16862 Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 

1Expedited Funds Availability Act, 12 U.S.C. 

4001 et seq.; Check Clearing for the 21st Century 

Act, 12 U.S.C. 5001 et seq. 

2 12 U.S.C. 4008 (b) and (c). 

3Section 609(b)(4) states that ‘‘[i]n order to 

improve the check processing system, the Board 

shall consider (among other proposals) requiring, by 

regulation, that * * * the Federal Reserve banks 

and depository institutions take such actions as are 

necessary to automate the process of returning 

unpaid checks.’’ 12 U.S.C. 4008(b)(4). 

4Section 609(c)(1) states that ‘‘[i]n order to carry 

out the provisions of this title, the Board of 

Governors of the Federal Reserve System shall have 

the responsibility to regulate—(A) any aspect of the 

payment system, including the receipt, payment, 

collection, or clearing of checks.’’ 12 U.S.C. 

4008(c)(1). 

5Certain provisions, such as the same-day 

settlement provisions in § 229.36(f), were adopted 

at later times. 

6Public Law 108–100, 117 Stat. 1177 (codified at 

12 U.S.C. 5001–5018) (2003). 

7Prior to the Check 21 Act, the Reserve Banks 

presented about 20 to 25 percent of their check 

volume electronically, primarily under MICRpresentment programs. 

FEDERAL RESERVE SYSTEM 

12 CFR Part 229 

[Regulation CC; Docket No. R–1409] 

RIN No. 7100–AD68 

Availability of Funds and Collection of 

Checks 

AGENCY: Board of Governors of the 

Federal Reserve System. 

ACTION: Proposed rule, request for 

comment. 

SUMMARY: The Board of Governors 

(Board) is proposing amendments to 

facilitate the banking industry’s ongoing 

transition to fully-electronic interbank 

check collection and return, including 

proposed amendments to condition a 

depositary bank’s right of expeditious 

return on the depositary bank agreeing 

to accept returned checks electronically 

either directly or indirectly from the 

paying bank. The Board also is 

proposing amendments to the funds 

availability schedule provisions to 

reflect the fact that there are no longer 

any nonlocal checks. The Board 

proposes to revise the model forms that 

banks may use in disclosing their fundsavailability policies to their customers 

and to update the preemption 

determinations. Finally, the Board is 

requesting comment on whether it 

should consider future changes to the 

regulation to improve the check 

collection system, such as decreasing 

the time afforded to a paying bank to 

decide whether to pay a check in order 

to reduce the risk to a depositary bank 

of having to make funds available for 

withdrawal before learning whether a 

deposited check has been returned 

unpaid. 

DATES: Comments on the proposed rule 

must be received not later than June 3, 

2011. 

ADDRESSES: You may submit comments, 

identified by Docket No. R–1409 and 

RIN No. 7100–AD68, by any of the 

following methods: 

• Agency Web Site: http:// 

www.federalreserve.gov. Follow the 

instructions for submitting comments at 

http://www.federalreserve.gov/ 

generalinfo/foia/ProposedRegs.cfm. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• E-mail: 

regs.comments@federalreserve.gov. 

Include docket number in the subject 

line of the message. 

• FAX: 202/452–3819 or 202/452– 

3102. 

• Mail: Jennifer J. Johnson, Secretary, 

Board of Governors of the Federal 

Reserve System, 20th Street and 

Constitution Avenue, NW., Washington, 

DC 20551. 

All public comments are available 

from the Board’s Web site at http:// 

www.federalreserve.gov/generalinfo/ 

foia/ProposedRegs.cfm as submitted, 

except as necessary for technical 

reasons. Accordingly, your comments 

will not be edited to remove any 

identifying or contact information. 

Public comments may also be viewed 

electronically or in paper in Room MP– 

500 of the Board’s Martin Building (20th 

and C Streets, NW.) between 9 a.m. and 

5 p.m. on weekdays. 

FOR FURTHER INFORMATION CONTACT: 

Dena L. Milligan, Attorney, (202/452– 

3900), Legal Division; or Joseph P. 

Baressi, Financial Services Project 

Leader (202/452–3959), Division of 

Reserve Bank Operations and Payment 

Systems; for users of 

Telecommunication Devices for the Deaf 

(TDD) only, contact 202/263–4869. 

SUPPLEMENTARY INFORMATION: 

Background 

Regulation CC (12 CFR part 229) 

implements the Expedited Funds 

Availability Act (EFA Act) and the 

Check Clearing for the 21st Century Act 

(Check 21 Act).1 The Board 

implemented the EFA Act in subparts 

A, B, and C of Regulation CC. The EFA 

Act was enacted to provide depositors 

of checks with prompt funds availability 

and to foster improvements in the check 

collection and return processes. Subpart 

A of Regulation CC contains general 

information, such as definitions of 

terms. Subpart B of Regulation CC 

specifies availability schedules within 

which banks must make funds available 

for withdrawal. Subpart B also includes 

rules regarding exceptions to the 

schedules, disclosure of funds 

availability policies, and payment of 

interest. These provisions implement 

specific requirements set forth in the 

EFA Act. The provisions of subpart C 

were adopted by the Board pursuant to 

the authority granted to it in §§ 609(b) 

and (c) of the EFA Act.2 Section 609(b) 

directs the Board to consider requiring 

that depository institutions and Federal 

Reserve Banks take certain steps to 

improve the check-processing system, 

such by taking steps necessary to 

automate the check-return process 

(§ 609(b)(4)).3 Section 609(c) grants the 

Board authority to regulate any aspect of 

the payment system and any related 

function of the payment system with 

respect to checks.4 Subpart C includes 

rules to speed the collection and return 

of checks, such as rules covering the 

expeditious return responsibilities of 

paying and returning banks, 

authorization of direct returns, 

notification of nonpayment of largedollar returns, check indorsement 

standards, and same-day settlement of 

checks presented to the paying bank. 

Subpart C’s provisions presume that 

banks generally handle checks in paper 

form. Since the provisions were adopted 

in 1988, however, banks have largely 

migrated to an electronic interbank 

check collection and return system.5

This migration was facilitated by the 

Check 21 Act,6 which became effective 

in October 2004 and is implemented in 

subparts A and D of Regulation CC. The 

Check 21 Act permits banks to use a 

properly prepared substitute check in 

place of the original check, which 

enables banks to take the original check 

out of the collection and return process 

and to handle check images for much of 

the check collection and return process 

without having to retain the original 

check. The Check 21 Act has been a 

catalyst for rapid growth in banks’ 

electronic handling of checks over the 

last 5 years. For example, at year-end 

2005, the Reserve Banks received about 

4 percent of checks deposited with them 

for collection in electronic form and 

presented approximately 28 percent of 

their checks in electronic form.7 In 

December 2010, the Reserve Banks 

received about 99.7 percent of checks 

deposited for forward collection 

electronically, and presented about 98.4 

percent of checks electronically. In 

addition, at the end of 2005 virtually all 

returned checks handled by the Reserve 

Banks were sent to and from the Reserve 

Banks in paper form. By December 

2010, the Reserve Banks received 97.1 

percent of returned checks 


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8The proportion of returned checks the Reserve 

Banks delivered electronically to the depositary 

bank increased from 28 percent in June 2009 to 76.7 

percent in December 2010. The proportion of 

depositary banks to which the Reserve Banks 

deliver returns electronically, while lower, has also 

increased, from 8 percent in June 2009 to 52 percent 

in December 2010. 

9The Electronic Check Clearing House 

Organization (ECCHO) collects data from various 

check-clearing intermediaries, including the 

Reserve Banks, to estimate the percent of interbank 

checks that are presented electronically. See http:// 

www.eccho.org/check_ps.php. 

10Section 229.31(a) sets forth similar tests for 

returning banks. 

11A local check is a check drawn on a paying 

bank located in the same check-processing region 

as the depositary bank. 12 CFR 229.2(r). A nonlocal 

check is a check drawn on a paying bank located 

in a different check-processing region as the 

depositary bank. 12 CFR 229.2(v). 

12The forward-collection test is satisfied if the 

paying bank ‘‘returns a check by means as swift as 

the means similarly situated banks would use for 

the forward collection of a check drawn on the 

depositary bank.’’ See commentary to § 229.30(a)(2). 

13Prior to developing the capability of providing 

the electronic .pdf copies, it may have been 

necessary for a depositary bank, or its processor, to 

develop systems capable of automated processing of 

incoming electronic data files (e.g., X9.100–187 

files) representing returned checks and to integrate 

these systems with the bank’s other existing 

systems, such as the bank’s demand-depositaccount systems that maintain the bank’s customer 

balances. 

14The paying bank initiating the return would 

still be subject to the midnight deadline for all 

returned checks. See Uniform Commercial Code 

(UCC) § 4–302. 

electronically, and delivered about 76.7 

percent of returned checks to depositary 

banks electronically.8 Based on 

information from banking industry 

sources, the Board believes that these 

trends with respect to checks handled 

by the Reserve Banks are representative 

of trends nationwide.9

Overview of the Proposal 

I. Amendments To Encourage 

Electronic Check Clearing and Check 

Return 

As a general matter, the Board 

believes that electronic check-clearing 

and check-return methods improve the 

efficiency of the check system. 

Electronic methods are faster and more 

resilient, and, at the same time, they are 

less costly and less error prone. Despite 

the increasing number of checks 

presented and returned electronically, 

some banks continue to demand paper 

returned checks or present paper checks 

for same-day settlement under 

§ 229.36(f) of Regulation CC. The full 

benefits and cost savings of the 

electronic methods, however, cannot be 

realized so long as some banks continue 

to employ paper-processing methods. 

Accordingly, under its authority 

provided in § 609(c) of the EFA Act, the 

Board is proposing amendments to 

subpart C of Regulation CC to provide 

incentives for depositary banks to 

receive, and paying banks to send, 

returned checks electronically. The 

Board also is proposing amendments to 

the same-day settlement provisions to 

promote electronic presentment of 

checks. Further, based on experience 

since the Check 21 Act became effective, 

the Board is proposing minor 

amendments to subpart D of Regulation 

CC with respect to substitute checks. 

A. Expeditious-Return Rule 

1. Current Rule 

Regulation CC currently provides that 

if a paying bank determines not to pay 

a check, it must return the check in an 

expeditious manner, as provided under 

either the ‘‘two-day/four-day test’’ 

(§ 229.30(a)(1)), or the ‘‘forwardcollection test’’ ((§ 229.30(a)(2)).10 To 

meet the two-day/four-day test, a paying 

bank must send a returned local check 

in a manner such that the check would 

normally be received by the depositary 

bank not later than 4 p.m. local time of 

the depositary bank on the second 

business day following the banking day 

on which the check was presented to 

the paying bank. For nonlocal checks, a 

paying bank must send a returned check 

in a manner such that the check would 

normally be received by the depositary 

bank not later than 4 p.m. local time of 

the depositary bank on the fourth 

business day following the banking day 

on which the check was presented to 

the paying bank. Because there now is 

only one Federal Reserve Bank checkprocessing region, there are no longer 

any nonlocal checks, and the four-day 

test applies to a null set of checks.11

The forward-collection test is satisfied 

if a paying bank sends the returned 

check in a manner that a similarly 

situated bank would send a check (i) of 

similar amount as the returned check, 

(ii) drawn on the depositary bank, and 

(iii) deposited for forward collection in 

the similarly situated bank by noon on 

the banking day following the banking 

day on which the check was presented 

to the paying bank.12

When these tests were adopted in the 

late 1980s, the expeditious-return 

standard presumed that banks could use 

the same modes of transportation for 

returned checks that they used for 

forward-collection checks. Delivering 

returned checks in the same time and 

manner as forward checks would satisfy 

the regulation’s expeditious-return 

requirements. Today, by contrast, 

forward-check collection is almost 

entirely electronic, and the dedicated air 

and ground transportation for paper 

checks has largely been discontinued. 

Some depositary banks, however, 

continue to require that returned checks 

be delivered to them in paper form, 

making it difficult for paying banks and 

returning banks to meet the expeditiousreturn requirement. Accordingly, the 

full benefits and cost savings of 

electronic check-return methods cannot 

be realized if paying banks and 

returning banks must incur substantial 

expense to deliver returned checks to 

the banks that continue to require that 

paper checks be returned. Moreover, as 

technology has improved, the Board 

understands that the initial 

implementation and ongoing costs 

incurred by a depositary bank to receive 

returned items electronically have 

decreased substantially. For example, 

the Reserve Banks now provide 

electronic copies of returned checks in 

.pdf files to small depositary banks, 

which can use the .pdf file to print 

substitute checks on their own premises 

if necessary. Compared to alternative 

means of receiving electronic returns, 

this approach involves only minimal 

upfront costs to a depositary bank, such 

as the purchase of a printer capable of 

double-sided printing and magnetic-ink 

toner cartridges.13 After printing the 

electronic copies, the depositary bank 

can process them in the same way it 

processes paper checks that are 

physically delivered to it. 

2. Proposed Expeditious Return 

Requirement 

The Board believes that a fullyelectronic check-return system benefits 

the nation’s payment system, as well as 

consumers and businesses. 

Additionally, the Board believes that 

electronic check return substantially 

reduces risks to the check system and 

that the costs to a bank to receive 

returned checks electronically have 

markedly declined. Therefore, the Board 

believes that it is appropriate for the risk 

of non-expeditious return to rest with a 

depositary bank that chooses not to 

accept electronic returns. Accordingly, 

to encourage depositary banks to agree 

to receive returned checks 

electronically, and to avoid imposing 

increased cost on paying banks to return 

checks expeditiously to depositary 

banks that do not accept electronic 

returns, the Board proposes to amend 

Regulation CC to provide that a 

depositary bank would not be entitled to 

expeditious return unless it agrees to 

receive electronic returns directly or 

indirectly from the paying bank 

returning the check.14 The Board 

proposes to define a new term, 


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15See proposed § 229.2(v) (definition of 

‘‘electronic return’’) in the section-by-section 

analysis. 16See proposed § 229.34 in the section-by-section 

analysis for warranties made with respect to 

electronic returns. 

17For example, a depositary bank may collect 

checks through a correspondent bank or processor, 

but have returned checks delivered directly to the 

depositary bank itself. Conversely, a depositary 

bank may arrange with another bank to apply the 

other bank’s indorsement as the depositary-bank 

indorsement, such that depositary bank’s returned 

checks are handled by the other bank. See 

§ 229.35(d). 18 57 FR 46956 (Oct. 14, 1992). 

‘‘electronic return,’’ and to establish 

requirements for an item to qualify as an 

electronic return.15 Under the proposal, 

an electronic return would be treated as 

if it were a check for purposes of 

subpart C of the regulation (See § 229.33 

in the section-by-section analysis).16

Sections 229.30(a) and 229.31(a), 

respectively, would continue to set forth 

the general expeditious return rule for 

paying banks and returning banks. 

Proposed §§ 229.30(b) and 229.31(b) 

would set forth the exceptions to the 

expeditious return requirements, one of 

which would be a new exception: There 

is no expeditious return requirement if 

the depositary bank has not agreed to 

accept the returned check electronically 

as described in proposed § 229.32(a). 

Under proposed § 229.32(a), a 

depositary bank may agree to receive an 

‘‘electronic return’’ from the paying bank 

so as to be entitled to expeditious 

return: (1) Directly from the paying 

bank; (2) directly from a returning bank 

that holds itself out as willing to accept 

electronic returns directly or indirectly 

from the paying bank and has agreed to 

return checks expeditiously under 

§ 229.31(a); or (3) as otherwise agreed 

with the paying bank, such as through 

a network provided by a clearing house 

or other third party. 

The Board proposes to delete the 

forward-collection test for expeditious 

return from §§ 229.30(a) and 229.31(a). 

This test was originally included 

because paying banks and returning 

banks were in some cases (such as that 

of a remote depositary bank) not able to 

meet the two-day/four-day test, and the 

forward-collection test provided that in 

these cases paying banks and returning 

banks nonetheless satisfied the 

expeditious return requirement so long 

as the returned check was delivered to 

the depositary bank in the same time 

and manner that a forward-collection 

check would be delivered to the bank 

(in its role as paying bank). Given that 

under the Board’s proposal, however, a 

paying bank or returning bank must 

satisfy the expeditious return 

requirement only if the depositary bank 

agrees to receive electronic returns, a 

paying bank or returning bank should 

always be able to satisfy the two-day test 

with respect to a depositary bank to 

which the test applies. Specifically, 

geographic remoteness of a depositary 

bank from the paying bank should not 

preclude an electronic return from 

reaching the depositary bank within two 

business days of a check’s presentment 

to the paying bank. Accordingly, the 

Board believes that the forwardcollection test is not necessary in light 

of the Board’s proposal. 

Additionally, because there are no 

longer nonlocal checks (see the 

discussion below in section III), the 

four-day test for expeditious return of a 

nonlocal check no longer applies to any 

checks, and the Board proposes to 

eliminate that test as well. Under the 

Board’s proposed rule, the two-day test 

for expeditious return will be the only 

test in §§ 229.30(a) and 229.31(a). 

Therefore, a paying bank or returning 

bank would have to send the returned 

check expeditiously such that the 

depositary bank would normally receive 

the check no later than 4 p.m. (local 

time of the depositary bank) on the 

second business day following the 

banking day on which the check was 

presented to the paying bank. 

3. Alternate Approaches Considered 

The Board requests comment on 

alternate approaches to revising the 

expeditious return rule to encourage 

electronic returns. One possible 

alternate approach would require a bank 

that holds itself out as a returning bank 

to accept an electronic return from any 

other bank that similarly holds itself out 

as a returning bank. This approach 

would ensure that even if the paying 

bank and depositary bank had electronic 

return agreements with different 

returning banks, the electronic return 

could reach the depositary bank. This 

approach, however, may be costly for 

returning banks to implement, because 

they would have to establish electronic 

return connections and agreements with 

every other returning bank. A second 

alternative would require an electronic 

return to be returned through the 

forward-collection chain (essentially 

reverting to the pre-Regulation CC rule). 

Some depositary banks, however, have 

arrangements under which returned 

checks are delivered to a different 

location than that from which the 

depositary bank sends its checks for 

forward collection.17 The second 

alternative might impose barriers to 

these arrangements. Both of these 

alternatives therefore appeared to be 

more operationally complex and costly 

than the proposed approach. 

Nonetheless, the Board requests 

comment on the desirability of these 

and other alternatives to the Board’s 

proposal. 

B. Notice of Nonpayment Requirement 

Under current § 229.33(a), if a paying 

bank determines not to pay a check in 

the amount of $2,500 or more, it must 

provide notice of nonpayment such that 

the notice is received by the depositary 

bank by 4 p.m. (local time) on the 

second business day following the 

banking day on which the check was 

presented to the paying bank. Return of 

the check itself satisfies the notice of 

nonpayment requirement if the return 

meets the timeframe requirement for a 

notice of nonpayment. The current twoday timeframe for notice of nonpayment 

is the same as the two-day timeframe for 

expeditious return set forth in proposed 

§§ 229.30(a) and 229.31(a). Accordingly, 

because a depositary bank should 

receive the returned check within the 

current notice-of-nonpayment 

timeframe, the Board proposes to delete 

the notice of nonpayment provision as 

unnecessary. 

Under the Board’s proposal, a 

depositary bank that does not agree to 

receive electronic returns from the 

paying bank, as specified in § 229.32(a), 

will not receive expeditious return or a 

notice of nonpayment. The Board, 

however, believes that the proposed 

changes give depositary banks a strong 

incentive to make arrangements to 

receive returns electronically. The 

Board requests comment on whether the 

notice-of-nonpayment requirement 

should be retained for banks that do not 

agree to accept electronic returns in a 

nearly all-electronic environment. 

C. Same-Day Settlement Rule 

Section 229.36(f) requires a paying 

bank to provide same-day settlement for 

checks presented in accordance with 

reasonable delivery requirements 

established by the paying bank and 

presented at a location designated by 

the paying bank and by 8 a.m. (local 

time of the paying bank) on a business 

day. Prior to the Regulation CC sameday settlement rule, which became 

effective in 1994, private-sector 

collecting banks sometimes (1) did not 

obtain settlement from the paying bank 

until the day after presentment or (2) 

were charged ‘‘presentment fees’’ by the 

paying bank, which the paying bank 

would deduct from the amount it paid 

in settlement of the checks presented to 

it.18 By contrast, under §§ 13(1) and 

16(13) of the Federal Reserve Act and 

§ 210.9(b)(1) of Regulation J (12 CFR 


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19Times are stated as local time of the paying 

bank. 

20 In April 1988 the Board requested comment on 

a proposal requiring paying banks to settle on the 

day of presentment for checks presented by any 

bank prior to 2 p.m., i.e., the same timeframe as is 

applicable to the Reserve Banks. (53 FR 11911 (Apr. 

11, 1988)) The overwhelming majority of 

commenters, however, objected to the proposed 2 

p.m. deadline because they believed that it would 

severely disrupt corporate cash management and 

controlled disbursement services, as well as paying 

banks’ operations. See 57 FR 46956, 46957 (Oct. 14, 

1992). 

Further, in March 1998, the Board requested 

comment on the effect of the same-day settlement 

rule, and on whether remaining legal discrepancies 

between the Reserve Banks and private-sector 

collecting banks, such as the 8 a.m. versus 2 p.m. 

presentment time for same-day settlement, should 

be further reduced (63 FR 12700, Mar. 16, 1998). 

Most commenters did not believe that the six-hour 

difference in presentment deadlines or other 

remaining legal disparities were a significant 

impediment to the ability of private-sector 

collecting banks to compete with the Reserve 

Banks. See 63 FR 68701, 68703 (Dec. 14, 1998). The 

Board concluded that the costs associated with 

reducing the remaining legal disparities would 

outweigh any payments system efficiency gains, 

and therefore decided not to propose any specific 

regulatory changes. 21See UCC 4–213 and 4–301. 

22Under the terms of the Check 21 Act, a 

substitute check is a paper reproduction of an 

original check that contains an image of the front 

and back of the original check. Regulation CC 

defines original check as ‘‘the first paper check 

issued with respect to a particular payment 

transaction.’’ In the case of an electronically created 

item, there is no original check of which a 

substitute check can be a reproduction. 

part 210), the Reserve Banks obtain 

same-day settlement at par for checks 

presented to a paying bank before its 

cut-off hour, which is generally 2:00 

p.m. or later.19 To reduce the 

competitive disparity between the 

Reserve Banks and other collecting 

banks, and to more equitably balance 

the bargaining power between collecting 

and paying banks, the same-day 

settlement rule (1) required a paying 

bank to provide same-day settlement to 

a private-sector collecting bank, 

provided that presentment was made by 

8 a.m. in accordance with reasonable 

delivery requirements established by the 

paying bank and (2) prohibited the 

paying bank from deducting fees from 

the amount of its settlement for checks 

presented in accordance with the terms 

of the rule.20

As noted above, the Check 21 Act 

facilitated substantial changes in the 

manner in which checks are collected in 

the United States. In December 2010, 

the Reserve Banks received about 99.7 

percent of check-collection volume 

electronically, and presented about 98.4 

percent of their volume electronically. 

Many paying banks that receive check 

presentments electronically have 

indicated that they prefer to receive all 

of their interbank check presentments 

electronically, so that they can 

streamline their back-office operations 

and eliminate the costs associated with 

processing paper-check presentments. 

Some collecting banks, however, 

continue to present paper checks to 

these paying banks under the Regulation 

CC same-day settlement rule. 

To encourage the banking industry’s 

ongoing transition to fully-electronic 

interbank check clearing, the Board 

proposes to allow a paying bank to 

require checks presented for same-day 

settlement to be presented electronically 

as ‘‘electronic collection items.’’ A 

paying bank, however, must have agreed 

to receive electronic collection items 

from the presenting bank under 

proposed § 229.36(a). Similar to 

electronic returns, the Board proposes to 

define a new term, ‘‘electronic collection 

item,’’ and to establish substantive 

requirements for an item to qualify as an 

electronic collection item. Under the 

proposal, the timeframes, deadlines, and 

settlement methods for same-day 

settlement presentments of electronic 

collection items would be the same as 

those currently in effect for same-day 

settlement presentments of paper 

checks. The proposed definition of an 

electronic collection item and the ways 

by which a paying bank agrees to accept 

electronic presentment items from a 

presenting bank are discussed more 

below in the section-by-section analysis 

of proposed §§ 229.2(s) and 229.36(a), 

respectively. 

The proposed rule would not 

preclude interbank presentment of 

checks in paper form; settlement for 

such presentments would be subject to 

the UCC, § 229.36(d) if the paying bank 

has not specified that checks presented 

for same-day settlement be presented as 

electronic collection items, or 

Regulation J.21 The Board requests 

comment on the proposed modification 

to the same-day settlement rule. 

II. Electronic Items Not Derived From 

Checks 

The Board is aware of industry 

practices in which an electronic image 

of a ‘‘check’’ is created, but a check never 

existed in paper (‘‘electronically-created 

items’’). For example, payees collect 

payment by means of electronicallycreated items (i.e., items that never 

existed in paper form) that resemble 

images of remotely created checks. 

Similarly, the drawer’s bank (the paying 

bank) might supply a smart-phone 

application through which the drawer is 

able to execute a ‘‘handwritten’’ 

signature on the phone’s screen, and 

through which the signature is attached 

to an electronic ‘‘check’’ that the drawer 

sends via the Internet to the payee, for 

the payee’s subsequent electronic 

deposit with its bank. 

An electronically-created item is not 

derived from an original paper check, 

and therefore it cannot be used to create 

a substitute check that meets the 

requirements of the Check 21 Act and 

Regulation CC.22 As a practical matter, 

a bank (including perhaps the 

depositary bank) receiving an 

electronically-created item cannot 

distinguish the item from any other 

image of a check that it receives 

electronically. The bank, nonetheless, 

may transfer the image as if it were an 

electronic collection item or electronic 

return, or produce a paper item that is 

indistinguishable from a substitute 

check (although not a valid substitute 

check because the item never existed in 

paper). A bank that transfers an image 

as if it were an electronic collection 

item or electronic return may be liable 

under the proposed new warranties (see 

proposed § 229.34) related to electronic 

collection items and electronic returns, 

or may be liable for breach of the Check 

21 Act’s warranty that a substitute check 

accurately represents all of the 

information from the original check as 

of the time the original check was 

truncated. In order to protect a bank that 

receives an electronically-created item 

from another bank from potential 

liability, the Board proposes that any 

bank transferring an electronicallycreated image and related information 

as either an electronic collection item or 

an electronic return would make any 

warranty the bank would make if the 

electronically-created item were in fact 

an electronic collection item or an 

electronic return (in other words, as if 

the item were derived from a paper 

check). As discussed in the section-bysection analysis of proposed § 229.34, 

the proposal would apply the same 

warranties to electronic collection items 

and electronic returns that would apply 

had those items been handled as paper 

checks (including remotely created 

checks) or substitute checks. 

As a result of these proposed new 

warranties, a bank receiving a warranty 

claim related to an electronic collection 

item, electronic return, or a 

nonconforming substitute check could 

pass back its liability for the item to the 

bank from which it had received the 

electronically-created image and 

information. Although in some 

instances the first bank to make the 

warranty also may not know whether an 

image and information came from a 

paper instrument, the Board believes 

that that bank is in the best position to 


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23Banks cannot readily differentiate remotely 

created checks and electronically-created items that 

resemble remotely created checks from regular 

checks, which makes data regarding these items 

difficult to obtain. 

In March 2008, the Reserve Banks published an 

estimate, based on visual inspection of a sample of 

about 35,000 checks, that about one percent of all 

checks in 2007 were remotely created. See page 33 

of the Reserve Banks’ 2007 Check Sample Study: 

http://www.frbservices.org/files/communications/ 

pdf/research/2007_check_sample_study.pdf. The 

study’s definition of the item in question was 

somewhat different than Regulation CC’s definition 

of a remotely created check. 

24 In 2003, the Reserve Banks had 45 checkprocessing offices. Cleveland became the sole 

remaining Reserve Bank check-processing office on 

February 27, 2010. Historically, appendix A to 

Regulation CC identified each Federal Reserve Bank 

check-processing office and listed under each office 

the first four digits of the routing numbers of the 

depository institutions served by that office. 

Appendix A thereby helped depositary banks 

determine whether a deposited check’s paying bank 

was local or nonlocal. In conjunction with the 

Reserve Banks’ cessation of check-processing 

activities at each office, the Board published 

conforming amendments to appendix A so that the 

appendix accurately reflected which institutions 

were served by each remaining office. With 

Cleveland now the sole office, all paying banks’ 

routing symbols are listed under it. 

25 12 CFR 229.2(r) and 229.2(v). A ‘‘local check’’ 

is one that is payable by a bank located in the same 

check-processing region as the depositary bank. By 

contrast, a ‘‘nonlocal check’’ is one that is payable 

by a bank located in a different check-processing 

region than the depositary bank. 

26Section 602(9) of EFA Act defines check 

processing region as ‘‘the geographical area served 

by a Federal Reserve bank check processing center 

or such larger area as the Board may prescribe by 

regulations.’’ Section 229.2(m) defines check 

processing region as ‘‘the geographical area served 

by an office of a Federal Reserve Bank for purposes 

of its check-processing activities.’’ 

27A deposit of a ‘‘local check’’ receives two-day 

funds availability under the regulation, whereas 

nonlocal checks received five-day availability. The 

elimination of nonlocal checks therefore has 

improved funds availability for banks’ customers. 

28The proposed updates to the model forms in 

appendix C are based on consumer testing of the 

forms, and are discussed in more detail in the 

section-by-section analysis below. A detailed report 

regarding the consumer testing is available on the 

Board’s public Web site, http:// 

www.federalreserve.gov, along with this proposed 

rule. 

29See Regulation CC § 229.20 and EFA Act § 608. 

A state’s funds-availability law must have been in 

effect on or before September 1, 1989, to not be 

preempted by the regulation. 

30See § 1086(e) of the Dodd-Frank Act, Public 

Law 111–203, 124 Stat. 1376 (2010). 

31See § 1062 of the Dodd-Frank Act. The 

designated transfer date is subject to an extension 

to up to 18 months after the Dodd-Frank Act’s date 

of enactment. 

know and to protect itself contractually 

against the risk that it did not. 

As noted above, a bank often cannot 

distinguish between electronic items 

derived from paper checks and 

electronically-created items. Therefore, 

under the proposal, banks might treat 

electronically-created items as if they 

were electronic collection items or 

electronic returns. The Board requests 

comment on whether, in addition to the 

proposed warranties discussed above, it 

should in the future consider making an 

electronically-created item subject to 

subpart C of Regulation CC as if it were 

a check. Such a change would result, for 

example, in the paying bank to which 

the item is presented being subject to 

the regulation’s expeditious-return 

requirement. The Board emphasizes that 

the proposed warranties, as well as 

making electronically-created items 

subject to subpart C as if they were 

checks, would not necessarily affect any 

future determinations by the Board or 

the Bureau of Consumer Financial 

Protection as to whether such 

electronically-created items are 

electronic fund transfers subject to 

Regulation E (12 CFR part 205). 

The Board proposes that the existing 

warranties related to remotely created 

checks be extended to electronicallycreated items that resemble images of 

remotely created checks. As a general 

matter, the Board is not aware of reliable 

data regarding the prevalence of 

remotely created checks and similar 

electronically-created items.23 The 

Board requests comment on the 

frequency of use of these types of checks 

and items, the rate at which they are 

returned unpaid, and the extent to 

which payees have valid reasons to 

obtain payment by means of these items, 

as opposed to using an ACH debit 

transaction or other means. 

III. Amendments Related to the 

Elimination of Nonlocal Checks 

In response to the continued 

nationwide decline in check usage and 

banks’ rapidly increasing use of 

electronic check-clearing methods since 

the Check 21 Act, as well as to meet the 

cost recovery requirements of the 

Monetary Control Act of 1980, the 

Federal Reserve Banks have ceased 

check-processing operations at all of 

their check-processing offices except 

one.24

The EFA Act’s and Regulation CC’s 

funds-availability schedule 

differentiates between ‘‘local checks’’ 

and ‘‘nonlocal checks,’’ which are 

defined in terms of which ‘‘checkprocessing region’’ the paying bank is 

located in relative to the depositary 

bank.25 The EFA Act and Regulation CC 

define a ‘‘check-processing region’’ in 

terms of the geographical area served by 

a Federal Reserve Bank checkprocessing center.26 The Reserve Banks’ 

office closures have had the effect of 

reducing to one the number of checkprocessing regions. Accordingly, there 

are no more ‘‘nonlocal checks,’’ because 

all paying banks and depositary banks 

are located in the same checkprocessing region.27

Because there are no more nonlocal 

checks, certain provisions in the 

regulation can be substantially 

simplified. Specifically, the Board 

proposes to delete the definitions in 

subpart A that relate to distinguishing 

local from nonlocal checks (specifically, 

the definitions of ‘‘check-processing 

region,’’ ‘‘local check,’’ ‘‘local paying 

bank,’’ ‘‘nonlocal check,’’ and ‘‘nonlocal 

paying bank’’), as well as the related 

portions of appendix A to the 

regulation. The Board also proposes to 

streamline the funds-availability and 

disclosure provisions in subpart B and 

to update the model funds-availability 

forms set forth in appendix C to the 

regulation.28 The Board proposes that a 

bank basing its disclosures on the 

models currently in the appendix would 

continue to receive a safe harbor for 

doing so up to 12 months after a final 

rule becomes effective, provided that 

the disclosures accurately reflect the 

bank’s policies and practices. Finally, 

the Board proposes to update the 

preemption determinations, with 

respect to states’ funds-availability laws, 

that are set forth in appendix F to the 

regulation.29

IV. Dodd-Frank Act Amendments 

A. EFA Act Dollar Amounts 

Section 1086 of the Dodd-Frank Wall 

Street Reform and Consumer Protection 

Act of 2010 (Dodd-Frank Act) amends 

the EFA Act by increasing from $100 to 

$200 the amount of deposited funds that 

banks must make available for 

withdrawal by opening of business on 

the next day.30 The effective date of this 

provision of the act is the ‘‘designated 

transfer date,’’ which the Secretary of 

the Treasury has determined to be July 

21, 2011.31 This provision of the EFA 

Act is implemented in 

§ 229.10(c)(1)(vii). Additionally, the 

model disclosure forms set forth in 

current appendix C reflect the 

requirement that a bank must make 

$100 of the deposit available on the next 

business day. When the Dodd-Frank 

Act’s increase to $200 becomes 

effective, banks should ensure that their 

disclosures reflect the new fundsavailability schedule and that customers 

are notified of the changes in policy in 

accordance with § 229.18(e). 

Specifically, effective July 21, 2011, a 

bank basing its funds-availability 

disclosure on current model C–3, C–4, 

or C–5 must ensure that its disclosure 

indicates that the first $200 (rather than 

$100) of a check deposit will be 


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32Per § 229.18(e), a bank must provide a changein-terms notice to existing consumer customers by 

August 21, 2011. 

33The amounts are indexed to the Consumer 

Price Index for Urban Wage Earners and Clerical 

Workers (CPI–W), as published by the Bureau of 

Labor Statistics (BLS), rounded to the nearest 

multiple of $25. See § 1086(f) of the Dodd-Frank 

Act. 

34The transfer date is subject to an extension of 

up to 18 months after the Dodd-Frank Act’s date of 

enactment. See § 311 of the Dodd-Frank Act. 

35The agreement to receive an electronic 

collection item could be in the form of a Federal 

Reserve Bank operating circular or a clearinghouse 

rule. 

36 X9.100–187 is available from http:// 

www.x9.org. The UCD for X9.100–187 is available 

at http://www.checkimagecentral.org/pdf/ 

UCD_X9_100-187-2008_Version_1.2.pdf. 

available on the next business day after 

the day of deposit.32

Section 1086 amends the EFA Act to 

require the Board, jointly with the 

Bureau of Consumer Financial 

Protection (Bureau), to update the dollar 

amounts to reflect inflation every five 

years after December 31, 2011.33 These 

amounts include the amount of funds a 

depositary bank must make available 

from a deposit of a check not subject to 

next-day availability 

(§ 229.10(c)(1)(vii)), by cash or similar 

means (§ 229.12(b)), and under the newaccount and large-deposit exceptions 

(§§ 229.13(a) and (b)). These amounts 

also include the EFA Act’s damage 

limitations (§ 229.21(a)). To facilitate 

future amendments to the regulation in 

this regard, the proposed amendments 

minimize the number of references to 

specific dollar amounts. For example, in 

the future, the $100 (which increases to 

$200 as of the transfer date) mentioned 

above would be considered ‘‘the 

minimum amount of a deposit that must 

be made available on the next day.’’ The 

Board plans to seek comment on 

proposed methods of indexing the 

amounts to inflation jointly with the 

Bureau at a later date. 

B. Rule-Writing Authority 

Section 1086 also amends the Board’s 

rule-writing authority under the EFA 

Act by making certain rule-writing 

authorities joint with the Bureau. 

Specifically, as of the transfer date, the 

Board’s authority to implement the EFA 

Act’s provisions (EFA Act § 609(a)), 

reduce hold periods (EFA Act 

§ 603(d)(1)), establish exceptions to the 

funds-availability schedule (EFA Act 

§ 604(f)), and publish model disclosure 

provisions (EFA Act § 605(f)(1)) will 

become joint with the Bureau. 

Accordingly, after the transfer date, any 

rules promulgated pursuant to these 

authorities will be done so jointly with 

the Bureau. 

C. Administrative Enforcement 

The Dodd-Frank Act eliminates the 

Office of Thrift Supervision as of July 

21, 2011, the ‘‘transfer date’’ provided in 

§ 311 of the Dodd-Frank Act, and 

transfers enforcement authority for 

insured savings associations under § 8 

of the Federal Deposit Insurance Act to 

the Office of the Comptroller of the 

Currency.34 Accordingly, as of the 

transfer date, compliance with part 229 

will be enforced by the Office of the 

Comptroller of the Currency in the case 

of savings associations with deposits 

insured by the Federal Deposit 

Insurance Corporation. The 

administrative enforcement provisions 

are contained in § 229.3. 

V. Other Proposed Amendments 

The Board proposes other 

amendments to the provisions of 

Regulation CC and its commentary. 

These proposed changes are discussed 

in the section-by-section analysis below. 

Section-by-Section Analysis 

Paragraph citations in this section-bysection analysis are as proposed to be 

renumbered, unless otherwise explicitly 

stated. Sections not discussed below are 

either unchanged or have only technical 

or conforming amendments. The Board 

requests comment on all aspects of the 

proposed rule. 

I. Subpart A 

A. Section 229.1—Authority and 

Purpose, Organization 

The Board proposes to add to 

§ 229.1(b) descriptions of the 

appendices to the regulation, as well as 

amendments to conform § 229.1(b) to 

amendments proposed in this notice. 

B. Section 229.2—Definitions 

The definitions of terms in § 229.2 

were incorporated into the regulation at 

different times and are not currently in 

alphabetical order. The Board proposes 

that the paragraphs in this section be 

renumbered so that defined terms are in 

alphabetical order. Similarly, the Board 

proposes to renumber the paragraphs in 

the commentary to reflect the proposed 

renumbering. 

1. Section 229.2(b)—Automated 

Clearinghouse (ACH) Credit Transfer 

Because the regulation uses the term 

ACH only within other definitions, the 

Board proposes to delete the definition 

of the term ‘‘automated clearinghouse’’ 

and replace it with a new defined term, 

‘‘automated clearinghouse (ACH) credit 

transfer.’’ This phrase is used in the 

definition of electronic payment 

(§ 229.2(t)) and in the commentary to 

§ 229.10(b), which requires a bank to 

make funds received for deposit by an 

electronic payment available for 

withdrawal the next day. The Board 

intends no change to the regulation’s 

substance by this proposed clarifying 

definitional change. 

2. Section 229.2(c)—Automated Teller 

Machine or ATM 

The Board proposes to clarify that an 

automated teller machine (ATM) 

includes only those devices at which a 

person may make deposits by cash or 

paper check. For example, a remote 

deposit capture device would not be 

considered an ATM because a bank’s 

customer would be depositing an image 

of the check, not the paper check, into 

the account. The Board proposes 

conforming amendments to the 

commentary of this section. 

Additionally, the Board proposes to 

provide an example of the ‘‘other 

account transactions’’ that may be 

performed at an automated teller 

machine (ATM); specifically, making 

cash withdrawals from an account. 

3. Section 229.2(r)—Depositary Bank 

The Board proposes to clarify that a 

bank that rejects a check submitted for 

deposit is not a depositary bank. The 

rationale for this proposed change is 

discussed in more detail below in this 

section-by-section analysis under 

§ 229.52. 

4. Section 229.2(s)—Electronic 

Collection Item 

The Board proposes in new § 229.2(s) 

to define the new term ‘‘electronic 

collection item’’ as an electronic image 

of and information related to a check 

that a bank sends for forward collection 

and that a paying bank has agreed to 

receive under § 229.36(a), and that is 

sufficient to create a substitute check.35

Under the proposed definition, the 

image and information must conform to 

American National Standard 

Specifications for Electronic Exchange 

of Check and Image Data—X9.100–187, 

in conjunction with its Universal 

Companion Document, (hereinafter 

collectively referred to as ANS X9.100– 

187), unless the parties otherwise 

agree.36 If an electronic collection item 

satisfies the requirements set forth in 

proposed § 229.2(s), then, as stated in 

proposed § 229.33, the provisions of 

subpart C would apply to the electronic 

collection item as if it were a check. 

(See proposed commentary to 


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37For example, a paying bank receiving 

presentment of an electronic collection item would 

be subject to the regulation’s expeditious-return 

requirement, provided the depositary bank has 

agreed to accept electronic returns from the paying 

bank under § 229.32(a). 

38Like an electronic collection item, an electronic 

return may be an electronic representation of a 

substitute check, but not all electronic 

representations of substitute checks would qualify 

as an electronic return. 

§ 229.2(s)).37 Some electronic 

presentment agreements, however, may 

not require an image of the check. 

Electronic items presented under these 

agreements would not be electronic 

collection items because they are not 

sufficient to create a substitute check, 

nor would they be treated as checks for 

purposes of subpart C. The proposed 

commentary also explains that an 

electronic collection item that contains 

an image of the front and back of a 

substitute check (as opposed to an 

original check) would be an electronic 

representation of a substitute check, as 

that phrase is defined in proposed 

§ 229.2(hh) (current § 229.2(xx)). Not all 

electronic representations of substitute 

checks, however, would qualify as an 

electronic collection item, because, to be 

an electronic collection item, an 

electronic representation of a substitute 

check must contain sufficient 

information to create a substitute check. 

The Board believes that ANS X9.100– 

187 is the most prevalent industry 

standard for electronic images and 

information that will enable the 

receiving bank to create a substitute 

check. The Board recognizes, however, 

that certain banks may use a different 

standard and that, as is the case with 

many technology standards, the 

standard likely will evolve. To the 

extent that banks use a different 

standard, the proposed definition of 

electronic collection item would permit 

parties to agree to a standard other than 

ANS X9.100–187 and still have the item 

qualify as an electronic collection item 

that is treated as a check for purposes 

of subpart C, provided that the item is 

sufficient to create a substitute check. 

The Board requests comment on the 

proposed standard for an electronic 

collection item and whether any other 

standard should be specified in the 

regulation. 

5. Section 229.2(u)—Electronic 

Presentment Point 

The Board proposes in new § 229.2(u) 

to define electronic presentment point 

as the electronic location that the paying 

bank has designated for receiving 

electronic collection items. This point 

may be either an e-mail address or other 

electronic address. The Board requests 

comment on whether this definition 

provides enough specificity. 

6. Section 229.2(v)—Electronic Return 

The Board proposes in new § 229.2(v) 

to define the new term ‘‘electronic 

return’’ as an electronic image of and 

information related to a check that a 

paying bank has determined not to pay 

and that a depositary bank has agreed to 

receive under § 229.32(a), and that is 

sufficient to create a substitute check. 

The image and information must 

conform to ANS X9.100–187, unless the 

parties otherwise agree. The proposed 

commentary explains that if an 

electronic return satisfies the 

requirements set forth in § 229.2(v), then 

the provisions of subpart C apply to the 

electronic return as if it were a check 

(See proposed § 229.33).38

The proposed commentary to 

§ 229.2(v) explains that a depositary 

bank’s agreement with a returning bank 

to accept .pdf files that are sufficient to 

create substitute checks would be one 

example of banks varying by agreement 

the regulation’s requirement that an 

electronic return conform with ANS 

X9.100–187. By agreeing with a 

returning bank to accept an electronic 

return in the form of a .pdf file, a 

depositary bank would thereby be 

entitled to expeditious return. The 

Board requests comment on the 

proposed standard for an electronic 

return and whether any other standard 

should be specified in the regulation. 

7. Section 229.2(w)—Electronic Return 

Point 

The Board proposes in new § 229.2(w) 

to define electronic return point as the 

electronic location that the depositary 

bank has designated for receiving 

electronic returns. The proposed 

commentary notes that an electronic 

return point may be an e-mail address 

or other electronic address that a 

depositary bank has designated as the 

place to which electronic returns must 

be delivered. The Board requests 

comment on whether this definition 

provides enough specificity. 

8. Section 229.2(hh)—Paper or 

Electronic Representation of a 

Substitute Check 

The Board proposes to modify the 

commentary to the definition of this 

term to note that an electronic 

representation of a substitute check may 

also be an electronic collection item or 

electronic return if the electronic 

representation contains sufficient 

information for creating a substitute 

check and conforms to ANS X9.100– 

187, or another format to which the 

parties agreed. 

9. Section 229.2(pp)—Routing Number 

The Board proposes to add to the 

definition a new subparagraph 

providing that the term also includes 

the bank-identification number 

contained in the electronic image of or 

information related to a check. Further, 

the Board also proposes to move the two 

introductory paragraphs in appendix A, 

which provide general information 

about routing numbers, to the 

commentary to the definition of routing 

number. 

10. Deleted Terms 

Check-processing region, local check, 

local paying bank, nonlocal check, and 

nonlocal paying bank. Because there is 

now only one nationwide checkprocessing region, there are no longer 

any nonlocal checks, and the definitions 

in the regulation implementing the 

distinctions between local and nonlocal 

checks are no longer necessary. 

Accordingly, the Board proposes to 

delete from the regulation the 

definitions of ‘‘check-processing region 

(current § 229.2(m)), ‘‘local check’’ 

(current § 229.2(r)), ‘‘local paying bank’’ 

(current § 229.2(s)), and ‘‘nonlocal 

paying bank’’ (current § 229.2(w)), and 

the commentary thereto. 

Similarly situated bank. The only 

place the current regulation uses this 

term is in the forward-collection test for 

expeditious return. Because the Board 

proposes to delete that test from the 

regulation (as discussed below in this 

section-by-section analysis under 

§§ 229.30(a) and 229.31(a)), the 

regulation’s definition of similarly 

situated bank is no longer necessary and 

the Board proposes to delete current 

§ 229.2(ee). 

II. Subpart B 

Throughout subpart B and the 

commentary thereto, the Board proposes 

to eliminate all references to ‘‘checkprocessing regions,’’ ‘‘local checks,’’ 

‘‘local paying banks,’’ ‘‘nonlocal checks,’’ 

and ‘‘nonlocal paying banks.’’ 

A. Section 229.10(c)—Next-Day 

Availability of Certain Check Deposits 

1. Section 229.10(c)(1)(vi) 

Given that there is only one 

nationwide check-processing region, the 

Board proposes in § 229.10(c)(1)(vi) to 

delete the phrase ‘‘if both branches are 

located in the same state or checkprocessing region.’’ As a result, the 

subparagraph would require a 

depositary bank to provide next-day 

availability for a check deposited in a 


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39These checks include U.S. Postal Service 

money orders, checks drawn on Federal Reserve 

Banks or Federal Home Loan Banks, checks drawn 

by state or local governments, or cashier’s checks, 

certified checks, or teller’s checks. 

40Current § 229.12(b) states which checks are 

subject to second-day availability. These checks 

include local checks and checks that meet the 

requirements of §§ 229.10(c)(1)(ii), (iii), (iv), or (v), 

except the check is not deposited in person. 

41The EFA Act conference report states that 

‘‘nonproprietary ATMs today do not distinguish 

among check deposits or between check and cash 

deposits’’ (H.R. Rep. No. 261, 100th Cong., 1st Sess. 

179 (1987)). 

42Conference Report on H.R. 27 (H. Rept. 100– 

261), 100th Congress, 1st session, 179 (1987), pp. 

H6906–7. 

43Section 229.19(b) requires that funds be made 

available for withdrawal by the opening of business 

on the day on which funds are required to be made 

available for withdrawal. 

branch of the depositary bank and 

drawn on the same or another branch of 

the same bank. 

2. Section 229.10(c)(1)(vii) 

Section 1086(e) of the Dodd-Frank Act 

increases from $100 to $200 the 

minimum amount of funds deposited by 

check or checks on a given business day 

that a bank must make available by 

opening of business on the next 

business day pursuant to § 603(a)(2)(D) 

of the EFA Act. That provision of the 

EFA Act is implemented in 

§ 229.10(c)(1)(vii) of Regulation CC, and 

the increase is expected to take effect on 

July 21, 2011, regardless of whether the 

Board and the Bureau have amended 

Regulation CC. Accordingly, the Board 

proposes to amend the commentary to 

§ 229.10(c)(1)(vii) to facilitate future 

amendments to the minimum amount of 

a deposited check a bank must make 

available on the business day following 

the banking day of deposit. Specifically, 

the Board proposes to replace references 

to ‘‘$100’’ with references to ‘‘the 

minimum amount.’’ The Board proposes 

to make this amendment throughout the 

commentary, as well as in the model 

forms. 

3. Section 229.10(c)(2) 

The Board proposes to delete current 

§ 229.10(c)(2), which states that a 

depositary bank shall make funds 

available by the second business day 

after the banking day on which a check 

is deposited in the case of a check 

deposit that meets the requirements of 

§§ 229.10(c)(1)(ii), (iii), (iv), or (v), 

except the check is not deposited in 

person.39 In the absence of nonlocal 

checks, the checks described 

§ 229.10(c)(2) are subject to the same 

rule as the general rule set forth in 

proposed § 229.12. Section 229.10(c)(2) 

is therefore no longer necessary. 

B. Section 229.12—Availability 

Schedule 

1. Proposed § 229.12(a)—In General 

The Board proposes to delete current 

§ 229.12(a). It specifies the effective date 

(September 1, 1990) for § 229.12 and is 

no longer necessary. 

The Board proposes that new 

§ 229.12(a) set forth the general fundsavailability rule for deposits of checks: 

Unless subject to one of the enumerated 

exceptions, funds from a check deposit 

must be made available for withdrawal 

by the second business day following 

the banking day of deposit. Proposed 

new § 229.12(a) is derived from current 

§ 229.12(b), which sets forth local check 

availability. In the absence of a 

distinction between local checks and 

nonlocal checks, current § 229.12(b)(1), 

(2), (3), and (4) are subsumed within 

this general rule, and the Board 

proposes to delete them.40 Similarly, 

current § 229.12(c) applies to nonlocal 

checks, which is now a null set, and the 

Board proposes to delete § 229.12(c) and 

commentary thereto. 

2. Section 229.12(b)—Withdrawal by 

Cash or Similar Means 

Section 229.12(b) implements the 

EFA Act’s permissive adjustment to the 

funds-availability rules for withdrawals 

by cash or similar means. In part, a bank 

may delay availability for withdrawal by 

cash or similar means by one business 

day, provided that the bank makes $400 

of the deposited funds available for 

withdrawal not later than 5 p.m. on the 

business days on which the funds must 

be made available under the fundsavailable schedule. Like other amounts 

specified in the EFA Act, this $400 will 

be adjusted every five years for 

inflation. In order to facilitate future 

adjustments to the amount, the Board 

proposes to amend the commentary to 

§ 229.12(b) by replacing references to 

‘‘$400’’ with references to ‘‘the cash 

withdrawal amount.’’ The Board 

proposes to make similar amendments 

throughout the commentary and model 

forms. 

3. Section 229.12(d)—Deposits at 

Nonproprietary ATMs 

As indicated in the EFA Act’s 

legislative history, Congress adopted the 

five-day maximum hold on 

nonproprietary ATM deposits to match 

the five-day maximum hold on a 

nonlocal check deposit, because the 

depositary bank did not know the 

composition of a nonproprietary ATM 

deposit (that is, whether the deposit 

consisted of cash, local checks, nonlocal 

checks, etc.).41 In the absence of 

nonlocal checks, however, there is no 

longer any class of check that is subject 

to a maximum five-day hold. 

EFA Act § 603(d)(1) states that ‘‘The 

Board shall, by regulation, reduce the 

time periods established under 

subsections (b), (c), and (e) to as short 

a time as possible and equal to the 

period of time achievable under the 

improved check clearing system for a 

receiving depository institution to 

reasonably expect to learn of the 

nonpayment of most items for each 

category of checks.’’ The statute’s 

legislative history recommends a 

quantitative benchmark for the Board to 

use to determine whether to reduce 

these hold periods: a receiving bank 

could reasonably expect to learn of the 

return of two-thirds of the checks in a 

given category before a bank must make 

the deposited funds available for 

withdrawal at the opening of business.42

As mentioned above, in December 

2010 the Reserve Banks received about 

99.7 percent of deposited for forward 

collection electronically, presented 98.4 

percent of their checks electronically, 

received 97.1 percent of returned checks 

electronically, and delivered about 76.7 

percent of returned checks to depositary 

banks electronically. Thus, about 73.0 

percent of checks cleared and returned 

through the Reserve Banks complete the 

roundtrip from the depositary bank to 

the paying bank and back again in 

electronic form. It is reasonable to 

expect that a check cleared and returned 

entirely in electronic form would 

complete this roundtrip in three 

business days. For example, if a check 

is deposited on Monday and collected 

electronically, the check would 

generally be presented to the paying 

bank on Tuesday. The paying bank 

would generally send the return 

electronically to a returning bank on the 

night between Wednesday and 

Thursday, which would electronically 

deliver the returned check to the 

depositary bank on Thursday. 

The Board therefore proposes to 

reduce in proposed § 229.12(d) (current 

§ 229.12(f)) the maximum hold period 

for nonproprietary ATM deposits from 

5 business days to 4 business days. Four 

business days will provide the 

depositary bank with reasonable 

opportunity to learn of the nonpayment 

of a check deposited at a nonproprietary 

ATM before it must make the funds 

available for withdrawal.43 In the 

example above, the depositary bank can 

reasonably expect to learn of an unpaid 

electronically returned check on 

Thursday, and will be required under 

the proposed 4-business-day hold 

period to make funds deposited by 

check at a nonproprietary ATM 


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16870 Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 

44The Board is proposing to follow the analysis 

it set forth in 1999 that it would reduce the 

availability schedules in Regulation CC only after 

determining that the depositary bank can 

reasonably expect to learn of an unpaid check on 

the business day before the day on which the bank 

must make funds available for withdrawal at the 

opening of business. See 64 FR 37712 (July 13, 

1999). 

available for withdrawal at the opening 

of business on Friday.44

As mentioned above, Congress 

recognized in the EFA Act legislative 

history that depositary banks generally 

do not know the composition of 

deposits made at nonproprietary ATMs 

(that is, whether the deposit consisted of 

cash, local checks, nonlocal checks, 

etc.), and therefore adopted a five-day 

maximum hold on nonproprietary ATM 

deposits to match the five-day 

maximum hold on a nonlocal check 

deposit. Currently, however, all cash 

deposits not made in person to an 

employee of the depositary bank and 

check deposits must be made available 

for withdrawal by the second business 

day following deposit. The Board 

requests comment on whether the 

funds-availability schedule’s distinction 

between deposits to proprietary ATMs 

and deposits to nonproprietary ATMs 

continues to make sense in an 

environment where all in-person cash 

deposits and check deposits must be 

made available for withdrawal by the 

second business day following deposit. 

C. Section 229.13—Exceptions 

1. Section 229.13(b)—Large Deposits 

Section 229.13(b) sets forth an 

exception to the funds-availability 

schedule for the aggregate amount of 

deposited checks totaling more than 

$5,000 on any one banking day to the 

extent the aggregate amount exceeds 

$5,000. Like other amounts specified in 

the EFA Act, this $5,000 threshold will 

be adjusted every five years for 

inflation. In order to facilitate future 

adjustments to the amount, the Board 

proposes to amend the commentary to 

§ 229.13(b) by replacing references to 

‘‘$5,000’’ with references to ‘‘the largedeposit amount.’’ The Board proposes to 

make similar amendments throughout 

the commentary and model forms. 

2. Section 229.13(d)—Repeated 

Overdrafts 

Section 229.13(d) provides the 

depositary bank with an exception to 

the general availability schedule in 

§ 229.12 for a check deposited into an 

account that has been repeatedly 

overdrawn in the preceding six months. 

The exception relates not only to 

overdrafts caused by checks, but also 

those caused by, for example, debit card 

transactions. The Board proposes to add 

a new paragraph, § 229.13(d)(3), 

clarifying that the exception does not 

include an attempted debit card 

transaction for which the depositary 

bank declined the authorization request, 

because in that case no debit card 

transaction has occurred. 

3. Section 229.13(e)—Reasonable Cause 

to Doubt Collectability 

Section 229.13(e) provides the 

depositary bank with an exception to 

the § 229.12 general availability 

schedule if the depositary bank has 

reasonable cause to believe that the 

check is uncollectible from the paying 

bank. The commentary currently states 

that a depositary bank cannot invoke 

this exception simply because a check is 

drawn on a bank in a rural area and the 

depositary bank knows it will not have 

the opportunity to learn of the 

nonpayment of the check before funds 

must be made available. If a check is 

collected and returned electronically, 

however, the rural location of a paying 

bank will not affect the time required to 

collect and return the check. The Board 

proposes to update the example in 

paragraph (4) of the commentary to 

§ 229.13(e). Specifically, a depositary 

bank may not invoke this exception 

simply because a paying bank demands 

paper presentment and the depositary 

bank believes it is unlikely to receive 

the return prior to the time by which it 

must make the deposited funds 

available. 

3. Section 229.13(g)—Notice of 

Exception 

A depositary bank must provide 

notice to its customer when it invokes 

one of the exceptions in § 229.13 to 

apply an extended hold to a deposit. 

Section 229.13(g)(1)(i) sets forth the 

information that the notice must 

include. Currently, the notice must 

include the amount of the deposit that 

is being delayed. During consumer 

testing of the model forms, however, 

consumers were more readily able to 

recall the deposited check for which the 

funds were being held when the notice 

included the total amount of the 

deposit, rather than only the amount 

being held. Accordingly, the Board 

proposes to require that the notice of an 

exception hold contain the total amount 

of the deposit, in addition to the amount 

of the deposit being held. Additionally, 

consumers more readily understood 

when funds would be made available if 

the notice stated the day on which the 

funds will be made available, rather 

than explain availability in reference to 

the date of deposit. Therefore, the Board 

proposes to require that the notice 

specify the day funds will be made 

available instead of ‘‘the time period 

within which’’ the funds will be 

available for withdrawal. The Board 

proposes conforming changes to 

proposed model notice C–9. 

Section 229.13(g)(1)(ii) states that if 

the notice is not given at the time of the 

deposit, the depositary bank shall mail 

or deliver the notice to the customer as 

soon as practicable, but no later than the 

first business day following the day the 

facts become known to the depositary 

bank, or the deposit is made, whichever 

is later. With the elimination of 

nonlocal checks, depositary banks must 

generally make check deposits available 

by opening of business on the second 

business day following the banking day 

of deposit. The Board believes that it is 

desirable for a customer to learn that its 

bank is extending a hold before the 

customer would expect the funds to 

become available under the bank’s 

generally applicable availability policy. 

Further, it has become more feasible for 

banks to provide notices to their 

customers electronically, which results 

in near instant receipt of the notice to 

the customer. The Board therefore 

proposes that, if the customer has 

agreed to accept notices electronically, 

the depositary bank is required to send 

the notice such that the bank may 

reasonably expect the customer to 

receive it no later than the first business 

day following the day the deposit is 

made or the facts become known to the 

depositary bank, whichever is later. For 

example, the bank could e-mail notice 

of the hold to the customer. The Board 

requests comment on whether providing 

a notice in this fashion is practical. 

Finally, § 229.13(g)(4) describes the 

notice that a depositary bank must 

provide when it applies an emergencyconditions hold. The Board proposes to 

update the commentary to § 229.13(g) to 

explain that a depositary bank may 

provide notice via postings to the 

depositary bank’s website or through a 

directed e-mail. 

4. Section 229.13(h)—Availability of 

Deposits Subject to Exceptions 

If a check deposit is subject to an 

exception hold, § 229.13(h)(4) provides 

that a reasonable period for a hold 

extension is one business day (for a total 

of two) for a deposit of on-us checks, 

five business days (for a total of seven) 

for local checks, and six business days 

(for a total of eleven) for nonlocal 

checks and deposits into nonproprietary 

ATMs. The Board proposes that the safe 

harbor for the reasonable hold extension 

for a deposit of on-us checks remain one 

business day, and that safe harbor for 

the reasonable hold extension for other 


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Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 16871 

45As described above, the Board proposes to 

reduce the generally-applicable hold period for 

nonproprietary ATM deposits from five business 

days to four. The proposed reasonable hold 

extension of two business days would therefore 

provide a total of six business days for 

nonproprietary ATM deposits. 

46See 55 FR 21848, 21850 (May 30, 1990). 

47See the Board’s Federal Register notice 

announcing its approval of the Federal Reserve 

Banks’ 2011 fee schedules for priced services, 75 FR 

67740 (Nov. 3, 2010). 

48Under the Board’s proposal, a bank that bases 

its availability-policy disclosure on the models 

currently provided in Appendix C will continue to 

receive a safe harbor for doing so. See the 

discussion of Appendix C below in this section-bysection analysis. 

checks be reduced to two business days 

(from five or six business days), for a 

total of four business days for all other 

checks.45

Section 229.13(h)(4) would continue 

to permit a bank to apply a longer hold 

extension than this, but the bank would 

have the burden of establishing that the 

longer hold extension is reasonable. The 

Board is proposing conforming changes 

to the commentary to § 229.13(h). 

In adopting Regulation CC’s 

permanent availability schedules, the 

Board stated that the reasonable 

extended-hold periods are ‘‘designed to 

provide adequate time for the depositary 

bank to learn of the nonpayment of 

virtually all checks that are returned.’’ 46

If a check is cleared and returned 

electronically, the depositary bank 

should receive the returned check in 

three business days. Checks that are not 

cleared and returned entirely in 

electronic form, however, will typically 

take longer to be returned to the 

depositary bank. The Reserve Banks, 

however, project that by year-end 2011, 

97 percent of their checks will be 

cleared and returned entirely in 

electronic form, which the Board 

believes is representative of the industry 

as a whole.47 Therefore, depositary 

banks will receive virtually all returned 

checks by the third business day after 

the day of deposit, with the depositary 

bank making funds available at opening 

of business on the fourth day. Although 

the proposed reasonable extended-hold 

period of two business days (four 

business days total) may increase risk 

for a depositary bank that does not 

accept electronic returns, the Board 

believes that the reduction in the 

exception hold safe harbor is warranted 

given that it will provide faster 

availability for depositors as well as an 

incentive for depositary banks to take 

advantage of electronic check-return 

infrastructure. 

If the paying bank does not return 

checks electronically, the time required 

for a check to be delivered from the 

depositary bank to the paying bank and 

back again may be greater than three 

business days. A paying bank that does 

not send returned checks electronically, 

however, generally will not meet its 

expeditious return requirement, and the 

depositary bank may have a claim for 

any losses it incurs due to the failure of 

the paying bank to send the returned 

check expeditiously. 

D. Section 229.15—General Disclosure 

Requirements 

1. Section 229.15(a) 

Section 229.15(a) sets forth the form 

requirements for disclosures under 

subpart B. In general, there are two 

types of disclosures under subpart B— 

funds-availability policy disclosures 

and delayed availability notices. Both 

types of disclosures must be written and 

in a form the customer may keep. The 

Board proposes to amend § 229.15(a) to 

clarify that the form requirements apply 

to both funds-availability policy 

disclosures and delayed availability 

notices required by subpart B. 

2. Section 229.15(b)(1) 

Section 229.15(b) states that ‘‘[i]n its 

disclosure, a bank shall describe funds 

as being available on ‘the _____ business 

day after’ the day of deposit.’’ The 

Board’s consumer testing of the model 

disclosures in Appendix C (discussed in 

more detail below), however, indicated 

that consumers may more readily 

understand alternative formulations of 

statements of when deposited funds will 

be available for withdrawal. The Board 

therefore proposes in § 229.15(b)(1) to 

provide banks with more flexibility 

regarding this description.48 The 

proposal requires a bank in its 

disclosure or notice to specify the 

business day on which funds are 

available for withdrawal by describing 

that day in relation to the banking day 

on which the deposit is received, and to 

use in this description language 

substantially similar to that set forth in 

proposed § 229.15(b)(1). Under the 

proposal, for example, the banking day 

of receipt may be described as ‘‘the same 

business day,’’ and the business day 

after the banking day of receipt may be 

described as ‘‘the next business day,’’ or 

described using either cardinal or 

ordinal numbers, such as ‘‘2 business 

days’’ or ‘‘the second business day.’’ 

E. Section 229.16—Specific Availability 

Policy Disclosure 

1. Section 229.16(b)(2) 

Because the Board is eliminating 

references to local and nonlocal checks 

throughout the regulation and 

commentary, the Board proposes to 

delete the requirement that banks that 

distinguish between local and nonlocal 

checks in their availability policy 

disclose that a check payable through 

one bank (the bank whose routing 

number appears in the MICR line) and 

payable by another bank would be 

considered local or nonlocal on the 

basis of the location of the bank by 

which the check is payable. In the 

absence of nonlocal checks, that 

disclosure requirement is obsolete. 

2. Section 229.16(c)(2) 

Section 229.16(c)(2) sets forth the 

information required in a notice when a 

bank invokes a case-by-case hold. These 

information requirements are similar to 

the information requirements for 

exception-hold notices under 

§ 229.13(g). Consumer testing 

demonstrated that consumers are both 

able to recall the deposit to which the 

hold is being applied if the notice states 

the total deposit amount and able to 

understand more readily the day on 

which funds will be made available if 

given a specific date. Therefore, the 

Board proposes to amend the case-bycase notice requirements in 

§ 229.16(c)(2)(i) to require that a caseby-case notice include the total amount 

of the deposit and the specific date on 

which funds will be made available. 

Further, in the absence of nonlocal 

checks, the case-by-case hold period is 

so short that a paper notice of the hold 

sent through the mail may not reach the 

customer until after the hold has been 

lifted. The Board therefore proposes to 

amend § 229.16(c)(2)(ii) and the related 

commentary to provide that, if the 

customer has agreed to accept notices 

electronically, a bank that invokes a 

case-by-case hold after the time of 

deposit be required to deliver the notice 

such that the bank may reasonably 

expect the notice to be received by the 

customer not later than the first 

business day following the banking day 

of deposit. For example, the bank could 

e-mail notice of the hold to the customer 

on the business day after the banking 

day of deposit. The Board requests 

comment on whether providing a notice 

in this fashion is practical. 

In addition, the Board requests 

comment on the extent to which banks 

continue to find it useful to apply caseby-case holds to check deposits and on 

whether the regulation’s provision for 

case-by-case holds should be deleted. In 

the absence of nonlocal checks, the 

extra hold period that a depositary bank 

may obtain by applying a case-by-case 

hold is generally not sufficient for the 

bank to learn that a deposited check has 

been returned unpaid before making 

funds available to the depositor. 


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49See UCC 4–215 and commentary to Regulation 

CC § 229.19(e). 

50Treasury checks, postal money orders, and 

checks drawn on the Federal Reserve Banks and 

Federal Home Loan Banks can be identified by 

routing number, and these routing numbers will 

continue to be listed in appendix A. Next-dayavailability checks such as cashier’s, certified, and 

teller’s checks cannot be identified by routing 

number, however, and are not listed in the 

appendix. 

51See Interim Final Rule on Mortgage Disclosures 

(Regulation Z), 75 FR 58470 (Sept. 24, 2010). 

52A sample of the screening instrument used to 

recruit interview participants is included as 

Appendix A to the ICF Macro report. Appendix B 

to the report provides a summary of the 

demographics of the interview participants. 

53The sample forms used during the consumer 

interviews are included as Appendix C to the ICF 

Macro report. 

54See 75 FR 58539 at 58542 (September 24, 2010) 

and ICF Macro report, p. 4. 

55The commentary to § 229.13(g) indicates that 

notice of an extended hold should be provided in 

a form the customer may keep. The proposed 

commentary to § 229.16(c)(2) indicates that notice 

of a case-by-case hold should be provided in this 

form as well. 

F. Section 229.19—Miscellaneous 

1. Section 229.19(e)(2) 

Section 229.19(e)(2) limits the ability 

of a depositary bank that cashes a check 

for a customer to place a hold on other 

funds of the customer. The Board 

proposes to amend § 229.19(e)(2) to 

clarify that a depositary bank that 

cashes a check for a customer over the 

counter may place a hold on funds in 

an account of the customer only if the 

check is not drawn on the depositary 

bank. In contrast, if a depositary bank 

cashes a check drawn on itself, the 

check is considered finally paid when 

cashed under the U.C.C.49 The Board 

intends no change to the substance of 

this provision. 

2. Section 229.19(g)(2) 

The Board proposes to delete as 

obsolete the provision regarding mergers 

between July 1, 1998, and March 1, 

2000. 

G. Section 229.21(g)—Record Retention 

Current § 229.21(g) requires a bank to 

maintain records evidencing 

compliance with subpart B’s 

requirements for not less than two years, 

and states that a bank may store records 

using, among other media, ‘‘microfiche, 

microfilm, [and] magnetic tape.’’ These 

listed examples in § 229.21(g) of the 

types of media on which a bank may 

store records are obsolete, and the Board 

proposes to replace them with a more 

general provision that a bank may store 

records using ‘‘electronic storage 

media,’’ among other media. 

H. Appendix A—Routing Number Guide 

to Next-Day-Availability Checks 

In the absence of nonlocal checks, it 

is no longer necessary to retain the 

portion of appendix A that lists under 

the single remaining Reserve Bank 

check-processing office (the head office 

of the Federal Reserve Bank of 

Cleveland) all banks’ four-digit routing 

symbols. The Board proposes to delete 

this portion of the appendix, as well as 

the reference to the Federal Reserve 

Bank of Cleveland. The Board proposes 

to retain in the appendix the lists of 

nine-digit routing numbers associated 

with certain next-day-availability 

checks.50 The Board also proposes to 

delete certain listed routing numbers of 

the Federal Reserve Banks and Federal 

Home Loan Banks that have been 

retired. 

I. Appendix C, Model Availability-Policy 

Disclosures, Clauses and Notices 

1. Consumer Testing Process 

The model availability-policy forms 

in appendix C of Regulation CC include 

numerous obsolete provisions related to 

nonlocal checks. Additionally, the 

model forms were first published over 

20 years ago, when Regulation CC was 

first promulgated. More recently, the 

Board has tested with consumers the 

model forms included with its other 

regulations.51 In this instance, the Board 

used ICF Macro, a research and 

consulting firm that specializes in 

designing and testing documents, to 

conduct consumer testing to help the 

Board’s review of the model availabilitypolicy forms proposed in this notice. 

ICF Macro prepared a detailed report of 

the results of the testing, which is 

available on the Board’s Web site 

(http://www.federalreserve.gov) along 

with this proposed rule. 

The consumer testing consisted of two 

rounds of in-depth interviews with 9 

consumers in Alexandria, Virginia, on 

August 19 and 20, 2010, and 11 

consumers in Denver, Colorado, on 

September 13 and 14, 2010. Consumer 

participants were recruited to ensure the 

selection of a range of participants in 

terms of gender, education, ethnicity, 

and checking and savings account 

balances.52 While the interview protocol 

varied slightly between rounds, the 

general structure and most of the 

questions were the same. 

Prior to the first round of interviews, 

Board staff and ICF Macro 

collaboratively revised the forms from 

those currently found in appendix C.53

For example, the format was 

substantially modified; provisions 

related to nonlocal checks were 

eliminated; and language was added 

regarding a bank’s right to charge back 

a customer’s account if a deposited 

check is returned unpaid. Based on the 

results of each round of interviews, the 

forms were again revised. The Board 

plans to conduct additional consumer 

testing of the forms in response to 

public comments received on this 

proposal, as appropriate. 

2. Model Disclosures Generally 

Citations below are to the forms in the 

appendix as they are proposed to be 

renumbered, unless otherwise explicitly 

stated. Forms not discussed below are 

either unchanged or have only technical 

or conforming amendments. 

In the absence of nonlocal checks, the 

Board proposes throughout appendix C 

to delete all references to the nonlocalcheck and local-check categories. 

Instead, the Board proposes that the 

forms, as applicable, specify the types of 

check deposits that receive next-day 

availability, and then state the 

availability that will be provided for 

checks ‘‘other than those specified.’’ 

The Board proposes to modify the 

format of the model disclosures from a 

mostly narrative form to a more tabular 

form. For example, the Board proposes 

that the portions of the model 

disclosures specifying funds availability 

for deposits to established accounts and 

for deposits to new accounts (accounts 

open for 30 days or less) be presented 

within tables. The Board’s testing on 

forms under other rules has consistently 

indicated that consumers more readily 

understand information presented in a 

tabular form.54

The Board is not proposing any 

changes to the model substitute-checkpolicy disclosure and notices in the 

appendix. 

i. Format of Banks’ Funds-availability 

Disclosures and Notices 

The Board proposes to add to the 

commentary to appendix C a new 

paragraph A(4) discussing banks’ 

formatting of disclosures and notices 

based on the proposed model fundsavailability disclosures and notices in 

the appendix. Specifically, although the 

regulation does not require banks to use 

a certain paper size for their fundsavailability disclosures and notices, the 

proposed model funds-availability 

policy disclosures are generally 

designed to be printed on an 81⁄2 x 11 

inch sheet of paper with black text on 

a white background, so as to increase 

their readability for consumers. Further, 

§ 229.15(a) requires that banks generally 

provide disclosures and notices in a 

form that the customer may keep.55 The 

proposed commentary notes that a bank 

that provides a disclosure or notice 


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56See § UCC 4–214, which generally permits a 

collecting bank that has made provisional 

settlement with its customer to revoke the 

settlement (e.g., charge back the amount or obtain 

a refund) if the bank itself fails to receive 

settlement. 

57Because the Board proposes to incorporate the 

information set forth in current model clauses 

C–6 and C–7 as bracketed information within the 

model disclosures, the Board proposes to delete 

model clauses C–6 and C–7 from the appendix. 

electronically to a customer would 

comport with the formatting 

specifications of the proposed model 

disclosures and notices by providing a 

disclosure or notice in a file format, 

such as a .pdf file format, that 

electronically represents an 81⁄2 x 11 

inch sheet of paper with black text and 

a white background. In addition, a bank 

may vary (either enlarge or decrease) the 

font size of the model forms. As 

explained in the proposed commentary, 

a bank that uses too small a font may 

not be in compliance with § 229.15(a)’s 

clear-and-conspicuous requirement. 

ii. Charge Back After Making Funds 

From Check Deposits Available 

Paragraph 5 of the commentary to 

appendix C states that banks may add 

information related to funds availability 

to the model forms. One of the examples 

currently provided is that a bank’s 

disclosure may state that although funds 

have become available and the customer 

has withdrawn them, the customer 

remains responsible for deposited 

checks that are returned unpaid. The 

Board believes that all banks reserve the 

right to charge back a customer’s 

account if a deposited check is returned 

unpaid.56 The Board proposes to 

incorporate language to this effect 

within the model availability-policy 

disclosures themselves and to delete 

this as an example from paragraph A(5) 

of the commentary and add a provision 

to paragraph B(1)(a) describing the 

charge-back statement in the proposed 

model disclosures. The Board requests 

comment on whether this proposed 

revision reflects the practice of most 

banks. 

iii. Reference to Day of Availability 

The Board is proposing model 

availability-policy disclosures that in 

many cases would use cardinal 

numbers, instead of ordinal numbers, to 

describe the business day on which 

funds will be available in relation to the 

day on which funds are deposited. For 

example, the Board proposes in many 

cases to use ‘‘2’’ in place of ‘‘second,’’ 

because consumers readily perceived 

that formulation. In addition, the Board 

proposes that the disclosures refer to the 

‘‘next’’ business day after a deposit, 

rather than the ‘‘first’’ business day. The 

Board proposes to modify paragraph 

B(1)(b) of the commentary accordingly. 

Notwithstanding the language used in 

the proposed model forms, use of 

ordinal numbers would continue to be 

permitted (see proposed § 229.15(b)). 

iv. Inclusion of Optional Information 

The Board proposes model 

availability-policy disclosures that 

would reflect certain provisions of the 

regulation that apply only to certain 

banks, depending on the banks’ policies 

and practices. For example, the 

proposed model disclosures would 

include language about use of special 

deposit slips as a condition for next-day 

availability for certain types of check 

deposits (see § 229.10(c)(2) and language 

similar to the appendix’s current model 

clauses C–6 and C–7 related to check 

cashing, immediate availability, and 

holds on other funds (see § 229.19(e)).57

The text of these portions of the 

disclosures would be enclosed within 

brackets to indicate that a bank should 

include it in the bank’s disclosures only 

if it is applicable given the bank’s 

policies and practices. The Board 

proposes that paragraph B(1)(c) of the 

commentary to appendix C be modified 

accordingly. 

v. Same-Day Availability 

Although § 229.10(a) of the regulation 

requires next-day availability for cash 

deposits, and § 229.10(b) requires nextday availability for electronic payments 

(as defined in § 229.2(t)), the model 

availability-policy disclosures in 

appendix C include clauses that state 

that funds from electronic direct 

deposits are available on the day the 

bank receives the funds. As indicated in 

paragraph B(1)(b) of the commentary to 

the appendix, this is because U.S. 

Treasury regulations and ACH 

association rules require that 

preauthorized credits, such as direct 

deposits, be made available on the day 

the bank receives the funds. 

During the Board’s consumer testing, 

many consumers expressed surprise that 

the sample disclosures indicated that 

funds from cash deposits and wire 

transfers (defined in § 229.2(bbb)) would 

not be available until the next day. 

When the models in Appendix C were 

first published over 20 years ago, most 

banks updated their demand-depositaccount systems on an overnight basis, 

such that a cash deposit or incoming 

wire transfer would not be reflected in 

the receiving customer’s account 

balance until opening of business the 

next day. The Board believes, however, 

that most banks now provide same-day 

(if not immediate) availability for cash 

deposits and wire transfers. 

The Board therefore proposes that 

model funds-availability disclosures 

C–1 through C–3B, which are designed 

for banks that generally make deposits 

available by the next day (and are 

discussed in more detail below), be 

modified to indicate that funds from 

cash deposits and wire transfers will be 

available for withdrawal on the same 

business day that the bank receives the 

funds. The proposed commentary states 

that a bank basing its disclosure on one 

of these models should modify its 

disclosure to indicate that funds from 

cash deposits and wire transfers will be 

available the next day if that reflects the 

bank’s practice. 

In contrast, proposed models C–4A 

and C–4B, which are designed for banks 

that hold funds from deposits to the 

statutory limits, indicate that funds from 

cash deposits and wire transfers will be 

available on the business day following 

receipt. The proposed commentary 

states that a bank that bases its 

disclosures on one of these models but 

that makes funds from cash deposits 

and wire transfers available the same 

day they are received—i.e., a bank that 

places holds to statutory limits only on 

check deposits—should modify its 

disclosures accordingly. 

3. Model C–1—Next-Day Availability 

Proposed model C–1 may be used by 

a bank that has a policy of making funds 

from all deposits available by the first 

business day after a deposit is made, but 

not reserving the right to invoke the 

new-account and other exceptions in 

§ 229.13. The Board requests comment 

on whether any banks have such a 

policy and on whether model C–1 can 

be deleted from Appendix C. 

4. Model C–2—Next-Day Availability 

and § 229.13 Exceptions 

Proposed model C–2 may be used by 

a bank that has a policy of making funds 

from deposits available by the first 

business day after a deposit is made, but 

reserves the right to invoke the newaccount and other exceptions in 

§ 229.13. 

5. Model C–3A—Next-Day Availability, 

Case-by-Case Holds to Statutory Limits 

Without Cash-Withdrawal Limitation, 

and § 229.13 Exceptions; and Model C– 

3B—Next-Day Availability, Case-byCase Holds to Statutory Limits With 

Cash-Withdrawal Limitation, and 

§ 229.13 Exceptions 

The Board proposes to include in the 

appendix two versions of model C–3. 

The first version, proposed C–3A, 

would be used by a bank that, when it 


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58Because the Board proposes to incorporate into 

C–3B and C–4B (discussed below) the information 

set forth in current model clause C–10, the Board 

proposes to delete model clause C–10 from the 

appendix. 

59See p. vii of the ICF Macro report. 

60The Board proposes to take an identical 

approach in proposed model disclosures C–4A and 

C–4B. Specifically, a bank that bases its disclosure 

on proposed model C–4A or C–4B would include 

the bracketed text in its disclosure only if the text 

corresponds to the bank’s policy and practice. 

61See 75 FR 58539 at 58560 (September 24, 

2010), discussing the results of the Board’s testing 

of model forms related to the suspension or 

reduction of a home equity line of credit. See also 

the ICF Macro report, page viii. 

62Specifically, the model reads ‘‘We are delaying 

the availability of $(amount being held) from this 

deposit.’’ 

63See ICF Macro report, p. ix. 

delays availability on a case-by-case 

basis, does not impose the cashwithdrawal limitation permitted by 

§ 229.12(b). The second version, 

proposed C–3B, would be used by a 

bank that does impose this limitation 

when it delays availability on a case-bycase basis. The additional text that is 

included in proposed C–3B, but not 

C–3A, related to the cash-withdrawal 

limitation, derives from current model 

clause C–10, modified to promote 

consumer comprehension on the basis 

of the Board’s testing.58 The Board 

proposes that this text be structured as 

a bulleted list, because the Board’s 

testing indicated that consumers better 

noticed and understood the cashwithdrawal limitation (and the 

distinction between other uses of funds) 

when it is in this form rather than in a 

text paragraph.59

Proposed models C–3A and C–3B 

include in brackets language similar to 

current model clauses C–6 and C–7, 

related to check cashing, immediate 

availability, and holds on other funds, 

modified on the basis of the Board’s 

testing to promote consumer 

comprehension. A bank that bases its 

disclosure on proposed model C–3A or 

C–3B would need to include this 

bracketed text in its disclosure only if 

the text corresponds to the bank’s policy 

and practice. A bank that has such a 

policy would include the proposed 

bracketed text in the same location as in 

the proposed model. Testing indicated 

that consumers notice and retain the 

information presented in these clauses 

better if the location of the clauses is 

early in the disclosure.60

Banks that base their availabilitypolicy disclosure on model disclosure 

C–3A or C–3B and whose availability 

policy necessitates incorporation of one 

or more of the proposed appendix’s 

remaining model clauses (proposed 

C–6, C–7, and C–8; current C–9, C–11, 

or C–11A) would append those model 

clauses to the end of the second page of 

proposed model C–3A or C–3B. The 

appendix’s remaining model clauses 

pertain to a bank’s funds-availability 

policy for deposits at ATMs (proposed 

C–6), a credit union’s interest-payment 

policy (proposed C–7), and the 

availability of funds deposited at other 

locations (proposed C–8). 

6. Model C–4A—Holds to Statutory 

Limits on All Deposits Without CashWithdrawal Limitation; and Model C– 

4B—Holds to Statutory Limits on All 

Deposits With Cash-Withdrawal 

Limitation 

The Board proposes to remove current 

model disclosures C–4 (holds to 

statutory limits on all deposits (includes 

chart)) and C–5 (holds to statutory limits 

on all deposits), because those models 

are no longer necessary in the absence 

of nonlocal checks. The Board proposes 

to add new model disclosures C–4A and 

C–4B for a bank to use if the bank’s 

policy is to hold funds on all deposits 

up to the statutory limits. 

Proposed model disclosure C–4A 

would be used by a bank that delays 

availability as allowed under § 229.12 

but does not impose the cashwithdrawal limitation permitted by 

§ 229.12(b), whereas proposed model C– 

4B would be used by a bank that delays 

availability as allowed under § 229.12 

and does impose the cash-withdrawal 

limitation permitted by § 229.12(b). The 

Board proposes the position of the text 

related to the cash-withdrawal 

limitation in C–4B because the Board’s 

testing indicated that consumers better 

noticed and understood the information 

when placed at the proposed location 

and in the proposed format within the 

disclosure. Banks that base their 

availability-policy disclosure on 

proposed model disclosure C–4A or 

C–4B and whose availability policy 

necessitates incorporation of one or 

more of the proposed appendix’s 

remaining model clauses (proposed 

C–6, C–7, or C–8) would append those 

model clauses to the end of the second 

page of proposed model C–4A or C–4B. 

7. Proposed Model Clauses 

The Board proposes to delete current 

model clauses C–6 (holds on other 

funds (check cashing)), C–7 (holds on 

other funds (other account)), and C–10 

(cash-withdrawal limitation), all of 

which the Board proposes to be 

incorporated into other model forms. 

The Board also proposes to delete 

current model clause C–8 (Appendix B 

availability (nonlocal checks)) because it 

is obsolete in the absence of nonlocal 

checks. Within current model clause C– 

9 (Automated Teller Machine Deposits 

(Extended Hold)) (proposed C–6), the 

Board proposes to change ‘‘fifth business 

day’’ to ‘‘fourth business day’’ to conform 

to the changes in proposed § 229.12(d), 

discussed above in this section-bysection analysis. 

8. Proposed Model Notices 

i. Format 

As with the proposed model fundsavailability policy disclosures, the 

Board proposes to modify the format of 

the model notices, where appropriate, 

from a mostly narrative form to a more 

tabular form. For example, the Board 

proposes to convert current model 

notice C–18 (notice at locations where 

employees accept consumer deposits 

(case-by-case holds)) (proposed C–14) to 

a table. 

ii. Proposed Model C–9—Exception or 

Reasonable-Cause Hold Notice 

Current models C–12 and C–13 each 

include a checklist of reasons for which 

a bank may apply an exception hold. 

The Board’s consumer testing on other 

disclosures has found that consumers 

may be confused by a listing of reasons, 

even though only one reason is checked 

and the others do not apply to the 

consumer’s situation.61 The Board 

therefore proposes model notices that 

describe only one reason for the hold, 

instead of a checklist of reasons. A bank 

using proposed model C–9 would insert 

the reason for the hold that is applicable 

to the consumer’s situation in the 

location designated by ‘‘(reason for 

hold).’’ The checklist of reasons that is 

included in the current model would be 

moved to the proposed commentary, 

with proposed revisions for clarity. The 

proposed commentary also states that a 

bank may insert, in place of ‘‘(reason for 

hold),’’ a reason other than those listed 

in the commentary. 

Current model C–12 (proposed C–9) 

indicates that a bank’s notice of an 

exception hold should refer to the dollar 

amount being held from a deposit.62 The 

Board proposes that proposed models 

C–12 also refer to the dollar amount of 

the deposit from which funds are being 

held. During the Board’s testing, 

consumers more readily understood this 

approach and thought that the amount 

of the deposit would be more helpful in 

remembering the deposit in question.63

iii. Proposed Model C–12A—Case-byCase Hold Notice Without CashWithdrawal Limitation and Proposed 

Model C–12B, Case-by-Case Hold Notice 

With Cash-Withdrawal Limitation 

Current model C–16 (case-by-case 

hold notice) states that the day on 


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64See ICF Macro report, p. ix. 

which funds will be available for 

withdrawal may be ‘‘([subject to our 

cash-withdrawal limitation policy]).’’ 

The limitation is material to the length 

of the hold, and, without additional 

inquiry, consumers may not know what 

the limitation is. Accordingly, the Board 

proposes to include in appendix C two 

versions of a model case-by-case hold 

notice: proposed C–12A may be used by 

a bank that imposes a case-by-case hold, 

but does not have a policy of imposing 

the cash-withdrawal limitation, whereas 

proposed model notice C–12B may be 

used by a bank that imposes such a hold 

and does have such a policy. Each of the 

two proposed versions would 

incorporate the specific days by which 

funds would be available. 

Current model C–16 indicates that a 

bank’s notice of an exception hold 

should refer to the dollar amount being 

held from a deposit. The Board proposes 

that proposed models C–12A, and C– 

12B also refer to the dollar amount of 

the deposit from which funds are being 

held, because consumers thought that 

the amount of the deposit would be 

more helpful in remembering the 

deposit in question.64

iv. Proposed Model C–13—Notice at 

Locations Where Employees Accept 

Consumer Deposits and Proposed Model 

C–14—Notice at Locations Where 

Employees Accept Consumer Deposits 

(Case-by-Case Holds) 

Current models C–17 and C–18 

(proposed C–13 and C–14) are notices 

that are designed to be posted, for 

example, on a wall near a teller window 

in a bank branch, and set forth a brief 

summary of a bank’s funds-availability 

policy. Current model C–17 may be 

used by a bank that has a policy of 

placing holds to statutory limits on 

deposits, whereas current model C–18 

may be used by a bank that has a policy 

of placing case-by-case holds on check 

deposits. 

The Board proposes to modify current 

model notice C–18 (proposed C–14) to 

indicate that funds from cash deposits 

and wire transfers will be available for 

withdrawal on the same business day 

that the bank receives the funds. 

Therefore, a bank with a case-by-case 

availability policy that makes cash 

deposits and wire transfers available the 

next business day would modify the 

notice accordingly. By contrast, current 

model C–17 (proposed C–14) indicates 

that funds from cash deposits and wire 

transfers will be available on the next 

business day. A bank that holds check 

deposits up to the statutory limits but 

that makes funds from cash deposits 

and wire transfers available on the day 

they are received would modify the 

notice accordingly. 

A bank using either notice that 

imposes cash-withdrawal limitations 

under proposed § 229.12(b) would 

indicate that funds from check deposits 

will generally be available by the third, 

rather than second, business day after 

the day of deposit, by replacing 

‘‘(number)’’ in the lower-right-hand box 

of the tables in the proposed models 

with ‘‘third,’’ rather than ‘‘second.’’ 

J. Appendix F—Official Board 

Interpretations; Preemption 

Determinations 

Section 608 of the EFA Act provides 

that any state law in effect on September 

1, 1989, that provides that funds be 

made available in a shorter period of 

time than provided in Regulation CC 

will supersede the time periods in the 

Act and regulation. Section 229.20 of 

the regulation implements § 608, and 

§ 229.20(e) sets forth the procedures by 

which a state may submit to the Board 

a request for a preemption 

determination. In response to states’ 

requests, the Board issued 

determinations specifying the 

provisions of the funds availability laws 

in California, Connecticut, Illinois, 

Maine, Massachusetts, New Jersey, New 

York, Rhode Island, and Wisconsin that 

supersede the EFA Act and Regulation 

CC. These determinations are contained 

in appendix F to the regulation. 

Since September 1, 1989, 

Connecticut, New Jersey, Rhode Island, 

and Wisconsin have repealed all statespecific funds availability provisions. 

California has repealed the funds 

availability provisions applicable to 

credit unions. In addition, the 

elimination of nonlocal checks under 

the EFA Act and Regulation CC affect 

the regulation’s preemption of states’ 

laws. The Board notes that the DoddFrank Act’s increase from $100 to $200 

of the minimum amount of check 

deposits that banks must make available 

by the next business day may affect the 

EFA Act and Regulation CC preemption 

of state law. The Board therefore 

proposes to update the preemption 

determinations in the appendix. The 

proposed determinations would 

supersede any previous determinations 

made by the Board. 

III. Subpart C 

A. Section 229.30—Paying Bank’s 

Responsibility for Return of Checks 

1. Section 229.30(a)—Expeditious 

Return of Checks 

i. Section 229.30(a)(1) 

Section 229.30(a)(1) sets forth the 

proposed test for expeditious return of 

a check by the paying bank. The current 

rule provides that if a paying bank 

determines not to pay a check, it must 

return the check in an expeditious 

manner, as provided under either the 

two-day/four-day test or the forwardcollection test. For the reasons 

discussed above, the Board proposes to 

eliminate the forward-collection test 

and the four-day test for expeditious 

return of a check by the paying bank. As 

a result, the Board proposes that the 

two-day test for expeditious return be 

the only test for expeditious return in 

§ 229.30(a)(1) (and § 229.31(a)(1)). In 

general, the paying bank may satisfy any 

expeditious return requirement by 

sending an electronic return if the 

depositary bank has agreed to receive 

electronic returns from the paying bank 

under proposed § 229.32(a), a paper 

check or a notice in lieu if the check is 

unavailable. The exceptions to this 

general rule, including where the 

depositary bank has not agreed to accept 

electronic returns from the paying bank, 

are set forth in proposed § 229.30(b). 

ii. Section 229.30(a)(3) 

The Board proposes to amend 

§ 229.30(a)(3) to clarify that a paying 

bank may send a returned check to any 

bank that handled the check for forward 

collection if the paying bank is unable 

to identify the depositary bank. 

iii. Section 229.30(a)(6) 

The Board proposes to move current 

§ 229.36(a), which states that a check 

payable at or through a paying bank is 

considered to be drawn on that bank for 

purposes of the expeditious-return 

requirement of this subpart, to proposed 

§ 229.30(a)(6). 

2. Section 229.30(b)—Exceptions to 

Expeditious Return of Checks 

i. Section 229.30(b)(1) 

The Board proposes to group together 

the exceptions to a paying bank’s duty 

of expeditious return in § 229.30(b)(1). 

Currently, the requirement does not 

apply if a paying bank is unable to 

identify the depositary bank or if the 

depositary bank does not maintain 


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65 In the current regulation. these exceptions to a 

paying bank’s duty of expeditious return are set 

forth, respectively, in §§ 229.30(b) and 229.30(e). 

The exceptions to a returning bank’s duty are in 

§§ 229.31(b) and 229.31(e). 

66As is discussed below under § 229.35(a) and 

appendix D, the Board proposes to require a 

depositary bank that transfers an electronic 

collection item to apply its indorsement in 

accordance with ANS X9.100–187, unless the 

parties otherwise agree. 

67The current paragraph provides a further 

extension if the paying bank uses a ‘‘highly 

expeditious’’ means of return, or if the paying 

bank’s deadline for return falls on a Saturday that 

is a banking day for the paying bank under the UCC. 

(Saturday is never a banking day under Regulation 

CC.) 

accounts.65 As described above, the 

Board proposes that a paying bank have 

a duty of expeditious return only if the 

depositary bank has agreed to accept 

electronic returns from the paying bank 

under proposed § 229.32(a). The Board 

proposes to set forth this rule as an 

exception to the general rule stated in 

proposed § 229.30(a)(1). Accordingly, 

proposed § 229.30(b)(1)(i) states that a 

paying bank need not return a check 

expeditiously if a depositary bank has 

not agreed to accept electronic returns 

from the paying bank under § 229.32(a). 

Although not imposing an expeditious 

return requirement on the paying bank 

in this situation will expose the 

depositary bank to risk, the Board 

believes that risk should rest with the 

bank choosing not to take advantage of 

an electronic infrastructure that 

provides expeditious return. 

The proposed commentary to 

§ 229.30(b)(1) includes an example of 

when the paying bank’s duty of 

expeditious return would and would 

not apply. For example, assume that a 

depositary bank has not agreed to accept 

electronic returns directly from the 

paying bank, but has agreed to accept 

electronic returns from Returning Bank 

A, which has agreed to handle returns 

expeditiously under § 229.31(a). If 

Returning Bank A has not held itself out 

as willing accept electronic returns 

directly or indirectly from the paying 

bank (e.g., the returning bank has not 

published electronic return service setup guides), the depositary bank has not 

agreed to accept electronic returns from 

the paying bank under proposed 

§ 229.32(a). If a check is presented to the 

paying bank on Monday, the paying 

bank would not need to send the 

returned check such that the depositary 

bank normally would receive the 

returned check by 4 p.m. (local time of 

the depositary bank) on Wednesday. 

The paying bank, however, must 

comply with any deadlines under the 

Uniform Commercial Code, Regulation J 

(if sent through the Reserve Banks), or 

§ 229.30(c). 

Under the proposed approach, a 

paying bank that returns checks in 

paper form would be subject to the 

expeditious return requirement if the 

depositary bank has agreed to accept 

electronic returns from a returning bank 

that holds itself out as willing to accept 

electronic returns directly or indirectly 

from the paying bank and agrees to 

return checks expeditiously. The Board, 

however, notes that if the returning 

bank from which the depositary bank 

has agreed to accept electronic returns 

has either not held itself out as willing 

to accept electronic returns directly or 

indirectly from the paying bank or has 

not agreed to return checks 

expeditiously, then the paying bank 

would not be subject to the expeditious 

return requirement under the proposal. 

ii. Section 229.30(b)(2) 

Proposed § 229.30(b)(2) addresses the 

situation in which the requirement to 

return a check expeditiously does not 

apply because the paying bank is unable 

to identify the depositary bank. In most 

cases in today’s predominantly 

electronic check-clearing environment, 

the depositary bank’s indorsement will 

accompany an electronic check as an 

addenda record associated with the 

check, and the paying bank will be able 

to route an electronic return to the 

depositary bank in a highly automated 

manner.66

In some cases, the depositary bank’s 

indorsement may not be in the 

accompanying addenda record, and the 

paying bank will be unable to rely on 

purely automated returns. The Board 

proposes to clarify in the commentary 

that a paying bank is not ‘‘unable’’ to 

identify the depositary bank where the 

depositary bank’s indorsement is not in 

an addenda record associated with the 

electronic image, but is legibly included 

within the image of a check presented 

electronically to the paying bank. In 

these cases, the paying bank may 

visually review the image of the check 

to determine the identity of the 

depositary bank and create an electronic 

return addressed to the depositary bank 

or a returning bank agreeing to handle 

it on the basis of that indorsement 

within the image. Provided the 

depositary bank accepts electronic 

returns (directly or indirectly) from the 

paying bank under § 229.32(a), the 

expeditious-return requirement would 

apply in this situation. 

In other cases, however, the 

depositary bank’s indorsement may not 

be in an addenda record associated with 

an electronic image, and also may be 

absent from or illegible within the image 

of the check that is presented to the 

paying bank. In these cases, the paying 

bank may be unable to identify the 

depositary bank and the expeditiousreturn requirement would not apply to 

the paying bank. If the paying bank has 

an agreement to send electronic returns 

to a bank that handled the check for 

forward collection, the paying bank may 

under § 229.30(b)(2) send the electronic 

return to that bank, subject to that 

agreement. Such a bank may be better 

able to identify the depositary bank. In 

general, the paying bank must advise 

the bank to which the return is sent that 

it is unable to identify the depositary 

bank. The Board proposes to clarify in 

the commentary that, in the case of 

electronic returns, the paying bank 

meets this requirement by inserting the 

routing number of the bank to which it 

is sending the return where the paying 

bank otherwise would have inserted the 

routing number of the depositary bank. 

The Board requests comment on 

whether the regulation and commentary 

provide the appropriate level of detail 

with respect to paying banks’ 

preparation and addressing of electronic 

returns in cases where it is unable to 

identify the depositary bank. 

3. Section 229.30(c)—Extension of 

Deadline 

The Board proposes amending 

§ 229.30(c), which extends the paying 

bank’s deadline to initiate the return of 

a check. The current rule generally 

extends the deadline to the time at 

which a paying bank dispatches the 

return, if the paying bank uses a means 

of delivery that ordinarily would result 

in receipt by the bank to which the 

return is sent on or before the receiving 

bank’s next banking day following the 

day of the applicable deadline by the 

earlier of the close of that banking day 

or a 2 p.m. cutoff hour (or such later 

time as set by the receiving bank under 

UCC 4–108).67 The provision allows the 

paying bank an extension, provided that 

the paying bank sends the return such 

that it would ordinarily be received by 

the depositary bank within the 

timeframes mandated by the 

regulation’s current tests for expeditious 

return. 

As discussed above, the Board 

proposes to eliminate the forwardcollection test and the four-day test for 

expeditious return of a nonlocal check, 

such that the two-day test for 

expeditious return would be the only 

remaining test. Correspondingly, the 

Board proposes to simplify the 

extension in § 229.30(c): The paying 

bank’s deadline for return would be 

extended to the time of dispatch if the 

paying bank sends the return such that 


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68 In addition to the image of the front of the 

original check, the portion of the front of the 

substitute check that is clipped includes the area on 

the check above the original check image and the 

routing number of the truncating bank to the left of 

the image. 

it reaches the depositary bank by 4 p.m. 

on the second business day after the 

banking day on which the check was 

presented to the paying bank; i.e., such 

that the return would ordinarily reach 

the depositary bank within the time 

required by the two-day expeditiousreturn test. The proposed 4 p.m. 

deadline would correspond to the 

expeditious return deadline in proposed 

§§ 229.30(a). As noted in the proposed 

commentary, a paying bank may rely on 

the return schedules of a returning bank 

in determining whether the returned 

check or electronic return would 

‘‘ordinarily’’ reach the depositary bank 

by 4 p.m. on the second business day 

after the banking day on which the 

check was presented to the paying bank. 

Alternatively, the Board requests 

comment on whether a paying bank that 

sends a returned check to a returning 

bank and relies on this extension should 

bear the risk that the returning bank 

may not return the check expeditiously. 

Specifically, the Board requests 

comment on whether it should modify 

the extension such that the return must 

actually reach the depositary bank 

within the two-day timeframe for 

expeditious return in order for the 

extension to apply. Such a modification 

to the extension might further encourage 

paying banks to initiate return of a 

check in a timely fashion. 

4. Section 229.30(d)—Identification of a 

Returned Check 

i. Placement of Reason for Return on a 

Substitute Check 

Section 229.30(d) currently states that 

‘‘[a] paying bank returning a check shall 

clearly indicate on the face of the check 

that it is a returned check and the 

reason for return. If the check is a 

substitute check, the paying bank shall 

place this information within the image 

of the original check that appears on the 

front of the substitute check.’’ When 

current § 229.30(d) became effective in 

2004, the placement on substitute 

checks was consistent with the industry 

standard for substitute checks, 

American National Standard 

Specifications for an Image Replacement 

Document—IRD, X9.100–140 (ANS 

X9.100–140). Under the terms of the 

revised industry standard, however, the 

reason for return of a substitute check 

must be placed above a substitute 

check’s image of the original check— 

i.e., not within the image of the original 

check that appears on the front of the 

substitute check, but nonetheless within 

the portion of the front of the substitute 

check that is ‘‘clipped’’ when an image 

of the substitute check is captured.68

The change to the standard is intended 

to make it less likely that the returnreason information will obscure 

underlying data from the original check, 

such as the name of the payee or the 

amount of the check, while continuing 

to ensure that the reason for the return 

is retained in any captured image of the 

substitute check, as well as on any 

subsequent substitute check. 

The current commentary explains that 

§ 229.30(d) specifies where to place the 

return-reason information on a returned 

substitute check in order to ensure that 

‘‘the information is retained on any 

subsequent substitute check.’’ The 

revised industry standard, ANS X9.100– 

140, is consistent with this purpose. 

Accordingly, the Board proposes to 

modify the § 229.30(d) to state that ‘‘[i]f 

the check is a substitute check or 

electronic return, the paying bank shall 

place this information [the reason for 

the return] such that the information 

would be retained on any subsequent 

substitute check.’’ Further, the Board 

proposes to amend the commentary to 

state that the requirement to place the 

return-reason information such that it is 

retained on any subsequent substitute 

check could be met by placing the 

information (1) in the location on the 

front of the substitute check that is 

specified by ANS X9.100–140 or (2) 

within the image of the original check 

that appears on the front of the 

substitute check. The Board believes it 

is necessary for the regulation to 

continue to permit this latter possibility 

in order to encompass situations in 

which a paying bank presented with a 

previously-created substitute check opts 

to physically stamp the reason for the 

return on the substitute check. 

ii. Refer-to-Maker Reason for Return 

Current commentary to § 229.30(d) 

states that ‘‘refer to maker’’ may be a 

permissible reason for return in 

appropriate cases but does not elaborate 

as to which cases may be appropriate. 

The Board, however, does not believe 

that ‘‘refer to maker,’’ by itself, is an 

appropriate reason for return in any 

case. ‘‘Refer to maker’’ is an instruction 

rather than a reason for return. Alone, 

it does not provide the depositary bank 

with sufficient information to determine 

whether it should represent the check. 

Accordingly, the Board proposes to 

amend the commentary to § 229.30(d) to 

state that ‘‘refer to maker’’ is insufficient 

as a reason for return, because ‘‘refer to 

maker’’ is an instruction to the recipient 

of the returned check and not a reason 

for return (e.g., insufficient funds). A 

paying bank may use ‘‘refer to maker’’ in 

addition to the reason for return. The 

Board requests comment on whether 

there are circumstances in which it is 

appropriate to use only ‘‘refer to maker’’ 

when returning a check. 

5. Section 229.30(e)—Notice in Lieu of 

Return 

Section 229.30(f) currently states that 

if a check is unavailable for return, the 

paying bank may send in its place a 

copy of the front and back of the 

returned check, or, if no such copy is 

available, a written notice of 

nonpayment containing the information 

specified in current § 229.33(b). 

Historically, notices in lieu of return 

were used when an original check was 

lost or destroyed. Following 

implementation of the Check 21 Act, 

however, the unavailability of an 

original check does not prevent return 

of the check, provided that an image of 

the check sufficient to create a 

substitute check is available. The Board 

therefore proposes to revise the 

§ 229.30(e) commentary to provide that 

a bank may send a notice in lieu of 

return only where neither the check 

itself nor an image of and information 

related to the check sufficient to create 

a substitute check is available. 

The commentary states that notice by 

electronic transmission, other than a 

legible facsimile or similar image of 

both sides of a check, does not satisfy 

the requirements for a notice in lieu of 

return. The Board proposes to amend 

the commentary to § 229.30(e) to 

provide that, if no image of both sides 

of the check is available, the notice in 

lieu of return may be sent by means of 

an electronic transmission, so long as it 

contains the required information. For 

example, the notice may be sent by ACH 

payment record if permitted by 

applicable ACH rules, or by an 

electronic check record if permitted by 

applicable rules and standards. These 

records are similar to the currentlypermitted written notices of 

nonpayment where legible copies of 

both sides of the check are unavailable. 

The Board requests comment, however, 

on whether a bank would ever have the 

information necessary for a notice in 

lieu of return if it had neither the check 

nor an image of both sides of the check. 

As under the current rule, notice by 

telephone or other similar oral 

transmission would not be permitted. 

Because notice in lieu of return must 

include the information required for a 

notice of nonpayment, and the Board 


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69 If the depositary bank chooses to re-clear a 

check on the basis of an image of the check it 

captured when it took the check for deposit, it 

should ensure that the re-cleared check reflects the 

fact that the check has already been returned one 

time. 

70 If an electronic collection item presented to the 

paying bank contained an illegible image of the 

check and the paying bank decided to return the 

item (perhaps for an unrelated reason, such as 

insufficient funds), the paying bank could return 

the electronic collection item as an electronic 

return, instead of initiating a notice in lieu of 

return. 

71A qualified returned check is ‘‘a returned check 

that is prepared for automated return to the 

depositary bank by placing the check in a carrier 

envelope or placing a strip on the check and 

encoding the strip or envelope in magnetic ink.’’ 

Current 12 CFR 229.2(bb). 

proposes to eliminate the notice of 

nonpayment requirement, the Board 

proposes to move the information 

requirements for a notice in lieu of 

return from current § 229.33(b) to new 

§ 229.30(e)(2). The Board proposes that 

the information requirements for a 

notice in lieu of return remain 

unchanged. 

Currently, a notice in lieu is not 

required to contain the check’s original 

MICR line. The Board understands, 

however, that a depositary bank can 

often use the data from the original 

MICR line of a returned check to find in 

its computer systems an image of the 

item, which the depositary bank 

captured when it took the check for 

deposit, and which the depositary bank 

can either re-clear or charge back to its 

customer’s account.69 The Board 

requests comment on whether the 

information-content specifications for a 

notice in lieu of return should be 

modified to reflect these capabilities by 

requiring that a notice in lieu of return 

include the check’s original MICR line. 

As an alternative to the proposed 

approach, the Board requests comment 

on whether the regulation’s provision 

for notice in lieu of return should be 

deleted. Specifically, the only factual 

scenario in which a notice in lieu of 

return may be necessary under the 

proposal is where a paper check is 

presented to the paying bank and the 

paying bank loses the check, but has 

access to a copy that is not in the proper 

format to permit creation of a substitute 

check or electronic return. Forward 

interbank check collection, however, 

including presentment to the paying 

bank, is almost always electronic, and, 

furthermore, paying banks initiate 

almost all check returns electronically. 

Given the overwhelming prevalence of 

electronic presentment and electronic 

initiation of return, the paying bank 

almost always will be able to return an 

electronic collection item that was 

presented to it. Therefore, it may no 

longer be necessary for paying banks to 

use notices in lieu of return.70 The 

Board requests comment on whether a 

provision for notice in lieu of return 

continues to be necessary. 

6. Section 229.30(f)—Reliance on 

Routing Number 

The regulation currently provides that 

a paying bank may return a check based 

on any routing number designating the 

depositary bank appearing on the check 

in the depositary bank’s indorsement. 

The Board proposes in § 229.30(f) to add 

that the paying bank may also rely on 

any routing number designating the 

depositary bank in the electronic image 

of or information related to the check. 

B. Section 229.31—Returning Bank’s 

Responsibility for Return of Checks 

1. Section 229.31(a)—Expeditious 

Return of Checks 

i. Section 229.31(a)(1) 

For the reasons discussed above 

under § 229.30(a)(1), the Board proposes 

to make conforming amendments to 

§ 229.31(a) and eliminate the forwardcollection test and the four-day test for 

expeditious return of a check by the 

returning bank, such that the two-day 

test for expeditious return would be the 

only test in § 229.31(a)(1). Further, a 

returning bank would be subject to the 

expeditious return requirement if it 

agrees to return checks expeditiously. 

The Board proposes to amend the 

commentary to § 229.31(a)(1) to explain 

that a returning bank may condition its 

agreement to return checks 

expeditiously on receiving an electronic 

return from the paying bank or returning 

bank. The Board also proposes to amend 

the commentary to § 229.31(a)(1), by 

removing as an example of when a 

returning bank agrees to return checks 

expeditiously a returning bank handling 

a returned check for return that it did 

not handle for forward collection. While 

the Board intends a paying bank to 

continue to be able to send a returned 

check to a returning bank that did not 

handle the check for forward collection, 

the Board does not believe that a 

returning bank that receives such a 

check should be deemed to agree to 

handle the returned check 

expeditiously. Under this proposed 

change, for example, a returning bank 

may accept a paper returned check that 

it did not handle for forward collection, 

while not being deemed to have agreed 

to handle it for expeditious return. 

ii. Section 229.31(a)(3) 

The Board proposes to clarify in 

proposed § 229.31(a)(3) (currently in 

§ 229.31(a)) that if the returning bank is 

unable to identify the depositary bank 

with respect to a returned check, it may 

send the returned check to any bank 

that handled the check for forward 

collection if it was not a collecting bank 

with respect to the check, or to a prior 

collecting bank if it was a collecting 

bank. 

iii. Section 229.31(a)(4) 

The substance of proposed 

§ 229.31(a)(4) (currently in § 229.31(a)) 

currently provides that a returning 

bank’s time for expeditious return under 

the forward-collection test and its 

deadline for return are extended by one 

business day if the returning bank 

converts a returned check to a qualified 

returned check.71 This extension does 

not apply to the two-day/four-day test, 

and it does not apply when the 

returning bank sends the check directly 

to the depositary bank, because in that 

case qualifying the check does not 

expedite its handling by the bank to 

which it is sent. 

The Board proposes to eliminate this 

extension. The extension does not apply 

to the two-day test for expeditious 

return, which the Board proposes to be 

the sole test. Further, the extension, if 

retained, might benefit returning banks 

that choose to qualify and send paper 

returned checks destined for depositary 

banks that have agreed to accept returns 

electronically; a result that is 

inconsistent with the policy of 

encouraging electronic return of checks. 

In addition, if a returned check is 

destined for a depositary bank that does 

not accept returned checks 

electronically (i.e., if the returned check 

is one to which the proposed two-day 

test does not apply), the Board believes 

that a returning bank’s midnight 

deadline affords it sufficient time to 

process and send the returned check, 

irrespective of whether the returning 

bank qualifies the returned check or not. 

A qualified return check is prepared 

for automated return by placing the 

check in a carrier envelope or placing a 

strip on the check. According to current 

industry practice, however, such 

envelopes should be used only in 

situations in which the check has been 

mutilated and cannot be imaged or 

handled by automated check-processing 

equipment. Therefore, the Board 

requests comment on whether the 

regulation should continue to allow a 

bank to prepare a check for automated 

return by placing the check in a carrier 

envelope. Further, in today’s 

predominantly electronic check-clearing 

environment, qualification of paper 


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72UCC § 4–202 states that a collecting bank 

exercises ordinary care ‘‘by taking proper action 

before its midnight deadline following receipt of an 

item, notice, or settlement. Taking proper action 

within a reasonably longer time may constitute the 

exercise of ordinary care, but the bank has the 

burden of establishing timeliness.’’ 

returned checks happens only rarely 

and it is not clear that qualification 

continues to be a means of expediting 

returned checks’ delivery to the 

depositary bank because carrier 

envelope’s inhibit check imaging. The 

Board requests comment on whether the 

regulation’s provisions for qualifying of 

paper returned checks by paying banks 

and returning banks should be deleted. 

2. Section 229.31(b)—Exceptions to 

Expeditious Return of Checks 

The Board proposes changes to 

§ 229.31(b) similar to those discussed 

above under § 229.30(b). Specifically, 

the Board proposes to group together the 

current exceptions to a returning bank’s 

duty of expeditious return in 

§ 229.31(b)(1) and to provide that, in 

addition to the exceptions currently 

provided in the regulation, the returning 

bank’s duty of expeditious return does 

not apply if the depositary bank has not 

agreed to accept electronic returns from 

the paying bank under § 229.32(a). 

A returning bank does not have a duty 

to expeditiously return the check if the 

returning bank is not able to identify the 

depositary bank with respect to a 

returned check. Section 229.31(b) of the 

regulation currently provides, however, 

that if a paying bank is not able to 

identify the depositary bank with 

respect to a returned check and sends 

the returned check under the terms of 

§ 229.30(b) to a returning bank, but the 

returning bank can identify the 

depositary bank (for example, on the 

basis of its records from the forward 

collection of the check), then the 

returning bank must thereafter return 

the check expeditiously to the 

depositary bank. The Board proposes to 

remove this requirement from the 

regulation (proposed § 229.31(b)(1)(iv)), 

because it may be difficult for a 

returning bank to meet the two-day test 

for expeditious return where the paying 

bank likely sent the return as if the 

return was not subject to the 

expeditious return requirement. In the 

absence of an expeditious-return 

requirement, the UCC would 

nonetheless require a returning bank in 

this situation to use ordinary care when 

returning the item.72

3. Section 229.31(d)—Charges 

The Board proposes to clarify in 

§ 229.31(d) that a returning bank may 

impose a charge for handling a returned 

check on the bank that sent the returned 

check to it, rather than another party. 

4. Section 229.31(e)—Notice in Lieu of 

Return 

The Board proposes to make 

amendments to § 229.31(e) to conform 

with proposed amendments to 

§ 229.30(e). 

5. Section 229.31(f)—Reliance on 

Routing Number 

The regulation currently provides that 

a returning bank may return a check 

based on any routing number 

designating the depositary bank 

appearing on the check in the 

depositary bank’s indorsement or in 

magnetic ink on a qualified returned 

check. The Board proposes to add that 

the returning bank may also rely on any 

routing number designating the 

depositary bank in the electronic image 

or information included in an electronic 

return. 

C. Section 229.32—Depositary Bank’s 

Responsibility for Returned Checks 

1. Section 229.32(a)—Acceptance of 

Electronic Returns 

i. Section 229.32(a)(1) 

The Board proposes in § 229.32(a)(1) 

three different circumstances under 

which a depositary bank would be 

deemed to have agreed to accept an 

electronic return from the paying bank. 

The depositary bank must accept an 

electronic return in at least one of these 

ways so as to be entitled to expeditious 

return under the Board’s proposal. The 

first way in which a depositary bank is 

considered to have agreed to accept 

electronic returns from the paying bank 

is by having a direct contractual 

relationship with the paying bank under 

which it agrees to accept electronic 

returns from the paying bank (proposed 

§ 229.32(a)(1)(i)). 

Secondly, under proposed 

§ 229.32(a)(1)(ii), a depositary bank 

could have a direct contractual 

relationship with a returning bank to 

accept electronic returns. In turn, that 

returning bank must hold itself out as 

willing to accept electronic returns 

directly or indirectly (e.g., from another 

returning bank) from the paying bank 

and must have agreed to handle 

returned checks expeditiously under 

§ 229.31(a) in order for the depositary 

bank to have agreed to receive electronic 

returns from the paying bank under 

§ 229.32(a). The proposed commentary 

to proposed § 229.32(a) provides an 

example of such an arrangement. The 

Board proposes to provide examples in 

the proposed commentary to proposed 

§ 229.32(a) of how a returning bank 

holds itself out as willing to accept 

electronic returns directly or indirectly 

from the paying bank. Specifically, a 

returning bank would be considered to 

hold itself out as willing to accept 

electronic returns if it published 

information about its generally available 

electronic return service, such as 

information about signing up for the 

service and fees. The Board requests 

comment on whether it should provide 

more specificity as to under what 

circumstances a returning bank is 

deemed to hold itself out as willing to 

accept electronic returns directly or 

indirectly from a paying bank. 

Third, a depositary bank may have 

otherwise agreed with the paying bank 

to receive an electronic return. The 

proposed commentary indicates that 

one example of such an agreement 

would be where the depositary bank 

and paying bank are both members of 

the same check clearing house, through 

which the depositary bank has agreed to 

accept electronic returns from the 

paying bank. 

ii. Section 229.32(a)(2) 

Proposed § 229.32(a)(2) establishes 

that a depositary bank receives an 

electronic return when the return is 

delivered to the electronic return point 

designated by the bank or, by 

agreement, otherwise is made available 

to the bank for retrieval or review. For 

example, if a depositary bank designates 

an e-mail address as its electronic 

receipt address, the depositary bank has 

received the electronic return when it is 

delivered to that e-mail address. In 

contrast, if the depositary bank has an 

arrangement with a returning bank 

whereby the returning bank sends the 

electronic return to its storage device 

and then provides the depositary bank 

with access to the storage device for 

retrieving electronic returns, the 

electronic return is received by the 

depositary bank when the returning 

bank makes the electronic return 

available for the depositary bank to 

retrieve or review from the storage 

device in accordance with the 

agreement between the depositary bank 

and the returning bank. 

iii. Section 229.32(a)(3) 

Proposed § 229.32(a)(3) would permit 

a depositary bank to require that 

electronic returns be separated from 

electronic collection items. This 

proposed rule is similar to the 

undesignated paragraph in existing 

§ 229.32(a) (proposed § 229.32(b)(2)) 

that permits a depositary bank to require 

that returned checks be separated from 

forward-collection checks. 


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73The Board also proposes to delete the second 

sentence of paragraph 8 of the commentary to 

§ 229.35(a), which states that if the address in the 

indorsement is not consistent with the routing 

number, then the depositary bank must accept 

returned checks at a branch or head office 

consistent with the routing number. 

2. Section 229.32(b)—Acceptance of 

Paper Returned Checks 

The Board proposes to clarify that 

current § 229.32(a) (proposed to be 

redesignated as § 229.32(b)) is limited to 

setting forth the locations at which a 

depositary bank must accept paper 

returned checks. Further, because there 

are no more nonlocal checks, the Board 

proposes to delete current 

§ 229.32(a)(2)(iii) from the regulation, 

which states that if the address in the 

depositary bank’s indorsement is not in 

the same check-processing region as the 

address associated with the routing 

number in its indorsement, the 

depositary bank must accept returned 

checks both at a location consistent with 

the address in the indorsement and at 

an office associated with the routing 

number.73 Under the proposal, a 

depositary bank that includes its 

address in its indorsement is required to 

receive paper returned checks at a 

location consistent with the address 

(proposed § 229.32(b)(1)(ii)(A)) and at a 

location, if any, at which it requests 

presentment of paper checks (proposed 

§ 229.32(b)(1)(i)). Moreover, the 

depositary bank may structure its 

operations such that these two locations 

are the same, i.e., such that the 

depositary bank accepts paper returned 

checks at only one location. 

The Board proposes that a depositary 

bank is entitled to expeditious return 

only if it agrees to accept an electronic 

return under § 229.32(a). The Board 

anticipates that virtually all depositary 

banks will agree to do so, and that a 

depositary bank that accepts electronic 

returns will generally prefer to receive 

all returns in electronic form. Further, 

return of a paper check to such a 

depositary bank should be rare, because 

under the Board’s proposal a paper 

returned check must be delivered to the 

bank within the two-day timeframe for 

expeditious return, and delivery of a 

paper check within that timeframe is 

generally difficult and costly. The Board 

believes it is therefore appropriate for a 

depositary bank to be able to limit to 

one the number of locations at which it 

must accept returned checks. If the bank 

specifies a location for delivery of paper 

returned checks that is difficult to reach, 

and the depositary bank has not agreed 

to accept electronic returns from the 

paying bank, the risk of any delay falls 

mainly on the depositary bank itself. 

3. Section 229.32(e)—Charges 

In § 229.32(e), the Board proposes to 

clarify that a depositary bank may not 

impose a charge for accepting and 

paying the check on the bank returning 

a check to it, as opposed to other parties 

on which it is permitted to impose 

charges. 

4. Section 229.32(f)—Notification to 

Customer 

Current § 229.33(d) states that if the 

depositary bank receives a returned 

check, it must provide notice of the facts 

to its customer by midnight of the 

banking day following the banking day 

on which it received the returned check, 

or within a longer reasonable time. The 

Board proposes to redesignate current 

§ 229.33(d) as § 229.32(f). The 

commentary to this section is proposed 

to be revised to remove outdated 

provisions. 

D. Current § 229.33—Notice of 

Nonpayment 

For the reasons discussed above, the 

Board proposes to delete the 

requirement in current § 229.33 that a 

paying bank provide notice of 

nonpayment of a check in the amount 

of $2,500 or more. Further, the Board 

proposes, where appropriate, to delete 

references to notices of nonpayment 

throughout subpart C. 

E. Section 229.33—Electronic Returns 

and Collection Items 

The Board’s proposal defines two new 

items: electronic returns and electronic 

collection items. The proposal permits 

paying banks to send electronic returns 

to depositary banks that have agreed to 

receive them, either directly or 

indirectly, from the paying bank; the 

proposal also permits paying banks to 

require that items presented for sameday settlement be presented as 

electronic collection items. Because 

such items are intended to take the 

place of original paper checks or 

substitute checks, proposed new 

§ 229.33 provides that electronic 

collection items and electronic returns 

are subject to the requirements of 

subpart C as if they were checks, unless 

the subpart provides otherwise. For 

example, if a paying bank receives 

presentment of an electronic collection 

item and returns it unpaid, it would be 

subject to the regulation’s expeditiousreturn requirement, provided the 

depositary bank has agreed to accept 

electronic returns from the paying bank 

under § 229.32(a). Similarly, a 

depositary bank that receives an 

electronic return must so notify its 

customer, as required under § 229.32(f). 

F. Section 229.34—Warranties and 

Indemnities 

1. Section 229.34(a)—Transfer and 

Presentment Warranties With Respect to 

an Electronic Collection Item or an 

Electronic Return 

Proposed § 229.34(a) sets forth the 

warranties that a bank makes when it 

transfers or presents an electronic 

collection item or electronic return and 

receives consideration. The Board 

proposes that the bank warrant that (1) 

the electronic image accurately 

represents all of the information on the 

front and back of the original check as 

of the time that the original check was 

truncated and the electronic information 

contains an accurate record of all MICR 

line information required for a 

substitute check under § 229.2(rr) and 

the amount of the check; and (2) no 

person will receive a transfer, 

presentment, or return of, or otherwise 

be charged for, an electronic collection 

item, an electronic return, the original 

check, a substitute check, or a paper or 

electronic representation of a substitute 

check such that the person will be asked 

to make payment based on a check it 

has already paid. Each bank that 

transfers or presents an electronic 

collection item would make the 

warranties to the transferee bank, any 

subsequent collecting bank, the paying 

bank, and the drawer. Each bank that 

transfers an electronic return would 

make the warranties to the transferee 

returning bank, any subsequent 

returning bank, the depositary bank, and 

the owner of the check. 

These warranties are similar to the 

warranty that the transferor of a 

substitute check or paper or electronic 

representation of a substitute check 

makes under the terms of the Check 21 

Act and § 229.52 of Regulation CC. 

These warranties would, for example, 

protect a bank that may need to create 

a substitute check from an electronic 

collection item or electronic return that 

it receives. The proposed warranties 

would not apply to electronic items 

transferred or presented pursuant to an 

agreement that does not require the 

items to include an image of the check, 

because such items would not purport 

to meet the proposed definition of an 

electronic collection item or electronic 

return and the receiving bank would not 

expect to be able create a legally 

equivalent substitute check from the 

item. 

2. Current § 229.34(b)—Warranty of 

Notice of Nonpayment 

Because the Board proposes to delete 

the regulation’s provision for notice of 

nonpayment, the Board proposes to 


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74This new requirement would not alter the 

flexibility provided by § 229.35(d) to a depositary 

bank to arrange with another bank to apply the 

other bank’s indorsement as the depositary-bank 

indorsement. 

delete the warranty applicable to such 

notice that is set forth in current 

§ 229.34(b). 

3. Proposed § 229.34(b)—Settlement 

Amount, Encoding, and Offset 

Warranties 

The Board proposes that the encoding 

warranty in current § 229.34(c)(3) 

(proposed § 229.34(b)(3)) be extended to 

information encoded after issue as 

electronic information. For purposes of 

this paragraph, information encoded 

after issue includes any information in 

the electronic information of an 

electronic collection item or electronic 

return. 

4. Proposed § 229.34(c)—Transfer and 

Presentment Warranties With Respect to 

a Remotely Created Check 

Under current § 229.34(d), a bank that 

transfers or presents a remotely created 

check and receives settlement or 

consideration for it warrants that the 

person on whose account the remotely 

created check is drawn authorized the 

issuance of the check in the amount 

stated on the check and to the payee 

stated on the check. The Board proposes 

to amend the commentary to proposed 

§ 229.34(c) to clarify that under 

proposed § 229.34(e), the warranty 

would apply to an electronic image and 

information that purport to be derived 

from a remotely created check, even 

were they not in fact derived from a 

paper check. For example, a depositary 

bank transferring an electronic image 

and information that, upon inspection, 

appear to be derived from a check that 

meets the regulation’s definition of 

remotely created check would make the 

warranty of authorization for a remotely 

created check even if no original check 

existed with respect to the transaction 

in question. Further, a paying bank 

receiving presentment of such an item 

would receive from the presenting bank 

a warranty that the item was authorized 

by the person on whose account the 

item is drawn. 

Currently, a bank that transfers a 

remotely created check makes the 

current § 229.34(e) warranty to the 

transferee bank, any subsequent 

collecting bank, and the paying bank. 

The Board’s proposed warranties with 

respect to electronic collection items 

(which could be derived from remotely 

created checks) extend to the drawer; 

similarly, the current notice of 

nonpayment and returned check 

warranties extend to the owner of the 

check. The Board requests comment on 

whether the remotely created check 

warranties should extend to the person 

on whose account the remotely created 

check is drawn. 

5. Section 229.34(d)—Warranties With 

Respect to a Returned Check 

Proposed § 229.34(d) contains the 

warranties set forth in current 

§ 229.34(a). The Board proposes to 

delete from these warranties the 

warranty of return of a check within the 

deadline specified in Regulation J. The 

Regulation J warranties apply only to 

those returned checks subject to the 

terms of that regulation, and need not be 

specified in Regulation CC. 

6. Section 229.34(e)—Electronic Image 

and Information Transferred as an 

Electronic Collection Item or Electronic 

Return 

Under proposed § 229.34(e), a bank 

that transfers or presents an electronic 

image and related electronic 

information as if it were an electronic 

collection item or electronic return 

would make all the warranties in 

§ 229.34 as if the image and information 

were an electronic collection item or 

electronic return. In turn, because 

electronic collection items and 

electronic returns would be treated as if 

they were checks or returned checks 

under § 229.33, a bank also would make 

the warranties in § 229.34 as if the 

images and related electronic 

information were checks or returned 

checks. This proposal protects 

recipients of these items that likely will 

not be able to distinguish them from 

similar items that originated as paper 

checks and therefore meet the 

definitions of ‘‘electronic collection 

item’’ and ‘‘electronic return.’’ 

In order for a substitute check to be 

the legal equivalent of the original 

check, the image and information 

contained in the substitute check must 

be of a paper check. Accordingly, the 

Board proposes definitions that require 

electronic collection items and 

electronic returns be derived from an 

item that existed as paper. In some 

cases, a bank may receive an electronic 

image and electronic information that 

looks like an electronic collection item 

or electronic return, but is neither, 

because it was originally created 

electronically and there was never a 

paper check. Banks that receive such 

images and related electronic 

information usually cannot differentiate 

them from actual electronic collection 

items or electronic returns. Nonetheless, 

a bank that unknowingly receives an 

electronic image and related electronic 

information not derived from a paper 

instrument may nonetheless transfer the 

image and related electronic 

information as if it were derived from a 

paper instrument. Therefore, the Board 

believes that electronic images and 

related electronic information 

transferred as electronic collection items 

or electronic returns should be subject 

to the same warranties as electronic 

collection items and electronic returns, 

and therefore, the same warranties as 

checks and returned checks (see 

proposed § 229.34(a)). 

G. Section 229.35(a)—Indorsement 

Standards; Appendix D—Indorsement, 

Reconverting-Bank Identification, and 

Truncating-Bank Identification 

Standards 

Section 229.35(a) requires a bank 

(other than the paying bank) that 

handles a check to indorse the check in 

a manner that permits a person to 

interpret the indorsement. Since 

implementation of the Check 21 Act, 

banks have increasingly complied with 

this requirement by associating their 

electronic indorsements with items that 

they handle electronically. 

In appendix D, the Board proposes to 

require a depositary bank that transfers 

an electronic collection item to another 

bank to apply its indorsement to that 

item electronically in accordance with 

ANS X9.100–187, unless the parties 

otherwise agree.74 Similarly, the Board 

also proposes to require a collecting 

bank that transfers an electronic 

collection item, or a returning bank that 

transfers an electronic return, to another 

bank to apply its indorsement 

electronically in accordance with ANS 

X9.100–187, unless the parties 

otherwise agree. In general, the Board 

believes that inclusion of banks’ 

indorsements as addenda records 

accompanying electronic collection 

items and electronic returns will 

facilitate the automated handling of the 

items by subsequent banks. In 

particular, inclusion of the depositary 

bank’s indorsement as an addenda 

record accompanying an electronic 

collection item will facilitate the 

automated routing of electronic returns 

by paying banks and returning banks. 

H. Section 229.36—Presentment and 

Issuance of Checks 

1. Section 229.36(a)—Receipt of 

Electronic Collection Items 

i. Section 229.36(a)(1) 

Proposed § 229.36(a)(1) sets forth two 

circumstances in which a paying bank 

is deemed to have agreed to accept an 

electronic collection item from the 

presenting bank. First, a paying bank 

may agree to accept the electronic 


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collection item directly from the 

presenting bank. Second, a paying bank 

may have otherwise agreed with the 

presenting bank to accept an electronic 

collection item. The proposed 

commentary indicates that one example 

of such an agreement would be where 

the paying bank and presenting bank are 

both members of the same check 

clearing house, under the rules of which 

the paying bank has agreed to accept 

electronic collection items from the 

presenting bank. 

ii. Section 229.36(a)(2) 

Similar to proposed § 229.32(a)(2), 

proposed § 229.36(a)(2) sets forth when 

a bank is considered to receive an 

electronic collection item. A bank 

receives an electronic collection item 

when it is delivered to the electronic 

presentment point designated by the 

bank or, by agreement, otherwise is 

made available to the bank for retrieval 

or review. For example, if a paying bank 

designates an Internet protocol (IP) 

address as its electronic presentment 

point, the paying bank has received an 

electronic collection item when it is 

delivered to that address. In contrast, 

the paying bank may have an 

arrangement with the collecting bank 

whereby electronic collection items are 

received by the paying bank when the 

collecting bank makes the items 

available for the paying bank to retrieve 

or review from a storage device in 

accordance with the agreement between 

the collecting bank and the paying bank. 

iii. Section 229.36(a)(3) 

Similar to proposed § 229.32(a)(2), 

proposed § 229.36(a)(3) permits a paying 

bank, for ease of processing, to require 

that electronic collection items be 

separated from electronic returns. 

2. Section 229.36(b)—Receipt of Paper 

Checks 

The Board proposes in § 229.36(b)(2) 

that a paying bank be permitted to 

require that forward-collection checks 

be separated from returned checks. A 

similar provision in current 

§ 229.36(f)(1) is limited to checks 

presented for same-day settlement and 

permits a paying bank to require that 

paper checks presented for same-day 

settlement be separated from other 

forward-collection checks or returned 

checks. The Board requests comment on 

whether a requirement that paper 

checks presented for same-day 

settlement be separated from other 

checks presentments remains necessary. 

3. Section 229.36(d)—Same-Day 

Settlement 

For the reasons discussed above in the 

overview of the proposal, the Board 

proposes in § 229.36(d)(2) to permit a 

paying bank to require that checks 

presented for same-day settlement be 

presented as electronic collection items 

to a designated electronic presentment 

point. 

4. Section 229.36(e)—Issuance of 

Payable-Through Checks 

Current § 229.36(e) requires a bank 

that arranges for checks payable by it to 

be payable through another bank to 

print conspicuously on the face of the 

check the name, location, and first four 

digits of the routing number of the bank 

by which the check is payable. The 

purpose of this provision is to alert the 

depositary bank receiving a check for 

deposit that it could not rely on the 

routing number in the MICR line of the 

check to determine whether the check 

was local or nonlocal. Because there are 

no longer any nonlocal checks, the 

Board believes that § 229.36(e) is no 

longer necessary and proposes to delete 

it. 

I. Section 229.37—Variation by 

Agreement 

The commentary to § 229.37 provides 

examples of situations where variation 

by agreement is permissible. The Board 

proposes to amend the commentary to 

§ 229.37 to include as an example of 

permissible variation by agreement the 

situation where a depositary bank and a 

paying bank or returning bank agree to 

send electronic returns even where the 

item is available for return. Similarly, 

the Board proposes to amend the 

commentary by adding an example that 

permits a presenting bank and paying 

bank to agree that presentment takes 

place upon receipt of an electronic 

collection item. 

J. Section 229.38—Liability 

Section 229.38(d)(2) makes drawee 

banks liable to the extent they issue 

payable-through checks that are payable 

through a bank located in a different 

check-processing region and that 

circumstance causes a delay in return. 

Because there is now only one checkprocessing region, this liability 

provision is obsolete and the Board 

proposes to delete it. 

K. Section 229.40—Mergers 

The Board proposes to delete as 

obsolete the provision in § 229.40(b) 

regarding mergers consummated on or 

after July 1, 1998, and before March 1, 

2000. 

L. Section 229.43—Checks Payable in 

Guam, American Samoa, and the 

Northern Mariana Islands 

The Board proposes to modify 

§ 229.43 to reflect how the proposed 

warranties for electronic collection 

items and electronic returns in § 229.34 

would apply to checks payable in 

Guam, American Samoa, and the 

Northern Mariana Islands. Specifically, 

a bank that handles Pacific island 

checks in the same manner as other 

checks may transfer electronic images 

and electronic information as electronic 

collection items or electronic returns 

derived from Pacific island checks. 

Accordingly, such a bank would make 

the warranties in §§ 229.34(a) and (b) 

with respect to Pacific island checks. 

IV. Subpart D 

A. Section 229.52—Substitute-Check 

Warranties 

Sometimes a check submitted for 

deposit is subsequently ‘‘rejected’’ by the 

bank that receives the check. For 

example, a bank’s customer might 

submit a check at an ATM that captures 

an image of the check and sends the 

image electronically to the bank. In turn, 

the bank may provide provisional credit 

to the customer and review the item. For 

various reasons, the bank’s review of the 

item might result in the item being 

rejected—for example, the bank might 

determine that the item is not payable 

to the customer who submitted it for 

deposit. It is costly for the bank to 

obtain the check from the ATM to 

provide it back to the customer; 

moreover, the check may have been 

destroyed. Accordingly, banks 

sometimes provide the rejected item to 

the customer in the form of a substitute 

check. In such a scenario, the bank 

would be both the reconverting bank 

(the bank that created the substitute 

check) and the truncating bank (the 

bank that truncated the original check). 

Under the terms of § 229.52(a), a bank 

makes the Check 21 Act warranties with 

respect to a substitute check when it 

transfers the substitute check for 

consideration, as the terms ‘‘transfer’’ 

and ‘‘consideration’’ are defined in 

current § 229.2(ccc) (proposed to be 

redesignated as § 229.2(tt)). However, a 

bank may not have received 

consideration for a substitute check it 

provides to its customer after it has 

rejected an original check submitted for 

deposit. 

As noted in the commentary to the 

definition of transfer and consideration, 

the Check 21 Act contemplates that a 

nonbank person that receives a 

substitute check from a bank will 

receive warranties and indemnities with 


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75These requirements are that 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.’’ 

respect to that check. Therefore, in order 

to prevent a bank from being able to 

transfer a check that the bank truncated 

and then reconverted without providing 

the substitute-check warranties and 

indemnity, the Board proposes to add to 

§ 229.52(a) a new subsection stating that 

a bank that rejects a check submitted for 

deposit and sends back to its customer 

a substitute check (or a paper or 

electronic representation of a substitute 

check) makes the warranties in 

§ 229.52(a) regardless of whether it 

received consideration for the substitute 

check. Because the bank would make 

these warranties, the substitute check 

would be the legal equivalent of the 

rejected original check, provided that 

the substitute check meets the 

requirements for legal equivalence set 

forth in § 229.51(a).75 If the substitute 

check does not meet the requirements 

for legal equivalence, then the substitute 

check recipient would have a Check 21 

warranty claim against the bank. 

Because the bank is both the 

truncating bank and the reconverting 

bank with respect to the check, the bank 

must identify itself on the front of the 

substitute check as the truncating bank 

and on the front and back of the check 

as the reconverting bank, in accordance 

with the terms of § 229.51(b). The bank 

is not, however, a depositary bank, 

collecting bank, or returning bank with 

respect to the check, and the Board 

proposes to add a clarifying statement to 

that effect in proposed § 229.2(r) 

(current § 229.2(o), the regulation’s 

definition of depositary bank). 

Moreover, the bank’s identification of 

itself on the back of the check as a 

reconverting bank does not constitute 

the bank’s indorsement of the check. To 

address this latter point, the Board 

proposes changes to the commentaries 

to §§ 229.35(a) and 229.51(b), and to 

paragraph 3(ii) of appendix D. 

The Board also proposes to modify 

the commentary to reflect the fact that 

a bank that transfers and receives 

consideration for an electronic 

collection item or electronic return that 

is an electronic representation of a 

substitute check makes the warranties in 

§ 229.52. 

B. Section 229.53—Substitute-Check 

Indemnity 

In addition to imposing the substitute 

check warranties on a bank that rejects 

a check for deposit, the Board similarly 

proposes to add to § 229.53(a) a new 

subsection stating that a bank that 

rejects a check submitted for deposit 

and sends back to its customer a 

substitute check provides the indemnity 

set forth in § 229.53(a) regardless of 

whether the bank received 

consideration. The Board also proposes 

to modify the commentary to reflect the 

fact that a bank that transfers and 

receives consideration for an electronic 

collection item or electronic return that 

is an electronic representation of a 

substitute check is responsible for 

providing the indemnity in § 229.53. 

Other Requests for Comment 

I. Effective Date 

The Board proposes that the revised 

subparts A and B take effect 30 days 

following publication of the final rule. 

The Board recognizes that some banks 

may wish to use the model forms soon 

after the rule becomes effective, as part 

of their normal reordering or reprinting 

cycle for their funds-availability 

disclosures. In order to minimize the 

compliance costs, the Board proposes 

that banks would have 12 months to 

comply with the amendments to subpart 

B and the model forms in appendix C. 

The Board proposes that the 

amendments to subparts C and D 

become effective six months following 

publication of the final rule. As 

discussed above, these amendments 

provide, among other things, that a 

depositary bank must accept electronic 

returns in order to be entitled to 

expeditious return. The time required 

for depositary banks that currently 

accept paper returned checks to 

implement the operational changes 

necessary for receiving electronic 

returns generally should not be 

significant. Many of these depositary 

banks are small and receive a small 

number of returned checks. 

Accordingly, receiving returns as .pdfs, 

for example, should not require 

substantial changes. The Board does not 

expect that other changes to subpart C, 

such as the proposed provisions for 

electronic same-day settlement, would 

impose a significant transition burden 

given that almost all checks are already 

presented electronically. Further, under 

the proposal a collecting bank may 

continue to present paper checks under 

the terms of the UCC and Regulation J. 

II. Potential Future Changes To Reduce 

Risks to Depositary Banks 

Given that there are no longer any 

nonlocal checks, a depositary bank must 

make funds available to the depositor 

for withdrawal by the second business 

day after the banking day of deposit, 

unless one of the time-period 

adjustments in § 229.12 or one of the 

exceptions in § 229.13 is applicable. 

Even assuming that banks collect and 

return all checks electronically, 

depositary banks will in many cases 

nonetheless be required to make the 

funds represented by a check deposit 

available for withdrawal before learning 

whether the check has been returned 

unpaid. The Board therefore requests 

comment on whether this risk is 

significant and whether there are 

feasible means to help reduce any risk 

to depositary banks. For example, the 

deadline in the UCC by which a paying 

bank must initiate return of an unpaid 

check is generally midnight of the 

banking day following the banking day 

of receipt of the check by the paying 

bank, except as the deadline may be 

extended by § 229.30(c) of Regulation 

CC. As delivery of forward-collection 

and returned checks becomes 

increasingly electronic, this amount of 

time (typically about 36 hours) afforded 

to the paying bank takes up a substantial 

portion of the total time required for a 

check to be sent from the depositary 

bank to the paying bank and back again. 

The Board requests comment on 

whether it would be desirable to reduce 

the amount of time afforded to the 

paying bank to decide whether or not to 

pay a check that has been presented to 

it. The Board also requests comment on 

whether there are other, preferable, 

ways to reduce this risk to depositary 

banks. 

Paperwork Reduction Act 

In accordance with the Paperwork 

Reduction Act of 1995 (PRA) (44 U.S.C. 

3506; 5 CFR part 1320 Appendix A.1), 

the Board reviewed the proposed 

rulemaking under the authority 

delegated to the Board by the Office of 

Management and Budget (OMB). The 

collection of information that is 

proposed by this rulemaking is found in 

12 CFR 229. The Board may not conduct 

or sponsor, and an organization is not 

required to respond to, this information 

collection unless it displays a currently 

valid OMB control number. The OMB 

control number is 7100–0235. 

The EFA Act, as amended, and the 

Check 21 Act authorizes the Board to 

issue regulations to carry out the 

provisions of those Acts (12 U.S.C. 4008 

and 12 U.S.C. 5014, respectively). 

Because the Federal Reserve does not 

collect any information, no issue of 

confidentiality arises. However, if, 

during a compliance examination of a 

financial institution, a violation or 

possible violation of the EFA Act or the 

Check 21 Act is noted then information 

regarding such violation may be kept 


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76After printing the .pdf files, the depositary bank 

would be able to process the checks exactly as it 

would process paper checks physically delivered to 

it. 

77This estimate takes into account the cost to a 

small depositary bank to establish and maintain an 

electronic connection to the Reserve Banks, which 

is estimated to be $110 per month. See 75 FR 67731 

at 67747 (Nov. 3, 2010). Some small banks, 

however, may already have such a connection. 

Further, a small depositary bank may choose to 

receive its returns electronically in a manner that 

does not require this connection, such as through 

a different returning bank, an electronic check 

clearinghouse, or a nonbank processor. 

confidential pursuant to Section (b)(8) 

of the Freedom of Information Act. 5 

U.S.C. 552(b)(8). This information 

collection is mandatory. 

Regulation CC applies to all banks, 

not just State Member Banks (SMBs). 

However, under the PRA, the Board 

accounts for the burden of the 

paperwork associated with the 

regulation only for entities that are 

supervised by the Federal Reserve. The 

Board accounts for the paperwork 

burden only for SMBs and uninsured 

state branches and agencies of foreign 

banks. Other Federal financial agencies 

are responsible for estimating and 

reporting to OMB the total paperwork 

burden for the institutions for which 

they have administrative enforcement 

authority. 

The current annual burden to comply 

with the provisions of Regulation CC is 

estimated to be 202,396 hours for the 

1,060 institutions supervised by the 

Federal Reserve and that are deemed to 

be respondents for the purposes of the 

PRA. 

As discussed above, the Board 

proposes to amend model disclosures, 

clauses, and notices, in appendix C that 

banks may use in disclosing their fundsavailability policies to their customers 

and to update the preemption 

determinations in appendix F to 

incorporate content requirements 

prescribed by section 1086 of the DoddFrank Act. 

The Board estimates that the proposed 

rule would impose a one-time increase 

in the total annual burden under 

Regulation CC. The 1,060 respondents 

would take, on average, 80 hours (two 

business weeks) to update their systems 

to comply with the proposed disclosure 

requirements addressed in 12 CFR part 

229. This one-time revision would 

increase the burden by 84,800 hours. 

The Board estimates that, on a 

continuing basis, the revision to the rule 

would have a negligible effect on the 

annual burden. The total annual burden 

for the Regulation CC information 

collection is estimated to increase from 

202,396 to 287,196 hours. 

Comments are invited on: (1) Whether 

the proposed collection of information 

is necessary for the proper performance 

of the Board’s functions; including 

whether the information has practical 

utility; (2) the accuracy of the Board’s 

estimate of the burden of the proposed 

information collection, including the 

cost of compliance; (3) ways to enhance 

the quality, utility, and clarity of the 

information to be collected; and (4) 

ways to minimize the burden of 

information collection on respondents, 

including through the use of automated 

collection techniques or other forms of 

information technology. Comments on 

the collection of information should be 

sent to Cynthia Ayouch, Acting Federal 

Reserve Clearance Officer, Division of 

Research and Statistics, Mail Stop 95–A, 

Board of Governors of the Federal 

Reserve System, Washington, DC 20551, 

with copies of such comments sent to 

the Office of Management and Budget, 

Paperwork Reduction Project (7100– 

0235), Washington, DC 20503. 

Regulatory Flexibility Act 

In accordance with section 3(a) of the 

Regulatory Flexibility Act (RFA), 5 

U.S.C. 601–612, the Board is publishing 

an initial regulatory flexibility analysis 

for the proposed amendments to 

Regulation CC. The RFA requires an 

agency either to provide an initial 

regulatory flexibility analysis with a 

proposed rule or to certify that the 

proposed rule will not have a significant 

economic impact on a substantial 

number of small entities. In accordance 

with section 3(a) of the RFA, the Board 

has reviewed the proposed regulation. 

While the Board believes that the 

proposed rule likely would not have a 

significant economic impact on a 

substantial number of small entities (5 

U.S.C. 605(b)), the Board has prepared 

an Initial Regulatory Flexibility 

Analysis in accordance with 5 U.S.C. 

603. The Board will, if necessary, 

conduct a final regulatory flexibility 

analysis after consideration of 

comments received during the public 

comment period. 

The Board is proposing the foregoing 

amendments to Regulation CC pursuant 

to its authority under the EFA Act and 

the Check 21 Act. The proposed 

amendments would apply to all banks 

regardless of their size, and the Board 

anticipates that the proposal would 

reduce banks’ overall costs of collecting 

and returning checks. 

By providing that a depositary bank 

preserves its right to expeditious return 

only of it agrees to receive returned 

checks electronically, the proposed rule 

would encourage, but not require, 

depositary banks to accept check returns 

in electronic form. A depositary bank 

that currently receives returned checks 

in paper form and that chooses, as 

encouraged by the proposal, to begin to 

receive returned checks electronically, 

will incur some cost associated with 

that transition. The Board expects that 

these costs would be relatively low for 

a small depositary bank, which typically 

would receive only a small volume of 

returned checks. For example, as 

mentioned above, the Federal Reserve 

Banks now offer a product under which 

they deliver electronically to small 

depositary banks copies (.pdf files) of 

returned checks, which the banks can 

print on their own premises if 

necessary.76 To receive returned checks 

in this fashion, a depositary bank may 

need to establish and maintain an 

electronic connection to the Reserve 

Banks, or another returning bank that 

offers a similar service, and to purchase 

certain equipment, such as a printer 

capable of double-sided printing and 

magnetic-ink toner cartridges. 

Depending on the volume of returned 

checks that a small depositary bank 

receives, the Board estimates that this 

transition would cost a small depositary 

bank approximately $5,000 in netpresent-value terms.77 Conversely, a 

small depositary bank that does not 

choose to accept returned checks 

electronically would, under the 

proposal, incur additional risk 

associated with that decision. 

Specifically, the bank would not retain 

its right to expeditious return of a check, 

and a returned check may not be 

delivered to the bank in a timely 

fashion. While this risk is difficult to 

quantify, it is reasonable to expect that 

each small depositary bank will weigh 

the costs and benefits of whether to 

accept returns electronically. If the bank 

determines that the net present value of 

the risk is greater than the cost to 

receive returned checks electronically, 

then the bank can minimize its cost 

associated with the Board’s proposal by 

accepting returned checks 

electronically. 

The proposed updates to the model 

funds-availability policy disclosures 

and notices in appendix C should not 

impose significant cost on small banks. 

Under the proposal, a bank that bases its 

disclosures and notices on the current 

models in the appendix will continue to 

receive a safe harbor for 12 months after 

the final rule becomes effective, 

provided that the bank’s disclosures and 

notices accurately reflect the bank’s 

policies and practices. Moreover, a bank 

that chooses to update its disclosures on 

the basis of the proposal would not 

generally need to redeliver disclosures 

to all of its existing customers if the 

bank’s underlying funds-availability 


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78U.S. Small Business Administration, Table of 

Small Business Size Standards Matched to North 

American Industry Classification System Codes, 

available at http://www.sba.gov/idc/groups/public/ 

documents/sba_homepage/serv_sstd_tablepdf.pdf. 

79The proposed rule would not impose costs on 

any small entities other than depository 

institutions. 80See 12 CFR 210.3(f). 

policies did not change; instead, in 

accordance with the regulation, a bank 

would need to provide the disclosures 

at the time a customer opens an 

account, and upon request. 

Any costs to a small bank that may 

result from the rule will be offset to 

some extent by savings to the bank in 

other areas. For example, receiving 

returned checks electronically may 

enable a small bank to reduce its 

ongoing operating costs associated with 

receiving and processing returned 

checks. Further, as other banks with 

which the small bank does business also 

begin to receive returned checks 

electronically, the small bank, in its role 

as paying bank, may experience lower 

costs associated with sending returned 

checks to other banks, because a paying 

bank typically pays a higher fee to 

deliver a returned check in paper form 

to a depositary bank, as compared to 

delivering a returned check 

electronically to the depositary bank. In 

addition, the proposed provisions for 

electronic same-day settlement may 

reduce a small bank’s costs associated 

with receiving check presentments, 

because it should further reduce the 

number of paper check presentments 

that it receives. 

According to the Small Business 

Administration size standards defining 

small entities, a commercial bank, 

savings association, or credit union is 

considered a ‘‘small entity’’ if it has 

assets of $175 million or less.78 The 

Board can identify through data from 

Reports of Condition and Income (‘‘call 

reports’’) the approximate number of 

small depository institutions that would 

be subject to the proposed rule if 

finalized.79 Based on September 2010 

call report data, there are approximately 

11,030 depository institutions that have 

total domestic assets of $175 million or 

less and thus are considered small 

entities for purposes of the RFA. Based 

on December 2010 data regarding 

checks returned through the Reserve 

Banks, the Board estimates that 41 

percent of small depository institutions 

had at that time made arrangements to 

receive returned checks electronically, 

whereas 59 percent had not. Banks are 

steadily adopting electronic check 

handling methods, however, and the 

Board expects that a substantially higher 

percentage of small depository 

institutions will have made 

arrangements to receive electronic check 

returns by the time the Board adopts a 

final rule. The Board specifically 

requests comment on the cost of its 

proposed rule to a small depository 

institution. 

The Board notes that subpart A of 

Regulation J overlaps with the proposed 

rule with respect to checks collected or 

returned through the Reserve Banks. 

The provisions of Regulation J 

supersede any inconsistent provisions 

of Regulation CC, but only to the extent 

of the inconsistency.80

Text of Proposed Revisions 

Certain conventions have been used 

to highlight the proposed changes to the 

text of the regulation and commentary. 

With the exception of appendices C and 

F to the regulation, new language is 

shown inside flbold-faced arrowsfi, 

while language proposed to be deleted 

is set off with øbold-faced brackets¿. In 

appendix C, each proposed new model 

form is set forth in its entirety and the 

corresponding current form is deleted in 

its entirety, because the convention 

described above for the changes to the 

text within each of the forms would 

render illegible the formatting of the 

proposed forms. The Board proposes to 

replace the text of appendix F in its 

entirety. Paragraphs in the commentary 

are numbered to comply with Federal 

Register publication rules. 

List of Subjects in 12 CFR Part 229 

Banks, Banking, Federal Reserve 

System, Reporting and recordkeeping 

requirements. 

Authority and Issuance 

For the reasons set forth in the 

preamble, the Board proposes to amend 

12 CFR part 229 as follows: 

PART 229—AVAILABILITY OF FUNDS 

AND COLLECTIONS OF CHECKS 

(REGULATION CC) 

Subpart A—General 

1. Section 229.1 is revised to read as 

follows: 

§ 229.1 Authority and purpose; 

organization. 

(a) Authority and purpose. This part 

is issued by the Board of Governors of 

the Federal Reserve System (Board) to 

implement the Expedited Funds 

Availability Act (12 U.S.C. 4001–4010) 

(the EFA Act) and the Check Clearing 

for the 21st Century Act (12 U.S.C. 

5001–5018) (the Check 21 Act). 

(b) Organization. This part is divided 

into subparts and appendices as 

follows— 

(1) Subpart A contains general 

information. It sets forth— 

(i) The authority, purpose, and 

organization; 

(ii) Definition of terms; and 

(iii) Authority for administrative 

enforcement of this part’s provisions. 

(2) Subpart B of this part contains 

rules regarding the duty of banks to 

make funds deposited into accounts 

available for withdrawal, including 

availability schedules. Subpart B of this 

part also contains rules regarding 

exceptions to the schedules, disclosure 

of funds availability policies, payment 

of interest, liability of banks for failure 

to comply with Subpart B of this part, 

and other matters. 

(3) Subpart C of this part contains 

rules to expedite the collection and 

return of checks by banksfl, including 

provisions that accommodate electronic 

presentment and return of checksfi. 

These rules cover the direct return of 

checks, the manner in which the paying 

bank and returning banks must return 

checks to the depositary bank, 

ønotification of nonpayment by the 

paying bank,¿ indorsement and 

presentment of checks, same-day 

settlement for certain checks, the 

liability of banks for failure to comply 

with subpart C of this part, and other 

matters. 

(4) Subpart D of this part contains 

rules relating to substitute checks. These 

rules address the creation and legal 

status of substitute checks; the 

substitute check warranties and 

indemnity; expedited recredit 

procedures for resolving improper 

charges and warranty claims associated 

with substitute checks provided to 

consumers; and the disclosure and 

notices that banks must provide. 

fl(5) Appendix A of this part 

contains a routing number guide to 

next-day-availability checks. The guide 

lists the routing numbers of checks 

drawn on Federal Reserve Banks and 

Federal Home Loan Banks, and U.S. 

Treasury checks and Postal money 

orders that are subject to next-day 

availability. 

(6) Appendix C of this part contains 

model funds-availability policy 

disclosures, clauses, and notices and a 

model disclosure and notices related to 

substitute-check policies. 

(7) Appendix D of this part contains 

indorsement standards and standards 

for identifying the reconverting bank 

and truncating bank. 

(8) Appendix E of this part contains 

Board interpretations, which are labeled 

‘‘Commentary,’’ of the provisions of this 


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part. The Commentary provides 

background material to explain the 

Board’s intent in adopting a particular 

part of the regulation and provides 

examples to aid in understanding how 

a particular requirement is to work. The 

Commentary is an official Board 

interpretation under section 611(e) of 

the EFA Act (12 U.S.C. 4010(e)). 

(9) Appendix F of this part contains 

the Board’s determinations of the EFA 

Act and Regulation CC’s preemption of 

state laws that were in effect on 

September 1, 1989.fi 

2. Section 229.2 is revised to read as 

follows: 

§ 229.2 Definitions. 

As used in this part, and unless the 

context requires otherwise, the 

following terms have the meanings set 

forth in this section, and the terms not 

defined in this section have the 

meanings set forth in the Uniform 

Commercial Code: 

(a) Account. (1) Except as provided in 

paragraphs (a)(2) and (a)(3) of this 

section, account means a deposit as 

defined in 12 CFR 204.2(a)(1)(i) that is 

a transaction account as described in 12 

CFR 204.2(e). As defined in these 

sections, account generally includes 

flanfi accountøs¿ at a bank from 

which the account holder is permitted 

to make transfers or withdrawals by 

negotiable or transferable instrument, 

payment order of withdrawal, telephone 

transfer, electronic payment, or other 

similar means for the purpose of making 

payments or transfers to third persons or 

others. Account also includes flanfi 

accountøs¿ at a bank from which the 

account holder may make third party 

payments at an ATM, remote service 

unit, or other electronic device, 

including by debit card, but the term 

does not include flafi savings 

depositøs¿or accountøs¿ described in 12 

CFR 204.2(d)(2) even though such 

accounts permit third party transfers. 

An account may be in the form of— 

(i) A demand deposit account, 

(ii) A negotiable order of withdrawal 

account, 

(iii) A share draft account, 

(iv) An automatic transfer account, or 

(v) Any other transaction account 

described in 12 CFR 204.2(e). 

(2) For purposes of subpart B of this 

part and, in connection therewith, this 

subpart A, account does not include an 

account where the account holder is a 

bank, where the account holder is an 

office of an institution described in 

paragraphs (e)(1) through (e)(6) of this 

section or an office of a ‘‘foreign bank’’ 

as defined in section 1(b) of the 

International Banking Act (12 U.S.C. 

3101) that is located outside the United 

States, or where the direct or indirect 

account holder is the Treasury of the 

United States. 

(3) For purposes of subpart D of this 

part and, in connection therewith, this 

subpart A, account means any deposit, 

as defined in 12 CFR 204.2(a)(1)(i), at a 

bank, including a demand deposit or 

other transaction account and a savings 

deposit or other time deposit, as those 

terms are defined in 12 CFR 204.2. 

(b) øAutomated clearinghouse or ACH 

means a facility that processes debit and 

credit transfers under rules established 

by a Federal Reserve Bank operating 

circular on automated clearinghouse 

items or under rules of an automated 

clearinghouse association.¿ 

flAutomated clearinghouse (ACH) 

credit transfer means a transfer whereby 

the originator orders that its account be 

debited and another account be credited 

through the ACH, which is a facility that 

processes debit and credit transfers 

under rules established by a Federal 

Reserve Bank operating circular on ACH 

items or under rules of an ACH 

association or similar interbank 

agreement.fi 

(c) Automated teller machine or ATM 

means an electronic device at which a 

natural person may make deposits to an 

account by cash or flpaperfi check and 

perform other account transactionsfl, 

for example, making cash withdrawals 

from an account.fi 

(d) Available for withdrawal with 

respect to funds deposited means 

available for all uses generally permitted 

to the customer for actually and finally 

collected funds under the bank’s 

account agreement or policies, such as 

for payment of checks drawn on the 

account, certification of checks drawn 

on the account, electronic payments, 

withdrawals by cash, and transfers 

between accounts. 

(e)fl(1)fi Bank means— 

ø(1)¿fl(i)fi An insured bank as 

defined in section 3 of the Federal 

Deposit Insurance Act (12 U.S.C. 1813) 

or a bank that is eligible to apply to 

become an insured bank under section 

5 of that Act (12 U.S.C. 1815); 

ø(2)¿fl(ii)fi A mutual savings bank 

as defined in section 3 of the Federal 

Deposit Insurance Act (12 U.S.C. 1813); 

ø(3)¿fl(iii)fi A savings bank as 

defined in section 3 of the Federal 

Deposit Insurance Act (12 U.S.C. 1813); 

ø(4)¿fl(iv)fi An insured credit union 

as defined in section 101 of the Federal 

Credit Union Act (12 U.S.C. 1752) or a 

credit union that is eligible to make 

application to become an insured credit 

union under section 201 of that Act (12 

U.S.C. 1781); 

ø(5)¿fl(v)fi A member as defined in 

section 2 of the Federal Home Loan 

Bank Act (12 U.S.C. 1422); 

ø(6)¿fl(vi)fi A savings association as 

defined in section 3 of the Federal 

Deposit Insurance Act (12 U.S.C. 1813) 

that is an insured depository institution 

as defined in section 3 of that Act (12 

U.S.C. 1813(c)(2)) or that is eligible to 

apply to become an insured depository 

institution under section 5 of that Act 

(12 U.S.C. 1815); or 

ø(7)¿fl(vii)fi An agency or a branch 

of a foreign bank as defined in section 

l(b) of the International Banking Act (12 

U.S.C. 3101). 

fl(2)fi For purposes of subparts C 

and D of this part and, in connection 

therewith, this subpart A, the term bank 

also includes any person engaged in the 

business of banking, as well as a Federal 

Reserve Bank, a Federal Home Loan 

Bank, and a state or unit of general local 

government to the extent that the state 

or unit of general local government acts 

as a paying bank. Unless otherwise 

specified, the term bank includes all of 

a bank’s offices in the United States, but 

not offices located outside the United 

States. 

øNote:¿ fl(3)fi For purposes of 

subpart D of this part and, in connection 

therewith, this subpart A, bank also 

includes the Treasury of the United 

States or the United States Postal 

Service to the extent that the Treasury 

or the Postal Service acts as a paying 

bank. 

(f) Banking day means that part of any 

business day on which an office of a 

bank is open to the public for carrying 

on substantially all of its banking 

functions. 

(g) Business day means a calendar day 

other than a Saturday or a Sunday, 

January 1, the third Monday in January, 

the third Monday in February, the last 

Monday in May, July 4, the first Monday 

in September, the second Monday in 

October, November 11, the fourth 

Thursday in November, or December 25. 

If January 1, July 4, November 11, or 

December 25 fall on a Sunday, the next 

Monday is not a business day. 

(h) Cash means United States coins 

and currency. 

(i) Cashier’s check means a check that 

is— 

(1) Drawn on a bank; 

(2) Signed by an officer or employee 

of the bank on behalf of the bank as 

drawer; 

(3) A direct obligation of the bank; 

and 

(4) Provided to a customer of the bank 

or acquired from the bank for remittance 

purposes. 

(j) Certified check means a check with 

respect to which the drawee bank 


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certifies by signature on the check of an 

officer or other authorized employee of 

the bank that— 

(1) (i) The signature of the drawer on 

the check is genuine; and 

(ii) The bank has set aside funds 

that— 

(A) Are equal to the amount of the 

check, and 

(B) Will be used to pay the check; or 

(2) The bank will pay the check upon 

presentment. 

(k)fl(1)fi Check means— 

ø(1)¿fl(i)fi A negotiable demand 

draft drawn on or payable through or at 

an office of a bank; 

ø(2)¿fl(ii)fi A negotiable demand 

draft drawn on a Federal Reserve Bank 

or a Federal Home Loan Bank; 

ø(3)¿fl(iii)fi A negotiable demand 

draft drawn on the Treasury of the 

United States; 

ø(4)¿fl(iv)fi A demand draft drawn 

on a state government or unit of general 

local government that is not payable 

through or at a bank; 

ø(5)¿fl(v)fi A United States Postal 

Service money order; or 

ø(6)¿fl(vi)fi A traveler’s check 

drawn on or payable through or at a 

bank. 

ø(7)¿fl(2)fi The term check includes 

an original check and a substitute check. 

fl(3)fi The term check does not 

include a noncash item or an item 

payable in a medium other than United 

States money. 

fl(4)fi A draft may be a check even 

though it is described on its face by 

another term, such as money order. 

fl(5)fi For purposes of subparts C 

and D, and in connection therewith, 

subpart A, of this part, the term check 

also includes a demand draft of the type 

described above that is nonnegotiable. 

(l) ø[Reserved]¿ flClaimant bank 

means a bank that submits a claim for 

a recredit for a substitute check to an 

indemnifying bank under § 229.55.fi 

(m) øCheck processing region means 

the geographical area served by an office 

of a Federal Reserve Bank for purposes 

of its check processing activities.¿ 

Collecting bank means any bank 

handling a check for forward collection, 

except the paying bank. 

(n) Consumer means a natural person 

who— 

(1) With respect to a check handled 

for forward collection, draws the check 

on a consumer account; or 

(2) With respect to a check handled 

for return, deposits the check into or 

cashes the check against a consumer 

account. 

(o) Consumer account means any 

account used primarily for personal, 

family, or household purposes. 

(p) Contractual branch, with respect 

to a bank, means a branch of another 

bank that accepts a deposit on behalf of 

the first bank. 

(q) Customer means a person having 

an account with a bank. 

(r) øLocal check means a check 

payable by or at a local paying bank, or 

a check payable by a nonbank payor and 

payable through a local paying bank.¿ 

Depositary bank means the first bank to 

which a check is transferred even 

though it is also the paying bank or the 

payee. A check deposited in an account 

is deemed to be transferred to the bank 

holding the account into which the 

check is deposited, even though the 

check is physically received and 

indorsed first by another bank. flA 

bank that rejects a check submitted for 

deposit is not a depositary bank with 

respect to that check.fi 

(s) øLocal paying bank means a 

paying bank that is located in the same 

check processing region as the physical 

location of the branch, contractual 

branch, or proprietary ATM of the 

depositary bank in which that check 

was deposited.¿ flElectronic collection 

item means an electronic image of and 

information related to a check that a 

bank sends for forward collection and 

that— 

(1) A paying bank has agreed to 

receive under § 229.36(a); 

(2) Is sufficient to create a substitute 

check; and 

(3) Conforms with American National 

Standard Specifications for Electronic 

Exchange of Check and Image Data— 

X9.100–187, in conjunction with its 

Universal Companion Document 

(hereinafter collectively referred to as 

ANS X9.100–187), unless the Board by 

rule or order determines that different 

standard applies or the parties 

otherwise agree.fi 

(t) Electronic payment means a wire 

transfer or an ACH credit transfer. 

(u) flElectronic presentment point 

means the electronic location that a 

paying bank has designated for 

receiving electronic collection items.fi 

(v) øNonlocal check means a check 

payable by, through, or at a nonlocal 

paying bank.¿ flElectronic return 

means an electronic image of and 

information related to a check that a 

paying bank determines not to pay and 

that— 

(1) A depositary bank has agreed to 

receive under § 229.32(a); 

(2) Is sufficient to create a substitute 

check; and 

(3) Conforms with ANS X9.100–187, 

unless the Board by rule or order 

determines that a different standard 

applies or the parties otherwise agree.fi 

(w) øNonlocal paying bank means a 

paying bank that is not a local paying 

bank with respect to the depositary 

bank.¿ flElectronic return point means 

the electronic location that the 

depositary bank has designated for 

receiving electronic returns.fi 

(x) Fedwire has the same meaning as 

that set forth in § 210.26(e) of this 

chapter. 

(y) Forward collection means the 

process by which a bank sends a check 

on a cash basis to a collecting bank for 

settlement or to the paying bank for 

payment. 

(z) Good faith means honesty in fact 

and observance of reasonable 

commercial standards of fair dealing. 

(aa) Indemnifying bank means a bank 

that provides an indemnity under 

§ 229.53 with respect to a substitute 

check. 

(bb) Interest compensation means an 

amount of money calculated at the 

average of the Federal Funds rates 

published by the Federal Reserve Bank 

of New York for each of the days for 

which interest compensation is payable, 

divided by 360. The Federal Funds rate 

for any day on which a published rate 

is not available is the same as the 

published rate for the last preceding day 

for which there is a published rate. 

(cc) Magnetic ink character 

recognition line and MICR line mean the 

numbers, which may include the 

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 American National 

Standard Specifications for Placement 

and Location of MICR Printing, X9.13 

(hereinafter ANS X9.13) for an original 

check and American National Standard 

Specifications for an Image Replacement 

Document—IRD, X9.100–140 

(hereinafter ANS X9.100–140) for a 

substitute check (unless the Board by 

rule or order determines that different 

standards apply). 

(dd) Merger transaction means— 

(1) A merger or consolidation of two 

or more banks; or 

(2) The transfer of substantially all of 

the assets of one or more banks or 

branches to another bank in 

consideration of the assumption by the 

acquiring bank of substantially all of the 

liabilities of the transferring banks, 

including the deposit liabilities. 

(ee) øSimilarly situated bank means a 

bank of similar size, located in the same 

community, and with similar check 

handling activities as the paying bank or 

returning bank.¿ Noncash item means 

an item that would otherwise be a 

check, except that— 

(1) A passbook, certificate, or other 

document is attached; 


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16888 Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 

(2) It is accompanied by special 

instructions, such as a request for 

special advice of payment or dishonor; 

(3) It consists of more than a single 

thickness of paper, except a check that 

qualifies for handling by automated 

check processing equipment; or 

(4) It has not been preprinted or postencoded in magnetic ink with the 

routing number of the paying bank. 

(ff) Nonproprietary ATM means an 

ATM that is not a proprietary ATM. 

(gg) Original check means the first 

paper check issued with respect to a 

particular payment transaction. 

(hh) Paper or electronic 

representation of a substitute check 

means any copy of or information 

related to a substitute check that a bank 

handles for forward collection or return, 

charges to a customer’s account, or 

provides to a person as a record of a 

check payment made by the person. 

(ii)fl(1)fi Paying bank means— 

ø(1)¿fl(i)fi The bank by which a 

check is payable, unless the check is 

payable at another bank and is sent to 

the other bank for payment or 

collection; 

ø(2)¿fl(ii)fi The bank at which a 

check is payable and to which it is sent 

for payment or collection; 

ø(3)¿ fl(iii)fi The Federal Reserve 

Bank or Federal Home Loan Bank by 

which a check is payable; 

ø(4)¿fl(iv)fi The bank through 

which a check is payable and to which 

it is sent for payment or collection, if 

the check is not payable by a bank; or 

ø(5)¿fl(v)fi The state or unit of 

general local government on which a 

check is drawn and to which it is sent 

for payment or collection. 

fl(2)fi For purposes of subparts C 

and D, and in connection therewith, 

subpart A, paying bank includes the 

bank through which a check is payable 

and to which the check is sent for 

payment or collection, regardless of 

whether the check is payable by another 

bank, and the bank whose routing 

number appears on a check in fractional 

or magnetic form and to which the 

check is sent for payment or collection. 

øNote:¿ fl(3)fi For purposes of 

subpart D of this part and, in connection 

therewith, this subpart A, paying bank 

also includes the Treasury of the United 

States or the United States Postal 

Service for a check that is payable by 

that entity and that is sent to that entity 

for payment or collection. 

(jj) Person means a natural person, 

corporation, unincorporated company, 

partnership, government unit or 

instrumentality, trust, or any other 

entity or organization. 

(kk) Proprietary ATM means an ATM 

that is fl(1)fi — 

ø(1)¿fl(i)fi Owned or operated by, or 

operated exclusively for, the depositary 

bank; 

ø(2)¿fl(ii)fi Located on the premises 

(including the outside wall) of the 

depositary bank; or 

ø(3)¿fl(iii)fi Located within 50 feet 

of the premises of the depositary bank, 

and not identified as being owned or 

operated by another entity. 

fl(2)fi If more than one bank meets 

the owned or operated criterion of 

paragraph ø(aa)¿fl(kk)fi(1) of this 

section, the ATM is considered 

proprietary to the bank that operates it. 

(ll) Qualified returned check means a 

returned check that is prepared for 

automated return to the depositary bank 

by placing the check in a carrier 

envelope or placing a strip on the check 

and encoding the strip or envelope in 

magnetic ink. A qualified returned 

check need not contain other elements 

of a check drawn on the depositary 

bank, such as the name of the depositary 

bank. 

(mm) Reconverting bank means— 

(1) The bank that creates a substitute 

check; or 

(2) With respect to a substitute check 

that was created by a person that is not 

a bank, the first bank that transfers, 

presents, or returns that substitute check 

or, in lieu thereof, the first paper or 

electronic representation of that 

substitute check. 

(nn) Remotely created check means a 

check that is not created by the paying 

bank and that does not bear a signature 

applied, or purported to be applied, by 

the person on whose account the check 

is drawn. For purposes of this 

definition, ‘‘account’’ means an account 

as defined in paragraph (a) of this 

section as well as a credit or other 

arrangement that allows a person to 

draw checks that are payable by, 

through, or at a bank. 

(oo) Returning bank means a bank 

(other than the paying or depositary 

bank) handling a returned check or 

notice in lieu of return. A returning 

bank is also a collecting bank for 

purposes of UCC 4–202(b). 

(pp) Routing number means— 

(1) The flbank-identificationfi 

number printed on the face of a check 

in fractional form or in nine-digit form; 

øor¿ 

(2) The flbank-identificationfi 

number in a bank’s indorsement in 

fractional or nine-digit formø.¿fl; or 

(3) In the case of an electronic 

collection item or electronic return, the 

bank-identification number contained in 

the electronic image of or information 

related to a check.fi 

(qq) State means a state, the District 

of Columbia, Puerto Rico, or the U.S. 

Virgin Islands. For purposes of subpart 

D of this part and, in connection 

therewith, this subpart A, state also 

means Guam, American Samoa, øthe 

Trust Territory of the Pacific Islands,¿ 

the Northern Mariana Islands, and any 

other territory of the United States. 

(rr) Substitute check means a paper 

reproduction of an original check that— 

(1) Contains an image of the front and 

back of the original check; 

(2) Bears a MICR line that, except as 

provided under ANS X9.100–140 

(unless the Board by rule or order 

determines that a different standard 

applies), contains all the information 

appearing on the MICR line of the 

original check at the time that the 

original check was issued and any 

additional information that was 

encoded on the original check’s MICR 

line before an image of the original 

check was captured; 

(3) Conforms in paper stock, 

dimension, and otherwise with ANS 

X9.100–140 (unless the Board by rule or 

order determines that a different 

standard applies); and 

(4) Is suitable for automated 

processing in the same manner as the 

original check. 

(ss) Sufficient copy and copy. (1) A 

sufficient copy is a copy of an original 

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. 

(2) A copy of an original check means 

any paper reproduction of an original 

check, including a paper printout of an 

electronic image of the original check, a 

photocopy of the original check, or a 

substitute check. 

(tt) Teller’s check means a check 

provided to a customer of a bank or 

acquired from a bank for remittance 

purposes, that is drawn by the bank, and 

drawn on another bank or payable 

through or at a bank. 

(uu) Transfer and consideration. The 

terms transfer and consideration have 

the meanings set forth in the Uniform 

Commercial Code and in addition, for 

purposes of subpart D— 

(1) The term transfer with respect to 

a substitute check or a paper or 

electronic representation of a substitute 

check means delivery of the substitute 

check or other representation of the 

substitute check by a bank to a person 

other than a bank; and 

(2) A bank that transfers a substitute 

check or a paper or electronic 

representation of a substitute check 

directly to a person other than a bank 

has received consideration for the 

substitute check or other paper or 


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electronic representation of the 

substitute check if it has charged, or has 

the right to charge, the person’s account 

or otherwise has received value for the 

original check, a substitute check, or a 

representation of the original check or 

substitute check. 

(vv) Traveler’s check means an 

instrument for the payment of money 

that— 

(1) Is drawn on or payable through or 

at a bank; 

(2) Is designated on its face by the 

term traveler’s check or by any 

substantially similar term or is 

commonly known and marketed as a 

traveler’s check by a corporation or bank 

that is an issuer of traveler’s checks; 

(3) Provides for a specimen signature 

of the purchaser to be completed at the 

time of purchase; and 

(4) Provides for a countersignature of 

the purchaser to be completed at the 

time of negotiation. 

(ww) Truncate means to remove an 

original check from the forward 

collection or return process and send to 

a recipient, in lieu of such original 

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 the 

subsequent delivery of the original 

check. 

(xx) Truncating bank means— 

(1) The bank that truncates the 

original check; or 

(2) If a person other than a bank 

truncates the original check, the first 

bank that transfers, presents, or returns, 

in lieu of such original check, a 

substitute check or, by agreement with 

the recipient, 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 the 

subsequent delivery of the original 

check. 

(yy) Uniform Commercial Code, Code, 

or U.C.C. means the Uniform 

Commercial Code as adopted in a state. 

(zz) United States means the states, 

including the District of Columbia, the 

U.S. Virgin Islands, and Puerto Rico. 

(aaa) Unit of general local government 

means any city, county, parish, town, 

township, village, or other general 

purpose political subdivision of a state. 

The term does not include special 

purpose units of government, such as 

school districts or water districts. 

(bbb) Wire transfer means an 

unconditional order to a bank to pay a 

fixed or determinable amount of money 

to a beneficiary upon receipt or on a day 

stated in the order, that is transmitted 

by electronic or other means through 

Fedwire, the Clearing House Interbank 

Payments System, other similar 

network, between banks, or on the 

books of a bank. Wire transfer does not 

include an electronic fund transfer as 

defined in section 903(6) of the 

Electronic Fund Transfer Act (15 U.S.C. 

1693a(6)). 

3. In § 229.3, paragraph (a) is revised 

as follows: 

§ 229.3 Administrative enforcement. 

(a) Enforcement agencies. Compliance 

with this part is enforced under— 

(1) Section 8 of the Federal Deposit 

Insurance Act (12 U.S.C. 1818 et seq.) in 

the case of— 

(i) National banks, Federal branches 

and Federal agencies of foreign banks, 

by the Office of the Comptroller of the 

Currency; 

(ii) Member banks of the Federal 

Reserve System (other than national 

banks), and offices, branches, and 

agencies of foreign banks located in the 

United States (other than Federal 

branches, Federal agencies, and insured 

State branches of foreign banks), by the 

Board; and 

(iii) Banks insured by the Federal 

Deposit Insurance Corporation (other 

than members of the Federal Reserve 

System) and insured State branches of 

foreign banks, by the Board of Directors 

of the Federal Deposit Insurance 

Corporation; 

(2) Section 8 of the Federal Deposit 

Insurance Act, by the Director of the 

Office of Thrift Supervision in the case 

of savings associations the deposits of 

which are insured by the Federal 

Deposit Insurance Corporation; and 

(3) The Federal Credit Union Act (12 

U.S.C. 1751 et seq.) by the National 

Credit Union Administration Board 

with respect to any Federal credit union 

or credit union insured by the National 

Credit Union Share Insurance Fund. 

fl(4)fiThe terms used in paragraph 

(a)(1) of this section that are not defined 

in this part or otherwise defined in 

section 3(s) of the Federal Deposit 

Insurance Act (12 U.S.C. 1813(s)) shall 

have the meaning given to them in 

section 1(b) of the International Banking 

Act of 1978 (12 U.S.C. 3101). 

* * * * * 

Subpart B—Availability of Funds and 

Disclosure of Funds Availability 

Policies 

4. In § 229.10, revise paragraphs (b) 

and (c) as follows: 

§ 229.10 Next-Day availability. 

* * * * * 

(b) Electronic payments—(1) In 

general. A bank shall make funds 

received for deposit in an account by an 

electronic payment available for 

withdrawal not later than the business 

day after the banking day on which the 

bank received the electronic payment. 

(2) When an electronic payment is 

received. An electronic payment is 

received when the bank receiving the 

payment has received both— 

(i) Payment in actually and finally 

collected funds; and 

(ii) Information on the account and 

amount to be credited. 

fl(3) Extent of payment received.fi A 

bank receives an electronic payment 

only to the extent that the bank has 

received payment in actually and finally 

collected funds. 

(c) Certain check deposits—(1) 

øGeneral rule¿flIn generalfi. A 

depositary bank shall make funds 

deposited in an account by check 

available for withdrawal not later than 

the business day after the banking day 

on which the funds are deposited, in the 

case of— 

(i) A check drawn on the Treasury of 

the United States and deposited in an 

account held by a payee of the check; 

(ii) A U.S. Postal Service money order 

deposited— 

(A) In an account held by a payee of 

the money order; and 

(B) In person to an employee of the 

depositary bank. 

(iii) A check drawn on a Federal 

Reserve Bank or Federal Home Loan 

Bank and deposited— 

(A) In an account held by a payee of 

the check; and 

(B) In person to an employee of the 

depositary bank; 

(iv) A check drawn by a state or a unit 

of general local government and 

deposited— 

(A) In an account held by a payee of 

the check; 

(B) In a depositary bank located in the 

state that issued the check, or the same 

state as the unit of general local 

government that issued the check; 

(C) In person to an employee of the 

depositary bank; and 

(D) With a special deposit slip or 

deposit envelope, if such slip or 

envelope is required by the depositary 

bank under paragraph (c)ø(3)¿fl(2)fi of 

this section. 

(v) A cashier’s, certified, or teller’s 

check deposited— 

(A) In an account held by a payee of 

the check; 

(B) In person to an employee of the 

depositary bank; and 

(C) With a special deposit slip or 

deposit envelope, if such slip or 

envelope is required by the depositary 

bank under paragraph (c)ø(3)¿fl(2)fi of 

this section. 


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(vi) A check deposited in a branch of 

the depositary bank and drawn on the 

same or another branch of the same 

bank [if both branches are located in the 

same state or the same check processing 

region]; and, 

(vii) The lesser of— 

(A) $100, or 

(B) The aggregate amount deposited 

on any one banking day to all accounts 

of the customer by check or checks not 

subject to next-day availability under 

paragraphs (c)(1)(i) through (vi) of this 

section. 

ø(2) Checks not deposited in person. 

A depositary bank shall make funds 

deposited in an account by check or 

checks available for withdrawal not 

later than the second business day after 

the banking day on which funds are 

deposited, in the case of a check deposit 

described in and that meets the 

requirements of paragraphs (c)(1)(ii), 

(iii), (iv), and (v), of this section, except 

that it is not deposited in person to an 

employee of the depositary bank.¿ 

ø(3)¿fl(2)fi Special deposit slip. (i) 

As a condition to making the funds 

available for withdrawal in accordance 

with this section, a depositary bank may 

require that a state or local government 

check or a cashier’s, certified, or teller’s 

check be deposited with a special 

deposit slip or deposit envelope that 

identifies the type of check. 

(ii) If a depositary bank requires the 

use of a special deposit slip or deposit 

envelope, the bank must either provide 

the special deposit slip or deposit 

envelope to its customers or inform its 

customers how the slip or envelope may 

be prepared or obtained and make the 

slip or envelope reasonably available. 

5. Section 229.12 is revised to read as 

follows: 

§ 229.12 Availability schedule. 

ø(a) Effective date. The availability 

schedule contained in this section is 

effective September 1, 1990.¿ 

ø(b) Local checks and certain other 

checks¿fl(a) In generalfi. Except as 

provided in fl§ 229.10(c),fi paragraphs 

fl(b), (c), andfi (d)ø, (e), and (f)¿ of this 

section, fland in § 229.13,fi a 

depository bank shall make funds 

deposited in an account by a check 

available for withdrawal not later than 

the second business day following the 

banking day on which funds are 

deposited.fiø, in the case of—¿ 

ø(1) A local check; 

(2) A check drawn on the Treasury of 

the United States that is not governed by 

the availability requirements of 

§ 229.10(c); 

(3) A U.S. Postal Service money order 

that is not governed by the availability 

requirements of § 229.10(c); and 

(4) A check drawn on a Federal 

Reserve Bank or Federal Home Loan 

Bank; a check drawn by a state or unit 

of general local government; or a 

cashier’s, certified, or teller’s check; if 

any check referred to in this paragraph 

(b)(4) is a local check that is not 

governed by the availability 

requirements of § 229.10(c).¿ 

ø(c) Nonlocal checks—(1) In general. 

Except as provided in paragraphs (d), 

(e), and (f) of this section, a depositary 

bank shall make funds deposited in an 

account by a check available for 

withdrawal not later than the fifth 

business day following the banking day 

on which funds are deposited, in the 

case of— 

(i) A nonlocal check; and 

(ii) A check drawn on a Federal 

Reserve Bank or Federal Home Loan 

Bank; a check drawn by a state or unit 

of general local government; a cashier’s, 

certified, or teller’s check; or a check 

deposited in a branch of the depositary 

bank and drawn on the same or another 

branch of the same bank, if any check 

referred to in this paragraph (c)(1)(ii) is 

a nonlocal check that is not governed by 

the availability requirements of 

§ 229.10(c). 

(2) Nonlocal checks specified in 

appendix B–2 to this part must be made 

available for withdrawal not later than 

the times prescribed in that appendix.¿ 

ø(d)¿fl(b)fi Time period adjustment 

for withdrawal by cash or similar 

means. A depositary bank may extend 

by one business day the time that funds 

deposited in an account by one or more 

checks subject to paragraphs ø(b), (c), or 

(f)¿ fl(a) or (d)fiof this section are 

available for withdrawal by cash or 

similar means. Similar means include 

electronic payment, issuance of a 

cashier’s or teller’s check, øor¿ 

certification of a check, or other 

irrevocable commitment to pay, but do 

not include the granting of credit to a 

bank, a Federal Reserve Bank, or a 

Federal Home Loan Bank that presents 

a check to the depositary bank for 

payment. A depositary bank shall, 

however, make $400 of these funds 

available for withdrawal by cash or 

similar means not later than 5 p.m. on 

the business day on which the funds are 

available under paragraphøs (b), (c), or 

(f)¿ fl(a) or (d)fi of this section. This 

$400 is in addition to the $100 available 

under § 229.10(c)(1)(vii). 

ø(e)¿fl(c)fi Extension of schedule for 

certain deposits in Alaska, Hawaii, 

Puerto Rico, and the U.S. Virgin Islands. 

The depositary bank may extend the 

time periods set forth in this section by 

one business day in the case of any 

deposit, other than a deposit described 

in § 229.10, that is— 

(1) Deposited in an account at a 

branch of a depositary bank if the 

branch is located in Alaska, Hawaii, 

Puerto Rico, or the U.S. Virgin Islands; 

and 

(2) Deposited by a check drawn on or 

payable at or through a paying bank not 

located in the same state as the 

depositary bank. 

ø(f)¿fl(d)fi Deposits at 

nonproprietary ATMs. A depositary 

bank shall make funds deposited in an 

account at a nonproprietary ATM by 

cash or check available for withdrawal 

not later than the øfifth¿ flfourthfi 

business day following the banking day 

on which the funds are deposited. 

6. Section 229.13 is revised as 

follows: 

§ 229.13 Exceptions. 

(a) New accounts. For purposes of this 

paragraph, checks subject to 

§ 229.10(c)(1)(v) include traveler’s 

checks. 

(1) A deposit in a new account— 

(i) Is subject to the requirements of 

§ 229.10(a) and (b) to make funds from 

deposits by cash and electronic 

payments available for withdrawal on 

the business day following the banking 

day of deposit or receipt; 

(ii) Is subject to the requirements of 

§ 229.10(c)(1)(i) through (v) øand 

§ 229.10(c)(2)¿ only with respect to the 

first $5,000 of funds deposited on any 

one banking day; but the amount of the 

deposit in excess of $5,000 shall be 

available for withdrawal not later than 

the ninth business day following the 

banking day on which funds are 

deposited; and 

(iii) Is not subject to the availability 

requirements of §§ 229.10(c)(1)(vi) and 

(vii) and 229.12. 

(2) An account is considered a new 

account during the first 30 calendar 

days after the account is established. An 

account is not considered a new account 

if each customer on the account has 

had, within 30 calendar days before the 

account is established, another account 

at the depositary bank for at least 30 

calendar days. 

(b) Large deposits. Sections 229.10(c) 

and 229.12 do not apply to the aggregate 

amount of deposits by one or more 

checks to the extent that the aggregate 

amount is in excess of $5,000 on any 

one banking day. For customers that 

have multiple accounts at a depositary 

bank, the bank may apply this exception 

to the aggregate deposits to all accounts 

held by the customer, even if the 

customer is not the sole holder of the 

accounts and not all of the holders of 

the accounts are the same. 

(c) Redeposited checks. Sections 

229.10(c) and 229.12 do not apply to a 


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check that has been returned unpaid 

and redeposited by the customer or the 

depositary bank. This exception does 

not apply— 

(1) To a check that has been returned 

due to a missing indorsement and 

redeposited after the missing 

indorsement has been obtained, if the 

reason for return indication on the 

check states that it was returned due to 

a missing indorsement; or 

(2) To a check that has been returned 

because it was post dated, if the reason 

for return indicated on the check states 

that it was returned because it was post 

dated, and if the check is no longer post 

dated when redeposited. 

(d) Repeated overdrafts. fl(1)fi If any 

account or combination of accounts of a 

depositary bank’s customer has been 

repeatedly overdrawn, then for a period 

of six months after the last such 

overdraft, §§ 229.10(c) and 229.12 do 

not apply to any of the accounts. 

fl(2)fi A depositary bank may 

consider a customer’s account to be 

repeatedly overdrawn if— 

ø(1)¿fl(i)fi On six or more banking 

days within the preceding six months, 

the account balance is negative, or the 

account balance would have become 

negative if checks or other charges to the 

account had been paid; or 

ø(2)¿fl(ii)fi On two or more banking 

days within the preceding six months, 

the account balance is negative, or the 

account balance would have become 

negative, in the amount of $5,000 or 

more, if checks or other charges to the 

account had been paid. 

fl(iii) For purposes of this paragraph 

(d)(2), such other charges to the account 

shall not include attempted charges 

initiated by debit card that the 

depositary bank declines to authorize.fi 

(e) Reasonable cause to doubt 

collectibility—(1) In general. Sections 

229.10(c) and 229.12 do not apply to a 

check deposited in an account at a 

depositary bank if the depositary bank 

has reasonable cause to believe that the 

check is uncollectible from the paying 

bank. Reasonable cause to believe a 

check is uncollectible requires the 

existence of facts that would cause a 

well-grounded belief in the mind of a 

reasonable person. Such belief shall not 

be based on the fact that the check is of 

a particular class or is deposited by a 

particular class of persons. The reason 

for the bank’s belief that the check is 

uncollectible shall be included in the 

notice required under paragraph (g) of 

this section. 

(2) Overdraft and returned check fees. 

fl(i)fi A depositary bank that extends 

the time when funds will be available 

for withdrawal as described in 

paragraph (e)(1) of this section, and does 

not furnish the depositor with written 

notice at the time of deposit shall not 

assess any fees for any subsequent 

overdrafts (including use of a line of 

credit) or return of checks of other 

debits to the account, if— 

ø(i)¿fl(A)fi The overdraft or return 

of the check would not have occurred 

except for the fact that the deposited 

funds were delayed under paragraph 

(e)(1) of this section; and 

ø(ii)¿fl(B)fi The deposited check 

was paid by the paying bank. 

fl(ii)fi Notwithstanding the 

foregoing, the depositary bank may 

assess an overdraft or returned check fee 

if it includes a notice concerning 

overdraft and returned check fees with 

the notice of exception required in 

paragraph (g) of this section and, when 

required, refunds any such fees upon 

the request of the customer. The notice 

must state that the customer may be 

entitled to a refund of overdraft or 

returned check fees that are assessed if 

the check subject to the exception is 

paid and how to obtain a refund. 

(f) Emergency conditions. Sections 

229.10(c) and 229.12 do not apply to 

funds deposited by check in a 

depositary bankfl, if the depositary 

bank exercises such diligence as the 

circumstances require,fi in the case 

of— 

(1) An interruption of 

communications or computer or other 

equipment facilities; 

(2) A suspension of payments by 

another bank; 

(3) A war; or 

(4) An emergency condition beyond 

the control of the depositary bankø, if 

the depositary bank exercises such 

diligence as the circumstances require¿. 

(g) Notice of exception—(1) In 

general. Subject to paragraphs (g)(2) and 

(g)(3) of this section, when a depositary 

bank extends the time when funds will 

be available for withdrawal based on the 

application of an exception contained in 

paragraphs (b) through (e) of this 

section, it must provide the depositor 

with a written notice. 

(i) The notice shall include the 

following information— 

(A) A number or code, which need 

not exceed four digits, that identifies the 

customer’s account; 

(B) The date of the deposit; 

fl(C) The total amount of the 

deposit;fi 

ø(C)¿fl(D)fi The amount of the 

deposit that is being delayed; 

ø(D)¿fl(E)fi The reason the 

exception was invoked; and 

ø(E)¿fl(F)fi The øtime period within 

which¿fldayfi the funds will be 

available for withdrawal. 

(ii) Timing of notice. The notice shall 

be provided to the depositor at the time 

of the deposit, unless the deposit is not 

made in person to an employee of the 

depositary bank, or, if the facts upon 

which a determination to invoke one of 

the exceptions in paragraphs (b) through 

(e) of this section to delay a deposit only 

become known to the depositary bank 

after the time of the deposit. If the 

notice is not given at the time of the 

deposit, the depositary bank shall mail 

or deliver the notice to the customer as 

soon as practicable, but no later than the 

first business day following the day the 

facts become known to the depositary 

bank, or the deposit is made, whichever 

is later. flIf the customer has agreed to 

accept notices electronically, the bank 

shall send the notice such that the bank 

may reasonably expect it to be received 

by the customer no later than the first 

business day following the day the facts 

become known to the depositary bank, 

or the deposit is made, whichever is 

later.fi 

(2) One-time exception notice. fl(i)fi 

In lieu of providing notice pursuant to 

paragraph (g)(1) of this section, a 

depositary bank that extends the time 

when the funds deposited in a 

nonconsumer account will be available 

for withdrawal based on an exception 

contained in paragraph (b) or (c) of this 

section may provide a single notice to 

the customer that includes the following 

information— 

ø(i)¿fl(A)fi The reason(s) the 

exception may be invoked; and 

ø(ii)¿fl(B)fi The time period within 

which deposits subject to the exception 

generally will be available for 

withdrawal. 

fl(ii)fi This one-time notice shall be 

provided only if each type of exception 

cited in the notice will be invoked for 

most check deposits in the account to 

which the exception could apply. This 

notice shall be provided at or prior to 

the time notice must be provided under 

paragraph (g)(1)(ii) of this section. 

(3) Notice of repeated overdrafts 

exception. fl(i)fi In lieu of providing 

notice pursuant to paragraph (g)(1) of 

this section, a depositary bank that 

extends the time when funds deposited 

in an account will be available for 

withdrawal based on the exception 

contained in paragraph (d) of this 

section may provide a notice to the 

customer for each time period during 

which the exception will be in effect. 

The notice shall include the following 

information— 

ø(i)¿fl(A)fi øThe account number of 

the customer¿flA number or code, 

which need not exceed four digits, that 

identifies the customer’s accountfi; 

ø(ii)¿fl(B)fi The fact that the 

availability of funds deposited in the 

customer’s account will be delayed 


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16892 Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 

because the repeated overdrafts 

exception will be invoked; 

ø(iii)¿fl(C)fi The time period within 

which deposits subject to the exception 

generally will be available for 

withdrawal; and 

ø(iv)¿fl(D)fi The time period during 

which the exception will apply. 

fl(ii)fi This notice shall be provided 

at or prior to the time notice must be 

provided under paragraph (g)(1)(ii) of 

this section and only if the exception 

cited in the notice will be invoked for 

most check deposits in the account. 

(4) Emergency conditions exception 

notice. When a depositary bank extends 

the time when funds will be available 

for withdrawal based on the application 

of the emergency conditions exception 

contained in paragraph (f) of this 

section, it must provide the depositor 

with notice in a reasonable form and 

within a reasonable time given the 

circumstances. The notice shall include 

the reason the exception was invoked 

and the time period within which funds 

shall be made available for withdrawal, 

unless the depositary bank, in good 

faith, does not know at the time the 

notice is given the duration of the 

emergency and, consequently, when the 

funds must be made available. The 

depositary bank is not required to 

provide a notice if the funds subject to 

the exception become available before 

the notice must be sent. 

(5) Record retention. A depositary 

bank shall retain a record, in accordance 

with § 229.21(g), of each notice 

provided pursuant to its application of 

the reasonablefl-ficause exception 

under paragraph (e) of this section, 

together with a brief statement of the 

facts giving rise to the bank’s reason to 

doubt the collectibility of the check. 

(h) Availability of deposits subject to 

exceptions. (1) If an exception contained 

in paragraphs (b) through (f) of this 

section applies, the depositary bank 

may extend the time periods established 

under §§ 229.10(c) and 229.12 by a 

reasonable period of time. 

(2) If a depositary bank invokes an 

exception contained in paragraphs (b) 

through (e) of this section with respect 

to a check described in § 229.10(c)(1) (i) 

through (v) [or § 229.10(c)(2)], it shall 

make the funds available for withdrawal 

not later than a reasonable period after 

the day the funds would have been 

required to be made available had the 

check been subject to fl§fi229.12. 

(3) If a depositary bank invokes an 

exception under paragraph (f) of this 

section based on an emergency 

condition, the depositary bank shall 

make the funds available for withdrawal 

not later than a reasonable period after 

the emergency has ceased or the period 

established in §§ 229.10(c) and 229.12, 

whichever is later. 

(4) For the purposes of this section, a 

‘‘reasonable period’’ is an extension of 

up to one business day for checks 

described in § 229.10(c)(1)(vi)ø,¿ fland 

twofi øfive¿ business days for øchecks 

described in § 229.12(b) (1) through (4), 

and six business days for checks 

described in § 229.12(c) (1) and (2) or 

§ 229.12(f)¿flall other checksfi. A 

longer extension may be reasonable, but 

the bank has the burden of so 

establishing. 

7. Section 229.14 is revised to read as 

follows: 

§ 229.14 Payment of interest. 

(a) In general. A depositary bank shall 

begin to accrue interest or dividends on 

funds deposited in an interest-bearing 

account not later than the business day 

on which the depositary bank receives 

credit for the funds. For the purposes of 

this section, the depositary bank may— 

(1) Rely on the availability schedule 

of its Federal Reserve Bankø, Federal 

Home Loan Bank,¿ or correspondent 

bank to determine the time credit is 

actually received; and 

(2) Accrue interest or dividends on 

funds deposited in interest-bearing 

accounts by checks that the depositary 

bank sends to paying banks or 

subsequent collecting banks for 

payment or collection based on the 

availability of funds the depositary bank 

receives from the paying or collecting 

banks. 

(b) Special rule for credit unions. 

Paragraph (a) of this section does not 

apply to any account at a bank 

described in § 229.2(e)(4), if the bank— 

(1) Begins the accrual of interest or 

dividends at a later date than the date 

described in paragraph (a) of this 

section with respect to all funds, 

including cash, deposited in the 

account; and 

(2) Provides notice of its interest or 

dividend payment policy in the manner 

required under § 229.16(d). 

(c) Exception for checks returned 

unpaid. This subpart does not require a 

bank to pay interest or dividends on 

funds deposited by a check that is 

returned unpaid. 

8. Section 229.15 is revised to read as 

follows: 

§ 229.15 General disclosure fland 

noticefi requirements. 

(a) Form of disclosures fland 

noticesfi. A bank shall make the 

disclosures fland noticesfi required by 

this subpart clearly and conspicuously 

in writing. Disclosures fland noticesfi, 

other than those posted at locations 

where employees accept consumer 

deposits and ATMs and the notice on 

preprinted deposit slips, must be in a 

form that the customer may keep. The 

disclosures shall be grouped together 

and shall not contain any information 

not related to the disclosures required 

by this subpart. If contained in a 

document that sets forth other account 

terms, the disclosures shall be 

highlighted within the document by, for 

example, use of a separate heading. 

(b) øUniform r¿ flRfieference to day 

of availability. In its disclosurefls and 

noticesfi, a bank shall ødescribe funds 

as being available for withdrawal on 

‘‘the lll business day after’’ the day 

of deposit. In this calculation, the first 

business day is the business day 

following the banking day the deposit 

was received, and the last business day 

is the day on which the funds are made 

available.¿ flspecify the business day 

on which funds are available for 

withdrawal by describing that day in 

relation to the banking day on which the 

bank received the deposit. A bank shall 

use the following, or substantially 

similar, language— 

(1) The banking day of receipt may be 

described as ‘‘the same business day;’’ 

(2) The business day after the banking 

day of receipt may be described as ‘‘the 

next business day;’’ and 

(3) A business day after the banking 

day of receipt may be described using a 

phrase that includes–– 

(i) A cardinal number, such as ‘‘1 

business day’’ or ‘‘2 business days;’’ or 

(ii) An ordinal number, such as ‘‘the 

first business day’’ or ‘‘the second 

business day.’’fi 

(c) Multiple accounts and multiple 

account holders. A bank need not give 

multiple disclosures to a customer that 

holds multiple accounts if the accounts 

are subject to the same availability 

policies. Similarly, a bank need not give 

separate disclosures to each customer 

on a jointly held account. 

(d) Dormant or inactive accounts. A 

bank need not give availability 

disclosures to a customer that holds a 

dormant or inactive account. 

9. Section 229.16 is revised to read as 

follows: 

§ 229.16 Specific availability policy 

disclosure. 

(a) øGeneral¿flIn generalfi. To meet 

the requirements of a specific 

availability policy disclosure under 

§§ 229.17 and 229.18(d), a bank shall 

provide a disclosure describing the 

bank’s policy as to when funds 

deposited in an account are available for 

withdrawal. The disclosure must reflect 

the policy followed by the bank in most 

cases. A bank may impose longer delays 

on a case-by-case basis or by invoking 


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one of the exceptions in § 229.13, 

provided this is reflected in the 

disclosure. 

(b) Content of specific availability 

policy disclosure. The specific 

availability policy disclosure shall 

contain the following, as applicable— 

(1) A summary of the bank’s 

availability policy; 

(2) A description of any categories of 

deposits or checks flthat are subject to 

differingfi øused by the bank when it 

delays¿ availability (such as ølocal or 

nonlocal¿ flnext-day-availabilityfi 

checks fland other checksfi)ø; how to 

determine the category to which a 

particular deposit or check belongs;¿ 

and when each category will be 

available for withdrawal (including a 

description of the bank’s business days 

and when a deposit is considered 

received);ø1¿ 

ø1A bank that distinguishes in its 

disclosure between local and nonlocal 

checks based on the routing number on 

the check must disclose that certain 

checks, such as some credit union share 

drafts that are payable by one bank but 

payable through another bank, will be 

treated as local or nonlocal checks based 

upon the location of the bank by which 

they are payable and not on the basis of 

the location of the bank whose routing 

number appears on the check. A bank 

that makes funds from nonlocal checks 

available for withdrawal within the time 

periods required for local checks under 

§§ 229.12 and 229.13 is not required to 

provide this disclosure on payablethrough checks to its customers. The 

statement concerning payable-through 

checks must describe how the customer 

can determine whether these checks 

will be treated as local or nonlocal, or 

state that special rules apply to such 

checks and that the customer may ask 

about the availability of these checks.¿ 

(3) A description of any of the 

exceptions in § 229.13 that may be 

invoked by the bank, including the time 

following a deposit that funds generally 

will be available for withdrawal and a 

statement that the bank will notify the 

customer if the bank invokes one of the 

exceptions; 

(4) A description, as specified in 

paragraph (c)(1) of this section, of any 

case-by-case policy of delaying 

availability that may result in deposited 

funds being available for withdrawal 

later than the time periods stated in the 

bank’s availability policy; and 

(5) A description of how the customer 

can differentiate between a proprietary 

and a nonproprietary ATM, if the bank 

makes funds from deposits at 

nonproprietary ATMs available for 

withdrawal later than funds from 

deposits at proprietary ATMs. 

(c) Longer delays on a case-by-case 

basis—(1) Notice in specific policy 

disclosure. A bank that has a policy of 

making deposited funds available for 

withdrawal sooner than required by this 

subpart may extend the time when 

funds are available up to the time 

periods allowed under this subpart on a 

case-by-case basis, provided the bank 

includes the following in its specific 

policy disclosure— 

(i) A statement that the time when 

deposited funds are available for 

withdrawal may be extended in some 

cases, and the latest time following a 

deposit that funds will be available for 

withdrawal; 

(ii) A statement that the bank will 

notify the customer if funds deposited 

in the customer’s account will not be 

available for withdrawal until later than 

the time periods stated in the bank’s 

availability policy; and 

(iii) A statement that customers 

should ask if they need to be sure about 

when a particular deposit will be 

available for withdrawal. 

(2) Notice at time of case-by-case 

delay—(i) In general. When a depositary 

bank extends the time when funds will 

be available for withdrawal on a caseby-case basis, it must provide the 

depositor with a written notice. The 

notice shall include the following 

information— 

(A) A number or code, which need 

not exceed four digits, that identifies the 

customer’s account. 

(B) The date of the deposit; 

fl(C) The total amount of the 

depositfi 

ø(C)¿fl(D)fi The amount of the 

deposit that is being delayed; and 

ø(D)¿fl(E)fi The day the funds will 

be available for withdrawal. 

(ii) Timing of notice. The notice shall 

be provided to the depositor at the time 

of the deposit, unless the deposit is not 

made in person to an employee of the 

depositary bank or the decision to 

extend the time when the deposited 

funds will be available is made after the 

time of the deposit. If notice is not given 

at the time of the deposit, the depositary 

bank shall mail or deliver the notice to 

the customer not later than the first 

business day following the banking day 

the deposit is made. flIf the customer 

has agreed to accept notices 

electronically, the bank shall send the 

notice such that the bank may 

reasonably expect it to be received by 

the customer not later than the first 

business day following the banking day 

the deposit is made.fi 

(3) Overdraft and returned check fees. 

fl(i)fi A depositary bank that extends 

the time when funds will be available 

for withdrawal on a case-by-case basis 

and does not furnish the depositor with 

written notice at the time of deposit 

shall not assess any fees for any 

subsequent overdrafts (including use of 

a line of credit) or return of checks or 

other debits to the account, if— 

ø(i)¿fl(A)fi The overdraft or return 

of the check or other debit would not 

have occurred except for the fact that 

the deposited funds were delayed under 

paragraph (c)(1) of this section; and 

ø(ii)¿fl(B)fi The deposited check 

was paid by the paying bank. 

fl(ii)fi Notwithstanding the 

foregoing, the depositary bank may 

assess an overdraft or returned check fee 

if it includes a notice concerning 

overdraft and returned check fees with 

the notice required in paragraph (c)(2) of 

this section and, when required, refunds 

any such fees upon the request of the 

customer. The notice must state that the 

customer may be entitled to a refund of 

overdraft or returned check fees that are 

assessed if the check subject to the delay 

is paid and how to obtain a refund. 

(d) Credit union notice of interest 

payment policy. If a bank described in 

§ 229.2(e)(4) begins to accrue interest or 

dividends on all deposits made in an 

interest-bearing account, including cash 

deposits, at a later time than the day 

specified in § 229.14(a), the bank’s 

specific policy disclosures shall contain 

an explanation of when interest or 

dividends on deposited funds begin to 

accrue. 

10. § 229.17 is republished to read as 

follows: 

§ 229.17 Initial disclosures. 

Before opening a new account, a bank 

shall provide a potential customer with 

the applicable specific availability 

policy disclosure described in § 229.16. 

11. § 229.18 is republished to read as 

follows: 

§ 229.18 Additional disclosure 

requirements. 

(a) Deposit slips. A bank shall include 

on all preprinted deposit slips furnished 

to its customers a notice that deposits 

may not be available for immediate 

withdrawal. 

(b) Locations where employees accept 

consumer deposits. A bank shall post in 

a conspicuous place in each location 

where its employees receive deposits to 

consumer accounts a notice that sets 

forth the time periods applicable to the 

availability of funds deposited in a 

consumer account. 

(c) Automated teller machines. (1) A 

depositary bank shall post or provide a 

notice at each ATM location that funds 

deposited in the ATM may not be 

available for immediate withdrawal. 

(2) A depositary bank that operates an 

off-premises ATM from which deposits 


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are removed not more than two times 

each week, as described in 

§ 229.19(a)(4), shall disclose at or on the 

ATM the days on which deposits made 

at the ATM will be considered received. 

(d) Upon request. A bank shall 

provide to any person, upon oral or 

written request, a notice containing the 

applicable specific availability policy 

disclosure described in § 229.16. 

(e) Changes in policy. A bank shall 

send a notice to holders of consumer 

accounts at least 30 days before 

implementing a change to the bank’s 

availability policy regarding such 

accounts, except that a change that 

expedites the availability of funds may 

be disclosed not later than 30 days after 

implementation. 

13. Section 229.19 is revised to read 

as follows: 

§ 229.19 Miscellaneous. 

(a) When funds are considered 

deposited. For the purposes of this 

subpart— 

(1) Funds deposited at a staffed 

facility, ATM, or contractual branch are 

considered deposited when they are 

received at the staffed facility, ATM, or 

contractual branch; 

(2) Funds mailed to the depositary 

bank are considered deposited on the 

day they are received by the depositary 

bank; 

(3) Funds deposited to a night 

depository, lock box, or similar facility 

are considered deposited on the day on 

which the deposit is removed from such 

facility and is available for processing 

by the depositary bank; 

(4) Funds deposited at an ATM that 

is not on, or within 50 feet of, the 

premises of the depositary bank are 

considered deposited on the day the 

funds are removed from the ATM, if 

funds normally are removed from the 

ATM not more than two times each 

week; and 

(5) Funds may be considered 

deposited on the next banking day, in 

the case of funds that are deposited— 

(i) On a day that is not a banking day 

for the depositary bank; or 

(ii) After a cut-off hour set by the 

depositary bank for the receipt of 

deposits of 2 p.m. or later, or, for the 

receipt of deposits at ATMs, contractual 

branches, or off-premise facilities, of 12 

noon or later. Different cut-off hours 

later than these times may be 

established for the receipt of different 

types of deposits, or receipt of deposits 

at different locations. 

(b) Availability at start of business 

day. Except as otherwise provided in 

§ 229.12ø(d)¿fl(b)fi, if any provision of 

this subpart requires that funds be made 

available for withdrawal on any 

business day flafter the banking day of 

depositfi, the funds shall be available 

for withdrawal by the later of: 

(1) 9 a.m. (local time of the depositary 

bank); or 

(2) The time the depositary bank’s 

teller facilities (including ATMs) are 

available for customer account 

withdrawals. 

(c) Effect on policies of depositary 

bank. This part does not— 

(1) Prohibit a depositary bank from 

making funds available to a customer for 

withdrawal in a shorter period of time 

than the time required by this subpart; 

(2) Affect a depositary bank’s right— 

(i) To accept or reject a check for 

deposit; 

(ii) To revoke any settlement made by 

the depositary bank with respect to a 

check accepted by the bank for deposit, 

to charge back the customer’s account 

for the amount of a check based on the 

return of the check or receipt of a notice 

of nonpayment of the check, or to claim 

a refund of such credit; and 

(iii) To charge back funds made 

available to its customer for an 

electronic payment for which the bank 

has not received payment in actually 

and finally collected funds; 

(3) Require a depositary bank to open 

or otherwise to make its facilities 

available for customer transactions on a 

given business day; or 

(4) Supersede any policy of a 

depositary bank that limits the amount 

of cash a customer may withdraw from 

its account on any one day, if that 

policy— 

(i) Is not dependent on the time the 

funds have been deposited in the 

account, as long as the funds have been 

on deposit for the time period specified 

in §§ 229.10, 229.12, or 229.13; and 

(ii) In the case of withdrawals made 

in person to an employee of the 

depositary bank— 

(A) Is applied without discrimination 

to all customers of the bank; and 

(B) Is related to security, operating, or 

bonding requirements of the depositary 

bank. 

(d) Use of calculated availability. A 

depositary bank may provide 

availability to its nonconsumer accounts 

based on a sample of checks that 

represents the average composition of 

the customer’s deposits, if the terms for 

availability based on the sample are 

equivalent to or more prompt than the 

availability requirements of this subpart. 

(e) Holds on other funds. (1) A 

depositary bank that receives a check for 

deposit in an account may ønot¿ place 

a hold on any funds of the customer at 

the bank, øwhere¿flonly iffi — 

(i) The amount of funds that are held 

fldoes notfi exceedøs¿ the amount of 

the check; øor¿ flandfi 

(ii) The funds are ønot¿ made 

available for withdrawal within the 

times specified in §§ 229.10, 229.12, and 

229.13. 

(2) A depositary bank that cashes a 

check for a customer over the counter ø, 

other than a check drawn on the 

depositary bank,¿ may ønot¿ place a 

hold on funds in an account of the 

customer at the bank, flonlyfi if— 

(i) The amount of funds that are held 

fldoes notfi exceedøs¿ the amount of 

the check; øor¿ 

(ii) The funds are ønot¿ made 

available for withdrawal within the 

times specified in §§ 229.10, 229.12, and 

229.13ø.¿fl; and 

(iii) The check is not drawn on the 

depositary bank. fi 

(f) Employee training and compliance. 

Each bank shall establish procedures to 

ensure that the bank complies with the 

requirements of this subpart, and shall 

provide each employee who performs 

duties subject to the requirements of 

this subpart with a statement of the 

procedures applicable to that employee. 

(g) Effect of merger transaction—ø(1) 

In general¿. For purposes of this 

subpart, except for the purposes of the 

new accounts exception of § 229.13(a), 

and when funds are considered 

deposited under § 229.19(a), two or 

more banks that have engaged in a 

merger transaction may be considered to 

be separate banks for a period of one 

year following the consummation of the 

merger transaction. 

ø(2) Merger transactions on or after 

July 1, 1998, and before March 1, 2000. 

If banks have consummated a merger 

transaction on or after July 1, 1998, and 

before March 1, 2000, the merged banks 

may be considered separate banks until 

March 1, 2001.¿ 

13a. Section 229.20 is revised to read 

as follows: 

§ 229.20 Relation to state law. 

(a) In general. fl(1)fi Any provision 

of a law or regulation of any state in 

effect on or before September 1, 1989, 

that requires funds deposited in an 

account at a bank chartered by the state 

to be made available for withdrawal in 

a shorter time than the time provided in 

subpart B, and, in connection therewith, 

subpart A, shall— 

ø(1)¿fl(i)fi Supersede the provisions 

of the EFA Act and subpart B, and, in 

connection therewith, subpart A, to the 

extent the provisions relate to the time 

by which funds deposited or received 

for deposit in an account are available 

for withdrawal; and 

ø(2)¿fl(ii)fi Apply to all federally 

insured banks located within the state. 

fl(2)fi No amendment to a state law 

or regulation governing the availability 


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of funds that becomes effective after 

September 1, 1989, shall supersede the 

EFA Act and subpart B, and, in 

connection therewith, subpart A, but 

unamended provisions of state law shall 

remain in effect. 

(b) Preemption of inconsistent law. 

Except as provided in paragraph (a), the 

EFA Act and subpart B, and, in 

connection therewith, subpart A, 

supersede any provision of inconsistent 

state law. 

(c) Standards for preemption. A 

provision of a state law in effect on or 

before September 1, 1989, is not 

inconsistent with the EFA Act, or 

subpart B, or in connection therewith, 

subpart A, if it requires that funds shall 

be available in a shorter period of time 

than the time provided in this subpart. 

Inconsistency with the EFA Act and 

subpart B, and in connection therewith, 

subpart A, may exist when state law— 

(1) Permits a depositary bank to make 

funds deposited in an account by cash, 

electronic payment, or check available 

for withdrawal in a longer period of 

time than the maximum period of time 

permitted under subpart B, and, in 

connection therewith, subpart A; or 

(2) Provides for disclosures or notices 

concerning funds availability relating to 

accounts. 

(d) Preemption determinations. The 

Board may determine, upon the request 

of any state, bank, or other interested 

party, whether the EFA Act and subpart 

B, and, in connection therewith, subpart 

A, preempt provisions of state laws 

relating to the availability of funds. 

(e) Procedures for preemption 

determinations.fl(1)fi A request for a 

preemption determination shall include 

the following— 

ø(1)¿fl(i)fi A copy of the full text of 

the state law in question, including any 

implementing regulations or judicial 

interpretations of that law; and 

ø(2)¿fl(ii)fi A comparison of the 

provisions of state law with the 

corresponding provisions in the EFA 

Act and subparts A and B of this part, 

together with a discussion of the reasons 

why specific provisions of state law are 

either consistent or inconsistent with 

corresponding sections of the EFA Act 

and subparts A and B of this part. 

fl(2)fi A request for a preemption 

determination shall be addressed to the 

Secretary, Board of Governors of the 

Federal Reserve System. 

14. Amend § 229.21 by revising 

paragraphs (f) and (g) to read as follows: 

§ 229.21 Civil liability. 

* * * * * 

(f) Exclusions. This section does not 

apply to claims that arise under 

subpartflsfi C flor Dfi of this part or 

to actions for wrongful dishonor. 

(g) Record retention. (1) A bank shall 

retain evidence of compliance with the 

requirements imposed by this subpart 

for not less than two years. Records may 

be stored by use of ømicrofiche, 

microfilm, magnetic tape,¿flelectronic 

storage mediafi or other methods 

capable of accurately retaining and 

reproducing information. 

(2) If a bank has actual notice that it 

is being investigated, or is subject to an 

enforcement proceeding by an agency 

charged with monitoring that bank’s 

compliance with the EFA Act and this 

subpart, or has been served with notice 

of an action filed under this section, it 

shall retain the records pertaining to the 

action or proceeding pending final 

disposition of the matter, unless an 

earlier time is allowed by order of the 

agency or court. 

Subpart C—Collection of Checks 

15. Revise § 229.30 to read as follows: 

§ 229.30 Paying bank’s responsibility for 

return of checks. 

(a) flExpeditiousfi øR¿flrfieturn of 

checks. fl(1)fiIf a paying bank 

determines not to pay a check øit shall 

return the check in an expeditious 

manner as provided in either paragraph 

(a)(1) or (a)(2) of this section¿fl, the 

paying bank shall send the returned 

check expeditiously such that the 

depositary bank normally would receive 

the returned check no later than 4 p.m. 

(local time of the depositary bank) on 

the second business day following the 

banking day on which the check was 

presented to the paying bankfi. 

ø(1) Two-day/four-day test. A paying 

bank returns a check in an expeditious 

manner if it sends the returned check in 

a manner such that the check would 

normally be received by the depositary 

bank not later than 4 p.m. (local time of 

the depositary bank) of— 

(i) The second business day following 

the banking day on which the check was 

presented to the paying bank, if the 

paying bank is located in the same 

check processing region as the 

depositary bank; or 

(ii) The fourth business day following 

the banking day on which the check was 

presented to the paying bank, if the 

paying bank is not located in the same 

check processing region as the 

depositary bank.¿ 

fl(2)fiIf the last business day on 

which the paying bank may deliver a 

returned check to the depositary bank is 

not a banking day for the depositary 

bank, the paying bank ømeets the twoday/four-day test¿flsatisfies its 

expeditious return requirementfi if the 

returned check is received by the 

depositary bank on or before the 

depositary bank’s next banking day. 

ø(2) Forward collection test. A paying 

bank also returns a check in an 

expeditious manner if it sends the 

returned check in a manner that a 

similarly situated bank would normally 

handle a check— 

(i) Of similar amount as the returned 

check; 

(ii) Drawn on the depositary bank; 

and 

(iii) Deposited for forward collection 

in the similarly situated bank by noon 

on the banking day following the 

banking day on which the check was 

presented to the paying bank.¿ 

fl(3)fiøSubject to the requirement 

for expeditious return, a¿ flAfi paying 

bank may send a returned check to the 

depositary bank, øor¿ to any other bank 

agreeing to handle the returned check 

expeditiously under § 229.31(a)fl, or, 

under § 229.30(b)(2), to any bank that 

handled the check for forward 

collectionfi. 

fl(4)fi A paying bank may convert a 

check to a qualified returned check. A 

qualified returned check shall be 

encoded in magnetic ink with the 

routing number of the depositary bank, 

the amount of the returned check, and 

a ‘‘2’’ in the case of an original check (or 

a ‘‘5’’ in the case of a substitute check) 

in position 44 of the qualified return 

MICR line as a return identifier. A 

qualified returned original check shall 

be encoded in accordance with ANS 

X9.13, and a qualified returned 

substitute check shall be encoded in 

accordance with ANS X9.100–140. 

fl(5)fi This paragraph fl(a)fi does 

not affect a paying bank’s responsibility 

to return a check within the deadlines 

required by the U.C.C., Regulation J (12 

CFR part 210), or § 229.30(c). 

fl(6) A check payable at or through 

a paying bank is considered to be drawn 

on that bank for purposes of the 

expeditious return requirement of this 

subpart.fi 

(b) øUnidentifiable depositary 

bank.¿flExceptions to expeditious 

return of checks. (1) The expeditious 

return requirement of paragraph (a) of 

this section does not apply if— 

(i) The depositary bank has not agreed 

to accept electronic returns from the 

paying bank under § 229.32(a); 

(ii) The check is deposited in a 

depositary bank that does not maintain 

accounts; or 

(iii) A paying bank is unable to 

identify the depositary bank with 

respect to a check. 

(2)fi A paying bank that is unable to 

identify the depositary bank øwith 

respect to a check¿ may send the 


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returned check to any bank that handled 

the check for forward collection even if 

that bank does not agree to handle the 

check expeditiously under § 229.31(a). 

A paying bank sending a returned check 

under this paragraph fl(b)(2)fi to a 

bank that handled the check for forward 

collection must advise the bank to 

which the check is sent that the paying 

bank is unable to identify the depositary 

bank. øThe expeditious-return 

requirements in § 229.30(a) do not apply 

to the paying bank’s return of a check 

under this paragraph.¿ 

(c) Extension of deadline. fl(1)fiThe 

deadline for return øor notice of 

nonpayment¿ under the U.C.C. or 

Regulation J (12 CFR part 210), or 

ø§ 229.36(f)(2)¿ fl§ 229.36(d)(3)fi is 

extended to the time of dispatch of such 

return [or notice of nonpayment] where 

a paying bank uses a means of delivery 

that would ordinarily result in receipt 

by the fldepositaryfi bank øto which 

it is sent¿ flby 4 p.m. (local time of the 

depositary bank) on the second business 

day after the banking day on which the 

check was presented to the paying 

bank.fiø— 

(1) On or before the receiving bank’s 

next banking day following the 

otherwise applicable deadline by the 

earlier of the close of that banking day 

or a cutoff hour of 2 p.m. or later set by 

the receiving bank under U.C.C. 4–108, 

for all deadlines other than those 

described in paragraph (c)(2) of this 

section; this deadline is extended 

further if a paying bank uses a highly 

expeditious means of transportation, 

even if this means of transportation 

would ordinarily result in delivery after 

the receiving bank’s next cutoff hour or 

banking day referred to above; or 

(2) [Prior to the cut-off hour for the 

next processing cycle (if sent to a 

returning bank), or on the next banking 

day (if sent to the depositary bank), for 

a deadline falling on a Saturday that is 

a banking day (as defined in the 

applicable U.C.C.) for the paying bank.¿ 

flIf the last business day on which 

the paying bank may deliver a returned 

check to the depositary bank is not a 

banking day for the depositary bank, the 

paying bank’s deadline under the U.C.C. 

or Regulation J (12 CFR part 210), or 

§ 229.36(d)(3) is extended to the time of 

dispatch of such return where a paying 

bank uses a means of delivery such that 

the returned check would ordinarily be 

received by the depositary bank on or 

before the depositary bank’s next 

banking day.fi 

(d) Identification of returned check. A 

paying bank returning a check shall 

clearly indicate on the øface¿ flfrontfi 

of the check that it is a returned check 

and the reason for return. If the check 

is a substitute check flor electronic 

returnfi, the paying bank shall place 

this information øwithin the image of 

the original check that appears on the 

front of the substitute check¿ flsuch 

that the information would be retained 

on any subsequent substitute check.fi 

ø(e) Depositary bank without 

accounts. The expeditious return 

requirements of paragraph (a) of this 

section does not apply to checks 

deposited in a depositary bank that does 

not maintain accounts.¿ 

ø(f)¿fl(e)fi Notice in lieu of return. 

fl(1)fi If a check is unavailable for 

return, the paying bank may send in its 

place a copy of the front and back of the 

returned check, or, if no such copy is 

available, a written notice of 

nonpayment containing the information 

specified in ø§ 229.33(b)¿flparagraph 

(e)(2) of this sectionfi. The copy or 

notice shall clearly state that it 

constitutes a notice in lieu of return. A 

notice in lieu of return is considered a 

returned check subject to the 

expeditious return requirements of this 

section and to the other 

ørequirements¿flprovisionsfi of this 

subpart. 

fl(2) The notice must include, if 

available, the— 

(i) Name and routing number of the 

paying bank; 

(ii) Name of the payee(s); 

(iii) Amount of the returned check; 

(iv) Date of the indorsement of the 

depositary bank; 

(v) Account number of the 

customer(s) of the depositary bank; 

(vi) Branch name or number of the 

depositary bank from its indorsement; 

(vii) Trace number associated with the 

indorsement of the depositary bank; and 

(viii) Reason for return. 

(3) The notice may include other 

information from the check that may be 

useful in identifying the check being 

returned and the customer and must 

include the name and routing number of 

the depositary bank from its 

indorsement. 

(4) If the paying bank is not sure of 

an item of information, it shall include 

the information required by this 

paragraph to the extent possible, and 

identify any item of information for 

which the bank is not sure of the 

accuracy.fi 

ø(g)¿fl(f)fi Reliance on routing 

number. A paying bank may 

øreturn¿flsendfi a returned check 

based on any routing number 

designating the depositary bank 

appearing on the øreturned¿ check in 

the depositary bank’s indorsement flor 

in the electronic image of or information 

related to the checkfi. 

16. Revise § 229.31 to read as follows: 

§ 229.31 Returning bank’s responsibility 

for return of checks. 

(a) flExpeditious øR¿flrfieturn of 

checks. fl(1)fi øA¿ flIf the returning 

bank agrees to handle the return 

expeditiously, thefi returning bank 

shall øreturn a returned check in an 

expeditious manner as provided in 

either paragraph (a)(1) or (a)(2) of this 

section¿flsend the returned check 

expeditiously such that the depositary 

bank normally would receive the 

returned check no later than 4 p.m. 

(local time of the depositary bank) on 

the second business day following the 

banking day on which the check was 

presented to the paying bankfi. 

ø(1) Two-day/four-day test. A 

returning bank returns a check in an 

expeditious manner if it sends the 

returned check in a manner such that 

the check would normally be received 

by the depositary bank not later than 4 

p.m. (local time) of— 

(i) The second business day following 

the banking day on which the check was 

presented to the paying bank if the 

paying bank is located in the same 

check processing region as the 

depositary bank; or 

(ii) The fourth business day following 

the banking day on which the check was 

presented to the paying bank if the 

paying bank is not located in the same 

check processing region as the 

depositary bank.¿ 

(2) If the last business day on which 

the returning bank may deliver a 

returned check to the depositary bank is 

not a banking day for the depositary 

bank, the returning bank meets this 

requirement if the returned check is 

received by the depositary bank on or 

before the depositary bank’s next 

banking day. 

ø(2) Forward collection test. A 

returning bank also returns a check in 

an expeditious manner if it sends the 

returned check in a manner that a 

similarly situated bank would normally 

handle a check— 

(i) Of similar amount as the returned 

check; 

(ii) Drawn on the depositary bank; 

and 

(iii) Received for forward collection 

by the similarly situated bank at the 

time the returning bank received the 

returned check, except that a returning 

bank may set a cut-off hour for the 

receipt of returned checks that is earlier 

than the similarly situated bank’s cut-off 

hour for checks received for forward 

collection, if the cut-off hour is not 

earlier than 2 p.m.¿ 

fl(3)fi øSubject to the requirement 

for expeditious return, t¿flTfihe 

returning bank may send the returned 

check to the depositary bank, øor¿ to 


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any bank agreeing to handle the 

returned check expeditiously under 

§ 229.31(a)fl, or, under § 229.31(b)(2), 

to any bank that handled the check for 

forward collectionfi. 

fl(4)fi The returning bank may 

convert the returned check to a qualified 

returned check. A qualified returned 

check shall be encoded in magnetic ink 

with the routing number of the 

depositary bank, the amount of the 

returned check, and a ‘‘2’’ in the case of 

an original check (or a ‘‘5’’ in the case 

of a substitute check) in position 44 of 

the qualified return MICR line as a 

return identifier. A qualified returned 

original check shall be encoded in 

accordance with ANS X9.13, and a 

qualified returned substitute check shall 

be encoded in accordance with ANS 

X9.100–140. øThe time for expeditious 

return under the forward collection test, 

and the deadline for return under the 

U.C.C. and Regulation J (12 CFR part 

210), are extended by one business day 

if the returning bank converts a returned 

check to a qualified returned check. 

This extension does not apply to the 

two-day/four-day test specified in 

paragraph (a)(1) of this section or when 

a returning bank is returning a check 

directly to the depositary bank.¿ 

fl(b) Exceptions to expeditious return 

of checks. (1) The expeditious return 

requirement of paragraph (a) of this 

section does not apply if— 

(i) The depositary bank has not agreed 

to accept electronic returns from the 

paying bank under § 229.32(a); 

(ii) The check is deposited in a 

depositary bank that does not maintain 

accounts; 

(iii) A returning bank is unable to 

identify the depositary bank with 

respect to a check; or 

(iv) The returning bank received the 

returned check pursuant to paragraph 

(b)(2) of this section or § 229.30(b)(2). 

(2) If a returning bank is unable to 

identify the depositary bank, the 

returning bank may send the returned 

check to any bank that handled the 

check for forward collection, if the 

returning bank was not a collecting bank 

with respect to the returned check; or a 

prior collecting bank, if the returning 

bank was a collecting bank with respect 

to the returned check. A returning bank 

sending a returned check under this 

paragraph (b)(2) to a bank that handled 

the check for forward collection must 

advise the bank to which the check is 

sent that the returning bank is unable to 

identify the depositary bank.fi 

ø(b) Unidentifiable depositary bank. 

A returning bank that is unable to 

identify the depositary bank with 

respect to a returned check may send 

the returned check to— 

(1) Any collecting bank that handled 

the check for forward collection if the 

returning bank was not a collecting bank 

with respect to the returned check; or 

(2) A prior collecting bank, if the 

returning bank was a collecting bank 

with respect to the returned check; 

A returning bank sending a returned 

check under this paragraph must advise 

the bank to which the check is sent that 

the returning bank is unable to identify 

the depositary bank. 

The expeditious return requirements 

in paragraph (a) of this section do not 

apply to return of a check under this 

paragraph. A returning bank that 

receives a returned check from a paying 

bank under § 229.30(b), or from a 

returning bank under this paragraph, 

but that is able to identify the depositary 

bank, must thereafter return the check 

expeditiously to the depositary bank.¿ 

(c) Settlement. A returning bank shall 

settle with a bank sending a returned 

check to it for return by the same means 

that it settles or would settle with the 

sending bank for a check received for 

forward collection drawn on the 

depositary bank. This settlement is final 

when made. 

(d) Charges. A returning bank may 

impose a charge flon a bank sending a 

returned checkfi for handling the 

returned check. 

ø(e) Depositary bank without 

accounts. The expeditious return 

requirement[s] of paragraph (a) of this 

section does not apply to checks 

deposited with a depositary bank that 

does not maintain accounts.¿ 

ø(f)¿fl(e)fi Notice in lieu of return. If 

a check is unavailable for return, the 

returning bank may send in its place a 

copy of the front and back of the 

returned check, or, if no copy is 

available, a written notice of 

nonpayment containing the information 

specified in 

ø§ 229.33(b)¿fl§ 229.30(e)(2)fi. The 

copy or notice shall clearly state that it 

constitutes a notice in lieu of return. A 

notice in lieu of return is considered a 

returned check subject to the 

expeditious return requirements of this 

section and to the other 

ørequirements¿flprovisionsfi of this 

subpart. 

ø(g)¿fl(f)fi Reliance on routing 

number. A returning bank may 

øreturn¿flsendfi a returned check 

based on any routing number 

designating the depositary bank 

appearing on the returned check in the 

depositary bank’s indorsementfl,fi 

øor¿ in magnetic ink on a qualified 

returned checkfl, or in the electronic 

image or information included in the 

electronic returnfi. 

17. Revise § 229.32 to read as follows: 

§ 229.32 Depositary bank’s responsibility 

for returned checks. 

fl(a) Acceptance of electronic 

returns. (1) A depositary bank agrees to 

accept an electronic return from a 

paying bank if it has agreed to receive 

the electronic return— 

(i) Directly from the paying bank; 

(ii) Directly from a returning bank that 

has held itself out as willing to accept 

electronic returns directly or indirectly 

from the paying bank and has agreed to 

return checks expeditiously under 

§ 229.31(a); or 

(iii) As otherwise agreed with the 

paying bank. 

(2) When electronic return received. A 

depositary bank receives an electronic 

return when the return is delivered to 

the electronic return point designated 

by the depositary bank or, by agreement, 

otherwise is made available to the 

depositary bank for retrieval or review. 

(3) A depositary bank may require 

that electronic returns be separated from 

electronic collection items.fi 

ø(a)¿fl(b)fi Acceptance of 

flpaperfi returned checks. fl(1)fiA 

depositary bank shall accept flpaperfi 

returned checks øand written notices of 

nonpayment¿. 

ø(1)¿fl(i)fiAt a location fl, if any,fi 

at which presentment of flpaperfi 

checks for forward collection is 

requested by the depositary bank; and 

ø(2)(i)¿fl(ii)(A)fi At a branch, head 

office, or other location consistent with 

the name and address of the bank in its 

indorsement on the check; 

ø(ii)¿fl(B)fi If no address appears in 

the indorsement, at a branch or head 

office associated with the routing 

number of the bank in its indorsement 

on the check; 

ø(iii) If the address in the indorsement 

is not in the same check processing 

region as the address associated with 

the routing number of the bank in its 

indorsement on the check, at a location 

consistent with the address in the 

indorsement and at a branch or head 

office associated with the routing 

number in the bank’s indorsement;¿ or 

ø(iv)¿fl(C)fi If no routing number or 

address appears in its indorsement on 

the check, at any branch or head office 

of the bank. 

fl(2)fi A depositary bank may 

require that returned checks be 

separated from forward collection 

checks. 

ø(b)¿fl(c)fi Payment. fl(1)fi A 

depositary bank shall pay the returning 

flbankfi or paying bank returning the 

check to it for the amount of the check 

prior to the close of business on the 

banking day on which it received the 

check (‘‘payment date’’) by— 


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ø(1)¿fl(i)fi Debit to an account of the 

depositary bank on the books of the 

returning flbankfi or paying bank; 

ø(2)¿fl(ii)fi Cash; 

ø(3)¿fl(iii)fi Wire transfer; or 

[(4)]fl(iv)fi Any other form of 

payment acceptable to the returning 

flbankfi or paying bankø;¿fl.fi 

fl(2)fi [provided that t] flTfihe 

proceeds of the payment øare¿ flmust 

befi available to the returning 

flbankfi or paying bank in cash or by 

credit to an account of the returning 

flbankfi or paying bank on or as of the 

payment date. If the payment date is not 

a banking day for the returning 

flbankfi or paying bank or the 

depositary bank is unable to make the 

payment on the payment date, payment 

shall be made by the next day that is a 

banking day for the returning flbankfi 

or paying bank. These payments are 

final when made. 

ø(c)¿fl(d)fi Misrouted returned 

checks øand written notices of 

nonpayment¿. If a bank receives a 

returned check øor written notice of 

nonpayment¿ on the basis that it is the 

depositary bank, and the bank 

determines that it is not the depositary 

bank with respect to the check øor 

notice¿, it shall either promptly send 

the returned check øor notice¿ to the 

depositary bank directly or by means of 

a returning bank agreeing to handle the 

returned check øexpeditiously under 

§ 229.31(a)¿, or send the check øor 

notice¿ back to the bank from which it 

was received. 

ø(d)¿fl(e)fi Charges. A depositary 

bank may not impose flon the bank 

returning the checkfi a charge for 

accepting and paying checks being 

returned to it. 

fl(f) Notification to customer. If the 

depositary bank receives a returned 

check, it shall send or give notice to its 

customer of the facts by midnight of the 

banking day following the banking day 

on which it received the returned check, 

or within a longer reasonable time.fi 

18. Revise § 229.33 to read as follows. 

fl§ 229.33 Electronic collection items and 

electronic returns. 

(a) Checks under this subpart. 

Electronic collection items and 

electronic returns are subject to the 

provisions of this subpart as if they were 

checks or returned checks, unless 

otherwise provided in this subpart. 

(b) [Reserved]fi 

19. Revise § 229.34 to read as follows: 

§ 229.34 Warranties. 

fl(a) Transfer and presentment 

warranties with respect to an electronic 

collection item or an electronic return. 

(1) Each bank that transfers or presents 

an electronic collection item or an 

electronic return and receives a 

settlement or other consideration for it 

warrants that— 

(i) The electronic image accurately 

represents all of the information on the 

front and back of the original check as 

of the time that the original check was 

truncated and the electronic information 

contains an accurate record of all MICR 

line information required for a 

substitute check under § 229.2(rr) of this 

part and the amount of the check, and 

(ii) No person will receive a transfer, 

presentment, or return of, or otherwise 

be charged for, an electronic collection 

item, an electronic return, the original 

check, a substitute check, or a paper or 

electronic representation of a substitute 

check such that the person will be asked 

to make payment based on a check it 

has already paid. 

(2) Each bank that transfers or 

presents an electronic collection item 

makes the warranties in paragraph (a)(1) 

of this section to the transferee bank, 

any subsequent collecting bank, the 

paying bank, and the drawer; and 

(3) Each bank that transfers an 

electronic return makes the warranties 

in paragraph (a)(1) of this section to the 

transferee returning bank, any 

subsequent returning bank, the 

depositary bank, and the owner of the 

check.fi 

ø(b) Warranty of notice of 

nonpayment. Each paying bank that 

gives a notice of nonpayment warrants 

to the transferee bank, to any 

subsequent transferee bank, to the 

depositary bank, and to the owner of the 

check that— 

(1) The paying bank, or in the case of 

a check payable by a bank and payable 

through another bank, the bank by 

which the check is payable, returned or 

will return the check within its deadline 

under the U.C.C., Regulation J (12 CFR 

part 210), or § 229.30(c) of this part; 

(2) It is authorized to send the notice; 

and 

(3) The check has not been materially 

altered. 

These warranties are not made with 

respect to checks drawn on a state or a 

unit of general local government that are 

not payable through or at a bank.¿ 

ø(c) Warranty of s¿fl(b) Sfiettlement 

amount, encoding, and offset 

flwarranties for all itemsfi. (1) Each 

bank that presents one or more checks 

to a paying bank and in return receives 

a settlement or other consideration 

warrants to the paying bank that the 

total amount of the checks presented is 

equal to the total amount of the 

settlement demanded by the presenting 

bank from the paying bank. 

(2) Each bank that transfers one or 

more checks or returned checks to a 

collecting flbankfi, returning 

flbankfi, or depositary bank and in 

return receives a settlement or other 

consideration warrants to the transferee 

bank that the accompanying 

information, if any, accurately indicates 

the total amount of the checks or 

returned checks transferred. 

(3) Each bank that presents or 

transfers a check or returned check 

warrants to any bank that subsequently 

handles it that, at the time of 

presentment or transfer, the information 

encoded after issue in magnetic ink flor 

as electronic informationfi on the 

check or returned check is 

øcorrect¿flaccuratefi. For purposes of 

this paragraph, the information encoded 

after issue on the check or returned 

check includes any information placed 

in the MICR line of a substitute check 

fl or in the electronic information of an 

electronic collection item or electronic 

returnfiøthat represents that check or 

returned check¿. 

(4) If a bank settles with another bank 

for checks presented, or for returned 

checks for which it is the depositary 

bank, in amount exceeding the total 

amount of the checks, the settling bank 

may set off the excess settlement 

amount against subsequent settlements 

for checks presented, or for returned 

checks for which it is the depositary 

bank, that it receives from the other 

bank. 

ø(d)¿fl(c)fi Transfer and 

presentment warranties with respect to 

a remotely created check. (1) A bank 

that transfers or presents a remotely 

created check and receives a settlement 

or other consideration warrants to the 

transferee bank, any subsequent 

collecting bank, and the paying bank 

that the person on whose account the 

remotely created check is drawn 

authorized the issuance of the check in 

the amount stated on the check and to 

the payee stated on the check. For 

purposes of this paragraph (d)(1), 

‘‘account’’ includes an account as 

defined in § 229.2(a) as well as a credit 

or other arrangement that allows a 

person to draw checks that are payable 

by, through, or at a bank. 

(2) If a paying bank asserts a claim for 

breach of warranty under paragraph 

(d)(1) of this section, the warranting 

bank may defend by proving that the 

customer of the paying bank is 

precluded under U.C.C. 4–406, as 

applicable, from asserting against the 

paying bank the unauthorized issuance 

of the check. 

ø(a) Warranties¿fl(d) Warranty of 

returned checkfi. fl(1)fiEach paying 

bank or returning bank that transfers a 


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returned check and receives a 

settlement or other consideration for it 

warrants to the transferee returning 

bank, to any subsequent returning bank, 

to the depositary bank, and to the owner 

of the check, that— 

ø(1)¿fl(i)fiThe paying bank, or in 

the case of a check payable by a bank 

and payable through another bank, the 

bank by which the check is payable, 

returned the check within its deadline 

under the U.C.C. [, or Regulation J (12 

CFR part 210),] or § 229.30(c) [of this 

part]; 

ø(2)¿fl(ii)fi It is authorized to return 

the check; 

ø(3)¿fl(iii)fi The check has not been 

materially altered; and 

ø(4)¿fl(iv)fi In the case of a notice in 

lieu of return, the [original] check has 

not and will not be returned. 

fl(2)fi These warranties are not 

made with respect to checks drawn on 

the Treasury of the United States, U.S. 

Postal Service money orders, or checks 

drawn on a state or a unit of general 

local government that are not payable 

through or at a bank. 

fl(e) Electronic image and 

information transferred as an electronic 

collection item or electronic return. A 

bank that transfers or presents an 

electronic image and related electronic 

information as if it were an electronic 

collection item or electronic return 

makes the warranties in this section as 

if the image and information were an 

electronic collection item or electronic 

return.fi 

ø(e)¿fl(f)fi Damages. Damages for 

breach of these warranties shall not 

exceed the consideration received by 

the bank that presents or transfers a 

check or returned check, plus interest 

compensation and expenses related to 

the check or returned check, if any. 

ø(f)¿fl(g)fi Tender of defense. If a 

bank is sued for breach of a warranty 

under this section, it may give a prior 

bank in the collection or return chain 

written notice of the litigation, and the 

bank notified may then give similar 

notice to any other prior bank. If the 

notice states that the bank notified may 

come in and defend and that failure to 

do so will bind the bank notified in an 

action later brought by the bank giving 

the notice as to any determination of 

fact common to the two litigations, the 

bank notified is so bound unless after 

seasonable receipt of the notice the bank 

notified does come in and defend. 

ø(g)¿fl(h)fi Notice of claim. Unless a 

claimant gives notice of a claim for 

breach of warranty under this section to 

the bank that made the warranty within 

30 days after the claimant has reason to 

know of the breach and the identity of 

the warranting bank, the warranting 

bank is discharged to the extent of any 

loss caused by the delay in giving notice 

of the claim. 

23. In § 229.35, paragraph (b) is 

revised to read as follows: 

§ 229.35 Indorsements. 

* * * * * 

(b) Liability of bank handling check. 

A bank that handles a check for forward 

collection or return is liable to any bank 

that subsequently handles the check to 

the extent that the subsequent bank does 

not receive payment for the check 

because of suspension of payments by 

another bank or otherwise. This 

paragraph applies whether or not a bank 

has øplaced its indorsement 

on¿flindorsedfi the check. This 

liability is not affected by the failure of 

any bank to exercise ordinary care, but 

any bank failing to do so remains liable. 

A bank seeking recovery against a prior 

bank shall send notice to that prior bank 

reasonably promptly after it learns the 

facts entitling it to recover. A bank may 

recover from the bank with which it 

settled for the check by revoking the 

settlement, charging back any credit 

given to an account, or obtaining a 

refund. A bank may have the rights of 

a holder with respect to each check it 

handles. 

* * * * * 

24. Revise § 229.36 to read as follows: 

§ 229.36 Presentment [and issuance] of 

checks. 

ø(a) Payable through and payable at 

checks. A check payable at or through 

a paying bank is considered to be drawn 

on that bank for purposes of the 

expeditious return and notice of 

nonpayment requirements of this 

subpart¿. 

ø(b)¿fl(a)fi øReceipt at bank office 

or processing center¿flReceipt of 

electronic collection items. (1) A paying 

bank agrees to receive an electronic 

collection item from a presenting bank 

if it has agreed to receive the electronic 

collection item— 

(i) Directly from the presenting bank; 

or 

(ii) As otherwise agreed with the 

presenting bank. 

(2) When electronic collection item 

received. A bank receives an electronic 

collection item when the item is 

delivered to the electronic presentment 

point designated by the bank or, by 

agreement, otherwise is made available 

to the bank for retrieval or review. 

(3) A paying bank may require that 

electronic collection items be separated 

from electronic returns.fi 

fl(b) Receipt of paper checks. (1)fi A 

check flin paper formfi is considered 

received by the paying bank when it is 

received: 

ø(1)¿fl(i)fi At a location to which 

delivery is requested by the paying 

bank; 

ø(4)¿fl(ii)fi At a branch, head office, 

or other location consistent with the 

name and address of the bank on the 

check if the bank is identified on the 

check by name and addressfl;fi 

ø(2)¿fl(iii)fi At an address of the 

bank associated with the routing 

number on the check, whether in 

magnetic ink or in fractional formfl, or 

in the electronic image of or electronic 

information related to the checkfi; or 

ø(3)¿fl(iv)fi At any branch or head 

office, if the bank is identified on the 

check by name without address. 

fl(2) A paying bank may require that 

forward collection checks be separated 

from returned checks.fi 

ø(c) Reserved¿ 

ø(d)¿fl(c)fi Liability of bank during 

forward collection. Settlements between 

banks for the forward collection of a 

check are final when made; however, a 

collecting bank handling a check for 

forward collection may be liable to a 

prior collecting bank, including the 

depositary bank, and the depositary 

bank’s customer. 

ø(e) Issuance of payable-through 

checks. (1) A bank that arranges for 

checks payable by it to be payable 

through another bank shall require that 

the following information be printed 

conspicuously on the face of each 

check: 

(i) The name, location, and first four 

digits of the nine-digit routing number 

of the bank by which the check is 

payable; and 

(ii) The words ‘‘payable through’’ 

followed by the name of the payablethrough bank. 

(2) A bank is responsible for damages 

under § 229.38 to the extent that a check 

payable by it and not payable through 

another bank is labeled as provided in 

this section.¿ 

ø(f)¿fl(d)fi Same-day settlement. (1) 

A check is considered presented, and a 

paying bank must settle for or return the 

check pursuant to paragraph 

ø(f)(2)¿fl(d)(3)fi of this section, iffl,fi 

øa presenting bank delivers the check¿ 

in accordance with reasonable delivery 

requirements established by the paying 

bankfl, a presenting bank delivers the 

checkfi and demands payment under 

this paragraph ø(f)¿fl(d)fi — 

(i) fl(A) As an electronic collection 

item to the electronic presentment point 

designated by the paying bank, if the 

paying bank agrees to receive electronic 

collection items from the presenting 

bank under § 229.36(a); orfi 


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fl(B)fi At a location designated by 

the paying bank for receipt of checks 

under this paragraph ø(f)¿fl(d)fi øthat 

is in the check processing region 

consistent with the routing number 

encoded in magnetic ink on the check 

and¿ at which the paying bank would 

be considered to have received the 

check under paragraph (b)fl(1)fi of 

this section or, if no location is 

designated, at any location described in 

paragraph (b)fl(1)fi of this section; and 

(ii) By 8 a.m. on a business day (local 

time of the location described in 

paragraph [(f)(1)(i)]fl(d)(1)(i)fi of this 

section). 

fl(2) A paying bank may require that 

checks presented under paragraph (d)(1) 

for settlement pursuant to paragraph 

(d)(3) of this section be presented as 

electronic collection items and be 

presented electronically to a designated 

electronic presentment point.fi 

øA paying bank may require that 

checks presented for settlement 

pursuant to this paragraph (f)(1) be 

separated from other forward-collection 

checks or returned checks.¿ 

ø(2)¿fl(3)fi If presentment of a check 

meets the requirements of paragraph 

ø(f)(1)¿fl(d)(1)fi of this section, the 

paying bank is accountable to the 

presenting bank for the amount of the 

check unless, by the close of Fedwire on 

the business day it receives the check, 

it either: 

(i) Settles with the presenting bank for 

the amount of the check by credit to an 

account at a Federal Reserve Bank 

designated by the presenting bank; or 

(ii) Returns the check. 

ø(3)¿fl(4)fi Notwithstanding 

paragraph ø(f)(2)¿fl(d)(3)fi of this 

section, if a paying bank closes on a 

business day and receives presentment 

of a check on that day in accordance 

with paragraph [(f)(1)]fl(d)(1)fi of this 

section, the paying bank is accountable 

to the presenting bank for the amount of 

the check unless, by the close of 

Fedwire on its next banking day, it 

either: 

(i) Settles with the presenting bank for 

the amount of the check by credit to an 

account at a Federal Reserve Bank 

designated by the presenting bank; or 

(ii) Returns the check. 

fl(5)fi If the closing flin paragraph 

(d)(4)fi is voluntary, unless the paying 

bank settles for or returns the check in 

accordance with paragraph 

ø(f)(2)¿fl(d)(3)fi of this section, it shall 

pay interest compensation to the 

presenting bank for each day after the 

business day on which the check was 

presented until the paying bank settles 

for the check, including the day of 

settlement. 

25. Revise § 229.38 to read as follows: 

§ 229.38 Liability. 

(a) Standard of care; liability; measure 

of damages. A bank shall exercise 

ordinary care and act in good faith in 

complying with the requirements of this 

subpart. A bank that fails to exercise 

ordinary care or act in good faith under 

this subpart may be liable to the 

depositary bank, the depositary bank’s 

customer, the owner of a check, or 

another party to the check. The measure 

of damages for failure to exercise 

ordinary care is the amount of the loss 

incurred, up to the amount of the check, 

reduced by the amount of the loss that 

party would have incurred even if the 

bank had exercised ordinary care. A 

bank that fails to act in good faith under 

this subpart may be liable for other 

damages, if any, suffered by the party as 

a proximate consequence. Subject to a 

bank’s duty to exercise ordinary care or 

act in good faith in choosing the means 

of return øor notice of nonpayment¿, the 

bank is not liable for the insolvency, 

neglect, misconduct, mistake, or default 

of another bank or person, or for loss or 

destruction of a check øor notice of 

nonpayment¿ in transit or in the 

possession of others. This section does 

not affect a paying bank’s liability to its 

customer under the U.C.C. or other law. 

(b) Paying bank’s failure to make 

timely return. If a paying bank fails both 

to comply with § 229.30(a) and to 

comply with the deadline for return 

under the U.C.C., Regulation J (12 CFR 

part 210), or § 229.30(c) in connection 

with a single nonpayment of a check, 

the paying bank shall be liable under 

either § 229.30(a) or such other 

provision, but not both. 

(c) Comparative negligence. If a 

person, including a bank, fails to 

exercise ordinary care or act in good 

faith under this subpart in indorsing a 

check (§ 229.35), accepting a returned 

check øor notice of nonpayment¿ 

(§§ 229.32(a) and ø229.33(c)¿fl(b)fi), 

or otherwise, the damages incurred by 

that person under § 229.38(a) shall be 

diminished in proportion to the amount 

of negligence or bad faith attributable to 

that person. 

(d) Responsibility for certain aspects 

of checks—(1) A paying bank, or in the 

case of a check payable through the 

paying bank and payable by another 

bank, the bank by which the check is 

payable, is responsible for damages 

under paragraph (a) of this section to the 

extent that the condition of the check 

when issued by it or its customer 

adversely affects the ability of a bank to 

indorse the check legibly in accordance 

with § 229.35. A depositary bank is 

responsible for damages under 

paragraph (a) of this section to the 

extent that the condition of the back of 

a check arising after the issuance of the 

check and prior to acceptance of the 

check by it adversely affects the ability 

of a bank to indorse the check legibly in 

accordance with § 229.35. A 

reconverting bank is responsible for 

damages under paragraph (a) of this 

section to the extent that the condition 

of the back of a substitute check 

transferred, presented, or returned by 

it— 

(i) Adversely affects the ability of a 

subsequent bank to indorse the check 

legibly in accordance with § 229.35; or 

(ii) Causes an indorsement that 

previously was applied in accordance 

with § 229.35 to become illegible. 

øNote:¿fl(2)fi Responsibility under 

this paragraph (d) shall be treated as 

negligence of the paying bank, 

depositary bank, or reconverting bank 

for purposes of paragraph (c) of this 

section. 

ø(2) Responsibility for payable 

through checks. In the case of a check 

that is payable by a bank and payable 

through a paying bank located in a 

different check processing region than 

the bank by which the check is payable, 

the bank by which the check is payable 

is responsible for damages under 

paragraph (a) of this section, to the 

extent that the check is not returned to 

the depositary bank through the payable 

through bank as quickly as the check 

would have been required to be 

returned under § 229.30(a) had the bank 

by which the check is payable— 

(i) Received the check as paying bank 

on the day the payable through bank 

received the check; and 

(ii) Returned the check as paying bank 

in accordance with § 229.30(a)(1). 

Responsibility under this paragraph 

shall be treated as negligence of the 

bank by which the check is payable for 

purposes of paragraph (c) of this 

section.¿ 

(e) Timeliness of action. If a bank is 

delayed in acting beyond the time limits 

set forth in this subpart because of 

interruption of communication or 

computer facilities, suspension of 

payments by a bank, war, emergency 

conditions, failure of equipment, or 

other circumstances beyond its control, 

its time for acting is extended for the 

time necessary to complete the action, if 

it exercises such diligence as the 

circumstances require. 

(f) Exclusion. Section 229.21 of this 

part and section 611 (a), (b), and (c) of 

the EFA Act (12 U.S.C. 4010 (a), (b), and 

(c)) do not apply to this subpart. 

(g) Jurisdiction. Any action under this 

subpart may be brought in any United 

States district court, or in any other 

court of competent jurisdiction, and 

shall be brought within one year after 


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the date of the occurrence of the 

violation involved. 

(h) Reliance on Board rulings. No 

provision of this subpart imposing any 

liability shall apply to any act done or 

omitted in good faith in conformity with 

any rule, regulation, or interpretation 

thereof by the Board, regardless of 

whether the rule, regulation, or 

interpretation is amended, rescinded, or 

determined by judicial or other 

authority to be invalid for any reason 

after the act or omission has occurred. 

26. In § 229.39, revise paragraph (c) to 

read as follows: 

§ 229.39 Insolvency of bank. 

* * * * * 

(c) Preference against collecting, 

paying, or returning bank. If a 

collecting, paying, or returning bank 

receives settlement from a subsequent 

bank for a check or returned check, 

which settlement is or becomes final, 

and suspends payments without making 

a settlement for the check with the prior 

bank, which is or becomes final, the 

prior bank has a preferred claim against 

the collecting flbankfi or returning 

bank. 

* * * * * 

27. Revise § 229.40 to read as follows: 

§ 229.40 Effect of merger transaction. 

ø(a) In general.¿ For purposes of this 

subpart, two or more banks that have 

engaged in a merger transaction may be 

considered to be separate banks for a 

period of one year following the 

consummation of the merger 

transaction. 

ø(b) Merger transactions on or after 

July 1, 1998, and before March 1, 2000. 

If banks have consummated a merger 

transaction on or after July 1, 1998, and 

before March 1, 2000, the merged banks 

may be considered separate banks until 

March 1, 2001.¿ 

28. Revise § 229.41 to read as follows: 

§ 229.41 Relation to [S]flsfitate law. 

The provisions of this subpart 

supersede any inconsistent provisions 

of the U.C.C. as adopted in any state, or 

of any other state law, but only to the 

extent of the inconsistency. 

29. Revise § 229.42 to read as follows: 

§ 229.42 Exclusions. 

The expeditious-return (§§ 229.30(a) 

and 229.31(a))ø, notice-of-nonpayment 

(§ 229.33),¿ and same-day settlement 

ø(§ 229.36(f))¿fl(§ 229.36(d))fi 

requirements of this subpart do not 

apply to a check drawn upon the United 

States Treasury, to a U.S. Postal Service 

money order, or to a check drawn on a 

state or a unit of general local 

government that is not payable through 

or at a bank. 

30. Revise § 229.43 to read as follows: 

§ 229.43 Checks payable in Guam, 

American Samoa, and the Northern Mariana 

Islands. 

(a) Definitions. The definitions in 

§ 229.2 apply to this section, unless 

otherwise noted. In addition, for the 

purposes of this section— 

(1) Pacific island bank means an 

office of an institution that would be a 

bank as defined in § 229.2(e) but for the 

fact that the office is located in Guam, 

American Samoa, or the Northern 

Mariana Islands; 

(2) Pacific island check means a 

demand draft drawn on or payable 

through or at a Pacific island bank, 

which is not a check as defined in 

§ 229.2(k). 

(b) Rules applicable to Pacific island 

checks. To the extent a bank handles a 

Pacific island check as if it were a check 

defined in § 229.2(k), the bank is subject 

to the following sections of this part 

(and the word ‘‘check’’ in each such 

section is construed to include a Pacific 

island check)— 

(1) § 229.31, except that the returning 

bank is not subject to the requirement to 

return a Pacific island check in an 

expeditious manner; 

(2) § 229.32; 

(3) § 229.34 fl(a), (b),fi (c)(2), (c)(3), 

(d), [ø(e), and¿ (f)fl, and (g)fi; 

(4) § 229.35; for purposes of 

§ 229.35(c), the Pacific island bank is 

deemed to be a bank; 

(5) ø[§ 229.36(d)¿]fl§ 229.36(b)fi; 

(6) § 229.37; 

(7) § 229.38(a) and (c) through (h); 

(8) § 229.39(a), (b), (c) and (e); and 

(9) §§ 229.40 through 229.42. 

Subpart D—Substitute Checks 

31. In § 229.52, revise paragraph (a) to 

read as follows: 

§ 229.52 Substitute check warranties. 

(a) Content and provision of substitute 

check warranties. fl(1)fi A bank that 

transfers, presents, or returns a 

substitute check (or a paper or 

electronic representation of a substitute 

check) for which it receives 

consideration warrants to the parties 

listed in paragraph (b) of this section 

that— 

[1] (i) The substitute check meets the 

requirements for legal equivalence 

described in § 229.51(a)(1)–(2); and 

[2] (ii) No depositary bank, drawee, 

drawer, or indorser will receive 

presentment or return of, or otherwise 

be charged for, the substitute check, the 

original check, or a paper or electronic 

representation of the substitute check or 

original check such that that person will 

be asked to make a payment based on 

a check that it already has paid. 

fl(2) A bank that rejects a check 

submitted for deposit and returns to its 

customer a substitute check (or a paper 

or electronic representation of a 

substitute check) makes the warranties 

described in paragraph (a)(1) of this 

section regardless of whether the bank 

received consideration.fi 

* * * * * 

32. In § 229.53, revise paragraph (a) to 

read as follows: 

§ 229.53 Substitute check indemnity. 

(a) Scope of indemnity. fl(1)fi A 

bank that transfers, presents, or returns 

a substitute check or a paper or 

electronic representation of a substitute 

check for which it receives 

consideration shall indemnify the 

recipient and any subsequent recipient 

(including a collecting or returning 

bank, the depositary bank, the drawer, 

the drawee, the payee, the depositor, 

and any indorser) for 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. 

fl(2) A bank that rejects a check 

submitted for deposit and returns to its 

customer a substitute check (or a paper 

or electronic representation of a 

substitute check) shall indemnify the 

recipient as described in paragraph 

(a)(1) of this section regardless of 

whether the bank received 

consideration.fi 

* * * * * 

33. Revise Appendix A to Part 229 to 

read as follows: 

Appendix A to Part 229—Routing 

Number Guide to Next-Day-Availability 

Checks [and Local Checks] 

øA. Each bank is assigned a routing 

number by an agent of the American Bankers 

Association. The routing number takes two 

forms: a fractional form and a nine-digit 

form. A paying bank generally is identified 

on the face of a check by its routing number 

in both the fractional form (which generally 

appears in the upper right-hand corner of the 

check) and the nine-digit form (which is 

printed in magnetic ink along the bottom of 

the check). Where a check is payable by one 

bank but payable through another bank, the 

routing number appearing on the check is 

that of the payable-through bank, not the 

payor bank. 

B. The first four digits of the nine-digit 

routing number (and the denominator of the 

fractional routing number) form the ‘‘Federal 

Reserve routing symbol,’’ and the first two 

digits of the routing number identify the 

Federal Reserve District in which the bank is 

located. Thus, 01 will be the first two digits 

of the routing number of a bank in the First 

Federal Reserve District (Boston), and 12 will 

be the first two digits of the routing number 

of a bank in the Twelfth District (San 

Francisco). Adding 2 to the first digit denotes 


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16902 Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 

a thrift institution. Thus, 21 identifies a thrift 

in the First District, and 32 denotes a thrift 

in the Twelfth District. 

Fourth Federal Reserve District 

Federal Reserve Bank of Cleveland 

Head Office 

1 0110 0215 

0111 0216 

0112 0219 

0113 0220 

0114 0223 

0115 0260 

0116 0280 

0117 0310 

0118 0311 

0119 0312 

0210 0313 

0211 0319 

0212 0360 

0213 0410 

0214 0412 

0420 0441 

0421 0442 

0422 0510 

0423 0514 

0430 0515 

0432 0519 

0433 0520 

0434 ...................................

0440 

0521 0650 

0522 0651 

0530 0652 

0531 0653 

0532 0654 

0539 0655 

0540 0660 

0550 0670 

0560 0710 

0570 0711 

0610 0712 

0611 0719 

0612 0720 

0613 0724 

0620 0730 

0621 0739 

0622 0740 

0630 0749 

0631 0750 

0632 0759 

0640 0810 

0641 0812 

0642 0813 

0815 0960 

0819 1010 

0820 1011 

0829 1012 

0830 1019 

0839 1020 

0840 1021 

0841 1022 

0842 1023 

0843 1030 

0863 1031 

0865 1039 

0910 1040 

0911 1041 

0912 1049 

0913 1070 

0914 1110 

0915 1111 

0918 1113 

0919 1119 

0920 1120 

0921 1122 

0929 1123 

1130 1251 

1131 1252 

1140 2111 

1149 2112 

1163 2113 

1210 2114 

1211 2115 

1212 2116 

1213 2117 

1220 2118 

1221 2119 

1222 2210 

1223 2211 

1224 2212 

1230 2213 

1231 2214 

1232 2215 

1233 2216 

1240 2219 

1241 2220 

1242 2223 

1243 2260 

1250 2280 

2310 2520 

2311 2521 

2312 2522 

2313 2530 

2319 2531 

2360 2532 

2410 2539 

2412 2540 

2420 2550 

2421 2560 

2422 2570 

2423 2610 

2430 2611 

2432 2612 

2433 2613 

2434 2620 

2440 2621 

2441 2622 

2442 2630 

2510 2631 

2514 2632 

2515 2640 

2519 2641 

2642 2813 

2650 2815 

2651 2819 

2652 2820 

2653 2829 

2654 2830 

2655 2839 

2660 2840 

2670 2841 

2710 2842 

2711 2843 

2712 2863 

2719 2865 

2720 2910 

2724 2911 

2730 2912 

2739 2913 

2740 2914 

2749 2915 

2750 2918 

2759 2919 

2810 2920 

2812 2921 

2929 3123 

2960 3130 

3010 3131 

3011 3140 

3012 3149 

3019 3163 

3020 3210 

3021 3211 

3022 3212 

3023 3213 

3030 3220 

3031 3221 

3039 3222 

3040 3223 

3041 3224 

3049 3230 

3070 3231 

3110 3232 

3111 3233 

3113 3240 

3119 3241 

3120 3242 

3122 3243 

3250 3252 

3251 

1The first two digits identify the bank’s 

Federal Reserve District. For example, 01 

identifies the First Federal Reserve District 

(Boston), and 12 identifies the Twelfth District (San Francisco). Adding 2 to the first 

digit denotes a thrift institution. For example, 21 identifies a thrift in the First District, 

and 32 denotes a thrift in the Twelfth 

District.¿ 

Federal Reserve Banks 

0110 0001 5 0539 0008 9 

0111 0048 1 0610 0014 6 

0210 0120 8 0620 0019 0 

0212 0400 5 0630 0019 9 

0213 0500 1 0640 0010 1 

0220 0026 6 0650 0021 0 

0310 0004 0 0660 0010 9 

0410 0001 4 0710 0030 1 

0420 0043 7 ø0711 0711 0¿ 

0430 0030 0 0720 0029 0 

0440 0050 3 0730 0033 8 

0510 0003 3 ø0740 0020 1¿ 

0519 0002 3 ...................................

0520 0027 8 ø0750 0012 9¿ 

0530 0020 6 0810 0004 5 

0820 0013 8 1120 0001 1 

0830 0059 3 1130 0004 9 

0840 0003 9 1140 0072 1 

0910 0008 0 1210 0037 4 

0920 0026 7 1220 0016 6 

1010 0004 8 1230 0001 3 

1020 0019 9 1240 0031 3 

1030 0024 0 1250 0001 1 

1040 0012 6 

1110 0003 8 

Federal Home Loan Banks 

0110 0053 6 0740 0101 9 

0212 0639 1 ø0810 0091 9¿ 

0260 0973 9 ø0910 0091 2¿ 

0410 0291 5 ø1010 0091 2¿ 

0420 0091 6 1011 0194 7 

0430 0143 5 1110 1083 7 

ø0430 1862 2¿ 1119 1083 0 

0610 0876 6 1210 0070 1 

0710 0450 1 1240 0287 4 

0730 0091 4 1250 0050 3 

flU.S. Treasury 

Checks and Postal 

0000 0051 8 

Money Orders Postal Money Orders 

U.S. Treasury Checks 0000 0119 3 

0000 0050 5 0000 0800 2fi 

34. Revise Appendix C to Part 229 to 

read as follows: 


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Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 16903 

Appendix C to Part 229—Model 

Availability-Policy Disclosures, 

Clauses, and Notices; Model SubstituteCheck-Policy Disclosure and Notices 

This appendix contains model availabilitypolicy and substitute-check-policy 

disclosures, clauses, and notices to facilitate 

compliance with the disclosure and notice 

requirements of Regulation CC (12 CFR part 

229). Although use of these models is not 

required, banks using them properly (with 

the exception of models C–22 through C–25) 

to make disclosures required by Regulation 

CC are deemed to be in compliance. 

Model Disclosures 

C–1 Next-day availability 

C–2 Next-day availability and section 

229.13 exceptions 

C–3flAfi Next-day availability, case-bycase holds to statutory limits flwithout 

cash-withdrawal limitationfi, and 

section 229.13 exceptions 

flC–3B Next-day availability, case-by-case 

holds to statutory limits with cashwithdrawal limitation, and section 

229.13 exceptionsfi 

C–4flAfi Holds to statutory limits on all 

deposits ø(includes chart)¿ flwithout 

cash-withdrawal limitationfi 

C–ø5¿fl4Bfi Holds to statutory limits on 

all deposits flwith cash-withdrawal 

limitationfi 

C–5øA¿ Substitute-Check-Policy Disclosure 

Model 

Model Clauses 

øC–6 Holds on other funds (check cashing)¿ 

øC–7 Holds on other funds (other account)¿ 

øC–8 Appendix B availability (nonlocal 

checks)¿ 

C–ø9¿fl6fi Automated teller machine 

deposits (extended hold) 

øC–10 Cash-withdrawal limitation¿ 

C–ø11¿fl7fi Credit union interest-payment 

policy 

C–ø11A¿fl8fi Availability of funds 

deposited at other locations 

Model Notices 

C–ø12¿fl9fi Exception flor reasonablecausefi hold notice 

øC–13 Reasonable-cause hold notice¿ 

C–ø14¿fl10fi One-time notice for largedeposit and redeposited-check exception 

holds 

C–ø15¿fl11fi One-time notice for 

repeated-overdraft exception holds 

C–ø16¿fl12Afi Case-by-case hold notice 

flwithout cash-withdrawal limitation 

C–16øB¿fl12Bfi Case-by-case hold notice 

with cash-withdrawal limitationfi 

C–ø17¿fl13fi Notice at locations where 

employees accept consumer deposits 

C–ø18¿fl14fi Notice at locations where 

employees accept consumer deposits 

(case-by-case holds) 

C–ø19¿fl15fi Notice at automated teller 

machines 

C–ø20¿fl16fi Notice at automated teller 

machines (delayed receipt) 

C–ø21¿fl17fi Deposit-slip notice 

C–ø22¿fl18fi Expedited-Recredit Claim, 

Valid-Claim Refund Notice 

C–ø23¿fl19fi Expedited-Recredit Claim, 

Provisional-Refund Notice 

C–ø24¿fl20fi Expedited-Recredit Claim, 

Denial Notice 

C–ø25¿fl21fi Expedited-Recredit Claim, 

Reversal Notice 

øC–1 Next-Day Availability 

YOUR ABILITY TO WITHDRAW FUNDS 

Our policy is to make funds from your cash 

and check deposits available to you on the 

first business day after the day we receive 

your deposit. Electronic direct deposits will 

be available on the day we receive the 

deposit. Once the funds are available, you 

can withdraw them in cash and we will use 

them to pay checks that you have written. 

For determining the availability of your 

deposits, every day is a business day, except 

Saturdays, Sundays, and Federal holidays. If 

you make a deposit before (time of day) on 

a business day that we are open, we will 

consider that day to be the day of your 

deposit. However, if you make a deposit after 

(time of day) or on a day we are not open, 

we will consider that the deposit was made 

on the next business day we are open. 

C–2—Next-Day Availability and Section 

229.13 Exceptions 

YOUR ABILITY TO WITHDRAW FUNDS 

Our policy is to make funds from your cash 

and check deposits available to you on the 

first business day after the day we receive 

your deposit. Electronic direct deposits will 

be available on the day we receive the 

deposit. Once they are available, you can 

withdraw the funds in cash and we will use 

the funds to pay checks that you have 

written. 

For determining the availability of your 

deposits, every day is a business day, except 

Saturdays, Sundays, and Federal holidays. If 

you make a deposit before (time of day) on 

a business day that we are open, we will 

consider that day to be the day of your 

deposit. However, if you make a deposit after 

(time of day) or on a day we are not open, 

we will consider that the deposit was made 

on the next business day we are open. 

Longer Delays May Apply 

Funds you deposit by check may be 

delayed for a longer period under the 

following circumstances: 

• We believe a check you deposit will not 

be paid. 

• You deposit checks totaling more than 

$5,000 on any one day. 

• You redeposit a check that has been 

returned unpaid. 

• You have overdrawn your account 

repeatedly in the last six months. 

• There is an emergency, such as failure of 

computer or communications equipment. 

We will notify you if we delay your ability 

to withdraw funds for any of these reasons, 

and we will tell you when the funds will be 

available. They will generally be available no 

later than the (number) business day after the 

day of your deposit. 

Special Rules for New Accounts 

If you are a new customer, the following 

special rules will apply during the first 30 

days your account is open. 

Funds from electronic direct deposits to 

your account will be available on the day we 

receive the deposit. Funds from deposits of 

cash, wire transfers, and the first $5,000 of 

a day’s total deposits of cashier’s, certified, 

teller’s, traveler’s, and federal, state and local 

government checks will be available on the 

first business day after the day of your 

deposit if the deposit meets certain 

conditions. For example, the checks must be 

payable to you (and you may have to use a 

special deposit slip). The excess over $5,000 

will be available on the ninth business day 

after the day of your deposit. If your deposit 

of these checks (other than a U.S. Treasury 

check) is not made in person to one of our 

employees, the first $5,000 will not be 

available until the second business day after 

the day of your deposit. 

Funds from all other check deposits will be 

available on the (number) business day after 

the day of your deposit. 

C–3—Next-Day Availability, Case-by-Case 

Holds to Statutory Limits, and Section 229.13 

Exceptions 

YOUR ABILITY TO WITHDRAW FUNDS 

Our policy is to make funds from your cash 

and check deposits available to you on the 

first business day after the day we receive 

your deposit. Electronic direct deposits will 

be available on the day we receive the 

deposit. Once they are available, you can 

withdraw the funds in cash and we will use 

the funds to pay checks that you have 

written. For determining the availability of 

your deposits, every day is a business day, 

except Saturdays, Sundays, and Federal 

holidays. If you make a deposit before (time 

of day) on a business day that we are open, 

we will consider that day to be the day of 

your deposit. However, if you make a deposit 

after (time of day) or on a day we are not 

open, we will consider that the deposit was 

made on the next business day we are open. 

Longer Delays May Apply 

In some cases, we will not make all of the 

funds that you deposit by check available to 

you on the first business day after the day of 

your deposit. Depending on the type of check 

that you deposit, funds may not be available 

until the fifth business day after the day of 

your deposit. The first $100 of your deposits, 

however, will be available on the first 

business day. 

If we are not going to make all of the funds 

from your deposit available on the first 

business day, we will notify you at the time 

you make your deposit. We will also tell you 

when the funds will be available. If your 

deposit is not made directly to one of our 

employees, or if we decide to take this action 

after you have left the premises, we will mail 

you the notice by the day after we receive 

your deposit. If you will need the funds from 

a deposit right away, you should ask us when 

the funds will be available. 

In addition, funds you deposit by check 

may be delayed for a longer period under the 

following circumstances: 

• We believe a check you deposit will not 

be paid. 

• You deposit checks totaling more than 

$5,000 on any one day. 

• You redeposit a check that has been 

returned unpaid. 

• You have overdrawn your account 

repeatedly in the last six months. 

• There is an emergency, such as failure of 

computer or communications equipment. 


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16904 Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 

We will notify you if we delay your ability 

to withdraw funds for any of these reasons, 

and we will tell you when the funds will be 

available. They will generally be available no 

later than the (number) business day after the 

day of your deposit. 

Special Rules for New Accounts 

If you are a new customer, the following 

special rules will apply during the first 30 

days your account is open. 

Funds from electronic direct deposits to 

your account will be available on the day we 

receive the deposit. Funds from deposits of 

cash, wire transfers, and the first $5,000 of 

a day’s total deposits of cashier’s, certified, 

teller’s, traveler’s, and federal, state and local 

government checks will be available on the 

first business day after the day of your 

deposit if the deposit meets certain 

conditions. For example, the checks must be 

payable to you (and you may have to use a 

special deposit slip). The excess over $5,000 

will be available on the ninth business day 

after the day of your deposit. If your deposit 

of these checks (other than a U.S. Treasury 

check) is not made in person to one of our 

employees, the first $5,000 will not be 

available until the second business day after 

the day of your deposit. Funds from all other 

check deposits will be available on the 

(number) business day after the day of your 

deposit. 

C–4—Holds to Statutory Limits on All 

Deposits (Includes Chart) 

YOUR ABILITY TO WITHDRAW FUNDS 

Our policy is to delay the availability of 

funds from your cash and check deposits. 

During the delay, you may not withdraw the 

funds in cash and we will not use the funds 

to pay checks that you have written. 

Determining the Availability of a Deposit 

The length of the delay is counted in 

business days from the day of your deposit. 

Every day is a business day except Saturdays, 

Sundays, and federal holidays. If you make 

a deposit before (time of day) on a business 

day that we are open, we will consider that 

day to be the day of your deposit. However, 

if you make a deposit after (time of day) or 

on a day we are not open, we will consider 

that the deposit was made on the next 

business day we are open. 

The length of the delay varies depending 

on the type of deposit and is explained 

below. 

Same-Day Availability 

Funds from electronic direct deposits to 

your account will be available on the day we 

receive the deposit. 

Next-Day Availability 

Funds from the following deposits are 

available on the first business day after the 

day of your deposit: 

• U.S. Treasury checks that are payable to 

you 

• Wire transfers 

• Checks drawn on (bank name) [unless 

(any limitations related to branches in 

different states or check-processing regions)] 

If you make the deposit in person to one 

of our employees, funds from the following 

deposits are also available on the first 

business day after the day of your deposit: 

• Cash 

• State and local government checks that 

are payable to you [if you use a special 

deposit slip available from (where deposit 

slip may be obtained)] 

• Cashier’s, certified, and teller’s checks 

that are payable to you [if you use a special 

deposit slip available from (where deposit 

slip may be obtained)] 

• Federal Reserve Bank checks, Federal 

Home Loan Bank checks, and postal money 

orders, if these items are payable to you 

If you do not make your deposit in person 

to one of our employees (for example, if you 

mail the deposit), funds from these deposits 

will be available on the second business day 

after the day we receive your deposit. 

Other Check Deposits 

To find out when funds from other check 

deposits will be available, look at the first 

four digits of the routing number on the 

check: 


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Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 16905 

Some checks are marked ‘‘payable through’’ 

and have a four- or nine-digit number nearby. 

For these checks, use this four-digit number 

(or the first four digits of the nine-digit 

number), not the routing number on the 

bottom of the check, to determine if these 

checks are local or nonlocal. Once you have 

determined the first four digits of the routing 

number (1234 in the examples above), the 

chart below will show you when funds from 

the check will be available. If you deposit 

both categories of checks, $100 from the 

checks will be available on the first business 

day after the day of your deposit, not $100 

from each category of check. 

Longer Delays May Apply 

Funds you deposit by check may be 

delayed for a longer period under the 

following circumstances: 

• We believe a check you deposit will not 

be paid. 

• You deposit checks totaling more than 

$5,000 on any one day. 

• You redeposit a check that has been 

returned unpaid. 

• You have overdrawn your account 

repeatedly in the last six months. 

• There is an emergency, such as failure of 

computer or communications equipment. 

We will notify you if we delay your ability 

to withdraw funds for any of these reasons, 

and we will tell you when the funds will be 

available. They will generally be available no 

later than the (number) business day after the 

day of your deposit. 

Special Rules for New Accounts 

If you are a new customer, the following 

special rules will apply during the first 30 

days your account is open. 

Funds from electronic direct deposits to 

your account will be available on the day we 

receive the deposit. Funds from deposits of 

cash, wire transfers, and the first $5,000 of 

a day’s total deposits of cashier’s, certified, 

teller’s, traveler’s, and federal, state and local 

government checks will be available on the 

first business day after the day of your 

deposit if the deposit meets certain 

conditions. For example, the checks must be 

payable to you (and you may have to use a 

special deposit slip). The excess over $5,000 

will be available on the ninth business day 

after the day of your deposit. If your deposit 

of these checks (other than a U.S. Treasury 

check) is not made in person to one of our 

employees, the first $5,000 will not be 

available until the second business day after 

the day of your deposit. Funds from all other 

check deposits will be available on the 

(number) business day after the day of your 

deposit. 

C–5—Holds to Statutory Limits on All 

Deposits 

YOUR ABILITY TO WITHDRAW FUNDS 

Our policy is to delay the availability of 

funds from your cash and check deposits. 

During the delay, you may not withdraw the 

funds in cash and we will not use the funds 

to pay checks that you have written. 

Determining the Availability of a Deposit 

The length of the delay is counted in 

business days from the day of your deposit. 

Every day is a business day except Saturdays, 

Sundays, and Federal holidays. If you make 

a deposit before (time of day) on a business 

day that we are open, we will consider that 

day to be the day of your deposit. However, 

if you make a deposit after (time of day) or 

on a day we are not open, we will consider 

that the deposit was made on the next 

business day we are open. 

The length of the delay varies depending 

on the type of deposit and is explained 

below. 

Same-Day Availability 

Funds from electronic direct deposits to 

your account will be available on the day we 

receive the deposit. 

Next-Day Availability 

Funds from the following deposits are 

available on the first business day after the 

day of your deposit: 

• U.S. Treasury checks that are payable to 

you 

• Wire transfers 

• Checks drawn on (bank name) [unless 

(any limitations related to branches in 

different states or check-processing regions)] 

If you make the deposit in person to one 

of our employees, funds from the following 

deposits are also available on the first 

business day after the day of your deposit: 

• Cash 

• State and local government checks that 

are payable to you [if you use a special 

deposit slip available from (where deposit 

slip may be obtained)] 

• Cashier’s, certified, and teller’s checks 

that are payable to you [if you use a special 

deposit slip available from (where deposit 

slip may be obtained)] 

• Federal Reserve Bank checks, Federal 

Home Loan Bank checks, and postal money 

orders, if these items are payable to you 

If you do not make your deposit in person 

to one of our employees (for example, if you 

mail the deposit), funds from these deposits 

will be available on the second business day 

after the day of your deposit. 

Other Check Deposits 

The delay for other check deposits depends 

on whether the check is a local or a nonlocal 

check. To see whether a check is a local or 

a nonlocal check, look at the routing number 

on the check: 


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16906 Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 

If the first four digits of the routing number 

(1234 in the examples above) are (list of local 

numbers), then the check is a local check. 

Otherwise, the check is a nonlocal check. 

Some checks are marked ‘‘payable through’’ 

and have a four- or nine-digit number nearby. 

For these checks, use the four-digit number 

(or the first four digits of the nine-digit 

number), not the routing number on the 

bottom of the check, to determine if these 

checks are local or nonlocal. Our policy is to 

make fundsfrom local and nonlocal checks 

available as follows. 

1. Local checks. The first $100 from a 

deposit of local checks will be available on 

the first business day after the day of your 

deposit. The remaining funds will be 

available on the second business day after the 

day of your deposit. For example, if you 

deposit a local check of $700 on a Monday, 

$100 of the deposit is available on Tuesday. 

The remaining $600 is available on 

Wednesday. 

2. Nonlocal checks. The first $100 from a 

deposit of nonlocal checks will be available 

on the first business day after the day of your 

deposit. The remaining funds will be 

available on the fifth business day after the 

day of your deposit. 

For example, if you deposit a $700 

nonlocal check on a Monday, $100 of the 

deposit is available on Tuesday. The 

remaining $600 is available on Monday of the 

following week. 

Longer Delays May Apply 

Funds you deposit by check may be 

delayed for a longer period under the 

following circumstances: 

• We believe a check you deposit will not 

be paid. 

• You deposit checks totaling more than 

$5,000 on any one day. 

• You redeposit a check that has been 

returned unpaid. 

• You have overdrawn your account 

repeatedly in the last six months. 

• There is an emergency, such as failure of 

computer or communications equipment. 

We will notify you if we delay your ability 

to withdraw funds for any of these reasons, 

and we will tell you when the funds will be 

available. They will generally be available no 

later than the (number) business day after the 

day of your deposit. If you deposit both 

categories of checks, $100 from the checks 

will be available on the first business day 

after the day of your deposit, not $100 from 

each category of check. 

Special Rules for New Accounts 

If you are a new customer, the following 

special rules will apply during the first 30 

days your account is open. 

Funds from electronic direct deposits to 

your account will be available on the day we 

receive the deposit. Funds from deposits of 

cash, wire transfers, and the first $5,000 of 

a day’s total deposits of cashier’s, certified, 

teller’s, traveler’s, and federal, state and local 

government checks will be available on the 

first business day after the day of your 

deposit if the deposit meets certain 

conditions. For example, the checks must be 

payable to you (and you may have to use a 

special deposit slip). The excess over $5,000 

will be available on the ninth business day 

after the day of your deposit. If your deposit 

of these checks (other than a U.S. Treasury 

check) is not made in person to one of our 

employees, the first $5,000 will not be 

available until the second business day after 

the day of your deposit. 


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Funds from all other check deposits will be 

available on the (number) business day after 

the day of your deposit. 

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BILLING CODE 6210–01–C 

fiC–5øA¿—Substitute-Check-Policy 

Disclosure 

Substitute Checks and Your Rights 

[IMPORTANT INFORMATION ABOUT 

YOUR CHECKING ACCOUNT] 

Substitute Checks and Your Rights 

What is a substitute check? 

To make check processing faster, federal 

law permits banks to replace original checks 

with ‘‘substitute checks.’’ These checks are 

similar in size to original checks with a 

slightly reduced image of the front and back 

of the original check. The front of a substitute 

check states: ‘‘This is a legal copy of your 

check. You can use it the same way you 

would use the original check.’’ You may use 

a substitute check as proof of payment just 

like the original check. 

Some or all of the checks that you receive 

back from us may be substitute checks. This 

notice describes rights you have when you 

receive substitute checks from us. The rights 

in this notice do not apply to original checks 

or to electronic debits to your account. 

However, you have rights under other law 

with respect to those transactions. 

What are my rights regarding substitute 

checks? 

In certain cases, Federal law provides a 

special procedure that allows you to request 

a refund for losses you suffer if a substitute 

check is posted to your account (for example, 

if you think that we withdrew the wrong 

amount from your account or that we 

withdrew money from your account more 

than once for the same check). The losses you 

may attempt to recover under this procedure 

may include the amount that was withdrawn 

from your account and fees that were charged 

as a result of the withdrawal (for example, 

bounced-check fees). 


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The amount of your refund under this 

procedure is limited to the amount of your 

loss or the amount of the substitute check, 

whichever is less. You also are entitled to 

interest on the amount of your refund if your 

account is an interest-bearing account. If your 

loss exceeds the amount of the substitute 

check, you may be able to recover additional 

amounts under other law. 

If you use this procedure, you may receive 

up to (amount, not lower than $2,500) of your 

refund (plus interest if your account earns 

interest) within (number of days, not more 

than 10) business days after we received your 

claim and the remainder of your refund (plus 

interest if your account earns interest) not 

later than (number of days, not more than 45) 

calendar days after we received your claim. 

We may reverse the refund (including any 

interest on the refund) if we later are able to 

demonstrate that the substitute check was 

correctly posted to your account. 

How do I make a claim for a refund? 

If you believe that you have suffered a loss 

relating to a substitute check that you 

received and that was posted to your 

account, please contact us at (contact 

information, for example phone number, 

mailing address, e-mail address). You must 

contact us within (number of days, not less 

than 40) calendar days of the date that we 

mailed (or otherwise delivered by a means to 

which you agreed) the substitute check in 

question or the account statement showing 

that the substitute check was posted to your 

account, whichever is later. We will extend 

this time period if you were not able to make 

a timely claim because of extraordinary 

circumstances. 

Your claim must include— 

• A description of why you have suffered 

a loss (for example, you think the amount 

withdrawn was incorrect); 

• An estimate of the amount of your loss; 

• An explanation of why the substitute 

check you received is insufficient to confirm 

that you suffered a loss; and 

• A copy of the substitute check [and/or] 

the following information to help us identify 

the substitute check: (identifying 

information, for example the check number, 

the name of the person to whom you wrote 

the check, the amount of the check). 

øC–6—Holds on Other Funds (Check 

Cashing) 

If we cash a check for you that is drawn 

on another bank, we may withhold the 

availability of a corresponding amount of 

funds that are already in your account. Those 

funds will be available at the time funds from 

the check we cashed would have been 

available if you had deposited it.¿ 

øC–7—Holds on Other Funds (Other 

Account) 

If we accept for deposit a check that is 

drawn on another bank, we may make funds 

from the deposit available for withdrawal 

immediately but delay your availability to 

withdraw a corresponding amount of funds 

that you have on deposit in another account 

with us. The funds in the other account 

would then not be available for withdrawal 

until the time periods that are described 

elsewhere in this disclosure for the type of 

check that you deposited.¿ 

øC–8—Appendix B Availability (Nonlocal 

Checks) 

3. Certain other checks. We can process 

nonlocal checks drawn on financial 

institutions in certain areas faster than usual. 

Therefore, funds from deposits of checks 

drawn on institutions in those areas will be 

available to you more quickly. Call us if you 

would like a list of the routing numbers for 

these institutions.¿ 

C–ø9¿fl6fi—Automated Teller Machine 

Deposits (Extended Hold) 

Funds from any deposits (cash or checks) 

made at automated teller machines (ATMs) 

we do not own or operate will not be 

available until the øfifth¿flfourthfi business 

day after the day of your deposit. This rule 

does not apply at ATMs that we own or 

operate. 

(A list of our ATMs is enclosed. or A list 

of ATMs where you can make deposits but 

that are not owned or operated by us is 

enclosed. or All ATMs that we own or 

operate are identified as our machines.) 

øC–10—Cash-Withdrawal Limitation 

CASH-WITHDRAWAL LIMITATION 

We place certain limitations on 

withdrawals in cash. In general, $100 of a 

deposit is available for withdrawal in cash on 

the first business day after the day of deposit. 

In addition, a total of $400 of other funds 

becoming available on a given day is 

available for withdrawal in cash at or after 

(time no later than 5 p.m.) on that day. Any 

remaining funds will be available for 

withdrawal in cash on the following business 

day.¿ 

C–ø11¿fl7fi—Credit-Union InterestPayment Policy 

INTEREST-PAYMENT POLICY 

If we receive a deposit to your account on 

or before the tenth of the month, you begin 

earning interest on the deposit (whether it 

was a deposit of cash or checks) as of the first 

day of that month. If we receive the deposit 

after the tenth of the month, you begin 

earning interest on the deposit as of the first 

of the following month. For example, a 

deposit made on June 7 earns interest from 

June 1, while a deposit made on June 17 

earns interest from July 1. 

C–ø11A¿fl8fi—Availability of Funds 

Deposited at Other Locations 

DEPOSITS AT OTHER LOCATIONS 

This availability policy only applies to 

funds deposited at (location). Please inquire 

for information about the availability of 

funds deposited at other locations. 

øC–12—Exception Hold Notice 

NOTICE OF HOLD 

Account number: Date of deposit: 

(number) (date) 

We are delaying the availability of 

$(amount being held) from this deposit. 

These funds will be available on the 

(number) business day after the day of your 

deposit. 

We are taking this action because: 

_____ A check you deposited was previously 

returned unpaid. 

_____ You have overdrawn your account 

repeatedly in the last six months. 

_____ The checks you deposited on this day 

exceed $5,000. 

_____ An emergency, such as failure of 

computer or communications equipment, 

has occurred. 

_____ We believe a check you deposited will 

not be paid for the following reasons:[*] 

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

[* If you did not receive this notice at the 

time you made the deposit and the check you 

deposited is paid, we will refund to you any 

fees for overdrafts or returned checks that 

result solely from the additional delay that 

we are imposing. To obtain a refund of such 

fees, (description of procedure for obtaining 

refund).] 

C–13—Reasonable-Cause Hold Notice 

NOTICE OF HOLD 

Account number: Date of deposit: 

(number) (date) 

We are delaying the availability of the 

funds you deposited by the following check: 

description of check, such as amount and 

drawer) 

These funds will be available on the 

(number) business day after the day of your 

deposit. The reason for the delay is explained 

below: 

_____ We received notice that the check is 

being returned unpaid. 

_____ We have confidential information that 

indicates that the check may not be paid. 

_____ The check is drawn on an account with 

repeated overdrafts. 

_____ We are unable to verify the 

indorsement of a joint payee. 

_____ Some information on the check is not 

consistent with other information on the 

check. 

_____ There are erasures or other apparent 

alterations on the check. 

_____ The routing number of the paying bank 

is not a current routing number. 

_____ The check is postdated or has a stale 

date. 

_____ Information from the paying bank 

indicates that the check may not be paid. 

_____ We have been notified that the check 

has been lost or damaged in collection. 

_____ Other: 

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

[If you did not receive this notice at the 

time you made the deposit and the check you 

deposited is paid, we will refund to you any 

fees for overdrafts or returned checks that 

result solely from the additional delay that 

we are imposing. To obtain a refund of such 

fees, (description of procedure for obtaining 

refund).¿ 

C–14—One-Time Notice for Large-Deposit 

and Redeposited-Check Exception Holds 

NOTICE OF HOLD 

If you deposit into your account: 


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• Checks totaling more than $5,000 on any 

one day, the first $5,000 deposited on any 

one banking day will be available to you 

according to our general policy. The amount 

in excess of $5,000 will generally be available 

on the (number) business day after the day 

of deposit for checks drawn on (bank name), 

the (number) business day after the day of 

deposit for local checks and (number) 

business day after the day of deposit for 

nonlocal checks after the day of your deposit. 

If checks (not drawn on us) that otherwise 

would receive next-day availability exceed 

$5,000, the excess will be treated as either 

local or nonlocal checks depending on the 

location of the paying bank. If your check 

deposit, exceeding $5,000 on any one day, is 

a mix of local checks, nonlocal checks, 

checks drawn on (bank name), or checks that 

generally receive next-day availability, the 

excess will be calculated by first adding 

together the (type of check), then the (type of 

check), then the (type of check), then the 

(type of check). 

• A check that has been returned unpaid, 

the funds will generally be available on the 

(number) business day after the day of 

deposit for checks drawn on (bank name), the 

(number) business day after the day of 

deposit for local checks and the (number) 

business day for nonlocal checks. Checks 

(not drawn on us) that otherwise would 

receive next-day availability will be treated 

as either local or nonlocal checks depending 

on the location of the paying bank. 

C–15—One-Time Notice for RepeatedOverdraft Exception Holds 

NOTICE OF HOLD 

Account number: Date of deposit: 

(number) (date) 

We are delaying the availability of checks 

deposited into your account due to repeated 

overdrafts of your account. For the next six 

months, deposits will generally be available 

on the (number) business day after the day 

of your deposit for checks drawn on (bank 

name), the (number) business day after the 

day of your deposit for local checks, and the 

(number) business day after the day of 

deposit for nonlocal checks. Checks (not 

drawn on us) that otherwise would have 

received next-day availability will be treated 

as either local or nonlocal checks depending 

on the location of the paying bank. 

C–16—Case-by-Case Hold Notice 

NOTICE OF HOLD 

Account number: Date of deposit: 

(number) (date) 

We are delaying the availability of 

$(amount being held) from this deposit. 

These funds will be available on the 

(number) business day after the day of your 

deposit ([subject to our cash-withdrawal 

limitation policy]). 

[If you did not receive this notice at the 

time you made the deposit and the check you 

deposited is paid, we will refund to you any 

fees for overdrafts or returned checks that 

result solely from the additional delay that 

we are imposing. To obtain a refund of such 

fees, (description of procedure for obtaining 

refund).] 

C–17—Notice at Locations Where Employees 

Accept Consumer Deposits 

C–18—Notice at Locations Where Employees 

Accept Consumer Deposits (Case-by-Case 

Holds) 

FUNDS—AVAILABILITY POLICY 

Our general policy is to allow you to 

withdraw funds deposited in your account 

on the (number) business day after the day 

we receive your deposit. Funds from 

electronic deposits will be available on the 

day we receive the deposit. In some cases, we 

may delay your ability to withdraw funds 

beyond the (number) business day. Then, the 

funds will generally be available by the fifth 

business day after the day of deposit.¿ 

BILLING CODE 6210–01–P 


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BILLING CODE 6210–01–C 

fiC–ø19¿fl15fi—Notice at Automated 

Teller Machines 

AVAILABILITY OF DEPOSITS 

Funds from deposits may not be available 

for immediate withdrawal. Please refer to 

your institution’s rules governing funds 

availability for details. 

C–ø20¿fl16fi—Notice at Automated Teller 

Machines (Delayed Receipt) 

NOTICE 

Deposits at this ATM between (day) and 

(day) will not be considered received until 

(day). The availability of funds from the 

deposit may be delayed as a result. 

C–ø21¿fl17fi—Deposit-Slip Notice 

Deposits may not be available for 

immediate withdrawal. 

C–ø22¿fl18fi—Expedited-Recredit Claim, 

Valid-Claim Refund Notice 

Notice of Valid Claim and Refund 

We have determined that your substitutecheck claim is valid. We are refunding 

(amount) [of which [(amount) represents 

fees] [and] [(amount) represents accrued 

interest]] to your account. You may withdraw 

these funds as of (date). [This refund is the 

amount in excess of the $2,500 [plus interest] 

that we credited to your account on (date).] 

C–ø23¿fl19fi—Expedited-Recredit Claim, 

Provisional-Refund Notice 

Notice of Provisional Refund 

In response to your substitute-check claim, 

we are refunding (amount) [of which 

[(amount) represents fees] [and] [(amount) 

represents accrued interest]] to your account, 

while we complete our investigation of your 

claim. You may withdraw these funds as of 

(date). [Unless we determine that your claim 

is not valid, we will credit the remaining 

amount of your refund to your account no 

later than the 45th calendar day after we 

received your claim.] 

If, based on our investigation, we 

determine that your claim is not valid, we 

will reverse the refund by withdrawing the 

amount of the refund [plus interest that we 

have paid you on that amount] from your 

account. We will notify you within one day 

of any such reversal. 

C–ø24¿fl20fi—Expedited-Recredit Claim, 

Denial Notice 

Denial of Claim 

Based on our review, we are denying your 

substitute-check claim. As the enclosed (type 

of document, for example original check or 

sufficient copy) shows, (describe reason for 

denial, for example the check was properly 

posted, the signature is authentic, there was 

no warranty breach). 

[We have also enclosed a copy of the other 

information we used to make our decision.] 

[Upon your request, we will send you a copy 

of the other information that we used to make 

our decision.] 

C–ø25¿fl21fi—Expedited-Recredit Claim, 

Reversal Notice 

Reversal of Refund 

In response to your substitute-check claim, 

we provided a refund of (amount) by 

crediting your account on (date(s)). We now 

have determined that your substitute check 

claim was not valid. As the enclosed (type of 

document, for example original check or 

sufficient copy) shows, (describe reason for 

reversal, for example the check was properly 

posted, the signature is authentic, there was 

no warranty breach). As a result, we have 

reversed the refund to your account øplus 

interest that we have paid you on that 

amount¿ by withdrawing (amount) from your 

account on (date). 

øWe have also enclosed a copy of the other 

information we used to make our decision.¿ 


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øUpon your request, we will send you a copy 

of the information we used to make our 

decision.¿ 

35. Appendix D to Part 229 is revised 

to read as follows: 

Appendix D to Part 229—Indorsement, 

Reconverting Bank Identification, and 

Truncating Bank Identification 

Standards 

(1) The depositary bank shall indorse an 

original check or substitute check according 

to the following specifications: 

(i) The indorsement shall contain— 

(A) The bank’s nine-digit routing number, 

set off by an arrow at each end of the number 

and pointing toward the number, and, if the 

depositary bank is a reconverting bank with 

respect to the check, an asterisk outside the 

arrow at each end of the routing number to 

identify the bank as a reconverting bank; 

(B) The indorsement date; and 

(C) The bank’s name or location, if the 

depositary bank applies the indorsement 

physically. 

(ii) The indorsement also may contain— 

(A) A branch identification; 

(B) A trace or sequence number; 

ø(C) A telephone number for receipt of 

notification of large-dollar returned checks;¿ 

and 

ø(D)¿fl(C)fi Other information, provided 

that the inclusion of such information does 

not interfere with the readability of the 

indorsement. 

(iii)fl(A)fi The indorsement, if applied to 

an existing paper check, shall be placed on 

the back of the check so that the routing 

number is wholly contained in the area 3.0 

inches from the leading edge of the check to 

1.5 inches from the trailing edge of the 

check.ø31¿ 

ø31¿ fl(B) The leading edge is defined as 

the right side of the check looking at it from 

the front. The trailing edge is defined as the 

left side of the check looking at it from the 

front. See American National Standards 

Specifications for the Placement and 

Location of MICR Printing, X9.13.fi 

(iv) When printing its depositary bank 

indorsement (or a depositary bank 

indorsement that previously was applied 

electronically) onto a substitute check at the 

time that the substitute check is created, a 

reconverting bank shall place the 

indorsement on the back of the check 

between 1.88 and 2.74 inches from the 

leading edge of the check. The reconverting 

bank may omit the depositary bank’s name 

and location from the indorsement. 

(2) Each subsequent collecting bank or 

returning bank indorser shall protect the 

identifiability and legibility of the depositary 

bank indorsement by indorsing an original 

check or substitute check according to the 

following specifications: 

(i) The indorsement shall contain only— 

(A) The bank’s nine-digit routing number 

(without arrows) and, if the collecting bank 

or returning bank is a reconverting bank with 

respect to the check, an asterisk at each end 

of the number to identify the bank as a 

reconverting bank; 

(B) The indorsement date, and 

(C) An optional trace or sequence number. 

(ii) The indorsement, if applied to an 

existing paper check, shall be placed on the 

back of the check from 0.0 inches to 3.0 

inches from the leading edge of the check. 

(iii) When printing its collecting bank or 

returning bank indorsement (or a collecting 

bank or returning bank indorsement that 

previously was applied electronically) onto a 

substitute check at the time that the 

substitute check is created, a reconverting 

bank shall place the indorsement on the back 

of the check between 0.25 and 2.50 inches 

from the trailing edge of the check. 

(3) A reconverting bank shall comply with 

the following specifications when creating a 

substitute check: 

(i)fl(A)fi If it is a depositary bank, 

collecting bank, or returning bank with 

respect to the substitute check, the 

reconverting bank shall place its own 

indorsement onto the back of the check as 

specified in this appendix. 

ø(ii)¿fl(B) If it is a paying bank with 

respect to the substitute check or a bank that 

rejected a check submitted for deposit,fi 

øA¿flthefi reconverting bank øthat also is 

the paying bank with respect to the substitute 

check¿ shall so identify itself by placing on 

the back of the check, between 0.25 and 2.50 

inches from the trailing edge of the check, its 

nine-digit routing number (without arrows) 

and an asterisk at each end of the number. 

ø(iii)¿fl(ii)fi The reconverting bank shall 

place on the front of the check, outside the 

image of the original checkø,¿fl--fi 

fl(A)fi its nine-digit routing number 

(without arrows) and an asterisk at each end 

of the number, in accordance with ANS 

X9.100–140ø.¿fl, andfi 

ø(iv)¿fl(B)fi øThe reconverting bank shall 

place on the front of the check, outside the 

image of the original check,¿ the truncating 

bank’s nine-digit routing number (without 

arrows) and a bracket at each end of the 

number, in accordance with ANS X9.100– 

140. 

(4) Any indorsement, reconverting bank 

identification, or truncating bank 

identification placed on an original check or 

substitute check shall be printed in black ink. 

fl(5) A depositary bank shall indorse an 

electronic collection item in accordance with 

ANS X9.100–187, unless the parties 

otherwise agree, and according to the 

following specifications— 

(i) The electronic indorsement shall 

contain— 

(A) The depositary bank’s nine-digit 

routing number; and 

(B) The indorsement date. 

(ii) The electronic indorsement also may 

contain other information, provided that the 

inclusion of such information does not 

interfere with the readability of the 

indorsement. 

(6) Each subsequent collecting bank or 

returning bank indorser shall protect the 

identifiability and legibility of the depositary 

bank indorsement by indorsing an electronic 

collection item or electronic return in 

accordance with ANS X9.100–187, unless the 

parties otherwise agree.fi 

36. Amend Appendix E to Part 229 as 

follows: 

A. Revise Sections II through XI. 

B. In Section XII, revise paragraphs A. 

and E. 

C. Revise Sections XIII through 

XXVIII. 

D. In Section XXIX, revise paragraph 

B. 

E. Revise Sections XXX through 

XXXIII. 

F. Revise Section XXXVIII. 

The revisions read as follows: 

Appendix E to Part 229—Commentary 

I. Introduction 

A. Background 

1. The Board interpretations, which are 

labeled ‘‘Commentaryfl,fi’’ øand 

follow¿floffi each section of Regulation CC 

(12 CFR part 229)ø,¿ provide background 

material to explain the Board’s intent in 

adopting a particular part of the regulation; 

the Commentary also provides examples to 

aid in understanding how a particular 

requirement is to work. Under section 611(e) 

of the Expedited Funds Availability Act (12 

U.S.C. 4010(e)) fl(the EFA Act)fi, no 

provision of section 611 imposing any 

liability shall apply to any act done or 

omitted in good faith conformity with any 

rule, regulation, or interpretation thereof by 

the Board of Governors of the Federal 

Reserve System, notwithstanding the fact that 

after such act or omission has occurred, such 

rule, regulation, or interpretation is amended, 

rescinded, or determined by judicial or other 

authority to be invalid for any reason. The 

Commentary is an ‘‘interpretation’’ of a 

regulation by the Board within the meaning 

of section 611. 

II. Section 229.2 Definitions 

A. Background 

1. Section 229.2 defines the terms used in 

the regulation. For the most part, terms are 

defined as they are in section 602 of the 

øExpedited Funds Availability¿ flEFAfi 

Act (12 U.S.C. 4001) flor in section 3 of the 

Check 21 Act (12 U.S.C. 5002)fi. The Board 

has made a number of changes for the sake 

of clarity, to conform the terminology to that 

which is familiar to the banking industry, to 

define terms that are not defined in the EFA 

Act flor the Check 21 Actfi, and to carry 

out the purposes of the EFA Act fland the 

Check 21 Actfi. The Board also has 

incorporated by reference the definitions of 

the Uniform Commercial Code where 

appropriate. Some of Regulation CC’s 

definitions are self-explanatory and therefore 

are not discussed in this Commentary. 

B. 229.2(a) Account 

1. The EFA Act defines account to mean 

‘‘a demand deposit account or similar 

transaction account at a depository 

institution.’’ The regulation defines account, 

for purposes other than subpart D, in terms 

of the definition of ‘‘transaction account’’ in 

the Board’s Regulation D (12 CFR part 204). 

This definition of account, however, 

excludes certain deposits, such as 

nondocumentary obligations (see 12 CFR 

204.2(a)(1)(vii)), that are covered under the 

definition of ‘‘transaction account’’ in 

Regulation D. The definition applies to 


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accounts with general third party payment 

powers but does not cover time deposits or 

savings deposits, including money market 

deposit accounts, even though they may have 

limited third party payment powers. øThe 

Board believes that it is appropriate to 

exclude t¿flTfihese accounts flare 

excludedfi because of the reference to 

demand deposits in the EFA Act, which 

suggests that the EFA Act is intended to 

apply only to accounts that permit unlimited 

third party transfers. 

2. The term account also differs from the 

definition of transaction account in 

Regulation D because the term account refers 

to accounts held at banks. Under 

øS¿flsfiubparts A and C, the term bank 

includes not only any depository institution, 

as defined in the EFA Act, but also any 

person engaged in the business of banking, 

such as a Federal Reserve Bank, a Federal 

Home Loan Bank, or a private banker that is 

not subject to Regulation D. Thus, accounts 

at these institutions benefit from the 

expeditious return requirements of 

øS¿flsfiubpart C. 

3. Interbank deposits, including accounts 

of offices of domestic banks or foreign banks 

located outside the United States, and direct 

and indirect accounts of the United States 

Treasury (including Treasury General 

Accounts and Treasury Tax and Loan 

deposits) are exempt from subpart B and, in 

connection therewith, subpart A. However, 

interbank deposits are included as accounts 

for purposes of subparts C and D and, in 

connection therewith, subpart A. 

4. The Check 21 Act defines account to 

mean any deposit account at a bank. 

Therefore, for purposes of subpart D and, in 

connection therewith, subpart A, account 

means any deposit, as that term is defined by 

§ 204.2(a)(1)(i) of Regulation D, at a bank. 

Many deposits that are not accounts for 

purposes of the other subparts of Regulation 

CC, such as savings deposits, are accounts for 

purposes of subpart D. 

C. 229.2(b) Automated Clearinghouse (ACH) 

flCredit Transferfi 

1. flAutomated Clearinghouse (ACH) 

credit transfers are included in the definition 

of electronic payment.fi øThe Board has 

defined automated clearinghouse as¿ flAn 

ACH isfi a facility that processes debit and 

credit transfers under rules established by a 

Federal Reserve Bank operating circular 

governing øautomated 

clearinghouse¿flACHfi items or the rules of 

an ACH association flor similar interbank 

agreementfi. øACH credit transfers are 

included in the definition of electronic 

payment.¿ flThe reference to ‘‘debit and 

credit transfers’’ does not refer to the 

corresponding debit and credit entries that 

are part of the same transaction, but to the 

different kinds of ACH payments. In an ACH 

credit transfer, the originator orders that its 

account be debited and another account 

credited. In contrast, in an ACH debit 

transfer, the originator, with prior 

authorization, orders another account to be 

debited and the originator’s account to be 

credited.fi ø2. The reference to ‘‘debit and 

credit transfers’’ does not refer to the 

corresponding debit and credit entries that 

are part of the same transaction, but to the 

different kinds of ACH payments. In an ACH 

credit transfer, the originator orders that its 

account be debited and another account 

credited. In an ACH debit transfer, the 

originator, with prior authorization, orders 

another account to be debited and the 

originator’s account to be credited.¿ 

ø3¿fl2fi. A facility that handles only wire 

transfers (defined elsewhere) is not an ACH. 

D. 229.2(c) Automated Teller Machine (ATM) 

1. øATM is not defined in the EFA Act. 

The regulation defines a¿flAfin ATM 

øas¿flisfi an electronic device at which a 

natural person may make deposits to an 

account by cash or flpaperfi check and 

perform other account transactionsfl, such 

as cash withdrawalsfi. Point-of-sale 

terminals, machines that only dispense cash, 

night depositories, and lobby deposit boxes 

are not ATMs within the meaning of the 

definition, either because they do not accept 

deposits of cash or checks (e.g., point-of-sale 

terminals and cash dispensers) or because 

they only accept deposits (e.g., night 

depositories and lobby boxes) and cannot 

fldispense cash andfi perform other 

transactions. A lobby deposit box or similar 

receptacle in which written payment orders 

or deposits may be placed is not an ATM. 

flFinally, a remote deposit capture device is 

not an ATM because a natural person can 

deposit neither cash nor paper checks into an 

account using the device.fi 

2. A facility may be an ATM within this 

definition even if it is a branch under state 

or federal law, although an ATM is not a 

branch as that term is used in this regulation. 

E. 229.2(d) Available for Withdrawal 

1. Under this definition, when funds 

become available for withdrawal, the funds 

may be put to all uses for which the customer 

may use actually and finally collected funds 

in the customer’s account under the 

customer’s account agreement with the bank. 

Examples of such uses include payment of 

checks drawn on the account, certification of 

checks, electronic payments, and cash 

withdrawals. Funds are available for these 

uses notwithstanding provisions of other law 

that may restrict the use of uncollected funds 

(e.g., 18 U.S.C. 1004; 12 U.S.C. 331). 

2. If a bank makes funds available to a 

customer for a specific purpose (such as 

paying checks that would otherwise 

overdraw the customer’s account and be 

returned for insufficient funds) before the 

funds must be made available under the 

bank’s policy or this regulation, it may 

nevertheless apply a hold consistent with 

this regulation to those funds for other 

purposes (such as cash withdrawals). For 

purposes of this regulation, funds are 

considered available for withdrawal even 

though they are being held by the bank to 

satisfy an obligation of the customer other 

than the customer’s potential liability for the 

return of the check. For example, a bank does 

not violate its obligations under this subpart 

by holding funds to satisfy a garnishment, tax 

levy, or court order restricting disbursements 

from the account; or to satisfy the customer’s 

liability arising from the certification of a 

check, sale of a cashier’s or teller’s check, 

guaranty or acceptance of a check, or similar 

transaction to be debited from the customer’s 

account. 

F. 229.2(e) Bank 

1. The EFA Act uses the term depository 

institution, which it defines by reference to 

section 19(b)(1)(A)(i) through (vi) of the 

Federal Reserve Act (12 U.S.C. 461(b)(1)(A)(i) 

through (vi)). This regulation uses the term 

bank, a term that conforms to the usage the 

Board has previously adopted in Regulation 

J fl(12 CFR part 210)fi. Bank is also used 

in Articles 4 and 4A of the Uniform 

Commercial Code. 

2. Bank is defined to include depository 

institutions, such as commercial banks, 

savings banks, savings and loan associations, 

and credit unions as defined in the EFA Act, 

and U.S. branches and agencies of foreign 

banks. For purposes of øS¿flsfiubpart B, 

the term does not include corporations 

organized under section 25A of the Federal 

Reserve Act, 12 U.S.C. 611–631 (Edge 

corporations) or corporations having an 

agreement or undertaking with the Board 

under section 25 of the Federal Reserve Act, 

12 U.S.C. 601–604a (agreement corporations). 

For purposes of øS¿flsfiubparts C and D, 

and in connection therewith, 

øS¿flsfiubpart A, any Federal Reserve 

Bank, Federal Home Loan Bank, or any other 

person engaged in the business of banking is 

regarded as a bank. The phrase ‘‘any other 

person engaged in the business of banking’’ 

is derived from U.C.C. 1–201fl(b)fi(4), and 

is intended to cover entities that handle 

checks for collection and payment, such as 

Edge and agreement corporations, 

commercial lending companies under 12 

U.S.C. 3101, certain industrial banks, and 

private bankers, so that virtually all checks 

will be covered by the same rules for forward 

collection and return, even though they may 

not be covered by the requirements of 

øS¿flsfiubpart B. For the purposes of 

øS¿flsfiubparts C and D, and in connection 

therewith, øS¿flsfiubpart A, the term also 

may include a state or a unit of general local 

government to the extent that it pays 

warrants or other drafts drawn directly on the 

state or local government itself, and the 

warrants or other drafts are sent to the state 

or local government for payment or 

collection. 

3. Unless otherwise specified, the term 

bank includes all of a bank’s offices in the 

United States. The regulation does not cover 

foreign offices of U.S. banks. 

4. For purposes of subpart D and, in 

connection therewith, subpart A, the term 

bank also includes the Treasury of the United 

States and the United States Postal Service to 

the extent that they act as paying banks 

because the Check 21 Act includes these two 

entities in the definition of the term bank to 

the extent that they act as payors. 

G. 229.2(f) Banking Day and (g) Business Day 

1. The EFA Act fland the Check 21 Actfi 

defineøs¿ business day as any day excluding 

Saturdays, Sundays, and legal holidays. Legal 

holiday, however, is not defined, and the 

variety of local holidays, together with the 

practice of some banks to close midweek, 

makes the EFA Act’s definition difficult to 

apply. øThe Board believes that t¿flTfiwo 

kinds of business days are relevant. First, 

when determining the day when funds are 

deposited or when a bank must perform 


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certain actions (such as returning a check), 

the focus should be on a day that the bank 

is actually open for business. Second, when 

counting days for purposes of determining 

when funds must be available under the 

regulationøor when notice of nonpayment 

must be received by the depositary bank¿, 

there would be confusion and uncertainty in 

trying to follow the schedule of a particular 

bank, and there is less need to identify a day 

when a particular bank is open. Most banks 

that act as intermediaries (large 

correspondents and Federal Reserve Banks) 

follow the same holiday schedule. 

Accordingly, the regulation has two 

definitions: Business day generally follows 

the standard Federal Reserve Bank holiday 

schedule (which is followed by most large 

banks), and banking day is defined to mean 

that part of a business day on which a bank 

is open for substantially all of its banking 

activities. 

2. The definition of banking day 

corresponds to the definition of banking day 

in U.C.C. 4–104(a)(3), except that a banking 

day is defined in terms of a business day. 

Thus, if a bank is open on Saturday, Saturday 

might be a banking day for purposes of the 

U.C.C., but it would not be a banking day for 

purposes of Regulation CC because Saturday 

is never a business day under the regulation. 

3. The definition of banking day is phrased 

in terms of when ‘‘an office of a bank is open’’ 

to indicate that a bank may observe a banking 

day on a per-branch basis. A deposit made 

at an ATM or off-premise facility (such as a 

remote depository or a lock box) is 

considered made at the branch holding the 

account into which the deposit is made for 

the purpose of determining the day of 

deposit. All other deposits are considered 

made at the branch at which the deposit is 

received. For example, under § 229.19(a)(1), 

funds deposited at an ATM are considered 

deposited at the time they are received at the 

ATM. On a calendar day that is a banking 

day for the branch or other location of the 

depositary bank at which the account is 

maintained, a deposit received at an ATM 

before the ATM’s cut-off hour is considered 

deposited on that banking day, and a deposit 

received at an ATM after the ATM’s cut-off 

hour is considered deposited on the next 

banking day of the branch or other location 

where the account is maintained. On a 

calendar day that is not a banking day for the 

account-holding location, all ATM deposits 

are considered deposited on that location’s 

next banking day. This rule for determining 

the day of deposit also would apply to a 

deposit to an off-premise facility, such as a 

night depository or lock box, which is 

considered deposited when removed from 

the facility and available for processing 

under § 229.19(a)(3). If an unstaffed facility, 

such as a night depository or lock box, is on 

branch premises, the day of deposit is 

determined by the banking day at the branch 

at which the deposit is received, whether or 

not it is the branch at which the account is 

maintained. 

H. 229.2(h) Cash 

1. Cash means U.S. coins and currency. 

The phrase in the EFA Act ‘‘including 

Federal Reserve notes’’ has been deleted as 

unnecessary. (See 31 U.S.C. 5103.) 

I. 229.2(i) Cashier’s Check 

1. The regulation adds to the second item 

in the EFA Act’s definition of cashier’s check 

the phrase, ‘‘on behalf of the bank as drawer,’’ 

to clarify that the term cashier’s check is 

intended to cover only checks that a bank 

draws on itself. The definition of cashier’s 

check includes checks provided to a 

customer of the bank in connection with 

customer deposit account activity, such as 

account disbursements and interest 

payments. The definition also includes 

checks acquired from a bank by 

noncustomers for remittance purposes, such 

as certain loan disbursement checks. 

Cashier’s checks provided to customers or 

others are often labeled as ‘‘cashier’s check,’’ 

‘‘officer’s check,’’ or ‘‘official check.’’ The 

definition excludes checks that a bank draws 

on itself for other purposes, such as to pay 

employees and vendors, and checks issued 

by the bank in connection with a payment 

service, such as a payroll or a bill-paying 

service. Cashier’s checks generally are sold 

by banks to substitute the bank’s credit for 

the customer’s credit and thereby enhance 

the collectibility of the checks. A check 

issued in connection with a payment service 

generally is provided as a convenience to the 

customer rather than as a guarantee of the 

check’s collectibility. In addition, such 

checks are often more difficult to distinguish 

from other types of checks than are cashier’s 

checks as defined by this regulation. 

J. 229.2(j) Certified Check 

1. The EFA Act defines a certified check 

as one to which a bank has certified that the 

drawer’s signature is genuine and that the 

bank has set aside funds to pay the check. 

Under the Uniform Commercial Code, 

certification of a check means the bank’s 

signed agreement that it will honor the check 

as presented (U.C.C. 3–409). The regulation 

defines certified check to include both the 

EFA Act’s and U.C.C.’s definitions. 

K. 229.2(k) Check 

1. Check is defined in section 602(7) of the 

EFA Act as a negotiable demand draft drawn 

on or payable through an office of a 

depository institution located in the United 

States, excluding noncash items. The 

regulation includes six categories of 

instruments within the definition of check. 

flCheck is defined in section 3 of the Check 

21 Act as including nonnegotiable demand 

drafts. Because these instruments are often 

handled as cash items in the forward 

collection process, for the purposes of 

subparts C and D, and in connection 

therewith, subpart A, the definition of check 

includes nonnegotiable demand drafts drawn 

on or payable through a bank, drawn on a 

Federal Reserve Bank or Federal Home Loan 

Bank, or drawn on the Treasury of the United 

States.fi 

2. The first category is negotiable demand 

drafts drawn on, or payable through or at, an 

office of a bank. As the definition of bank 

includes only offices located in the United 

States, this category is limited to checks 

drawn on, or payable through or at, a banking 

office located in the United States. 

3. The EFA Act fland the Check 21 Actfi 

treatøs¿ drafts payable through a bank as 

checks, even though under the U.C.C. the 

payable-through bank is a collecting bank to 

make presentment and generally is not 

authorized to make payment (U.C.C. 4– 

106(a)). øThe¿ flNeither thefi EFA Act 

flnor the Check 21 Actfi ødoes not¿ 

expressly address items that are payable at a 

bank. This regulation treats both payablethrough and payable-at demand drafts as 

checks. øThe Board believes that 

t¿flTfireating demand drafts payable at a 

bank as checks øwill¿flshouldfi not have a 

substantial effect on the operations of 

payable-at banks—by far the largest 

proportion of payable-at items are not 

negotiable demand drafts, but time items, 

such as commercial paper, bonds, notes, 

bankers’ acceptances, and securities. These 

time items are not covered by the 

requirements of the EFA Act or this 

regulation. ø(The treatment of payablethrough drafts is discussed in greater detail 

in connection with the definitions of local 

check and paying bank.)¿ 

4. The second category is checks drawn on 

Federal Reserve Banks and Federal Home 

Loan Banks. Principal and interest payments 

on federal debt instruments øoften are¿ 

flmay befi paid with checks drawn on a 

Federal Reserve Bank as fiscal agent of the 

United Statesø, and these fiscal agency 

checks are indistinguishable from other 

checks drawn on Federal Reserve Banks¿. 

(See 31 CFR part 355.) øFederal Reserve Bank 

checks also are used by some banks as 

substitutes for cashier’s or teller’s checks. 

Similarly, s¿flSfiavings and loan 

associations øoften¿flmayfi use checks 

drawn on Federal Home Loan Banks as 

teller’s checks. The definition of check 

includes checks drawn on Federal Home 

Loan Banks and Federal Reserve Banks 

because in many cases they are the functional 

equivalent of Treasury checks or teller’s 

checks. 

5. The third and fourth categories of 

instrument included in the definition of 

check refer to government checks. The EFA 

Act refers to checks drawn on the U.S. 

Treasury, even though these instruments are 

not drawn on or payable through an office of 

a depository institution, and checks drawn 

by state and local governments. The EFA Act 

also øgives the Board authority to 

define¿flprovides thatfi functionally 

equivalent instruments flmay be defined in 

the regulationfi as depository checks.ø1¿ 

fl(See Section 602(11) of the EFA Act (12 

U.S.C. 4001(11)).fi Thus, the EFA Act is 

intended to apply to instruments other than 

those that meet the strict definition of check 

in section 602(7) of the EFA Act. Checks and 

warrants drawn by states and local 

governments often are used for the purposes 

of making unemployment compensation 

payments and other payments that are 

important to the recipients. Consequently, 

the øBoard has expressly 

defined¿flRegulation CC definesfi check to 

include drafts drawn on the U.S. Treasury 

and drafts or warrants drawn by a state or a 

unit of general local government on itself. 

ø1 Section 602(11) of the EFA Act (12 

U.S.C. 4001(11)) defines ‘‘depository check’’ 

as ‘‘any cashier’s check, certified check, 

teller’s check, and any other functionally 

equivalent instrument as determined by the 

Board.’’¿ 


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16930 Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 

6. The fifth category of instrument 

included in the definition of check is U.S. 

Postal Service money orders. These 

instruments are defined as checks because 

they often are used as a substitute for checks 

by consumers, even though money orders are 

not negotiable under Postal Service 

regulations. øThe Board has not 

provided¿flRegulation CC does not 

providefi specific rules for other types of 

money orders; these instruments generally 

are drawn on or payable through or payable 

at banks and are treated as checks on that 

basis. 

7. The sixth and final category of 

instrument included in the definition of 

check is traveler’s checks drawn on or 

payable through or at a bank. Traveler’s 

check is defined in paragraph ø(hh)¿ 

fl(vv)fi øof this section¿. 

ø8. Finally, for the purposes of Subparts C 

and D, and in connection therewith, Subpart 

A, the definition of check includes 

nonnegotiable demand drafts because these 

instruments are often handled as cash items 

in the forward collection process.¿ 

ø9¿fl8fi. A substitute check as defined in 

§ 229.2ø(aaa)¿fl(rr)fi is a check for purposes 

of Regulation CC and the U.C.C., even if that 

substitute check does not meet the 

requirements for legal equivalence set forth 

in § 229.51(a). 

ø10¿fl9fi. The definition of check does 

not include an instrument payable in a 

foreign currency (i.e., other than in United 

States money as defined in 31 U.S.C. 5101) 

or a credit card draft (i.e., a sales draft used 

by a merchant or a draft generated by a bank 

as a result of a cash advance), or an ACH 

debit transfer. The definition of check 

includes a check that a bank may supply to 

a customer as a means of accessing a credit 

line without the use of a credit card. 

L. 229.2(l) øReserved¿ 

M. 229.2(m) øCheck Processing Region¿ 

ø1. The EFA Act defines this term as ‘‘the 

geographic area served by a Federal Reserve 

bank check processing center or such larger 

area as the Board may prescribe by 

regulations.’’ The Board has defined check 

processing region as the territory served by 

one of the Federal Reserve head offices, 

branches, or regional check processing 

centers. Appendix A includes a list of routing 

numbers arranged by Federal Reserve Bank 

office. The definition of check processing 

region is key to determining whether a check 

is considered local or 

nonlocal.¿fl[Reserved]fi 

N. 229.2(n) [Reserved] 

O. 229.2(o) Consumer Account 

1. Consumer account is defined as an 

account used primarily for personal, family, 

or household purposes. An account that does 

not meet the definition of consumer account 

is a nonconsumer account. A clearing 

account maintained at a bank directly by a 

brokerage firm is not a consumer account, 

even if the account is used to pay checks 

drawn by consumers using the funds in that 

account. The bank’s relationship is with the 

brokerage firm, and the account is used by 

the brokerage firm to facilitate the clearing of 

its customers’ checks. Because for purposes 

of Regulation CC the term account includes 

only deposit accounts, a consumer’s 

revolving credit relationship or other line of 

credit with a bank is not a consumer account, 

even if the consumer draws on such credit 

lines by using a check. Both consumer and 

nonconsumer accounts are subject to the 

requirements of this regulation, including the 

requirement that funds be made available 

according to specific schedules and that the 

bank make specified disclosures of its 

availability policies. Section 229.18(b) 

(notices at branch locations) and § 229.18(e) 

(notice of changes in policy) apply only to 

consumer accounts. Section 229.13(g)(2) 

(one-time exception notice) and § 229.19(d) 

(use of calculated availability) apply only to 

nonconsumer accounts. 

P. 229.2(p) Contractual Branch 

1. When one bank arranges for another 

bank to accept deposits on its behalf, the 

second bank is a contractual branch of the 

first bank. For further discussion of 

contractual branch deposits and related 

disclosures, see § [§ 229.2(s) and] 229.19(a) of 

the regulation and the commentary to 

§ [§ 229.2(s),] 229.10(c), 229.14(a), 229.16(a), 

229.18(b), and 229.19(a). 

Q. 229.2(q) [Reserved] 

R. 229.2(r) ø229.2(r) Local Check 

1. Local check is defined as a check 

payable by or at a local paying bank, or, in 

the case of nonbank payors, payable through 

a local paying bank. A check payable by a 

local bank but payable through a nonlocal 

bank is a local check. Conversely, a check 

payable through a local bank but payable by 

a nonlocal bank is a nonlocal check. Where 

two banks are named on a check and neither 

is designated as a payable-through bank, the 

check is considered payable by either bank 

and may be considered local or nonlocal 

depending on the bank to which it is sent for 

payment. Generally, the depositary bank may 

rely on the routing number to determine 

whether a check is local or nonlocal. 

Appendix A includes a list of routing 

numbers arranged by Federal Reserve Bank 

Office to assist persons in determining 

whether or not such a check is local. If, 

however, a check is payable by one bank but 

payable through another bank, the routing 

number appearing on the check will be that 

of the payable-through bank, not the paying 

bank. Many credit union share drafts and 

certain other checks payable by banks are 

payable through other banks. In such cases, 

the routing number cannot be relied on to 

determine whether the check is local or 

nonlocal. For payable-through checks that 

meet the labeling requirements of § 229.36(e), 

the depositary bank may rely on the fourdigit routing symbol of the paying bank that 

is printed on the face of the check as required 

by that section, e.g., in the title plate, but not 

on the first four digits of the payable-through 

bank’s routing number printed in magnetic 

ink in the MICR line or in fractional form, to 

determine whether the check is local or 

nonlocal.¿ Depositary Bank 

1. The regulation uses the term depositary 

bank rather than the term receiving 

depository institution. Receiving depository 

institution is a term unique to the EFA Act, 

while depositary bank is the term used in 

Article 4 of the U.C.C. and Regulation J fl(12 

CFR part 210). The Check 21 Act uses the 

term depositary bank.fi 

2. A depositary bank includes the bank in 

which the check is first deposited. If a foreign 

office of a U.S. or foreign bank sends checks 

to its U.S. correspondent bank for forward 

collection, the U.S. correspondent is the 

depositary bank because foreign offices of 

banks are not included in the definition of 

bank. 

3. If a customer deposits a check in its 

account at a bank, the customer’s bank is the 

depositary bank with respect to the check. 

For example, if a person deposits a check 

into an account at a nonproprietary ATM, the 

bank holding the account into which the 

check is deposited is the depositary bank 

even though another bank may service the 

nonproprietary ATM and send the check for 

collection. (Under § 229.35 the depositary 

bank may agree with the bank servicing the 

nonproprietary ATM to have the servicing 

bank place its own indorsement on the check 

as the depositary bank. For the purposes of 

øS¿flsfiubpart C, the bank applying its 

indorsement as the depositary bank 

indorsement on the check is the depositary 

bank.) 

4. For purposes of øS¿flsfiubpart B, a 

bank may act as both the depositary bank and 

the paying bank with respect to a check, if 

the check is payable by the bank in which 

it was deposited, or if the check is payable 

by a nonbank payor and payable through or 

at the bank in which it was deposited. A 

bank also is considered a depositary bank 

with respect to checks it receives as payee. 

For example, a bank is a depositary bank 

with respect to checks it receives for loan 

repayment, even though these checks are not 

deposited in an account at the bank. Because 

these checks would not be ‘‘deposited to 

accounts,’’ they would not be subject to the 

availability or disclosure requirements of 

øS¿flsfiubpart B. 

fl5. A bank is not a depositary bank with 

respect to a check if the bank receives the 

check for deposit but then rejects the check. 

For example, if a bank’s customer submits a 

check for deposit into an ATM and the bank 

subsequently reviewed the item and 

determined not to accept the item for deposit, 

that bank is not a depositary bank with 

respect to the check it rejected. Accordingly, 

such a bank does not take on the liabilities 

of a depositary bank under this part.fi 

øS. 229.2(s) Local Paying Bank 

1. ‘‘Local paying bank’’ is defined as a 

paying bank located in the same checkprocessing region as the branch, contractual 

branch, or proprietary ATM of the depositary 

bank. For example, a check deposited at a 

contractual branch would be deemed local or 

nonlocal based on the location of the 

contractual branch with respect to the 

location of the paying bank. 

Examples. 

a. If a check that is payable by a bank that 

is located in the same check processing 

region as the depositary bank is payable 

through a bank located in another check 

processing region, the check is considered 

local or nonlocal depending on the location 

of the bank by which it is payable even if the 


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Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 16931 

check is sent to the nonlocal bank for 

collection. 

b. The location of the depositary bank is 

determined by the physical location of the 

branch or proprietary ATM at which a check 

is deposited, regardless of whether the 

deposit is made in person, by mail, or 

otherwise. For example, if a branch of the 

depositary bank located in one checkprocessing region sends a check that was 

deposited at that branch to the depositary 

bank’s central facility in another checkprocessing region, and the central facility is 

in the same check-processing region as the 

paying bank, the check is still considered 

nonlocal. ( See the commentary to the 

definition of ‘‘paying bank.’’) 

c. If a person deposits a check to an 

account by mailing or otherwise sending the 

check to a facility or office that is not a bank, 

the check is considered local or nonlocal 

depending on the location of the bank whose 

indorsement appears on the check as the 

depositary bank.¿ 

flS. 229.2(s) Electronic Collection Item 

1. Banks often enter into agreements under 

which a check may be transferred or 

presented by sending an electronic image of 

the check and electronic information related 

to the check (e.g., MICR-line information). 

The terms of the agreements may vary. If, 

however, an electronic collection item 

satisfies all the requirements set forth in 

§ 229.2(s), then the provisions of subpart C 

apply to the electronic collection item as if 

it were a check subject to that subpart. 

a. The agreement to receive an electronic 

collection item may be either bilateral or 

through a Federal Reserve Bank operating 

circular, clearinghouse rule, or other 

interbank agreement. (See UCC § 4–110). 

b. The electronic image of the front and 

back of the original check or substitute check 

as well as electronic information related to 

the check must be sufficient to create a 

substitute check. Electronic information 

related to the check includes information 

contained in the MICR line of the check prior 

to truncation. Some banks’ agreements to 

receive items electronically may not require 

an electronic image of the front and back of 

an original check. Electronic items received 

under these agreements would not be 

electronic collection items under this part. 

c. ANS X9.100–187 is the most prevalent 

industry standard for electronic images and 

information that will enable a bank to create 

a substitute check. Multiple standards may, 

however, exist that would enable a bank to 

create a substitute check from an electronic 

image and information. Accordingly, the 

parties may agree to send and receive checks 

as electronic images and information that 

conform to a different standard. 

d. Electronic collection items that contain 

images of the front and back of a substitute 

check also are electronic representations of a 

substitute check (see § 229.2(hh)). Not all 

electronic representations of substitute 

checks, however, are electronic collection 

items. To be an electronic collection item, the 

electronic representation of a substitute 

check must satisfy the requirements for 

electronic collection items—it must contain 

sufficient information to create a substitute 

check and it must conform to ANS X9.100– 

187, unless the parties agree to a different 

standard.fi 

T. 229.2(t) Electronic Payment 

1. Electronic payment is defined to mean 

a wire transfer as defined in 

§ 229.2ø(ll)¿fl(bbb)fi or an ACH credit 

transfer flas defined in § 229.2(b)fi. The 

EFA Act requires that funds deposited by 

wire transfer be made available for 

withdrawal on the business day following 

deposit but expressly leaves the definition of 

the term wire transfer to the 

øBoard¿flregulationfi. Because ACH credit 

transfers øfrequently involve important 

consumer payments, such as wages¿flpose 

little risk of return to the depositary bankfi, 

the regulation requires that funds deposited 

by ACH credit transfers be available for 

withdrawal on the business day following 

deposit. 

2. ACH debit transfers, even though they 

may be transmitted electronically, are not 

defined as electronic payments because the 

receiver of an ACH debit transfer has the 

right to return the transfer, which would 

reverse the credit given to the originator. 

Thus, ACH debit transfers are more like 

checks than wire transfers. Further, bank 

customers that receive funds by originating 

ACH debit transfers are primarily large 

corporations, which generally would be able 

to negotiate with their banks for prompt 

availability. 

3. A point-of-sale transaction would not be 

considered an electronic payment unless the 

transaction was effected by means of an ACH 

credit transfer or wire transfer. 

flU. 229.2(u) Electronic Presentment Point 

1. The term ‘‘electronic presentment point’’ 

means the electronic address that a paying 

bank has designated as the place to which 

electronic collection items be presented. This 

address may be either an e-mail address or 

other electronic address.fi 

flV. 229.2(v) Electronic Return 

1. Many paying banks have entered into 

agreements with returning banks, depositary 

banks, clearinghouses, or other parties to 

return checks electronically. For purposes of 

subpart C, the term ‘‘electronic return’’ means 

an electronic image of and electronic 

information related to a check the paying 

bank determines not to pay and that is 

sufficient for a subsequent bank to create a 

substitute check (See § 229.2(rr) and 

accompanying commentary). To be sufficient 

to create a substitute check, the electronic 

image must include an image of both the 

front and back of the check. The electronic 

information, typically contained in an 

electronic record accompanying the 

electronic image, must include information 

from the MICR line of the check at the time 

it was truncated. The electronic record may 

include information in addition to MICR-line 

related information. 

2. ANS X9.100–187 is the most prevalent 

industry standard for electronic images and 

information that will enable a subsequent 

bank to create a substitute check (i.e., in 

accordance with ANS X9.100–140). Similar 

to electronic presentment, multiple standards 

may exist that would enable a bank to create 

a substitute check from an electronic image 

and information. Accordingly, the parties 

may agree to return checks as electronic 

images and information that conform to a 

different standard. For example, the 

depositary bank may agree to receive the 

electronic image and information sufficient 

for creating a substitute check in a .pdf, 

rather than in accordance with ANS X9.100– 

187. 

3. An electronic image and information 

related to a check the paying bank 

determines not to pay is subject to the 

provisions of subpart C only if the depositary 

bank has agreed to receive the electronic 

return in accordance with § 229.32(a) (See 

§ 229.32(a) and accompanying commentary). 

4. Electronic returns that contain images of 

the front and back of a substitute check also 

are electronic representations of a substitute 

check (See § 229.2(hh)). Not all electronic 

representations of substitute checks, 

however, are electronic returns. To be an 

electronic return, the electronic 

representation of a substitute check must 

satisfy the requirements for electronic 

returns—it must contain sufficient 

information to create a substitute check and 

must conform to ANS X9.100–187.fi 

flW. 229.2(w) Electronic Return Point 

1. The term ‘‘electronic return point’’ means 

the e-mail address or other electronic address 

that a depositary bank has designated as the 

place to which electronic returns must be 

delivered. 

2. The electronic return point may be 

different from the electronic presentment 

point designated by a bank for presentment 

of electronic collection items.fi 

X. 229.2(x) [Reserved] 

Y. 229.2(y) Forward Collection 

1. Forward collection is defined to mean 

the process by which a bank sends a check 

to the paying bank for collection, including 

sending the check to an intermediary 

collecting bank for settlement, as 

distinguished from the process by which the 

check is returned unpaid. Noncash 

collections are not included in the term 

forward collection. 

Z. 229.2(z) Good Faith 

1. This definition of good faith derives 

from U.C.C. 3–103(a)(4). 

AA. 229.2(aa) [Reserved] 

BB. 229.2(bb) Interest Compensation 

1. This calculation of interest 

compensation derives from U.C.C. 4A– 

506(b). (See §§ 229.34ø(e)¿fl(f)fi and 

229.36ø(f)¿fl(d)fi.) 

CC. 229.2(cc) øMICR Line¿ flMagnetic ink 

character recognition line or MICR linefi 

1. Information in the MICR line of a check 

must be printed in accordance with ANS 

X9.13 for original checks and ANS X9.100– 

140 for substitute checks. These standards 

could vary the requirements for printing the 

MICR line, such as by indicating 

circumstances under which the use of 

magnetic ink is not required. 

DD. 229.2(dd) Merger Transaction 

1. Merger transaction is a term used in 

øS¿flsfiubparts B and C in connection with 


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16932 Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 

transition rules for merged banks. It 

encompasses mergers, consolidations, and 

purchase/assumption transactions of the type 

that usually must be approved under the 

Bank Merger Act (12 U.S.C. 1828(c)) or 

similar statutes; it does not encompass 

acquisitions of a bank under the Bank 

Holding Company Act (12 U.S.C. 1842) 

where an acquired bank maintains its 

separate corporate existence. 

2. Regulation CC adopts a one-year 

transition period for banks that are party to 

a merger transaction during which the 

merged banks will continue to be treated as 

separate entities. (See §§ 229.19(g) and 

229.40.) 

EE. 229.2(ee) Noncash Item 

1. The EFA Act defines the term check to 

exclude noncash items, and defines noncash 

items to include checks to which another 

document is attached, checks accompanied 

by special instructions, or any similar item 

classified as a noncash item in the øBoard’s¿ 

regulation. To qualify as a noncash item, an 

item must be handled as such and may not 

be handled as a cash item by the depositary 

bank. 

2. The regulation’s definition of noncash 

item also includes checks that consist of 

more than a single thickness of paper (except 

checks that qualify for handling by 

automated check processing equipmentø, e.g. 

those placed in carrier envelopes¿) and 

checks that have not been preprinted or postencoded in magnetic ink with the paying 

bank’s routing number, as well as checks 

with documents attached or accompanied by 

special instructions. (In the context of this 

definition, paying bank refers to the paying 

bank as defined for purposes of 

øS¿flsfiubpart C.) 

3. A check that has been preprinted or 

post-encoded with a routing number that has 

been retired (e.g., because of a merger) for at 

least three years is a noncash item unless the 

current number is added for processing 

purposes øby placing the check in an 

encoded carrier envelope or adding a strip to 

the check¿. 

4. Checks that are accompanied by special 

instructions are also noncash items. For 

example, a person concerned about whether 

a check will be paid may request the 

depositary bank to send a check for 

collection as a noncash item with an 

instruction to the paying bank to notify the 

depositary bank promptly when the check is 

paid or dishonored. 

5. For purposes of forward collection, a 

copy of a check is neither a check nor a 

noncash item, but may be treated as either. 

For purposes of return, a copy is generally a 

notice in lieu of return. (See 

§§ 229.30ø(f)¿fl(e)fi and 

229.31ø(f)¿fl(e)fi.) 

FF. 229.2(ff) [Reserved] 

GG. 229.2(gg) Original Check 

1. The definition of original check 

distinguishes the first paper check signed or 

otherwise authorized by the drawer to effect 

a particular payment transaction from a 

substitute check or other paper or electronic 

representation that is derived from an 

original check or substitute check. There is 

only one original check for any particular 

payment transaction. However, multiple 

substitute checks could be created to 

represent that original check at various 

points in the check collection and return 

process. 

HH. 229.2(hh) Paper or Electronic 

Representation of a Substitute Check 

1. Receipt of a paper or electronic 

representation of a substitute check does not 

trigger indemnity or expedited recredit 

rights, although the recipient nonetheless 

could have a warranty claim or a claim under 

other check law with respect to that 

document or the underlying payment 

transaction. A paper or electronic 

representation of a substitute check would 

include a representation of a substitute check 

that was drawn on an account, as well as a 

representation of a substitute traveler’s 

check, credit card check, or other item that 

meets the substitute check definition. The 

following examples illustrate the scope of the 

definition. 

Examples. 

a. A bank receives electronic presentment 

of a substitute check that has been converted 

to electronic form and charges the customer’s 

account for that electronic item. The periodic 

account statement that the bank provides to 

the customer includes information about the 

electronically-presented substitute check in a 

line-item list describing all the checks the 

bank charged to the customer’s account 

during the previous month. The electronic 

file that the bank received for presentment 

and charged to the customer’s account would 

be an electronic representation of a substitute 

check, and the line-item appearing on the 

customer’s account statement would be a 

paper representation of a substitute check. 

b. A paying bank receives and settles for 

a substitute check and then realizes that its 

settlement was for the wrong amount. The 

paying bank sends an adjustment request to 

the presenting bank to correct the error. The 

adjustment request is not a paper or 

electronic representation of a substitute 

check under the definition because it is not 

being handled for collection or return as a 

check. Rather, it is a separate request that is 

related to a check. As a result, no substitute 

check warranty, indemnity, or expedited 

recredit rights attach to the adjustment. 

fl2. An electronic representation of a 

substitute check also may be an electronic 

collection item or an electronic return if the 

electronic representation of the substitute 

check otherwise satisfies their requirements 

(see § 229.2(s) and (v)). 

Example. 

A bank receives electronic presentment of 

a substitute check that has been converted to 

electronic form. If the electronic file that the 

bank receives for presentment contains an 

electronic image of and information related 

to the substitute check that are sufficient for 

creating a substitute check and the electronic 

image and information conform to ANS 

X9.100–187, or another format to which the 

parties agree, that electronic file would be an 

electronic collection item in addition to an 

electronic representation of a substitute 

check.fi 

II. 229.2(ii) Paying Bank 

1. The regulation uses this term in lieu of 

the EFA Act’s ‘‘originating depository 

institution.’’ flThe Check 21 Act also uses 

the term ‘‘paying bank.’’fi For purposes of all 

subparts of Regulation CC, the term paying 

bank includes the bank by which a check is 

payable, the payable-at bank to which a 

check is sent, or, if the check is payable by 

a nonbank payor, the bank through which the 

check is payable and to which it is sent for 

payment or collection. For purposes of 

subparts C and D, the term paying bank also 

includes the payable-through bank and the 

bank whose routing number appears on the 

check, regardless of whether the check is 

payable by a different bank, provided that the 

check is sent for payment or collection to the 

payable through bank or the bank whose 

routing number appears on the check. 

2. Under §§ 229.30fl(a)fi øand 229.36(a)¿, 

a bank designated as a payable-through bank 

or payable-at bank and to which the check is 

sent for payment or collection is responsible 

for the expedited return of checks øand 

notice of nonpayment requirements 

of¿flunderfi øS¿flsfiubpart C. The 

payable-through or payable-at bank may 

contract with the payor with respect to its 

liability in discharging these responsibilities. 

øThe Board believes that the EFA Act makes 

a clear connection between availability and 

the time it takes for checks to be cleared and 

returned.¿ Allowing the payable-through 

bank additional time to forward checks to the 

payor and await return or pay instructions 

from the payor would delay the return of 

these checks, increasing the risks to 

depositary banks. Subpart C places on 

payable-through and payable-at banks the 

requirements of expeditious return based on 

the time the payable-through or payable-at 

bank received the check for forward 

collection. 

3. If a check is sent for forward collection 

based on the routing number, the bank 

associated with the routing number is a 

paying bank for the purposes of 

øS¿flsfiubparts C and D requirementsø, 

including notice of nonpayment,¿ even if the 

check is not drawn by a customer of that 

bank or the check is fraudulent. 

4. The phrase ‘‘and to which øthe check¿ 

is sent for payment or collection’’ includes 

sending not only the physical check, but 

information regarding the check under a 

truncation arrangement. 

5. Federal Reserve Banks and Federal 

Home Loan Banks are also paying banks 

under all subparts of the regulation with 

respect to checks payable by them, even 

though such banks are not defined as banks 

for purposes of øS¿flsfiubpart B. 

6. In accordance with the Check 21 Act, for 

purposes of subpart D and, in connection 

therewith, subpart A, paying bank includes 

the Treasury of the United States or the 

United States Postal Service with respect to 

a check payable by that entity and sent to 

that entity for payment or collection, even 

though the Treasury and Postal Service are 

not defined as banks for purposes of subparts 

B and C. Because the Federal Reserve Banks 

act as fiscal agents for the Treasury and the 

U.S. Postal Service and in that capacity are 

designated as presentment locations for 


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Treasury checks and U.S. Postal Service 

money orders, a Treasury check or U.S. 

Postal Service money order presented to a 

Federal Reserve Bank is considered to be 

presented to the Treasury or U.S. Postal 

Service, respectively. 

JJ. 229.2(jj) [Reserved] 

KK. 229.2(kk) Proprietary ATM 

ø1. All deposits at nonproprietary ATMs 

are treated as deposits of nonlocal checks, 

and deposits at proprietary ATMs generally 

are treated as deposits at banking offices. The 

Conference Report on the EFA Act indicates 

that the special availability rules for deposits 

received through nonproprietary ATMs are 

provided because ‘‘nonproprietary ATMs 

today do not distinguish among check 

deposits or between check and cash deposits’’ 

(H.R. Rep. No. 261, 100th Cong., 1st Sess. at 

179 (1987)). Thus, a deposit of any 

combination of cash and checks at a 

nonproprietary ATM may be treated as if it 

were a deposit of nonlocal checks, because 

the depositary bank does not know the 

makeup of the deposit and consequently is 

unable to place different holds on cash, local 

check, and nonlocal check deposits made at 

the ATM.¿ 

fl1.fiø2.¿ A colloquy between Senators 

Proxmire and Dodd during the floor debate 

on the Competitive Equality Banking Act 

(133 Cong. Rec. S11289 (Aug. 4, 1987)) 

indicates that whether a bank operates the 

ATM is the primary criterion in determining 

whether the ATM is proprietary to that bank. 

Because a bank should be capable of 

ascertaining the composition of deposits 

made to an ATM operated by that bank, an 

exception to the availability schedules is not 

warranted for these deposits. If more than 

one bank meets the ‘‘owns or operates’’ 

criterion, the ATM is considered proprietary 

to the bank that operates it. For the purpose 

of this definition, the bank that operates an 

ATM is the bank that puts checks deposited 

into the ATM into the forward collection 

stream. An ATM owned by one or more 

banks, but operated by a nonbank servicer, is 

considered proprietary to the bank or banks 

that own it. 

fl2.fiø3.¿ The EFA Act also includes 

location as a factor in determining whether 

an ATM that is either owned or operated by 

a bank is proprietary to that bank. The 

definition of proprietary ATM includes an 

ATM located on the premises of the bank, 

either inside the branch or on its outside 

wall, regardless of whether the ATM is 

owned or operated by that bank. Because the 

EFA Act also defines a proprietary ATM as 

one that is ‘‘in close proximity’’ to the bank, 

the regulation defines an ATM located within 

50 feet of a bank to be proprietary to that 

bank unless it is identified as being owned 

or operated by another entity. The øBoard 

believes that the¿ statutory proximity test 

was designed to apply to situations where it 

would appear to the depositor that the ATM 

is run by his or her bank, because of the 

proximity of the ATM to the bank. øThe 

Board believes that a¿flAfin ATM located 

within 50 feet of a banking office would be 

presumed proprietary to that bank unless it 

is clearly identified as being owned or 

operated by another entity. 

LL. 229.2(ll) Qualified Returned Check 

1. Subpart C requires the paying bank and 

returning bank(s) to return checks in an 

expeditious manner flunder certain 

circumstancesfi. øThe banks may meet this 

responsibility by returning a check to the 

depositary bank by the same general means 

used for forward collection of a check from 

the depositary bank to the paying bank. 

One¿flWhile the primaryfi way to speed 

the return process is to flsend the return 

electronically, a bank also couldfi prepare 

the returned check for automated flpaperfi 

processing. øReturned checks can be 

automated by either the paying bank or a 

returning bank by placing the return in a 

carrier envelope or by placing a strip on the 

bottom of the return, and encoding the 

envelope or strip with the routing number of 

the depositary bank, the amount of the check, 

and a special return identifier.¿ Qualified 

returned checks are identified by placing a 

‘‘2’’ in the case of an original check (or a ‘‘5’’ 

in the case of a substitute check) in position 

44 of the qualified-return MICR line as a 

return identifier in accordance with 

American National Standard Specifications 

for Placement and Location of MICR Printing, 

X9.13 (hereinafter ‘‘ANS X9.13’’) for original 

checks or American National Standard 

Specifications for an Image Replacement 

Document—IRD, X9.100–140 (hereinafter 

‘‘ANS X9.100–140’’) for substitute checks. 

fl(See § 229.2(w) and accompanying 

commentary for a discussion of standards for 

electronic returns.)fi 

2. Generally, under the standard of care 

imposed by § 229.38, a paying flbankfi or 

returning bank would be liable for any 

damages incurred due to misencoding of the 

routing number, the amount of the check, or 

return identifier on a qualified returned 

check unless the error was due to problems 

with the depositary bank’s indorsement. (See 

also discussion of § 229.38(c).) A qualified 

returned check that contains an encoding 

error would still be a qualified returned 

check for purposes of the regulation. 

ø3. A qualified returned check need not 

contain the elements of a check drawn on the 

depositary bank, such as the name of the 

depositary bank. Because indorsements and 

other information on carrier envelopes or 

strips will not appear on a returned check 

itself, banks will wish to retain carrier 

envelopes and/or microfilm or other records 

of carrier envelopes or strips with their check 

records.¿ 

MM. 229.2(mm) Reconverting Bank 

1. A substitute check is ‘‘created’’ when and 

where a paper reproduction of an original 

check that meets the requirements of 

§ 229.2ø(pp)¿fl(rr)fi is physically printed. 

A bank is a reconverting bank if it creates a 

substitute check directly or if another person 

by agreement creates a substitute check on 

the bank’s behalf. A bank also is a 

reconverting bank if it is the first bank that 

receives a substitute check created by a 

nonbank and transfers, presents, or returns 

that substitute check or, in lieu thereof, the 

first paper or electronic representation of 

such substitute check. 

Examples. 

a. Bank A, by agreement, sends an 

øelectronic check file¿ flelectronic image 

and information related to the paper checkfi 

for collection to Bank B. Bank B chooses to 

use that file to print a substitute check that 

meets the requirements of § 229.2ø(pp) 

¿fl(rr)fi. Bank B is the reconverting bank as 

of the time it prints the substitute check. 

b. Company A, which is not a bank, by 

agreement receives check information 

electronically from Bank A. Bank A becomes 

the reconverting bank when Company A 

prints a substitute check on behalf of Bank 

A in accordance with that agreement. 

c. A depositary bank’s customer, which is 

a nonbank business, receives a check for 

payment, truncates that original check, and 

creates a substitute check to deposit with its 

bank. The depositary bank receives that 

substitute check from its customer and is the 

first bank to handle the substitute check. The 

depositary bank becomes the reconverting 

bank as of the time that it transfers or 

presents the substitute check (or in lieu 

thereof the first paper or electronic 

representation of the substitute check) for 

forward collection. 

d. A bank is the payable-through bank for 

checks that are drawn on a nonbank payor, 

which is the bank’s customer. When the 

customer decides not to pay a check that is 

payable through the bank, the customer 

creates a substitute check for purposes of 

return. The payable-through bank becomes 

the reconverting bank when it returns the 

substitute check (or in lieu thereof the first 

paper or electronic representation of the 

substitute check) to a returning bank or the 

depositary bank. 

e. A paying bank returns a substitute check 

to the depositary bank, which in turn gives 

that substitute check back to its nonbank 

customer. That customer then redeposits the 

substitute check for collection at a different 

bank. Because the substitute check was 

already transferred by a bank, the second 

depositary bank does not become a 

reconverting bank when it transfers or 

presents that substitute check for collection. 

2. In some cases there will be one or more 

banks between the truncating bank and the 

reconverting bank. 

Example. 

A depositary bank truncates the original 

check and sends an electronic representation 

of the original check for collection to an 

intermediary bank. The intermediary bank 

sends the electronic representation of the 

original check to the presenting bank, which 

creates a substitute check to present to the 

paying bank. The presenting bank is the 

reconverting bank. 

3. A check could move from electronic 

form to substitute check form several times 

during the collection and return process. It 

therefore is possible that there could be 

multiple substitute checks, and thus multiple 

reconverting banks, with respect to the same 

underlying payment. 

NN. 229.2(nn) Remotely Created Check 

1. A check authorized by a consumer over 

the telephone that is not created by the 

paying bank and bears a legend on the 

signature line, such as ‘‘Authorized by 

Drawer,’’ is an example of a remotely created 

check. A check that bears the signature 

applied, or purported to be applied, by the 

person on whose account the check is drawn 


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16934 Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 

is not a remotely created check. A typical 

forged check, such as a stolen personal check 

fraudulently signed by a person other than 

the drawer, is not covered by the definition 

of a remotely created check. 

2. The term signature as used in this 

definition has the meaning set forth at U.C.C. 

3–401. The term ‘‘applied by’’ refers to the 

physical act of placing the signature on the 

check. 

3. The definition of a ‘‘remotely created 

check’’ differs from the definition of a 

‘‘remotely created consumer item’’ under the 

U.C.C. A ‘‘remotely created check’’ may be 

drawn on an account held by a consumer, 

corporation, unincorporated company, 

partnership, government unit or 

instrumentality, trust, or any other entity or 

organization. A ‘‘remotely created consumer 

item’’ under the U.C.C., however, must be 

drawn on a consumer account. 

4. Under Regulation CC (12 CFR part 229), 

the term ‘‘check’’ includes a negotiable 

demand draft drawn on or payable through 

or at an office of a bank. In the case of a 

‘‘payable through’’ or ‘‘payable at’’ check, the 

signature of the person on whose account the 

check is drawn would include the signature 

of the payor institution or the signatures of 

the customers who are authorized to draw 

checks on that account, depending on the 

arrangements between the ‘‘payable through’’ 

or ‘‘payable at’’ bank, the payor institution, 

and the customers. 

5. The definition of a remotely created 

check includes a remotely created check that 

has been reconverted to a substitute check. 

OO. 229.2(oo) Returning Bank 

1. Returning bank is defined to mean any 

bank (excluding the paying bank and the 

depositary bank) handling a returned check. 

A returning bank may or may not be a bank 

that handled the returned check in the 

forward collection process. A returning bank 

includes a bank that agrees to handle a 

returned check for expeditious return to the 

depositary bank under § 229.31(a). A 

returning bank is also a collecting bank for 

the purpose of a collecting bank’s duty to 

exercise ordinary care under U.C.C. 4–202(b) 

and is analogous to a collecting bank for 

purposes of final settlement. (See 

Commentary to § 229.35(b).) 

PP. 229.2(pp) Routing Number 

1. Each bank is assigned a routing number 

by an agent of the American Bankers 

Association. The routing number takes two 

forms—a fractional form and a nine-digit 

form. A paying bank is identified by both the 

fractional form routing number (which 

normally appears in the upper right hand 

corner of the check) and the nine-digit form. 

The nine-digit routing number of the paying 

bank generally is printed in magnetic ink 

near the bottom of the check (the MICR 

østrip¿fllinefi; see ANSøI¿ X9.13ø–1983¿). 

flWhere a check is payable by one bank but 

payable through another bank, the routing 

number appearing on the check is that of the 

payable through bank, not the payor bank. In 

the case of an electronic collection item, the 

routing number of the paying bank is 

contained in the electronic image of the 

check (in fractional form or nine-digit form) 

or in the electronic information related to the 

check (in nine-digit form).fi Subpart C 

requires depositary banksfl,fi øand¿ 

subsequent collecting banksfl, and returning 

banksfi to place their routing numbers in 

nine-digit form in their indorsements. 

QQ. 229.2(qq) [Reserved] 

RR. 229.2(rr) Substitute Check 

1. ‘‘A paper reproduction of an original 

check’’ could include a reproduction created 

directly from the original check or a 

reproduction of the original check that is 

created from some other source that contains 

an image of the original check, such as an 

electronic representation of an original check 

or substitute check, or a previous substitute 

check. 

2. Because a substitute check must be a 

piece of paper, an electronic file or electronic 

check image that has not yet been printed in 

accordance with the substitute check 

definition is not a substitute check. 

3. Because a substitute check must be a 

representation of a check, a paper 

reproduction of something that is not a check 

cannot be a substitute check. For example, a 

savings bond or a check drawn on a non-U.S. 

branch of a foreign bank cannot be 

reconverted to a substitute check. 

4. As described in § 229.51(b) and the 

commentary thereto, a reconverting bank is 

required to ensure that a substitute check 

contains all indorsements applied by 

previous parties that handled the check in 

any form. Therefore, the image of the original 

check that appears on the back of a substitute 

check would include indorsements that were 

physically applied to the original check 

before an image of the original check was 

captured. An indorsement that was applied 

physically to the original check after an 

image of the original check was captured 

would be conveyed as an electronic 

indorsement (see paragraph 3 of the 

commentary to § 229.35(a)). The back of the 

substitute check would contain a physical 

representation of any indorsements that were 

applied electronically to the check after an 

image of the check was captured but before 

creation of the substitute check. 

Example. 

Bank A, which is the depositary bank, 

captures an image of an original check, 

indorses it electronically and, by agreement, 

transmits to Bank B an electronic image of 

the check accompanied by the electronic 

indorsement. Bank B then creates a substitute 

check to send to Bank C. The back of the 

substitute check created by Bank B must 

contain a representation of the indorsement 

previously applied electronically by Bank A 

and Bank B’s own indorsement. (For more 

information on indorsement requirements, 

see § 229.35, appendix D, and the 

commentary thereto.) 

5. Some substitute checks will not be 

created directly from the original check, but 

rather will be created from a previous 

substitute check. The back of a subsequent 

substitute check will contain an image of the 

full length of the back of the previous 

substitute check. ANS X9.100–140 requires 

preservation of the full length of the back of 

the previous substitute check in order to 

preserve previous indorsements and 

reconverting bank identifications. By 

contrast, the front of a subsequent substitute 

check will not contain an image of the entire 

previous substitute check. Rather, the image 

field of the subsequent substitute check will 

contain the image of the front of the original 

check that appeared on the previous 

substitute check at the time the previous 

substitute check was converted to electronic 

form. The portions of the front of the 

subsequent substitute check other than the 

image field will contain information applied 

by the subsequent reconverting bank, such as 

its reconverting bank identification, the 

MICR line, the legal equivalence legend, and 

optional security information. 

Examples. 

a. The back of a subsequent substitute 

check would contain the following 

indorsements, all of which would be 

preserved through the image of the back of 

the previous substitute check: (1) The 

indorsements that were applied physically to 

the original check before an image of the 

original check was captured; (2) a physical 

representation of indorsements that were 

applied electronically to the original check 

after an image of the original check was 

captured but before creation of the first 

substitute check; and (3) indorsements that 

were applied physically to the previous 

substitute check. In addition, the 

reconverting bank for the subsequent 

substitute check must overlay onto the back 

of that substitute check a physical 

representation of any indorsements that were 

applied electronically after the previous 

substitute check was converted to electronic 

form but before creation of the subsequent 

substitute check. 

b. Because information could have been 

physically added to the image of the front of 

the original check that appeared on the 

previous substitute check, the original check 

image that appears on the front of a 

subsequent substitute check could contain 

information in addition to that which 

appeared on the original check at the time it 

was truncated. 

6. The MICR line applied to a substitute 

check must contain information in all fields 

of the MICR line that were encoded on the 

original check at any time before an image of 

the original check was captured. This 

includes all the MICR-line information that 

was preprinted on the original check, plus 

any additional information that was added to 

the MICR line before the image of the original 

check was captured (for example, the amount 

of the check). The information in each field 

of the substitute check’s MICR line must be 

the same information as in the corresponding 

field of the MICR line of the original check, 

except as provided by ANS X9.100–140 

(unless the Board by rule or order determines 

that a different standard applies). Industry 

standards may not, however, vary the 

requirement that a substitute check at the 

time of its creation must bear a full-field 

MICR line. 

7. ANS X9.100–140 provides that a 

substitute check must have a ‘‘4’’ in position 

44 and that a qualified returned substitute 

check must have a ‘‘4’’ in position 44 of the 

forward-collection MICR line as well as a ‘‘5’’ 

in position 44 of the qualified return MICR 

line. The ‘‘4’’ and ‘‘5’’ indicate that the 


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document is a substitute check so that the 

size of the check image remains constant 

throughout the collection and return process, 

regardless of the number of substitute checks 

created that represent the same original 

check (see also §§ 229.30(a)ø(2)¿fl(3)fi and 

229.31(a)ø(2)¿fl(3)fi and the commentary 

thereto regarding requirements for qualified 

returned substitute checks). An original 

check generally has a blank position 44 for 

forward collection. Because a reconverting 

bank must encode position 44 of a substitute 

check’s forward collection MICR line with a 

‘‘4,’’ the reconverting bank must vary any 

character that appeared in position 44 of the 

forward-collection MICR line of the original 

check. A bank that misencodes or fails to 

encode position 44 at the time it attempts to 

create a substitute check has failed to create 

a substitute check. A bank that receives a 

properly-encoded substitute check may 

further encode that item but does so subject 

to the encoding warranties in Regulation CC 

and the U.C.C. 

8. A substitute check’s MICR line could 

contain information in addition to the 

information required at the time the 

substitute check is created. For example, if 

the amount field of the original check was 

not encoded and the substitute check 

therefore did not, when created, have an 

encoded amount field, the MICR line of the 

substitute check later could be amountencoded. 

9. A bank may receive a substitute check 

that contains a MICR-line variation but 

nonetheless meets the MICR-line replication 

requirements of § 229.2ø(aaa)(2)¿ fl(rr)(2)fi 

because that variation is permitted by ANS 

X9.100–140. If such a substitute check 

contains a MICR-line error, a bank that 

receives it may, but is not required to, repair 

that error. Such a repair must be made in 

accordance with ANS X9.100–140 for 

repairing a MICR line, which generally 

allows a bank to correct an error by applying 

a strip that may or may not contain 

information in all fields encoded on the 

check’s MICR line. A bank’s repair of a 

MICR-line error on a substitute check is 

subject to the encoding warranties in 

Regulation CC and the U.C.C. 

10. A substitute check must conform to all 

the generally applicable industry standards 

for substitute checks set forth in ANS 

X9.100–140, which incorporates other 

industry standards by reference. Thus, 

multiple substitute check images contained 

on the same page of an account statement are 

not substitute checks. 

SS. 229.2(ss) Sufficient Copy and Copy 

1. A copy must be a paper reproduction of 

a check. An electronic image therefore is not 

a copy or a sufficient copy. However, if a 

customer has agreed to receive such 

information electronically, a bank that is 

required to provide an original check or 

sufficient copy may satisfy that requirement 

by providing an electronic image in 

accordance with § 229.58 and the 

commentary thereto. 

2. A bank under § 229.53(b)(3) may limit its 

liability for an indemnity claim and under 

§§ 229.54(e)(2) and 229.55(c)(2) may respond 

to an expedited recredit claim by providing 

the claimant with a copy of a 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 that otherwise is sufficient to 

determine the validity of the claim against 

the bank. 

Examples. 

a. A copy of an original check that 

accurately represents all the information on 

the front and back of the original check as of 

the time of truncation would constitute a 

sufficient copy if that copy resolved the 

claim. For example, if resolution of the claim 

required accurate payment and indorsement 

information, an accurate copy of the front 

and back of a legible original check 

(including but not limited to a substitute 

check) would be a sufficient copy. 

b. A copy of the original check that does 

not accurately represent all the information 

on both the front and back of the original 

check also could be a sufficient copy if such 

copy contained all the information necessary 

to determine the validity of the relevant 

claim. For instance, if a consumer received 

a substitute check that contained a blurry 

image of a legible original check, the 

consumer might seek an expedited recredit 

because his or her account was charged for 

$1,000, but he or she believed that the check 

was written for only $100. If the amount that 

appeared on the front of the original check 

was legible, an accurate copy of only the 

front of the original check that showed the 

amount of the check would be sufficient to 

determine whether or not the consumer’s 

claim regarding the amount of the check was 

valid. 

TT. 229.2(tt) Teller’s Check 

1. Teller’s check is defined in the EFA Act 

to mean a check issued by a depository 

institution and drawn on another depository 

institution. The definition in the regulation 

includes not only checks drawn by a bank on 

another bank, but also checks payable 

through or at a bank. This would include 

checks drawn on a nonbank, as long as the 

check is payable through or at a bank. The 

definition does not include checks that are 

drawn by a nonbank on a nonbank even if 

payable through or at a bank. The definition 

includes checks provided to a customer of 

the bank in connection with customer 

deposit account activity, such as account 

disbursements and interest payments. The 

definition also includes checks acquired from 

a bank by a noncustomer for remittance 

purposes, such as certain loan disbursement 

checks. The definition excludes checks used 

by the bank to pay employees or vendors and 

checks issued by the bank in connection with 

a payment service, such as a payroll or a billpaying service. Teller’s checks generally are 

sold by banks to substitute the bank’s credit 

for the customer’s credit and thereby enhance 

the collectibility of the checks. A check 

issued in connection with a payment service 

generally is provided as a convenience to the 

customer rather than as a guarantee of the 

check’s collectibility. In addition, such 

checks are often more difficult to distinguish 

from other types of checks than are teller’s 

checks as defined by this regulation. 

UU. 229.2(uu) Transfer and Consideration 

1. Under §§ 229.52 and 229.53, a bank is 

responsible for the warranties and indemnity 

when it transfers, presents, or returns a 

substitute check (or a paper or electronic 

representation thereof) for consideration. 

Drawers and other nonbank persons that 

receive checks from a bank are not 

transferees that receive consideration as 

those terms are defined in the U.C.C. 

However, the Check 21 Act clearly 

contemplates that such nonbank persons that 

receive substitute checks (or representations 

thereof) from a bank will receive the 

warranties and indemnity from all previous 

banks that handled the check. To ensure that 

these parties are covered by the substitute 

check warranties and indemnity in the 

manner contemplated by the Check 21 Act, 

§ 229.2ø(ccc)¿fl(uu)fi incorporates the 

U.C.C. definitions of the terms transfer and 

consideration by reference and flfor 

purposes of subpart Dfi expands those 

definitions to cover a broader range of 

situations. Delivering a check to a nonbank 

that is acting on behalf of a bank (such as a 

third-party check processor or presentment 

point) is a transfer of the check to that bank. 

flIn subpart C, the terms transfer and 

consideration have the meaning that they 

have in the UCC.fi 

Examples. 

a. A paying bank pays a substitute check 

and then provides that paid substitute check 

(or a representation thereof) to a drawer with 

a periodic statement. Under the expanded 

definitions, the paying bank thereby transfers 

the substitute check (or representation 

thereof) to the drawer for consideration and 

makes the substitute check warranties 

described in § 229.52. A drawer that suffers 

a loss due to receipt of a substitute check 

may have warranty, indemnity, and, if the 

drawer is a consumer, expedited recredit 

rights under the Check 21 Act and subpart D. 

A drawer that suffers a loss due to receipt of 

a paper or electronic representation of a 

substitute check would receive the substitute 

check warranties but would not have 

indemnity or expedited recredit rights. 

b. The expanded definitions also operate 

such that a paying bank that pays an original 

check (or a representation thereof) and then 

creates a substitute check to provide to the 

drawer with a periodic statement transfers 

the substitute check for consideration and 

thereby provides the warranties and 

indemnity. 

c. The expanded definitions ensure that a 

bank that receives a returned check in any 

form and then provides a substitute check to 

the depositor gives the substitute check 

warranties and indemnity to the depositor. 

d. The expanded definitions apply to 

substitute checks representing original 

checks that are not drawn on deposit 

accounts, such as checks used to access a 

credit card or a home equity line of credit. 

VV. 229.2(vv) Traveler’s Check 

1. The EFA Act and regulation require that 

traveler’s checks be treated as cashier’s, 

teller’s, or certified checks when a new 

depositor opens an account. (See § 229.13(a); 

12 U.S.C. 4003(a)(1)(C).) The EFA Act does 

not define traveler’s check. 

2. One element of the definition states that 

a traveler’s check is ‘‘drawn on or payable 

through or at a bank.’’ Sometimes traveler’s 

checks that are not issued by banks do not 


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16936 Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 

have any words on them identifying a bank 

as drawee or paying agent, but instead bear 

unique routing numbers with an 8000 prefix 

that identifies a bank as paying agent. 

3. Because a traveler’s check is payable by, 

at, or through a bank, it is also a check for 

purposes of this regulation. When not subject 

to the next-day availability requirement for 

new accounts, a traveler’s check should be 

treated as a ølocal or nonlocal¿ 

checkødepending on the location of the 

paying bank¿ flunder § 229.12fi. øThe 

depositary bank may rely on the designation 

of the paying bank by the routing number to 

determine whether local or nonlocal 

treatment is required.¿ 

WW. 229.2(ww) Truncate 

1. Truncate means to remove the original 

check from the forward collection or return 

process and to send in lieu of the original 

check either a substitute check or, by 

agreement, information relating to the 

original check. Truncation does not include 

removal of a substitute check from the check 

collection or return process. 

XX. 229.2(xx) Truncating Bank 

1. A bank is a truncating bank if it 

truncates an original check or if it is the first 

bank to transfer, present, or return another 

form of an original check that was truncated 

by a person that is not a bank. 

Example. 

a. A bank’s customer that is a nonbank 

business receives a check for payment and 

deposits either a substitute check or an 

electronic representation of the original 

check with its depositary bank instead of the 

original check. That depositary bank is the 

truncating bank when it transfers, presents, 

or returns the substitute check or electronic 

representation in lieu of the original check. 

That bank also would be the reconverting 

bank if it were the first bank to transfer, 

present, or return a substitute check that it 

received from (or created from the 

information given by) its nonbank customer 

ø(see § 229.2 (yy) and the commentary 

thereto)¿. 

2. A truncating bank does not make the 

subpart D warranties and indemnity unless it 

also is the reconverting bank. Therefore, a 

bank that truncates the original check and 

sends an electronic file to a collecting bank 

does not provide subpart D protections to the 

recipient of that electronic item. However, a 

recipient of an electronic item may protect 

itself against losses associated with that item 

by agreement with the truncating bank. 

YY. 229.2(yy) Uniform Commercial Code 

1. Uniform Commercial Code is defined as 

the version of the Code adopted by the 

individual states. For purposes of uniform 

citation, all citations to the U.C.C. in this part 

refer to the Official Text as approved by the 

American Law Institute and the National 

Conference of Commissioners on Uniform 

State Laws. 

ZZ. 229.2(zz) [Reserved] 

AAA. 229.2(aaa) Unit of General Local 

Government 

1. Unit of general local government is 

defined to include a city, county, parish, 

town, township, village, or other general 

purpose political subdivision of a state. The 

term does not include special purpose units, 

such as school districts, water districts, or 

Indian nations. 

BBB. 229.2(bbb) Wire Transfer 

1. The EFA Act ødelegates to the Board the 

authority to define¿ flpermitsfi the term 

fl‘‘fiwire transferø.¿fl’’ to be defined by 

regulation.fi The regulation defines wire 

transfer as an unconditional order to a bank 

to pay a fixed or determinable amount of 

money to a beneficiary, upon receipt or on 

a day stated in the order, that is transmitted 

by electronic or other means over certain 

networks or on the books of banks and that 

is used primarily to transfer funds between 

øcommercial¿ flnonconsumerfi accounts. 

‘‘Unconditional’’ means that no condition, 

such as presentation of documents, must be 

met before the bank receiving the order is to 

make payment. A wire transfer may be 

transmitted by electronic or other means. 

‘‘Electronic means’’ include computer-tocomputer links, on-line terminals, øtelegrams 

(including TWX, TELEX, or similar methods 

of communication),¿ telephone calls, or other 

similar methods. flThefi Fedwire flFunds 

Servicefi (the Federal Reserve’s wire transfer 

network), CHIPS (Clearing House Interbank 

Payments System, operated by øt¿flTfihe 

øNew York¿ Clearing House), and book 

transfers among banks or within one bank are 

covered by this definition. Credits for credit 

and debit card transactions are not wire 

transfers. The term wire transfer excludes 

electronic fund transfers as that term is 

defined by the Electronic Fund Transfer Act. 

III. Administrative Liability and Enforcement 

[Reserved] 

IV. Section 229.10—Next-Day Availability 

A. Business Days and Banking Days 

1. This section, as well as other provisions 

of this subpart governing the availability of 

funds, provides that funds must be made 

available for withdrawal not later than a 

specified number of business days following 

the banking day on which the funds are 

deposited. Thus, a deposit is considered 

made only on a banking day, i.e., a day that 

the bank is open to the public for carrying 

on substantially all of its banking functions. 

For example, if a deposit is made at an ATM 

on a Saturday, Sunday, or other day on 

which the bank is closed to the public, the 

deposit is considered received on that bank’s 

next banking day. 

2. Nevertheless, business days are used to 

determine the number of days following the 

banking day of deposit that funds must be 

available for withdrawal. For example, if a 

deposit of a ølocal¿ check were made on a 

Monday, the availability schedule 

flgenerallyfi requires that funds be 

available for withdrawal on the second 

business day after deposit. Therefore, funds 

must be made available on Wednesday 

regardless of whether the bank was closed on 

Tuesday for other than a standard legal 

holiday as specified in the definition of 

business day. 

B. 229.10(a) Cash Deposits 

1. This paragraph implements the EFA 

Act’s requirement for next-day availability 

for cash deposits to accounts at a depositary 

bank ‘‘staffed by individuals employed by 

such institution.’’ø2¿ Under this paragraph, 

cash deposited in an account at a staffed 

teller station on a Monday must become 

available for withdrawal by the start of 

business on Tuesday. It must become 

available for withdrawal by the start of 

business on Wednesday if it is deposited by 

mail, at a proprietary ATM, or by other 

means other than at a staffed teller station. 

fl2. Nothing in the EFA Act or this 

regulation affects terms of account 

arrangements, such as negotiable order of 

withdrawal accounts, which may require 

prior notice of withdrawal. (See 12 CFR 

204.2(e)(2).)fi 

ø2 Nothing in the EFA Act or this 

regulation affects terms of account 

arrangements, such as negotiable order of 

withdrawal accounts, which may require 

prior notice of withdrawal. (See 12 CFR 

204.2(e)(2).)¿ 

C. 229.10(b) Electronic Payments 

1. The EFA Act provides next-day 

availability for funds received for deposit by 

wire transfer. The regulation uses the term 

electronic payment, rather than wire transfer, 

to include both wire transfers and ACH credit 

transfers under the next-day availability 

requirement. (See discussion of definitions of 

øautomated clearinghouse¿ flACH credit 

transferfi, electronic payment, and wire 

transfer in § 229.2.) 

2. The EFA Act requires that funds 

received by wire transfer be available for 

withdrawal not later than the business day 

following the day a wire transfer is received. 

This paragraph clarifies what constitutes 

receipt of an electronic payment. For the 

purposes of this paragraph, a bank receives 

an electronic payment when the bank 

receives both payment in finally collected 

funds and the payment instructions 

indicating the customer accounts to be 

credited and the amount to be credited to 

each account. For example, in the case of 

flafi Fedwire flFunds transferfi, the bank 

receives finally collected funds at the time 

the payment is made. (See 12 CFR 210.31.) 

Finally collected funds generally are received 

for an ACH credit transfer when they are 

posted to the receiving bank’s account on the 

settlement day. In certain cases, the bank 

receiving ACH credit payments will not 

receive the specific payment instructions 

indicating which accounts to credit until 

after settlement day. In these cases, the 

payments are not considered received until 

the information on the account and amount 

to be credited is received. 

3. This paragraph also establishes the 

extent to which an electronic payment is 

considered made. Thus, if a participant on a 

private network fails to settle and the 

receiving bank receives finally settled funds 

representing only a partial amount of the 

payment, it must make only the amount that 

it actually received available for withdrawal. 

4. The availability requirements of this 

regulation do not preempt or invalidate other 

rules, regulations, or agreements which 

require funds to be made available on a more 

prompt basis. For example, the next-day 

availability requirement for ACH credits in 

this section does not preempt ACH 


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association rules and Treasury regulations 

(31 CFR part 210), which provide that the 

proceeds of these credit payments be 

available to the recipient for withdrawal on 

the day the bank receives the funds. 

D. 229.10(c) Certain Check Deposits 

1. The EFA Act generally requires that 

funds be made available on the business day 

following the banking day of deposit for 

Treasury checks, state and local government 

checks, cashier’s checks, certified checks, 

teller’s checks, and ‘‘on us’’ checks, under 

specified conditions. (Treasury checks are 

checks drawn on the Treasury of the United 

States and have a routing number beginning 

with the digits ‘‘0000.’’) This section also 

requires next-day availability for additional 

types of checks not addressed in the EFA 

Act. Checks drawn on a Federal Reserve 

Bank or a Federal Home Loan Bank and U.S. 

Postal Service money orders also must be 

made available on the first business day 

following the day of deposit under specified 

conditions. For the purposes of this section, 

all checks drawn on a Federal Reserve Bank 

or a Federal Home Loan Bank that contain in 

the MICR line a routing number that is listed 

in appendix A are subject to the next-day 

availability requirement if they are deposited 

in an account held by a payee of the check 

and in person to an employee of the 

depositary bank, regardless of the purposes 

for which the checks were issued. For all 

new accounts, even if the new account 

exception is not invoked, traveler’s checks 

must be included in the $5,000 aggregation 

of checks deposited on any one banking day 

that are subject to the next-day availability 

requirement. (See § 229.13(a).) 

2. Deposit in Account of Payee. One 

statutory condition to receipt of next-day 

availability of Treasury checks, state and 

local government checks, cashier’s checks, 

certified checks, and teller’s checks is that 

the check must be ‘‘endorsed only by the 

person to whom it was issued.’’ The EFA Act 

could be interpreted to include a check that 

has been indorsed in blank and deposited 

into an account of a third party that is not 

named as payee. øThe Board believes that 

s¿flSfiuch a check presents greater risks 

than a check deposited by the payee and that 

Congress did not intend to require next-day 

availability for such checks. The regulation, 

therefore, provides that funds must be 

available on the business day following 

deposit only if the check is deposited in an 

account held by a payee of the check. For the 

purposes of this section, payee does not 

include transferees other than named payees. 

The regulation also applies this condition to 

Postal Service money orders and checks 

drawn on Federal Reserve Banks and Federal 

Home Loan Banks. 

3. Deposits Made to an Employee of the 

Depositary Bank. 

a. In most cases, next-day availability of 

the proceeds of checks subject to this section 

is conditioned on the deposit of these checks 

in person to an employee of the depositary 

bank. If the deposit is not made to an 

employee of the depositary bank on the 

premises of such bank, the proceeds of the 

deposit must be made available for 

withdrawal by the start of business on the 

second business day after deposit, under 

øparagraph (c)(2) of this 

section¿fl§ 229.12fi. For example, secondday availability rather than next-day 

availability would be allowed for deposits of 

checks subject to this section made at a 

proprietary ATM, night depository, through 

the mail or a lock box, or at a teller station 

staffed by a person who is not an employee 

of the depositary bank. Second-day 

availability also may be allowed for deposits 

picked up by an employee of the depositary 

bank at the customer’s premises; such 

deposits would be considered made upon 

receipt at the branch or other location of the 

depositary bank. Employees of a contractual 

branch would not be considered employees 

of the depositary bank for the purposes of 

this regulation, and deposits at contractual 

branches would be treated the same as 

deposits to a proprietary ATM for the 

purposes of this regulation. (See also, 

Commentary to § 229.19(a).) 

b. In the case of Treasury checks, the EFA 

Act and regulation do not condition the 

receipt of next-day availability to deposits at 

staffed teller stations. Therefore, Treasury 

checks deposited at a proprietary ATM must 

be accorded next-day availability, if the 

check is deposited to an account of a payee 

of the check. 

4. ‘‘On Us’’ Checks. The EFA Act øand 

regulation¿ requireflsfi next-day 

availability for ‘‘on us’’ checks, i.e., checks 

deposited in a branch of the depositary bank 

and drawn on the same or another branch of 

the same bank, if both branches are located 

in the same state or flgeographical area 

served by a Federal Reserve Bank check 

processing center (‘‘ficheck processing 

regionfl’’)fi. øThus, checks deposited in one 

branch of a bank and drawn on another 

branch of the same bank must receive nextday availability even if the branch on which 

the checks are drawn is located in another 

check processing region but in the same state 

as the branch in which the check is 

deposited¿. flAs there is now only one 

check processing center, all ‘‘on-us’’ checks 

deposited in the U.S. must receive next-day 

availability.fi For the purposes of this 

requirement, deposits at facilities that are not 

located on the premises of a brick-and-mortar 

branch of the bank, such as off-premise 

ATMs and remote depositories, are not 

considered deposits made at branches of the 

depositary bank. 

5. øFirst $100¿flThe minimum amountfi. 

a. The EFA Act and regulation also require 

that øup to¿ flat leastfi $100 fl(‘‘the 

minimum amount’’)fi of the aggregate 

deposit by check or checks not subject to 

next-day availability on any one banking day 

be made available on the next business day. 

For example, if ø$70¿flless than the 

minimum amountfi were deposited in an 

account by check(s) on a Monday, the entire 

ø$70¿flamount of the depositfi must be 

available for withdrawal at the start of 

business on Tuesday. If ø$200¿fl more than 

the minimum amountfi were deposited by 

check(s) on a Monday, this section requires 

that ø$100 of the funds¿ flthe minimum 

amountfi be available for withdrawal at the 

start of business on Tuesday. The portion of 

the customer’s deposit to which the ø$100¿ 

flminimum amountfi must be applied is at 

the discretion of the depositary bank, as long 

as it is not applied to any checks subject to 

next-day availability. The ø$100¿ next-day 

availability rule flfor the minimum 

amountfi does not apply to deposits at 

nonproprietary ATMs. 

b. The ø$100¿flminimum amountfi that 

must be made available under this rule is in 

addition to the amount that must be made 

available for withdrawal on the business day 

after deposit under other provisions of this 

section. For example, if a customer deposits 

a $1,000 Treasury checkø,¿ and a $1,000 

ølocal¿check flnot subject to paragraphs 

(c)(1)(i) through (vi)fi in its account on 

Monday, ø$1,100 must be made available for 

withdrawal on Tuesday—¿ the proceeds of 

the $1,000 Treasury check, as well as the 

øfirst $100¿flminimum amount fromfi øof¿ 

the ølocal¿flotherfi check flmust be made 

available for withdrawal on Tuesdayfi. 

c. A depositary bank may aggregate all 

ølocal and nonlocal¿ check deposits made by 

the customer on a given banking day for the 

purposes of the ø$100¿flminimum amount 

fi next-day availability rule. Thus, if a 

customer has two accounts at the depositary 

bank, and on a particular banking day makes 

deposits to each account flthat exceed the 

minimum amountfi, ø$100¿flthe minimum 

amount fromfi øof¿ the total flchecksfi 

deposited to the two accounts must be made 

available on the business day after deposit. 

Banks may aggregate deposits to individual 

and joint accounts for the purposes of this 

provision. 

d. If the customer deposits a ø$500 local¿ 

check fl not subject to paragraphs (c)(1)(i) 

through (vi) that exceeds the minimum 

amountfi, and gets ø$100¿ cash back flin 

an amount equal to or greater than the 

minimum amountfi at the time of deposit, 

the bank need not make an additional 

ø$100¿flamountfi available for withdrawal 

on the following day. Similarly, if the 

customer depositing the ølocal¿ check has a 

negative book balance, or negative available 

balance in its account at the time of deposit, 

the ø$100¿flminimum amountfi that must 

be available on the next business day may be 

made available by applying the 

ø$100¿flminimum amountfi to the negative 

balance, rather than making the 

ø$100¿flminimum amountfi available for 

withdrawal by cash or check on the following 

day. 

6. Special Deposit Slips. 

a. Under the EFA Act, a depositary bank 

may require the use of a special deposit slip 

as a condition to providing next-day 

availability for certain types of checks. This 

condition was included in the EFA Act 

because many banks determine the 

availability of their customers’ check 

deposits in an automated manner by reading 

the øMICR-encoded¿ routing number on the 

deposited checks. Using these procedures, a 

bank can determine whether a check is øa 

local or nonlocal check, a check¿ drawn on 

the Treasury, a Federal Reserve Bank, a 

Federal Home Loan Bank, or a branch of the 

depositary bank, or a U.S. Postal Service 

money order. Appendix A includes the 

routing numbers of certain categories of 

checks that are subject to next-day 

availability. The bank cannot require a 

special deposit slip for these checks. 


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b. A bank cannot distinguish whether the 

check is a state or local government check, 

cashier’s check, certified check, or teller’s 

check by reading the øMICR-encoded¿ 

routing number, because these checks bear 

the same routing number as other checks 

drawn on the same bank that are not 

accorded next-day availability. Therefore, a 

bank may require a special deposit slip for 

these checks. 

c. The regulation specifies that if a bank 

decides to require the use of a special deposit 

slip (or a special deposit envelope in the case 

of a deposit at an ATM or other unstaffed 

facility) as a condition to granting next-day 

availability under paragraphs (c)(1)(iv) or 

(c)(1)(v) of this section øor second-day 

availability under paragraph (c)(2) of this 

section¿, and if the deposit slip that must be 

used is different from the bank’s regular 

deposit slips, the bank must either provide 

the special slips to its customers or inform 

its customers how such slips may be 

obtained and make the slips reasonably 

available to the customers. 

d. A bank may meet this requirement by 

providing customers with an order form for 

the special deposit slips and allowing 

sufficient time for the customer to order and 

receive the slips before this condition is 

imposed. If a bank provides deposit slips in 

its branches for use by its customers, it also 

must provide the special deposit slips in the 

branches. If special deposit envelopes are 

required for deposits at an ATM, the bank 

must provide such envelopes at the ATM. 

e. Generally, a teller is not required to 

advise depositors of the availability of special 

deposit slips merely because checks 

requiring special deposit slips for next-day 

availability are deposited without such slips. 

If a bank provides the special deposit slips 

only upon the request of a depositor, 

however, the teller must advise the depositor 

of the availability of the special deposit slips, 

or the bank must post a notice advising 

customers that the slips are available upon 

request. Such notice need not be posted at 

each teller window, but the notice must be 

posted in a place where consumers seeking 

to make deposits are likely to see it before 

making their deposits. For example, the 

notice might be posted at the point where the 

line forms for teller service in the lobby. The 

notice is not required at any drive-through 

teller windows nor is it required at night 

depository locations, or at locations where 

consumer deposits are not accepted. If a bank 

prepares a deposit for a depositor, it must use 

a special deposit slip where appropriate. A 

bank may require the customer to segregate 

the checks subject to next-day availability for 

which special deposit slips could be 

required, and to indicate on a regular deposit 

slip that such checks are being deposited, if 

the bank so instructs its customers in its 

initial disclosure. 

V. Section 229.11—[Reserved] 

VI. Section 229.12—Availability Schedule 

øA. 229.12(a) Effective Date 

1. The availability schedule set forth in this 

section supersedes the temporary schedule 

that was effective September 1, 1988, through 

August 31, 1990.¿ 

A. 229.12ø(b)¿fl(a)fi øLocal Checks and 

Certain Other Checks¿flIn general.fi 

1. øLocal¿flExcept as provided in 

§ 229.10(c), § 229.12(b), (c) and (d), and 

§ 229.13fi checks must be made available for 

withdrawal not later than the second 

business day following the banking day on 

which the checks were deposited. flThus, 

the proceeds of a check deposited on a 

Monday generally must be made available for 

withdrawal on Wednesday.fi 

ø2. In addition, the proceeds of Treasury 

checks and U.S. Postal Service money orders 

not subject to next-day (or second-day) 

availability under § 229.10(c), checks drawn 

on Federal Reserve Banks and Federal Home 

Loan Banks, checks drawn by a state or unit 

of general local government, cashier’s checks, 

certified checks, and teller’s checks not 

subject to next-day (or second-day) 

availability under § 229.10(c) and payable in 

the same check processing region as the 

depositary bank, must be made available for 

withdrawal by the second business day 

following deposit.¿ 

ø3¿fl2fi. Exceptions are made for 

withdrawals by cash or similar meansfl,fi 

øand¿ for deposits in banks located outside 

the 48 contiguous statesfl, for checks 

deposited in a nonproprietary ATM, and for 

the reasons set forth in § 229.13fi. øThus, 

the proceeds of a local check deposited on a 

Monday generally must be made available for 

withdrawal on Wednesday.¿ 

øC. 229.12(c) Nonlocal Checks 

1. Nonlocal checks must be made available 

for withdrawal not later than the fifth 

business day following deposit, i.e., proceeds 

of a nonlocal check deposited on a Monday 

must be made available for withdrawal on 

the following Monday. In addition, a check 

described in § 229.10(c) that does not meet 

the conditions for next-day availability (or 

second-day availability) is treated as a 

nonlocal check, if the check is drawn on or 

payable through or at a nonlocal paying bank. 

Adjustments are made to the schedule for 

withdrawals by cash or similar means and 

deposits in banks located outside the 48 

contiguous states. 

ø2. Reduction in Schedules. 

a. Section 603(d)(1) of the EFA Act (12 

U.S.C. 4002(d)(1)) requires the Board to 

reduce the statutory schedules for any 

category of checks where most of those 

checks would be returned in a shorter period 

of time than provided in the schedules. The 

conferees indicated that ‘‘if the new system 

makes it possible for two-thirds of the items 

of a category of checks to meet this test in 

a shorter period of time, then the Federal 

Reserve must shorten the schedules 

accordingly.’’ H.R. Rep. No. 261, 100th Cong., 

1st Sess. at 179 (1987). 

b. Reduced schedules are provided for 

certain nonlocal checks where significant 

improvements can be made to the EFA Act’s 

schedules due to transportation arrangements 

or proximity between the check processing 

regions of the depositary bank and the paying 

bank, allowing for faster collection and 

return. Appendix B sets forth the specific 

reduction of schedules applicable to banks 

located in certain check processing regions. 

c. A reduction in schedules may apply 

even in those cases where the determination 

that the check is nonlocal cannot be made 

based on the routing number on the check. 

For example, a nonlocal credit union 

payable-through share draft may be subject to 

a reduction in schedules if the routing 

number of the payable-through bank that 

appears on the draft is included in appendix 

B, even though the determination that the 

payable-through share draft is nonlocal is 

based on the location of the credit union and 

not the routing number on the draft.¿ 

B. 229.12ø(d)¿fl(b)fi Time Period 

Adjustment for Withdrawal by Cash or 

Similar Means 

1. The EFA Act provides an adjustment to 

the availability rules for cash withdrawals. 

Funds from ølocal and nonlocal¿ checks 

fl(other than checks subject to § 229.10(c))fi 

need not be available for cash withdrawal 

until 5 p.m. on the day specified in the 

schedule. At 5 p.m., $400 of the deposit must 

be made available for cash withdrawalfl(the 

‘‘cash withdrawal amount’’)fi. øThis $400¿ 

flThe cash withdrawal amountfi is in 

addition to the øfirst $100¿fl minimum 

amountfi of a day’s deposit flunder 

§ 229.10(c)(1)(vii)fi, which must be made 

available for withdrawal at the start of 

business on the first business day following 

the banking day of deposit. If the proceeds 

of ølocal and nonlocal¿ checks become 

available for withdrawal on the same 

business day, the ø$400 withdrawal 

limitation applies to¿flcash withdrawal 

amount is based onfi the aggregate amount 

of the funds that became available for 

withdrawal on that day. The remainder of the 

funds must be available for cash withdrawal 

at the start of business on the business day 

following the business day specified in the 

schedule. 

2. The EFA Act recognizes that the 

ø$400¿flcash withdrawal amountfi that 

must be provided on the day specified in the 

schedule may exceed a bank’s daily ATM 

cash withdrawal limit, and explicitly 

provides that the EFA Act does not supersede 

the bank’s policy in this regard. The øBoard 

believes that the¿ rationale for 

accommodating a bank’s ATM withdrawal 

limit also applies to other cash withdrawal 

limits established by that bank. Section 

229.19(c)(4) of the regulation addresses the 

relation between a bank’s cash withdrawal 

limit (for over-the-counter cash withdrawals 

as well as ATM cash withdrawals) and the 

requirements of this subpart. 

3. øThe Board believes that the¿ Congress 

included this special cash withdrawal rule to 

provide a depositary bank with additional 

time to learn of the nonpayment of a check 

before it must make funds available to its 

customer. If a customer deposits a ølocal¿ 

check on a Monday, and that check is 

returned by the paying bank, the depositary 

bank may not receive the returned check 

until Thursday, the day after funds for a 

ølocal¿ check ordinarily must be made 

available for withdrawal. The intent of the 

special cash withdrawal rule is to minimize 

this risk to the depositary bank. For this rule 

to minimize the depositary bank’s risk, it 

must apply not only to cash withdrawals, but 

also to withdrawals by other means that 

result in an irrevocable debit to the 

customer’s account or commitment to pay by 


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Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 16939 

the bank on the customer’s behalf during the 

day. Thus, the cash withdrawal rule also 

includes withdrawals by electronic payment, 

issuance of a cashier’s or teller’s check, 

certification of a check, or other irrevocable 

commitment to pay, such as authorization of 

an on-line point-of-sale debit. The rule also 

would apply to checks presented over the 

counter for payment on the day of 

presentment by the depositor or another 

person. Such checks could not be dishonored 

for insufficient funds if an amount sufficient 

to cover the check had became available for 

cash withdrawal under this rule; however, 

payment of such checks would be subject to 

the bank’s cut-off hour established under 

U.C.C. 4–108. The cash withdrawal rule does 

not apply to checks and other provisional 

debits presented to the bank for payment that 

the bank has the right to return. 

C. 229.12ø(e)¿fl(c)fi Extension of 

Schedule for Certain Deposits in Alaska, 

Hawaii, Puerto Rico, and the U.S. Virgin 

Islands 

1. The EFA Act and regulation provide an 

extension of the availability schedules for 

check deposits at a branch of a bank if the 

branch is located in Alaska, Hawaii, Puerto 

Rico, or the U.S. Virgin Islands. The 

schedules for ølocal¿ checks fl(other than 

those subject to next-day availability under 

§ 229.10(c))fiø, nonlocal checks (including 

nonlocal checks subject to the reduced 

schedules of appendix B),¿ and deposits at 

nonproprietary ATMs are extended by one 

business day for checks deposited to 

accounts in banks located in these 

jurisdictions that are drawn on or payable at 

or through a paying bank not located in the 

same jurisdiction as the depositary bank. For 

example, a check deposited in a bank in 

Hawaii and drawn on a San Francisco paying 

bank must be made available for withdrawal 

not later than the third business day 

following deposit. This extension does not 

apply to deposits that must be made available 

for withdrawal on the next business day. 

2. The Congress did not provide this 

extension of the schedules to checks drawn 

on a paying bank located in Alaska, Hawaii, 

Puerto Rico, or the U.S. Virgin Islands and 

deposited in an account at a depositary bank 

in the 48 contiguous states. Therefore, a 

check deposited in a San Francisco bank 

drawn on a Hawaii paying bank must be 

made available for withdrawal not later than 

the second rather than the third business day 

following deposit. 

D. 229.12ø(f)¿fl(d)fi Deposits at 

Nonproprietary ATMs 

1. The EFA Act and regulation provide a 

special rule for deposits made at 

nonproprietary ATMs. This paragraph does 

not apply to deposits made at proprietary 

ATMs. All deposits at a nonproprietary ATM 

must be made available for withdrawal by the 

øfifth¿ flfourthfi business day following the 

banking day of deposit. For example, a 

deposit made at a nonproprietary ATM on a 

Monday, including any deposit by cash or 

checks that would otherwise be subject to 

next-day (or second-day) availability, must be 

made available for withdrawal not later than 

øMonday of the following week¿flFriday.fi 

fl2.fi The provisions of section 

229.10(c)(1)(vii) ørequiring a depositary bank 

to make up to $100 of an aggregate daily 

deposit¿ flsetting forth the minimum 

amount of a deposit that must be madefi 

available for withdrawal on the first business 

day after the banking day of deposit do not 

apply to deposits at a nonproprietary ATM. 

VII. Section 229.13—Exceptions 

A. Introduction 

1. While certain safeguard exceptions (such 

as those for new accounts and checks the 

bank has reasonable cause to believe are 

uncollectible) are established in the EFA Act, 

øthe Congress gave the Board the discretion 

to determine whether certain other 

exceptions should be included in its 

regulations. Specifically,¿ the EFA Act øgives 

the Board the authority to 

establish¿flpermits other exceptions to be 

established by regulation, specificallyfi 

exceptions to the schedules for large or 

redeposited checks and for accounts that 

have been repeatedly overdrawn. These 

exceptions apply to ølocal and nonlocal¿ 

checks subject to the general availability 

schedule in § 229.12 as well as to checks that 

must otherwise be accorded next-day ø(or 

second-day)¿ availability under § 229.10(c). 

2. Many checks will not be returned to the 

depositary bank by the time funds must be 

made available for withdrawal øunder the 

next-day (or second-day), local and nonlocal 

schedules¿. In order to reduce risk to 

depositary banks, øthe Board has exercised 

its statutory authority to adopt¿flRegulation 

CC containsfi these exceptions to the 

schedules in the regulation to allow the 

depositary bank to extend the time within 

which it is required to make funds available. 

ø3. The EFA Act also gives the Board the 

authority to suspend the schedules for any 

classification of checks, if the schedules 

result in an unacceptable level of fraud 

losses. The Board will adopt regulations or 

issue orders to implement this statutory 

authority if and when circumstances 

requiring its implementation arise.¿ 

B. 229.13(a) New Accounts 

1. Definition of New Account. 

a. The EFA Act provides an exception to 

the availability schedule for new accounts. 

An account is defined as a new account 

during the first 30 calendar days after the 

account is opened. An account is opened 

when the first deposit is made to the account. 

An account is not considered a new account, 

however, if each customer on the account has 

a transaction account relationship with the 

depositary bank, including a dormant 

account, that is at least 30 calendar days old 

or if each customer has had an established 

transaction account with the depositary bank 

within the 30 calendar days prior to opening 

the second account. 

b. The following are examples of what 

constitutes, and does not constitute, a new 

account: 

i. If the customer has an established 

account with a bank and opens a second 

account with the bank, the second account is 

not subject to the new account exception. 

ii. If a customer’s account were closed and 

another account opened as a successor to the 

original account (due, for example, to the 

theft of checks or a debit card used to access 

the original account), the successor account 

is not subject to the new account exception, 

assuming the previous account relationship 

is at least 30 days old. Similarly, if a 

customer closes an established account and 

opens a separate account within 30 days, the 

new account is not subject to the new 

account exception. 

iii. If a customer has a savings deposit or 

other deposit that is not an account (as that 

term is defined in § 229.2(a)) at the bank, and 

opens an account, the account is subject to 

the new account exception. 

iv. If a person that is authorized to sign on 

a corporate account (but has no other 

relationship with the bank) opens a personal 

account, the personal account is subject to 

the new account exception. 

v. If a customer has an established joint 

account at a bank, and subsequently opens an 

individual account with that bank, the 

individual account is not subject to the new 

account exception. 

vi. If two customers that each have an 

established individual account with the bank 

open a joint account, the joint account is not 

subject to the new account exception. If one 

of the customers on the account has no 

current or recent established account 

relationship with the bank, however, the 

joint account is subject to the new account 

exception, even if the other individual on the 

account has an established account 

relationship with the bank. 

2. Rules Applicable to New Accounts. 

a. During the newfl-fiaccount exception 

period, the flgeneralfi scheduleøs¿ for 

ølocal and nonlocal¿ checks flin § 229.12fi 

doflesfi not apply, and, unlike the other 

exceptions provided in this section, the 

regulation provides no maximum time frames 

within which the proceeds of these deposits 

must be made available for withdrawal. 

Maximum times within which funds must be 

available for withdrawal during the new 

account period are provided, however, for 

certain other deposits. Deposits received by 

cash and electronic payments must be made 

available for withdrawal in accordance with 

§ 229.10. 

b. Special rules also apply to deposits of 

Treasury checks, U.S. Postal Service money 

orders, checks drawn on Federal Reserve 

Banks and Federal Home Loan Banks, state 

and local government checks, cashier’s 

checks, certified checks, teller’s checks, and, 

for the purposes of the new account 

exception only, traveler’s checks. The first 

$5,000 of funds deposited to a new account 

on any one banking day by these check 

deposits must be made available for 

withdrawal in accordance with § 229.10(c)ø. 

Thus, the first $5,000 of the proceeds of these 

check deposits must be made available¿fl; 

that is,fi on the first business day following 

deposit, if the deposit is made in person to 

an employee of the depositary bank and the 

other conditions of next-day availability are 

met. øFunds must be made available on the 

second business day after deposit for 

deposits that are not made over the counter, 

in accordance with § 229.10(c)(2).¿ (Proceeds 

of Treasury check deposits must be made 

available on the first business day after 

deposit, even if the check is not deposited in 

person to an employee of the depositary 


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16940 Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 

bank.) Funds in excess of the first $5,000 

deposited by these types of checks on a 

banking day must be available for withdrawal 

not later than the ninth business day 

following the banking day of deposit. The 

requirements of § 229.10(c)(1)(vi) and (vii) 

that ‘‘on us’’ checks and the øfirst 

$100¿flminimum amountfi of a day’s 

deposit be made available for withdrawal on 

the next business day do not apply during 

the new account period. 

3. Representation by Customer. The 

depositary bank may rely on the 

representation of the customer that the 

customer has no established account 

relationship with the bank, and has not had 

any such account relationship within the 

past 30 days, to determine whether an 

account is subject to the new account 

exception. 

C. 229.13(b) Large Deposits 

1. Under the largefl-fideposit exception, 

a depositary bank may extend the hold 

placed on check deposits to the extent that 

the amount of the aggregate deposit on any 

banking day exceeds $5,000fl(the ‘‘largedeposit amount’’)fi. This exception applies 

to ølocal and nonlocal¿ checks flunder 

§ 229.12fi, as well as to checks that 

otherwise would be made available on the 

next ø(or second)¿ business day after the day 

of deposit under § 229.10(c). Although øthe 

first $5,000 of a day’s deposit¿flany amount 

under the large-deposit amountfi is subject 

to the availability otherwise provided for 

checks, the amount in excess of 

ø$5,000¿flthe large-deposit thresholdfi may 

be held for an additional period of time as 

provided in § 229.13(h). When the largeflfideposit exception is applied to deposits 

composed of a mix of checks that would 

otherwise be subject to differing availability 

schedules, the depositary bank has the 

discretion to choose the portion of the 

deposit to which it applies the exception. 

Deposits by cash or electronic payment are 

not subject to this exception for large 

deposits. 

2. The following example illustrates the 

operation of the largefl-fideposit exception. 

If a customer deposits $2,000 in cash and a 

$9,000 ølocal¿ check on a Monday flthat is 

not subject to next-day availabilityfi, 

ø$2,100 (¿ the proceeds of the cash deposit 

and ø$100¿ flthe minimum amount under 

§ 229.10(c)fi from the ølocal¿ check 

depositø)¿ must be made available for 

withdrawal on Tuesday. øAn additional 

$4,900 of the proceeds of the local check¿ 

flThe amount under the large-deposit 

threshold less the minimum amount under 

§ 229.10(c)fi must be available for 

withdrawal on Wednesday in accordance 

with the ølocal¿ flgeneralfi schedule, and 

the remaining ø$4,000¿flamount over the 

large-deposit thresholdfi may be held for an 

additional period of time under the largeflfideposit exception. 

3. Where a customer has multiple accounts 

with a depositary bank, the bank may apply 

the largefl-fideposit exception to the 

aggregate deposits to all of the customer’s 

accounts, even if the customer is not the sole 

holder of the accounts and not all of the 

holders of the customer’s accounts are the 

same. Thus, a depositary bank may aggregate 

the deposits made to two individual accounts 

in the same name, to an individual and a 

joint account with one common name, or to 

two joint accounts with at least one common 

name for the purpose of applying the largeflfideposit exception. Aggregation of deposits 

to multiple accounts is permitted because 

øthe Board believes that¿ the risk to the 

depositary bank associated with large 

deposits is similar regardless of how the 

deposits are allocated among the customer’s 

accounts. 

D. 229.13(c) Redeposited Checks 

1. The EFA Act øgives the Board the 

authority to promulgate¿flprovides that the 

regulation may includefi an exception to the 

schedule for checks that have been returned 

unpaid and redeposited. Section 229.13(c) 

provides such an exception for checks that 

have been returned unpaid and redeposited 

by the customer or the depositary bank. This 

exception applies to ølocal and nonlocal¿ 

checks flsubject to § 229.12fi, as well as to 

checks that would otherwise be made 

available on the next ø(or second)¿ business 

day after the day of deposit under § 229.10(c). 

2. This exception addresses the increased 

risk to the depositary bank that checks that 

have been returned once will be uncollectible 

when they are presented to the paying bank 

a second time. øThe Board, however, does 

not believe that t¿flTfihis increased risk is 

flnotfi present for checks that have been 

returned due to a missing indorsement. Thus, 

the exception does not apply to checks 

returned unpaid due to missing indorsements 

and redeposited after the missing 

indorsement has been obtained, if the reason 

for return indicated on the check (see 

§ 229.30(d)) states that it was returned due to 

a missing indorsement. For the same reason, 

this exception does not apply to a check 

returned because it was postdated (future 

dated), if the reason for return indicated on 

the check states that it was returned because 

it was postdated, and if it is no longer 

postdated when redeposited. 

3. To determine when funds must be made 

available for withdrawal, the banking day on 

which the check is redeposited is considered 

to be the day of deposit. A depositary bank 

that made ø$100¿ flthe minimum amountfi 

of a check available for withdrawal under 

§ 229.10(c)(1)(vii) can charge back the full 

amount of the check, including the 

ø$100¿flthe minimum amount made 

availablefi, if the check is returned unpaid, 

and the ø$100¿ flminimum amountfi need 

not be made available again if the check is 

redeposited. 

E. 229.13(d) Repeated Overdrafts 

1. The EFA Act øgives the Board the 

authority to establish¿flprovides that the 

regulation may includefi an exception for 

‘‘deposit accounts which have been 

overdrawn repeatedly.’’ This paragraph 

provides two tests to determine what 

constitutes repeated overdrafts. Under the 

first test, a customer’s accounts are 

considered repeatedly overdrawn if, on six 

banking days within the preceding six 

months, the available balance in any account 

held by the customer is negative, or the 

balance would have become negative if 

checks or other charges to the account had 

been paid, rather than returned. This test can 

be met based on separate occurrences (e.g., 

checks that are returned for insufficient 

funds on six different days), or based on one 

occurrence (e.g., a negative balance that 

remains on the customer’s account for six 

banking days). If the bank dishonors a check 

that otherwise would have created a negative 

balance, however, the incident is considered 

an overdraft only on that day. 

2. The second test addresses substantial 

overdrafts. Such overdrafts increase the risk 

to the depositary bank of dealing with the 

repeated overdrafter. Under this test, a 

customer incurs repeated overdrafts if, on 

two banking days within the preceding six 

months, the available balance in any account 

held by the customer is negative in an 

amount of $5,000 or more, or would have 

become negative in an amount of $5,000 or 

more if checks or other charges to the 

account had been paid. 

3. The exception relates not only to 

overdrafts caused by checks drawn on the 

account, but also overdrafts caused by other 

debit charges (e.g. ACH debits, point-of-sale 

transactions, returned checks, account fees, 

etc.). If the potential debit is in excess of 

available funds, the exception applies 

regardless of whether the items were paid or 

returned unpaid. 

fl4. Under either test described above, the 

‘‘other charges to the account’’ that would 

have created an overdraft had they been paid 

do not include attempted debit card 

transactions for which the depositary bank 

has declined the authorization request, 

because there is no transaction that has 

occurred.fi 

fl5.fi An overdraft resulting from an error 

on the part of the depositary bank, or from 

the imposition of overdraft charges for which 

the customer is entitled to a refund under 

§§ 229.13(e) or 229.16(c), cannot be 

considered in determining whether the 

customer is a repeated overdrafter. The 

exception excludes accounts with overdraft 

lines of credit, unless the credit line has been 

exceeded or would have been exceeded if the 

checks or other charges to the account had 

been paid. 

ø4.¿fl6.fiThis exception applies to ølocal 

and nonlocal¿ checks flsubject to 

§ 229.12fi, as well as to checks that 

otherwise would be made available on the 

next ø(or second)¿ business day after the day 

of deposit under § 229.10(c). When a bank 

places or extends a hold under this 

exception, it need not make the øfirst 

$100¿flminimum amountfi of a deposit 

available for withdrawal on the next business 

day, as otherwise would be required by 

§ 229.10(c)(1)(vii). 

F. 229.13(e) Reasonable Cause To Doubt 

Collectibility 

1. In the case of certain check deposits, if 

the bank has reasonable cause to believe the 

check is uncollectible, it may extend the time 

funds must be made available for 

withdrawal. This exception applies to ølocal 

and nonlocal¿ checks flunder § 229.12fi, as 

well as to checks that would otherwise be 

made available on the next ø(or second)¿ 

business day after the day of deposit under 

§ 229.10(c). When a bank places or extends 

a hold under this exception, it need not make 


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the øfirst $100¿flminimum amountfi of a 

deposit available for withdrawal on the next 

business day, as otherwise would be required 

by § 229.10(c)(1)(vii). If the reasonableflficause exception is invoked, the bank must 

include in the notice to its customer, 

required by § 229.13(g), the reason that the 

bank believes that the check is uncollectible. 

2. The following are several examples of 

circumstances under which the 

reasonablefl-ficause exception may be 

invoked: 

a. If a bank received a notice from the 

paying bank that a check was not paid and 

is being returned to the depositary bank, the 

depositary bank could place a hold on the 

check or extend a hold previously placed on 

that check, and notify the customer that the 

bank had received notice that the check is 

being returned. The exception could be 

invoked even if the notice were incomplete, 

if the bank had reasonable cause to believe 

that the notice applied to that particular 

check. 

b. The depositary bank may have received 

information from the paying bank, prior to 

the presentment of the check, that gives the 

bank reasonable cause to believe that the 

check is uncollectible. For example, the 

paying bank may have indicated that 

payment has been stopped on the check, or 

that the drawer’s account does not currently 

have sufficient funds to honor the check. 

Such information may provide sufficient 

basis to invoke this exception. In these cases, 

the depositary bank could invoke the 

exception and disclose as the reason the 

exception is being invoked the fact that 

information from the paying bank indicates 

that the check may not be paid. 

c. The fact that a check is deposited more 

than six months after the date on the check 

(i.e.fl,fi a stale check) is a reasonable 

indication that the check may be 

uncollectible, because under U.C.C. 4–404 a 

bank has no duty to its customer to pay a 

check that is more than six months old. 

Similarly, if a check being deposited is 

postdated (future dated), the bank may have 

a reasonable cause to believe the check is 

uncollectible, because the check may not be 

properly payable under U.C.C. 4–401. The 

bank, in its notice, should specify that the 

check is stale-dated or postdated. 

d. There are reasons that may cause a bank 

to believe that a check is uncollectible that 

are based on confidential information. For 

example, a bank could conclude that a check 

being deposited is uncollectible based on its 

reasonable belief that the depositor is 

engaging in kiting activity. Reasonable belief 

as to the insolvency or pending insolvency of 

the drawer of the check or the drawee bank 

and that the checks will not be paid also may 

justify invoking this exception. In these 

cases, the bank may indicate, as the reason 

it is invoking the exception, that the bank has 

confidential information that indicates that 

the check might not be paid. 

3. øThe Board has included a¿flAppendix 

C contains a model reasonablefl-ficause 

exception notice as a model notice in 

appendix C (C–ø13¿fl9fi). The 

flcommentary in appendix C to thefi model 

notice includes several reasons for which this 

exception may be invoked. The øBoard does 

not intend to provide¿flcommentary list is 

notfi a comprehensive list of reasons for 

which this exception may be invoked; 

another reason that does not appear flin the 

commentary to thefi øon¿ the model notice 

may be used as the basis for extending a 

hold, if the reason satisfies the conditions for 

invoking this exception. A depositary bank 

may invoke the reasonablefl-ficause 

exception based on a combination of factors 

that give rise to a reasonable cause to doubt 

the collectibility of a check. In these cases, 

the bank should disclose the primary reasons 

for which the exception was invoked in 

accordance with paragraph (g) of this section. 

4. The regulation provides that the 

determination that a check is uncollectible 

shall not be based on a class of checks or 

persons. For example, a depositary bank 

cannot invoke this exception simply because 

øthe check is drawn on a paying bank in a 

rural area¿fla paying bank demands paper 

presentmentfi and the depositary bank 

knows it will not have the opportunity to 

learn of nonpayment of that check before 

funds must be made available under the 

availability schedules. Similarly, a depositary 

bank cannot invoke the reasonable cause 

exception based on the race or national origin 

of the depositor. 

5. If a depositary bank invokes this 

exception with respect to a particular check 

and does not provide a written notice to the 

depositor at the time of deposit, the 

depositary bank may not assess any overdraft 

fee (such as an ‘‘NSF’’ charge) or charge 

interest for use of overdraft credit, if the 

check is paid by the paying bank and these 

charges would not have occurred had the 

exception not been invoked. A bank may 

assess an overdraft fee under these 

circumstances, however, if it provides notice 

to the customer, in the notice of exception 

required by paragraph (g) of this section, that 

the fee may be subject to refund, and refunds 

the charges upon the request of the customer. 

The notice must state that the customer may 

be entitled to a refund of any overdraft fees 

that are assessed if the check being held is 

paid, and indicate where such requests for a 

refund of overdraft fees should be directed. 

G. 229.13(f) Emergency Conditions 

1. Certain emergency conditions may arise 

that delay the collection or return of checks, 

or delay the processing and updating of 

customer accounts. In the circumstances 

specified in this paragraph, the depositary 

bank may extend the holds that are placed on 

deposits of checks that are affected by such 

delays, if the bank exercises such diligence 

as the circumstances require. For example, if 

a bank learns that a check has been delayed 

in the process of collection due to øsevere 

weather conditions¿ flan interruption of 

computer facilitiesfi or other causes beyond 

its control, an emergency condition covered 

by this section may exist and the bank may 

place a hold on the check to reflect the delay. 

This exception applies to ølocal and 

nonlocal¿ checks flsubject to § 229.12fi, as 

well as fltofi checks that would otherwise 

be made available on the next ø(or second)¿ 

business day after the day of deposit under 

§ 229.10(c). When a bank places or extends 

a hold under this exception, it need not make 

the øfirst $100¿flminimum amountfi of a 

deposit available for withdrawal on the next 

business day, as otherwise would be required 

by § 229.10(c)(1)(vii). In cases where the 

emergencyfl-ficonditions exception does 

not apply, as in the case of deposits of cash 

or electronic payments under § 229.10 (a) and 

(b), the depositary bank may not be liable for 

a delay in making funds available for 

withdrawal if the delay is due to a bona fide 

error such as an unavoidable computer 

malfunction. 

H. 229.13(g) Notice of Exception 

1. In general. 

a. If a depositary bank invokes any of the 

safeguard exceptions to the schedules listed 

above, other than the newfl-fiaccount or 

emergencyfl-ficonditions exception, and 

extends the hold on a deposit beyond the 

time periods permitted in §§ 229.10(c) and 

229.12, it must provide a notice to its 

customer. Except in the cases described in 

paragraphs (g)(2) and (g)(3) of this section, 

notices must be given each time an exception 

hold is invoked and must state øthe¿ fla 

number or code that identifies thefi 

customer’s account ønumber¿, the date of 

deposit, flthe total amount of the deposit, 

the amount of the deposit that is being 

delayed,fi the reason the exception was 

invoked, and the time period within which 

funds will be available for withdrawal. For a 

customer that is not a consumer, a depositary 

bank satisfies the written-notice requirement 

by sending an electronic notice that displays 

the text and is in a form that the customer 

may keep, if the customer agrees to such 

means of notice. Information is in a form that 

the customer may keep if, for example, it can 

be downloaded or printed. For a customer 

who is a consumer, a depositary bank 

satisfies the written-notice requirement by 

sending an electronic notice in compliance 

with the requirements of the Electronic 

Signatures in Global and National Commerce 

Act (12 U.S.C. 7001 et seq.), which include 

obtaining the consumer’s affirmative consent 

to such means of notice. 

b. With respect to paragraph (g)(1), the 

requirement that the notice state the øtime 

period within¿flday onfi which the funds 

shall be made available may be satisfied øif 

the notice identifies the date the deposit is 

received and information sufficient to 

indicate when funds will be available and the 

amounts that will be available at those times. 

For example,¿ for a deposit involving more 

than one check, fliffi øthe bank need not 

provide a notice that discloses when funds 

from each individual check in the deposit 

will be available for withdrawal; instead,¿ 

the bank ømay¿ provideflsfi a total dollar 

amount for each of the øtime periods 

when¿fldays on which thefi funds will be 

availableø, or provide the customer with an 

explanation of how to determine the amount 

of the deposit that will be held and when the 

funds will be available for deposit.¿ 

Appendix C (C–ø12¿fl9fi) contains a model 

notice. 

c. For deposits made in person to an 

employee of the depositary bank, the notice 

generally must be given to the person making 

the deposit, i.e., the ‘‘depositorfl,fi’’ø,¿ at 

the time of deposit. The depositor need not 

be the customer holding the account. For 

other deposits, such as deposits received at 


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16942 Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 

an ATM, lobby deposit box, night depository, 

or through the mail, notice must be ømailed¿ 

flsentfi to the customer not later than the 

close of the business day following the 

banking day on which the deposit was made. 

d. Notice to the customer also may be 

provided at a later time, if the facts upon 

which the determination to invoke the 

exception flis madefi do not become 

known to the depositary bank until after 

notice would otherwise have to be given. In 

these cases, the bank must ømail¿ flsendfi 

the notice to the customer as soon as 

practicable, but not later than the business 

day following the day the facts become 

known. A bank is deemed to have knowledge 

when the facts are brought to the attention of 

the person or persons in the bank responsible 

for making the determination, or when the 

facts would have been brought to their 

attention if the bank had exercised due 

diligence. 

fle. If the customer has agreed to accept 

notices electronically, the bank shall send the 

notice such that the bank may reasonably 

expect it to be received by the customer no 

later than the first business day following the 

day the facts become known to the depositary 

bank, or the deposit is made, whichever is 

later.fi 

øe¿flffi. In those cases described in 

paragraphs (g)(2) and (g)(3), the depositary 

bank need not provide a notice every time an 

exception hold is applied to a deposit. When 

paragraph (g)(2) or (g)(3) requires disclosure 

of the time period within which deposits 

subject to the exception generally will be 

available for withdrawal, the requirement 

may be satisfied if the one-time notice states 

when ‘‘on usø,¿’’ ølocal, and nonlocal¿ fland 

otherfi checks will be available for 

withdrawal if an exception is invoked. 

2. One-time exception notice. 

a. Under paragraph (g)(2), if a 

nonconsumer account (see Commentary to 

§ 229.2ø(n)¿fl(o)fi) is subject to the largeflfideposit or redepositedfl-ficheck 

exception, the depositary bank may give its 

customer a single notice at or prior to the 

time notice must be provided under 

paragraph (g)(1). Notices provided under 

paragraph (g)(2) must contain the reason the 

exception may be invoked and the time 

period within which deposits subject to the 

exception will be available for withdrawal 

(see Model Notice C–ø14¿fl10fi). A 

depositary bank may provide a one-time 

notice to a nonconsumer customer under 

paragraph (g)(2) only if each exception cited 

in the notice (the large deposit and/or the 

redeposited check exception) will be invoked 

for most check deposits to the customer’s 

account to which the exception could apply. 

A one-time notice may state that the 

depositary bank will apply exception holds 

to certain subsets of deposits to which the 

largefl-fideposit or redepositedfl-ficheck 

exception may apply, and the notice should 

identify such subsets. For example, the 

depositary bank may apply the 

redepositedfl-ficheck exception only to 

checks that were redeposited automatically 

by the depositary bank in accordance with an 

agreement with the customer, rather than to 

all redeposited checks. In lieu of sending the 

one-time notice, a depositary bank may send 

individual hold notices for each deposit 

subject to the largefl-fideposit or 

redepositedfl-ficheck exception in 

accordance with § 229.13(g)(1) (see Model 

Notice C–ø12¿fl9fi). 

b. In the case of a deposit of multiple 

checks, the depositary bank has the 

discretion to place an exception hold on any 

combination of checks in excess of 

ø$5,000¿flthe large-deposit thresholdfi. 

The notice should enable a customer to 

determine the availability of the deposit in 

the case of a deposit of multiple checks 

flsubject to differing hold periodsfi. øFor 

example, if a customer deposits a $5,000 

local check and a $5,000 nonlocal check, 

under the large deposit exception, the 

depositary bank may make funds available in 

the amount of (1) $100 on the first business 

day after deposit, $4,900 on the second 

business day after deposit (local check), and 

$5,000 on the eleventh business day after 

deposit (nonlocal check with 6-day exception 

hold), or (2) $100 on the first business day 

after deposit, $4,900 on the fifth business day 

after deposit (nonlocal check), and $5,000 on 

the seventh business day after deposit (local 

check with 5-day exception hold).¿ The 

notice flalsofi should reflect the bank’s 

priorities in placing exception holds on nextday ø(or second-day), local, and nonlocal¿ 

fland otherfi checks. 

3. Notice of repeatedfl-fioverdraft 

exception. Under paragraph (g)(3), if an 

account is subject to the repeatedflfioverdraft exception, the depositary bank 

may provide one notice to its customer for 

each time period during which the exception 

will apply. Notices sent pursuant to 

paragraph (g)(3) must state the customer’s 

account ønumber¿ flidentifierfi, the fact 

the exception was invoked under the 

repeatedfl-fioverdraft exception, the time 

period within which deposits subject to the 

exception will be made available for 

withdrawal, and the time period during 

which the exception will apply (see Model 

Notice C–ø15¿fl11fi). A depositary bank 

may provide a one-time notice to a customer 

under paragraph (g)(3) only if the repeatedflfioverdraft exception will be invoked for 

most check deposits to the customer’s 

account. 

4. Emergencyfl-ficonditions exception 

notice. 

a. If an account is subject to the 

emergencyfl-ficonditions exception under 

§ 229.13(f), the depositary bank must provide 

notice in a reasonable form within a 

reasonable time, depending on the 

circumstances. For example, a depositary 

bank may learn of a weather emergency or a 

power outage that affects the paying bank’s 

operations. Under these circumstances, it 

likely would be reasonable for the depositary 

bank to provide an emergencyflficonditions exception notice in the same 

manner and within the same time as required 

for other exception notices. On the other 

hand, if a depositary bank experiences a 

weather or power outage emergency that 

affects its own operations, it may be 

reasonable for the depositary bank to provide 

a general notice to all depositors via postings 

flon the depositary bank’s website or 

through a directed e-mailfi, at branches and 

ATMs, or through newspaper, television, or 

radio notices. 

b. If the depositary bank extends the hold 

placed on a deposit due to an emergency 

condition, the bank need not provide a notice 

if the funds would be available for 

withdrawal before the notice must be sent. 

For example, if on the last day of a hold 

period the depositary bank experiences a 

computer failure and customer accounts 

cannot be updated in a timely fashion to 

reflect the funds as available balances, 

notices are not required if the funds are made 

available before the notices must be sent. 

5. Record retention. A depositary bank 

must retain a record of each notice of a 

reasonablefl-ficause exception for a period 

of two years, or such longer time as provided 

in the record retention requirements of 

§ 229.21. This record must contain a brief 

description of the facts on which the 

depositary bank based its judgment that there 

was reasonable cause to doubt the 

collectibility of a check. In many cases, øsuch 

as where the exception was invoked on the 

basis of a notice of nonpayment received,¿ 

the record requirement may be met by 

retaining a copy of the notice sent to the 

customer. In other cases, such as where the 

exception was invoked on the basis of 

confidential information, a further 

description to the facts, such as insolvency 

of drawer, should be included in the record. 

I. 229.13(h) Availability of Deposits Subject 

to Exceptions 

1. If a depositary bank invokes any 

exception other than the newfl-fiaccount 

exception, the bank may extend the time 

within which funds must be made available 

under the schedule by a reasonable period of 

time. This provision establishes that an 

extension of up to one business day for ‘‘on 

us’’ checksø,¿ fland twofi øfive¿ business 

days for ølocal checks, and six business days 

for nonlocal checks¿ flall other checksfi 

øand checks deposited in a nonproprietary 

ATM¿ is reasonable. Under certain 

circumstances, however, a longer extension 

of the schedules may be reasonable. In these 

cases, the burden is placed on the depositary 

bank to establish that a longer period is 

reasonable. 

2. For example, assume a bank extended 

the hold on a ølocal¿ check deposit by 

fltwofi øfive¿ business days based on its 

reasonable cause to believe that the check is 

uncollectible. If, on the day before the 

extended hold is scheduled to expire, the 

bank øreceives a notification from the paying 

bank¿ fllearnsfi that the check is being 

returned unpaid, the bank may determine 

that a longer hold is warrantedø, if it decides 

not to charge back the customer’s account 

based on the notification¿. If the bank 

decides to extend the hold, the bank must 

send a second notice, in accordance with 

paragraph (g) of this section, indicating the 

new date that the funds will be available for 

withdrawal. 

3. With respect to Treasury checks, U.S. 

Postal Service money orders, checks drawn 

on Federal Reserve Banks or Federal Home 

Loan Banks, state and local government 

checks, cashier’s checks, certified checks, 

and teller’s checks subject to the next-day 

ø(or second-day)¿ availability requirement, 


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Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 16943 

the depositary bank may extend the time 

funds must be made available for withdrawal 

under the largefl-fideposit, redepositedflficheck, repeatedfl-fioverdraft, or 

reasonablefl-ficause exception by a 

reasonable period beyond the delay that 

would have been permitted under the 

regulation had the checks not been subject to 

the next-day ø(or second-day)¿ availability 

requirement. The additional hold is added to 

the ølocal or nonlocal¿ flgeneralfi schedule 

øthat would apply based on the location of 

the paying bank¿ flin § 229.12fi. 

4. One business day for ‘‘on us’’ checks 

fland twofi ø, five¿ business days for ølocal 

checks, and six business days for nonlocal 

checks or checks deposited in a 

nonproprietary ATM¿ flall other checksfi, 

in addition to the time period provided in the 

schedule, should provide adequate time for 

flafiøthe¿ depositary bank flthat accepts 

electronic returns under § 229.32(a)fi to 

learn of the nonpayment of virtually all 

checks that are returned. øFor example, if a 

customer deposits a $7,000 cashier’s check 

drawn on a nonlocal bank, and the 

depositary bank applies the large deposit 

exception to that check, $5,000 must be 

available for withdrawal on the first business 

day after the day of deposit and the 

remaining $2,000 must be available for 

withdrawal on the eleventh business day 

following the day of deposit (six business 

days added to the five-day schedule for 

nonlocal checks), unless the depositary bank 

establishes that a longer hold is reasonable.¿ 

5. In the case of the application of the 

emergency conditions exception, the 

depositary bank may extend the hold placed 

on a check by not more than a reasonable 

period following the end of the emergency or 

the time funds must be available for 

withdrawal under §§ 229.10(c) or 229.12, 

whichever is later. 

6. This provision does not apply to holds 

imposed under the newfl-fiaccount 

exception. Under that exception, the 

maximum time period within which funds 

must be made available for withdrawal is 

specified for deposits that generally must be 

accorded next-day availability under 

§ 229.10. This subpart does not specify the 

maximum time period within which the 

proceeds of ølocal and nonlocal¿ flotherfi 

checks must be made available for 

withdrawal during the new account period. 

VIII. Section 229.14 Payment of Interest 

A. 229.14(a) In General 

1. This section requires that a depositary 

bank begin accruing interest on interestbearing accounts not later than the day on 

which the depositary bank receives credit for 

the funds deposited.ø3¿ A depositary bank 

generally receives credit on checks øwithin 

one or two days¿ flon the business dayfi 

following deposit. A bank receives credit on 

a cash deposit, an electronic payment, and 

the deposit of a check that is drawn on the 

depositary bank itself on the day the cash, 

electronic payment, or check is received. In 

the case of a deposit at a nonproprietary 

ATM, credit generally is received on the day 

the bank that operates the ATM credits the 

depositary bank for the amount of the 

deposit. In the case of a deposit at a 

contractual branch, credit is received on the 

day the depositary bank receives credit for 

the amount of the deposit, which may be 

different from the day the contractual branch 

receives credit for the deposit. 

ø3¿ fl2.fi This section implements 

section 606 of the EFA Act (12 U.S.C. 4005). 

The EFA Act keys the requirement to pay 

interest to the time the depositary bank 

receives provisional credit for a check. 

øProvisional credit is a term used in the 

U.C.C. that is derived from the Code’s 

concept of provisional settlement. (See 

U.C.C. 4–214 and 4–215.)¿ Provisional credit 

is credit that is subject to charge-back if the 

check is returned unpaid; once the check is 

finally paid, the right to charge back expires 

and the provisional credit becomes final 

fl(See U.C.C. 4–214 and 4–215)fi. Under 

øS¿flsfiubpart C, a paying bank no longer 

has an automatic right to charge back credits 

given in settlement of a check, and the 

concept of provisional settlement is no longer 

useful and has been eliminated by the 

regulation. Accordingly, this section uses the 

term credit rather than provisional credit, 

and this section applies regardless of whether 

a credit would be provisional or final under 

the U.C.C. Credit does not include a 

bookkeeping entry (sometimes referred to as 

deferred credit) that does not represent funds 

actually available for the bank’s use. 

ø2¿fl3fi. Because account includes only 

transaction accounts, other interest-bearing 

accounts of the depositary bank, such as 

money market deposit accounts, savings 

deposits, and time deposits, are not subject 

to this requirement; however, a bank may 

accrue interest on such deposits in the same 

way that it accrues interest under this 

paragraph for simplicity of operation. The 

øBoard intends the¿ term interest øto¿ 

referflsfi to payments to or for the account 

of any customer as compensation for the use 

of funds, but øto¿ excludeflsfi the 

absorption of expenses incident to providing 

a normal banking function or a bank’s 

forbearance from charging a fee in connection 

with such a service. ø(See 12 CFR 217.2(d).)¿ 

Thus, earnings credits often applied to 

corporate accounts are not interest payments 

for the purposes of this section. 

ø3¿fl4fi. It may be difficult for a 

depositary bank to track which day øthe 

depositary bank¿flitfi receives credit for 

specific checks in order to accrue interest 

properly on the account to which the check 

is deposited. This difficulty may be 

pronounced if the bank uses different means 

of collecting checks based on the time of day 

the check is received, the dollar amount of 

the check, and/or the paying bank to which 

it must be sent. Thus, for the purpose of the 

interest accrual requirement, a bank may rely 

on an availability schedule from its Federal 

Reserve Bankø, Federal Home Loan Bank,¿ or 

correspondent to determine when the 

depositary bank receives credit. If availability 

is delayed beyond that specified in the 

availability schedule, a bank may charge back 

interest erroneously accrued or paid on the 

basis of that schedule. 

ø4¿fl5fi. This paragraph also permits a 

depositary bank to accrue interest on checks 

deposited to all of its interest-bearing 

accounts based on when the bank receives 

credit on all checks sent for payment or 

collection. For example, if a bank receives 

credit on 20 percent of the funds deposited 

in the bank by check as of the business day 

of deposit (e.g., ‘‘on us’’ checks), 70 percent 

as of the business day following deposit, and 

10 percent on the second business day 

following deposit, the bank can apply these 

percentages to determine the day interest 

must begin to accrue on check deposits to all 

interest-bearing accounts, regardless of when 

the bank received credit on the funds 

deposited in any particular account. Thus, a 

bank may begin accruing interest on a 

uniform basis for all interest-bearing 

accounts, without the need to track the type 

of check deposited to each account. 

ø5¿fl6fi. This section is not intended to 

limit a policy of a depositary bank that 

provides that interest accrues only on 

balances that exceed a specified amount, or 

on the minimum balance maintained in the 

account during a given period, provided that 

the balance is determined based on the date 

that the depositary bank receives credit for 

the funds. This section also is not intended 

to limit any policy providing that interest 

accrues sooner than required by this 

paragraph. 

B. 229.14(b) Special Rule for Credit Unions 

1. This provision implements a 

requirement in section 606(b) of the EFA Act, 

and provides an exemption from the 

payment-of-interest requirements for credit 

unions that do not begin to accrue interest or 

dividends on their customer accounts until a 

later date than the day the credit union 

receives credit for those deposits, including 

cash deposits. These credit unions are 

exempt from the payment-of-interest 

requirements, as long as they provide notice 

of their interest accrual policies in 

accordance with § 229.16(d). For example, if 

a credit union has a policy of computing 

interest on all deposits received by the 10th 

of the month from the first of that month, and 

on all deposits received after the 10th of the 

month from the first of the next month, that 

policy is not superseded by this regulation, 

if the credit union provides proper disclosure 

of this policy to its customers. 

2. The EFA Act limits this exemption to 

credit unions; other types of banks must 

comply with the payment-of-interest 

requirements. In addition, credit unions that 

compute interest from the day of deposit or 

day of credit should not change their existing 

practices in order to avoid compliance with 

the requirement that interest accrue from the 

day the credit union receives credit. 

C. 229.14(c) Exception for Checks Returned 

Unpaid 

1. This provision is based on section 606(c) 

of the EFA Act (12 U.S.C. 4005(c)) and 

provides that interest need not be paid on 

funds deposited in an interest-bearing 

account by check that has been returned 

unpaid, regardless of the reason for return. 

IX. Section 229.15 General Disclosure 

Requirements 

A. 229.15(a) Form of Disclosures fland 

Noticesfi 

1. This paragraph sets forth the general 

requirements for the disclosures fland 


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16944 Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 

noticesfi required under øS¿flsfiubpart B. 

All of the disclosures fland noticesfi must 

be given in a clear and conspicuous manner, 

must be in writing, and, in most cases, must 

be in a form the customer may keep. A 

disclosure flor noticefi is in a form that the 

customer may keep if, for example, it can be 

downloaded or printed. For a customer that 

is not a consumer, a depositary bank satisfies 

the written-disclosure flor noticefi 

requirement by sending an electronic 

disclosure flor noticefi that displays the 

text and is in a form that the customer may 

keep, if the customer agrees to such means 

of disclosure flor noticefi. For a customer 

who is a consumer, a depositary bank 

satisfies the written-fldisclosure orfi notice 

requirement by sending an electronic 

fldisclosure orfi notice in compliance with 

the requirements of the Electronic Signatures 

in Global and National Commerce Act (12 

U.S.C. 7001 et seq.), which include obtaining 

the consumer’s affirmative consent to such 

means of fldisclosure orfi notice. 

Disclosures posted at locations where 

employees accept consumer deposits, at 

ATMs, and on preprinted deposit slips need 

not be in a form that the customer may keep. 

Appendix C of the regulation contains model 

forms, clauses, and notices to assist banks in 

preparing disclosures. 

2. Disclosures concerning availability must 

be grouped together and may not contain any 

information that is not related to the 

disclosures required by this subpart. 

Therefore, banks may not intersperse the 

required disclosures with other account 

disclosures, and may not include other 

account information that is not related to 

their availability policy within the text of the 

required disclosures. Banks may, however, 

include information that is related to their 

availability policies. For example, a bank 

may inform its customers that, even when the 

bank has already made funds available for 

withdrawal, the customer is responsible for 

any problem with the deposit, such as the 

return of a deposited check. flSee Model 

Forms C1–C4.fi 

3. The regulation does not require that the 

disclosures be segregated from other account 

terms and conditions. For example, banks 

may include the disclosure of their specific 

availability policy in a booklet or pamphlet 

that sets out all of the terms and conditions 

of the bank’s accounts. The required 

disclosures must, however, be grouped 

together and highlighted or identified in 

some manner, for example, by use of a 

separate heading for the disclosures, such as 

‘‘When Deposits are Available for 

Withdrawal.’’ 

4. A bank may, by agreement or at the 

consumer’s request, provide any disclosure 

or notice required by subpart B in a language 

other than English, provided that the bank 

makes a complete disclosure available in 

English at the customer’s request. 

B. 229.15(b) øUniform¿ Reference to Day of 

Availability 

1. This paragraph requires banks to 

disclose in a uniform manner when 

deposited funds will be available for 

withdrawal. Banks must disclose when 

deposited funds are available for withdrawal 

by stating the business day on which the 

customer may begin to withdraw funds flin 

relation to the banking day on which the 

bank received the depositfi. øThe business 

day funds will be available must be disclosed 

as ‘‘the llll business day after’’ the day 

of deposit, or substantially similar language.¿ 

The business day of availability is 

determined by counting the number of 

business days starting with the øbusiness day 

following the¿ banking day on which the 

deposit is received, as determined under 

§ 229.19(a), and ending with the business day 

on which the customer may begin to 

withdraw funds. For example, a bank that 

flmakes electronic direct deposits available 

on the banking day they are received may 

describe the deposits as being available ‘‘the 

same business day.’’ A bank that makes check 

deposits available on the business day after 

the banking day they are received may 

describe the deposits as being available ‘‘the 

next day.’’ A bank thatfi imposes delays of 

øfour¿flonefi intervening business dayøs¿ 

flbetween the banking day of receipt and the 

business day of availabilityfi for ønonlocal¿ 

checks must describe those checks as being 

available on ‘‘the øfifth¿ flsecondfi business 

day after’’ the day of the deposit flor ‘‘2 

business days’’ after the day of the depositfi. 

C. 229.15(c) Multiple Accounts and Multiple 

Account Holders 

1. This paragraph clarifies that banks need 

not provide multiple disclosures under the 

regulation. A single disclosure to a customer 

that holds multiple accounts, or a single 

disclosure to one of the account holders of 

a jointly held account, satisfies the disclosure 

requirements of the regulation. 

D. 229.15(d) Dormant or Inactive Accounts 

1. This paragraph makes clear that banks 

need not provide disclosure of their specific 

availability policies to customers that hold 

accounts that are either dormant or inactive. 

The determination that certain accounts are 

dormant or inactive must be made by the 

bank. If a bank considers an account dormant 

or inactive for purposes other than this 

regulation and no longer provides statements 

and other mailings to an account for this 

reason, such an account is considered 

dormant or inactive for purposes of this 

regulation. 

X. Section 229.16 Specific Availability Policy 

Disclosure 

A. 229.16(a) General 

1. This section describes the information 

that must be disclosed by banks to comply 

with §§ 229.17 and 229.18(d), which require 

that banks furnish notices of their specific 

policy regarding availability of deposited 

funds. The disclosure provided by a bank 

must reflect the availability policy followed 

by the bank in most cases, even though a 

bank may in some cases make funds available 

sooner or impose a longer delay. 

2. The disclosure must reflect the policy 

and practice of the bank regarding 

availability as to most accounts and most 

deposits into those accounts. In disclosing 

the availability policy that it follows in most 

cases, a bank may provide a single disclosure 

that reflects one policy to all its transaction 

account customers, even though some of its 

customers may receive faster availability than 

that reflected in the policy disclosure. Thus, 

a bank need not disclose to some customers 

that they receive faster availability than 

indicated in the disclosure. If, however, a 

bank has a policy of imposing delays in 

availability on any customers longer than 

those specified in its disclosure, those 

customers must receive disclosures that 

reflect the longer applicable availability 

periods. A bank may establish different 

availability policies for different groups of 

customers, such as customers in a particular 

geographic area or customers of a particular 

branch. For purposes of providing a specific 

availability policy, the bank may allocate 

customers among groups through good faith 

use of a reasonable method. A bank may also 

establish different availability policies for 

deposits at different locations, such as 

deposits at a contractual branch. 

3. A bank may disclose that funds are 

available for withdrawal on a given day 

notwithstanding the fact that the bank uses 

the funds to pay checks received before that 

day. For example, a bank may disclose that 

its policy is to make funds available from 

deposits of ølocal¿ checks on the second 

business day following the day of deposit, 

even though it may use the deposited funds 

to pay checks prior to the second business 

day; the funds used to pay checks in this 

example are not available for withdrawal 

until the second business day after deposit 

because the funds are not available for all 

uses until the second business day. (See the 

definition of available for withdrawal in 

§ 229.2(d).) 

B. 229.16(b) Content of Specific Policy 

Disclosure 

1. This paragraph sets forth the items that 

must be included, as applicable, in a bank’s 

specific availability policy disclosure. The 

information that must be disclosed by a 

particular bank will vary considerably 

depending upon the bank’s availability 

policy. For example, a bank that makes 

deposited funds available for withdrawal on 

the business day following the day of deposit 

need simply disclose that deposited funds 

will be available for withdrawal on the first 

business day after the day of deposit, the 

bank’s business days, and when deposits are 

considered received. 

2. On the other hand, a bank that has a 

policy of routinely delaying on a blanket 

basis the time when flsomefi deposited 

funds are available for withdrawal would 

have a more detailed disclosure. Such 

blanket hold policies might be for the 

maximum time allowed under øthe federal 

law¿ flthis regulationfi or might be for 

shorter periods. These banks must disclose 

the types of deposits that will be subject to 

delays, how the customer can determine the 

type of deposit being made, and the day that 

funds from each type of deposit will be 

available for withdrawal. 

3. Some banks may have a combination of 

next-day availability and blanket delays. For 

example, a bank may provide next-day 

availability for all deposits except for one or 

two categories, such as deposits at 

nonproprietary ATMs and ønonlocal¿ 

personal checks over a specified dollar 

amount. The bank would describe the 

categories that are subject to delays in 


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Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 16945 

availability and tell the customer when each 

category would be available for withdrawal, 

and state that other deposits will be available 

for withdrawal on the first business day after 

the day of deposit. Similarly, a bank that 

provides availability on the second business 

day for most of its deposits would need to 

identify the categories of deposits which, 

under the regulation, are subject to next-day 

availability and state that all other deposits 

will be available on the second business day. 

4. øBecause many banks’ availability 

policies may be complex, a bank must give 

a brief summary of its policy at the beginning 

of the disclosure. In addition, t¿flTfihe 

bank must describe any circumstances when 

actual availability may be longer than the 

schedules disclosed. Such circumstances 

would arise, for example, when the bank 

invokes one of the exceptions set forth in 

§ 229.13 of the regulation, or when the bank 

delays or extends the time when deposited 

funds are available for withdrawal up to the 

time periods allowed by the regulation on a 

case-by-case basis. øAlso, a bank that must 

make certain checks available faster under 

appendix B (reduction of schedules for 

certain nonlocal checks) must state that some 

check deposits will be available for 

withdrawal sooner because of special rules 

and that a list of the pertinent routing 

numbers is available upon request.¿ 

ø5. Generally, a bank that distinguishes in 

its disclosure between local and nonlocal 

checks based on the routing number on the 

check must disclose to its customers that 

certain checks, such as some credit union 

payable-through drafts, will be treated as 

local or nonlocal based on the location of the 

bank by which they are payable (e.g., the 

credit union), and not on the basis of the 

location of the bank whose routing number 

appears on the check. A bank is not required 

to provide this disclosure, however, if it 

makes the proceeds of both local and 

nonlocal checks available for withdrawal 

within the time periods required for local 

checks in §§ 229.12 and 229.13.¿ 

ø6¿fl5fi. The business day cut-off time 

used by the bank must be disclosed and if 

some locations have different cut-off times 

the bank must note this in the disclosure and 

state the earliest time that might apply. A 

bank need not list all of the different cut-off 

times that might apply. If a bank does not 

have a cut-off time prior to its closing time, 

the bank need not disclose a cut-off time. 

ø7¿fl6fi. A bank taking advantage of the 

extended time period for making deposits at 

nonproprietary ATMs available for 

withdrawal under § 229.12ø(f)¿fl(d)fi must 

explain this in the initial disclosure. In 

addition, the bank must provide a list (on or 

with the initial disclosure) of either the 

bank’s proprietary ATMs or those ATMs that 

are nonproprietary at which customers may 

make deposits. As an alternative to providing 

such a list, the bank may label all of its 

proprietary ATMs with the bank’s name and 

state in the initial disclosure that this has 

been done. Similarly, a bank taking 

advantage of the cash withdrawal limitations 

of § 229.12 ø(d)¿fl(b)fi, or the provision in 

§ 229.19(e) allowing holds to be placed on 

other deposits when a deposit is made or a 

check is cashed, must explain this in the 

initial disclosure. 

ø8¿fl7fi. A bank that provides 

availability based on when the bank 

generally receives credit for deposited checks 

need not disclose the time when a check 

drawn on a specific bank will be available for 

withdrawal. Instead, the bank may disclose 

the categories of deposits that must be 

available on the first business day after the 

day of deposit (deposits subject to § 229.10) 

and state the other categories of deposits and 

the time periods that will be applicable to 

those deposits. øFor example, a bank might 

disclose the four-digit Federal Reserve 

routing symbol for local checks and indicate 

that such checks as well as certain nonlocal 

checks will be available for withdrawal on 

the first or second business day following the 

day of deposit, depending on the location of 

the particular bank on which the check is 

drawn, and disclose that funds from all other 

checks will be available on the second or 

third business day. The bank must also 

disclose that the customer may request a 

copy of the bank’s detailed schedule that 

would enable the customer to determine the 

availability of any check and must provide 

such schedule upon request. A change in the 

bank’s detailed schedule would not trigger 

the change in policy disclosure requirement 

of § 229.18(e).¿ 

C. 229.16(c) Longer Delays on a Case-by-Case 

Basis 

1. Notice in specific policy disclosure. 

a. Banks that make deposited funds 

available for withdrawal sooner than 

required by the regulation—for example, 

providing their customers with immediate or 

next-day availability for deposited funds— 

and delay the time when funds are available 

for withdrawal only from time to time 

determined on a case-by-case basis, must 

provide notice of this in their specific 

availability policy disclosure. This paragraph 

outlines the requirements for that notice. 

b. In addition to stating what their specific 

availability policy is in most cases, banks 

that may delay or extend the time when 

deposits are available on a case-by-case basis 

must state that from time to time funds may 

be available for withdrawal later than the 

time periods in their specific policy 

disclosure, disclose the latest time that a 

customer may have to wait for deposited 

funds to be available for withdrawal when a 

case-by-case hold is placed, state that 

customers will be notified when availability 

of a deposit is delayed on a case-by-case 

basis, and advise customers to ask if they 

need to be sure of the availability of a 

particular deposit. 

c. A bank that imposes delays on a caseby-case basis is still subject to the availability 

requirements of this regulation. If the bank 

imposes a delay on a particular deposit that 

is not longer than the availability required by 

§ 229.12 for ølocal and nonlocal¿ checks, the 

reason for the delay need not be based on the 

exceptions provided in § 229.13. If the delay 

exceeds the time periods permitted under 

§ 229.12, however, then it must be based on 

an exception provided in § 229.13, and the 

bank must comply with the § 229.13 notice 

requirements. A bank that imposes delays on 

a case-by-case basis may avail itself of the 

one-time notice provisions in § 229.13(g)(2) 

and (3) for deposits to which those 

provisions apply. 

2. Notice at time of case-by-case delay. 

a. In addition to including the disclosures 

required by paragraph (c)(1) of this section in 

their specific availability policy disclosure, 

banks that delay or extend the time period 

when funds are available for withdrawal on 

a case-by-case basis must give customers a 

flwrittenfi notice when availability of 

funds from a particular deposit will be 

delayed or extended beyond the time when 

deposited funds are generally available for 

withdrawal. The notice must state that a 

delay is being imposed and indicate when 

the funds will be available. In addition, the 

notice must include øthe¿ fla number or 

code that identifies the customer’sfi account 

ønumber¿, the date of the deposit, flthe total 

amount of the deposit,fi øand¿ the amount 

of the deposit being delayedfl, and the day 

the funds will be available for withdrawal.fi 

b. If notice of the delay was not given at 

the time the deposit was made and the bank 

assesses overdraft or returned check fees on 

accounts when a case-by-case hold has been 

placed, the case-by-case hold notice provided 

to the customer must include a notice 

concerning overdraft or returned check fees. 

The notice must state that the customer may 

be entitled to a refund of any overdraft or 

returned check fees that result from the 

deposited funds not being available if the 

check that was deposited was in fact paid by 

the payor bank, and explain how to request 

a refund of any fees. (See § 229.16(c)(3).) 

c. The requirement that the case-by-case 

hold notice state the day that funds will be 

made available for withdrawal may be met by 

stating the date or the number of business 

days after deposit that the funds will be made 

available. This requirement is satisfied if the 

notice provides information sufficient to 

indicate when funds will be available and the 

amounts that will be available at those times. 

For example, for a deposit involving more 

than one check, the bank need not provide 

a notice that discloses when funds from each 

individual item in the deposit will be 

available for withdrawal. Instead, the bank 

may provide a total dollar amount for each 

of the time periods when funds will be 

available, or provide the customer with an 

explanation of how to determine the amount 

of the deposit that will be held and when the 

held funds will be available for withdrawal. 

d. For deposits made in person to an 

employee of the depositary bank, the notice 

generally must be given at the time of the 

deposit. The notice at the time of the deposit 

must be given to the person making the 

deposit, that is, the ‘‘depositor.’’ The 

depositor need not be the customer holding 

the account. For other deposits, such as 

deposits received at an ATM, lobby deposit 

box, night depository, through the mail, or by 

armored car, notice must be ømailed¿ 

flsentfi to the customer not later than the 

close of the business day following the 

banking day on which the deposit was made. 

Notice to the customer also ømay¿ flmustfi 

be øprovided¿ flsentfi not later than the 

close of the business day following the 

banking day on which the deposit was made 

if the decision to delay availability is made 

after the time of the deposit. flIf the 


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16946 Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 

customer has agreed to accept notices 

electronically, the bank shall send the notice 

such that the bank may reasonably expect it 

to be received by the customer not later than 

the first business day following the banking 

day the deposit is made.fi 

3. Overdraft and returned check fees. If a 

depositary bank delays or extends the time 

when funds from a deposited check are 

available for withdrawal on a case-by-case 

basis and does not provide a written notice 

to its depositor at the time of deposit, the 

depositary bank may not assess any overdraft 

or returned check fees (such as an 

insufficient funds charge) or charge interest 

for use of an overdraft line of credit, if the 

deposited check is paid by the paying bank 

and these fees would not have occurred had 

the additional case-by-case delay not been 

imposed. A bank may assess an overdraft or 

returned check fee under these 

circumstances, however, if it provides notice 

to the customer in the notice required by 

paragraph (c)(2) of this section that the fee 

may be subject to refund, and refunds the fee 

upon the request of the customer when 

required to do so. The notice must state that 

the customer may be entitled to a refund of 

any overdraft or returned check fees that are 

assessed if the deposited check is paid, and 

indicate where such requests for a refund of 

overdraft fees should be directed. Paragraph 

(c)(3) applies when a bank provides a caseby-case notice in accordance with paragraph 

(c)(2) and does not apply if the bank has 

provided an exception hold notice in 

accordance with § 229.13. 

D. 229.16(d) Credit Union Notice of Interest 

Payment Policy 

1. This paragraph sets forth the special 

disclosure requirement for credit unions that 

delay accrual of interest or dividends for all 

cash and check deposits beyond the date of 

receiving provisional credit for checks being 

deposited. (The interest payment 

requirement is set forth in § 229.14(a).) Such 

credit unions are required to describe their 

policy with respect to accrual of interest or 

dividends on deposits in their specific 

availability policy disclosure. 

XI. Section 229.17 Initial Disclosures 

A. This paragraph requires banks to 

provide a notice of their availability policy to 

all potential customers prior to opening an 

account. The requirement of a notice prior to 

opening an account requires banks to provide 

disclosures prior to accepting a deposit to 

open an account. Disclosures must be given 

at the time the bank accepts an initial deposit 

regardless of whether the bank has opened 

the account yet for the customer. If a bank, 

however, receives a written request by mail 

from a person asking that an account be 

opened and the request includes an initial 

deposit, the bank may open the account with 

the deposit, provided the bank ømails¿ 

flsendsfi the required disclosures to the 

customer not later than the business day 

following the banking day on which the bank 

receives the deposit. Similarly, if a bank 

receives a telephone request from a customer 

asking that an account be opened with a 

transfer from a separate account of the 

customer’s at the bank, the disclosure may be 

mailed not later than the business day 

following the banking day of the request. 

XII. Section 229.18 Additional Disclosure 

Requirements 

A. 229.18(a) Deposit Slips 

1. This paragraph requires banks to include 

a notice on all preprinted deposit slips. The 

deposit slip notice need only state, 

somewhere on the front of the deposit slip, 

that deposits may not be available for 

immediate withdrawal. The notice is 

required only on preprinted deposit slips— 

those printed with the customer’s account 

number and name and furnished by the bank 

in response to a customer’s order to the bank. 

A bank need not include the notice on 

deposit slips that are not preprinted and 

supplied to the customer—such as counter 

deposit slips—or on those special deposit 

slips provided to the customer under 

§ 229.10(c). A bank is not responsible for 

ensuring that the notice appearflsfi on 

deposit slips that the customer does not 

obtain from or through the bank. øThis 

paragraph applies to preprinted deposit slips 

furnished to customers on or after September 

1, 1988.¿ 

* * * * * 

E. 229.18(e) Changes in Policy 

1. This paragraph requires banks to send 

notices to their customers when the banks 

change their availability policies with regard 

to consumer accounts. A notice may be given 

in any form as long as it is clear and 

conspicuous. If the bank gives notice of a 

change by sending the customer a complete 

new availability disclosure, the bank must 

direct the customer to the changed terms in 

the disclosure by use of a letter or insert, or 

by highlighting the changed terms in the 

disclosure. 

2. Generally, a bank must send a notice at 

least 30 calendar days before implementing 

any change in its availability policy. If the 

change results in faster availability of 

depositsø—for example, if the bank changes 

its availability for nonlocal checks from the 

fifth business day after deposit to the fourth 

business day after deposit—¿ the bank need 

not send advance notice. The bank must, 

however, send notice of the change no later 

than 30 calendar days after the change is 

implemented. øA bank is not required to give 

a notice when there is a change in appendix 

B (reduction of schedules for certain nonlocal 

checks).¿ 

3. A bank that has provided its customers 

with a list of ATMs under § 229.16(b)(5) shall 

provide its customers with an updated list of 

ATMs once a year if there are changes in the 

list of ATMs previously disclosed to the 

customers. 

XIII. Section 229.19 Miscellaneous 

A. 229.19(a) When Funds Are Considered 

Deposited 

1. The time funds must be made available 

for withdrawal under this subpart is 

determined by the day the deposit is made. 

This paragraph provides rules to determine 

the day funds are considered deposited in 

various circumstances. 

2. Staffed facilities and ATMs. Funds 

received at a staffed teller station or ATM are 

considered deposited when received by the 

teller or placed in the ATM. Funds received 

at a contractual branch are considered 

deposited when received by a teller at the 

contractual branch or deposited into a 

proprietary ATM of the contractual branch. 

(See also, Commentary to § 229.10(c) on 

deposits made to an employee of the 

depositary bank.) Funds deposited to a 

deposit box in a bank lobby that is accessible 

to customers only during regular business 

hours generally are considered deposited 

when placed in the lobby box; a bank may, 

however, treat deposits to lobby boxes the 

same as deposits to night depositories (as 

provided in § 229.19(a)(3)), provided a notice 

appears on the lobby box informing the 

customer when such funds will be 

considered deposited. 

3. Mail. Funds mailed to the depositary 

bank are considered deposited on the 

banking day they are received by the 

depositary bank. The funds are received by 

the depositary bank at the time the mail is 

delivered to the bank, even if it is initially 

delivered to a mail room, rather than the 

check processing area. 

4. Other facilities. 

a. In addition to deposits at staffed 

facilities, at ATMs, and by mail, funds may 

be deposited at a facility such as a night 

depository or a lock box. A night depository 

is a receptacle for receipt of deposits, 

typically used by corporate depositors when 

the branch is closed. Funds deposited at a 

night depository are considered deposited on 

the banking day the deposit is removed, and 

the contents of the deposit are accessible to 

the depositary bank for processing. For 

example, some businesses deposit their funds 

in a locked bag at the night depository late 

in the evening, and return to the bank the 

following day to open the bag. Other 

depositors may have an agreement with their 

bank that the deposit bag must be opened 

under the dual control of the bank and the 

depositor. In these cases, the funds are 

considered deposited when the customer 

returns to the bank and opens the deposit 

bag. 

b. A lock box is a post office box used by 

a corporation for the collection of bill 

payments or other check receipts. The 

depositary bank generally assumes the 

responsibility for collecting the mail from the 

lock box, processing the checks, and 

crediting the corporation for the amount of 

the deposit. Funds deposited through a lock 

box arrangement are considered deposited on 

the day the deposit is removed from the lock 

box and are accessible to the depositary bank 

for processing. 

5. Certain off-premise ATMs. A special 

provision is made for certain off-premise 

ATMs that are not serviced daily. Funds 

deposited at such an ATM are considered 

deposited on the day they are removed from 

the ATM, if the ATM is not serviced more 

than two times each week. This provision is 

intended to address the practices of some 

banks of servicing certain remote ATMs 

infrequently. If a depositary bank applies this 

provision with respect to an ATM, a notice 

must be posted at the ATM informing 

depositors that funds deposited at the ATM 

may not be considered deposited until a 

future day, in accordance with § 229.18. 


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Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 16947 

6. Banking day of deposit. 

a. This paragraph also provides that a 

deposit received on a day that the depositary 

bank is closed, or after the bank’s cut-off 

hour, may be considered made on the next 

banking day. Generally, for purposes of the 

availability schedules of this subpart, a bank 

may establish a cut-off hour of 2fl:00fi p.m. 

or later for receipt of deposits at its head 

office or branch offices. For receipt of 

deposits at ATMs, contractual branches, or 

other off-premise facilities, such as night 

depositories or lock boxes, the depositary 

bank may establish a cut-off hour of 12 noon 

or later (either local time of the branch or 

other location of the depositary bank at 

which the account is maintained or local 

time of the ATM, contractual branch, or other 

off-premise facility). The depositary bank 

must use the same timing method for 

establishing the cut-off hour for all ATMs, 

contractual branches, and other off-premise 

facilities used by its customers. The choice 

of cut-off hour must be reflected in the bank’s 

internal procedures, and the bank must 

inform its customers of the cut-off hour upon 

request. This earlier cut-off for ATM, 

contractual branch, or other off-premise 

deposits is intended to provide greater 

flexibility in the servicing of these facilities. 

b. Different cut-off hours may be 

established for different types of deposits. 

For example, a bank may establish a 

2fl:00fi p.m. cut-off for the receipt of check 

deposits, but a later cut-off for the receipt of 

wire transfers. Different cut-off hours also 

may be established for deposits received at 

different locations. For example, a different 

cut-off may be established for ATM deposits 

than for over-the-counter deposits, or for 

different teller stations at the same branch. 

With the exception of the 12fl:00fi noon 

cut-off for deposits at ATMs and off-premise 

facilities, no cut-off hour for receipt of 

deposits for purposes of this subpart can be 

established earlier than 2fl:00fi p.m. 

c. A bank is not required to remain open 

until 2fl:00fi p.m. If a bank closes before 

2fl:00fi p.m., deposits received after the 

closing may be considered deposited on the 

next banking day. Further, as § 229.2(f) 

defines the term banking day as the portion 

of a business day on which a bank is open 

to the public for substantially all of its 

banking functions, a day, or a portion of a 

day, is not necessarily a banking day merely 

because the bank is open for only limited 

functions, such as keeping drive-in or walkup teller windows open, when the rest of the 

bank is closed to the public. For example, a 

banking office that usually provides a full 

range of banking services may close at 

12fl:00fi noon but leave a drive-in teller 

window open for the limited purpose of 

receiving deposits and making cash 

withdrawals. Under those circumstances, the 

bank is considered closed and may consider 

deposits received after 12fl:00fi noon as 

having been received on the next banking 

day. The fact that a bank may reopen for 

substantially all of its banking functions after 

2fl:00fi p.m., or that it continues its back 

office operations throughout the day, would 

not affect this result. A bank may not, 

however, close individual teller stations and 

reopen them for next-day’s business before 

2fl:00fi p.m. during a banking day. 

B. 229.19(b) Availability at Start of Business 

Day 

1. If funds must be made available for 

withdrawal on a business day flunder 

subpart Bfi, the funds must be available for 

withdrawal by the later of 9fl:00fi a.m. or 

the time the depositary bank’s teller facilities, 

including ATMs, are available for customer 

account withdrawals, except under the 

special rule for cash withdrawals set forth in 

§ 229.12ø(d)¿fl(b)fi. Thus, if a bank has no 

ATMs and its branch facilities are available 

for customer transactions beginning at 

10fl:00fi a.m., funds must be available for 

customer withdrawal beginning at 10fl:00fi 

a.m. If the bank has ATMs that are available 

24 hours a day, rather than establishing 12:01 

a.m. as the start of the business day, this 

paragraph sets 9fl:00fi a.m. as the start of 

the day with respect to ATM withdrawals. 

The Board believes that this rule provides 

banks with sufficient time to update their 

accounting systems to reflect the available 

funds in customer accounts for that day. 

2. The start of business is determined by 

the local time of the branch or other location 

of the depositary bank at which the account 

is maintained. For example, if funds in a 

customer’s account at a west coast bank are 

first made available for withdrawal at the 

start of business on a given day, and the 

customer attempts to withdraw the funds at 

an east coast ATM, the depositary bank is not 

required to make the funds available until 

9fl:00fi a.m. øwest coast time¿ (12fl:00fi 

noon øeast coast¿ flEasternfi time). 

C. 229.19(c) Effect on Policies of Depositary 

Bank 

1. This subpart establishes the maximum 

hold that may be placed on customer 

deposits. A depositary bank may provide 

availability to its customers in a shorter time 

than prescribed in this subpart. A depositary 

bank also may adopt different funds 

availability policies for different segments of 

its customer base, as long as each policy 

meets the schedules in the regulation. For 

example, a bank may differentiate between 

its corporate and consumer customers, or 

may adopt different policies for its consumer 

customers based on whether a customer has 

an overdraft line of credit associated with the 

account. 

2. This regulation does not affect a 

depositary bank’s right to accept or reject a 

check for deposit, to charge back the 

customer’s account based on a returned 

check or notice of nonpayment, or to claim 

a refund for any credit provided to the 

customer. For example, even if a check is 

returned or a notice of nonpayment is 

received after the time by which funds must 

be made available for withdrawal in 

accordance with this regulation, the 

depositary bank may charge back the 

customer’s account for the full amount of the 

check. ø(See § 229.33(d) and Commentary.)¿ 

3. Nothing in the regulation requires a 

depositary bank to have facilities open for 

customers to make withdrawals at specified 

times or on specified days. For example, even 

though the special cash withdrawal rule set 

forth in § 229.12ø(d)¿fl(b)fi states that a 

bank must make øup to $400 available for 

cash withdrawals¿flthe cash withdrawal 

amount availablefi no later than 5fl:00fi 

p.m. on specific business days, if a bank does 

not participate in an ATM system and does 

not have any teller windows open at or after 

5fl:00fi p.m., the bank need not join an 

ATM system or keep offices open. In this 

case, the bank complies with this rule if the 

funds that are required to be available for 

cash withdrawal at 5fl:00fi p.m. on a 

particular day are available for withdrawal at 

the start of business on the following day. 

Similarly, if a depositary bank is closed for 

customer transactions, including ATMs, on a 

day funds must be made available for 

withdrawal, the regulation does not require 

the bank to open. 

4. The special cash withdrawal rule in the 

EFA Act recognizes that the ø$400¿flthe 

cash withdrawal amountfi that must be 

made available for cash withdrawal by 

5fl:00fi p.m. on the day specified in the 

schedule may exceed a bank’s daily ATM 

cash withdrawal limit and explicitly 

provides that the EFA Act does not supersede 

a bank’s policy in this regard. As a result, if 

a bank has a policy of limiting fldailyfi 

cash withdrawals from automated teller 

machines to ø$250 per day¿flless than the 

cash withdrawal amountfi, the regulation 

would not require that the bank dispense 

ø$400 of the proceeds of the customer’s 

deposit¿flthe full amountfi that must be 

made available for cash withdrawal on that 

day. 

5. Even though the EFA Act clearly 

provides that the bank’s ATM withdrawal 

limit is not superseded by the federal 

availability rules on the day funds must first 

be made available, the EFA Act does not 

specifically permit banks to limit cash 

withdrawals at ATMs on subsequent days 

when the entire amount of the deposit must 

be made available for withdrawal. The Board 

believes that the rationale behind the EFA 

Act’s provision that a bank’s ATM 

withdrawal limit is not superseded by the 

requirement that funds be made available for 

cash withdrawal applies on subsequent days. 

Nothing in the regulation prohibits a 

depositary bank from establishing ATM cash 

withdrawal limits that vary among customers 

of the bank, as long as the limit is not 

dependent on the length of time funds have 

been in the customer’s account (provided 

that the permissible hold has expired). 

6. Some small banks, particularly credit 

unions, due to lack of secure facilities, keep 

no cash on their premises and hence offer no 

cash withdrawal capability to their 

customers. Other banks limit the amount of 

cash on their premises due to bonding 

requirements or cost factors, and 

consequently reserve the right to limit the 

amount of cash each customer can withdraw 

over-the-counter on a given day. For 

example, some banks require advance notice 

for large cash withdrawals in order to limit 

the amount of cash needed to be maintained 

on hand at any time. 

7. Nothing in the regulation is intended to 

prohibit a bank from limiting the amount of 

cash that may be withdrawn at a staffed teller 

station if the bank has a policy limiting the 

amount of cash that may be withdrawn, and 

if that policy is applied equally to all 

customers of the bank, is based on security, 


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operating, or bonding requirements, and is 

not dependent on the length of time the 

funds have been in the customer’s account 

(as long as the permissible hold has expired). 

The regulation, however, does not authorize 

such policies if they are otherwise prohibited 

by statutory, regulatory, or common law. 

D. 229.19(d) Use of Calculated Availability 

1. A depositary bank may provide 

availability to its nonconsumer accounts on 

a calculated availability basis. Under 

calculated availability, a specified percentage 

of funds from check deposits may be made 

available to the customer on the next 

business day, with the remaining percentage 

deferred until flthefi subsequent dayøs¿. 

The determination of the percentage of 

deposited funds that will be made available 

each day is based on the customer’s typical 

deposit mix as determined by a sample of the 

customer’s deposits. Use of calculated 

availability is permitted only if, on average, 

the availability terms that result from the 

sample are equivalent to or more prompt 

than the requirements of this subpart. 

E. 229.19(e) Holds on Other Funds 

1. Section 607(d) of the EFA Act (12 U.S.C. 

4006(d)) provides that once funds are 

available for withdrawal under the EFA Act, 

such funds shall not be frozen solely due to 

the subsequent deposit of additional checks 

that are not yet available for withdrawal. This 

provision of the EFA Act is designed to 

prevent evasion of the EFA Act’s availability 

requirements. 

2. This paragraph clarifies that if a 

customer deposits a check in an account (as 

defined in § 229.2(a)), the bank may not place 

a hold on any of the customer’s funds so that 

the funds that are held exceed the amount of 

the check deposited or the total amount of 

funds held are not made available for 

withdrawal within the times required in this 

subpart. For example, if a bank places a hold 

on funds in a customer’s 

nonfl-fitransaction account, rather than a 

transaction account, for deposits made to the 

customer’s transaction account, the bank may 

place such a hold only to the extent that the 

funds held do not exceed the amount of the 

deposit and the length of the hold does not 

exceed the time periods permitted by this 

regulation. 

3. These restrictions also apply to holds 

placed on funds in a customer’s account (as 

defined in § 229.2(a)) if a customer cashes a 

check at a bank (other than a check drawn 

on that bank) over the counter. The 

regulation does not prohibit holds that may 

be placed on other funds of the customer for 

checks cashed over the counter, to the extent 

that the transaction does not involve a 

deposit to an account. flWhen a customer 

cashes a check over the counter and the bank 

places a hold on an account of the customer, 

the bank must give whatever notice would 

have been required under §§ 229.13 or 229.16 

had the check been deposited in the 

account.fi A bank may not, however, place 

a hold on any account when an ‘‘on us’’ check 

is cashed over the counter. ‘‘On us’’ checks 

are considered finally paid when cashed (see 

U.C.C. 4–215(a)(1)). øWhen a customer 

cashes a check over the counter and the bank 

places a hold on an account of the customer, 

the bank must give whatever notice would 

have been required under §§ 229.13 or 229.16 

had the check been deposited in the 

account.¿ 

F. 229.19(f) Employee Training and 

Compliance 

1. The EFA Act requires banks to take such 

actions as may be necessary to inform fully 

each employee that performs duties subject 

to the EFA Act of the requirements of the 

EFA Act, and to establish and maintain 

procedures reasonably designed to 

øassure¿flensurefi and monitor employee 

compliance with such requirements. 

2. This paragraph requires a bank to 

establish procedures to ensure compliance 

with these requirements and provide these 

procedures to the employees responsible for 

carrying them out. 

G. 229.19(g) Effect of Merger Transaction 

1. After banks merge, there is often a 

period of adjustment before their operations 

are consolidated. This paragraph 

accommodates this adjustment period by 

allowing merged banks to be treated as 

separate banks for purposes of this subpart 

for a period of up to one year after 

consummation of the merger transaction, 

except that a customer of any bank that is a 

party to the transaction that has an 

established account with that bank may not 

be treated as a newfl-fiaccount holder for 

any other party to the transaction for 

purposes of the newfl-fiaccount exception 

of § 229.13(a), and a deposit in any branch of 

the merged bank is considered deposited in 

the bank for purposes of the availability 

schedules in accordance with § 229.19(a). 

2. This rule affects the status of the 

combined entity in several areas. For 

example, this rule would affect when an 

ATM is a proprietary ATM 

(§ 229.2ø(aa)¿fl(kk)fi and 

§ 229.12ø(b)¿fl(d)fi) and when a check is 

considered drawn on a branch of the 

depositary bank (§ 229.10(c)(1)(vi)). 

3. Merger transaction is defined in 

§ 229.2ø(t)¿fl(dd)fi. 

XIV. Section 229.20 Relation to State Law 

A. 229.20(a) In General 

1. Several states have enacted laws that 

govern when banks in those states must make 

funds available to their customers. The EFA 

Act provides that any state law in effect on 

September 1, 1989, that provides that funds 

be made available in a shorter period of time 

than provided in this regulation, will 

supersede the time periods in the EFA Act 

and the regulation. øThe Conference Report 

on the EFA Act clarifies this provision by 

stating that any state law enacted on or before 

September 1, 1989, may supersede federal 

law to the extent that the law relates to the 

time funds must be made available for 

withdrawal. H.R. Rep. No. 261, 100th Cong. 

1st Sess. at 182 (1987).¿ 

2. Thus, if a state had wished to adopt a 

law governing funds availability, it had to 

have made that law effective on or before 

September 1, 1989. Laws adopted after that 

date do not supersede federal law, even if 

they provide for shorter availability periods 

than are provided under federal law. If a state 

that had a law governing funds availability in 

effect before September 1, 1989, amended its 

law after that date, the amendment would not 

supersede Federal law, but an amendment 

deleting a state requirement would be 

effective. 

3. If a state provides for a shorter hold for 

a certain category of checks than is provided 

for under Federal law, that state requirement 

will supersede the federal provision. øFor 

example, most state laws base some hold 

periods on whether the check being 

deposited is drawn on an in-state or out-ofstate bank. If a state contains more than one 

check processing region, the state’s hold 

period for in-state checks may be shorter than 

the Federal maximum hold period for 

nonlocal checks. Thus, the state schedule 

would supersede the Federal schedule to the 

extent that it applies to in-state, nonlocal 

checks. 

4.¿ The EFA Act also provides that any 

state law that provides for availability in a 

shorter period of time than required by 

Federal law is applicable to all federally 

insured institutions in that state, including 

federally chartered institutions. If a state law 

provides shorter availability only for deposits 

in accounts in certain categories of banks, 

such as commercial banks, the superseding 

state law continues to apply only to those 

categories of banks, rather than to all 

federally insured banks in the state. 

B. 229.20(b) Preemption of Inconsistent Law 

1. This paragraph reflects the statutory 

provision that other provisions of state law 

that are inconsistent with federal law are 

preempted. Preemption does not require a 

determination by the Board to be effective. 

C. 229.20(c) Standards for Preemption 

1. This section describes the standards øthe 

Board uses in¿flforfi making 

determinations on whether federal law will 

preempt state laws governing funds 

availability. A provision of state law is 

considered inconsistent with federal law if it 

permits a depositary bank to make funds 

available to a customer in a longer period of 

time than the maximum period permitted by 

the EFA Act and this regulation. For 

example, a state law that permits a hold of 

øfour¿flthreefi business days or longer for 

ølocal¿ checks permits a hold that is longer 

than that permitted under the EFA Act and 

this regulation, and therefore is inconsistent 

and preempted. State availability schedules 

that provide for availability in a shorter 

period of time than required under 

Regulation CC supersede the federal 

schedule. 

2. Under a state law, some categories of 

deposits could be available for withdrawal 

sooner or later than the time required by this 

subpart, depending on the composition of the 

deposit. For example, the EFA Act and this 

regulation (§ 229.10(c)(1)(vii)) require nextday availability for øthe first $100¿fla 

minimum amountfi of the aggregate deposit 

of ølocal or nonlocal¿ checks on any day, and 

a state law could require next-day availability 

for any check of ø$100¿flthe minimum 

amount under § 229.10(c)fi or less that is 

deposited. Under the EFA Act and this 

regulation, if flon a given dayfi either one 

ø$150¿ check flthat is greater than the 

minimum amount or three checks that are 


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Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 16949 

each less than the minimum amount, but that 

combined are more than the minimum 

amount, are depositedfiøor three $50 checks 

are deposited on a given day¿, ø$100¿ flthe 

minimum amount under § 229.10(c)fi must 

be made available for withdrawal on the next 

business day, and ø$50¿flthe remaining 

amountfi must be made available in 

accordance with the ølocal or nonlocal¿ 

flgeneralfi schedule. Under the state law, 

however, the two deposits would be subject 

to different availability rules. In the first case, 

none of the proceeds of the deposit would be 

subject to next-day availability; in the second 

case, the entire proceeds of the deposit 

would be subject to next-day availability. In 

this example, because the state law would, in 

some situations, permit a hold longer than 

the maximum permitted by the EFA Act, this 

provision of state law is inconsistent and 

preempted in its entirety. 

3. In addition to the differences between 

state and federal availability schedules, a 

number of state laws contain exceptions to 

the state availability schedules that are 

different from those provided under the EFA 

Act and this regulation. The state exceptions 

continue to apply only in those cases where 

the state schedule is shorter than or equal to 

the federal schedule, and then only up to the 

limit permitted by the Regulation CC 

schedule. Where a deposit is subject to a state 

exception under a state schedule that is not 

preempted by Regulation CC and is also 

subject to a federal exception, the hold on the 

deposit cannot exceed the hold permissible 

under the federal exception in accordance 

with Regulation CC. In such cases, only one 

exception notice is required, in accordance 

with § 229.13(g). This notice need only 

include the applicable federal exception as 

the reason the exception was invoked. For 

those categories of checks for which the state 

schedule is preempted by the federal 

schedule, only the federal exceptions may be 

used. 

4. State laws that provide maximum 

availability periods for categories of deposits 

that are not covered by the EFA Act would 

not be preempted. Thus, state funds 

availability laws that apply to funds in time 

and savings deposits are not affected by the 

EFA Act or this regulation. In addition, the 

availability schedules of several states apply 

to ‘‘items’’ deposited to an account. The term 

items may encompass fltypes offi deposits 

ø, such as nonnegotiable instruments,¿ that 

are not subject to the Regulation CC 

availability schedules. Deposits that are not 

covered by Regulation CC continue to be 

subject to the state availability schedules. 

State laws that provide maximum availability 

periods for categories of institutions that are 

not covered by the EFA Act also would not 

be preempted. For example, a state law that 

governs money market mutual funds would 

not be affected by the EFA Act or this 

regulation. 

5. Generally, state rules governing the 

disclosure or notice of availability policies 

applicable to accounts also are preempted, if 

they are different from the federal rules. 

Nevertheless, a state law requiring disclosure 

of funds availability policies that apply to 

deposits other than ‘‘accounts,’’ such as 

savings or time deposits, are not inconsistent 

with the EFA Act and this subpart. Banks in 

these states would have to follow the state 

disclosure rules for these deposits. 

D. 229.20(d) Preemption Determinations 

1. The Board may issue preemption 

determinations upon the request of an 

interested party in a state. The 

determinations will relate only to the 

provisions of øS¿flsfiubparts A and B; 

generally the Board will not issue individual 

preemption determinations regarding the 

relation of state U.C.C. provisions to the 

requirements of øS¿flsfiubpart C flor Dfi. 

E. 229.20(e) Procedures for Preemption 

Determinations 

1. This provision sets forth the information 

that must be included in a request by an 

interested party for a preemption 

determination øby the Board¿. 

XV. Section 229.21 Civil Liability 

A. 229.21(a) Civil Liability 

1. This paragraph sets forth the statutory 

penalties for failure to comply with the 

requirements of this subpart. These penalties 

apply to provisions of state law that 

supersede provisions of this regulation, such 

as requirements that funds deposited in 

accounts at banks be made available more 

promptly than required by this regulation, 

but they do not apply to other provisions of 

state law. (See Commentary to § 229.20.) 

B. 229.21(b) Class Action Awards 

1. This paragraph sets forth the provision 

in the EFA Act concerning the factors that 

should be considered by the court in 

establishing the amount of a class action 

award. 

C. 229.21(c) Bona Fide Errors 

1. A bank is shielded from liability under 

this section for a violation of a requirement 

of this subpart if it can demonstrate, by a 

preponderance of the evidence, that the 

violation resulted from a bona fide error and 

that it maintains procedures designed to 

avoid such errors. For example, a bank may 

make a bona fide error if it fails to give nextday availability on a check drawn on the 

Treasury because the bank’s computer system 

malfunctions in a way that prevents the bank 

from updating its customer’s accountø; or if 

it fails to identify whether a payable-through 

check is a local or nonlocal check despite 

procedures designed to make this 

determination accurately¿. 

D. 229.21(d) Jurisdiction 

1. The EFA Act confers subject matter 

jurisdiction on courts of competent 

jurisdiction and provides a time limit for 

civil actions for violations of this subpart. 

E. 229.21(e) Reliance on Board Rulings 

1. This provision shields banks from civil 

liability if they act in good faith in reliance 

on any rule, regulation, model form, notice, 

or clause (if the disclosure actually 

corresponds to the bank’s availability policy), 

or interpretation of the Board, even if it were 

subsequently determined to be invalid. Banks 

may rely on this Commentary, which is 

issued as an official Board interpretation, as 

well as on the regulation itself. 

fl2. This provision does not shield a bank 

from civil liability if the bank relies on earlier 

versions of the model forms (i.e., those not 

currently in appendix C) after ødate that is 

12 months after the effective date of the 

rule¿.fi 

F. 229.21(f) Exclusions 

1. This provision clarifies that liability 

under this section does not apply to 

violations of the requirements of 

øS¿flsfiubpart C flor Dfi of this 

regulation, or to actions for wrongful 

dishonor of a check by a paying bank’s 

customer. 

G. 229.21(g) Record Retention 

1. Banks must keep records to show 

compliance with the requirements of this 

subpart for at least two years. This record 

retention period is extended in the case of 

civil actions and enforcement proceedings. 

Generally, a bank is not required to retain 

records showing that it actually has given 

disclosures or notices required by this 

subpart to each customer, but it must retain 

evidence demonstrating that its procedures 

reasonably ensure the customers’ receipt of 

the required disclosures and notices. A bank 

must, however, retain a copy of each notice 

provided pursuant to its use of the 

reasonablefl-ficause exception under 

§ 229.13(g) as well as a brief description of 

the facts giving rise to the availability of that 

exception. 

XVI. Section 229.30 Paying Bank’s 

Responsibility for Return of Checks 

A. 229.30(a) Return of Checks 

1. This section requires a paying bank 

(which, for purposes of øS¿flsfiubpart C, 

may include a payable-through and payableat bank; see ø§ 229.2(z)¿ fl§ 229.2(ii)fi) that 

determines not to pay a check to return the 

check expeditiously. øGenerally, a check¿ 

flA returned check, including the original 

check, substitute check, and electronic 

return,fi is returned expeditiously if øthe 

return process is as fast as the forward 

collection process. This paragraph provides 

two standards for expeditious return, the 

‘‘two-day/four-day’’ test, and the ‘‘forward 

collection’’ test¿flpaying bank sends the 

return such that the depositary bank 

normally would receive the returned check 

no later than 4 p.m. (local time of the 

depositary bank) two business days after 

presentment to the paying bank. See 

§ 229.30(b) and commentary thereto for the 

exceptions to this general rule. If the paying 

bank need not return the check expeditiously 

under § 229.30(a), the paying bank, 

nonetheless, must return the check within its 

deadlines under the Uniform Commercial 

Code, Regulation J (12 CFR part 210) or 

§ 229.36(d)(2), or § 229.30(c) for returning the 

item or notice (See § 229.30(a)(4) and 

accompanying commentary).fi 

ø2. Under the ‘‘two-day/four-day’’ test, if a 

check is returned such that it would 

normally be received by the depositary bank 

two business days after presentment where 

both the paying and depositary banks are 

located in the same check processing region 

or four business days after presentment 

where the paying and depositary banks are 

not located in the same check processing 

region, the check is considered returned 

expeditiously. In certain limited cases, 


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16950 Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 

however, these times are shorter than the 

time it would normally take a forward 

collection check deposited in the paying 

bank and payable by the depositary bank to 

be collected. Therefore, the Board has 

included a ‘‘forward collection’’ test, whereby 

a check is nonetheless considered to be 

returned expeditiously if the paying bank 

uses transportation methods and banks for 

return comparable to those used for forward 

collection checks, even if the check is not 

received by the depositary banks within the 

two-day or four-day period. 

3. Two-day/four-day test. 

a. Under the first test, a paying bank must 

return the check so that the check would 

normally be received by the depositary bank 

within specified times, depending on 

whether or not the paying and depositary 

banks are located in the same check 

processing region. 

b. Where both banks are located in the 

same check processing region, a check is 

returned expeditiously if it is returned to the 

depositary bank by 4 p.m. (local time of the 

depositary bank) of the second business day 

after the banking day on which the check was 

presented to the paying bank. For example, 

a check presented on Monday to a paying 

bank must be returned to a depositary bank 

located in the same check processing region 

by 4 p.m. on Wednesday. For a paying bank 

that is located in a different check processing 

region than the depositary bank, the deadline 

to complete return is 4 p.m. (local time of the 

depositary bank) of the fourth business day 

after the banking day on which the check was 

presented to the paying bank. For example, 

a check presented to such a paying bank on 

Monday must be returned to the depositary 

bank by 4 p.m. on Friday. 

c. This two-day/four-day test does not 

necessarily require actual receipt of the check 

by the depositary bank within these times. 

Rather, the paying bank must send the check 

so that the check would normally be received 

by the depositary bank within the specified 

time. Thus, the paying bank is not 

responsible for unforeseeable delays in the 

return of the check, such as transportation 

delays.¿ 

ød¿fl2fi. øOften, returned checks will be 

delivered to the depositary bank together 

with forward collection checks.¿ Where the 

last day on which a check could be delivered 

to a depositary bank under øthis two-day/ 

four-day test¿ § 229.30(a) is not a banking 

day for the depositary bank, øa returning 

bank might not schedule delivery of forward 

collection checks to the depositary bank on 

that day. Further,¿ the depositary bank may 

not process checks on that day. 

Consequently, if the last day of the time limit 

business day following the banking day after 

which the check was presented is not a 

banking day for the depositary bank, the 

check electronic return may be delivered to 

the depositary bank sent such that it is 

received by the depositary bank before the 

close of the depositary bank’s next banking 

day and the return will still be considered 

expeditious. øOrdinarily, this extension of 

time will allow the returned checks to be 

delivered with the next shipment of forward 

collection checks destined for the depositary 

bank.¿ 

øe. The times specified in this two-day/ 

four-day test are based on estimated forwardcollection times, but take into account the 

particular difficulties that may be 

encountered in handling checks. It is 

anticipated that the normal process of 

forward collection of a check coupled with 

these return requirements will result in the 

return of checks before the proceeds of local 

and nonlocal checks, other than those 

covered by section 229.10(c), must be made 

available for withdrawal.¿ 

fl3. In order to satisfy its expeditious 

return requirement, a paying bank may return 

either an electronic return or a paper 

check.fi 

øf.¿ fl4.fi øUnder this two-day/four-day 

test, no¿ flNofi particular 

ømeans¿flpathfi of returning checks is 

required, thus providing flexibility to paying 

banks in selecting ømeans¿flthe pathfi of 

return. The Board anticipates that paying 

banks will often use returning banks (see 

§ 229.31) as their agents to return checks to 

depositary banks. A paying bank may rely on 

the availability schedule of the returning 

bank it uses in determining whether the 

returned check would ‘‘normally’’ be returned 

within the required time øunder this twoday/four-day test¿, unless the paying bank 

has reason to believe that these schedules do 

not reflect the actual time for return of a 

check. 

ø4. Forward collection test. 

a. Under the second, ‘‘forward collection,’’ 

test, a paying bank returns a check 

expeditiously if it returns a check by means 

as swift as the means similarly situated banks 

would use for the forward collection of a 

check drawn on the depositary bank. 

b. Generally, the paying bank would satisfy 

the ‘‘forward collection’’ test if it uses a 

transportation method and collection path for 

return comparable to that used for forward 

collection, provided that the returning bank 

selected to process the return agrees to 

handle the returned check under the 

standards for expeditious return for returning 

banks under § 229.31(a). This test allows 

many paying banks a simple means of 

expeditious return of checks and takes into 

account the longer time for return that will 

be required by banks that do not have ready 

access to direct courier transportation. 

c. The paying bank’s normal method of 

sending a check for forward collection would 

not be expeditious, however, if it is 

materially slower than that of other banks of 

similar size and with similar check handling 

activity in its community. 

d. Under the ‘‘forward collection’’ test, a 

paying bank must handle, route, and 

transport a returned check in a manner 

designed to be at least as fast as a similarly 

situated bank would collect a forward 

collection check (1) of similar amount, (2) 

drawn on the depositary bank, and (3) 

received for deposit by a branch of the paying 

bank or a similarly situated bank by noon on 

the banking day following the banking day of 

presentment of the returned check. 

e. This test refers to similarly situated 

banks to indicate a general community 

standard. In the case of a paying bank (other 

than a Federal Reserve Bank), a similarly 

situated bank is a bank of similar asset size, 

in the same community, and with similar 

check handling activity as the paying bank. 

(See § 229.2(ee).) A paying bank has similar 

check handling activity to other banks that 

handle similar volumes of checks for 

collection. 

f. Under the forward collection test, banks 

that use means of handling returned checks 

that are less efficient than the means used by 

similarly situated banks must improve their 

procedures. On the other hand, a bank with 

highly efficient means of collecting checks 

drawn on a particular bank, such as a direct 

presentment of checks to a bank in a remote 

community, is not required to use that means 

for returned checks, i.e. direct return, if 

similarly situated banks do not present 

checks directly to that depositary bank.¿ 

5. Examples. 

fla. The depositary bank has agreed to 

accept electronic returns directly from a 

paying bank. If a check is presented to that 

paying bank on Monday, the paying bank 

must send the returned check such that the 

depositary bank normally would receive the 

returned check by 4 p.m. (local time of the 

depositary bank) on Wednesday. 

b. The depositary bank has not agreed to 

accept electronic returns directly from the 

paying bank, but has agreed to accept 

electronic returns from Returning Bank A, 

which holds itself as willing to accept 

electronic returns directly or indirectly from 

the paying bank and has agreed to handle 

returns expeditiously under § 229.31(a). If a 

check is presented to the paying bank on 

Monday, the paying bank must send the 

returned check such that the depositary bank 

normally would receive the returned check 

by 4:00 p.m. (local time of the depositary 

bank) on Wednesday. The paying bank may 

rely on Returning Bank A’s schedules for 

sending returned checks in determining 

whether the depositary bank normally would 

receive the returned check by 4 p.m. on 

Wednesday. 

c. The depositary bank has not agreed to 

accept electronic returns directly from the 

paying bank, but has agreed to accept 

electronic returns from Returning Bank A, 

which holds itself as willing to accept 

electronic returns directly or indirectly from 

the paying bank and has agreed to handle 

returns expeditiously under § 229.31(a). 

Returning Bank A, however, does not have an 

agreement with the paying bank to accept 

returns; rather Returning Bank B has agreed 

to accept returns from the paying bank and 

to handle such returns expeditiously. 

Returning Bank A has agreed to accept 

returns from Returning Bank B. If a check is 

presented to the paying bank on Monday, the 

paying bank must send the returned check 

such that the depositary bank normally 

would receive the returned check by 4 p.m. 

(local time of the depositary bank) on 

Wednesday. 

d. The depositary bank and paying bank 

are members of the same clearinghouse, 

through which both have agreed to accept 

electronic returns. If a check is presented to 

that paying bank on Monday, the paying 

bank must send an electronic return such 

that the depositary bank normally would 

receive the returned check by 4 p.m. (local 

time of the depositary bank) on Wednesday. 


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Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 16951 

e. In each example, the paying bank must 

send the returned check such that the 

depositary bank normally would receive the 

check by 4 p.m. (local time of the depositary 

bank) on Wednesday. The paying bank may 

satisfy its obligation by sending either an 

electronic return or a paper check by such 

time. Additionally, if the paying bank sends 

the returned check in a manner such that the 

depositary bank normally would receive the 

returned check by 4 p.m. on Wednesday, but 

the depositary bank does not receive the 

returned check by that time due to an 

operational difficulty of the depositary bank 

or returning bank, the paying bank has 

satisfied its expeditious return 

requirement.fi 

øIf a check is presented to a paying bank 

on Monday and the depositary bank and the 

paying bank are participants in the same 

clearinghouse and the depositary bank has 

agreed to receive returns electronically 

through the clearinghouse, the paying bank 

should arrange to have the returned check 

received by the depositary bank by 

Wednesday. This would be the same day the 

paying bank would deliver a forward 

collection check to the depositary bank if the 

paying bank received the deposit by noon on 

Tuesday.¿ 

øb. i. If a check is presented to a paying 

bank on Monday and the paying bank would 

normally collect checks drawn on the 

depositary bank by sending them to a 

correspondent or a Federal Reserve Bank by 

courier, the paying bank could send the 

returned check to its correspondent or 

Federal Reserve Bank, provided that the 

correspondent has agreed to handle returned 

checks expeditiously under § 229.31(a). (All 

Federal Reserve Banks agree to handle 

returned checks expeditiously.) 

ii. The paying bank must deliver the 

returned check to the correspondent or 

Federal Reserve Bank by the correspondent’s 

or Federal Reserve Bank’s appropriate cut-off 

hour. The appropriate cut-off hour is the cutoff hour for returned checks that corresponds 

to the cut-off hour for forward collection 

checks drawn on the depositary bank that 

would normally be used by the paying bank 

or a similarly situated bank. A returned 

check cut-off hour corresponds to a forward 

collection cut-off hour if it provides for the 

same or faster availability for checks destined 

for the same depositary banks. 

iii. In this example, delivery to the 

correspondent or a Federal Reserve Bank by 

the appropriate cut-off hour satisfies the 

paying bank’s duty, even if use of the 

correspondent or Federal Reserve Bank is not 

the most expeditious means of returning the 

check. Thus, a paying bank may send a local 

returned check to a correspondent instead of 

a Federal Reserve Bank, even if the 

correspondent then sends the returned check 

to a Federal Reserve Bank the following day 

as a qualified returned check. Where the 

paying bank delivers forward collection 

checks by courier to the correspondent or the 

Federal Reserve Bank, mailing returned 

checks to the correspondent or Federal 

Reserve Bank would not satisfy the forward 

collection test. 

iv. If a paying bank ordinarily mails its 

forward collection checks to its 

correspondent or Federal Reserve Bank in 

order to avoid the costs of a courier delivery, 

but similarly situated banks use a courier to 

deliver forward collection checks to their 

correspondent or Federal Reserve Bank, the 

paying bank must send its returned checks by 

courier to meet the forward collection test. 

c. If a paying bank normally sends its 

forward collection checks directly to the 

depositary bank, which is located in another 

community, but similarly situated banks 

send forward collection checks drawn on the 

depositary bank to a correspondent or a 

Federal Reserve Bank, the paying bank would 

not have to send returned checks directly to 

the depositary bank, but could send them to 

a correspondent or a Federal Reserve Bank. 

d. The dollar amount of the returned check 

has a bearing on how it must be returned. If 

the paying bank and similarly situated banks 

present large-dollar checks drawn on the 

depositary bank directly to the depositary 

bank, but use a Federal Reserve Bank or a 

correspondent to collect small-dollar checks, 

generally the paying bank would be required 

to send its large-dollar returns directly to the 

depositary bank (or through a returning bank, 

if the checks are returned as quickly), but 

could use a Federal Reserve Bank or a 

correspondent for its small-dollar returns.¿ 

6. Choice of returning bank. 

In meeting the requirements of øthe 

forward collection test¿ fl§ 229.30(a)fi, the 

paying bank is responsible for its own 

actions, but not for those of the depositary 

bank or returning banks. (This is analogous 

to the responsibility of collecting banks 

under U.C.C. 4–202(c).) For example, if the 

paying bank starts the return of the check in 

a timely manner but return is delayed by a 

returning bank ø(including delay to create a 

qualified returned check)¿, generally the 

paying bank has met its flexpeditious 

returnfi requirementøs¿. (See § 229.38.) If, 

however, the paying bank selects a returning 

bank that the paying bank should know is not 

capable of meeting its return requirements, 

the paying bank will not have met its 

obligation of exercising ordinary care in 

selecting intermediaries to return the check. 

øThe paying bank is free to use a method of 

return, other than its method of forward 

collection, as long as the alternate method 

results in delivery of the returned check to 

the depositary bank as quickly as the forward 

collection of a check drawn on the depositary 

bank or, where the returning bank takes a day 

to create a qualified returned check under 

§ 229.31(a), one day later than the forward 

collection time.¿ If a paying bank returns a 

check on its banking day of receipt without 

settling for the check, as permitted under 

U.C.C. 4–302(a), and receives settlement for 

the returned check from a returning bank, it 

must promptly pay the amount of the check 

to the collecting bank from which it received 

the check. 

ø7. Qualified returned checks. Although 

paying banks may wish to prepare qualified 

returned checks because they will be handled 

at a lower cost by returning banks, the one 

business day extension provided to returning 

banks is not available to paying banks 

because of the longer time that a paying bank 

has to dispatch the check. Normally, paying 

banks will be able to convert a check to a 

qualified returned check at any time after the 

determination is made to return the check 

until late in the day following presentment, 

while a returning bank may receive returned 

checks late on one day and be expected to 

dispatch them early the next morning. A 

check that is converted to a qualified 

returned check must be encoded in 

accordance with ANS X9.13 for original 

checks or ANS X9.100–140 for substitute 

checks.¿ 

ø8¿fl7fi. Routing of returned checks. 

a. øIn effect, under either test, tøflTfihe 

paying bank acts as an agent or subagent of 

the depositary bank in selecting a means of 

return. Under § 229.30(a), a paying bank is 

authorized to route the returned checkfl, 

including an electronic return,fi in a variety 

of ways: 

i. It may send the returned check directly 

to the depositary bank by courier or other 

means of deliveryø,¿ flor it may send the 

electronic return directly to the depositary 

bank if the depositary bank has agreed to 

accept electronic returns from the paying 

bank, therebyfi bypassing returning banks; 

or 

ii. It may send the returned check flor 

electronic returnfi to any returning bank 

agreeing to handle the returned check flor 

electronic returnfi for expeditious return to 

the depositary bank under § 229.31(a), 

regardless of whether or not the returning 

bank handled the check for forward 

collection. flIn determining whether a 

depositary bank has agreed to accept an 

electronic return from a returning bank, a 

paying bank may rely on a returning bank’s 

published list of depositary banks to which 

it delivers electronic returns.fi 

b. If the paying bank elects to return the 

check directly to the depositary bank, it is 

not necessarily required to return the check 

to the branch of first deposit. The check may 

be returned to the depositary bank at any 

flphysicalfi location permitted under 

ø§ 229.32(a)¿ fl§ 229.32(b). If the paying 

bank elects to send an electronic return 

directly to the depositary bank, it must send 

the electronic return to the electronic return 

point designated by the depositary bankfi. 

9. Midnight deadline. 

a. Except for the extension permitted by 

§ 229.30(c), discussed below, this section 

does not relieve a paying bank from the 

requirement for timely return (i.e., midnight 

deadline) under U.C.C. 4–301 and 4–302, 

which continue to apply. Under U.C.C. 

4–302, a paying bank is ‘‘accountable’’ for the 

amount of a demand item, other than a 

documentary draft, if it does not pay or 

return the item or send notice of dishonor by 

its midnight deadline. Under U.C.C. 3–418(c) 

and 4–215(a), late return constitutes payment 

and would be final in favor of a holder in due 

course or a person who has in good faith 

changed his position in reliance on the 

payment. Thus, retaining this requirement 

gives the paying bank an additional incentive 

to make a prompt return. 

b. The expeditious return requirement 

applies to a paying bank that determines not 

to pay a check. This requirement applies to 

a payable-through or a payable-at bank that 

is defined as a paying bank (see 

ø§ 229.2(z)¿fl§ 229.2(ii)fi) and that returns 


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16952 Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 

a check. This requirement begins when the 

payable-through or payable-at bank receives 

the check during forward collection, not 

when the payor returns the check to the 

payable-through or payable-at bank. 

Nevertheless, a check sent for payment or 

collection to a payable-through or payable-at 

bank is not considered to be drawn on that 

bank for purposes of the midnight deadline 

provision of U.C.C. 4–301. (See discussion of 

ø§ 229.36(a)¿fl§ 229.30(a)(5)fi.) 

c. The liability section of this subpart 

(§ 229.38) provides that a paying bank is not 

subject to both ‘‘accountability’’ for missing 

the midnight deadline under the U.C.C. and 

liability for missing the timeliness 

requirements of this regulation. Also, a 

paying bank is not responsible for failure to 

make expeditious return to a party that has 

breached a presentment warranty under 

U.C.C. 4–208fl.fiø, notwithstanding that the 

paying bank has returned the check. (See 

Commentary to § 229.33(a).)¿ 

10. U.C.C. provisions affected. This 

paragraph directly affects the following 

provisions of the U.C.C., and may affect other 

sections or provisions: 

a. Section 4–301(d), in that instead of 

returning a check through a clearinghouse or 

to the presenting bank, a paying bank may 

send a returned check to the depositary bank 

or to a returning bank. 

b. Section 4–301(a), in that time limits 

specified in that section may be affected by 

the additional requirement to make an 

expeditious return and in that settlement for 

returned checks is made under § 229.31(c), 

not by revocation of settlement. 

fl11. Payable-through and payable at 

checks 

a. For purposes of subpart C, the regulation 

defines a payable-through and or payable-at 

bank (which could be designated the 

collectible-through or collectible-at bank) as 

a paying bank. The requirements of 

§ 229.30(a) are imposed on a payable-through 

or payable-at bank and are based on the time 

of receipt of the forward collection check by 

the payable-through or payable-at bank. This 

provision is intended to speed the return of 

checks that are payable through or at a bank 

to the depositary bank.fi 

B. 229.30(b) øUnidentifiable Depositary 

Bank¿flExceptions to Expeditious Return of 

Checksfi 

1. flThis paragraph sets forth the 

circumstances under which a paying bank is 

not required to return the check to the 

depositary bank in accordance with 

§ 229.30(a).fi 

fl2. The depositary bank has not agreed to 

accept electronic returns from the paying 

bank. 

a. In the circumstances where a depositary 

bank has not agreed to accept electronic 

returns from the paying bank under 

§ 229.32(a), the paying bank should send a 

paper return directly to the depositary bank 

or send an electronic return to a returning 

bank, which would then be required to send 

a paper return to the depositary bank. 

b. Example. The depositary bank has 

agreed to accept electronic returns from 

Returning Bank A. Returning Bank A does 

not hold itself out as accepting electronic 

returns from either the paying bank or other 

returning banks. Under these facts, the 

depositary bank has not agreed to accept 

electronic returns from the paying bank 

under § 229.32(a), and therefore the paying 

bank need not send the returned check 

expeditiously to the depositary bank. The 

paying bank, however, must comply with any 

deadlines under the Uniform Commercial 

Code, Regulation J (12 CFR part 210), or 

§ 229.30(c).fi 

3. Depositary bank without accounts 

a. Subpart B of this regulation applies only 

to ‘‘checks’’ deposited in transaction 

‘‘accounts.’’ Thus, a depositary bank with 

only time or savings accounts need not 

comply with the availability requirements of 

subpart B. Collecting banks may not have an 

electronic connection with these banks as 

paying banks because no checks are drawn 

on them. Consequently, the costs of using 

expedited means to deliver returned checks 

directly to such a depositary bank may not 

be justified. Thus, the expeditious-return 

requirement of § 229.30(a) does not apply to 

checks being returned to banks that do not 

hold accounts. The paying bank’s midnight 

deadline in U.C.C. 4–301 and 4–302 

øand¿fl,fi § 210.12 of Regulation J (12 CFR 

210.12)fl, and the extension in § 229.30(c)fi 

would continue to apply to these checks. 

Returning banks also would be required to 

act on such checks within their midnight 

deadline. Further, in order to avoid 

complicating the process of returning checks 

generally, banks without accounts are 

required to use the standard indorsement, 

and their checks are returned by returning 

banks and paid for by the depositary bank 

under the same rules as checks deposited in 

other banks, with the exception of the 

expeditious-return requirements of 

§§ 229.30(a) and 229.31(a). 

b. The expeditious-return requirement 

applies to a check deposited in a bank that 

is not a depository institution. Federal 

Reserve Banks, Federal Home Loan Banks, 

private bankers, and possibly certain 

industrial banks are not depository 

institutions within the meaning of the EFA 

Act, and therefore are not subject to the 

expedited availability and disclosure 

requirements of subpart B. These banks do, 

however, maintain accounts as defined in 

§ 229.2(a), and a paying bank returning a 

check to one of these banks would be 

required to return the check to the depositary 

bank, in accordance with the expeditiousreturn requirement. 

4. Unidentifiable depositary bank 

a. For most checks presented 

electronically, the depositary bank’s 

indorsement will accompany the electronic 

image and information related to the check, 

either as an addenda record or within the 

image of the check.fi In some cases, a paying 

bank will be unable to identify the depositary 

bank through the use of ordinary care and 

good faith. The Board expects that these 

cases will be unusual as skilled return 

øclerks¿ flstaff generallyfi will readily 

identify the depositary bank from the 

depositary bank indorsement required under 

§ 229.35 and appendix D. flFor example, a 

paying bank would be unable to identify the 

depositary bank if the depositary bank’s 

indorsement is in neither an addenda record 

nor within the image of the check. A paying 

bank, however, would not be ‘‘unable’’ to 

identify the depositary bank merely because 

the depositary bank’s indorsement is not 

attached as an addenda record, and therefore 

requires the paying bank to retrieve the 

image.fi 

flb.fi In cases where the paying bank is 

unable to identify the depositary bank, the 

paying bank may, in accordance with 

§ 229.30(a), send the returned check to a 

returning bank that agrees to handle the 

returned check for expeditious return to the 

depositary bank under § 229.31(a). The 

returning bank may be better able to identify 

the depositary bank. 

ø2.¿flc.fi In the alternative, the paying 

bank may send the check back up the path 

used for forward collection of the check. The 

presenting bank and prior collecting banks 

normally will be able to trace the collection 

path of the check through the use of their 

internal records in conjunction with the 

indorsements on the returned check. In these 

limited cases, the paying bank may send such 

a returned check to any bank that handled 

the check for forward collection, even if that 

bank does not agree to handle the returned 

check for expeditious return to the depositary 

bank under § 229.31(a). flThe return of a 

check to a bank that handled the check for 

forward collection is consistent with 

§ 229.35(b), which requires a bank handling 

a check to take up the check if it is has not 

been paid.fi 

fld. If the paying bank has an agreement 

to send electronic returns to a bank that 

handled the check for forward collection, the 

paying bank may send an electronic return to 

that bank.fi A paying bank returning a check 

under this paragraph [to a bank that has not 

agreed to handle the check expeditiously] 

must advise that bank that it is unable to 

identify the depositary bank. This advice 

must be conspicuous, such as a stamp on 

each check for which the depositary bank is 

unknown if such checks are commingled 

with other returned checks, or, if such checks 

are sent in a separate cash letter, by one 

notice on the cash letter. flIn the case of an 

electronic return, the advice requirement 

may be satisfied by the paying bank inserting 

the routing number of the bank to which it 

is sending the return where the paying bank 

otherwise would have inserted the routing 

number of the depositary bank.fi This 

information will warn the bank that this 

check will require special research and 

handling in accordance with § 229.31(b). The 

returned check may not be prepared øfor 

automated¿ flas a qualifiedfi return. øThe 

return of a check to a bank that handled the 

check for forward collection is consistent 

with § 229.35(b), which requires a bank 

handling a check to take up the check it is 

has not been paid.¿ 

ø3.¿fle.fi The sending of a check to a 

bank that handled the check for forward 

collection under this paragraph is not subject 

to the requirements for expeditious return by 

the paying bank. øOften, the paying bank will 

not have courier or other expeditious means 

of transportation to the collecting or 

presenting bank.¿ flBecause the paying bank 

is unable to identify the depositary bank, the 

paying bank will not know whether the 


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Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 16953 

depositary bank has agreed to accept an 

electronic return from the paying bank under 

§ 229.32(a). Moreover, returning the check 

through the forward collection chain may 

require handling by more banks, and thus 

may take more time.fi Although the lack of 

a requirement of expeditious return will 

create risks for the depositary bank, in many 

cases the inability to identify the depositary 

bank will be due to the depositary bank’s, or 

a collecting bank’s, failure to use the 

indorsement required by § 229.35(a) and 

appendix D. If the depositary bank failed to 

use the proper indorsement, it should bear 

the risks of less than expeditious return. 

Similarly, where the inability to identify the 

depositary bank is due to indorsements or 

other information placed on the back of the 

check by the depositary bank’s customer or 

other prior indorser, the depositary bank 

should bear the risk that it cannot charge a 

returned check back to that customer. Where 

the inability to identify the depositary bank 

is due to subsequent indorsements of 

collecting banks, these collecting banks may 

be liable for a loss incurred by the depositary 

bank due to less than expeditious return of 

a check; those banks therefore have an 

incentive to return checks sent to them under 

this paragraph quickly. 

ø4.¿flf.fi This paragraph does not relieve 

a paying bank from the liability for the lack 

of expeditious return in cases where the 

paying bank is itself responsible for the 

inability to identify the depositary bank, such 

as when the paying bank’s customer has used 

a check with printing or other material on the 

back in the area reserved for the depositary 

bank’s indorsement, making the indorsement 

unreadable. (See § 229.38(d).) 

ø5.¿flg.fi A paying bank’s return under 

this paragraph is also subject to its midnight 

deadline under U.C.C. 4–301, Regulation J (if 

the check is returned through a Federal 

Reserve Bank), and the exception provided in 

§ 229.30(c). A paying bank also may send a 

check to a prior collecting bank to make a 

claim against that bank under § 229.35(b) 

where the depositary bank is insolvent or in 

other cases as provided in § 229.35(b). 

Finally, a paying bank may make a claim 

against a prior collecting bank based on a 

breach of warranty under U.C.C. 4–208. 

C. 229.30(c) Extension of Deadline 

1. This paragraph permits extension of the 

deadlines flin the U.C.C., Regulation J 

(12 CFR part 210) and § 229.36(d)(3) of this 

partfi for returning a check for which the 

paying bank previously has settled (generally 

midnight of the banking day following the 

banking day on which the check is received 

by the paying bank) and for returning a check 

without settling for it (generally midnight of 

the banking day on which the check is 

received by the paying bank, or such other 

time provided by § 210.9 of Regulation J 

(12 CFR part 210) or 

§ 229.36ø(f)(2)¿fl(d)(3)fi of this part)ø, but 

not of the duty of expeditious return, in two 

circumstances:¿flif the paying bank returns 

the check using a means of delivery such that 

the depositary bank would ordinarily receive 

the return within the timeframe specified in 

§ 229.30(a).fi 

fl2. If a paying bank sends an electronic 

return, the paying bank’s midnight (or other 

applicable) deadline is extended to the time 

it dispatches the electronic return so long as 

the depositary bank would ordinarily receive 

the electronic return by 4 p.m. (local time of 

the depositary bank) on the second business 

day following the banking day on which the 

paying bank received the check. A paying 

bank may rely on its returning bank’s 

electronic return delivery schedules in 

determining when the depositary bank would 

ordinarily receive an electronic return.fi 

øa¿fl3fi. A paying bank may have a 

courier that leaves after midnight (or after 

any other applicable deadline) to deliver its 

forward-collection checks. This paragraph 

removes the constraint of the midnight 

deadline for returned checks if the returned 

check øreaches the receiving bank on or 

before the receiving bank’s next banking day 

following the otherwise applicable deadline 

by the earlier of the close of that banking day 

or a cutoff hour of 2 p.m. or later set by the 

receiving bank under U.C.C. 4–108¿flwould 

ordinarily reach the depositary bank by 

4 p.m. (local time of the depositary bank) on 

the second business day following the 

banking day on which the paying bank 

received the check. A paying bank may rely 

on its returning bank’s delivery schedules in 

determining when the depositary bank would 

ordinarily receive the returned checkfi. 

øThe extension also applies if the check 

reaches the bank to which it is sent later than 

the time described in the previous sentence 

if highly expeditious means of transportation 

are used. For example, a West Coast paying 

bank may use this further extension to ship 

a returned check by air courier directly to an 

East Coast returning bank even if the check 

arrives after the returning bank’s cutoff hour. 

This paragraph applies to the extension of all 

midnight deadlines except Saturday 

midnight deadlines (see paragraph C.1.b. 

below).¿ 

øb. A paying bank may observe a banking 

day, as defined in the applicable U.C.C., on 

a Saturday, which is not a business day and 

therefore not a banking day under Regulation 

CC. In such a case, the U.C.C. deadline for 

returning checks received and settled for on 

Friday, or for returning checks received on 

Saturday without settling for them, might 

require the bank to return the checks by 

midnight Saturday. However, the bank may 

not have couriers leaving on Saturday to 

carry returned checks, and even if it did, the 

returning or depositary bank to which the 

returned checks were sent might not be open 

until Sunday night or Monday morning to 

receive and process the checks. This 

paragraph extends the midnight deadline if 

the returned checks reach the returning bank 

by a cut-off hour (usually on Sunday night 

or Monday morning) that permits processing 

during its next processing cycle or reach the 

depositary bank by the cut-off hour on its 

next banking day following the Saturday 

midnight deadline. This paragraph applies 

exclusively to the extension of Saturday 

midnight deadlines.¿ 

ø2¿fl4fi. The time limits that are 

extended øin each case¿ are the paying 

bank’s midnight deadline for returning a 

check for which it has already settled and the 

paying bank’s deadline for returning a check 

without settling for it in U.C.C. 4–301 and 4– 

302, §§ 210.9 and 210.12 of Regulation J (12 

CFR 210.9 and 210.12), and 

§ 229.36ø(f)(2)¿fl(d)(3)fi of this part. As 

these extensions are designed to speed 

ø(§ 229.30(c)(1)), or at least not slow 

(§ 229.30(c)(2)),¿ the overall return of checks, 

no modification or extension of the 

expeditious return requirements in 

§ 229.30(a) is required. 

ø3øfl5fi. The paying bank satisfies its 

midnight or other return deadline by 

dispatching returned checks to another bank 

by courier, including a courier under contract 

with the paying bank, prior to expiration of 

the deadline. 

ø4¿fl6fi. This paragraph directly affects 

U.C.C. 4–301 and 4–302 and §§ 210.9 and 

210.12 of Regulation J (12 CFR 210.9 and 

210.12) to the extent that this paragraph 

applies by its terms, and may affect other 

provisions. 

D. 229.30(d) Identification of Returned Check 

1. The reason for the return must be clearly 

indicated. A check is identified as a returned 

check if the front of that check indicates the 

reason for return, even though it does not 

specifically state that the check is a returned 

check. øA reason such as ‘‘Refer to Maker’’ is 

permissible in appropriate cases.¿ fl‘‘Refer 

to Maker’’ is an instruction to the recipient 

of the returned check and not a reason for 

return. Therefore, ‘‘Refer to Maker’’ is 

insufficient as a reason for return. ‘‘Refer to 

Maker’’ may be used in addition to the reason 

for return.fi If the returned check is a 

substitute check, flthe requirement to 

placefi the reason for return flinformation 

such that it is retained on any subsequent 

substitute check could be met by placing the 

information (1) in the location on the front 

of the substitute check that is specified by 

ANS X9.100–140 or (2)fi ømust be placed¿ 

within the image of the original check that 

appears on the front of the substitute check 

so that the information is retained on any 

subsequent substitute check. If the paying 

bank places the returned check in a carrier 

envelope, the carrier envelope should 

indicate that it is a returned check but need 

not repeat the reason for return stated on the 

check if it in fact appears on the check. 

øF. 229.30(f)¿flE. 229.30(e)fi Notice in Lieu 

of Return 

fl1. A notice in lieu of return may be used 

by a bank handling a returned check that has 

been lost or destroyed, including when the 

original returned check has been charged 

back as lost or destroyed as provided in 

§ 229.35(b). Notice in lieu of return is 

permitted only when a bank does not have 

and cannot obtain possession of the check (or 

must retain possession of the check for 

protest) and does not have sufficient 

information to create a substitute check. For 

example, a bank may have an image of both 

sides of the check, but the image may be 

insufficient, or may not be in the proper 

format, to create a substitute check. A bank 

using a notice in lieu of return gives a 

warranty under § 229.34(e)(1)(iv) that the 

øoriginal¿ check has not been and will not 

be returned.fi 

ø1¿fl2fi. A check that is lost or otherwise 

unavailable for return may be returned by 

sending a legible copy of both sides of the 


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16954 Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 

check or, if such a copy is not available to 

the paying bank, a written notice of 

nonpayment containing the information 

specified in ø§ 229.33(b)¿fl§ 229.30(e)(2)fi. 

The copy or written notice must clearly 

indicate it is a notice in lieu of return øand 

must be handled in the same manner as other 

returned checks¿. flNotice by a legible 

facsimile or electronic transmission of the 

image of both sides of the check may satisfy 

the requirements for a notice in lieu of 

return. If no image of both sides of the check 

is available, the notice may be sent by other 

means, but notfi øNotice¿ by telephoneø, 

telegraph,¿ or other øelectronic¿ floralfi 

transmissionø,other than a legible facsimile 

or similar image transmission of both sides 

of the check, does not satisfy the 

requirements for a notice in lieu of return¿. 

The requirement for a writing and the 

indication that the notice is a substitute for 

the returned check is necessary so that the 

returning and depositary banks are informed 

that the notice carries value. øNotice in lieu 

of return is permitted only when a bank does 

not have and cannot obtain possession of the 

check or must retain possession of the check 

for protest. A check is not unavailable for 

return if it is merely difficult to retrieve from 

a filing system or from storage by a keeper 

of checks in a truncation system. A notice in 

lieu of return may be used by a bank 

handling a returned check that has been lost 

or destroyed, including when the original 

returned check has been charged back as lost 

or destroyed as provided in § 229.35(b). A 

bank using a notice in lieu of return gives a 

warranty under § 229.34(a)(4) that the 

original check has not been and will not be 

returned.¿ 

ø2¿fl3fi. The requirement of this 

paragraph supersedes the requirement of 

U.C.C. 4–301(a) as to the form and 

information required of a notice of dishonor 

or nonpayment. Reference in the regulation 

and this commentary to a returned check 

includes a notice in lieu of return unless the 

context indicates otherwise. 

ø3¿fl4fi. The notice in lieu of return is 

subject to the provisions of § 229.30 and is 

treated like a returned check for settlement 

purposes. øIf the original check is over 

$2,500, the notice of nonpayment under 

§ 229.33 is still required, but may be satisfied 

by the notice in lieu of return if the notice 

in lieu meets the time and information 

requirements of § 229.33.¿ 

ø4¿fl5fi. If not all of the information 

required by ø§ 229.33(b)¿ fl§ 229.30(e)(2)fi 

is available, the paying bank may make a 

claim against any prior bank handling the 

check as provided in § 229.35(b). 

fl6. Content of notices 

a. This paragraph provides that the notice 

must contain, if available, specified items of 

information that would enable a depositary 

bank to identify the check to which the 

notice relates. 

b. If the paying bank cannot identify the 

depositary bank from the check itself, the 

paying bank should treat the notice in lieu 

as if it were a returned check for which the 

paying bank cannot identify the depositary 

bank (see § 229.30(b)(2) and accompanying 

commentary). 

c. If a bank is uncertain as to the accuracy 

of an item of information, it nevertheless 

must identify the item of information, but a 

bank may make this identification by setting 

the item off with question marks, asterisks, 

or other symbols designated for this purpose 

by generally applicable industry standards.fi 

øG. 229.30(g)¿flF. 229.30(f)fi Reliance on 

Routing Number 

1. Although § 229.35 and appendix D 

require that the depositary bank indorsement 

contain its nine-digit routing number, it is 

possible that a returned check will bear the 

routing number of the depositary bank in 

fractional, nine-digit, or other form. This 

paragraph permits a paying bank to rely on 

the routing number of the depositary bank as 

it appears on the check (in the depositary 

bank’s indorsement) flor in the electronic 

image or information included in the 

electronic collection itemfi when it is 

received by the paying bank. 

2. If there are inconsistent routing 

numbers, the paying bank may rely on any 

routing number designating the depositary 

bank. The paying bank is not required to 

resolve the inconsistency prior to processing 

the check. The paying bank remains subject 

to the requirement to act in good faith and 

use ordinary care under § 229.38(a). 

XVII. Section 229.31 Returning Bank’s 

Responsibility for Return of Checks 

A. 229.31(a) Return of Checks 

1. The standards for return of checks 

established by this section are similar to 

those for paying banks in § 229.30(a). This 

section requires a returning bank to øreturn 

a returned check expeditiously if it agrees to 

handle the returned check for expeditious 

return under this paragraph¿ flsend a 

returned check expeditiously if the returning 

bank has agreed to do sofi. In effect, the 

returning bank is an agent or subagent of the 

paying bank and a subagent of the depositary 

bank for the purposes of returning the check. 

flA returning bank may satisfy its 

expeditious return requirement by returning 

either an electronic return or returned check 

within the timeframe. The exceptions to this 

requirement are set out in § 229.31(b).fi 

2. A returning bank agrees to øhandle a 

returned check for expeditious 

return¿flreturn checks expeditiouslyfi to 

the depositary bank if it: 

a. Publishes or distributes availability 

schedules for the return of flelectronic 

returns orfi returned checks and accepts the 

flelectronic return orfi returned check for 

return; 

øb. Handles a returned check for return 

that it did not handle for forward collection;¿ 

or 

øc¿flbfi. Otherwise agrees to handle a 

returned check for expeditious return. 

fl3. A returning bank may agree to handle 

only certain types of returns expeditiously. 

For example, a returning bank may agree to 

handle electronic returns expeditiously, 

while not agreeing to handle returned checks 

expeditiously. 

4. If a returning bank has not agreed to 

return checks expeditiously, the returning 

bank has no expeditious return requirement 

with respect to the check. Therefore, a paying 

bank will not satisfy its expeditious return 

requirement by sending a returned check to 

that returning bank that has not agreed to 

return checks expeditiously. 

5. The returning bank’s return of a check 

under this paragraph is subject to the 

midnight deadline under U.C.C. 4–202(b). 

(See definition of returning bank in 

§ 229.2(mm)). 

6. In the case of electronic returns, a 

returning bank agrees to handle the 

electronic return expeditiously if the 

returning bank has an agreement with the 

paying bank for accepting electronic returns, 

and handling such returns expeditiously, and 

the returning bank accepts the electronic 

return.fi 

ø3¿fl7fi. øTwo-day/four-day test.¿ As in 

the case of a paying bank, a returning bank’s 

return of a returned check is expeditious if 

it ømeets either of two tests. Under the ‘‘twoday/four-day’’ test, the check must be 

returned so that it¿ flis sent in a manner 

such that itfi would normally be received by 

the depositary bank by 4 p.m. øeither¿ 

fl(local time of the depositary bank)fi two 

øor four¿ business days after the check was 

presented to the paying bankø, depending on 

whether or not the paying bank is located in 

the same check processing region as the 

depositary bank¿. øThis is the same test as 

the two-day/four-day test applicable to 

paying banks. (See Commentary to 

§ 229.30(a).)¿ While a returning bank will not 

have first hand knowledge of the day on 

which a check was presented to the paying 

bank, returning banks may, by agreement, 

allocate with paying banks liability for late 

return based on the delays caused by each. 

øIn effect, the two-day/four day test protects 

all paying and returning banks that return 

checks from claims that they failed to return 

a check expeditiously, where the check is 

returned within the specified time following 

presentment to the paying bank, or a later 

time as would result from unforeseen 

delays.¿ 

ø4. Forward collection test. 

a. The ‘‘forward collection’’ test is similar 

to the forward collection test for paying 

banks. Under this test, a returning bank must 

handle a returned check in the same manner 

that a similarly situated collecting bank 

would handle a check of similar size drawn 

on the depositary bank for forward 

collection. A similarly situated bank is a 

bank (other than a Federal Reserve Bank) that 

is of similar asset size and check handling 

activity in the same community. A bank has 

similar check handling activity if it handles 

a similar volume of checks for forward 

collection as the forward collection volume 

of the returning bank. 

b. Under the forward collection test, a 

returning bank must accept returned checks, 

including both qualified and other returned 

checks (‘‘raw returns’’), at approximately the 

same times and process them according to 

the same general schedules as checks 

handled for forward collection. Thus, a 

returning bank generally must process even 

raw returns on an overnight basis, unless its 

time limit is extended by one day to convert 

a raw return to a qualified returned check.¿ 

ø5¿fl8fi. Cut-off hours. A returning bank 

may establish earlier cut-off hours for receipt 

of returned checks than for receipt of forward 

collection checks, but the cut-off hour for 


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Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 16955 

returned checks may not be earlier than 2 

p.m. fl(local time of the returning bank).fi 

The returning bank also may set different 

sorting requirements for returned checks than 

those applicable to other checks. Thus, a 

returning bank may allow itself more 

processing time for returns than for forward 

collection checks. øAll returned checks 

received by a cut-off hour for returned checks 

must be processed and dispatched by the 

returning bank by the time that it would 

dispatch forward collection checks received 

at a corresponding forward collection cut-off 

hour that provides for the same or faster 

availability for checks destined for the same 

depositary banks.¿ 

ø6. Examples. 

a. If a returning bank receives a returned 

check by its cut-off hour for returned checks 

on Monday and the depositary bank and the 

returning bank are participants in the same 

clearinghouse, the returning bank should 

arrange to have the returned check received 

by the depositary bank by Tuesday. This 

would be the same day that it would deliver 

a forward collection check drawn on the 

depositary bank and received by the 

returning bank at a corresponding forward 

collection cut-off hour on Monday. 

b. i. If a returning bank receives a returned 

check, and the returning bank normally 

would collect a forward collection check 

drawn on the depositary bank by sending the 

forward collection check to a correspondent 

or a Federal Reserve Bank by courier, the 

returning bank could send the returned check 

in the same manner if the correspondent has 

agreed to handle returned checks 

expeditiously under § 229.31(a). The 

returning bank would have to deliver the 

check by the correspondent’s or Federal 

Reserve Bank’s cut-off hour for returned 

checks that corresponds to its cut-off hour for 

forward collection checks drawn on the 

depositary bank. A returning bank may take 

a day to convert a check to a qualified 

returned check. Where the forward collection 

checks are delivered by courier, mailing the 

returned checks would not meet the duty 

established by this section for returning 

banks. 

ii. A returning bank must return a check to 

the depositary bank by courier or other 

means as fast as a courier, if similarly 

situated returning banks use couriers to 

deliver their forward collection checks to the 

depositary bank. 

iii. For some depositary banks, no 

community practice exists as to delivery of 

checks. For example, a credit union whose 

customers use payable-through drafts 

normally does not have checks presented to 

it because the drafts are normally sent to the 

payable-through bank for collection. In these 

circumstances, the community standard is 

established by taking into account the dollar 

volume of the checks being sent to the 

depositary bank and the location of the 

depositary bank, and determining whether 

similarly situated banks normally would 

deliver forward collection checks to the 

depositary bank, taking into account the 

particular risks associated with returned 

checks. Where the community standard does 

not require courier delivery, other means of 

delivery, including mail, are acceptable.¿ 

ø7¿fl9fi. Qualified returned checks. 

a. The expeditious return requirement for 

a returning bank in this regulation is more 

stringent in many cases than the duty of a 

collecting bank to exercise ordinary care 

under U.C.C. 4–202 in returning a check. øA 

returning bank is under a duty to act as 

expeditiously in returning a check as it 

would in the forward collection of a check. 

Notwithstanding its duty of expeditious 

return, its midnight deadline under U.C.C. 4– 

202 and § 210.12(a) of Regulation J (12 CFR 

210.12(a)), under the forward collection test, 

a returning bank may take an extra day to 

qualify a returned check.¿ A qualified 

returned check will be handled by 

subsequent returning banks more efficiently 

than a raw return. øThis paragraph gives a 

returning bank an extra business day beyond 

the time that would otherwise be required to 

return the returned check to convert a 

returned check to a qualified returned 

check.¿ The qualified returned check must 

include the routing number of the depositary 

bank, the amount of the check, and a return 

identifier encoded on the check in magnetic 

ink. A check that is converted to a qualified 

returned check must be encoded in 

accordance with ANS X9.13 for original 

checks or ANS X9.100–140 for substitute 

checks. 

øb. If the returning bank is sending the 

returned check directly to the depositary 

bank, this extra day is not available because 

preparing a qualified returned check will not 

expedite handling by other banks.¿ If the 

returning bank makes an encoding error in 

creating a qualified returned check, it may be 

liable under § 229.38 for losses caused by any 

negligence or under § 229.34(c)(3) for breach 

of an encoding warranty. øThe returning 

bank would not lose the one-day extension 

available to it for creating a qualified 

returned check because of an encoding 

error.¿ 

ø8¿fl10fi. Routing of returned check. 

a. Under § 229.31(a), the returning bank is 

authorized to route the returned check in a 

variety of ways: 

i. It may send flan electronic return if the 

depositary bank has agreed to accept an 

electronic return from the returning bank or 

it may sendfi the returned check directly to 

the depositary bank by courier or other 

øexpeditious¿ means of delivery; øor¿ 

ii. flIt may send an electronic return to 

any other returning bank that has agreed to 

accept an electronic return from the returning 

bank; or 

iii.fi It may send the returned check to any 

returning bank agreeing to handle the 

returned check for expeditious return to the 

depositary bank under this section regardless 

of whether or not the returning bank handled 

the check for forward collection. 

b. If the returning bank elects to send the 

returned check directly to the depositary 

bank, it is not required to send the check to 

the branch of the depositary bank that first 

handled the check. The returned check may 

be sent to the depositary bank at any location 

permitted under § 229.32(b). flIf the 

returning bank elects to send the electronic 

return directly to the depositary bank, it must 

send the electronic return to the electronic 

return point designated by the depositary 

bankfi. 

ø9¿fl11fi. Responsibilities of returning 

bank. In meeting the requirements of this 

section, the returning bank is responsible for 

its own actions, but not those of the paying 

bank, other returning banks, or the depositary 

bank. (See U.C.C. 4–202(c) regarding the 

responsibility of collecting banks.) For 

example, if the paying bank has delayed the 

start of the return process, but the returning 

bank acts in a timely manner, the returning 

bank may satisfy the requirements of this 

section even if the delayed return results in 

a loss to the depositary bank. (See § 229.38.) 

A returning bank must handle a notice in lieu 

of return øas¿ expeditiously øas a returned 

check¿. 

ø10¿fl12fi. U.C.C. sections affected. This 

paragraph directly affects the following 

provisions of the U.C.C., and may affect other 

sections or provisions: 

a. Section 4–202(b), in that time limits 

required by that section may be affected by 

the additional requirement to make an 

expeditious return. 

b. Section 4–214(a), in that settlement for 

returned checks is made under § 229.31(c) 

and not by charge-back of provisional credit, 

and in that the time limits may be affected 

by the additional requirement to make an 

expeditious return. 

B. 229.31(b) øUnidentifiable Depositary 

Bank¿flExceptions to Expeditious Return of 

Checksfi 

1. This section is similar to § 229.30(b), but 

applies to returning banks instead of paying 

banks. øIn some cases a returning bank will 

be unable to identify the depositary bank 

with respect to a check.¿ flIn general, in 

circumstances where the paying bank is not 

subject to the expeditious return requirement 

(see § 229.30(b)), the returning bank may not 

receive the returned check in a timeframe 

that enables it to return the check to the 

depositary bank by the second business day 

following the banking day on which the 

check was presented to the paying bank. 

Moreover, the same circumstances that make 

expeditious return of a check difficult for a 

paying bank also are likely to make 

expeditious return of a check difficult for a 

returning bank.fi 

fl2. Depositary bank has not agreed to 

accept electronic returns under § 229.32(a). 

a. A returning bank is not subject to the 

expeditious return requirement in § 229.31(a) 

with respect to a check if the depositary bank 

has not agreed to accept an electronic return 

from the paying bank under § 229.32(a), in 

which case the paying bank is not required 

to return the check expeditiously under 

§ 229.30(a). If a depositary bank has not 

agreed to accept electronic returns, a 

returning bank is unlikely to be able to return 

a paper check to the depositary bank in an 

expeditious manner. 

3. Unidentifiable depositary banks 

a.fi Returning banks agreeing to handle 

checks for return to depositary banks under 

§ 229.31(a) are expected to be expert in 

identifying depositary bank indorsements. In 

the limited cases where the returning bank 

cannot identify the depositary bank, fliffi 

the returning bank fldid not handle the 

check for forward collection, itfi may send 

the returned check to øa returning bank that 

agrees to handle the returned check for 


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16956 Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 

expeditious return under § 229.31(a), or it 

may send the returned check to a¿flany 

collectingfi bank that handled the returned 

check for forward collectionfl.fi ø, even if 

that bank does not agree to handle the check 

expeditiously under section 229.31(a). 

2.¿ Iffl, on the other hand,fi the returning 

bank itself handled the check for forward 

collection, it may send the returned check to 

a collecting bank that was prior to it in the 

forward-collection process, which will be 

better able to identify the depositary bank. If 

there are no prior collecting banks, the 

returning bank must research the collection 

of the check and identify the depositary 

bank. 

flb.fi As in the case of paying banks 

under § 229.30(b), a returning bankø’s 

sending of a check to a bank that handled the 

check for forward collection under 

§ 229.31(b)¿ flthat cannot identify the 

depositary bankfi is not subject to the 

expeditious return requirements of 

§ 229.31(a). 

ø3. The returning bank’s return of a check 

under this paragraph is subject to the 

midnight deadline under U.C.C. 4–202(b). 

(See definition of returning bank in 

§ 229.2(cc).)¿ 

ø4. Where a returning bank receives a 

check that it does not agree to handle 

expeditiously under § 229.31(a), such as a 

check sent to it under § 229.30(b), but the 

returning bank is able to identify the 

depositary bank, the returning bank must 

thereafter return the check expeditiously to 

the depositary bank. The returning bank 

returns a check expeditiously under this 

paragraph if it returns the check by the same 

means it would use to return a check drawn 

on it to the depositary bank or by other 

reasonably prompt means¿. 

ø5¿flcfi. As in the case of a paying bank 

returning a check under § 229.30(b)), a 

returning bank returning a check under øthis 

paragraph¿fl§ 229.30(b)(2)fi to a bank that 

has not agreed to handle the check 

expeditiously must advise that bank that it is 

unable to identify the depositary bank. This 

advice must be conspicuous, such as a stamp 

on øeach check for which the depositary 

bank is unknown if such checks are 

commingled with other returned checks, or, 

if such checks are sent in a separate cash 

letter, by one¿ flthe check or afi notice on 

the cash letter. øThe returned check may not 

be prepared for automated return.¿ flIn the 

case of an electronic return, the advice 

requirement may be satisfied by the returning 

bank inserting the routing number of the 

bank to which it is sending the return where 

the returning bank otherwise would have 

inserted the routing number of the depositary 

bank.fi 

fl3. Depositary banks without accounts 

a. Section 229.31(b)(3) is similar to 

§ 229.30(b)(3) and relieves the returning bank 

of its obligation to make expeditious return 

to a depositary bank that does not maintain 

any accounts. (See the commentary to 

§ 229.30(b).fi 

C. 229.31(c) Settlement 

1. Under the U.C.C., a collecting bank 

receives settlement for a check øwhen 

it¿flby midnight of the banking day on 

which the checkfi is presented to the paying 

bank. The paying bank may recover the 

settlement when the paying bank returns the 

check to the presenting bank. Under this 

regulation, however, the paying bank may 

return the check directly to the depositary 

bank or through returning banks that did not 

handle the check for forward collection. On 

these more efficient return paths, the paying 

bank does not recover the settlement made to 

the presenting bank. Thus, this paragraph 

requires the returning bank to settle for a 

returned check (either with the paying bank 

or another returning bank) in the same way 

that it would settle for a similar check for 

forward collection. To achieve uniformity, 

this paragraph applies even if the returning 

bank handled the check for forward 

collection. 

2. Any returning bank, including one that 

handled the check for forward collection, 

may provide availability for returned checks 

pursuant to an availability schedule as it 

does for forward collection checks. These 

settlements by returning banks, as well as 

settlements between banks made during the 

forward collection of a check, are considered 

final when made subject to any deferment of 

availability. (See 

ø§ 229.36(d)¿fl§ 229.36(c)fi and 

Commentary to § 229.35(b).) 

3. A returning bank may vary the 

settlement method it uses by agreement with 

paying banks or other returning banks. 

Special rules apply in the case of insolvency 

of banks. (See § 229.39.) If payment cannot be 

obtained from a depositary or returning bank 

because of its insolvency or otherwise, 

recovery can be had by returning, paying, 

and collecting banks from prior banks on this 

basis of the liability of prior banks under 

§ 229.35(b). 

4. This paragraph affects U.C.C. 4–214(a) in 

that a paying or collecting bank does not 

ordinarily have a right to charge back against 

the bank from which it received the returned 

check, although it is entitled to settlement if 

it returns the returned check to that bank, 

and may affect other sections or provisions. 

Under ø§ 229.36(d)¿fl§ 229.36(c)fi, a bank 

collecting a check remains liable to prior 

collecting banks and the depositary bank’s 

customer under the U.C.C. 

D. 229.31(d) Charges 

1. This paragraph permits any returning 

bank, even one that handled the check for 

forward collection, to impose a fee on the 

paying bank or other returning bank for its 

service in handling a returned check. Where 

a claim is made under § 229.35(b), the bank 

on which the claim is made is not authorized 

by this paragraph to impose a charge for 

taking up a check. This paragraph preempts 

state laws to the extent that these laws 

prevent returning banks from charging fees 

for handling returned checks. 

øF. 229.31(f)¿flE. 229.31(e)fi Notice in Lieu 

of Return 

1. This paragraph is similar to ø§ 229.30(f)¿ 

fl§ 229.30(e)fi and authorizes a returning 

bank to originate a notice in lieu of return if 

the returned check is unavailable for return. 

Notice in lieu of return is permitted only 

when a bank does not have and cannot obtain 

possession of the check fl(fior must retain 

possession of the check for protestfl) and 

does not have sufficient information to create 

a substitute checkfi. øA check is not 

unavailable for return if it is merely difficult 

to retrieve from a filing system or from 

storage by a keeper of checks in a truncation 

system.¿ (See the Commentary to 

ø§ 229.30(f)¿fl§ 229.30(e)fi.) 

øG. 229.31(g)¿ flF. 229.31(f)fi Reliance on 

Routing Number 

1. This paragraph is similar to 

ø§ 229.30(g)¿fl§ 229.30(f)fi and permits a 

returning bank to rely on routing numbers 

appearing on a returned check such as 

routing numbers in the depositary bank’s 

indorsementfl,fi øor¿ on qualified returned 

checksfl, or in the electronic image or 

information included in the electronic return 

when it is received by the returning bankfi. 

(See the Commentary to 

ø§ 229.30(g)¿fl§ 229.30(f)fi.) 

XVIII. Section 229.32 Depositary Bank’s 

Responsibility for Returned Checks 

flA. 229.32(a) Acceptance of Electronic 

Returns 

1. A paying bank and a returning bank 

must satisfy the expeditious return 

requirements under §§ 229.30(a) and 

229.31(a) only if the depositary bank has 

agreed to accept an electronic return from the 

paying bank. This section sets forth the 

circumstances under which a depositary 

bank has agreed to accept an electronic 

return from the paying bank for purposes of 

subpart C, and therefore the circumstances 

under which the paying bank and returning 

banks have a duty to return the check 

expeditiously. 

2. There are three different ways a 

depositary bank can agree to accept 

electronic returns from the paying bank for 

purposes of subpart C: 

a. First, a depositary bank may have a 

direct contractual relationship with the 

paying bank under which it has agreed to 

accept electronic returns directly from the 

paying bank. 

b. Second, a depositary bank may have a 

direct contractual relationship with a 

returning bank under which the depositary 

bank accepts electronic returns directly from 

the returning bank. In turn, that returning 

bank must hold itself out as willing to accept 

electronic returns directly or indirectly from 

the paying bank and agrees to return checks 

expeditiously. For example, the returning 

bank may hold itself out as willing to enter 

into a direct contractual relationship with the 

paying bank to accept electronic returns or 

returned checks for expeditious return to the 

depositary bank. Alternatively, that returning 

bank may hold itself out as willing to accept 

electronic returns from other returning banks 

that accept electronic returns from the paying 

bank. A depositary bank is deemed to have 

agreed to accept electronic returns under 

§ 229.32(a)(1)(ii) if the returning bank holds 

itself out as willing to accept electronic 

returns directly or indirectly from the paying 

bank, notwithstanding the fact that the 

paying bank has no actual agreement with 

the returning bank to send electronic returns. 

c. Third, a depositary bank may have 

otherwise agreed with the paying bank to 

accept electronic returns. For example, the 


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depositary bank and paying bank may both 

be members of the same clearing house, 

under the rules of which the depositary bank 

has agreed to accept electronic returns from 

the paying bank. 

d. The paying bank or returning bank must 

deliver the electronic return to the electronic 

location designated by the depositary bank. 

Accordingly, regardless of the means by 

which a depositary bank agrees to accept 

electronic returns from the paying bank, the 

depositary bank’s agreement with the paying 

bank or returning bank must designate an 

electronic return point. 

3. A returning bank holds itself out as 

willing to accept electronic returns from a 

paying bank by publishing information about 

its generally available electronic return 

service, including how to enroll in the 

returning bank’s electronic return service and 

fees for the service. For example, a returning 

bank may publish on its Web site electronic 

return service set-up guides for a paying bank 

to complete. 

4. This section also sets forth when a 

depositary bank receives an electronic return. 

A depositary bank ‘‘receives’’ an electronic 

return when that electronic return is 

delivered to the electronic return point 

designated by the bank or when the 

electronic return is otherwise made available 

for retrieval or review in accordance with an 

agreement between the depositary bank and 

the delivering paying bank or returning bank. 

For example, if a depositary bank designates 

an e-mail address as its electronic return 

point, the depositary bank has received the 

electronic return when it is delivered to that 

e-mail address. In contrast, if the depositary 

bank has an arrangement with a returning 

bank whereby the returning bank sends the 

electronic return to its storage device and 

then provides the depositary bank with 

access to the storage device for retrieving 

electronic returns, the electronic return is 

received by the depositary bank when the 

returning bank makes the electronic return 

available for the depositary bank to retrieve 

or review from the storage device in 

accordance with the agreement between the 

returning bank and the depositary bank.fi 

øA. 229.32(a)¿flB. 229.32(b)fi Acceptance 

of flPaperfi Returned Checks 

1. øThis regulation seeks to encourage 

direct returns by paying and returning banks 

and may result in a number of banks sending 

checks to depositary banks with no 

preexisting arrangements as to where the 

returned checks should be delivered.¿ This 

paragraph states where the depositary bank is 

required to accept returned flpaperfi 

checks øand written notices of nonpayment 

under § 229.33¿. (These locations differ from 

locations at which a depositary bank flmay 

accept electronic returnsfiøor must accept 

electronic notices¿.) It is derived from U.C.C. 

3–111, which specifies that presentment for 

payment may be made at the place specified 

in the instrument or, if there is none, at the 

place of business of the party to pay. In the 

case of returned checks, the depositary bank 

does not print the check and can only specify 

the place of ‘‘payment’’ of the returned check 

in its indorsement. 

2. The paragraph specifies four locations at 

which the depositary bank must accept 

returned flpaperfi checks: 

a. The depositary bank must accept 

returned flpaperfi checks at any location at 

which it requests presentment of forward 

collection checksfl,fi such as a processing 

center. A depositary bank does not request 

presentment of forward collection checks at 

a branch of the bank merely by paying checks 

presented over the counter. 

b. i. If the depositary bank indorsement 

states the name and address of the depositary 

bank, it must accept returned flpaperfi 

checks at the branch, head office, or other 

location, such as a processing center, 

indicated by the address. If the address is too 

general to identify a particular location, then 

the depositary bank must accept returned 

checks at any branch or head office 

consistent with the address. If, for example, 

the address is ‘‘New York, New York,’’ each 

branch in New York City must accept 

returned flpaperfi checks. flAccordingly, a 

depositary bank may limit the locations at 

which it must accept returned paper checks 

by specifying a branch or head office in its 

indorsement.fi 

ii. If no address appears in the depositary 

bank’s indorsement, the depositary bank 

must accept returned flpaperfi checks at 

any branch or head office associated with the 

depositary bank’s routing number. The 

offices associated with the routing number of 

a bank are found in American Bankers 

Association Key to Routing Numbers, 

published by an agent of the American 

Bankers Association, which lists a city and 

state address for each routing number. 

øiii. The depositary bank must accept 

returned checks at the address in its 

indorsement and at an address associated 

with its routing number in the indorsement 

if the written address in the indorsement and 

the address associated with the routing 

number in the indorsement are not in the 

same check processing region. Under 

§§ 229.30(g) and 229.31(g), a paying or 

returning bank may rely on the depositary 

bank’s routing number in its indorsement in 

handling returned checks and is not required 

to send returned checks to an address in the 

depositary bank’s indorsement that is not in 

the same check processing region as the 

address associated with the routing number 

in the indorsement.¿ 

øiv¿fliiifi. If no routing number or 

address appears in its indorsement, the 

depositary bank must accept a returned 

flpaperfi check at any branch or head office 

of the bank. The indorsement requirement of 

§ 229.35 and appendix D requires that the 

indorsement contain a routing number, a 

name, and a location. Consequently, this 

provision, as well as paragraph (a)(2)(ii) of 

this section, only applies where the 

depositary bank has failed to comply with 

the indorsement requirement. 

3. For ease of processing, a depositary bank 

may require that returning flbanksfi or 

paying banks returning checks to it separate 

returned checks from forward collection 

checks being presented. 

4. Under ø§ 229.33(d)¿fl§ 229.32(f)fi, a 

depositary bank receiving a returned check 

øor notice of nonpayment¿ must send notice 

to its customer by its midnight deadline or 

within a longer reasonable time. 

øB. 229.32(b)¿flC. 229.32(c)fi Payment 

1. As discussed in the commentary to 

§ 229.31(c), under this regulation a paying 

flbankfi or returning bank does not obtain 

credit for a returned check by charge-back 

but by, in effect, øpresenting¿ 

fl‘‘presenting’’fi the returned check to the 

depositary bank. This paragraph imposes an 

obligation to ‘‘pay’’ a returned check that is 

similar to the obligation to pay a forward 

collection check by a paying bank, except 

that the depositary bank may not return a 

returned check for which it is the depositary 

bank. Also, certain means of payment, such 

as remittance drafts, may be used only with 

the agreement of the øreturning¿ bank 

fl‘‘presenting’’ the returned checkfi. 

2. The depositary bank must pay for a 

returned check by the close of the banking 

day on which it received the returned check. 

The day on which a returned check is 

received is determined pursuant to U.C.C. 

4–108, which permits the bank to establish 

a cut-off hour, generally not earlier than 2 

p.m., and treat checks received after that 

hour as being received on the next banking 

day. If the depositary bank is unable to make 

payment to a returning flbankfi or paying 

bank on the banking day that it receives the 

returned check, because the returning 

flbankfi or paying bank is closed for a 

holiday or because the time when the 

depositary bank received the check is after 

the close of Fedwire, e.g., west coast banks 

with late cut-off hours, payment may be 

made on the next banking day of the bank 

receiving payment. 

3. Payment must be made so that the funds 

are available for use by the bank returning 

the check to the depositary bank on the day 

the check is received by the depositary bank. 

For example, a depositary bank meets this 

requirement if it sends a wire transfer of 

funds to the returning flbankfi or paying 

bank on the day it receives the returned 

check, even if the returning flbankfi or 

paying bank has closed for the day. A wire 

transfer should indicate the purpose of the 

payment. 

4. The depositary bank may use a net 

settlement arrangement to settle for a 

returned check. Banks with net settlement 

agreements could net the appropriate credits 

and debits for returned checks with the 

accounting entries for forward collection 

checks if they so desired. If, for purposes of 

establishing additional controls or for other 

reasons, the banks involved desired a 

separate settlement for returned checks, a 

separate net settlement agreement could be 

established. 

5. The bank sending the returned check to 

the depositary bank may agree to accept 

payment at a later date if, for example, it does 

not believe that the amount of the returned 

check or checks warrants the costs of sameday payment. Thus, a returning flbankfi or 

paying bank may agree to accept payment 

through an ACH credit or debit transfer that 

settles the day after the returned check is 

received instead of a wire transfer that settles 

on the same day. 

6. This paragraph and this subpart do not 

affect the depositary bank’s right to recover 


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a provisional settlement with its nonbank 

customer for a check that is returned. (See 

also §§ 229.19(c)(2)(ii), 

ø229.33(d)¿fl229.32(f)fi and 229.35(b).) 

øC. 229.32(c)øflD. 229.32(d)fi Misrouted 

Returned Checks 

1. This paragraph permits a bank receiving 

a check on the basis that it is the depositary 

bank to send the misrouted returned check to 

the correct depositary bank, if it can identify 

the correct depositary bank, either directly or 

through a returning bank agreeing to handle 

the check expeditiously under 

ø§ 229.30(a)¿fl§ 229.31(a)fi. In these cases, 

the bank receiving the check is acting as a 

returning bank. Alternatively, the bank 

receiving the misrouted returned check must 

send the check back to the bank from which 

it was received. In either case the bank to 

which the returned check was misrouted 

could receive settlement for the check. The 

depositary bank would be required to pay for 

the returned check under 

ø§ 229.32(b)¿fl§ 229.32(c)fi, and any other 

bank to which the check is sent under this 

paragraph would be required to settle for the 

check as a returning bank under § 229.31(c). 

If the check was originally received ‘‘free,’’ 

that is, without a charge for the check, the 

bank incorrectly receiving the check would 

have to return the check, without a charge, 

to the bank from which it came. The bank to 

which the returned check was misrouted is 

required to act promptly but is not required 

to meet the expeditious return requirements 

of § 229.31(a); however, it must act within its 

midnight deadline. This paragraph does not 

affect a bank’s duties under § 229.35(b). 

øD. 229.32(d)¿flE. 229.32(e)fi Charges 

1. This paragraph prohibits a depositary 

bank from charging the equivalent of a 

presentment fee for returned checks. A 

returning bank, however, may charge a fee for 

handling returned checks. If the returning 

bank receives a mixed cash letter of returned 

checks, which includes some checks for 

which the returning bank also is the 

depositary bank, the fee may be applied to all 

the returned checks in the cash letter. In the 

case of a sorted cash letter containing only 

returned checks for which the returning bank 

is the depositary bank, however, no fee may 

be charged. 

flF. 229.32(f) Notification to Customer 

1. This paragraph requires a depositary 

bank to notify its customer of nonpayment 

upon receipt of a returned check. Notice also 

must be given if a depositary bank receives 

a notice of recovery under § 229.35(b). A 

bank that chooses to provide the notice 

required by § 229.32(f) in writing may send 

the notice by e-mail or facsimile if the bank 

sends the notice to the e-mail address or 

facsimile number specified by the customer 

for that purpose. The notice to the customer 

required under this paragraph also may 

satisfy the notice requirement of § 229.13(g) 

if the depositary bank invokes the 

reasonable-cause exception of § 229.13(e) due 

to learning of nonpayment, provided the 

notice meets all the requirements of 

§ 229.13(g).fi 

flXIX. Section 229.33 Electronic returns 

and collection items 

A. 229.33(a) Checks under this subpart 

1. If a depositary bank has agreed to accept 

an electronic return, that electronic return is 

subject to the provisions of this subpart as if 

it were a returned check. For example, a 

depositary bank that receives an electronic 

return must notify its customer by midnight 

of the banking day following the banking day 

on which it received the electronic return, or 

within a longer reasonable time. (See 

§ 229.32(f)). 

2. Similarly, if a bank has agreed to accept 

an electronic collection item from another 

bank (either under the same-day settlement 

provisions of § 229.36(d) or otherwise), the 

electronic collection item is subject to the 

provisions of this subpart as it were a check. 

For example, if a paying bank receives 

presentment of an electronic collection item, 

it is subject to the expeditious return 

requirements of this subpart, provided the 

depositary bank has agreed to accept 

electronic returns from the paying bank 

under § 229.32(a).fi 

XX. Section 229.34 Warranties 

flA. Transfer and presentment warranties 

with respect to an electronic collection item 

and electronic return. 

1. Paragraph (a) sets forth the warranties 

that a bank makes when transferring an 

electronic collection item or electronic return 

and receives settlement or other 

consideration for it. Electronic collection 

items and electronic returns are treated as 

checks subject to the provisions of subpart C, 

and therefore the warranties in § 229.34(a) 

are in addition to any warranties a bank 

makes under paragraphs (b), (c), or (d). 

2. The first warranty in § 229.34(a) relates 

to the requirements for substitute checks. A 

bank that transfers an electronic collection 

item or electronic return warrants that the 

electronic image 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 that the electronic 

information contains a record of all MICRline information required for a substitute 

check under § 229.2(rr) of this part and the 

amount of the check. This paragraph 

provides a bank that creates a substitute 

check from an electronic collection item or 

electronic return with a warranty claim 

against the bank that transferred the 

electronic collection item or electronic return 

to it or any prior transferor of the electronic 

collection item or electronic return. 

3. A bank that transfers an electronic 

collection item or an electronic return also 

warrants that no person will receive a 

transfer, return of, or otherwise be charged 

for, an electronic collection item, an 

electronic return, the original check, a 

substitute check, or a paper or electronic 

representation of a substitute check such that 

the person will be asked to make payment 

based on a check it has already paid. A bank 

that transfers an electronic collection item or 

electronic return that is an electronic 

representation of a substitute check also 

makes the warranties and indemnity in 

§§ 229.52 and 229.53.fi 

øC. 229.34(c)¿flB. 229.34(b)fi Warranty of 

Settlement Amount, Encoding, and Offset 

1. Paragraph ø(c)¿fl(b)fi(1) provides that 

a bank that presents and receives settlement 

for checks warrants to the paying bank that 

the settlement it demands (e.g., as noted on 

the cash letter) equals the total amount of the 

checks it presents. This paragraph gives the 

paying bank a warranty claim against the 

presenting bank for the amount of any excess 

settlement made on the basis of the amount 

demanded, plus expenses. If the amount 

demanded is understated, a paying bank 

discharges its settlement obligation under 

U.C.C. 4–301 by paying the amount 

demanded, but remains liable for the amount 

by which the demand is understated; the 

presenting bank is nevertheless liable for 

expenses in resolving the adjustment. 

2. When checks or returned checks are 

transferred to a collecting flbankfi, 

returning flbankfi, or depositary bank, the 

transferor bank is not required to demand 

settlement, as is required upon presentment 

to the paying bank. However, often the 

checks or returned checks will be 

accompanied by information (such as a cash 

letter listing) that will indicate the total of the 

checks or returned checks. Paragraph 

ø(c)¿fl(b)fi(2) provides that if the transferor 

bank includes information indicating the 

total amount of checks or returned checks 

transferred, it warrants that the information 

is correct (i.e., equals the actual total of the 

items). 

3. Paragraph ø(c)¿fl(b)fi(3) provides that 

a bank that presents or transfers a check or 

returned check warrants the accuracy of øthe 

magnetic ink encoding that was placed on 

the item¿ flinformation encoded on the item 

in magnetic ink or provided electronicallyfi 

after issue, and that exists at the time of 

presentment or transfer, to any bank that 

subsequently handles the check or returned 

check. Under U.C.C. 4–209(a), only the 

encoder (or the encoder and the depositary 

bank, if the encoder is a customer of the 

depositary bank) warrants the encoding 

accuracy, thus any claims on the warranty 

must be directed to the encoder. Paragraph 

ø(c)¿fl(b)fi(3) expands on the U.C.C. by 

providing that all banks that transfer or 

present a check or returned check make the 

encoding warranty. In addition, under the 

U.C.C., the encoder makes the warranty to 

subsequent collecting banks and the paying 

bank, while paragraph ø(c)¿fl(b)fi(3) 

provides that the warranty is made to banks 

in the return chain as well. Paragraph 

ø(c)¿fl(b)fi(3) applies to all MICR-line 

encoding on a substitute check fland, in the 

case of an electronic collection item or 

electronic return, to the electronic 

information related to a check fi. 

4. A paying bank that settles for an 

overstated cash letter because of a 

misencoded check may make a warranty 

claim against the presenting bank under 

paragraph ø(c)¿fl(b)fi(1) (which would 

require the paying bank to show that the 

check was part of the overstated cash letter) 

or an encoding warranty claim under 

paragraph ø(c)¿fl(b)fi(3) against the 

presenting bank or any preceding bank that 

handled the misencoded check. 

5. Paragraph ø(c)¿fl(b)fi(4) provides that 

a paying bank or a depositary bank may set 


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off excess settlement paid to another bank 

against settlement owed to that bank for 

checks presented or returned checks received 

(for which it is the depositary bank) 

subsequent to the excess settlement. 

øD. 229.34(d)¿flC. 229.34(c)fi Transfer 

and Presentment Warranties flWith Respect 

to a Remotely Created Checkfi 

1. A bank that transfers or presents a 

remotely created check and receives a 

settlement or other consideration warrants 

that the person on whose account the check 

is drawn authorized the issuance of the check 

in the amount stated on the check and to the 

payee stated on the check. The warranties are 

given only by banks and only to subsequent 

banks in the collection chain. The warranties 

ultimately shift liability for the loss created 

by an unauthorized remotely created check to 

the depositary bank. The depositary bank 

cannot assert the transfer and presentment 

warranties against a depositor. However, a 

depositary bank may, by agreement, allocate 

liability for such an item to the depositor and 

also may have a claim under other laws 

against that person. 

2. The transfer and presentment warranties 

for remotely created checks supplement the 

Federal Trade Commission’s Telemarketing 

Sales Rule, which requires telemarketers that 

submit checks for payment to obtain the 

customer’s ‘‘express verifiable authorization’’ 

(the authorization may be either in writing or 

tape recorded and must be made available 

upon request to the customer’s bank). 16 CFR 

310.3(a)(3). The transfer and presentment 

warranties shift liability to the depositary 

bank only when the remotely created check 

is unauthorized, and would not apply when 

the customer initially authorizes a check but 

then experiences ‘‘buyer’s remorse’’ and 

subsequently tries to revoke the authorization 

by asserting a claim against the paying bank 

under U.C.C. 4–401. If the depositary bank 

suspects ‘‘buyer’s remorse,’’ it may obtain 

from its customer the express verifiable 

authorization of the check by the paying 

bank’s customer, required under the Federal 

Trade Commission’s Telemarketing Sales 

Rule, and use that authorization as a defense 

to the warranty claim. 

3. The scope of the transfer and 

presentment warranties for remotely created 

checks differs from that of the corresponding 

U.C.C. warranty provisions in two respects. 

The U.C.C. warranties differ from the 

ø§ 229.34(d)¿fl§ 229.34(c)fi warranties in 

that øthey¿flthe U.C.C. warrantiesfi are 

given by any person, including a nonbank 

depositor, that transfers a remotely created 

check and not just to a bank, as is the case 

under ø§ 229.34(d)¿fl§ 229.34(c)fi. In 

addition, the U.C.C. warranties state that the 

person on whose account the item is drawn 

authorized the issuance of the item in the 

amount for which the item is drawn. The 

ø§ 229.34(d)¿fl§ 229.34(c)fi warranties 

specifically cover the amount as well as the 

payee stated on the check. Neither the U.C.C. 

warrantiesø,¿ nor the 

ø§ 229.34(d)¿fl§ 229.34(c)fi warranties 

apply to the date stated on the remotely 

created check. 

4. A bank making the 

ø§ 229.34(d)¿fl§ 229.34(c)fi warranties may 

defend a claim asserting violation of the 

warranties by proving that the customer of 

the paying bank is precluded by U.C.C. 4–406 

from making a claim against the paying bank. 

This may be the case, for example, if the 

customer failed to discover the unauthorized 

remotely created check in a timely manner. 

5. The transfer and presentment warranties 

for a remotely created check apply to a 

remotely created check that has been 

reconverted to a substitute checkfl, to an 

electronic collection item derived from a 

remotely created check, and to an electronic 

image and information transferred as an 

electronic collection item derived from a 

remotely created check.fi 

øA. 229.34(a)¿flD. 229.34(d)fi Warranty of 

Returned Check 

1. This paragraph includes warranties that 

a returned check, including a notice in lieu 

of return fland electronic returnfi, was 

returned by the paying bank, or in the case 

of a check payable by a bank and payable 

through another bank, the bank by which the 

check is payable, within the deadline under 

the U.C.C. (subject to any claims or defenses 

under the U.C.C., such as breach of a 

presentment warranty)ø, Regulation J (12 

CFR part 210),¿ or § 229.30(c); that the 

paying or returning bank is authorized to 

return the check; that the returned check has 

not been materially altered; and that, in the 

case of a notice in lieu of return, the 

øoriginal¿ check has not been and will not 

be returned for payment. (See the 

Commentary to ø§ 229.30(f)¿ 

fl§ 229.30(e)fi.) fl‘‘Check’’ includes the 

original check, a substitute check, an 

electronic return, and notice in lieu of 

return.fi The warranty does not include a 

warranty that the bank complied with the 

expeditious return requirements of 

§§ 229.30(a) and 229.31(a). These warranties 

do not apply to checks drawn on the United 

States Treasury, to U.S. Postal Service money 

orders, or to checks drawn on a state or a unit 

of general local government that are not 

payable through or at a bank. (See § 229.42.) 

flE. 229.34(e) Electronic image and 

information transferred as an electronic 

collection item or electronic return 

1. Paragraph (e) sets forth the warranties 

that a bank makes when transferring an 

electronic image and related information as 

if it were an electronic collection item or 

electronic return. These warranties are the 

same warranties made for electronic 

collection items and electronic returns 

throughout § 229.34 and carry the same 

conditions, such as the requirement for 

receiving settlement or other consideration 

where applicable. Applying the § 229.34 

warranties to all images and related 

information transferred as if they were 

electronic collection items or electronic 

returns protects a transferee bank in the event 

it creates a substitute check from an 

electronic image and related information that 

does not represent an item that existed in 

paper (i.e., an electronically created item). 

2. As a practical matter, a bank receiving 

an electronically created image and related 

information generally cannot distinguish the 

image and related information from an image 

and related information that derived from a 

paper check. In turn, the bank receiving the 

electronically created image and related 

information may produce a paper item that 

is indistinguishable from a substitute check 

(although the item is not a substitute check 

because the item never existed in paper). 

Therefore, a bank that transfers the paper 

item may be liable for a breach of the 

substitute check warranties. The warranties 

in § 229.34(e) enable a bank that receives a 

nonconforming substitute check to pass back 

liability to the bank from which it received 

the electronic image and related information, 

notwithstanding the fact that the image and 

information did not derive from a paper 

check.fi 

øB. 229.34(b) Warranty of Notice of 

Nonpayment 

1. This paragraph provides for warranties 

for notices of nonpayment. This warranty 

does not include a warranty that the notice 

is accurate and timely under § 229.33. The 

requirements of § 229.33 that are not covered 

by the warranty are subject to the liability 

provisions of § 229.38. These warranties are 

designed to give the depositary bank more 

confidence in relying on notices of 

nonpayment. This paragraph imposes 

liability on a paying bank that gives notice 

of nonpayment and then subsequently 

returns the check. (See Commentary on 

§ 229.33(a).)¿ 

øE. 229.34(d)¿flF. 229.34(f)fi Damages 

1. This paragraph adopts for the warranties 

in § 229.34 (a), (b), øand¿ (c)fl, (d) and (e)fi 

the damages provided in U.C.C. 4–207(c) and 

4A–506(b). (See definition of interest 

compensation in 

ø§ 229.2(oo)¿fl§ 229.2(bb)fi.) 

øF. 229.34(e)¿flG. 229.34(g)fi Tender of 

Defense 

1. This paragraph adopts for this regulation 

the vouching-in provisions of U.C.C. 3–119. 

øG. 229.34(f)¿flH. 229.34(h)fi Notice of 

Claim 

1. This paragraph adopts the notice 

provisions of U.C.C. sections 4–207(d) and 4– 

208(e). The time limit set forth in this 

paragraph applies to notices of claims for 

warranty breaches only. As provided in 

§ 229.38(g), all actions under this section 

must be brought within one year after the 

date of the occurrence of the violation 

involved. 

XXI. Section 229.35 Indorsements 

A. 229.35(a) Indorsement Standards 

1. This section and appendix D require 

banks to use a standard form of indorsement 

when indorsing checks during the forward 

collection and return process. The standard 

provides for indorsements by all collecting 

and returning banks, plus a unique standard 

for depositary bank indorsements. It is 

designed to facilitate the identification of the 

depositary bank and the prompt return of 

checks. The regulation places a duty on 

banks to ensure that their indorsements can 

be interpreted by any person. The 

indorsement standard specifies the 

information each indorsement must contain 

and its location and ink colorfl, if applied 

to a paper checkfi. 

2. Banks generally apply indorsements to 

a paper check in one of two ways: (1) Banks 


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16960 Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 

print or ‘‘spray’’ indorsements onto a check 

when the check is processed through the 

banks’ automated check sorters (regardless of 

whether the checks are original checks or 

substitute checks), and (2) reconverting banks 

print or ‘‘overlay’’ previously applied 

electronic indorsements and their own 

indorsements and identifications onto a 

substitute check at the time that the 

substitute check is created. If a subsequent 

substitute check is created in the course of 

collection or return, that substitute check 

will contain, in its image of the back of the 

previous substitute check, reproductions of 

indorsements that were sprayed or overlaid 

onto the previous item. For purposes of the 

indorsement standard set forth in appendix 

D, a reproduction of a previously applied 

sprayed or overlaid indorsement contained 

within an image of a check does not 

constitute ‘‘an indorsement that previously 

was applied electronically.’’ To accommodate 

these two indorsement scenarios, the 

appendix includes two indorsement location 

specifications: one standard applies to banks 

spraying indorsements onto existing paper 

original checks and substitute checks, and 

another applies to reconverting banks 

overlaying indorsements that previously 

were applied electronically and their own 

indorsements onto substitute checks at the 

time the substitute checks are created. 

3. A bank might use check processing 

equipment that captures an image of a check 

prior to spraying an indorsement onto that 

flcheckfi øitem¿. If the bank truncates that 

flcheckfi øitem¿, it should ensure that it 

also applies an indorsement to the item 

electronically flin accordance with ANS 

X9.100–187, unless the parties otherwise 

agreefi. A reconverting bank satisfies its 

obligation to preserve all previously applied 

indorsements by overlaying a bank’s 

indorsement that previously was applied 

electronically onto a substitute check that the 

reconverting bank creates. 

4. The location of an indorsement applied 

to an original paper check in accordance with 

appendix D may shift if that check is 

truncated and later reconverted to a 

substitute check. If an indorsement applied 

to the original check in accordance with 

appendix D is overwritten by a subsequent 

indorsement applied to the substitute check 

in accordance with appendix D, then one or 

both of those indorsements could be 

rendered illegible. As explained in 

§ 229.38(d) and the commentary thereto, a 

reconverting bank is liable for losses 

associated with indorsements that are 

rendered illegible as a result of check 

substitution. 

5. To ensure that indorsements can be 

easily read and would remain legible after an 

image of a check is captured, the standard 

requires all indorsements applied to original 

checks and substitute checks to be printed in 

black ink øas of January 1, 2006¿. 

6. The standard requires the depositary 

bank’s indorsement to include (1) its ninedigit routing number set off by an arrow at 

each end of the routing number and, if the 

depositary bank is a reconverting bank with 

respect to the check, an asterisk outside the 

arrow at each end of the routing number to 

identify the bank as a reconverting bank; (2) 

the indorsement date; and (3) if the 

indorsement is applied physically, name or 

location information. The standard also 

permits but does not require the indorsement 

to include other identifying information. The 

standard requires a collecting bank’s or 

returning bank’s indorsement to include only 

(1) the bank’s nine digit routing number 

(without arrows) and, if the collecting bank 

or returning bank is a reconverting bank with 

respect to the check, an asterisk at each end 

of the number to identify the bank as a 

reconverting bank, (2) the indorsement date, 

and (3) an optional trace or sequence 

number. flThe information required to be 

included in the depositary bank’s 

indorsement of an electronic collection item, 

and the information that may be included, is 

the same as set forth above. The formatting 

of the information, however, should be in 

accordance with ANS X9.100–187.fi 

7. Depositary banks should not include 

information that can be confused with 

required information. For example, a ninedigit zip code could be confused with the 

nine-digit routing number. 

8. A depositary bank may want to include 

an address in its indorsement in order to 

limit the number of locations at which it 

must receive returned checks. øIn instances 

where this address is not consistent with the 

routing number in the indorsement, the 

depositary bank is required to receive 

returned checks at a branch or head office 

consistent with the routing number.¿ Banks 

should note, however, that § 229.32 requires 

a depositary bank to receive returned checks 

at the location(s) at which it receives 

forward-collection checksø.¿ flas well as the 

other locations enumerated in § 229.32(b) 

(see § 229.32(b) and accompanying 

commentary). If a depositary bank includes 

an e-mail address or other electronic address 

for delivery of electronic returns, and has 

agreed to accept electronic returns from the 

paying bank or returning bank, the paying 

bank or returning bank may send electronic 

returns to such address.fi 

9. In addition to indorsing a substitute 

check in accordance with appendix D, a 

reconverting bank must identify itself and the 

truncating bank by applying its routing 

number and the routing number of the 

truncating bank to the front of the check in 

accordance with appendix D and ANS 

X9.100–140. Further, if the reconverting bank 

is the paying bank, flor a bank that rejected 

a check submitted for deposit,fi it also must 

identify itself by applying its routing number 

to the back of the check in accordance with 

appendix D. In these instances, the 

reconverting bank and truncating bank 

routing numbers are for identification 

purposes only and are not indorsements or 

acceptances. 

10. Under the U.C.C., a specific guarantee 

of prior indorsement is not necessary. (See 

U.C.C. 4–207(a) and 4–208(a).) Use of 

guarantee language in indorsements, such as 

‘‘P.E.G.’’ (‘‘prior endorsements guaranteed’’), 

may result in reducing the type size used in 

bank indorsements, thereby making them 

more difficult to read. Use of this language 

may make it more difficult for other banks to 

identify the depositary bank. Subsequent 

collecting bank indorsements may not 

include this language. 

11. If the bank maintaining the account 

into which a check is deposited agrees with 

another bank (a correspondent, ATM 

operator, or lock box operator) to have the 

other bank accept returns øand notices of 

nonpayment¿ for the bank of account, the 

indorsement placed on the check as the 

depositary bank indorsement may be the 

indorsement of the bank that acts as 

correspondent, ATM operator, or lock box 

operator as provided in paragraph (d) of this 

section. 

12. The backs of ømany¿flsomefi checks 

bear pre-printed information or blacked out 

areas for various reasons. For example, some 

checks are printed with a carbon band across 

the back that allows the transfer of 

information from the check to a ledger with 

one writing. Also, contracts or loan 

agreements are printed on certain checks. 

Other checks that are mailed to recipients 

may contain areas on the back that are 

blacked out so that they may not be read 

through the mailer. On the deposit side, the 

payee of the check may place its indorsement 

or information identifying the drawer of the 

check in the area specified for the depositary 

bank indorsement, thus making the 

depositary bank indorsement unreadable. 

13. The indorsement standard does not 

prohibit the use of a carbon band or other 

printed or written matter on the backs of 

checks and does not require banks to avoid 

placing their indorsements in these areas. 

Nevertheless, checks will be handled more 

efficiently if depositary banks design 

indorsement stamps so that the nine-digit 

routing number avoids the carbon band area. 

Indorsing parties other than banks, e.g., 

corporations, will benefit from the faster 

return of checks if they protect the 

identifiability and legibility of the depositary 

bank indorsement by staying clear of the area 

reserved for the depositary bank 

indorsement. 

14. Section 229.38(d) allocates 

responsibility for loss resulting from a delay 

in return of a check due to indorsements that 

are unreadable because of material on the 

back of the check. The depositary bank is 

responsible for a loss resulting from a delay 

in return caused by the condition of the 

check arising after its issuance until its 

acceptance by the depositary bank that made 

the depositary bank’s indorsement illegible. 

The paying bank is responsible for loss 

resulting from a delay in return caused by 

indorsements that are not readable because of 

other material on the back of the check at the 

time that it was issued. Depositary and 

paying banks may shift these risks to their 

customers by agreement. 

15. The standard does not require the 

paying bank to indorse the check; however, 

if a paying bank does indorse a check that is 

returned, it should follow the indorsement 

standard for collecting banks and returning 

banks. The standard requires collecting and 

returning banks to indorse the check for 

tracing purposes. With respect to the 

identification of a paying bank that is also a 

reconverting bank, see the commentary to 

§ 229.51(b)(2). 


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Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 16961 

B. 229.35(b) Liability of Bank Handling 

Check 

1. When a check is sent for forward 

collection, the collection process results in a 

chain of indorsements extending from the 

depositary bank through any subsequent 

collecting banks to the paying bank. This 

section extends the indorsement chain 

through the paying bank to the returning 

banks, and would permit each bank to 

recover from any prior indorser if the 

claimant bank does not receive payment for 

the check from a subsequent bank in the 

collection or return chain. For example, if a 

returning bank returned a check to an 

insolvent depositary bank, and did not 

receive the full amount of the check from the 

failed bank, the returning bank could obtain 

the unrecovered amount of the check from 

any bank prior to it in the collection and 

return chain including the paying bank. 

Because each bank in the collection and 

return chain could recover from a prior bank, 

any loss would fall on the first collecting 

bank that received the check from the 

depositary bank. To avoid circuity of actions, 

the returning bank could recover directly 

from the first collecting bank. Under the 

U.C.C., the first collecting bank might 

ultimately recover from the depositary bank’s 

customer or from the other parties on the 

check. 

2. Where a check is returned through the 

same banks used for the forward collection 

of the check, priority during the forward 

collection process controls over priority in 

the return process for the purpose of 

determining prior and subsequent banks 

under this regulation. 

3. Where a returning bank is insolvent and 

fails to pay the paying bank or a prior 

returning bank for a returned check, 

§ 229.39(a) requires the receiver of the failed 

bank to return the check to the bank that 

transferred the check to the failed bank. That 

bank then either could continue the return to 

the depositary bank or recover based on this 

paragraph. Where the paying bank is 

insolvent, and fails to pay the collecting 

bank, the collecting bank also could recover 

from a prior collecting bank under this 

paragraph, and the bank from which it 

recovered could in turn recover from its prior 

collecting bank until the loss settled on the 

depositary bank (which could recover from 

its customer). 

4. A bank is not required to make a claim 

against an insolvent bank before exercising 

its right to recovery under this paragraph. 

Recovery may be made by charge-back or by 

other means. This right of recovery also is 

permitted even where nonpayment of the 

check is the result of the claiming bank’s 

negligence such as failure to make 

expeditious return, but the claiming bank 

remains liable for its negligence under 

§ 229.38. 

5. This liability is imposed on a bank 

handling a check for collection or return 

regardless of whether the bank’s indorsement 

appears on the check. Notice must be sent 

under this paragraph to a prior bank from 

which recovery is sought reasonably 

promptly after a bank learns that it did not 

receive payment from another bank, and 

learns the identity of the prior bank. Written 

notice reasonably identifying the check and 

the basis for recovery is sufficient if the 

check is not available. Receipt of notice by 

the bank against which the claim is made is 

not a precondition to recovery by charge-back 

or other means; however, a bank may be 

liable for negligence for failure to provide 

timely notice. A paying or returning bank 

also may recover from a prior collecting bank 

as provided in §§ 229.30(b) and 229.31(b) 

fl(in those cases where the paying bank or 

returning bank is unable to identify the 

depositary bank)fi. This provision is not a 

substitute for a paying or returning bank 

making expeditious return under §§ 229.30(a) 

or 229.31ø(b)¿fl(a)fi. This paragraph does 

not affect a paying bank’s accountability for 

a check under U.C.C. 4–215(a) and 4–302. 

Nor does this paragraph affect a collecting 

bank’s accountability under U.C.C. 4–213 

and 4–215(d). A collecting bank becomes 

accountable upon receipt of final settlement 

as provided in the foregoing U.C.C. sections. 

The term final settlement in §§ 229.31(c), 

ø229.32 (b)¿fl229.32(c)fi, and ø229.36 

(d)¿fl229.36(c)fiis intended to be consistent 

with the use of the term final settlement in 

the U.C.C. (e.g., U.C.C. 4–213, 4–214, and 

4–215). (See also § 229.2ø(oo)¿fl(bb)fi and 

Commentary.) 

6. This paragraph also provides that a bank 

may have the rights of a holder based on the 

handling of the check for collection or return. 

A bank may become a holder or a holder in 

due course regardless of whether prior banks 

have complied with the indorsement 

standard in § 229.35(a) and appendix D. 

7. This paragraph affects the following 

provisions of the U.C.C., and may affect other 

provisions: 

a. Section 4–214(a), in that the right to 

recovery is not based on provisional 

settlement, and recovery may be had from 

any prior bank. Section 4–214(a) would 

continue to permit a depositary bank to 

recover a provisional settlement from its 

customer. (See ø§ 229.33(d)¿fl§ 229.32(f)fi.) 

b. Section 3–415 and related provisions 

(such as section 3–503), in that such 

provisions would not apply as between 

banks, or as between the depositary bank and 

its customer. 

C. 229.35(c) Indorsement by Bank 

1. This section protects the rights of a 

customer depositing a check in a bank 

without requiring the words ‘‘pay any bank,’’ 

as required by the U.C.C. (See U.C.C. 4– 

201(b).) Use of this language in a depositary 

bank’s indorsement will make it more 

difficult for other banks to identify the 

depositary bank. The indorsement standard 

in appendix D prohibits such material in 

subsequent collecting bank indorsements. 

The existence of a bank indorsement 

provides notice of the restrictive indorsement 

without any additional words. 

D. 229.35(d) Indorsement for Depositary 

Bank 

1. This section permits a depositary bank 

to arrange with another bank to indorse 

checks. This practice may occur when a 

correspondent indorses for a respondent, or 

when the bank servicing an ATM or lock box 

indorses for the bank maintaining the 

account in which the check is deposited— 

i.e., the depositary bank. If the indorsing 

bank applies the depositary bank’s 

indorsement, checks will be returned to the 

depositary bank. If the indorsing bank does 

not apply the depositary bank’s indorsement, 

by agreement with the depositary bank it may 

apply its own indorsement as the depositary 

bank indorsement. In that case, the 

depositary bank’s own indorsement on the 

check (if any) should avoid the location 

reserved for the depositary bank. The actual 

depositary bank remains responsible for the 

availability and other requirements of 

øS¿flsfiubpart B, but the bank indorsing as 

depositary bank is considered the depositary 

bank for purposes of øS¿flsfiubpart C. The 

check will be returnedø, and notice of 

nonpayment will be given,¿ to the bank 

indorsing as depositary bank. 

2. Because the depositary bank for 

øS¿flsfiubpart B purposes will desire 

prompt notice of nonpayment, its 

arrangement with the indorsing bank should 

provide for prompt notice of nonpayment. 

The bank indorsing as depositary bank may 

require the depositary bank to agree to take 

up the check if the check is not paid even 

if the depositary bank’s indorsement does not 

appear on the check and it did not handle the 

check. The arrangement between the banks 

may constitute an agreement varying the 

effect of provisions of øS¿flsfiubpart C 

under § 229.37. 

XXII. Section 229.36 Presentment and 

Issuance of Checks 

øA. 229.36(a) Payable Through and Payable 

at Checks 

1. For purposes of Subpart C, the 

regulation defines a payable-through or 

payable-at bank (which could be designated 

the collectible-through or collectible-at bank) 

as a paying bank. The requirements of 

§ 229.30(a) and the notice of nonpayment 

requirements of § 229.33 are imposed on a 

payable-through or payable-at bank and are 

based on the time of receipt of the forward 

collection check by the payable-through or 

payable-at bank. This provision is intended 

to speed the return of checks that are payable 

through or at a bank to the depositary bank.¿ 

flA. 229.36(a) Receipt of Electronic 

Collection Items 

1. This paragraph sets forth the 

circumstances under which a paying bank 

has agreed to accept an electronic collection 

item from the presenting bank for purposes 

of subpart C. There are two different ways a 

paying bank can agree to accept an electronic 

collection item from the presenting bank for 

purposes of subpart C: 

a. First, a paying bank may have a direct 

contractual relationship with the presenting 

bank under which it has agreed to accept 

electronic collection items directly from the 

presenting bank. 

b. Second, a paying bank may have 

otherwise agreed with the presenting bank to 

accept electronic collection items. For 

example, the presenting bank and paying 

bank may both be members of the same 

clearing house, under the rules of which the 

paying bank has agreed to accept electronic 

collection items from the presenting bank. 

2. The presenting bank must deliver the 

electronic collection item to the electronic 


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16962 Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 

location designated by the paying bank. 

Accordingly, regardless of the means by 

which a paying bank agrees to accept 

electronic collection items from the 

presenting bank, the paying bank’s agreement 

with the presenting bank must designate an 

electronic presentment point. 

3. This paragraph also sets forth when a 

paying bank receives an electronic collection 

item. A bank ‘‘receives’’ an electronic 

collection item when that item is delivered 

to the electronic presentment point 

designated by the bank or when the 

electronic collection item is otherwise made 

available for retrieval or review in 

accordance with an agreement between the 

paying bank and the presenting bank. For 

example, if a paying bank designates an 

Internet protocol (IP) address as its electronic 

presentment point, the paying bank has 

received the electronic collection item when 

it is delivered to that address. In contrast, if 

the paying bank has an arrangement with a 

presenting bank whereby the presenting bank 

sends the electronic collection item to its 

storage device and then provides the paying 

bank with access to the storage device for 

retrieving electronic collection items, the 

electronic collection item is received by the 

paying bank when the presenting bank makes 

the electronic collection item available for 

the paying bank to retrieve or review from 

storage device in accordance with the 

agreement between the presenting bank and 

the paying bank.fi 

B. 229.36(b) øReceipt at Bank Office or 

Processing Center¿flReceipt of paper 

checks.fi 

ø1. This paragraph seeks to facilitate 

efficient presentment of checks to promote 

early return øor notice of nonpayment¿ to the 

depositary bank and clarifies the law as to 

the effect of presentment by routing number. 

This paragraph differs from § 229.32(a) 

because presentment of checks differs from 

delivery of returned checks.¿ 

ø2¿fl1fi. The paragraph specifies four 

locations at which the paying bank must 

accept presentment of flpaperfi checks. 

Where the check is payable through a bank 

and the check is sent to that bank, the 

payable-through bank is the paying bank for 

purposes of this subpart, regardless of 

whether the paying bank must present the 

check to another bank or to a nonbank payor 

for payment. 

a. Delivery of checks may be made, and 

presentment is considered to occur, at a 

location (including a processing center) 

requested by the paying bank. øThis is the 

way most checks are presented by banks 

today.¿ This provision adopts the common 

law rule of a number of legal decisions that 

the processing center acts as the agent of the 

paying bank to accept presentment and to 

begin the time for processing of the check. 

(See also U.C.C. 4–204(c).) If a bank 

designates different locations for the 

presentment of forward collection checks 

bearing different routing numbers, for 

purposes of this paragraph it requests 

presentment of checks bearing a particular 

routing number only at the location 

designated for receipt of forward collection 

checks bearing that routing number. 

ød¿flbfi. If the check specifies the name 

and address of a branch or head office, or 

other location (such as a processing center), 

the check may be delivered by delivery to 

that office or other location. If the address is 

too general to identify a particular office, 

delivery may be made at any office consistent 

with the address. For example, if the address 

is ‘‘San Francisco, California,’’ each office in 

San Francisco must accept presentment. The 

designation of an address on the check 

generally is in the control of the paying bank. 

øb¿flcfi. i. Delivery may be made at an 

office of the bank associated with the routing 

number on the check. The office associated 

with the routing number of a bank is found 

in American Bankers Association Key to 

Routing Numbers, published by an agent of 

the American Bankers Association, which 

lists a city and state address for each routing 

number. Checks generally are handled by 

collecting banks on the basis of the nine-digit 

routing number encoded in magnetic ink (or 

on the basis of the fractional form routing 

number if the magnetic ink characters are 

obliterated) on the check, rather than the 

printed name or address. flIn the case of a 

substitute check derived from an electronic 

collection item, delivery may be made at an 

office of the bank associated with the routing 

number in the electronic image of or 

electronic information related to the check.fi 

The definition of a paying bank in 

ø§ 229.2(z)¿fl§ 229.2(ii)fi includes a bank 

designated by routing number, whether or 

not there is a name on the check, and 

whether or not any name is consistent with 

the routing number. Where a check is 

payable by one bank, but payable through 

another, the routing number is that of the 

payable-through bank, not that of the payor 

bank. As the payor bank has selected the 

payable-through bank as the point through 

which presentment is to be made, it is proper 

to treat the payable-through bank as the 

paying bank for purposes of this section. 

ii. There is no requirement in the 

regulation that the name and address on the 

check agree with the address associated with 

the routing number on the check. A bank 

generally may control the use of its routing 

number, just as it does the use of its name. 

The address associated with the routing 

number may be a processing center. 

iii. In some cases, a paying bank may have 

several offices in the city associated with the 

routing number. In such case, it would not 

be reasonable or efficient to require the 

presenting bank to sort the checks by more 

specific branch addresses that might be 

printed on the checks, and to deliver the 

checks to each branch. A collecting bank 

normally would deliver all checks to one 

location. In cases where checks are delivered 

to a branch other than the branch on which 

they may be drawn, computer and courier 

communication among branches should 

permit the paying bank to determine quickly 

whether to pay the check. 

øc¿fldfi. If the check specifies the name 

of the paying bank but no address, the bank 

must accept delivery at any office. Where 

delivery is made by a person other than a 

bank, or where the routing number is not 

readable, delivery will be made based on the 

name and address of the paying bank on the 

check. If there is no address, delivery may be 

made at any office of the paying bank. This 

provision is consistent with U.C.C. 3–111, 

which states that presentment for payment 

may be made at the place specified in the 

instrument, or, if there is none, at the place 

of business of the party to pay. Thus, there 

is a trade-off for a paying bank between 

specifying a particular address on a check to 

limit locations of delivery, and simply stating 

the name of the bank to encourage wider 

currency for the check. 

3. This paragraph may affect U.C.C. 3–111 

to the extent that the U.C.C. requires 

presentment to occur at a place specified in 

the instrument. 

C. ø[Reserved] 

D. 229.36(d)¿fl229.36(c)fi Liability of Bank 

During Forward Collection 

1. This paragraph makes settlement 

between banks during forward collection 

final when made, subject to any deferment of 

credit, just as settlements between banks 

during the return of checks are final. In 

addition, this paragraph clarifies that this 

change does not affect the liability scheme 

under U.C.C. 4–201 during forward 

collection of a check. That U.C.C. section 

provides that, unless a contrary intent clearly 

appears, a bank is an agent or subagent of the 

owner of a check, but that Article 4 of the 

U.C.C. applies even though a bank may have 

purchased an item and is the owner of it. 

This paragraph preserves the liability of a 

collecting bank to prior collecting banks and 

the depositary bank’s customer for negligence 

during the forward collection of a check 

under the U.C.C., even though this paragraph 

provides that settlement between banks 

during forward collection is final rather than 

provisional. Settlement by a paying bank is 

not considered to be final payment for the 

purposes of U.C.C. 4–215(a)(2) or (3), because 

a paying bank has the right to recover 

settlement from a returning or depositary 

bank to which it returns a check under this 

subpart. Other provisions of the U.C.C. not 

superseded by this subpart, such as section 

4–202, also continue to apply to the forward 

collection of a check and may apply to the 

return of a check. (See definition of returning 

bank in ø§ 229.2(cc)¿fl§ 229.2(oo)fi.) 

øE. 229.36(e) Issuance of Payable Through 

Checks 

1. If a bank arranges for checks payable by 

it to be payable through another bank, it must 

require its customers to use checks that 

contain conspicuously on their face the 

name, and location, and first four digits of 

the nine-digit routing number of the bank by 

which the check is payable and the legend 

‘‘payable through’’ followed by the name of 

the payable-through bank. The first four 

digits of the nine-digit routing number and 

the location of the bank by which the check 

is payable must be associated with the same 

check processing region. (This section does 

not affect § 229.36(b).) The required 

information is deemed conspicuous if it is 

printed in a type size not smaller than sixpoint type and if it is contained in the title 

plate, which is located in the lower left 

quadrant of the check. The required 

information may be conspicuous if it is 

located elsewhere on the check. 


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Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 16963 

2. If a payable-through check does not meet 

the requirements of this paragraph, the bank 

by which the check is payable may be liable 

to the depositary bank or others as provided 

in § 229.38. For example, a bank by which a 

payable-through check is payable could be 

liable to a depositary bank that suffers a loss, 

such as lost interest or liability under 

Subpart B, that would not have occurred had 

the check met the requirements of this 

paragraph. Similarly, a bank may be liable 

under § 229.38 if a check payable by it that 

is not payable through another bank is 

labeled as provided in this section. For 

example, a bank that holds checking 

accounts and processes checks at a central 

location but has widely-dispersed branches 

may be liable under this section if it labels 

all of its checks as ‘‘payable through’’ a single 

branch and includes the name, address, and 

four-digit routing symbol of another branch. 

These checks would not be payable through 

another bank and should not be labeled as 

payable-through checks. (All of a bank’s 

offices within the United States are 

considered part of the same bank; see 

§ 229.2(e).) In this example, the bank by 

which the checks are payable could be liable 

to a depositary bank that suffers a loss, such 

as lost interest or liability under Subpart B, 

due to the mislabeled check. The bank by 

which the check is payable may be liable for 

additional damages if it fails to act in good 

faith.¿ 

øF. 229.36(f)¿flD. 229.36(d)fi Same-Day 

Settlement 

1. This paragraph provides that, under 

certain conditions, a paying bank must settle 

with a presenting bank for a check on the 

same day the check is presented in order to 

avail itself of the ability to return the check 

on its next banking day under U.C.C. 4–301 

and 4–302. This paragraph does not apply to 

checks presented for immediate payment 

over the counter. Settling for a check under 

this paragraph does not constitute final 

payment of the check under the U.C.C. This 

paragraph does not supersede or limit the 

rules governing collection and return of 

checks through Federal Reserve Banks that 

are contained in Subpart A of Regulation J 

(12 CFR part 210). 

2. Presentment requirements. 

a. Location and time. 

i. For presented checks to qualify for 

mandatory same-day settlement, information 

accompanying the checks must indicate that 

presentment is being made under this 

paragraph—e.g. ‘‘these checks are being 

presented for same-day settlement’’—and 

must include a demand for payment of the 

total amount of the checks together with 

appropriate payment instructions in order to 

enable the paying bank to discharge its 

settlement responsibilities under this 

paragraph. In addition, the check or checks 

must be presented at a location designated by 

the paying bank for receipt of checks for 

same-day settlement by 8:00 a.m. local time 

of that location. øThe designated 

presentment location must be a location at 

which the paying bank would be considered 

to have received a check under § 229.36(b). 

The paying bank may not designate a 

location solely for presentment of checks 

subject to settlement under this paragraph; by 

designating a location for the purposes of 

§ 229.36(f), the paying bank agrees to accept 

checks at that location for purposes of 

§ 229.36(b).¿ 

flii. Electronic presentment. A paying 

bank may require that checks presented for 

same-day settlement under this paragraph be 

presented as electronic collection items to a 

designated electronic presentment point. If a 

paying bank so requires, the presenting bank 

must present checks for same-day settlement 

as electronic collection items, and may not 

present paper checks to physical locations for 

receiving same-day settlement under this 

section. An electronic collection item 

presented for same-day settlement is subject 

to the provisions of this subpart as if it were 

a check (See § 229.33). Therefore, references 

to checks in this subpart include electronic 

collection items presented under § 229.36(d). 

iii. A paying bank may designate a 

presentment location for paper checks, but 

the designated presentment location must be 

a location at which the paying bank would 

be considered to have received a check under 

§ 229.36(b). If the paying bank does not 

designate any presentment location, it must 

accept presentment for same-day settlement 

at any location identified in § 229.36(b), i.e., 

at an address of the bank associated with the 

routing number on the check, at any branch 

or head office if the bank is identified on the 

check by name without address, or at a 

branch, head office, or other location 

consistent with the name and address of the 

bank on the check if the bank is identified 

on the check by name and address. With the 

exception of receiving electronic collection 

items, the paying bank may not designate a 

location solely for presentment of checks 

subject to settlement under this paragraph; by 

designating a location for the purposes of 

§ 229.36(d), the paying bank agrees to accept 

checks at that location for the purposes of 

§ 229.36(b).fi 

øii. The designated presentment location 

also must be within the check processing 

region consistent with the nine-digit routing 

number encoded in magnetic ink on the 

check. A paying bank that uses more than 

one routing number associated with a single 

check processing region may designate, for 

purposes of this paragraph, one or more 

locations in that check processing region at 

which checks will be accepted, but the 

paying bank must accept any checks with a 

routing number associated with that check 

processing region at each designated 

location. A paying bank may designate a 

presentment location for traveler’s checks 

with an 8000-series routing number 

anywhere in the country because these 

traveler’s checks are not associated with any 

check processing region. The paying bank, 

however, must accept at that presentment 

location any other checks for which it is 

paying bank that have a routing number 

consistent with the check processing region 

of that location.¿ 

øiii If the paying bank does not designate 

a presentment location, it must accept 

presentment for same-day settlement at any 

location identified in § 229.36(b), i.e., at an 

address of the bank associated with the 

routing number on the check, at any branch 

or head office if the bank is identified on the 

check by name without address, or at a 

branch, head office, or other location 

consistent with the name and address of the 

bank on the check if the bank is identified 

on the check by name and address.¿ fliv.fi 

A paying bank and a presenting bank may 

agree that checks will be accepted for sameday settlement at an alternative location (e.g., 

at an intercept processor located in a 

different check processing region) or that the 

cut-off time for same-day settlement be 

earlier or later than 8:00 a.m. local time. 

øiv¿flvfi. In the case of a check payable 

through a bank but payable by another bank, 

this paragraph does not authorize direct 

presentment to the bank by which the check 

is payable. The requirements of same-day 

settlement under this paragraph would apply 

to a payable-through or payable-at bank to 

which the check is sent for payment or 

collection. 

b. Reasonable delivery requirements. A 

check is considered presented when it is 

delivered to and payment is demanded at a 

location specified in paragraph 

ø(f)(1)¿fl(d)(1)fi. Ordinarily, a presenting 

bank will find it necessary to contact the 

paying bank to determine the appropriate 

presentment location and any delivery 

instructions. Further, because presentment 

might not take place during the paying bank’s 

banking day, a paying bank may establish 

reasonable delivery requirements to 

safeguard the checks presented, such as use 

of a night depository. If a presenting bank 

fails to follow reasonable delivery 

requirements established by the paying bank, 

it runs the risk that it will not have presented 

the checks. However, if no reasonable 

delivery requirements are established or if 

the paying bank does not make provisions for 

accepting delivery of checks during its nonbusiness hours, leaving the checks at the 

presentment location constitutes effective 

presentment. 

c. Sorting of checks. A paying bank may 

require that checks presented to it for sameday settlement be sorted separately from 

other forward collection checks it receives as 

a collecting bank or returned checks it 

receives as a returning or depositary bank. 

For example, if a bank provides 

correspondent check collection services and 

receives unsorted checks from a respondent 

bank that include checks for which it is the 

paying bank and that would otherwise meet 

the requirements for same-day settlement 

under this section, the collecting bank need 

not make settlement in accordance with 

paragraph ø(f)(2)¿fl(d)(3)fi. If the collecting 

bank receives sorted checks from its 

respondent bank, consisting only of checks 

for which the collecting bank is the paying 

bank and that meet the requirements for 

same-day settlement under this paragraph, 

the collecting bank may not charge a fee for 

handling those checks and must make 

settlement in accordance with this paragraph. 

3. Settlement 

a. If a bank presents a check in accordance 

with the time and location requirements for 

presentment under paragraph 

ø(f)(1)¿fl(d)(1)fi, the paying bank either 

must settle for the check on the business day 

it receives the check without charging a 

presentment fee or return the check prior to 


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the time for settlement. (This return deadline 

is subject to extension under § 229.30(c).) 

The settlement must be in the form of a credit 

to an account designated by the presenting 

bank at a Federal Reserve Bank (e.g., a 

Fedwire transfer). The presenting bank may 

agree with the paying bank to accept 

settlement in another form (e.g., credit to an 

account of the presenting bank at the paying 

bank or debit to an account of the paying 

bank at the presenting bank). The settlement 

must occur by the close of Fedwire on the 

business day the check is received by the 

paying bank. Under the provisions of 

§ 229.34(c), a settlement owed to a presenting 

bank may be set off by adjustments for 

previous settlements with the presenting 

bank. (See also § 229.39(d).) 

b. Checks that are presented after the 8 a.m. 

(local time flof the paying bankfi) 

presentment deadline for same-day 

settlement and before the paying bank’s cutoff hour are treated as if they were presented 

under other applicable law and settled for or 

returned accordingly. However, for purposes 

of settlement only, the presenting bank may 

require the paying bank to treat such checks 

as presented for same-day settlement on the 

next business day in lieu of accepting 

settlement by cash or other means on the 

business day the checks are presented to the 

paying bank. Checks presented after the 

paying bank’s cut-off hour or on nonbusiness days, but otherwise in accordance 

with this paragraph, are considered 

presented for same-day settlement on the 

next business day. 

4. Closed Paying Bank 

a. There may be certain business days that 

are not banking days for the paying bank. 

Some paying banks may continue to settle for 

checks presented on these days (e.g., by 

opening their back office operations or by 

using an intercept processor). In other cases, 

a paying bank may be unable to settle for 

checks presented on a day it is closed. 

If the paying bank closes on a business day 

and checks are presented to the paying bank 

in accordance with paragraph 

ø(f)(1)¿fl(d)(1)fi, the paying bank is 

accountable for the checks unless it settles 

for or returns the checks by the close of 

Fedwire on its next banking day. In addition, 

checks presented on a business day on which 

the paying bank is closed are considered 

received on the paying bank’s next banking 

day for purposes of the U.C.C. midnight 

deadline (U.C.C. 4–301 and 4–302) and this 

regulation’s expeditious return [and notice of 

nonpayment] provisions. 

b. If the paying bank is closed on a 

business day voluntarily, the paying bank 

must pay interest compensation, as defined 

in ø§ 229.2(oo)¿fl§ 229.2(bb)fi, to the 

presenting bank for the value of the float 

associated with the check from the day of the 

voluntary closing until the day of settlement. 

Interest compensation is not required in the 

case of an involuntary closing on a business 

day, such as a closing required by state law. 

In addition, if the paying bank is closed on 

a business day due to emergency conditions, 

settlement delays and interest compensation 

may be excused under § 229.38(e) or U.C.C. 

4–109(b). 

5. Good faith. Under § 229.38(a), both 

presenting banks and paying banks are held 

to a standard of good faith, defined in 

ø§ 229.2(nn)¿fl§ 229.2(z)fi to mean honesty 

in fact and the observance of reasonable 

commercial standards of fair dealing. For 

example, designating a presentment location 

or changing presentment locations for the 

primary purpose of discouraging banks from 

presenting checks for same-day settlement 

might not be considered good faith on the 

part of the paying bank. Similarly, presenting 

a large volume of checks without prior notice 

could be viewed as not meeting reasonable 

commercial standards of fair dealing and 

therefore may not constitute presentment in 

good faith. In addition, if banks, in the 

general course of business, regularly agree to 

certain practices related to same-day 

settlement, it might not be considered 

consistent with reasonable commercial 

standards of fair dealing, and therefore might 

not be considered good faith, for a bank to 

refuse to agree to those practices if agreeing 

would not cause it harm. 

6. U.C.C. sections affected. This paragraph 

directly affects the following provisions of 

the U.C.C. and may affect other sections or 

provisions: 

a. Section 4–204(b)(1), in that a presenting 

bank may not send a check for same-day 

settlement directly to the paying bank, if the 

paying bank designates a different location in 

accordance with paragraph 

ø(f)(1)¿fl(d)(1)fi. 

b. Section 4–213(a), in that the medium of 

settlement for checks presented under this 

paragraph is limited to a credit to an account 

at a Federal Reserve Bank and that, for 

checks presented after the deadline for sameday settlement and before the paying bank’s 

cut-off hour, the presenting bank may require 

settlement on the next business day in 

accordance with this paragraph rather than 

accept settlement on the business day of 

presentment by cash. 

c. Section 4–301(a), in that, to preserve the 

ability to exercise deferred posting, the time 

limit specified in that section for settlement 

or return by a paying bank on the banking 

day a check is received is superseded by the 

requirement to settle for checks presented 

under this paragraph by the close of Fedwire. 

d. Section 4–302(a), in that, to avoid 

accountability, the time limit specified in 

that section for settlement or return by a 

paying bank on the banking day a check is 

received is superseded by the requirement to 

settle for checks presented under this 

paragraph by the close of Fedwire. 

XXIII. Section 229.37 Variations by 

Agreement 

A. This section is similar to U.C.C. 4–103, 

and permits consistent treatment of 

agreements varying Article 4 or Subpart C, 

given the substantial interrelationship of the 

two documents. To achieve consistency, the 

official comment to U.C.C. 4–103(a) (which 

in turn follows U.C.C. 1–201(3)) should be 

followed in construing this section. For 

example, as stated in Official Comment 2 to 

section 4–103, owners of items and other 

interested parties are not affected by 

agreements under this section unless they are 

parties to the agreement or are bound by 

adoption, ratification, estoppel, or the like. In 

particular, agreements varying this subpart 

that delay the return of a check beyond the 

times required by this subpart may result in 

liability under § 229.38 to entities not party 

to the agreement. 

B. The Board has not followed U.C.C. 4– 

103(b), which permits Federal Reserve 

regulations and operating letters, 

clearinghouse rules, and the like to apply to 

parties that have not specifically assented. 

Nevertheless, this section does not affect the 

status of such agreements under the U.C.C. 

C. The following are examples of situations 

where variation by agreement is permissible, 

subject to the limitations of this section: 

fl1. A depositary bank may agree with a 

paying bank or a returning bank to accept 

electronic returns even when the item is 

available for return. (See § 229.32(a).)fi 

ø1¿fl2fi. A depositary bank may 

authorize another bank to apply the other 

bank’s indorsement to a check as the 

depositary bank. (See § 229.35(d).) 

ø2¿fl3fi. A depositary bank may 

authorize returning banks to commingle 

qualified returned checks with forward 

collection checks. (See 

ø§ 229.32(a)¿fl§ 229.32(b)fi.) 

ø3¿fl4fi. A depositary bank may limit its 

liability to its customer in connection with 

the late return of a deposited check where the 

lateness is caused by markings on the check 

by the depositary bank’s customer or prior 

indorser in the area of the depositary bank 

indorsement. (See § 229.38(d).) 

ø4¿fl5fi. A paying bank may require its 

customer to assume the paying bank’s 

liability for delayed or missent checks where 

the delay or missending is caused by 

markings placed on the check by the paying 

bank’s customer that obscured a properly 

placed indorsement of the depositary bank. 

(See § 229.38(d).) 

ø5¿fl6fi. A collecting or paying bank may 

agree to accept forward collection checks 

without the indorsement of a prior collecting 

bank. (See § 229.35(a).) 

ø6¿fl7fi. A bank may agree to accept 

returned checks without the indorsement of 

a prior bank. (See § 229.35(a).) 

ø7. A presenting bank may agree with a 

paying bank to present checks for same-day 

settlement at a location that is not in the 

check processing region consistent with the 

routing number on the checks. (See 

§ 229.36(f)(1)(i).)¿ 

8. A presenting bank may agree with a 

paying bank to present checks for same-day 

settlement by a deadline earlier or later than 

8:00 a.m. (See 

ø§ 229.36(f)(1)(ii)¿fl§ 229.36(d)(1)(ii)fi.) 

9. A presenting bank and a paying bank 

may agree that presentment takes place when 

the paying bank receives an øelectronic 

transmission of information describing the 

check rather than upon delivery of the 

physical check¿ flelectronic collection 

itemfi. (See § 229.36ø(b)¿fl(a)fi.) 

ø10. A depositary bank may agree with a 

paying or returning bank to accept an image 

or other notice in lieu of a returned check 

even when the check is available for return 

under this part. Except to the extent that 

other parties interested in the check assent to 

or are bound by the variation of the noticein-lieu provisions of this part, banks entering 

into such an agreement may be responsible 


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Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 16965 

under this part or other applicable law to 

other interested parties for any losses caused 

by the handling of a returned check under 

the agreement. (See §§ 229.30(f), 229.31(f), 

229.38(a).)¿ 

D. The Board expects to review the types 

of variation by agreement that develop under 

this section and will consider whether it is 

necessary to limit certain variations. 

XXIV. Section 229.38 Liability 

A. 229.38(a) Standard of care; liability; 

measure of damages 

1. The standard of care established by this 

section applies to any bank covered by the 

requirements of øS¿flsfiubpart C of the 

regulation. Thus, the standard of care applies 

to a paying bank under §§ 229.30 øand 

229.33¿, to a returning bank under § 229.31, 

to a depositary bank under §§ 229.32 øand 

229.33¿, to a bank erroneously receiving a 

returned check øor written notice of 

nonpayment¿ as depositary bank under 

§ 229.32(d), and to a bank indorsing a check 

under § 229.35. The standard of care is 

similar to the standard imposed by U.C.C. 1– 

203 and 4–103(a) and includes a duty to act 

in good faith, as defined in 

ø§ 229.2(nn)¿fl§ 229.2(z)fi of this 

regulation. 

2. A bank not meeting this standard of care 

is liable to the depositary bank, the 

depositary bank’s customer, the owner of the 

check, or another party to the check. The 

depositary bank’s customer is usually a 

depositor of a check in the depositary bank 

(but see § 229.35(d)). The measure of 

damages provided in this section (loss 

incurred up to amount of check, less amount 

of loss party would have incurred even if 

bank had exercised ordinary care) is based on 

U.C.C. 4–103(e) (amount of the item reduced 

by an amount that could not have been 

realized by the exercise of ordinary care), as 

limited by 4–202(c) (bank is liable only for 

its own negligence and not for actions of 

subsequent banks in chain of collection). 

This subpart does not absolve a collecting 

bank of liability to prior collecting banks 

under U.C.C. 4–201. 

3. Under this measure of damages, a 

depositary bank or other person must show 

that the damage incurred results from the 

negligence proved. For example, the 

depositary bank may not simply claim that 

its customer will not accept a charge-back of 

a returned check, but must prove that it 

could not charge back when it received the 

returned check and could have charged back 

if no negligence had occurred, and must first 

attempt to collect from its customer. (See 

Marcoux v. Van Wyk, 572 F.2d 651 (8th Cir. 

1978); Appliance Buyers Credit Corp. v. 

Prospect Nat’l Bank, 708 F.2d 290 (7th Cir. 

1983).) Generally, a paying or returning 

bank’s liability would not be reduced 

because the depositary bank did not place a 

hold on its customer’s deposit before it 

learned of nonpayment of the check. 

4. This paragraph also states that it does 

not affect a paying bank’s liability to its 

customer. Under U.C.C. 4–402, for example, 

a paying bank is liable to its customer for 

wrongful dishonor, which is different from 

failure to exercise ordinary care and has a 

different measure of damages. 

B. 229.38(b) Paying Bank’s Failure To Make 

Timely Return 

1. Section 229.30(a) imposes requirements 

on the paying bank for expeditious return of 

a check and leaves in place the U.C.C. 

deadlines (as they may be modified by 

§ 229.30(c)), which may allow return at a 

different time. This paragraph clarifies that 

the paying bank could be liable for failure to 

meet either standard, but not for failure to 

meet both. The regulation intends to preserve 

the paying bank’s accountability for missing 

its midnight or other deadline under the 

U.C.C., (e.g., sections 4–215 and 4–302), 

provisions that are not incorporated in this 

regulation, but may be useful in establishing 

the time of final payment by the paying bank. 

C. 229.38(c) Comparative Negligence 

1. This paragraph establishes a ‘‘pure’’ 

comparative negligence standard for liability 

under øS¿flsfiubpart C of this regulation. 

This comparative negligence rule may have 

particular application where a paying or 

returning bank delays in returning a check 

because of difficulty in identifying the 

depositary bank. Some examples will 

illustrate liability in such cases. In each 

example, it is assumed that the returned 

check is received by the depositary bank after 

it has made funds available to its customer, 

that it may no longer recover the funds from 

its customer, and that the inability to recover 

the funds from the customer is due to a delay 

in returning the check contrary to the 

standards established by §§ 229.30(a) or 

229.31(a). 

2. Examples. 

a. If a depositary bank fails to use the 

indorsement required by this regulation, and 

this failure is caused by a failure to exercise 

ordinary care, and if a paying or returning 

bank is delayed in returning the check 

because additional time is required to 

identify the depositary bank or find its 

routing number, the paying or returning 

bank’s liability to the depositary bank would 

be reduced or eliminated. 

b. If the depositary bank uses the standard 

indorsement, but that indorsement is 

obscured by a subsequent collecting bank’s 

indorsement, and a paying or returning bank 

is delayed in returning the check because 

additional time was required to identify the 

depositary bank or find its routing number, 

the paying or returning bank may not be 

liable to the depositary bank because the 

delay was not due to its negligence. 

Nonetheless, the collecting bank may be 

liable to the depositary bank to the extent 

that its negligence in indorsing the check 

caused the paying or returning bank’s delay. 

c. If a depositary bank accepts a check that 

has printing, a carbon band, or other material 

on the back of the check that existed at the 

time the check was issued, and the 

depositary bank’s indorsement is obscured by 

the printing, carbon band, or other material, 

and a paying or returning bank is delayed in 

returning the check because additional time 

was required to identify the depositary bank, 

the returning bank may not be liable to the 

depositary bank because the delay was not 

due to its negligence. Nonetheless, the paying 

bank may be liable to the depositary bank to 

the extent that the printing, carbon band, or 

other material caused the delay. 

D. 229.38(d) Responsibility for Certain 

Aspects of Checks 

1. Responsibility for back of check. The 

indorsement standard in § 229.35 is most 

effective if the back of the check remains 

clear of other matter that may obscure bank 

indorsements. Because bank indorsements 

are usually applied by automated equipment, 

it is not possible to avoid pre-existing matter 

on the back of the check. For example, bank 

indorsements are not required to avoid a 

carbon band or printed, stamped, or written 

terms or notations on the back of the check. 

Accordingly, this provision places 

responsibility on the paying bank, depositary 

bank, or reconverting bank, as appropriate, 

for keeping the back of the check clear for 

bank indorsements during forward collection 

and return. 

2. ANS X9.100–140 provides that an image 

of an original check must be reduced in size 

when placed on the first substitute check 

associated with that original check. (The 

image thereafter would be constant in size on 

any subsequent substitute check that might 

be created.) Because of this size reduction, 

the location of an indorsement, particularly 

a depositary bank indorsement, applied to an 

original paper check likely will change when 

the first reconverting bank creates a 

substitute check that contains that 

indorsement within the image of the original 

paper check. If the indorsement was applied 

to the original paper check in accordance 

with appendix D’s location requirements for 

indorsements applied to existing paper 

checks, and if the size reduction of the image 

causes the placement of the indorsement to 

no longer be consistent with the appendix’s 

requirements, then the reconverting bank 

bears the liability for any loss that results 

from the shift in the placement of the 

indorsement. Such a loss could result either 

because the original indorsement applied in 

accordance with appendix D is rendered 

illegible by a subsequent indorsement that 

later is applied to the substitute check in 

accordance with appendix D, or because the 

subsequent bank cannot apply its 

indorsement to the substitute check legibly in 

accordance with appendix D as a result of the 

shift in the previous indorsement. 

Example. 

In accordance with appendix D’s 

specifications, a depositary bank sprays its 

indorsement onto a business-sized original 

check between 3.0 inches from the leading 

edge of the check and 1.5 inches from the 

trailing edge of the check. The check’s 

conversion to electronic form and subsequent 

reconversion to paper form causes the 

location of the depositary bank indorsement, 

now contained within the image of the 

original check, to change such that it is less 

than 3.0 inches from the leading edge of the 

substitute check. In accordance with 

appendix D’s specifications, a subsequent 

collecting bank sprays its indorsement onto 

the substitute check between the leading 

edge of the check and 3.0 inches from the 

leading edge of the check and the 

indorsement happens to be on top of the 

shifted depositary bank indorsement. If the 

check is returned unpaid and the return is 

not expeditious because of the illegibility of 

the depositary bank indorsement, and the 


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depositary bank incurs a loss that it would 

not have incurred had the return been 

expeditious, the reconverting bank bears the 

liability for that loss. 

ø3. Responsibility for payable-through 

checks. 

a. This paragraph provides that the bank by 

which a payable-through check is payable is 

liable for damages under paragraph (a) of this 

section to the extent that the check is not 

returned through the payable-through bank 

as quickly as would have been necessary to 

meet the requirements of § 229.30(a)(1) (the 

2-day/4-day test) had the bank by which it is 

payable received the check as paying bank on 

the day the payable-through bank received it. 

The location of the bank by which a check 

is payable for purposes of the 2-day/4-day 

test may be determined from the location or 

the first four digits of the routing number of 

the bank by which the check is payable. This 

information should be stated on the check. 

(See § 229.36(e) and accompanying 

Commentary.) Responsibility under 

paragraph (d)(2) does not include 

responsibility for the time required for the 

forward collection of a check to the payablethrough bank. 

b. Generally, liability under paragraph 

(d)(2) will be limited in amount. Under 

§ 229.33(a), a paying bank that returns a 

check in the amount of $2,500 or more must 

provide notice of nonpayment to the 

depositary bank by 4:00 p.m. on the second 

business day following the banking day on 

which the check is presented to the paying 

bank. Even if a payable-through check in the 

amount of $2,500 or more is not returned 

through the payable-through bank as quickly 

as would have been required had the check 

been received by the bank by which it is 

payable, the depositary bank should not 

suffer damages unless it has not received 

timely notice of nonpayment. Thus, 

ordinarily the bank by which a payablethrough check is payable would be liable 

under paragraph (a) only for checks in 

amounts up to $2,500, and the paying bank 

would be responsible for notice of 

nonpayment for checks in the amount of 

$2,500 or more.¿ 

ø4¿fl3fi. Responsibility under 

paragraphøs¿ (d)(1) øand (d)(2)¿ is treated as 

negligence for comparative negligence 

purposes, and the contribution to damages 

under paragraphøs¿ (d)(1) øand (d)(2)¿ is 

treated in the same way as the degree of 

negligence under paragraph (c) of this 

section. 

E. 229.38(e) Timeliness of Action 

1. This paragraph excuses certain delays. It 

adopts the standard of U.C.C. 4–109(b). 

F. 229.38(f) Exclusion 

1. This paragraph provides that the civil 

liability and class action provisions, 

particularly the punitive damage provisions 

of sections 611(a) and (b), and the bona fide 

error provision of 611(c) of the EFA Act (12 

U.S.C. 4010(a), (b), and (c)) do not apply to 

regulatory provisions adopted to improve the 

efficiency of the payments mechanism. 

Allowing punitive damages for delays in the 

return of checks where no actual damages are 

incurred would only encourage litigation and 

provide little or no benefit to the check 

collection system. In view of the provisions 

of paragraph (a), which incorporate 

traditional bank collection standards based 

on negligence, the provision on bona fide 

error is not included in øS¿flsfiubpart C. 

G. 229.38(g) Jurisdiction 

1. The EFA Act confers subject matter 

jurisdiction on courts of competent 

jurisdiction and provides a time limit for 

civil actions for violations of this subpart. 

H. 229.38(h) Reliance on Board Rulings 

1. This provision shields banks from civil 

liability if they act in good faith in reliance 

on any rule, regulation, or interpretation of 

the Board, even if it were subsequently 

determined to be invalid. Banks may rely on 

the Commentary to this regulation, which is 

issued as an official Board interpretation, as 

well as on the regulation itself. 

XXV. Section 229.39 Insolvency of Bank 

A. Introduction 

1. These provisions cover situations where 

a bank becomes insolvent during collection 

or return and are derived from U.C.C. 4–216. 

They are intended to apply to all banks. 

B. 229.39(a) Duty of Receiver 

1. This paragraph requires a receiver of a 

closed bank to return a check to the prior 

bank if it does not pay for the check. This 

permits the prior bank, as holder, to pursue 

its claims against the closed bank or prior 

indorsers on the check. 

C. 229.39(b) Preference Against Paying or 

Depositary Bank 

1. This paragraph gives a bank a preferred 

claim against a closed paying bank that 

finally pays a check without settling for it or 

a closed depositary bank that becomes 

obligated to pay a returned check without 

settling for it. If the bank with a preferred 

claim under this paragraph recovers from a 

prior bank or other party to the check, the 

prior bank or other party to the check is 

subrogated to the preferred claim. 

D. 229.39(c) Preference Against Paying, 

Collecting, or Depositary Bank 

1. This paragraph gives a bank a preferred 

claim against a closed collecting, paying, or 

returning bank that receives settlement but 

does not settle for a check. (See Commentary 

to § 229.35(b) for discussion of prior and 

subsequent banks.) As in the case of 

§ 229.39(b), if the bank with a preferred claim 

under this paragraph recovers from a prior 

bank or other party to the check, the prior 

bank or other party to the check is subrogated 

to the preferred claim. 

E. 229.39(d) Preference Against Presenting 

Bank 

1. This paragraph gives a paying bank a 

preferred claim against a closed presenting 

bank in the event that the presenting bank 

breaches an amount or encoding warranty as 

provided in § 229.34(c)(1) or (3) and does not 

reimburse the paying bank for adjustments 

for a settlement made by the paying bank in 

excess of the value of the checks presented. 

This preference is intended to have the effect 

of a perfected security interest and is 

intended to put the paying bank in the 

position of a secured creditor for purposes of 

the receivership provisions of the Federal 

Deposit Insurance Act and similar provisions 

of state law. 

F. 229.39(e) Finality of Settlement 

1. This paragraph provides that insolvency 

does not interfere with the finality of a 

settlement, such as a settlement by a paying 

bank that becomes final by expiration of the 

midnight deadline. 

XXVI. Section 229.40 Effect on Merger 

Transaction 

A. When banks merge, there is normally a 

period of adjustment required before their 

operations are consolidated. To allow for this 

adjustment period, the regulation provides 

that the merged banks may be treated as 

separate banks for a period of up to one year 

after the consummation of the transaction. 

The term merger transaction is defined in 

ø§ 229.2(t)¿fl§ 229.2(dd)fi. This rule affects 

the status of the combined entity in a number 

of areas in this subpart. For example: 

1. The paying bank’s responsibility for 

expeditious return (§ 229.30). 

2. The returning bank’s responsibility for 

expeditious return (§ 229.31). 

ø3. Whether a returning bank is entitled to 

an extra day to qualify a return that will be 

delivered directly to a depositary bank that 

has merged with the returning bank 

(§ 229.31(a)).¿ 

ø4¿fl3fi. Where the depositary bank must 

accept returned checks ø(§ 229.32(a))¿ 

fl§ 229.32(b)fi. 

ø5. Where the depositary bank must accept 

notice of nonpayment (§ 229.33(c)).¿ 

ø6¿fl4fi. Where a paying bank must 

accept presentment of checks (§ 229.36(b)). 

XXVII. Section 229.41 Relation to State Law 

A. This section specifies that state law 

relating to the collection of checks is 

preempted only to the extent that it is 

inconsistent with this regulation. Thus, this 

regulation is not a complete replacement for 

state laws relating to the collection or return 

of checks. 

XXVIII. Section 229.42 Exclusions 

A. Checks drawn on the United States 

Treasury, U.S. Postal Service money orders, 

and checks drawn on states and units of 

general local government that are presented 

directly to the state or unit of general local 

government and that are not payable through 

or at a bank are excluded from the coverage 

of the expeditious-returnø, notice-ofnonpayment,¿ and same-day settlement 

requirements of subpart C of this part. Other 

provisions of this subpart continue to apply 

to the checks. This exclusion does not apply 

to checks drawn by the U.S. government on 

banks. 

XXIX. Section 229.43 Checks Payable in 

Guam, American Samoa, and the Northern 

Mariana Islands 

* * * * * 

B. 229.43(b) Rules Applicable to Pacific 

Island Checks 

1. When a bank handles a Pacific island 

check as if it were a check as defined in 

§ 229.2(k), the bank is subject to certain 

provisions of Regulation CC, as provided in 


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this section. Because the Pacific island bank 

is not a bank as defined in § 229.2(e), it is not 

a paying bank as defined in 

ø§ 229.2(z)¿fl§ 229.2(ii)fi (unless otherwise 

noted in this section). Pacific island banks 

are not subject to the provisions of 

Regulation CC. 

2. A bank may agree to handle a Pacific 

island check as a returned check under 

§ 229.31 and may convert the returned 

Pacific island check to a qualified returned 

check. The returning bank is not, however, 

subject to the expeditious-return 

requirements of § 229.31. The returning bank 

may receive the Pacific island check directly 

from a Pacific island bank or from another 

returning bank. As a Pacific island bank is 

not a paying bank under Regulation CC, 

§ 229.31(c) does not apply to a returning bank 

settling with the Pacific island bank. 

3. A depositary bank that handles a Pacific 

island check is not subject to the provisions 

of subpart B of Regulation CC, including the 

availability, notice, and interest accrual 

requirements, with respect to that check. If, 

however, a bank accepts a Pacific island 

check for deposit (or otherwise accepts the 

check as transferee) and collects the Pacific 

island check in the same manner as other 

checks, the bank is subject to the provisions 

of § 229.32, including the provisions 

regarding time and manner of settlement for 

returned checks in 

ø§ 229.32(b)¿fl§ 229.32(c)fi, in the event 

the Pacific island check is returned by a 

returning bank. If the depositary bank 

receives the returned Pacific island check 

directly from the Pacific island bank, 

however, the provisions of 

ø§ 229.32(b)¿fl§ 229.32(c)fi do not apply, 

because the Pacific island bank is not a 

paying bank under Regulation CC. øThe 

depositary bank is not subject to the notice 

of nonpayment provisions in § 229.33 for 

Pacific island checks.¿ 

4. Banks that handle Pacific island checks 

in the same manner as other checks are 

subject to the indorsement provisions of 

§ 229.35. Section 229.35(c) eliminates the 

need for the restrictive indorsement ‘‘pay any 

bank.’’ For purposes of § 229.35(c), the Pacific 

island bank is deemed to be a bank. 

5. Pacific island checks will often be 

intermingled with other checks in a single 

cash letter. Therefore, a bank that handles 

Pacific island checks in the same manner as 

other checks is subject to the transfer 

warranty provision in § 229.34(c)(2) 

regarding accurate cash letter totals and the 

encoding warranty in § 229.34(c)(3). 

flSimilarly, a bank that handles Pacific 

island checks in the same manner as other 

checks may transfer electronic collection 

items, electronic returns, or electronic images 

and related electronic information as if they 

were electronic collection items or electronic 

returns derived from Pacific island checks. 

Accordingly, a bank makes the warranties in 

§§ 229.34(a) and (e) with respect to Pacific 

island checks.fi A bank that acts as a 

returning bank for a Pacific island check is 

not subject to the warranties in 

§ 229.34ø(a)¿fl(e)fi. Similarly, because the 

Pacific island bank is not a ‘‘bank’’ or a 

‘‘paying bank’’ under Regulation CC, § 229.34 

ø(b), (c)(1), and (c)(4)¿ fl(b)(1), (b)(4), and 

(c)fi do not apply. For the same reason, the 

provisions of § 229.36 governing paying bank 

responsibilities such as place of receipt and 

same-day settlement do not apply to checks 

presented to a Pacific island bank, and the 

liability provisions applicable to paying 

banks in § 229.38 do not apply to Pacific 

island banks. Section 229.36ø(d)¿ fl(c)fi, 

regarding finality of settlement between 

banks during forward collection, applies to 

banks that handle Pacific island checks in the 

same manner as other checks, as do the 

liability provisions of § 229.38, to the extent 

the banks are subject to the requirements of 

Regulation CC as provided in this section, 

and §§ 229.37 and 229.39 through 229.42. 

XXX. § 229.51 General Provisions 

Governing Substitute Checks 

A. 229.51(a) Legal Equivalence 

1. Section 229.51(a) states that a substitute 

check for which a bank has provided the 

substitute check warranties is the legal 

equivalent of the original check for all 

purposes and all persons if it meets the 

accuracy and legend requirements. Where the 

law (or a contract) requires production of the 

original check, production of a legally 

equivalent substitute check would satisfy 

that requirement. A person that receives a 

substitute check cannot be assessed costs 

associated with the creation of the substitute 

check, absent agreement to the contrary. 

Examples. 

a. A presenting bank presents a substitute 

check that meets the legal equivalence 

requirements to a paying bank. The paying 

bank cannot refuse presentment of the 

substitute check on the basis that it is a 

substitute check, because the substitute 

check is the legal equivalent of the original 

check. 

b. A depositor’s account agreement with a 

bank provides that the depositor is entitled 

to receive original cancelled checks back 

with his or her periodic account statement. 

The bank may honor that agreement by 

providing original checks, substitute checks, 

or a combination thereof. However, a bank 

may not honor such an agreement by 

providing something other than an original 

check or a substitute check. 

c. A mortgage company argues that a 

consumer missed a monthly mortgage 

payment that the consumer believes she 

made. A legally equivalent substitute check 

concerning that mortgage payment could be 

used in the same manner as the original 

check to prove the payment. 

2. A person other than a bank that creates 

a substitute check could transfer, present, or 

return that check only by agreement unless 

and until a bank provided the substitute 

check warranties. 

3. To be the legal equivalent of the original 

check, a substitute check must accurately 

represent all the information on the front and 

back of the check as of the time the original 

check was truncated. An accurate 

representation of information that was 

illegible on the original check would satisfy 

this requirement. The payment instructions 

placed on the check by, or as authorized by, 

the drawer, such as the amount of the check, 

the payee, and the drawer’s signature, must 

be accurately represented, because that 

information is an essential element of a 

negotiable instrument. Other information that 

must be accurately represented includes (1) 

the information identifying the drawer and 

the paying bank that is preprinted on the 

check, including the MICR line; and (2) other 

information placed on the check prior to the 

time an image of the check is captured, such 

as any required identification written on the 

front of the check and any indorsements 

applied to the back of the check. A substitute 

check need not capture other characteristics 

of the check, such as watermarks, 

microprinting, or other physical security 

features that cannot survive the imaging 

process or decorative images, in order to 

meet the accuracy requirement. Conversely, 

some security features that are latent on the 

original check might become visible as a 

result of the check imaging process. For 

example, the original check might have a 

faint representation of the word ‘‘void’’ that 

will appear more clearly on a photocopied or 

electronic image of the check. Provided the 

inclusion of the clearer version of the word 

on the image used to create a substitute check 

did not obscure the required information 

listed above, a substitute check that 

contained such information could be the 

legal equivalent of an original check under 

§ 229.51(a). However, if a person suffered a 

loss due to receipt of such a substitute check 

instead of the original check, that person 

could have an indemnity claim under 

§ 229.53 and, in the case of a consumer, an 

expedited recredit claim under § 229.54. 

4. To be the legal equivalent of the original 

check, a substitute check must bear the legal 

equivalence legend described in 

§ 229.51(a)(2). A bank may not vary the 

language of the legal equivalence legend and 

must place the legend on the substitute check 

as specified by generally applicable industry 

standards for substitute checks contained in 

ANS X9.100–140.5. In some cases, the 

original check used to create a substitute 

check could be forged or otherwise 

fraudulent. A substitute check created from 

a fraudulent original check would have the 

same status under Regulation CC and the 

U.C.C. as the original fraudulent check. For 

example, a substitute check of a fraudulent 

original check would not be properly payable 

under U.C.C. 4–401 and would be subject to 

the transfer and presentment warranties in 

U.C.C. 4–207 and 4–208. 

5. In some cases, the original check used 

to create a substitute check could be forged 

or otherwise fraudulent. A substitute check 

created from a fraudulent original check 

would have the same status under Regulation 

CC and the U.C.C. as the original fraudulent 

check. For example, a substitute check of a 

fraudulent original check would not be 

properly payable under U.C.C. 4–401 and 

would be subject to the transfer and 

presentment warranties in U.C.C. 4–207 and 

4–208. 

B. 229.51(b) Reconverting-Bank Duties 

1. As discussed in more detail in appendix 

D and the commentary to section 229.35, a 

reconverting bank must indorse (or, if it is a 

paying bank with respect to the check, 

identify itself on) the back of a substitute 

check in a manner that preserves all 

indorsements applied, whether physically or 


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electronically, by persons that previously 

handled the check in any form for forward 

collection or return. Indorsements applied 

physically to the original check before an 

image of the check was captured would be 

preserved through the image of the back of 

the original check that a substitute check 

must contain. Indorsements applied 

physically to the original check after an 

image of the original check was captured 

would be conveyed as electronic 

indorsements (see paragraph 3 of the 

commentary to section 229.35(a)). If 

indorsements were applied electronically 

after an image of the original check was 

captured or were applied electronically after 

a previous substitute check was converted to 

electronic form, the reconverting bank must 

apply those indorsements physically to the 

substitute check. A reconverting bank is not 

responsible for obtaining indorsements that 

persons that previously handled the check 

should have applied but did not apply. 

2. A reconverting bank also must identify 

itself as such on the front and back of the 

substitute check and must preserve on the 

back of the substitute check the 

identifications of any previous reconverting 

banks in accordance with appendix D. The 

presence on the back of a substitute check of 

indorsements that were applied by previous 

reconverting banks and identified with 

asterisks in accordance with appendix D 

would satisfy the requirement that the 

reconverting bank preserve the identification 

of previous reconverting banks. As discussed 

in more detail in the commentary to section 

229.35, the reconverting-bank and truncatingbank routing numbers on the front of a 

substitute check and, if the reconverting bank 

is the paying bank flor a bank that rejected 

a check submitted for depositfi, the 

reconverting bank’s routing number on the 

back of a substitute check are for 

identification only and are not indorsements 

or acceptances. 

3. The reconverting bank must place the 

routing number of the truncating bank 

surrounded by brackets on the front of the 

substitute check in accordance with 

appendix D and ANS X9.100–140. 

Example 

A bank’s customer, which is a nonbank 

business, receives checks for payment and by 

agreement deposits substitute checks instead 

of the original checks with its depositary 

bank. The depositary bank is the reconverting 

bank with respect to the substitute checks 

and the truncating bank with respect to the 

original checks. In accordance with appendix 

D and with ANS X9.100–140, the bank must 

therefore be identified on the front of the 

substitute checks as a reconverting bank and 

as the truncating bank, and on the back of the 

substitute checks as the depositary bank and 

a reconverting bank. 

C. 229.51(c) Applicable Law 

1. A substitute check that meets the 

requirements for legal equivalence set forth 

in this section is subject to any provision of 

federal or state law that applies to original 

checks, except to the extent such provision 

is inconsistent with the Check 21 Act or 

subpart D. A legally equivalent substitute 

check is subject to all laws that are not 

preempted by the Check 21 Act in the same 

manner and to the same extent as is an 

original check. Thus, any person could 

satisfy a law that requires production of an 

original check by producing a substitute 

check that is derived from the relevant 

original check and that meets the legal 

equivalence requirements of § 229.51(a). 

2. A law is not inconsistent with the Check 

21 Act or subpart D merely because it allows 

for the recovery of a greater amount of 

damages. 

Example. 

A drawer that suffers a loss with respect to 

a substitute check that was improperly 

charged to its account and for which the 

drawer has an indemnity claim but not a 

warranty claim would be limited under the 

Check 21 Act to recovery of the amount of 

the substitute check plus interest and 

expenses. However, if the drawer also 

suffered damages that were proximately 

caused because the bank wrongfully 

dishonored subsequently presented checks as 

a result of the improper substitute check 

charge, the drawer could recover those losses 

under U.C.C. 4–402. 

XXXI. § 229.52 Substitute Check Warranties 

A. 229.52(a) Warranty Content and Provision 

1. The responsibility for providing the 

substitute check warranties begins with the 

reconverting bank. In the case of a substitute 

check created by a bank, the reconverting 

bank starts the flow of warranties when it 

transfers, presents, or returns a substitute 

check for which it receives consideration 

flor when it rejects a check submitted for 

deposit and returns to its customer a 

substitute checkfi. A bank that receives a 

substitute check created by a nonbank starts 

the flow of warranties when it transfers, 

presents, or returns for consideration either 

the substitute check it received or an 

electronic or paper representation of that 

substitute check. flA bank that transfers and 

receives consideration for an electronic 

collection item or electronic return that is an 

electronic representation of a substitute 

check also makes the warranties.fi 

fl2.fi To ensure that warranty protections 

flow all the way through to the ultimate 

recipient of a substitute check or paper or 

electronic representation thereof, any 

subsequent bank that transfers, presents, or 

returns for consideration either the substitute 

check or a paper or electronic representation 

of the substitute check is responsible to 

subsequent transferees for the warranties. 

Any warranty recipient could bring a claim 

for a breach of a substitute check warranty if 

it received either the actual substitute check 

or a paper or electronic representation of a 

substitute check. 

ø2.¿ fl3.fi The substitute check 

warranties and indemnity are not given 

under §§ 229.52 and 229.53 by a bank that 

truncates the original check and by 

agreement transfers the original check 

electronically to a subsequent bank for 

consideration. However, parties may, by 

agreement, allocate liabilities associated with 

the exchange of electronic check information. 

Example. 

A bank that receives check information 

electronically and uses it to create substitute 

checks is the reconverting bank and, when it 

transfers, presents, or returns that substitute 

check, becomes the first warrantor. However, 

that bank may protect itself by including in 

its agreement with the sending bank 

provisions that specify the sending bank’s 

warranties and responsibilities to the 

receiving bank, particularly with respect to 

the accuracy of the check image and check 

data transmitted under the agreement. 

ø3¿fl4fi. A bank need not affirmatively 

make the warranties because they attach 

automatically when a bank transfers, 

presents, or returns the substitute check (or 

a representation thereof) for which it receives 

consideration. Because a substitute check 

transferred, presented, or returned for 

consideration is warranted to be the legal 

equivalent of the original check and thereby 

subject to existing laws as if it were the 

original check, all U.C.C. and other 

Regulation CC warranties that apply to the 

original check also apply to the substitute 

check. 

ø4¿fl5fi. The legal equivalence warranty 

by definition must be linked to a particular 

substitute check. When an original check is 

truncated, the check may move from 

electronic form to substitute check form and 

then back again, such that there would be 

multiple substitute checks associated with 

one original check. When a check changes 

form multiple times in the collection or 

return process, the first reconverting bank 

and subsequent banks that transfer, present, 

or return the first substitute check (or a paper 

or electronic representation of the first 

substitute check) warrant the legal 

equivalence of only the first substitute check. 

If a bank receives an electronic 

representation of a substitute check and uses 

that representation to create a second 

substitute check, the second reconverting 

bank and subsequent transferees of the 

second substitute check (or a representation 

thereof) warrant the legal equivalence of both 

the first and second substitute checks. A 

reconverting bank would not be liable for a 

warranty breach under § 229.52 if the legal 

equivalence defect is the fault of a 

subsequent bank that handled the substitute 

check, either as a substitute check or in other 

paper or electronic form. 

ø5¿fl6fi. The warranty in 

§ 229.52(a)ø(2)¿fl(1)(ii)fi, which addresses 

multiple payment requests for the same 

check, is not linked to a particular substitute 

check but rather is given by each bank 

handling the substitute check, an electronic 

representation of a substitute check, or a 

subsequent substitute check created from an 

electronic representation of a substitute 

check. All banks that transfer, present, or 

return a substitute check (or a paper or 

electronic representation thereof) therefore 

provide the warranty regardless of whether 

the ultimate demand for double payment is 

based on the original check, the substitute 

check, or some other electronic or paper 

representation of the substitute or original 

check, and regardless of the order in which 

the duplicative payment requests occur. This 

warranty is given by the banks that transfer, 

present, or return a substitute check even if 

the demand for duplicative payment results 

from a fraudulent substitute check about 

which the warranting bank had no 

knowledge. 


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Example. 

A nonbank depositor truncates a check and 

in lieu thereof sends an electronic version of 

that check to both Bank A and Bank B. Bank 

A and Bank B each uses the check 

information that it received electronically to 

create a substitute check, which it presents 

to Bank C for payment. Bank A and Bank B 

each is a reconverting bank that made the 

substitute check warranties when it 

presented a substitute check to and received 

payment from Bank C. Bank C could pursue 

a warranty claim for the loss it suffered as a 

result of the duplicative payment against 

either Bank A or Bank B. 

fl7. A bank that rejects a check for deposit 

and instead of the original check provides its 

customer with a substitute check makes the 

warranties in § 229.52(a)(1). As noted in the 

commentary to § 229. 2(uu), the Check 21 Act 

contemplates that nonbank persons that 

receive substitute checks (or representations 

thereof) from a bank will receive warranties 

and indemnities with respect to the checks. 

A reconverting bank that provides a 

substitute check to its depositor after it has 

rejected the check for deposit may not have 

received consideration for the substitute 

check. In order to prevent banks from being 

able to transfer a check the bank truncated 

and then reconverted without providing 

substitute check warranties, the regulation 

provides that a bank that rejects a check for 

deposit but provides its customer with a 

substitute check makes the warranties set 

forth in § 229.52(a)(1) regardless of whether 

the bank received consideration. 

Example. 

A bank’s customer submits a check at an 

ATM that captures an image of the check and 

sends the image electronically to the bank. 

After reviewing the item, the bank rejects the 

item submitted for deposit. Instead of 

providing the original check to its customer, 

the bank provides a substitute check to its 

customer. This bank is the reconverting bank 

with respect to the substitute check and 

makes the warranties described in 

§ 229.52(a)(1) regardless of whether the bank 

previously extended credit to its customer. 

(See commentary to § 229.2(uu).)fi 

B. 229.52(b) Warranty Recipients 

1. A reconverting bank makes the 

warranties to the person to which it transfers, 

presents, or returns the substitute check for 

consideration and to any subsequent 

recipient that receives either the substitute 

check or a paper or electronic representation 

derived from the substitute check. These 

subsequent recipients could include a 

subsequent collecting or returning bank, the 

depositary bank, the drawer, the drawee, the 

payee, the depositor, and any indorser. The 

paying bank would be included as a warranty 

recipient, for example because it would be 

the drawee of a check or a transferee of a 

check that is payable through it. 

2. The warranties flow with the substitute 

check to persons that receive a substitute 

check or a paper or electronic representation 

of a substitute check. The warranties do not 

flow to a person that receives only the 

original check or a representation of an 

original check that was not derived from a 

substitute check. However, a person that 

initially handled only the original check 

could become a warranty recipient if that 

person later receives a returned substitute 

check or a paper or electronic representation 

of a substitute check that was derived from 

that original check. 

fl3. A reconverting bank also makes the 

warranties to a person to whom the bank 

transfers a substitute check that the bank has 

rejected for deposit regardless of whether the 

bank received consideration.fi 

XXXII. § 229.53 Substitute Check Indemnity 

A. 229.53(a) Scope of Indemnity 

1. Each bank that for consideration 

transfers, presents, or returns a substitute 

check or a paper or electronic representation 

of a substitute check is responsible for 

providing the substitute check indemnity. 

flA bank that transfers and receives 

consideration for an electronic collection 

item or electronic return that is an electronic 

representation of a substitute check also is 

responsible for providing the indemnity.fi 

fl2.fiThe indemnity covers losses due to 

any subsequent recipient’s receipt of the 

substitute check instead of the original check. 

The indemnity therefore covers the loss 

caused by receipt of the substitute check as 

well as the loss that a bank incurs because 

it pays an indemnity to another person. A 

bank that pays an indemnity would in turn 

have an indemnity claim regardless of 

whether it received the substitute check or a 

paper or electronic representation of the 

substitute check The indemnity would not 

apply to a person that handled only the 

original check or a paper or electronic 

version of the original check that was not 

derived from a substitute check. 

fl3. A reconverting bank also provides the 

substitute check indemnity to a person to 

whom the bank transfers a substitute check 

that the bank has rejected for deposit 

regardless of whether the bank providing the 

indemnity has received consideration.fi 

Examples. 

a. A paying bank makes payment based on 

a substitute check that was derived from a 

fraudulent original cashier’s check. The 

amount and other characteristics of the 

original cashier’s check are such that, had the 

original check been presented instead, the 

paying bank would have inspected the 

original check for security features. The 

paying bank’s fraud detection procedures 

were designed to detect the fraud in question 

and allow the bank to return the fraudulent 

check in a timely manner. However, the 

security features that the bank would have 

inspected were security features that did not 

survive the imaging process (see the 

commentary to § 229.51(a)). Under these 

circumstances, the paying bank could assert 

an indemnity claim against the bank that 

presented the substitute check. 

b. By contrast with the previous examples, 

the indemnity would not apply if the 

characteristics of the presented substitute 

check were such that the bank’s security 

policies and procedures would not have 

detected the fraud even if the original had 

been presented. For example, if the check 

was under the threshold amount at which the 

bank subjects an item to its fraud detection 

procedures, the bank would not have 

inspected the item for security features 

regardless of the form of the item and 

accordingly would have suffered a loss even 

if it had received the original check. 

c. A paying bank makes an erroneous 

payment based on an electronic 

representation of a substitute check because 

the electronic cash letter accompanying the 

electronic item included the wrong amount 

to be charged. The paying bank would not 

have an indemnity claim associated with that 

payment because its loss did not result from 

receipt of an actual substitute check instead 

of the original check. However, the paying 

bank could protect itself from such losses 

through its agreement with the bank that sent 

the check to it electronically and may have 

rights under other law. 

d. A drawer has agreed with its bank that 

the drawer will not receive paid checks with 

periodic account statements. The drawer 

requested a copy of a paid check in order to 

prove payment and received a photocopy of 

a substitute check. The photocopy that the 

bank provided in response to this request 

was illegible, such that the drawer could not 

prove payment. Any loss that the drawer 

suffered as a result of receiving the blurry 

check image would not trigger an indemnity 

claim because the loss was not caused by the 

receipt of a substitute check. The drawer 

may, however, still have a warranty claim if 

he received a copy of a substitute check, and 

may also have rights under the U.C.C. 

B. 229.53(b) Indemnity Amount 

1. If a recipient of a substitute check is 

making an indemnity claim because a bank 

has breached one of the substitute check 

warranties, the recipient can recover any 

losses proximately caused by that warranty 

breach. 

Examples. 

a. A drawer discovers that its account has 

been charged for two different substitute 

checks that were provided to the drawer and 

that were associated with the same original 

check. As a result of this duplicative charge, 

the paying bank dishonored several 

subsequently-presented checks that it 

otherwise would have paid and charged the 

drawer returned check fees. The payees of 

the returned checks also charged the drawer 

returned check fees. The drawer would have 

a warranty claim against any of the 

warranting banks, including its bank, for 

breach of the warranty described in 

§ 229.52(a)ø(2)¿fl(1)(ii)fi. The drawer also 

could assert an indemnity claim. Because 

there is only one original check for any 

payment transaction, if the collecting and 

presenting bank had collected the original 

check instead of using a substitute check the 

bank would have been asked to make only 

one payment. The drawer could assert its 

warranty and indemnity claims against the 

paying bank, because that is the bank with 

which the drawer has a customer 

relationship and the drawer has received an 

indemnity from that bank. The drawer could 

recover from the indemnifying bank the 

amount of the erroneous charge, as well as 

the amount of the returned check fees 

charged by both the paying bank and the 

payees of the returned checks. If the drawer’s 

account were an interest-bearing account, the 

drawer also could recover any interest lost on 

the erroneously debited amount and the 


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16970 Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 

erroneous returned check fees. The drawer 

also could recover its expenditures for 

representation in connection with the claim. 

Finally, the drawer could recover any other 

losses that were proximately caused by the 

warranty breach. 

b. In the example above, the paying bank 

that received the duplicate substitute checks 

also would have a warranty claim against the 

previous transferor(s) of those substitute 

checks and could seek an indemnity from 

that bank (or either of those banks). The 

indemnifying bank would be responsible for 

compensating the paying bank for all the 

losses proximately caused by the warranty 

breach, including representation expenses 

and other costs incurred by the paying bank 

in settling the drawer’s claim. 

2. If the recipient of the substitute check 

does not have a substitute check warranty 

claim with respect to the substitute check, 

the amount of the loss the recipient may 

recover under § 229.53 is limited to the 

amount of the substitute check, plus interest 

and expenses. However, the indemnified 

person might be entitled to additional 

damages under some other provision of law. 

Examples. 

a. A drawer received a substitute check 

that met all the legal equivalence 

requirements and for which the drawer was 

only charged once, but the drawer believed 

that the underlying original check was a 

forgery. If the drawer suffered a loss because 

it could not prove the forgery based on the 

substitute check, for example because 

proving the forgery required analysis of pen 

pressure that could be determined only from 

the original check, the drawer would have an 

indemnity claim. However, the drawer would 

not have a substitute check warranty claim 

because the substitute check was the legal 

equivalent of the original check and no 

person was asked to pay the substitute check 

more than once. In that case, the amount of 

the drawer’s indemnity under § 229.53 would 

be limited to the amount of the substitute 

check, plus interest and expenses. However, 

the drawer could attempt to recover 

additional losses, if any, under other law. 

b. As described more fully in the 

commentary to § 229.53(a) regarding the 

scope of the indemnity, a paying bank could 

have an indemnity claim if it paid a legally 

equivalent substitute check that was created 

from a fraudulent cashier’s check that the 

paying bank’s fraud detection procedures 

would have caught and that the bank would 

have returned by its midnight deadline had 

it received the original check. However, if the 

substitute check was not subject to a 

warranty claim (because it met the legal 

equivalence requirements and there was only 

one payment request) the paying bank’s 

indemnity would be limited to the amount of 

the substitute check plus interest and 

expenses. 

3. The amount of an indemnity would be 

reduced in proportion to the amount of any 

amount loss attributable to the indemnified 

person’s negligence or bad faith. This 

comparative negligence standard is intended 

to allocate liability in the same manner as the 

comparative negligence provision of 

§ 229.38(c). 

4. An indemnifying bank may limit the 

losses for which it is responsible under 

§ 229.53 by producing the original check or 

a sufficient copy. However, production of the 

original check or a sufficient copy does not 

absolve the indemnifying bank from liability 

claims relating to a warranty the bank has 

provided under § 229.52 or any other law, 

including but not limited to subpart C of this 

part or the U.C.C. 

C. 229.53(c) Subrogation of Rights 

1. A bank that pays an indemnity claim is 

subrogated to the rights of the person it 

indemnified, to the extent of the indemnity 

it provided, so that it may attempt to recover 

that amount from another person based on an 

indemnity, warranty, or other claim. The 

person that the bank indemnified must 

comply with reasonable requests from the 

indemnifying bank for assistance with 

respect to the subrogated claim. 

Example. 

A paying bank indemnifies a drawer for a 

substitute check that the drawer alleged was 

a forgery that would have been detected had 

the original check instead been presented. 

The bank that provided the indemnity could 

pursue its own indemnity claim against the 

bank that presented the substitute check, 

could attempt to recover from the forger, or 

could pursue any claim that it might have 

under other law. The bank also could request 

from the drawer any information that the 

drawer might possess regarding the possible 

identity of the forger. 

XXXIII. § 229.54 Expedited Recredit for 

Consumers 

A. 229.54(a) Circumstances Giving Rise to a 

Claim 

1. A consumer may make a claim for 

expedited recredit under this section only for 

a substitute check that he or she has received 

and for which the bank charged his or her 

deposit account. As a result, checks used to 

access loans, such as credit card checks or 

home equity line of credit checks, that are 

reconverted to substitute checks would not 

give rise to an expedited recredit claim, 

unless such a check was returned unpaid and 

the bank charged the consumer’s deposit 

account for the amount of the returned check. 

In addition, a consumer who received only 

a statement that contained images of multiple 

substitute checks per page would not be 

entitled to make an expedited recredit claim, 

although he or she could seek redress under 

other provisions of law, such as § 229.52 or 

U.C.C. 4–401. However, a consumer who 

originally received only a statement 

containing images of multiple substitute 

checks per page but later received a 

substitute check, such as in response to a 

request for a copy of a check shown in the 

statement, could bring a claim if the other 

expedited recredit criteria were met. 

Although a consumer must at some point 

have received a substitute check to make an 

expedited recredit claim, the consumer need 

not be in possession of the substitute check 

at the time he or she submits the claim. 

2. A consumer must in good faith assert 

that the bank improperly charged the 

consumer’s account for the substitute check 

or that the consumer has a warranty claim for 

the substitute check (or both). The warranty 

in question could be a substitute-check 

warranty described in § 229.52 or any other 

warranty that a bank provides with respect to 

a check under other law. A consumer could, 

for example, have a warranty claim under 

§ 229.34ø(b)¿fl(a) or (d)fi, which contains 

returned-check warranties that are made to 

the owner of the check. 

* * * * * 

XXXVIII. Appendix C—Model AvailabilityPolicy Disclosures, Clauses, and Notices; and 

Model Substitute-Check-Policy Disclosure 

and Notices 

A. Introduction 

1. Appendix C contains model disclosures, 

clauses, and notices that may be used by 

banks to meet their disclosure and notice 

responsibilities under the regulation. Banks 

using the models (except models C– 

ø22¿fl18fi through C–ø25¿fl21fi) 

properly will be deemed in compliance with 

the regulation’s disclosure requirements. 

2. Information that must be inserted by a 

bank using the models is (italicized) within 

parentheses in the text of the models. 

Optional informationfl, and information the 

inclusion of which is dependent on a bank’s 

policies and practices,fi is enclosed in 

brackets. 

3. Banks may make certain changes to the 

format or content of the models, including 

deleting material that is inapplicable, 

without losing the EFA Act’s protection from 

liability for banks that use the forms 

properly. For example, if a bank does not 

have a cutoff hour prior to its closing time, 

or if a bank does not take advantage of the 

section 229.13 exceptions, it may delete the 

references to those provisions. Changes to the 

models may not be so extensive as to affect 

the substance, clarity, or meaningful 

sequence of the models. Acceptable changes 

include, for example— 

a. Using ‘‘customer’’ and ‘‘bank’’ instead of 

pronouns 

b. Changing the typeface or sizefl, 

although a materially smaller size may not 

meet the clear and conspicuous standard of 

section 229.15(a)fi 

c. Incorporating certain state-law plainEnglish requirements 

fl4. a. Although banks are not required to 

use a certain paper size for their disclosures 

and notices, model funds-availability 

disclosures C–1, C–2, C–3A, C–3B, C–4A, 

and C–4B and notices C–9, C–10, C–11, C– 

12A, and C–12B are designed to be provided 

to customers on an 81⁄2 x 11 inch sheet of 

paper. In addition, the following formatting 

techniques ensure that the information is 

readable: 

i. A readable font style and font size 

ii. Sufficient spacing between lines of the 

text 

iii. Adequate spacing between paragraphs, 

as appropriate 

iv. Sufficient white space and margins 

above, below and to the sides of the text 

v. Sufficient contrast between the text and 

the background, such as black text on white 

paper 

b. While the regulation does not require 

banks to use the above formatting techniques 

in presenting the information in these 

disclosures and notices, banks are 

encouraged to consider these techniques 


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Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 16971 

when deciding how to disclose information. 

A bank that provides a disclosure or notice 

electronically to a customer comports with 

the models’ formatting techniques by 

providing a disclosure or notice in a file 

format, such as the .pdf file format, that 

electronically represents an 81⁄2 x 11 inch 

sheet of paper with black text and a white 

background.fi 

fl5fiø4¿. Shorter time periods for 

availability may always be substituted for 

time periods used in the models. 

fl6fiø5¿. Banks may also add related 

information. For example, a bank may 

øindicate that although funds have been 

made available to a customer and the 

customer has withdrawn them, the customer 

is still responsible for problems with the 

deposit, such as checks that were deposited 

being returned unpaid. Or a bank could¿ 

include a telephone number to be used if a 

customer has an inquiry regarding a deposit. 

fl7fiø6¿. Banks are cautioned against 

using the models without reviewing their 

own policies and practices, as well as state 

and federal laws fland regulationsfi 

regarding the time periods for availability of 

specific types of checks. A bank using the 

models will be in compliance with the EFA 

Act and the regulation only if the bank’s 

disclosures correspond to its availability 

policy. 

ø7. Banks that have used earlier versions 

of the models (such as those models that gave 

Social Security benefits and payroll 

payments as examples of preauthorized 

credits available the day after deposit, or that 

did not address the cash-withdrawal 

limitation) are protected from civil liability 

under section 229.21(e). Banks are 

encouraged, however, to use current versions 

of the models when reordering or reprinting 

supplies.¿ 

B. Model Availability-Policy and SubstituteCheck-Policy Disclosures, Models C–1 

through C–5øA¿ 

1. Models C–1 Through C–5øA¿ Generally 

a. Models C–1 through C–ø5A¿fl4Bfi are 

models for the availability-policy disclosures 

described in section 229.16 and flmodel C– 

5 is a model for thefi substitute-check-policy 

disclosure described in section 229.57. The 

flfunds-availabilityfi models accommodate 

a variety of availability policies, ranging from 

next-day availability to holds to statutory 

limits on all deposits. Modelflsfi C–3flA 

and C–3Bfi reflectøs¿ the additional 

disclosures discussed in section 229.16(b) 

and (c) for banks that have a policy of 

extending availability times on a case-by-case 

basis. flAll of the funds-availability models 

indicate that a bank’s policy may provide 

that although funds have been made 

available to a customer and the customer has 

withdrawn them, the customer is still 

responsible for problems with the deposit, 

such as checks that were deposited being 

returned unpaid. (See § 229.19(c)(2) of the 

regulation.)fi 

b. As already noted, there are several 

places in the forms where information must 

be inserted. This information includes the 

bank’s cutoff times flandfiø,¿ limitations 

relating to next-day availabilityø, and the 

first four digits of routing numbers for local 

banks¿. In disclosing when funds will be 

available for withdrawal, fl a bank that 

makes funds available on the business day 

the deposit was received may describe the 

funds as being available ‘‘the same business 

day.’’ A bank that makes funds available on 

a business day after the business day of 

receiptfi øthe bank¿ must insert øthe¿ fla 

cardinal number (1, 2, etc.),fi ordinal 

number (such as first, second, etc.)fl, or the 

word ‘‘next’’ to describefi øof¿ the business 

day after deposit that the funds will become 

available. 

c. Models C–1 through C–ø5A generally do 

not reflect any optional provisions of the 

regulation, or those that apply only to certain 

banks¿ fl4B reflect some information the 

inclusion of which depends on a bank’s 

policies and practices, such as placing a hold 

on funds already on deposit when it cashes 

a check for a customer or makes funds 

immediately available to a customer (see 

§ 229.19(e) of the regulation), and requiring 

special deposit slips as a condition for nextday availability for deposits of certain types 

of checks (see § 229.10(c)(2)). This 

information in the model availability-policy 

disclosures is placed within brackets to 

indicate that whether a bank should include 

the text in its availability-policy disclosure is 

dependent on the bank’s funds-availability 

policies and practices. Additionally, certain 

other provisions of the regulation that apply 

only to certain banks are reflectedfi 

øInstead, disclosures for these provisions are 

included¿ in modeløs C–6 through C–11A¿ 

flclauses C–6, C–7, and C–8fi. A bank using 

one of the model availability-policy 

disclosures should also consider whether it 

must incorporate one or more of ømodels C– 

6 through C–11A.¿ flthese model clauses. A 

bank for which one or more of these clauses 

is applicable would append the clause(s) to 

the end of its availability-policy 

disclosure.fi 

d. While section 229.10(b) of the regulation 

requires next-day availability for electronic 

payments, Treasury regulations (31 CFR 210) 

and ACH association rules require that 

preauthorized credits (direct deposits) be 

made available on the day the bank receives 

the funds. Models C–1 through øC–5¿ flC– 

4Bfi reflect these rules. Wire transfers ø, 

however,¿ fland cash depositsfi are not 

governed by Treasury or ACH rules, but 

banks generally make funds from øwire 

transfers¿ flthese types of depositsfi 

available on the day received or on the 

business day following receipt. Banks should 

ensure that their disclosures reflect the 

availability given in most cases for øwire 

transfers.¿ flthese types of deposits. A bank 

that makes the proceeds of cash deposits or 

wire transfers available for withdrawal on the 

banking day they are received may specify in 

its disclosure that these types of deposits are 

available ‘‘the same business day’’ 

notwithstanding that the funds were not 

available at the opening of business on that 

day. Models C–1 through C–3B indicate that 

funds from these types of deposits will be 

available on the day received. A bank that 

uses one of these models should modify its 

disclosure to indicate that funds from cash 

deposits and wire transfers will be available 

on the next day if that reflects the bank’s 

practice. In contrast, models C–4A and C–4B 

indicate that funds from cash deposits and 

wire transfers will be available on the 

business day following receipt. A bank that 

uses one of these models but that makes 

funds from cash deposits and wire transfers 

available the same day they are received— 

i.e., a bank that places holds to statutory 

limits only on check deposits—may modify 

the forms accordingly to reflect the bank’s 

practice.fi 

2. Model C–1, Next-Day Availability. A 

bank may use this model when its policy is 

to make funds from all flcheckfi deposits 

available øon the first¿ flby the nextfi 

business day after a deposit is made. This 

model may also be used by banks that 

provide øimmediate availability¿ flsameday for check depositsfi by substituting the 

øword ‘‘immediately’’¿ flphrase ‘‘the same 

business day’’fi in place of øon the first 

business day after the day we receive your 

deposit.’’¿ fl‘‘the next business day.’’fi 

3. Model C–2, Next-Day Availability and 

Section 229.13. Exceptions. A bank may use 

this model when its policy is to make funds 

from all flcheckfi deposits available to its 

customers øon the first¿ flby the nextfi 

business day after the deposit is made, and 

to reserve the right to invoke the newaccount and other exceptions in section 

229.13. In disclosing that a longer delay may 

apply, a bank may disclose when funds will 

generally be available based on when the 

funds would be available if the deposit were 

of flchecks other than next-day-availability 

checksfi øa nonlocal check¿. 

4. Modelflsfi C–3flAfi, Next-Day 

Availability, Case-by-Case Holds to Statutory 

Limits flon Check Deposits Without CashWithdrawal Limitationfi, and Section 229.13 

Exceptionsfl; and C–3B, Next-Day 

Availability, Case-by-Case Holds to Statutory 

Limits on Check Deposits With CashWithdrawal Limitation, and Section 229.13 

Exceptionsfi 

a. A bank may use øthis model¿ flthese 

modelsfi when its policy, in most cases, is 

to make funds from all types of deposits 

available flbyfi the day after the deposit is 

made, but to delay availability on some 

flcheckfi deposits on a case-by-case basis 

up to the maximum time periods allowed 

under the regulation. A bank using øthis 

model¿ flthese modelsfi also reserves the 

right to invoke the exceptions listed in 

section 229.13. øA bank using this model 

also reserves the right to invoke the 

exceptions listed in section 229.13.¿ In 

disclosing that a longer delay may apply, a 

bank may disclose when funds will generally 

be available based on when the funds would 

be available if the deposit were of flchecks 

other than next-day-availability checksfi øa 

nonlocal check¿. 

flb. Model availability-policy disclosure 

C–3A may be used by a bank that, when it 

delays availability of a check deposit on a 

case-by-case basis, does not impose the cashwithdrawal limitation permitted by section 

229.12(b), whereas model availability-policy 

disclosure C–3B may be used by a bank that 

does impose this limitation when it delays 

availability on a case-by-case basis. 

c. Models C–3A and C–3B include in 

brackets language related to check cashing, 

immediate availability, and holds on other 


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16972 Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 

funds. A bank that bases its disclosure on 

model C–3A or C–3B would include this 

bracketed text in its disclosure only if the 

text corresponds to the bank’s policy and 

practice. A bank that has such a policy, and 

that therefore includes this text in its 

disclosure, would include the text in the 

location indicated by the model. A bank that 

bases its availability-policy disclosure on 

model disclosure C–3A or C–3B and whose 

availability policy necessitates incorporation 

of one or more of the appendix’s model 

clauses (C–9, C–11, or C–11A) would append 

those model clauses to the end of the second 

page of model C–3A or C–3B.fi 

5. Modelflsfi C–4flAfi, Holds to 

Statutory Limits on All Deposits flWithout 

Cash-Withdrawal Limitation; and C–4B, 

Holds to Statutory Limits on All Deposits 

With Cash-Withdrawal Limitationfi 

fla.fi A bank may use øthis model¿ 

flthese modelsfi when its policy is to 

øimpose delays to the full extent¿ fldelay 

availability asfi allowed under section 

229.12 and to reserve the right to invoke the 

section 229.13 exceptions. In disclosing that 

a longer delay may apply, a bank may 

disclose when funds will generally be 

available based on when the funds would be 

available if the deposit were of flchecks 

other than next-day-availabilityfi øa 

nonlocal check¿. 

flb. Model availability-policy disclosure 

C–4A may be used by a bank that delays 

availability as allowed under section 229.12 

but does not impose the cash-withdrawal 

limitation permitted by section 229.12(b), 

whereas model availability-policy disclosure 

C–4B may be used by a bank that delays 

availability as allowed under section 229.12 

and does impose the cash-withdrawal 

limitation permitted by section 229.12(b). 

c. Models C–4A and C–4B include in 

brackets language related to check cashing, 

immediate availability, and holds on other 

funds. A bank that bases its disclosure on 

model C–4A or C–4B would include this 

bracketed text in its disclosure only if the 

text corresponds to the bank’s policy and 

practice. A bank that has such a policy and 

that therefore includes this text in its 

disclosure would include the text in the 

location indicated by the model. A bank that 

bases its availability-policy disclosure on 

model disclosure C–4A or C–4B and whose 

availability policy necessitates incorporation 

of one or more of the appendix’s model 

clauses (C–9, C–11, or C–11A) would append 

those model clauses to the end of the second 

page of model C–4A or C–4B.fi øModel C– 

4 uses a chart to show the bank’s availability 

policy for local and nonlocal checks, and 

model C–5 uses a narrative description. 

6. Model C–5A bank may use this form 

when its policy is to impose delays to the full 

extent allowed by section 229.12 and to 

reserve the right to invoke the section 229.13 

exceptions. In disclosing that a longer delay 

may apply, a bank may disclose when funds 

will generally be available based on when the 

funds would be available if the deposit were 

of a nonlocal check.¿ 

7. Model C–5øA¿fl, Substitute-CheckPolicy Disclosurefi A bank may use this 

form when it is providing the disclosure to 

its consumers required by section 229.57 

explaining that a substitute check is the legal 

equivalent of an original check and the 

circumstances under which the consumer 

may make a claim for expedited recredit. 

C. Model Clauses, Models C–6 through C– 

ø11A¿fl8fi 

1. Models C–6 through C-ø11A¿fl8fi. 

Generally. Certain clauses like those in the 

models must be incorporated into a bank’s 

availability-policy disclosure under certain 

circumstances. The commentary to each 

clause indicates when a clause similar to the 

model clause is required. flA bank for which 

one or more of these clauses is applicable 

would append the clause(s) to the end of its 

availability-policy disclosure.fi 

ø2. Model C–6, Holds on Other Funds 

(Check Cashing) 

A bank that reserves the right to place a 

hold on funds already on deposit when it 

cashes a check for a customer, as addressed 

in section 229.19(e), must incorporate this 

type of clause in its availability-policy 

disclosure. 

3. Model C–7, Holds on Other Funds (Other 

Account) 

A bank that reserves the right to place a 

hold on funds in an account of the customer 

other than the account into which the deposit 

is made, as addressed in section 229.19(e), 

must incorporate this type of clause in its 

availability-policy disclosure. 

4. Model C–8, Appendix B Availability 

(Nonlocal Checks) 

A bank in a check-processing region where 

the availability schedules for certain nonlocal 

checks have been reduced, as described in 

appendix B of Regulation CC, must 

incorporate this type of clause in its 

availability-policy disclosure. Banks using 

model C–5 may insert this clause at the 

conclusion of the discussion titled ‘‘Nonlocal 

Checks.’’ 

5.¿ fl2.fi Model C–ø9¿fl6fi, Automated 

Teller Machine Deposits (Extended Holds). A 

bank that reserves the right to delay 

availability of deposits at nonproprietary 

ATMs until the flfourthfiøfifth¿ business 

day following the date of deposit, as 

permitted by section 229.12(flbfiøf¿), must 

incorporate this type of clause in its 

availability-policy disclosure. A bank must 

choose among the alternative language based 

on how it chooses to differentiate between 

proprietary and nonproprietary ATMs, as 

required under section 229.16(b)(5). 

ø6. Model C–10, Cash-Withdrawal 

Limitation 

A bank that imposes cash-withdrawal 

limitations under section 229.12 must 

incorporate this type of clause in its 

availability-policy disclosure. Banks 

reserving the right to impose the cashwithdrawal limitation and using model C–3 

should disclose that funds may not be 

available until the sixth (rather than fifth) 

business day in the first paragraph under the 

heading ‘‘Longer Delays May Apply.’’¿ 

fl3fiø7¿. Model C–ø11¿fl7fi, Credit 

Union Interest-Payment Policy. A credit 

union subject to the notice requirement of 

section 229.14(b)(2) must incorporate this 

type of clause in its availability-policy 

disclosure. This model clause is only an 

example of a hypothetical policy. Credit 

unions may follow any policy for accrual 

provided the method of accruing interest is 

the same for cash and check deposits. 

fl4fiø8¿. Model C–ø11A¿fl8fi, 

Availability of Funds Deposited at Other 

Locations. A clause similar to model C– 

ø11A¿fl8fi should be used if a bank bases 

the availability of funds on the location 

where the funds are deposited ø(for example, 

at a contractual or other branch located in a 

different check-processing region). Similarly, 

a clause similar to model C–ø11A¿fl8fi 

should be used if a bank distinguishes 

between local and nonlocal checks (for 

example, a bank using model availabilitypolicy disclosure C–4flAfi and C– 

ø5¿fl4Bfi), and accepts deposits in more 

than one check-processing region¿. 

D. Model Notices, Models C–ø12¿fl9fi 

through C–ø25¿fl21fi 

1. Model Notices C–ø12¿fl9fi through C– 

ø25¿fl21fi Generally. Models C–ø12¿fl9fi 

through C–ø25¿fl21fi provide models for 

the various notices required by the 

regulation. A bank that cashes a check and 

places a hold on funds in an account of the 

customer (see section 229.19(e)) should 

modify the model hold notice accordingly. 

For example, the bank could replace the 

word ‘‘deposit’’ with the word ‘‘transaction’’ 

and could add the phrase ‘‘or cashed’’ after 

the word ‘‘deposited.’’ 

2. Model C–ø12¿fl9fi, Exceptionø–¿ flor 

Reasonable-Causefi Hold Notice. 

fla. i.fi This model satisfies the written 

notice required under section 229.13(g) when 

a bank places a hold based on a section 

229.13 exceptionfl, including the 

reasonable-cause exception. The model 

notice includes a location, indicated by 

‘‘(reason for hold),’’ in which the bank must 

insert the reason for placing the hold. The 

bulleted list below contains examples of 

reasons a bank may place a hold that could 

be inserted into the notice: 

(1) A check you deposited was previously 

returned unpaid. 

(2) You have overdrawn your account 

repeatedly in the last six months. 

(3) The checks you deposited on this day 

exceeded $5,000. 

(4) There is an emergency, such as a failure 

of computer or communications equipment. 

(5) We believe a check you deposited will 

not be paid, because (e.g., a reason from 

paragraph b). 

ii.fiIf a hold is being placed on more than 

one check in a deposit, each check need not 

be described, but if different reasons apply, 

each reason must be indicated. A bank may 

use the actual date when funds will be 

available for withdrawal rather than the 

number of the business day following the day 

of deposit. A bank ømust incorporate in the 

notice¿flmay usefi the material set out in 

brackets if it imposes overdraft or returnedcheck fees after invoking the reasonablecause exception under section 229.13(e). 

ø3. Model C–13,¿flb.fi Reasonable-Cause 

Hold Notice. øThis¿fli. Modelfi notice 

flC–9 alsofi satisfies the written notice 

required under section 229.13(g) when a 

bank invokes the reasonable-cause exception 

under section 229.13(e). The ønotice 

provides the bank with a list of¿ flmodel 

notice includes a location, indicated by 

‘‘(reason for hold),’’ in which the bank would 


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Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 16973 

insert thefi specific reasonøs that may be 

given¿ for invoking the exception. øIf a hold 

is being placed on more than one check in 

a deposit, each check must be described 

separately, and if different reasons apply, 

each reason must be indicated. A bank may 

disclose its reason for doubting collectibility 

by checking the appropriate reason on the 

model. If the ‘‘Other’’ category is checked, the 

reason must be given.¿ flThe list below 

provides examples of reasons that a bank 

could insert into the notice as its reason for 

doubting collectability: 

(1) We received notice that the check is 

being returned unpaid. 

(2) We have confidential information that 

indicates that the check may not be paid. 

(3) The check is drawn on an account with 

repeated overdrafts. 

(4) We are unable to verify a signature on 

the back of the check. 

(5) Some information on the check is not 

consistent with other information on the 

check. 

(6) There are apparent alterations on the 

check. 

(7) The routing number of the paying bank 

is not a current routing number. 

(8) The check is postdated. 

(9) The check has a stale date, that is, it 

was written too long ago and is expired. 

(10) We have been notified that the check 

has been lost or damaged in collection. 

ii. The above list is not intended to be 

comprehensive; another reason that does not 

appear in the list may be inserted in place 

of (‘‘reason for hold’’) provided the reason 

satisfies the conditions for invoking the 

reasonable cause exception. 

iii. If a hold is being placed on more than 

one check in a deposit, each check should be 

described separately, and if different reasons 

apply, each reason should be indicated.fi A 

bank may use the actual date when funds 

will be available for withdrawal rather than 

the number of the business day following the 

day of deposit. A bank ømust incorporate in 

the notice¿flmay usefi the material set out 

in brackets if it imposes overdraft or 

returned-check fees after invoking the 

reasonable-cause exception under section 

229.13(e). 

ø4¿fl3fi. Model C–ø14¿fl10fi, OneTime Notice for Large-Deposit and 

Redeposited-Check Exception Holds. This 

model satisfies the notice requirements of 

section 229.13(g)(2) concerning nonconsumer 

accounts. 

ø5¿fl4fi. Model C–ø15¿fl11fi, OneTime Notice for Repeated-Overdraft 

Exception Hold. This model satisfies the 

notice requirements of section 229.13(g)(3). 

ø6¿fl5fi. Modelflsfi C–ø16¿fl12Afi, 

Case-by-Case Hold Notice flWithout CashWithdrawal Limitation; and C– 

ø16B¿fl12Bfi, Case-by-Case Hold Notice 

With Cash-Withdrawal Limitation.fi øThis 

model¿ flThese modelsfi satisfies the 

notice required under section 229.16(c)(2) 

when a bank with a case-by-case hold policy 

imposes a hold on a deposit. flModel caseby-case hold notice C–12A may be used by 

a bank that imposes a case-by-case hold, but 

does not have a policy of imposing the cashwithdrawal limitation permitted by section 

229.12(b), whereas model notice C–12B may 

be used by a bank that imposes such a hold 

and does have such a policy. 

Section 229.16(c)(2)fi øThis notice¿ does 

not require a statement of the specific reason 

for the hold, as is the case when a section 

229.13 exception hold is placed. A bank may 

specify the actual date when funds will be 

available for withdrawal rather than the 

number of the business day following the day 

of deposit when funds will be available. A 

bank must incorporate in the notice the 

material set out in brackets if it imposes 

overdraft fees after invoking a case-by-case 

hold. 

ø7¿fl6fi. Model C–ø17¿fl13fi, Notice at 

Locations Where Employees Accept 

Consumer Depositsfl;fiø,¿ and Model C– 

ø18¿fl14fi, Notice at Locations Where 

Employees Accept Consumer Deposits (Caseby-Case Holds) 

fla.fi These models satisfy the notice 

requirement of section 229.18(b). Model C– 

ø17¿fl13fi reflects an availability policy of 

holds to statutory limits on all deposits, and 

model C–ø18¿fl14fi reflects a case-by-case 

availability policy. 

flb. i. Model C–13 indicates that funds 

from cash deposits and wire transfers will be 

available on the business day following 

receipt. A bank that uses this model but that 

makes funds from these types of deposits 

available the same day they are received— 

i.e., a bank that places holds to statutory 

limits only on check deposits—may modify 

the form accordingly to reflect the bank’s 

practice. In contrast, model C–14 indicates 

that funds from cash deposits and wire 

transfers will be available on the day 

received. A bank that uses this model should 

modify its disclosure to indicate that funds 

from these types of deposits will be available 

on the next day if that reflects the bank’s 

practice. A bank should ensure that its notice 

reflects the availability given in most cases 

for these types of deposits. 

ii. A bank that imposes cash-withdrawal 

limitations under section 229.12(b) should 

indicate that funds will generally be available 

by the third, rather than second, business day 

after the day of deposit, by replacing 

‘‘(number)’’ in the lower-right-hand box of the 

tables in the models with ‘‘third’’ (rather than 

second).fi 

ø8¿fl7fi. Model C–ø19¿fl15fi, Notice at 

Automated Teller Machinesfl.fi This model 

satisfies the ATM notice requirement of 

section 229.18(c)(1). 

ø9¿fl8fi. Model C–ø20¿fl16fi, Notice at 

Automated Teller Machines (Delayed 

Receipt)fl.fi This model satisfies the ATM 

notice requirement of section 229.18(c)(2) 

when receipt of deposits at off-premises 

ATMs is delayed under section 229.19(a)(4). 

It is based on collection of deposits once a 

week. If collections occur more or less 

frequently, the description of when deposits 

are received must be adjusted accordingly. 

ø10¿fl9fi. Model C–ø21¿fl22fi, DepositSlip Noticefl.fi This model satisfies the 

notice requirements of section 229.18(a) for 

deposit slips. 

ø11¿fl10fi. Models C–ø22¿fl18fi 

Through C–ø25¿fl21fi Generallyfl.fi 

Models C–ø22¿fl18fi through C– 

ø25¿fl21fi provide models for the various 

notices required when a consumer who 

receives substitute checks makes an 

expedited recredit claim under section 

229.54 for a loss related to a substitute check. 

The Check 21 Act does not provide banks 

that use these models with a safe harbor. 

However, the Board has published these 

models to aid banks’ efforts to comply with 

section 229.54(e). 

ø12¿fl11fi. Model C–ø22¿fl18fi, ValidClaim Refund Noticefl.fi A bank may use 

this model when crediting the entire amount 

or the remaining amount of a consumer’s 

expedited-recredit claim after determining 

that the consumer’s claim is valid. This 

notice could be used when the bank provides 

the consumer a full recredit based on a validclaim determination within ten days of the 

receipt of the consumer’s claim or when the 

bank recredits the remaining amount of a 

consumer’s expedited-recredit claim by the 

45th calendar day after receiving the 

consumer’s claim, as required under section 

229.54(e)(1). 

ø13¿fl12fi. Model C–ø23¿fl19fi, 

Provisional-Refund Noticefl.fi A bank may 

use this model when providing a full or 

partial expedited recredit to a consumer 

pending further investigation of the 

consumer’s claim, as required under section 

229.54(e)(1). 

ø14¿fl13fi. Model C–ø24¿fl20fi, Denial 

Noticefl.fi A bank may use this model 

when denying a claim for an expedited 

recredit under section 229.54(e)(2). 

ø15¿fl14fi. Model C–ø25¿fl21fi, 

Reversal Noticefl.fi A bank may use this 

model when reversing an expedited recredit 

that was credited to a consumer’s account 

under section 229.54(e)(3). 

37. Revise Appendix F to Part 229 to 

read as follows: 

flAppendix F to Part 229—Official 

Board Interpretations; Preemption 

Determinations 

Uniform Commercial Code, Section 4–213(5) 

1. State provision that may supersede 

Regulation CC 

Section 4–213(5) of the Uniform 

Commercial Code (‘‘U.C.C.’’) provides that 

money deposited in a bank is available for 

withdrawal as of right at the opening of 

business of the banking day after deposit. 

Although the language ‘‘deposited in a bank’’ 

is unclear, arguably it is broader than the 

language ‘‘made in person to an employee of 

the depositary bank,’’ which conditions the 

next-day availability of cash under 

Regulation CC (§ 229.10(a)(1)). Under 

Regulation CC, deposits of cash that are not 

made in person to an employee of the 

depositary bank must be made available by 

the second business day after the banking 

day of deposit (§ 229.10(a)(2)). Therefore, this 

provision of the U.C.C. may call for the 

availability of certain cash deposits in a 

shorter time than provided in Regulation CC. 

To the extent that section 4–213(5) of the 

U.C.C. requires certain cash deposits in a 

shorter time than provided in Regulation CC, 

that section supersedes Regulation CC. 

2. State provision superseded by 

Regulation CC 

Section 4–213(5) of the U.C.C., however, is 

subject to Section 4–103(1), which provides, 


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16974 Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 

in part, that ‘‘the effect of the provisions of 

this Article may be varied by agreement 

* * *.’’ The Regulation CC funds availability 

requirements may not be varied by 

agreement. Therefore, a depositary bank may 

agree to extend availability beyond the 

requirement of section 4–213(5), but may not 

agree with its customer under section 4– 

103(1) of the Code to extend availability 

beyond the time periods provided in 

§ 229.10(a) of Regulation CC. 

Other preemption determinations 

California 

California has three separate sets of 

regulations establishing maximum 

availability schedules, all adopted pursuant 

to California Financial Code section 866.5 

(which requires the banking commissioners 

to promulgate regulations establishing a 

reasonable period of time within which a 

depository institution must make deposited 

funds available to customers) and California 

Commercial Code section 4–213(4)(a), that 

were in effect on or before September 1, 

1989. The regulations applicable to 

commercial banks and branches of foreign 

banks (collectively, banks) located in 

California (Cal. Admin. Code tit. 10, 

§§ 10.190401–10.190402) were promulgated 

by the superintendent of banks. The 

regulations applicable to savings banks and 

savings and loan associations (collectively, 

savings institutions) (Cal. Admin. Code tit. 

10, §§ 106.200–106.202) were promulgated 

by the savings and loan commissioner. The 

regulations applicable to industrial loan 

companies (Cal. Admin. Code tit. 10, 

§ 40.101) were promulgated by the 

Commissioner of Corporations. California 

Financial Code section 867 also establishes 

availability periods for funds deposited by 

cashier’s check, certified check, teller’s 

check, or depository check under certain 

circumstances. Finally, California Financial 

Code section 866.2 establishes disclosure 

requirements. 

1. Funds availability periods 

A. Banks and savings institutions. 

The regulations applicable to California 

banks and savings institutions provide that a 

depositary bank shall make funds deposited 

into a deposit account available for 

withdrawal as provided in Regulation CC, 

subject to the following: 

Cashier’s checks, teller’s checks, certified 

checks, or depository checks. Section 867 of 

the California Financial Code requires 

depository institutions to make funds 

deposited by cashier’s check, teller’s check, 

certified check, or depository check available 

for withdrawal on the second business day 

following deposit, if certain conditions are 

met. The Regulation CC next-day availability 

requirement for cashier’s checks and teller’s 

checks applies only to those checks issued to 

a customer of the bank or acquired from the 

bank for remittance purposes. To the extent 

that the state’s second-day availability 

requirement applies to cashier’s and teller’s 

checks issued to a non-customer of the bank 

for other than remittance purposes, the state 

two-day requirement provides for holds of 

the same number of days as the federal 

schedules and therefore supersedes the 

federal schedules if the California regulations 

do not allow the funds to be made available 

later in the day than does Regulation CC. 

Checks drawn on in-state bank with a 

different four-digit routing symbol. California 

regulations require banks (not including 

savings institutions) to provide fourth 

business day availability of funds deposited 

into a bank with a four-digit routing symbol 

of 1210 (‘‘1210 bank’’) by a check drawn on 

an in-state bank with a four-digit routing 

symbol of 1220 (‘‘1220 bank’’). Similarly, a 

1220 bank that receives a check drawn on a 

1210, in-state bank may make the funds 

available for withdrawal by the fourth 

business day after the day of deposit. 

Regulation CC, however, provides that 

checks must be made available for 

withdrawal by the second business day after 

the banking day of deposit. Because 

California’s regulations permit depositary 

banks to make funds available within a 

longer period of time than the federal 

schedules, California’s regulations are 

superseded by the EFA Act and subpart B of 

Regulation CC. 

Paying bank. The California regulation 

uses the term paying bank when describing 

the institution on which these checks are 

drawn, but does not define paying bank or 

bank. Regulation CC’s definitions of paying 

bank and bank include savings institutions 

and credit unions as well as commercial 

banks and branches of foreign banks. 

However, because the California regulation 

makes separate provisions for checks drawn 

on savings institutions and credit unions, the 

Board concludes that the term paying bank, 

as used in the California regulation, includes 

only commercial banks and foreign bank 

branches. 

Exceptions to the availability schedules. 

Under the state preemption standards of 

Regulation CC (see § 229.20(c) and 

accompanying Commentary), for deposits 

subject to the state availability schedules, a 

state exception may be used to extend the 

state availability schedule up to the federal 

availability schedule. Once the deposit is 

held up to the federal availability schedule 

limit under a state exception, the depositary 

bank may further extend the hold under any 

federal exception that can be applied to the 

deposit. If no state exceptions exist, then no 

exceptions holds may be placed on deposits 

covered by state schedules. Thus, to the 

extent that California law provides for 

exceptions to the California schedules that 

supersede Regulation CC, those exceptions 

may be applied in order to extend the state 

availability schedules up to the federal 

availability schedules or such later time as is 

permitted by a federal exception. 

B. Industrial loan companies. 

Section 229.2(e)(1)(i) of Regulation CC, the 

term bank includes an insured bank as 

defined in section 3 of the Federal Deposit 

Insurance Act (12 U.S.C. 1813). That Act 

defines bank to include any State bank (12 

U.S.C. 1813(a)(1)(A)) and, in turn, defines 

State bank to include an industrial bank or 

similar depository institution that receives 

deposits and is incorporated under the laws 

of any state (12 U.S.C. 1813(a)(2)). The 

California regulations applicable to industrial 

loan companies set forth a funds availability 

schedule that does not incorporate the 

periods set forth in Regulation CC. 

Accordingly, the following preemption 

determination sets forth the provisions of 

state law that supersede federal law and 

those that are preempted by it. 

Check of $100 or less. California 

regulations require industrial loan companies 

to give next-day availability to a check of 

$100 or less. Therefore, the California 

provision supersedes the Regulation CC 

provision if on a single banking day multiple 

checks, each under $100, are deposited. 

U.S. Treasury, state and local government 

checks. California regulations require 

industrial loan companies to give next-day 

availability to items drawn by the State of 

California or any of its departments, agencies, 

or political subdivisions. Regulation CC 

conditions next-day availability on receipt of 

the deposit at a staffed teller station or use 

of a special deposit slip. Therefore, California 

law supersedes the federal law in that the 

state law does not condition next-day 

availability on receipt at a staffed teller 

station or use of a special deposit slip. 

On-us checks. California regulations 

require industrial loan companies to provide 

second business day availability to checks 

drawn on the depositary bank. Regulation CC 

requires next-day availability for checks 

deposited in a branch of the depositary bank 

and drawn on the same or another branch of 

the same bank. Thus, generally, the 

Regulation CC rule for availability of on-us 

checks preempts the California regulations. 

To the extent, however, that an on-us check 

is deposited at an off-premises ATM or 

another facility of the depositary bank that is 

not considered a branch under federal law, 

the state regulation supersedes the 

Regulation CC availability requirements. 

Cashier’s checks, teller’s checks, certified 

checks, or depository checks. Section 867 of 

the California Financial Code requires 

depository institutions to make funds 

deposited by cashier’s check, teller’s check, 

certified check, or depository check available 

for withdrawal on the second business day 

following deposit, if certain conditions are 

met. The Regulation CC next-day availability 

requirement for cashier’s checks and teller’s 

checks applies only to those checks issued to 

a customer of the bank or acquired from the 

bank for remittance purposes. To the extent 

that the state second-day availability 

requirement applies to cashier’s and teller’s 

checks issued to a non-customer of the bank 

for other than remittance purposes, the state 

two-day requirement provides for holds of 

the same number of days as the federal 

schedules and therefore supersedes the 

federal local and nonlocal schedules if the 

California regulations do not allow the funds 

to be made available later in the day than 

does Regulation CC. 

In-state and out-of-state checks. California 

regulations require industrial loan companies 

to make funds deposited by a check drawn 

on a depository institution in California 

available no later than the sixth business day 

after deposit. Industrial loan companies are 

required to make funds deposited by a check 

drawn on a depository institution outside of 

California available no later than the twelfth 

business day after deposit. Regulation CC, 

however, generally requires depositary banks 

to make funds deposited by a check drawn 

on any depository bank available no later 


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than the second business day after deposit. 

Accordingly, California’s regulation 

permitting longer holds by industrial loan 

companies is preempted by Regulation CC. 

Exceptions to the availability schedules. 

California regulations provide exceptions to 

the state availability schedules applicable to 

industrial loan companies for large deposits, 

new accounts, repeated overdrafters, 

doubtful collectibility, foreign items, and 

emergency conditions. In all cases where the 

federal availability schedule preempts the 

state schedule, only the federal exceptions 

will apply. For deposits that are covered by 

the state’s availability schedule (e.g., 

cashier’s or teller’s checks that are not 

deposited with a special deposit slip or at a 

staff teller station and on-us checks deposited 

at an off-premises ATM or another facility of 

the depositary bank that is not considered a 

branch under federal law), the state 

exceptions may be used to extend the state 

availability schedule up to the federal 

availability schedule. Once the deposit is 

held up to the federal availability limit under 

a state exception, the depositary bank may 

further extend the hold under any federal 

exception that can be applied to the deposit. 

Any time a depositary bank invokes an 

exception to extend a hold beyond the time 

periods otherwise permitted by law, it must 

give notice of the extended hold to its 

customer in accordance with § 229.13(g) of 

Regulation CC. 

2. Disclosures 

California law (Cal. Fin. Code § 866.2) 

requires depository institutions to provide 

written disclosures of their general 

availability policies to potential customers 

prior to opening any deposit account. The 

law also requires that preprinted deposit 

slips and ATM deposit envelopes contain a 

conspicuous summary of the general policy. 

Finally, the law requires depository 

institutions to provide specific notice of the 

time the customer may withdraw funds 

deposited by check or similar instrument into 

a deposit account if the funds are not 

available for immediate withdrawal. 

Section 229.20(c)(2) of Regulation CC 

provides that inconsistency may exist when 

a state law provides for disclosures 

concerning funds availability relating to 

accounts. California Financial Code § 866.2 

requires disclosures that differ from those 

required by Regulation CC and, therefore, is 

preempted to the extent that it applies to 

accounts as defined in Regulation CC. Thus, 

the state law continues to apply to savings 

accounts and other accounts not governed by 

Regulation CC disclosure requirements. 

The Department of Savings and Loan 

regulations provide that for those nontransaction accounts covered by state law but 

not by federal law, disclosures in accordance 

with Regulation CC will be deemed to 

comply with the state law disclosure 

requirements. To the extent that the 

Department of Savings and Loan regulations 

permit reliance on Regulation CC disclosures 

for transaction accounts and to the extent the 

state regulations survive the preemption of 

California Financial Code § 866.2, they are 

not preempted by, nor do they supersede, the 

federal law. The state law continues to apply 

to savings accounts and other nontransaction accounts not governed by 

Regulation CC disclosure requirements. 

3. Other general provisions 

Accounts. The California funds availability 

laws and regulations apply to accounts as 

defined by Regulation CC as well as savings 

accounts, as defined in the Board’s 

Regulation D (12 CFR 204.2(d)), negotiable 

order of withdrawal draft accounts, share 

draft accounts and other share accounts 

(other than time accounts). (California 

Financial Code section 886(b)) The funds 

availability schedules in Regulation CC apply 

only to accounts as defined in Regulation CC, 

which generally consist of transaction 

accounts. The California funds availability 

regulations continue to apply to deposits in 

savings and other accounts (such as accounts 

in which the account-holder is another bank) 

that are not accounts under Regulation CC. 

Under § 229.19(e) of Regulation CC (Holds on 

other funds), however, the federal availability 

schedules may apply to savings, time, and 

other accounts not defined as accounts under 

Regulation CC in certain circumstances. 

Business day/banking day. The definitions 

of business day and banking day in the 

California regulations are preempted by the 

Regulation CC definition of those terms. 

Thus, for determining whether the 

permissible hold under the California 

schedules supersedes the Regulation CC 

schedule, deposits are considered made on 

the specified number of business days 

following the banking day of deposit. 

Availability at start of day. The California 

regulations do not specify when during the 

day funds must be made available for 

withdrawal. Section 229.19(b) of Regulation 

CC provides that funds must be made 

available at the start of the business day. In 

those cases where federal and state law 

provide for holds for the same number of 

days, to the extent that the California 

regulations allow funds to be made available 

later in the day than does Regulation CC, the 

federal law would preempt state law. 

Checks. The California law applies to any 

Item (California Financial Code section 866.5 

and California Commercial Code section 

4213(4)(a)). The California Commercial Code 

defines item to mean any instrument for the 

payment of money even though it is not 

negotiable * * * (Cal. Com. Code section 

4104(g)). This term is broader in scope than 

the definition of check in the Act and 

Regulation CC. All of the regulations, 

however, define the term item to include 

checks, negotiable orders of withdrawal, 

share drafts, warrants, and money orders. As 

limited by the state regulations, the state law 

applies only to instruments that are also 

checks as defined in § 229.2(k) of Regulation 

CC. 

Illinois 

Section 4–213(5) of the U.C.C. as adopted 

in Illinois (Illinois Revised Statutes Chapter 

26, paragraph 4–213(5), enacted July 26, 

1988) provides that funds from deposits must 

be available in accordance with the 

provisions of the federal Expedited Funds 

Availability Act (Title VI of the Competitive 

Equality Banking Act of 1987) and the 

regulations promulgated by the Federal 

Reserve Board for the implementation of that 

Act. Therefore, Section 4–213(5) of the 

Illinois law does not supersede Regulation 

CC; and, because this provision of Illinois 

law does not permit funds to be made 

available for withdrawal in a longer period of 

time than required under the Act and 

Regulation, it is not preempted by Regulation 

CC. 

Maine 

Maine’s funds availability (Title 9–B 

MRSA section 241(5), adopted in 1985) 

requires Maine financial institutions to make 

funds deposited in a transaction account, 

savings account, or time account available for 

withdrawal within a reasonable period. The 

Maine statute gives the Superintendent of 

Banking for the State of Maine the authority 

to promulgate rules setting forth time 

limitations and disclosure requirements 

governing funds availability. Under the 

Superintendent of Banking’s regulations, 

effective July 1, 1987 (Regulation 18(IV)), and 

adopted amendments to this regulation, 

effective September 1, 1988, funds deposited 

to any deposit account in a Maine financial 

institution must be made available for 

withdrawal in accordance with the Act and 

Regulation CC (Regulation 18–IV(A)(1), 02– 

029–118 Me. Code. R. § IV). The state 

regulation provides that an institution’s 

funds availability policies for accounts 

subject to Regulation CC be disclosed in a 

manner consistent with the Regulation CC 

requirements. Funds availability policies for 

accounts not subject to Regulation CC must 

be disclosed in accordance with the state 

regulation (Regulation 18–IV(A)(2)). 

Funds availability and disclosures. The 

Maine regulation incorporates the Regulation 

CC availability and disclosure requirements 

with respect to deposits to accounts covered 

by Regulation CC. Because the state 

requirements are consistent with the federal 

requirements, the Maine regulation is not 

preempted by, nor does it supersede, the 

federal law. 

Accounts. The Maine funds availability 

law and regulations apply to accounts as 

defined by Regulation CC as well as savings 

accounts, as defined in the Board’s 

Regulation D (12 CFR 204.2(d)). The funds 

availability schedules in Regulation CC apply 

only to accounts as defined in Regulation CC, 

which generally consist of transaction 

accounts. The Maine funds availability law 

and regulations continue to apply to deposits 

in all accounts, including those that are not 

accounts under Regulation CC. Under 

§ 229.19(e) of Regulation CC (Holds on other 

funds), however, the federal availability 

schedules may apply to savings, time, and 

other accounts not defined as accounts under 

Regulation CC in certain circumstances. 

Massachusetts 

In 1988, Massachusetts amended its statute 

governing funds availability (Mass. Gen. L. 

ch. 167D, section 35). 

1. Funds availability periods 

Massachusetts requires banking 

institutions to make funds available for 

withdrawal in accordance with the EFA Act 

and Regulation CC. Massachusetts defines 

local originating depository institution (local 

paying bank in Regulation CC terminology) 

as a depository institution located in 

Massachusetts (as distinguished from a 

depository institution located in the same 


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16976 Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules 

check-processing region—the terminology 

the EFA Act uses). Regulation CC no longer 

distinguishes between ‘‘local’’ and ‘‘nonlocal’’ 

originating depository institutions, and 

therefore, the term ‘‘local originating 

depository institution’’ is no longer relevant 

for purposes of funds availability. Because 

the Massachusetts statute incorporates the 

Regulation CC availability requirements, the 

state requirements are consistent with the 

federal requirements, and the Massachusetts 

statute is not preempted by, nor does it 

supersede, the federal law. 

2. Disclosures 

The Massachusetts regulation incorporates 

the Regulation CC disclosure requirements 

with respect to both accounts covered by 

Regulation CC and savings and other 

accounts not governed by the federal 

regulation. Because the state requirements 

are consistent with the federal requirements, 

the Massachusetts regulation is not 

preempted by, nor does it supersede, the 

federal law. The Massachusetts disclosure 

rules would continue to apply to accounts 

not governed by the Regulation CC disclosure 

requirements. 

3. Other general provisions 

Accounts. The Massachusetts statute 

governs the availability of funds deposited in 

‘‘any demand deposit, negotiable order of 

withdrawal account, savings deposit, share 

account or other asset account.’’ Regulation 

CC applies only to accounts as defined in 

§ 229.2(a). Regulation CC does not affect the 

Massachusetts statute to the extent that the 

state law applies to deposits in savings and 

other accounts (including transaction 

accounts where the account holder is a bank, 

foreign bank, or the U.S. Treasury) that are 

not accounts under Regulation CC. Under 

§ 229.19(e) of Regulation CC, Holds on other 

funds, the federal availability schedules may 

apply to savings, time, and other accounts 

not defined as accounts under Regulation CC, 

in certain circumstances. 

New York 

In 1983, the New York State Banking 

Department, pursuant to section 14–d of the 

New York Banking law, issued regulations 

requiring that funds deposited in an account 

be made available for withdrawal within 

specified time periods, and provided certain 

exceptions to those availability schedules. 

Part 34 of the New York State Banking 

Department’s General Regulations 

established time frames within which 

commercial banks, trust companies, and 

branches of foreign banks (collectively, 

banks); and savings banks, savings and loan 

associations, and credit unions (collectively, 

savings institutions) must make funds 

deposited in customer accounts available for 

withdrawal. 

1. Funds availability periods 

The Banking Department amended part 34, 

effective September 1, 1988, generally to 

exclude accounts covered by Regulation CC 

from the scope of the state regulation, except 

for deposits drawn on non-local, but in-state, 

banks. The New York schedule for banks and 

savings institutions permits maximum holds 

on funds deposited by checks drawn on a 

nonlocal, but in state, bank or savings 

institution ranging from no later than the 

fourth business day (in the case of banks) to 

no later than the fifth business day (in the 

case of savings institutions). Because 

Regulation CC requires funds to be made 

available no later than the second business 

day (unless an exception applies, as 

discussed below), Regulation CC preempts 

the New York schedule for funds availability. 

Exceptions to the availability schedules. 

New York law provides exceptions to the 

state availability schedules for large deposits, 

new accounts, repeated overdrafters, 

doubtful collectibility, foreign items, and 

emergency conditions (part 34.5, renumbered 

from 34.4). In all cases where the federal 

availability schedule preempts the state 

schedule, only the federal exceptions will 

apply. Because the federal availability 

schedule preempts the state schedule for all 

cases, the New York exceptions do not apply. 

2. Disclosures 

The revised New York regulation does not 

contain funds availability disclosure 

requirements applicable to accounts subject 

to Regulation CC. 

3. Other provisions 

Accounts. The New York statute governs 

the availability of funds deposited in savings 

accounts and time deposits, as well as 

accounts as defined in § 229.2(a) of 

Regulation CC. Regulation CC applies only to 

accounts as defined in § 229.2(a). Regulation 

CC does not affect the New York statute to 

the extent that the state law applies to 

deposits in savings accounts and time 

deposits, which are not accounts under 

Regulation CC. Under § 229.19(e) of 

Regulation CC, Holds on other funds, the 

federal availability schedules may apply to 

savings, time, and other accounts not defined 

as accounts under Regulation CC, in certain 

circumstances. 

Items. The New York law and regulation 

apply to items deposited to accounts. Part 

34.3(e) defines item as a check, negotiable 

order of withdrawal or money order 

deposited into an account. The Board 

interprets the definition of item in New York 

law to be consistent with the definition of 

check in Regulation CC (§ 229.2(k)). 

By order of the Board of Governors of the 

Federal Reserve System, March 3, 2011. 

Robert deV Frierson, 

Deputy Secretary of the Board. 

[FR Doc. 2011–5449 Filed 3–24–11; 8:45 am] 

BILLING CODE 6210–01–P 


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