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Public Law 108–100 108th Congress
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.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the ‘‘Check Clearing for the 21st Century Act’’ or the ‘‘Check 21 Act’’.
(b) TABLE OF CONTENTS.—The table of contents of this Act is as follows:
Sec. 1. Short title; table of contents.
Sec. 2. Findings; purposes.
Sec. 3. Definitions.
Sec. 4. General provisions governing substitute checks. Sec. 5. Substitute check warranties.
Sec. 6. Indemnity.
Sec. 7. Expedited recredit for consumers.
Sec. 8. Expedited recredit procedures for banks.
Sec. 9. Delays in an emergency.
Sec. 10. Measure of damages.
Sec. 11. Statute of limitations and notice of claim.
Sec. 12. Consumer awareness.
Sec. 13. Effect on other law.
Sec. 14. Variation by agreement.
Sec. 15. Regulations.
Sec. 16. Study and report on funds availability.
Sec. 17. Statistical reporting of costs and revenues for transporting checks between
Federal Reserve banks.
Sec. 18. Evaluation and report by the Comptroller General. Sec. 19. Depositary services efficiency and cost reduction. Sec. 20. Effective date.
SEC. 2. FINDINGS; PURPOSES.
(a) 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 System to consider establishing regula- tions requiring Federal reserve banks and depository institu- tions 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, including the receipt, payment, collection, and clearing of checks, and related functions of the payment system pertaining to checks; and
12 USC 5001.
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(B) directed that the exercise of such authority by the Board superseded any State law, including the Uniform Commercial Code, as in effect in any State.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 in 2003 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 establishing such a process.
(b) PURPOSES.—The purposes of this Act are as follows:
(1) To facilitate check truncation by authorizing substitute
checks.
(2) To foster innovation in the check collection system
without mandating receipt of checks in electronic form.
(3) To improve the overall efficiency of the Nation’s pay-
ments system.
SEC. 3. 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 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 Expedited Funds Availability
Act).
(3) BANKING TERMS.—
(A) COLLECTING BANK.—The term ‘‘collecting bank’’ means any bank handling a check for collection except the paying bank.
(B) DEPOSITARY BANK.—The term ‘‘depositary 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 transferred for deposit in an account at such bank, even if the check is physically received and indorsed first by another bank.
(C) PAYING BANK.—The term ‘‘paying bank’’ means—
(i) the bank by which a check is payable, 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 collec- tion.
(D) RETURNING BANK.—
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PUBLIC LAW 108–100—OCT. 28, 2003 117 STAT. 1179
(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 provi- sion 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 Uniform Commercial Code.
(4) BOARD.—The term ‘‘Board’’ means the Board of Gov- ernors 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 Avail- ability 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 handled 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 collec-
tion, draws the check on a consumer account; or
(B) with respect to a check handled for return, 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 ‘‘forward 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 ‘‘indemnifying bank’’ means a bank that is providing an indemnity under section 6 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 number, account number, check number, check amount, and other information, that are printed near the bottom 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 company, partnership, government unit or instrumentality, trust, or any other entity or organiza- tion.
(15) RECONVERTING BANK.—The term ‘‘reconverting bank’’ means—
(A) the bank that creates a substitute check; or
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12 USC 5003.
PUBLIC LAW 108–100—OCT. 28, 2003
(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 ‘‘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 generally applicable industry standards for substitute checks to facilitate the processing of sub- stitute checks;
(C) conforms, in paper stock, dimension, and otherwise, with generally applicable industry 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) 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 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 Commercial Code.
SEC. 4. GENERAL PROVISIONS GOVERNING SUBSTITUTE CHECKS.
(a) NO AGREEMENT REQUIRED.—A person may deposit, 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 5 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 endorse- ments 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 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
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PUBLIC LAW 108–100—OCT. 28, 2003 117 STAT. 1181
previous reconverting bank identifications in conformance with gen- erally 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, including any provision relating to the protection of customers, of part 229 of title 12 of the Code of Federal Regula- tions, the Uniform 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 inconsistent with this Act.
SEC. 5. SUBSTITUTE CHECK WARRANTIES.
A bank that transfers, presents, or returns a substitute check and receives consideration for the check warrants, as a matter of law, to the transferee, any subsequent collecting or returning bank, the depositary bank, the drawee, the drawer, the payee, the depositor, and any endorser (regardless of whether the war- rantee 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 requirements for legal equivalence under section 4(b); and
(2) no depositary bank, drawee, drawer, or endorser will receive presentment or return of the substitute 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, or endorser will be asked to make a payment based on a check that the bank, drawee, drawer, or endorser has already paid.
SEC. 6. INDEMNITY.
(a) INDEMNITY.—A reconverting bank and each bank that subse- quently transfers, presents, or returns a substitute 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 applicable, to the extent of any loss incurred by any recipient of a substitute check if that loss occurred due to the receipt of a substitute check instead of the original check.
(b) INDEMNITY AMOUNT.—
(1) AMOUNT IN EVENT OF BREACH OF WARRANTY.—The
amount of the indemnity under subsection (a) shall be the amount of any loss (including costs and reasonable attorney’s fees and other expenses of representation) proximately caused by a breach of a warranty provided under section 5.
(2) AMOUNT IN ABSENCE OF BREACH OF WARRANTY.—In the absence of a breach of a warranty provided under section 5, the amount of the indemnity 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 reason- able attorney’s fees and other expenses of representation).
(c) COMPARATIVE NEGLIGENCE.—
(1) IN GENERAL.—If a loss described in subsection (a) results
in whole or in part from the negligence or failure to act in good faith on the part of an indemnified party, then that
12 USC 5004.
12 USC 5005.
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party’s indemnification under this section shall be reduced in proportion to the amount of negligence or bad faith attributable to that party.
(2) RULE OF CONSTRUCTION.—Nothing in this subsection reduces the rights of a consumer or any other person under the Uniform Commercial Code or other applicable provision of Federal or State law.
(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 otherwise 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 incurred up to the time that the original check or copy 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 IMPLIED WAR-
RANTY.—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 sub-
rogated 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 attempt to recover from another party based on a warranty or other claim.
(3) DUTY OF INDEMNIFIED PARTY.—Each indemnified party shall have a duty to comply with all reasonable requests for assistance from an indemnifying bank in connection with any claim the indemnifying bank brings against a warrantor or other party related to a check that forms the basis for the indemnification.
SEC. 7. EXPEDITED RECREDIT FOR CONSUMERS.
(a) RECREDIT CLAIMS.—
(1) IN GENERAL.—A consumer may make a claim for expe-
dited 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 account for a substitute check that was provided to the consumer;
(B) either—
(i) the check was not properly charged to the con-
sumer’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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PUBLIC LAW 108–100—OCT. 28, 2003 117 STAT. 1183
(2) 40-DAY PERIOD.—Any claim under paragraph (1) with respect to a consumer account may be submitted by a consumer before the end of the 40-day period beginning on the later of—
(A) the date on which the financial institution mails or delivers, by a means agreed to by the consumer, the periodic statement of account for such account which con- tains information concerning the transaction giving rise to the claim; or
(B) the date on which the substitute check is made available to the consumer.
(3) EXTENSION UNDER EXTENUATING CIRCUMSTANCES.—If
the ability of the consumer to submit the claim within the 40-day period under paragraph (2) is delayed due to extenuating circumstances, including extended travel or the illness of the consumer, the 40-day period shall be extended by a reasonable amount of time.
(b) PROCEDURES FOR CLAIMS.—
(1) IN GENERAL.—To make a claim for an expedited 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 account; or
(ii) the warranty claim with respect to such check; (B) a statement that the consumer suffered a loss
and an estimate of the amount of the loss;
(C) the reason why production of the original check
or a better copy of the original check is necessary to deter- mine the validity of the charge to the consumer’s account or the warranty claim; and
(D) sufficient information to identify the substitute check and to investigate the claim.
(2) CLAIM IN WRITING.—
(A) IN GENERAL.—The bank holding the consumer account that is the subject of a claim by the consumer under subsection (a) may, in the discretion of the bank, require the consumer to submit the information required under paragraph (1) in writing.
(B) MEANS OF SUBMISSION.—A bank that requires a submission of information under subparagraph (A) may permit the consumer to make the submission electronically, if the consumer has agreed to communicate with the bank in that manner.
(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—
(i) provided to the consumer—
(I) the original check; or
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PUBLIC LAW 108–100—OCT. 28, 2003
(II) 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 at which the original check was truncated; and
(ii) demonstrated to the consumer that the sub-
stitute check was properly charged to the consumer
account.
(2) TIMING OF RECREDIT.—
(A) IN GENERAL.—The bank shall recredit the con- sumer’s account for the amount described in paragraph (1) no later than the end of the business day following the business day on which the bank determines the con- sumer’s claim is valid.
(B) RECREDIT PENDING INVESTIGATION.—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 substitute check that was charged against the consumer account, if any, together with interest 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.—Except as provided
in paragraph (2), a bank that provides a recredit to a consumer account under subsection (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 provided 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 circumstances:
(A) NEW ACCOUNTS.—The claim is made during the 30-day period beginning on the business 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 sub- mits the claim, the balance in the consumer account was negative or would have become negative if checks or other charges to the account had been paid; or
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PUBLIC LAW 108–100—OCT. 28, 2003 117 STAT. 1185
(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 ques- tion or the consumer is of a particular class) that would cause a well-grounded belief in the mind of a reasonable person that the claim is fraudulent.
(3) OVERDRAFT FEES.—No bank that, in accordance with paragraph (2), delays the availability of a recredit under sub- section (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 subsection (c) was in fact properly charged to the consumer 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 following 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 substitute check) that—
(i) 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
(ii) is otherwise sufficient to determine whether or not the consumer’s claim is valid; and
(B) an explanation of the basis for the determination
by the bank that the substitute check was properly charged, including a statement that the consumer may request 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 con- sumer, no later than the business 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 recred- ited amount under subsection (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
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PUBLIC LAW 108–100—OCT. 28, 2003
(B) the date the recredit was reversed.
(4) MODE OF DELIVERY.—A notice described in this sub-
section shall be delivered by United States mail or by any other means through which the consumer 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 Uniform Commercial Code, or from liability for additional damages under section 6 or 10.
(h) CLARIFICATION CONCERNING CONSUMER POSSESSION.—A consumer who was provided a substitute check may make a claim for an expedited recredit under this section with regard to a trans- action involving the substitute 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. 8. 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 7 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 resulting loss or is obligated to recredit a consumer account under section 7 with respect to such substitute check; and
(C) production of the original check, another substitute check, or a better copy of the original 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 paragraph (1) may
be submitted by the claimant bank to an indemnifying bank before the end of the 120-day period 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 subsection (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 7, together with an estimate of the amount of the loss or recredit;
(C) the reason why production of the original check, another substitute check, or a better copy of the original check is necessary to determine the validity of the charge to the consumer account or the warranty claim; and
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PUBLIC LAW 108–100—OCT. 28, 2003 117 STAT. 1187
(D) information sufficient for the indemnifying 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 includes 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 cannot be—
(A) mistaken for the legal equivalent of the check under section 4(b); or
(B) sent or handled by any bank, including the indem- nifying bank, as a forward collection or returned check. (3) CLAIM IN WRITING.—
(A) IN GENERAL.—An indemnifying bank may, in the discretion of the bank, require the claimant bank to submit the information required by paragraph (1) in writing, including a copy of the written or electronically submitted claim, if any, that the consumer provided in accordance with section 7(b).
(B) MEANS OF SUBMISSION.—An indemnifying bank that requires a submission of information under subpara- graph (A) may permit the claimant bank to make the submission electronically, if the claimant bank has agreed to communicate with the indemnifying bank in that manner.
(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 substitute 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 information on the front and back of the original check (as of the time the original check was truncated); or
(ii) is otherwise sufficient to determine the bank’s claim is not valid; and
(B) recredit the claimant bank for the amount of the
claim up to the amount of the substitute check, plus interest if applicable; or
(C) provide information to the claimant bank as to why the indemnifying bank is not obligated to comply with subparagraph (A) or (B).
(2) RECREDIT DOES NOT ABROGATE OTHER LIABILITIES.—
Providing a recredit under this subsection to a claimant bank with respect to a substitute check shall not absolve the indem- nifying bank from liability for claims brought under any other law or from additional damages under section 6 or 10 with respect to such check.
(3) REFUND TO INDEMNIFYING BANK.—If a claimant bank reverses, in accordance with section 7(e), a recredit previously made to a consumer account under section 7(c), or otherwise receives a credit or recredit with regard to such substitute
Deadline.
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117 STAT. 1188 PUBLIC LAW 108–100—OCT. 28, 2003
12 USC 5008.
12 USC 5009.
check, the claimant bank shall promptly refund to any indem- nifying bank any amount previously advanced by the indem- nifying bank in connection with such substitute check.
(d) PRODUCTION OF ORIGINAL CHECK OR A SUFFICIENT COPY
GOVERNED BY SECTION 6(d).—If the indemnifying 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 6(d) shall govern any right of the indemnifying bank to any repayment of any funds the indemnifying bank has recredited to the claimant bank pursuant to subsection (c).
SEC. 9. DELAYS IN AN EMERGENCY.
A delay by a bank beyond the time limits prescribed or per- mitted by this Act shall be 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. 10. MEASURE OF DAMAGES.
(a) LIABILITY.—
(1) IN GENERAL.—Except as provided in section 6, any
person who, in connection with a substitute check, breaches any warranty under this Act or fails to comply with any require- ment 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 reason- able attorney’s fees and other expenses of representation) related to the substitute 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 7 or 8.
(b) COMPARATIVE NEGLIGENCE.—
(1) IN GENERAL.—If a person incurs damages that resulted in whole or in part from the negligence or failure of that person to act in good faith, then the amount of any liability due to that person under subsection (a) shall be reduced in proportion to the amount of negligence or bad faith attributable to that person.
(2) RULE OF CONSTRUCTION.—Nothing in this subsection reduces the rights of a consumer or any other person under the Uniform Commercial Code or other applicable provision of Federal or State law.
SEC. 11. 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 jurisdiction, before the end of the 1-year period beginning on the date the cause of action accrues.
12 USC 5010.
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PUBLIC LAW 108–100—OCT. 28, 2003 117 STAT. 1189
(2) ACCRUAL.—A cause of action accrues as of the date the injured party first learns, or by which such person reason- ably 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 identity of the indemnifying or war- ranting bank, the indemnifying or warranting bank is discharged from liability in an action to enforce a claim under this Act 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 7 for expedited recredit constitutes timely notice of a claim by the consumer for purposes of subsection (b).
SEC. 12. CONSUMER AWARENESS.
(a) IN GENERAL.—Each bank shall provide, in accordance with subsection (b), a brief notice about substitute checks that describes—
(1) how a substitute check is the legal equivalent of an original check for all purposes, including any provision of any Federal or State law, and for all persons, if the substitute check—
(A) accurately represents all of the information on the front and back of the original check as of the time at which the original check was truncated; and
(B) bears the legend: ‘‘This is a legal copy of your check. You can use it in the same way you would use the original check.’’; and
(2) the consumer recredit rights established under section
7 when a consumer believes in good faith that a substitute check was not properly charged to the account of the consumer. (b) DISTRIBUTION.—
(1) EXISTING CUSTOMERS.—With respect to consumers who are customers of a bank on the effective date of this Act and who receive original checks or substitute checks, a bank shall provide the notice described in subsection (a) to each such consumer 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 who will receive original checks or substitute checks, 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 information.
(4) CONSUMERS WHO REQUEST COPIES OF CHECKS.—Notice shall be provided to each consumer of the bank that requests a copy of a check and receives a substitute check, at the time of the request.
(c) MODEL LANGUAGE.—
(1) IN GENERAL.—Before the end of the 9-month period beginning on the date of the enactment of this Act, the Board
Notice.
12 USC 5011.
Deadline. Publication.
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117 STAT. 1190
12 USC 5012.
12 USC 5013.
12 USC 5014.
12 USC 5015.
Deadline.
PUBLIC LAW 108–100—OCT. 28, 2003
shall publish model forms and clauses that a bank may use to describe each of the elements required by subsection (a).
(2) SAFE HARBOR.—
(A) IN GENERAL.—A bank shall be treated as being
in compliance with the requirements of subsection (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 prac- tices.
(B) DELETION OR REARRANGEMENT.—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 REQUIRED.—This section
shall not be construed as requiring any bank to use a model form or clause that the Board prepares under this subsection.
SEC. 13. 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. 14. VARIATION BY AGREEMENT.
(a) SECTION 8.—Any provision of section 8 may be varied by agreement of the banks involved.
(b) NO OTHER PROVISIONS MAY BE VARIED.—Except as provided in subsection (a), no provision of this Act may be varied by agree- ment of any person or persons.
SEC. 15. REGULATIONS.
The Board may prescribe such regulations as the Board deter- mines to be necessary to implement, prevent circumvention or eva- sion of, or facilitate compliance with the provisions of this Act.
SEC. 16. STUDY AND REPORT ON FUNDS AVAILABILITY.
(a) STUDY.—In order to evaluate the implementation and the impact of this Act, the Board shall conduct a study of—
(1) the percentage of total checks cleared in which the paper check is not returned to the paying bank;
(2) the extent to which banks make funds available to consumers for local and nonlocal checks prior to the expiration of maximum hold periods;
(3) the length of time within which depositary banks learn of the nonpayment of local and nonlocal checks;
(4) the increase or decrease in check-related losses over the study period; and
(5) the appropriateness of the time periods and amount limits applicable under sections 603 and 604 of the Expedited Funds Availability Act, as in effect on the date of enactment of this Act.
(b) REPORT TO CONGRESS.—Before the end of the 30-month
period beginning on the effective date of this Act, the Board shall submit a report to the Congress containing the results of the study conducted under this section, together with recommendations for legislative action.
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PUBLIC LAW 108–100—OCT. 28, 2003 117 STAT. 1191
SEC. 17. STATISTICAL REPORTING OF COSTS AND REVENUES FOR TRANSPORTING CHECKS BETWEEN RESERVE BANKS.
In the annual report prepared by the Board for the first full calendar year after the date of enactment of this Act and in each of the 9 subsequent annual reports by the Board, the Board shall include the amount of operating costs attributable to, and an esti- mate of the Federal Reserve banks’ imputed revenues derived from, the transportation of commercial checks between Federal Reserve bank check processing centers.
SEC. 18. EVALUATION AND REPORT BY THE COMPTROLLER GENERAL.
(a) STUDY.—During the 5-year period beginning on the date of the enactment of this Act, the Comptroller General of the United States shall evaluate the implementation and administration of this Act, including—
(1) an estimate of the gains in economic efficiency made possible from check truncation;
(2) an evaluation of the benefits accruing to consumers and financial institutions from reduced transportation costs, longer hours for accepting deposits for credit within 1 business day, the impact of fraud losses, and an estimate of consumers’ share of the total benefits derived from this Act; and
(3) an assessment of consumer acceptance of the check truncation process resulting from this Act, as well as any new costs incurred by consumers who had their original checks returned with their regular monthly statements prior to the date of enactment of this Act.
(b) REPORT TO CONGRESS.—Before the end of the 5-year period referred to in subsection (a), the Comptroller General shall submit a report to the Congress containing the findings and conclusions of the Comptroller General in connection with the evaluation con- ducted pursuant to subsection (a), together with such recommenda- tions for legislative and administrative action as the Comptroller General may determine to be appropriate.
SEC. 19. DEPOSITARY SERVICES EFFICIENCY AND COST REDUCTION.
(a) FINDINGS.—The Congress finds as follows:
(1) The Secretary of the Treasury has long compensated
financial institutions for various critical depositary and finan- cial agency services provided for or on behalf of the United States by—
(A) placing large balances, commonly referred to as ‘‘compensating balances’’, on deposit at such institutions; and
(B) using imputed interest on such funds to offset charges for the various depositary and financial agency services provided to or on behalf of the Government.
(2) As a result of sharp declines in interest rates over
the last few years to record low levels, or the public debt outstanding reaching the statutory debt limit, the Department of the Treasury often has had to dramatically increase or decrease the size of the compensating balances on deposit at these financial institutions.
(3) The fluctuation of the compensating balances, and the necessary pledging of collateral by financial institutions to secure the value of compensating balances placed with those institutions, have created unintended financial uncertainty for
12 USC 5016.
12 USC 5017. Effective date.
Deadline.
12 USC 5018.
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117 STAT. 1192
PUBLIC LAW 108–100—OCT. 28, 2003
the Secretary of the Treasury and for the management by financial institutions of their cash and securities.
(4) It is imperative that the process for providing financial services to the Government be transparent, and provide the information necessary for the Congress to effectively exercise its appropriation and oversight responsibilities.
(5) The use of direct payment for services rendered would strengthen cash and debt management responsibilities of the Secretary of the Treasury because the Secretary would no longer need to dramatically increase or decrease the level of such balances when interest rates fluctuate sharply or when the public debt outstanding reaches the statutory debt limit.
(6) An alternative to the use of compensating balances, such as direct payments to financial institutions, would ensure that payments to financial institutions for the services they provide would be made in a more predictable manner and could result in cost savings.
(7) Limiting the use of compensating balances could result in a more direct and cost-efficient method of obtaining those services currently provided under compensating balance arrangements.
(8) A transition from the use of compensating balances to another compensation method must be carefully managed to prevent higher-than-necessary transitional costs and enable participating financial institutions to modify their planned investment of cash and securities.
(b) AUTHORIZATION OF APPROPRIATIONS FOR SERVICES REN-
DERED BY DEPOSITARIES AND FINANCIAL AGENCIES OF THE UNITED STATES.—There are authorized to be appropriated for fiscal years beginning after fiscal year 2003 to the Secretary of the Treasury such sums as may be necessary for reimbursing financial institu- tions in their capacity as depositaries and financial agents of the United States for all services required or directed by the Secretary of the Treasury, or a designee of the Secretary, to be performed by such financial institutions on behalf of the Secretary of the Treasury or another Federal agency, including services rendered before fiscal year 2004.
(c) ORDERLY TRANSITION.—
(1) IN GENERAL.—As appropriations authorized in sub-
section (b) become available, the Secretary of the Treasury shall promptly begin the process of phasing in the use of the appropriations to pay financial institutions serving as depositaries and financial agents of the United States, and transitioning from the use of compensating balances to fund these services.
(2) POST-TRANSITION USE LIMITED TO EXTRAORDINARY CIR- CUMSTANCES.—
(A) IN GENERAL.—Following the transition to the use of the appropriations authorized in subsection (b), the Sec- retary of the Treasury may use the compensating balances to pay financial institutions serving as depositaries and financial agents of the United States only in extraordinary situations where the Secretary determines that they are needed to ensure the fiscal operations of the Government continue to function in an efficient and effective manner.
(B) REPORT.—Any use of compensating balances pursu- ant to subparagraph (A) shall promptly be reported by
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PUBLIC LAW 108–100—OCT. 28, 2003 117 STAT. 1193
the Secretary of the Treasury to the Committee on Finan- cial Services of the House of Representatives and the Com- mittee on Banking, Housing, and Urban Affairs of the Senate.
(3) REQUIREMENTS FOR ORDERLY TRANSITION.—In transitioning to the use of the appropriations authorized in subsection (b), the Secretary of the Treasury shall take such steps as may be appropriate to—
(A) prevent abrupt financial disruption to the functions of the Department of the Treasury or to the participating financial institutions; and
(B) maintain adequate accounting and management controls to ensure that payments to financial institutions for their banking services provided to the Government as depositaries and financial agents are accurate and that the arrangements last no longer than is necessary.
(4) REPORTS REQUIRED.—
(A) ANNUAL REPORT.—
(i) IN GENERAL.—For each fiscal year, the Secretary
of the Treasury shall submit a report to the Congress on the use of compensating balances and on the use of appropriations authorized in subsection (b) during that fiscal year.
(ii) INCLUSION IN BUDGET.—The report required under clause (i) may be submitted as part of the budget submitted by the President under section 1105 of title 31, United States Code, for the following fiscal year and if so, the report shall be submitted concurrently to the Committee on Financial Services of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate.
(B) FINAL REPORT FOLLOWING TRANSITION.—
(i) IN GENERAL.—Following completion of the transition from the use of compensating balances to the use of the appropriations authorized in subsection (b) to pay financial institutions for their services as depositaries and financial agents of the United States, the Secretary of the Treasury shall submit a report on the transition to the Committee on Financial Serv- ices of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate.
(ii) CONTENTS OF REPORT.—The report submitted under clause (i) shall include a detailed analysis of—
(I) the cost of transition;
(II) the direct costs of the services being paid from the appropriations authorized in subsection (b); and
(III) the benefits realized from the use of direct payment for such services, rather than the use of compensating balance arrangements.
(d) TECHNICAL AMENDMENT.—The second undesignated para- graph of section 16 of the Federal Reserve Act (12 U.S.C. 412) is amended—
(1) in the third sentence, by inserting ‘‘or any other asset of a Federal reserve bank’’ before the period at the end; and (2) in the last sentence, by inserting ‘‘, or are otherwise
held by or on behalf of,’’ after ‘‘in the vaults of’’.
Deadlines.
117 STAT. 1194 PUBLIC LAW 108–100—OCT. 28, 2003
12 USC 5001 note.
(e) EFFECTIVE DATE.—Notwithstanding section 20, this section shall take effect on the date of the enactment of this Act.
SEC. 20. EFFECTIVE DATE.
This Act shall take effect at the end of the 12-month period beginning on the date of the enactment of this Act, except as otherwise specifically provided in this Act.
Approved October 28, 2003.
LEGISLATIVE HISTORY—H.R. 1474 (S. 1334):
HOUSE REPORTS: Nos. 108–132 (Comm. on Financial Services) and 108–291 (Comm. of Conference).
SENATE REPORTS: No. 108–79 accompanying S. 1334 (Comm. on Banking, Hous- ing, and Urban Affairs).
CONGRESSIONAL RECORD, Vol. 149 (2003):
June 5, considered and passed House.
June 26, considered and passed Senate, amended, in lieu of S. 1334. Oct. 8, House agreed to conference report.
Oct. 15, Senate agreed to conference report.
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 39 (2003): Oct. 28, Presidential statement.
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