I 
108TH CONGRESS 
1ST SESSION H. R. 1474
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 
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, 
enacted on August 10, 1987, the Congress directed 
the Board of Governors of the Federal Reserve Sys-
tem to consider establishing regulations requiring 
Federal reserve banks and depository institutions to 
provide for check truncation, in order to improve the 
check processing 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 au-
thority by the Board superseded any State law, 
including the Uniform Commercial Code, as in 
effect 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 author-
izing 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 
deposit account at a bank. 
(2) BANK.—The term ‘‘bank’’ means any per-
son 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 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 ‘‘return-
ing bank’’ means a bank (other than the 
paying or depositary bank) handling a re-
turned 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 
returning bank as a collecting bank for 
purposes of section 4–202(b) of the Uni-
form 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 
Expedited 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 
forward collection, draws the check on a con-
sumer 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 ‘‘con-
sumer 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 pay-
ing 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 
natural person, corporation, unincorporated com-
pany, partnership, government unit or instrumen-
tality, 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 
person other than a bank, the first bank that 
transfers or presents such substitute check.
(16) SUBSTITUTE
CHECK.—The term ‘‘sub-
stitute 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 and all other information re-
quired under generally applicable industry 
standards for substitute 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 
collection 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 subse-
quent 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 re-
quires otherwise, the terms not defined in this sec-
tion shall have the same meanings as in the Uniform 
Commercial 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 pur-
poses, 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 pre-
viously 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. 
(d) IDENTIFICATION OF RECONVERTING BANK.—A 
bank shall identify itself as a reconverting bank on any 
substitute check for which the bank is a reconverting bank 
so as to preserve any previous reconverting bank identi-
fications in conformance with generally applicable industry 
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 of part 229 of title 
12 of the Code of Federal Regulations, the Uniform Com-
mercial Code, and any other applicable Federal or State 
law as if such substitute check were the original check,
to the extent such provision of law is not inconsistent with 
this Act.
this section shall be reduced in proportion to the amount 
of negligence or bad faith attributable to that party. 
(d) EFFECT OF PRODUCING ORIGINAL CHECK, SUB-
STITUTE CHECK, OR SUFFICIENT COPY.—
(1) IN
GENERAL.—If the indemnifying bank 
produces the original check, a substitute check, or a 
copy of the original check that is sufficient to deter-
mine whether or not a claim is valid, the indem-
nifying bank shall—
(A) be liable under this section only for 
losses covered by the indemnity that are in-
curred up to the time the original check, the 
substitute check, or a sufficient copy is provided 
to the indemnified party; and 
(B) have a right to the return of any funds 
the bank has paid under the indemnity in ex-
cess of those losses. 
(2) COORDINATION
OF
INDEMNITY
WITH
IM-
PLIED WARRANTY.—The production of the original 
check, a substitute check, or a sufficient copy under 
paragraph (1) by an indemnifying bank shall not ab-
solve the bank from any liability on a warranty es-
tablished 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 at-
tempt to recover from another party based on a war-
ranty or other claim. 
(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 the in-
demnifying bank brings against a warrantor or other 
party related to a check that forms the basis for the 
indemnification. 
SEC. 6. 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 
substitute check, if the consumer asserts in good 
faith that—
(A) the bank charged the consumer’s ac-
count for a substitute check that was provided 
to the consumer; 
(B) either—
(i) the check was not properly charged 
to the consumer’s account; or 
(ii) the consumer has a warranty 
claim with respect to such substitute 
check; 
(C) the consumer suffered a resulting loss; 
and 
(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) 30-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 
30-day period beginning on the later of—
(A) the date on which the consumer re-
ceives the periodic statement of account for 
such account which contains information con-
cerning the transaction giving rise to the claim; 
or
(B) the date the substitute check is made 
available to the consumer. 
(3) EXTENSION
UNDER
EXTENUATING
CIR-
CUMSTANCES.—If the consumer’s ability to submit 
the claim within the 30-day period under paragraph
(2) is delayed due to extenuating circumstances, in-
cluding extended travel or the illness of the con-
sumer, the 30-day period shall be extended for a 
total not to exceed 30 additional days. 
(b) PROCEDURES FOR CLAIMS.—
(1) IN GENERAL.—To make a claim for an ex-
pedited 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 consumer’s ac-
count; or 
(ii) the warranty claim with respect to 
such check; 
(B) a statement that the consumer suf-
fered 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 consumer’s account or the war-
ranty claim; and
(D) sufficient information to identify the 
substitute check and to investigate the claim. 
(2) CLAIM IN WRITING.—The bank holding the 
consumer account that is the subject of a claim by 
the consumer under subsection (a) may, in the dis-
cretion of the bank, require the consumer to submit 
the information required under paragraph (1) in 
writing. 
(c) RECREDIT TO CONSUMER.—
(1) CONDITIONS
FOR
RECREDIT.—The bank 
shall recredit a consumer account in accordance with 
paragraph (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 provided to the con-
sumer the original check, a substitute check, or 
a copy of the original check and demonstrates 
that the substitute check was properly charged 
to the consumer’s account. 
(2) TIMING OF RECREDIT.—
(A) IN GENERAL.—The bank shall recredit 
the consumer’s account for the amount de-
scribed in paragraph (1) no later than the end
of the business day following the business day 
on which the bank determines the consumer’s 
claim is valid. 
(B) 
RECREDIT
PENDING
INVESTIGA-
TION.—If the bank has not yet determined that 
the consumer’s claim is valid before the end of 
the 10th business day after the business day on 
which the consumer submitted the claim, the 
bank shall recredit the consumer’s account 
for—
(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, the substitute 
check, or a copy of the original check that is 
sufficient to determine that the substitute check 
was properly charged to the consumer’s ac-
count; 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