In the Senate of the United States,

June 27 (legislative day, June 26), 2003.

Resolved, That the bill from the House of Representatives (H.R. 1474) entitled ‘‘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.’’, do pass with the following

AMENDMENT:

Strike out all after the enacting clause and insert:

1 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

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

3 ‘‘Check Truncation Act of 2003’’.
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1 (b) TABLE OF CONTENTS.—The table of contents for

2 this Act is as follows:

Sec. 1. Short title; table of contents.

Sec. 2. Findings and purposes.

Sec. 3. Definitions.

Sec. 4. General provisions governing substitute checks.

Sec. 5. Substitute check warranties.

Sec. 6. Indemnity.

Sec. 7. Expedited recredit for consumers.

Sec. 8. Expedited recredit procedures for banks.

Sec. 9. Delays in an emergency.

Sec. 10. Measure of damages.

Sec. 11. Statute of limitations and notice of claim.

Sec. 12. Consumer awareness.

Sec. 13. Effect on other law.

Sec. 14. Regulations.

Sec. 15. Study and report on funds availability.

Sec. 16. Evaluation and report by the Comptroller General.

Sec. 17. Variation by agreement.

Sec. 18. Effective date.

3 SEC. 2. FINDINGS AND PURPOSES.

4 (a) FINDINGS.—Congress finds that—

5 (1) the Expedited Funds Availability Act (12

6 U.S.C. 4001 et seq.)—

7 (A) directs the Board to consider estab8 lishing regulations requiring Federal reserve

9 banks and depository institutions to provide for

10 check truncation, in order to improve the check

11 processing system;

12 (B) authorizes the Board to regulate all as13 pects of the payment system, including the re14 ceipt, payment, collection, and clearing of checks,

15 and related functions of the payment system per16 taining to checks; and
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1 (C) directs that the exercise of such author2 ity by the Board shall supersede any State law,

3 including the Uniform Commercial Code, as in

4 effect in any State; and

5 (2) check truncation is no less desirable in 2003

6 for both financial service customers and the financial

7 services industry, to reduce costs, improve efficiency

8 in check collections, and expedite funds availability

9 for account holders than it was in 1987, when Con10 gress first directed the Board to consider establishing

11 such a process.

12 (b) PURPOSES.—The purposes of this Act are—

13 (1) to facilitate check truncation by authorizing

14 substitute checks;

15 (2) to foster innovation in the check collection

16 system without mandating receipt of checks in elec17 tronic form; and

18 (3) to improve the overall efficiency of the Na19 tion’s payments system.

20 SEC. 3. DEFINITIONS.

21 In this Act, the following definitions shall apply:

22 (1) ACCOUNT.—The term ‘‘account’’ means a de23 posit account at a bank.

24 (2) BANK.—The term ‘‘bank’’—
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1 (A) means any person located in a State

2 engaged in the business of banking, including

3 any depository institution; and

4 (B) includes—

5 (i) any Federal reserve bank;

6 (ii) any Federal home loan bank; and

7 (iii) to the extent that it acts as a

8 payor—

9 (I) the Treasury of the United

10 States;

11 (II) the United States Postal

12 Service;

13 (III) a State government; and

14 (IV) a unit of general local gov15 ernment.

16 (3) BANKING TERMS.—

17 (A) COLLECTING BANK.—The term ‘‘col18 lecting bank’’ means any bank handling a check

19 for collection except the paying bank.

20 (B) DEPOSITARY BANK.—The term ‘‘deposi21 tary bank’’ means—

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

23 transferred, even if such bank is also the

24 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 received

4 and endorsed first by another bank.

5 (C) DEPOSITORY INSTITUTION.—The term

6 ‘‘depository institution’’ has the same meaning

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

8 Act (12 U.S.C. 461(b)(1)(A)).

9 (D) PAYING BANK.—The term ‘‘paying

10 bank’’ means—

11 (i) the bank by which a check is pay12 able, unless the check is payable at or

13 through another bank and is sent to the

14 other bank for payment or collection; or

15 (ii) the bank at or through which a

16 check is payable and to which the check is

17 sent for payment or collection.

18 (E) RETURNING BANK.—

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

20 bank’’ means a bank (other than the paying

21 or depositary bank) handling a returned

22 check or notice in lieu of return.

23 (ii) TREATMENT AS COLLECTING

24 BANK.—No provision of this Act shall be

25 construed as affecting the treatment of a re-
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1 turning bank as a collecting bank for pur2 poses of section 4–202(b) of the Uniform

3 Commercial Code.

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

5 Board of Governors of the Federal Reserve System.

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

7 has the same meaning as in section 602(3) of the Ex8 pedited Funds Availability Act (12 U.S.C. 4001(3)).

9 (6) CHECK.—The term ‘‘check’’—

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

11 drawn on or payable through or at an office of

12 a bank, whether or not negotiable, that is han13 dled for forward collection or return, including a

14 substitute check and a travelers check; and

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

16 item payable in a medium other than United

17 States dollars.

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

19 an individual who—

20 (A) with respect to a check handled for for21 ward collection, draws the check on a consumer

22 account; or

23 (B) with respect to a check handled for re24 turn, deposits the check into, or cashes the check

25 against, a consumer account.
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1 (8) CONSUMER ACCOUNT.—The term ‘‘consumer

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

3 of the Expedited Funds Availability Act (12 U.S.C.

4 4001(10)).

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

6 person having an account with a bank.

7 (10) FORWARD COLLECTION.—The term ‘‘for8 ward collection’’ means the transfer by a bank of a

9 check to a collecting bank for settlement or the paying

10 bank for payment.

11 (11) INDEMNIFYING BANK.—The term ‘‘indem12 nifying bank’’ means a bank that is providing an in13 demnity under section 6 with respect to a substitute

14 check.

15 (12) MICR LINE.—The term ‘‘MICR line’’ or

16 ‘‘magnetic ink character recognition line’’ means the

17 numbers, which may include the bank routing num18 ber, account number, check number, check amount,

19 and other information, that are printed near the bot20 tom of a check in magnetic ink in accordance with

21 generally applicable industry standards.

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

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

24 Expedited Funds Availability Act (12 U.S.C.

25 4001(14)).
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1 (14) PERSON.—The term ‘‘person’’ means a nat2 ural person, corporation, unincorporated company,

3 partnership, government unit or instrumentality,

4 trust, or any other entity or organization.

5 (15) RECONVERTING BANK.—The term ‘‘recon6 verting bank’’ means—

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

8 or

9 (B) if a substitute check is created by a per10 son other than a bank, the first bank that trans11 fers or presents such substitute check.

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

13 check’’ means a paper reproduction of the original

14 check that—

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

16 of the original check;

17 (B) bears a MICR line containing all the

18 information appearing on the MICR line of the

19 original check, except as provided under gen20 erally applicable industry standards for sub21 stitute checks to facilitate the processing of sub22 stitute checks;

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

24 and otherwise, with generally applicable indus25 try standards for substitute checks; and
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1 (D) is suitable for automated processing in

2 the same manner as the original check.

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

4 meaning as in section 3(a) of the Federal Deposit In5 surance Act (12 U.S.C. 1813(a)).

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

7 remove an original paper check from the check collec8 tion or return process and send to a recipient, in lieu

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

10 agreement, information relating to the original check

11 (including data taken from the MICR line of the

12 original check or an electronic image of the original

13 check), whether with or without subsequent delivery of

14 the original paper check.

15 (19) UNIFORM COMMERCIAL CODE.—The term

16 ‘‘Uniform Commercial Code’’ means the Uniform

17 Commercial Code in effect in a State.

18 (20) UNIT OF GENERAL LOCAL GOVERNMENT.—

19 The term ‘‘unit of general local government’’ has the

20 same meaning as in section 602(24) of the Expedited

21 Funds Availability Act (12 U.S.C. 4001(24)).

22 (21) OTHER TERMS.—Unless the context requires

23 otherwise, terms used in this Act that are not defined

24 in this section shall have the same meanings as in the

25 Uniform Commercial Code.
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1 SEC. 4. GENERAL PROVISIONS GOVERNING SUBSTITUTE

2 CHECKS.

3 (a) NO AGREEMENT REQUIRED.—A person may de4 posit, present, or send for collection or return a substitute

5 check without an agreement with the recipient, to the extent

6 that the bank has made the warranties described in section

7 5 with respect to the substitute check.

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

9 the legal equivalent of an original check for all purposes,

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

11 for all persons, if the substitute check—

12 (1) accurately represents all of the information

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

14 time at which the original check was truncated; and

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

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

17 use the original check.’’.

18 (c) ENDORSEMENTS.—A reconverting bank shall en19 sure that the substitute check for which the bank is the re20 converting bank bears all endorsements applied by parties

21 that previously handled the check (whether in electronic

22 form or in the form of the original paper check or a sub23 stitute check) for forward collection or return.

24 (d) IDENTIFICATION OF RECONVERTING BANK.—A re25 converting bank shall identify itself as a reconverting bank

26 on any substitute check for which the bank is a reconverting
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1 bank, so as to preserve any previous reconverting bank iden2 tifications, in conformance with generally applicable indus3 try standards.

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

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

6 shall be subject to any provision, including any provision

7 relating to the protection of consumers, of part 229 of title

8 12, Code of Federal Regulations (or any successor thereto),

9 the Uniform Commercial Code, and any other applicable

10 Federal or State law that would apply if the substitute

11 check were the original check, to the extent that such provi12 sion of law is not inconsistent with this Act.

13 SEC. 5. SUBSTITUTE CHECK WARRANTIES.

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

15 check and receives consideration for the check warrants to

16 the transferee, any subsequent collecting or returning bank,

17 the depositary bank, the drawee, the drawer, the payee, the

18 depositor, and any endorser (regardless of whether the war19 rantee receives the substitute check or another paper or elec20 tronic form of the substitute or original check) that—

21 (1) the substitute check meets all the require22 ments for legal equivalence under section 4(b); and

23 (2) no depositary bank, drawee, drawer, or en24 dorser will receive presentment or return of the sub25 stitute check, the original check, or a copy or other
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1 paper or electronic version of the substitute check or

2 original check such that it will be asked to make a

3 payment based on a check it has already paid.

4 SEC. 6. INDEMNITY.

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

6 that subsequently transfers, presents, or returns a substitute

7 check in any electronic or paper form, and receives consid8 eration for such transfer, presentment, or return shall in9 demnify the transferee, any subsequent collecting or return10 ing bank, the depositary bank, the drawee, the drawer, the

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

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

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

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

15 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 (including

20 costs and reasonable attorney fees and other expenses

21 of representation) proximately caused by a breach of

22 a warranty established under section 5.

23 (2) AMOUNT IN ABSENCE OF BREACH OF WAR24 RANTY.—In the absence of a breach of a warranty es-
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1 tablished under section 5, 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 fees and other expenses

7 of representation).

8 (c) COMPARATIVE NEGLIGENCE.—

9 (1) IN GENERAL.—If a loss under subsection (a)

10 results in whole or in part from the negligence or fail11 ure to act in good faith on the part of an indemnified

12 party, then the indemnification of that party under

13 this section shall be reduced in proportion to the

14 amount of negligence or bad faith attributable to that

15 party.

16 (2) RULE OF CONSTRUCTION.—Nothing in this

17 subsection reduces the rights of a consumer or any

18 other person under the Uniform Commercial Code or

19 other applicable provision of Federal or State law.

20 (d) EFFECT OF PRODUCING ORIGINAL CHECK OR SUB21 STITUTE CHECK.—

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 at which the original check was truncated), or is oth3 erwise sufficient to determine whether or not a claim

4 is valid, 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 that the original check or copy is

8 provided to the indemnified party; and

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

10 it has paid under the indemnity in excess of

11 those losses.

12 (2) COORDINATION OF INDEMNITY WITH IMPLIED

13 WARRANTY.—The production of the original check,

14 substitute check, or 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 that the

5 indemnifying bank brings against a warrantor or

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

7 the indemnification.

8 SEC. 7. 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 account

16 for a substitute check that was provided to the

17 consumer;

18 (B) either—

19 (i) the check was not properly charged

20 to the consumer 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) 40-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 40-day

8 period beginning on the later of—

9 (A) the date on which the financial institu10 tion mails or delivers, by a means agreed to by

11 the consumer, the periodic statement of account

12 for such account which contains information

13 concerning the transaction giving rise to the

14 claim; or

15 (B) the date on which the substitute check

16 is made available to the consumer.

17 (3) EXTENSION UNDER EXTENUATING CIR18 CUMSTANCES.—If the ability of the consumer to sub19 mit the claim within the 40-day period under para20 graph (2) is delayed due to extenuating cir21 cumstances, including extended travel or the illness of

22 the consumer, the 40-day period shall be extended by

23 a reasonable amount of time.

24 (b) PROCEDURES FOR CLAIMS.—
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1 (1) IN GENERAL.—To make a claim for an expe2 dited recredit under subsection (a) with respect to a

3 substitute check, the consumer shall provide to the

4 bank that holds the account of such consumer—

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

6 explanation of—

7 (i) why the substitute check was not

8 properly charged to the subject consumer ac9 count; or

10 (ii) the warranty claim with respect to

11 such check;

12 (B) a statement that the consumer suffered

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

14 (C) the reason why production of the origi15 nal check or a better copy of the original check

16 is necessary to determine the validity of the

17 charge to the subject consumer account or the

18 warranty claim; and

19 (D) sufficient information to identify the

20 substitute check and to investigate the claim.

21 (2) CLAIM IN WRITING.—

22 (A) IN GENERAL.—The bank holding the

23 consumer account that is the subject of a claim

24 by the consumer under subsection (a) may, in

25 the discretion of the bank, require the consumer
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1 to submit the information required under para2 graph (1) in writing.

3 (B) MEANS OF SUBMISSION.—A bank that

4 requires a submission of information under sub5 paragraph (A) may permit the consumer to

6 make the submission electronically, if the con7 sumer has agreed to communicate with the bank

8 in that manner.

9 (c) RECREDIT TO CONSUMER.—

10 (1) CONDITIONS FOR RECREDIT.—The bank shall

11 recredit a consumer account in accordance with para12 graph (2) for the amount of a substitute check that

13 was charged against the consumer account, if—

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

15 with respect to that substitute check that meets

16 the requirement of subsection (b); and

17 (B) the bank has not—

18 (i) provided to the consumer—

19 (I) the original check; or

20 (II) a copy of the original check

21 (including an image or a substitute

22 check) that accurately represents all of

23 the information on the front and back

24 of the original check, as of the time at
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1 which the original check was trun2 cated; and

3 (ii) demonstrated to the consumer that

4 the substitute check was properly charged to

5 the consumer account.

6 (2) TIMING OF RECREDIT.—

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

8 the subject consumer account for the amount de9 scribed in paragraph (1) not later than the end

10 of the business day following the business day on

11 which the bank determines the claim of the con12 sumer is valid.

13 (B) RECREDIT PENDING INVESTIGATION.—

14 If the bank has not determined that the claim of

15 the consumer is valid before the end of the 10th

16 business day after the business day on which the

17 consumer submitted the claim, the bank shall re18 credit the subject consumer account for—

19 (i) the lesser of the amount of the sub20 stitute check that was charged against the

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

22 interest if the account is an interest-bearing

23 account, not later than the end of such 10th

24 business day; and
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1 (ii) the remaining amount of the sub2 stitute check that was charged against the

3 consumer account, if any, together with in4 terest if the account is an interest-bearing

5 account, not later than the 45th calendar

6 day following the business day on which the

7 consumer submits the claim.

8 (d) AVAILABILITY OF RECREDIT.—

9 (1) NEXT BUSINESS DAY AVAILABILITY.—Except

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

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

12 shall make the recredited funds available for with13 drawal by the consumer by the start of the next busi14 ness day after the business day on which the bank re15 credits the consumer account under subsection (c).

16 (2) SAFEGUARD EXCEPTIONS.—A bank may

17 delay availability to a consumer of a recredit pro18 vided under subsection (c)(2)(B)(i) until the start of

19 either the business day following the business day on

20 which the bank determines that the claim of the con21 sumer is valid, or the 45th calendar day following the

22 business day on which the consumer submits a claim

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

24 whichever is earlier, in any of the following cir25 cumstances:
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1 (A) NEW ACCOUNTS.—The claim is made

2 during the 30-day period beginning on the busi3 ness day on which the consumer account was es4 tablished.

5 (B) REPEATED OVERDRAFTS.—Without re6 gard to the charge that is the subject of the claim

7 for which the recredit was made—

8 (i) on 6 or more business days during

9 the 6-month period ending on the date on

10 which the consumer submits the claim, the

11 balance in the consumer account was nega12 tive or would have become negative if checks

13 or other charges to the account had been

14 paid; or

15 (ii) on 2 or more business days during

16 such 6-month period, the balance in the con17 sumer account was negative or would have

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

19 more if checks or other charges to the ac20 count had been paid.

21 (C) PREVENTION OF FRAUD LOSSES.—The

22 bank has reasonable cause to believe that the

23 claim is fraudulent, based on facts (other than

24 the fact that the check in question or the con25 sumer is of a particular class) that would cause
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1 a well-grounded belief in the mind of a reason2 able person that the claim is fraudulent.

3 (3) OVERDRAFT FEES.—No bank that, in accord4 ance with paragraph (2), delays the availability of a

5 recredit under subsection (c) to any consumer account

6 may impose any overdraft fees with respect to drafts

7 drawn by the consumer on such recredited amount be8 fore the end of the 5-day period beginning on the date

9 on which notice of the delay in the availability of

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

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

12 recredit to a consumer account if the bank—

13 (1) determines that a substitute check for which

14 the bank recredited a consumer account under sub15 section (c) was in fact properly charged to the con16 sumer account; and

17 (2) notifies the consumer in accordance with sub18 section (f)(3).

19 (f) NOTICE TO CONSUMER.—

20 (1) NOTICE IF CONSUMER CLAIM NOT VALID.—If

21 a bank determines that a substitute check subject to

22 the claim of a consumer under this section was in fact

23 properly charged to the consumer account, the bank

24 shall send to the consumer, not later than the business
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1 day following the business day on which the bank

2 makes the determination—

3 (A) the original check or a copy of the origi4 nal check (including an image or a substitute

5 check) that—

6 (i) accurately represents all of the in7 formation on the front and back of the

8 original check (as of the time at which the

9 original check was truncated); or

10 (ii) is otherwise sufficient to determine

11 whether or not the claim of the consumer is

12 valid; and

13 (B) an explanation of the basis for the de14 termination by the bank that the substitute check

15 was properly charged, including a statement that

16 the consumer may request copies of any informa17 tion or documents on which the bank relied in

18 making the determination.

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

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

21 send to the consumer, not later than the business day

22 following the business day on which the bank makes

23 the recredit, a notice of—

24 (A) the amount of the recredit; and
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1 (B) the date on which the recredited funds

2 will be available for withdrawal.

3 (3) NOTICE OF REVERSAL OF RECREDIT.—In ad4 dition to the notice required under paragraph (1), if

5 a bank reverses a recredited amount under subsection

6 (e), the bank shall send to the consumer, not later

7 than the business day following the business day on

8 which the bank reverses the recredit, a notice of—

9 (A) the amount of the reversal; and

10 (B) the date on which the recredit was re11 versed.

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

13 this subsection shall be delivered by United States

14 mail or by any other means through which the con15 sumer has agreed to receive account information.

16 (g) OTHER CLAIMS NOT AFFECTED.—Providing a re17 credit in accordance with this section shall not absolve the

18 bank from liability for a claim made under any other pro19 vision of law, such as a claim for wrongful dishonor under

20 the Uniform Commercial Code, or from liability for addi21 tional damages under section 6 or 10.

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

23 apply to customers who are consumers.

24 SEC. 8. EXPEDITED RECREDIT PROCEDURES FOR BANKS.

25 (a) RECREDIT CLAIMS.—
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1 (1) IN GENERAL.—A bank may make a claim

2 against an indemnifying bank for expedited recredit

3 for which that bank is indemnified, if—

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

5 claimant bank has indemnified) has received a

6 claim for expedited recredit from a consumer

7 under section 7 with respect to a substitute

8 check, or would have been subject to such a claim

9 had the subject consumer account been charged;

10 (B) the claimant bank has suffered a result11 ing loss or is obligated to recredit the consumer

12 account under section 7 with respect to such sub13 stitute check; and

14 (C) production of the original check or a

15 better copy of the original check is necessary to

16 determine the validity of the charge to the con17 sumer account or any warranty claim connected

18 with such substitute check.

19 (2) 120-DAY PERIOD.—Any claim under para20 graph (1) may be submitted by the claimant bank to

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

22 period beginning on the date of the transaction that

23 gave rise to the claim.

24 (b) PROCEDURES FOR CLAIMS.—
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1 (1) IN GENERAL.—To make a claim under sub2 section (a) for an expedited recredit relating to a sub3 stitute check, the claimant bank shall send to the in4 demnifying bank—

5 (A) a description of—

6 (i) the claim, including an explanation

7 of why the substitute check cannot be prop8 erly charged to the consumer account; or

9 (ii) the warranty claim;

10 (B) a statement that the claimant bank has

11 suffered a loss or is obligated to recredit the sub12 ject consumer account under section 7, together

13 with an estimate of the amount of the loss or re14 credit;

15 (C) the reason why production of the origi16 nal check or a better copy of the original check

17 is necessary to determine the validity of the

18 charge to the consumer account or the warranty

19 claim; and

20 (D) information sufficient for the indem21 nifying bank to identify the substitute check and

22 to investigate the claim.

23 (2) REQUIREMENTS RELATING TO COPIES OF

24 SUBSTITUTE CHECKS.—If the information submitted

25 by a claimant bank pursuant to paragraph (1) in
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1 connection with a claim for an expedited recredit in2 cludes a copy of any substitute check for which any

3 such claim is made, the claimant bank shall take rea4 sonable steps to ensure that any such copy cannot

5 be—

6 (A) mistaken for the legal equivalent of the

7 check under section 4(b); or

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

9 the indemnifying bank, as a forward collection

10 or returned check.

11 (3) CLAIM IN WRITING.—

12 (A) IN GENERAL.—An indemnifying bank

13 may, in the discretion of the bank, require the

14 claimant bank to submit the information re15 quired by paragraph (1) in writing, including a

16 copy of the written or electronically submitted

17 claim, if any, that the consumer provided in ac18 cordance with section 7(b).

19 (B) MEANS OF SUBMISSION.—An indem20 nifying bank that requires a submission of infor21 mation under subparagraph (A) may permit the

22 claimant bank to make the submission electroni23 cally, if the claimant bank has agreed to commu24 nicate with the indemnifying bank in that man25 ner.
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1 (c) RECREDIT BY INDEMNIFYING BANK.—

2 (1) PROMPT ACTION REQUIRED.—Not later than

3 10 business days after the business day on which an

4 indemnifying bank receives a claim under subsection

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

6 check, the indemnifying bank shall—

7 (A) provide, to the claimant bank, the origi8 nal check (with respect to such substitute check)

9 or a copy of the original check (including an

10 image or a substitute 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 at which the

14 original check was truncated); or

15 (ii) is otherwise sufficient to determine

16 that the claim of the bank is not valid;

17 (B) recredit the claimant bank for the

18 amount of the claim up to the amount of the sub19 stitute check, plus interest if applicable; or

20 (C) provide information to the claimant

21 bank as to why the indemnifying bank is not ob22 ligated to comply with subparagraph (A) or (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 substitute
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1 check shall not absolve the indemnifying bank from li2 ability for claims brought under any other law or

3 from additional damages under section 6 or 10 with

4 respect to such check.

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

6 claimant bank reverses, in accordance with section

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

9 or recredit with regard to such substitute check, the

10 claimant bank shall promptly refund to any indem11 nifying bank any amount previously advanced by the

12 indemnifying bank in connection with such substitute

13 check.

14 (d) PRODUCTION OF ORIGINAL CHECK OR A SUFFI15 CIENT COPY GOVERNED BY SECTION 6(d).—If the indem16 nifying bank provides the claimant bank with the original

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

18 or a substitute check) under subsection (c)(1)(A) of this sec19 tion, section 6(d) shall govern any right of the indemnifying

20 bank to any repayment of any funds that the indemnifying

21 bank has recredited to the claimant bank pursuant to sub22 section (c).

23 SEC. 9. DELAYS IN AN EMERGENCY.

24 Delay by a bank beyond the time limits prescribed or

25 permitted by this Act is excused if the delay is caused by
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1 interruption of communication or computer facilities, sus2 pension of payments by another bank, war, emergency con3 ditions, failure of equipment, or other circumstances beyond

4 the control of a bank, and if the bank uses such diligence

5 as the circumstances require.

6 SEC. 10. MEASURE OF DAMAGES.

7 (a) LIABILITY.—

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

9 6, any person who, in connection with a substitute

10 check, breaches any warranty under this Act or fails

11 to comply with any requirement imposed by or regu12 lation prescribed pursuant to this Act with respect to

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

14 amount equal to the sum of—

15 (A) the lesser of—

16 (i) the amount of the loss suffered by

17 the other person as a result of the breach or

18 failure; or

19 (ii) the amount of the substitute check;

20 and

21 (B) interest and expenses (including costs

22 and reasonable attorney fees and other expenses

23 of representation) related to the substitute check.

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

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

2 claimant receives and retains as a recredit under sec3 tion 7 or 8, if any.

4 (b) COMPARATIVE NEGLIGENCE.—

5 (1) IN GENERAL.—If a person incurs damages

6 that resulted in whole or in part from the negligence

7 or failure of that person to act in good faith, then the

8 amount of any liability due to that person under sub9 section (a) shall be reduced in proportion to the

10 amount of negligence or bad faith attributable to that

11 person.

12 (2) RULE OF CONSTRUCTION.—Nothing in this

13 subsection reduces the rights of a consumer or any

14 other person under the Uniform Commercial Code or

15 other applicable provision of Federal or State law.

16 SEC. 11. STATUTE OF LIMITATIONS AND NOTICE OF CLAIM.

17 (a) ACTIONS UNDER THIS ACT.—

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

19 under this Act may be brought in any United States

20 district court, or in any other court of competent ju21 risdiction, before the end of the 1-year period begin22 ning on the date on which the cause of action accrues.

23 (2) ACCRUAL.—For purposes of paragraph (1), a

24 cause of action accrues as of the date on which the in25 jured party first learns, or by which such person rea-
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1 sonably should have learned, of the facts and cir2 cumstances giving rise to the cause of action.

3 (b) NOTICE OF CLAIMS REQUIRED.—Unless a person

4 gives notice of a claim to the indemnifying or warranting

5 bank, not later than 30 days after the person has reason

6 to know of the claim and the identity of the indemnifying

7 or warranting bank, the indemnifying or warranting bank

8 is discharged from liability in an action to enforce a claim

9 under this Act, to the extent of any loss caused by the delay

10 in giving notice of the claim.

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

12 by a consumer under section 7 for expedited recredit con13 stitutes timely notice of a claim by the consumer for pur14 poses of subsection (b).

15 SEC. 12. CONSUMER AWARENESS.

16 (a) IN GENERAL.—During the 3-year period beginning

17 on the effective date of this Act, each bank shall provide

18 to each consumer that is a customer of the bank, in accord19 ance with subsection (b), a brief notice about substitute

20 checks that describes—

21 (1) how a substitute check is the legal equivalent

22 of an original check for all purposes, including any

23 provision of any Federal or State law, and for all

24 persons, if the substitute check—
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1 (A) accurately represents all of the informa2 tion on the front and back of the original check

3 as of the time at which the original check was

4 truncated; and

5 (B) bears the legend: ‘‘This is a legal copy

6 of your check. You can use it in the same way

7 you would use the original check.’’; and

8 (2) the consumer recredit rights established

9 under section 7 when a consumer believes in good

10 faith that a substitute check was not properly charged

11 to the account of the consumer.

12 (b) DISTRIBUTION.—

13 (1) IN GENERAL.—The notice required by sub14 section (a) shall be provided—

15 (A) to each consumer that is a customer of

16 the bank as of the effective date of this Act, and

17 that receives original checks or substitute checks

18 along with periodic account statements, not later

19 than together with the first regularly scheduled

20 communication with the customer after the effec21 tive date of this Act;

22 (B) at the time at which a customer rela23 tionship is initiated, if such relationship is initi24 ated on or after the effective date of this Act and

25 such customer will receive original checks or sub-
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1 stitute checks along with periodic account state2 ments; and

3 (C) to each customer of the bank that re4 quests a copy of a check and receives a substitute

5 check, at the time of the request.

6 (2) MODE OF DELIVERY.—A bank may provide

7 the notices required by this subsection by United

8 States mail, or by any other means through which the

9 consumer has agreed to receive account information.

10 (c) MODEL LANGUAGE.—

11 (1) IN GENERAL.—Not later than 9 months after

12 the date of enactment of this Act, the Board shall pub13 lish model forms and clauses that a depository insti14 tution may use to describe each of the elements re15 quired by 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 substitute check notice of the bank

19 uses a model form or clause published by the Board,

20 and such model form or clause accurately describes

21 the policies and practices of the bank. A bank may

22 delete any information in the model form or clause

23 that is not required by this Act, or rearrange the for24 mat of such form.
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1 (3) USE OF MODEL LANGUAGE NOT REQUIRED.—

2 This section shall not be construed as requiring any

3 bank to use a model form or clause that the Board

4 prepares under this subsection.

5 SEC. 13. EFFECT ON OTHER LAW.

6 This Act shall supersede any provision of Federal or

7 State law, including the Uniform Commercial Code, that

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

9 inconsistency.

10 SEC. 14. REGULATIONS.

11 The Board may prescribe such regulations as it deems

12 necessary to implement, prevent circumvention or evasion

13 of, or facilitate compliance with the provisions of this Act.

14 SEC. 15. STUDY AND REPORT ON FUNDS AVAILABILITY.

15 (a) STUDY.—In order to evaluate the implementation

16 and the impact of this Act, the Board shall conduct a study

17 of—

18 (1) the percentage of total checks cleared in

19 which the paper check is not returned to the paying

20 bank;

21 (2) the extent to which financial institutions

22 make funds available to consumers for local and

23 nonlocal checks prior to the expiration of maximum

24 hold periods;
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1 (3) the length of time within which depositary

2 banks learn of the nonpayment of local and nonlocal

3 checks;

4 (4) the increase or decrease in check-related losses

5 over the study period; and

6 (5) the appropriateness of the time periods and

7 amount limits applicable under sections 603 and 604

8 of the Expedited Funds Availability Act, as in effect

9 on the date of enactment of this Act.

10 (b) REPORT TO CONGRESS.—Not later than 30 months

11 after the effective date of this Act, the Board shall submit

12 a report to Congress concerning the results of the study con13 ducted under this section, together with any recommenda14 tions for legislative action.

15 SEC. 16. EVALUATION AND REPORT BY THE COMPTROLLER

16 GENERAL.

17 (a) STUDY.—Not later than 5 years after the date of

18 enactment of this Act, the Comptroller General of the United

19 States shall evaluate the implementation and administra20 tion of this Act, including—

21 (1) an estimate of the gains in economic effi22 ciency made possible from check truncation;

23 (2) an evaluation of the benefits accruing to con24 sumers and financial institutions from reduced trans25 portation costs, longer hours for accepting deposits for
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1 credit within 1 business day, the impact of fraud

2 losses, and an estimate of consumers’ share of the

3 total benefits derived from this Act; and

4 (3) an assessment of consumer acceptance of the

5 check truncation process resulting from this Act, as

6 well as any new costs incurred by consumers who had

7 their original checks returned with their regular

8 monthly statements prior to the date of enactment of

9 this Act.

10 (b) REPORT TO CONGRESS.—Not later than 5 years

11 after the date of enactment of this Act, the Comptroller Gen12 eral shall submit a report to Congress concerning the find13 ings and conclusions of the Comptroller General in connec14 tion with the evaluation conducted pursuant to subsection

15 (a), together with such recommendations for legislative and

16 administrative action as the Comptroller General may de17 termine to be appropriate.

18 SEC. 17. VARIATION BY AGREEMENT.

19 (a) SECTION 8.—Any provision of section 8 may be

20 varied by agreement of the banks involved.

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

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

23 be varied by agreement of any person or persons.
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1 SEC. 18. EFFECTIVE DATE.

2 Except as otherwise specifically provided in this Act,

3 this Act shall become effective 12 months after the date of

4 enactment of this Act.

Attest:

Secretary.
108TH CONGRESS

1ST SESSION H. R. 1474

AMENDMENT