(i) the lesser of the amount of the
substitute check that was charged against
the consumer account, or $2,500, together
with interest if the account is an interest-
bearing account, no later than the end of
such 10th business day; and
(ii) the remaining amount of the 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.—Ex-
cept as provided in paragraph (2), a bank that pro-
vides a recredit to a consumer account under sub-
section (c) shall make the recredited funds available
for withdrawal by the consumer by the start of the
next business day after the business day on which
the bank recredits the consumer’s account under
subsection (c).
(2) SAFEGUARD
EXCEPTIONS.—A bank may
delay availability to a consumer of a recredit 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 consumer’s
claim is valid or the 45th calendar day following the
business day on which the consumer submits a claim
for such recredit in accordance with subsection (b),
whichever is earlier, in any of the following cir-
cumstances:
(A) NEW ACCOUNTS.—The claim is made
during the 30-day period beginning on the busi-
ness day the consumer account was established.
(B) REPEATED
OVERDRAFTS.—Without
regard to the charge that is the subject of the
claim for which the recredit was made—
(i) on 6 or more business days during
the 6-month period ending on the date on
which the consumer submits the claim, the
balance in the consumer account was 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
consumer account was negative or would
have become negative in the amount of
$5,000 or more if checks or other charges
to the account had been paid.
(C) PREVENTION OF FRAUD LOSSES.—The
bank has reasonable cause to believe that the
claim is fraudulent, based on facts (other than
the fact that the check in question or the con-
sumer is of a particular class) that would cause
a well-grounded belief in the mind of a reason-
able person that the claim is fraudulent.
(3) OVERDRAFT FEES.—No bank that, in ac-
cordance with paragraph (2), delays the availability
of a recredit under subsection (c) to any consumer
account may impose any overdraft fees with respect
to drafts drawn by the consumer on such recredited
amount before the end of the 5-day period beginning
on the date notice of the delay in the availability of
such amount is sent by the bank to the consumer.
(e) REVERSAL OF RECREDIT.—A bank may reverse
a recredit to a consumer account if the bank—
(1) determines that a substitute check for which
the bank recredited a consumer account under sub-
section (c) was in fact properly charged to the con-
sumer account; and
(2) notifies the consumer in accordance with
subsection (f)(3).
(f) NOTICE TO CONSUMER.—
(1) NOTICE IF CONSUMER CLAIM NOT VALID.—
If a bank determines that a substitute check subject
to the consumer’s claim was in fact properly charged
to the consumer’s account, the bank shall send to
the consumer, no later than the business day fol-
lowing the business day on which the bank makes a
determination—
(A) the original check or a copy of the
original check (including an image or a sub-
stitute check) that—
(i) accurately represents all of the in-
formation on the front and back of the
original check (as of the time the original
check was truncated); or
(ii) is otherwise sufficient to deter-
mine whether or not the consumer’s claim
is valid; and
(B) an explanation of the basis for the de-
termination by the bank that the substitute
check was properly charged, including copies of
any information or documents on which the
bank relied in making the determination.
(2) NOTICE OF RECREDIT.—If a bank recredits
a consumer account under subsection (c), the bank
shall send to the consumer, no later than the busi-
ness day following the business day on which the
bank makes the recredit, a notice of—
(A) the amount of the recredit; and
(B) the date the recredited funds will be
available for withdrawal.
(3) NOTICE OF REVERSAL OF RECREDIT.—In
addition to the notice required under paragraph (1),
if a bank reverses a recredited amount under sub-
section (e), the bank shall send to the consumer, no
later than the business day following the business
day on which the bank reverses the recredit, a notice
of—
(A) the amount of the reversal; and
(B) the date the recredit was reversed.
(4) MODE OF DELIVERY.—A notice described in
this subsection shall be delivered by United States
mail or by any other means through which the con-
sumer has agreed to receive account information.
(g) OTHER CLAIMS NOT AFFECTED.—Providing a
recredit in accordance with this section shall not absolve
the bank from liability for a claim made under any other
law, such as a claim for wrongful dishonor under the Uni-
form Commercial Code, or from liability for additional
damages under section 5 or 9.
original check is necessary to determine the va-
lidity of the charge to the customer account or
any warranty claim connected with such sub-
stitute check.
(2) 120-DAY PERIOD.—Any claim under para-
graph (1) may be submitted by the claimant bank
to an indemnifying bank before the end of the 120-
day beginning on the date of the transaction that
gave rise to the claim.
(b) PROCEDURES FOR CLAIMS.—
(1) IN GENERAL.—To make a claim under sub-
section (a) for an expedited recredit relating to a
substitute check, the claimant bank shall send to the
indemnifying bank—
(A) a description of—
(i) the claim, including an explanation
of why the substitute check cannot be
properly charged to the consumer account;
or
(ii) the warranty claim;
(B) a statement that the claimant bank
has suffered a loss or is obligated to recredit
the consumer’s account under section 6, to-
gether with an estimate of the amount of the
loss or recredit;
(C) the reason why production of the origi-
nal check, another substitute check, or a better
copy of the original check is necessary to deter-
mine the validity of the charge to the consumer
account or the warranty claim; and
(D) information sufficient for the indem-
nifying bank to identify the substitute check
and to investigate the claim.
(2) REQUIREMENTS RELATING TO COPIES OF
SUBSTITUTE CHECKS.—If the information submitted
by a claimant bank pursuant to paragraph (1) in
connection with a claim for an expedited recredit in-
cludes a copy of any substitute check for which any
such claim is made, the claimant bank shall take
reasonable steps to ensure that any such copy can-
not be—
(A) mistaken for the legal equivalent of the
check under section 3(b); or
(B) sent or handled by any bank, including
the indemnifying bank, as a forward collection
or returned check.
(3) CLAIM IN WRITING.—An indemnifying bank
may, in the bank’s discretion, require the claimant
bank to submit in writing the information required
by paragraph (1), including a copy of the written
claim, if any, that the consumer submitted in ac-
cordance with section 6(b).
(c) RECREDIT BY INDEMNIFYING BANK.—
(1) PROMPT ACTION REQUIRED.—No later than
10 business days after the business day on which an
indemnifying bank receives a claim under subsection
(a) from a claimant bank with respect to a sub-
stitute check, the indemnifying bank shall—
(A) provide, to the claimant bank, the
original check (with respect to such substitute
check) or a copy of the original check (including
an image or a substitute check) that—
(i) accurately represents all of the in-
formation on the front and back of the
original check (as of the time the original
check was truncated); or
(ii) is otherwise sufficient to deter-
mine the bank’s claim is not valid; and
(B) recredit the claimant bank for the
amount of the claim up to the amount of the
substitute check, plus interest if applicable; or
(C) provide information to the claimant
bank as to why the indemnifying bank is not
obligated to comply with subparagraph (A) or
(B).
(2) RECREDIT DOES NOT ABROGATE OTHER LI-
ABILITIES.—Providing a recredit under this sub-
section to a claimant bank with respect to a sub-
stitute check shall not absolve the indemnifying bank
from liability for claims brought under any other law
or from additional damages under section 5 or 9
with respect to such check.
(3) REFUND
TO
INDEMNIFYING
BANK.—If a
claimant bank reverses, in accordance with section
6(e), a recredit previously made to a consumer ac-
count under section 6(c), or otherwise receives a
credit or recredit with regard to such substitute
check, the claimant bank shall promptly refund to
any indemnifying bank any amount previously ad-
vanced by the indemnifying bank in connection with
such substitute check.
(d) PRODUCTION OF ORIGINAL CHECK OR A SUFFI-
CIENT COPY GOVERNED BY SECTION 5(d).—If the indem-
nifying bank provides the claimant bank with the original
check or a copy of the original check (including an image
or a substitute check) under subsection (c)(1)(A), section
5(d) shall govern any right of the indemnifying bank to
any repayment of any funds the indemnifying bank has
recredited to the claimant bank pursuant to subsection (c).
SEC. 8. DELAYS IN AN EMERGENCY.
Delay by a bank beyond the time limits prescribed
or permitted by this Act is excused if the delay is caused
by interruption of communication or computer facilities,
suspension of payments by another bank, war, emergency
conditions, failure of equipment, or other circumstances
beyond the control of a bank and if the bank uses such
diligence as the circumstances require.
SEC. 9. MEASURE OF DAMAGES.
(a) LIABILITY.—
(1) IN GENERAL.—Except as provided in sec-
tion 5, any person who, in connection with a sub-
stitute check, breaches any warranty under this Act
or fails to comply with any requirement imposed by,
or regulation prescribed pursuant to, this Act with
respect to any other person shall be liable to such
person in an amount equal to the sum of—
(A) the lesser of—
(i) the amount of the loss suffered by
the other person as a result of the breach
or failure; or
(ii) the amount of the substitute
check; and
(B) interest and expenses (including costs
and reasonable attorney’s fees and other ex-
penses of representation) related to the sub-
stitute check.
(2) OFFSET OF RECREDITS.—The amount of
damages any person receives under paragraph (1), if
any, shall be reduced by the amount, if any, that the
claimant receives and retains as a recredit under
section 6 or 7.
(b) COMPARATIVE NEGLIGENCE.—If a person incurs
damages that resulted in whole or in part from the neg-
ligence or failure of that person to act in good faith, then
the amount of any liability due to that person under sub-
section (a) shall be reduced in proportion to the amount
of negligence or bad faith attributable to that person.
SEC. 10. STATUTE OF LIMITATIONS AND NOTICE OF CLAIM.
(a) ACTIONS UNDER THIS ACT.—
(1) IN GENERAL.—An action to enforce a claim
under this Act may be brought in any United States
district court, or in any other court of competent ju-
risdiction, before the end of the 1-year period begin-
ning on the date the cause of action accrues.
(2) ACCRUAL.—A cause of action accrues as of
the date the injured party first learns, or by which
such person reasonably should have learned, of the
facts and circumstances giving rise to the cause of
action.
(b) DISCHARGE OF CLAIMS.—Except as provided in
subsection (c), unless a person gives notice of a claim to
the indemnifying or warranting bank within 30 days after
the person has reason to know of the claim and the iden-
tity of the indemnifying or warranting bank, the indem-
nifying or warranting bank is discharged to the extent of
any loss caused by the delay in giving notice of the claim.
(c) NOTICE
OF CLAIM
BY CONSUMER.—A timely
claim by a consumer under section 6 for expedited recredit
constitutes timely notice of a claim by the consumer for
purposes of subsection (b).
SEC. 11. CONSUMER AWARENESS.
(a) IN GENERAL.—Each bank shall provide, in ac-
cordance with subsection (b), a brief notice about sub-
stitute checks that describes—
(1) the process of check substitution and how
the process may be different than the check clearing
process with which the consumer may be familiar;
and
(2) a description of the consumer recredit
rights established under section 6 when a consumer
believes in good faith that a substitute check was
not properly charged to the consumer’s account.
(b) DISTRIBUTION.—
(1) EXISTING
CUSTOMERS.—With respect to
consumers that are customers of a bank on the ef-
fective date of this Act, a bank shall provide the no-
tice described in subsection (a) to each such con-
sumer no later than the first regularly scheduled
communication with the consumer after the effective
date of this Act.
(2) NEW
ACCOUNT
HOLDERS.—A bank shall
provide the notice described in subsection (a) to each
consumer, other than existing customers referred to
in paragraph (1), at the time at which the customer
relationship is initiated.
(3) MODE OF DELIVERY.—A bank may send
the notices required by this subsection by United
States mail or by any other means through which
the consumer has agreed to receive account informa-
tion.
(c) MODEL LANGUAGE.—
(1) IN GENERAL.—No later than 1 year after
the date of enactment of this Act, the Board shall
publish model forms and clauses that a depository
institution may use to describe each of the elements
required by subsection (a).
(2) SAFE HARBOR.—A bank shall be treated as
being in compliance with the requirements of sub-
section (a) if the bank’s substitute check notice uses
a model form or clause published by the Board and
such model form or clause accurately describes the
bank’s policies and practices. A bank may delete any
information in the model form or clause that is not
required by this Act or rearrange the format.
(3) USE
OF
MODEL
LANGUAGE
NOT
RE-
QUIRED.—This section shall not be construed as re-
quiring any bank to use a model form or clause that
the Board prepares under this subsection.
SEC. 12. EFFECT ON OTHER LAW.
This Act shall supersede any provision of Federal or
State law, including the Uniform Commercial Code, that
is inconsistent with this Act, but only to the extent of the
inconsistency.
SEC. 13. VARIATION BY AGREEMENT.
(a) SECTION 7.—Any provision of section 7 may be
varied by agreement of the banks involved.
(b) NO OTHER PROVISIONS MAY BE VARIED.—Ex-
cept as provided in subsection (a), no provision of this Act
may be varied by agreement of any person or persons.
SEC. 14. REGULATIONS.
(a) IN GENERAL.—The Board may, by regulation,
clarify or otherwise implement the provisions of this Act
or may modify the requirements imposed by this Act with
respect to substitute checks to further the purposes of this
Act, including reducing risk, accommodating technological
or other developments, and alleviating undue compliance
burdens.
(b) BOARD MONITORING
OF CHECK COLLECTION
AND RETURN PROCESS; ADJUSTMENT OF TIME PERI-
ODS.—
(1) MONITORING OF CHECK COLLECTION AND
RETURN PROCESS.—The Board shall monitor the ex-
tent to which—
(A) original checks are converted to sub-
stitute checks in the check collection and return
process, and
(B) checks are collected and returned elec-
tronically rather than in paper form.
(2) ADJUSTMENT
OF
TIME
PERIODS.—The
Board shall exercise the Board’s authority under
section 603(d)(1) of the Expedited Funds Avail-
ability Act to reduce the time periods applicable
under subsections (b) and (e) of section 603 of such
Act for making funds available for withdrawal, when
warranted.
(c) PUBLICATION
OF SCHEDULE
BY BOARD
FOR
CHECK TRANSPORTATION SERVICES.—Section 11A(b) of
the Federal Reserve Act (12 U.S.C. 248a(b)) is
amended—
(1) by striking ‘‘and’’ at the end of paragraph
(7);
(2) by redesignating paragraph (8) as para-
graph (9); and
(3) by inserting after paragraph (7) the fol-
lowing new paragraph:
‘‘(8) check transportation services; and’’.
SEC. 15. EFFECTIVE DATE.
This Act shall take effect at the end of the 18-month
period beginning on the date of the enactment of this Act,
except as otherwise specifically provided in this Act.
Passed the House of Representatives June 5, 2003.
Attest:
Clerk.
108TH CONGRESS
1ST SESSION
H. R. 1474
AN ACT
To facilitate check truncation by authorizing sub-
stitute checks, to foster innovation in the check
collection system without mandating receipt of
checks in electronic form, and to improve the
overall efficiency of the Nation’s payments sys-
tem, and for other purposes.