I 
107TH CONGRESS 
2D SESSION 
H. R. 5414
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 
SEPTEMBER 19, 2002
Mr. FERGUSON (for himself and Mr. FORD) 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thority by the Board superseded any State law, 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’’—
(A) means any person located in a State 
engaged in the business of banking, including 
any depository institution (as defined in section 
19(b)(1)(A) of the Federal Reserve Act); and 
(B) includes—
(i) any Federal reserve bank; 
(ii) any Federal home loan bank; and 
(iii) 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; and 
(IV) a unit of general local gov-
ernment. 
(3) BANKING DAY.—The term ‘‘banking day’’ 
means that part of any business day during which 
an office of a bank is open to the public for carrying 
on substantially all of the banking business of the 
bank. 
(4) 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.—
(i) IN GENERAL.—The term ‘‘deposi-
tary bank’’ means the first bank to which 
a check is transferred even though it is 
also the paying bank or the payee. 
(ii) TREATED AS DEPOSITARY BANK 
IN
CASE
OF
CHECK
DEPOSIT.—A bank 
shall be treated as the depository bank, for 
purposes of this Act, if a check is trans-
ferred for deposit in a customer account at 
such bank, even though the check is phys-
ically received and indorsed first by an-
other bank. 
(C) PAYING
BANK.—The term ‘‘paying 
bank’’ means— 
(i) the bank by which a check is pay-
able, unless the check is payable at another 
bank and is sent to the other bank for pay-
ment or collection; 
(ii) the bank at which a check is pay-
able and to which it is sent for payment or 
collection; 
(iii) the Federal reserve bank or Fed-
eral home loan bank by which a check is 
payable; 
(iv) the bank through which a check is 
payable and to which it is sent for pay-
ment or collection, if the check is not pay-
able by a bank; 
(v) the State or unit of general local 
government on which a check is drawn and 
to which it is sent for payment or collec-
tion;
(vi) the bank through which a check is 
payable and to which the check is sent for 
payment or collection, regardless of wheth-
er the check is payable by another bank; 
and 
(vii) the bank whose routing number 
appears on a check in fractional form or in 
the MICR line and to which the check is 
sent for payment or collection. 
(D) 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. 
(5) BOARD.—The term ‘‘Board’’ means the 
Board of Governors of the Federal Reserve System. 
(6) BUSINESS DAY.—The term ‘‘business day’’ 
has the same meaning as in section 602(3) of the 
Expedited Funds Availability Act. 
(7) 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 
(B) does not include a noncash item or an 
item payable in a medium other than United 
States dollars. 
(8) 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; and 
(B) with respect to a check handled for re-
turn, deposits the check into, or cashes the 
check against, a consumer account. 
(9) CONSUMER
ACCOUNT.—The term ‘‘con-
sumer account’’ has the same meaning as in section 
602(10) of the Expedited Funds Availability Act. 
(10) CUSTOMER.—
(11) 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. 
(12) 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. 
(13) 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 printed near the bottom of a 
check in magnetic ink in accordance with generally 
applicable industry standards. 
(14) NONCASH
ITEM.—The term ‘‘noncash 
item’’ has the same meaning as in section 602(14) 
of the Expedited Funds Availability Act. 
(15) PERSON.—The term ‘‘person’’ includes a 
government unit or instrumentality. 
(16) RECONVERTING BANK.—
(A) IN GENERAL.—The term ‘‘reconverting 
bank’’ means the bank that creates a substitute 
check. 
(B) IF SUBSTITUTE CHECK IS NOT CRE-
ATED BY A BANK.—If a substitute check is cre-
ated by a person other than a bank, the term 
‘‘reconverting bank’’ means the first bank that 
transfers or presents such substitute check.
(17) 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 an MICR line containing all in-
formation required 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. 
(18) STATE.—The term ‘‘State’’ has the same 
meaning as in section 3(a)(3) of the Federal Deposit 
Insurance Act. 
(19) 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.
(20) UNIFORM COMMERCIAL CODE.—The term 
‘‘Uniform Commercial Code’’ means the Uniform 
Commercial Code in effect in a State. 
(21) UNIT
OF
GENERAL
LOCAL
GOVERN-
MENT.—The term ‘‘unit of general local govern-
ment’’ has the same meaning as in section 602(24) 
of the Expedited Funds Availability Act. 
(22) 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, to the ex-
tent the bank is treated as having made the warranties 
in section 4 as a matter of law with respect to such sub-
stitute 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 reconverting bank shall en-
sure that the substitute check that is created by the 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. 
(d) IDENTIFICATION OF RECONVERTING BANK.—A 
reconverting bank shall identify itself as a reconverting 
bank on any substitute check such bank creates so as to 
preserve any previous reconverting bank identifications 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 (as in effect on 
the date of the enactment of this Act), the Uniform Com-
mercial Code, and any other applicable Federal or State 
law that would apply if such substitute check were the
original check, to the extent such provision of law is not 
inconsistent with this Act. 
SEC. 4. SUBSTITUTE CHECK WARRANTIES. 
A bank that transfers, presents, or returns a sub-
stitute check and receives consideration for the check shall 
be deemed to have warranted to the transferee, any subse-
quent collecting or returning bank, the depositary bank, 
the drawee, the drawer, the payee, the depositor, and any 
endorser (regardless of whether the warrantee receives the 
substitute check or another paper or electronic form of 
the substitute or original check) that—
(1) the substitute check meets all the require-
ments for legal equivalence under section 3(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 
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. 5. INDEMNITY. 
(a) INDEMNITY.—A reconverting bank that creates a 
substitute check, and each bank that subsequently trans-
fers, presents, or returns that substitute check in any elec-
tronic or paper form, and receives consideration for such 
transfer, presentment, or return shall be deemed to have
indemnified the transferee, any subsequent collecting or 
returning bank, the depositary bank, the drawee, the 
drawer, the payee, the depositor, and any endorser, up to 
the amount described in subsections (b) and (c), to the 
extent of any loss incurred by any recipient of a substitute 
check if that loss occurred due to the receipt of a sub-
stitute 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 (includ-
ing costs and reasonable attorney’s fees and other 
expenses of representation) proximately caused by a 
breach of a warranty established by operation of sec-
tion 4. 
(2) AMOUNT IN ABSENCE OF BREACH OF WAR-
RANTY.—In the absence of a breach of a warranty 
established by operation of section 4, the amount of 
the indemnity 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’s fees and other ex-
penses of representation).
(c) COMPARATIVE NEGLIGENCE.—If a loss described 
in subsection (a) results in whole or in part from the neg-
ligence or failure to act in good faith on the part of an 
indemnified party, then that party’s indemnification under 
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 OR 
SUBSTITUTE CHECK.—
(1) IN
GENERAL.—If the indemnifying bank 
produces the original check or substitute check, the 
indemnifying bank shall—
(A) be liable only for losses covered by the 
indemnity that are incurred up to the time the 
original check or substitute check 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
IM-
PLIED WARRANTY.—The production of the original 
check or substitute check in accordance with para-
graph (1) by an indemnifying bank shall not absolve 
the bank from any liability on a warranty estab-
lished 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.—Subject to subsection (f), a 
customer who is a consumer may make a claim for 
expedited recredit from the bank that holds the cus-
tomer’s account with respect to a substitute check if 
the customer asserts in good faith that—
(A) the bank charged the customer’s ac-
count for a substitute check that was provided 
to the customer; 
(B) either—
(i) the check was not properly charged 
to, or chargeable against, such account; or 
(ii) the customer has a warranty claim 
with respect to such substitute check; 
(C) the customer suffered a resulting loss; 
and 
(D) the production of the original check or 
substitute 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 customer account may 
be submitted by a customer before the end of the 
30-day period beginning on the later of—
(A) the date on which the customer 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 customer. 
(3) EXTENSION
UNDER
EXTENUATING
CIR-
CUMSTANCES.—If the customer’s ability to submit 
the claim within the 30-day period referred to in 
paragraph (2) is delayed due to extenuating cir-
cumstances, including extended travel or the illness 
of the customer, the 30-day period may be extended 
for a total of not to exceed 30 additional days, in 
accordance with regulations prescribed by the Board. 
(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 customer shall provide to the 
bank that holds the customer account of such cus-
tomer the following: 
(A) A description of the claim, including 
an explanation of—
(i) why the substitute check was not 
properly charged to, or chargeable against, 
the customer’s account; or 
(ii) the warranty claim with respect to 
such check. 
(B) A statement that the customer suf-
fered a loss and an estimate of the amount of 
the loss. 
(C) The reason why production of the 
original check or substitute check is necessary 
to determine the validity of the charge to the 
customer’s account or the warranty claim.
(D) Sufficient information to identify the 
substitute check and to investigate the claim. 
(2) CLAIM IN WRITING.—The bank holding the 
customer account that is the subject of a claim by 
the customer under subsection (a) may, in the dis-
cretion of the bank, require the customer to submit 
the information required under paragraph (1) in 
writing. 
(c) RECREDIT TO CUSTOMER.—
(1) PROMPT ACTION REQUIRED.—If a customer 
submits a claim to a bank under subsection (a) (with 
respect to a substitute check) that meets the re-
quirements of subsection (b), the bank shall, by the 
end of the 10th business day following the banking 
day on which the customer submits such claim to 
the bank—
(A) produce the original or substitute 
check and demonstrate to the customer that the 
substitute check was properly charged to the 
customer account of the customer; or 
(B) recredit the customer account of the 
customer in an amount equal to the sum of—
(i) an amount not to exceed the lesser 
of—
(I) the amount of the substitute 
check that was improperly charged 
against the customer account; or 
(II) $2,500; and 
(ii) interest on the amount recredited 
under clause (i). 
(2) RECREDIT
OF
AMOUNTS
IN
EXCESS
OF 
$2,500.—If, in connection with a claim by a customer 
under subsection (a) with respect to a substitute 
check, the bank determines that an amount in excess 
of any amount recredited to the customer account of 
the customer under paragraph (1) was improperly 
charged against the customer account in connection 
with such check, the bank shall credit the customer 
account for such excess amount, plus interest, before 
the end of the business day following the banking 
day on which the bank makes such determination. 
(3) PERIOD
FOR
DETERMINATION.—A bank 
shall make a determination with respect to the valid-
ity of a claim by a customer under subsection (a) for 
purposes of paragraph (2) no later than 45 calendar 
days after the banking day on which the customer 
submits the claim in accordance with subsection (b). 
(d) AVAILABILITY OF RECREDIT.—
(1) NEXT BUSINESS DAY AVAILABILITY.—Ex-
cept as provided in paragraphs (2) and (3), a bank 
that provides a recredit to a customer account under 
subsection (c) shall make the recredited funds avail-
able for withdrawal by the customer by the start of 
the next business day after the business day by 
which the bank is required to recredit the customer 
under subsection (c). 
(2) 
SAFEGUARD
EXCEPTIONS.—Subject 
to 
paragraph (4), a bank may delay availability to a 
customer of a recredit provided to a customer ac-
count under subsection (c) until the start of the 
45th business day following the banking day on 
which the customer submits a claim for such recredit 
in accordance with subsection (b) in any of the fol-
lowing cases: 
(A) NEW ACCOUNTS.—The claim is made 
during the 30-day period beginning on the 
banking day the customer account was estab-
lished. 
(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 banking days during 
the 6-month period ending on the date the
customer submits the claim, the balance in 
the customer account was negative or 
would have become negative if checks or 
other charges to the account had been 
paid, or 
(ii) on 2 or more banking days during 
such 6-month period, the balance in the 
customer 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 cus-
tomer 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) EMERGENCY
CONDITIONS.—If there has 
been an interruption of communications, computer, 
or equipment facilities, or other emergency condition 
beyond the control of the bank, the bank may delay 
availability of a recredit provided to a customer ac-
count under subsection (c) until a reasonable period 
after the emergency has ceased, to the extent the
bank exercises such diligence as the circumstances 
require and complies with paragraph (4). 
(4) NOTICE TO CUSTOMER.—
(A) PROMPT NOTICE OF DELAY IN AVAIL-
ABILITY.—A bank that, in accordance with 
paragraph (2) or (3), delays the availability of 
a recredit under subsection (c) to any customer 
account shall notify the customer of such 
delay—
(i) at the time of the recredit; or 
(ii) if the determination is made after 
the recredit, in as expeditious a manner as 
possible after the delay is put into effect. 
(B) OVERDRAFT FEES.—No bank that, in 
accordance with paragraph (2) or (3), delays 
the availability of a recredit under subsection 
(c) to any customer account may impose any 
overdraft fees with respect to drafts drawn by 
the customer on such recredited amount before 
the end of the 5-day period beginning on the 
date the notice under subparagraph (A) with 
respect to the availability of such amount was 
sent by the bank to the customer. 
(e) REVERSAL OF RECREDIT.—If a bank determines 
that a substitute check for which the bank recredited a
customer account under subsection (c) was in fact prop-
erly charged to the customer account, the bank may re-
verse the recredit to the customer account if, upon revers-
ing the recredited amount, the bank—
(1) notifies the customer of the date and the 
amount of the reversal; 
(2) provides the original check or the substitute 
check to the customer; and 
(3) provides the customer with an explanation 
of the basis for the determination by the bank that 
the substitute check had been properly charged, in-
cluding copies of any information or documents on 
which the bank relied in making such determination. 
(f) PRESERVATION
OF RIGHTS.—In any case de-
scribed in subparagraph (A) and (B) of subsection (a)(1) 
involving a substitute check, the customer shall have the 
rights and protections provided under part 229 of title 12 
of the Code of Federal Regulations, as in effect on the 
date of the enactment of this Act, the Uniform Commer-
cial Code, and any other applicable Federal or State law 
that would apply in such case had the customer been pro-
vided the original check. 
(g) SCOPE OF APPLICATION.—This section shall only 
apply to customers who are consumers.
SEC. 7. EXPEDITED RECREDIT PROCEDURES FOR BANKS. 
(a) RECREDIT CLAIMS.—
(1) IN GENERAL.—A bank may make a claim 
against an indemnifying bank for expedited recredit 
for which that bank is indemnified if—
(A) the claimant bank (or a bank it has in-
demnified) has received a claim for expedited 
recredit from a customer under section 6 with 
respect to such substitute check or would have 
been subject to such a claim had the customer’s 
account been charged; 
(B) the claimant bank has suffered a re-
sulting loss or is obligated to recredit a cus-
tomer account under section 6 with respect to 
such check; and 
(C) production of the original check or 
substitute check is necessary to determine the 
validity 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.
(3) CLAIMANT BANK DEFINED.—For purposes 
of this section, the term ‘‘claimant bank’’ means a 
bank which submits a claim under this subsection to 
an indemnifying bank. 
(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 provide to 
the indemnifying bank the following: 
(A) A description—
(i) of the claim, including an expla-
nation of why the substitute check cannot 
be properly charged to the customer ac-
count; or 
(ii) a description of the warranty 
claim. 
(B) A statement that the claimant bank 
has suffered a loss or is obligated to recredit a 
customer’s account under section 6, together 
with an estimate of the amount of the loss or 
recredit. 
(C) The reason why production of the 
original check or substitute check is necessary 
to determine the validity of the charge to the 
customer account or the warranty claim.
(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 forward collection or 
returned checks. 
(3) CLAIM IN WRITING.—At the request of the 
indemnifying bank, the claimant bank shall provide 
a copy of any written claim submitted by a customer 
in accordance with section 6(b), if the claimant bank 
has obtained such customer’s claim in writing. 
(c) RECREDIT BY INDEMNIFYING BANK.—
(1) PROMPT ACTION REQUIRED.—No later than 
10 business days after the business day an indem-
nifying bank receives a claim under subsection (a)
nifying bank any amount previously advanced by the 
indemnifying bank in connection with such sub-
stitute check. 
(d) PRODUCTION
OF ORIGINAL CHECK
OR SUB-
STITUTE CHECK GOVERNED BY SECTION 5(d).—If the in-
demnifying bank provides the claimant bank with the 
original check or substitute check, section 5(d) shall gov-
ern 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. 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 
under this Act, or any regulation prescribed pursu-
ant 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; 
(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 party incurs 
damages that resulted in whole or in part from that par-
ty’s negligence or failure to act in good faith, then the 
amount of any liability due to that party under subsection 
(a) shall be reduced in proportion to the amount of neg-
ligence or bad faith attributable to that party. 
SEC. 9. 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 CUSTOMER.—A timely 
claim by a customer under section 6 for expedited recredit 
also constitutes timely notice of a claim by the customer 
for purposes of subsection (b). 
SEC. 10. CONSUMER AWARENESS. 
(a) IN GENERAL.—The Board shall develop and pre-
pare a brief document on substitute checks for distribution 
by banks to customers which contains—
(1) a description of the process of check substi-
tution and how the process may be different than 
the check clearing process the customer is familiar 
with;
(2) a description of the benefits of check substi-
tution, including expedited funds availability for the 
customer, and a notice that shorter check processing 
times, through check substitution, will reduce the 
float a consumer may currently be taking advantage 
of, however ill-advised such a practice may be; and 
(3) a description of the claim for recredit proc-
ess established under section 6 when the customer 
believes in good faith that a substitute check was 
not properly charged to, or chargeable against, the 
customer’s account. 
(b) DISTRIBUTION.—
(1) IN GENERAL.—Each bank shall distribute 
to each existing and potential customer of the bank, 
after the effective date of this Act, the document 
prepared by the Board pursuant to subsection (a). 
(2) 1ST MAILING.—With respect to existing cus-
tomers of the bank as of the effective date of this 
Act, the bank shall meet the requirements of para-
graph (1) by including the document prepared by 
the Board in the first regularly scheduled mailing to 
such customers after such effective date. 
SEC. 11. 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. 12. 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.—No 
provision of this Act other than a provision of section 7 
may be varied by agreement of any person. 
SEC. 13. REGULATIONS. 
The Board may, by regulation clarify or otherwise im-
plement the provisions of this Act and may modify the 
requirements imposed by this Act with respect to sub-
stitute checks generally to further the purposes of this 
Act, including reducing risk, accommodating technological 
or other developments, and alleviating undue compliance 
burdens. 
SEC. 14. EFFECTIVE DATE. 
This Act shall take effect on January 1, 2006.
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