IIB 
108TH CONGRESS 
1ST SESSION H. R. 1474
IN THE SENATE OF THE UNITED STATES 
JUNE 5, 2003
Received; read twice and referred to the Committee on Banking, Housing, and 
Urban Affairs 
AN ACT 
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.
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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’’ or the ‘‘Check 
21 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thority by the Board superseded any State law, 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.
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(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—
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(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 ‘‘claim-
ant bank’’ means a bank that submits a claim 
for recredit 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 ‘‘de-
positary 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 re-
ceived 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 ‘‘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.
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(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.
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(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.
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(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, except as provided under gen-
erally applicable industry standards for sub-
stitute checks to facilitate the processing of 
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.
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(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
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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.
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(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 provi-
sion relating to the protection of customers, of part 229 
of title 12 of the Code of Federal Regulations, the Uni-
form Commercial 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 incon-
sistent 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 war-
rants, as a matter of law, 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 check 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 the bank, drawee, drawer,
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or endorser will be asked to make a payment based 
on a check that the bank, drawee, drawer, or en-
dorser has already paid. 
SEC. 5. INDEMNITY. 
(a) INDEMNITY.—A reconverting bank and each bank 
that subsequently transfers, presents, or returns a sub-
stitute check in any electronic or paper form, and receives 
consideration for such transfer, presentment, or return 
shall indemnify 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), as appli-
cable, to the extent of any loss incurred by any recipient 
of a substitute check if that loss occurred due to the re-
ceipt 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 (includ-
ing costs and reasonable attorney’s fees and other 
expenses of representation) proximately caused by a 
breach of a warranty provided under section 4. 
(2) AMOUNT IN ABSENCE OF BREACH OF WAR-
RANTY.—In the absence of a breach of a warranty
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provided under section 4, 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’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 
COPY.—
(1) IN
GENERAL.—If the indemnifying bank 
produces 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 front and back of the original check (as of the 
time the original check was truncated) or is other-
wise 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 in-
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curred up to the time the original check or such 
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 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 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
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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).
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(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—
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(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
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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—
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(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
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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
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$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).
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(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
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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.
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(h) CLARIFICATION CONCERNING CONSUMER POS-
SESSION.—A consumer who was provided a substitute 
check may make a claim for an expedited recredit under 
this section with regard to a transaction involving the sub-
stitute check whether or not the consumer is in possession 
of the substitute check. 
(i) 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 that the 
claimant bank has indemnified) has received a 
claim for expedited recredit from a consumer 
under section 6 with respect to a substitute 
check or would have been subject to such a 
claim had the consumer’s account been charged; 
(B) the claimant bank has suffered a re-
sulting loss or is obligated to recredit a con-
sumer account under section 6 with respect to 
such substitute check; and 
(C) production of the original check, an-
other substitute check, or a better copy of the
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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;
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(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
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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).
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(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).
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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-
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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.
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(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.—
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(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-
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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
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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
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the Federal Reserve Act (12 U.S.C. 248a(b)) is amend-
ed—
(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: 
JEFF TRANDAHL, 
Clerk.