reserve Bank sender), if—
(i) The Reserve Bank made seasonable written demand on the sender to assume defense of the action or proceeding; and
(ii) The sender has not made any other arrangement for payment that is acceptable to the Reserve Bank.
(2) The Reserve Bank is not responsible for defending the action or proceeding before using this method of recovery. A Reserve Bank that has been charged under this paragraph (d) may recover from its sender in the manner and under the circumstances set forth in this paragraph (d).
(3) A Reserve Bank's failure to avail itself of the remedy provided in this paragraph (d) does not prejudice its enforcement in any other manner of the indemnity agreement referred to in paragraph (a)(5) of this section.
(e) Security interest. When a sender sends an item to a Reserve Bank, the sender and any prior collecting bank grant to the sender's Administrative Reserve Bank a security interest in all of their respective assets in the possession of, or held for the account of, any Reserve Bank to secure their respective obligations due or to become due to the Administrative Reserve Bank under this subpart or subpart C or D of part 229 of this chapter (Regulation CC). The security interest attaches when a warranty is breached or any other obligation to the Reserve Bank is incurred. If the Reserve Bank, in its sole discretion, deems itself insecure and gives notice thereof to the sender or prior collecting bank, or if the sender or prior collecting bank suspends payments or is closed, the Reserve Bank may take any action authorized by law to recover the amount of an obligation, including, but not limited to, the exercise of rights of set off, the realization on any available collateral, and any other rights it may have as a creditor under applicable law.
§ 210.6   Status, warranties, and liability of Reserve Bank.
(a)(1) Status. A Reserve Bank that handles an item shall act as agent or subagent of the owner with respect to the item. This agency terminates when a Reserve Bank receives final payment for the item in actually and finally collected funds, a Reserve Bank makes the proceeds available for use by the sender, and the time for commencing all actions against the Reserve Bank has expired.
(2) Limitations on Reserve Bank liability. A Reserve Bank shall not have or assume any liability with respect to an item or its proceeds except—
(i) For the Reserve Bank's own lack of good faith or failure to exercise ordinary care;
(ii) As provided in paragraph (b) of this section;
(iii) As provided in an operating circular issued in accordance with § 210.3(a) regarding the sending of items; and
(iv) As provided in subparts C and D of part 229 of this chapter (Regulation CC).
(3) Reliance on routing designation appearing on item. A Reserve Bank may present or send an item based on the routing number or other designation of a paying bank or nonbank payor appearing in any form on the item when the Reserve Bank receives it. A Reserve Bank shall not be responsible for any delay resulting from its acting on any designation, whether inscribed by magnetic ink or by other means, and whether or not the designation acted on is consistent with any other designation appearing on the item.
(b) Warranties and liability. The following provisions apply when a Reserve Bank presents or sends an item.
(1) Warranties for all items. The Reserve Bank warrants to a subsequent collecting bank and to the paying bank and any other payor that—
(i) The Reserve Bank is a person entitled to enforce the item (or is authorized to obtain payment of the item on behalf of a person that is either entitled to enforce the item or authorized to obtain payment on behalf of a person entitled to enforce the item);
(ii) The item has not been altered; and
(iii) The item bears all indorsements applied by parties that previously handled the item for forward collection or return.
(2) Warranties and indemnities as set forth in Reserve Bank operating circulars. The Reserve Bank makes any warranties and indemnities regarding the sending of items as set forth in an operating circular issued in accordance with § 210.3(a).
(3) Warranties and indemnities as set forth in Regulation CC and U.C.C. As applicable and unless otherwise provided, the Reserve Bank makes all the warranties and indemnities set forth in and subject to the terms of subparts C and D of part 229 of this chapter (Regulation CC) and Article 4 of the U.C.C. The Reserve Bank makes all the warranties set forth in and subject to the terms of 4-207 of the U.C.C. for an electronic check as if it were an item subject to the U.C.C.
(4) Indemnity for substitute check created from an electronic check. (i) Except as provided in paragraph (b)(4)(ii) of this section, the Reserve Bank shall indemnify the bank to which it transfers or presents an electronic check (the recipient bank) for the amount of any losses that the recipient bank incurs under subpart D of part 229 of this chapter (Regulation CC) for an indemnity that the recipient bank was required to make under subpart D of part 229 of this chapter in connection with a substitute check later created from the electronic check.
(ii) The Reserve Bank shall not be liable under paragraph (b)(4)(i) of this section for any amount that the recipient bank pays under subpart D of part 229 of this chapter that is attributable to the lack of good faith or failure to exercise ordinary care of the recipient bank or a person that handled the item, in any form, after the recipient bank.
(c) Time for commencing action against Reserve Bank. (1) A claim against a Reserve Bank for lack of good faith or failure to exercise ordinary care shall be barred unless the action on the claim is commenced within two years after the claim accrues. Such a claim accrues on the date when a Reserve Bank's alleged failure to exercise ordinary care or to act in good faith first results in damages to the claimant.
(2) A claim that arises under paragraph (b)(3) of this section shall be barred unless the action on the claim is commenced within one year after the claim accrues. Such a claim accrues as of the date on which the claimant first learns, or by which the claimant reasonably should have learned, of the facts and circumstances giving rise to the claim.
(3) This paragraph (c) does not alter the time limit for claims under § 229.38(g) of this chapter (which include claims for breach of warranty under § 229.34 of this chapter) or subpart D of part 229 of this chapter.
§ 210.7   Presenting items for payment.
(a) Presenting or sending. As provided under State law or as otherwise permitted by this section:
(1) A Reserve Bank or a subsequent collecting bank may present an item for payment or send the item for presentment and payment; and
(2) A Reserve Bank may send an item to a subsequent collecting bank with authority to present it for payment or to send it for presentment and payment.
(b) Place of presentment. A Reserve Bank or subsequent collecting bank may present an item—
(1) At a place requested by the paying bank;
(2) In accordance with § 229.36 of this chapter (Regulation CC);
(3) At a place requested by the nonbank payor, if the item is payable by a nonbank payor other than through or at a paying bank;
(4) Under a special collection agreement consistent with this subpart; or
(5) Through a clearinghouse and subject to its rules and practices.
(c) Presenting or sending direct. A Reserve Bank or subsequent collecting bank may, with respect to an item that may be sent to the paying bank or nonbank payor in the Reserve Bank's District—
(1) Present or send the item direct to the paying bank, or to a place requested by the paying bank; or
(2) If the item is payable by a nonbank payor other than through a paying bank, present it direct to the nonbank payor. Documents, securities, or other papers accompanying a noncash item shall not be delivered to the nonbank payor before the item is paid unless the sender specifically authorizes delivery.
(d) Item sent to another district. A Reserve Bank receiving an item that may be sent to a paying bank or nonbank payor in another District ordinarily sends the item to the Reserve Bank of the other District, but with the agreement of the other Reserve Bank, may present or send the item as if it were sent to a paying bank or nonbank payor in its own District.
§ 210.8   Presenting noncash items for acceptance.
(a) A Reserve Bank or a subsequent collecting bank may, if instructed by the sender, present a noncash item for acceptance in any manner authorized by law if—
(1) The item provides that it must be presented for acceptance;
(2) The item may be presented elsewhere than at the residence or place of business of the payor; or
(3) The date of payment of the item depends on presentment for acceptance.
(b) Documents accompanying a noncash item shall not be delivered to the payor upon acceptance of the item unless the sender specifically authorizes delivery. A Reserve Bank shall not have or assume any other obligation to present or to send for presentment for acceptance any noncash item.
§ 210.9   Settlement and payment.
(a) Settlement through Administrative Reserve Bank. A paying bank shall settle for an item under this subpart with its Administrative Reserve Bank, whether or not the paying bank received the item from that Reserve Bank. A paying bank's settlement with its Administrative Reserve Bank is deemed to be settlement with the Reserve Bank from which the paying bank received the item. A paying bank may settle for an item using any account on a Reserve Bank's books by agreement with its Administrative Reserve Bank, any other Reserve Bank holding the settlement account, and the account-holder. The paying bank remains responsible for settlement if the Reserve Bank holding the settlement account does not, for any reason, obtain settlement in that account.
(b) Cash items —(1) Settlement obligation. On the day a paying bank receives 2 a cash item from a Reserve Bank, it shall settle for the item such that the proceeds of the settlement are available to its Administrative Reserve Bank by the close of Fedwire on that day, or it shall return the item by the later of the close of its banking day or the close of Fedwire. If the paying bank fails to settle for or return a cash item in accordance with this paragraph (b)(1), it is accountable for the amount of the item as of the close of its banking day or the close of Fedwire on the day it receives the item, whichever is earlier.
2 A paying bank is deemed to receive a cash item on its next banking day if it receives the item—
(1) On a day other than a banking day for it; or
(2) On a banking day for it, but after a “cut-off hour” established by it in accordance with state law.
(2) Time of settlement. (i) On the day a paying bank receives a cash item from a Reserve Bank, it shall settle for the item so that the proceeds of the settlement are available to its Administrative Reserve Bank, or return the item, by the latest of—
(A) The next clock hour or clock half-hour that is at least one half-hour after the paying bank receives the item;
(B) 8:30 a.m. eastern time; or
(C) Such later time as provided in the Reserve Banks' operating circulars.
(ii) If the paying bank fails to settle for or return a cash item in accordance with paragraph (b)(2)(i) of this section, it shall be subject to any applicable overdraft charges. Settlement under paragraph (b)(2)(i) of this section satisfies the settlement requirements of paragraph (b)(1) of this section.
(3) Paying bank closes voluntarily. (i) If a paying bank closes voluntarily so that it does not receive a cash item on a day that is a banking day for a Reserve Bank, and the Reserve Bank makes a cash item available to the paying bank on that day, the paying bank shall either—
(A) On that day, settle for the item so that the proceeds of the settlement are available to its Administrative Reserve Bank, or return the item, by the latest of the next clock hour or clock half-hour that is at least one half-hour after it ordinarily would have received the item, 8:30 a.m. eastern time, or such later time as provided in the Reserve Banks' operating circulars; or
(B) On the next day that is a banking day for both the paying bank and the Reserve Bank, settle for the item so that the proceeds of the settlement are available to its Administrative Reserve Bank by 8:30 a.m. eastern time on that day or such later time as provided in the Reserve Banks' operating circulars; and compensate the Reserve Bank for the value of the float associated with the item in accordance with procedures provided in the Reserve Bank's operating circular.
(ii) If a paying bank closes voluntarily so that it does not receive a cash item on a day that is a banking day for a Reserve Bank, and the Reserve Bank makes a cash item available to the paying bank on that day, the paying bank is not considered to have received the item until its next banking day, but it shall be subject to any applicable overdraft charges if it fails to settle for or return the item in accordance with paragraph (b)(3)(i) of this section. The settlement requirements of paragraphs (b)(1) and (2) of this section do not apply to a paying bank that settles in accordance with paragraph (b)(3)(i) of this section.
(4) Reserve Bank closed. If a paying bank receives a cash item from a Reserve Bank on a banking day that is not a banking day for the Reserve Bank, the paying bank shall—
(i) Settle for the item so that the proceeds of the settlement are available to its Administrative Reserve Bank by the close of the Fedwire Funds Service on the Reserve Bank's next banking day, or return the item by midnight of the day it receives the item (if the paying bank fails to settle for or return a cash item in accordance with this paragraph (b)(4)(i), it shall become accountable for the amount of the item as of the close of its banking day on the day it receives the item); and
(ii) Settle for the item so that the proceeds of the settlement are available to its Administrative Reserve Bank by 8:30 a.m. eastern time on the Reserve Bank's next banking day or such later time as provided in the Reserve Bank's operating circular, or return the item by midnight of the day it receives the item. If the paying bank fails to settle for or return a cash item in accordance with this paragraph (b)(4)(ii), it shall be subject to any applicable overdraft charges. Settlement under this paragraph (b)(4)(ii) satisfies the settlement requirements of paragraph (b)(4)(i) of this section.
(5) Manner of settlement. Settlement with a Reserve Bank under paragraphs (b)(1) through (4) of this section shall be made by debit to an account on the Reserve Bank's books or other form of settlement to which the Reserve Bank agrees, except that the Reserve Bank may, in its discretion, obtain settlement by charging the paying bank's account. A paying bank may not set off against the amount of a settlement under this section the amount of a claim with respect to another cash item, cash letter, or other claim under § 229.34 of this chapter (Regulation CC) or other law.
(6) Notice in lieu of return. If a cash item is unavailable for return, the paying bank may send a notice in lieu of return as provided in § 229.31(f) of this chapter (Regulation CC).
(c) Noncash items. A Reserve Bank may require the paying or collecting bank to which it has presented or sent a noncash item to pay for the item by a debit to an account maintained or used by the paying or collecting bank on the Reserve Bank's books or by any other form of settlement acceptable to the Reserve Bank.
(d) Nonbank payor. A Reserve Bank may require a nonbank payor to which it has presented an item to pay for it by debit to an account on the Reserve Bank's books or other form of settlement acceptable to the Reserve Bank.
(e) Liability of Reserve Bank. Except as set forth in § 229.35(b) of this chapter (Regulation CC), a Reserve Bank shall not be liable for the failure of a collecting bank, paying bank, or nonbank payor to pay for an item, or for any loss resulting from the Reserve Bank's acceptance of any form of payment other than cash authorized in paragraphs (b), (c), and (d) of this section. A Reserve Bank that acts in good faith and exercises ordinary care shall not be liable for the nonpayment of, or failure to realize upon, any non-cash form of payment that it accepts under paragraphs (b), (c), and (d) of this section.
§ 210.10   Time schedule and availability of credits for cash items and returned checks.
(a) Each Reserve Bank shall publish a time schedule indicating when the amount of any cash item or returned check received by it is counted toward the balance maintained to satisfy a reserve balance requirement for purposes of part 204 of this chapter (Regulation D) and becomes available for use by the sender or paying or returning bank. The Reserve Bank that holds the settlement account shall give either immediate or deferred credit to a sender, a paying bank, or a returning bank (other than a foreign correspondent) in accordance with the time schedule of the receiving Reserve Bank. A Reserve Bank ordinarily gives credit to a foreign correspondent only when the Reserve Bank receives payment of the item in actually and finally collected funds, but, in its discretion, a Reserve Bank may give immediate or deferred credit in accordance with its time schedule.
(b) Notwithstanding its time schedule, a Reserve Bank may refuse at any time to permit the use of credit given by it for any cash item or returned check, and may defer availability after credit is received by the Reserve Bank for a period of time that is reasonable under the circumstances.
§ 210.11   Availability of proceeds of noncash items; time schedule.
(a) Availability of credit. A Reserve Bank shall give credit to the sender for the proceeds of a noncash item when it receives payment in actually and finally collected funds (or advice from another Reserve Bank of such payment to it). The amount of the item is counted toward the balance maintained to satisfy a reserve balance requirement for purposes of part 204 of this chapter (Regulation D) and becomes available for use by the sender when the Reserve Bank receives the payment or advice, except as provided in paragraph (b) of this section.
(b) Time schedule. A Reserve Bank may give credit for the proceeds of a noncash item subject to payment in actually and finally collected funds in accordance with a published time schedule. The time schedule shall indicate when the proceeds of the noncash item will be counted toward the balance maintained to satisfy a reserve balance requirement for purposes of part 204 of this chapter (Regulation D) and become available for use by the sender. A Reserve Bank may, however, refuse at any time to permit the use of credit given by it for a noncash item for which the Reserve Bank has not yet received payment in actually and finally collected funds.
§ 210.12   Return of cash items and handling of returned checks.
(a) Return of items —(1) Return of cash items handled by Reserve Banks. A paying bank that receives a cash item from a Reserve Bank, other than for immediate payment over the counter, and that settles for the item as provided in § 210.9(b), may, before it has finally paid the item, return the item to any Reserve Bank (unless its Administrative Reserve Bank directs it to return the item to a specific Reserve Bank) in accordance with subpart C of part 229 of this chapter (Regulation CC), the Uniform Commercial Code, and the Reserve Banks' operating circulars. A paying bank that receives a cash item from a Reserve Bank also may return the item prior to settlement, in accordance with § 210.9(b) and the Reserve Banks' operating circulars. The rules or practices of a clearinghouse through which the item was presented, or a special collection agreement under which the item was presented, may not extend these return times, but may provide for a shorter return time.
(2) Return of checks not handled by Reserve Banks. A paying bank that receives a check, other than from a Reserve Bank, and that determines not to pay the check, may send the returned check to any Reserve Bank (unless its Administrative Reserve Bank directs it to send the returned check to a specific Reserve Bank) in accordance with subpart C of part 229 of this chapter (Regulation CC), the Uniform Commercial Code, and the Reserve Banks' operating circulars. A returning bank may send a returned check to any Reserve Bank (unless its Administrative Reserve Bank directs it to send the returned check to a specific Reserve Bank) in accordance with subpart C of part 229 of this chapter (Regulation CC), the Uniform Commercial Code, and the Reserve Banks' operating circulars.
(b) Handling of returned checks. (1) The following parties, in the following order, are deemed to have handled a returned check sent to a Reserve Bank under paragraph (a) of this section—
(i) The paying or returning bank;
(ii) The paying bank's or returning bank's Administrative Reserve Bank;
(iii) The Reserve Bank that receives the returned check from the paying or returning bank (if different from the paying bank's or returning bank's Administrative Reserve Bank); and
(iv) Another Reserve Bank, if any, that receives the returned check from a Reserve Bank.
(2) A Reserve Bank that is not described in paragraph (b)(1) of this section is not a person that handles a returned check and is not a returning bank with respect to a returned check.
(3) The identity and order of the parties under paragraph (b)(1) of this section determine the relationships and the rights and liabilities of the parties under this subpart, part 229 of this chapter (Regulation CC), and the Uniform Commercial Code.
(c) Paying bank's and returning bank's agreement. The warranties, indemnities, authorizations, and agreements made pursuant to this paragraph (c) may not be disclaimed and are made whether or not the returned check bears an indorsement of the paying bank or returning bank. By sending a returned check to a Reserve Bank, the paying bank or returning bank does all of the following.
(1) Authorization to handle returned check. The paying bank or returning bank authorizes the paying bank's or returning bank's Administrative Reserve Bank, and any other Reserve Bank or returning bank to which the returned check is sent, to handle the returned check (and authorizes any Reserve Bank that handles settlement for the returned check to make accounting entries) subject to this subpart and to the Reserve Banks' operating circulars.
(2) Warranties for all returned checks. The paying bank or returning bank warrants to each Reserve Bank handling a returned check that the returned check bears all indorsements applied by parties that previously handled the returned check for forward collection or return.
(3) Warranties and indemnities as set forth in Regulation CC. As applicable and unless otherwise provided, a paying bank or returning bank makes to each Reserve Bank that handles the returned check all the warranties and indemnities set forth in and subject to the terms of subparts C and D of part 229 of this chapter (Regulation CC).
(4) Paying bank or returning bank's liability to Reserve Bank. (i) Except as provided in paragraph (c)(4)(ii) and (iii) of this section, a paying bank or returning bank agrees to indemnify each Reserve Bank for any loss or expense (including attorneys' fees and expenses of litigation) resulting from—
(A) The paying or returning bank's lack of authority to give the authorization in paragraph (c)(1) of this section;
(B) Any action taken by a Reserve Bank within the scope of its authority in handling the returned check; or
(C) Any warranty or indemnity made by the Reserve Bank under paragraph (e) of this section or part 229 of this chapter.
(ii) A paying bank's or returning bank's liability for warranties and indemnities that a Reserve Bank makes for a returned check that is a substitute check, a paper or electronic representation thereof, or an electronic returned check is subject to the following conditions and limitations—
(A) A paying bank or returning bank that sent an original returned check shall not be liable for any amount that a Reserve Bank pays under subpart D of part 229 of this chapter, or under § 229.34 of this chapter with respect to an electronic returned check, absent the paying bank's or returning bank's agreement to the contrary; and
(B) Nothing in this subpart alters the liability under subpart D of part 229 of this chapter of a paying bank or returning bank that sent a substitute check or a paper or electronic representation of a substitute check or under § 229.34 of this chapter of a paying bank or returning bank that sent an electronic returned check; and
(iii) A paying bank or returning bank shall not be liable for any amount that the Reserve Bank pays under this subpart or part 229 of this chapter that is attributable to the Reserve Bank's own lack of good faith or failure to exercise ordinary care.
(d) Paying bank or returning bank's liability under other law. Nothing in paragraph (c) of this section limits any warranty or indemnity by a returning bank or paying bank (or a person that handled an item prior to that bank) arising under state law or regulation (such as the U.C.C.), other federal law or regulation (such as part 229 of this chapter), or an agreement with a Reserve Bank.
(e) Warranties by and liability of Reserve Bank —(1) Warranties and indemnities. The following provisions apply when a Reserve Bank handles a returned check under this subpart.
(i) Warranties for all items. The Reserve Bank warrants to the bank to which it sends the returned check that the returned check bears all indorsements applied by parties that previously handled the returned check for forward collection or return.
(ii) Warranties and indemnities as set forth in Regulation CC. As applicable and unless otherwise provided, the Reserve Bank makes all the warranties and indemnities set forth in and subject to the terms of subparts C and D of part 229 of this chapter (Regulation CC).
(2) Indemnity for substitute check created from electronic returned check. (i) Except as provided in paragraph (e)(2)(ii) of this section, the Reserve Bank shall indemnify the bank to which it transfers or presents an electronic returned check (the recipient bank) for the amount of any losses that the recipient bank incurs under subpart D of part 229 of this chapter (Regulation CC) for an indemnity that the recipient bank was required to make under subpart D of part 229 of this chapter in connection with a substitute check later created from the electronic returned check.
(ii) The Reserve Bank shall not be liable under paragraph (e)(2)(i) of this section for any amount that the recipient bank pays under subpart D of part 229 of this chapter that is attributable to the lack of good faith or failure to exercise ordinary care of the recipient bank or a person that handled the item, in any form, after the recipient bank.
(3) Liability of Reserve Bank. A Reserve Bank shall not have or assume any other liability to any person except—
(i) For the Reserve Bank's own lack of good faith or failure to exercise ordinary care;
(ii) As provided in this paragraph (e); and
(iii) As provided in subparts C and D of part 229 of this chapter (Regulation CC).
(f) Recovery by Reserve Bank. (1) A Reserve Bank that has handled a returned check may recover as provided in paragraph (f)(2) of this section if an action or proceeding is brought against (or if defense is tendered to) the Reserve Bank based on—
(i) The alleged failure of the paying bank or returning bank to have the authority to give the authorization in paragraph (c)(1) of this section;
(ii) Any action by the Reserve Bank within the scope of its authority in handling the returned check; or
(iii) Any warranty or indemnity made by the Reserve Bank under paragraph (e) of this section or part 229 of this chapter; and
(2) Upon entry of a final judgment or decree in an action or proceeding described in paragraph (f)(1) of this section, a Reserve Bank may recover from the paying bank or returning bank the amount of attorneys' fees and other expenses of litigation incurred, as well as any amount the Reserve Bank is required to pay because of the judgment or decree or the tender of defense, together with interest thereon.
(g) Methods of recovery. (1) The Reserve Bank may recover the amount stated in paragraph (f) of this section by charging any account on its books that is maintained or used by the paying bank or returning bank (or by charging another returning Reserve Bank), if—
(i) The Reserve Bank made seasonable written demand on the paying bank or returning bank to assume defense of the action or proceeding; and
(ii) The paying bank or returning bank has not made any other arrangement for payment that is acceptable to the Reserve Bank.
(2) The Reserve Bank is not responsible for defending the action or proceeding before using this method of recovery. A Reserve Bank that has been charged under this paragraph (g) may recover from the paying or returning bank in the manner and under the circumstances set forth in this paragraph (g).
(3) A Reserve Bank's failure to avail itself of the remedy provided in this paragraph (g) does not prejudice its enforcement in any other manner of the indemnity agreement referred to in paragraph (c)(4) of this section.
(h) Reserve Bank's responsibility. A Reserve Bank shall handle a returned check, or a notice of nonpayment, in accordance with subpart C of part 229 and its operating circular.
(i) Settlement. A subsequent returning bank or depositary bank shall settle with its Administrative Reserve Bank for returned checks in the same manner and by the same time as for cash items presented for payment under this subpart. Settlement with its Administrative Reserve Bank is deemed to be settlement with the Reserve Bank from which the returning bank or depositary bank received the item.
(j) Security interest. When a paying or returning bank sends a returned check to a Reserve Bank, the paying bank, returning bank, and any prior returning bank grant to the paying bank's or returning bank's Administrative Reserve Bank a security interest in all of their respective assets in the possession of, or held for the account of, any Reserve Bank, to secure their respective obligations due or to become due to the Administrative Reserve Bank under this subpart or subpart C of part 229 of this chapter (Regulation CC). The security interest attaches when a warranty is breached or any other obligation to the Reserve Bank is incurred. If the Reserve Bank, in its sole discretion, deems itself insecure and gives notice thereof to the paying bank, returning bank, or prior returning bank, or if the paying bank, returning bank, or prior returning bank suspends payments or is closed, the Reserve Bank may take any action authorized by law to recover the amount of an obligation, including, but not limited to, the exercise of rights of set off, the realization on any available collateral, and any other rights it may have as a creditor under applicable law.
§ 210.13   Unpaid items.
(a) Right of recovery. If a Reserve Bank does not receive payment in actually and finally collected funds for an item, the Reserve Bank shall recover by charge-back or otherwise the amount of the item from the sender, prior collecting bank, paying bank, or returning bank from or through which it was received, whether or not the item itself can be sent back. In the event of recovery from such a person, no person, including the owner or holder of the item, shall, for the purpose of obtaining payment of the amount of the item, have any interest in any reserve balance or other funds or property in the Reserve Bank's possession of the bank that failed to make payment in actually and finally collected funds.
(b) Suspension or closing of bank. A Reserve Bank shall not pay or act on a draft, authorization to charge (including a charge authorized by § 210.9(b)(5)), or other order on a reserve balance or other funds in its possession for the purpose of settling for items under § 210.9 or § 210.12 after it receives notice of suspension or closing of the bank making the settlement for that bank's own or another's account.
§ 210.14   Extension of time limits.
If a bank (including a Reserve Bank) or nonbank payor is delayed in acting on an item beyond applicable time limits because of interruption of communication or computer facilities, suspension of payments by a bank or nonbank payor, war, emergency conditions, failure of equipment, or other circumstances beyond its control, its time for acting is extended for the time necessary to complete the action, if it exercises such diligence as the circumstances require.
§ 210.15   Direct presentment of certain warrants.
If a Reserve Bank elects to present direct to the payor a bill, note, or warrant that is issued and payable by a State or a political subdivision and that is a cash item not payable or collectible through a bank: (a) Sections 210.9, 210.12, and 210.13 and the operating circulars of the Reserve Banks apply to the payor as if it were a paying bank; (b) § 210.14 applies to the payor as if it were a bank; and (c) under § 210.9 each day on which the payor is open for the regular conduct of its affairs or the accommodation of the public is considered a banking day.
§ 210.25   Authority, purpose, and scope.
(a) Authority and purpose. This subpart provides rules to govern funds transfers through the Fedwire Funds Service, and has been issued pursuant to the Federal Reserve Act—section 13 (12 U.S.C. 342), paragraph (f) of section 19 (12 U.S.C. 464), paragraph 14 of section 16 (12 U.S.C. 248(o)), and paragraphs (i) and (j) of section 11 (12 U.S.C. 248(i) and (j))—and other laws and has the force and effect of federal law. This subpart is not a funds-transfer system rule as defined in Section 4A-501(b) of Article 4A.
(b) Scope. (1) This subpart incorporates the provisions of Article 4A set forth in appendix A of this part. In the event of an inconsistency between the provisions of the sections of this subpart and appendix A of this part, the provisions of the sections of this subpart shall prevail. In the event of an inconsistency between the provisions this subpart and section 919 of the Electronic Fund Transfer Act, section 919 of the Electronic Fund Transfer Act shall prevail.
(2) Except as otherwise provided in paragraphs (b)(3) and (4) of this section, this subpart, including Article 4A as set forth in appendix A of this part and operating circulars of the Federal Reserve Banks issued in accordance with paragraph (c) of this section, governs the rights and obligations of the following parties with respect to the Fedwire Funds Service:
(i) Federal Reserve Banks that send or receive payment orders;
(ii) Senders that send payment orders directly to a Federal Reserve Bank;
(iii) Receiving banks that receive payment orders directly from a Federal Reserve Bank;
(iv) Beneficiaries that receive payment for payment orders by means of credit to an account maintained or used at a Federal Reserve Bank; and
(v) Other parties to a funds transfer any part of which is carried out through the Fedwire Funds Service to the same extent as if this subpart were considered a funds-transfer system rule under Article 4A.
(3) This subpart governs a funds transfer that is sent through the Fedwire Funds Service, as provided in paragraph (b)(2) of this section, even though a portion of the funds transfer is governed by the Electronic Fund Transfer Act, but the portion of such funds transfer that is governed by the Electronic Fund Transfer Act (other than section 919 governing remittance transfers) is not governed by this subpart.
(4) In the event that any portion of this Subpart establishes rights or obligations with respect to the availability of funds that are also governed by the Expedited Funds Availability Act or the Board's Regulation CC, Availability of Funds and Collection of Checks, those provisions of the Expedited Funds Availability Act or Regulation CC shall apply and the portion of this Subpart, including Article 4A as incorporated herein, shall not apply.
(c) Operating Circulars. Each Federal Reserve Bank shall issue an Operating Circular consistent with this subpart that governs the details of its funds-transfer operations in connection with the Fedwire Funds Service and other matters it deems appropriate. Among other things, the Operating Circular may set cut-off times and funds-transfer business days; address security procedures offered by the Federal Reserve Banks to verify the authenticity of a payment order; specify format and media requirements for payment orders; specify the time and method of receipt, execution, and acceptance of a payment order and settlement of a Federal Reserve Bank's payment obligation for purposes of Article 4A; specify service terms governing ancillary features of the Fedwire Funds Service; provide for the acceptance of documents in electronic form to the extent any provision in Article 4A requires an agreement or other document to be in writing; identify messages that are not payment orders; and impose charges for funds-transfer services.
(d) Government senders, receiving banks, and beneficiaries. Except as otherwise expressly provided by the statutes of the United States, the parties specified in paragraphs (b)(2)(ii) through (v) of this section include:
(1) A department, agency, instrumentality, independent establishment, or office of the United States, or a wholly-owned or controlled Government corporation;
(2) An international organization;
(3) A foreign central bank; and
(4) A department, agency, instrumentality, independent establishment, or office of a foreign government, or a wholly-owned or controlled corporation of a foreign government.
(e) Financial messaging standards. Financial messaging standards ( e.g., ISO 20022), including the financial messaging components, elements, technical documentation, tags, and terminology used to implement those standards, do not confer or connote legal status or responsibilities. This subpart, including Article 4A as set forth in appendix A of this part, and the operating circulars of the Reserve Banks issued in accordance with paragraph (c) of this section govern the rights and obligations of parties to funds transfers sent through the Fedwire Funds Service as provided in paragraph (b) of this section. To the extent there is any inconsistency between a financial messaging standard adopted by the Fedwire Funds Service and this subpart, this subpart shall prevail.
§ 210.26   Definitions.
As used in this subpart, the following definitions apply:
Article 4A means Article 4A of the Uniform Commercial Code as set forth in appendix A of this part, which is incorporated into this subpart in accordance with § 210.25(b).
Automated clearing house transfer means any transfer designated as an automated clearing house transfer in an operating circular issued by the Federal Reserve Banks.
Beneficiary has the same meaning as in Article 4A except that the term is limited to a beneficiary in a funds transfer any portion of which is sent through the Fedwire Funds Service.
Beneficiary's bank has the same meaning as in Article 4A, except that:
(1) The term is limited to a beneficiary's bank in a funds transfer any portion of which is sent through the Fedwire Funds Service;
(2) A Federal Reserve Bank need not be identified in the payment order in order to be the beneficiary's bank; and
(3) The term includes a Federal Reserve Bank when that Federal Reserve Bank is the beneficiary of a payment order.
Fedwire Funds Service means the funds-transfer system owned and operated by the Federal Reserve Banks that is used primarily for the transmission and settlement of payment orders governed by this subpart. The Fedwire Funds Service does not include the FedNow Service or the system for making automated clearing house transfers.
Interdistrict transfer means a funds transfer involving entries to accounts maintained at two Federal Reserve Banks.
Intradistrict transfer means a funds transfer involving entries to accounts maintained at one Federal Reserve Bank.
Off-line bank means a bank that sends payment orders to and receives payment orders from a Federal Reserve Bank by telephone orally or by other means other than electronic data transmission.
Payment order has the same meaning as in Article 4A except that the term includes only instructions sent or received through the Fedwire Funds Service and does not include automated clearing house transfers or any communication designated in an operating circular issued by a Federal Reserve Bank under this subpart as not being a payment order.
Receiving bank has the same meaning as in Article 4A except that the term is limited to a receiving bank in a funds transfer any portion of which is sent through the Fedwire Funds Service.
Sender has the same meaning as in Article 4A except that the term is limited to a sender in a funds transfer any portion of which is sent through the Fedwire Funds Service.
Sender's account, receiving bank's account, and beneficiary's account mean the reserve, clearing, or other funds deposit account at a Federal Reserve Bank maintained or used by the sender, receiving bank, or beneficiary, respectively.
Sender's Federal Reserve Bank and receiving bank's Federal Reserve Bank mean the Federal Reserve Bank at which the sender or receiving bank, respectively, maintains or uses an account.
§ 210.27   Reliance on identifying number.
(a) Reliance by a Federal Reserve Bank on number to identify an intermediary bank or beneficiary's bank. A Federal Reserve Bank may rely on the number in a payment order that identifies the intermediary bank or beneficiary's bank, even if it identifies a bank different from the bank identified by name in the payment order, if the Federal Reserve Bank does not know of such an inconsistency in identification. A Federal Reserve Bank has no duty to detect any such inconsistency in identification.
(b) Reliance by a Federal Reserve Bank on number to identify beneficiary. A Federal Reserve Bank, acting as a beneficiary's bank, may rely on the number in a payment order that identifies the beneficiary, even if it identifies a person different from the person identified by name in the payment order, if the Federal Reserve Bank does not know of such an inconsistency in identification. A Federal Reserve Bank has no duty to detect any such inconsistency in identification.
§ 210.28   Agreement of sender.
(a) Payment of sender's obligation to a Federal Reserve Bank. A sender (other than a Federal Reserve Bank), by maintaining or using an account with a Federal Reserve Bank, authorizes the sender's Federal Reserve Bank to obtain payment for the sender's payment orders by debiting the amount of the payment order from the sender's account.
(b) Overdrafts. (1) A sender does not have the right to an overdraft in the sender's account. In the event an overdraft is created, the overdraft shall be due and payable immediately, without the need for a demand by the Federal Reserve Bank, at the earliest of the following times:
(i) At the end of the Fedwire Funds Service funds-transfer business day;
(ii) At the time the Federal Reserve Bank, in its sole discretion, deems itself insecure and gives notice thereof to the sender; or
(iii) At the time the sender suspends payments or is closed.
(2) The sender shall have in its account, at the time the overdraft is due and payable, a balance of actually and finally collected funds sufficient to cover the aggregate amount of all its obligations to the Federal Reserve Bank, whether the obligations result from the execution of a payment order or otherwise.
(3) To secure any overdraft, as well as any other obligation due or to become due to its Federal Reserve Bank, each sender, by sending a payment order to a Federal Reserve Bank that is accepted by the Federal Reserve Bank, grants to the Federal Reserve Bank a security interest in all of the sender's assets in the possession or control of, or held for the account of, the Federal Reserve Bank. The security interest attaches when an overdraft, or any other obligation to the Federal Reserve Bank, becomes due and payable.
(4) A Federal Reserve Bank may take any action authorized by law to recover the amount of an overdraft that is due and payable, including, but not limited to, the exercise of rights of set off, the realization on any available collateral, and any other rights it may have as a creditor under applicable law.
(5) If a sender, other than a government sender described in § 210.25(d), incurs an overdraft in its account as a result of a debit to the account by a Federal Reserve Bank under paragraph (a) of this section, the account will be subject to any applicable overdraft charges, regardless of whether the overdraft has become due and payable. A Federal Reserve Bank may debit a sender's account under paragraph (a) of this section immediately on acceptance of the payment order.
(c) Review of payment orders. A sender, by sending a payment order to a Federal Reserve Bank, agrees that for the purposes of sections 4A-204(a) and 4A-304 of Article 4A, a reasonable time to notify a Federal Reserve Bank of the relevant facts concerning an unauthorized or erroneously executed payment order is within 30 calendar days after the sender receives notice that the payment order was accepted or executed, or that the sender's account was debited with respect to the payment order.
§ 210.29   Agreement of receiving bank.
(a) Payment. A receiving bank (other than a Federal Reserve Bank) that receives a payment order from its Federal Reserve Bank authorizes that Federal Reserve Bank to pay for the payment order by crediting the amount of the payment order to the receiving bank's account.
(b) Off-line banks. An off-line bank that does not expressly notify its Federal Reserve Bank in writing that it maintains an account for another bank warrants to that Federal Reserve Bank that the off-line bank does not act as an intermediary bank or a beneficiary's bank with respect to payment orders received through the Fedwire Funds Service for a beneficiary that is a bank.
§ 210.30   Payment orders.
(a) Rejection. A sender shall not send a payment order to a Federal Reserve Bank unless authorized to do so by the Federal Reserve Bank. A Federal Reserve Bank may reject, or impose conditions that must be satisfied before it will accept, a payment order for any reason.
(b) Selection of an intermediary bank. For an interdistrict transfer through the Fedwire Funds Service, a Federal Reserve Bank is authorized and directed to execute a payment order through another Federal Reserve Bank. A sender shall not send a payment order to a Federal Reserve Bank that requires the Federal Reserve Bank to send a payment order to an intermediary bank (other than a Federal Reserve Bank) unless that intermediary bank is designated in the sender's payment order. A sender shall not send to a Federal Reserve Bank a payment order through the Fedwire Funds Service that instructs use by a Federal Reserve Bank of a funds-transfer system or means of transmission other than the Fedwire Funds Service unless the Federal Reserve Bank agrees with the sender in writing to follow such instructions.
(c) Execution date and payment date. A sender shall not send a payment order through the Fedwire Funds Service that instructs a Federal Reserve Bank to execute the payment order or to pay the beneficiary on a funds-transfer business day that is later than the Fedwire Funds Service funds-transfer business day on which the order is received by the Federal Reserve Bank, unless the Federal Reserve Bank agrees with the sender in writing to follow such instructions.
§ 210.31   Payment by a Federal Reserve Bank to a receiving bank or beneficiary.
(a) Payment to a receiving bank. Payment of a Federal Reserve Bank's obligation to pay a receiving bank (other than a Federal Reserve Bank) occurs at the earlier of the time when the amount of the payment order is credited to the receiving bank's account or when the payment order is sent to the receiving bank.
(b) Payment to a beneficiary. Payment by a Federal Reserve Bank to a beneficiary of a payment order, where the Federal Reserve Bank is the beneficiary's bank, occurs at the earlier of the time when the amount of the payment order is credited to the beneficiary's account or when notice of the credit is sent to the beneficiary.
§ 210.32   Federal Reserve Bank liability; payment of compensation.
(a) Damages. In connection with its handling of a payment order under this subpart, a Federal Reserve Bank shall not be liable to a sender, receiving bank, beneficiary, or other Federal Reserve Bank, governed by this subpart, for any damages other than those payable under Article 4A. A Federal Reserve Bank shall not agree to be liable to a sender, receiving bank, beneficiary, or other Federal Reserve Bank for consequential damages under section 4A-305(d) of Article 4A.
(b) Payment of compensation. (1) A Federal Reserve Bank shall satisfy its obligation, or that of another Federal Reserve Bank, to pay compensation in the form of interest under Article 4A by paying such compensation in the form of interest to a sender, receiving bank, beneficiary, or another party to the funds transfer that is entitled to such payment in an amount that is calculated in accordance with section 4A-506 of Article 4A.
(2) If the sender or receiving bank that is the recipient of the payment of compensation is not the party entitled to compensation under Article 4A, the sender or receiving bank shall pass through the benefit of the compensation by making an interest payment, as of the day the compensation was paid by the Federal Reserve Bank, to the party entitled to compensation. The interest payment that is made to the party entitled to compensation shall not be less than the value of the compensation that was paid by the Federal Reserve Bank to the sender or receiving bank. The party entitled to compensation may agree to accept compensation in a form other than a direct interest payment, provided that such an alternative form of compensation is not less than the value of the interest payment that otherwise would be made.
(c) Nonwaiver of right of recovery. Nothing in this subpart or any Operating Circular issued hereunder shall constitute, or be construed as constituting, a waiver by a Federal Reserve Bank of a cause of action for recovery under any applicable law of mistake and restitution.
§ 210.40   Authority, purpose, and scope.
(a) Authority and purpose. This subpart provides rules to govern funds transfers through the FedNow Service, and has been issued pursuant to the Federal Reserve Act—section 13 (12 U.S.C. 342), paragraph (f) of section 19 (12 U.S.C. 464), paragraph 14 of section 16 (12 U.S.C. 248(o)), and paragraphs (i) and (j) of section 11 (12 U.S.C. 248(i) and (j))—and other laws and has the force and effect of Federal law. This subpart is not a funds-transfer system rule as defined in Section 4A-501(b) of Article 4A.
(b) Scope. (1) This subpart incorporates the provisions of Article 4A set forth in appendix A of this part. In the event of an inconsistency between the provisions of the sections of this subpart and appendix A of this part, the provisions of the sections of this subpart shall prevail.
(2) Except as otherwise provided in paragraphs (b)(3) and (4) of this section, this subpart, including Article 4A as incorporated herein and operating circulars of the Federal Reserve Banks issued in accordance with paragraph (c) of this section, governs the rights and obligations of the following parties with respect to the FedNow Service:
(i) Federal Reserve Banks that send or receive payment orders;
(ii) Senders that send payment orders directly to a Federal Reserve Bank;
(iii) Receiving banks that receive payment orders directly from a Federal Reserve Bank;
(iv) Beneficiaries that receive payment for payment orders by means of credit to the beneficiary's settlement account; and
(v) Other parties to a funds transfer any part of which is carried out through the FedNow Service to the same extent as if this subpart were considered a funds-transfer system rule under Article 4A.
(3) A Federal Reserve Bank that is not the sender's Federal Reserve Bank, receiving bank's Federal Reserve Bank, or beneficiary's Federal Reserve Bank is not a party to the funds transfer for purposes of this subpart and Article 4A.
(4) This subpart governs a funds transfer that is sent through the FedNow Service, even if a portion of the funds transfer is governed by the Electronic Fund Transfer Act, but in the event of an inconsistency between the provisions this subpart and the Electronic Fund Transfer Act, the Electronic Fund Transfer Act shall prevail to the extent of the inconsistency.
(c) Operating Circulars. Each Federal Reserve Bank shall issue an Operating Circular consistent with this subpart that governs the details of its funds-transfer operations in connection with the FedNow Service and other matters it deems appropriate. Among other things, the Operating Circular may: set cut-off times and funds-transfer business days; address security procedures offered by the Federal Reserve Banks to verify the authenticity of a payment order; specify format and media requirements for payment orders; specify the time and method of receipt, execution, and acceptance of a payment order and settlement of a Federal Reserve Bank's payment obligation for purposes of Article 4A; prescribe time limits for the processing of payment orders; specify service terms governing ancillary features of the FedNow Service; provide for the acceptance of documents in electronic form to the extent any provision in Article 4A requires an agreement or other document to be in writing; identify messages that are not payment orders; and impose charges for funds-transfer services.
(d) Government senders, receiving banks, and beneficiaries. Except as otherwise expressly provided by the statutes of the United States, the parties specified in paragraphs (b)(2)(ii) through (v) of this section include a department, agency, instrumentality, independent establishment, or office of the United States, or a wholly-owned or controlled government corporation.
(e) Financial messaging standards. Financial messaging standards ( e.g., ISO 20022), including the financial messaging components, elements, technical documentation, tags, and terminology used to implement those standards, do not confer or connote legal status or responsibilities. This subpart, including Article 4A as incorporated herein, and the operating circulars of the Federal Reserve Banks issued in accordance with paragraph (c) of this section govern the rights and obligations of parties to funds transfers sent through the FedNow Service as provided in paragraph (b) of this section. To the extent there is any inconsistency between a financial messaging standard adopted by the Federal Reserve Banks for the FedNow Service and this subpart, this subpart shall prevail.
§ 210.41   Definitions.
As used in this subpart, the following definitions apply:
Article 4A means Article 4A of the Uniform Commercial Code as set forth in appendix A of this part, which is incorporated into this subpart in accordance with § 210.40(b).
Beneficiary has the same meaning as in Article 4A, except that the term is limited to a beneficiary in a funds transfer that is sent through the FedNow Service.
Beneficiary's bank has the same meaning as in Article 4A, except that:
(1) The term is limited to a beneficiary's bank in a funds transfer that is sent through the FedNow Service;
(2) A Federal Reserve Bank need not be identified in the payment order in order to be the beneficiary's bank; and
(3) The term includes a Federal Reserve Bank when that Federal Reserve Bank is the beneficiary of a payment order.
Federal Reserve Bank with respect to an entity means the Federal Reserve Bank in whose District the entity is located, as determined under the procedure described in Part 204 of this chapter (Regulation D), even if the entity is not otherwise subject to that section, or, if the entity maintains an account on the books of a different Federal Reserve Bank, the Federal Reserve Bank at which the entity maintains an account.
FedNow Service means the funds-transfer system owned and operated by the Federal Reserve Banks to support instant payments that is used primarily for the transmission and settlement of payment orders governed by this subpart. The FedNow Service does not include the Fedwire Funds Service.
Interdistrict transfer means a funds transfer involving entries to settlement accounts maintained at two Federal Reserve Banks.
Payment order has the same meaning as in Article 4A, except that the term includes only instructions sent or received through the FedNow Service, and does not include automated clearing house transfers or any communication designated as not being a payment order in an Operating Circular issued by a Federal Reserve Bank under this subpart.
Receiving bank has the same meaning as in Article 4A, except that the term is limited to a receiving bank in a funds transfer that is sent through the FedNow Service.
Sender has the same meaning as in Article 4A, except that the term is limited to a sender in a funds transfer that is sent through the FedNow Service.
Sender's settlement account, receiving bank's settlement account, and beneficiary's settlement account mean an account on the books of a Federal Reserve Bank maintained by the sender, receiving bank, or beneficiary, respectively. The term also includes any account on a Federal Reserve Bank's books used with respect to the FedNow Service by the sender, receiving bank, or beneficiary, respectively, by agreement with its Federal Reserve Bank, any other Federal Reserve Bank on whose books the settlement account is maintained, and the account-holder.
§ 210.42   Reliance on identifying number.
(a) Reliance by a Federal Reserve Bank on number to identify a beneficiary's bank. A Federal Reserve Bank that receives a payment order from a sender containing a number that identifies the beneficiary's bank may rely on the number, even if it identifies a bank different from the bank identified by name in the payment order, if the Federal Reserve Bank does not know of such an inconsistency in identification. A Federal Reserve Bank has no duty to detect any such inconsistency in identification.
(b) Reliance by a Federal Reserve Bank on number to identify beneficiary. A Federal Reserve Bank, acting as a beneficiary's bank, that receives a payment order from a sender containing a number that identifies the beneficiary may rely on the number, even if it identifies a person different from the person identified by name in the payment order, if the Federal Reserve Bank does not know of such an inconsistency in identification. A Federal Reserve Bank has no duty to detect any such inconsistency in identification.
§ 210.43   Agreement of sender.
(a) Payment of sender's obligation to a Federal Reserve Bank. A sender (other than a Federal Reserve Bank), by maintaining or using a settlement account with a Federal Reserve Bank, authorizes the sender's Federal Reserve Bank to obtain payment for the sender's payment orders by debiting, or causing any other Federal Reserve Bank on whose books the settlement account is maintained to debit, the amount of the payment order from the settlement account. The sender remains responsible for payment if the Federal Reserve Bank on whose books the settlement account is maintained does not, for any reason, obtain payment by debiting that account.
(b) Overdrafts. (1) A sender does not have the right to an overdraft in its settlement account. In the event an overdraft is created, the overdraft shall be due and payable immediately, without the need for a demand by the Federal Reserve Bank, at the earliest of the following times:
(i) At the end of the FedNow funds-transfer business day;
(ii) At the time the Federal Reserve Bank, in its sole discretion, deems itself insecure and gives notice thereof to the sender; or
(iii) At the time the sender suspends payments or is closed.
(2) The sender shall have in its settlement account, at the time the overdraft is due and payable, a balance of actually and finally collected funds sufficient to cover the aggregate amount of all its obligations to the Federal Reserve Bank, whether the obligations result from the acceptance of a payment order or otherwise.
(3) To secure any overdraft, as well as any other obligation due or to become due to its Federal Reserve Bank, a sender, by sending a payment order to a Federal Reserve Bank that is accepted by the Federal Reserve Bank, grants to the Federal Reserve Bank a security interest in all of its assets in the possession or control of, or held for the account of, the Federal Reserve Bank. The security interest attaches when an overdraft, or any other obligation to the Federal Reserve Bank, becomes due and payable.
(4) A Federal Reserve Bank may take any action authorized by law to recover the amount of an overdraft that is due and payable, including, but not limited to, the exercise of rights of set off, the realization on any available collateral, and any other rights it may have as a creditor under applicable law.
(5) If a sender, other than a government sender described in § 210.40(d), incurs an overdraft in its settlement account as a result of a debit to the account by a Federal Reserve Bank under paragraph (a) of this section, the settlement account will be subject to any applicable overdraft charges, regardless of whether the overdraft has become due and payable. A Federal Reserve Bank may debit the settlement account under paragraph (a) of this section immediately on acceptance of the payment order.
(c) Review of payment orders. A sender, by sending a payment order to a Federal Reserve Bank, agrees that for the purposes of sections 4A-204(a) and 4A-304 of Article 4A, a reasonable time to notify a Federal Reserve Bank of the relevant facts concerning an unauthorized or erroneously executed payment order is within 60 calendar days after the sender receives notice that the payment order was accepted or that the sender's settlement account was debited with respect to the payment order.
§ 210.44   Agreement of receiving bank.
(a) Payment. A receiving bank (other than a Federal Reserve Bank) that receives a payment order from its Federal Reserve Bank authorizes that Federal Reserve Bank to pay for the payment order by crediting, or causing any other Federal Reserve Bank on whose books the settlement account is maintained to credit, the amount of the payment order to the settlement account.
(b) Funds availability. (1) A beneficiary's bank (other than a Federal Reserve Bank) that accepts a payment order over the FedNow Service is obliged to pay the amount of the order to the beneficiary of the order immediately after its acceptance of the payment order, by crediting an account of the beneficiary in accordance with section 4A-405(a) of Article 4A. The rights and obligations with respect to the availability of funds are also governed by the Expedited Funds Availability Act and the Board's Regulation CC, Availability of Funds and Collection of Checks.
(2) Nothing in paragraph (b)(1) of this section or any Operating Circular issued hereunder shall create any rights that the beneficiary or any party other than a Federal Reserve Bank may assert against the beneficiary's bank, or affect any liability of the beneficiary's bank to the beneficiary or any party other than a Federal Reserve Bank under Article 4A or other law.
(3) In circumstances where the beneficiary's bank (other than a Federal Reserve Bank) has reasonable cause to believe that the beneficiary is not entitled or permitted to receive payment, the beneficiary's bank may notify its Federal Reserve Bank that it requires additional time to determine whether to accept the payment order. In the event the beneficiary's bank gives such notice to its Federal Reserve Bank, for purposes of this subpart and Article 4A the beneficiary's bank does not accept the payment order upon its receipt of payment in the amount of the payment order by a Federal Reserve Bank.
§ 210.45   Payment orders.
(a) Rejection. A sender shall not send a payment order to a Federal Reserve Bank unless authorized to do so by the Federal Reserve Bank. A Federal Reserve Bank may reject, or impose conditions that must be satisfied before it will accept, a payment order for any reason.
(b) Selection of an intermediary bank. For an interdistrict transfer through the FedNow Service, a Federal Reserve Bank is authorized and directed to execute a payment order through another Federal Reserve Bank. A sender shall not send a payment order to a Federal Reserve Bank that requires the Federal Reserve Bank to send a payment order to an intermediary bank (other than a Federal Reserve Bank). A sender shall not send to a Federal Reserve Bank a payment order through the FedNow Service that instructs use by a Federal Reserve Bank of a funds-transfer system or means of transmission other than the FedNow Service, unless the Federal Reserve Bank agrees with the sender in writing to follow such instructions.
(c) Execution date and payment date. A sender shall not issue a payment order through the FedNow Service that instructs a Federal Reserve Bank to execute the payment order or to pay the beneficiary on a FedNow funds-transfer business day that is later than the funds-transfer business day on which the order is received by the Federal Reserve Bank, unless the Federal Reserve Bank agrees with the sender in writing to follow such instructions.
§ 210.46   Payment by a Federal Reserve Bank to a receiving bank or beneficiary.
(a) Payment to a receiving bank. Payment of a Federal Reserve Bank's obligation to pay a receiving bank (other than a Federal Reserve Bank) occurs at the earlier of the time when the amount of the payment order is credited to the receiving bank's settlement account or when the payment order is sent to the receiving bank.
(b) Payment to a beneficiary. Payment by a Federal Reserve Bank to a beneficiary of a payment order, where the Federal Reserve Bank is the beneficiary's bank, occurs at the earlier of the time when the amount of the payment order is credited to the beneficiary's settlement account or when notice of the credit is sent to the beneficiary.
§ 210.47   Federal Reserve Bank liability; payment of compensation.
(a) Damages. In connection with its handling of a payment order under this subpart, a Federal Reserve Bank shall not be liable to a sender, receiving bank, beneficiary, or other Federal Reserve Bank, governed by this subpart, for any damages other than those payable under Article 4A. A Federal Reserve Bank shall not agree to be liable to a sender, receiving bank, beneficiary, or other Federal Reserve Bank for consequential damages under section 4A-305(d) of Article 4A.
(b) Payment of compensation. (1) A Federal Reserve Bank shall satisfy its obligation, or that of another Federal Reserve Bank, to pay compensation in the form of interest under Article 4A by paying such compensation to a sender, receiving bank, beneficiary, or another party to the funds transfer that is entitled to such payment in an amount that is calculated in accordance with section 4A-506 of Article 4A.
(2) If the sender or receiving bank that is the recipient of the payment of compensation is not the party entitled to compensation under Article 4A, the sender or receiving bank shall pass through the benefit of the compensation by making an interest payment, as of the day the compensation was paid by the Federal Reserve Bank, to the party entitled to compensation. The interest payment that is made to the party entitled to compensation shall not be less than the value of the compensation that was paid by the Federal Reserve Bank to the sender or receiving bank. The party entitled to compensation may agree to accept compensation in a form other than a direct interest payment, provided that such an alternative form of compensation is not less than the value of the interest payment that otherwise would be made.
(c) Nonwaiver of right of recovery. Nothing in this subpart or any operating circular issued hereunder shall constitute, or be construed as constituting, a waiver by a Federal Reserve Bank of a cause of action for recovery under any applicable law of mistake and restitution.