In the Senate of the United States,
June 27 (legislative day, June 26), 2003.
Resolved, That the bill from the House of Representa-
tives (H.R. 1474) entitled ‘‘An Act to facilitate check trunca-
tion by authorizing substitute checks, to foster innovation in
the check collection system without mandating receipt of
checks in electronic form, and to improve the overall effi-
ciency of the Nation’s payments system, and for other pur-
poses.’’, do pass with the following
AMENDMENT:
Strike out all after the enacting clause and insert:
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Check Truncation Act of 2003’’.
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(b) TABLE OF CONTENTS.—The table of contents for
this Act is as follows:
Sec. 1. Short title; table of contents.
Sec. 2. Findings and purposes.
Sec. 3. Definitions.
Sec. 4. General provisions governing substitute checks.
Sec. 5. Substitute check warranties.
Sec. 6. Indemnity.
Sec. 7. Expedited recredit for consumers.
Sec. 8. Expedited recredit procedures for banks.
Sec. 9. Delays in an emergency.
Sec. 10. Measure of damages.
Sec. 11. Statute of limitations and notice of claim.
Sec. 12. Consumer awareness.
Sec. 13. Effect on other law.
Sec. 14. Regulations.
Sec. 15. Study and report on funds availability.
Sec. 16. Evaluation and report by the Comptroller General.
Sec. 17. Variation by agreement.
Sec. 18. Effective date.
SEC. 2. FINDINGS AND PURPOSES.
(a) FINDINGS.—Congress finds that—
(1) the Expedited Funds Availability Act (12
U.S.C. 4001 et seq.)—
(A) directs the Board to consider estab-
lishing regulations requiring Federal reserve
banks and depository institutions to provide for
check truncation, in order to improve the check
processing system;
(B) authorizes the Board to regulate all as-
pects of the payment system, including the re-
ceipt, payment, collection, and clearing of checks,
and related functions of the payment system per-
taining to checks; and
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(C) directs that the exercise of such author-
ity by the Board shall supersede any State law,
including the Uniform Commercial Code, as in
effect in any State; and
(2) check truncation is no less desirable in 2003
for both financial service customers and the financial
services industry, to reduce costs, improve efficiency
in check collections, and expedite funds availability
for account holders than it was in 1987, when Con-
gress first directed the Board to consider establishing
such a process.
(b) PURPOSES.—The purposes of this Act are—
(1) to facilitate check truncation by authorizing
substitute checks;
(2) to foster innovation in the check collection
system without mandating receipt of checks in elec-
tronic form; and
(3) to improve the overall efficiency of the Na-
tion’s payments system.
SEC. 3. DEFINITIONS.
In this Act, the following definitions shall apply:
(1) ACCOUNT.—The term ‘‘account’’ means a de-
posit account at a bank.
(2) BANK.—The term ‘‘bank’’—
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(A) means any person located in a State
engaged in the business of banking, including
any depository institution; and
(B) includes—
(i) any Federal reserve bank;
(ii) any Federal home loan bank; and
(iii) to the extent that it acts as a
payor—
(I) the Treasury of the United
States;
(II) the United States Postal
Service;
(III) a State government; and
(IV) a unit of general local gov-
ernment.
(3) BANKING TERMS.—
(A) COLLECTING
BANK.—The term ‘‘col-
lecting bank’’ means any bank handling a check
for collection except the paying bank.
(B) DEPOSITARY BANK.—The term ‘‘deposi-
tary bank’’ means—
(i) the first bank to which a check is
transferred, even if such bank is also the
paying bank or the payee; or
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(ii) a bank to which a check is trans-
ferred for deposit in an account at such
bank, even if the check is physically received
and endorsed first by another bank.
(C) DEPOSITORY
INSTITUTION.—The term
‘‘depository institution’’ has the same meaning
as in section 19(b)(1)(A) of the Federal Reserve
Act (12 U.S.C. 461(b)(1)(A)).
(D) PAYING
BANK.—The term ‘‘paying
bank’’ means—
(i) the bank by which a check is pay-
able, unless the check is payable at or
through another bank and is sent to the
other bank for payment or collection; or
(ii) the bank at or through which a
check is payable and to which the check is
sent for payment or collection.
(E) RETURNING BANK.—
(i) IN GENERAL.—The term ‘‘returning
bank’’ means a bank (other than the paying
or depositary bank) handling a returned
check or notice in lieu of return.
(ii) 
TREATMENT
AS
COLLECTING
BANK.—No provision of this Act shall be
construed as affecting the treatment of a re-
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(8) CONSUMER ACCOUNT.—The term ‘‘consumer
account’’ has the same meaning as in section 602(10)
of the Expedited Funds Availability Act (12 U.S.C.
4001(10)).
(9) CUSTOMER.—The term ‘‘customer’’ means a
person having an account with a bank.
(10) FORWARD
COLLECTION.—The term ‘‘for-
ward collection’’ means the transfer by a bank of a
check to a collecting bank for settlement or the paying
bank for payment.
(11) INDEMNIFYING BANK.—The term ‘‘indem-
nifying bank’’ means a bank that is providing an in-
demnity under section 6 with respect to a substitute
check.
(12) MICR LINE.—The term ‘‘MICR line’’ or
‘‘magnetic ink character recognition line’’ means the
numbers, which may include the bank routing num-
ber, account number, check number, check amount,
and other information, that are printed near the bot-
tom of a check in magnetic ink in accordance with
generally applicable industry standards.
(13) NONCASH ITEM.—The term ‘‘noncash item’’
has the same meaning as in section 602(14) of the
Expedited 
Funds 
Availability 
Act 
(12 
U.S.C.
4001(14)).
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(14) PERSON.—The term ‘‘person’’ means a nat-
ural person, corporation, unincorporated company,
partnership, government unit or instrumentality,
trust, or any other entity or organization.
(15) RECONVERTING
BANK.—The term ‘‘recon-
verting bank’’ means—
(A) the bank that creates a substitute check;
or
(B) if a substitute check is created by a per-
son other than a bank, the first bank that trans-
fers or presents such substitute check.
(16) SUBSTITUTE CHECK.—The term ‘‘substitute
check’’ means a paper reproduction of the original
check that—
(A) contains an image of the front and back
of the original check;
(B) bears a MICR line containing all the
information appearing on the MICR line of the
original check, except as provided under gen-
erally applicable industry standards for sub-
stitute checks to facilitate the processing of sub-
stitute checks;
(C) conforms, in paper stock, dimension,
and otherwise, with generally applicable indus-
try standards for substitute checks; and
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(D) is suitable for automated processing in
the same manner as the original check.
(17) STATE.—The term ‘‘State’’ has the same
meaning as in section 3(a) of the Federal Deposit In-
surance Act (12 U.S.C. 1813(a)).
(18) TRUNCATE.—The term ‘‘truncate’’ means to
remove an original paper check from the check collec-
tion or return process and send to a recipient, in lieu
of such original paper check, a substitute check or, by
agreement, information relating to the original check
(including data taken from the MICR line of the
original check or an electronic image of the original
check), whether with or without subsequent delivery of
the original paper check.
(19) UNIFORM
COMMERCIAL
CODE.—The term
‘‘Uniform Commercial Code’’ means the Uniform
Commercial Code in effect in a State.
(20) UNIT OF GENERAL LOCAL GOVERNMENT.—
The term ‘‘unit of general local government’’ has the
same meaning as in section 602(24) of the Expedited
Funds Availability Act (12 U.S.C. 4001(24)).
(21) OTHER TERMS.—Unless the context requires
otherwise, terms used in this Act that are not defined
in this section shall have the same meanings as in the
Uniform Commercial Code.
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SEC. 4. GENERAL PROVISIONS GOVERNING SUBSTITUTE
CHECKS.
(a) NO AGREEMENT REQUIRED.—A person may de-
posit, present, or send for collection or return a substitute
check without an agreement with the recipient, to the extent
that the bank has made the warranties described in section
5 with respect to the substitute check.
(b) LEGAL EQUIVALENCE.—A substitute check shall be
the legal equivalent of an original check for all purposes,
including any provision of any Federal or State law, and
for all persons, if the substitute check—
(1) accurately represents all of the information
on the front and back of the original check as of the
time at which the original check was truncated; and
(2) bears the legend: ‘‘This is a legal copy of
your check. You can use it the same way you would
use the original check.’’.
(c) ENDORSEMENTS.—A reconverting bank shall en-
sure that the substitute check for which the bank is the re-
converting bank bears all endorsements applied by parties
that previously handled the check (whether in electronic
form or in the form of the original paper check or a sub-
stitute check) for forward collection or return.
(d) IDENTIFICATION OF RECONVERTING BANK.—A re-
converting bank shall identify itself as a reconverting bank
on any substitute check for which the bank is a reconverting
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bank, so as to preserve any previous reconverting bank iden-
tifications, in conformance with generally applicable indus-
try standards.
(e) APPLICABLE LAW.—A substitute check that is the
legal equivalent of the original check under subsection (b)
shall be subject to any provision, including any provision
relating to the protection of consumers, of part 229 of title
12, Code of Federal Regulations (or any successor thereto),
the Uniform Commercial Code, and any other applicable
Federal or State law that would apply if the substitute
check were the original check, to the extent that such provi-
sion of law is not inconsistent with this Act.
SEC. 5. SUBSTITUTE CHECK WARRANTIES.
A bank that transfers, presents, or returns a substitute
check and receives consideration for the check warrants to
the transferee, any subsequent collecting or returning bank,
the depositary bank, the drawee, the drawer, the payee, the
depositor, and any endorser (regardless of whether the war-
rantee receives the substitute check or another paper or elec-
tronic form of the substitute or original check) that—
(1) the substitute check meets all the require-
ments for legal equivalence under section 4(b); and
(2) no depositary bank, drawee, drawer, or en-
dorser will receive presentment or return of the sub-
stitute check, the original check, or a copy or other
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paper or electronic version of the substitute check or
original check such that it will be asked to make a
payment based on a check it has already paid.
SEC. 6. INDEMNITY.
(a) INDEMNITY.—A reconverting bank and each bank
that subsequently transfers, presents, or returns a substitute
check in any electronic or paper form, and receives consid-
eration for such transfer, presentment, or return shall in-
demnify the transferee, any subsequent collecting or return-
ing bank, the depositary bank, the drawee, the drawer, the
payee, the depositor, and any endorser, up to the amounts
described in subsections (b) and (c), as applicable, to the
extent of any loss incurred by any recipient of a substitute
check if that loss occurred due to the receipt of a substitute
check instead of the original check.
(b) INDEMNITY AMOUNT.—
(1) AMOUNT
IN
EVENT
OF
BREACH
OF
WAR-
RANTY.—The amount of the indemnity under sub-
section (a) shall be the amount of any loss (including
costs and reasonable attorney fees and other expenses
of representation) proximately caused by a breach of
a warranty established under section 5.
(2) AMOUNT IN ABSENCE OF BREACH OF WAR-
RANTY.—In the absence of a breach of a warranty es-
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tablished under section 5, the amount of the indem-
nity under subsection (a) shall be the sum of—
(A) the amount of any loss, up to the
amount of the substitute check; and
(B) interest and expenses (including costs
and reasonable attorney fees and other expenses
of representation).
(c) COMPARATIVE NEGLIGENCE.—
(1) IN GENERAL.—If a loss under subsection (a)
results in whole or in part from the negligence or fail-
ure to act in good faith on the part of an indemnified
party, then the indemnification of that party under
this section shall be reduced in proportion to the
amount of negligence or bad faith attributable to that
party.
(2) RULE OF CONSTRUCTION.—Nothing in this
subsection reduces the rights of a consumer or any
other person under the Uniform Commercial Code or
other applicable provision of Federal or State law.
(d) EFFECT OF PRODUCING ORIGINAL CHECK OR SUB-
STITUTE CHECK.—
(1) IN GENERAL.—If the indemnifying bank pro-
duces the original check or a copy of the original
check (including an image or a substitute check) that
accurately represents all of the information on the
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front and back of the original check (as of the time
at which the original check was truncated), or is oth-
erwise sufficient to determine whether or not a claim
is valid, the indemnifying bank shall—
(A) be liable under this section only for
losses covered by the indemnity that are incurred
up to the time that the original check or copy is
provided to the indemnified party; and
(B) have a right to the return of any funds
it has paid under the indemnity in excess of
those losses.
(2) COORDINATION OF INDEMNITY WITH IMPLIED
WARRANTY.—The production of the original check,
substitute check, or copy under paragraph (1) by an
indemnifying bank shall not absolve the bank from
any liability on a warranty established under this
Act or any other provision of law.
(e) SUBROGATION OF RIGHTS.—
(1) IN GENERAL.—Each indemnifying bank shall
be subrogated to the rights of any indemnified party
to the extent of the indemnity.
(2) RECOVERY UNDER WARRANTY.—A bank that
indemnifies a party under this section may attempt
to recover from another party based on a warranty
or other claim.
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(3) DUTY
OF
INDEMNIFIED
PARTY.—Each in-
demnified party shall have a duty to comply with all
reasonable requests for assistance from an indem-
nifying bank in connection with any claim that the
indemnifying bank brings against a warrantor or
other party related to a check that forms the basis for
the indemnification.
SEC. 7. EXPEDITED RECREDIT FOR CONSUMERS.
(a) RECREDIT CLAIMS.—
(1) IN
GENERAL.—A consumer may make a
claim for expedited recredit from the bank that holds
the account of the consumer with respect to a sub-
stitute check, if the consumer asserts in good faith
that—
(A) the bank charged the consumer account
for a substitute check that was provided to the
consumer;
(B) either—
(i) the check was not properly charged
to the consumer account; or
(ii) the consumer has a warranty
claim with respect to such substitute check;
(C) the consumer suffered a resulting loss;
and
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(D) the production of the original check or
a better copy of the original check is necessary
to determine the validity of any claim described
in subparagraph (B).
(2) 40-DAY
PERIOD.—Any claim under para-
graph (1) with respect to a consumer account may be
submitted by a consumer before the end of the 40-day
period beginning on the later of—
(A) the date on which the financial institu-
tion mails or delivers, by a means agreed to by
the consumer, the periodic statement of account
for such account which contains information
concerning the transaction giving rise to the
claim; or
(B) the date on which the substitute check
is made available to the consumer.
(3) 
EXTENSION
UNDER
EXTENUATING
CIR-
CUMSTANCES.—If the ability of the consumer to sub-
mit the claim within the 40-day period under para-
graph (2) is delayed due to extenuating cir-
cumstances, including extended travel or the illness of
the consumer, the 40-day period shall be extended by
a reasonable amount of time.
(b) PROCEDURES FOR CLAIMS.—
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(1) IN GENERAL.—To make a claim for an expe-
dited recredit under subsection (a) with respect to a
substitute check, the consumer shall provide to the
bank that holds the account of such consumer—
(A) a description of the claim, including an
explanation of—
(i) why the substitute check was not
properly charged to the subject consumer ac-
count; or
(ii) the warranty claim with respect to
such check;
(B) a statement that the consumer suffered
a loss and an estimate of the amount of the loss;
(C) the reason why production of the origi-
nal check or a better copy of the original check
is necessary to determine the validity of the
charge to the subject consumer account or the
warranty claim; and
(D) sufficient information to identify the
substitute check and to investigate the claim.
(2) CLAIM IN WRITING.—
(A) IN
GENERAL.—The bank holding the
consumer account that is the subject of a claim
by the consumer under subsection (a) may, in
the discretion of the bank, require the consumer
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to submit the information required under para-
graph (1) in writing.
(B) MEANS OF SUBMISSION.—A bank that
requires a submission of information under sub-
paragraph (A) may permit the consumer to
make the submission electronically, if the con-
sumer has agreed to communicate with the bank
in that manner.
(c) RECREDIT TO CONSUMER.—
(1) CONDITIONS FOR RECREDIT.—The bank shall
recredit a consumer account in accordance with para-
graph (2) for the amount of a substitute check that
was charged against the consumer account, if—
(A) a consumer submits a claim to the bank
with respect to that substitute check that meets
the requirement of subsection (b); and
(B) the bank has not—
(i) provided to the consumer—
(I) the original check; or
(II) a copy of the original check
(including an image or a substitute
check) that accurately represents all of
the information on the front and back
of the original check, as of the time at
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which the original check was trun-
cated; and
(ii) demonstrated to the consumer that
the substitute check was properly charged to
the consumer account.
(2) TIMING OF RECREDIT.—
(A) IN GENERAL.—The bank shall recredit
the subject consumer account for the amount de-
scribed in paragraph (1) not later than the end
of the business day following the business day on
which the bank determines the claim of the con-
sumer is valid.
(B) RECREDIT PENDING INVESTIGATION.—
If the bank has not determined that the claim of
the consumer is valid before the end of the 10th
business day after the business day on which the
consumer submitted the claim, the bank shall re-
credit the subject consumer account for—
(i) the lesser of the amount of the sub-
stitute check that was charged against the
consumer account, or $2,500, together with
interest if the account is an interest-bearing
account, not later than the end of such 10th
business day; and
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(ii) the remaining amount of the sub-
stitute check that was charged against the
consumer account, if any, together with in-
terest if the account is an interest-bearing
account, not later than the 45th calendar
day following the business day on which the
consumer submits the claim.
(d) AVAILABILITY OF RECREDIT.—
(1) NEXT BUSINESS DAY AVAILABILITY.—Except
as provided in paragraph (2), a bank that provides
a recredit to a consumer account under subsection (c)
shall make the recredited funds available for with-
drawal by the consumer by the start of the next busi-
ness day after the business day on which the bank re-
credits the consumer account under subsection (c).
(2) SAFEGUARD
EXCEPTIONS.—A bank may
delay availability to a consumer of a recredit pro-
vided under subsection (c)(2)(B)(i) until the start of
either the business day following the business day on
which the bank determines that the claim of the con-
sumer is valid, or the 45th calendar day following the
business day on which the consumer submits a claim
for such recredit in accordance with subsection (b),
whichever is earlier, in any of the following cir-
cumstances:
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(A) NEW ACCOUNTS.—The claim is made
during the 30-day period beginning on the busi-
ness day on which the consumer account was es-
tablished.
(B) REPEATED OVERDRAFTS.—Without re-
gard to the charge that is the subject of the claim
for which the recredit was made—
(i) on 6 or more business days during
the 6-month period ending on the date on
which the consumer submits the claim, the
balance in the consumer account was nega-
tive or would have become negative if checks
or other charges to the account had been
paid; or
(ii) on 2 or more business days during
such 6-month period, the balance in the con-
sumer account was negative or would have
become negative in the amount of $5,000 or
more if checks or other charges to the ac-
count had been paid.
(C) PREVENTION OF FRAUD LOSSES.—The
bank has reasonable cause to believe that the
claim is fraudulent, based on facts (other than
the fact that the check in question or the con-
sumer is of a particular class) that would cause
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a well-grounded belief in the mind of a reason-
able person that the claim is fraudulent.
(3) OVERDRAFT FEES.—No bank that, in accord-
ance with paragraph (2), delays the availability of a
recredit under subsection (c) to any consumer account
may impose any overdraft fees with respect to drafts
drawn by the consumer on such recredited amount be-
fore the end of the 5-day period beginning on the date
on which notice of the delay in the availability of
such amount is sent by the bank to the consumer.
(e) REVERSAL OF RECREDIT.—A bank may reverse a
recredit to a consumer account if the bank—
(1) determines that a substitute check for which
the bank recredited a consumer account under sub-
section (c) was in fact properly charged to the con-
sumer account; and
(2) notifies the consumer in accordance with sub-
section (f)(3).
(f) NOTICE TO CONSUMER.—
(1) NOTICE IF CONSUMER CLAIM NOT VALID.—If
a bank determines that a substitute check subject to
the claim of a consumer under this section was in fact
properly charged to the consumer account, the bank
shall send to the consumer, not later than the business
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day following the business day on which the bank
makes the determination—
(A) the original check or a copy of the origi-
nal check (including an image or a substitute
check) that—
(i) accurately represents all of the in-
formation on the front and back of the
original check (as of the time at which the
original check was truncated); or
(ii) is otherwise sufficient to determine
whether or not the claim of the consumer is
valid; and
(B) an explanation of the basis for the de-
termination by the bank that the substitute check
was properly charged, including a statement that
the consumer may request copies of any informa-
tion or documents on which the bank relied in
making the determination.
(2) NOTICE OF RECREDIT.—If a bank recredits a
consumer account under subsection (c), the bank shall
send to the consumer, not later than the business day
following the business day on which the bank makes
the recredit, a notice of—
(A) the amount of the recredit; and
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(B) the date on which the recredited funds
will be available for withdrawal.
(3) NOTICE OF REVERSAL OF RECREDIT.—In ad-
dition to the notice required under paragraph (1), if
a bank reverses a recredited amount under subsection
(e), the bank shall send to the consumer, not later
than the business day following the business day on
which the bank reverses the recredit, a notice of—
(A) the amount of the reversal; and
(B) the date on which the recredit was re-
versed.
(4) MODE OF DELIVERY.—A notice described in
this subsection shall be delivered by United States
mail or by any other means through which the con-
sumer has agreed to receive account information.
(g) OTHER CLAIMS NOT AFFECTED.—Providing a re-
credit in accordance with this section shall not absolve the
bank from liability for a claim made under any other pro-
vision of law, such as a claim for wrongful dishonor under
the Uniform Commercial Code, or from liability for addi-
tional damages under section 6 or 10.
(h) SCOPE OF APPLICATION.—This section shall only
apply to customers who are consumers.
SEC. 8. EXPEDITED RECREDIT PROCEDURES FOR BANKS.
(a) RECREDIT CLAIMS.—