I 

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.

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

2 (1) In the Expedited Funds Availability Act, 

3 enacted on August 10, 1987, the Congress directed 

4 the Board of Governors of the Federal Reserve Sys5 tem to consider establishing regulations requiring 

6 Federal reserve banks and depository institutions to 

7 provide for check truncation, in order to improve the 

8 check processing system. 

9 (2) In that same Act, the Congress—

10 (A) provided the Board of Governors of the 

11 Federal Reserve System with full authority to 

12 regulate all aspects of the payment system, in13 cluding the receipt, payment, collection, and 

14 clearing of checks, and related functions of the 

15 payment system pertaining to checks; and 

16 (B) directed that the exercise of such au17 thority by the Board superseded any State law, 

18 including the Uniform Commercial Code, as in 

19 effect in any State. 

20 (3) Check truncation is no less desirable today 

21 for both financial service customers and the financial 

22 services industry, to reduce costs, improve efficiency 

23 in check collections, and expedite funds availability 

24 for customers than it was over 15 years ago when 
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1 Congress first directed the Board to consider estab2 lishing such a process. 

3 (c) PURPOSES.—The purposes of this Act are as fol4 lows: 

5 (1) To facilitate check truncation by author6 izing substitute checks. 

7 (2) To foster innovation in the check collection 

8 system without mandating receipt of checks in elec9 tronic form. 

10 (3) To improve the overall efficiency of the Na11 tion’s payments system. 

12 SEC. 2. DEFINITIONS. 

13 For purposes of this Act, the following definitions 

14 shall apply: 

15 (1) ACCOUNT.—The term ‘‘account’’ means a 

16 deposit account at a bank. 

17 (2) BANK.—The term ‘‘bank’’ means any per18 son that is located in a State and engaged in the 

19 business of banking and includes—

20 (A) any depository institution (as defined 

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

22 Act); 

23 (B) any Federal reserve bank; 

24 (C) any Federal home loan bank; or 

25 (D) to the extent it acts as a payor—
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1 (i) the Treasury of the United States; 

2 (ii) the United States Postal Service; 

3 (iii) a State government; or 

4 (iv) a unit of general local government 

5 (as defined in section 602(24) of the Expe6 dited Funds Availability Act). 

7 (3) BANKING TERMS.—

8 (A) CLAIMANT BANK.—The term ‘‘claim9 ant bank’’ means a bank that submits a claim 

10 for recredit under section 7 to an indemnifying 

11 bank. 

12 (B) COLLECTING BANK.—The term ‘‘col13 lecting bank’’ means any bank handling a check 

14 for collection except the paying bank. 

15 (C) DEPOSITARY BANK.—The term ‘‘de16 positary bank’’ means—

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

18 transferred, even if such bank is also the 

19 paying bank or the payee; or 

20 (ii) a bank to which a check is trans21 ferred for deposit in an account at such 

22 bank, even if the check is physically re23 ceived and indorsed first by another bank. 

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

25 bank’’ means— 
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1 (i) the bank by which a check is pay2 able, unless the check is payable at or 

3 through another bank and is sent to the 

4 other bank for payment or collection; or 

5 (ii) the bank at or through which a 

6 check is payable and to which the check is 

7 sent for payment or collection. 

8 (E) RETURNING BANK.—

9 (i) IN GENERAL.—The term ‘‘return10 ing bank’’ means a bank (other than the 

11 paying or depositary bank) handling a re12 turned check or notice in lieu of return. 

13 (ii) TREATMENT AS COLLECTING

14 BANK.—No provision of this Act shall be 

15 construed as affecting the treatment of a 

16 returning bank as a collecting bank for 

17 purposes of section 4–202(b) of the Uni18 form Commercial Code. 

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

20 Board of Governors of the Federal Reserve System. 

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

22 has the same meaning as in section 602(3) of the 

23 Expedited Funds Availability Act.

24 (6) CHECK.—The term ‘‘check’’—
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1 (A) means a draft, payable on demand and 

2 drawn on or payable through or at an office of 

3 a bank, whether or not negotiable, that is han4 dled for forward collection or return, including 

5 a substitute check and a travelers check; and 

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

7 item payable in a medium other than United 

8 States dollars. 

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

10 an individual who—

11 (A) with respect to a check handled for 

12 forward collection, draws the check on a con13 sumer account; or 

14 (B) with respect to a check handled for re15 turn, deposits the check into, or cashes the 

16 check against, a consumer account. 

17 (8) CONSUMER ACCOUNT.—The term ‘‘con18 sumer account’’ has the same meaning as in section 

19 602(10) of the Expedited Funds Availability Act. 

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

21 a person having an account with a bank. 

22 (10) FORWARD COLLECTION.—The term ‘‘for23 ward collection’’ means the transfer by a bank of a 

24 check to a collecting bank for settlement or the pay25 ing bank for payment. 
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1 (11) INDEMNIFYING BANK.—The term ‘‘indem2 nifying bank’’ means a bank that is providing an in3 demnity under section 5 with respect to a substitute 

4 check. 

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

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

7 numbers, which may include the bank routing num8 ber, account number, check number, check amount, 

9 and other information, that are printed near the bot10 tom of a check in magnetic ink in accordance with 

11 generally applicable industry standards. 

12 (13) NONCASH ITEM.—The term ‘‘noncash 

13 item’’ has the same meaning as in section 602(14) 

14 of the Expedited Funds Availability Act. 

15 (14) PERSON.—The term ‘‘person’’ means a 

16 natural person, corporation, unincorporated com17 pany, partnership, government unit or instrumen18 tality, trust, or any other entity or organization. 

19 (15) RECONVERTING BANK.—The term ‘‘recon20 verting bank’’ means—

21 (A) the bank that creates a substitute 

22 check; or 

23 (B) if a substitute check is created by a 

24 person other than a bank, the first bank that 

25 transfers or presents such substitute check. 
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1 (16) SUBSTITUTE CHECK.—The term ‘‘sub2 stitute check’’ means a paper reproduction of the 

3 original check that—

4 (A) contains an image of the front and 

5 back of the original check; 

6 (B) bears a MICR line containing all the 

7 information appearing on the MICR line of the 

8 original check and all other information re9 quired under generally applicable industry 

10 standards for substitute checks; 

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

12 and otherwise, with generally applicable indus13 try standards for substitute checks; and 

14 (D) is suitable for automated processing in 

15 the same manner as the original check. 

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

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

18 Insurance Act. 

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

20 to remove an original paper check from the check 

21 collection or return process and send to a recipient, 

22 in lieu of such original paper check, a substitute 

23 check or, by agreement, information relating to the 

24 original check (including data taken from the MICR 

25 line of the original check or an electronic image of 
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1 the original check), whether with or without subse2 quent delivery of the original paper check. 

3 (19) UNIFORM COMMERCIAL CODE.—The term 

4 ‘‘Uniform Commercial Code’’ means the Uniform 

5 Commercial Code in effect in a State. 

6 (20) OTHER TERMS.—Unless the context re7 quires otherwise, the terms not defined in this sec8 tion shall have the same meanings as in the Uniform 

9 Commercial Code. 

10 SEC. 3. GENERAL PROVISIONS GOVERNING SUBSTITUTE 

11 CHECKS. 

12 (a) NO AGREEMENT REQUIRED.—A person may de13 posit, present, or send for collection or return a substitute 

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

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

16 to such substitute check. 

17 (b) LEGAL EQUIVALENCE.—A substitute check shall 

18 be the legal equivalent of the original check for all pur19 poses, including any provision of any Federal or State law, 

20 and for all persons if the substitute check—

21 (1) accurately represents all of the information 

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

23 time the original check was truncated; and 
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1 (2) bears the legend: ‘‘This is a legal copy of 

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

3 use the original check.’’. 

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

5 substitute check for which the bank is the reconverting 

6 bank bears all endorsements applied by parties that pre7 viously handled the check (whether in electronic form or 

8 in the form of the original paper check or a substitute 

9 check) for forward collection or return. 

10 (d) IDENTIFICATION OF RECONVERTING BANK.—A 

11 bank shall identify itself as a reconverting bank on any 

12 substitute check for which the bank is a reconverting bank 

13 so as to preserve any previous reconverting bank identi14 fications in conformance with generally applicable industry 

15 standards. 

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

17 the legal equivalent of the original check under subsection 

18 (b) shall be subject to any provision of part 229 of title 

19 12 of the Code of Federal Regulations, the Uniform Com20 mercial Code, and any other applicable Federal or State 

21 law as if such substitute check were the original check,

22 to the extent such provision of law is not inconsistent with 

23 this Act. 
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1 SEC. 4. SUBSTITUTE CHECK WARRANTIES. 

2 A bank that transfers, presents, or returns a sub3 stitute check and receives consideration for the check war4 rants, as a matter of law, to the transferee, any subse5 quent collecting or returning bank, the depositary bank, 

6 the drawee, the drawer, the payee, the depositor, and any 

7 endorser (regardless of whether the warrantee receives the 

8 substitute check or another paper or electronic form of 

9 the substitute check or original check) that—

10 (1) the substitute check meets all the require11 ments for legal equivalence under section 3(b); and 

12 (2) no depositary bank, drawee, drawer, or en13 dorser will receive presentment or return of the sub14 stitute check, the original check, or a copy or other 

15 paper or electronic version of the substitute check or 

16 original check such that the bank, drawee, drawer, 

17 or endorser will be asked to make a payment based 

18 on a check that the bank, drawee, drawer, or en19 dorser has already paid. 

20 SEC. 5. INDEMNITY. 

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

22 that subsequently transfers, presents, or returns a sub23 stitute check in any electronic or paper form, and receives 

24 consideration for such transfer, presentment, or return 

25 shall indemnify the transferee, any subsequent collecting 

26 or returning bank, the depositary bank, the drawee, the 
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1 drawer, the payee, the depositor, and any endorser, up to 

2 the amount described in subsections (b) and (c), as appli3 cable, to the extent of any loss incurred by any recipient 

4 of a substitute check if that loss occurred due to the re5 ceipt of a substitute check instead of the original check. 

6 (b) INDEMNITY AMOUNT.—

7 (1) AMOUNT IN EVENT OF BREACH OF WAR8 RANTY.—The amount of the indemnity under sub9 section (a) shall be the amount of any loss (includ10 ing costs and reasonable attorney’s fees and other 

11 expenses of representation) proximately caused by a 

12 breach of a warranty provided under section 4. 

13 (2) AMOUNT IN ABSENCE OF BREACH OF WAR14 RANTY.—In the absence of a breach of a warranty 

15 provided under section 4, the amount of the indem16 nity under subsection (a) shall be the sum of—

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

18 amount of the substitute check; and 

19 (B) interest and expenses (including costs 

20 and reasonable attorney’s fees and other ex21 penses of representation). 

22 (c) COMPARATIVE NEGLIGENCE.—If a loss described 

23 in subsection (a) results in whole or in part from the neg24 ligence or failure to act in good faith on the part of an 

25 indemnified party, then that party’s indemnification under 
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1 this section shall be reduced in proportion to the amount 

2 of negligence or bad faith attributable to that party. 

3 (d) EFFECT OF PRODUCING ORIGINAL CHECK, SUB4 STITUTE CHECK, OR SUFFICIENT COPY.—

5 (1) IN GENERAL.—If the indemnifying bank 

6 produces the original check, a substitute check, or a 

7 copy of the original check that is sufficient to deter8 mine whether or not a claim is valid, the indem9 nifying bank shall—

10 (A) be liable under this section only for 

11 losses covered by the indemnity that are in12 curred up to the time the original check, the 

13 substitute check, or a sufficient copy is provided 

14 to the indemnified party; and 

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

16 the bank has paid under the indemnity in ex17 cess of those losses. 

18 (2) COORDINATION OF INDEMNITY WITH IM19 PLIED WARRANTY.—The production of the original 

20 check, a substitute check, or a sufficient copy under 

21 paragraph (1) by an indemnifying bank shall not ab22 solve the bank from any liability on a warranty es23 tablished under this Act or any other provision of 

24 law. 

25 (e) SUBROGATION OF RIGHTS.—
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1 (1) IN GENERAL.—Each indemnifying bank 

2 shall be subrogated to the rights of any indemnified 

3 party to the extent of the indemnity. 

4 (2) RECOVERY UNDER WARRANTY.—A bank 

5 that indemnifies a party under this section may at6 tempt to recover from another party based on a war7 ranty or other claim. 

8 (3) DUTY OF INDEMNIFIED PARTY.—Each in9 demnified party shall have a duty to comply with all 

10 reasonable requests for assistance from an indem11 nifying bank in connection with any claim the in12 demnifying bank brings against a warrantor or other 

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

14 indemnification. 

15 SEC. 6. EXPEDITED RECREDIT FOR CONSUMERS. 

16 (a) RECREDIT CLAIMS.—

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

18 claim for expedited recredit from the bank that 

19 holds the account of the consumer with respect to a 

20 substitute check, if the consumer asserts in good 

21 faith that—

22 (A) the bank charged the consumer’s ac23 count for a substitute check that was provided 

24 to the consumer; 

25 (B) either—
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1 (i) the check was not properly charged 

2 to the consumer’s account; or 

3 (ii) the consumer has a warranty 

4 claim with respect to such substitute 

5 check; 

6 (C) the consumer suffered a resulting loss; 

7 and 

8 (D) the production of the original check or 

9 a better copy of the original check is necessary 

10 to determine the validity of any claim described 

11 in subparagraph (B). 

12 (2) 30-DAY PERIOD.—Any claim under para13 graph (1) with respect to a consumer account may 

14 be submitted by a consumer before the end of the 

15 30-day period beginning on the later of—

16 (A) the date on which the consumer re17 ceives the periodic statement of account for 

18 such account which contains information con19 cerning the transaction giving rise to the claim; 

20 or

21 (B) the date the substitute check is made 

22 available to the consumer. 

23 (3) EXTENSION UNDER EXTENUATING CIR24 CUMSTANCES.—If the consumer’s ability to submit 

25 the claim within the 30-day period under paragraph 
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1 (2) is delayed due to extenuating circumstances, in2 cluding extended travel or the illness of the con3 sumer, the 30-day period shall be extended for a 

4 total not to exceed 30 additional days. 

5 (b) PROCEDURES FOR CLAIMS.—

6 (1) IN GENERAL.—To make a claim for an ex7 pedited recredit under subsection (a) with respect to 

8 a substitute check, the consumer shall provide to the 

9 bank that holds the account of such consumer—

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

11 explanation of—

12 (i) why the substitute check was not 

13 properly charged to the consumer’s ac14 count; or 

15 (ii) the warranty claim with respect to 

16 such check; 

17 (B) a statement that the consumer suf18 fered a loss and an estimate of the amount of 

19 the loss; 

20 (C) the reason why production of the origi21 nal check or a better copy of the original check 

22 is necessary to determine the validity of the 

23 charge to the consumer’s account or the war24 ranty claim; and 
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1 (D) sufficient information to identify the 

2 substitute check and to investigate the claim. 

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

4 consumer account that is the subject of a claim by 

5 the consumer under subsection (a) may, in the dis6 cretion of the bank, require the consumer to submit 

7 the information required under paragraph (1) in 

8 writing. 

9 (c) RECREDIT TO CONSUMER.—

10 (1) CONDITIONS FOR RECREDIT.—The bank 

11 shall recredit a consumer account in accordance with 

12 paragraph (2) for the amount of a substitute check 

13 that was charged against the consumer account if—

14 (A) a consumer submits a claim to the 

15 bank with respect to that substitute check that 

16 meets the requirement of subsection (b); and 

17 (B) the bank has not provided to the con18 sumer the original check, a substitute check, or 

19 a copy of the original check and demonstrates 

20 that the substitute check was properly charged 

21 to the consumer’s account. 

22 (2) TIMING OF RECREDIT.—

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

24 the consumer’s account for the amount de25 scribed in paragraph (1) no later than the end 
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1 of the business day following the business day 

2 on which the bank determines the consumer’s 

3 claim is valid. 

4 (B) RECREDIT PENDING INVESTIGA5 TION.—If the bank has not yet determined that 

6 the consumer’s claim is valid before the end of 

7 the 10th business day after the business day on 

8 which the consumer submitted the claim, the 

9 bank shall recredit the consumer’s account 

10 for—

11 (i) the lesser of the amount of the 

12 substitute check that was charged against 

13 the consumer account, or $2,500, together 

14 with interest if the account is an interest15 bearing account, no later than the end of 

16 such 10th business day; and 

17 (ii) the remaining amount of the sub18 stitute check that was charged against the 

19 consumer account, if any, together with in20 terest if the account is an interest-bearing 

21 account, not later than the 45th calendar 

22 day following the business day on which 

23 the consumer submits the claim. 

24 (d) AVAILABILITY OF RECREDIT.—
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1 (1) NEXT BUSINESS DAY AVAILABILITY.—Ex2 cept as provided in paragraph (2), a bank that pro3 vides a recredit to a consumer account under sub4 section (c) shall make the recredited funds available 

5 for withdrawal by the consumer by the start of the 

6 next business day after the business day on which 

7 the bank recredits the consumer’s account under 

8 subsection (c). 

9 (2) SAFEGUARD EXCEPTIONS.—A bank may 

10 delay availability to a consumer of a recredit pro11 vided under subsection (c)(2)(B)(i) until the start of 

12 either the business day following the business day on 

13 which the bank determines that the consumer’s 

14 claim is valid or the 45th calendar day following the 

15 business day on which the consumer submits a claim 

16 for such recredit in accordance with subsection (b), 

17 whichever is earlier, in any of the following cir18 cumstances: 

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

20 during the 30-day period beginning on the busi21 ness day the consumer account was established. 

22 (B) REPEATED OVERDRAFTS.—Without 

23 regard to the charge that is the subject of the 

24 claim for which the recredit was made—
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1 (i) on 6 or more business days during 

2 the 6-month period ending on the date on 

3 which the consumer submits the claim, the 

4 balance in the consumer account was nega5 tive or would have become negative if 

6 checks or other charges to the account had 

7 been paid; or 

8 (ii) on 2 or more business days during 

9 such 6-month period, the balance in the 

10 consumer account was negative or would 

11 have become negative in the amount of 

12 $5,000 or more if checks or other charges 

13 to the account had been paid. 

14 (C) PREVENTION OF FRAUD LOSSES.—The 

15 bank has reasonable cause to believe that the 

16 claim is fraudulent, based on facts (other than 

17 the fact that the check in question or the con18 sumer is of a particular class) that would cause

19 a well-grounded belief in the mind of a reason20 able person that the claim is fraudulent. 

21 (3) OVERDRAFT FEES.—No bank that, in ac22 cordance with paragraph (2), delays the availability 

23 of a recredit under subsection (c) to any consumer 

24 account may impose any overdraft fees with respect 

25 to drafts drawn by the consumer on such recredited 
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1 amount before the end of the 5-day period beginning 

2 on the date notice of the delay in the availability of 

3 such amount is sent by the bank to the consumer. 

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

5 a recredit to a consumer account if the bank—

6 (1) determines that a substitute check for which 

7 the bank recredited a consumer account under sub8 section (c) was in fact properly charged to the con9 sumer account; and 

10 (2) notifies the consumer in accordance with 

11 subsection (f)(3). 

12 (f) NOTICE TO CONSUMER.—

13 (1) NOTICE IF CONSUMER CLAIM NOT VALID.—

14 If a bank determines that a substitute check subject 

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

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

17 the consumer, no later than the business day fol18 lowing the business day on which the bank makes a 

19 determination—

20 (A) the original check, the substitute 

21 check, or a copy of the original check that is 

22 sufficient to determine that the substitute check 

23 was properly charged to the consumer’s ac24 count; and 
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1 (B) an explanation of the basis for the de2 termination by the bank that the substitute 

3 check was properly charged, including copies of 

4 any information or documents on which the 

5 bank relied in making the determination. 

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

7 a consumer account under subsection (c), the bank 

8 shall send to the consumer, no later than the busi9 ness day following the business day on which the 

10 bank makes the recredit, a notice of—

11 (A) the amount of the recredit; and 

12 (B) the date the recredited funds will be 

13 available for withdrawal. 

14 (3) NOTICE OF REVERSAL OF RECREDIT.—In 

15 addition to the notice required under paragraph (1), 

16 if a bank reverses a recredited amount under sub17 section (e), the bank shall send to the consumer, no 

18 later than the business day following the business 

19 day on which the bank reverses the recredit, a notice 

20 of—

21 (A) the amount of the reversal; and 

22 (B) the date the recredit was reversed. 

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

24 this subsection shall be delivered by United States 
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1 mail or by any other means through which the con2 sumer has agreed to receive account information. 

3 (g) OTHER CLAIMS NOT AFFECTED.—Providing a 

4 recredit in accordance with this section shall not absolve 

5 the bank from liability for a claim made under any other 

6 law, such as a claim for wrongful dishonor under the Uni7 form Commercial Code, or from liability for additional 

8 damages under section 5 or 9. 

9 (h) SCOPE OF APPLICATION.—This section shall only 

10 apply to customers who are consumers. 

11 SEC. 7. EXPEDITED RECREDIT PROCEDURES FOR BANKS. 

12 (a) RECREDIT CLAIMS.—

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

14 against an indemnifying bank for expedited recredit 

15 for which that bank is indemnified if—

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

17 claimant bank has indemnified) has received a 

18 claim for expedited recredit from a consumer 

19 under section 6 with respect to such substitute 

20 check or would have been subject to such a 

21 claim had the consumer’s account been charged; 

22 (B) the claimant bank has suffered a re23 sulting loss or is obligated to recredit a con24 sumer account under section 6 with respect to 

25 such substitute check; and 
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1 (C) production of the original check, an2 other substitute check, or a better copy of the 

3 original check is necessary to determine the va4 lidity of the charge to the customer account or 

5 any warranty claim connected with such sub6 stitute check. 

7 (2) 120-DAY PERIOD.—Any claim under para8 graph (1) may be submitted by the claimant bank 

9 to an indemnifying bank before the end of the 120-

10 day beginning on the date of the transaction that 

11 gave rise to the claim. 

12 (b) PROCEDURES FOR CLAIMS.—

13 (1) IN GENERAL.—To make a claim under sub14 section (a) for an expedited recredit relating to a 

15 substitute check, the claimant bank shall send to the 

16 indemnifying bank—

17 (A) a description of—

18 (i) the claim, including an explanation 

19 of why the substitute check cannot be 

20 properly charged to the consumer account; 

21 or 

22 (ii) the warranty claim; 

23 (B) a statement that the claimant bank 

24 has suffered a loss or is obligated to recredit 

25 the consumer’s account under section 6, to-
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1 gether with an estimate of the amount of the 

2 loss or recredit; 

3 (C) the reason why production of the origi4 nal check, another substitute check, or a better 

5 copy of the original check is necessary to deter6 mine the validity of the charge to the consumer 

7 account or the warranty claim; and 

8 (D) information sufficient for the indem9 nifying bank to identify the substitute check 

10 and to investigate the claim. 

11 (2) REQUIREMENTS RELATING TO COPIES OF

12 SUBSTITUTE CHECKS.—If the information submitted 

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

14 connection with a claim for an expedited recredit in15 cludes a copy of any substitute check for which any 

16 such claim is made, the claimant bank shall take 

17 reasonable steps to ensure that any such copy can18 not be—

19 (A) mistaken for the legal equivalent of the 

20 check under section 3(b); or 

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

22 the indemnifying bank, as a forward collection 

23 or returned check. 

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

25 may, in the bank’s discretion, require the claimant 
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1 bank to submit in writing the information required 

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

3 claim, if any, that the consumer submitted in ac4 cordance with section 6(b). 

5 (c) RECREDIT BY INDEMNIFYING BANK.—

6 (1) PROMPT ACTION REQUIRED.—No later than 

7 10 business days after the business day on which an 

8 indemnifying bank receives a claim under subsection 

9 (a) from a claimant bank with respect to a sub10 stitute check, the indemnifying bank shall—

11 (A) provide the original check (with respect 

12 to such substitute check), another substitute 

13 check, or a copy of the original check that is 

14 sufficient to determine that the bank’s claim is 

15 not valid to the claimant bank; 

16 (B) recredit the claimant bank for the 

17 amount of the claim up to the amount of the 

18 substitute check, plus interest if applicable; or 

19 (C) provide information to the claimant 

20 bank as to why the indemnifying bank is not 

21 obligated to comply with subparagraph (A) or 

22 (B). 

23 (2) RECREDIT DOES NOT ABROGATE OTHER LI24 ABILITIES.—Providing a recredit under this sub25 section to a claimant bank with respect to a sub-
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1 stitute check shall not absolve the indemnifying bank 

2 from liability for claims brought under any other law 

3 or from additional damages under section 5 or 9 

4 with respect to such check. 

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

6 claimant bank reverses, in accordance with section 

7 6(e), a recredit previously made to a consumer ac8 count under section 6(c), or otherwise receives a 

9 credit or recredit with regard to such substitute 

10 check, the claimant bank shall promptly refund to 

11 any indemnifying bank any amount previously ad12 vanced by the indemnifying bank in connection with 

13 such substitute check. 

14 (d) PRODUCTION OF ORIGINAL CHECK OR A SUFFI15 CIENT COPY GOVERNED BY SECTION 5(d).—If the indem16 nifying bank provides the claimant bank with the original 

17 check, another substitute check, or a sufficient copy of the 

18 original check under subsection (c)(1)(A), section 5(d) 

19 shall govern any right of the indemnifying bank to any 

20 repayment of any funds the indemnifying bank has recred21 ited to the claimant bank pursuant to subsection (c). 

22 SEC. 8. DELAYS IN AN EMERGENCY. 

23 Delay by a bank beyond the time limits prescribed 

24 or permitted by this Act is excused if the delay is caused 

25 by interruption of communication or computer facilities, 
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1 suspension of payments by another bank, war, emergency 

2 conditions, failure of equipment, or other circumstances 

3 beyond the control of a bank and if the bank uses such 

4 diligence as the circumstances require. 

5 SEC. 9. MEASURE OF DAMAGES. 

6 (a) LIABILITY.—

7 (1) IN GENERAL.—Except as provided in sec8 tion 5, any person who, in connection with a sub9 stitute check, breaches any warranty under this Act 

10 or fails to comply with any requirement imposed by, 

11 or regulation prescribed pursuant to, this Act with 

12 respect to any other person shall be liable to such 

13 person in an amount equal to the sum of—

14 (A) the lesser of—

15 (i) the amount of the loss suffered by 

16 the other person as a result of the breach 

17 or failure; or 

18 (ii) the amount of the substitute 

19 check; and 

20 (B) interest and expenses (including costs 

21 and reasonable attorney’s fees and other ex22 penses of representation) related to the sub23 stitute check. 

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

25 damages any person receives under paragraph (1), if 
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1 any, shall be reduced by the amount, if any, that the 

2 claimant receives and retains as a recredit under 

3 section 6 or 7. 

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

5 damages that resulted in whole or in part from the neg6 ligence or failure of that person to act in good faith, then 

7 the amount of any liability due to that person under sub8 section (a) shall be reduced in proportion to the amount 

9 of negligence or bad faith attributable to that person. 

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

11 (a) ACTIONS UNDER THIS ACT.—

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

13 under this Act may be brought in any United States 

14 district court, or in any other court of competent ju15 risdiction, before the end of the 1-year period begin16 ning on the date the cause of action accrues.

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

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

19 such person reasonably should have learned, of the 

20 facts and circumstances giving rise to the cause of 

21 action. 

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

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

24 the indemnifying or warranting bank within 30 days after 

25 the person has reason to know of the claim and the iden-
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1 tity of the indemnifying or warranting bank, the indem2 nifying or warranting bank is discharged to the extent of 

3 any loss caused by the delay in giving notice of the claim. 

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

5 claim by a consumer under section 6 for expedited recredit 

6 constitutes timely notice of a claim by the consumer for 

7 purposes of subsection (b). 

8 SEC. 11. CONSUMER AWARENESS. 

9 (a) IN GENERAL.—Each bank shall provide, in ac10 cordance with subsection (b), a brief notice about sub11 stitute checks that describes—

12 (1) the process of check substitution and how 

13 the process may be different than the check clearing 

14 process with which the consumer may be familiar; 

15 and

16 (2) a description of the consumer recredit 

17 rights established under section 6 when a consumer 

18 believes in good faith that a substitute check was 

19 not properly charged to the consumer’s account. 

20 (b) DISTRIBUTION.—

21 (1) EXISTING CUSTOMERS.—With respect to 

22 consumers that are customers of a bank on the ef23 fective date of this Act, a bank shall provide the no24 tice described in subsection (a) to each such con25 sumer no later than the first regularly scheduled 
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1 communication with the consumer after the effective 

2 date of this Act. 

3 (2) NEW ACCOUNT HOLDERS.—A bank shall 

4 provide the notice described in subsection (a) to each 

5 consumer, other than existing customers referred to 

6 in paragraph (1), at the time at which the customer 

7 relationship is initiated. 

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

9 the notices required by this subsection by United 

10 States mail or by any other means through which 

11 the consumer has agreed to receive account informa12 tion. 

13 (c) MODEL LANGUAGE.—

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

15 the date of enactment of this Act, the Board shall 

16 publish model forms and clauses that a depository 

17 institution may use to describe each of the elements 

18 required by subsection (a). 

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

20 being in compliance with the requirements of sub21 section (a) if the bank’s substitute check notice uses 

22 a model form or clause published by the Board and 

23 such model form or clause accurately describes the 

24 bank’s policies and practices. A bank may delete any 
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1 information in the model form or clause that is not 

2 required by this Act or rearrange the format. 

3 (3) USE OF MODEL LANGUAGE NOT RE4 QUIRED.—This section shall not be construed as re5 quiring any bank to use a model form or clause that 

6 the Board prepares under this subsection. 

7 SEC. 12. EFFECT ON OTHER LAW. 

8 This Act shall supersede any provision of Federal or 

9 State law, including the Uniform Commercial Code, that 

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

11 inconsistency. 

12 SEC. 13. VARIATION BY AGREEMENT. 

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

14 varied by agreement of the banks involved. 

15 (b) NO OTHER PROVISIONS MAY BE VARIED.—Ex16 cept as provided in subsection (a), no provision of this Act 

17 may be varied by agreement of any person or persons. 

18 SEC. 14. REGULATIONS. 

19 The Board may, by regulation, clarify or otherwise 

20 implement the provisions of this Act or may modify the 

21 requirements imposed by this Act with respect to sub22 stitute checks to further the purposes of this Act, includ23 ing reducing risk, accommodating technological or other 

24 developments, and alleviating undue compliance burdens. 
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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.

Æ