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6500 - Consumer Protection
F. 229.13(e) Reasonable Cause To Doubt Collectibility
1. In the case of certain check deposits, if the bank has
reasonable cause to believe the check is uncollectible, it may extend
the time funds must be made available for withdrawal. 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). 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). If the
reasonable cause exception is invoked, the bank must include in the
notice to its customer, required by § 229.13(g), the reason that the
bank believes that the check is uncollectible.
2. The following are several examples of circumstances under which
the reasonable cause exception may be invoked:
a. If a bank received a notice from the paying bank that a check
was not paid and is being returned to the depositary bank, the
depositary bank could place a hold on the check or extend a hold
previously placed on that check, and notify the customer that the bank
had received notice that the check is being returned. The exception
could be invoked even if the notice were incomplete, if the bank had
reasonable cause to believe that the notice applied to that particular
check.
b. The depositary bank may have received information from the
paying bank, prior to the presentment of the check, that gives the bank
reasonable cause to believe that the check is uncollectible. For
example, the paying bank may have indicated that payment has
been
{{8-31-04 p.7418.60-F}}stopped on the
check, or that the drawer's account does not currently have sufficient
funds to honor the check. Such information may provide sufficient basis
to invoke this exception. In these cases, the depositary bank could
invoke the exception and disclose as the reason the exception is being
invoked the fact that information from the paying bank indicates that
the check may not be paid.
c. The fact that a check is deposited more than six months after
the date on the check (i.e. a stale check) is a reasonable
indication that the check may be uncollectible, because under U.S.C.
4--404 a bank has no duty to its customer to pay a check that is more
than six months old. Similarly, if a check being deposited is postdated
(future dated), the bank may have a reasonable cause to believe the
check is uncollectible, because the check may not be properly payable
under U.C.C. 4--401. The bank, in its notice, should specify that the
check is stale-dated or postdated.
d. There are reasons that may cause a bank to believe that a check
is uncollectible that are based on confidential information. For
example, a bank could conclude that a check being deposited is
uncollectible based on its reasonable belief that the depositor is
engaging in kiting activity. Reasonable belief as to the insolvency or
pending insolvency of the drawer of the check or the drawee bank and
that the checks will not be paid also may justify invoking this
exception. In these cases, the bank may indicate, as the reason it is
invoking the exception, that the bank has confidential information that
indicates that the check might not be paid.
3. The Board has included a reasonable cause exception notice as a
model notice in appendix C (C--13). The model notice includes several
reasons for which this exception may be invoked. The Board does not
intend to provide a comprehensive list of reasons for which this
exception may be invoked; another reason that does not appear on the
model notice may be used as the basis for extending a hold, if the
reason satisfies the conditions for invoking this exception. A
depositary bank may invoke the reasonable cause exception based on a
combination of factors that give rise to a reasonable cause to doubt
the collectibility of a check. In these cases, the bank should disclose
the primary reasons for which the exception was invoked in accordance
with paragraph (g) of this section.
4. The regulation provides that the determination that a check is
uncollectible shall not be based on a class of checks or persons. For
example, a depositary bank cannot invoke this exception simply because
the check is drawn on a paying bank in a rural area and the depositary
bank knows it will not have the opportunity to learn of nonpayment of
that check before funds must be made available under the availability
schedules. Similarly, a depositary bank cannot invoke the reasonable
cause exception based on the race or national origin of the depositor.
5. If a depositary bank invokes this exception with respect to a
particular check and does not provide a written notice to the depositor
at the time of deposit, the depositary bank may not assess any
overdraft fee (such as an "NSF" charge) or charge interest for
use of overdraft credit, if the check is paid by the paying bank and
these charges would not have occurred had the exception not been
invoked. A bank may assess an overdraft fee under these circumstances,
however, if it provides notice to the customer, in the notice of
exception required by paragraph (g) of this section, that the fee may
be subject to refund, and refunds the charges upon the request of the
customer. The notice must state that the customer may be entitled to a
refund of any overdraft fees that are assessed if the check being held
is paid, and indicate where such requests for a refund of overdraft
fees should be directed.
G. 229.13(f) Emergency Conditions
1. Certain emergency conditions may arise that delay the collection
or return of checks, or delay the processing and updating of customer
accounts. In the circumstances specified in this paragraph, the
depositary bank may extend the holds that are placed on deposits of
checks that are affected by such delays, if the bank exercises such
diligence as the circumstances require. For example, if a bank learns
that a check has been delayed in the process of collection due to
severe weather conditions or other causes beyond its control,
an
{{8-31-04 p.7418.60-G}}emergency
condition covered by this section may exist and the bank may place a
hold on the check to reflect the delay. This exception applies to local
and nonlocal checks, as well as checks that would otherwise 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).
In cases where the emergency conditions exception does not apply, as in
the case of deposits of cash or electronic payments under § 229.10(a)
and (b), the depositary bank may not be liable for a delay in making
funds available for withdrawal if the delay is due to a bona fide error
such as an unavoidable computer malfunction.
H. 229.13(g) Notice of Exception
1. In general.
a. If a depositary bank invokes any of the safeguard exceptions to
the schedules listed above, other than the new account or emergency
conditions exception, and extends the hold on a deposit beyond the
time periods permitted in §§ 229.10(c) and 229.12, it must provide a
notice to its customer. Except in the cases described in paragraphs
(g)(2) and (g)(3) of this section, notices must be given each time an
exception hold is invoked and must state the customer's account number,
the date of deposit, the reason the exception was invoked, and the
time period within which funds will be available for withdrawal. For a
customer that is not a consumer, a depositary bank satisfies the
written-notice requirement by sending an electronic notice that
displays the text and is in a form that the customer may keep, if the
customer agrees to such means of notice. Information is in a form that
the customer may keep if, for example, it can be downloaded or printed.
For a customer who is a consumer, a depositary bank satisfies the
written-notice requirement by sending an electronic notice in
compliance with the requirements of the Electronic Signatures in Global
and National Commerce Act (12 U.S.C. 7001 et seq.), which
include obtaining the consumer's affirmative consent to such means of
notice.
b. With respect to paragraph (g)(1), the requirement that the
notice state the time period within which the funds shall be made
available may be satisfied if the notice identifies the date the
deposit is received and information sufficient to indicate when funds
will be available and the amounts that will be available at those
times. For example, for a deposit involving more than one check, the
bank need not provide a notice that discloses when funds from each
individual check in the deposit will be available for withdrawal;
instead, the bank may provide a total dollar amount for each of the
time periods when funds will be available, or provide the customer with
an explanation of how to determine the amount of the deposit that will
be held and when the funds will be available for deposit. Appendix C
(C--12) contains a model notice.
c. For deposits made in person to an employee of the depositary
bank, the notice generally must be given to the person making the
deposit, i.e., "the depositor", at the time of deposit. The
depositor need not be the customer holding the account. For other
deposits, such as deposits received at an ATM, lobby deposit box, night
depository, or through the mail, notice must be mailed to the customer
not later than the close of the business day following the banking day
on which the deposit was made.
d. Notice to the customer also may be provided at a later time, if
the facts upon which the determination to invoke the exception do not
become known to the depositary bank until after notice would otherwise
have to be given. In these cases, the bank must mail the notice to the
customer as soon as practicable, but not later than the business day
following the day the facts become known. A bank is deemed to have
knowledge when the facts are brought to the attention of the person or
persons in the bank responsible for making the determination, or when
the facts would have been brought to their attention if the bank had
exercised due diligence.
e. In those cases described in paragraphs (g)(2) and (g)(3), the
depositary bank need not provide a notice every time an exception hold
is applied to a deposit. When paragraph (g)(2) or (g)(3) requires
disclosure of the time period within which deposits subject to
the
{{8-31-04 p.7418.60-H}}exception
generally will be available for withdrawal, the requirement may be
satisfied if the one-time notice states when "on us," local, and
nonlocal checks will be available for withdrawal if an exception is
invoked.
2. One-time exception notice.
a. Under paragraph (g)(2), if a nonconsumer account (see Commentary
to § 229.2(n)) is subject to the large deposit or redeposited check
exception, the depositary bank may give its customer a single notice at
or prior to the time notice must be provided under paragraph (g)(1).
Notices provided under paragraph (g)(2) must contain the reason the
exception may be invoked and the time period within which deposits
subject to the exception will be available for withdrawal (see Model
Notice C-14). A depositary bank may provide a one-time notice to a
nonconsumer customer under paragraph (g)(2) only if each exception
cited in the notice (the large deposit and/or the redeposited check
exception) will be invoked for most check deposits to the customer's
account to which the exception could apply. A one-time notice may state
that the depositary bank will apply exception holds to
{{4-28-00 p.7418.61}}certain subsets
of deposits to which the large deposit or redeposited check exception
may apply, and the notice should identify such subsets. For example,
the depositary bank may apply the redeposited check exception only to
checks that were redeposited automatically by the depositary bank in
accordance with an agreement with the customer, rather than to all
redeposited checks. In lieu of sending the one-time notice, a
depositary bank may send individual hold notices for each deposit
subject to the large deposit or redeposited check exception in
accordance with
§ 229.13(g)(1) (see Model
Notice C-12).
b. In the case of a deposit of multiple checks, the depositary bank
has the discretion to place an exception hold on any combination of
checks in excess of $5,000. The notice should enable a customer to
determine the availability of the deposit in the case of a deposit of
multiple checks. For example, if a customer deposits a $5,000 local
check and a $5,000 nonlocal check, under the large deposit exception,
the depositary bank may make funds available in the amount of (1) $100
on the first business day after deposit, $4,900 on the second business
day after deposit (local check), and $5,000 on the eleventh business
day after deposit (nonlocal check with 6-day exception hold), or
(2) $100 on the first business day after deposit, $4,900 on the fifth
business day after deposit (nonlocal check), and $5,000 on the seventh
business day after deposit (local check with 5-day exception hold). The
notice should reflect the bank's priorities in placing exception holds
on next-day (or second-day), local, and nonlocal checks.
3. Notice of repeated overdraft exception. Under paragraph (g)(3),
if an account is subject to the repeated overdraft exception, the
depositary bank may provide one notice to its customer for each time
period during which the exception will apply. Notices sent pursuant to
paragraph (g)(3) must state the customer's account number, the fact the
exception was invoked under the repeated overdraft exception, the time
period within which deposits subject to the exception will be made
available for withdrawal, and the time period during which the
exception will apply (see Model Notice C-15). A depositary bank may
provide a one-time notice to a customer under paragraph (g)(3) only if
the repeated overdraft exception will be invoked for most check
deposits to the customer's account.
4. Emergency conditions exception notice.
a. If an account is subject to the emergency conditions exception
under § 229.13(f), the depositary bank must provide notice in a
reasonable form within a reasonable time, depending on the
circumstances. For example, a depositary bank may learn of a weather
emergency or a power outage that affects the paying bank's operations.
Under these circumstances, it likely would be reasonable for the
depositary bank to provide an emergency conditions exception notice in
the same manner and within the same time as required for other
exception notices. On the other hand, if a depositary bank experiences
a weather or power outage emergency that affects its own operations, it
may be reasonable for the depositary bank to provide a general notice
to all depositors via postings at branches and ATMs, or through
newspaper, television, or radio notices.
b. If the depositary bank extends the hold placed on a deposit due
to an emergency condition, the bank need not provide a notice if the
funds would be available for withdrawal before the notice must be sent.
For example, if on the last day of a hold period the depositary bank
experiences a computer failure and customer accounts cannot be updated
in a timely fashion to reflect the funds as available balances, notices
are not required if the funds are made available before the notices
must be sent.
5. Record retention. A depositary bank must retain a record of each
notice of a reasonable cause exception for a period of two years, or
such longer time as provided in the record retention requirements of
§ 229.21. This record must contain a brief description of the facts
on which the depositary bank based its judgment that there was
reasonable cause to doubt the collectibility of a check. In many cases,
such as where the exception was invoked on the basis of a notice of
nonpayment received, the record requirement may be met by retaining a
copy of the notice sent to the customer. In other cases, such as where
the exception was invoked on the basis of confidential information, a
further description to the facts, such as insolvency of drawer, should
be included in the record.
{{4-28-00 p.7418.62}}
I. 229.13(h) Availability of Deposits Subject to Exceptions
1. If a depositary bank invokes any exception other than the new
account exception, the bank may extend the time within which funds
must be made available under the schedule by a reasonable period of
time. This provision establishes that an extension of up to one
business day for "on us" checks, five business days for local
checks, and six business days for nonlocal checks and checks
deposited in a nonproprietary ATM is reasonable. Under certain
circumstances, however, a longer extension of the schedules may be
reasonable. In these cases, the burden is placed on the depositary bank
to establish that a longer period is reasonable.
2. For example, assume a bank extended the hold on a local check
deposit by five business days based on its reasonable cause to believe
that the check is uncollectible. If, on the day before the extended
hold is scheduled to expire, the bank receives a notification from the
paying bank that the check is being returned unpaid, the bank may
determine that a longer hold is warranted, if it decides not to charge
back the customer's account based on the notification. If the bank
decides to extend the hold, the bank must send a second notice, in
accordance with paragraph (g) of this section, indicating the new date
that the funds will be available for withdrawal.
3. With respect to Treasury checks, U.S. Postal Service money
orders, checks drawn on Federal Reserve Banks or Federal Home Loan
Banks, state and local government checks, cashier's checks, certified
checks, and teller's checks subject to the next-day (or second-day)
availability requirement, the depositary bank may extend the time funds
must be made available for withdrawal under the large deposit,
redeposited check, repeated overdraft, or reasonable cause exception by
a reasonable period beyond the delay that would have been permitted
under the regulation had the checks not been subject to next-day (or
second-day) availability requirement. The additional hold is added to
the local or nonlocal schedule that would apply based on the location
of the paying bank.
4. One business day for "on us" checks, five business days
for local checks, and six business days for nonlocal checks or checks
deposited in a nonproprietary ATM, in addition to the time period
provided in the schedule, should provide adequate time for the
depositary bank to learn of the nonpayment of virtually all checks that
are returned. For example, if a customer deposits a $7,000 cashier's
check drawn on a nonlocal bank, and the depositary bank applies the
large deposit exception to that check, $5,000 must be available for
withdrawal on the first business day after the day of deposit and the
remaining $2,000 must be available for withdrawal on the eleventh
business day following the day of deposit (six business days added to
the five-day schedule for nonlocal checks), unless the depositary bank
establishes that a longer hold is reasonable.
5. In the case of the application of the emergency conditions
exception, the depositary bank may extend the hold placed on a check by
not more than a reasonable period following the end of the emergency or
the time funds must be available for withdrawal under
§§ 229.10(c) or
229.12, whichever is later.
6. This provision does not apply to holds imposed under the new
account exception. Under that exception, the maximum time period within
which funds must be made available for withdrawal is specified for
deposits that generally must be accorded next-day availability under
§ 229.10. This subpart does not specify the maximum time period
within which the proceeds of local and nonlocal checks must be made
available for withdrawal during the new account period.
VIII. Section 229.14 Payment of Interest
A. 229.14(a) In General
1. This section requires that a depositary bank begin accruing
interest on interest-bearing accounts not later than the day on which
the depositary bank receives credit for the
{{8-31-04 p.7418.63}}funds
deposited. 3
A depositary bank generally receives credit on checks within one or two
days following deposit. A bank receives credit on a cash deposit, an
electronic payment, and the deposit of a check that is drawn on the
depositary bank itself on the day the cash, electronic payment, or
check is received. In the case of a deposit at a nonproprietary ATM,
credit generally is received on the day the bank that operates the ATM
credits the depositary bank for the amount of the deposit. In the case
of a deposit at a contractual branch, credit is received on the day the
depositary bank receives credit for the amount of the deposit, which
may be different from the day the contractual branch receives credit
for the deposit.
2. Because account includes only transaction accounts, other
interest-bearing accounts of the depositary bank, such as money market
deposit accounts, savings deposits, and time deposits, are not subject
to this requirement; however, a bank may accrue interest on such
deposits in the same way that it accrues interest under this paragraph
for simplicity of operation. The Board intends the term interest to
refer to payments to or for the account of any customer as compensation
for the use of funds, but to exclude the absorption of expenses
incident to providing a normal banking function or a bank's forbearance
from charging a fee in connection with such a service. (See
12 CFR 217.2(d).) Thus,
earnings credits often applied to corporate accounts are not interest
payments for the purposes of this section.
3. It may be difficult for a depositary bank to track which day the
depositary bank receives credit for specific checks in order to accrue
interest properly on the account to which the check is deposited. This
difficulty may be pronounced if the bank uses different means of
collecting checks based on the time of day the check is received, the
dollar amount of the check, and/or the paying bank to which it must be
sent. Thus, for the purpose of the interest accrual requirement, a bank
may rely on an availability schedule from its Federal Reserve bank,
Federal Home Loan bank, or correspondent to determine when the
depositary bank receives credit. If availability is delayed beyond that
specified in the availability schedule, a bank may charge back interest
erroneously accrued or paid on the basis of that schedule.
4. This paragraph also permits a depositary bank to accrue interest
on checks deposited to all of its interest-bearing accounts based on
when the bank receives credit on all checks sent for payment or
collection. For example, if a bank receives credit on 20 percent of the
funds deposited in the bank by check as of the business day of deposit
(e.g., "on us" checks), 70 percent as of the business day
following deposit, and 10 percent on the second business day following
deposit, the bank can apply these percentages to determine the day
interest must begin to accrue on check deposits to all interest-bearing
accounts, regardless of when the bank received credit on the funds
deposited in any particular account. Thus, a bank may begin accruing
interest on a uniform basis for all interest-bearing accounts, without
the need to track the type of check deposited to each account.
5. This section is not intended to limit a policy of a depositary
bank that provides that interest accrues only on balances that exceed a
specified amount, or on the minimum balance maintained in the account
during a given period, provided that the balance is determined based on
the date that the depositary bank receives credit for the funds.
This
{{8-31-04 p.7418.64}}section also is
not intended to limit any policy providing that interest accrues sooner
than required by this paragraph.
B. 229.14(b) Special Rule for Credit Unions
1. This provision implements a requirement in section 606(b) of the
EFA Act, and provides an exemption from the payment-of-interest
requirements for credit unions that do not begin to accrue interest or
dividends on their customer accounts until a later date than the day
the credit union receives credit for those deposits, including cash
deposits. These credit unions are exempt from the payment-of-interest
requirements, as long as they provide notice of their interest accrual
policies in accordance with
§ 229.16(d). For example, if
a credit union has a policy of computing interest on all deposits
received by the 10th of the month from the first of that month, and on
all deposits received after the 10th of the month from the first of the
next month, that policy is not superseded by this regulation, if the
credit union provides proper disclosure of this policy to its
customers.
2. The EFA Act limits this exemption to credit unions; other types
of banks must comply with the payment-of-interest requirements. In
addition, credit unions that compute interest from the day of deposit
or day of credit should not change their existing practices in order to
avoid compliance with the requirement that interest accrue from the day
the credit union receives credit.
C. 229.14(c) Exception for Checks Returned Unpaid
1. This provision is based on section 606(c) of the Act
(12 U.S.C. 4005(c)) and
provides that interest need not be paid on funds deposited in an
interest-bearing account by check that has been returned unpaid,
regardless of the reason for return.
IX. Section
229.15 General Disclosure Requirements
A. 229.15(a) Form of Disclosures
1. This paragraph sets forth the general requirements for the
disclosures required under subpart B. All of the disclosures must be
given in a clear and conspicuous manner, must be in writing, and, in
most cases, must be in a form the customer may keep. A disclosure is in
a form that the customer may keep if, for example, it can be downloaded
or printed. For a customer that is not a consumer, a depositary bank
satisfies the written-disclosure requirement by sending an electronic
disclosure that displays the text and is in a form that the customer
may keep, if the customer agrees to such means of disclosure. For a
customer who is a consumer, a depositary bank satisfies the
written-notice requirement by sending an electronic notice in
compliance with the requirements of the Electronic Signatures in Global
and National Commerce Act (12 U.S.C. 7001 et seq.), which
include obtaining the consumer's affirmative consent to such means of
notice. Information is in a form that the customer may keep if, for
example, it can be downloaded or printed. Appendix C of the regulation
contains model forms, clauses, and notices to assist banks in preparing
disclosures.
2. Disclosures concerning availability must be grouped together and
may not contain any information that is not related to the disclosures
required by this subpart. Therefore, banks may not intersperse the
required disclosures with other account disclosures, and may not
include other account information that is not related to their
availability policy within the text of the required disclosures. Banks
may, however, include information that is related to their availability
policies. For example, a bank may inform its customers that, even when
the bank has already made funds available for withdrawal, the customer
is responsible for any problem with the deposit, such as the return of
a deposited check.
3. The regulation does not require that the disclosures be
segregated from other account terms and conditions. For example, banks
may include the disclosure of their specific availability policy in a
booklet or pamphlet that sets out all of the terms and conditions of
the bank's accounts. The required disclosures must, however, be grouped
together and highlighted or identified in some manner, for example, by
use of a separate heading for the disclosures, such as "When
Deposits are Available for Withdrawal."
4. A bank may, by agreement or at the consumer's request, provide
any disclosure or notice required by subpart B in a language other than
English, provided that the bank makes a complete disclosure available
in English at the customer's request.
{{4-28-00 p.7418.65}}
B. 229.15(b) Uniform Reference to Day of Availability
1. This paragraph requires banks to disclose in a uniform manner
when deposited funds will be available for withdrawal. Banks must
disclose when deposited funds are available for withdrawal by stating
the business day on which the customer may begin to withdraw funds. The
business day funds will be available must be disclosed as
"the ____________________________________________ business day after" the day of deposit, or
substantially similar language. The business day of availability is
determined by counting the number of business days starting with the
business day following the banking day on which the deposit is
received, as determined under § 229.19(a), and ending with the
business day on which the customer may begin to withdraw funds. For
example, a bank that imposes delays of four intervening business days
for nonlocal checks must describe those checks as being available on
"the fifth business day after" the day of the deposit.
C. 229.15(c) Multiple Accounts and Multiple Account Holders
1. This paragraph clarifies that banks need not provide multiple
disclosures under the regulation. A single disclosure to a customer
that holds multiple accounts, or a single disclosure to one of the
account holders of a jointly held account, satisfies the disclosure
requirements of the regulation.
D. 229.15(d) Dormant or Inactive Accounts
1. This paragraph makes clear that banks need not provide
disclosure of their specific availability policies to customers that
hold accounts that are either dormant or inactive. The determination
that certain accounts are dormant or inactive must be made by the bank.
If a bank considers an account dormant or inactive for purposes other
than this regulation and no longer provides statements and other
mailings to an account for this reason, such an account is considered
dormant or inactive for purposes of this regulation.
X. Section 229.16
Specific Availability Policy Disclosure
A. 229.16(a) General
1. This section describes the information that must be disclosed by
banks to comply with §§ 229.17 and 229.18(d), which require that
banks furnish notices of their specific policy regarding availability
of deposited funds. The disclosure provided by a bank must reflect the
availability policy followed by the bank in most cases, even though a
bank may in some cases make funds available sooner or impose a longer
delay.
2. The disclosure must reflect the policy and practice of the bank
regarding availability as to most accounts and most deposits into those
accounts. In disclosing the availability policy that it follows in most
cases, a bank may provide a single disclosure that reflects one policy
to all its transaction account customers, even though some of its
customers may receive faster availability than that reflected in the
policy disclosure. Thus, a bank need not disclose to some customers
that they receive faster availability than indicated in the disclosure.
If, however, a bank has a policy of imposing delays in availability on
any customers longer than those specified in its disclosure, those
customers must receive disclosures that reflect the longer applicable
availability periods. A bank may establish different availability
policies for different groups of customers, such as customers in a
particular geographic area or customers of a particular branch. For
purposes of providing a specific availability policy, the bank may
allocate customers among groups through good faith use of a reasonable
method. A bank may also establish different availability policies for
deposits at different locations, such as deposits at a contractual
branch.
3. A bank may disclose that funds are available for withdrawal on a
given day notwithstanding the fact that the bank uses the funds to pay
checks received before that day. For example, a bank may disclose that
its policy is to make funds available from deposits of local checks on
the second business day following the day of deposit, even though it
may use the deposited funds to pay checks prior to the second business
day; the funds used to pay checks in this example are not available for
withdrawal until the second
{{4-28-00 p.7418.66}}business day
after deposit because the funds are not available for all uses until
the second business day. (See the definition of available for
withdrawal in § 229.2(d).)
B. 229.16(b) Content of Specific Policy Disclosure
1. This paragraph sets forth the items that must be included, as
applicable, in a bank's specific availability policy disclosure. The
information that must be disclosed by a particular bank will vary
considerably depending upon the bank's availability policy. For
example, a bank that makes deposited funds available for withdrawal on
the business day following the day of deposit need simply disclose that
deposited funds will be available for withdrawal on the first business
day after the day of deposit, the bank's business days, and when
deposits are considered received.
2. On the other hand, a bank that has a policy of routinely
delaying on a blanket basis the time when deposited funds are available
for withdrawal would have a more detailed disclosure. Such blanket hold
policies might be for the maximum time allowed under the federal law or
might be for shorter periods. These banks must disclose the types of
deposits that will be subject to delays, how the customer can determine
the type of deposit being made, and the day that funds from each type
of deposit will be available for withdrawal.
3. Some banks may have a combination of next-day availability and
blanket delays. For example, a bank may provide next-day availability
for all deposits except for one or two categories, such as deposits at
nonproprietary ATMs and nonlocal personal checks over a specified
dollar amount. The bank would describe the categories that are subject
to delays in availability and tell the customer when each category
would be available for withdrawal, and state that other deposits will
be available for withdrawal on the first business day after the day of
deposit. Similarly, a bank that provides availability on the second
business day for most of its deposits would need to identify the
categories of deposits which, under the regulation, are subject to
next-day availability and state that all other deposits will be
available on the second business day.
4. Because many banks' availability policies may be complex, a bank
must give a brief summary of its policy at the beginning of the
disclosure. In addition, the bank must describe any circumstances when
actual availability may be longer than the schedules disclosed. Such
circumstances would arise, for example, when the bank invokes one of
the exceptions set forth in § 229.13 of the regulation, or when the
bank delays or extends the time when deposited funds are available for
withdrawal up to the time periods allowed by the regulation on a
case-by-case basis. Also, a bank that must make certain checks
available faster under Appendix B (reduction of schedules for certain
nonlocal checks) must state that some check deposits will be available
for withdrawal sooner because of special rules and that a list of the
pertinent routing numbers is available upon request.
5. Generally, a bank that distinguishes in its disclosure between
local and nonlocal checks based on the routing number on the check must
disclose to its customers that certain checks, such as some credit
union payable-through drafts, will be treated as local or nonlocal
based on the location of the bank by which they are payable (e.g., the
credit union), and not on the basis of the location of the bank whose
routing number appears on the check. A bank is not required to provide
this disclosure, however, if it makes the proceeds of both local and
nonlocal checks available for withdrawal within the time periods
required for local checks in
§§ 229.12 and
229.13.
6. The business day cut-off time used by the bank must be disclosed
and if some locations have different cut-off times the bank must note
this in the disclosure and state the earliest time that might apply. A
bank need not list all of the different cut-off times that might apply.
If a bank does not have a cut-off time prior to its closing time, the
bank need not disclose a cut-off time.
7. A bank taking advantage of the extended time period for making
deposits at nonproprietary ATMs available for withdrawal under
§ 229.12(f) must explain this in the initial disclosure. In addition,
the bank must provide a list (on or with the initial disclosure) of
either the bank's proprietary ATMs or those ATMs that are
nonproprietary at which customers may make deposits. As an alternative
to providing such a list, the bank may label
{{4-28-00 p.7418.67}}all of its
proprietary ATMs with the bank's name and state in the initial
disclosure that this has been done. Similarly, a bank taking advantage
of the cash withdrawal limitations of § 229.12(d), or the provision
in § 229.19(e) allowing
holds to be placed on other deposits when a deposit is made or a check
is cashed, must explain this in the initial disclosure.
8. A bank that provides availability based on when the bank
generally receives credit for deposited checks need not disclose the
time when a check drawn on a specific bank will be available for
withdrawal. Instead, the bank may disclose the categories of deposits
that must be available on the first business day after the day of
deposit (deposits subject to
§ 229.10) and state the
other categories of deposits and the time periods that will be
applicable to those deposits. For example, a bank might disclose the
four-digit Federal Reserve routing symbol for local checks and indicate
that such checks as well as certain nonlocal checks will be available
for withdrawal on the first or second business day following the day of
deposit, depending on the location of the particular bank on which the
check is drawn, and disclose that funds from all other checks will be
available on the second or third business day. The bank must also
disclose that the customer may request a copy of the bank's detailed
schedule that would enable the customer to determine the availability
of any check and must provide such schedule upon request. A change in
the bank's detailed schedule would not trigger the change in policy
disclosure requirement of
§ 229.18(e).
C. 229.16(c) Longer Delays on a Case-by-Case Basis
1. Notice in specific policy disclosure.
a. Banks that make deposited funds available for withdrawal sooner
than required by the regulation--for example, providing their customers
with immediate or next-day availability for deposited funds--and
delay the time when funds are available for withdrawal only from time
to time determined on a case-by-case basis, must provide notice of this
in their specific availability policy disclosure. This paragraph
outlines the requirements for that notice.
b. In addition to stating what their specific availability policy
is in most cases, banks that may delay or extend the time when deposits
are available on a case-by-case basis must: state that from time to
time funds may be available for withdrawal later than the time periods
in their specific policy disclosure, disclose the latest time that a
customer may have to wait for deposited funds to be available for
withdrawal when a case-by-case hold is placed, state that customers
will be notified when availability of a deposit is delayed on a
case-by-case basis, and advise customers to ask if they need to be sure
of the availability of a particular deposit.
c. A bank that imposes delays on a case-by-case basis is still
subject to the availability requirements of this regulation. If the
bank imposes a delay on a particular deposit that is not longer than
the availability required by
§ 229.12 for local and
nonlocal checks, the reason for the delay need not be based on the
exceptions provided in
§ 229.13. If the delay
exceeds the time periods permitted under § 229.12, however, then it
must be based on an exception provided in § 229.13, and the bank must
comply with the § 229.13 notice requirements. A bank that imposes
delays on a case-by-case basis may avail itself of the one-time notice
provisions in § 229.13(g)(2) and (3) for deposits to which those
provisions apply.
2. Notice at time of case-by-case delay.
a. In addition to including the disclosures required by paragraph
(c)(1) of this section in their specific availability policy
disclosure, banks that delay or extend the time period when funds are
available for withdrawal on a case-by-case basis must give customers a
notice when availability of funds from a particular deposit will be
delayed or extended beyond the time when deposited funds are generally
available for withdrawal. The notice must state that a delay is being
imposed and indicate when the funds will be available. In addition, the
notice must include the account number, the date of the deposit, and
the amount of the deposit being delayed.
{{4-28-00 p.7418.68}}
b. If notice of the delay was not given at the time the deposit was
made and the bank assesses overdraft or returned check fees on accounts
when a case-by-case hold has been placed, the case-by-case hold notice
provided to the customer must include a notice concerning overdraft or
returned check fees. The notice must state that the customer may be
entitled to a refund of any overdraft or returned check fees that
result from the deposited funds not being available if the check that
was deposited was in fact paid by the payor bank, and explain how to
request a refund of any fees. (See § 229.16(c)(3).)
c. The requirement that the case-by-case hold notice state the day
that funds will be made available for withdrawal may be met by stating
the date or the number of business days after deposit that the funds
will be made available. This requirement is satisfied if the notice
provides information sufficient to indicate when funds will be
available and the amounts that will be available at those times. For
example, for a deposit involving more than one check, the bank need not
provide a notice that discloses when funds from each individual item in
the deposit will be available for withdrawal. Instead, the bank may
provide a total dollar amount for each of the time periods when funds
will be available, or provide the customer with an explanation of how
to determine the amount of the deposit that will be held and when the
held funds will be available for withdrawal.
d. For deposits made in person to an employee of the depositary
bank, the notice generally must be given at the time of the deposit.
The notice at the time of the deposit must be given to the person
making the deposit, that is, the "depositor." The depositor need
not be the customer holding the account. For other deposits, such as
deposits received at an ATM, lobby deposit box, night depository,
through the mail, or by armored car, notice must be mailed to the
customer not later than the close of the business day following the
banking day on which the deposit was made. Notice to the customer also
may be provided not later than the close of the business day following
the banking day on which the deposit was made if the decision to delay
availability is made after the time of the deposit.
3. Overdraft and returned check fees. If a depositary bank delays
or extends the time when funds from a deposited check are available for
withdrawal on a case-by-case basis and does not provide a written
notice to its depositor at the time of deposit, the depositary bank may
not assess any overdraft or returned check fees (such as an
insufficient funds charge) or charge interest for use of an overdraft
line of credit, if the deposited check is paid by the paying bank and
these fees would not have occurred had the additional case-by-case
delay not been imposed. A bank may assess an overdraft or returned
check fee under these circumstances, however, if it provides notice to
the customer in the notice required by paragraph (c)(2) of this section
that the fee may be subject to refund, and refunds the fee upon the
request of the customer when required to do so. The notice must state
that the customer may be entitled to a refund of any overdraft or
returned check fees that are assessed if the deposited check is paid,
and indicate where such requests for a refund of overdraft fees should
be directed. Paragraph (c)(3) applies when a bank provides a
case-by-case notice in accordance with paragraph (c)(2) and does not
apply if the bank has provided an exception hold notice in accordance
with § 229.13.
D. 229.16(d) Credit Union Notice of Interest Payment Policy
1. This paragraph sets forth the special disclosure requirement for
credit unions that delay accrual of interest or dividends for all cash
and check deposits beyond the date of receiving provisional credit for
checks being deposited. (The interest payment requirement is set forth
in § 229.14(a).) Such credit unions are required to describe their
policy with respect to accrual of interest or dividends on deposits in
their specific availability policy disclosure.
XI. Section 229.17 Initial
Disclosures
A. This paragraph requires banks to provide a notice of their
availability policy to all potential customers prior to opening an
account. The requirement of a notice prior to opening an account
requires banks to provide disclosures prior to accepting a deposit
to
{{4-28-00 p.7418.69}}open an account.
Disclosures must be given at the time the bank accepts an initial
deposit regardless of whether the bank has opened the account yet for
the customer. If a bank, however, receives a written request by mail
from a person asking that an account be opened and the request includes
an initial deposit, the bank may open the account with the deposit,
provided the bank mails the required disclosures to the customer not
later than the business day following the banking day on which the bank
receives the deposit. Similarly, if a bank receives a telephone request
from a customer asking that an account be opened with a transfer from a
separate account of the customer's at the bank, the disclosure may be
mailed not later than the business day following the banking day of the
request.
XII. Section
229.18 Additional Disclosure Requirements
A. 229.18(a) Deposit Slips
1. This paragraph requires banks to include a notice on all
preprinted deposit slips. The deposit slip notice need only state,
somewhere on the front of the deposit slip, that deposits may not be
available for immediate withdrawal. The notice is required only on
preprinted deposit slips--those printed with the customer's account
number and name and furnished by the bank in response to a customer's
order to the bank. A bank need not include the notice on deposit slips
that are not preprinted and supplied to the customer--such as counter
deposit slips--or on those special deposit slips provided to the
customer under § 229.10(c). A bank is not responsible for ensuring
that the notice appear on deposit slips that the customer does not
obtain from or through the bank. This paragraph applies to preprinted
deposit slips furnished to customers on or after September 1, 1988.
B. 229.18(b) Locations Where Employees Accept Consumer Deposits
1. This paragraph describes the statutory requirement that a bank
post in each location where its employees accept consumer deposits a
notice of its availability policy pertaining to consumer accounts. The
notice that is required must specifically state the availability
periods for the various deposits that may be made to consumer accounts.
The 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. A bank that acts as
a contractual branch at a particular location must include the
availability policy that applies to its own customers but need not
include the policy that applies to the customers of the bank for which
it is acting as a contractual branch.
C. 229.18(c) Automated Teller Machines
1. This paragraph sets forth the required notices for ATMs.
Paragraph (c)(1) provides that the depositary bank is responsible for
posting a notice on all ATMs at which deposits can be made to accounts
at the depositary bank. The depositary bank may arrange for a third
party, such as the owner or operator of the ATM, to post the notice and
indemnify the depositary bank from liability if the depositary bank is
liable under § 229.21 for the owner or operator failing to provide
the required notice.
2. The notice may be posted on a sign, shown on the screen, or
included on deposit envelopes provided at the ATM. This disclosure must
be given before the customer has made the deposit. Therefore, a notice
provided on the customer's deposit receipt or appearing on the ATM's
screen after the customer has made the deposit would not satisfy this
requirement.
3. Paragraph (c)(2) requires a depositary bank that operates an
off-premise ATM from which deposits are removed not more than two times
a week to make a disclosure of this fact on the off-premise ATM. The
notice must disclose to the customer the days on which deposits made at
the ATM will be considered received.
{{4-28-00 p.7418.70}}
D. 229.18(d) Upon Request
1. This paragraph requires banks to provide written notice of their
specific availability policy to any person upon that person's oral or
written request. The notice must be sent within a reasonable period of
time following receipt of the request.
E. 229.18(e) Changes in Policy
1. This paragraph requires banks to send notices to their customers
when the banks change their availability policies with regard to
consumer accounts. A notice may be given in any form as long as it is
clear and conspicuous. If the bank gives notice of a change by sending
the customer a complete new availability disclosure, the bank must
direct the customer to the changed terms in the disclosure by use of a
letter or insert, or by highlighting the changed terms in the
disclosure.
2. Generally, a bank must send a notice at least 30 calendar days
before implementing any change in its availability policy. If the
change results in faster availability of deposits--for example, if the
bank changes its availability for nonlocal checks from the fifth
business day after deposit to the fourth business day after
deposit--the bank need not send advance notice. The bank must, however,
send notice of the change no later than 30 calendar days after the
change is implemented. A bank is not required to give a notice when
there is a change in Appendix B (reduction of schedules for certain
nonlocal checks).
3. A bank that has provided its customers with a list of ATMs under
§ 229.16(b)(5) shall provide
its customers with an updated list of ATMs once a year if there are
changes in the list of ATMs previously disclosed to the customers.
XIII. Section
229.19 Miscellaneous
A. 229.19(a) When Funds Are Considered Deposited
1. The time funds must be made available for withdrawal under this
subpart is determined by the day the deposit is made. This paragraph
provides rules to determine the day funds are considered deposited in
various circumstances.
2. Staffed facilities and ATMs. Funds received at a staffed teller
station or ATM are considered deposited when received by the teller or
placed in the ATM. Funds received at a contractual branch are
considered deposited when received by a teller at the contractual
branch or deposited into a proprietary ATM of the contractual branch.
(See also, Commentary to § 229.10(c) on deposits made to an employee
of the depositary bank.) Funds deposited to a deposit box in a bank
lobby that is accessible to customers only during regular business
hours generally are considered deposited when placed in the lobby box;
a bank may, however, treat deposits to lobby boxes the same as deposits
to night depositories (as provided in § 229.19(a)(3)), provided a
notice appears on the lobby box informing the customer when such funds
will be considered deposited.
3. Mail. Funds mailed to the depositary bank are considered
deposited on the banking day they are received by the depositary bank.
The funds are received by the depositary bank at the time the mail is
delivered to the bank, even if it is initially delivered to a mail
room, rather than the check processing area.
4. Other facilities.
a. In addition to deposits at staffed facilities, at ATMs, and by
mail, funds may be deposited at a facility such as a night depository
or a lock box. A night depository is a receptacle for receipt of
deposits, typically used by corporate depositors when the branch is
closed. Funds deposited at a night depository are considered deposited
on the banking day the deposit is removed, and the contents of the
deposit are accessible to the depositary bank for processing. For
example, some businesses deposit their funds in a locked bag at the
night depository late in the evening, and return to the bank the
following day to open the bag. Other depositors may have an agreement
with their bank that the deposit bag must be opened under the dual
control of the bank and the depositor. In these cases, the funds are
considered deposited when the customer returns to the bank and opens
the deposit bag.
{{8-31-04 p.7418.71}}
b. A lock box is a post office box used by a corporation for the
collection of bill payments or other check receipts. The depositary
bank generally assumes the responsibility for collecting the mail from
the lock box, processing the checks, and crediting the corporation for
the amount of the deposit. Funds deposited through a lock box
arrangement are considered deposited on the day the deposit is removed
from the lock box and are accessible to the depositary bank for
processing.
5. Certain off-premise ATMs. A special provision is made for
certain off-premise ATMs that are not serviced daily. Funds deposited
at such an ATM are considered deposited on the day they are removed
from the ATM, if the ATM is not serviced more than two times each week.
This provision is intended to address the practices of some banks of
servicing certain remote ATMs infrequently. If a depositary bank
applies this provision with respect to an ATM, a notice must be posted
at the ATM informing depositors that funds deposited at the ATM may not
be considered deposited until a future day, in accordance with
§ 229.18.
6. Banking day of deposit.
a. This paragraph also provides that a deposit received on a day
that the depositary bank is closed, or after the bank's cut-off hour,
may be considered made on the next banking day. Generally, for purposes
of the availability schedules of this subpart, a bank may establish a
cut-off hour of 2 p.m. or later for receipt of deposits at its head
office or branch offices. For receipt of deposits at ATMs, contractual
branches or other off-premise facilities, such as night depositories or
lock boxes, the depositary bank may establish a cut-off hour of 12 noon
or later (either local time of the branch or other location of the
depositary bank at which the account is maintained or local time of the
ATM, contractual branch, or other off-premise facility). The depositary
bank must use the same timing method for establishing the cut-off hour
for all ATMs, contractual branches, and other off-premise facilities
used by its customers. The choice of cut-off hour must be reflected in
the bank's internal procedures, and the bank must inform its customers
of the cut-off hour upon request. This earlier cut-off for ATM,
contractual branch, or other off-premise deposits is intended to
provide greater flexibility in the servicing of these facilities.
b. Different cut-off hours may be established for different types
of deposits. For example, a bank may establish a 2 p.m. cut-off for the
receipt of check deposits, but a later cut-off for the receipt of wire
transfers. Different cut-off hours also may be established for deposits
received at different locations. For example, a different cut-off may
be established for ATM deposits than for over-the-counter deposits, or
for different teller stations at the same branch. With the exception of
the 12 noon cut-off for deposits at ATMs and off-premise facilities, no
cut-off hour for receipt of deposits for purposes of this subpart can
be established earlier than 2 p.m.
c. A bank is not required to remain open until 2 p.m. If a bank
closes before 2 p.m., deposits received after the closing may be
considered deposited on the next banking day. Further, as
§ 229.2(f) defines the term
banking day as the portion of a business day on which a bank is open to
the public for substantially all of its banking functions, a day, or a
portion of a day, is not necessarily a banking day merely because the
bank is open for only limited functions, such as keeping drive-in or
walk-up teller windows open, when the rest of the bank is closed to the
public. For example, a banking office that usually provides a full
range of banking services may close at 12 noon but leave a drive-in
teller window open for the limited purpose of receiving deposits and
making cash withdrawals. Under those circumstances, the bank is
considered closed and may consider deposits received after 12 noon as
having been received on the next banking day. The fact that a bank may
reopen for substantially all of its banking functions after 2 p.m., or
that it continues its back office operations throughout the day, would
not affect this result. A bank may not, however, close individual
teller stations and reopen them for next-day's business before 2 p.m.
during a banking day.
B. 229.19(b) Availability at Start of Business Day
1. If funds must be made available for withdrawal on a business
day, the funds must be available for withdrawal by the later of 9 a.m.
or the time the depositary bank's teller
{{8-31-04 p.7418.72}}facilities,
including ATMs, are available for customer account withdrawals, except
under the special rule for cash withdrawals set forth in
§ 229.12(d). Thus, if a bank
has no ATMs and its branch facilities are available for customer
transactions beginning at 10 a.m., funds must be available for customer
withdrawal beginning at 10 a.m. If the bank has ATMs that are available
24 hours a day, rather than establishing 12:01 a.m. as the start of the
business day, this paragraph sets 9 a.m. as the start of the day with
respect to ATM withdrawals. The Board believes that this rule provides
banks with sufficient time to update their accounting systems to
reflect the available funds in customer accounts for that day.
2. The start of business is determined by the local time of the
branch or other location of the depositary bank at which the account is
maintained. For example, if funds in a customer's account at a west
coast bank are first made available for withdrawal at the start of
business on a given day, and the customer attempts to withdraw the
funds at an east coast ATM, the depositary bank is not required to make
the funds available until 9 a.m. west coast time (12 noon east coast
time).
C. 229.19(c) Effect on Policies of Depositary Bank
1. This subpart establishes the maximum hold that may be placed on
customer deposits. A depositary bank may provide availability to its
customers in a shorter time than prescribed in this subpart. A
depositary bank also may adopt different funds availability policies
for different segments of its customer base, as long as each policy
meets the schedules in the regulation. For example, a bank may
differentiate between its corporate and consumer customers, or may
adopt different policies for its consumer customers based on whether a
customer has an overdraft line of credit associated with the account.
2. This regulation does not affect a depositary bank's right to
accept or reject a check for deposit, to charge back the customer's
account based on a returned check or notice of nonpayment, or to claim
a refund for any credit provided to the customer. For example, even if
a check is returned or a notice of nonpayment is received after the
time by which funds must be made available for withdrawal in accordance
with this regulation, the depositary bank may charge back the
customer's account for the full amount of the check. (See
§ 229.33(d) and Commentary.)
3. Nothing in the regulation requires a depositary bank to have
facilities open for customers to make withdrawals at specified times or
on specified days. For example, even though the special cash withdrawal
rule set forth in
§ 229.12(d) states that a
bank must make up to $400 available for cash withdrawals no later than
5 p.m. on specific business days, if a bank does not participate in an
ATM system and does not have any teller windows open at or after 5
p.m., the bank need not join an ATM system or keep offices open. In
this case, the bank complies with this rule if the funds that are
required to be available for cash withdrawal at 5 p.m. on a particular
day are available for withdrawal at the start of business on the
following day. Similarly, if a depositary bank is closed for customer
transactions, including ATMs, on a day funds must be made available for
withdrawal, the regulation does not require the bank to open.
4. The special cash withdrawal rule in the EFA Act recognizes that
the $400 that must be made available for cash withdrawal by 5 p.m. 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 a bank's policy in this regard. As a result, if a bank has a
policy of limiting cash withdrawals from automated teller machines to
$250 per day, the regulation would not require that the bank dispense
$400 of the proceeds of the customer's deposit that must be made
available for cash withdrawal on that day.
5. Even though the EFA Act clearly provides that the bank's ATM
withdrawal limit is not superseded by the federal availability rules on
the day funds must first be made available, the EFA Act does not
specifically permit banks to limit cash withdrawals at ATMs on
subsequent days when the entire amount of the deposit must be made
available for withdrawal. The Board believes that the rationale behind
the Act's provision that a bank's ATM withdrawal limit is not
superseded by the requirement that funds be made available for cash
withdrawal applies on subsequent days. Nothing in the
regulation
{{8-31-04 p.7418.73}}prohibits a
depositary bank from establishing ATM cash withdrawal limits that vary
among customers of the bank, as long as the limit is not dependent on
the length of time funds have been in the customer's account (provided
that the permissible hold has expired).
6. Some small banks, particularly credit unions, due to lack of
secure facilities, keep no cash on their premises and hence offer no
cash withdrawal capability to their customers. Other banks limit the
amount of cash on their premises due to bonding requirements or cost
factors, and consequently reserve the right to limit the amount of cash
each customer can withdraw over-the-counter on a given day. For
example, some banks require advance notice for large cash withdrawals
in order to limit the amount of cash needed to be maintained on hand at
any time.
7. Nothing in the regulation is intended to prohibit a bank from
limiting the amount of cash that may be withdrawn at a staffed teller
station if the bank has a policy limiting the amount of cash that may
be withdrawn, and if that policy is applied equally to all customers of
the bank, is based on security, operating, or bonding requirements, and
is not dependent on the length of time the funds have been in the
customer's account (as long as the permissible hold has expired). The
regulation, however, does not authorize such policies if they are
otherwise prohibited by statutory, regulatory, or common law.
D. 229.19(d) Use of Calculated Availability
1. A depositary bank may provide availability to its nonconsumer
accounts on a calculated availability basis. Under calculated
availability, a specified percentage of funds from check deposits may
be made available to the customer on the next business day, with the
remaining percentage deferred until subsequent days. The determination
of the percentage of deposited funds that will be made available each
day is based on the customer's typical deposit mix as determined by a
sample of the customer's deposits. Use of calculated availability is
permitted only if, on average, the availability terms that result from
the sample are equivalent to or more prompt than the requirements of
this subpart.
E. 229.19(e) Holds on Other Funds
1. Section 607(d) of the Act (12
U.S.C. 4006(d)) provides that once funds are available for
withdrawal under the EFA Act, such funds shall not be frozen solely due
to the subsequent deposit of additional checks that are not yet
available for withdrawal. This provision of the EFA Act is designed to
prevent evasion of the Act's availability requirements.
2. This paragraph clarifies that if a customer deposits a check in
an account (as defined in
§ 229.2(a)), the bank may not
place a hold on any of the customer's funds so that the funds that are
held exceed the amount of the check deposited or the total amount of
funds held are not made available for withdrawal within the times
required in this subpart. For example, if a bank places a hold on funds
in a customer's non transaction account, rather than a transaction
account, for deposits made to the customer's transaction account, the
bank may place such a hold only to the extent that the funds held do
not exceed the amount of the deposit and the length of the hold does
not exceed the time periods permitted by this regulation.
3. These restrictions also apply to holds placed on funds in a
customer's account (as defined in § 229.2(a)) if a customer cashes a
check at a bank (other than a check drawn on that bank) over the
counter. The regulation does not prohibit holds that may be placed on
other funds of the customer for checks cashed over the counter, to the
extent that the transaction does not involve a deposit to an
account. A bank may not, however, place a hold on any account when an
"on us" check is cashed over the counter. "On us" checks
are considered finally paid when cashed (see U.C.C. 4--215(a)(1)). When
a customer cashes a check over the counter and the bank places a hold
on an account of the customer, the bank must give whatever notice would
have been required under
§§ 229.13 or
229.16 had the check been
deposited in the account.
{{8-31-04 p.7418.74}}
F. 229.19(f) Employee Training and Compliance
1. The EFA Act requires banks to take such actions as may be
necessary to inform fully each employee that performs duties subject to
the Act of the requirements of the EFA Act, and to establish and
maintain procedures reasonably designed to assure and monitor employee
compliance with such requirements.
2. This paragraph requires a bank to establish procedures to ensure
compliance with these requirements and provide these procedures to the
employees responsible for carrying them out.
G. 229.19(g) Effect of Merger Transaction
1. After banks merge, there is often a period of adjustment before
their operations are consolidated. This paragraph accommodates this
adjustment period by allowing merged banks to be treated as separate
banks for purposes of this subpart for a period of up to one year after
consummation of the merger transaction, except that a customer of any
bank that is a party to the transaction that has an established account
with that bank may not be treated as a new account holder for any other
party to the transaction for purposes of the new account exception of
§ 229.13(a), and a deposit
in any branch of the merged bank is considered deposited in the bank
for purposes of the availability schedules in accordance with
§ 229.19(a).
2. This rule affects the status of the combined entity in several
areas. For example, this rule would affect when an ATM is a proprietary
ATM (§ 229.2(aa) and
§ 229.12(b)) and when a
check is considered drawn on a branch of the depositary bank
(§ 229.10(c)(1)(vi)).
3. Merger transaction is defined in § 229.2(t).
XIV. Section
229.20 Relation to State Law
A. 229.20(a) In General
1. Several states have enacted laws that govern when banks in those
states must make funds available to their customers. The EFA Act
provides that any state law in effect on September 1, 1989, that
provides that funds be made available in a shorter period of time than
provided in this regulation, will supersede the time periods in the EFA
Act and the regulation. The Conference Report on the EFA Act clarifies
this provision by stating that any state law enacted on or before
September 1, 1989, may supersede federal law to the extent that the law
relates to the time funds must be made available for withdrawal. H.R.
Rep. No. 261, 100th Cong. 1st Sess. at 182 (1987).
2. Thus, if a state had wished to adopt a law governing funds
availability, it had to have made that law effective on or before
September 1, 1989. Laws adopted after that date do not supersede
federal law, even if they provide for shorter availability periods than
are provided under federal law. If a state that had a law governing
funds availability in effect before September 1, 1989, amended its law
after that date, the amendment would not supersede federal law, but an
amendment deleting a state requirement would be effective.
3. If a state provides for a shorter hold for a certain category of
checks than is provided for under federal law, that state requirement
will supersede the federal provision. For example, most state laws base
some hold periods on whether the check being deposited is drawn on an
in-state or out-of-state bank. If a state contains more than one check
processing region, the state's hold period for in-state checks may be
shorter than the federal maximum hold period for nonlocal checks. Thus,
the state schedule would supersede the federal schedule to the extent
that it applies to in-state, nonlocal checks.
4. The EFA Act also provides that any state law that provides for
availability in a shorter period of time than required by federal law
is applicable to all federally insured institutions in that state,
including federally chartered institutions. If a state law provides
shorter availability only for deposits in accounts in certain
categories of banks, such as commercial banks, the superseding state
law continues to apply only to those categories of banks, rather than
to all federally insured banks in the state.
{{8-31-04 p.7418.75}}
B. 229.20(b) Preemption of Inconsistent Law
1. This paragraph reflects the statutory provision that other
provisions of state law that are inconsistent with federal law are
preempted. Preemption does not require a determination by the Board to
be effective.
C. 229.20(c) Standards for Preemption
1. This section describes the standards the Board uses in making
determinations on whether federal law will preempt state laws governing
funds availability. A provision of state law is considered
inconsistent with federal law if it permits a depositary bank to make
funds available to a customer in a longer period of time than the
maximum period permitted by the EFA Act and this regulation. For
example, a state law that permits a hold of four business days or
longer for local checks permits a hold that is longer than that
permitted under the EFA Act and this regulation, and therefore is
inconsistent and preempted. State availability schedules that provide
for availability in a shorter period of time than required under
Regulation CC supersede the federal schedule.
2. Under a state law, some categories of deposits could be
available for withdrawal sooner or later than the time required by this
subpart, depending on the composition of the deposit. For example, the
Act and this regulation
(§ 229.10(c)(1)(vii))
require next-day availability for the first $100 of the aggregate
deposit of local or nonlocal checks on any day, and a state law could
require next-day availability for any check of $100 or less that is
deposited. Under this Act and this regulation, if either one $150 check
or three $50 checks are deposited on a given day, $100 must be made
available for withdrawal on the next business day, and $50 must be made
available in accordance with the local or nonlocal schedule. Under the
state law, however, the two deposits would be subject to different
availability rules. In the first case, none of the proceeds of the
deposit would be subject to next-day availability; in the second case,
the entire proceeds of the deposit would be subject to next-day
availability. In this example, because the state law would, in some
situations, permit a hold longer than the maximum permitted by the EFA
Act, this provision of state law is inconsistent and preempted in its
entirety.
3. In addition to the differences between state and federal
availability schedules, a number of state laws contain exceptions to
the state availability schedules that are different from those provided
under the EFA Act and this regulation. The state exceptions continue to
apply only in those cases where the state schedule is shorter than or
equal to the federal schedule, and then only up to the limit permitted
by the Regulation CC schedule. Where a deposit is subject to a state
exception under a state schedule that is not preempted by Regulation CC
and is also subject to a federal exception, the hold on the deposit
cannot exceed the hold permissible under the federal exception in
accordance with Regulation CC. In such cases, only one exception notice
is required, in accordance with
§ 229.13(g). This notice
need only include the applicable federal exception as the reason the
exception was invoked. For those categories of checks for which the
state schedule is preempted by the federal schedule, only the federal
exceptions may be used.
4. State laws that provide maximum availability periods for
categories of deposits that are not covered by the EFA Act would not be
preempted. Thus, state funds availability laws that apply to funds in
time and savings deposits are not affected by the EFA Act or this
regulation. In addition, the availability schedules of several states
apply to "items" deposited to an account. The term items may
encompass deposits, such as nonnegotiable instruments, that are not
subject to the Regulation CC availability schedules. Deposits that are
not covered by Regulation CC continue to be subject to the state
availability schedules. State laws that provide maximum availability
periods for categories of institutions that are not covered by the EFA
Act also would not be preempted. For example, a state law that governs
money market mutual funds would not be affected by the EFA Act or this
regulation.
5. Generally, state rules governing the disclosure or notice of
availability policies applicable to accounts also are preempted, if
they are different from the federal rules. Nevertheless, a state law
requiring disclosure of funds availability policies that apply
to
{{8-31-04 p.7418.76}}deposits other
than "accounts," such as savings or time deposits, are not
inconsistent with the EFA Act and this subpart. Banks in these states
would have to follow the state disclosure rules for these deposits.
D. 229.20(d) Preemption Determinations
1. The Board may issue preemption determinations upon the request
of an interested party in a state. The determinations will relate only
to the provisions of subparts A and B; generally the Board will not
issue individual preemption determinations regarding the relation of
state U.C.C. provisions to the requirements of subpart C.
E. 229.20(e) Procedures for Preemption Determinations
1. This provision sets forth the information that must be included
in a request by an interested party for a preemption determination by
the Board.
XV. Section
229.21 Civil Liability
A. 229.21(a) Civil Liability
1. This paragraph sets forth the statutory penalties for failure to
comply with the requirements of this subpart. These penalties apply to
provisions of state law that supersede provisions of this regulation,
such as requirements that funds deposited in accounts at banks be made
available more promptly than required by this regulation, but they do
not apply to other provisions of state law. (See Commentary to
§ 229.20.)
B. 229.21(b) Class Action Awards
1. This paragraph sets forth the provision in the Act concerning
the factors that should be considered by the court in establishing the
amount of a class action award.
C. 229.21(c) Bona Fide Errors
1. A bank is shielded from liability under this section for a
violation of a requirement of this subpart if it can demonstrate, by a
preponderance of the evidence, that the violation resulted from a bona
fide error and that it maintains procedures designed to avoid such
errors. For example, a bank may make a bona fide error if it fails to
give next-day availability on a check drawn on the Treasury because the
bank's computer system malfunctions in a way that prevents the bank
from updating its customer's account; or if it fails to identify
whether a payable-through check is a local or nonlocal check despite
procedures designed to make this determination accurately.
D. 229.21(d) Jurisdiction
1. The EFA Act confers subject matter jurisdiction on courts of
competent jurisdiction and provides a time limit for civil actions for
violations of this subpart.
E. 229.21(e) Reliance on Board Rulings
1. This provision shields banks from civil liability if they act in
good faith in reliance on any rule, regulation, model form, notice, or
clause (if the disclosure actually corresponds to the bank's
availability policy), or interpretation of the Board, even if it were
subsequently determined to be invalid. Banks may rely on this
Commentary, which is issued as an official Board interpretation, as
well as on the regulation itself.
F. 229.21(f) Exclusions
1. This provision clarifies that liability under this section does
not apply to violations of the requirements of subpart C of this
regulation, or to actions for wrongful dishonor of a check by a paying
bank's customer.
G. 229.21(g) Record Retention
1. Banks must keep records to show compliance with the requirements
of this subpart for at least two years. This record retention period is
extended in the case of civil actions and enforcement proceedings.
Generally, a bank is not required to retain records showing that it
actually has given disclosures or notices required by this subpart to
each customer,
{{4-28-00 p.7418.77}}but it must
retain evidence demonstrating that its procedures reasonably ensure the
customers' receipt of the required disclosures and notices. A bank
must, however, retain a copy of each notice provided pursuant to its
use of the reasonable cause exception under § 229.13(g) as well as a
brief description of the facts giving rise to the availability of that
exception.
XVI. Section
229.30 Paying Bank's Responsibility for Return of Checks
A. 229.30(a) Return of Checks
1. This section requires a paying bank (which, for purposes of
subpart C, may include a payable-through and payable-at bank; see
§ 229.2(z)) that determines not to pay a check to return the check
expeditiously. Generally, a check is returned expeditiously if the
return process is as fast as the forward collection process. This
paragraph provides two standards for expeditious return, the
"two-day/four-day" test, and the "forward collection" test.
2. Under the "two-day/four-day" test, if a check is returned
such that it would normally be received by the depositary bank two
business days after presentment where both the paying and depositary
banks are located in the same check processing region or four business
days after presentment where the paying and depositary banks are not
located in the same check processing region, the check is considered
returned expeditiously. In certain limited cases, however, these times
are shorter than the time it would normally take a forward collection
check deposited in the paying bank and payable by the depositary bank
to be collected. Therefore, the Board has included a "forward
collection" test, whereby a check is nonetheless considered to be
returned expeditiously if the paying bank uses transportation methods
and banks for return comparable to those used for forward collection
checks, even if the check is not received by the depositary banks
within the two-day or four-day period.
3. Two-day/four-day test.
a. Under the first test, a paying bank must return the check so
that the check would normally be received by the depositary bank within
specified times, depending on whether or not the paying and depositary
banks are located in the same check processing region.
b. Where both banks are located in the same check processing
region, a check is returned expeditiously if it is returned to the
depositary bank by 4:00 p.m. (local time of the depositary bank) of the
second business day after the banking day on which the check was
presented to the paying bank. For example, a check presented on Monday
to a paying bank must be returned to a depositary bank located in the
same check processing region by 4 p.m. on Wednesday. For a paying bank
that is located in a different check processing region than the
depositary bank, the deadline to complete return is 4 p.m. (local time
of the depositary bank) of the fourth business day after the banking
day on which the check was presented to the paying bank. For example, a
check presented to such a paying bank on Monday must be returned to the
depositary bank by 4:00 p.m. on Friday.
c. This two-day/four-day test does not necessarily require actual
receipt of the check by the depositary bank within these times. Rather,
the paying bank must send the check so that the check would normally be
received by the depositary bank within the specified time. Thus, the
paying bank is not responsible for unforeseeable delays in the return
of the check, such as transportation delays.
d. Often, returned checks will be delivered to the depositary bank
together with forward collection checks. Where the last day on which a
check could be delivered to a depositary bank under this
two-day/four-day test is not a banking day for the depositary bank, a
returning bank might not schedule delivery of forward collection checks
to the depositary bank on that day. Further, the depositary bank may
not process checks on that day. Consequently, if the last day of the
time limit is not a banking day for the depositary bank, the check may
be delivered to the depositary bank before the close of the depositary
bank's next banking day and the return will still be considered
expeditious. Ordinarily, this extension of time will allow the returned
checks to be delivered with the next shipment of forward collection
checks destined for the depositary bank.
{{4-28-00 p.7418.78}}
e. The times specified in this two-day/four-day test are based on
estimated forward collection times, but take into account the
particular difficulties that may be encountered in handling returned
checks. It is anticipated that the normal process for forward
collection of a check coupled with these return requirements will
frequently result in the return of checks before the proceeds of
nonlocal checks, other than those covered by
§ 229.10(c), must be made
available for withdrawal.
f. Under this two-day/four-day test, no particular means of
returning checks is required, thus providing flexibility to paying
banks in selecting means of return. The Board anticipates that paying
banks will often use returning banks (see
§ 229.31) as their agents to
return checks to depositary banks. A paying bank may rely on the
availability schedule of the returning bank it uses in determining
whether the returned check would "normally" be returned within
the required time under this two-day/four-day test, unless the paying
bank has reason to believe that these schedules do not reflect the
actual time for return of a check.
4. Forward collection test.
a. Under the second, "forward collection," test, a paying
bank returns a check expeditiously if it returns a check by means as
swift as the means similarly situated banks would use for the forward
collection of a check drawn on the depositary bank.
b. Generally, the paying bank would satisfy the "forward
collection" test if it uses a transportation method and collection
path for return comparable to that used for forward collection,
provided that the returning bank selected to process the return agrees
to handle the returned check under the standards for expeditious return
for returning banks under § 229.31(a). This test allows many paying
banks a simple means of expeditious return of checks and takes into
account the longer time for return that will be required by banks that
do not have ready access to direct courier transportation.
c. The paying bank's normal method of sending a check for forward
collection would not be expeditious, however, if it is materially
slower than that of other banks of similar size and with similar check
handling activity in its community.
d. Under the "forward collection" test, a paying bank must
handle, route, and transport a returned check in a manner designed to
be at least as fast as a similarly situated bank would collect a
forward collection check (1) of similar amount, (2) drawn on the
depositary bank, and (3) received for deposit by a branch of the paying
bank or a similarly situated bank by noon on the banking day following
the banking day of presentment of the returned check.
e. This test refers to similarly situated banks to indicate a
general community standard. In the case of a paying bank (other than a
Federal Reserve Bank), a similarly situated bank is a bank of similar
asset size, in the same community, and with similar check handling
activity as the paying bank. (See § 229.2(ee).) A paying bank has
similar check handling activity to other banks that handle similar
volumes of checks for collection.
f. Under the forward collection test, banks that use means of
handling returned checks that are less efficient than the means used by
similarly situated banks must improve their procedures. On the other
hand, a bank with highly efficient means of collecting checks drawn on
a particular bank, such as a direct presentment of checks to a bank in
a remote community, is not required to use that means for returned
checks, i.e. direct return, if similarly situated banks do not present
checks directly to that depositary bank.
5. Examples.
a. If a check is presented to a paying bank on Monday and the
depositary bank and the paying bank are participants in the same
clearinghouse, the paying bank should arrange to have the returned
check received by the depositary bank by Wednesday. This would be the
same day the paying bank would deliver a forward collection check to
the depositary bank if the paying bank received the deposit by noon on
Tuesday.
b. i. If a check is presented to a paying bank on Monday and the
paying bank would normally collect checks drawn on the depositary bank
by sending them to a correspondent or a Federal Reserve bank by
courier, the paying bank could send the returned check to its
correspondent or Federal Reserve bank, provided that the correspondent
has agreed to
{{8-31-04 p.7418.79}}handle returned
checks expeditiously under § 229.31(a). (All Federal Reserve banks
agree to handle returned checks expeditiously.)
ii. The paying bank must deliver the returned check to the
correspondent or Federal Reserve bank by the correspondent's or Federal
Reserve bank's appropriate cut-off hour. The appropriate cut-off hour
is the cut-off hour for returned checks that corresponds to the cut-off
hour for forward collection checks drawn on the depositary bank that
would normally be used by the paying bank or a similarly situated bank.
A returned check cut-off hour corresponds to a forward collection
cut-off hour if it provides for the same or faster availability for
checks destined for the same depositary banks.
iii. In this example, delivery to the correspondent or a Federal
Reserve bank by the appropriate cut-off hour satisfies the paying
bank's duty, even if use of the correspondent or Federal Reserve bank
is not the most expeditious means of returning the check. Thus, a
paying bank may send a local returned check to a correspondent instead
of a Federal Reserve bank, even if the correspondent then sends the
returned check to a Federal Reserve bank the following day as a
qualified returned check. Where the paying bank delivers forward
collection checks by courier to the correspondent or the Federal
Reserve bank, mailing returned checks to the correspondent or Federal
Reserve bank would not satisfy the forward collection test.
iv. If a paying bank ordinarily mails its forward collection checks
to its correspondent or Federal Reserve bank in order to avoid the
costs of a courier delivery, but similarly situated banks use a courier
to deliver forward collection checks to their correspondent or Federal
Reserve bank, the paying bank must send its returned checks by courier
to meet the forward collection test.
c. If a paying bank normally sends its forward collection checks
directly to the depositary bank, which is located in another community,
but similarly situated banks send forward collection checks drawn on
the depositary bank to a correspondent or a Federal Reserve bank, the
paying bank would not have to send returned checks directly to the
depositary bank, but could send them to a correspondent or a Federal
Reserve bank.
d. The dollar amount of the returned check has a bearing on how it
must be returned. If the paying bank and similarly situated banks
present large-dollar checks drawn on the depositary bank directly to
the depositary bank, but use a Federal Reserve bank or a correspondent
to collect small-dollar checks, generally the paying bank would be
required to send its large-dollar returns directly to the depositary
bank (or through a returning bank, if the checks are returned as
quickly), but could use a Federal Reserve bank or a correspondent for
its small-dollar returns.
6. Choice of returning bank. In meeting the requirements of the
forward collection test, the paying bank is responsible for its own
actions, but not for those of the depositary bank or returning banks.
(This is analogous to the responsibility of collecting banks under
U.C.C. 4--202(c).) For example, if the paying bank starts the return of
the check in a timely manner but return is delayed by a returning bank
(including delay to create a qualified returned check), generally the
paying bank has met its requirements. (See
§ 229.38.) If, however, the
paying bank selects a returning bank that the paying bank should know
is not capable of meeting its return requirements, the paying bank will
not have met its obligation of exercising ordinary care in selecting
intermediaries to return the check. The paying bank is free to use a
method of return, other than its method of forward collection, as long
as the alternate method results in delivery of the returned check to
the depositary bank as quickly as the forward collection of a check
drawn on the depositary bank or, where the returning bank takes a day
to create a qualified returned check under
§ 229.31(a), one day later
than the forward collection time. If a paying bank returns a check on
its banking day of receipt without settling for the check, as permitted
under U.C.C. 4--302(a), and receives settlement for the returned check
from a returning bank, it must promptly pay the amount of the check to
the collecting bank from which it received the check.
7. Qualified returned checks. Although paying banks may wish to
prepare qualified returned checks because they will be handled at a
lower cost by returning banks, the one business day extension provided
to returning banks is not available to paying banks
because
{{8-31-04 p.7418.80}}of the longer
time that a paying bank has to dispatch the check. Normally, paying
banks will be able to convert a check to a qualified returned check at
any time after the determination is made to return the check until late
in the day following presentment, while a returning bank may receive
returned checks late on one day and be expected to dispatch them early
the next morning. A check that is converted to a qualified returned
check must be encoded in accordance with ANS X9.13 for original checks
or ANS X9.100--140 for substitute checks.
8. Routing of returned checks.
a. In effect, under either test, the paying bank acts as an agent
or subagent of the depositary bank in selecting a means of return.
Under § 229.30(a), a paying bank is authorized to route the returned
check in a variety of ways:
i. It may send the returned check directly to the depositary bank
by courier or other means of delivery, bypassing returning banks; or
ii. It may send the returned check to any returning bank agreeing
to handle the returned check for expeditious return to the depositary
bank under § 229.31(a), regardless of whether or not the returning
bank handled the check for forward collection.
b. If the paying bank elects to return the check directly to the
depositary bank, it is not necessarily required to return the check to
the branch of first deposit. The check may be returned to the
depositary bank at any location permitted under
§ 229.32(a).
9. Midnight deadline.
a. Except for the extension permitted by § 229.30(c), discussed
below, this section does not relieve a paying bank from the requirement
for timely return (i.e., midnight deadline) under U.C.C. 4--301 and
4--302, which continue to apply. Under U.C.C. 4--302, a paying bank is
"accountable" for the amount of a demand item, other than a
documentary draft, if it does not pay or return the item or send notice
of dishonor by its midnight deadline. Under U.C.C. 3--418(c) and
4--215(a), late return constitutes payment and would be final in favor
of a holder in due course or a person who has in good faith changed his
position in reliance on the payment. Thus, retaining this requirement
gives the paying bank an additional incentive to make a prompt return.
b. The expeditious return requirement applies to a paying bank that
determines not to pay a check. This requirement applies to a
payable-through or a payable-at bank that is defined as a paying bank
(see § 229.2(z)) and that returns a check. This requirement begins
when the payable-through or payable-at bank receives the check during
forward collection, not when the payor returns the check to the
payable-through or payable-at bank. Nevertheless, a check sent for
payment or collection to a payable-through or payable-at bank is not
considered to be drawn on that bank for purposes of the midnight
deadline provision of U.C.C. 4--301. (See discussion of § 229.36(a).)
c. The liability section of this subpart
(§ 229.38) provides that a
paying bank is not subject to both "accountability" for missing
the midnight deadline under the U.C.C. and liability for missing the
timeliness requirements of this regulation. Also, a paying bank is not
responsible for failure to make expeditious return to a party that has
breached a presentment warranty under U.C.C. 4--208, notwithstanding
that the paying bank has returned the check. (See Commentary to
§ 229.33(a).)
10. U.C.C. provisions affected. This paragraph directly affects the
following provisions of the U.C.C., and may affect other sections or
provisions:
a. Section 4--301(d), in that instead of returning a check through
a clearinghouse or to the presenting bank, a paying bank may send a
returned check to the depositary bank or to a returning bank.
b. Section 4--301(a), in that time limits specified in that section
may be affected by the additional requirement to make an expeditious
return and in that settlement for returned checks is made under
§ 229.31(c), not by revocation of settlement.
B. 229.30(b) Unidentifiable Depositary Bank
1. In some cases, a paying bank will be unable to identify the
depositary bank through the use of ordinary care and good faith. The
Board expects that these cases will be unusual as skilled return clerks
will readily identify the depositary bank from the depositary bank
indorsement required under
§ 229.35 and
appendix D. In
cases where the paying bank is
{{8-31-04 p.7418.81}}unable to
identify the depositary bank, the paying bank may, in accordance with
§ 229.30(a), send the returned check to a returning bank that agrees
to handle the returned check for expeditious return to the depositary
bank under § 229.31(a). The returning bank may be better able to
identify the depositary bank.
2. In the alternative, the paying bank may send the check back up
the path used for forward collection of the check. The presenting bank
and prior collecting banks normally will be able to trace the
collection path of the check through the use of their internal records
in conjunction with the indorsements on the returned check. In these
limited cases, the paying bank may send such a returned check to any
bank that handled the check for forward collection, even if that bank
does not agree to handle the returned check for expeditious return to
the depositary bank under § 229.31(a). A paying bank returning a
check under this paragraph to a bank that has not agreed to handle the
check expeditiously must advise that bank that it is unable to identify
the depositary bank. This advice must be conspicuous, such as a stamp
on each check for which the depositary bank is unknown if such checks
are commingled with other returned checks, or, if such checks are sent
in a separate cash letter, by one notice on the cash letter. This
information will warn the bank that this check will require special
research and handling in accordance with
§ 229.31(b). The returned
check may not be prepared for automated return. The return of a check
to a bank that handled the check for forward collection is consistent
with § 229.35(b), which requires a bank handling a check to take up
the check it is has not been paid.
3. The sending of a check to a bank that handled the check for
forward collection under this paragraph is not subject to the
requirements for expeditious return by the paying bank. Often, the
paying bank will not have courier or other expeditious means of
transportation to the collecting or presenting bank. Although the lack
of a requirement of expeditious return will create risks for the
depositary bank, in many cases the inability to identify the depositary
bank will be due to the depositary bank's, or a collecting bank's,
failure to use the indorsement required by
§ 229.35(a) and appendix D.
If the depositary bank failed to use the proper indorsement, it should
bear the risks of less than expeditious return. Similarly, where the
inability to identify the depositary bank is due to indorsements or
other information placed on the back of the check by the depositary
bank's customer or other prior indorser, the depositary bank should
bear the risk that it cannot charge a returned check back to that
customer. Where the inability to identify the depositary bank is due to
subsequent indorsements of collecting banks, these collecting banks may
be liable for a loss incurred by the depositary bank due to less than
expeditious return of a check; those banks therefore have an incentive
to return checks sent to them under this paragraph quickly.
4. This paragraph does not relieve a paying bank from the liability
for the lack of expeditious return in cases where the paying bank is
itself responsible for the inability to identify the depositary bank,
such as when the paying bank's customer has used a check with printing
or other material on the back in the area reserved for the depositary
bank's indorsement, making the indorsement unreadable. (See
§ 229.38(d).)
5. A paying bank's return under this paragraph is also subject to
its midnight deadline under U.C.C. 4--301, Regulation J (if the check
is returned through a Federal Reserve bank), and the exception provided
in § 229.30(c). A paying bank also may send a check to a prior
collecting bank to make a claim against that bank under § 229.35(b)
where the depositary bank is insolvent or in other cases as provided in
§ 229.35(b). Finally, a paying bank may make a claim against a prior
collecting bank based on a breach of warranty under U.C.C.
4--208.
3This section implements section 606 of the Act
(12 U.S.C. 4005). The Act keys
the requirement to pay interest to the time the depositary bank
receives provisional credit for a check. Provisional credit is a term
used in the U.C.C. that is derived from the Code's concept of
provisional settlement. (See U.C.C. 4--214 and 4--215.) Provisional
credit is credit that is subject to charge-back if the check is
returned unpaid; once the check is finally paid, the right to charge
back expires and the provisional credit becomes final. Under subpart C,
a paying bank no longer has an automatic right to charge back credits
given in settlement of a check, and the concept of provisional
settlement is no longer useful and has been eliminated by the
regulation. Accordingly, this section uses the term credit rather than
provisional credit, and this section applies regardless of whether a
credit would be provisional or final under the U.C.C. Credit does not
include a bookkeeping entry (sometimes referred to as deferred credit)
that does not represent funds actually available for the bank's use. Go Back to Text
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