```

[108th Congress Public Law 100]
[From the U.S. Government Printing Office]

[DOCID: f:publ100.108]

[[Page 117 STAT. 1177]]

Public Law 108-100
108th Congress

                                 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. <<NOTE: Oct. 28, 2003 -  [H.R. 1474]>> 

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled, <<NOTE: Check Clearing 
for the 21st Century Act.>> 

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This <<NOTE: 12 USC 5001 note.>> Act may be cited 
as the ``Check Clearing for the 21st Century Act'' or the ``Check 21 
Act''.

    (b) Table of Contents.--The table of contents of this Act is as 
follows:

Sec.  1. Short title; table of contents.
Sec.  2. Findings; 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. Variation by agreement.
Sec. 15. Regulations.
Sec. 16. Study and report on funds availability.
Sec. 17. Statistical reporting of costs and revenues for transporting 
           checks between Federal Reserve banks.
Sec. 18. Evaluation and report by the Comptroller General.
Sec. 19. Depositary services efficiency and cost reduction.
Sec. 20. Effective date.

SEC. 2. <<NOTE: 12 USC 5001.>> FINDINGS; PURPOSES.

    (a) Findings.--The Congress finds as follows:
            (1) In the Expedited Funds Availability Act, enacted on 
        August 10, 1987, the Congress directed the Board of Governors of 
        the Federal Reserve System to consider establishing regulations 
        requiring Federal reserve banks and depository institutions to 
        provide for check truncation, in order to improve the check 
        processing system.
            (2) In that same Act, the Congress--
                    (A) provided the Board of Governors of the Federal 
                Reserve System with full authority to regulate all 
                aspects of the payment system, including the receipt, 
                payment, collection, and clearing of checks, and related 
                functions of the payment system pertaining to checks; 
                and

[[Page 117 STAT. 1178]]

                    (B) directed that the exercise of such authority by 
                the Board superseded any State law, including the 
                Uniform Commercial Code, as in effect in any State.
            (3) Check truncation is no less desirable in 2003 for both 
        financial service customers and the financial services industry, 
        to reduce costs, improve efficiency in check collections, and 
        expedite funds availability for customers than it was over 15 
        years ago when Congress first directed the Board to consider 
        establishing such a process.

    (b) Purposes.--The purposes of this Act are as follows:
            (1) To facilitate check truncation by authorizing substitute 
        checks.
            (2) To foster innovation in the check collection system 
        without mandating receipt of checks in electronic form.
            (3) To improve the overall efficiency of the Nation's 
        payments system.

SEC. 3. <<NOTE: 12 USC 5002.>> DEFINITIONS.

     For purposes of this Act, the following definitions shall apply:
            (1) Account.--The term ``account'' means a deposit account 
        at a bank.
            (2) Bank.--The term ``bank'' means any person that is 
        located in a State and engaged in the business of banking and 
        includes--
                    (A) any depository institution (as defined in 
                section 19(b)(1)(A) of the Federal Reserve Act);
                    (B) any Federal reserve bank;
                    (C) any Federal home loan bank; or
                    (D) to the extent it acts as a payor--
                          (i) the Treasury of the United States;
                          (ii) the United States Postal Service;
                          (iii) a State government; or
                          (iv) a unit of general local government (as 
                      defined in section 602(24) of the Expedited Funds 
                      Availability Act).
            (3) Banking terms.--
                    (A) Collecting bank.--The term ``collecting bank'' 
                means any bank handling a check for collection except 
                the paying bank.
                    (B) Depositary bank.--The term ``depositary bank'' 
                means--
                          (i) the first bank to which a check is 
                      transferred, even if such bank is also the paying 
                      bank or the payee; or
                          (ii) a bank to which a check is transferred 
                      for deposit in an account at such bank, even if 
                      the check is physically received and indorsed 
                      first by another bank.
                    (C) Paying bank.--The term ``paying bank'' means--
                          (i) the bank by which a check is payable, 
                      unless the check is payable at or through another 
                      bank and is sent to the other bank for payment or 
                      collection; or
                          (ii) the bank at or through which a check is 
                      payable and to which the check is sent for payment 
                      or collection.
                    (D) Returning bank.--

[[Page 117 STAT. 1179]]

                          (i) In general.--The term ``returning bank'' 
                      means a bank (other than the paying or depositary 
                      bank) handling a returned check or notice in lieu 
                      of return.
                          (ii) Treatment as collecting bank.--No 
                      provision of this Act shall be construed as 
                      affecting the treatment of a returning bank as a 
                      collecting bank for purposes of section 4-202(b) 
                      of the Uniform Commercial Code.
            (4) Board.--The term ``Board'' means the Board of Governors 
        of the Federal Reserve System.
            (5) Business day.--The term ``business day'' has the same 
        meaning as in section 602(3) of the Expedited Funds Availability 
        Act.
            (6) Check.--The term ``check''--
                    (A) means a draft, payable on demand and drawn on or 
                payable through or at an office of a bank, whether or 
                not negotiable, that is handled for forward collection 
                or return, including a substitute check and a travelers 
                check; and
                    (B) does not include a noncash item or an item 
                payable in a medium other than United States dollars.
            (7) Consumer.--The term ``consumer'' means an individual 
        who--
                    (A) with respect to a check handled for forward 
                collection, draws the check on a consumer account; or
                    (B) with respect to a check handled for return, 
                deposits the check into, or cashes the check against, a 
                consumer account.
            (8) Consumer account.--The term ``consumer account'' has the 
        same meaning as in section 602(10) of the Expedited Funds 
        Availability Act.
            (9) Customer.--The term ``customer'' means a person having 
        an account with a bank.
            (10) Forward collection.--The term ``forward collection'' 
        means the transfer by a bank of a check to a collecting bank for 
        settlement or the paying bank for payment.
            (11) Indemnifying bank.--The term ``indemnifying bank'' 
        means a bank that is providing an indemnity under section 6 with 
        respect to a substitute check.
            (12) MICR line.--The terms ``MICR line'' and ``magnetic ink 
        character recognition line'' mean the numbers, which may include 
        the bank routing number, account number, check number, check 
        amount, and other information, that are printed near the bottom 
        of a check in magnetic ink in accordance with generally 
        applicable industry standards.
            (13) Noncash item.--The term ``noncash item'' has the same 
        meaning as in section 602(14) of the Expedited Funds 
        Availability Act.
            (14) Person.--The term ``person'' means a natural person, 
        corporation, unincorporated company, partnership, government 
        unit or instrumentality, trust, or any other entity or 
        organization.
            (15) Reconverting bank.--The term ``reconverting bank'' 
        means--
                    (A) the bank that creates a substitute check; or

[[Page 117 STAT. 1180]]

                    (B) if a substitute check is created by a person 
                other than a bank, the first bank that transfers or 
                presents such substitute check.
            (16) Substitute check.--The term ``substitute check'' means 
        a paper reproduction of the original check that--
                    (A) contains an image of the front and back of the 
                original check;
                    (B) bears a MICR line containing all the information 
                appearing on the MICR line of the original check, except 
                as provided under generally applicable industry 
                standards for substitute checks to facilitate the 
                processing of substitute checks;
                    (C) conforms, in paper stock, dimension, and 
                otherwise, with generally applicable industry standards 
                for substitute checks; and
                    (D) is suitable for automated processing in the same 
                manner as the original check.
            (17) State.--The term ``State'' has the same meaning as in 
        section 3(a) of the Federal Deposit Insurance Act.
            (18) Truncate.--The term ``truncate'' means to remove an 
        original paper check from the check collection or return process 
        and send to a recipient, in lieu of such original paper check, a 
        substitute check or, by agreement, information relating to the 
        original check (including data taken from the MICR line of the 
        original check or an electronic image of the original check), 
        whether with or without subsequent delivery of the original 
        paper check.
            (19) Uniform commercial code.--The term ``Uniform Commercial 
        Code'' means the Uniform Commercial Code in effect in a State.
            (20) Other terms.--Unless the context requires otherwise, 
        the terms not defined in this section shall have the same 
        meanings as in the Uniform Commercial Code.

SEC. 4. <<NOTE: 12 USC 5003.>> GENERAL PROVISIONS GOVERNING SUBSTITUTE 
            CHECKS.

    (a) No Agreement Required.--A person may deposit, present, or send 
for collection or return a substitute check without an agreement with 
the recipient, so long as a bank has made the warranties in section 5 
with respect to such substitute check.
    (b) Legal Equivalence.--A substitute check shall be the legal 
equivalent of the original check for all purposes, including any 
provision of any Federal or State law, and for all persons if the 
substitute check--
            (1) accurately represents all of the information on the 
        front and back of the original check as of the time the original 
        check was truncated; and
            (2) bears the legend: ``This is a legal copy of your check. 
        You can use it the same way you would use the original check.''.

    (c) Endorsements.--A bank shall ensure that the substitute check for 
which the bank is the reconverting bank bears all endorsements applied 
by parties that previously handled the check (whether in electronic form 
or in the form of the original paper check or a substitute check) for 
forward collection or return.
    (d) Identification of Reconverting Bank.--A bank shall identify 
itself as a reconverting bank on any substitute check for which the bank 
is a reconverting bank so as to preserve any

[[Page 117 STAT. 1181]]

previous reconverting bank identifications in conformance with generally 
applicable industry standards.
    (e) Applicable Law.--A substitute check that is the legal equivalent 
of the original check under subsection (b) shall be subject to any 
provision, including any provision relating to the protection of 
customers, of part 229 of title 12 of the Code of Federal Regulations, 
the Uniform Commercial Code, and any other applicable Federal or State 
law as if such substitute check were the original check, to the extent 
such provision of law is not inconsistent with this Act.

SEC. 5. <<NOTE: 12 USC 5004.>> SUBSTITUTE CHECK WARRANTIES.

    A bank that transfers, presents, or returns a substitute check and 
receives consideration for the check warrants, as a matter of law, to 
the transferee, any subsequent collecting or returning bank, the 
depositary bank, the drawee, the drawer, the payee, the depositor, and 
any endorser (regardless of whether the warrantee receives the 
substitute check or another paper or electronic form of the substitute 
check or original check) that--
            (1) the substitute check meets all the requirements for 
        legal equivalence under section 4(b); and
            (2) no depositary bank, drawee, drawer, or endorser will 
        receive presentment or return of the substitute check, the 
        original check, or a copy or other paper or electronic version 
        of the substitute check or original check such that the bank, 
        drawee, drawer, or endorser will be asked to make a payment 
        based on a check that the bank, drawee, drawer, or endorser has 
        already paid.

SEC. 6. <<NOTE: 12 USC 5005.>> INDEMNITY.

    (a) Indemnity.--A reconverting bank and each bank that subsequently 
transfers, presents, or returns a substitute check in any electronic or 
paper form, and receives consideration for such transfer, presentment, 
or return shall indemnify the transferee, any subsequent collecting or 
returning bank, the depositary bank, the drawee, the drawer, the payee, 
the depositor, and any endorser, up to the amount described in 
subsections (b) and (c), as applicable, to the extent of any loss 
incurred by any recipient of a substitute check if that loss occurred 
due to the receipt of a substitute check instead of the original check.
    (b) Indemnity Amount.--
            (1) Amount in event of breach of warranty.--The amount of 
        the indemnity under subsection (a) shall be the amount of any 
        loss (including costs and reasonable attorney's fees and other 
        expenses of representation) proximately caused by a breach of a 
        warranty provided under section 5.
            (2) Amount in absence of breach of warranty.--In the absence 
        of a breach of a warranty provided under section 5, the amount 
        of the indemnity under subsection (a) shall be the sum of--
                    (A) the amount of any loss, up to the amount of the 
                substitute check; and
                    (B) interest and expenses (including costs and 
                reasonable attorney's fees and other expenses of 
                representation).

    (c) Comparative Negligence.--
            (1) In general.--If a loss described in subsection (a) 
        results in whole or in part from the negligence or failure to 
        act in good faith on the part of an indemnified party, then that

[[Page 117 STAT. 1182]]

        party's indemnification under this section shall be reduced in 
        proportion to the amount of negligence or bad faith attributable 
        to that party.
            (2) Rule of construction.--Nothing in this subsection 
        reduces the rights of a consumer or any other person under the 
        Uniform Commercial Code or other applicable provision of Federal 
        or State law.

    (d) Effect of Producing Original Check or Copy.--
            (1) In general.--If the indemnifying bank produces the 
        original check or a copy of the original check (including an 
        image or a substitute check) that accurately represents all of 
        the information on the front and back of the original check (as 
        of the time the original check was truncated) or is otherwise 
        sufficient to determine whether or not a claim is valid, the 
        indemnifying bank shall--
                    (A) be liable under this section only for losses 
                covered by the indemnity that are incurred up to the 
                time that the original check or copy is provided to the 
                indemnified party; and
                    (B) have a right to the return of any funds it has 
                paid under the indemnity in excess of those losses.
            (2) Coordination of indemnity with implied warranty.--The 
        production of the original check, a substitute check, or a copy 
        under paragraph (1) by an indemnifying bank shall not absolve 
        the bank from any liability on a warranty established under this 
        Act or any other provision of law.

    (e) Subrogation of Rights.--
            (1) In general.--Each indemnifying bank shall be subrogated 
        to the rights of any indemnified party to the extent of the 
        indemnity.
            (2) Recovery under warranty.--A bank that indemnifies a 
        party under this section may attempt to recover from another 
        party based on a warranty or other claim.
            (3) Duty of indemnified party.--Each indemnified party shall 
        have a duty to comply with all reasonable requests for 
        assistance from an indemnifying bank in connection with any 
        claim the indemnifying bank brings against a warrantor or other 
        party related to a check that forms the basis for the 
        indemnification.

SEC. 7. <<NOTE: 12 USC 5006.>> EXPEDITED RECREDIT FOR CONSUMERS.

    (a) Recredit Claims.--
            (1) In general.--A consumer may make a claim for expedited 
        recredit from the bank that holds the account of the consumer 
        with respect to a substitute check, if the consumer asserts in 
        good faith that--
                    (A) the bank charged the consumer's account for a 
                substitute check that was provided to the consumer;
                    (B) either--
                          (i) the check was not properly charged to the 
                      consumer's account; or
                          (ii) the consumer has a warranty claim with 
                      respect to such substitute check;
                    (C) the consumer suffered a resulting loss; and
                    (D) the production of the original check or a better 
                copy of the original check is necessary to determine the 
                validity of any claim described in subparagraph (B).

[[Page 117 STAT. 1183]]

            (2) 40-day period.--Any claim under paragraph (1) with 
        respect to a consumer account may be submitted by a consumer 
        before the end of the 40-day period beginning on the later of--
                    (A) the date on which the financial institution 
                mails or delivers, by a means agreed to by the consumer, 
                the periodic statement of account for such account which 
                contains information concerning the transaction giving 
                rise to the claim; or
                    (B) the date on which the substitute check is made 
                available to the consumer.
            (3) Extension under extenuating circumstances.--If the 
        ability of the consumer to submit the claim within the 40-day 
        period under paragraph (2) is delayed due to extenuating 
        circumstances, including extended travel or the illness of the 
        consumer, the 40-day period shall be extended by a reasonable 
        amount of time.

    (b) Procedures for Claims.--
            (1) In general.--To make a claim for an expedited recredit 
        under subsection (a) with respect to a substitute check, the 
        consumer shall provide to the bank that holds the account of 
        such consumer--
                    (A) a description of the claim, including an 
                explanation of--
                          (i) why the substitute check was not properly 
                      charged to the consumer's account; or
                          (ii) the warranty claim with respect to such 
                      check;
                    (B) a statement that the consumer suffered a loss 
                and an estimate of the amount of the loss;
                    (C) the reason why production of the original check 
                or a better copy of the original check is necessary to 
                determine the validity of the charge to the consumer's 
                account or the warranty claim; and
                    (D) sufficient information to identify the 
                substitute check and to investigate the claim.
            (2) Claim in writing.--
                    (A) In general.--The bank holding the consumer 
                account that is the subject of a claim by the consumer 
                under subsection (a) may, in the discretion of the bank, 
                require the consumer to submit the information required 
                under paragraph (1) in writing.
                    (B) Means of submission.--A bank that requires a 
                submission of information under subparagraph (A) may 
                permit the consumer to make the submission 
                electronically, if the consumer has agreed to 
                communicate with the bank in that manner.

    (c) Recredit to Consumer.--
            (1) Conditions for recredit.--The bank shall recredit a 
        consumer account in accordance with paragraph (2) for the amount 
        of a substitute check that was charged against the consumer 
        account if--
                    (A) a consumer submits a claim to the bank with 
                respect to that substitute check that meets the 
                requirement of subsection (b); and
                    (B) the bank has not--
                          (i) provided to the consumer--
                                    (I) the original check; or

[[Page 117 STAT. 1184]]

                                    (II) a copy of the original check 
                                (including an image or a substitute 
                                check) that accurately represents all of 
                                the information on the front and back of 
                                the original check, as of the time at 
                                which the original check was truncated; 
                                and
                          (ii) demonstrated to the consumer that the 
                      substitute check was properly charged to the 
                      consumer account.
            (2) Timing of recredit.--
                    (A) In general.--The bank shall recredit the 
                consumer's account for the amount described in paragraph 
                (1) no later than the end of the business day following 
                the business day on which the bank determines the 
                consumer's claim is valid.
                    (B) Recredit pending investigation.--If the bank has 
                not yet determined that the consumer's claim is valid 
                before the end of the 10th business day after the 
                business day on which the consumer submitted the claim, 
                the bank shall recredit the consumer's account for--
                          (i) the lesser of the amount of the substitute 
                      check that was charged against the consumer 
                      account, or $2,500, together with interest if the 
                      account is an interest-bearing account, no later 
                      than the end of such 10th business day; and
                          (ii) the remaining amount of the substitute 
                      check that was charged against the consumer 
                      account, if any, together with interest if the 
                      account is an interest-bearing account, not later 
                      than the 45th calendar day following the business 
                      day on which the consumer submits the claim.

    (d) Availability of Recredit.--
            (1) Next business day availability.--Except as provided in 
        paragraph (2), a bank that provides a recredit to a consumer 
        account under subsection (c) shall make the recredited funds 
        available for withdrawal by the consumer by the start of the 
        next business day after the business day on which the bank 
        recredits the consumer's account under subsection (c).
            (2) Safeguard exceptions.--A bank may delay availability to 
        a consumer of a recredit provided under subsection (c)(2)(B)(i) 
        until the start of either the business day following the 
        business day on which the bank determines that the consumer's 
        claim is valid or the 45th calendar day following the business 
        day on which the consumer submits a claim for such recredit in 
        accordance with subsection (b), whichever is earlier, in any of 
        the following circumstances:
                    (A) New accounts.--The claim is made during the 30-
                day period beginning on the business day the consumer 
                account was established.
                    (B) Repeated overdrafts.--Without regard to the 
                charge that is the subject of the claim for which the 
                recredit was made--
                          (i) on 6 or more business days during the 6-
                      month period ending on the date on which the 
                      consumer submits the claim, the balance in the 
                      consumer account was negative or would have become 
                      negative if checks or other charges to the account 
                      had been paid; or

[[Page 117 STAT. 1185]]

                          (ii) on 2 or more business days during such 6-
                      month period, the balance in the consumer account 
                      was negative or would have become negative in the 
                      amount of $5,000 or more if checks or other 
                      charges to the account had been paid.
                    (C) Prevention of fraud losses.--The bank has 
                reasonable cause to believe that the claim is 
                fraudulent, based on facts (other than the fact that the 
                check in question or the consumer is of a particular 
                class) that would cause a well-grounded belief in the 
                mind of a reasonable person that the claim is 
                fraudulent.
            (3) Overdraft fees.--No bank that, in accordance with 
        paragraph (2), delays the availability of a recredit under 
        subsection (c) to any consumer account may impose any overdraft 
        fees with respect to drafts drawn by the consumer on such 
        recredited amount before the end of the 5-day period beginning 
        on the date notice of the delay in the availability of such 
        amount is sent by the bank to the consumer.

    (e) Reversal of Recredit.--A bank may reverse a recredit to a 
consumer account if the bank--
            (1) determines that a substitute check for which the bank 
        recredited a consumer account under subsection (c) was in fact 
        properly charged to the consumer account; and
            (2) notifies the consumer in accordance with subsection 
        (f)(3).

    (f) Notice to Consumer.--
            (1) Notice if consumer claim not valid.--If a bank 
        determines that a substitute check subject to the consumer's 
        claim was in fact properly charged to the consumer's account, 
        the bank shall send to the consumer, no later than the business 
        day following the business day on which the bank makes a 
        determination--
                    (A) the original check or a copy of the original 
                check (including an image or a substitute check) that--
                          (i) accurately represents all of the 
                      information on the front and back of the original 
                      check (as of the time the original check was 
                      truncated); or
                          (ii) is otherwise sufficient to determine 
                      whether or not the consumer's claim is valid; and
                    (B) an explanation of the basis for the 
                determination by the bank that the substitute check was 
                properly charged, including a statement that the 
                consumer may request copies of any information or 
                documents on which the bank relied in making the 
                determination.
            (2) Notice of recredit.--If a bank recredits a consumer 
        account under subsection (c), the bank shall send to the 
        consumer, no later than the business day following the business 
        day on which the bank makes the recredit, a notice of--
                    (A) the amount of the recredit; and
                    (B) the date the recredited funds will be available 
                for withdrawal.
            (3) Notice of reversal of recredit.--In addition to the 
        notice required under paragraph (1), if a bank reverses a 
        recredited amount under subsection (e), the bank shall send to 
        the consumer, no later than the business day following the 
        business day on which the bank reverses the recredit, a notice 
        of--
                    (A) the amount of the reversal; and

[[Page 117 STAT. 1186]]

                    (B) the date the recredit was reversed.
            (4) Mode of delivery.--A notice described in this subsection 
        shall be delivered by United States mail or by any other means 
        through which the consumer has agreed to receive account 
        information.

    (g) Other Claims Not Affected.--Providing a recredit in accordance 
with this section shall not absolve the bank from liability for a claim 
made under any other law, such as a claim for wrongful dishonor under 
the Uniform Commercial Code, or from liability for additional damages 
under section 6 or 10.
    (h) Clarification Concerning Consumer Possession.--A consumer who 
was provided a substitute check may make a claim for an expedited 
recredit under this section with regard to a transaction involving the 
substitute check whether or not the consumer is in possession of the 
substitute check.
    (i) Scope of Application.--This <<NOTE: Applicability.>> section 
shall only apply to customers who are consumers.

SEC. 8. <<NOTE: 12 USC 5007.>> EXPEDITED RECREDIT PROCEDURES FOR BANKS.

    (a) Recredit Claims.--
            (1) In general.--A bank may make a claim against an 
        indemnifying bank for expedited recredit for which that bank is 
        indemnified if--
                    (A) the claimant bank (or a bank that the claimant 
                bank has indemnified) has received a claim for expedited 
                recredit from a consumer under section 7 with respect to 
                a substitute check or would have been subject to such a 
                claim had the consumer's account been charged;
                    (B) the claimant bank has suffered a resulting loss 
                or is obligated to recredit a consumer account under 
                section 7 with respect to such substitute check; and
                    (C) production of the original check, another 
                substitute check, or a better copy of the original check 
                is necessary to determine the validity of the charge to 
                the customer account or any warranty claim connected 
                with such substitute check.
            (2) 120-day period.--Any claim under paragraph (1) may be 
        submitted by the claimant bank to an indemnifying bank before 
        the end of the 120-day period beginning on the date of the 
        transaction that gave rise to the claim.

    (b) Procedures for Claims.--
            (1) In general.--To make a claim under subsection (a) for an 
        expedited recredit relating to a substitute check, the claimant 
        bank shall send to the indemnifying bank--
                    (A) a description of--
                          (i) the claim, including an explanation of why 
                      the substitute check cannot be properly charged to 
                      the consumer account; or
                          (ii) the warranty claim;
                    (B) a statement that the claimant bank has suffered 
                a loss or is obligated to recredit the consumer's 
                account under section 7, together with an estimate of 
                the amount of the loss or recredit;
                    (C) the reason why production of the original check, 
                another substitute check, or a better copy of the 
                original check is necessary to determine the validity of 
                the charge to the consumer account or the warranty 
                claim; and

[[Page 117 STAT. 1187]]

                    (D) information sufficient for the indemnifying bank 
                to identify the substitute check and to investigate the 
                claim.
            (2) Requirements relating to copies of substitute checks.--
        If the information submitted by a claimant bank pursuant to 
        paragraph (1) in connection with a claim for an expedited 
        recredit includes a copy of any substitute check for which any 
        such claim is made, the claimant bank shall take reasonable 
        steps to ensure that any such copy cannot be--
                    (A) mistaken for the legal equivalent of the check 
                under section 4(b); or
                    (B) sent or handled by any bank, including the 
                indemnifying bank, as a forward collection or returned 
                check.
            (3) Claim in writing.--
                    (A) In general.--An indemnifying bank may, in the 
                discretion of the bank, require the claimant bank to 
                submit the information required by paragraph (1) in 
                writing, including a copy of the written or 
                electronically submitted claim, if any, that the 
                consumer provided in accordance with section 7(b).
                    (B) Means of submission.--An indemnifying bank that 
                requires a submission of information under subparagraph 
                (A) may permit the claimant bank to make the submission 
                electronically, if the claimant bank has agreed to 
                communicate with the indemnifying bank in that manner.

    (c) Recredit by Indemnifying Bank.--
            (1) Prompt action required.--No <<NOTE: Deadline.>> later 
        than 10 business days after the business day on which an 
        indemnifying bank receives a claim under subsection (a) from a 
        claimant bank with respect to a substitute check, the 
        indemnifying bank shall--
                    (A) provide, to the claimant bank, the original 
                check (with respect to such substitute check) or a copy 
                of the original check (including an image or a 
                substitute check) that--
                          (i) accurately represents all of the 
                      information on the front and back of the original 
                      check (as of the time the original check was 
                      truncated); or
                          (ii) is otherwise sufficient to determine the 
                      bank's claim is not valid; and
                    (B) recredit the claimant bank for the amount of the 
                claim up to the amount of the substitute check, plus 
                interest if applicable; or
                    (C) provide information to the claimant bank as to 
                why the indemnifying bank is not obligated to comply 
                with subparagraph (A) or (B).
            (2) Recredit does not abrogate other liabilities.--Providing 
        a recredit under this subsection to a claimant bank with respect 
        to a substitute check shall not absolve the indemnifying bank 
        from liability for claims brought under any other law or from 
        additional damages under section 6 or 10 with respect to such 
        check.
            (3) Refund to indemnifying bank.--If a claimant bank 
        reverses, in accordance with section 7(e), a recredit previously 
        made to a consumer account under section 7(c), or otherwise 
        receives a credit or recredit with regard to such substitute

[[Page 117 STAT. 1188]]

        check, the claimant bank shall promptly refund to any 
        indemnifying bank any amount previously advanced by the 
        indemnifying bank in connection with such substitute check.

    (d) Production of Original Check or a Sufficient Copy Governed by 
Section 6(d).--If the indemnifying bank provides the claimant bank with 
the original check or a copy of the original check (including an image 
or a substitute check) under subsection (c)(1)(A), section 6(d) shall 
govern any right of the indemnifying bank to any repayment of any funds 
the indemnifying bank has recredited to the claimant bank pursuant to 
subsection (c).

SEC. 9. <<NOTE: 12 USC 5008.>> DELAYS IN AN EMERGENCY.

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

SEC. 10. <<NOTE: 12 USC 5009.>> MEASURE OF DAMAGES.

    (a) Liability.--
            (1) In general.--Except as provided in section 6, any person 
        who, in connection with a substitute check, breaches any 
        warranty under this Act or fails to comply with any requirement 
        imposed by, or regulation prescribed pursuant to, this Act with 
        respect to any other person shall be liable to such person in an 
        amount equal to the sum of--
                    (A) the lesser of--
                          (i) the amount of the loss suffered by the 
                      other person as a result of the breach or failure; 
                      or
                          (ii) the amount of the substitute check; and
                    (B) interest and expenses (including costs and 
                reasonable attorney's fees and other expenses of 
                representation) related to the substitute check.
            (2) Offset of recredits.--The amount of damages any person 
        receives under paragraph (1), if any, shall be reduced by the 
        amount, if any, that the claimant receives and retains as a 
        recredit under section 7 or 8.

    (b) Comparative Negligence.--
            (1) In general.--If a person incurs damages that resulted in 
        whole or in part from the negligence or failure of that person 
        to act in good faith, then the amount of any liability due to 
        that person under subsection (a) shall be reduced in proportion 
        to the amount of negligence or bad faith attributable to that 
        person.
            (2) Rule of construction.--Nothing in this subsection 
        reduces the rights of a consumer or any other person under the 
        Uniform Commercial Code or other applicable provision of Federal 
        or State law.

SEC. 11. <<NOTE: 12 USC 5010.>> STATUTE OF LIMITATIONS AND NOTICE OF 
            CLAIM.

    (a) Actions Under This Act.--
            (1) In general.--An action to enforce a claim under this Act 
        may be brought in any United States district court, or in any 
        other court of competent jurisdiction, before the end of the 1-
        year period beginning on the date the cause of action accrues.

[[Page 117 STAT. 1189]]

            (2) Accrual.--A cause of action accrues as of the date the 
        injured party first learns, or by which such person reasonably 
        should have learned, of the facts and circumstances giving rise 
        to the cause of action.

    (b) Discharge of Claims.--Except as provided in subsection (c), 
unless a person gives notice of a claim to the indemnifying or 
warranting bank within 30 days after the person has reason to know of 
the claim and the identity of the indemnifying or warranting bank, the 
indemnifying or warranting bank is discharged from liability in an 
action to enforce a claim under this Act to the extent of any loss 
caused by the delay in giving notice of the claim.
    (c) Notice of Claim by Consumer.--A timely claim by a consumer under 
section 7 for expedited recredit constitutes timely notice of a claim by 
the consumer for purposes of subsection (b).

SEC. 12. <<NOTE: Notice. 12 USC 5011.>> CONSUMER AWARENESS.

    (a) In General.--Each bank shall provide, in accordance with 
subsection (b), a brief notice about substitute checks that describes--
            (1) how a substitute check is the legal equivalent of an 
        original check for all purposes, including any provision of any 
        Federal or State law, and for all persons, if the substitute 
        check--
                    (A) accurately represents all of the information on 
                the front and back of the original check as of the time 
                at which the original check was truncated; and
                    (B) bears the legend: ``This is a legal copy of your 
                check. You can use it in the same way you would use the 
                original check.''; and
            (2) the consumer recredit rights established under section 7 
        when a consumer believes in good faith that a substitute check 
        was not properly charged to the account of the consumer.

    (b) Distribution.--
            (1) Existing customers.--With respect to consumers who are 
        customers of a bank on the effective date of this Act and who 
        receive original checks or substitute checks, a bank shall 
        provide the notice described in subsection (a) to each such 
        consumer no later than the first regularly scheduled 
        communication with the consumer after the effective date of this 
        Act.
            (2) New account holders.--A bank shall provide the notice 
        described in subsection (a) to each consumer who will receive 
        original checks or substitute checks, other than existing 
        customers referred to in paragraph (1), at the time at which the 
        customer relationship is initiated.
            (3) Mode of delivery.--A bank may send the notices required 
        by this subsection by United States mail or by any other means 
        through which the consumer has agreed to receive account 
        information.
            (4) Consumers who request copies of checks.--Notice shall be 
        provided to each consumer of the bank that requests a copy of a 
        check and receives a substitute check, at the time of the 
        request.

    (c) Model Language.--
            (1) In general.--Before <<NOTE: Deadline. Publication.>> the 
        end of the 9-month period beginning on the date of the enactment 
        of this Act, the Board

[[Page 117 STAT. 1190]]

        shall publish model forms and clauses that a bank may use to 
        describe each of the elements required by subsection (a).
            (2) Safe harbor.--
                    (A) In general.--A bank shall be treated as being in 
                compliance with the requirements of subsection (a) if 
                the bank's substitute check notice uses a model form or 
                clause published by the Board and such model form or 
                clause accurately describes the bank's policies and 
                practices.
                    (B) Deletion or rearrangement.--A bank may delete 
                any information in the model form or clause that is not 
                required by this Act or rearrange the format.
            (3) Use of model language not required.--This section shall 
        not be construed as requiring any bank to use a model form or 
        clause that the Board prepares under this subsection.

SEC. 13. <<NOTE: 12 USC 5012.>> EFFECT ON OTHER LAW.

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

SEC. 14. <<NOTE: 12 USC 5013.>> VARIATION BY AGREEMENT.

    (a) Section 8.--Any provision of section 8 may be varied by 
agreement of the banks involved.
    (b) No Other Provisions May Be Varied.--Except as provided in 
subsection (a), no provision of this Act may be varied by agreement of 
any person or persons.

SEC. 15. <<NOTE: 12 USC 5014.>> REGULATIONS.

    The Board may prescribe such regulations as the Board determines to 
be necessary to implement, prevent circumvention or evasion of, or 
facilitate compliance with the provisions of this Act.

SEC. 16. <<NOTE: 12 USC 5015.>> STUDY AND REPORT ON FUNDS AVAILABILITY.

    (a) Study.--In order to evaluate the implementation and the impact 
of this Act, the Board shall conduct a study of--
            (1) the percentage of total checks cleared in which the 
        paper check is not returned to the paying bank;
            (2) the extent to which banks make funds available to 
        consumers for local and nonlocal checks prior to the expiration 
        of maximum hold periods;
            (3) the length of time within which depositary banks learn 
        of the nonpayment of local and nonlocal checks;
            (4) the increase or decrease in check-related losses over 
        the study period; and
            (5) the appropriateness of the time periods and amount 
        limits applicable under sections 603 and 604 of the Expedited 
        Funds Availability Act, as in effect on the date of enactment of 
        this Act.

    (b) Report to Congress.--Before <<NOTE: Deadline.>> the end of the 
30-month period beginning on the effective date of this Act, the Board 
shall submit a report to the Congress containing the results of the 
study conducted under this section, together with recommendations for 
legislative action.

[[Page 117 STAT. 1191]]

SEC. 17. <<NOTE: 12 USC 5016.>> STATISTICAL REPORTING OF COSTS AND 
            REVENUES FOR TRANSPORTING CHECKS BETWEEN RESERVE BANKS.

    In the annual report prepared by the Board for the first full 
calendar year after the date of enactment of this Act and in each of the 
9 subsequent annual reports by the Board, the Board shall include the 
amount of operating costs attributable to, and an estimate of the 
Federal Reserve banks' imputed revenues derived from, the transportation 
of commercial checks between Federal Reserve bank check processing 
centers.

SEC. 18. <<NOTE: 12 USC 5017. Effective date.>> EVALUATION AND REPORT BY 
            THE COMPTROLLER GENERAL.

    (a) Study.--During the 5-year period beginning on the date of the 
enactment of this Act, the Comptroller General of the United States 
shall evaluate the implementation and administration of this Act, 
including--
            (1) an estimate of the gains in economic efficiency made 
        possible from check truncation;
            (2) an evaluation of the benefits accruing to consumers and 
        financial institutions from reduced transportation costs, longer 
        hours for accepting deposits for credit within 1 business day, 
        the impact of fraud losses, and an estimate of consumers' share 
        of the total benefits derived from this Act; and
            (3) an assessment of consumer acceptance of the check 
        truncation process resulting from this Act, as well as any new 
        costs incurred by consumers who had their original checks 
        returned with their regular monthly statements prior to the date 
        of enactment of this Act.

    (b) Report to Congress.--Before <<NOTE: Deadline.>> the end of the 
5-year period referred to in subsection (a), the Comptroller General 
shall submit a report to the Congress containing the findings and 
conclusions of the Comptroller General in connection with the evaluation 
conducted pursuant to subsection (a), together with such recommendations 
for legislative and administrative action as the Comptroller General may 
determine to be appropriate.

SEC. 19. <<NOTE: 12 USC 5018.>> DEPOSITARY SERVICES EFFICIENCY AND COST 
            REDUCTION.

    (a) Findings.--The Congress finds as follows:
            (1) The Secretary of the Treasury has long compensated 
        financial institutions for various critical depositary and 
        financial agency services provided for or on behalf of the 
        United States by--
                    (A) placing large balances, commonly referred to as 
                ``compensating balances'', on deposit at such 
                institutions; and
                    (B) using imputed interest on such funds to offset 
                charges for the various depositary and financial agency 
                services provided to or on behalf of the Government.
            (2) As a result of sharp declines in interest rates over the 
        last few years to record low levels, or the public debt 
        outstanding reaching the statutory debt limit, the Department of 
        the Treasury often has had to dramatically increase or decrease 
        the size of the compensating balances on deposit at these 
        financial institutions.
            (3) The fluctuation of the compensating balances, and the 
        necessary pledging of collateral by financial institutions to 
        secure the value of compensating balances placed with those 
        institutions, have created unintended financial uncertainty for

[[Page 117 STAT. 1192]]

        the Secretary of the Treasury and for the management by 
        financial institutions of their cash and securities.
            (4) It is imperative that the process for providing 
        financial services to the Government be transparent, and provide 
        the information necessary for the Congress to effectively 
        exercise its appropriation and oversight responsibilities.
            (5) The use of direct payment for services rendered would 
        strengthen cash and debt management responsibilities of the 
        Secretary of the Treasury because the Secretary would no longer 
        need to dramatically increase or decrease the level of such 
        balances when interest rates fluctuate sharply or when the 
        public debt outstanding reaches the statutory debt limit.
            (6) An alternative to the use of compensating balances, such 
        as direct payments to financial institutions, would ensure that 
        payments to financial institutions for the services they provide 
        would be made in a more predictable manner and could result in 
        cost savings.
            (7) Limiting the use of compensating balances could result 
        in a more direct and cost-efficient method of obtaining those 
        services currently provided under compensating balance 
        arrangements.
            (8) A transition from the use of compensating balances to 
        another compensation method must be carefully managed to prevent 
        higher-than-necessary transitional costs and enable 
        participating financial institutions to modify their planned 
        investment of cash and securities.

    (b) Authorization of Appropriations For Services Rendered by 
Depositaries and Financial Agencies of the United States.--There are 
authorized to be appropriated for fiscal years beginning after fiscal 
year 2003 to the Secretary of the Treasury such sums as may be necessary 
for reimbursing financial institutions in their capacity as depositaries 
and financial agents of the United States for all services required or 
directed by the Secretary of the Treasury, or a designee of the 
Secretary, to be performed by such financial institutions on behalf of 
the Secretary of the Treasury or another Federal agency, including 
services rendered before fiscal year 2004.
    (c) Orderly Transition.--
            (1) In general.--As appropriations authorized in subsection 
        (b) become available, the Secretary of the Treasury shall 
        promptly begin the process of phasing in the use of the 
        appropriations to pay financial institutions serving as 
        depositaries and financial agents of the United States, and 
        transitioning from the use of compensating balances to fund 
        these services.
            (2) Post-transition use limited to extraordinary 
        circumstances.--
                    (A) In general.--Following the transition to the use 
                of the appropriations authorized in subsection (b), the 
                Secretary of the Treasury may use the compensating 
                balances to pay financial institutions serving as 
                depositaries and financial agents of the United States 
                only in extraordinary situations where the Secretary 
                determines that they are needed to ensure the fiscal 
                operations of the Government continue to function in an 
                efficient and effective manner.
                    (B) Report.--Any use of compensating balances 
                pursuant to subparagraph (A) shall promptly be reported 
                by

[[Page 117 STAT. 1193]]

                the Secretary of the Treasury to the Committee on 
                Financial Services of the House of Representatives and 
                the Committee on Banking, Housing, and Urban Affairs of 
                the Senate.
            (3) Requirements for orderly transition.--In transitioning 
        to the use of the appropriations authorized in subsection (b), 
        the Secretary of the Treasury shall take such steps as may be 
        appropriate to--
                    (A) prevent abrupt financial disruption to the 
                functions of the Department of the Treasury or to the 
                participating financial institutions; and
                    (B) maintain adequate accounting and management 
                controls to ensure that payments to financial 
                institutions for their banking services provided to the 
                Government as depositaries and financial agents are 
                accurate and that the arrangements last no longer than 
                is necessary.
            (4) Reports required.--
                    (A) Annual report.--
                          (i) In general.--For <<NOTE: Deadlines.>> each 
                      fiscal year, the Secretary of the Treasury shall 
                      submit a report to the Congress on the use of 
                      compensating balances and on the use of 
                      appropriations authorized in subsection (b) during 
                      that fiscal year.
                          (ii) Inclusion in budget.--The report required 
                      under clause (i) may be submitted as part of the 
                      budget submitted by the President under section 
                      1105 of title 31, United States Code, for the 
                      following fiscal year and if so, the report shall 
                      be submitted concurrently to the Committee on 
                      Financial Services of the House of Representatives 
                      and the Committee on Banking, Housing, and Urban 
                      Affairs of the Senate.
                    (B) Final report following transition.--
                          (i) In general.--Following completion of the 
                      transition from the use of compensating balances 
                      to the use of the appropriations authorized in 
                      subsection (b) to pay financial institutions for 
                      their services as depositaries and financial 
                      agents of the United States, the Secretary of the 
                      Treasury shall submit a report on the transition 
                      to the Committee on Financial Services of the 
                      House of Representatives and the Committee on 
                      Banking, Housing, and Urban Affairs of the Senate.
                          (ii) Contents of report.--The report submitted 
                      under clause (i) shall include a detailed analysis 
                      of--
                                    (I) the cost of transition;
                                    (II) the direct costs of the 
                                services being paid from the 
                                appropriations authorized in subsection 
                                (b); and
                                    (III) the benefits realized from the 
                                use of direct payment for such services, 
                                rather than the use of compensating 
                                balance arrangements.

    (d) Technical Amendment.--The second undesignated paragraph of 
section 16 of the Federal Reserve Act (12 U.S.C. 412) is amended--
            (1) in the third sentence, by inserting ``or any other asset 
        of a Federal reserve bank'' before the period at the end; and
            (2) in the last sentence, by inserting ``, or are otherwise 
        held by or on behalf of,'' after ``in the vaults of''.

[[Page 117 STAT. 1194]]

    (e) Effective Date.--Notwithstanding section 20, this section shall 
take effect on the date of the enactment of this Act.

SEC. 20. <<NOTE: 12 USC 5001 note.>> EFFECTIVE DATE.

    This Act shall take effect at the end of the 12-month period 
beginning on the date of the enactment of this Act, except as otherwise 
specifically provided in this Act.

    Approved October 28, 2003.

LEGISLATIVE HISTORY--H.R. 1474 (S. 1334):
---------------------------------------------------------------------------

HOUSE REPORTS: Nos. 108-132 (Comm. on Financial Services) and 108-291 
(Comm. of Conference).
SENATE REPORTS: No. 108-79 accompanying S. 1334 (Comm. on Banking, 
Housing, and Urban Affairs).
CONGRESSIONAL RECORD, Vol. 149 (2003):
            June 5, considered and passed House.
            June 26, considered and passed Senate, amended, in lieu of 
                S. 1334.
            Oct. 8, House agreed to conference report.
            Oct. 15, Senate agreed to conference report.
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 39 (2003):
            Oct. 28, Presidential statement.

                                  <all>
```