IB 

Union Calendar No. 67

108TH CONGRESS 

1ST SESSION H. R. 1474

[Report No. 108–132] 

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 

JUNE 2, 2003

Additional sponsors: Mr. SHAYS, Mr. ALEXANDER, Mr. NEY, Ms. PRYCE of 

Ohio, Mr. SESSIONS, Mr. MOORE, Mr. CLAY, Ms. HARRIS, Mr. 

HENSARLING, Mrs. MALONEY, Mr. KENNEDY of Minnesota, Mr. 

RODRIGUEZ, Mr. CUNNINGHAM, Mr. KING of New York, and Mr. MURPHY

JUNE 2, 2003 

Reported with an amendment, committed to the Committee of the Whole 

House on the State of the Union, and ordered to be printed 
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[Strike out all after the enacting clause and insert the part printed in italic] 

[For text of introduced bill, see copy of bill as introduced on March 27, 2003] 

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.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; FINDINGS; PURPOSES. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘Check Clearing for the 21st Century Act’’. 

6 (b) FINDINGS.—The Congress finds as follows: 

7 (1) In the Expedited Funds Availability Act, en8 acted on August 10, 1987, the Congress directed the 

9 Board of Governors of the Federal Reserve System to 

10 consider establishing regulations requiring Federal re11 serve banks and depository institutions to provide for 

12 check truncation, in order to improve the check proc13 essing system. 

14 (2) In that same Act, the Congress—

15 (A) provided the Board of Governors of the 

16 Federal Reserve System with full authority to 

17 regulate all aspects of the payment system, in-
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1 cluding the receipt, payment, collection, and 

2 clearing of checks, and related functions of the 

3 payment system pertaining to checks; and 

4 (B) directed that the exercise of such author5 ity by the Board superseded any State law, in6 cluding the Uniform Commercial Code, as in ef7 fect in any State. 

8 (3) Check truncation is no less desirable today 

9 for both financial service customers and the financial 

10 services industry, to reduce costs, improve efficiency 

11 in check collections, and expedite funds availability 

12 for customers than it was over 15 years ago when 

13 Congress first directed the Board to consider estab14 lishing such a process. 

15 (c) PURPOSES.—The purposes of this Act are as fol16 lows: 

17 (1) To facilitate check truncation by authorizing 

18 substitute checks. 

19 (2) To foster innovation in the check collection 

20 system without mandating receipt of checks in elec21 tronic form. 

22 (3) To improve the overall efficiency of the Na23 tion’s payments system. 
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1 SEC. 2. DEFINITIONS. 

2 For purposes of this Act, the following definitions shall 

3 apply: 

4 (1) ACCOUNT.—The term ‘‘account’’ means a de5 posit account at a bank. 

6 (2) BANK.—The term ‘‘bank’’ means any person 

7 that is located in a State and engaged in the business 

8 of banking and includes—

9 (A) any depository institution (as defined 

10 in section 19(b)(1)(A) of the Federal Reserve 

11 Act); 

12 (B) any Federal reserve bank; 

13 (C) any Federal home loan bank; or 

14 (D) to the extent it acts as a payor—

15 (i) the Treasury of the United States; 

16 (ii) the United States Postal Service; 

17 (iii) a State government; or 

18 (iv) a unit of general local government 

19 (as defined in section 602(24) of the Expe20 dited Funds Availability Act). 

21 (3) BANKING TERMS.—

22 (A) CLAIMANT BANK.—The term ‘‘claimant 

23 bank’’ means a bank that submits a claim for re24 credit under section 7 to an indemnifying bank. 
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1 (B) COLLECTING BANK.—The term ‘‘col2 lecting bank’’ means any bank handling a check 

3 for collection except the paying bank. 

4 (C) DEPOSITARY BANK.—The term ‘‘deposi5 tary bank’’ means—

6 (i) the first bank to which a check is 

7 transferred, even if such bank is also the 

8 paying bank or the payee; or 

9 (ii) a bank to which a check is trans10 ferred for deposit in an account at such 

11 bank, even if the check is physically received 

12 and indorsed first by another bank. 

13 (D) PAYING BANK.—The term ‘‘paying 

14 bank’’ means— 

15 (i) the bank by which a check is pay16 able, unless the check is payable at or 

17 through another bank and is sent to the 

18 other bank for payment or collection; or 

19 (ii) the bank at or through which a 

20 check is payable and to which the check is 

21 sent for payment or collection. 

22 (E) RETURNING BANK.—

23 (i) IN GENERAL.—The term ‘‘returning 

24 bank’’ means a bank (other than the paying 
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1 or depositary bank) handling a returned 

2 check or notice in lieu of return. 

3 (ii) TREATMENT AS COLLECTING

4 BANK.—No provision of this Act shall be 

5 construed as affecting the treatment of a re6 turning bank as a collecting bank for pur7 poses of section 4–202(b) of the Uniform 

8 Commercial Code.

9 (4) BOARD.—The term ‘‘Board’’ means the 

10 Board of Governors of the Federal Reserve System. 

11 (5) BUSINESS DAY.—The term ‘‘business day’’ 

12 has the same meaning as in section 602(3) of the Ex13 pedited Funds Availability Act.

14 (6) CHECK.—The term ‘‘check’’—

15 (A) means a draft, payable on demand and 

16 drawn on or payable through or at an office of 

17 a bank, whether or not negotiable, that is han18 dled for forward collection or return, including a 

19 substitute check and a travelers check; and 

20 (B) does not include a noncash item or an 

21 item payable in a medium other than United 

22 States dollars. 

23 (7) CONSUMER.—The term ‘‘consumer’’ means 

24 an individual who—
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1 (A) with respect to a check handled for for2 ward collection, draws the check on a consumer 

3 account; or 

4 (B) with respect to a check handled for re5 turn, deposits the check into, or cashes the check 

6 against, a consumer account. 

7 (8) CONSUMER ACCOUNT.—The term ‘‘consumer 

8 account’’ has the same meaning as in section 602(10) 

9 of the Expedited Funds Availability Act. 

10 (9) CUSTOMER.—The term ‘‘customer’’ means a 

11 person having an account with a bank. 

12 (10) FORWARD COLLECTION.—The term ‘‘for13 ward collection’’ means the transfer by a bank of a 

14 check to a collecting bank for settlement or the paying 

15 bank for payment. 

16 (11) INDEMNIFYING BANK.—The term ‘‘indem17 nifying bank’’ means a bank that is providing an in18 demnity under section 5 with respect to a substitute 

19 check. 

20 (12) MICR LINE.—The terms ‘‘MICR line’’ and 

21 ‘‘magnetic ink character recognition line’’ mean the 

22 numbers, which may include the bank routing num23 ber, account number, check number, check amount, 

24 and other information, that are printed near the bot-
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1 tom of a check in magnetic ink in accordance with 

2 generally applicable industry standards. 

3 (13) NONCASH ITEM.—The term ‘‘noncash item’’ 

4 has the same meaning as in section 602(14) of the 

5 Expedited Funds Availability Act. 

6 (14) PERSON.—The term ‘‘person’’ means a nat7 ural person, corporation, unincorporated company, 

8 partnership, government unit or instrumentality, 

9 trust, or any other entity or organization. 

10 (15) RECONVERTING BANK.—The term ‘‘recon11 verting bank’’ means—

12 (A) the bank that creates a substitute check; 

13 or 

14 (B) if a substitute check is created by a per15 son other than a bank, the first bank that trans16 fers or presents such substitute check. 

17 (16) SUBSTITUTE CHECK.—The term ‘‘substitute 

18 check’’ means a paper reproduction of the original 

19 check that—

20 (A) contains an image of the front and back 

21 of the original check; 

22 (B) bears a MICR line containing all the 

23 information appearing on the MICR line of the 

24 original check, except as provided under gen25 erally applicable industry standards for sub-
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1 stitute checks to facilitate the processing of sub2 stitute checks; 

3 (C) conforms, in paper stock, dimension, 

4 and otherwise, with generally applicable indus5 try standards for substitute checks; and 

6 (D) is suitable for automated processing in 

7 the same manner as the original check. 

8 (17) STATE.—The term ‘‘State’’ has the same 

9 meaning as in section 3(a)(3) of the Federal Deposit 

10 Insurance Act. 

11 (18) TRUNCATE.—The term ‘‘truncate’’ means to 

12 remove an original paper check from the check collec13 tion or return process and send to a recipient, in lieu 

14 of such original paper check, a substitute check or, by 

15 agreement, information relating to the original check 

16 (including data taken from the MICR line of the 

17 original check or an electronic image of the original 

18 check), whether with or without subsequent delivery of 

19 the original paper check. 

20 (19) UNIFORM COMMERCIAL CODE.—The term 

21 ‘‘Uniform Commercial Code’’ means the Uniform 

22 Commercial Code in effect in a State. 

23 (20) OTHER TERMS.—Unless the context requires 

24 otherwise, the terms not defined in this section shall 
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1 have the same meanings as in the Uniform Commer2 cial Code. 

3 SEC. 3. GENERAL PROVISIONS GOVERNING SUBSTITUTE 

4 CHECKS. 

5 (a) NO AGREEMENT REQUIRED.—A person may de6 posit, present, or send for collection or return a substitute 

7 check without an agreement with the recipient, so long as 

8 a bank has made the warranties in section 4 with respect 

9 to such substitute check. 

10 (b) LEGAL EQUIVALENCE.—A substitute check shall be 

11 the legal equivalent of the original check for all purposes, 

12 including any provision of any Federal or State law, and 

13 for all persons if the substitute check—

14 (1) accurately represents all of the information 

15 on the front and back of the original check as of the 

16 time the original check was truncated; and 

17 (2) bears the legend: ‘‘This is a legal copy of 

18 your check. You can use it the same way you would 

19 use the original check.’’. 

20 (c) ENDORSEMENTS.—A bank shall ensure that the 

21 substitute check for which the bank is the reconverting bank 

22 bears all endorsements applied by parties that previously 

23 handled the check (whether in electronic form or in the form 

24 of the original paper check or a substitute check) for forward 

25 collection or return. 
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1 (d) IDENTIFICATION OF RECONVERTING BANK.—A 

2 bank shall identify itself as a reconverting bank on any sub3 stitute check for which the bank is a reconverting bank so 

4 as to preserve any previous reconverting bank identifica5 tions in conformance with generally applicable industry 

6 standards.

7 (e) APPLICABLE LAW.—A substitute check that is the 

8 legal equivalent of the original check under subsection (b) 

9 shall be subject to any provision, including any provision 

10 relating to the protection of customers, of part 229 of title 

11 12 of the Code of Federal Regulations, the Uniform Com12 mercial Code, and any other applicable Federal or State 

13 law as if such substitute check were the original check, to 

14 the extent such provision of law is not inconsistent with 

15 this Act. 

16 SEC. 4. SUBSTITUTE CHECK WARRANTIES. 

17 A bank that transfers, presents, or returns a substitute 

18 check and receives consideration for the check warrants, as 

19 a matter of law, to the transferee, any subsequent collecting 

20 or returning bank, the depositary bank, the drawee, the 

21 drawer, the payee, the depositor, and any endorser (regard22 less of whether the warrantee receives the substitute check 

23 or another paper or electronic form of the substitute check 

24 or original check) that—
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1 (1) the substitute check meets all the require2 ments for legal equivalence under section 3(b); and 

3 (2) no depositary bank, drawee, drawer, or en4 dorser will receive presentment or return of the sub5 stitute check, the original check, or a copy or other 

6 paper or electronic version of the substitute check or 

7 original check such that the bank, drawee, drawer, or 

8 endorser will be asked to make a payment based on 

9 a check that the bank, drawee, drawer, or endorser 

10 has already paid. 

11 SEC. 5. INDEMNITY. 

12 (a) INDEMNITY.—A reconverting bank and each bank 

13 that subsequently transfers, presents, or returns a substitute 

14 check in any electronic or paper form, and receives consid15 eration for such transfer, presentment, or return shall in16 demnify the transferee, any subsequent collecting or return17 ing bank, the depositary bank, the drawee, the drawer, the 

18 payee, the depositor, and any endorser, up to the amount 

19 described in subsections (b) and (c), as applicable, to the 

20 extent of any loss incurred by any recipient of a substitute 

21 check if that loss occurred due to the receipt of a substitute 

22 check instead of the original check. 

23 (b) INDEMNITY AMOUNT.—

24 (1) AMOUNT IN EVENT OF BREACH OF WAR25 RANTY.—The amount of the indemnity under sub-
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1 section (a) shall be the amount of any loss (including 

2 costs and reasonable attorney’s fees and other expenses 

3 of representation) proximately caused by a breach of 

4 a warranty provided under section 4. 

5 (2) AMOUNT IN ABSENCE OF BREACH OF WAR6 RANTY.—In the absence of a breach of a warranty 

7 provided under section 4, the amount of the indem8 nity under subsection (a) shall be the sum of—

9 (A) the amount of any loss, up to the 

10 amount of the substitute check; and 

11 (B) interest and expenses (including costs 

12 and reasonable attorney’s fees and other expenses 

13 of representation). 

14 (c) COMPARATIVE NEGLIGENCE.—If a loss described in 

15 subsection (a) results in whole or in part from the neg16 ligence or failure to act in good faith on the part of an 

17 indemnified party, then that party’s indemnification under 

18 this section shall be reduced in proportion to the amount 

19 of negligence or bad faith attributable to that party. 

20 (d) EFFECT OF PRODUCING ORIGINAL CHECK OR

21 COPY.—

22 (1) IN GENERAL.—If the indemnifying bank pro23 duces the original check or a copy of the original 

24 check (including an image or a substitute check) that 

25 accurately represents all of the information on the 
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1 front and back of the original check (as of the time 

2 the original check was truncated) or is otherwise suf3 ficient to determine whether or not a claim is valid, 

4 the indemnifying bank shall—

5 (A) be liable under this section only for 

6 losses covered by the indemnity that are incurred 

7 up to the time the original check or such copy 

8 is provided to the indemnified party; and 

9 (B) have a right to the return of any funds 

10 the bank has paid under the indemnity in excess 

11 of those losses. 

12 (2) COORDINATION OF INDEMNITY WITH IMPLIED

13 WARRANTY.—The production of the original check, a 

14 substitute check, or a copy under paragraph (1) by an 

15 indemnifying bank shall not absolve the bank from 

16 any liability on a warranty established under this 

17 Act or any other provision of law. 

18 (e) SUBROGATION OF RIGHTS.—

19 (1) IN GENERAL.—Each indemnifying bank shall 

20 be subrogated to the rights of any indemnified party 

21 to the extent of the indemnity. 

22 (2) RECOVERY UNDER WARRANTY.—A bank that 

23 indemnifies a party under this section may attempt 

24 to recover from another party based on a warranty 

25 or other claim. 
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1 (3) DUTY OF INDEMNIFIED PARTY.—Each in2 demnified party shall have a duty to comply with all 

3 reasonable requests for assistance from an indem4 nifying bank in connection with any claim the in5 demnifying bank brings against a warrantor or other 

6 party related to a check that forms the basis for the 

7 indemnification. 

8 SEC. 6. EXPEDITED RECREDIT FOR CONSUMERS. 

9 (a) RECREDIT CLAIMS.—

10 (1) IN GENERAL.—A consumer may make a 

11 claim for expedited recredit from the bank that holds 

12 the account of the consumer with respect to a sub13 stitute check, if the consumer asserts in good faith 

14 that—

15 (A) the bank charged the consumer’s ac16 count for a substitute check that was provided to 

17 the consumer; 

18 (B) either—

19 (i) the check was not properly charged 

20 to the consumer’s account; or 

21 (ii) the consumer has a warranty 

22 claim with respect to such substitute check; 

23 (C) the consumer suffered a resulting loss; 

24 and 
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1 (D) the production of the original check or 

2 a better copy of the original check is necessary 

3 to determine the validity of any claim described 

4 in subparagraph (B). 

5 (2) 30-DAY PERIOD.—Any claim under para6 graph (1) with respect to a consumer account may be

7 submitted by a consumer before the end of the 30-

8 day period beginning on the later of—

9 (A) the date on which the consumer receives 

10 the periodic statement of account for such ac11 count which contains information concerning the 

12 transaction giving rise to the claim; or

13 (B) the date the substitute check is made 

14 available to the consumer. 

15 (3) EXTENSION UNDER EXTENUATING CIR16 CUMSTANCES.—If the consumer’s ability to submit the 

17 claim within the 30-day period under paragraph (2) 

18 is delayed due to extenuating circumstances, includ19 ing extended travel or the illness of the consumer, the 

20 30-day period shall be extended for a total not to ex21 ceed 30 additional days. 

22 (b) PROCEDURES FOR CLAIMS.—

23 (1) IN GENERAL.—To make a claim for an expe24 dited recredit under subsection (a) with respect to a 
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1 substitute check, the consumer shall provide to the 

2 bank that holds the account of such consumer—

3 (A) a description of the claim, including an 

4 explanation of—

5 (i) why the substitute check was not 

6 properly charged to the consumer’s account; 

7 or 

8 (ii) the warranty claim with respect to 

9 such check; 

10 (B) a statement that the consumer suffered 

11 a loss and an estimate of the amount of the loss; 

12 (C) the reason why production of the origi13 nal check or a better copy of the original check 

14 is necessary to determine the validity of the 

15 charge to the consumer’s account or the warranty 

16 claim; and 

17 (D) sufficient information to identify the 

18 substitute check and to investigate the claim. 

19 (2) CLAIM IN WRITING.—The bank holding the 

20 consumer account that is the subject of a claim by the 

21 consumer under subsection (a) may, in the discretion 

22 of the bank, require the consumer to submit the infor23 mation required under paragraph (1) in writing. 

24 (c) RECREDIT TO CONSUMER.—
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1 (1) CONDITIONS FOR RECREDIT.—The bank shall 

2 recredit a consumer account in accordance with para3 graph (2) for the amount of a substitute check that 

4 was charged against the consumer account if—

5 (A) a consumer submits a claim to the bank 

6 with respect to that substitute check that meets 

7 the requirement of subsection (b); and 

8 (B) the bank has not provided to the con9 sumer the original check, a substitute check, or a 

10 copy of the original check and demonstrates that 

11 the substitute check was properly charged to the 

12 consumer’s account. 

13 (2) TIMING OF RECREDIT.—

14 (A) IN GENERAL.—The bank shall recredit 

15 the consumer’s account for the amount described 

16 in paragraph (1) no later than the end of the 

17 business day following the business day on which 

18 the bank determines the consumer’s claim is 

19 valid. 

20 (B) RECREDIT PENDING INVESTIGATION.—

21 If the bank has not yet determined that the con22 sumer’s claim is valid before the end of the 10th 

23 business day after the business day on which the 

24 consumer submitted the claim, the bank shall re25 credit the consumer’s account for—
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1 (i) the lesser of the amount of the sub2 stitute check that was charged against the 

3 consumer account, or $2,500, together with 

4 interest if the account is an interest-bearing 

5 account, no later than the end of such 10th 

6 business day; and 

7 (ii) the remaining amount of the sub8 stitute check that was charged against the 

9 consumer account, if any, together with in10 terest if the account is an interest-bearing 

11 account, not later than the 45th calendar 

12 day following the business day on which the 

13 consumer submits the claim. 

14 (d) AVAILABILITY OF RECREDIT.—

15 (1) NEXT BUSINESS DAY AVAILABILITY.—Except 

16 as provided in paragraph (2), a bank that provides 

17 a recredit to a consumer account under subsection (c) 

18 shall make the recredited funds available for with19 drawal by the consumer by the start of the next busi20 ness day after the business day on which the bank re21 credits the consumer’s account under subsection (c). 

22 (2) SAFEGUARD EXCEPTIONS.—A bank may 

23 delay availability to a consumer of a recredit pro24 vided under subsection (c)(2)(B)(i) until the start of 

25 either the business day following the business day on 
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1 which the bank determines that the consumer’s claim 

2 is valid or the 45th calendar day following the busi3 ness day on which the consumer submits a claim for 

4 such recredit in accordance with subsection (b), 

5 whichever is earlier, in any of the following cir6 cumstances: 

7 (A) NEW ACCOUNTS.—The claim is made 

8 during the 30-day period beginning on the busi9 ness day the consumer account was established. 

10 (B) REPEATED OVERDRAFTS.—Without re11 gard to the charge that is the subject of the claim 

12 for which the recredit was made—

13 (i) on 6 or more business days during 

14 the 6-month period ending on the date on 

15 which the consumer submits the claim, the 

16 balance in the consumer account was nega17 tive or would have become negative if checks 

18 or other charges to the account had been 

19 paid; or 

20 (ii) on 2 or more business days during 

21 such 6-month period, the balance in the con22 sumer account was negative or would have 

23 become negative in the amount of $5,000 or 

24 more if checks or other charges to the ac25 count had been paid. 
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1 (C) PREVENTION OF FRAUD LOSSES.—The 

2 bank has reasonable cause to believe that the 

3 claim is fraudulent, based on facts (other than 

4 the fact that the check in question or the con5 sumer is of a particular class) that would cause

6 a well-grounded belief in the mind of a reason7 able person that the claim is fraudulent. 

8 (3) OVERDRAFT FEES.—No bank that, in accord9 ance with paragraph (2), delays the availability of a 

10 recredit under subsection (c) to any consumer account 

11 may impose any overdraft fees with respect to drafts 

12 drawn by the consumer on such recredited amount be13 fore the end of the 5-day period beginning on the date 

14 notice of the delay in the availability of such amount 

15 is sent by the bank to the consumer. 

16 (e) REVERSAL OF RECREDIT.—A bank may reverse a 

17 recredit to a consumer account if the bank—

18 (1) determines that a substitute check for which 

19 the bank recredited a consumer account under sub20 section (c) was in fact properly charged to the con21 sumer account; and 

22 (2) notifies the consumer in accordance with sub23 section (f)(3). 

24 (f) NOTICE TO CONSUMER.—
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1 (1) NOTICE IF CONSUMER CLAIM NOT VALID.—If 

2 a bank determines that a substitute check subject to 

3 the consumer’s claim was in fact properly charged to 

4 the consumer’s account, the bank shall send to the 

5 consumer, no later than the business day following the 

6 business day on which the bank makes a determina7 tion—

8 (A) the original check or a copy of the origi9 nal check (including an image or a substitute 

10 check) that—

11 (i) accurately represents all of the in12 formation on the front and back of the 

13 original check (as of the time the original 

14 check was truncated); or 

15 (ii) is otherwise sufficient to determine 

16 whether or not the consumer’s claim is 

17 valid; and 

18 (B) an explanation of the basis for the de19 termination by the bank that the substitute check 

20 was properly charged, including copies of any 

21 information or documents on which the bank re22 lied in making the determination. 

23 (2) NOTICE OF RECREDIT.—If a bank recredits a 

24 consumer account under subsection (c), the bank shall 

25 send to the consumer, no later than the business day 
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1 following the business day on which the bank makes 

2 the recredit, a notice of—

3 (A) the amount of the recredit; and 

4 (B) the date the recredited funds will be 

5 available for withdrawal. 

6 (3) NOTICE OF REVERSAL OF RECREDIT.—In ad7 dition to the notice required under paragraph (1), if 

8 a bank reverses a recredited amount under subsection 

9 (e), the bank shall send to the consumer, no later than 

10 the business day following the business day on which 

11 the bank reverses the recredit, a notice of—

12 (A) the amount of the reversal; and 

13 (B) the date the recredit was reversed. 

14 (4) MODE OF DELIVERY.—A notice described in 

15 this subsection shall be delivered by United States 

16 mail or by any other means through which the con17 sumer has agreed to receive account information. 

18 (g) OTHER CLAIMS NOT AFFECTED.—Providing a re19 credit in accordance with this section shall not absolve the 

20 bank from liability for a claim made under any other law, 

21 such as a claim for wrongful dishonor under the Uniform 

22 Commercial Code, or from liability for additional damages 

23 under section 5 or 9.

24 (h) CLARIFICATION CONCERNING CONSUMER POSSES25 SION.—A consumer who was provided a substitute check 
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1 may make a claim for an expedited recredit under this sec2 tion with regard to a transaction involving the substitute 

3 check whether or not the consumer is in possession of the 

4 substitute check. 

5 (i) SCOPE OF APPLICATION.—This section shall only 

6 apply to customers who are consumers. 

7 SEC. 7. EXPEDITED RECREDIT PROCEDURES FOR BANKS. 

8 (a) RECREDIT CLAIMS.—

9 (1) IN GENERAL.—A bank may make a claim 

10 against an indemnifying bank for expedited recredit 

11 for which that bank is indemnified if—

12 (A) the claimant bank (or a bank that the 

13 claimant bank has indemnified) has received a 

14 claim for expedited recredit from a consumer 

15 under section 6 with respect to a substitute check 

16 or would have been subject to such a claim had 

17 the consumer’s account been charged; 

18 (B) the claimant bank has suffered a result19 ing loss or is obligated to recredit a consumer ac20 count under section 6 with respect to such sub21 stitute check; and 

22 (C) production of the original check, an23 other substitute check, or a better copy of the 

24 original check is necessary to determine the va25 lidity of the charge to the customer account or 
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1 any warranty claim connected with such sub2 stitute check. 

3 (2) 120-DAY PERIOD.—Any claim under para4 graph (1) may be submitted by the claimant bank to 

5 an indemnifying bank before the end of the 120-day 

6 beginning on the date of the transaction that gave rise 

7 to the claim. 

8 (b) PROCEDURES FOR CLAIMS.—

9 (1) IN GENERAL.—To make a claim under sub10 section (a) for an expedited recredit relating to a sub11 stitute check, the claimant bank shall send to the in12 demnifying bank—

13 (A) a description of—

14 (i) the claim, including an explanation 

15 of why the substitute check cannot be prop16 erly charged to the consumer account; or 

17 (ii) the warranty claim; 

18 (B) a statement that the claimant bank has 

19 suffered a loss or is obligated to recredit the con20 sumer’s account under section 6, together with 

21 an estimate of the amount of the loss or recredit; 

22 (C) the reason why production of the origi23 nal check, another substitute check, or a better 

24 copy of the original check is necessary to deter-
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1 mine the validity of the charge to the consumer 

2 account or the warranty claim; and 

3 (D) information sufficient for the indem4 nifying bank to identify the substitute check and 

5 to investigate the claim.

6 (2) REQUIREMENTS RELATING TO COPIES OF

7 SUBSTITUTE CHECKS.—If the information submitted 

8 by a claimant bank pursuant to paragraph (1) in 

9 connection with a claim for an expedited recredit in10 cludes a copy of any substitute check for which any 

11 such claim is made, the claimant bank shall take rea12 sonable steps to ensure that any such copy cannot 

13 be—

14 (A) mistaken for the legal equivalent of the 

15 check under section 3(b); or 

16 (B) sent or handled by any bank, including 

17 the indemnifying bank, as a forward collection 

18 or returned check. 

19 (3) CLAIM IN WRITING.—An indemnifying bank 

20 may, in the bank’s discretion, require the claimant 

21 bank to submit in writing the information required 

22 by paragraph (1), including a copy of the written 

23 claim, if any, that the consumer submitted in accord24 ance with section 6(b). 

25 (c) RECREDIT BY INDEMNIFYING BANK.—
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1 (1) PROMPT ACTION REQUIRED.—No later than 

2 10 business days after the business day on which an 

3 indemnifying bank receives a claim under subsection 

4 (a) from a claimant bank with respect to a substitute 

5 check, the indemnifying bank shall—

6 (A) provide, to the claimant bank, the origi7 nal check (with respect to such substitute check) 

8 or a copy of the original check (including an 

9 image or a substitute check) that—

10 (i) accurately represents all of the in11 formation on the front and back of the 

12 original check (as of the time the original 

13 check was truncated); or 

14 (ii) is otherwise sufficient to determine 

15 the bank’s claim is not valid; and 

16 (B) recredit the claimant bank for the 

17 amount of the claim up to the amount of the sub18 stitute check, plus interest if applicable; or 

19 (C) provide information to the claimant 

20 bank as to why the indemnifying bank is not ob21 ligated to comply with subparagraph (A) or (B). 

22 (2) RECREDIT DOES NOT ABROGATE OTHER LI23 ABILITIES.—Providing a recredit under this sub24 section to a claimant bank with respect to a substitute 

25 check shall not absolve the indemnifying bank from li-
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1 ability for claims brought under any other law or 

2 from additional damages under section 5 or 9 with 

3 respect to such check. 

4 (3) REFUND TO INDEMNIFYING BANK.—If a 

5 claimant bank reverses, in accordance with section 

6 6(e), a recredit previously made to a consumer ac7 count under section 6(c), or otherwise receives a credit 

8 or recredit with regard to such substitute check, the 

9 claimant bank shall promptly refund to any indem10 nifying bank any amount previously advanced by the 

11 indemnifying bank in connection with such substitute 

12 check. 

13 (d) PRODUCTION OF ORIGINAL CHECK OR A SUFFI14 CIENT COPY GOVERNED BY SECTION 5(d).—If the indem15 nifying bank provides the claimant bank with the original 

16 check or a copy of the original check (including an image 

17 or a substitute check) under subsection (c)(1)(A), section 

18 5(d) shall govern any right of the indemnifying bank to 

19 any repayment of any funds the indemnifying bank has 

20 recredited to the claimant bank pursuant to subsection (c). 

21 SEC. 8. DELAYS IN AN EMERGENCY. 

22 Delay by a bank beyond the time limits prescribed or 

23 permitted by this Act is excused if the delay is caused by 

24 interruption of communication or computer facilities, sus25 pension of payments by another bank, war, emergency con-
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1 ditions, failure of equipment, or other circumstances beyond 

2 the control of a bank and if the bank uses such diligence 

3 as the circumstances require. 

4 SEC. 9. MEASURE OF DAMAGES. 

5 (a) LIABILITY.—

6 (1) IN GENERAL.—Except as provided in section 

7 5, any person who, in connection with a substitute 

8 check, breaches any warranty under this Act or fails 

9 to comply with any requirement imposed by, or regu10 lation prescribed pursuant to, this Act with respect to 

11 any other person shall be liable to such person in an 

12 amount equal to the sum of—

13 (A) the lesser of—

14 (i) the amount of the loss suffered by 

15 the other person as a result of the breach or 

16 failure; or 

17 (ii) the amount of the substitute check; 

18 and 

19 (B) interest and expenses (including costs 

20 and reasonable attorney’s fees and other expenses 

21 of representation) related to the substitute check. 

22 (2) OFFSET OF RECREDITS.—The amount of 

23 damages any person receives under paragraph (1), if 

24 any, shall be reduced by the amount, if any, that the 
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1 claimant receives and retains as a recredit under sec2 tion 6 or 7. 

3 (b) COMPARATIVE NEGLIGENCE.—If a person incurs 

4 damages that resulted in whole or in part from the neg5 ligence or failure of that person to act in good faith, then 

6 the amount of any liability due to that person under sub7 section (a) shall be reduced in proportion to the amount 

8 of negligence or bad faith attributable to that person. 

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

10 (a) ACTIONS UNDER THIS ACT.—

11 (1) IN GENERAL.—An action to enforce a claim 

12 under this Act may be brought in any United States 

13 district court, or in any other court of competent ju14 risdiction, before the end of the 1-year period begin15 ning on the date the cause of action accrues.

16 (2) ACCRUAL.—A cause of action accrues as of 

17 the date the injured party first learns, or by which 

18 such person reasonably should have learned, of the 

19 facts and circumstances giving rise to the cause of ac20 tion. 

21 (b) DISCHARGE OF CLAIMS.—Except as provided in 

22 subsection (c), unless a person gives notice of a claim to 

23 the indemnifying or warranting bank within 30 days after 

24 the person has reason to know of the claim and the identity 

25 of the indemnifying or warranting bank, the indemnifying 
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1 or warranting bank is discharged to the extent of any loss 

2 caused by the delay in giving notice of the claim. 

3 (c) NOTICE OF CLAIM BY CONSUMER.—A timely claim 

4 by a consumer under section 6 for expedited recredit con5 stitutes timely notice of a claim by the consumer for pur6 poses of subsection (b).

7 SEC. 11. CONSUMER AWARENESS. 

8 (a) IN GENERAL.—Each bank shall provide, in accord9 ance with subsection (b), a brief notice about substitute 

10 checks that describes—

11 (1) the process of check substitution and how the 

12 process may be different than the check clearing proc13 ess with which the consumer may be familiar; and

14 (2) a description of the consumer recredit rights 

15 established under section 6 when a consumer believes 

16 in good faith that a substitute check was not properly 

17 charged to the consumer’s account. 

18 (b) DISTRIBUTION.—

19 (1) EXISTING CUSTOMERS.—With respect to con20 sumers that are customers of a bank on the effective 

21 date of this Act, a bank shall provide the notice de22 scribed in subsection (a) to each such consumer no 

23 later than the first regularly scheduled communica24 tion with the consumer after the effective date of this 

25 Act. 
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1 (2) NEW ACCOUNT HOLDERS.—A bank shall pro2 vide the notice described in subsection (a) to each con3 sumer, other than existing customers referred to in 

4 paragraph (1), at the time at which the customer re5 lationship is initiated. 

6 (3) MODE OF DELIVERY.—A bank may send the 

7 notices required by this subsection by United States 

8 mail or by any other means through which the con9 sumer has agreed to receive account information. 

10 (c) MODEL LANGUAGE.—

11 (1) IN GENERAL.—No later than 1 year after the 

12 date of enactment of this Act, the Board shall publish 

13 model forms and clauses that a depository institution 

14 may use to describe each of the elements required by 

15 subsection (a). 

16 (2) SAFE HARBOR.—A bank shall be treated as 

17 being in compliance with the requirements of sub18 section (a) if the bank’s substitute check notice uses a 

19 model form or clause published by the Board and such 

20 model form or clause accurately describes the bank’s 

21 policies and practices. A bank may delete any infor22 mation in the model form or clause that is not re23 quired by this Act or rearrange the format. 

24 (3) USE OF MODEL LANGUAGE NOT REQUIRED.—

25 This section shall not be construed as requiring any 
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1 bank to use a model form or clause that the Board 

2 prepares under this subsection. 

3 SEC. 12. EFFECT ON OTHER LAW. 

4 This Act shall supersede any provision of Federal or 

5 State law, including the Uniform Commercial Code, that 

6 is inconsistent with this Act, but only to the extent of the 

7 inconsistency. 

8 SEC. 13. VARIATION BY AGREEMENT. 

9 (a) SECTION 7.—Any provision of section 7 may be 

10 varied by agreement of the banks involved. 

11 (b) NO OTHER PROVISIONS MAY BE VARIED.—Except 

12 as provided in subsection (a), no provision of this Act may 

13 be varied by agreement of any person or persons. 

14 SEC. 14. REGULATIONS. 

15 (a) IN GENERAL.—The Board may, by regulation, 

16 clarify or otherwise implement the provisions of this Act 

17 or may modify the requirements imposed by this Act with 

18 respect to substitute checks to further the purposes of this 

19 Act, including reducing risk, accommodating technological 

20 or other developments, and alleviating undue compliance 

21 burdens.

22 (b) BOARD MONITORING OF CHECK COLLECTION AND

23 RETURN PROCESS; ADJUSTMENT OF TIME PERIODS.—
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1 (1) MONITORING OF CHECK COLLECTION AND RE2 TURN PROCESS.—The Board shall monitor the extent 

3 to which—

4 (A) original checks are converted to sub5 stitute checks in the check collection and return 

6 process, and 

7 (B) checks are collected and returned elec8 tronically rather than in paper form. 

9 (2) ADJUSTMENT OF TIME PERIODS.—The Board 

10 shall exercise the Board’s authority under section 

11 603(d)(1) of the Expedited Funds Availability Act to 

12 reduce the time periods applicable under subsections 

13 (b) and (e) of section 603 of such Act for making 

14 funds available for withdrawal, when warranted. 

15 (c) PUBLICATION OF SCHEDULE BY BOARD FOR

16 CHECK TRANSPORTATION SERVICES.—Section 11A(b) of 

17 the Federal Reserve Act (12 U.S.C. 248a(b)) is amended—

18 (1) by striking ‘‘and’’ at the end of paragraph 

19 (7); 

20 (2) by redesignating paragraph (8) as para21 graph (9); and 

22 (3) by inserting after paragraph (7) the fol23 lowing new paragraph: 

24 ‘‘(8) check transportation services; and’’. 
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1 SEC. 15. EFFECTIVE DATE. 

2 This Act shall take effect at the end of the 18-month 

3 period beginning on the date of the enactment of this Act, 

4 except as otherwise specifically provided in this Act.
Union Calendar No. 67

108TH CONGRESS 

1ST SESSION H. R. 1474

[Report No. 108–132] 

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. 

JUNE 2, 2003

Reported with an amendment, committed to the Committee of the Whole House on the State of the Union, 

and ordered to be printed