OCC 2004-38 
OCC BULLETIN
Subject: 12 CFR 229 (Regulation CC):
Availability of Funds and Collection of Checks                                                                  
Description: Final Rule Implementing Check Clearing
for the 21st Century Act
Date:  August 25, 2004 


TO:  Chief Executive Officers and Compliance Officers of All
     National Banks, Federal Branches and Agencies, Department
     and Division Heads, and All Examining Personnel

On July 26, 2004, the Federal Reserve Board (Board) released
final amendments to Regulation CC and its commentary to implement
the Check Clearing for the 21st Century Act (Check 21 Act), which
was enacted on October 28, 2003, and becomes effective on October
28, 2004. The amendments were published as a final rule in the
Federal Register on August 4, 2004.

These amendments set forth the requirements of the Check 21 Act
that apply to banks, a model consumer awareness disclosure and
other model notices, and indorsement and identification
requirements for substitute checks. The final amendments also
clarify some existing provisions of the rule and commentary.

To facilitate check truncation and electronic check exchange, the
Check 21 Act authorizes a new negotiable instrument called a
"substitute check."  A substitute check is a paper reproduction
of the original check that contains an image of the front and
back of the original check and can be processed just like the
original check.  The Check 21 Act provides that a properly
prepared substitute check is the legal equivalent of the original
check for all purposes.  The Check 21 Act does not require any
bank to create substitute checks or to accept checks
electronically.  It includes new warranties, an indemnity, and
expedited recredit procedures that protect substitute check
recipients.

Banks should note that even if they choose not to create
substitute checks, they will be subject to new disclosure
requirements if they provide paid checks to consumer customers
with periodic account statements or if they otherwise provide
substitute checks to a consumer customer.  This notice must state
that a substitute check is the legal equivalent of the original
check and describe the recredit rights that apply when a consumer
believes a substitute check was not properly charged to their
account.  Banks must provide this disclosure to consumer
customers who receive paid original or paid substitute checks in
their periodic statements no later than the bank's first
regularly scheduled communication after October 28, 2004.  For
new customers after that date, the notice must be provided when a
customer relationship begins.  Additionally, the disclosure must
be provided each time a consumer receives a substitute check in
response to requests for an original check or a copy of a check
or when a substitute check is given as a returned item.

The amendments to Regulation CC contain model language that banks
should consider in developing their customer disclosures.  Use of
the model language for the Substitute Check Policy Disclosure
constitutes compliance with the disclosure requirements so long
as the information disclosed accurately describes the bank's
policies and practices.

While not required by the final rule, banks may want to take this
opportunity to advise customers that the Check 21 Act and other
changes in the payments systems are likely to cause customer
checks to clear more rapidly than previously and, thereby, reduce
customer check "float."

This rule is effective on October 28, 2004, except for model form
C-5A in Appendix C, which is effective immediately, and paragraph
(4) of Appendix D, which is effective on January 1, 2006.

Questions may be directed to your OCC supervisory office or the
Compliance Division at (202) 874-4428.



___________________________________
Ann F. Jaedicke
Deputy Comptroller for Compliance

Attachment: 69 FR 47290
[http://www.occ.treas.gov/fr/fedregister/69fr47290.pdf]