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[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1474 Introduced in House (IH)]

108th CONGRESS
  1st Session
                                H. R. 1474

  To facilitate check truncation by authorizing substitute checks, to 
  foster innovation in the check collection system without mandating 
   receipt of checks in electronic form, and to improve the overall 
  efficiency of the Nation's payments system, and for other purposes.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                             March 27, 2003

 Ms. Hart (for herself, Mr. Ford, Mr. Ferguson, Mr. Oxley, Mr. Bachus, 
 Mr. Crowley, Mr. Jones of North Carolina, Mr. Royce, Mrs. Kelly, Mr. 
  Toomey, Mr. Gillmor, Mr. Hinojosa, Mr. Lucas of Kentucky, Mr. Ross, 
 Mrs. McCarthy of New York, Mr. McIntyre, Ms. Norton, and Mr. Boswell) 
 introduced the following bill; which was referred to the Committee on 
                           Financial Services

_______________________________________________________________________

                                 A BILL

 
  To facilitate check truncation by authorizing substitute checks, to 
  foster innovation in the check collection system without mandating 
   receipt of checks in electronic form, and to improve the overall 
  efficiency of the Nation's payments system, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; FINDINGS; PURPOSES.

    (a) Short Title.--This Act may be cited as the ``Check Clearing for 
the 21st Century Act''.
    (b) Findings.--The Congress finds as follows:
            (1) In the Expedited Funds Availability Act, enacted on 
        August 10, 1987, the Congress directed the Board of Governors 
        of the Federal Reserve System to consider establishing 
        regulations requiring Federal reserve banks and depository 
        institutions to provide for check truncation, in order to 
        improve the check processing system.
            (2) In that same Act, the Congress--
                    (A) provided the Board of Governors of the Federal 
                Reserve System with full authority to regulate all 
                aspects of the payment system, including the receipt, 
                payment, collection, and clearing of checks, and 
                related functions of the payment system pertaining to 
                checks; and
                    (B) directed that the exercise of such authority by 
                the Board superseded any State law, including the 
                Uniform Commercial Code, as in effect in any State.
            (3) Check truncation is no less desirable today for both 
        financial service customers and the financial services 
        industry, to reduce costs, improve efficiency in check 
        collections, and expedite funds availability for customers than 
        it was over 15 years ago when Congress first directed the Board 
        to consider establishing such a process.
    (c) Purposes.--The purposes of this Act are as follows:
            (1) To facilitate check truncation by authorizing 
        substitute checks.
            (2) To foster innovation in the check collection system 
        without mandating receipt of checks in electronic form.
            (3) To improve the overall efficiency of the Nation's 
        payments system.

SEC. 2. DEFINITIONS.

     For purposes of this Act, the following definitions shall apply:
            (1) Account.--The term ``account'' means a deposit account 
        at a bank.
            (2) Bank.--The term ``bank'' means any person that is 
        located in a State and engaged in the business of banking and 
        includes--
                    (A) any depository institution (as defined in 
                section 19(b)(1)(A) of the Federal Reserve Act);
                    (B) any Federal reserve bank;
                    (C) any Federal home loan bank; or
                    (D) to the extent it acts as a payor--
                            (i) the Treasury of the United States;
                            (ii) the United States Postal Service;
                            (iii) a State government; or
                            (iv) a unit of general local government (as 
                        defined in section 602(24) of the Expedited 
                        Funds Availability Act).
            (3) Banking terms.--
                    (A) Claimant bank.--The term ``claimant bank'' 
                means a bank that submits a claim for recredit under 
                section 7 to an indemnifying bank.
                    (B) Collecting bank.--The term ``collecting bank'' 
                means any bank handling a check for collection except 
                the paying bank.
                    (C) Depositary bank.--The term ``depositary bank'' 
                means--
                            (i) the first bank to which a check is 
                        transferred, even if such bank is also the 
                        paying bank or the payee; or
                            (ii) a bank to which a check is transferred 
                        for deposit in an account at such bank, even if 
                        the check is physically received and indorsed 
                        first by another bank.
                    (D) Paying bank.--The term ``paying bank'' means--
                            (i) the bank by which a check is payable, 
                        unless the check is payable at or through 
                        another bank and is sent to the other bank for 
                        payment or collection; or
                            (ii) the bank at or through which a check 
                        is payable and to which the check is sent for 
                        payment or collection.
                    (E) Returning bank.--
                            (i) In general.--The term ``returning 
                        bank'' means a bank (other than the paying or 
                        depositary bank) handling a returned check or 
                        notice in lieu of return.
                            (ii) Treatment as collecting bank.--No 
                        provision of this Act shall be construed as 
                        affecting the treatment of a returning bank as 
                        a collecting bank for purposes of section 4-
                        202(b) of the Uniform Commercial Code.
            (4) Board.--The term ``Board'' means the Board of Governors 
        of the Federal Reserve System.
            (5) Business day.--The term ``business day'' has the same 
        meaning as in section 602(3) of the Expedited Funds 
        Availability Act.
            (6) Check.--The term ``check''--
                    (A) means a draft, payable on demand and drawn on 
                or payable through or at an office of a bank, whether 
                or not negotiable, that is handled for forward 
                collection or return, including a substitute check and 
                a travelers check; and
                    (B) does not include a noncash item or an item 
                payable in a medium other than United States dollars.
            (7) Consumer.--The term ``consumer'' means an individual 
        who--
                    (A) with respect to a check handled for forward 
                collection, draws the check on a consumer account; or
                    (B) with respect to a check handled for return, 
                deposits the check into, or cashes the check against, a 
                consumer account.
            (8) Consumer account.--The term ``consumer account'' has 
        the same meaning as in section 602(10) of the Expedited Funds 
        Availability Act.
            (9) Customer.--The term ``customer'' means a person having 
        an account with a bank.
            (10) Forward collection.--The term ``forward collection'' 
        means the transfer by a bank of a check to a collecting bank 
        for settlement or the paying bank for payment.
            (11) Indemnifying bank.--The term ``indemnifying bank'' 
        means a bank that is providing an indemnity under section 5 
        with respect to a substitute check.
            (12) MICR line.--The terms ``MICR line'' and ``magnetic ink 
        character recognition line'' mean the numbers, which may 
        include the bank routing number, account number, check number, 
        check amount, and other information, that are printed near the 
        bottom of a check in magnetic ink in accordance with generally 
        applicable industry standards.
            (13) Noncash item.--The term ``noncash item'' has the same 
        meaning as in section 602(14) of the Expedited Funds 
        Availability Act.
            (14) Person.--The term ``person'' means a natural person, 
        corporation, unincorporated company, partnership, government 
        unit or instrumentality, trust, or any other entity or 
        organization.
            (15) Reconverting bank.--The term ``reconverting bank'' 
        means--
                    (A) the bank that creates a substitute check; or
                    (B) if a substitute check is created by a person 
                other than a bank, the first bank that transfers or 
                presents such substitute check.
            (16) Substitute check.--The term ``substitute check'' means 
        a paper reproduction of the original check that--
                    (A) contains an image of the front and back of the 
                original check;
                    (B) bears a MICR line containing all the 
                information appearing on the MICR line of the original 
                check and all other information required under 
                generally applicable industry standards for substitute 
                checks;
                    (C) conforms, in paper stock, dimension, and 
                otherwise, with generally applicable industry standards 
                for substitute checks; and
                    (D) is suitable for automated processing in the 
                same manner as the original check.
            (17) State.--The term ``State'' has the same meaning as in 
        section 3(a)(3) of the Federal Deposit Insurance Act.
            (18) Truncate.--The term ``truncate'' means to remove an 
        original paper check from the check collection or return 
        process and send to a recipient, in lieu of such original paper 
        check, a substitute check or, by agreement, information 
        relating to the original check (including data taken from the 
        MICR line of the original check or an electronic image of the 
        original check), whether with or without subsequent delivery of 
        the original paper check.
            (19) Uniform commercial code.--The term ``Uniform 
        Commercial Code'' means the Uniform Commercial Code in effect 
        in a State.
            (20) Other terms.--Unless the context requires otherwise, 
        the terms not defined in this section shall have the same 
        meanings as in the Uniform Commercial Code.

SEC. 3. GENERAL PROVISIONS GOVERNING SUBSTITUTE CHECKS.

    (a) No Agreement Required.--A person may deposit, present, or send 
for collection or return a substitute check without an agreement with 
the recipient, so long as a bank has made the warranties in section 4 
with respect to such substitute check.
    (b) Legal Equivalence.--A substitute check shall be the legal 
equivalent of the original check for all purposes, including any 
provision of any Federal or State law, and for all persons if the 
substitute check--
            (1) accurately represents all of the information on the 
        front and back of the original check as of the time the 
        original check was truncated; and
            (2) bears the legend: ``This is a legal copy of your check. 
        You can use it the same way you would use the original 
        check.''.
    (c) Endorsements.--A bank shall ensure that the substitute check 
for which the bank is the reconverting bank bears all endorsements 
applied by parties that previously handled the check (whether in 
electronic form or in the form of the original paper check or a 
substitute check) for forward collection or return.
    (d) Identification of Reconverting Bank.--A bank shall identify 
itself as a reconverting bank on any substitute check for which the 
bank is a reconverting bank so as to preserve any previous reconverting 
bank identifications in conformance with generally applicable industry 
standards.
    (e) Applicable Law.--A substitute check that is the legal 
equivalent of the original check under subsection (b) shall be subject 
to any provision of part 229 of title 12 of the Code of Federal 
Regulations, the Uniform Commercial Code, and any other applicable 
Federal or State law as if such substitute check were the original 
check, to the extent such provision of law is not inconsistent with 
this Act.

SEC. 4. SUBSTITUTE CHECK WARRANTIES.

    A bank that transfers, presents, or returns a substitute check and 
receives consideration for the check warrants, as a matter of law, to 
the transferee, any subsequent collecting or returning bank, the 
depositary bank, the drawee, the drawer, the payee, the depositor, and 
any endorser (regardless of whether the warrantee receives the 
substitute check or another paper or electronic form of the substitute 
check or original check) that--
            (1) the substitute check meets all the requirements for 
        legal equivalence under section 3(b); and
            (2) no depositary bank, drawee, drawer, or endorser will 
        receive presentment or return of the substitute check, the 
        original check, or a copy or other paper or electronic version 
        of the substitute check or original check such that the bank, 
        drawee, drawer, or endorser will be asked to make a payment 
        based on a check that the bank, drawee, drawer, or endorser has 
        already paid.

SEC. 5. INDEMNITY.

    (a) Indemnity.--A reconverting bank and each bank that subsequently 
transfers, presents, or returns a substitute check in any electronic or 
paper form, and receives consideration for such transfer, presentment, 
or return shall indemnify the transferee, any subsequent collecting or 
returning bank, the depositary bank, the drawee, the drawer, the payee, 
the depositor, and any endorser, up to the amount described in 
subsections (b) and (c), as applicable, to the extent of any loss 
incurred by any recipient of a substitute check if that loss occurred 
due to the receipt of a substitute check instead of the original check.
    (b) Indemnity Amount.--
            (1) Amount in event of breach of warranty.--The amount of 
        the indemnity under subsection (a) shall be the amount of any 
        loss (including costs and reasonable attorney's fees and other 
        expenses of representation) proximately caused by a breach of a 
        warranty provided under section 4.
            (2) Amount in absence of breach of warranty.--In the 
        absence of a breach of a warranty provided under section 4, the 
        amount of the indemnity under subsection (a) shall be the sum 
        of--
                    (A) the amount of any loss, up to the amount of the 
                substitute check; and
                    (B) interest and expenses (including costs and 
                reasonable attorney's fees and other expenses of 
                representation).
    (c) Comparative Negligence.--If a loss described in subsection (a) 
results in whole or in part from the negligence or failure to act in 
good faith on the part of an indemnified party, then that party's 
indemnification under this section shall be reduced in proportion to 
the amount of negligence or bad faith attributable to that party.
    (d) Effect of Producing Original Check, Substitute Check, or 
Sufficient Copy.--
            (1) In general.--If the indemnifying bank produces the 
        original check, a substitute check, or a copy of the original 
        check that is sufficient to determine whether or not a claim is 
        valid, the indemnifying bank shall--
                    (A) be liable under this section only for losses 
                covered by the indemnity that are incurred up to the 
                time the original check, the substitute check, or a 
                sufficient copy is provided to the indemnified party; 
                and
                    (B) have a right to the return of any funds the 
                bank has paid under the indemnity in excess of those 
                losses.
            (2) Coordination of indemnity with implied warranty.--The 
        production of the original check, a substitute check, or a 
        sufficient copy under paragraph (1) by an indemnifying bank 
        shall not absolve the bank from any liability on a warranty 
        established under this Act or any other provision of law.
    (e) Subrogation of Rights.--
            (1) In general.--Each indemnifying bank shall be subrogated 
        to the rights of any indemnified party to the extent of the 
        indemnity.
            (2) Recovery under warranty.--A bank that indemnifies a 
        party under this section may attempt to recover from another 
        party based on a warranty or other claim.
            (3) Duty of indemnified party.--Each indemnified party 
        shall have a duty to comply with all reasonable requests for 
        assistance from an indemnifying bank in connection with any 
        claim the indemnifying bank brings against a warrantor or other 
        party related to a check that forms the basis for the 
        indemnification.

SEC. 6. EXPEDITED RECREDIT FOR CONSUMERS.

    (a) Recredit Claims.--
            (1) In general.--A consumer may make a claim for expedited 
        recredit from the bank that holds the account of the consumer 
        with respect to a substitute check, if the consumer asserts in 
        good faith that--
                    (A) the bank charged the consumer's account for a 
                substitute check that was provided to the consumer;
                    (B) either--
                            (i) the check was not properly charged to 
                        the consumer's account; or
                            (ii) the consumer has a warranty claim with 
                        respect to such substitute check;
                    (C) the consumer suffered a resulting loss; and
                    (D) the production of the original check or a 
                better copy of the original check is necessary to 
                determine the validity of any claim described in 
                subparagraph (B).
            (2) 30-day period.--Any claim under paragraph (1) with 
        respect to a consumer account may be submitted by a consumer 
        before the end of the 30-day period beginning on the later of--
                    (A) the date on which the consumer receives the 
                periodic statement of account for such account which 
                contains information concerning the transaction giving 
                rise to the claim; or
                    (B) the date the substitute check is made available 
                to the consumer.
            (3) Extension under extenuating circumstances.--If the 
        consumer's ability to submit the claim within the 30-day period 
        under paragraph (2) is delayed due to extenuating 
        circumstances, including extended travel or the illness of the 
        consumer, the 30-day period shall be extended for a total not 
        to exceed 30 additional days.
    (b) Procedures for Claims.--
            (1) In general.--To make a claim for an expedited recredit 
        under subsection (a) with respect to a substitute check, the 
        consumer shall provide to the bank that holds the account of 
        such consumer--
                    (A) a description of the claim, including an 
                explanation of--
                            (i) why the substitute check was not 
                        properly charged to the consumer's account; or
                            (ii) the warranty claim with respect to 
                        such check;
                    (B) a statement that the consumer suffered a loss 
                and an estimate of the amount of the loss;
                    (C) the reason why production of the original check 
                or a better copy of the original check is necessary to 
                determine the validity of the charge to the consumer's 
                account or the warranty claim; and
                    (D) sufficient information to identify the 
                substitute check and to investigate the claim.
            (2) Claim in writing.--The bank holding the consumer 
        account that is the subject of a claim by the consumer under 
        subsection (a) may, in the discretion of the bank, require the 
        consumer to submit the information required under paragraph (1) 
        in writing.
    (c) Recredit to Consumer.--
            (1) Conditions for recredit.--The bank shall recredit a 
        consumer account in accordance with paragraph (2) for the 
        amount of a substitute check that was charged against the 
        consumer account if--
                    (A) a consumer submits a claim to the bank with 
                respect to that substitute check that meets the 
                requirement of subsection (b); and
                    (B) the bank has not provided to the consumer the 
                original check, a substitute check, or a copy of the 
                original check and demonstrates that the substitute 
                check was properly charged to the consumer's account.
            (2) Timing of recredit.--
                    (A) In general.--The bank shall recredit the 
                consumer's account for the amount described in 
                paragraph (1) no later than the end of the business day 
                following the business day on which the bank determines 
                the consumer's claim is valid.
                    (B) Recredit pending investigation.--If the bank 
                has not yet determined that the consumer's claim is 
                valid before the end of the 10th business day after the 
                business day on which the consumer submitted the claim, 
                the bank shall recredit the consumer's account for--
                            (i) the lesser of the amount of the 
                        substitute check that was charged against the 
                        consumer account, or $2,500, together with 
                        interest if the account is an interest-bearing 
                        account, no later than the end of such 10th 
                        business day; and
                            (ii) the remaining amount of the substitute 
                        check that was charged against the consumer 
                        account, if any, together with interest if the 
                        account is an interest-bearing account, not 
                        later than the 45th calendar day following the 
                        business day on which the consumer submits the 
                        claim.
    (d) Availability of Recredit.--
            (1) Next business day availability.--Except as provided in 
        paragraph (2), a bank that provides a recredit to a consumer 
        account under subsection (c) shall make the recredited funds 
        available for withdrawal by the consumer by the start of the 
        next business day after the business day on which the bank 
        recredits the consumer's account under subsection (c).
            (2) Safeguard exceptions.--A bank may delay availability to 
        a consumer of a recredit provided under subsection (c)(2)(B)(i) 
        until the start of either the business day following the 
        business day on which the bank determines that the consumer's 
        claim is valid or the 45th calendar day following the business 
        day on which the consumer submits a claim for such recredit in 
        accordance with subsection (b), whichever is earlier, in any of 
        the following circumstances:
                    (A) New accounts.--The claim is made during the 30-
                day period beginning on the business day the consumer 
                account was established.
                    (B) Repeated overdrafts.--Without regard to the 
                charge that is the subject of the claim for which the 
                recredit was made--
                            (i) on 6 or more business days during the 
                        6-month period ending on the date on which the 
                        consumer submits the claim, the balance in the 
                        consumer account was negative or would have 
                        become negative if checks or other charges to 
                        the account had been paid; or
                            (ii) on 2 or more business days during such 
                        6-month period, the balance in the consumer 
                        account was negative or would have become 
                        negative in the amount of $5,000 or more if 
                        checks or other charges to the account had been 
                        paid.
                    (C) Prevention of fraud losses.--The bank has 
                reasonable cause to believe that the claim is 
                fraudulent, based on facts (other than the fact that 
                the check in question or the consumer is of a 
                particular class) that would cause a well-grounded 
belief in the mind of a reasonable person that the claim is fraudulent.
            (3) Overdraft fees.--No bank that, in accordance with 
        paragraph (2), delays the availability of a recredit under 
        subsection (c) to any consumer account may impose any overdraft 
        fees with respect to drafts drawn by the consumer on such 
        recredited amount before the end of the 5-day period beginning 
        on the date notice of the delay in the availability of such 
        amount is sent by the bank to the consumer.
    (e) Reversal of Recredit.--A bank may reverse a recredit to a 
consumer account if the bank--
            (1) determines that a substitute check for which the bank 
        recredited a consumer account under subsection (c) was in fact 
        properly charged to the consumer account; and
            (2) notifies the consumer in accordance with subsection 
        (f)(3).
    (f) Notice to Consumer.--
            (1) Notice if consumer claim not valid.--If a bank 
        determines that a substitute check subject to the consumer's 
        claim was in fact properly charged to the consumer's account, 
        the bank shall send to the consumer, no later than the business 
        day following the business day on which the bank makes a 
        determination--
                    (A) the original check, the substitute check, or a 
                copy of the original check that is sufficient to 
                determine that the substitute check was properly 
                charged to the consumer's account; and
                    (B) an explanation of the basis for the 
                determination by the bank that the substitute check was 
                properly charged, including copies of any information 
                or documents on which the bank relied in making the 
                determination.
            (2) Notice of recredit.--If a bank recredits a consumer 
        account under subsection (c), the bank shall send to the 
        consumer, no later than the business day following the business 
        day on which the bank makes the recredit, a notice of--
                    (A) the amount of the recredit; and
                    (B) the date the recredited funds will be available 
                for withdrawal.
            (3) Notice of reversal of recredit.--In addition to the 
        notice required under paragraph (1), if a bank reverses a 
        recredited amount under subsection (e), the bank shall send to 
        the consumer, no later than the business day following the 
        business day on which the bank reverses the recredit, a notice 
        of--
                    (A) the amount of the reversal; and
                    (B) the date the recredit was reversed.
            (4) Mode of delivery.--A notice described in this 
        subsection shall be delivered by United States mail or by any 
        other means through which the consumer has agreed to receive 
        account information.
    (g) Other Claims Not Affected.--Providing a recredit in accordance 
with this section shall not absolve the bank from liability for a claim 
made under any other law, such as a claim for wrongful dishonor under 
the Uniform Commercial Code, or from liability for additional damages 
under section 5 or 9.
    (h) Scope of Application.--This section shall only apply to 
customers who are consumers.

SEC. 7. EXPEDITED RECREDIT PROCEDURES FOR BANKS.

    (a) Recredit Claims.--
            (1) In general.--A bank may make a claim against an 
        indemnifying bank for expedited recredit for which that bank is 
        indemnified if--
                    (A) the claimant bank (or a bank that the claimant 
                bank has indemnified) has received a claim for 
                expedited recredit from a consumer under section 6 with 
                respect to such substitute check or would have been 
                subject to such a claim had the consumer's account been 
                charged;
                    (B) the claimant bank has suffered a resulting loss 
                or is obligated to recredit a consumer account under 
                section 6 with respect to such substitute check; and
                    (C) production of the original check, another 
                substitute check, or a better copy of the original 
                check is necessary to determine the validity of the 
                charge to the customer account or any warranty claim 
                connected with such substitute check.
            (2) 120-day period.--Any claim under paragraph (1) may be 
        submitted by the claimant bank to an indemnifying bank before 
        the end of the 120-day beginning on the date of the transaction 
        that gave rise to the claim.
    (b) Procedures for Claims.--
            (1) In general.--To make a claim under subsection (a) for 
        an expedited recredit relating to a substitute check, the 
        claimant bank shall send to the indemnifying bank--
                    (A) a description of--
                            (i) the claim, including an explanation of 
                        why the substitute check cannot be properly 
                        charged to the consumer account; or
                            (ii) the warranty claim;
                    (B) a statement that the claimant bank has suffered 
                a loss or is obligated to recredit the consumer's 
                account under section 6, together with an estimate of 
                the amount of the loss or recredit;
                    (C) the reason why production of the original 
                check, another substitute check, or a better copy of 
                the original check is necessary to determine the 
                validity of the charge to the consumer account or the 
                warranty claim; and
                    (D) information sufficient for the indemnifying 
                bank to identify the substitute check and to 
                investigate the claim.
            (2) Requirements relating to copies of substitute checks.--
        If the information submitted by a claimant bank pursuant to 
        paragraph (1) in connection with a claim for an expedited 
        recredit includes a copy of any substitute check for which any 
        such claim is made, the claimant bank shall take reasonable 
        steps to ensure that any such copy cannot be--
                    (A) mistaken for the legal equivalent of the check 
                under section 3(b); or
                    (B) sent or handled by any bank, including the 
                indemnifying bank, as a forward collection or returned 
                check.
            (3) Claim in writing.--An indemnifying bank may, in the 
        bank's discretion, require the claimant bank to submit in 
        writing the information required by paragraph (1), including a 
        copy of the written claim, if any, that the consumer submitted 
        in accordance with section 6(b).
    (c) Recredit by Indemnifying Bank.--
            (1) Prompt action required.--No later than 10 business days 
        after the business day on which an indemnifying bank receives a 
        claim under subsection (a) from a claimant bank with respect to 
        a substitute check, the indemnifying bank shall--
                    (A) provide the original check (with respect to 
                such substitute check), another substitute check, or a 
                copy of the original check that is sufficient to 
                determine that the bank's claim is not valid to the 
                claimant bank;
                    (B) recredit the claimant bank for the amount of 
                the claim up to the amount of the substitute check, 
                plus interest if applicable; or
                    (C) provide information to the claimant bank as to 
                why the indemnifying bank is not obligated to comply 
                with subparagraph (A) or (B).
            (2) Recredit does not abrogate other liabilities.--
        Providing a recredit under this subsection to a claimant bank 
        with respect to a substitute check shall not absolve the 
        indemnifying bank from liability for claims brought under any 
        other law or from additional damages under section 5 or 9 with 
        respect to such check.
            (3) Refund to indemnifying bank.--If a claimant bank 
        reverses, in accordance with section 6(e), a recredit 
        previously made to a consumer account under section 6(c), or 
        otherwise receives a credit or recredit with regard to such 
        substitute check, the claimant bank shall promptly refund to 
        any indemnifying bank any amount previously advanced by the 
        indemnifying bank in connection with such substitute check.
    (d) Production of Original Check or a Sufficient Copy Governed by 
Section 5(d).--If the indemnifying bank provides the claimant bank with 
the original check, another substitute check, or a sufficient copy of 
the original check under subsection (c)(1)(A), section 5(d) shall 
govern any right of the indemnifying bank to any repayment of any funds 
the indemnifying bank has recredited to the claimant bank pursuant to 
subsection (c).

SEC. 8. DELAYS IN AN EMERGENCY.

    Delay by a bank beyond the time limits prescribed or permitted by 
this Act is excused if the delay is caused by interruption of 
communication or computer facilities, suspension of payments by another 
bank, war, emergency conditions, failure of equipment, or other 
circumstances beyond the control of a bank and if the bank uses such 
diligence as the circumstances require.

SEC. 9. MEASURE OF DAMAGES.

    (a) Liability.--
            (1) In general.--Except as provided in section 5, any 
        person who, in connection with a substitute check, breaches any 
        warranty under this Act or fails to comply with any requirement 
        imposed by, or regulation prescribed pursuant to, this Act with 
        respect to any other person shall be liable to such person in 
        an amount equal to the sum of--
                    (A) the lesser of--
                            (i) the amount of the loss suffered by the 
                        other person as a result of the breach or 
                        failure; or
                            (ii) the amount of the substitute check; 
                        and
                    (B) interest and expenses (including costs and 
                reasonable attorney's fees and other expenses of 
                representation) related to the substitute check.
            (2) Offset of recredits.--The amount of damages any person 
        receives under paragraph (1), if any, shall be reduced by the 
        amount, if any, that the claimant receives and retains as a 
        recredit under section 6 or 7.
    (b) Comparative Negligence.--If a person incurs damages that 
resulted in whole or in part from the negligence or failure of that 
person to act in good faith, then the amount of any liability due to 
that person under subsection (a) shall be reduced in proportion to the 
amount of negligence or bad faith attributable to that person.

SEC. 10. STATUTE OF LIMITATIONS AND NOTICE OF CLAIM.

    (a) Actions Under This Act.--
            (1) In general.--An action to enforce a claim under this 
        Act may be brought in any United States district court, or in 
        any other court of competent jurisdiction, before the end of 
        the 1-year period beginning on the date the cause of action 
        accrues.
            (2) Accrual.--A cause of action accrues as of the date the 
        injured party first learns, or by which such person reasonably 
        should have learned, of the facts and circumstances giving rise 
        to the cause of action.
    (b) Discharge of Claims.--Except as provided in subsection (c), 
unless a person gives notice of a claim to the indemnifying or 
warranting bank within 30 days after the person has reason to know of 
the claim and the identity of the indemnifying or warranting bank, the 
indemnifying or warranting bank is discharged to the extent of any loss 
caused by the delay in giving notice of the claim.
    (c) Notice of Claim by Consumer.--A timely claim by a consumer 
under section 6 for expedited recredit constitutes timely notice of a 
claim by the consumer for purposes of subsection (b).

SEC. 11. CONSUMER AWARENESS.

    (a) In General.--Each bank shall provide, in accordance with 
subsection (b), a brief notice about substitute checks that describes--
            (1) the process of check substitution and how the process 
        may be different than the check clearing process with which the 
        consumer may be familiar; and
            (2) a description of the consumer recredit rights 
        established under section 6 when a consumer believes in good 
        faith that a substitute check was not properly charged to the 
        consumer's account.
    (b) Distribution.--
            (1) Existing customers.--With respect to consumers that are 
        customers of a bank on the effective date of this Act, a bank 
        shall provide the notice described in subsection (a) to each 
        such consumer no later than the first regularly scheduled 
        communication with the consumer after the effective date of 
        this Act.
            (2) New account holders.--A bank shall provide the notice 
        described in subsection (a) to each consumer, other than 
        existing customers referred to in paragraph (1), at the time at 
        which the customer relationship is initiated.
            (3) Mode of delivery.--A bank may send the notices required 
        by this subsection by United States mail or by any other means 
        through which the consumer has agreed to receive account 
        information.
    (c) Model Language.--
            (1) In general.--No later than 1 year after the date of 
        enactment of this Act, the Board shall publish model forms and 
        clauses that a depository institution may use to describe each 
        of the elements required by subsection (a).
            (2) Safe harbor.--A bank shall be treated as being in 
        compliance with the requirements of subsection (a) if the 
        bank's substitute check notice uses a model form or clause 
        published by the Board and such model form or clause accurately 
        describes the bank's policies and practices. A bank may delete 
        any information in the model form or clause that is not 
        required by this Act or rearrange the format.
            (3) Use of model language not required.--This section shall 
        not be construed as requiring any bank to use a model form or 
        clause that the Board prepares under this subsection.

SEC. 12. EFFECT ON OTHER LAW.

     This Act shall supersede any provision of Federal or State law, 
including the Uniform Commercial Code, that is inconsistent with this 
Act, but only to the extent of the inconsistency.

SEC. 13. VARIATION BY AGREEMENT.

    (a) Section 7.--Any provision of section 7 may be varied by 
agreement of the banks involved.
    (b) No Other Provisions May Be Varied.--Except as provided in 
subsection (a), no provision of this Act may be varied by agreement of 
any person or persons.

SEC. 14. REGULATIONS.

    The Board may, by regulation, clarify or otherwise implement the 
provisions of this Act or may modify the requirements imposed by this 
Act with respect to substitute checks to further the purposes of this 
Act, including reducing risk, accommodating technological or other 
developments, and alleviating undue compliance burdens.

SEC. 15. EFFECTIVE DATE.

    This Act shall take effect at the end of the 18-month period 
beginning on the date of the enactment of this Act, except as otherwise 
specifically provided in this Act.
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