IIB 

108TH CONGRESS 

1ST SESSION H. R. 1474

IN THE SENATE OF THE UNITED STATES 

JUNE 5, 2003

Received; read twice and referred to the Committee on Banking, Housing, and 

Urban Affairs 

AN ACT

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.
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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’’ or the ‘‘Check 

6 21 Act’’. 

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

8 (1) In the Expedited Funds Availability Act, 

9 enacted on August 10, 1987, the Congress directed 

10 the Board of Governors of the Federal Reserve Sys11 tem to consider establishing regulations requiring 

12 Federal reserve banks and depository institutions to 

13 provide for check truncation, in order to improve the 

14 check processing system. 

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

16 (A) provided the Board of Governors of the 

17 Federal Reserve System with full authority to 

18 regulate all aspects of the payment system, in19 cluding the receipt, payment, collection, and 

20 clearing of checks, and related functions of the 

21 payment system pertaining to checks; and 

22 (B) directed that the exercise of such au23 thority by the Board superseded any State law, 

24 including the Uniform Commercial Code, as in 

25 effect in any State. 
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1 (3) Check truncation is no less desirable today 

2 for both financial service customers and the financial 

3 services industry, to reduce costs, improve efficiency 

4 in check collections, and expedite funds availability 

5 for customers than it was over 15 years ago when 

6 Congress first directed the Board to consider estab7 lishing such a process. 

8 (c) PURPOSES.—The purposes of this Act are as fol9 lows: 

10 (1) To facilitate check truncation by author11 izing substitute checks. 

12 (2) To foster innovation in the check collection 

13 system without mandating receipt of checks in elec14 tronic form. 

15 (3) To improve the overall efficiency of the Na16 tion’s payments system. 

17 SEC. 2. DEFINITIONS. 

18 For purposes of this Act, the following definitions 

19 shall apply: 

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

21 deposit account at a bank. 

22 (2) BANK.—The term ‘‘bank’’ means any per23 son that is located in a State and engaged in the 

24 business of banking and includes—
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1 (A) any depository institution (as defined 

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

3 Act); 

4 (B) any Federal reserve bank; 

5 (C) any Federal home loan bank; or 

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

7 (i) the Treasury of the United States; 

8 (ii) the United States Postal Service; 

9 (iii) a State government; or 

10 (iv) a unit of general local government 

11 (as defined in section 602(24) of the Expe12 dited Funds Availability Act). 

13 (3) BANKING TERMS.—

14 (A) CLAIMANT BANK.—The term ‘‘claim15 ant bank’’ means a bank that submits a claim 

16 for recredit under section 7 to an indemnifying 

17 bank. 

18 (B) COLLECTING BANK.—The term ‘‘col19 lecting bank’’ means any bank handling a check 

20 for collection except the paying bank. 

21 (C) DEPOSITARY BANK.—The term ‘‘de22 positary bank’’ means—

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

24 transferred, even if such bank is also the 

25 paying bank or the payee; or 
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1 (ii) a bank to which a check is trans2 ferred for deposit in an account at such 

3 bank, even if the check is physically re4 ceived and indorsed first by another bank. 

5 (D) PAYING BANK.—The term ‘‘paying 

6 bank’’ means— 

7 (i) the bank by which a check is pay8 able, unless the check is payable at or 

9 through another bank and is sent to the 

10 other bank for payment or collection; or 

11 (ii) the bank at or through which a 

12 check is payable and to which the check is 

13 sent for payment or collection. 

14 (E) RETURNING BANK.—

15 (i) IN GENERAL.—The term ‘‘return16 ing bank’’ means a bank (other than the 

17 paying or depositary bank) handling a re18 turned check or notice in lieu of return. 

19 (ii) TREATMENT AS COLLECTING

20 BANK.—No provision of this Act shall be 

21 construed as affecting the treatment of a 

22 returning bank as a collecting bank for 

23 purposes of section 4–202(b) of the Uni24 form Commercial Code. 
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1 (4) BOARD.—The term ‘‘Board’’ means the 

2 Board of Governors of the Federal Reserve System. 

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

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

5 Expedited Funds Availability Act. 

6 (6) CHECK.—The term ‘‘check’’—

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

8 drawn on or payable through or at an office of 

9 a bank, whether or not negotiable, that is han10 dled for forward collection or return, including 

11 a substitute check and a travelers check; and 

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

13 item payable in a medium other than United 

14 States dollars. 

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

16 an individual who—

17 (A) with respect to a check handled for 

18 forward collection, draws the check on a con19 sumer account; or 

20 (B) with respect to a check handled for re21 turn, deposits the check into, or cashes the 

22 check against, a consumer account. 

23 (8) CONSUMER ACCOUNT.—The term ‘‘con24 sumer account’’ has the same meaning as in section 

25 602(10) of the Expedited Funds Availability Act. 
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1 (9) CUSTOMER.—The term ‘‘customer’’ means 

2 a person having an account with a bank. 

3 (10) FORWARD COLLECTION.—The term ‘‘for4 ward collection’’ means the transfer by a bank of a 

5 check to a collecting bank for settlement or the pay6 ing bank for payment. 

7 (11) INDEMNIFYING BANK.—The term ‘‘indem8 nifying bank’’ means a bank that is providing an in9 demnity under section 5 with respect to a substitute 

10 check. 

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

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

13 numbers, which may include the bank routing num14 ber, account number, check number, check amount, 

15 and other information, that are printed near the bot16 tom of a check in magnetic ink in accordance with 

17 generally applicable industry standards. 

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

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

20 of the Expedited Funds Availability Act. 

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

22 natural person, corporation, unincorporated com23 pany, partnership, government unit or instrumen24 tality, trust, or any other entity or organization. 
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1 (15) RECONVERTING BANK.—The term ‘‘recon2 verting bank’’ means—

3 (A) the bank that creates a substitute 

4 check; or 

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

6 person other than a bank, the first bank that 

7 transfers or presents such substitute check. 

8 (16) SUBSTITUTE CHECK.—The term ‘‘sub9 stitute check’’ means a paper reproduction of the 

10 original check that—

11 (A) contains an image of the front and 

12 back of the original check; 

13 (B) bears a MICR line containing all the 

14 information appearing on the MICR line of the 

15 original check, except as provided under gen16 erally applicable industry standards for sub17 stitute checks to facilitate the processing of 

18 substitute checks; 

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

20 and otherwise, with generally applicable indus21 try standards for substitute checks; and 

22 (D) is suitable for automated processing in 

23 the same manner as the original check. 
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1 (17) STATE.—The term ‘‘State’’ has the same 

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

3 Insurance Act. 

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

5 to remove an original paper check from the check 

6 collection or return process and send to a recipient, 

7 in lieu of such original paper check, a substitute 

8 check or, by agreement, information relating to the 

9 original check (including data taken from the MICR 

10 line of the original check or an electronic image of 

11 the original check), whether with or without subse12 quent delivery of the original paper check. 

13 (19) UNIFORM COMMERCIAL CODE.—The term 

14 ‘‘Uniform Commercial Code’’ means the Uniform 

15 Commercial Code in effect in a State. 

16 (20) OTHER TERMS.—Unless the context re17 quires otherwise, the terms not defined in this sec18 tion shall have the same meanings as in the Uniform 

19 Commercial Code. 

20 SEC. 3. GENERAL PROVISIONS GOVERNING SUBSTITUTE 

21 CHECKS. 

22 (a) NO AGREEMENT REQUIRED.—A person may de23 posit, present, or send for collection or return a substitute 

24 check without an agreement with the recipient, so long as 
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1 a bank has made the warranties in section 4 with respect 

2 to such substitute check. 

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

4 be the legal equivalent of the original check for all pur5 poses, including any provision of any Federal or State law, 

6 and for all persons if the substitute check—

7 (1) accurately represents all of the information 

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

9 time the original check was truncated; and 

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

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

12 use the original check.’’. 

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

14 substitute check for which the bank is the reconverting 

15 bank bears all endorsements applied by parties that pre16 viously handled the check (whether in electronic form or 

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

18 check) for forward collection or return. 

19 (d) IDENTIFICATION OF RECONVERTING BANK.—A 

20 bank shall identify itself as a reconverting bank on any 

21 substitute check for which the bank is a reconverting bank 

22 so as to preserve any previous reconverting bank identi23 fications in conformance with generally applicable industry 

24 standards. 
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1 (e) APPLICABLE LAW.—A substitute check that is 

2 the legal equivalent of the original check under subsection 

3 (b) shall be subject to any provision, including any provi4 sion relating to the protection of customers, of part 229 

5 of title 12 of the Code of Federal Regulations, the Uni6 form Commercial Code, and any other applicable Federal 

7 or State law as if such substitute check were the original 

8 check, to the extent such provision of law is not incon9 sistent with this Act. 

10 SEC. 4. SUBSTITUTE CHECK WARRANTIES. 

11 A bank that transfers, presents, or returns a sub12 stitute check and receives consideration for the check war13 rants, as a matter of law, to the transferee, any subse14 quent collecting or returning bank, the depositary bank, 

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

16 endorser (regardless of whether the warrantee receives the 

17 substitute check or another paper or electronic form of 

18 the substitute check or original check) that—

19 (1) the substitute check meets all the require20 ments for legal equivalence under section 3(b); and 

21 (2) no depositary bank, drawee, drawer, or en22 dorser will receive presentment or return of the sub23 stitute check, the original check, or a copy or other 

24 paper or electronic version of the substitute check or 

25 original check such that the bank, drawee, drawer, 
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1 or endorser will be asked to make a payment based 

2 on a check that the bank, drawee, drawer, or en3 dorser has already paid. 

4 SEC. 5. INDEMNITY. 

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

6 that subsequently transfers, presents, or returns a sub7 stitute check in any electronic or paper form, and receives 

8 consideration for such transfer, presentment, or return 

9 shall indemnify the transferee, any subsequent collecting 

10 or returning bank, the depositary bank, the drawee, the 

11 drawer, the payee, the depositor, and any endorser, up to 

12 the amount described in subsections (b) and (c), as appli13 cable, to the extent of any loss incurred by any recipient 

14 of a substitute check if that loss occurred due to the re15 ceipt of a substitute check instead of the original check. 

16 (b) INDEMNITY AMOUNT.—

17 (1) AMOUNT IN EVENT OF BREACH OF WAR18 RANTY.—The amount of the indemnity under sub19 section (a) shall be the amount of any loss (includ20 ing costs and reasonable attorney’s fees and other 

21 expenses of representation) proximately caused by a 

22 breach of a warranty provided under section 4. 

23 (2) AMOUNT IN ABSENCE OF BREACH OF WAR24 RANTY.—In the absence of a breach of a warranty 
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1 provided under section 4, the amount of the indem2 nity under subsection (a) shall be the sum of—

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

4 amount of the substitute check; and 

5 (B) interest and expenses (including costs 

6 and reasonable attorney’s fees and other ex7 penses of representation). 

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

9 in subsection (a) results in whole or in part from the neg10 ligence or failure to act in good faith on the part of an 

11 indemnified party, then that party’s indemnification under 

12 this section shall be reduced in proportion to the amount 

13 of negligence or bad faith attributable to that party. 

14 (d) EFFECT OF PRODUCING ORIGINAL CHECK OR

15 COPY.—

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

17 produces the original check or a copy of the original 

18 check (including an image or a substitute check) 

19 that accurately represents all of the information on 

20 the front and back of the original check (as of the 

21 time the original check was truncated) or is other22 wise sufficient to determine whether or not a claim 

23 is valid, the indemnifying bank shall—

24 (A) be liable under this section only for 

25 losses covered by the indemnity that are in-
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1 curred up to the time the original check or such 

2 copy is provided to the indemnified party; and 

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

4 the bank has paid under the indemnity in ex5 cess of those losses. 

6 (2) COORDINATION OF INDEMNITY WITH IM7 PLIED WARRANTY.—The production of the original 

8 check, a substitute check, or a copy under paragraph 

9 (1) by an indemnifying bank shall not absolve the 

10 bank from any liability on a warranty established 

11 under this Act or any other provision of law. 

12 (e) SUBROGATION OF RIGHTS.—

13 (1) IN GENERAL.—Each indemnifying bank 

14 shall be subrogated to the rights of any indemnified 

15 party to the extent of the indemnity. 

16 (2) RECOVERY UNDER WARRANTY.—A bank 

17 that indemnifies a party under this section may at18 tempt to recover from another party based on a war19 ranty or other claim. 

20 (3) DUTY OF INDEMNIFIED PARTY.—Each in21 demnified party shall have a duty to comply with all 

22 reasonable requests for assistance from an indem23 nifying bank in connection with any claim the in24 demnifying bank brings against a warrantor or other 
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1 party related to a check that forms the basis for the 

2 indemnification. 

3 SEC. 6. EXPEDITED RECREDIT FOR CONSUMERS. 

4 (a) RECREDIT CLAIMS.—

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

6 claim for expedited recredit from the bank that 

7 holds the account of the consumer with respect to a 

8 substitute check, if the consumer asserts in good 

9 faith that—

10 (A) the bank charged the consumer’s ac11 count for a substitute check that was provided 

12 to the consumer; 

13 (B) either—

14 (i) the check was not properly charged 

15 to the consumer’s account; or 

16 (ii) the consumer has a warranty 

17 claim with respect to such substitute 

18 check; 

19 (C) the consumer suffered a resulting loss; 

20 and 

21 (D) the production of the original check or 

22 a better copy of the original check is necessary 

23 to determine the validity of any claim described 

24 in subparagraph (B). 
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1 (2) 30-DAY PERIOD.—Any claim under para2 graph (1) with respect to a consumer account may 

3 be submitted by a consumer before the end of the 

4 30-day period beginning on the later of—

5 (A) the date on which the consumer re6 ceives the periodic statement of account for 

7 such account which contains information con8 cerning the transaction giving rise to the claim; 

9 or 

10 (B) the date the substitute check is made 

11 available to the consumer. 

12 (3) EXTENSION UNDER EXTENUATING CIR13 CUMSTANCES.—If the consumer’s ability to submit 

14 the claim within the 30-day period under paragraph 

15 (2) is delayed due to extenuating circumstances, in16 cluding extended travel or the illness of the con17 sumer, the 30-day period shall be extended for a 

18 total not to exceed 30 additional days. 

19 (b) PROCEDURES FOR CLAIMS.—

20 (1) IN GENERAL.—To make a claim for an ex21 pedited recredit under subsection (a) with respect to 

22 a substitute check, the consumer shall provide to the 

23 bank that holds the account of such consumer—

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

25 explanation of—
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1 (i) why the substitute check was not 

2 properly charged to the consumer’s ac3 count; or 

4 (ii) the warranty claim with respect to 

5 such check; 

6 (B) a statement that the consumer suf7 fered a loss and an estimate of the amount of 

8 the loss; 

9 (C) the reason why production of the origi10 nal check or a better copy of the original check 

11 is necessary to determine the validity of the 

12 charge to the consumer’s account or the war13 ranty claim; and 

14 (D) sufficient information to identify the 

15 substitute check and to investigate the claim. 

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

17 consumer account that is the subject of a claim by 

18 the consumer under subsection (a) may, in the dis19 cretion of the bank, require the consumer to submit 

20 the information required under paragraph (1) in 

21 writing. 

22 (c) RECREDIT TO CONSUMER.—

23 (1) CONDITIONS FOR RECREDIT.—The bank 

24 shall recredit a consumer account in accordance with 
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1 paragraph (2) for the amount of a substitute check 

2 that was charged against the consumer account if—

3 (A) a consumer submits a claim to the 

4 bank with respect to that substitute check that 

5 meets the requirement of subsection (b); and 

6 (B) the bank has not provided to the con7 sumer the original check, a substitute check, or 

8 a copy of the original check and demonstrates 

9 that the substitute check was properly charged 

10 to the consumer’s account. 

11 (2) TIMING OF RECREDIT.—

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

13 the consumer’s account for the amount de14 scribed in paragraph (1) no later than the end 

15 of the business day following the business day 

16 on which the bank determines the consumer’s 

17 claim is valid. 

18 (B) RECREDIT PENDING INVESTIGA19 TION.—If the bank has not yet determined that 

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

21 the 10th business day after the business day on 

22 which the consumer submitted the claim, the 

23 bank shall recredit the consumer’s account 

24 for—
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1 (i) the lesser of the amount of the 

2 substitute check that was charged against 

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

4 with interest if the account is an interest5 bearing account, no later than the end of 

6 such 10th 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 

13 the consumer submits the claim. 

14 (d) AVAILABILITY OF RECREDIT.—

15 (1) NEXT BUSINESS DAY AVAILABILITY.—Ex16 cept as provided in paragraph (2), a bank that pro17 vides a recredit to a consumer account under sub18 section (c) shall make the recredited funds available 

19 for withdrawal by the consumer by the start of the 

20 next business day after the business day on which 

21 the bank recredits the consumer’s account under 

22 subsection (c). 

23 (2) SAFEGUARD EXCEPTIONS.—A bank may 

24 delay availability to a consumer of a recredit pro25 vided under subsection (c)(2)(B)(i) until the start of 
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1 either the business day following the business day on 

2 which the bank determines that the consumer’s 

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

4 business day on which the consumer submits a claim 

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

6 whichever is earlier, in any of the following cir7 cumstances: 

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

9 during the 30-day period beginning on the busi10 ness day the consumer account was established. 

11 (B) REPEATED OVERDRAFTS.—Without 

12 regard to the charge that is the subject of the 

13 claim for which the recredit was made—

14 (i) on 6 or more business days during 

15 the 6-month period ending on the date on 

16 which the consumer submits the claim, the 

17 balance in the consumer account was nega18 tive or would have become negative if 

19 checks or other charges to the account had 

20 been paid; or 

21 (ii) on 2 or more business days during 

22 such 6-month period, the balance in the 

23 consumer account was negative or would 

24 have become negative in the amount of 
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1 $5,000 or more if checks or other charges 

2 to the account had been paid. 

3 (C) PREVENTION OF FRAUD LOSSES.—The 

4 bank has reasonable cause to believe that the 

5 claim is fraudulent, based on facts (other than 

6 the fact that the check in question or the con7 sumer is of a particular class) that would cause 

8 a well-grounded belief in the mind of a reason9 able person that the claim is fraudulent. 

10 (3) OVERDRAFT FEES.—No bank that, in ac11 cordance with paragraph (2), delays the availability 

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

13 account may impose any overdraft fees with respect 

14 to drafts drawn by the consumer on such recredited 

15 amount before the end of the 5-day period beginning 

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

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

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

19 a recredit to a consumer account if the bank—

20 (1) determines that a substitute check for which 

21 the bank recredited a consumer account under sub22 section (c) was in fact properly charged to the con23 sumer account; and 

24 (2) notifies the consumer in accordance with 

25 subsection (f)(3). 
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1 (f) NOTICE TO CONSUMER.—

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

3 If a bank determines that a substitute check subject 

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

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

6 the consumer, no later than the business day fol7 lowing the business day on which the bank makes a 

8 determination—

9 (A) the original check or a copy of the 

10 original check (including an image or a sub11 stitute check) that—

12 (i) accurately represents all of the in13 formation on the front and back of the 

14 original check (as of the time the original 

15 check was truncated); or 

16 (ii) is otherwise sufficient to deter17 mine whether or not the consumer’s claim 

18 is valid; and 

19 (B) an explanation of the basis for the de20 termination by the bank that the substitute 

21 check was properly charged, including copies of 

22 any information or documents on which the 

23 bank relied in making the determination. 

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

25 a consumer account under subsection (c), the bank 
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1 shall send to the consumer, no later than the busi2 ness day following the business day on which the 

3 bank makes the recredit, a notice of—

4 (A) the amount of the recredit; and 

5 (B) the date the recredited funds will be 

6 available for withdrawal. 

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

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

9 if a bank reverses a recredited amount under sub10 section (e), the bank shall send to the consumer, no 

11 later than the business day following the business 

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

13 of—

14 (A) the amount of the reversal; and 

15 (B) the date the recredit was reversed. 

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

17 this subsection shall be delivered by United States 

18 mail or by any other means through which the con19 sumer has agreed to receive account information. 

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

21 recredit in accordance with this section shall not absolve 

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

23 law, such as a claim for wrongful dishonor under the Uni24 form Commercial Code, or from liability for additional 

25 damages under section 5 or 9. 
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1 (h) CLARIFICATION CONCERNING CONSUMER POS2 SESSION.—A consumer who was provided a substitute 

3 check may make a claim for an expedited recredit under 

4 this section with regard to a transaction involving the sub5 stitute check whether or not the consumer is in possession 

6 of the substitute check. 

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

8 apply to customers who are consumers. 

9 SEC. 7. EXPEDITED RECREDIT PROCEDURES FOR BANKS. 

10 (a) RECREDIT CLAIMS.—

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

12 against an indemnifying bank for expedited recredit 

13 for which that bank is indemnified if—

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

15 claimant bank has indemnified) has received a 

16 claim for expedited recredit from a consumer 

17 under section 6 with respect to a substitute 

18 check or would have been subject to such a 

19 claim had the consumer’s account been charged; 

20 (B) the claimant bank has suffered a re21 sulting loss or is obligated to recredit a con22 sumer account under section 6 with respect to 

23 such substitute check; and 

24 (C) production of the original check, an25 other substitute check, or a better copy of the 
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1 original check is necessary to determine the va2 lidity of the charge to the customer account or 

3 any warranty claim connected with such sub4 stitute check. 

5 (2) 120-DAY PERIOD.—Any claim under para6 graph (1) may be submitted by the claimant bank 

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

8 day beginning on the date of the transaction that 

9 gave rise to the claim. 

10 (b) PROCEDURES FOR CLAIMS.—

11 (1) IN GENERAL.—To make a claim under sub12 section (a) for an expedited recredit relating to a 

13 substitute check, the claimant bank shall send to the 

14 indemnifying bank—

15 (A) a description of—

16 (i) the claim, including an explanation 

17 of why the substitute check cannot be 

18 properly charged to the consumer account; 

19 or 

20 (ii) the warranty claim; 

21 (B) a statement that the claimant bank 

22 has suffered a loss or is obligated to recredit 

23 the consumer’s account under section 6, to24 gether with an estimate of the amount of the 

25 loss or recredit; 
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1 (C) the reason why production of the origi2 nal check, another substitute check, or a better 

3 copy of the original check is necessary to deter4 mine the validity of the charge to the consumer 

5 account or the warranty claim; and 

6 (D) information sufficient for the indem7 nifying bank to identify the substitute check 

8 and to investigate the claim. 

9 (2) REQUIREMENTS RELATING TO COPIES OF

10 SUBSTITUTE CHECKS.—If the information submitted 

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

12 connection with a claim for an expedited recredit in13 cludes a copy of any substitute check for which any 

14 such claim is made, the claimant bank shall take 

15 reasonable steps to ensure that any such copy can16 not be—

17 (A) mistaken for the legal equivalent of the 

18 check under section 3(b); or 

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

20 the indemnifying bank, as a forward collection 

21 or returned check. 

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

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

24 bank to submit in writing the information required 

25 by paragraph (1), including a copy of the written 
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1 claim, if any, that the consumer submitted in ac2 cordance with section 6(b). 

3 (c) RECREDIT BY INDEMNIFYING BANK.—

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

5 10 business days after the business day on which an 

6 indemnifying bank receives a claim under subsection 

7 (a) from a claimant bank with respect to a sub8 stitute check, the indemnifying bank shall—

9 (A) provide, to the claimant bank, the 

10 original check (with respect to such substitute 

11 check) or a copy of the original check (including 

12 an image or a substitute check) that—

13 (i) accurately represents all of the in14 formation on the front and back of the 

15 original check (as of the time the original 

16 check was truncated); or 

17 (ii) is otherwise sufficient to deter18 mine the bank’s claim is not valid; and 

19 (B) recredit the claimant bank for the 

20 amount of the claim up to the amount of the 

21 substitute check, plus interest if applicable; or 

22 (C) provide information to the claimant 

23 bank as to why the indemnifying bank is not 

24 obligated to comply with subparagraph (A) or 

25 (B). 
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1 (2) RECREDIT DOES NOT ABROGATE OTHER LI2 ABILITIES.—Providing a recredit under this sub3 section to a claimant bank with respect to a sub4 stitute check shall not absolve the indemnifying bank 

5 from liability for claims brought under any other law 

6 or from additional damages under section 5 or 9 

7 with respect to such check. 

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

9 claimant bank reverses, in accordance with section 

10 6(e), a recredit previously made to a consumer ac11 count under section 6(c), or otherwise receives a 

12 credit or recredit with regard to such substitute 

13 check, the claimant bank shall promptly refund to 

14 any indemnifying bank any amount previously ad15 vanced by the indemnifying bank in connection with 

16 such substitute check. 

17 (d) PRODUCTION OF ORIGINAL CHECK OR A SUFFI18 CIENT COPY GOVERNED BY SECTION 5(d).—If the indem19 nifying bank provides the claimant bank with the original 

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

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

22 5(d) shall govern any right of the indemnifying bank to 

23 any repayment of any funds the indemnifying bank has 

24 recredited to the claimant bank pursuant to subsection (c). 
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1 SEC. 8. DELAYS IN AN EMERGENCY. 

2 Delay by a bank beyond the time limits prescribed 

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

4 by interruption of communication or computer facilities, 

5 suspension of payments by another bank, war, emergency 

6 conditions, failure of equipment, or other circumstances 

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

8 diligence as the circumstances require. 

9 SEC. 9. MEASURE OF DAMAGES. 

10 (a) LIABILITY.—

11 (1) IN GENERAL.—Except as provided in sec12 tion 5, any person who, in connection with a sub13 stitute check, breaches any warranty under this Act 

14 or fails to comply with any requirement imposed by, 

15 or regulation prescribed pursuant to, this Act with 

16 respect to any other person shall be liable to such 

17 person in an amount equal to the sum of—

18 (A) the lesser of—

19 (i) the amount of the loss suffered by 

20 the other person as a result of the breach 

21 or failure; or 

22 (ii) the amount of the substitute 

23 check; and 

24 (B) interest and expenses (including costs 

25 and reasonable attorney’s fees and other ex-
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1 penses of representation) related to the sub2 stitute check. 

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

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

5 any, shall be reduced by the amount, if any, that the 

6 claimant receives and retains as a recredit under 

7 section 6 or 7. 

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

9 damages that resulted in whole or in part from the neg10 ligence or failure of that person to act in good faith, then 

11 the amount of any liability due to that person under sub12 section (a) shall be reduced in proportion to the amount 

13 of negligence or bad faith attributable to that person. 

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

15 (a) ACTIONS UNDER THIS ACT.—

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

17 under this Act may be brought in any United States 

18 district court, or in any other court of competent ju19 risdiction, before the end of the 1-year period begin20 ning on the date the cause of action accrues. 

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

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

23 such person reasonably should have learned, of the 

24 facts and circumstances giving rise to the cause of 

25 action. 
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1 (b) DISCHARGE OF CLAIMS.—Except as provided in 

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

3 the indemnifying or warranting bank within 30 days after 

4 the person has reason to know of the claim and the iden5 tity of the indemnifying or warranting bank, the indem6 nifying or warranting bank is discharged to the extent of 

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

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

9 claim by a consumer under section 6 for expedited recredit 

10 constitutes timely notice of a claim by the consumer for 

11 purposes of subsection (b). 

12 SEC. 11. CONSUMER AWARENESS. 

13 (a) IN GENERAL.—Each bank shall provide, in ac14 cordance with subsection (b), a brief notice about sub15 stitute checks that describes—

16 (1) the process of check substitution and how 

17 the process may be different than the check clearing 

18 process with which the consumer may be familiar; 

19 and 

20 (2) a description of the consumer recredit 

21 rights established under section 6 when a consumer 

22 believes in good faith that a substitute check was 

23 not properly charged to the consumer’s account. 

24 (b) DISTRIBUTION.—
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1 (1) EXISTING CUSTOMERS.—With respect to 

2 consumers that are customers of a bank on the ef3 fective date of this Act, a bank shall provide the no4 tice described in subsection (a) to each such con5 sumer no later than the first regularly scheduled 

6 communication with the consumer after the effective 

7 date of this Act. 

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

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

10 consumer, other than existing customers referred to 

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

12 relationship is initiated. 

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

14 the notices required by this subsection by United 

15 States mail or by any other means through which 

16 the consumer has agreed to receive account informa17 tion. 

18 (c) MODEL LANGUAGE.—

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

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

21 publish model forms and clauses that a depository 

22 institution may use to describe each of the elements 

23 required by subsection (a). 

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

25 being in compliance with the requirements of sub-
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1 section (a) if the bank’s substitute check notice uses 

2 a model form or clause published by the Board and 

3 such model form or clause accurately describes the 

4 bank’s policies and practices. A bank may delete any 

5 information in the model form or clause that is not 

6 required by this Act or rearrange the format. 

7 (3) USE OF MODEL LANGUAGE NOT RE8 QUIRED.—This section shall not be construed as re9 quiring any bank to use a model form or clause that 

10 the Board prepares under this subsection. 

11 SEC. 12. EFFECT ON OTHER LAW. 

12 This Act shall supersede any provision of Federal or 

13 State law, including the Uniform Commercial Code, that 

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

15 inconsistency. 

16 SEC. 13. VARIATION BY AGREEMENT. 

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

18 varied by agreement of the banks involved. 

19 (b) NO OTHER PROVISIONS MAY BE VARIED.—Ex20 cept as provided in subsection (a), no provision of this Act 

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

22 SEC. 14. REGULATIONS. 

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

24 clarify or otherwise implement the provisions of this Act 

25 or may modify the requirements imposed by this Act with 
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1 respect to substitute checks to further the purposes of this 

2 Act, including reducing risk, accommodating technological 

3 or other developments, and alleviating undue compliance 

4 burdens. 

5 (b) BOARD MONITORING OF CHECK COLLECTION

6 AND RETURN PROCESS; ADJUSTMENT OF TIME PERI7 ODS.—

8 (1) MONITORING OF CHECK COLLECTION AND

9 RETURN PROCESS.—The Board shall monitor the ex10 tent to which—

11 (A) original checks are converted to sub12 stitute checks in the check collection and return 

13 process, and 

14 (B) checks are collected and returned elec15 tronically rather than in paper form. 

16 (2) ADJUSTMENT OF TIME PERIODS.—The 

17 Board shall exercise the Board’s authority under 

18 section 603(d)(1) of the Expedited Funds Avail19 ability Act to reduce the time periods applicable 

20 under subsections (b) and (e) of section 603 of such 

21 Act for making funds available for withdrawal, when 

22 warranted. 

23 (c) PUBLICATION OF SCHEDULE BY BOARD FOR

24 CHECK TRANSPORTATION SERVICES.—Section 11A(b) of 
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1 the Federal Reserve Act (12 U.S.C. 248a(b)) is amend2 ed—

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

4 (7); 

5 (2) by redesignating paragraph (8) as para6 graph (9); and 

7 (3) by inserting after paragraph (7) the fol8 lowing new paragraph: 

9 ‘‘(8) check transportation services; and’’. 

10 SEC. 15. EFFECTIVE DATE. 

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

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

13 except as otherwise specifically provided in this Act.

Passed the House of Representatives June 5, 2003. 

Attest: JEFF TRANDAHL, 

Clerk.