PUBLIC LAW 108–100—OCT. 28, 2003 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.

Be it enacted by the Senate and House of Representatives of

the United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

(a) SHORT TITLE.—This 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. 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

12 USC 5001.

12 USC 5001

note.

Check Clearing

for the 21st

Century Act.

Oct. 28, 2003

[H.R. 1474]

117 STAT. 1178 PUBLIC LAW 108–100—OCT. 28, 2003

(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the Board superseded any State law, including the Uniform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. 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.—

12 USC 5002.

PUBLIC LAW 108–100—OCT. 28, 2003 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

117 STAT. 1180 PUBLIC LAW 108–100—OCT. 28, 2003

(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. 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

12 USC 5003.

PUBLIC LAW 108–100—OCT. 28, 2003 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. 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. 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

12 USC 5005.

12 USC 5004.

117 STAT. 1182 PUBLIC LAW 108–100—OCT. 28, 2003

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. 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).

12 USC 5006.

PUBLIC LAW 108–100—OCT. 28, 2003 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

117 STAT. 1184 PUBLIC LAW 108–100—OCT. 28, 2003

(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 interestbearing 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

PUBLIC LAW 108–100—OCT. 28, 2003 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

117 STAT. 1186 PUBLIC LAW 108–100—OCT. 28, 2003

(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 section shall only apply to

customers who are consumers.

SEC. 8. 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

12 USC 5007.

Applicability.

PUBLIC LAW 108–100—OCT. 28, 2003 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 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

Deadline.

117 STAT. 1188 PUBLIC LAW 108–100—OCT. 28, 2003

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. 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. 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. 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.

12 USC 5010.

12 USC 5009.

12 USC 5008.

PUBLIC LAW 108–100—OCT. 28, 2003 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. 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 the end of the 9-month period

beginning on the date of the enactment of this Act, the Board

Deadline.

Publication.

Notice.

12 USC 5011.

117 STAT. 1190 PUBLIC LAW 108–100—OCT. 28, 2003

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. 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. 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. 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. 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 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.

Deadline.

12 USC 5015.

12 USC 5014.

12 USC 5013.

12 USC 5012.

PUBLIC LAW 108–100—OCT. 28, 2003 117 STAT. 1191

SEC. 17. 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. 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 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. 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

12 USC 5018.

Deadline.

12 USC 5017.

Effective date.

12 USC 5016.

117 STAT. 1192 PUBLIC LAW 108–100—OCT. 28, 2003

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

PUBLIC LAW 108–100—OCT. 28, 2003 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 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’’.

Deadlines.

117 STAT. 1194 PUBLIC LAW 108–100—OCT. 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.

Æ

(e) EFFECTIVE DATE.—Notwithstanding section 20, this section

shall take effect on the date of the enactment of this Act.

SEC. 20. 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.

12 USC 5001

note.