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6500 - Consumer Protection
Appendix E to Part 229--Commentary
I. Introduction
A. Background
1. The Board interpretations, which are labeled "Commentary"
and follow each section of Regulation CC (12 CFR Part 229), provide
background material to explain the Board's intent in adopting a
particular part of the regulation; the Commentary also provides
examples to aid in understanding how a particular requirement is to
work. Under section 611(e) of the Expedited Funds Availability Act (12
U.S.C. 4010(e)), no provision of section 611 imposing any liability
shall apply to any act done or omitted in good faith conformity with
any rule, regulation, or interpretation thereof by the Board of
Governors of the Federal Reserve System, notwithstanding the fact that
after such act or omission has occurred, such rule, regulation, or
interpretation is amended, rescinded, or determined by judicial or
other authority to be invalid for any reason. The Commentary is an
"interpretation" of any regulation by the Board within the
meaning of section 611.
II. Section 229.2.
Definitions.
A. Background
1. Section 229.2 defines the terms used in the regulation. For the
most part, terms are defined as they are in section 602 of the
Expedited Funds Availability Act (12 U.S.C. 4001). The Board has made a
number of changes for the sake of clarity, to conform the terminology
to that which is familiar to the banking industry, to define terms that
are not defined in the EFA Act, and to carry out the purposes of the
EFA Act. The Board also has incorporated by reference the definitions
of the Uniform Commercial Code where appropriate. Some of Regulation
CC's definitions are self-explanatory and therefore are not discussed
in this Commentary.
B. 229.2(a) Account
1. The EFA Act defines account to mean "a demand deposit account
or similar transaction account at a depository institution." The
regulation defines account, for purposes other than subpart D, in terms
of the definition of "transaction account" in the Board's
Regulation D (12 CFR part 204). This definition of account, however,
excludes certain deposits, such as nondocumentary obligations (see 12
CFR 204.2(a)(1)(vii)), that are covered under the definition of
"transaction account" in Regulation D. The definition applies to
accounts with general third party payment powers but does not cover
time deposits or savings deposits, including money market deposit
accounts, even though they may have limited third party payment powers.
The Board believes that it is appropriate to exclude these accounts
because of the reference to demand deposits in the EFA Act, which
suggests that the EFA Act is intended to apply only to accounts that
permit unlimited third party transfers.
2. The term account also differs from the definition of transaction
account in Regulation D because the term account refers to accounts
held at banks. Under subparts A and C, the term bank includes not only
any depository institution, as defined in the EFA Act, but also any
person engaged in the business of banking, such as a Federal Reserve
bank, a Federal Home Loan bank, or a private banker that is not subject
to Regulation D. Thus, accounts at these institutions benefit from the
expeditious return requirements of subpart C.
3. Interbank deposits, including accounts of offices of domestic
banks or foreign banks or foreign banks located outside the United
States, and direct and indirect accounts of the United States Treasury
(including Treasury General Accounts and Treasury Tax and Loan
deposits) are exempt from subpart B and, in connection therewith,
subpart A. However,
{{8-31-04 p.7418.41}}interbank
deposits are included as accounts for purposes of subparts C and D and,
in connection therewith, subpart A.
4. The Check 21 Act defines account to mean any deposit account at
a bank. Therefore, for purposes of subpart D and, in connection
therewith, subpart A, account means any deposit, as that term is
defined by § 204.2(a)(1)(i) of Regulation D, at a bank. Many deposits
that are not accounts for purposes of the other subparts of Regulation
CC, such as savings deposits, are accounts for purposes of subpart D.
C. 229.2(b) Automated Clearinghouse (ACH)
1. The Board has defined automated clearinghouse as a facility that
processes debit and credit transfers under rules established by a
Federal Reserve bank operating circular governing automated
clearinghouse items or the rules of an ACH association. ACH credit
transfers are included in the definition of electronic payment.
2. The reference to "debit and credit transfers" does not
refer to the corresponding debit and credit entries that are part of
the same transaction, but to different kinds of ACH payments. In an ACH
credit transfer, the originator orders that its account be debited and
another account credited. In an ACH debit transfer, the originator,
with prior authorization, orders another account to be debited and the
originator's account to be credited.
3. A facility that handles only wire transfers (defined elsewhere)
is not an ACH.
D. 229.2(c) Automated Teller Machine (ATM)
1. ATM is not defined in the EFA Act. The regulation defines an ATM
as an electronic device at which a natural person may make deposits to
an account by cash or check and perform other account transactions.
Point-of-sale terminals, machines that only dispense cash, night
depositories, and lobby deposit boxes are not ATMs within the meaning
of the definition, either because they do not accept deposits of cash
or checks (e.g., point-of-sale terminals and cash dispensers) or
because they only accept deposits (e.g., night depositories and lobby
boxes) and cannot perform other transactions. A lobby deposit box or
similar receptacle in which written payment orders or deposits may be
placed is not an ATM.
2. A facility may be an ATM within this definition even if it is a
branch under state or federal law, although an ATM is not a branch as
that term is used in this regulation.
E. 229.2(d) Available for Withdrawal
1. Under this definition, when funds become available for
withdrawal, the funds may be put to all uses for which the customer may
use actually and finally collected funds in the customer's account
under the customer's account agreement with the bank. Examples of such
uses include payment of checks drawn on the account, certification of
checks, electronic payments, and cash withdrawals. Funds are available
for these uses notwithstanding provisions of other law that may
restrict the use of uncollected funds (e.g.,
18 U.S.C. 1004; 12 U.S.C.
331).
2. If a bank makes funds available to a customer for a specific
purpose (such as paying checks that would otherwise overdraw the
customer's account and be returned for insufficient funds) before the
funds must be made available under the bank's policy or this
regulation, it may nevertheless apply a hold consistent with this
regulation to those funds for other purposes (such as cash
withdrawals). For purposes of this regulation, funds are considered
available for withdrawal even though they are being held by the bank to
satisfy an obligation of the customer other than the customer's
potential liability for the return of the check. For example, a bank
does not violate its obligations under this subpart by holding funds to
satisfy a garnishment, tax levy, or court order restricting
disbursements from the account; or to satisfy the customer's liablility
arising from the certification of a check, sale of a cashier's or
teller's check, guaranty or acceptance of a check, or similar
transaction to be debited from the customer's account.
{{8-31-04 p.7418.42}}
F. 229.2(e) Bank
1. The Act uses the term depository institution, which it defines
by reference to section 19(b)(1)(A)(i) through (vi) of the Federal
Reserve Act (12 U.S.C.
461(b)(1)(A)(i) through (vi)). This regulation uses the term
bank, a term that conforms to the usage the Board has previously
adopted in Regulation J. Bank is also used in articles 4 and 4A of the
Uniform Commercial Code.
2. Bank is defined to include depository institutions, such as
commercial banks, savings banks, savings and loan associations, and
credit unions as defined in the EFA Act, and U.S. branches and agencies
of foreign banks. For purposes of subpart B, the term does not include
corporations organized under section 25A of the Federal Reserve Act,
12 U.S.C. 611--631 (Edge
corporations) or corporations having an agreement or undertaking with
the Board under section 25 of the Federal Reserve Act, 12 U.S.C.
601--604a (agreement corporations). For purposes of subparts C and D,
and in connection therewith, Subpart A, any Federal Reserve bank,
Federal Home Loan bank, or any other person engaged in the business of
banking is regarded as a bank. The phrase "any other person engaged
in the business of banking" is derived from U.C.C. 1--201(4), and is
intended to cover entities that handle checks for collection and
payment, such as Edge and agreement corporations, commercial lending
companies under 12 U.S.C. 3101,
certain industrial banks, and private bankers, so that virtually all
checks will be covered by the same rules for forward collection and
return, even though they may not be covered by the requirements of
subpart B. For the purposes of subparts C and D, and in connection
therewith, subpart A, the term also may include a state or a unit of
general local government to the extent that it pays warrants or other
drafts drawn directly on the state or local government itself, and the
warrants or other drafts are sent to the state or local government for
payment or collection.
3. Unless otherwise specified, the term bank includes all of a
bank's offices in the United States. The regulation does not cover
foreign offices of U.S. banks.
4. For purposes of subpart D and, in connection therewith, subpart
A, the term bank also includes the Treasury of the United States and
the United States Postal Service to the extent that they act as paying
banks because the Check 21 Act includes these two entities in the
definition of the term bank to the extent that they act as payors.
G. 229.2(f) Banking Day and (g) Business Day
1. The EFA Act defines business day as any day excluding Saturdays,
Sundays, and legal holidays. Legal holiday, however, is not defined,
and the variety of local holidays, together with the practice of some
banks to close midweek, makes the Act's definition difficult to apply.
The Board believes that two kinds of business days are relevant. First,
when determining the day when funds are deposited or when a bank must
perform certain actions (such as returning a check), the focus should
be on a day that the bank is actually open for business. Second, when
counting days for purposes of determining when funds must be available
under the regulation or when notice of nonpayment must be received by
the depositary bank, there would be confusion and uncertainty in trying
to follow the schedule of a particular bank, and there is less need to
identify a day when a particular bank is open. Most banks that act as
intermediaries (large correspondents and Federal Reserve banks) follow
the same holiday schedule. Accordingly, the regulation has two
definitions: Business day generally follows the standard Federal
Reserve bank holiday schedule (which is followed by most large banks),
and banking day is defined to mean that part of a business day on which
a bank is open for substantially all of its banking activities.
2. The definition of banking day corresponds to the definition of
banking day in U.C.C. 4--104(a)(3), except that a banking day is
defined in terms of a business day. Thus, if a bank is open on
Saturday, Saturday might be a banking day for purposes of the U.C.C.,
but it would not be a banking day for purposes of Regulation CC because
Saturday is never a business day under the regulation.
3. The definition of banking day is phrased in terms of when "an
office of a bank is open" to indicate that a bank may observe a
banking day on a per-branch basis. A deposit
{{8-31-04 p.7418.43}}made at an ATM or
off-premise facility (such as a remote depository or a lock box) is
considered made at the branch holding the account into which the
deposit is made for the purpose of determining the day of deposit. All
other deposits are considered made at the branch at which the deposit
is received. For example, under § 229.19(a)(1), funds deposited at an
ATM are considered deposited at the time they are received at the ATM.
On a calendar day that is a banking day for the branch or other
location of the depositary bank at which the account is maintained, a
deposit received at an ATM before the ATM's cut-off hour is considered
deposited on that banking day, and a deposit received at an ATM after
the ATM's cut-off hour is considered deposited on the next banking day
of the branch or other location where the account is maintained. On a
calendar day that is not a banking day for the account-holding
location, all ATM deposits are considered deposited on that location's
next banking day. This rule for determining the day of deposit also
would apply to a deposit to an off-premise facility, such as a night
depository or lock box, which is considered deposited when removed from
the facility and available for processing under
§ 229.19(a)(3). If an
unstaffed facility, such as a night depository or lock box, is on
branch premises, the day of deposit is determined by the banking day at
the branch at which the deposit is received, whether or not it is the
branch at which the account is maintained.
H. 229.2(h) Cash
1. Cash means U.S. coins and currency. The phrase in the EFA Act
"including Federal Reserve notes" has been deleted as
unnecessary. (See 31 U.S.C. 5103.)
I. 229.2(i) Cashier's Check
1. The regulation adds to the second item in the Act's definition
of cashier's check the phrase, "on behalf of the bank as drawer,"
to clarify that the term cashier's check is intended to cover only
checks that a bank draws on itself. The definition of cashier's check
includes checks provided to a customer of the bank in connection with
customer deposit account activity, such as account disbursements and
interest payments. The definition also includes checks acquired from a
bank by noncustomers for remittance purposes, such as certain loan
disbursement checks. Cashier's checks provided to customers or others
are often labeled as "cashier's check," "officer's check,"
or "official check." The definition excludes checks that a bank
draws on itself for other purposes, such as to pay employees and
vendors, and checks issued by the bank in connection with a payment
service, such as a payroll or a bill-paying service. Cashier's checks
generally are sold by banks to substitute the bank's credit for the
customer's credit and thereby enhance the collectibility of the checks.
A check issued in connection with a payment service generally is
provided as a convenience to the customer rather than as a guarantee of
the check's collectibility. In addition, such checks are often more
difficult to distinguish from other types of checks than are cashier's
checks as defined by this regulation.
J. 229.2(j) Certified Check
1. The EFA Act defines a certified check as one to which a bank has
certified that the drawer's signature is genuine and that the bank has
set aside funds to pay the check. Under the Uniform Commercial Code,
certification of a check means the bank's signed agreement that it will
honor the check as presented (U.C.C. 3--409). The regulation defines
certified check to include both the EFA Act's and U.C.C.'s definitions.
K. 229.2(k) Check
1. Check is defined in section 602(7) of the EFA Act as a
negotiable demand draft drawn on or payable through an office of a
depository institution located in the United States, excluding noncash
items. The regulation includes six categories of instruments within the
definition of check.
2. The first category is negotiable demand drafts drawn on, or
payable through or at, an office of a bank. As the definition of bank
includes only offices located in the United States, this category is
limited to checks drawn on, or payable through or at, a banking office
located in the United States.
{{8-31-04 p.7418.44}}
3. The EFA Act treats drafts payable through a bank as checks, even
though under the U.C.C. the payable-through bank is a collecting bank
to make presentment and generally is not authorized to make payment
(U.C.C. 4--106(a)). The EFA Act does not expressly address items that
are payable at a bank. This regulation treats both payable-through and
payable-at demand drafts as checks. The Board believes that treating
demand drafts payable at a bank as checks will not have a substantial
effect on the operations of payable-at banks--by far the largest
proportion of payable-at items are not negotiable demand drafts, but
time items, such as commercial paper, bonds, notes, bankers'
acceptances, and securities. These time items are not covered by the
requirements of the EFA Act or this regulation. (The treatment of
payable-through drafts is discussed in greater detail in connection
with the definitions of local check and paying bank.)
4. The second category is checks drawn on Federal Reserve banks and
Federal Home Loan banks. Principal and interest payments on federal
debt instruments often are paid with checks drawn on a Federal Reserve
bank as fiscal agent of the United States, and these fiscal agency
checks are indistinguishable from other checks drawn on Federal Reserve
banks. (See 31 CFR Part 355.) Federal Reserve bank checks also are used
by some banks as substitutes for cashier's or teller's checks.
Similarly, savings and loan associations often use checks drawn on
Federal Home Loan banks as teller's checks. The definition of check
includes checks drawn on Federal Home Loan banks and Federal Reserve
banks because in many cases they are the functional equivalent of
Treasury checks or teller's checks.
5. The third and fourth categories of instrument included in the
definition of check refer to government checks. The Act refers to
checks drawn on the U.S. Treasury, even though these instruments are
not drawn on or payable through an office of a depository institution,
and checks drawn by state and local governments. The Act also gives the
Board authority to define functionally equivalent instruments as
depository checks. 1
Thus, the EFA Act is intended to apply to instruments other than
those that meet the strict definition of check in section 602(7) of the
EFA Act. Checks and warrants drawn by states and local governments
often are used for the purposes of making unemployment compensation
payments and other payments that are important to the recipients.
Consequently, the Board has expressly defined check to include drafts
drawn on the U.S. Treasury and drafts or warrants drawn by a state or a
unit of general local government on itself.
6. The fifth category of instrument included in the definition of
check is U.S. Postal Service money orders. These instruments are
defined as checks because they often are used as a substitute for
checks by consumers, even though money orders are not negotiable under
Postal Service regulations. The Board has not provided specific rules
for other types of money orders; these instruments generally are drawn
on or payable through or payable at banks and are treated as checks on
that basis.
7. The sixth and final category of instrument included in the
definition of check is traveler's checks drawn on or payable through or
at a bank. Traveler's check is defined in paragraph (hh) of this
section.
8. Finally, for the purposes of subparts C and D, and in connection
therewith, subpart A, the definition of check includes nonnegotiable
demand drafts because these instruments are often handled as cash items
in the forward collection process.
9. A substitute check as defined in § 229.2(aaa) is a check for
purposes of Regulation CC and the U.C.C., even if that substitute check
does not meet the requirements for legal equivalence set forth in
§ 229.51(a).
10. The definition of check does not include an instrument payable
in a foreign currency (i.e., other than in United States money as
defined in 31 U.S.C. 5101) or a credit card draft (i.e., a sales draft
used by a merchant or a draft generated by a bank as a result of a cash
advance), or an ACH debit transfer. The definition of check includes a
check that a bank may supply to a customer as a means of accessing a
credit line without the use of a credit card.
{{8-31-04 p.7418.45}}
L. 229.2(l) [Reserved]
M. 229.2(m) Check Processing Region
1. The Act defines this term as "the geographic area served by a
Federal Reserve bank check processing center or such larger area as the
Board may prescribe by regulations." The Board has defined check
processing region as the territory served by one of the Federal Reserve
head offices, branches, or regional check processing centers. Appendix
A includes a list of routing numbers arranged by Federal Reserve bank
office. The definition of check processing region is key to determining
whether a check is considered local or nonlocal.
N. 229.2(n) Consumer Account
1. Consumer account is defined as an account used primarily for
personal, family, or household purposes. An account that does not meet
the definition of consumer account is a nonconsumer account. A clearing
account maintained at a bank directly by a brokerage firm is not a
consumer account, even if the account is used to pay checks drawn by
consumers using the funds in that account. The bank's relationship is
with the brokerage firm, and the account is used by the brokerage firm
to facilitate the clearing of its customers' checks. Because for
purposes of Regulation CC the term account includes only deposit
accounts, a consumer's revolving credit relationship or other line of
credit with a bank is not a consumer account, even if the consumer
draws on such credit lines by using a check. Both consumer and
nonconsumer accounts are subject to the requirements of this
regulation, including the requirement that funds be made available
according to specific schedules and that the bank make specified
disclosures of its availability policies.
Section 229.18(b) (notices at
branch locations) and § 229.18(e) (notice of changes in policy) apply
only to consumer accounts. Section
229.13(g)(2) (one-time exception notice) and
§ 229.19(d) (use of
calculated availability) apply only to nonconsumer accounts.
O. 229.2(o) Depositary Bank
1. The regulation uses the term depositary bank rather than the
term receiving depository institution. Receiving depository institution
is a term unique to the Act, while depositary bank is the term used in
article 4 of the U.C.C. and Regulation J.
2. A depositary bank includes the bank in which the check is first
deposited. If a foreign office of a U.S. or foreign bank sends checks
to its U.S. correspondent bank for forward collection, the U.S.
correspondent is the depositary bank because foreign offices of banks
are not included in the definition of bank.
3. If a customer deposits a check in its account at a bank, the
customer's bank is the depositary bank with respect to the check. For
example, if a person deposits a check into an account at a
nonproprietary ATM, the bank holding the account into which the check
is deposited is the depositary bank even though another bank may
service the nonproprietary ATM and send the check for collection.
(Under § 229.35 the
depositary bank may agree with the bank servicing the nonproprietary
ATM to have the servicing bank place its own indorsement on the check
as the depositary bank. For the purposes of subpart C, the bank
applying its indorsement as the depositary bank indorsement on the
check is the depositary bank.)
4. For purposes of subpart B, a bank may act as both the depositary
bank and the paying bank with respect to a check, if the check is
payable by the bank in which it was deposited, or if the check is
payable by a nonbank payor and payable through or at the bank in which
it was deposited. A bank also is considered a depositary bank with
respect to checks it receives as payee. For example, a bank is a
depositary bank with respect to checks it receives for loan repayment,
even though these checks are not deposited in an account at the bank.
Because these checks would not be "deposited to accounts," they
would not be subject to the availability or disclosure requirements of
Subpart B.
P. 229.2(p) Electronic Payment
1. Electronic payment is defined to mean a wire transfer as defined
in § 229.2(11) or an ACH credit transfer. The EFA Act requires that
funds deposited by wire transfer be made
{{8-31-04 p.7418.46}}available for
withdrawal on the business day following deposit but expressly leaves
the definition of the term wire transfer to the Board. Because ACH
credit transfers frequently involve important consumer payments, such
as wages, the regulation requires that funds deposited by ACH credit
transfers be available for withdrawal on the business day following
deposit.
2. ACH debit transfers, even though they may be transmitted
electronically, are not defined as electronic payments because the
receiver of an ACH debit transfer has the right to return the transfer,
which would reverse the credit given to the originator. Thus, ACH debit
transfers are more like checks than wire transfers. Further, bank
customers that receive funds by originating ACH debit transfers are
primarily large corporations, which generally would be able to
negotiate with their banks for prompt availability.
3. A point-of-sale transaction would not be considered an
electronic payment unless the transaction was effected by means of an
ACH credit transfer or wire transfer.
Q. 229.2(q) Forward Collection
1. Forward collection is defined to mean the process by which a
bank sends a check to the paying bank for collection, including sending
the check to an intermediary collecting bank for settlement, as
distinguished from the process by which the check is returned unpaid.
R. 229.2(r) Local Check
1. Local check is defined as a check payable by or at a local
paying bank, or, in the case of nonbank payors, payable through a local
paying bank. A check payable by a local bank but payable through a
nonlocal bank is a local check. Conversely, a check payable through a
local bank but payable by a nonlocal bank is a nonlocal check. Where
two banks are named on a check and neither is designated as a
payable-through bank, the check is considered payable by either bank
and may be considered local or nonlocal depending on the bank to which
it is sent for payment. Generally, the depositary bank may rely on the
routing number to determine whether a check is local or nonlocal.
Appendix A includes a list of routing numbers arranged by Federal
Reserve bank office to assist persons in determining whether or not
such a check is local. If, however, a check is payable by one bank but
payable through another bank, the routing number appearing on the check
will be that of the payable-through bank, not the paying bank. Many
credit union share drafts and certain other checks payable by banks are
payable through other banks. In such cases, the routing number cannot
be relied on to determine whether the check is local or nonlocal. For
payable-through checks that meet the labeling requirements of
§ 229.36(e), the depositary bank may rely on the four-digit routing
symbol of the paying bank that is printed on the face of the check as
required by that section, e.g., in the title plate, but not on the
first four digits of the payable-through bank's routing number printed
in magnetic ink in the MICR line or in fractional form, to determine
whether the check is local or nonlocal.
S. 229.2(s) Local Paying Bank
1. "Local paying bank" is defined as a paying bank located in
the same check-processing region as the branch, contractual branch, or
proprietary ATM of the depositary bank. For example, a check deposited
at a contractual branch would be deemed local or nonlocal based on the
location of the contractual branch with respect to the location of the
paying bank.
2. Examples.
a. If a check that is payable by a bank that is located in the same
check processing region as the depositary bank is payable through a
bank located in another check processing region, the check is
considered local or nonlocal depending on the location of the bank by
which it is payable even if the check is sent to the nonlocal bank for
collection.
b. The location of the depositary bank is determined by the
physical location of the branch or proprietary ATM at which a check is
deposited, regardless of whether the deposit is made in person, by
mail, or otherwise. For example, if a branch of the depositary
bank
{{8-31-04 p.7418.47}}located in one
check-processing region sends a check that was deposited at that branch
to the depositary bank's central facility in another check-processing
region, and the central facility is in the same check-processing region
as the paying bank, the check is still considered nonlocal.
(See the commentary to the definition of "paying
bank.")
c. If a person deposits a check to an account by mailing or
otherwise sending the check to a facility or office that is not a bank,
the check is considered local or nonlocal depending on the location of
the bank whose indorsement appears on the check as the depositary bank.
T. 229.2(t) Merger Transaction
1. Merger transaction is a term used in subparts B and C in
connection with transition rules for merged banks. It encompasses
mergers, consolidations, and purchase/assumption transactions of the
type that usually must be approved under the Bank Merger Act
(12 U.S.C. 1828(c)) or
similar statutes; it does not encompass acquisitions of a bank under
the Bank Holding Company Act (12 U.S.C.
1842) where an acquired bank maintains its separate corporate
existence.
2. Regulation CC adopts a one-year transition period for banks that
are party to a merger transaction during which the merged banks will
continue to be treated as separate entities. (See
§§ 229.19(g) and
229.40.)
U. 229.2(u) Noncash Item
1. The Act defines the term check to exclude noncash items, and
defines noncash items to include checks to which another document is
attached, checks accompanied by special instructions, or any similar
item classified as a noncash item in the Board's regulation. To qualify
as a noncash item, an item must be handled as such and may not be
handled as a cash item by the depositary bank.
2. The regulation's definition of noncash item also includes checks
that consist of more than a single thickness of paper (except checks
that qualify for handling by automated check processing equipment, e.g.
those placed in carrier envelopes) and checks that have not been
preprinted or post-encoded in magnetic ink with the paying bank's
routing number, as well as checks with documents attached or
accompanied by special instructions. (In the context of this
definition, paying bank refers to the paying bank as defined for
purposes of Subpart C.)
3. A check that has been preprinted or post-encoded with a routing
number that has been retired (e.g., because of a merger) for at least
three years is a noncash item unless the current number is added for
processing purposes by placing the check in an encoded carrier envelope
or adding a strip to the check.
4. Checks that are accompanied by special instructions are also
noncash items. For example, a person concerned about whether a check
will be paid may request the depositary bank to send a check for
collection as a noncash item with an instruction to the paying bank to
notify the depositary bank promptly when the check is paid or
dishonored.
5. For purposes of forward collection, a copy of a check is neither
a check nor a noncash item, but may be treated as either. For purposes
of return, a copy is generally a notice in lieu of return. (See
§§ 229.30(f) and
229.31(f).)
V. 229.2(v) [Reserved]
W. 229.2(w) [Reserved]
X. 229.2(x) [Reserved]
Y. 229.2(y) [Reserved]
Z. 229.2(z) Paying Bank
1. The regulation uses this term in lieu of the Act's
"originating depository institution." For purposes of all
subparts of Regulation CC, the term paying bank includes the bank by
which a check is payable, the payable-at-bank to which a check is sent,
or, if the check is
{{8-31-04 p.7418.48}}payable by a
nonbank payor, the bank through which the check is payable and to which
it is sent for payment or collection. For purposes of subparts C and D,
the term paying bank also includes the payable-through bank and the
bank whose routing number appears on the check, regardless of whether
the check is payable by a different bank, provided that the check is
sent for payment or collection to the payable through bank or the bank
whose routing number appears on the check.
2. Under §§ 229.30 and
229.36(a), a bank designated
as a payable-through bank or payable-at bank and to which the check is
sent for payment or collection is responsible for the expedited return
of checks and notice of nonpayment requirements of subpart C. The
payable-through or payable-at bank may contract with the payor with
respect to its liability in discharging these responsibilities. The
Board believes that the EFA Act makes a clear connection between
availability and the time it takes for checks to be cleared and
returned. Allowing the payable-through bank additional time to forward
checks to the payor and await return or pay instructions from the payor
would delay the return of these checks, increasing the risks to
depositary banks. Subpart C places on payable-through and payable-at
banks the requirements of expeditious return based on the time the
payable-through or payable-at bank received the check for forward
collection.
3. If a check is sent for forward collection based on the routing
number, the bank associated with the routing number is a paying bank
for the purposes of subparts C and D requirements, including notice of
nonpayment, even if the check is not drawn by a customer of that bank
or the check is fraudulent.
4. The phrase "and to which [the check] is sent for payment or
collection" includes sending not only the physical check, but
information regarding the check under a truncation arrangement.
5. Federal Reserve banks and Federal Home Loan banks are also
paying banks under all subparts of the regulation with respect to
checks payable by them, even though such banks are not defined as banks
for purposes of subpart B.
6. In accordance with the Check 21 Act, for purposes of subpart D
and, in connection therewith, subpart A, paying bank includes the
Treasury of the United States or the United States Postal Service with
respect to a check payable by that entity and sent to that entity for
payment or collection, even though the Treasury and Postal Service are
not defined as banks for purposes of subparts B and C. Because the
Federal Reserve Banks act as fiscal agents for the Treasury and the
U.S. Postal Service and in that capacity are designated as presentment
locations for Treasury checks and U.S. Postal Service money orders, a
Treasury check or U.S. Postal Service money order presented to a
Federal Reserve Bank is considered to be presented to the Treasury or
U.S. Postal Service, respectively.
AA. 229.2(aa) Proprietary ATM
1. All deposits at nonproprietary ATMs are treated as deposits of
nonlocal checks, and deposits at proprietary ATMs generally are treated
as deposits at banking offices. The Conference Report on the Act
indicates that the special availability rules for deposits received
through nonproprietary ATMs are provided because "nonproprietary
ATMs today do not distinguish among check deposits or between check and
cash deposits" (H.R. Rep. No. 261, 100th Cong., 1st Sess. at 179
(1987)). Thus, a deposit of any combination of cash and checks at a
nonproprietary ATM may be treated as if it were a deposit of nonlocal
checks, because the depositary bank does not know the makeup of the
deposit and consequently is unable to place different holds on cash,
local check, and nonlocal check deposits made at the ATM.
2. A colloquy between Senators Proxmire and Dodd during the floor
debate on the Competitive Equality Banking Act (133 Cong. Rec. S11289
(Aug. 4, 1987)) indicates that whether a bank operates the ATM is the
primary criterion in determining whether the ATM is proprietary to that
bank. Because a bank should be capable of ascertaining the composition
of deposits made to an ATM operated by that bank, an exception to the
availability schedules is not warranted for these deposits. If more
than one bank meets the "owns or operates" criterion, the ATM is
considered proprietary to the bank that operates it.
{{8-31-04 p.7418.49}}For the purpose
of this definition, the bank that operates an ATM is the bank that puts
checks deposited into the ATM into the forward collection stream. An
ATM owned by one or more banks, but operated by a nonbank servicer, is
considered proprietary to the bank or banks that own it.
3. The EFA Act also includes location as a factor in determining
whether an ATM that is either owned or operated by a bank is
proprietary to that bank. The definition of proprietary ATM includes an
ATM located on the premises of the bank, either inside the branch or on
its outside wall, regardless of whether the ATM is owned or operated by
that bank. Because the EFA Act also defines a proprietary ATM as one
that is "in close proximity" to the bank, the regulation defines
an ATM located within 50 feet of a bank to be proprietary to that bank
unless it is identified as being owned or operated by another entity.
The Board believes that the statutory proximity test was designed to
apply to situations where it would appear to the depositor that the ATM
is run by his or her bank, because of the proximity of the ATM to the
bank. The Board believes that an ATM located within 50 feet of a
banking office would be presumed proprietary to that bank unless it is
clearly identified as being owned or operated by another entity.
BB. 229.2(bb) Qualified Returned Check
1. Subpart C requires the paying bank and returning bank(s) to
return checks in an expeditious manner. The banks may meet this
responsibility by returning a check to the depositary bank by the same
general means used for forward collection of a check from the
depositary bank to the paying bank. One way to speed the return process
is to prepare the returned check for automated processing. Returned
checks can be automated by either the paying bank or a returning bank
by placing the returned check in a carrier envelope or by placing a
strip on the bottom of the returned check and encoding the envelope or
strip with the routing number of the depositary bank, the amount of the
check, and a special return identifier. Qualified returned checks are
identified by placing a "2" in the case of an original check (or
a "5" in the case of a substitute check) in position 44 of the
qualified return MICR line as a return identifier in accordance with
American National Standard Specifications for Placement and Location of
MICR Printing, X9.13 (hereinafter "ANS X9.13") for original
checks or American National Standard Specifications for an Image
Replacement Document--IRD, X9.100--140 (hereinafter "ANS
X9.100--140") for substitute checks.
2. Generally, under the standard of care imposed by
§ 229.38, a paying or
returning bank would be liable for any damages incurred due to
misencoding of the routing number, the amount of the check, or return
identifier on a qualified returned check unless the error was due to
problems with the depositary bank's indorsement. (See also discussion
of § 229.38(c).) A qualified returned check that contains an encoding
error would still be a qualified returned check for purposes of the
regulation.
3. A qualified returned check need not contain the elements of a
check drawn on the depositary bank, such as the name of the depositary
bank. Because indorsements and other information on carrier envelopes
or strips will not appear on a returned check itself, banks will wish
to retain carrier envelopes and/or microfilm or other records of
carrier envelopes or strips with their check records.
CC. 229.2(cc) Returning Bank
1. Returning bank is defined to mean any bank (excluding the paying
bank and the depositary bank) handling a returned check. A returning
bank may or may not be a bank that handled the returned check in the
forward collection process. A returning bank includes a bank that
agrees to handle a returned check for expeditious return to the
depositary bank under § 229.31(a). A returning bank is also a
collecting bank for the purpose of a collecting bank's duty to exercise
ordinary care under U.C.C. 4--202(b) and is analogous to a collecting
bank for purposes of final settlement. (See Commentary to
§ 229.35(b).)
{{8-31-04 p.7418.50}}
DD. 229.2(dd) Routing Number
1. Each bank is assigned a routing number by an agent of the
American Bankers Association. The routing number takes two forms--a
fractional form and a nine-digit form. A paying bank is identified by
both the fractional form routing number (which normally appears in the
upper right hand corner of the check) and the nine-digit form. The
nine-digit routing number of the paying bank generally is printed in
magnetic ink near the bottom of the check (the MICR strip; see ANSI
X9.13--1983). Subpart C requires depositary banks and subsequent
collecting banks to place their routing numbers in nine-digit form in
their indorsements.
EE. 229.2(ee) [Reserved]
FF. 229.2(ff) [Reserved]
GG. 229.2(gg) Teller's Check
1. Teller's check is defined in the EFA Act to mean a check issued
by a depository institution and drawn on another depository
institution. The definition in the regulation includes not only checks
drawn by a bank on another bank, but also checks payable through or at
a bank. This would include checks drawn on a nonbank, as long as the
check is payable through or at a bank. The definition does not include
checks that are drawn by a nonbank on a nonbank even if payable through
or at a bank. The definition includes checks provided to a customer of
the bank in connection with customer deposit account activity, such as
account disbursements and interest payments. The definition also
includes checks acquired from a bank by a noncustomer for remittance
purposes, such as certain loan disbursement checks. The definition
excludes checks used by the bank to pay employees or vendors and checks
issued by the bank in connection with a payment service, such as a
payroll or a bill-paying service. Teller's checks generally are sold by
banks to substitute the bank's credit for the customer's credit and
thereby enhance the collectibility of the checks. A check issued in
connection with a payment service generally is provided as a
convenience to the customer rather than as a guarantee of the check's
collectibility. In addition, such checks are often more difficult to
distinguish from other types of checks than are teller's checks as
defined by this regulation.
HH. 229.2(hh) Traveler's Check
1. The EFA Act and regulation require that traveler's checks be
treated as cashier's, teller's, or certified checks when a new
depositor opens an account. (See § 229.13(a); 12 U.S.C.
4003(a)(1)(C).) The EFA Act does not define traveler's check.
2. One element of the definition states that a traveler's check is
"drawn on or payable through or at a bank." Sometimes traveler's
checks that are not issued by banks do not have any words on them
identifying a bank as drawee or paying agent, but instead bear unique
routing numbers with an 8000 prefix that identifies a bank as paying
agent.
3. Because a traveler's check is payable by, at, or through a bank,
it is also a check for purposes of this regulation. When not subject to
the next-day availability requirement for new accounts, a traveler's
check should be treated as a local or nonlocal check depending on the
location of the paying bank. The depositary bank may rely on the
designation of the paying bank by the routing number to determine
whether local or nonlocal treatment is required.
II. 229.2(ii) Uniform Commercial Code
1. Uniform Commercial Code is defined as the version of the Code
adopted by the individual states. For purposes of uniform citation, all
citations to the U.C.C. in this part refer to the Official Text as
approved by the American Law Institute and the National Conference of
Commissioners on Uniform State Laws.
JJ. 229.2(jj) [Reserved]
KK. 229.2(kk) Unit of General Local Government
1. Unit of general local government is defined to include a city,
county, parish, town, township, village, or other general purpose
political subdivision of a state. The term does not include special
purpose units, such as school districts, water districts, or Indian
nations.
{{12-30-05 p.7418.51}}
LL. 229.2(ll) Wire Transfer
1. The EFA Act delegates to the Board the authority to define the
term wire transfer. The regulation defines wire transfer as an
unconditional order to a bank to pay a fixed or determinable amount of
money to a beneficiary, upon receipt or on a day stated in the order,
that is transmitted by electronic or other means over certain networks
or on the books of banks and that is used primarily to transfer funds
between commercial accounts. "Unconditional" means that no
condition, such as presentation of documents, must be met before the
bank receiving the order is to make payment. A wire transfer may be
transmitted by electronic or other means. "Electronic means"
include computer-to-computer links, on-line terminals, telegrams
(including TWX, TELEX, or similar methods of communication), telephone
calls, or other similar methods. Fedwire (the Federal Reserve's wire
transfer network), CHIPS (Clearing House Interbank Payments System,
operated by the New York Clearing House), and book transfers among
banks or within one bank are covered by this definition. Credits for
credit and debit card transactions are not wire transfers. The term
wire transfer excludes electronic fund transfers as that term is
defined by the Electronic Fund Transfer Act.
MM. 229.2(mm) [Reserved]
NN. 229.2(nn) Good Faith
1. This definition of good faith derives from U.C.C. 3--103(a)(4).
OO. 229.2(oo) Interest Compensation
1. This calculation of interest compensation derives from U.C.C.
4A--506(b). (See
§§ 229.34(e) and
229.36(f).)
PP. 229.2(pp) Contractual Branch
1. When one bank arranges for another bank to accept deposits on
its behalf, the second bank is a contractual branch of the first bank.
For further discussion of contractual branch deposits and related
disclosures, see §§ 229.2(s)
and 229.19(a) of the
regulation and the commentary to §§ 229.2(s), 229.10(c), 229.14(a),
229.16(a), 229.18(b), and 229.19(a).
QQ. 229.2(qq) [Reserved]
RR. 229.2(rr) [Reserved]
SS. 229.2(ss) [Reserved]
TT. 229.2(tt) [Reserved]
UU. 220.2(uu) [Reserved]
VV. 229.2(vv) MICR Line
1. Information in the MICR line of a check must be printed in
accordance with ANS X9.13 for original checks and ANS X9.100--140 for
substitute checks. These standards could vary the requirements for
printing the MICR line, such as by indicating circumstances under which
the use of magnetic ink is not required.
WW. 229.2(ww) Original Check
1. The definition of original check distinguishes the first paper
check signed or otherwise authorized by the drawer to effect a
particular payment transaction from a substitute check or other paper
or electronic representation that is derived from an original check or
substitute check. There is only one original check for any particular
payment transaction. However, multiple substitute checks could be
created to represent that original check at various points in the check
collection and return process.
XX. 229.2(xx) Paper or Electronic Representation of a Substitute
Check
1. Receipt of a paper or electronic representation of a substitute
check does not trigger indemnity or expedited recredit rights, although
the recipient nonetheless could have a
{{12-30-05 p.7418.52}}warranty claim or
a claim under other check law with respect to that document or the
underlying payment transaction. A paper or electronic representation of
a substitute check would include a representation of a substitute check
that was drawn on an account, as well as a representation of a
substitute traveler's check, credit card check, or other item that
meets the substitute check definition. The following examples
illustrate the scope of the definition.
Examples.
a. A bank receives electronic presentment of a substitute check
that has been converted to electronic form and charges the customer's
account for that electronic item. The periodic account statement that
the bank provides to the customer includes information about the
electronically-presented substitute check in a line-item list
describing all the checks the bank charged to the customer's account
during the previous month. The electronic file that the bank received
for presentment and charged to the customer's account would be an
electronic representation of a substitute check, and the line-item
appearing on the customer's account statement would be a paper
representation of a substitute check.
b. A paying bank receives and settles for a substitute check and
then realizes that its settlement was for the wrong amount. The paying
bank sends an adjustment request to the presenting bank to correct the
error. The adjustment request is not a paper or electronic
representation of a substitute check under the definition because it is
not being handled for collection or return as a check. Rather, it is a
separate request that is related to a check. As a result, no substitute
check warranty, indemnity, or expedited recredit rights attach to the
adjustment.
YY. 229.2(yy) [Reserved]
ZZ. 229.2(zz) Reconverting Bank
1. A substitute check is "created" when and where a paper
reproduction of an original check that meets the requirements of
§ 229.2(aaa) is physically printed. A bank is a reconverting bank if
it creates a substitute check directly or if another person by
agreement creates a substitute check on the bank's behalf. A bank also
is a reconverting bank if it is the first bank that receives a
substitute check created by a nonbank and transfers, presents, or
returns that substitute check or, in lieu thereof, the first paper or
electronic representation of such substitute check.
Examples.
a. Bank A, by agreement, sends an electronic check file for
collection to Bank B. Bank B chooses to use that file to print a
substitute check that meets the requirements of § 229.2(aaa). Bank B
is the reconverting bank as of the time it prints the substitute check.
b. Company A, which is not a bank, by agreement receives check
information electronically from Bank A. Bank A becomes the reconverting
bank when Company A prints a substitute check on behalf of Bank A in
accordance with that agreement.
c. A depositary bank's customer, which is a nonbank business,
receives a check for payment, truncates that original check, and
creates a substitute check to deposit with its bank. The depositary
bank receives that substitute check from its customer and is the first
bank to handle the substitute check. The depositary bank becomes the
reconverting bank as of the time that it transfers or presents the
substitute check (or in lieu thereof the first paper or electronic
representation of the substitute check) for forward collection.
d. A bank is the payable-through bank for checks that are drawn on
a nonbank payor, which is the bank's customer. When the customer
decides not to pay a check that is payable through the bank, the
customer creates a substitute check for purposes of return. The
payable-through bank becomes the reconverting bank when it returns the
substitute check (or in lieu thereof the first paper or electronic
representation of the substitute check) to a returning bank or the
depositary bank.
e. A paying bank returns a substitute check to the depositary bank,
which in turn gives that substitute check back to its nonbank customer.
That customer then redeposits the
{{8-31-04 p.7418.53}}substitute check
for collection at a different bank. Because the substitute check was
already transferred by a bank, the second depositary bank does not
become a reconverting bank when it transfers or presents that
substitute check for collection.
2. In some cases there will be one or more banks between the
truncating bank and the reconverting bank.
Example.
A depositary bank truncates the original check and sends an
electronic representation of the original check for collection to an
intermediary bank. The intermediary bank sends the electronic
representation of the original check to the presenting bank, which
creates a substitute check to present to the paying bank. The
presenting bank is the reconverting bank.
3. A check could move from electronic form to substitute check form
several times during the collection and return process. It therefore is
possible that there could be multiple substitute checks, and thus
multiple reconverting banks, with respect to the same underlying
payment.
AAA. 229.2(aaa) Substitute Check
1. "A paper reproduction of an original check" could include
a reproduction created directly from the original check or a
reproduction of the original check that is created from some other
source that contains an image of the original check, such as an
electronic representation of an original check or substitute check, or
a previous substitute check.
2. Because a substitute check must be a piece of paper, an
electronic file or electronic check image that has not yet been printed
in accordance with the substitute check definition is not a substitute
check.
3. Because a substitute check must be a representation of a check,
a paper reproduction of something that is not a check cannot be a
substitute check. For example, a savings bond or a check drawn on a
non-U.S. branch of a foreign bank cannot be reconverted to a substitute
check.
4. As described in § 229.51(b) and the commentary thereto, a
reconverting bank is required to ensure that a substitute check
contains all indorsements applied by previous parties that handled the
check in any form. Therefore, the image of the original check that
appears on the back of a substitute check would include indorsements
that were physically applied to the original check before an image of
the original check was captured. An indorsement that was applied
physically to the original check after an image of the original check
was captured would be conveyed as an electronic indorsement (see
paragraph 3 of the commentary to § 229.35(a)). The back of the
substitute check would contain a physical representation of any
indorsements that were applied electronically to the check after an
image of the check was captured but before creation of the substitute
check.
Example.
Bank A, which is the depositary bank, captures an image of an
original check, indorses it electronically and, by agreement, transmits
to Bank B an electronic image of the check accompanied by the
electronic indorsement. Bank B then creates a substitute check to send
to Bank C. The back of the substitute check created by Bank B must
contain a representation of the indorsement previously applied
electronically by Bank A and Bank B's own indorsement. (For more
information on indorsement requirements, see § 229.35, appendix D,
and the commentary thereto.)
5. Some substitute checks will not be created directly from the
original check, but rather will be created from a previous substitute
check. The back of a subsequent substitute check will contain an image
of the full length of the back of the previous substitute check. NAS
X9.100--140 requires preservation of the full length of the back of the
previous substitute check in order to preserve previous indorsements
and reconverting bank identifications. By contrast, the front of a
subsequent substitute check will not contain an image of the entire
previous substitute check. Rather, the image field of the
subsequent
{{8-31-04 p.7418.54}}substitute check
will contain the image of the front of the original check that appeared
on the previous substitute check at the time the previous substitute
check was converted to electronic form. The portions of the front of
the subsequent substitute check other than the image field will contain
information applied by the subsequent reconverting bank, such as its
reconverting bank identification, the MICR line, the legal equivalence
legend, and optional security information.
Examples.
a. The back of a subsequent substitute check would contain the
following indorsements, all of which would be preserved through the
image of the back of the previous substitute check: (1) The
indorsements that were applied physically to the original check before
an image of the original check was captured; (2) a physical
representation of indorsements that were applied electronically to the
original check after an image of the original check was captured but
before creation of the first substitute check; and (3) indorsements
that were applied physically to the previous substitute check. In
addition, the reconverting bank for the subsequent substitute check
must overlay onto the back of that substitute check a physical
representation of any indorsements that were applied electronically
after the previous substitute check was converted to electronic form
but before creation of the subsequent substitute check.
b. Because information could have been physically added to the
image of the front of the original check that appeared on the previous
substitute check, the original check image that appears on the front of
a subsequent substitute check could contain information in addition to
that which appeared on the original check at the time it was truncated.
6. The MICR line applied to a substitute check must contain
information in all fields of the MICR line that were encoded on the
original check at any time before an image of the original check was
captured. This includes all the MICR-line information that was
preprinted on the original check, plus any additional information that
was added to the MICR line before the image of the original check was
captured (for example, the amount of the check). The information in
each field of the substitute check's MICR line must be the same
information as in the corresponding field of the MICR line of the
original check, except as provided by ANS X9.100--140 (unless the Board
by rule or order determines that a different standard applies).
Industry standards may not, however, vary the requirement that a
substitute check at the time of its creation must bear a full-field
MICR line.
7. ANS X9.100--140, provides that a substitute check must have a
"4" in position 44 and that a qualified returned substitute check
must have a "4" in position 44 of the forward-collection MICR
line as well as a "5" in position 44 of the qualified return MICR
line. The "4" and "5" indicate that the document is a
substitute check so that the size of the check image remains constant
throughout the collection and return process, regardless of the number
of substitute checks created that represent the same original check
(see also §§ 229.30(a)(2) and 229.31(a)(2) and the
commentary thereto regarding requirements for qualified returned
substitute checks). An original check generally has a blank position 44
for forward collection. Because a reconverting bank must encode
position 44 of a substitute check's forward collection MICR line with
a "4," the reconverting bank must vary any character that
appeared in position 44 of the forward-collection MICR line of the
original check. A bank that misencodes or fails to encode position 44
at the time it attempts to create a substitute check has failed to
create a substitute check. A bank that receives a properly-encoded
substitute check may further encode that item but does so subject to
the encoding warranties in Regulation CC and the U.C.C.
8. A substitute check's MICR line could contain information in
addition to the information required at the time the substitute check
is created. For example, if the amount field of the original check was
not encoded and the substitute check therefore did not, when created,
have an encoded amount field, the MICR line of the substitute check
later could be amount-encoded.
9. A bank may receive a substitute check that contains a MICR-line
variation but nonetheless meets the MICR-line replication requirements
of § 229.2(aaa)(2) because that
{{12-30-05 p.7418.55}}variation is
permitted by ANS X9.100--140. If such a substitute check contains a
MICR-line error, a bank that receives it may, but is not required to
repair that error. Such a repair must be made in accordance with ANS
X9.100--140 for repairing a MICR line, which generally allows a bank to
correct an error by applying a strip that may or may not contain
information in all fields encoded on the check's MICR line. A bank's
repair of a MICR-line error on a substitute check is subject to the
encoding warranties in Regulation CC and the U.C.C.
10. A substitute check must confirm to all the generally applicable
industry standards for substitute checks set forth in ANS X9.100--140,
which incorporates other industry standards by reference. Thus,
multiple substitute check images contained on the same page of an
account statement are not substitute checks.
BBB. 229.2(bbb) Sufficient Copy and Copy
1. A copy must be a paper reproduction of a check. An electronic
image therefore is not a copy or a sufficient copy. However, if a
customer has agreed to receive such information electronically, a bank
that is required to provide an original check or sufficient copy may
satisfy that requirement by providing an electronic image in accordance
with § 229.58 and the commentary thereto.
2. A bank under § 229.53(b)(3) may limit its liability for an
indemnity claim and under §§ 229.54(e)(2) and 229.55(c)(2) may
respond to an expedited recredit claim by providing the claimant with a
copy of a 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 that otherwise is sufficient to determine the
validity of the claim against the bank.
Examples.
a. A copy of an original check that accurately represents all the
information on the front and back of the original check as of the time
of truncation would constitute a sufficient copy if that copy resolved
the claim. For example, if resolution of the claim required accurate
payment and indorsement information, an accurate copy of the front and
back of a legible original check (including but not limited to a
substitute check) would be a sufficient copy.
b. A copy of the original check that does not accurately represent
all the information on both the front and back of the original check
also could be a sufficient copy if such copy contained all the
information necessary to determine the validity of the relevant claim.
For instance, if a consumer received a substitute check that contained
a blurry image of a legible original check, the consumer might seek an
expedited recredit because his or her account was charged for $1,000,
but he or she believed that the check was written for only $100. If the
amount that appeared on the front of the original check was legible, an
accurate copy of only the front of the original check that showed the
amount of the check would be sufficient to determine whether or not the
consumer's claim regarding the amount of the check was valid.
CCC. 229.2(ccc) Transfer and Consideration
1. Under §§ 229.52 and 229.53, a bank is responsible for the
warranties and indemnity when it transfers, presents, or returns a
substitute check (or a paper or electronic representation thereof) for
consideration. Drawers and other nonbank persons that receive checks
from a bank are not transferees that receive consideration as those
terms are defined in the U.C.C. However, the Check 21 Act clearly
contemplates that such nonbank persons that receive substitute checks
(or representations thereof) from a bank will receive the warranties
and indemnity from all previous banks that handled the check. To ensure
that these parties are covered by the substitute check warranties and
indemnity in the manner contemplated by the Check 21 Act,
§ 229.2(ccc) incorporates the U.C.C. definitions of the term transfer
and consideration by reference and expands those definitions to cover a
broader range of situations. Delivering a check to a nonbank that is
acting on behalf of a
{{12-30-05 p.7418.56}}bank (such as a
third-party check processor or presentment point) is a transfer of the
check to that bank.
Examples.
a. A paying bank pays a substitute check and then provides that
paid substitute check (or a representation thereof) to a drawer with a
periodic statement. Under the expanded definitions, the paying bank
thereby transfers the substitute check (or representation thereof) to
the drawer for consideration and makes the substitute check warranties
described in § 229.52. A drawer that suffers a loss due to receipt of
a substitute check may have warranty, indemnity, and, if the drawer is
a consumer, expedited recredit rights under the Check 21 Act and
subpart D. A drawer that suffers a loss due to receipt of a paper or
electronic representation of a substitute check would receive the
substitute check warranties but would not have indemnity or expedited
recredit rights.
b. The expanded definitions also operate such that a paying bank
that pays an original check (or a representation thereof) and then
creates a substitute check to provide to the drawer with a periodic
statement transfers the substitute check for consideration and thereby
provides the warranties and indemnity.
c. The expanded definitions ensure that a bank that receives a
returned check in any form and then provides a substitute check to the
depositor gives the substitute check warranties and indemnity to the
depositor.
d. The expanded definitions apply to substitute checks representing
original checks that are not drawn on deposit accounts, such as checks
used to access a credit card or a home equity line of credit.
DDD. 229.2(ddd) Truncate
1. Truncate means to remove the original check from the forward
collection or return process and to send in lieu of the original check
either a substitute check or, by agreement, information relating to the
original check. Truncation does not include removal of a substitute
check from the check collection or return process.
EEE. 229.2(eee) Truncating Bank
1. A bank is a truncating bank if it truncates an original check or
if it is the first bank to transfer, present, or return another form of
an original check that was truncated by a person that is not a bank.
Example.
a. A bank's customer that is a nonbank business receives a check
for payment and deposits either a substitute check or an electronic
representation of the original check with its depositary bank instead
of the original check. That depositary bank is the truncating bank when
it transfers, presents, or returns the substitute check or electronic
representation in lieu of the original check. That bank also would be
the reconverting bank if it were the first bank to transfer, present,
or return a substitute check that it received from (or created from the
information given by) its nonbank customer (see § 229.2(yy) and the
commentary thereto).
2. A truncating bank does not make the subpart D warranties and
indemnity unless it also is the reconverting bank. Therefore, a bank
that truncates the original check and sends an electronic file to a
collecting bank does not provide subpart D protections to the recipient
of that electronic item. However, a recipient of an electronic item may
protect itself against losses associated with that item by agreement
with the truncating bank.
FFF. 229.2(fff) Remotely Created Check
1. A check authorized by a consumer over the telephone that is not
created by the paying bank and bears a legend on the signature line,
such as "Authorized by Drawer," is an example of a remotely
created check. A check that bears the signature applied, or purported
to be applied, by the person on whose account the check is drawn is not
a
{{12-30-05 p.7418.56-A}}remotely created
check. A typical forged check, such as a stolen personal check
fraudulently signed by a person other than the drawer, is not covered
by the definition of a remotely created check.
2. The term signature as used in this definition has the meaning
set forth at U.C.C. 3--401. The term "applied by" refers to the
physical act of placing the signature on the check.
3. The definition of a "remotely created check" differs from
the definition of a "remotely created consumer item" under the
U.C.C. A "remotely created check" may be drawn on an account held
by a consumer, corporation, unincorporated company, partnership,
government unit or instrumentality, trust, or any other entity or
organization. A "remotely created consumer item" under the
U.C.C., however, must be drawn on a consumer account.
4. Under Regulation CC (12 CFR part 229), the term "check"
includes a negotiable demand draft drawn on or payable through or at an
office of a bank. In the case of a "payable through" or
"payable at" check, the signature of the person on whose account
the check is drawn would include the signature of the payor institution
or the signatures of the customers who are authorized to draw checks on
that account, depending on the arrangements between the "payable
through" or "payable at" bank, the payor institution, and the
customers.
5. The definition of a remotely created check includes a remotely
created check that has been reconverted to a substitute check.
III. Section 229.3 Administrative Enforcement [Reserved]
IV. Section
229.10 Next-Day Availability
A. Business Days and Banking Days
1. This section, as well as other provisions of this subpart
governing the availability of funds, provides that funds must be made
available for withdrawal not later than a specified
{{8-31-04 p.7418.57}}number of
business days following the banking day on which the funds are
deposited. Thus, a deposit is considered made only on a banking day,
i.e., a day that the bank is open to the public for carrying on
substantially all of its banking functions. For example, if a deposit
is made at an ATM on a Saturday, Sunday, or other day on which the bank
is closed to the public, the deposit is considered received on that
bank's next banking day.
2. Nevertheless, business days are used to determine the number of
days following the banking day of deposit that funds must be available
for withdrawal. For example, if a deposit of a local check were made on
a Monday, the availability schedule requires that funds be available
for withdrawal on the second business day after deposit. Therefore,
funds must be made available on Wednesday regardless of whether the
bank was closed on Tuesday for other than a standard legal holiday as
specified in the definition of business day.
B. 229.10(a) Cash Deposits
1. This paragraph implements the Act's requirement for next-day
availability for cash deposits to accounts at a depositary bank
"staffed by individuals employed by such
institution." 2
Under this paragraph, cash deposited in an account at a staffed teller
station on a Monday must become available for withdrawal by the start
of business on Tuesday. It must become available for withdrawal by the
start of business on Wednesday if it is deposited by mail, at a
proprietary ATM, or by other means other than at a staffed teller
station.
C. 229.10(b) Electronic Payments
1. The Act provides next-day availability for funds received for
deposit by wire transfer. The regulation uses the term electronic
payment, rather than wire transfer, to include both wire transfers and
ACH credit transfers under the next-day availability requirement. (See
discussion of definitions of automated clearinghouse, electronic
payment, and wire transfer in
§ 229.2.)
2. The EFA Act requires that funds received by wire transfer be
available for withdrawal not later than the business day following the
day a wire transfer is received. This paragraph clarifies what
constitutes receipt of an electronic payment. For the purposes of this
paragraph, a bank receives an electronic payment when the bank receives
both payment in finally collected funds and the payment instructions
indicating the customer accounts to be credited and the amount to be
credited to each account. For example, in the case of Fedwire, the bank
receives finally collected funds at the time the payment is made. (See
12 CFR 210.31.) Finally collected funds generally are received for an
ACH credit transfer when they are posted to the receiving bank's
account on the settlement day. In certain cases, the bank receiving ACH
credit payments will not receive the specific payment instructions
indicating which accounts to credit until after settlement day. In
these cases, the payments are not considered received until the
information on the account and amount to be credited is received.
3. This paragraph also establishes the extent to which an
electronic payment is considered made. Thus, if a participant on a
private network fails to settle and the receiving bank receives finally
settled funds representing only a partial amount of the payment, it
must make only the amount that it actually received available for
withdrawal.
4. The availability requirements of this regulation do not preempt
or invalidate other rules, regulations, or agreements which require
funds to be made available on a more prompt basis. For example, the
next-day availability requirement for ACH credits in this section does
not preempt ACH association rules and Treasury regulations (31 CFR part
210), which provide that the proceeds of these credit payments be
available to the recipient for withdrawal on the day the bank receives
the funds.
D. 229.10(c) Certain Check Deposits
1. The EFA Act generally requires that funds be made available on
the business day following the banking day of deposit for Treasury
checks, state and local government
{{8-31-04 p.7418.58}}checks, cashier's
checks, certified checks, teller's checks, and "on us" checks,
under specified conditions. (Treasury checks are checks drawn on the
Treasury of the United States and have a routing number beginning with
the digits "0000.") This section also requires next-day
availability for additional types of checks not addressed in the Act.
Checks drawn on a Federal Reserve bank or a Federal Home Loan bank and
U.S. Postal Service money orders also must be made available on the
first business day following the day of deposit under specified
conditions. For the purposes of this section, all checks drawn on a
Federal Reserve bank or a Federal Home Loan bank that contain in the
MICR line a routing number that is listed in appendix A are
subject to the next-day availability requirement if they are deposited
in an account held by a payee of the check and in person to an employee
of the depositary bank, regardless of the purposes for which the checks
were issued. For all new accounts, even if the new account exception is
not invoked, traveler's checks must be included in the $5,000
aggregation of checks deposited on any one banking day that are subject
to the next-day availability requirement. (See
§ 229.13(a).)
2. Deposit in Account of Payee. One statutory condition to receipt
of next-day availability of Treasury checks, state and local government
checks, cashier's checks, certified checks, and teller's checks is that
the check must be "endorsed only by the person to whom it was
issued." The EFA Act could be interpreted to include a check that
has been indorsed in blank and deposited into an account of a third
party that is not named as payee. The Board believes that such a check
presents greater risks than a check deposited by the payee and that
Congress did not intend to require next-day availability for such
checks. The regulation, therefore, provides that funds must be
available on the business day following deposit only if the check is
deposited in an account held by a payee of the check. For the purposes
of this section, payee does not include transferees other than named
payees. The regulation also applies this condition to Postal Service
money orders and checks drawn on Federal Reserve banks and Federal Home
Loan banks.
3. Deposits Made to an Employee of the Depositary Bank.
a. In most cases, next-day availability of the proceeds of checks
subject to this section is conditioned on the deposit of these checks
in person to an employee of the depositary bank. If the deposit is not
made to an employee of the depositary bank on the premises of such
bank, the proceeds of the deposit must be made available for withdrawal
by the start of business on the second business day after deposit,
under paragraph (c)(2) of this section. For example, second-day
availability rather than next-day availability would be allowed for
deposits of checks subject to this section made at a proprietary ATM,
night depository, through the mail or a lock box, or at a teller
station staffed by a person who is not an employee of the depositary
bank. Second-day availability also may be allowed for deposits picked
up by an employee of the depositary bank at the customer's premises;
such deposits would be considered made upon receipt at the branch or
other location of the depositary bank. Employees of a contractual
branch would not be considered employees of the depositary bank for the
purposes of this regulation, and deposits at contractual branches would
be treated the same as deposits to a proprietary ATM for the purposes
of this regulation. (See also, Commentary to § 229.19(a).)
b. In the case of Treasury checks, the EFA Act and regulation do
not condition the receipt of next-day availability to deposits at
staffed teller stations. Therefore, Treasury checks deposited at a
proprietary ATM must be accorded next-day availability, if the check is
deposited to an account of a payee of the check.
4. "On Us" Checks. The EFA Act and regulation require
next-day availability for "on us" checks, i.e., checks deposited
in a branch of the depositary bank and drawn on the same or another
branch of the same bank, if both branches are located in the same state
or check processing region. Thus, checks deposited in one branch of a
bank and drawn on another branch of the same bank must receive next-day
availability even if the branch on which the checks are drawn is
located in another check processing region but in the same state as the
branch in which the check is deposited. For the purposes of this
requirement, deposits at facilities that are not located on the
premises of a brick-and-mortar branch of the bank, such as off-premise
ATMs and remote depositories, are not considered deposits made at
branches of the depositary bank.
{{8-31-04 p.7418.59}}
5. First $100.
a. The EFA Act and regulation also require that up to $100 of the
aggregate deposit by check or checks not subject to next-day
availability on any one banking day be made available on the next
business day. For example, if $70 were deposited in an account by
check(s) on a Monday, the entire $70 must be available for withdrawal
at the start of business on Tuesday. If $200 were deposited by check(s)
on a Monday, this section requires that $100 of the funds be available
for withdrawal at the start of business on Tuesday. The portion of the
customer's deposit to which the $100 must be applied is at the
discretion of the depositary bank, as long as it is not applied to any
checks subject to next-day availability. The $100 next-day availability
rule does not apply to deposits at nonproprietary ATMs.
b. The $100 that must be made available under this rule is in
addition to the amount that must be made available for withdrawal on
the business day after deposit under other provisions of this section.
For example, if a customer deposits a $1,000 Treasury check, and a
$1,000 local check in its account on Monday, $1,100 must be made
available for withdrawal on Tuesday--the proceeds of the $1,000
Treasury check, as well as the first $100 of the local check.
c. A depositary bank may aggregate all local and nonlocal check
deposits made by the customer on a given banking day for the purposes
of the $100 next-day availability rule. Thus, if a customer has two
accounts at the depositary bank, and on a particular banking day makes
deposits to each account, $100 of the total deposited to the two
accounts must be made available on the business day after deposit.
Banks may aggregate deposits to individual and joint accounts for the
purposes of this provision.
d. If the customer deposits a $500 local check, and gets $100 cash
back at the time of deposit, the bank need not make an additional $100
available for withdrawal on the following day. Similarly, if the
customer depositing the local check has a negative book balance, or
negative available balance in its account at the time of deposit, the
$100 that must be available on the next business day may be made
available by applying the $100 to the negative balance, rather than
making the $100 available for withdrawal by cash or check on the
following day.
6. Special Deposit Slips.
a. Under the EFA Act, a depositary bank may require the use of a
special deposit slip as a condition to providing next-day availability
for certain types of checks. This condition was included in the Act
because many banks determine the availability of their customers' check
deposits in an automated manner by reading the MICR-encoded routing
number on the deposited checks. Using these procedures, a bank can
determine whether a check is a local or nonlocal check, a check drawn
on the Treasury, a Federal Reserve bank, a Federal Home Loan bank, or a
branch of the depositary bank, or a U.S. Postal Service money order.
Appendix A includes the routing numbers of certain categories of checks
that are subject to next-day availability. The bank cannot require a
special deposit slip for these checks.
b. A bank cannot distinguish whether the check is a state or local
government check, cashier's check, certified check, or teller's check
by reading the MICR-encoded routing number, because these checks bear
the same routing number as other checks drawn on the same bank that are
not accorded next-day availability. Therefore, a bank may require a
special deposit slip for these checks.
c. The regulation specifies that if a bank decides to require the
use of a special deposit slip (or a special deposit envelope in the
case of a deposit at an ATM or other unstaffed facility) as a condition
to granting next-day availability under paragraphs (c)(1)(iv) or
(c)(1)(v) of this section or second-day availability under paragraph
(c)(2) of this section, and if the deposit slip that must be used is
different from the bank's regular deposit slips, the bank must either
provide the special slips to its customers or inform its customers how
such slips may be obtained and make the slips reasonably available to
the customers.
d. A bank may meet this requirement by providing customers with an
order form for the special deposit slips and allowing sufficient time
for the customer to order and receive
{{8-31-04 p.7418.60}}the slips before
this condition is imposed. If a bank provides deposit slips in its
branches for use by its customers, it also must provide the special
deposit slips in the branches. If special deposit envelopes are
required for deposits at an ATM, the bank must provide such envelopes
at the ATM.
e. Generally, a teller is not required to advise depositors of the
availability of special deposit slips merely because checks requiring
special deposit slips for next-day availability are deposited without
such slips. If a bank provides the special deposit slips only upon the
request of a depositor, however, the teller must advise the depositor
of the availability of the special deposit slips, or the bank must post
a notice advising customers that the slips are available upon request.
Such notice need not be posted at each teller window, but the notice
must be posted in a place where consumers seeking to make deposits are
likely to see it before making their deposits. For example, the notice
might be posted at the point where the line forms for teller service in
the lobby. The notice is not required at any drive-through teller
windows nor is it required at night depository locations, or at
locations where consumer deposits are not accepted. If a bank prepares
a deposit for a depositor, it must use a special deposit slip where
appropriate. A bank may require the customer to segregate the checks
subject to next-day availability for which special deposit slips could
be required, and to indicate on a regular deposit slip that such checks
are being deposited, if the bank so instructs its customers in its
initial disclosure.
V. Section 229.11 [Reserved]
VI. Section
229.12 Availability Schedule
A. 229.12(a) Effective Date
1. The availability schedule set forth in this section supersedes
the temporary schedule that was effective September 1, 1988, through
August 31, 1990.
B. 229.12(b) Local Checks and Certain Other Checks
1. Local checks must be made available for withdrawal not later
than the second business day following the banking day on which the
checks were deposited.
2. In addition, the proceeds of Treasury checks and U.S. Postal
Service money orders not subject to next-day (or second-day)
availability under § 229.10(c), checks drawn on Federal Reserve banks
and Federal Home Loan banks, checks drawn by a state or unit of general
local government, cashier's checks, certified checks, and teller's
checks not subject to next-day (or second-day) availability under
§ 229.10(c) and payable in the same check processing region as the
depositary bank, must be made available for withdrawal by the second
business day following deposit.
3. Exceptions are made for withdrawals by cash or similar means and
for deposits in banks located outside the 48 contiguous states. Thus,
the proceeds of a local check deposited on a Monday generally must be
made available for withdrawal on Wednesday.
C. 229.12(c) Nonlocal Checks
1. Nonlocal checks must be made available for withdrawal not later
than the fifth business day following deposit, i.e., proceeds of a
nonlocal check deposited on a Monday must be made available for
withdrawal on the following Monday. In addition, a check described in
§ 229.10(c) that does not meet the conditions for next-day
availability (or second-day availability) is treated as a nonlocal
check, if the check is drawn on or payable through or at a nonlocal
paying bank. Adjustments are made to the schedule for withdrawals by
cash or similar means and deposits in banks located outside the 48
contiguous states.
2. Reduction in Schedules.
a. Section 603(d)(1) of the EFA Act
(12 U.S.C. 4002(d)(1))
requires the Board to reduce the statutory schedules for any category
of checks where most of those checks would be returned in a shorter
period of time than provided in the schedules. The conferees indicated
that "if the new system makes it possible for two-thirds of the
items of a category of checks to meet this test in a shorter period of
time, then the Federal Reserve
{{8-31-04 p.7418.60-A}}must shorten the
schedules accordingly." H.R. Rep. No. 261, 100th Cong., 1st Sess. at
179 (1987).
b. Reduced schedules are provided for certain nonlocal checks where
significant improvements can be made to the Act's schedules due to
transportation arrangements or proximity between the check processing
regions of the depositary bank and the paying bank, allowing for faster
collection and return. Appendix B sets forth the specific reduction of
schedules applicable to banks located in certain check processing
regions.
c. A reduction in schedules may apply even in those cases where the
determination that the check is nonlocal cannot be made based on the
routing number on the check. For example, a nonlocal credit union
payable-through share draft may be subject to a reduction in schedules
if the routing number of the payable-through bank that appears on the
draft is included in Appendix B, even though the determination that the
payable-through share draft is nonlocal is based on the location of the
credit union and not the routing number on the draft.
D. 229.12(d) Time Period Adjustment for Withdrawal by Cash or
Similar Means
1. The EFA Act provides an adjustment to the availability rules for
cash withdrawals. Funds from local and nonlocal checks need not be
available for cash withdrawal until 5:00 p.m. on the day specified in
the schedule. At 5:00 p.m., $400 of the deposit must be made available
for cash withdrawal. This $400 is in addition to the first $100 of a
day's deposit, which must be made available for withdrawal at the start
of business on the first business day following the banking day of
deposit. If the proceeds of local and nonlocal checks become available
for withdrawal on the same business day, the $400 withdrawal limitation
applies to the aggregate amount of the funds that became available for
withdrawal on that day. The remainder of the funds must be available
for cash withdrawal at the start of business on the business day
following the business day specified in the schedule.
2. The EFA Act recognizes that the $400 that must be provided on
the day specified in the schedule may exceed a bank's daily ATM cash
withdrawal limit, and explicitly provides that the EFA Act does not
supersede the bank's policy in this regard. The Board believes that the
rationale for accommodating a bank's ATM withdrawal limit also applies
to other cash withdrawal limits established by that bank.
Section 229.19(c)(4) of the
regulation addresses the relation between a bank's cash withdrawal
limit (for over-the-counter cash withdrawals as well as ATM cash
withdrawals) and the requirements of this subpart.
3. The Board believes that the Congress included this special cash
withdrawal rule to provide a depositary bank with additional time to
learn of the nonpayment of a check before it must make funds available
to its customer. If a customer deposits a local check on a Monday, and
that check is returned by the paying bank, the depositary bank may not
receive the returned check until Thursday, the day after funds for a
local check ordinarily must be made available for withdrawal. The
intent of the special cash withdrawal rule is to minimize this risk to
the depositary bank. For this rule to minimize the depositary bank's
risk, it must apply not only to cash withdrawals, but also to
withdrawals by other means that result in an irrevocable debit to the
customer's account or commitment to pay by the bank on the customer's
behalf during the day. Thus, the cash withdrawal rule also includes
withdrawals by electronic payment, issuance of a cashier's or teller's
check, certification of a check, or other irrevocable commitment to
pay, such as authorization of an on-line point-of-sale debit. The rule
also would apply to checks presented over the counter for payment on
the day of presentment by the depositor or another person. Such checks
could not be dishonored for insufficient funds if an amount sufficient
to cover the check had became available for cash withdrawal under this
rule; however, payment of such checks would be subject to the bank's
cut-off hour established under U.C.C. 4--108. The cash withdrawal rule
does not apply to checks and other provisional debits presented to the
bank for payment that the bank has the right to return.
E. 229.12(e) Extension of Schedule for Certain Deposits in Alaska,
Hawaii, Puerto Rico, and the U.S. Virgin Islands
1. The EFA Act and regulation provide an extension of the
availability schedules for check deposits at a branch of a bank if the
branch is located in Alaska, Hawaii, Puerto
{{8-31-04 p.7418.60-B}}Rico, or the U.S.
Virgin Islands. The schedules for local checks, nonlocal checks
(including nonlocal checks subject to the reduced schedules of appendix
B), and deposits at nonproprietary ATMs are extended by one business
day for checks deposited to accounts in banks located in these
jurisdictions that are drawn on or payable at or through a paying bank
not located in the same jurisdiction as the depositary bank. For
example, a check deposited in a bank in Hawaii and drawn on a San
Francisco paying bank must be made available for withdrawal not later
than the third business day following deposit. This extension does not
apply to deposits that must be made available for withdrawal on the
next business day.
2. The Congress did not provide this extension of the schedules to
checks drawn on a paying bank located in Alaska, Hawaii, Puerto Rico,
or the U.S. Virgin Islands and deposited in an account at a depositary
bank in the 48 contiguous states. Therefore, a check deposited in a San
Francisco bank drawn on a Hawaii paying bank must be made available for
withdrawal not later than the second rather than the third business day
following deposit.
F. 229.12(f) Deposits at Nonproprietary ATMs
1. The EFA Act and regulation provide a special rule for deposits
made at nonproprietary ATMs. This paragraph does not apply to deposits
made at proprietary ATMs. All deposits at a nonproprietary ATM must be
made available for withdrawal by the fifth business day following the
banking day of deposit. For example, a deposit made at a nonproprietary
ATM on a Monday, including any deposit by cash or checks that would
otherwise be subject to next-day (or second-day) availability, must be
made available for withdrawal not later than Monday of the following
week. The provisions of § 229.10(c)(1)(vii) requiring a depositary
bank to make up to $100 of an aggregate daily deposit available for
withdrawal on the first business day after the banking day of deposit
do not apply to deposits at a nonproprietary ATM.
VII. Section 229.13 Exceptions
A. Introduction
1. While certain safeguard exceptions (such as those for new
accounts and checks the bank has reasonable cause to believe are
uncollectible) are established in the EFA Act, the Congress gave the
Board the discretion to determine whether certain other exceptions
should be included in its regulations. Specifically, the Act gives the
Board the authority to establish exceptions to the schedules for large
or redeposited checks and for accounts that have been repeatedly
overdrawn. These exceptions apply to local and non-local checks as well
as to checks that must otherwise be accorded next-day (or second-day)
availability under
§ 229.10(c).
2. Many checks will not be returned to the depositary bank by the
time funds must be made available for withdrawal under the next-day (or
second-day), local, and nonlocal schedules. In order to reduce risk to
depositary banks, the Board has exercised its statutory authority to
adopt these exceptions to the schedules in the regulation to allow the
depositary bank to extend the time within which it is required to make
funds available.
3. The EFA Act also gives the Board the authority to suspend the
schedules for any classification of checks, if the schedules result in
an unacceptable level of fraud losses. The Board will adopt regulations
or issue orders to implement this statutory authority if and when
circumstances requiring its implementation arise.
B. 229.13(a) New Accounts
1. Definition of New Account.
a. The EFA Act provides an exception to the availability schedule
for new accounts. An account is defined as a new account during the
first 30 calendar days after the account is opened. An account is
opened when the first deposit is made to the account. An account is not
considered a new account, however, if each customer on the account has
a transaction account relationship with the depositary bank, including
a dormant account, that is at least
{{8-31-04 p.7418.60-C}}30 calendar days
old or if each customer has had an established transaction account with
the depositary bank within the 30 calendar days prior to opening the
second account.
b. The following are examples of what constitutes, and does not
constitute, a new account:
i. If the customer has an established account with a bank and opens
a second account with the bank, the second account is not subject to
the new account exception.
ii. If a customer's account were closed and another account opened
as a successor to the original account (due, for example, to the theft
of checks or a debit card used to access the original account), the
successor account is not subject to the new account exception, assuming
the previous account relationship is at least 30 days old. Similarly,
if a customer closes an established account and opens a separate
account within 30 days, the new account is not subject to the new
account exception.
iii. If a customer has a savings deposit or other deposit that is
not an account (as that term is defined in
§ 229.2(a)) at the bank, and
opens an account, the account is subject to the new account exception.
iv. If a person that is authorized to sign on a corporate account
(but has no other relationship with the bank) opens a personal account,
the personal account is subject to the new account exception.
v. If a customer has an established joint account at a bank, and
subsequently opens an individual account with that bank, the individual
account is not subject to the new account exception.
vi. If two customers that each have an established individual
account with the bank open a joint account, the joint account is not
subject to the new account exception. If one of the customers on the
account has no current or recent established account relationship with
the bank, however, the joint account is subject to the new account
exception, even if the other individual on the account has an
established account relationship with the bank.
2. Rules Applicable to New Accounts.
a. During the new account exception period, the schedules for local
and nonlocal checks do not apply, and, unlike the other exceptions
provided in this section, the regulation provides no maximum time
frames within which the proceeds of these deposits must be made
available for withdrawal. Maximum times within which funds must be
available for withdrawal during the new account period are provided,
however, for certain other deposits. Deposits received by cash and
electronic payments must be made available for withdrawal in accordance
with § 229.10.
b. Special rules also apply to deposits of Treasury checks, U.S.
Postal Service money orders, checks drawn on Federal Reserve banks and
Federal Home Loan banks, state and local government checks, cashier's
checks, certified checks, teller's checks, and, for the purposes of the
new account exception only, traveler's checks. The first $5,000 of
funds deposited to a new account on any one banking day by these check
deposits must be made available for withdrawal in accordance with
§ 229.10(c). Thus, the first $5,000 of the proceeds of these check
deposits must be made available on the first business day following
deposit, if the deposit is made in person to an employee of the
depositary bank and the other conditions of next-day availability are
met. Funds must be made available on the second business day after
deposit for deposits that are not made over the counter, in accordance
with § 229.10(c)(2). (Proceeds of Treasury check deposits must be
made available on the first business day after deposit, even if the
check is not deposited in person to an employee of the depositary
bank.) Funds in excess of the first $5,000 deposited by these types of
checks on a banking day must be available for withdrawal not later than
the ninth business day following the banking day of deposit. The
requirements of § 229.10(c)(1)(vi) and (vii) that "on us"
checks and the first $100 of a day's deposit be made available for
withdrawal on the next business day do not apply during the new account
period.
3. Representation by Customer. The depositary bank may rely on the
representation of the customer that the customer has no established
account relationship with the bank, and
{{8-31-04 p.7418.60-D}}has not had any
such account relationship within the past 30 days, to determine whether
an account is subject to the new account exception.
C. 229.13(b) Large Deposits
1. Under the large deposit exception, a depositary bank may extend
the hold placed on check deposits to the extent that the amount of the
aggregate deposit on any banking day exceeds $5,000. This exception
applies to local and nonlocal checks, as well as to checks that
otherwise would be made available on the next (or second) business day
after the day of deposit under § 229.10(c). Although the first $5,000
of a day's deposit is subject to the availability otherwise provided
for checks, the amount in excess of $5,000 may be held for an
additional period of time as provided in § 229.13(h). When the large
deposit exception is applied to deposits composed of a mix of checks
that would otherwise be subject to differing availability schedules,
the depositary bank has the discretion to choose the portion of the
deposit to which it applies the exception. Deposits by cash or
electronic payment are not subject to this exception for large
deposits.
2. The following example illustrates the operation of the large
deposit exception. If a customer deposits $2,000 in cash and a $9,000
local check on a Monday, $2,100 (the proceeds of the cash deposit and
$100 from the local check deposit) must be made available for
withdrawal on Tuesday. An additional $4,900 of the proceeds of the
local check must be available for withdrawal on Wednesday in accordance
with the local schedule, and the remaining $4,000 may be held for an
additional period of time under the large deposit exception.
3. Where a customer has multiple accounts with a depositary bank,
the bank may apply the large deposit exception to the aggregate
deposits to all of the customer's accounts, even if the customer is
not the sole holder of the accounts and not all of the holders
of the customer's accounts are the same. Thus, a depositary bank may
aggregate the deposits made to two individual accounts in the same
name, to an individual and a joint account with one common name, or to
two joint accounts with at least one common name for the purpose of
applying the large deposit exception. Aggregation of deposits to
multiple accounts is permitted because the Board believes that the risk
to the depositary bank associated with large deposits is similar
regardless of how the deposits are allocated among the customer's
accounts.
D. 229.13(c) Redeposited Checks
1. The EFA Act gives the Board the authority to promulgate an
exception to the schedule for checks that have been returned unpaid and
redeposited. Section 229.13(c) provides such an exception for checks
that have been returned unpaid and redeposited by the customer or the
depositary bank. This exception applies to local and nonlocal checks,
as well as to checks that would otherwise be made available on the next
(or second) business day after the day of deposit under § 229.10(c).
2. This exception addresses the increased risk to the depositary
bank that checks that have been returned once will be uncollectible
when they are presented to the paying bank a second time. The Board,
however, does not believe that this increased risk is present for
checks that have been returned due to a missing indorsement. Thus, the
exception does not apply to checks returned unpaid due to missing
indorsements and redeposited after the missing indorsement has been
obtained, if the reason for return indicated on the check (see
§ 229.30(d)) states that it
was returned due to a missing indorsement. For the same reason, this
exception does not apply to a check returned because it was postdated
(future dated), if the reason for return indicated on the check states
that it was returned because it was postdated, and if it is no longer
postdated when redeposited.
3. To determine when funds must be made available for withdrawal,
the banking day on which the check is redeposited is considered to be
the day of deposit. A depositary bank that made $100 of a check
available for withdrawal under § 229.10(c)(1)(vii) can charge back
the full amount of the check, including the $100, if the check is
returned unpaid, and the $100 need not be made available again if the
check is redeposited.
{{8-31-04 p.7418.60-E}}
E. 229.13(d) Repeated Overdrafts
1. The EFA Act gives the Board the authority to establish an
exception for "deposit accounts which have been overdrawn
repeatedly." This paragraph provides two tests to determine what
constitutes repeated overdrafts. Under the first test, a customer's
accounts are considered repeatedly overdrawn if, on six banking days
within the preceding six months, the available balance in any account
held by the customer is negative, or the balance would have become
negative if checks or other charges to the account had been paid,
rather than returned. This test can be met based on separate
occurrences (e.g., checks that are returned for insufficient funds on
six different days), or based on one occurrence (e.g., a negative
balance that remains on the customer's account for six banking days).
If the bank dishonors a check that otherwise would have created a
negative balance, however, the incident is considered an overdraft only
on that day.
2. The second test addresses substantial overdrafts. Such
overdrafts increase the risk to the depositary bank of dealing with the
repeated overdrafter. Under this test, a customer incurs repeated
overdrafts if, on two banking days within the preceding six months, the
available balance in any account held by the customer is negative in an
amount of $5,000 or more, or would have become negative in an amount of
$5,000 or more if checks or other charges to the account had been paid.
3. The exception relates not only to overdrafts caused by checks
drawn on the account, but also overdrafts caused by other debit charges
(e.g. ACH debits, point-of-sale transactions, returned checks, account
fees, etc.). If the potential debit is in excess of available funds,
the exception applies regardless of whether the items were paid or
returned unpaid. An overdraft resulting from an error on the part of
the depositary bank, or from the imposition of overdraft charges for
which the customer is entitled to a refund under §§ 229.13(e) or
229.16(c), cannot be considered in determining whether the customer is
a repeated overdrafter. The exception excludes accounts with overdraft
lines of credit, unless the credit line has been exceeded or would have
been exceeded if the checks or other charges to the account had been
paid.
4. This exception applies to local and nonlocal checks, as well as
to checks that otherwise would be made available on the next (or
second) business day after the day of deposit under § 229.10(c). When
a bank places or extends a hold under this exception, it need not make
the first $100 of a deposit available for withdrawal on the next
business day, as otherwise would be required by
§ 229.10(c)(1)(vii).
1Section 602(11) of the Act
(12 U.S.C. 4001(11)) defines
"depository check" as "any cashier's check, certified check,
teller's check, and any other functionally equivalent instrument as
determined by the Board." Go Back to Text
2Nothing in the Act or this regulation affects terms of account
arrangements, such as negotiable order of withdrawal accounts, which
may require prior notice of withdrawal. (See 12 CFR
204.2(e)(2).) Go Back to Text
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