31376 Federal Register / Vol. 86, No. 111 / Friday, June 11, 2021 / Proposed Rules 

1See ‘‘Federal Reserve Actions To Support 

Interbank Settlement of Faster Payments, Request 

for Comments,’’ 84 FR 39297 (Aug. 9, 2019). 

2 ‘‘Service Details on Federal Reserve Actions To 

Support Interbank Settlement of Instant Payments,’’ 

85 FR 48522 (Aug. 11, 2020). 

FEDERAL RESERVE SYSTEM 

12 CFR Part 210 

[Regulation J; Docket No. R–1750] 

RIN 7100–AG16 

Collection of Checks and Other Items 

by Federal Reserve Banks and Funds 

Transfers Through Fedwire 

AGENCY: Board of Governors of the 

Federal Reserve System (Board). 

ACTION: Proposed rule, request for 

comment. 

SUMMARY: The Board is proposing 

amendments to Regulation J to govern 

funds transfers through the Federal 

Reserve Banks’ (Reserve Banks) new 

FedNowSM Service by establishing a 

new subpart C. The Board is also 

proposing changes and clarifications to 

subpart B, governing the Fedwire Funds 

Service, to reflect the fact that the 

Reserve Banks will be operating a 

second funds transfer service in 

addition to the Fedwire Funds Service, 

as well as proposing technical 

corrections to subpart A, governing the 

check service. 

DATES: Comments must be submitted by 

August 10, 2021. 

ADDRESSES: You may submit comments, 

identified by Docket No. R–1750; RIN 

7100–AG16, by any of the following 

methods: 

• Agency Website: http://www.federal

reserve.gov. Follow the instructions for 

submitting comments at http://

www.federalreserve.gov/generalinfo/ 

foia/ProposedRegs.cfm. 

• Email: regs.comments@

federalreserve.gov. Include the docket 

number and RIN in the subject line of 

the message. 

• Fax: (202) 452–3819 or (202) 452– 

3102. 

• Mail: Ann E. Misback, Secretary, 

Board of Governors of the Federal 

Reserve System, 20th Street and 

Constitution Avenue NW, Washington, 

DC 20551. 

All public comments will be made 

available on the Board’s website at 

http://www.federalreserve.gov/general

info/foia/ProposedRegs.cfm as 

submitted, unless modified for technical 

reasons or to remove sensitive personal 

information at the commenter’s request. 

Public comments may also be viewed 

electronically or in paper in Room 146, 

1709 New York Avenue NW, 

Washington, DC 20006, between 9:00 

a.m. and 5:00 p.m. on weekdays. 

FOR FURTHER INFORMATION CONTACT: Jess 

Cheng, Senior Counsel (202) 452–2309, 

Gavin L. Smith, Senior Counsel (202) 

452–3474, Legal Division, or Ian C.B. 

Spear, Manager (202) 452–3959, Kirstin 

E. Wells, Principal Economist (202) 

452–2962, Division of Reserve Bank 

Operations and Payment Systems; for 

users of Telecommunications Device for 

the Deaf (TDD) only, contact (202) 263– 

4869. 

SUPPLEMENTARY INFORMATION: 

I. Background 

Instant payment services have 

emerged globally over the past two 

decades to address the enhanced speed 

and convenience expected by the public 

for payment transactions in modern 

digital economies. Instant payments 

allow individuals and businesses to 

send and receive payments at any time 

of the day, on any day of the year, and 

to complete those payments within 

seconds (from the end user perspective) 

such that the beneficiary has access 

immediately to final funds, meaning 

funds they can use at that time. Beyond 

speed and convenience, instant 

payments can yield real economic 

benefits for individuals and businesses 

by providing them with more flexibility 

to manage their money and allowing 

them to make time-sensitive payments 

whenever needed. In light of these 

potential benefits, there is broad 

consensus within the U.S. payment 

community that, just as real-time 

services have become standard for other 

everyday activities, instant payment 

services have the potential to become 

widely used, resulting in a significant 

and positive impact on the U.S. 

economy. 

In 2019, the Board issued a Federal 

Register notice announcing that the 

Reserve Banks would develop a new 

interbank 24x7x365 real-time gross 

settlement service with integrated 

clearing functionality, called the 

FedNow Service, to support instant 

payments in the United States (the 2019 

Notice). The Board’s determination was 

based on the public benefits that the 

service would provide and the Board’s 

assessment that such a service would 

meet the requirements of the Depository 

Institutions Deregulation and Monetary 

Control Act of 1980, as well as the 

Board’s criteria for new or enhanced 

Federal Reserve payment services.1 The 

FedNow Service will operate alongside 

similar services provided by the private 

sector to provide core infrastructure 

supporting instant payments in the 

United States. In the 2019 Notice, the 

Board also requested comment on all 

aspects of the planned service. One 

proposed aspect was that banks would 

be required to make funds associated 

with individual instant payments 

available to their end-user customers 

immediately after receiving notification 

from the service that an instant payment 

had settled. 

In August 2020, the Board issued a 

subsequent Federal Register notice 

describing the FedNow Service details 

(the 2020 Notice), based on additional 

analysis informed by the comments 

received in response to the 2019 

Notice.2 In that notice, the Board 

approved, among other things, the 

aspect of immediate funds availability 

proposed in the 2019 Notice. The Board 

also indicated that it was assessing 

applicable laws and regulations, and, to 

the extent changes to the Board’s 

regulations were needed, including to 

clarify funds availability, the Board 

would request public comment. 

The Board has completed its 

assessment with respect to Regulation J 

and is issuing this request for comment 

on the regulation incorporating changes 

to provide a legal framework for the 

FedNow Service. The Board’s proposed 

amendments to Regulation J establish a 

new subpart C to govern funds transfers 

made through the FedNow Service and 

amend the title of the regulation. The 

Board is also proposing technical 

changes and clarifications to subpart B, 

which governs funds transfers through 

the Fedwire Funds Service, to reflect the 

fact that the Reserve Banks will be 

operating two funds transfer services. 

The Board is further proposing technical 

corrections to subpart A of the 

regulation, which governs the collection 

of checks and other items by the Reserve 

Banks. 

II. Overview of Proposed Regulation J 

Amendments 

Subpart B of Regulation J currently 

specifies the rules applicable to funds 

transfers handled by Reserve Banks over 

the Fedwire Funds Service. Subpart B 

would not apply to transfers over the 

new FedNow Service, which will be a 

separate funds transfer service operated 

by the Reserve Banks. The Board is 

proposing a new subpart C of Regulation 

J to provide a comprehensive set of rules 

governing funds transfers over the 

FedNow Service. As it did for subpart 

B, the Board proposes to adopt a 

commentary to subpart C that would 

constitute a Board interpretation of the 

regulation. 

In general, the proposed new subpart 

C of Regulation J specifies the terms and 

conditions under which Reserve Banks 


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3UCC Article 4A has been amended once, in 

2012. The 2012 amendments, as approved by the 

American Law Institute and the National 

Conference of Commissioners on Uniform State 

Laws, which is now also known as the Uniform 

Law Commission, were necessary to retain the 

coverage of non-consumer remittance transfers by 

UCC Article 4A in light of revisions to the 

Electronic Fund Transfer Act (‘‘EFTA’’), as 

amended by the Dodd-Frank Wall Street Reform 

and Consumer Protection Act. Those statutory 

changes brought certain non-consumer remittancerelated fund transfers under the scope of the EFTA 

and thus, absent amendment, would have been 

explicitly carved out from coverage by UCC Article 

4A. Regulation J was also amended in 2012 to 

similarly clarify that its provisions continue to 

apply to a Fedwire Funds transfer even if the funds 

transfer also meets the definition of ‘‘remittance 

transfer’’ under the EFTA. ‘‘Collection of Checks 

and Other Items by Federal Reserve Banks and 

Funds Transfers Through Fedwire: Elimination of 

‘‘As-of Adjustments’’ and Other Clarifications,’’ 77 

FR 21854 (Apr. 12, 2012). 

will process funds transfers over the 

FedNow Service, as well as grants the 

Reserve Banks authority to issue an 

operating circular for the FedNow 

Service, which would detail more 

specific terms and conditions governing 

the FedNow Service consistent with the 

proposed subpart. Additionally, 

proposed subpart C’s terms of service 

include a requirement for a FedNow 

participant that is the beneficiary’s bank 

to make funds available to the 

beneficiary immediately after it has 

accepted the payment order over the 

service. Proposed new subpart C also 

expands and clarifies the applicability 

of the Uniform Commercial Code (UCC) 

Article 4A to all transfers over the 

FedNow Service, subject to a limited 

number of modifications and 

clarifications that are consistent with 

the purposes of UCC Article 4A. 

UCC Article 4A, which has been 

adopted in all 50 states, provides 

comprehensive rules governing the 

rights and responsibilities of the parties 

to funds transfers. The rights and 

responsibilities covered in UCC Article 

4A include those with respect to the 

receipt, acceptance or rejection, and 

execution of a payment order and 

settlement of a payment obligation; 

liability for the late, erroneous, or 

improper execution of funds transfers; 

the risks of loss associated with an 

unauthorized payment order; the 

obligation to pay for and the right to 

receive payment for a payment order; 

and the effect of payment by funds 

transfer on any underlying obligation 

between an originator and a beneficiary 

of a funds transfer. 

The Board incorporated UCC Article 

4A, as approved by the American Law 

Institute and the National Conference of 

Commissioners on Uniform State Laws 

in 1989, into Regulation J for purposes 

of the Fedwire Funds Service and 

proposes to do the same for the FedNow 

Service. The Board believes that this 

incorporation is necessary to ensure that 

the law applicable to all transfers over 

the FedNow Service is consistent, 

predictable, and clear. The Board also 

proposes to replace the currently 

incorporated 1989 version of UCC 

Article 4A with the more recent 2012 

version and to set forth those provisions 

in Appendix A of part 210, rather than 

in Appendix B of subpart B where they 

are currently set forth.3

Other minor changes are also 

proposed to Regulation J to make 

clarifying amendments to subpart B and 

technical corrections in subpart A. The 

Board does not believe that the 

proposed amendments to subparts A 

and B would impose additional 

operating burdens on any parties. 

The Board requests comment on all 

aspects of the proposed amendment to 

Regulation J and the specific questions 

posed below. 

III. Section-by-Section Analysis 

A. Subparts A and B 

The Board is proposing technical 

corrections in subpart A of Regulation J 

to update cross-references to other 

regulations that are no longer current. 

Additionally, the Board is proposing 

amendments to subpart B, governing 

funds transfers through the Fedwire 

Funds Service, to reflect the fact that the 

Reserve Banks will be operating two 

separate funds transfer systems with the 

launch of the FedNow Service and 

distinguish between the two services. 

For example, the proposed amendments 

include clarifications to § 210.25(b) with 

respect to subpart B’s scope of 

application and modifications to the 

definitions of the following terms: 

Beneficiary, beneficiary’s bank, payment 

order, receiving bank, and sender. These 

proposed amendments are intended to 

clarify that the provisions of subpart B 

are limited to payment orders and 

parties to a funds transfer that are sent 

through the Fedwire Funds Service; 

payment orders and parties to a funds 

transfer that are sent through the 

FedNow Service, for example, would 

not be governed by subpart B. 

Additionally, the proposed 

amendments to subpart B include 

changes to update § 210.25(c), which 

authorizes Reserve Banks to issue 

operating circulars consistent with the 

subpart in connection with the Fedwire 

Funds Service. The proposed revisions 

explicitly authorize Reserve Banks to 

issue operating circulars that specify the 

time and method of receipt, execution, 

and acceptance of a payment order and 

settlement of a Reserve Bank’s payment 

obligation for purposes of UCC Article 

4A; specify service terms governing 

ancillary features of the Fedwire Funds 

Service; and provide for the acceptance 

of documents in electronic form to the 

extent any provision in UCC Article 4A 

requires an agreement or other 

document to be in writing. 

The proposed amendments to subpart 

B further include minor changes to 

§ 210.28(b)(3) to provide that the 

security interest that a sender grants to 

a Reserve Bank is with respect to all of 

the sender’s assets in the possession of, 

as well as in the control of, or held for 

the account of, the Reserve Bank; 

additional revisions are proposed to the 

commentary to that section to clarify its 

description of relevant UCC Article 4A 

provisions. 

Additionally, the proposed 

amendments to subpart B include a 

minor change to § 210.30 to clarify that 

a sender may not send a payment order 

to a Reserve Bank that specifies an 

execution date, nor may it specify a 

payment date, that is later than the day 

on which the payment order is issued, 

unless the Reserve Bank agrees with the 

sender in writing to follow such 

instructions. 

The proposed amendments to subpart 

B also include a clarifying revision to 

§ 210.32, which governs the payment of 

compensation by Reserve Banks in the 

form of interest. Section 210.32 provides 

that, when a Reserve Bank is obligated 

to pay compensation to another party in 

connection with its handling of a funds 

transfer under UCC Article 4A, the 

Reserve Bank shall pay compensation in 

the form of interest to its sender, its 

receiving bank, its beneficiary, or 

another party to the funds transfer that 

is entitled to such payment. The 

proposed revisions refer to these 

payments as ‘‘compensation’’ rather 

than interest payments. The Board 

believes this clarification would help 

remove any confusion that such 

payment is related to any purpose other 

than compensation, such as monetary 

policy transmission. 

Finally, the Board is proposing 

technical revisions in the commentary 

to subpart B to correct cross-references 

to UCC Article 1 and to update crossreferences to statutes and other 

regulations that are no longer current. 

B. Subpart C—Funds Transfers Through 

the FedNow Service 

The Board is proposing to amend 

Regulation J to establish a new subpart 

C governing funds transfers over the 

FedNow Service. Many of the concepts 

embodied in the proposed subpart C are 

similar to those currently in subpart B 


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4This example is only for illustrative purposes. 

Aspects of the arrangement would be different, for 

example, if either of the banks were to use an agent, 

service provider, or correspondent bank. 

of Regulation J. Like the Fedwire Funds 

Service, the FedNow Service is a realtime gross settlement system and a 

funds-transfer service under UCC 

Article 4A. However, a number of the 

proposed subpart C provisions have 

been tailored to the nature of the 

FedNow Service where it differs from 

that of the Fedwire Funds Service. 

In particular, the FedNow Service is 

designed for the end-to-end transfer to 

be completed in a matter of seconds, as 

described in the 2020 Notice. This 

means that the beneficiary’s bank would 

agree, as provided in proposed subpart 

C, that it will make funds available to 

the beneficiary immediately after it has 

accepted the payment order. 

Another difference between the 

FedNow Service and the Fedwire Funds 

Service is that the FedNow Service will 

accommodate participants that choose 

to settle their activity over the service in 

the master account of a correspondent 

bank. In contrast, participants in the 

Fedwire Funds Service are limited to 

settling their activity over that service in 

their own master account. The terms of 

proposed subpart C reflect the fact that 

FedNow Service will support this 

additional mechanism for settling 

obligations that arise between Reserve 

Banks and FedNow participants. 

Further, unlike the Fedwire Funds 

Service, which is designed to serve 

primarily as a large-value funds transfer 

system between institutional users, the 

FedNow Service is designed to also 

accommodate consumer use. Therefore, 

in the event that a transfer over the 

FedNow Service meets the definition of 

‘‘electronic fund transfer’’ under the 

Electronic Fund Transfer Act (EFTA), 

proposed subpart C provides that it 

would apply to the transfer but the 

EFTA would prevail to the extent of any 

inconsistency, as discussed further later. 

Section 210.40 Authority, Purpose, 

and Scope 

This proposed section summarizes the 

Board’s authority to adopt this 

regulation and provides a description of 

how the subpart is organized. Similar to 

the rules governing the Fedwire Funds 

Service in subpart B, new subpart C 

would incorporate those provisions of 

UCC Article 4A (as set forth in an 

appendix to Regulation J) into subpart C 

that are not inconsistent with the 

provisions set forth expressly in subpart 

C. 

Specifically, proposed subpart C 

provides that UCC Article 4A applies to 

all funds transfers over the FedNow 

Service, including a transfer from a 

consumer originator or a transfer to a 

consumer beneficiary that is carried out 

through the FedNow Service. Such a 

consumer transaction could potentially 

be subject to the EFTA. By its terms, 

UCC Article 4A would not apply to a 

funds transfer any part of which is 

governed by the EFTA. Therefore, 

absent this proposed section in subpart 

C, a number of important legal aspects 

with respect to these consumer transfers 

over the FedNow Service could 

potentially lack clear and consistent 

rules. 

This proposed section provides that 

all transfers over the FedNow Service, 

including those transfers any portion of 

which is governed by the EFTA, are 

covered by subpart C (which 

incorporates UCC Article 4A by 

reference); however, in the event of an 

inconsistency between the provisions of 

subpart C and the EFTA, the proposed 

section provides that the EFTA would 

prevail to the extent of the 

inconsistency. The commentary 

accompanying this proposed provision 

in subpart C provides an illustrative 

example. The Board believes this 

proposed provision is necessary in order 

to provide a clear, consistent, and 

comprehensive set of rules for all funds 

transfers over the FedNow Service, 

consistent with the EFTA and the 

purposes of UCC Article 4A. 

This proposed section also specifies 

the parties subject to proposed subpart 

C with respect to the FedNow Service. 

These parties would include senders 

that send payment orders to a Reserve 

Bank over the service, receiving banks 

that receive payment orders from a 

Reserve Bank over the service, 

beneficiaries that receive payment for 

payment orders by means of a credit to 

their settlement account with a Reserve 

Bank, and Reserve Banks that send or 

receive payment orders over the 

FedNow Service. 

For example, suppose that Payor has 

an account with Bank A and instructs 

Bank A to pay $1,000 to Payee’s account 

at Bank B, and Bank A carries out 

Payor’s instruction using the FedNow 

Service.4 Suppose further that Bank A 

and Bank B maintain accounts on the 

books of different Reserve Banks. In this 

example, the Reserve Bank of Bank A 

and the Reserve Bank of Bank B would 

be intermediary banks; Bank A would 

be the sender with respect to the 

payment order that it sends to its 

Reserve Bank; Bank B would be the 

receiving bank with respect to the 

payment order that it receives from its 

Reserve Bank. 

In this example, the Reserve Banks of 

Bank A and Bank B would be subject to 

proposed subpart C, because they are 

Reserve Banks sending or receiving 

payment orders over the FedNow 

Service. It is possible that a Reserve 

Bank may also be subject to subpart C 

in its capacity as a beneficiary’s bank 

with respect to a payment order (e.g., 

interbank credit transfers between 

FedNow participants). For other 

capacities, however, a Reserve Bank 

would not be a party to the funds 

transfer for purposes of proposed 

subpart C and UCC Article 4A. For 

example, if a sender settles its activity 

over the FedNow Service in the account 

of a correspondent bank, the sender’s 

Reserve Bank would be an intermediary 

bank in the funds transfer chain, but the 

Reserve Bank of the correspondent bank 

would not be a sender or receiving bank 

with respect to the payment order and 

would not be a party to the funds 

transfer. 

Under the proposed section, subpart C 

would also apply to any party to a funds 

transfer sent through the FedNow 

Service that is in privity (i.e., has a 

contractual relationship) with a Reserve 

Bank in the funds transfer chain. Other 

parties to a funds transfer sent through 

the FedNow Service (i.e., a party not in 

privity with a Reserve Bank, such as 

Payor and Payee in the example above) 

would be covered by this proposed 

subpart only under certain 

circumstances. If these remote parties 

have notice that the FedNow Service 

might be used for their funds transfer 

and that subpart C is the governing law 

with respect to the transfer over the 

FedNow Service, then proposed subpart 

C would govern their rights and 

obligations with respect to the FedNow 

Service. However, it is possible for that 

remote party to expressly select by 

agreement a governing law other than 

subpart C with respect to its rights and 

obligations in connection with that 

transfer. For example, Payor and Bank A 

in the example above could make an 

agreement selecting the law of a 

particular jurisdiction, and not subpart 

C, to govern rights and obligations 

between each other. In that event, the 

law of that jurisdiction would govern 

those rights and obligations, and not 

subpart C, even if the remote party 

(Payor) had notice that the FedNow 

Service may be used and that subpart C 

is the governing law with respect to the 

transfer over the FedNow Service. 

Finally, this proposed section 

authorizes Reserve Banks to issue 

operating circulars which would detail 

more specific terms and conditions 

governing the FedNow Service 

consistent with the proposed subpart. 


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Similar to the rules governing the 

Fedwire Funds Service in subpart B and 

the proposed clarifying edits to subpart 

B, new subpart C would authorize the 

Reserve Banks to issue operating 

circulars with respect to the FedNow 

Service that may set cut-off hours and 

funds-transfer business days; address 

security procedures offered by the 

Reserve Banks to verify the authenticity 

of a payment order; specify format and 

media requirements for payment orders; 

identify messages that are not payment 

orders; specify the time and method of 

receipt, execution, and acceptance of a 

payment order and settlement of a 

Reserve Bank’s payment obligation for 

purposes of UCC Article 4A; specify 

service terms governing ancillary 

features of the FedNow Service; provide 

for the acceptance of documents in 

electronic form to the extent any 

provision in UCC Article 4A requires an 

agreement or other document to be in 

writing; and impose charges for funds 

transfer services. 

Reflecting aspects where the FedNow 

Service differs from the Fedwire Funds 

Service, the proposed section further 

provides that Reserve Bank operating 

circulars governing the FedNow Service 

may also prescribe time limits for the 

processing of payment orders. 

Section 210.41 Definitions 

This proposed section defines the 

terms used in the regulation. Similar to 

subpart B, proposed subpart C generally 

incorporates the definitions set forth in 

UCC Article 4A (e.g., beneficiary, 

intermediary bank, receiving bank, and 

security procedure), in some instances 

with modifications. Specifically, the 

proposed subpart modifies the 

definitions of five UCC Article 4A 

terms: Beneficiary, beneficiary’s bank, 

payment order, receiving bank, and 

sender. In general, these modifications 

are intended to clarify that, for the 

purposes of subpart C, these terms 

would be limited to payment orders and 

parties in a funds transfer that are sent 

through the FedNow Service. Parties to 

a funds transfer that is sent through the 

Fedwire Funds Service, for example, 

would not be a ‘‘beneficiary,’’ 

‘‘beneficiary’s bank,’’ ‘‘receiving bank,’’ 

or ‘‘sender’’ as those terms are defined 

in proposed subpart C. 

This proposed section also includes 

definitions of other terms not defined in 

UCC Article 4A, including ‘‘sender’s 

settlement account,’’ ‘‘receiving bank’s 

settlement account,’’ and ‘‘beneficiary’s 

settlement account.’’ These terms reflect 

the fact that a FedNow participant may 

settle its activity over the FedNow 

Service in either its master account with 

a Reserve Bank or, alternatively, the 

master account of a correspondent bank 

with a Reserve Bank. Whether it is its 

own master account or that of a 

correspondent, a FedNow participant 

would need to designate a settlement 

account on the books of a Reserve Bank 

that the Reserve Banks may use to settle 

the participant’s activity over the 

FedNow Service. 

This proposed section also includes a 

definition of the term ‘‘Federal Reserve 

Bank’’ with respect to an entity, which 

is not a term defined in UCC Article 4A. 

In instances where a FedNow 

participant maintains an account with a 

Reserve Bank, this proposed section 

takes an approach similar to the rules 

governing the Fedwire Funds Service in 

subpart B. In those instances, the term 

‘‘Federal Reserve Bank’’ with respect to 

the FedNow participant means the 

Reserve Bank at which the participant 

maintains an account. To reflect the fact 

that the FedNow Service will also 

accommodate participants that choose 

to settle their activity over the service in 

the master account of a correspondent 

bank, the proposed definition also 

addresses instances where a FedNow 

participant does not maintain a master 

account with a Reserve Bank. In those 

instances, the term ‘‘Federal Reserve 

Bank’’ with respect to that participant 

means the Reserve Bank in whose 

District the participant is located, as 

determined under the procedure 

described in Part 204 of this chapter 

(Regulation D), even if the participant is 

not otherwise subject to that section. As 

noted above, the Reserve Bank of the 

participant would be a party to the 

funds transfer, but the Reserve Bank of 

its correspondent bank would not be a 

party to the funds transfer. 

Section 210.42 Reliance on Identifying 

Number 

This proposed section provides that a 

Reserve Bank may rely on the number 

in the payment order identifying the 

beneficiary’s bank or the beneficiary, 

consistent with UCC Article 4A. As a 

practical matter, reliance on identifying 

numbers enables banks to more 

efficiently process payment orders by 

automated means. Rather than manual 

processing of payment orders with 

human reading of the contents of the 

order, banks typically use machines to 

read orders that, using a standard 

format, identify the beneficiary’s bank 

by routing number or the beneficiary by 

the number of a bank account, or by 

other identifying number. This standard 

format might also allow for the 

inclusion of additional information in 

the payment order (e.g., the name of the 

beneficiary’s bank or the beneficiary) 

that can be useful for reference, even if 

not relied upon to process the payment 

order. 

If a payment order contains both the 

identifying number and the name of the 

beneficiary’s bank or beneficiary 

supplied by the originator of the funds 

transfer, it might be possible for a 

receiving bank processing the order to 

detect an inconsistency and determine 

that the name and number do not refer 

to the same party. UCC Article 4A 

provides that a bank is under no duty 

to make such a determination that the 

identifying number and name refer to 

the same party in processing the 

payment order. If such a duty were 

imposed, the benefits of automated 

payments would be significantly lost; 

these benefits include the substantial 

economies of operation and the 

reduction in the possibility of clerical 

error. Rather, UCC Article 4A allows 

receiving banks to act on the basis of the 

identifying number, without regard to 

name provided in the payment order, so 

long as the bank does not know the 

name and number refer to different 

parties. 

Consistent with UCC Article 4A, 

proposed § 210.42 provides that a 

Reserve Bank, as receiving bank, may 

rely on the routing number of the 

beneficiary’s bank specified in a 

payment order as identifying the 

appropriate beneficiary’s bank, even if 

the payment order identifies another 

bank by name, provided that the 

Reserve Bank does not know of the 

inconsistency. Similarly, a Reserve 

Bank, where it acts as the beneficiary’s 

bank, may rely on the number 

identifying a beneficiary, such as the 

beneficiary’s account number, specified 

in a payment order as identifying the 

appropriate beneficiary, even if the 

payment order identifies another 

beneficiary by name, provided that the 

Reserve Bank does not know of the 

inconsistency. 

The proposed section also serves to 

provide notice to nonbank senders that 

send payment orders directly to a 

Reserve Bank through the FedNow 

Service that the Reserve Bank may rely 

on the numbers in the payment orders 

identifying the beneficiary’s bank and 

the beneficiary. 

Section 210.43 Agreement of Sender 

Proposed § 210.43 describes when an 

obligation to pay arises for FedNow 

participants that send a payment order 

over the FedNow Service and how that 

obligation is discharged. Under that 

proposed section, when a sender sends 

a payment order to a Reserve Bank over 

the FedNow Service and the Reserve 

Bank accepts the payment order, the 

sender has an obligation to pay the 


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Reserve Bank for the amount of the 

payment order. This proposed section 

further specifies that the obligation of 

the sender is paid by a debit to the 

settlement account of the sender. This 

approach is generally similar to that 

taken by subpart B for the Fedwire 

Funds Service, but it has been adjusted 

to reflect the fact that the FedNow 

Service will accommodate participants 

that choose to settle their activity over 

the service in the master account of a 

correspondent bank. The proposed 

section, therefore, provides that the 

sender authorizes its Reserve Bank to 

obtain payment for a payment order by 

debiting, or causing another Reserve 

Bank (i.e., the Reserve Bank of the 

correspondent bank, if one is used) to 

debit, the amount of the payment order 

from the settlement account. 

In addition, this proposed section 

includes provisions addressing 

overdrafts, taking an approach similar to 

that of subpart B, with adjustments to 

reflect the fact that the participant 

activity over the FedNow Service will 

settle in settlement accounts designated 

by the FedNow participant. The 

proposed section establishes that a 

sender does not have a right to an 

overdraft in its settlement account and 

sets out the sender’s obligations to 

ensure there are sufficient funds in its 

settlement account and to cover any 

overdraft by the time the overdraft 

becomes due and payable. This section 

also provides a Reserve Bank with a 

security interest in the sender’s assets 

held at any Reserve Bank to secure any 

obligation owed and also specifies the 

actions a Reserve Bank may take to 

recover the amount of an overdraft, 

including set-off and realization of 

collateral. Finally, this proposed section 

clarifies that settlement accounts could 

be subject to overdraft charges, where 

applicable. 

Section 210.44 Agreement of 

Receiving Bank 

With respect to FedNow participants 

that receive payment orders over the 

service and accept the order, § 210.44 

specifies how the participant receives 

payment. The proposed section 

provides that for payment orders that a 

receiving bank receives from a Reserve 

Bank over the FedNow Service, 

payment for the order is made by credit 

to the settlement account of the 

receiving bank. This approach is 

generally similar to that taken by the 

rules governing the Fedwire Funds 

Service in subpart B, with adjustments 

to reflect the fact that the FedNow 

Service will accommodate settlement in 

a participant’s own master account or, if 

the participant chooses, the master 

account of a correspondent bank. 

Specifically, the proposed section 

provides that the receiving bank 

authorizes its Reserve Bank to pay for 

the payment order by crediting, or 

causing another Reserve Bank (i.e., the 

Reserve Bank of the correspondent 

bank, if one is used), to credit the 

amount of the payment order to the 

settlement account. 

The proposed section also includes a 

requirement for a FedNow participant 

that is the beneficiary’s bank to make 

funds available to the beneficiary 

immediately after its acceptance of the 

payment order over the service. As 

noted above, this requirement reflects 

the fact that an end-to-end transfer over 

the FedNow Service is intended to be 

completed in a matter of seconds. Under 

the proposed section, if a FedNow 

participant accepts a payment order 

over the service, it must pay the 

beneficiary by crediting the 

beneficiary’s account, and it must do so 

immediately after its acceptance of the 

payment order. The Board specifically 

requests comment on whether the 

regulation should set out specific time 

parameters to clarify the meaning of 

‘‘immediately’’ as used in this funds 

availability requirement and, if so, 

whether a timeframe of within seconds 

or, alternatively, within one minute 

after the bank has accepted the payment 

order would be reasonable. 

Relatedly, the proposed section states 

that the rights and obligations with 

respect to the availability of funds are 

also governed by the Expedited Funds 

Availability Act (EFAA) and its 

implementing regulation, Regulation 

CC. Regulation CC provides that funds 

received by a bank by an electronic 

payment shall be available for 

withdrawal not later than the business 

day after the banking day on which such 

funds are received. The proposed new 

subpart C would require funds to be 

made available on a more prompt basis 

than the availability requirements of the 

EFAA and Regulation CC. Proposed 

§ 210.44 therefore clarifies that the 

EFAA and Regulation CC requirements 

continue to apply independently of 

subpart C. The proposed commentary 

provides an example where a 

beneficiary’s bank has failed to satisfy 

the immediate funds availability 

requirement under proposed subpart C, 

even if it has satisfied its obligations 

under Regulation CC. 

The proposed section also clarifies 

that the obligation for the beneficiary’s 

bank to provide immediate funds 

availability to the beneficiary does not 

affect any liability of the beneficiary’s 

bank to the beneficiary, or any party 

other than a Reserve Bank, under UCC 

Article 4A or other law. The Board 

believes that the bank-customer 

relationship should be governed by 

existing law, rather than the funds 

availability timing requirement that 

would apply to a FedNow participant as 

a term of the service. The proposed 

commentary explains that the timing 

requirement in this section does not 

create any new rights that the 

beneficiary may assert against the 

beneficiary’s bank or otherwise alter any 

rights of the beneficiary under UCC 

Article 4A or other applicable law. 

Finally, the proposed section 

addresses certain circumstances in 

which a FedNow participant that is the 

beneficiary’s bank requires additional 

time to determine whether to accept the 

payment order because it has reasonable 

cause to believe that the beneficiary is 

not entitled or permitted to receive 

payment. In those circumstances, if the 

FedNow participant notifies its Reserve 

Bank that it requires additional time, the 

FedNow participant would not be 

deemed to have accepted the payment 

order at such time as would otherwise 

be considered acceptance of the 

payment under proposed subpart C (i.e., 

when it receives payment from its 

Reserve Bank). The proposed 

commentary provides an example of 

when this provision might apply: When 

the beneficiary’s bank has reasonable 

cause to believe that making funds 

available to the beneficiary may violate 

applicable U.S. sanctions. The Board 

specifically requests comment on 

whether this proposed section is 

sufficient to cover the likely range of 

circumstances where a FedNow 

participant may need additional time to 

determine whether to accept a payment 

order. 

Section 210.45 Payment Orders 

This proposed section sets forth the 

terms under which a Reserve Bank will 

accept payment orders from a sender 

over the FedNow Service. Similar to the 

rules governing the Fedwire Funds 

Service in subpart B, this proposed 

section provides that a sender must 

make arrangements with its Reserve 

Bank before it may send payment orders 

over the FedNow Service. 

Also similar to subpart B, this 

proposed section provides that a 

Reserve Bank may reject any payment 

order or impose conditions on the 

acceptance of payment orders over the 

FedNow Service for any reason. The 

proposed commentary provides 

examples of when rejections might 

occur with respect to insufficient funds 

in the sender’s settlement account and 

the lack of a required agreement 

concerning security procedures, which 


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5This does not prevent FedNow participants from 

implementing procedures to resolve erroneous 

payments, or impede the ability of the receiving 

bank to initiate a new transfer to return funds in 

certain circumstances. 

6As a point of comparison, under the Faster 

Payments Effectiveness Criteria adopted by the 

Faster Payments Task Force in 2015, a payment 

solution would be considered ‘‘very effective’’ in 

satisfying the criterion of fast availability of good 

funds to the payee if funds are available to the 

payee within one minute from payment initiation. 

The Faster Payments Task Force was a broad and 

inclusive group of payment industry stakeholders 

convened by the Federal Reserve to collaboratively 

identify and evaluate alternative approaches to 

implementing safe, ubiquitous, faster payments 

capabilities in the United States. The Faster 

Payments Effectiveness Criteria is available at 

https://fedpaymentsimprovement.org/wp-content/ 

uploads/fptf-payment-criteria.pdf. 

mirror the commentary examples in 

subpart B. The proposed commentary 

also includes a further example of when 

a rejection may occur: When a payment 

order is not successfully processed 

within time limits established by the 

Reserve Banks, which reflects the fact 

that the FedNow Service is designed for 

the end-to-end transfer to be completed 

in a matter of seconds. 

This proposed section also provides 

terms with respect to the selection of an 

intermediary bank for a transfer over the 

FedNow Service. It takes a similar 

approach to that of subpart B with 

respect to the Fedwire Funds Service, 

with adjustments to reflect that the fact 

that for the FedNow Service, the 

Reserve Banks will be the only 

intermediary banks in the funds transfer 

chain. Reflecting this transaction 

structure for transfers over the FedNow 

Service, the proposed section provides 

that a FedNow participant may not send 

a payment order to a Reserve Bank that 

requires the Reserve Bank to issue a 

payment order to an intermediary bank 

other than another Reserve Bank. This 

proposed section also provides that a 

sender may not send a value-dated 

payment order through the FedNow 

Service, unless the Reserve Bank agrees 

with the sender in writing to follow 

such instructions. 

Section 210.46 Payment by a Federal 

Reserve Bank to a Receiving Bank or 

Beneficiary 

This proposed section addresses the 

timing of when a Reserve Bank makes 

payment to a receiving bank (when the 

Reserve Bank is an intermediary bank) 

or beneficiary (when the Reserve Bank 

is the beneficiary’s bank). It adopts a 

similar approach as that taken by 

subpart B for the Fedwire Funds 

Service, but it has been adjusted to 

reflect the fact that the FedNow Service 

will also accommodate participants that 

choose to settle their activity over the 

service in the master account of a 

correspondent bank. The proposed 

section, therefore, provides that 

payment to a FedNow participant by 

Reserve Banks is final at the earlier of 

the time when the amount of the 

payment order is credited to the 

FedNow participant’s settlement 

account (which may be the participant’s 

own master account or the master 

account of its correspondent bank), or 

the time when the Reserve Bank sends 

to the FedNow participant either a 

conforming payment order or, in 

instances where the FedNow participant 

is the beneficiary, a notice of the credit. 

This payment would be final and 

irrevocable when made.5

Section 210.47 Federal Reserve Bank 

Liability; Payment of Compensation 

This proposed section addresses 

liability of the Reserve Banks, similar to 

the rules governing the Fedwire Funds 

Service in subpart B. It provides that, in 

connection with its handling of a 

payment order, a Reserve Bank shall not 

agree to be liable to a sender, receiving 

bank, beneficiary, or other Reserve Bank 

for consequential damages resulting 

from the Reserve Bank’s failure to 

execute a payment order. This proposed 

section is consistent with the 

presumption in UCC Article 4A, under 

which damages for a receiving bank’s 

failure to execute a payment order that 

it was obligated to execute by express 

agreement do not include consequential 

damages, unless they are provided for in 

an express written agreement of the 

receiving bank. This proposed section is 

not intended to affect the liability of 

parties more broadly. For example, it is 

not intended to affect the ability of 

parties to a funds transfer other than a 

Reserve Bank to agree to be liable for 

consequential damages. 

Finally, this proposed section 

provides that where a Reserve Bank is 

obligated under UCC Article 4A to 

provide compensation in the form of 

interest to another party in connection 

with its handling of a funds transfer 

over the FedNow Service, the Reserve 

Bank may do so. In such cases where a 

Reserve Bank provides compensation in 

the form of interest, interest would be 

calculated in accordance with Article 

4A. This proposed section adopts rules 

similar to the rules governing the 

Fedwire Funds Service in subpart B, 

with the proposed clarifying 

amendments to subpart B described 

above. 

IV. Request for Comment 

The Board requests comment on all 

aspects of the proposed amendments to 

Regulation J. The Board also requests 

comment on the following specific 

questions: 

1. The proposed regulation requires a 

FedNow participant that is a 

beneficiary’s bank to make funds 

available to the beneficiary immediately 

after it has accepted the payment order 

over the FedNow Service. 

a. Should the Board set out specific 

time parameters to clarify the meaning 

of ‘‘immediately’’ as used in this funds 

availability requirement? Why or why 

not? 

b. What would be the benefits and 

drawbacks of specifying that 

‘‘immediately’’ as used in this 

requirement means that the 

beneficiary’s bank must make funds 

available to the beneficiary within 

seconds or, alternatively, within one 

minute after it has accepted the 

payment order over the FedNow 

Service? 6 Or, is there another way for 

the Board to specify the funds 

availability timeframe that is consistent 

with improving the speed of the end-toend process for an instant payment 

service and continues to align with 

prevailing market practices over time? 

2. The proposed regulation 

accommodates a feature of the FedNow 

Service under which a FedNow 

participant that is the beneficiary’s bank 

may notify its Reserve Bank that it 

requires additional time to determine 

whether to accept the payment order 

over the FedNow Service because it has 

reasonable cause to believe that the 

beneficiary is not entitled or permitted 

to receive payment. Are there other 

circumstances where a beneficiary’s 

bank should have additional time to 

determine whether to accept a payment 

order? If so, what are those 

circumstances? 

V. Competitive Impact Analysis 

The Board conducts a competitive 

impact analysis when it considers an 

operational or legal change, if that 

change would have a direct and material 

adverse effect on the ability of other 

service providers to compete with the 

Federal Reserve in providing similar 

services due to legal differences or due 

to the Federal Reserve’s dominant 

market position deriving from such legal 

differences. All operational or legal 

changes having a substantial effect on 

payments-system participants will be 

subject to a competitive-impact analysis, 

even if competitive effects are not 

apparent on the face of the proposal. If 

such legal differences exist, the Board 

will assess whether the same objectives 

could be achieved by a modified 


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7Federal Reserve Regulatory Service, 7–145.2. 

8See 44 U.S.C. 3502(3). 

proposal with lesser competitive impact 

or, if not, whether the benefits of the 

proposal (such as contributing to 

payments-system efficiency or integrity 

or other Board objectives) outweigh the 

materially adverse effect on 

competition.7

The Board does not believe that the 

proposed amendments to Regulation J 

will have a direct and material adverse 

effect on the ability of other service 

providers to compete effectively with 

the Reserve Banks in providing similar 

services due to legal differences. The 

proposed rule incorporates UCC Article 

4A, with revisions to reflect the nature 

of funds transfers over the FedNow 

Service and consistent with the 

purposes of UCC Article 4A. The 

proposed amendments do not govern 

similar services provided by privatesector providers. The proposed 

amendments also do not include 

provisions that a private-sector provider 

of similar services could not also adopt 

to similar effect through rules or 

operating procedures. Therefore, the 

Board does not believe that the 

proposed amendments would affect the 

competitive position of private-sector 

providers vis-a`-vis the Reserve Banks. 

VI. Administrative Law Matters 

A. Paperwork Reduction Act 

In accordance with the Paperwork 

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

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

the Board may not conduct or sponsor, 

and a respondent is not required to 

respond to, an information collection 

unless it displays a valid Office of 

Management and Budget (OMB) control 

number. The Board reviewed the 

proposed rule under the authority 

delegated to the Board by the OMB and 

determined that it contains no 

collections of information under the 

PRA.8 Accordingly, there is no 

paperwork burden associated with the 

proposed rule. 

B. Regulatory Flexibility Act 

The Regulatory Flexibility Act (the 

‘‘RFA’’) (5 U.S.C. 601 et seq.) requires 

agencies 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. 

In this case, the proposed rule would 

apply to all depository institutions that 

choose to use the Reserve Bank’s 

FedNow Service, but the Board does not 

believe it will have a significant 

economic impact on a substantial 

number of small entities. Nevertheless, 

this Initial Regulatory Flexibility 

Analysis has been prepared in 

accordance with 5 U.S.C. 603 in order 

for the Board to solicit comment on the 

effect of the proposal on small entities. 

The Board will, if necessary, conduct a 

final regulatory flexibility analysis after 

consideration of comments received 

during the public comment period. 

1. Statement of the Need for, Objectives 

of, and Legal Basis for, the Proposed 

Rule 

While the Reserve Banks can 

prescribe by agreement terms and 

conditions in providing the FedNow 

Service, the Board believes it is 

appropriate to bring the FedNow 

Service within the coverage of 

Regulation J. As discussed in previous 

sections, the main objective of the 

proposed amendments to Regulation J is 

to establish a new subpart C to govern 

funds transfers made through the 

FedNow Service. 

2. Small Entities Affected by the 

Proposed Rule 

The proposed amendments would 

apply to all depository institutions that 

choose to participate in the FedNow 

Service regardless of their size. Pursuant 

to regulations issued by the Small 

Business Administration (13 CFR 

121.201), a ‘‘small banking 

organization’’ includes a depository 

institution with $550 million or less in 

total assets. Based on call report data, 

there are approximately 9,460 

depository institutions that have total 

domestic assets of $550 million or less 

and thus are considered small entities 

for purposes of the RFA. 

3. Projected Reporting, Recordkeeping, 

and Other Compliance Requirements 

Other than noted here, there are no 

new projected reporting, recordkeeping, 

or other compliance requirements and 

no substantive changes to existing 

reporting, recordkeeping or other 

compliance requirements in the 

proposed amendments to Regulation J. 

Depository institutions that voluntarily 

choose to use the FedNow Service will 

have to comply with the applicable 

provisions of this proposed rule, which 

include the requirement on the 

availability of funds. 

4. Identification of Duplicative, 

Overlapping, or Conflicting Federal 

Rules 

The Board has not identified any 

likely duplication and/or potential 

conflict between the proposed 

regulatory amendments and any other 

Federal rule. While some overlap exists 

between the proposed amendments and 

EFAA (implemented in Regulation CC), 

as discussed above, the regulatory 

overlap does not create conflicting 

federal rules. Regulation CC’s 

availability requirements apply to all 

electronic payments and establish the 

outer bound of when those funds must 

be made available. The proposed 

requirements in Regulation J regarding 

availability establish a shorter time 

period for when funds must be made 

available than is required under 

Regulation CC and applies only to the 

subset of electronic payments that use 

the FedNow Service as a term of the 

service. 

5. Significant Alternatives to the 

Proposed Rule 

As discussed above, the Board has not 

identified any new or substantial change 

to regulatory burden associated with the 

proposed amendments to Regulation J, 

and the Board has not identified any 

significant alternatives that would 

otherwise reduce the regulatory burden 

on small entities. 

C. Solicitation of Comments on Use of 

Plain Language 

Section 722 of the Gramm-LeachBliley Act (Pub. L. 106–102, 113 Stat. 

1338, 1471, 12 U.S.C. 4809) requires the 

Federal banking agencies to use plain 

language in all proposed and final rules 

published after January 1, 2000. The 

Board has sought to present the 

proposed rule in a simple and 

straightforward manner, and invites 

comment on the use of plain language 

and whether any part of the proposed 

rule could be more clearly stated. 

List of Subjects in 12 CFR Part 210 

Banks, banking, Federal Reserve 

System. 

For the reasons set forth in the 

preamble, the Board proposes to amend 

12 CFR part 210 as follows: 

PART 210—COLLECTION OF CHECKS 

AND OTHER ITEMS BY FEDERAL 

RESERVE BANKS AND FUNDS 

TRANSFERS THROUGH THE FEDWIRE 

FUNDS SERVICE AND THE FEDNOW 

SERVICE (REGULATION J) 

■ 1. The authority citation for part 210 

continues to read as follows: 

Authority: 12 U.S.C. 248(i), (j), and 248– 

1, 342, 360, 464, 4001–4010, and 5001–5018. 

■ 2. Revise the heading to part 210 as 

shown above. 

■ 3. Revise § 210.2 to read as follows: 


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1For purposes of this subpart, the Virgin Islands 

and Puerto Rico are deemed to be in the Second 

District, and Guam, American Samoa, and the 

Northern Mariana Islands in the Twelfth District. 

§ 210.2 Definitions. 

As used in this subpart A, unless the 

context otherwise requires: 

Account means an account on the 

books of a Federal Reserve Bank. A 

subaccount is an informational record of 

a subset of transactions that affect an 

account and is not a separate account. 

Actually and finally collected funds 

means cash or any other form of 

payment that is, or has become, final 

and irrevocable. 

Administrative Reserve Bank with 

respect to an entity means the Reserve 

Bank in whose District the entity is 

located, as determined under the 

procedure described in § 204.3(g) of this 

chapter (Regulation D), even if the entity 

is not otherwise subject to that section. 

Bank means any person engaged in 

the business of banking. A branch or 

separate office of a bank is a separate 

bank to the extent provided in the 

Uniform Commercial Code. 

Bank draft means a check drawn by 

one bank on another bank. 

Banking day means the part of a day 

on which a bank is open to the public 

for carrying on substantially all of its 

banking functions. 

Cash item means— 

(1) A check other than one classified 

as a noncash item under this section; or 

(2) Any other item payable on 

demand and collectible at par that the 

Reserve Bank that receives the item is 

willing to accept as a cash item. Cash 

item does not include a returned check. 

Check means a check or an electronic 

check, as those terms are defined in 

§ 229.2 of this chapter (Regulation CC). 

Clock hour and clock half-hour. (1) 

Clock hour means a time that is on the 

hour, such as 1:00, 2:00, etc. 

(2) Clock half-hour means a time that 

is on the half-hour, such as 1:30, 2:30, 

etc. 

Fedwire Funds Service and Fedwire 

have the same meaning as that set forth 

in § 210.26. 

Item. (1) Means— 

(i) An instrument or a promise or 

order to pay money, whether negotiable 

or not, that is— 

(A) Payable in a Federal Reserve 

District 1 (District); 

(B) Sent by a sender to a Reserve Bank 

for handling under this subpart; and 

(C) Collectible in funds acceptable to 

the Reserve Bank of the District in 

which the instrument is payable; or 

(ii) A check. 

(2) Unless otherwise indicated, item 

includes both a cash and a noncash 

item, and includes a returned check sent 

by a paying or returning bank. Item does 

not include a check that cannot be 

collected at par, or a payment order as 

defined in § 210.26(i) and handled 

under subpart B of this part. The term 

also does not include an electronicallycreated item as defined in § 229.2 of this 

chapter (Regulation CC). 

Nonbank payor means a payor of an 

item, other than a bank. 

Noncash item means an item that a 

receiving Reserve Bank classifies in its 

operating circulars as requiring special 

handling. The term also means an item 

normally received as a cash item if a 

Reserve Bank decides that special 

conditions require that it handle the 

item as a noncash item. 

Paying bank means— 

(1) The bank by which an item is 

payable unless the item is payable or 

collectible at or through another bank 

and is sent to the other bank for 

payment or collection; 

(2) The bank at or through which an 

item is payable or collectible and to 

which it sent for payment or collection; 

or 

(3) The bank whose routing number 

appears on a check in the MICR line or 

in fractional form (or in the MICR-line 

information that accompanies an 

electronic item) and to which the check 

is sent for payment or collection. 

Returned check means a cash item 

returned by a paying bank, including an 

electronic returned check as defined in 

§ 229.2 of this chapter (Regulation CC) 

and a notice of nonpayment in lieu of 

a returned check, whether or not a 

Reserve Bank handled the check for 

collection. 

Sender means any of the following 

entities that sends an item to a Reserve 

Bank for forward collection— 

(1) A depository institution, as 

defined in section 19(b) of the Federal 

Reserve Act (12 U.S.C. 461(b)); 

(2) A member bank, as defined in 

section 1 of the Federal Reserve Act (12 

U.S.C. 221); 

(3) A clearing institution, defined as— 

(i) An institution that is not a 

depository institution but that maintains 

with a Reserve Bank the balance 

referred to in the first paragraph of 

section 13 of the Federal Reserve Act 

(12 U.S.C. 342); or 

(ii) An Edge corporation or agreement 

corporation that maintains an account 

with a Reserve Bank in conformity with 

Part 211 of this chapter (Regulation K); 

(4) Another Reserve Bank; 

(5) An international organization for 

which a Reserve Bank is empowered to 

act as depositary or fiscal agent and 

maintains an account; 

(6) A foreign correspondent, defined 

as any of the following entities for 

which a Reserve Bank maintains an 

account: A foreign bank or banker, a 

foreign state as defined in section 25(b) 

of the Federal Reserve Act (12 U.S.C. 

632), or a foreign correspondent or 

agency referred to in section 14(e) of 

that act (12 U.S.C. 358); or 

(7) A branch or agency of a foreign 

bank maintaining reserves under section 

7 of the International Banking Act of 

1978 (12 U.S.C. 347d, 3105). 

State means a State of the United 

States, the District of Columbia, Puerto 

Rico, or a territory, possession, or 

dependency of the United States. 

Uniform Commercial Code and U.C.C. 

mean the Uniform Commercial Code as 

adopted in a state 

Terms not defined in this section. 

Unless the context otherwise requires— 

(1) The terms not defined herein have 

the meanings set forth in § 229.2 of this 

chapter applicable to subpart C or D of 

part 229 of this chapter (Regulation CC), 

as appropriate; and 

(2) The terms not defined herein or in 

§ 229.2 of this chapter have the 

meanings set forth in the Uniform 

Commercial Code. 

■ 4. Amend subpart B of part 210 by: 

■ a. Revising the heading to subpart B 

of part 210 to read as follows: 

Subpart B—Funds Transfers Through 

the Fedwire Funds Service 

■ b. Removing the words ‘‘Appendix B 

of this subpart’’ and ‘‘Appendix B to 

this subpart’’ and replace with the 

words ‘‘Appendix A of this part 210’’ 

wherever they appear. 

■ 5. In § 210.25, revise paragraphs (b)(2) 

and (c) to read as follows: 

§ 210.25 Authority, purpose, and scope. 

* * * * * 

(b) * * * 

(2) Except as otherwise provided in 

paragraphs (b)(3) and (4) of this section, 

this subpart, including Article 4A as set 

forth in appendix A of this part and 

operating circulars of the Federal 

Reserve Banks issued in accordance 

with paragraph (c) of this section, 

governs the rights and obligations of the 

following parties with respect to the 

Fedwire Funds Service: 

(i) Federal Reserve Banks that send or 

receive payment orders; 

(ii) Senders that send payment orders 

directly to a Federal Reserve Bank; 

(iii) Receiving banks that receive 

payment orders directly from a Federal 

Reserve Bank; 

(iv) Beneficiaries that receive payment 

for payment orders by means of credit 

to an account maintained or used at a 

Federal Reserve Bank; and 

(v) Other parties to a funds transfer 

any part of which is carried out through 


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the Fedwire Funds Service to the same 

extent as if this subpart were considered 

a funds-transfer system rule under 

Article 4A. 

* * * * * 

(c) Operating Circulars. Each Federal 

Reserve Bank shall issue an Operating 

Circular consistent with this subpart 

that governs the details of its fundstransfer operations in connection with 

the Fedwire Funds Service and other 

matters it deems appropriate. Among 

other things, the Operating Circular may 

set cut-off times and funds-transfer 

business days; address security 

procedures offered by the Federal 

Reserve Banks to verify the authenticity 

of a payment order; specify format and 

media requirements for payment orders; 

specify the time and method of receipt, 

execution, and acceptance of a payment 

order and settlement of a Federal 

Reserve Bank’s payment obligation for 

purposes of Article 4A; specify service 

terms governing ancillary features of the 

Fedwire Funds Service; provide for the 

acceptance of documents in electronic 

form to the extent any provision in 

Article 4A requires an agreement or 

other document to be in writing; 

identify messages that are not payment 

orders; and impose charges for fundstransfer services. 

* * * * * 

■ 6. Revise § 210.26 to read as follows: 

§ 210.26 Definitions. 

As used in this subpart, the following 

definitions apply: 

Article 4A means Article 4A of the 

Uniform Commercial Code as set forth 

in appendix A of this part, which is 

incorporated into this subpart in 

accordance with § 210.25(b). 

Automated clearing house transfer 

means any transfer designated as an 

automated clearing house transfer in an 

operating circular issued by the Federal 

Reserve Banks. 

Beneficiary has the same meaning as 

in Article 4A except that the term is 

limited to a beneficiary in a funds 

transfer any portion of which is sent 

through the Fedwire Funds Service. 

Beneficiary’s bank has the same 

meaning as in Article 4A, except that: 

(1) The term is limited to a 

beneficiary’s bank in a funds transfer 

any portion of which is sent through the 

Fedwire Funds Service; 

(2) A Federal Reserve Bank need not 

be identified in the payment order in 

order to be the beneficiary’s bank; and 

(3) The term includes a Federal 

Reserve Bank when that Federal Reserve 

Bank is the beneficiary of a payment 

order. 

Fedwire Funds Service means the 

funds-transfer system owned and 

operated by the Federal Reserve Banks 

that is used primarily for the 

transmission and settlement of payment 

orders governed by this subpart. The 

Fedwire Funds Service does not include 

the FedNow Service or the system for 

making automated clearing house 

transfers. 

Interdistrict transfer means a funds 

transfer involving entries to accounts 

maintained at two Federal Reserve 

Banks. 

Intradistrict transfer means a funds 

transfer involving entries to accounts 

maintained at one Federal Reserve 

Bank. 

Off-line bank means a bank that sends 

payment orders to and receives payment 

orders from a Federal Reserve Bank by 

telephone orally or by other means other 

than electronic data transmission. 

Payment order has the same meaning 

as in Article 4A except that the term 

includes only instructions sent or 

received through the Fedwire Funds 

Service and does not include automated 

clearing house transfers or any 

communication designated in an 

operating circular issued by a Federal 

Reserve Bank under this subpart as not 

being a payment order. 

Receiving bank has the same meaning 

as in Article 4A except that the term is 

limited to a receiving bank in a funds 

transfer any portion of which is sent 

through the Fedwire Funds Service. 

Sender has the same meaning as in 

Article 4A except that the term is 

limited to a sender in a funds transfer 

any portion of which is sent through the 

Fedwire Funds Service. 

Sender’s account, receiving bank’s 

account, and beneficiary’s account 

mean the reserve, clearing, or other 

funds deposit account at a Federal 

Reserve Bank maintained or used by the 

sender, receiving bank, or beneficiary, 

respectively. 

Sender’s Federal Reserve Bank and 

receiving bank’s Federal Reserve Bank 

mean the Federal Reserve Bank at which 

the sender or receiving bank, 

respectively, maintains or uses an 

account. 

■ 7. In § 210.28, revise paragraphs (b)(1) 

through (3) to read as follows: 

§ 210.28 Agreement of sender. 

* * * * * 

(b) Overdrafts. (1) A sender does not 

have the right to an overdraft in the 

sender’s account. In the event an 

overdraft is created, the overdraft shall 

be due and payable immediately, 

without the need for a demand by the 

Federal Reserve Bank, at the earliest of 

the following times: 

(i) At the end of the Fedwire Funds 

Service funds-transfer business day; 

(ii) At the time the Federal Reserve 

Bank, in its sole discretion, deems itself 

insecure and gives notice thereof to the 

sender; or 

(iii) At the time the sender suspends 

payments or is closed. 

(2) The sender shall have in its 

account, at the time the overdraft is due 

and payable, a balance of actually and 

finally collected funds sufficient to 

cover the aggregate amount of all its 

obligations to the Federal Reserve Bank, 

whether the obligations result from the 

execution of a payment order or 

otherwise. 

(3) To secure any overdraft, as well as 

any other obligation due or to become 

due to its Federal Reserve Bank, each 

sender, by sending a payment order to 

a Federal Reserve Bank that is accepted 

by the Federal Reserve Bank, grants to 

the Federal Reserve Bank a security 

interest in all of the sender’s assets in 

the possession or control of, or held for 

the account of, the Federal Reserve 

Bank. The security interest attaches 

when an overdraft, or any other 

obligation to the Federal Reserve Bank, 

becomes due and payable. 

* * * * * 

■ 8. In § 210.30, revise paragraphs (b) 

and (c) to read as follows: 

§ 210.30 Payment orders. 

* * * * * 

(b) Selection of an intermediary bank. 

For an interdistrict transfer through the 

Fedwire Funds Service, a Federal 

Reserve Bank is authorized and directed 

to execute a payment order through 

another Federal Reserve Bank. A sender 

shall not send a payment order to a 

Federal Reserve Bank that requires the 

Federal Reserve Bank to send a payment 

order to an intermediary bank (other 

than a Federal Reserve Bank) unless that 

intermediary bank is designated in the 

sender’s payment order. A sender shall 

not send to a Federal Reserve Bank a 

payment order through the Fedwire 

Funds Service that instructs use by a 

Federal Reserve Bank of a funds-transfer 

system or means of transmission other 

than the Fedwire Funds Service unless 

the Federal Reserve Bank agrees with 

the sender in writing to follow such 

instructions. 

(c) Execution date and payment date. 

A sender shall not send a payment order 

through the Fedwire Funds Service that 

instructs a Federal Reserve Bank to 

execute the payment order or to pay the 

beneficiary on a funds-transfer business 

day that is later than the Fedwire Funds 

Service funds-transfer business day on 

which the order is received by the 

Federal Reserve Bank, unless the 

Federal Reserve Bank agrees with the 


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sender in writing to follow such 

instructions. 

■ 9. In § 210.32, revise the section 

heading and paragraph (b) to read as 

follows: 

§ 210.32 Federal Reserve Bank liability; 

payment of compensation. 

* * * * * 

(b) Payment of compensation. (1) A 

Federal Reserve Bank shall satisfy its 

obligation, or that of another Federal 

Reserve Bank, to pay compensation in 

the form of interest under Article 4A by 

paying such compensation in the form 

of interest to a sender, receiving bank, 

beneficiary, or another party to the 

funds transfer that is entitled to such 

payment in an amount that is calculated 

in accordance with section 4A–506 of 

Article 4A. 

(2) If the sender or receiving bank that 

is the recipient of the payment of 

compensation is not the party entitled to 

compensation under Article 4A, the 

sender or receiving bank shall pass 

through the benefit of the compensation 

by making an interest payment, as of the 

day the compensation was paid by the 

Federal Reserve Bank, to the party 

entitled to compensation. The interest 

payment that is made to the party 

entitled to compensation shall not be 

less than the value of the compensation 

that was paid by the Federal Reserve 

Bank to the sender or receiving bank. 

The party entitled to compensation may 

agree to accept compensation in a form 

other than a direct interest payment, 

provided that such an alternative form 

of compensation is not less than the 

value of the interest payment that 

otherwise would be made. 

* * * * * 

■ 10. In Appendix A of subpart B of part 

210: 

■ a. Under ‘‘Section 210.25—Authority, 

Purpose, and Scope,’’ revise paragraphs 

(a), (b)(1) through (6), and (c); 

■ b. Revise ‘‘Section 210.26— 

Definitions;’’ 

■ c. Under ‘‘Section 210.28—Agreement 

of Sender,’’ revise paragraphs (a), (b)(1) 

and (2), and (c)(2); 

■ d. Under ‘‘Section 210.30—Payment 

Orders,’’ revise paragraphs (b)(2) and 

(c); and 

■ e. Under ‘‘Section 210.32—Federal 

Reserve Bank Liability; Payment of 

Compensation,’’ revise the heading and 

paragraphs (a)(2), (b)(1) through (3), and 

(c). 

The revisions read as follows: 

Appendix A of Subpart B of Part 210— 

Commentary 

* * * * * 

Section 210.25—Authority, Purpose, and 

Scope 

(a) Authority and purpose. Section 

210.25(a) states that the purpose of subpart 

B of this part is to provide rules to govern 

funds transfers through the Fedwire Funds 

Service and recites the Board’s rulemaking 

authority for this subpart. Subpart B of this 

part is federal law and is not a ‘‘fundstransfer system rule’’ as defined in section 

4A–501(b) of Article 4A, Funds Transfers, of 

the Uniform Commercial Code (UCC), as set 

forth in appendix A of this part. Certain 

provisions of Article 4A may not be varied 

by a funds-transfer system rule, but under 

section 4A–107, regulations of the Board and 

operating circulars of the Federal Reserve 

Banks supersede inconsistent provisions of 

Article 4A to the extent of the inconsistency. 

In addition, regulations of the Board may 

preempt inconsistent provisions of state law. 

Accordingly, subpart B of this part 

supersedes or preempts inconsistent 

provisions of state law. It does not affect state 

law governing funds transfers that does not 

conflict with the provisions of subpart B of 

this part, such as Article 4A as enacted in 

any state, as such state law may apply to 

parties to funds transfers through the 

Fedwire Funds Service whose rights and 

obligations are not governed by subpart B of 

this part. 

(b) Scope. (1) Subpart B of this part 

incorporates the provisions of Article 4A set 

forth in appendix A of this part. The 

provisions set forth expressly in the sections 

of subpart B of this part supersede or 

preempt any inconsistent provisions of 

Article 4A as set forth in appendix A of this 

part or as enacted in any state. The official 

comments to Article 4A are not incorporated 

in subpart B of this part or this commentary 

to subpart B of this part, but the official 

comments may be useful in interpreting 

Article 4A as set forth in appendix A of this 

part. Because section 4A–105 refers to other 

provisions of the Uniform Commercial Code 

(e.g., definitions in article 1 of the UCC), 

these other provisions of the UCC, as 

approved by the National Conference of 

Commissioners on Uniform State Laws, 

which is now also known as the Uniform 

Law Commission, and the American Law 

Institute, from time to time, are also 

incorporated into subpart B of this part. 

Subpart B of this part applies to any party to 

a funds transfer over the Fedwire Funds 

Service that is in privity with a Federal 

Reserve Bank. These parties include a sender 

(bank or nonbank) that sends a payment 

order directly to a Federal Reserve Bank, a 

receiving bank that receives a payment order 

directly from a Federal Reserve Bank, and a 

beneficiary that receives credit to an account 

that it uses or maintains at a Federal Reserve 

Bank as payment for a payment order 

accepted by a Federal Reserve Bank. Other 

parties to a funds transfer over the Fedwire 

Funds Service are covered by subpart B of 

this part to the same extent subpart B would 

apply to them if subpart B were a ‘‘fundstransfer system rule’’ under Article 4A that 

selected subpart B of this part as the 

governing law. 

(2) The scope of the applicability of a 

funds-transfer system rule under Article 4A 

is specified in section 4A–501(b), and the 

scope of the choice of law provision is 

specified in section 4A–507(c). Under section 

4A–507(c), a choice of law provision is 

binding on the participants in a fundstransfer system and certain other parties 

having notice that the funds-transfer system 

might be used for the funds transfer and of 

the choice of law provision. The Uniform 

Commercial Code provides that a person has 

notice of a fact when the person has actual 

knowledge of it, receives a notice or 

notification of it, or has reason to know that 

it exists from all the facts and circumstances 

known to the person at the time in question. 

(See UCC section 1–202.) However, under 

sections 4A–507(b) and 4A–507(d), a choice 

of law by agreement of the parties takes 

precedence over a choice of law made by 

funds-transfer system rule. 

(3) If originators, receiving banks, and 

beneficiaries that are not in privity with a 

Federal Reserve Bank have the notice 

contemplated by section 4A–507(c) or if 

those parties agree to be bound by subpart B 

of this part, subpart B of this part generally 

would apply to payment orders between 

those remote parties, including participants 

in other funds-transfer systems. For example, 

a payment order may be sent from an 

originator’s bank through a funds-transfer 

system other than the Fedwire Funds Service 

to a receiving bank which, in turn, executes 

that payment order by sending a payment 

order through the Fedwire Funds Service. 

Similarly, a Federal Reserve Bank may send 

a payment order through the Fedwire Funds 

Service to a receiving bank that sends it 

through a funds-transfer system other than 

the Fedwire Funds Service to the 

beneficiary’s bank. In the first example, if the 

originator’s bank has notice that the Fedwire 

Funds Service may be used to effect part of 

the funds transfer, the sending of the 

payment order through the other fundstransfer system to the receiving bank will be 

governed by subpart B of this part unless the 

parties to the payment order have agreed 

otherwise. In the second example, if the 

beneficiary’s bank has notice that the 

Fedwire Funds Service may be used to effect 

part of the funds transfer, the sending of the 

payment order to the beneficiary’s bank 

through the other funds-transfer system will 

be governed by subpart B of this part unless 

the parties have agreed otherwise. In both 

cases, the other funds-transfer system’s rules 

would also apply to, at a minimum, the 

portion of these funds transfers being made 

through that funds transfer system. Because 

subpart B of this part is federal law, subpart 

B of this part will take precedence over any 

funds-transfer system rule applicable to the 

remote sender or receiving bank or to a 

Federal Reserve Bank to the extent of any 

inconsistency. If remote parties to a funds 

transfer, a portion of which is sent through 

the Fedwire Funds Service, have expressly 

selected by agreement, in accordance with 

section 4A–507(b), a law other than subpart 

B of this part, subpart B of this part would 

not take precedence over the choice of law 

made by the agreement even though the 

remote parties had notice that the Fedwire 

Funds Service might be used and of the 

governing law. (See section 4A–507(d).) In 


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addition, subpart B of this part would not 

apply to a funds transfer sent through 

another funds-transfer system where no 

Federal Reserve Bank handles the funds 

transfer, even though settlement for the funds 

transfer is made by means of a separate net 

settlement or funds transfer through the 

Fedwire Funds Service. 

(4) Under section 4A–108, Article 4A does 

not apply to a funds transfer any part of 

which is governed by the Electronic Fund 

Transfer Act (EFTA) (15 U.S.C. 1693 et seq.). 

In general, Fedwire funds transfers to or from 

consumer accounts are exempt from the 

EFTA and Regulation E (12 CFR part 1005). 

A funds transfer from a consumer originator 

or a funds transfer to a consumer beneficiary 

could be carried out in part through the 

Fedwire Funds Service and in part through 

an automated clearinghouse or other means 

that is subject to the EFTA or Regulation E. 

In these cases, subpart B would not govern 

the portion of the funds transfer that is 

governed by the EFTA or Regulation E. (See 

the commentary to § 210.26 in this appendix, 

‘‘Payment Order’’.) 

(5) Section 919 of the EFTA, however, 

governs ‘‘remittance transfers,’’ which may 

include funds transfers over the Fedwire 

Funds Service. Section 919 of the EFTA sets 

out the obligations of remittance transfer 

providers with respect to consumer senders 

of remittance transfers. Section 919 of the 

EFTA generally does not affect the rights and 

obligations of financial institutions involved 

in a remittance transfer. To the extent that a 

Fedwire funds transfer is a ‘‘remittance 

transfer’’ governed by section 919 of the 

EFTA, it continues to be governed by subpart 

B of this part, except that, in the event of an 

inconsistency between the provisions of 

subpart B of this part and section 919 of the 

EFTA, section 919 of the EFTA shall prevail. 

For example, a consumer may initiate a 

remittance transfer governed by EFTA 

section 919 from the consumer’s account at 

a depository institution, and the depository 

institution may initiate that transfer by 

sending a payment order to a Federal Reserve 

Bank through the Fedwire Funds Service. If 

the consumer subsequently exercised the 

right to cancel the remittance transfer and 

obtain a refund under the terms of section 

919 of the EFTA, the depository institution 

would be required to comply with section 

919 even if the institution does not have a 

right to reverse the payment order sent to the 

Federal Reserve Bank under subpart B of this 

part. 

(6) Finally, section 4A–404(a) provides that 

a beneficiary’s bank is obliged to pay the 

amount of a payment order to the beneficiary 

on the payment date unless acceptance of the 

payment order occurs on the payment date 

after the close of the funds-transfer business 

day of the bank. The Expedited Funds 

Availability Act provides that funds received 

by a bank by wire transfer shall be available 

for withdrawal not later than the business 

day after the business day on which such 

funds are received (12 U.S.C. 4002(a)). That 

act also preempts any provision of state law 

that was not effective on September 1, 1989, 

that is inconsistent with that act or its 

implementing Regulation CC (12 CFR part 

229). Accordingly, the Expedited Funds 

Availability Act and Regulation CC may 

preempt section 4A–404(a) as enacted in any 

state. In order to ensure that section 4A– 

404(a), or other provisions of Article 4A, as 

incorporated in subpart B of this part, do not 

take precedence over provisions of the 

Expedited Funds Availability Act, this 

section 210.25(b)(4) provides that where 

subpart B of this part establishes rights or 

obligations that are also governed by the 

Expedited Funds Availability Act or 

Regulation CC, the Expedited Funds 

Availability Act or Regulation CC provision 

shall apply and subpart B of this part shall 

not apply. 

(c) Operating Circulars. The Federal 

Reserve Banks issue Operating Circulars 

consistent with this subpart that contain 

additional provisions applicable to payment 

orders and other messages sent through the 

Fedwire Funds Service. Under section 4A– 

107, these Operating Circulars supersede 

inconsistent provisions of Article 4A, both as 

set forth in appendix A of this part and as 

enacted in any state. These Operating 

Circulars are not funds-transfer system rules, 

but, by their terms, they are binding on all 

parties covered by this subpart. 

* * * * * 

Section 210.26—Definitions 

Article 4A defines many terms (e.g., 

beneficiary, intermediary bank, receiving 

bank, security procedure) used in subpart B 

of this part. These terms are defined or listed 

in sections 4A–103 through 4A–105. These 

terms, such as the term bank (defined in 

section 4A–105(d)(2)), may differ from 

comparable terms in subpart A and subpart 

C of this part. As subpart B of this part 

incorporates consistent provisions of Article 

4A, it incorporates these definitions unless 

these terms are expressly defined otherwise 

in subpart B of this part. Subpart B modifies 

the definitions of five Article 4A terms, 

beneficiary, beneficiary’s bank, payment 

order, receiving bank, and sender. Subpart B 

also defines terms not defined in Article 4A. 

Article 4A. Article 4A means the version of 

that article of the Uniform Commercial Code 

set forth in appendix A of this part. It does 

not refer to the law of any particular state 

unless the context indicates otherwise. 

Subject to the express provisions of this 

subpart, this version of Article 4A is 

incorporated into this subpart and made 

federal law for transactions covered by 

subpart B of this part. (See § 210.25(b)(1) and 

accompanying commentary.) Because section 

4A–105 refers to other provisions of the 

Uniform Commercial Code (e.g., definitions 

in article 1 of the UCC), these other 

provisions of the UCC, as approved by the 

National Conference of Commissioners on 

Uniform State Laws, which is now also 

known as the Uniform Law Commission, and 

the American Law Institute, from time to 

time, are also incorporated into subpart B of 

this part. 

Beneficiary, beneficiary’s bank, receiving 

bank, and sender. The definitions of 

‘‘beneficiary,’’ ‘‘beneficiary’s bank,’’ 

‘‘receiving bank,’’ and ‘‘sender’’ in subpart B 

of this part differ from the definitions in 

sections 4A–103(a)(2) through (4). The 

subpart B definitions clarify that, for the 

purposes of subpart B of this part, these 

terms are limited to parties in a funds 

transfer that is sent through the Fedwire 

Funds Service. For example, the parties to a 

funds transfer that is sent through the 

FedNow Service would be governed by 

subpart C of this part, and would not be a 

‘‘beneficiary,’’ ‘‘beneficiary’s bank,’’ 

‘‘receiving bank,’’ or ‘‘sender’’ governed by 

subpart B of this part. The subpart B 

definition of ‘‘beneficiary’s bank’’ further 

clarifies that where a Federal Reserve Bank 

functions as the beneficiary’s bank, it need 

not be identified in the payment order as the 

beneficiary’s bank and that a Federal Reserve 

Bank that receives a payment order as 

beneficiary is also the beneficiary’s bank with 

respect to that payment order. 

Fedwire Funds Service. This term refers to 

the funds-transfer system owned and 

operated by the Federal Reserve Banks that 

is governed by this subpart. The term does 

not refer to any particular computer, 

telecommunications facility, or funds 

transfer, but rather to the system as a whole, 

which may include transfers by telephone or 

by written instrument in particular 

circumstances. The term does not include the 

FedNow Service or the system used for 

automated clearing house transfers. 

Off-line bank. Most Fedwire payment 

orders are sent electronically from a sender 

to a Federal Reserve Bank or from a Federal 

Reserve Bank to a receiving bank. Banks that 

send payment orders to Federal Reserve 

Banks electronically are often referred to as 

on-line banks. Some Fedwire Funds Service 

participants, however, send payment orders 

to a Federal Reserve Bank or receive payment 

orders from a Federal Reserve Bank orally by 

telephone or, in unusual circumstances, in 

writing. A bank that does not use either a 

terminal or a computer that links it 

electronically to a terminal or computer at its 

Federal Reserve Bank to send payment orders 

through the Fedwire Funds Service is an offline bank. 

Payment Order. (1) The definition of 

‘‘payment order’’ in subpart B of this part 

differs from the section 4A–103(a)(1) 

definition. The subpart B definition clarifies 

that, for the purposes of subpart B of this 

part, the term includes only instructions 

transmitted through the Fedwire Funds 

Service. For example, instructions 

transmitted through the FedNow Service 

would be governed by subpart C of this part, 

and not subpart B of this part. Additionally, 

the subpart B definition provides that certain 

messages that are transmitted through the 

Fedwire Funds Service are not payment 

orders. Federal Reserve Banks and banks 

participating in the Fedwire Funds Service 

send various types of messages relating to 

payment orders or to other matters, through 

the Fedwire Funds Service, that are not 

intended to be payment orders. In some 

cases, messages sent through the Fedwire 

Funds Service, such as certain requests for 

credit transfer, may be payment orders under 

Article 4A, but are not treated as payment 

orders under subpart B of this part because 

they are not an instruction to a Federal 

Reserve Bank to pay or cause another bank 

to pay money. Under the subpart B 

definition, these messages are not ‘‘payment 


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orders’’ governed by subpart B of this part. 

The operating circulars of the Federal 

Reserve Banks may specify those messages 

that may be transmitted through the Fedwire 

Funds Service but that are not payment 

orders. 

(2) Subpart B of this part, including its 

incorporation of Article 4A, governs a 

payment order even though the originator’s 

or beneficiary’s account may be a consumer 

account established primarily for personal, 

family, or household purposes. Under section 

4A–108, Article 4A does not apply to a funds 

transfer any part of which is governed by the 

Electronic Fund Transfer Act. That act and 

Regulation E (12 CFR part 1005) 

implementing it do not apply to funds 

transfers through the Fedwire Funds Service 

(see 15 U.S.C. 1693a(7)(B) and 12 CFR 

1005.3(c)(3)), except that section 919 of the 

Electronic Fund Transfer Act may govern a 

Fedwire funds transfer that is a ‘‘remittance 

transfer.’’ Such remittance transfers that are 

Fedwire funds transfers continue to be 

governed by subpart B of this part. Thus, 

subpart B of this part applies to all funds 

transfers through the Fedwire Funds Service 

even though some such transfers involve 

originators or beneficiaries who are 

consumers. (See also § 210.25(b) and 

accompanying commentary.) 

* * * * * 

Section 210.28—Agreement of Sender 

(a) Payment of sender’s obligation to a 

Federal Reserve Bank. When a sender sends 

a payment order to a Federal Reserve Bank 

and the Federal Reserve Bank accepts the 

payment order by issuing a conforming order 

executing the sender’s payment order, under 

section 4A–402 the sender is indebted to the 

Federal Reserve Bank for the amount of the 

payment order. Section 4A–403 specifies the 

various methods by which a sender may 

settle the obligation under section 4A–402. 

With respect to a payment order sent through 

the Fedwire Funds Service, the obligation of 

a sender (other than a Federal Reserve Bank) 

is settled by a debit to the account of the 

sender at a Federal Reserve Bank. Section 

210.28(a) provides that a sender, other than 

a Federal Reserve Bank, that maintains or 

uses an account at a Federal Reserve Bank 

authorizes the Federal Reserve Bank to debit 

that account so that the Federal Reserve Bank 

can obtain payment for the payment order. 

(b) Overdrafts. (1) In some cases, debits to 

a sender’s account will create an overdraft in 

the sender’s account. The Board and the 

Federal Reserve Banks have established 

policies concerning when a Federal Reserve 

Bank will permit a bank to incur an overdraft 

in its account at a Federal Reserve Bank. 

These policies do not give a bank or other 

sender a right to an overdraft in its account. 

Subpart B clarifies that a sender does not 

have a right to such an overdraft. If an 

overdraft arises, it becomes immediately due 

and payable at the earliest of the following 

times: The end of the Fedwire Funds Service 

funds-transfer business day; the time the 

Federal Reserve Bank, in its sole discretion, 

deems itself insecure and gives notice to the 

sender; or the time that the sender suspends 

payments or is closed by governmental 

action, such as the appointment of a receiver. 

In some cases, a Federal Reserve Bank 

extends its Fedwire Funds Service operations 

beyond the standard cut-off time for that 

funds-transfer business day. For the purposes 

of this section, unless otherwise specified by 

the Federal Reserve Bank making such an 

extension, an overdraft becomes due and 

payable at the end of the extended operating 

hours. An overdraft becomes due and 

payable prior to a Federal Reserve Bank’s cutoff time if the Federal Reserve Bank deems 

itself insecure and gives notice to the sender. 

A Federal Reserve Bank that deems itself 

insecure may give such notice in accordance 

with the provisions on notice in section 1– 

202(d) of the UCC, in accordance with any 

other applicable law or agreement, or by any 

other reasonable means. An overdraft also 

becomes due and payable at the time that a 

bank is closed or suspends payments. For 

example, an overdraft becomes due and 

payable if a receiver is appointed for the bank 

or the bank is prevented from making 

payments by governmental order. The 

Federal Reserve Bank need not make demand 

on the sender for the overdraft to become due 

and payable. 

(2) A sender must cover any overdraft and 

any other obligation of the sender to the 

Federal Reserve Bank by the time the 

overdraft becomes due and payable. By 

sending a payment order to a Federal Reserve 

Bank, the sender grants a security interest to 

the Federal Reserve Bank in all of the assets 

of the sender possessed or controlled by, or 

held for the account of, the Federal Reserve 

Bank in order to secure all obligations due or 

to become due to the Federal Reserve Bank. 

The security interest attaches when the 

overdraft, or other obligation of the sender to 

the Federal Reserve Bank, becomes due and 

payable. The security interest does not apply 

to assets held by the sender as custodian or 

trustee for the sender’s customers or third 

parties. Once an overdraft is due and 

payable, a Federal Reserve Bank may exercise 

its right of setoff, liquidate collateral, or take 

other similar action to satisfy the obligation 

the sender owes to the Federal Reserve Bank. 

* * * * * 

(c) * * * 

(2) Section 4A–505 provides that, in order 

for a customer to assert a claim objecting to 

a debit to its account by a receiving bank, the 

customer must notify the receiving bank of 

its objection within one year after the 

customer received notification reasonably 

identifying the payment order. Subpart B of 

this part does not vary this one-year claim 

preclusion period. 

* * * * * 

Section 210.30—Payment Orders 

* * * * * 

(b) * * * 

(2) This section provides that in an 

interdistrict transfer, a Federal Reserve Bank 

is authorized and directed to select another 

Federal Reserve Bank as an intermediary 

bank. A sender may, however, instruct a 

Federal Reserve Bank to use a particular 

intermediary bank by designating that bank 

as the bank to be credited by that Federal 

Reserve Bank (or the second Federal Reserve 

Bank in the case of an interdistrict transfer) 

in its payment order, in which case the 

Federal Reserve Bank will send the payment 

order to that bank if that bank receives 

payment orders through the Fedwire Funds 

Service. A sender may not instruct a Federal 

Reserve Bank to use its discretion to select 

an intermediary bank other than a Federal 

Reserve Bank or an intermediary bank 

designated by the sender. In addition, a 

sender may not send a payment order 

through the Fedwire Funds Service that 

instructs a Federal Reserve Bank to use a 

funds-transfer system or means of 

transmission other than the Fedwire Funds 

Service unless the sender and the Federal 

Reserve Bank agree in writing to the use of 

that funds-transfer system or means of 

transmission. 

(c) Execution date and payment date. 

Generally, the Fedwire Funds Service is a 

same-day value transfer system through 

which funds may be transferred from the 

originator to the beneficiary on the same 

funds-transfer business day. A sender may 

not send a payment order to a Federal 

Reserve Bank that specifies an execution date 

or payment date later than the day on which 

the payment order is issued, unless the 

sender of the order and the Federal Reserve 

Bank agree in writing to the arrangement. 

* * * * * 

Section 210.32—Federal Reserve Bank 

Liability; Payment of Compensation 

(a) * * * 

(2) This section does not affect the ability 

of other parties to a funds transfer to agree 

to be liable for consequential damages, the 

liability of a Federal Reserve Bank under 

section 4A–404 (relating to obligation of 

beneficiary’s bank to pay and give notice to 

beneficiary), or the liability to parties 

governed by subpart B of this part for claims 

not based on the handling of a payment order 

under subpart B of this part. 

(b) Payment of compensation. (1) Under 

article 4A, a Federal Reserve Bank may be 

required to pay compensation in the form of 

interest to another party in connection with 

its handling of a funds transfer. For example, 

payment of compensation in the form of 

interest is required in certain situations 

pursuant to sections 4A–204 (relating to 

refund of payment and duty of customer to 

report with respect to unauthorized payment 

order), 4A–209 (relating to acceptance of 

payment order), 4A–210 (relating to rejection 

of payment order), 4A–304 (relating to duty 

of sender to report erroneously executed 

payment order), 4A–305 (relating to liability 

for late or improper execution or failure to 

execute a payment order), 4A–402 (relating to 

obligation of sender to pay receiving bank), 

and 4A–404 (relating to obligation of 

beneficiary’s bank to pay and give notice to 

beneficiary). 

(2) Section 210.32(b) requires Federal 

Reserve Banks to provide compensation 

through payment in the form of interest. 

Under section 4A–506(a), the amount of such 

interest may be determined by agreement 

between the sender and receiving bank or by 

funds-transfer system rule. If there is no such 

agreement, under section 4A–506(b), the 

amount of interest is based on the federal 

funds rate. Similarly, compensation in the 

form of interest will be paid to government 


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senders, receiving banks, or beneficiaries 

described in § 210.25(d) if they are entitled 

to interest under subpart B of this part. A 

Federal Reserve Bank may also, in its 

discretion, pay compensation in the form of 

interest directly to a remote party to a 

Fedwire funds transfer that is entitled to 

interest, rather than providing compensation 

to its sender or receiving bank. 

(3) If a sender or receiving bank that 

received a payment of compensation is not 

the party entitled to compensation under 

Article 4A, the sender or receiving bank must 

pass the benefit of the payment made to it to 

the party that is entitled to compensation. 

The benefit may be passed on either in the 

form of a direct payment of interest or in the 

form of a compensating balance if the party 

entitled to interest agrees to accept the other 

form of compensation. In the latter case, the 

value of the compensating balance must be 

at least equivalent to the value of the interest 

payment that otherwise would have been 

provided. 

(c) Nonwaiver of right of recovery. Several 

sections of Article 4A allow a party to a 

funds transfer to make a claim pursuant to 

the applicable law of mistake and restitution. 

Nothing in subpart B of this part or any 

operating circular issued in accordance with 

subpart B of this part waives any such claim 

by a Federal Reserve Bank. A Federal Reserve 

Bank, however, may waive such a claim by 

express written agreement in order to settle 

litigation or for other purposes. 

Appendix B to Subpart B of Part 210— 

Article 4A, Funds Transfers [Removed] 

■ 11. Remove Appendix B of subpart B 

of part 210. 

■ 12. Add subpart C of part 210 to read 

as follows: 

Subpart C—Funds Transfers Through the 

FedNow Service 

Sec. 

210.40 Authority, purpose, and scope. 

210.41 Definitions. 

210.42 Reliance on identifying number. 

210.43 Agreement of sender. 

210.44 Agreement of receiving bank. 

210.45 Payment orders. 

210.46 Payment by a Federal Reserve Bank 

to a receiving bank or beneficiary. 

210.47 Federal Reserve Bank liability; 

payment of compensation. 

Appendix A of Subpart C of Part 210— 

Commentary 

Subpart C—Funds Transfers Through 

the FedNow Service 

§ 210.40 Authority, purpose, and scope. 

(a) Authority and purpose. This 

subpart provides rules to govern funds 

transfers through the FedNow Service, 

and has been issued pursuant to the 

Federal Reserve Act—section 13 (12 

U.S.C. 342), paragraph (f) of section 19 

(12 U.S.C. 464), paragraph 14 of section 

16 (12 U.S.C. 248(o)), and paragraphs (i) 

and (j) of section 11 (12 U.S.C. 248(i) 

and (j))—and other laws and has the 

force and effect of federal law. This 

subpart is not a funds-transfer system 

rule as defined in Section 4A–501(b) of 

Article 4A. 

(b) Scope. (1) This subpart 

incorporates the provisions of Article 

4A set forth in appendix A of this part. 

In the event of an inconsistency 

between the provisions of the sections 

of this subpart and appendix A of this 

part, the provisions of the sections of 

this subpart shall prevail. 

(2) Except as otherwise provided in 

paragraphs (b)(3) and (4) of this section, 

this subpart, including Article 4A as 

incorporated herein and operating 

circulars of the Federal Reserve Banks 

issued in accordance with paragraph (c) 

of this section, governs the rights and 

obligations of the following parties with 

respect to the FedNow Service: 

(i) Federal Reserve Banks that send or 

receive payment orders; 

(ii) Senders that send payment orders 

directly to a Federal Reserve Bank; 

(iii) Receiving banks that receive 

payment orders directly from a Federal 

Reserve Bank; 

(iv) Beneficiaries that receive payment 

for payment orders by means of credit 

to the beneficiary’s settlement account; 

and 

(v) Other parties to a funds transfer 

any part of which is carried out through 

the FedNow Service to the same extent 

as if this subpart were considered a 

funds-transfer system rule under Article 

4A. 

(3) A Federal Reserve Bank that is not 

the sender’s Federal Reserve Bank, 

receiving bank’s Federal Reserve Bank, 

or beneficiary’s Federal Reserve Bank is 

not a party to the funds transfer for 

purposes of this subpart and Article 4A. 

(4) This subpart governs a funds 

transfer that is sent through the FedNow 

Service, even if a portion of the funds 

transfer is governed by the Electronic 

Fund Transfer Act, but in the event of 

an inconsistency between the provisions 

this subpart and the Electronic Fund 

Transfer Act, the Electronic Fund 

Transfer Act shall prevail to the extent 

of the inconsistency. 

(c) Operating Circulars. Each Federal 

Reserve Bank shall issue an Operating 

Circular consistent with this subpart 

that governs the details of its fundstransfer operations in connection with 

the FedNow Service and other matters 

it deems appropriate. Among other 

things, the Operating Circular may: Set 

cut-off times and funds-transfer 

business days; address security 

procedures offered by the Federal 

Reserve Banks to verify the authenticity 

of a payment order; specify format and 

media requirements for payment orders; 

specify the time and method of receipt, 

execution, and acceptance of a payment 

order and settlement of a Federal 

Reserve Bank’s payment obligation for 

purposes of Article 4A; prescribe time 

limits for the processing of payment 

orders; specify service terms governing 

ancillary features of the FedNow 

Service; provide for the acceptance of 

documents in electronic form to the 

extent any provision in Article 4A 

requires an agreement or other 

document to be in writing; identify 

messages that are not payment orders; 

and impose charges for funds-transfer 

services. 

(d) Government senders, receiving 

banks, and beneficiaries. Except as 

otherwise expressly provided by the 

statutes of the United States, the parties 

specified in paragraphs (b)(2)(ii) through 

(v) of this section include a department, 

agency, instrumentality, independent 

establishment, or office of the United 

States, or a wholly-owned or controlled 

government corporation. 

(e) Financial messaging standards. 

Financial messaging standards (e.g., ISO 

20022), including the financial 

messaging components, elements, 

technical documentation, tags, and 

terminology used to implement those 

standards, do not confer or connote 

legal status or responsibilities. This 

subpart, including Article 4A as 

incorporated herein, and the operating 

circulars of the Federal Reserve Banks 

issued in accordance with paragraph (c) 

of this section govern the rights and 

obligations of parties to funds transfers 

sent through the FedNow Service as 

provided in paragraph (b) of this 

section. To the extent there is any 

inconsistency between a financial 

messaging standard adopted by the 

Federal Reserve Banks for the FedNow 

Service and this subpart, this subpart 

shall prevail. 

§ 210.41 Definitions. 

As used in this subpart, the following 

definitions apply: 

Article 4A means Article 4A of the 

Uniform Commercial Code as set forth 

in appendix A of this part, which is 

incorporated into this subpart in 

accordance with § 210.40(b). 

Beneficiary has the same meaning as 

in Article 4A, except that the term is 

limited to a beneficiary in a funds 

transfer that is sent through the FedNow 

Service. 

Beneficiary’s bank has the same 

meaning as in Article 4A, except that: 

(1) The term is limited to a 

beneficiary’s bank in a funds transfer 

that is sent through the FedNow 

Service; 

(2) A Federal Reserve Bank need not 

be identified in the payment order in 

order to be the beneficiary’s bank; and 


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(3) The term includes a Federal 

Reserve Bank when that Federal Reserve 

Bank is the beneficiary of a payment 

order. 

Federal Reserve Bank with respect to 

an entity means the Federal Reserve 

Bank in whose District the entity is 

located, as determined under the 

procedure described in Part 204 of this 

chapter (Regulation D), even if the entity 

is not otherwise subject to that section, 

or, if the entity maintains an account on 

the books of a different Federal Reserve 

Bank, the Federal Reserve Bank at 

which the entity maintains an account. 

The FedNow Service means the fundstransfer system owned and operated by 

the Federal Reserve Banks to support 

instant payments that is used primarily 

for the transmission and settlement of 

payment orders governed by this 

subpart. The FedNow Service does not 

include the Fedwire Funds Service. 

Interdistrict transfer means a funds 

transfer involving entries to settlement 

accounts maintained at two Federal 

Reserve Banks. 

Payment order has the same meaning 

as in Article 4A, except that the term 

includes only instructions sent or 

received through the FedNow Service, 

and does not include automated 

clearing house transfers or any 

communication designated as not being 

a payment order in an Operating 

Circular issued by a Federal Reserve 

Bank under this subpart. 

Receiving bank has the same meaning 

as in Article 4A, except that the term is 

limited to a receiving bank in a funds 

transfer that is sent through the FedNow 

Service. 

Sender has the same meaning as in 

Article 4A, except that the term is 

limited to a sender in a funds transfer 

that is sent through the FedNow 

Service. 

Sender’s settlement account, receiving 

bank’s settlement account, and 

beneficiary’s settlement account mean 

an account on the books of a Federal 

Reserve Bank maintained by the sender, 

receiving bank, or beneficiary, 

respectively. The term also includes any 

account on a Federal Reserve Bank’s 

books used with respect to the FedNow 

Service by the sender, receiving bank, or 

beneficiary, respectively, by agreement 

with its Federal Reserve Bank, any other 

Federal Reserve Bank on whose books 

the settlement account is maintained, 

and the account-holder. 

§ 210.42 Reliance on identifying number. 

(a) Reliance by a Federal Reserve 

Bank on number to identify a 

beneficiary’s bank. A Federal Reserve 

Bank that receives a payment order from 

a sender containing a number that 

identifies the beneficiary’s bank may 

rely on the number, even if it identifies 

a bank different from the bank identified 

by name in the payment order, if the 

Federal Reserve Bank does not know of 

such an inconsistency in identification. 

A Federal Reserve Bank has no duty to 

detect any such inconsistency in 

identification. 

(b) Reliance by a Federal Reserve 

Bank on number to identify beneficiary. 

A Federal Reserve Bank, acting as a 

beneficiary’s bank, that receives a 

payment order from a sender containing 

a number that identifies the beneficiary 

may rely on the number, even if it 

identifies a person different from the 

person identified by name in the 

payment order, if the Federal Reserve 

Bank does not know of such an 

inconsistency in identification. A 

Federal Reserve Bank has no duty to 

detect any such inconsistency in 

identification. 

§ 210.43 Agreement of sender. 

(a) Payment of sender’s obligation to 

a Federal Reserve Bank. A sender (other 

than a Federal Reserve Bank), by 

maintaining or using a settlement 

account with a Federal Reserve Bank, 

authorizes the sender’s Federal Reserve 

Bank to obtain payment for the sender’s 

payment orders by debiting, or causing 

any other Federal Reserve Bank on 

whose books the settlement account is 

maintained to debit, the amount of the 

payment order from the settlement 

account. The sender remains 

responsible for payment if the Federal 

Reserve Bank on whose books the 

settlement account is maintained does 

not, for any reason, obtain payment by 

debiting that account. 

(b) Overdrafts. (1) A sender does not 

have the right to an overdraft in its 

settlement account. In the event an 

overdraft is created, the overdraft shall 

be due and payable immediately, 

without the need for a demand by the 

Federal Reserve Bank, at the earliest of 

the following times: 

(i) At the end of the FedNow fundstransfer business day; 

(ii) At the time the Federal Reserve 

Bank, in its sole discretion, deems itself 

insecure and gives notice thereof to the 

sender; or 

(iii) At the time the sender suspends 

payments or is closed. 

(2) The sender shall have in its 

settlement account, at the time the 

overdraft is due and payable, a balance 

of actually and finally collected funds 

sufficient to cover the aggregate amount 

of all its obligations to the Federal 

Reserve Bank, whether the obligations 

result from the acceptance of a payment 

order or otherwise. 

(3) To secure any overdraft, as well as 

any other obligation due or to become 

due to its Federal Reserve Bank, a 

sender, by sending a payment order to 

a Federal Reserve Bank that is accepted 

by the Federal Reserve Bank, grants to 

the Federal Reserve Bank a security 

interest in all of its assets in the 

possession or control of, or held for the 

account of, the Federal Reserve Bank. 

The security interest attaches when an 

overdraft, or any other obligation to the 

Federal Reserve Bank, becomes due and 

payable. 

(4) A Federal Reserve Bank may take 

any action authorized by law to recover 

the amount of an overdraft that is due 

and payable, including, but not limited 

to, the exercise of rights of set off, the 

realization on any available collateral, 

and any other rights it may have as a 

creditor under applicable law. 

(5) If a sender, other than a 

government sender described in 

§ 210.40(d), incurs an overdraft in its 

settlement account as a result of a debit 

to the account by a Federal Reserve 

Bank under paragraph (a) of this section, 

the settlement account will be subject to 

any applicable overdraft charges, 

regardless of whether the overdraft has 

become due and payable. A Federal 

Reserve Bank may debit the settlement 

account under paragraph (a) of this 

section immediately on acceptance of 

the payment order. 

(c) Review of payment orders. A 

sender, by sending a payment order to 

a Federal Reserve Bank, agrees that for 

the purposes of sections 4A–204(a) and 

4A–304 of Article 4A, a reasonable time 

to notify a Federal Reserve Bank of the 

relevant facts concerning an 

unauthorized or erroneously executed 

payment order is within 60 calendar 

days after the sender receives notice that 

the payment order was accepted or that 

the sender’s settlement account was 

debited with respect to the payment 

order. 

§ 210.44 Agreement of receiving bank. 

(a) Payment. A receiving bank (other 

than a Federal Reserve Bank) that 

receives a payment order from its 

Federal Reserve Bank authorizes that 

Federal Reserve Bank to pay for the 

payment order by crediting, or causing 

any other Federal Reserve Bank on 

whose books the settlement account is 

maintained to credit, the amount of the 

payment order to the settlement 

account. 

(b) Funds availability. (1) A 

beneficiary’s bank (other than a Federal 

Reserve Bank) that accepts a payment 

order over the FedNow Service is 

obliged to pay the amount of the order 

to the beneficiary of the order 


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immediately after its acceptance of the 

payment order, by crediting an account 

of the beneficiary in accordance with 

section 4A–405(a) of Article 4A. The 

rights and obligations with respect to 

the availability of funds are also 

governed by the Expedited Funds 

Availability Act and the Board’s 

Regulation CC, Availability of Funds 

and Collection of Checks. 

(2) Nothing in paragraph (b)(1) of this 

section or any Operating Circular issued 

hereunder shall create any rights that 

the beneficiary or any party other than 

a Federal Reserve Bank may assert 

against the beneficiary’s bank, or affect 

any liability of the beneficiary’s bank to 

the beneficiary or any party other than 

a Federal Reserve Bank under Article 

4A or other law. 

(3) In circumstances where the 

beneficiary’s bank (other than a Federal 

Reserve Bank) has reasonable cause to 

believe that the beneficiary is not 

entitled or permitted to receive 

payment, the beneficiary’s bank may 

notify its Federal Reserve Bank that it 

requires additional time to determine 

whether to accept the payment order. In 

the event the beneficiary’s bank gives 

such notice to its Federal Reserve Bank, 

for purposes of this subpart and Article 

4A the beneficiary’s bank does not 

accept the payment order upon its 

receipt of payment in the amount of the 

payment order by a Federal Reserve 

Bank. 

§ 210.45 Payment orders. 

(a) Rejection. A sender shall not send 

a payment order to a Federal Reserve 

Bank unless authorized to do so by the 

Federal Reserve Bank. A Federal 

Reserve Bank may reject, or impose 

conditions that must be satisfied before 

it will accept, a payment order for any 

reason. 

(b) Selection of an intermediary bank. 

For an interdistrict transfer through the 

FedNow Service, a Federal Reserve 

Bank is authorized and directed to 

execute a payment order through 

another Federal Reserve Bank. A sender 

shall not send a payment order to a 

Federal Reserve Bank that requires the 

Federal Reserve Bank to send a payment 

order to an intermediary bank (other 

than a Federal Reserve Bank). A sender 

shall not send to a Federal Reserve Bank 

a payment order through the FedNow 

Service that instructs use by a Federal 

Reserve Bank of a funds-transfer system 

or means of transmission other than the 

FedNow Service, unless the Federal 

Reserve Bank agrees with the sender in 

writing to follow such instructions. 

(c) Execution Date and Payment Date. 

A sender shall not issue a payment 

order through the FedNow Service that 

instructs a Federal Reserve Bank to 

execute the payment order or to pay the 

beneficiary on a FedNow funds-transfer 

business day that is later than the fundstransfer business day on which the 

order is received by the Federal Reserve 

Bank, unless the Federal Reserve Bank 

agrees with the sender in writing to 

follow such instructions. 

§ 210.46 Payment by a Federal Reserve 

Bank to a receiving bank or beneficiary. 

(a) Payment to a receiving bank. 

Payment of a Federal Reserve Bank’s 

obligation to pay a receiving bank (other 

than a Federal Reserve Bank) occurs at 

the earlier of the time when the amount 

of the payment order is credited to the 

receiving bank’s settlement account or 

when the payment order is sent to the 

receiving bank. 

(b) Payment to a beneficiary. Payment 

by a Federal Reserve Bank to a 

beneficiary of a payment order, where 

the Federal Reserve Bank is the 

beneficiary’s bank, occurs at the earlier 

of the time when the amount of the 

payment order is credited to the 

beneficiary’s settlement account or 

when notice of the credit is sent to the 

beneficiary. 

§ 210.47 Federal Reserve Bank liability; 

payment of compensation. 

(a) Damages. In connection with its 

handling of a payment order under this 

subpart, a Federal Reserve Bank shall 

not be liable to a sender, receiving bank, 

beneficiary, or other Federal Reserve 

Bank, governed by this subpart, for any 

damages other than those payable under 

Article 4A. A Federal Reserve Bank 

shall not agree to be liable to a sender, 

receiving bank, beneficiary, or other 

Federal Reserve Bank for consequential 

damages under section 4A–305(d) of 

Article 4A. 

(b) Payment of compensation. (1) A 

Federal Reserve Bank shall satisfy its 

obligation, or that of another Federal 

Reserve Bank, to pay compensation in 

the form of interest under Article 4A by 

paying such compensation to a sender, 

receiving bank, beneficiary, or another 

party to the funds transfer that is 

entitled to such payment in an amount 

that is calculated in accordance with 

section 4A–506 of Article 4A. 

(2) If the sender or receiving bank that 

is the recipient of the payment of 

compensation is not the party entitled to 

compensation under Article 4A, the 

sender or receiving bank shall pass 

through the benefit of the compensation 

by making an interest payment, as of the 

day the compensation was paid by the 

Federal Reserve Bank, to the party 

entitled to compensation. The interest 

payment that is made to the party 

entitled to compensation shall not be 

less than the value of the compensation 

that was paid by the Federal Reserve 

Bank to the sender or receiving bank. 

The party entitled to compensation may 

agree to accept compensation in a form 

other than a direct interest payment, 

provided that such an alternative form 

of compensation is not less than the 

value of the interest payment that 

otherwise would be made. 

(c) Nonwaiver of right of recovery. 

Nothing in this subpart or any operating 

circular issued hereunder shall 

constitute, or be construed as 

constituting, a waiver by a Federal 

Reserve Bank of a cause of action for 

recovery under any applicable law of 

mistake and restitution. 

Appendix A of Subpart C of Part 210— 

Commentary 

The Commentary provides background 

material to explain the intent of the Board of 

Governors of the Federal Reserve System 

(Board) in adopting a particular provision in 

the subpart and to help readers interpret that 

provision. In some comments, examples are 

offered. The Commentary constitutes an 

official Board interpretation of subpart C of 

this part. Commentary is not provided for 

every provision of subpart C of this part, as 

some provisions are self-explanatory. 

Section 210.40—Authority, Purpose, and 

Scope 

(a) Authority and purpose. Section 

210.40(a) states that the purpose of subpart 

C of this part is to provide rules to govern 

funds transfers through the FedNow Service 

and recites the Board’s rulemaking authority 

for this subpart. Subpart C of this part is 

federal law and is not a ‘‘funds-transfer 

system rule,’’ as defined in section 4A–501(b) 

of Article 4A, Funds Transfers, of the 

Uniform Commercial Code (UCC), as set forth 

in appendix A of this part. Certain provisions 

of Article 4A may not be varied by a fundstransfer system rule, but under section 4A– 

107, regulations of the Board and Operating 

Circulars of the Federal Reserve Banks 

supersede inconsistent provisions of Article 

4A to the extent of the inconsistency. In 

addition, regulations of the Board may 

preempt inconsistent provisions of state law. 

Accordingly, subpart C of this part 

supersedes or preempts inconsistent 

provisions of state law. It does not affect state 

law governing funds transfers that does not 

conflict with the provisions of subpart C of 

this part, such as Article 4A, as enacted in 

any state, as such state law may apply to 

parties to funds transfers through the 

FedNow Service whose rights and obligations 

are not governed by subpart C of this part. 

(b) Scope. (1) Subpart C of this part 

incorporates the provisions of Article 4A set 

forth in appendix A of this part. The 

provisions set forth expressly in the sections 

of subpart C of this part supersede or 

preempt any inconsistent provisions of 

Article 4A as set forth in appendix A of this 

part or as enacted in any state. The official 

comments to Article 4A are not incorporated 


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in subpart C of this part or this commentary 

to subpart C of this part, but the official 

comments may be useful in interpreting 

Article 4A as set forth in appendix A of this 

part. Because section 4A–105 refers to other 

provisions of the Uniform Commercial Code 

(e.g., definitions in article 1 of the UCC), 

these other provisions of the UCC, as 

approved by the National Conference of 

Commissioners on Uniform State Laws, 

which is now also known as the Uniform 

Law Commission, and the American Law 

Institute, from time to time, are also 

incorporated into subpart C of this part. 

Subpart C of this part applies to any party to 

a funds transfer sent through the FedNow 

Service that is in privity with a Federal 

Reserve Bank. These parties include a sender 

(bank or nonbank) that sends a payment 

order to a Federal Reserve Bank through the 

FedNow Service, a receiving bank that 

receives a payment order from a Federal 

Reserve Bank, and a beneficiary that receives 

credit to an account that it uses or maintains 

at a Federal Reserve Bank as payment for a 

payment order accepted by a Federal Reserve 

Bank. Subpart C of this part also applies to 

Federal Reserve Banks that send or receive 

payment orders over the FedNow Service. 

For example, if a sender settles its activity 

over the FedNow Service in the account of 

a correspondent bank, the sender’s Federal 

Reserve Bank would be a bank in the funds 

transfer chain, but the Federal Reserve Bank 

of the correspondent bank would not be a 

sender or receiving bank with respect to the 

payment order and would not be a party to 

the funds transfer. Other parties to a funds 

transfer sent through the FedNow Service are 

covered by this subpart to the same extent 

that this subpart would apply to them if this 

subpart were a ‘‘funds-transfer system rule’’ 

under Article 4A that selected subpart C of 

this part as the governing law. 

(2) The scope of the applicability of a 

funds-transfer system rule under Article 4A 

is specified in section 4A–501(b), and the 

scope of the choice of law provision is 

specified in section 4A–507(c). Under section 

4A–507(c), a choice of law provision is 

binding on the participants in a fundstransfer system and certain other parties 

having notice that the funds-transfer system 

might be used for the funds transfer and of 

the choice of law provision. The Uniform 

Commercial Code provides that a person has 

notice of a fact when the person has actual 

knowledge of it, receives a notice or 

notification of it, or has reason to know that 

it exists from all the facts and circumstances 

known to the person at the time in question. 

(See UCC section 1–202.) However, under 

sections 4A–507(b) and 4A–507(d), a choice 

of law by agreement of the parties takes 

precedence over a choice of law made by 

funds-transfer system rule. 

(3) With respect to funds transfers sent 

through the FedNow Service, if originators 

and beneficiaries that are not in privity with 

a Federal Reserve Bank have the notice 

contemplated by Section 4A–507(c) or if 

those parties agree to be bound by subpart C 

of this part, subpart C of this part generally 

would apply to those remote parties. If 

remote parties to a funds transfer, a portion 

of which is sent through the FedNow Service, 

have expressly selected by agreement a law 

other than subpart C of this part under 

section 4A–507(b), subpart C of this part 

would not take precedence over the choice of 

law made by the agreement even though the 

remote parties had notice that the FedNow 

Service may be used and of the governing 

law. (See 4A–507(d).) In addition, subpart C 

of this part would not apply to a funds 

transfer sent through a funds-transfer system 

other than the FedNow Service, even though 

settlement for the funds transfer is made by 

means of a separate funds transfer through 

the FedNow Service. 

(4) Under section 4A–108, Article 4A does 

not apply to a funds transfer, any part of 

which is governed by the Electronic Fund 

Transfer Act (EFTA) (15 U.S.C. 1693 et seq.). 

A funds transfer from a consumer originator 

or a funds transfer to a consumer beneficiary 

could be carried out through the FedNow 

Service and could potentially be subject to 

the EFTA and Regulation E (12 CFR part 

1005) implementing it. If so, the funds 

transfer continues to also be governed by 

subpart C, except that, in the event of an 

inconsistency between the provisions of 

subpart C and the EFTA, the EFTA shall 

prevail to the extent of the inconsistency. 

(See also the commentary to section 210.41 

in this appendix, ‘‘Payment Order.’’) For 

example, a funds transfer may be initiated 

from a consumer’s account at a depository 

institution, and the depository institution 

may execute that payment order by sending 

a conforming payment order to a Reserve 

Bank through the FedNow Service. If that 

transfer is subject to the EFTA, then where 

the consumer subsequently reports the 

transfer as an unauthorized electronic fund 

transfer to its depository institution and 

exercises the right to obtain reimbursement 

under the terms of the EFTA, the depository 

institution would be required to comply with 

the EFTA even if the institution does not 

have a right to reverse the payment order sent 

to the Reserve Bank through the FedNow 

Service under subpart C. 

(c) Operating Circulars. The Federal 

Reserve Banks issue Operating Circulars 

consistent with this subpart that contain 

additional provisions applicable to payment 

orders and other messages sent through the 

FedNow Service. Under section 4A–107, this 

Operating Circular supersedes inconsistent 

provisions of Article 4A, both as set forth in 

appendix A of this part and as enacted in any 

state. These Operating Circulars are not 

funds-transfer system rules, but, by their 

terms, they are binding on all parties covered 

by this subpart. 

(d) Government senders, receiving banks, 

and beneficiaries. This section clarifies that 

unless a statute of the United States provides 

otherwise, subpart C of this part applies to 

governmental entities. 

(e) Financial messaging standards. This 

paragraph makes clear that financial 

messaging standards, including the financial 

messaging components, elements, technical 

documentation, tags, and terminology used to 

implement those standards, do not confer or 

connote legal status or responsibilities. 

Instead, subpart C of this part and Federal 

Reserve Bank operating circulars govern the 

rights and obligations of parties to funds 

transfers sent through the FedNow Service as 

provided in § 210.40(b). Thus, to the extent 

there is any inconsistency between a 

financial messaging standard adopted by the 

FedNow Service and subpart C of this part, 

subpart C of this part, including Article 4A 

as set forth in appendix A of this part, will 

prevail. In the ISO 20022 financial messaging 

standard, for example, the term agent is used 

to refer to a variety of bank parties to a funds 

transfer (e.g., debtor agent, creditor agent, 

intermediary agent). Notwithstanding use of 

that term in the standard and in message tags, 

such banks are not the agents of any party to 

a funds transfer and owe no duty to any other 

party to such a funds transfer except as 

provided in subpart C of this part (including 

Article 4A) or by express agreement. The ISO 

20022 financial messaging standard also 

permits information to be carried in a fundstransfer message regarding persons that are 

not parties to that funds transfer (e.g., 

ultimate debtor, ultimate creditor, initiating 

party) for regulatory, compliance, remittance, 

or other purposes. An ‘‘ultimate debtor’’ is 

not an ‘‘originator’’ as defined in Article 4A. 

The relationship between the ultimate debtor 

and the originator (what the ISO 20022 

standard calls the ‘‘debtor’’) is determined by 

law other than Article 4A. 

Section 210.41—Definitions 

Article 4A defines many terms (e.g., 

beneficiary, intermediary bank, receiving 

bank, security procedure) used in this 

subpart. These terms are defined or listed in 

sections 4A–103 through 4A–105. These 

terms, such as the term bank (defined in 

section 4A–105(d)(2)), may differ from 

comparable terms in subpart A and subpart 

B of this part. As subpart C of this part 

incorporates consistent provisions of Article 

4A, it incorporates these definitions unless 

these terms are expressly defined otherwise 

in subpart C of this part. This subpart 

modifies the definitions of five Article 4A 

terms: Beneficiary, beneficiary’s bank, 

payment order, receiving bank, and sender. 

This subpart also defines terms not defined 

in Article 4A. 

Article 4A. Article 4A means the version of 

that article of the Uniform Commercial Code 

set forth in appendix A of this part. It does 

not refer to the law of any particular state 

unless the context indicates otherwise. 

Subject to the express provisions of this 

Subpart, this version of Article 4A is 

incorporated into this subpart and made 

federal law for transactions covered by this 

subpart. (See § 210.40(b)(1) and 

accompanying commentary.) Because section 

4A–105 refers to other provisions of the 

Uniform Commercial Code (e.g., definitions 

in article 1 of the UCC) these other provisions 

of the UCC, as approved by the National 

Conference of Commissioners on Uniform 

State Laws, which is now also known as the 

Uniform Law Commission, and the American 

Law Institute, from time to time, are also 

incorporated in subpart C of this part. 

Beneficiary, beneficiary’s bank, receiving 

bank, and sender. The definitions of 

‘‘beneficiary,’’ ‘‘beneficiary’s bank,’’ 

‘‘receiving bank,’’ and ‘‘sender’’ in subpart C 

of this part differ from the definitions in 

sections 4A–103(a)(2)–(4). The subpart C 


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definition clarifies that, for the purposes of 

subpart C of this part, these terms are limited 

to parties in a funds transfer that is sent 

through the FedNow Service. For example, 

the parties to a funds transfer that is sent 

through the Fedwire Funds Service would be 

governed by subpart B of this part, and 

would not be a ‘‘beneficiary,’’ ‘‘beneficiary’s 

bank,’’ ‘‘receiving bank,’’ or ‘‘sender’’ 

governed by subpart C. The definition of 

‘‘beneficiary’s bank’’ in subpart C further 

clarifies that where a Federal Reserve Bank 

functions as the beneficiary’s bank, it need 

not be identified in the payment order as the 

beneficiary’s bank and that a Federal Reserve 

Bank that receives a payment order as 

beneficiary is also the beneficiary’s bank with 

respect to that payment order. 

The FedNow Service. The FedNow Service 

refers to the funds-transfer system owned and 

operated by the Federal Reserve Banks to 

support instant payments that is governed by 

this Subpart. The term does not refer to any 

particular computer, telecommunications 

facility, or funds transfer, but rather to the 

system as a whole. The FedNow Service does 

not include the Fedwire Funds Service or the 

system used for automated clearing house 

transfers. 

Payment Order. (1) The definition of 

‘‘payment order’’ in subpart C of this part 

differs from the section 4A–103(a)(1) 

definition. The subpart C definition clarifies 

that, for the purposes of subpart C of this 

part, the term includes only instructions 

transmitted through the FedNow Service. For 

example, instructions transmitted through 

the Fedwire Funds Service would be 

governed by subpart B of this part, and not 

subpart C. 

Additionally, the subpart C definition 

provides that certain messages that are 

transmitted through the FedNow Service are 

not payment orders. Federal Reserve Banks 

and banks participating in the FedNow 

Service send various types of messages 

relating to payment orders or to other 

matters, through the FedNow Service, that 

are not intended to be payment orders. In 

some cases, messages sent through the 

FedNow Service, such as certain requests for 

payment, may be payment orders under 

Article 4A, but are not treated as payment 

orders under subpart C because they are not 

an instruction to a Federal Reserve Bank to 

pay or cause another bank to pay money. 

Under the subpart C definition, these 

messages are not ‘‘payment orders’’ governed 

by this subpart. The operating circulars of the 

Federal Reserve Banks may specify those 

messages that may be transmitted through the 

FedNow Service but that are not payment 

orders. 

(2) Subpart C, including its incorporation 

of Article 4A, governs a payment order even 

though the originator’s or beneficiary’s 

account may be a consumer account 

established primarily for personal, family, or 

household purposes. Under section 4A–108, 

Article 4A does not apply to a funds transfer 

any part of which is governed by the 

Electronic Fund Transfer Act. That Act, and 

Regulation E (12 CFR part 1005) 

implementing it, may govern a transfer 

through the FedNow Service that is from a 

consumer originator or to a consumer 

beneficiary. In the event that a transfer 

through the FedNow Service is subject to the 

EFTA, the transfer continues to also be 

governed by this subpart, except that, in the 

event of an inconsistency between the 

provisions of subpart C and the EFTA, the 

EFTA shall prevail to the extent of the 

inconsistency. (See also § 210.40(b) and 

accompanying commentary.) Thus, this 

subpart applies to all funds transfers through 

the FedNow Service even though some such 

transfers involve originators or beneficiaries 

that are consumers. 

Sender’s settlement account, receiving 

bank’s settlement account, and beneficiary’s 

settlement account. A FedNow participant 

must designate an account on the books of a 

Federal Reserve Bank that the Federal 

Reserve Banks may use to settle the 

participant’s activity over the FedNow 

Service. A FedNow participant may settle its 

activity over the FedNow Service in its 

master account. Alternatively, it may 

designate the account of a correspondent 

bank that the Federal Reserve Banks may use 

to settle activity through the service, subject 

to the correspondent bank’s agreement to any 

such designation. 

Section 210.42—Reliance on Identifying 

Number 

(a) Reliance by a Federal Reserve Bank on 

number to identify intermediary bank or 

beneficiary’s bank. Section 4A–208 provides 

that a receiving bank, such as a Federal 

Reserve Bank, may rely on the routing 

number of an intermediary bank or the 

beneficiary’s bank specified in a payment 

order as identifying the appropriate 

intermediary bank or beneficiary’s bank, even 

if the payment order identifies another bank 

by name, provided that the receiving bank 

does not know of the inconsistency. Under 

section 4A–208(b)(2), if the sender of the 

payment order is not a bank, a receiving bank 

may rely on the number only if the sender 

had notice before the receiving bank accepted 

the sender’s order that the receiving bank 

might rely on the number. This section 

provides this notice to entities that are not 

banks, such as the Department of the 

Treasury, that send payment orders directly 

to a Federal Reserve Bank through the 

FedNow Service. 

(b) Reliance by a Federal Reserve Bank on 

number to identify beneficiary. Section 4A– 

207 provides that a beneficiary’s bank, such 

as a Federal Reserve Bank, may rely on the 

number identifying a beneficiary, such as the 

beneficiary’s account number, specified in a 

payment order as identifying the appropriate 

beneficiary, even if the payment order 

identifies another beneficiary by name, 

provided that the beneficiary’s bank does not 

know of the inconsistency. Under section 

4A–207(c)(2), if the originator is not a bank, 

an originator is not obliged to pay for a 

payment order if the originator did not have 

notice that the beneficiary’s bank might rely 

on the identifying number and the person 

paid on the basis of the identifying number 

was not entitled to receive payment. This 

section of subpart C provides this notice to 

entities that are not banks, such as the 

Department of the Treasury, that are 

originators of payment orders sent directly by 

the originators to a Federal Reserve Bank 

through the FedNow Service, where that 

Federal Reserve Bank or another Federal 

Reserve Bank is the beneficiary’s bank (see 

also section 4A–402(b), providing that a 

sender must pay a beneficiary’s bank for a 

payment order accepted by the beneficiary’s 

bank). 

Section 210.43—Agreement of Sender 

(a) Payment of sender’s obligation to a 

Federal Reserve Bank. When a sender sends 

a payment order to a Federal Reserve Bank 

and the Federal Reserve Bank accepts the 

payment order by issuing a conforming order 

executing the sender’s payment order, under 

section 4A–402, the sender is indebted to the 

Federal Reserve Bank for the amount of the 

payment order. Section 4A–403 specifies the 

various methods by which a sender may 

settle the obligation under section 4A–402. 

With respect to a payment order sent through 

the FedNow Service, the obligation of a 

sender (other than a Federal Reserve Bank) is 

settled by a debit to the account of the sender 

at a Federal Reserve Bank. Section 210.43(a) 

provides that a sender, other than a Federal 

Reserve Bank, that maintains or uses a 

settlement account at a Federal Reserve Bank 

authorizes its Federal Reserve Bank to debit, 

or cause any other Federal Reserve Bank on 

whose books the settlement account is 

maintained to debit, that account, so that the 

Federal Reserve Bank can obtain payment for 

the payment order. 

(b) Overdrafts. (1) In some cases, debits to 

a sender’s settlement account will create an 

overdraft in the settlement account. The 

Board and the Federal Reserve Banks have 

established policies concerning when a 

Federal Reserve Bank will permit a bank to 

incur an overdraft in its account at a Federal 

Reserve Bank. These policies do not give a 

bank or other sender a right to an overdraft 

in its account. Subpart C clarifies that a 

sender does not have a right to such an 

overdraft. If an overdraft arises, it becomes 

immediately due and payable at the earliest 

of the following times: The end of the 

FedNow funds-transfer business day; the 

time the Federal Reserve Bank in its sole 

discretion, deems itself insecure and gives 

notice to the sender; or the time that the 

sender suspends payments or is closed by 

governmental action, such as the 

appointment of a receiver. In some cases, a 

Federal Reserve Bank extends its FedNow 

operations beyond the standard cut-off time 

for that FedNow funds-transfer business day. 

For the purposes of this section, unless 

otherwise specified by the Federal Reserve 

Bank making such an extension, an overdraft 

becomes due and payable at the end of the 

extended operating hours. An overdraft 

becomes due and payable prior to a Federal 

Reserve Bank’s cut-off time if the Federal 

Reserve Bank deems itself insecure and gives 

notice to the sender. A Federal Reserve Bank 

that deems itself insecure may give such 

notice in accordance with the provisions on 

notice in section 1–202(d) of the UCC, in 

accordance with any other applicable law or 

agreement, or by any other reasonable means. 

An overdraft also becomes due and payable 

at the time that a bank is closed or suspends 

payments. For example, an overdraft 


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becomes due and payable if a receiver is 

appointed for the bank or the bank is 

prevented from making payments by 

governmental order. The Federal Reserve 

Bank need not make demand on the sender 

for the overdraft to become due and payable. 

(2) A sender must cover any overdraft and 

any other obligation of the sender to the 

Federal Reserve Bank by the time the 

overdraft becomes due and payable. By 

sending a payment order to a Federal Reserve 

Bank, the sender grants a security interest to 

the Federal Reserve Bank in all of the assets 

of the sender possessed or controlled by, or 

held for the account of, the Federal Reserve 

Bank in order to secure all obligations due or 

to become due to the Federal Reserve Bank. 

The security interest attaches when the 

overdraft, or other obligation of the sender to 

the Federal Reserve Bank, becomes due and 

payable. The security interest does not apply 

to assets held by the sender as custodian or 

trustee for the sender’s customers or third 

parties. Once an overdraft is due and 

payable, a Federal Reserve Bank may exercise 

its right of set off, liquidate collateral, or take 

other similar action to satisfy the obligation 

the sender owes to the Federal Reserve Bank. 

(c) Review of payment orders. (1) Under 

section 4A–204, a receiving bank is required 

to refund the principal amount of an 

unauthorized payment order that the sender 

was not obliged to pay, together with interest 

on the refundable amount calculated from 

the date that the receiving bank received 

payment to the date of the refund. The sender 

is not entitled to compensation in the form 

of interest if the sender fails to exercise 

ordinary care to determine that the order was 

not authorized and to notify the receiving 

bank within a reasonable time after the 

sender receives a notice that the payment 

order was accepted or that the sender’s 

account was debited with respect to the 

order. Similarly, under section 4A–304, if a 

sender of a payment order that was 

erroneously executed does not notify the 

bank receiving the payment order within a 

reasonable time, the bank is not liable to the 

sender for compensation in the form of 

interest on any amount refundable to the 

sender. Section 210.43(c) establishes 60 

calendar days as the reasonable period of 

time for the purposes of these provisions of 

Article 4A. 

(2) Section 4A–505 provides that in order 

for a customer to assert a claim objecting to 

a debit to its account by a receiving bank, the 

customer must notify the receiving bank of 

its objection within one year after the 

customer received notification reasonably 

identifying the payment order. Subpart C of 

this part does not vary this one-year claim 

preclusion period. 

Section 210.44—Agreement of Receiving 

Bank 

(b) Funds availability. (1) Section 4A– 

209(b) provides that a beneficiary’s bank 

accepts a payment order at the earliest of 

certain specified events, including when the 

bank receives payment for the entire amount 

of the order from the sender (see section 4A– 

209(b)(2)). Section 4A–404(a) provides that if 

a beneficiary’s bank accepts a payment order, 

it is obliged to pay the amount of a payment 

order to the beneficiary on the payment date 

unless acceptance of the payment order 

occurs on the payment date after the close of 

the funds-transfer business day of the bank. 

Section 4A–405(a) provides that if a 

beneficiary’s bank pays the beneficiary by 

crediting an account of the beneficiary on its 

own books, payment of the bank’s obligation 

under Section 4A–404(a) occurs when and to 

the extent (i) the bank notifies the beneficiary 

that it may withdraw the amount of the 

credit, (ii) the bank lawfully applies the 

credit to a debt of the beneficiary, or (iii) 

funds with respect to the payment order are 

otherwise made available to the beneficiary 

by the bank. 

(2) Section 210.44(b)(1) provides that if a 

FedNow participant that is the beneficiary’s 

bank accepts a payment order, it must pay 

the beneficiary by credit to the beneficiary’s 

account in accordance with section 4A– 

405(a) of Article 4A, and it must do so 

immediately after its acceptance of the 

payment order. This section further clarifies 

that the provisions of the Expedited Funds 

Availability Act (12 U.S.C. 4002(a)) and its 

implementing regulation, Regulation CC (12 

CFR part 229), also govern. Regulation CC 

provides that funds received by a bank by an 

electronic payment shall be available for 

withdrawal not later than the business day 

after the banking day on which such funds 

are received. (12 CFR 229.10(b).) Because 

Subpart C of this part requires funds to be 

made available on a more prompt basis than 

the availability requirements of the 

Expedited Funds Availability Act and 

Regulation CC, that act and Regulation CC do 

not preempt or invalidate subpart C. For 

example, if a beneficiary’s bank accepts a 

payment order through the FedNow Service 

at 10 a.m. but does not make funds available 

to the beneficiary until 5p.m., the bank has 

failed to satisfy its obligations under subpart 

C of this part even if it has satisfied its 

obligations under Regulation CC. 

(3) Section 210.44(b)(2) clarifies that the 

obligation for the beneficiary’s bank to 

provide immediate funds availability to the 

beneficiary under section 210.44(b)(1), and 

any Operating Circular issued in accordance 

with subpart C, should not be construed as 

creating any rights that the beneficiary or any 

party other than a Federal Reserve Bank may 

assert against the beneficiary’s bank, or affect 

any liability of the beneficiary’s bank to the 

beneficiary or any party other than a Federal 

Reserve Bank under Article 4A or other law. 

In the example in this paragraph (b), where 

the beneficiary’s bank accepts a payment 

order through the FedNow Service at 10 a.m. 

but does not make funds available to the 

beneficiary until 5 p.m., the bank has failed 

to satisfy its obligations under § 210.44(b)(1) 

but the beneficiary would not have a claim 

or right to assert against the bank under that 

provision. 

(4) Section 210.46(a) provides that 

payment by a Federal Reserve Bank to a 

receiving bank occurs when the receiving 

bank’s settlement account is credited or 

when the payment order is sent by the 

Federal Reserve Bank to the receiving bank, 

whichever is earlier, and would ordinarily be 

considered acceptance of the payment order 

by the beneficiary’s bank under section 4A– 

209(b). Section 210.44(b)(3) provides that 

notwithstanding section 4A–209(b), in 

certain circumstances a beneficiary’s bank is 

not deemed to accept a payment order at 

such time as it receives payment from its 

Federal Reserve Bank. Specifically, where the 

beneficiary’s bank has reasonable cause to 

believe that the beneficiary is not entitled or 

permitted to receive payment and the 

beneficiary’s bank notifies its Federal Reserve 

Bank that it requires additional time to 

determine whether to accept the payment 

order, this section provides that for purposes 

of subpart C and Article 4A, the beneficiary’s 

bank does not accept the payment order even 

if it has received payment for the entire 

amount of the order from its Federal Reserve 

Bank as provided in § 210.46. For example, 

if the beneficiary’s bank has reasonable cause 

to believe that making funds available to the 

beneficiary may violate applicable U.S. 

sanctions, the beneficiary’s bank may notify 

its Federal Reserve Bank that it requires 

additional time to determine whether to 

accept the payment order, including to 

investigate if the beneficiary is subject to 

applicable sanctions; in the event the 

beneficiary’s bank gives such notice, the 

beneficiary’s bank would not be deemed to 

have accepted the payment order at the time 

it receives payment from its Federal Reserve 

Bank. 

Section 210.45—Payment Orders 

(a) Rejection. (1) A sender must make 

arrangements with its Federal Reserve Bank 

before it can send payment orders to the 

Federal Reserve Bank. Federal Reserve Banks 

reserve the right to reject or impose 

conditions on the acceptance of payment 

orders for any reason. For example, a Federal 

Reserve Bank might reject or impose 

conditions on accepting a payment order 

where a sender does not have sufficient 

funds in its settlement account with the 

Federal Reserve Bank to cover the amount of 

the sender’s payment order and other 

obligations of the sender due or to become 

due to the Federal Reserve Bank. As a further 

example, a Federal Reserve Bank may reject 

a payment order that is not successfully 

processed within time limits established by 

the Federal Reserve Banks. A Federal Reserve 

Bank may require a sender to execute a 

written agreement concerning security 

procedures or other matters before the sender 

may send payment orders to the Federal 

Reserve Bank. 

(b) Selection of an intermediary bank. (1) 

Under section 4A–302, if a receiving bank 

(other than a beneficiary’s bank), such as a 

Federal Reserve Bank, accepts a payment 

order, it must issue a payment order that 

complies with the sender’s order. The 

sender’s order may include instructions 

concerning an intermediary bank to be used 

that must be followed by a receiving bank 

(see section 4A–302(a)(1)). If the sender does 

not designate any intermediary bank in its 

payment order, the receiving bank may select 

an intermediary bank through which the 

sender’s payment order can be expeditiously 

issued to the beneficiary’s bank so long as the 

receiving bank exercises ordinary care in 

selecting the intermediary bank (see section 

4A–302(b)). 


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(2) This section provides that in an 

interdistrict transfer, a Federal Reserve Bank 

is authorized and directed to select another 

Federal Reserve Bank as an intermediary 

bank. A sender may not instruct a Federal 

Reserve Bank to use a particular intermediary 

bank or to use its discretion to select an 

intermediary bank other than a Federal 

Reserve Bank or an intermediary bank 

designated by the sender. In addition, a 

sender may not send a payment order 

through the FedNow Service that instructs a 

Federal Reserve Bank to use a funds-transfer 

system or means of transmission other than 

the FedNow Service, unless the sender and 

the Federal Reserve Bank agree in writing to 

the use of that funds-transfer system or 

means of transmission. 

(c) Execution date and payment date. (1) 

Under 4A–301(b), the ‘‘execution date’’ of a 

payment order means the day on which the 

receiving bank may properly issue a payment 

order in execution of the sender’s order. 

Under section 4A–401, the ‘‘payment date’’ 

of a payment order is the day on which the 

amount of the order is payable to the 

beneficiary by the beneficiary’s bank. The 

execution date and the payment date may be 

determined by instruction of the sender but 

cannot be earlier than the day the order is 

received and, unless otherwise determined, 

is the day the order is received (see sections 

4A–301(b) and 4A–401). Section 4A–106, 

provides for the time that a payment order is 

received, including in the event that a 

receiving bank fixes a cut-off time for the 

receipt and processing of payment orders. If 

the bank receives a payment order after its 

cut-off time, the bank may treat the payment 

order as received at the opening of the next 

funds-transfer business day (see section 4A– 

106(a)). 

(2) The FedNow Service is designed to be 

an instant value transfer system through 

which funds may be transferred from the 

originator to the beneficiary on the same 

funds-transfer business day. This section 

provides that a sender may not send a 

payment order to a Federal Reserve Bank that 

specifies an execution date or payment date 

later than the day on which the payment 

order is issued, unless the sender of the order 

and the Federal Reserve Bank agree in 

writing to the arrangement. 

Section 210.46—Payment by a Federal 

Reserve Bank to a Receiving Bank or 

Beneficiary 

(a) Payment to a receiving bank. (1) Under 

section 4A–402, when a Federal Reserve 

Bank executes a sender’s payment order by 

issuing a conforming order to a receiving 

bank that accepts the payment order, the 

Federal Reserve Bank must pay the receiving 

bank the amount of the payment order. 

Section 210.44(a) authorizes a Federal 

Reserve Bank to make the payment by 

crediting, or causing any other Federal 

Reserve Bank on whose books the settlement 

account is maintained to credit, the 

settlement account of the receiving bank. 

Section 210.46(a) provides that the payment 

occurs when the receiving bank’s settlement 

account is credited or when the payment 

order is sent by the Federal Reserve Bank to 

the receiving bank, whichever is earlier. 

Ordinarily, payment will occur during the 

FedNow funds-transfer business day a short 

time after the payment order is received. This 

credit is final and irrevocable when made 

and constitutes final settlement under section 

4A–403. Payment does not waive a Federal 

Reserve Bank’s right of recovery under the 

applicable law of mistake and restitution (see 

§ 210.47(c)), affect a Federal Reserve Bank’s 

right to apply the funds to any obligation due 

or to become due to the Federal Reserve 

Bank, or affect legal process or claims by 

third parties on the funds. 

(2) This section on final payment does not 

apply to settlement for payment orders 

between Federal Reserve Banks. These 

payment orders are settled by other means. 

(b) Payment to a beneficiary. Section 

210.46(b) specifies when a Federal Reserve 

Bank makes payment to a beneficiary for 

which it is the beneficiary’s bank. As in the 

case of payment to a receiving bank, this 

payment occurs at the earlier of the time that 

the Federal Reserve Bank credits the 

beneficiary’s settlement account or sends 

notice of the credit to the beneficiary, and is 

final and irrevocable when made. 

Section 210.47—Federal Reserve Bank 

Liability; Payment of Compensation 

(a) Damages. (1) Under section 4A–305(d), 

damages for failure of a receiving bank to 

execute a payment order that it was obligated 

to execute by express agreement are limited 

to expenses in the transaction and incidental 

expenses and interest and do not include 

additional damages, including consequential 

damages, unless they are provided for in an 

express written agreement of the receiving 

bank. This section clarifies that in connection 

with the handling of payment orders, Federal 

Reserve Banks may not agree to be liable for 

consequential damages under this provision 

and shall not be liable for damages other than 

those that may be due under Article 4A to 

parties governed by this subpart. Any 

agreement in conflict with these provisions 

would not be effective, because it would be 

in violation of subpart C. 

(2) This section does not affect the ability 

of other parties to a funds transfer to agree 

to be liable for consequential damages, the 

liability of a Federal Reserve Bank under 

section 4A–404 (relating to obligation of 

beneficiary’s bank to pay and give notice to 

beneficiary), or the liability to parties 

governed by subpart C for claims not based 

on the handling of a payment order under 

subpart C. 

(b) Payment of compensation. (1) Under 

Article 4A, a Federal Reserve Bank may be 

required to pay compensation in the form of 

interest to another party in connection with 

its handling of a funds transfer. For example, 

payment of compensation in the form of 

interest is required in certain situations 

pursuant to sections 4A–204 (relating to 

refund of payment and duty of customer to 

report with respect to unauthorized payment 

order), 4A–209 (relating to acceptance of 

payment order), 4A–210 (relating to rejection 

of payment order), 4A–304 (relating to duty 

of sender to report erroneously executed 

payment order), 4A–305 (relating to liability 

for late or improper execution or failure to 

execute a payment order), 4A–402 (relating to 

obligation of sender to pay receiving bank), 

and 4A–404 (relating to obligation of 

beneficiary’s bank to pay and give notice to 

beneficiary). 

(2) Section 210.47(b) requires Federal 

Reserve Banks to provide compensation 

through payment in the form of interest. 

Under section 4A–506(a), the amount of such 

interest may be determined by agreement 

between the sender and receiving bank or by 

funds-transfer system rule. If there is no such 

agreement, under section 4A–506(b), the 

amount of interest is based on the federal 

funds rate. Similarly, compensation in the 

form of interest will be paid to government 

senders, receiving banks, or beneficiaries 

described in § 210.40(d) if they are entitled 

to interest under subpart C. A Federal 

Reserve Bank may also, in its discretion, pay 

compensation in the form of interest directly 

to a remote party to a transfer through the 

FedNow Service that is entitled to interest, 

rather than providing compensation to its 

sender or receiving bank. 

(3) If a sender or receiving bank that 

received a payment of compensation is not 

the party entitled to compensation under 

Article 4A, the sender or receiving bank must 

pass the benefit of the compensation 

payment made to it to the party that is 

entitled to compensation. The benefit may be 

passed on either in the form of a direct 

payment of interest or in the form of a 

compensating balance, if the party entitled to 

interest agrees to accept the other form of 

compensation. In the latter case, the value of 

the compensating balance must be at least 

equivalent to the value of the interest 

payment that otherwise would have been 

provided. 

(c) Nonwaiver of right of recovery. Several 

sections of Article 4A allow a party to a 

funds transfer to make a claim pursuant to 

the applicable law of mistake and restitution. 

Nothing in subpart C of this part or any 

Operating Circular issued in accordance with 

subpart C of this part waives any such claim 

by a Federal Reserve Bank. A Federal Reserve 

Bank, however, may waive such a claim by 

express written agreement in order to settle 

litigation or for other purposes. 

■ 13. Add Appendix A of part 210 to 

read as follows: 

Appendix A of Part 210—Article 4A, 

Funds Transfers 

Part 1—Subject Matter and Definitions 

Section 4A–101. Short Title 

This Article may be cited as Uniform 

Commercial Code—Funds Transfers. 

Section 4A–102. Subject Matter 

Except as otherwise provided in section 

4A–108, this Article applies to funds 

transfers defined in section 4A–104. 

Section 4A–103. Payment Order—Definitions 

(a) In this Article: 

(1) Payment order means an instruction of 

a sender to a receiving bank, transmitted 

orally, electronically, or in writing, to pay, or 

to cause another bank to pay, a fixed or 

determinable amount of money to a 

beneficiary if: 


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(i) The instruction does not state a 

condition to payment to the beneficiary other 

than time of payment, 

(ii) The receiving bank is to be reimbursed 

by debiting an account of, or otherwise 

receiving payment from, the sender, and 

(iii) The instruction is transmitted by the 

sender directly to the receiving bank or to an 

agent, funds-transfer system, or 

communication system for transmittal to the 

receiving bank. 

(2) Beneficiary means the person to be paid 

by the beneficiary’s bank. 

(3) ‘‘Beneficiary’s bank’’ means the bank 

identified in a payment order in which an 

account of the beneficiary is to be credited 

pursuant to the order or which otherwise is 

to make payment to the beneficiary if the 

order does not provide for payment to an 

account. 

(4) Receiving bank means the bank to 

which the sender’s instruction is addressed. 

(5) Sender means the person giving the 

instruction to the receiving bank. 

(b) If an instruction complying with 

paragraph (a)(1) of this section is to make 

more than one payment to a beneficiary, the 

instruction is a separate payment order with 

respect to each payment. 

(c) A payment order is issued when it is 

sent to the receiving bank. 

Section 4A–104. Funds Transfer—Definitions 

In this Article: 

(a) Funds transfer means the series of 

transactions, beginning with the originator’s 

payment order, made for the purpose of 

making payment to the beneficiary of the 

order. The term includes any payment order 

issued by the originator’s bank or an 

intermediary bank intended to carry out the 

originator’s payment order. A funds transfer 

is completed by acceptance by the 

beneficiary’s bank of a payment order for the 

benefit of the beneficiary of the originator’s 

payment order. 

(b) Intermediary bank means a receiving 

bank other than the originator’s bank or the 

beneficiary’s bank. 

(c) Originator means the sender of the first 

payment order in a funds transfer. 

(d) Originator’s bank means (i) the 

receiving bank to which the payment order 

of the originator is issued if the originator is 

not a bank, or (ii) the originator if the 

originator is a bank. 

Section 4A–105. Other Definitions 

(a) In this Article: 

(1) Authorized account means a deposit 

account of a customer in a bank designated 

by the customer as a source of payment of 

payment orders issued by the customer to the 

bank. If a customer does not so designate an 

account, any account of the customer is an 

authorized account if payment of a payment 

order from that account is not inconsistent 

with a restriction on the use of that account. 

(2) Bank means a person engaged in the 

business of banking and includes a savings 

bank, savings and loan association, credit 

union, and trust company. A branch or 

separate office of a bank is a separate bank 

for purposes of this Article. 

(3) Customer means a person, including a 

bank, having an account with a bank or from 

whom a bank has agreed to receive payment 

orders. 

(4) Funds-transfer business day of a 

receiving bank means the part of a day during 

which the receiving bank is open for the 

receipt, processing, and transmittal of 

payment orders and cancellations and 

amendments of payment orders. 

(5) Funds-transfer system means a wire 

transfer network, automated clearing house, 

or other communication system of a clearing 

house or other association of banks through 

which a payment order by a bank may be 

transmitted to the bank to which the order is 

addressed. 

(6) Good faith means honesty in fact and 

the observance of reasonable commercial 

standards of fair dealing. 

(7) Prove with respect to a fact means to 

meet the burden of establishing the fact 

(Section 1–201(8)). 

(b) Other definitions applying to this 

Article and the sections in which they appear 

are: 

‘‘Acceptance’’. . . . . Sec. 4A–209 

‘‘Beneficiary’’. . . . . Sec. 4A–103 

‘‘Beneficiary’s bank’’. . . . . Sec. 4A–103 

‘‘Executed’’. . . . . Sec. 4A–301 

‘‘Execution date’’. . . . . Sec. 4A–301 

‘‘Funds transfer’’. . . . . Sec. 4A–104 

‘‘Funds-transfer system rule’’. . . . . Sec. 

4A–501 

‘‘Intermediary bank’’. . . . . Sec. 4A–104 

‘‘Originator’’. . . . . Sec. 4A–104 

‘‘Originator’s bank’’. . . . . Sec. 4A–104 

‘‘Payment by beneficiary’s bank to 

beneficiary’’. . . . . Sec. 4A–405 

‘‘Payment by originator to 

beneficiary’’. . . . . Sec. 4A–406 

‘‘Payment by sender to receiving 

bank’’. . . . . Sec. 4A–403 

‘‘Payment date’’. . . . . Sec. 4A–401 

‘‘Payment order’’. . . . . Sec. 4A–103 

‘‘Receiving bank’’. . . . . Sec. 4A–103 

‘‘Security procedure’’. . . . . Sec. 4A–201 

‘‘Sender’’..... Sec. 4A–103 

(c) The following definitions in Article 4 

apply to this Article: 

‘‘Clearing house’’ . . . . . Sec. 

4–104 

‘‘Item’’ . . . . . Sec. 4–104 

‘‘Suspends payments’’ . . . . . Sec. 4–104 

(d) In addition Article 1 contains general 

definitions and principles of construction 

and interpretation applicable throughout this 

Article. 

Section 4A–106. Time Payment Order is 

Received 

(a) The time of receipt of a payment order 

or communication canceling or amending a 

payment order is determined by the rules 

applicable to receipt of a notice stated in 

Section 1–201(27). A receiving bank may fix 

a cut-off time or times on a funds-transfer 

business day for the receipt and processing 

of payment orders and communications 

canceling or amending payment orders. 

Different cut-off times may apply to payment 

orders, cancellations, or amendments, or to 

different categories of payment orders, 

cancellations, or amendments. A cut-off time 

may apply to senders generally or different 

cut-off times may apply to different senders 

or categories of payment orders. If a payment 

order or communication canceling or 

amending a payment order is received after 

the close of a funds-transfer business day or 

after the appropriate cut-off time on a fundstransfer business day, the receiving bank may 

treat the payment order or communication as 

received at the opening of the next fundstransfer business day. 

(b) If this Article refers to an execution date 

or payment date or states a day on which a 

receiving bank is required to take action, and 

the date or day does not fall on a fundstransfer business day, the next day that is a 

funds-transfer business day is treated as the 

date or day stated, unless the contrary is 

stated in this Article. 

Section 4A–107. Federal Reserve Regulations 

and Operating Circulars 

Regulations of the Board of Governors of 

the Federal Reserve System and operating 

circulars of the Federal Reserve Banks 

supersede any inconsistent provision of this 

Article to the extent of the inconsistency. 

Section 4A–108. Relationship to Electronic 

Fund Transfer Act 

(a) Except as provided in subsection (b), 

this Article does not apply to a funds transfer 

any part of which is governed by the 

Electronic Fund Transfer Act of 1978 (Title 

XX, Public Law 95–630, 92 Stat. 3728, 15 

U.S.C. 1693 et seq.) as amended from time to 

time. 

(b) This Article applies to a funds transfer 

that is a remittance transfer as defined in the 

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

1693o–1) as amended from time to time, 

unless the remittance transfer is an electronic 

fund transfer as defined in the Electronic 

Fund Transfer Act (15 U.S.C. Sec. 1693a) as 

amended from time to time. 

(c) In a funds transfer to which this Article 

applies, in the event of an inconsistency 

between an applicable provision of this 

Article and an applicable provision of the 

Electronic Fund Transfer Act, the provision 

of the Electronic Fund Transfer Act governs 

to the extent of the inconsistency. 

Part 2—Issue and Acceptance of Payment 

Order 

Section 4A–201. Security Procedure 

Security procedure means a procedure 

established by agreement of a customer and 

a receiving bank for the purpose of (i) 

verifying that a payment order or 

communication amending or canceling a 

payment order is that of the customer, or (ii) 

detecting error in the transmission or the 

content of the payment order or 

communication. A security procedure may 

require the use of algorithms or other codes, 

identifying words or numbers, encryption, 

callback procedures, or similar security 

devices. Comparison of a signature on a 

payment order or communication with an 

authorized specimen signature of the 

customer is not by itself a security procedure. 

Section 4A–202. Authorized and Verified 

Payment Orders 

(a) A payment order received by the 

receiving bank is the authorized order of the 

person identified as sender if that person 

authorized the order or is otherwise bound 

by it under the law of agency. 

(b) If a bank and its customer have agreed 

that the authenticity of payment orders 

issued to the bank in the name of the 


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customer as sender will be verified pursuant 

to a security procedure, a payment order 

received by the receiving bank is effective as 

the order of the customer, whether or not 

authorized, if (i) the security procedure is a 

commercially reasonable method of 

providing security against unauthorized 

payment orders, and (ii) the bank proves that 

it accepted the payment order in good faith 

and in compliance with the security 

procedure and any written agreement or 

instruction of the customer restricting 

acceptance of payment orders issued in the 

name of the customer. The bank is not 

required to follow an instruction that violates 

a written agreement with the customer or 

notice of which is not received at a time and 

in a manner affording the bank a reasonable 

opportunity to act on it before the payment 

order is accepted. 

(c) Commercial reasonableness of a 

security procedure is a question of law to be 

determined by considering the wishes of the 

customer expressed to the bank, the 

circumstances of the customer known to the 

bank, including the size, type, and frequency 

of payment orders normally issued by the 

customer to the bank, alternative security 

procedures offered to the customer, and 

security procedures in general use by 

customers and receiving banks similarly 

situated. A security procedure is deemed to 

be commercially reasonable if (i) the security 

procedure was chosen by the customer after 

the bank offered, and the customer refused, 

a security procedure that was commercially 

reasonable for that customer, and (ii) the 

customer expressly agreed in writing to be 

bound by any payment order, whether or not 

authorized, issued in its name and accepted 

by the bank in compliance with the security 

procedure chosen by the customer. 

(d) The term sender in this Article includes 

the customer in whose name a payment order 

is issued if the order is the authorized order 

of the customer under subsection (a) of this 

section, or it is effective as the order of the 

customer under subsection (b) of this section. 

(e) This section applies to amendments and 

cancellations of payment orders to the same 

extent it applies to payment orders. 

(f) Except as provided in this section and 

in section 4A–203(a)(1), rights and 

obligations arising under this section or 

section 4A–203 may not be varied by 

agreement. 

Section 4A–203. Unenforceability of Certain 

Verified Payment Orders 

(a) If an accepted payment order is not, 

under section 4A–202(a), an authorized order 

of a customer identified as sender, but is 

effective as an order of the customer pursuant 

to section 4A–202(b), the following rules 

apply: 

(1) By express written agreement, the 

receiving bank may limit the extent to which 

it is entitled to enforce or retain payment of 

the payment order. 

(2) The receiving bank is not entitled to 

enforce or retain payment of the payment 

order if the customer proves that the order 

was not caused, directly or indirectly, by a 

person (i) entrusted at any time with duties 

to act for the customer with respect to 

payment orders or the security procedure, or 

(ii) who obtained access to transmitting 

facilities of the customer or who obtained, 

from a source controlled by the customer and 

without authority of the receiving bank, 

information facilitating breach of the security 

procedure, regardless of how the information 

was obtained or whether the customer was at 

fault. Information includes any access device, 

computer software, or the like. 

(b) This section applies to amendments of 

payment orders to the same extent it applies 

to payment orders. 

Section 4A–204. Refund of Payment and 

Duty of Customer To Report With Respect to 

Unauthorized Payment Order 

(a) If a receiving bank accepts a payment 

order issued in the name of its customer as 

sender which is (i) not authorized and not 

effective as the order of the customer under 

section 4A–202, or (ii) not enforceable, in 

whole or in part, against the customer under 

section 4A–203, the bank shall refund any 

payment of the payment order received from 

the customer to the extent the bank is not 

entitled to enforce payment and shall pay 

interest on the refundable amount calculated 

from the date the bank received payment to 

the date of the refund. However, the 

customer is not entitled to interest from the 

bank on the amount to be refunded if the 

customer fails to exercise ordinary care to 

determine that the order was not authorized 

by the customer and to notify the bank of the 

relevant facts within a reasonable time not 

exceeding 90 days after the date the customer 

received notification from the bank that the 

order was accepted or that the customer’s 

account was debited with respect to the order 

The bank is not entitled to any recovery from 

the customer on account of a failure by the 

customer to give notification as stated in this 

section. 

(b) Reasonable time under subsection (a) of 

this section may be fixed by agreement as 

stated in section 1–204(1), but the obligation 

of a receiving bank to refund payment as 

stated in subsection (a) may not otherwise be 

varied by agreement. 

Section 4A–205. Erroneous Payment Orders 

(a) If an accepted payment order was 

transmitted pursuant to a security procedure 

for the detection of error and the payment 

order (i) erroneously instructed payment to a 

beneficiary not intended by the sender, (ii) 

erroneously instructed payment in an 

amount greater than the amount intended by 

the sender, or (iii) was an erroneously 

transmitted duplicate of a payment order 

previously sent by the sender, the following 

rules apply: 

(1) If the sender proves that the sender or 

a person acting on behalf of the sender 

pursuant to section 4A–206 complied with 

the security procedure and that the error 

would have been detected if the receiving 

bank had also complied, the sender is not 

obliged to pay the order to the extent stated 

in this paragraphs (2) and (3). 

(2) If the funds transfer is completed on the 

basis of an erroneous payment order 

described in clause (i) or (iii) of subsection 

(a), the sender is not obliged to pay the order 

and the receiving bank is entitled to recover 

from the beneficiary any amount paid to the 

beneficiary to the extent allowed by the law 

governing mistake and restitution. 

(3) If the funds transfer is completed on the 

basis of a payment order described in clause 

(ii) of subsection (a), the sender is not obliged 

to pay the order to the extent the amount 

received by the beneficiary is greater than the 

amount intended by the sender. In that case, 

the receiving bank is entitled to recover from 

the beneficiary the excess amount received to 

the extent allowed by the law governing 

mistake and restitution. 

(b) If (i) the sender of an erroneous 

payment order described in subsection (a) is 

not obliged to pay all or part of the order, and 

(ii) the sender receives notification from the 

receiving bank that the order was accepted by 

the bank or that the sender’s account was 

debited with respect to the order, the sender 

has a duty to exercise ordinary care, on the 

basis of information available to the sender, 

to discover the error with respect to the order 

and to advise the bank of the relevant facts 

within a reasonable time, not exceeding 90 

days, after the bank’s notification was 

received by the sender. If the bank proves 

that the sender failed to perform that duty, 

the sender is liable to the bank for the loss 

the bank proves it incurred as a result of the 

failure, but the liability of the sender may not 

exceed the amount of the sender’s order. 

(c) This section applies to amendments to 

payment orders to the same extent it applies 

to payment orders. 

Section 4A–206. Transmission of Payment 

Order Through Funds-Transfer or Other 

Communication System 

(a) If a payment order addressed to a 

receiving bank is transmitted to a fundstransfer system or other third-party 

communication system for transmittal to the 

bank, the system is deemed to be an agent of 

the sender for the purpose of transmitting the 

payment order to the bank. If there is a 

discrepancy between the terms of the 

payment order transmitted to the system and 

the terms of the payment order transmitted 

by the system to the bank, the terms of the 

payment order of the sender are those 

transmitted by the system. This section does 

not apply to a funds-transfer system of the 

Federal Reserve Banks. 

(b) This section applies to cancellations 

and amendments of payment orders to the 

same extent it applies to payment orders. 

Section 4A–207. Misdescription of 

Beneficiary 

(a) Subject to subsection (b), if, in a 

payment order received by the beneficiary’s 

bank, the name, bank account number, or 

other identification of the beneficiary refers 

to a nonexistent or unidentifiable person or 

account, no person has rights as a beneficiary 

of the order and acceptance of the order 

cannot occur. 

(b) If a payment order received by the 

beneficiary’s bank identifies the beneficiary 

both by name and by an identifying or bank 

account number and the name and number 

identify different persons, the following rules 

apply: 

(1) Except as otherwise provided in 

subsection (c), if the beneficiary’s bank does 

not know that the name and number refer to 

different persons, it may rely on the number 

as the proper identification of the beneficiary 

of the order. The beneficiary’s bank need not 


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determine whether the name and number 

refer to the same person. 

(2) If the beneficiary’s bank pays the person 

identified by name or knows that the name 

and number identify different persons, no 

person has rights as beneficiary except the 

person paid by the beneficiary’s bank if that 

person was entitled to receive payment from 

the originator of the funds transfer. If no 

person has rights as beneficiary, acceptance 

of the order cannot occur. 

(c) If (i) a payment order described in 

subsection (b) is accepted, (ii) the originator’s 

payment order described the beneficiary 

inconsistently by name and number, and (iii) 

the beneficiary’s bank pays the person 

identified by number as permitted by 

subsection (b)(1), the following rules apply: 

(1) If the originator is a bank, the originator 

is obliged to pay its order. 

(2) If the originator is not a bank and 

proves that the person identified by number 

was not entitled to receive payment from the 

originator, the originator is not obliged to pay 

its order unless the originator’s bank proves 

that the originator, before acceptance of the 

originator’s order, had notice that payment of 

a payment order issued by the originator 

might be made by the beneficiary’s bank on 

the basis of an identifying or bank account 

number even if it identifies a person different 

from the named beneficiary. Proof of notice 

may be made by any admissible evidence. 

The originator’s bank satisfies the burden of 

proof if it proves that the originator, before 

the payment order was accepted, signed a 

writing stating the information to which the 

notice relates. 

(d) In a case governed by subsection (b)(1), 

if the beneficiary’s bank rightfully pays the 

person identified by number and that person 

was not entitled to receive payment from the 

originator, the amount paid may be recovered 

from that person to the extent allowed by the 

law governing mistake and restitution as 

follows: 

(1) If the originator is obliged to pay its 

payment order as stated in subsection (c), the 

originator has the right to recover. 

(2) If the originator is not a bank and is not 

obliged to pay its payment order, the 

originator’s bank has the right to recover. 

Section 4A–208. Misdescription of 

Intermediary Bank or Beneficiary’s Bank 

(a) This subsection applies to a payment 

order identifying an intermediary bank or the 

beneficiary’s bank only by an identifying 

number. 

(1) The receiving bank may rely on the 

number as the proper identification of the 

intermediary or beneficiary’s bank and need 

not determine whether the number identifies 

a bank. 

(2) The sender is obliged to compensate the 

receiving bank for any loss and expenses 

incurred by the receiving bank as a result of 

its reliance on the number in executing or 

attempting to execute the order. 

(b) This subsection applies to a payment 

order identifying an intermediary bank or the 

beneficiary’s bank both by name and an 

identifying number if the name and number 

identify different persons. 

(1) If the sender is a bank, the receiving 

bank may rely on the number as the proper 

identification of the intermediary or 

beneficiary’s bank if the receiving bank, 

when it executes the sender’s order, does not 

know that the name and number identify 

different persons. The receiving bank need 

not determine whether the name and number 

refer to the same person or whether the 

number refers to a bank. The sender is 

obliged to compensate the receiving bank for 

any loss and expenses incurred by the 

receiving bank as a result of its reliance on 

the number in executing or attempting to 

execute the order. 

(2) If the sender is not a bank and the 

receiving bank proves that the sender, before 

the payment order was accepted, had notice 

that the receiving bank might rely on the 

number as the proper identification of the 

intermediary or beneficiary’s bank even if it 

identifies a person different from the bank 

identified by name, the rights and obligations 

of the sender and the receiving bank are 

governed by subsection (b)(1), as though the 

sender were a bank. Proof of notice may be 

made by any admissible evidence. The 

receiving bank satisfies the burden of proof 

if it proves that the sender, before the 

payment order was accepted, signed a 

writing stating the information to which the 

notice relates. 

(3) Regardless of whether the sender is a 

bank, the receiving bank may rely on the 

name as the proper identification of the 

intermediary or beneficiary’s bank if the 

receiving bank, at the time it executes the 

sender’s order, does not know that the name 

and number identify different persons. The 

receiving bank need not determine whether 

the name and number refer to the same 

person. 

(4) If the receiving bank knows that the 

name and number identify different persons, 

reliance on either the name or the number in 

executing the sender’s payment order is a 

breach of the obligation stated in section 4A– 

302(a)(1). 

Section 4A–209. Acceptance of Payment 

Order 

(a) Subject to subsection (d), a receiving 

bank other than the beneficiary’s bank 

accepts a payment order when it executes the 

order. 

(b) Subject to subsections (c) and (d), a 

beneficiary’s bank accepts a payment order at 

the earliest of the following times: 

(1) When the bank (i) pays the beneficiary 

as stated in section 4A–405(a) or 4A–405(b), 

or (ii) notifies the beneficiary of receipt of the 

order or that the account of the beneficiary 

has been credited with respect to the order 

unless the notice indicates that the bank is 

rejecting the order or that funds with respect 

to the order may not be withdrawn or used 

until receipt of payment from the sender of 

the order; 

(2) When the bank receives payment of the 

entire amount of the sender’s order pursuant 

to section 4A–403(a)(1) or 4A–403(a)(2); or 

(3) The opening of the next funds-transfer 

business day of the bank following the 

payment date of the order if, at that time, the 

amount of the sender’s order is fully covered 

by a withdrawable credit balance in an 

authorized account of the sender or the bank 

has otherwise received full payment from the 

sender, unless the order was rejected before 

that time or is rejected within (i) one hour 

after that time, or (ii) one hour after the 

opening of the next business day of the 

sender following the payment date if that 

time is later. If notice of rejection is received 

by the sender after the payment date and the 

authorized account of the sender does not 

bear interest, the bank is obliged to pay 

interest to the sender on the amount of the 

order for the number of days elapsing after 

the payment date to the day the sender 

receives notice or learns that the order was 

not accepted, counting that day as an elapsed 

day. If the withdrawable credit balance 

during that period falls below the amount of 

the order, the amount of interest payable is 

reduced accordingly. 

(c) Acceptance of a payment order cannot 

occur before the order is received by the 

receiving bank. Acceptance does not occur 

under subsection (b)(2) or (b)(3) if the 

beneficiary of the payment order does not 

have an account with the receiving bank, the 

account has been closed, or the receiving 

bank is not permitted by law to receive 

credits for the beneficiary’s account. 

(d) A payment order issued to the 

originator’s bank cannot be accepted until the 

payment date if the bank is the beneficiary’s 

bank, or the execution date if the bank is not 

the beneficiary’s bank. If the originator’s bank 

executes the originator’s payment order 

before the execution date or pays the 

beneficiary of the originator’s payment order 

before the payment date and the payment 

order is subsequently canceled pursuant to 

section 4A–211(b), the bank may recover 

from the beneficiary any payment received to 

the extent allowed by the law governing 

mistake and restitution. 

Section 4A–210. Rejection of Payment Order 

(a) A payment order is rejected by the 

receiving bank by a notice of rejection 

transmitted to the sender orally, 

electronically, or in writing. A notice of 

rejection need not use any particular words 

and is sufficient if it indicates that the 

receiving bank is rejecting the order or will 

not execute or pay the order. Rejection is 

effective when the notice is given if 

transmission is by a means that is reasonable 

in the circumstances. If notice of rejection is 

given by a means that is not reasonable, 

rejection is effective when the notice is 

received. If an agreement of the sender and 

receiving bank establishes the means to be 

used to reject a payment order, (i) any means 

complying with the agreement is reasonable 

and (ii) any means not complying is not 

reasonable unless no significant delay in 

receipt of the notice resulted from the use of 

the noncomplying means. 

(b) This subsection applies if a receiving 

bank other than the beneficiary’s bank fails 

to execute a payment order despite the 

existence on the execution date of a 

withdrawable credit balance in an authorized 

account of the sender sufficient to cover the 

order. If the sender does not receive notice 

of rejection of the order on the execution date 

and the authorized account of the sender 

does not bear interest, the bank is obliged to 

pay interest to the sender on the amount of 

the order for the number of days elapsing 

after the execution date to the earlier of the 

day the order is canceled pursuant to section 

4A–211(d) or the day the sender receives 


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notice or learns that the order was not 

executed, counting the final day of the period 

as an elapsed day. If the withdrawable credit 

balance during that period falls below the 

amount of the order, the amount of interest 

is reduced accordingly. 

(c) If a receiving bank suspends payments, 

all unaccepted payment orders issued to it 

are deemed rejected at the time the bank 

suspends payments. 

(d) Acceptance of a payment order 

precludes a later rejection of the order. 

Rejection of a payment order precludes a 

later acceptance of the order. 

Section 4A–211. Cancellation and 

Amendment of Payment Order 

(a) A communication of the sender of a 

payment order canceling or amending the 

order may be transmitted to the receiving 

bank orally, electronically, or in writing. If a 

security procedure is in effect between the 

sender and the receiving bank, the 

communication is not effective to cancel or 

amend the order unless the communication 

is verified pursuant to the security procedure 

or the bank agrees to the cancellation or 

amendment. 

(b) Subject to subsection (a), a 

communication by the sender canceling or 

amending a payment order is effective to 

cancel or amend the order if notice of the 

communication is received at a time and in 

a manner affording the receiving bank a 

reasonable opportunity to act on the 

communication before the bank accepts the 

payment order. 

(c) After a payment order has been 

accepted, cancellation or amendment of the 

order is not effective unless the receiving 

bank agrees or a funds-transfer system rule 

allows cancellation or amendment without 

agreement of the bank. 

(1) With respect to a payment order 

accepted by a receiving bank other than the 

beneficiary’s bank, cancellation or 

amendment is not effective unless a 

conforming cancellation or amendment of the 

payment order issued by the receiving bank 

is also made. 

(2) With respect to a payment order 

accepted by the beneficiary’s bank, 

cancellation or amendment is not effective 

unless the order was issued in execution of 

an unauthorized payment order, or because 

of a mistake by a sender in the funds transfer 

which resulted in the issuance of a payment 

order (i) that is a duplicate of a payment 

order previously issued by the sender, (ii) 

that orders payment to a beneficiary not 

entitled to receive payment from the 

originator, or (iii) that orders payment in an 

amount greater than the amount the 

beneficiary was entitled to receive from the 

originator. If the payment order is canceled 

or amended, the beneficiary’s bank is entitled 

to recover from the beneficiary any amount 

paid to the beneficiary to the extent allowed 

by the law governing mistake and restitution. 

(d) An unaccepted payment order is 

canceled by operation of law at the close of 

the fifth funds-transfer business day of the 

receiving bank after the execution date or 

payment date of the order. 

(e) A canceled payment order cannot be 

accepted. If an accepted payment order is 

canceled, the acceptance is nullified and no 

person has any right or obligation based on 

the acceptance. Amendment of a payment 

order is deemed to be cancellation of the 

original order at the time of amendment and 

issue of a new payment order in the amended 

form at the same time. 

(f) Unless otherwise provided in an 

agreement of the parties or in a funds-transfer 

system rule, if the receiving bank, after 

accepting a payment order, agrees to 

cancellation or amendment of the order by 

the sender or is bound by a funds-transfer 

system rule allowing cancellation or 

amendment without the bank’s agreement, 

the sender, whether or not cancellation or 

amendment is effective, is liable to the bank 

for any loss and expenses, including 

reasonable attorney’s fees, incurred by the 

bank as a result of the cancellation or 

amendment or attempted cancellation or 

amendment. 

(g) A payment order is not revoked by the 

death or legal incapacity of the sender unless 

the receiving bank knows of the death or of 

an adjudication of incapacity by a court of 

competent jurisdiction and has reasonable 

opportunity to act before acceptance of the 

order. 

(h) A funds-transfer system rule is not 

effective to the extent it conflicts with 

subsection (c)(2) of this section. 

Section 4A–212. Liability and Duty of 

Receiving Bank Regarding Unaccepted 

Payment Order 

If a receiving bank fails to accept a 

payment order that it is obliged by express 

agreement to accept, the bank is liable for 

breach of the agreement to the extent 

provided in the agreement or in this Article, 

but does not otherwise have any duty to 

accept a payment order or, before acceptance, 

to take any action, or refrain from taking 

action, with respect to the order except as 

provided in this Article or by express 

agreement. Liability based on acceptance 

arises only when acceptance occurs as stated 

in section 4A–209, and liability is limited to 

that provided in this Article. A receiving 

bank is not the agent of the sender or 

beneficiary of the payment order it accepts, 

or of any other party to the funds transfer, 

and the bank owes no duty to any party to 

the funds transfer except as provided in this 

Article or by express agreement. 

Part 3—Execution of Sender’s Payment Order 

by Receiving Bank 

Section 4A–301. Execution and Execution 

Date 

(a) A payment order is ‘‘executed’’ by the 

receiving bank when it issues a payment 

order intended to carry out the payment 

order received by the bank. A payment order 

received by the beneficiary’s bank can be 

accepted but cannot be executed. 

(b) Execution date of a payment order 

means the day on which the receiving bank 

may properly issue a payment order in 

execution of the sender’s order. The 

execution date may be determined by 

instruction of the sender but cannot be earlier 

than the day the order is received and, unless 

otherwise determined, is the day the order is 

received. If the sender’s instruction states a 

payment date, the execution date is the 

payment date or an earlier date on which 

execution is reasonably necessary to allow 

payment to the beneficiary on the payment 

date. 

Section 4A–302. Obligations of Receiving 

Bank in Execution of Payment Order 

(a) Except as provided in subsections (b) 

through (d), if the receiving bank accepts a 

payment order pursuant to section 4A– 

209(a), the bank has the following obligations 

in executing the order: 

(1) The receiving bank is obliged to issue, 

on the execution date, a payment order 

complying with the sender’s order and to 

follow the sender’s instructions concerning 

(i) any intermediary bank or funds-transfer 

system to be used in carrying out the funds 

transfer, or (ii) the means by which payment 

orders are to be transmitted in the funds 

transfer. If the originator’s bank issues a 

payment order to an intermediary bank, the 

originator’s bank is obliged to instruct the 

intermediary bank according to the 

instruction of the originator. An intermediary 

bank in the funds transfer is similarly bound 

by an instruction given to it by the sender of 

the payment order it accepts. 

(2) If the sender’s instruction states that the 

funds transfer is to be carried out 

telephonically or by wire transfer or 

otherwise indicates that the funds transfer is 

to be carried out by the most expeditious 

means, the receiving bank is obliged to 

transmit its payment order by the most 

expeditious available means, and to instruct 

any intermediary bank accordingly. If a 

sender’s instruction states a payment date, 

the receiving bank is obliged to transmit its 

payment order at a time and by means 

reasonably necessary to allow payment to the 

beneficiary on the payment date or as soon 

thereafter as is feasible. 

(b) Unless otherwise instructed, a receiving 

bank executing a payment order may (i) use 

any funds-transfer system if use of that 

system is reasonable in the circumstances, 

and (ii) issue a payment order to the 

beneficiary’s bank or to an intermediary bank 

through which a payment order conforming 

to the sender’s order can expeditiously be 

issued to the beneficiary’s bank if the 

receiving bank exercises ordinary care in the 

selection of the intermediary bank. A 

receiving bank is not required to follow an 

instruction of the sender designating a fundstransfer system to be used in carrying out the 

funds transfer if the receiving bank, in good 

faith, determines that it is not feasible to 

follow the instruction or that following the 

instruction would unduly delay completion 

of the funds transfer. 

(c) Unless subsection (a)(2) applies or the 

receiving bank is otherwise instructed, the 

bank may execute a payment order by 

transmitting its payment order by first class 

mail or by any means reasonable in the 

circumstances. If the receiving bank is 

instructed to execute the sender’s order by 

transmitting its payment order by the means 

stated or by any means as expeditious as the 

means stated. 

(d) Unless instructed by the sender, (i) the 

receiving bank may not obtain payment of its 

charges for services and expenses in 

connection with the execution of the sender’s 

order by issuing a payment order in an 


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amount equal to the amount of the sender’s 

order less the amount of the charges, and (ii) 

may not instruct a subsequent receiving bank 

to obtain payment of its charges in the same 

manner. 

Section 4A–303. Erroneous Execution of 

Payment Order 

(a) A receiving bank that (i) executes the 

payment order of the sender by issuing a 

payment order in an amount greater than the 

amount of the sender’s order, or (ii) issues a 

payment order in execution of the sender’s 

order and then issues a duplicate order, is 

entitled to payment of the amount of the 

sender’s order under section 4A–402(c) if 

that subsection is otherwise satisfied. The 

bank is entitled to recover from the 

beneficiary of the erroneous order the excess 

payment received to the extent allowed by 

the law governing mistake and restitution. 

(b) A receiving bank that executes the 

payment order of the sender by issuing a 

payment order in an amount less than the 

amount of the sender’s order is entitled to 

payment of the amount of the sender’s order 

under section 4A–402(c) if (i) that subsection 

is otherwise satisfied and (ii) the bank 

corrects its mistake by issuing an additional 

payment order for the benefit of the 

beneficiary of the sender’s order. If the error 

is not corrected, the issuer of the erroneous 

order is entitled to receive or retain payment 

from the sender of the order it accepted only 

to the extent of the amount of the erroneous 

order. This subsection does not apply if the 

receiving bank executes the sender’s payment 

order by issuing a payment order in an 

amount less than the amount of the sender’s 

order for the purpose of obtaining payment 

of its charges for services and expenses 

pursuant to instruction of the sender. 

(c) If a receiving bank executes the 

payment order of the sender by issuing a 

payment order to a beneficiary different from 

the beneficiary of the sender’s order and the 

funds transfer is completed on the basis of 

that error, the sender of the payment order 

that was erroneously executed and all 

previous senders in the funds transfer are not 

obliged to pay the payment orders they 

issued. The issuer of the erroneous order is 

entitled to recover from the beneficiary of the 

order the payment received to the extent 

allowed by the law governing mistake and 

restitution. 

Section 4A–304. Duty of Sender To Report 

Erroneously Executed Payment Order 

If the sender of a payment order that is 

erroneously executed as stated in section 4A– 

303 receives notification from the receiving 

bank that the order was executed or that the 

sender’s account was debited with respect to 

the order, the sender has a duty to exercise 

ordinary care to determine, on the basis of 

information available to the sender, that the 

order was erroneously executed and to notify 

the bank of the relevant facts within a 

reasonable time not exceeding 90 days after 

the notification from the bank was received 

by the sender. If the sender fails to perform 

that duty, the bank is not obliged to pay 

interest on any amount refundable to the 

sender under section 4A–402(d) for the 

period before the bank learns of the 

execution error. The bank is not entitled to 

any recovery from the sender on account of 

a failure by the sender to perform the duty 

stated in this section. 

Section 4A–305. Liability for Late or 

Improper Execution or Failure To Execute 

Payment Order 

(a) If a funds transfer is completed but 

execution of a payment order by the 

receiving bank in breach of section 4A–302 

results in delay in payment to the 

beneficiary, the bank is obliged to pay 

interest to either the originator or the 

beneficiary of the funds transfer for the 

period of delay caused by the improper 

execution. Except as provided in subsection 

(c), additional damages are not recoverable. 

(b) If execution of a payment order by a 

receiving bank in breach of section 4A–302 

results in (i) noncompletion of the funds 

transfer, (ii) failure to use an intermediary 

bank designated by the originator, or (iii) 

issuance of a payment order that does not 

comply with the terms of the payment order 

of the originator, the bank is liable to the 

originator for its expenses in the funds 

transfer and for incidental expenses and 

interest losses, to the extent not covered by 

subsection (a), resulting from the improper 

execution. Except as provided in subsection 

(c), additional damages are not recoverable. 

(c) In addition to the amounts payable 

under subsections (a) and (b), damages, 

including consequential damages, are 

recoverable to the extent provided in an 

express written agreement of the receiving 

bank. 

(d) If a receiving bank fails to execute a 

payment order it was obliged by express 

agreement to execute, the receiving bank is 

liable to the sender for its expenses in the 

transaction and for incidential expenses and 

interest losses resulting from the failure to 

execute. Additional damages, including 

consequential damages, are recoverable to the 

extent provided in an express written 

agreement of the receiving bank, but are not 

otherwise recoverable. 

(e) Reasonable attorney’s fees are 

recoverable if demand for compensation 

under subsection (a) or (b) is made and 

refused before an action is brought on the 

claim. If a claim is made for breach of an 

agreement under subsection (d) and the 

agreement does not provide for damages, 

reasonable attorney’s fees are recoverable if 

demand for compensation under subsection 

(d) is made and refused before an action is 

brought on the claim. 

(f) Except as stated in this section, the 

liability of a receiving bank under 

subsections (a) and (b) of this section may not 

be varied by agreement. 

Part 4—Payment 

Section 4A–401. Payment Date 

Payment date of a payment order means 

the day on which the amount of the order is 

payable to the beneficiary by the 

beneficiary’s bank. The payment date may be 

determined by instruction of the sender but 

cannot be earlier than the day the order is 

received by the beneficiary’s bank and, 

unless otherwise determined, is the day the 

order is received by the beneficiary’s bank. 

Section 4A–402. Obligation of Sender To Pay 

Receiving Bank 

(a) This section is subject to sections 4A– 

205 and 4A–207. 

(b) With respect to a payment order issued 

to the beneficiary’s bank, acceptance of the 

order by the bank obliges the sender to pay 

the bank the amount of the order, but 

payment is not due until the payment date 

of the order. 

(c) This subsection is subject to subsection 

(e) and to section 4A–303. With respect to a 

payment order issued to a receiving bank 

other than the beneficiary’s bank, acceptance 

of the order by the receiving bank obliges the 

sender to pay the bank the amount of the 

sender’s order. Payment by the sender is not 

due until the execution date of the sender’s 

order. The obligation of that sender to pay its 

payment order is excused if the funds 

transfer is not completed by acceptance by 

the beneficiary’s bank of a payment order 

instructing payment to the beneficiary of that 

sender’s payment order. 

(d) If the sender of a payment order pays 

the order and was not obliged to pay all or 

part of the amount paid, the bank receiving 

payment is obliged to refund payment to the 

extent the sender was not obliged to pay. 

Except as provided in sections 4A–204 and 

4A–304, interest is payable on the refundable 

amount from the date of payment. 

(e) If a funds transfer is not completed as 

stated in subsection (c) and an intermediary 

bank is obliged to refund payment as stated 

in subsection (d) but is unable to do so 

because not permitted by applicable law or 

because the bank suspends payments, a 

sender in the funds transfer that executed a 

payment order in compliance with an 

instruction, as stated in section 4A–302(a)(1), 

to route the funds transfer through that 

intermediary bank is entitled to receive or 

retain payment from the sender of the 

payment order that it accepted. The first 

sender in the funds transfer that issued an 

instruction requiring routing through that 

intermediary bank is subrogated to the right 

of the bank that paid the intermediary bank 

to refund as stated in subsection (d) of this 

section . 

(f) The right of the sender of a payment 

order to be excused from the obligation to 

pay the order as stated in this subsection (c) 

or to receive refund under subsection (d) may 

not be varied by agreement. 

Section 4A–403. Payment by Sender To 

Receiving Bank 

(a) Payment of the sender’s obligation 

under section 4A–402 to pay the receiving 

bank occurs as follows: 

(1) If the sender is a bank, payment occurs 

when the receiving bank receives final 

settlement of the obligation through a Federal 

Reserve Bank or through a funds-transfer 

system. 

(2) If the sender is a bank and the sender 

(i) credited an account of the receiving bank 

with the sender, or (ii) caused an account of 

the receiving bank in another bank to be 

credited, payment occurs when the credit is 

withdrawn or, if not withdrawn, at midnight 

of the day on which the credit is 

withdrawable and the receiving bank learns 

of that fact. 


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(3) If the receiving bank debits an account 

of the sender with the receiving bank, 

payment occurs when the debit is made to 

the extent the debit is covered by a 

withdrawable credit balance in the account. 

(b) If the sender and receiving bank are 

members of a funds-transfer system that nets 

obligations multilaterally among participants, 

the receiving bank receives final settlement 

when settlement is complete in accordance 

with the rules of the system. The obligation 

of the sender to pay the amount of a payment 

order transmitted through the funds-transfer 

system may be satisfied, to the extent 

permitted by the rules of the system, by 

setting off and applying against the sender’s 

obligation the right of the sender to receive 

payment from the receiving bank of the 

amount of any other payment order 

transmitted to the sender by the receiving 

bank through the funds-transfer system. The 

aggregate balance of obligations owed by 

each sender to each receiving bank in the 

funds-transfer system may be satisfied, to the 

extent permitted by the rules of the system, 

by setting off and applying against that 

balance the aggregate balance of obligations 

owed to the sender by other members of the 

system. The aggregate balance is determined 

after the right of setoff stated in the second 

sentence of this subsection has been 

exercised. 

(c) If two banks transmit payment orders to 

each other under an agreement that 

settlement of the obligations of each bank to 

the other under section 4A–402 will be made 

at the end of the day or other period, the total 

amount owed with respect to all orders 

transmitted by one bank shall be set off 

against the total amount owed with respect 

to all orders transmitted by the other bank. 

To the extent of the setoff, each bank has 

made payment to the other. 

(d) In a case not covered by paragraph (a) 

of this section, the time when payment of the 

sender’s obligation under section 4A–402(b) 

or 4A–402(c) occurs is governed by 

applicable principles of law that determine 

when an obligation is satisfied. 

Section 4A–404. Obligation of Beneficiary’s 

Bank To Pay and Give Notice to Beneficiary 

(a) Subject to sections 4A–211(e), 4A– 

405(d), and 4A–405(e), if a beneficiary’s bank 

accepts a payment order, the bank is obliged 

to pay the amount of the order to the 

beneficiary of the order. Payment is due on 

the payment date of the order, but if 

acceptance occurs on the payment date after 

the close of the funds-transfer business day 

of the bank, payment is due on the next 

funds-transfer business day. If the bank 

refuses to pay after demand by the 

beneficiary and receipt of notice of particular 

circumstances that will give rise to 

consequential damages as a result of 

nonpayment, the beneficiary may recover 

damages resulting from the refusal to pay to 

the extent the bank had notice of the 

damages, unless the bank proves that it did 

not pay because of a reasonable doubt 

concerning the right of the beneficiary to 

payment. 

(b) If a payment order accepted by the 

beneficiary’s bank instructs payment to an 

account of the beneficiary, the bank is 

obliged to notify the beneficiary of receipt of 

the order before midnight of the next fundstransfer business day following the payment 

date. If the payment order does not instruct 

payment to an account of the beneficiary, the 

bank is required to notify the beneficiary 

only if notice is required by the order. Notice 

may be given by first class mail or any other 

means reasonable in the circumstances. If the 

bank fails to give the required notice, the 

bank is obliged to pay interest to the 

beneficiary on the amount of the payment 

order from the day notice should have been 

given until the day the beneficiary learned of 

receipt of the payment order by the bank. No 

other damages are recoverable. Reasonable 

attorney’s fees are also recoverable if demand 

for interest is made and refused before an 

action is brought on the claim. 

(c) The right of a beneficiary to receive 

payment and damages as stated in subsection 

(a) may not be varied by agreement or a 

funds-transfer system rule. The right of a 

beneficiary to be notified as stated in 

subsection (b) of this section may be varied 

by agreement of the beneficiary or by a fundstransfer system rule if the beneficiary is 

notified of the rule before initiation of the 

funds transfer. 

Section 4A–405. Payment by Beneficiary’s 

Bank To Beneficiary 

(a) If the beneficiary’s bank credits an 

account of the beneficiary of a payment 

order, payment of the bank’s obligation under 

section 4A–404(a) occurs when and to the 

extent (i) the beneficiary is notified of the 

right to withdraw the credit, (ii) the bank 

lawfully applies the credit to a debt of the 

beneficiary, or (iii) funds with respect to the 

order are otherwise made available to the 

beneficiary by the bank. 

(b) If the beneficiary’s bank does not credit 

an account of the beneficiary of a payment 

order, the time when payment of the bank’s 

obligation under section 4A–404(a) occurs is 

governed by principles of law that determine 

when an obligation is satisfied. 

(c) Except as stated in paragraphs (d) and 

(e) of this section, if the beneficiary’s bank 

pays the beneficiary of a payment order 

under a condition to payment or agreement 

of the beneficiary giving the bank the right 

to recover payment from the beneficiary if 

the bank does not receive payment of the 

order, the condition to payment or agreement 

is not enforceable. 

(d) A funds-transfer system rule may 

provide that payments made to beneficiaries 

of funds transfer made through the system 

are provisional until receipt of payment by 

the beneficiary’s bank of the payment order 

it accepted. A beneficiary’s bank that makes 

a payment that is provisional under the rule 

is entitled to refund from the beneficiary if 

(i) the rule requires that both the beneficiary 

and the originator be given notice of the 

provisional nature of the payment before the 

funds transfer is initiated, (ii) the beneficiary, 

the beneficiary’s bank and the originator’s 

bank agreed to be bound by the rule, and (iii) 

the beneficiary’s bank did not receive 

payment of the payment order that it 

accepted. If the beneficiary is obliged to 

refund payment to the beneficiary’s bank, 

acceptance of the payment order by the 

beneficiary’s bank is nullified and no 

payment by the originator of the funds 

transfer to the beneficiary occurs under 

section 4A–406. 

(e) This paragraph applies to a funds 

transfer that includes a payment order 

transmitted over a funds-transfer system that 

(i) nets obligations-multilaterally among 

participants, and (ii) has in effect a losssharing agreement among participants for the 

purpose of providing funds necessary to 

complete settlement of the obligations of one 

or more participants that do not meet their 

settlement obligations. If the beneficiary’s 

bank in the funds transfer accepts a payment 

order and the system fails to complete 

settlement pursuant to its rules with respect 

to any payment order in the funds transfer, 

(i) the acceptance by the beneficiary’s bank 

is nullified and no person has any right or 

obligation based on the acceptance, (ii) the 

beneficiary’s bank is entitled to recover 

payment from the beneficiary, (iii) no 

payment by the originator to the beneficiary 

occurs under section 4A–406, and (iv) subject 

to section 4A–402(e), each sender in the 

funds transfer is excused from its obligation 

to pay its payment order under section 4A– 

402(c) because the funds transfer has not 

been completed. 

Section 4A–406. Payment by Originator to 

Beneficiary; Discharge of Underlying 

Obligation 

(a) Subject to sections 4A–211(e), 4A– 

405(d), and 4A–405(e), the originator of a 

funds transfer pays the beneficiary of the 

originator’s payment order (i) at the time a 

payment order for the benefit of the 

beneficiary is accepted by the beneficiary’s 

bank in the funds transfer and (ii) in an 

amount equal to the amount of the order 

*40813 accepted by the beneficiary’s bank, 

but not more than the amount of the 

originator’s order. 

(b) If payment under paragraph (a) of this 

section is made to satisfy an obligation, the 

obligation is discharged to the same extent 

discharge would result from payment to the 

beneficiary of the same amount in money, 

unless (i) the payment under subsection (a) 

was made by a means prohibited by the 

contract of the beneficiary with respect to the 

obligation, (ii) the beneficiary, within a 

reasonable time after receiving notice of 

receipt of the order by the beneficiary’s bank, 

notified the originator of the beneficiary’s 

refusal of the payment, (iii) funds with 

respect to the order were not withdrawn by 

the beneficiary or applied to a debt of the 

beneficiary, and (iv) the beneficiary would 

suffer a loss that could reasonably have been 

avoided if payment had been made by a 

means complying with the contract. If 

payment by the originator does not result in 

discharge under this section, the originator is 

subrogated to the rights of the beneficiary to 

receive payment from the beneficiary’s bank 

under section 4A–404(a). 

(c) For the purpose of determining whether 

discharge of an obligation occurs under 

paragraph (b) of this section, if the 

beneficiary’s bank accepts a payment order in 

an amount equal to the amount of the 

originator’s payment order less charges of 

one or more receiving banks in the funds 

transfer, payment to the beneficiary is 

deemed to be in the amount of the 

originator’s order unless upon demand by the 


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beneficiary the originator does not pay the 

beneficiary the amount of the deducted 

charges. 

(d) Rights of the originator or of the 

beneficiary of a funds transfer under this 

section may be varied only by agreement of 

the originator and the beneficiary. 

Part 5—Miscellaneous Provisions 

Section 4A–501. Variation by Agreement and 

Effect of Funds-Transfer System Rule 

(a) Except as otherwise provided in this 

Article, the rights and obligations of a party 

to a funds transfer may be varied by 

agreement of the affected party. 

(b) Funds-transfer system rule means a rule 

of an association of banks (i) governing 

transmission of payment orders by means of 

a funds-transfer system of the association or 

rights and obligations with respect to those 

orders, or (ii) to the extent the rule governs 

rights and obligations between banks that are 

parties to a funds transfer in which a Federal 

Reserve Bank, acting as an intermediary 

bank, sends a payment order to the 

beneficiary’s bank. Except as otherwise 

provided in this Article, a funds-transfer 

system rule governing rights and obligations 

between participating banks using the system 

may be effective even if the rule conflicts 

with this Article and indirectly affects 

another party to the funds transfer who does 

not consent to the rule. A funds-transfer 

system rule may also govern rights and 

obligations of parties other than participating 

banks using the system to the extent stated 

in sections 4A–404(c), 4A–405(d), and 4A– 

507(c). 

Section 4A–502. Creditor Process Served on 

Receiving Bank; Setoff by Beneficiary’s Bank 

(a) As used in this section, creditor process 

means levy, attachment, garnishment, notice 

of lien, sequestration, or similar process 

issued by or on behalf of a creditor or other 

claimant with respect to an account. 

(b) This subsection applies to creditor 

process with respect to an authorized 

account of the sender of a payment order if 

the creditor process is served on the 

receiving bank. For the purpose of 

determining rights with respect to the 

creditor process, if the receiving bank accepts 

the payment order the balance in the 

authorized account is deemed to be reduced 

by the amount of the payment order to the 

extent the bank did not otherwise receive 

payment of the order, unless the creditor 

process is served at a time and in a manner 

affording the bank a reasonable opportunity 

to act on it before the bank accepts the 

payment order. 

(c) If a beneficiary’s bank has received a 

payment order for payment to the 

beneficiary’s account in the bank, the 

following rules apply: 

(1) The bank may credit the beneficiary’s 

account. The amount credited may be set off 

against an obligation owed by the beneficiary 

to the bank or may be applied to satisfy 

creditor process served on the bank with 

respect to the account. 

(2) The bank may credit the beneficiary’s 

account and allow withdrawal of the amount 

credited unless creditor process with respect 

to the account is served at a time and in a 

manner affording the bank a reasonable 

opportunity to act to prevent withdrawal. 

(3) If creditor process with respect to the 

beneficiary’s account has been served and the 

bank has had a reasonable opportunity to act 

on it, the bank may not reject the payment 

order except for a reason unrelated to the 

service of process. 

(d) Creditor process with respect to a 

payment by the originator to the beneficiary 

pursuant to a funds transfer may be served 

only on the beneficiary’s bank with respect 

to the debt owned by that bank to the 

beneficiary. Any other bank served with the 

creditor process is not obliged to act with 

respect to the process. 

Section 4A–503. Injunction or Restraining 

Order With Respect to Funds Transfer 

For proper cause and in compliance with 

applicable law, a court may restrain (i) a 

person from issuing a payment order to 

initiate a funds transfer, (ii) an originator’s 

bank from executing the payment order of the 

originator, or (iii) the beneficiary’s bank from 

releasing funds to the beneficiary or the 

beneficiary from withdrawing the funds. A 

court may not otherwise restrain a person 

from issuing a payment order, paying or 

receiving payment of a payment order, or 

otherwise acting with respect to a funds 

transfer. 

Section 4A–504. Order In Which Items and 

Payment Orders May Be Charged to Account; 

Order of Withdrawals From Account 

(a) If a receiving bank has received more 

than one payment order of the sender or one 

or more payment orders and other items that 

are payable from the sender’s account, the 

bank may charge the sender’s account with 

respect to the various orders and items in any 

sequence. 

(b) In determining whether a credit to an 

account has been withdrawn by the holder of 

the account or applied to a debt of the holder 

of the account, credits first made to the 

account are first withdrawn or applied. 

Section 4A–505. Preclusion of Objection to 

Debit of Customer’s Account 

If a receiving bank has received payment 

from its customer with respect to a payment 

order issued in the name of the customer as 

sender and accepted by the bank, and the 

customer received notification reasonably 

identifying the order, the customer is 

precluded from asserting that the bank is not 

entitled to retain the payment unless the 

customer notifies the bank of the customer’s 

objection to the payment within one year 

after the notification was received by the 

customer. 

Section 4A–506. Rate of Interest 

(a) If, under this Article, a receiving bank 

is obliged to pay interest with respect to a 

payment order issued to the bank, the 

amount payable may be determined (i) by 

agreement of the sender and receiving bank, 

or (ii) by a funds-transfer system rule if the 

payment order is transmitted through a 

funds-transfer system. 

(b) If the amount of interest is not 

determined by an agreement or rule as stated 

in subsection (a), the amount is calculated by 

multiplying the applicable Federal Funds 

rate by the amount on which interest is 

payable, and then multiplying the product by 

the number of days for which interest is 

payable. The applicable Federal Funds rate is 

the average of the Federal Funds rates 

published by the Federal Reserve Bank of 

New York for each of the days for which 

interest 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 next preceding day 

for which there is a published rate. If a 

receiving bank that accepted a payment order 

is required to refund payment to the sender 

of the order because the funds transfer was 

not completed, but the failure to complete 

was not due to any fault by the bank, the 

interest payable is reduced by a percentage 

equal to the reserve requirement on deposits 

of the receiving bank. 

Section 4A–507. Choice of Law 

(a) The following rules apply unless the 

affected parties otherwise agree or paragraph 

(c) of this section applies: 

(1) The rights and obligations between the 

sender of a payment order and the receiving 

bank are governed by the law of the 

jurisdiction in which the receiving bank is 

located. 

(2) The rights and obligations between the 

beneficiary’s bank and the beneficiary are 

governed by the law of the jurisdiction in 

which the beneficiary’s bank is located. 

(3) The issue of when payment is made 

pursuant to a funds transfer by the originator 

to the beneficiary is governed by the law of 

the jurisdiction in which the beneficiary’s 

bank is located. 

(b) If the parties described in each 

subsection of paragraph (a) of this section 

have made an agreement selecting the law of 

a particular jurisdiction to govern rights and 

obligations between each other, the law of 

that jurisdiction governs those rights and 

obligations, whether or not the payment 

order or the funds transfer bears a reasonable 

relation to that jurisdiction. 

(c) A funds-transfer system rule may select 

the law of a particular jurisdiction to govern 

(i) rights and obligations between 

participating banks with respect to payment 

orders transmitted or processed through the 

system, or (ii) the rights and obligations of 

some or all parties to a funds transfer any 

part of which is carried out by means of the 

system. A choice of law made pursuant to 

clause (i) is binding on participating banks. 

A choice of law made pursuant to clause (ii) 

is binding on the originator, other sender, or 

a receiving bank having notice that the fundstransfer system might be used in the funds 

transfer and of the choice of law by the 

system when the originator, other sender, or 

receiving bank issued or accepted a payment 

order. The beneficiary of a funds transfer is 

bound by the choice of law if, when the 

funds transfer is initiated, the beneficiary has 

notice that the funds-transfer system might 

be used in the funds transfer and of the 

choice of law by the system. The law of a 

jurisdiction selected pursuant to this 

subsection may govern, whether or not that 

law bears a reasonable relation to the matter 

in issue. 

(d) In the event of inconsistency between 

an agreement under paragraph (b) of this 

section and a choice-of-law rule under 


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31402 Federal Register / Vol. 86, No. 111 / Friday, June 11, 2021 / Proposed Rules 

paragraph (c) of this section, the agreement 

under paragraph (b) prevails. 

(e) If a funds transfer is made by use of 

more than one funds-transfer system and 

there is inconsistency between choice-of-law 

rules of the systems, the matter in issue is 

governed by the law of the selected 

jurisdiction that has the most significant 

relationship to the matter in issue. 

By order of the Board of Governors of the 

Federal Reserve System. 

Ann Misback, 

Secretary of the Board. 

[FR Doc. 2021–11759 Filed 6–10–21; 8:45 am] 

BILLING CODE P 


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