IB 
Union Calendar No. 67
108TH CONGRESS 
1ST SESSION H. R. 1474
[Report No. 108–132] 
To facilitate check truncation by authorizing substitute checks, to foster 
innovation in the check collection system without mandating receipt of 
checks in electronic form, and to improve the overall efficiency of the 
Nation’s payments system, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
MARCH 27, 2003
Ms. HART (for herself, Mr. FORD, Mr. FERGUSON, Mr. OXLEY, Mr. BACHUS, 
Mr. CROWLEY, Mr. JONES of North Carolina, Mr. ROYCE, Mrs. KELLY, 
Mr. TOOMEY, Mr. GILLMOR, Mr. HINOJOSA, Mr. LUCAS of Kentucky, 
Mr. ROSS, Mrs. MCCARTHY of New York, Mr. MCINTYRE, Ms. NORTON, 
and Mr. BOSWELL) introduced the following bill; which was referred to 
the Committee on Financial Services 
JUNE 2, 2003
Additional sponsors: Mr. SHAYS, Mr. ALEXANDER, Mr. NEY, Ms. PRYCE of 
Ohio, Mr. SESSIONS, Mr. MOORE, Mr. CLAY, Ms. HARRIS, Mr. 
HENSARLING, Mrs. MALONEY, Mr. KENNEDY
of Minnesota, Mr. 
RODRIGUEZ, Mr. CUNNINGHAM, Mr. KING of New York, and Mr. MUR-
PHY
JUNE 2, 2003 
Reported with an amendment, committed to the Committee of the Whole 
House on the State of the Union, and ordered to be printed
[Strike out all after the enacting clause and insert the part printed in italic] 
[For text of introduced bill, see copy of bill as introduced on March 27, 2003] 
A BILL 
To facilitate check truncation by authorizing substitute 
checks, to foster innovation in the check collection system 
without mandating receipt of checks in electronic form, 
and to improve the overall efficiency of the Nation’s 
payments system, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; FINDINGS; PURPOSES. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Check Clearing for the 21st Century Act’’. 
(b) FINDINGS.—The Congress finds as follows: 
(1) In the Expedited Funds Availability Act, en-
acted on August 10, 1987, the Congress directed the 
Board of Governors of the Federal Reserve System to 
consider establishing regulations requiring Federal re-
serve banks and depository institutions to provide for 
check truncation, in order to improve the check proc-
essing system. 
(2) In that same Act, the Congress—
(A) provided the Board of Governors of the 
Federal Reserve System with full authority to 
regulate all aspects of the payment system, in-
cluding the receipt, payment, collection, and 
clearing of checks, and related functions of the 
payment system pertaining to checks; and 
(B) directed that the exercise of such author-
ity by the Board superseded any State law, in-
cluding the Uniform Commercial Code, as in ef-
fect in any State. 
(3) Check truncation is no less desirable today 
for both financial service customers and the financial 
services industry, to reduce costs, improve efficiency 
in check collections, and expedite funds availability 
for customers than it was over 15 years ago when 
Congress first directed the Board to consider estab-
lishing such a process. 
(c) PURPOSES.—The purposes of this Act are as fol-
lows: 
(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. 
(3) To improve the overall efficiency of the Na-
tion’s payments system.
SEC. 2. DEFINITIONS. 
For purposes of 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’’ means any person 
that is located in a State and engaged in the business 
of banking and includes—
(A) any depository institution (as defined 
in section 19(b)(1)(A) of the Federal Reserve 
Act); 
(B) any Federal reserve bank; 
(C) any Federal home loan bank; or 
(D) to the extent it acts as a payor—
(i) the Treasury of the United States; 
(ii) the United States Postal Service; 
(iii) a State government; or 
(iv) a unit of general local government 
(as defined in section 602(24) of the Expe-
dited Funds Availability Act). 
(3) BANKING TERMS.—
(A) CLAIMANT BANK.—The term ‘‘claimant 
bank’’ means a bank that submits a claim for re-
credit under section 7 to an indemnifying bank.
(B) COLLECTING
BANK.—The term ‘‘col-
lecting bank’’ means any bank handling a check 
for collection except the paying bank. 
(C) 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 
(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 indorsed first by another bank. 
(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-
turning bank as a collecting bank for pur-
poses of section 4–202(b) of the Uniform 
Commercial Code.
(4) BOARD.—The term ‘‘Board’’ means the 
Board of Governors of the Federal Reserve System. 
(5) BUSINESS DAY.—The term ‘‘business day’’ 
has the same meaning as in section 602(3) of the Ex-
pedited Funds Availability Act.
(6) CHECK.—The term ‘‘check’’—
(A) means a draft, payable on demand and 
drawn on or payable through or at an office of 
a bank, whether or not negotiable, that is han-
dled for forward collection or return, including a 
substitute check and a travelers check; and 
(B) does not include a noncash item or an 
item payable in a medium other than United 
States dollars. 
(7) CONSUMER.—The term ‘‘consumer’’ means 
an individual who—
(A) with respect to a check handled for for-
ward collection, draws the check on a consumer 
account; or 
(B) with respect to a check handled for re-
turn, deposits the check into, or cashes the check 
against, a consumer account. 
(8) CONSUMER ACCOUNT.—The term ‘‘consumer 
account’’ has the same meaning as in section 602(10) 
of the Expedited Funds Availability Act. 
(9) CUSTOMER.—The term ‘‘customer’’ means a 
person having an account with a bank. 
(10) FORWARD
COLLECTION.—The term ‘‘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 5 with respect to a substitute 
check. 
(12) MICR LINE.—The terms ‘‘MICR line’’ and 
‘‘magnetic ink character recognition line’’ mean the 
numbers, which may include the bank routing 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. 
(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 
(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)(3) of the Federal Deposit 
Insurance Act. 
(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) OTHER TERMS.—Unless the context requires 
otherwise, the terms not defined in this section shall
have the same meanings as in the Uniform Commer-
cial Code. 
SEC. 3. 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, so long as 
a bank has made the warranties in section 4 with respect 
to such substitute check. 
(b) LEGAL EQUIVALENCE.—A substitute check shall be 
the legal equivalent of the original check for all purposes, 
including any provision of any Federal or State law, and 
for all persons if the substitute check—
(1) accurately represents all of the information 
on the front and back of the original check as of the 
time the original check was truncated; and 
(2) bears the legend: ‘‘This is a legal copy of 
your check. You can use it the same way you would 
use the original check.’’. 
(c) ENDORSEMENTS.—A bank shall ensure that the 
substitute check for which the bank is the reconverting bank 
bears all endorsements applied by parties that previously 
handled the check (whether in electronic form or in the form 
of the original paper check or a substitute check) for forward 
collection or return.