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l l★K

Federal Reserve Bank
of Dallas

HELEN E. HOLCOMB
DALLAS, TEXAS
75265-5906

FIRST VICE PRESIDENT AND
CHIEF OPERATING OFFICER

March 18, 1999

Notice 99-13

TO: The Chief Operating Officer of each
financial institution and others concerned
in the Eleventh Federal Reserve District

SUBJECT
Request for Public Comment on
Options for Amending Subpart C of Regulation CC
DETAILS
The Board of Governors of the Federal Reserve System is requesting public comment
on options for amending Regulation CC (Availability of Funds and Collection of Checks).
The proposed options would amend Subpart C’s provision on sending notices in lieu
of returning the original checks. The proposal is intended to provide more flexibility to depository institutions to experiment with methods to return checks electronically.
The Board must receive comments by April 30, 1999. Please address comments to
Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th Street
and Constitution Avenue, N.W., Washington, DC 20551. All comments should refer to Docket
No. R-1034.
ATTACHMENT
A copy of the Board’s notice as it appears on pages 9105–07, Vol. 64, No. 36 of the
Federal Register dated February 24, 1999, is attached.

For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal
Reserve Bank of Dallas: Dallas Office (800) 333-4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012;
Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.

-2-

MORE INFORMATION
For more information, please contact Larry Snell, (214) 922-5571, at the Dallas
Office; Eloise Guinn, (915) 521-8201, at the El Paso Branch; René Gonzales, (713) 652-1543,
at the Houston Branch; or Herb Barbee, (210) 978-1402, at the San Antonio Branch.
For additional copies of this Bank’s notice, contact the Public Affairs Department at
(214) 922-5254.
Sincerely,

Federal Register / Vol. 64, No. 36 / Wednesday, February 24, 1999 / Proposed Rules
absorbed dose). Each production lot
must have at least one dosimeter
positioned at the regions of minimum
and maximum absorbed dose (or at one
region verified to represent such) on at
least the first, middle, and last product
unit.
(7) Procedures for verifying the
relationship of absorbed dose as
measured by the dosimeter to time
exposure of the product unit to the
radiation source.
(8) Procedures for verifying the
integrity of the radiation source and
processing procedure. Aside from
expected and verified radiation source
activity decay for radionuclide sources,
the radiation source or processing
procedure must not be altered,
modified, replenished, or adjusted
without repeating dose mapping of
product units to redefine the regions of
minimum and maximum absorbed dose.
(c) Documentation. Official
establishments that irradiate poultry
products must have the following
documentation on premises, available to
FSIS:
(1) The validated process schedule, if
the establishment is not operating under
HACCP.
(2) Documentation showing that the
irradiation facility is licensed and/or
possesses gamma radiation sources
registered with the Nuclear Regulatory
Commission (NRC) or the appropriate
State government acting under authority
granted by the NRC.
(3) Documentation showing that the
machine radiation source irradiation
facility is registered with the
Occupational Safety and Health
Administration (OSHA) or the
appropriate State government acting
under authority granted by OSHA, and
that a worker safety program addressing
OSHA regulations (29 CFR chapter
XVII) is in place.
(4) Citations or other documents that
relate to incidences in which the
establishment was found not to comply
with Federal or State agency
requirements for irradiation facilities.
(5) A certification by the operator that
the irradiation facility personnel would
operate under supervision of a person
who has successfully completed a
course of instruction for operators of
food irradiation facilities.
(6) A certification by the operator that
the key irradiation personnel have been
trained in food technology, irradiation
processing, and radiation health and
safety.
(7) Guarantees from the suppliers of
all food-contact packaging materials that
may be subject to irradiation that those
materials comply with the Federal Food,
Drug, and Cosmetic Act (21 U.S.C. 301

et seq.) and with regulations in 21 CFR
179.45 for food irradiation processing
and that the food-contact packaging
material is air-permeable, but does
exclude moisture and microorganisms
from penetrating the package barrier.
Done in Washington, DC on: February 18,
1999.
Thomas J. Billy,
Administrator.
[FR Doc. 99–4401 Filed 2–18–99; 3:37 pm]
BILLING CODE 3410–DM–P

FEDERAL RESERVE SYSTEM
12 CFR Part 229
[Regulation CC; Docket No. R–1034]

Availability of Funds and Collection of
Checks
Board of Governors of the
Federal Reserve System.
ACTION: Proposed rule.
AGENCY:

The Board is requesting
comment on options for amending
Subpart C of Regulation CC, which
contains rules governing the collection
and return of checks. The proposed
options would amend Subpart C’s
provisions on sending notices in lieu of
returning the original checks. The
proposal is intended to provide more
flexibility to depository institutions to
experiment with methods to return
checks electronically.
DATES: Comments must be submitted on
or before April 30, 1999.
ADDRESSES: Comments, which should
refer to Docket No. R–1034, may be
mailed to Ms. Jennifer J. Johnson,
Secretary, Board of Governors of the
Federal Reserve System, 20th and C
Streets, NW, Washington, D.C. 20551.
Comments addressed to Ms. Johnson
also may be delivered to the Board’s
mail room between 8:45 a.m. and 5:15
p.m. and to the security control room
outside of those hours. Both the mail
room and the security control room are
accessible from the courtyard entrance
on 20th Street between Constitution
Avenue and C Street, NW. Comments
may be inspected in Room MP–500
between 9:00 a.m. and 5:00 p.m.
FOR FURTHER INFORMATION CONTACT:
Oliver I. Ireland, Associate General
Counsel (202/452–3625), Stephanie
Martin, Senior Counsel (202/452–3198),
Legal Division. For the hearing impaired
only, contact Diane Jenkins,
Telecommunications Device for the Deaf
(TDD) (202/452–3544), Board of
Governors of the Federal Reserve
System, 20th and C Streets, NW,
Washington, D.C. 20551.
SUMMARY:

9105

SUPPLEMENTARY INFORMATION:

Background
Subpart C of the Board’s Regulation
CC (12 CFR Part 229) contains rules
governing the collection and return of
checks. These rules are intended to
expedite the check collection and return
process, thereby reducing risk to banks 1
and their customers. Regulation CC was
designed to work in accord with the
state law check-collection rules in
Articles 3 and 4 of the Uniform
Commercial Code (U.C.C.), although in
some areas the regulation preempts the
U.C.C.
When a paying bank decides to return
a check, the U.C.C. and Regulation CC
require it to send the check or a notice
within certain deadlines.2 If a check is
unavailable for return, U.C.C. 4–301(a)
allows a paying bank to charge back the
check by revoking provisional
settlement based on a ‘‘notice of
dishonor’’ (or a ‘‘notice of nonpayment’’
where the check is returned for reasons
other than dishonor). The U.C.C. would
appear to allow a paying bank to return
a notice when a check has been
truncated. The Official Comment to
U.C.C. 4–301 states that an item may be
considered unavailable for return if it is
retained by the collecting bank in
accordance with a bank check retention
plan.
Regulation CC (§§ 229.30(f) and
229.31(f)) establishes a ‘‘notice in lieu of
return,’’ which substitutes for the
original check and carries value. The
‘‘notice-in-lieu’’ provisions of
Regulation CC provide that the paying
(or returning) bank must return the
original check unless the check is
unavailable, in which case the bank may
return a copy of the front and back of
the check, or, if no such copy is
available, a written notice containing
specified information about the check.
The Commentary to §§ 229.30(f) and
229.31(f) states that notice in lieu of
return is permitted only when a bank
does not have and cannot obtain
possession of the check or must retain
possession of the check for protest. The
Commentary explains that a check is not
unavailable for return if it is merely
difficult to retrieve from a filing system
or from storage by a keeper of checks in
a truncation system.
1 In Regulation CC and its Commentary, as well
as in this docket, the term ‘‘bank’’ refers to all
depository institutions, including commercial
banks, savings institutions, and credit unions.
2 The paying bank must initiate the return by
midnight of the banking day following the day the
check was presented (U.C.C. 4–301). The paying
bank must return the check so that it reaches the
depositary bank expeditiously, in accordance with
§ 229.30(a) of Regulation CC.

9106

Federal Register / Vol. 64, No. 36 / Wednesday, February 24, 1999 / Proposed Rules

Regulation CC (§ 229.37) permits the
parties to a check to vary the notice-inlieu provisions; however, an agreement
under Regulation CC cannot affect banks
or customers that are not party to the
agreement or otherwise bound by it. The
Regulation CC variation-by-agreement
provision differs from the corresponding
language in U.C.C. 4–103 in that the
U.C.C. allows Federal Reserve
regulations and operating circulars,
clearinghouse rules, and the like to be
effective as agreements whether or not
specifically assented to by all interested
parties.3 Regulation CC does not
incorporate the U.C.C.’s special
treatment for Federal Reserve rules and
operating circulars and clearinghouse
rules but does not affect the status of
such rules and circulars under the
U.C.C.
Private-sector payments system
participants have requested that the
Board clarify the interrelationship of
Regulation CC and the U.C.C. They have
questioned whether Regulation CC
limits a clearinghouse’s ability to bind
non-assenting third parties to a check
truncation system under which the
depositary bank would receive a notice,
such as in the form of an electronicallyproduced check image, in lieu of the
return of the original check. These
payments system participants stated
that resolving uncertainty in this area
could lead to greater experimentation
and innovation in the provision of
payments services.
The Board wishes to support
development of new payments services
and to take steps to remove any federal
regulatory impediments to innovation in
the payments area where appropriate.
The Board is, therefore, requesting
comment on options for amending
Regulation CC and/or its Commentary to
clarify the permissibility of notices in a
check truncation environment instead of
return of the actual check. The Board
will consider the proposed regulatory
changes in light of its statutory authority
and responsibilities under section 609
of the Expedited Funds Availability Act
(12 U.S.C. 4008(c)) to regulate any
aspect of the payment system, including
the check collection and return system,
in order to carry out the provisions of
the Act. The Board will consider the
associated benefits and burdens of a
regulatory change to the payment
system as a whole as well as the
implications for each party to a payment
transaction affected by the rule. The
Board also requests comment on
3 The Official Comment to U.C.C. 4–103 (note 3)
indicates, however, that there are limitations on the
scope of clearinghouse rules’ ability to bind nonassenting parties.

whether there are other options that
would be more appropriate than the two
discussed below.
Options for Notices in Lieu of Return
The Board is considering two options
for amending the Regulation CC
provisions on notices in lieu of return.
The Board requests comment on the
feasibility of these options, whether
either of the options would remove
impediments to the development of a
more efficient payments mechanism,
and the advantages and disadvantages of
each option to the various participants
in the check system, including
depositary banks, intermediary banks,
paying banks, drawers, depositors, and
non-depositor payees.
Option One. One of the purposes of
subpart C of Regulation CC was to speed
up the check return system that existed
under the U.C.C. The U.C.C.
contemplates that the paying bank will
return a check to the presenting bank,
which in turn will charge back the
check against the prior collecting bank,
and so on back up the forward
collection chain until the check reaches
the depositary bank. Regulation CC
eliminated the requirement that
returned checks follow the forward
collection chain. Under Regulation CC,
the paying bank may send the returned
check directly to the depositary bank or
to any returning bank, even if that bank
did not handle the check for forward
collection.
Regulation CC did not prohibit the
return of checks back through the
forward collection chain, but rather
authorized banks to use a more efficient
and direct route. Accordingly, one
interpretation of Regulation CC is that
banks may continue to return checks in
accordance with the U.C.C. charge-back
rules and the corresponding rules
governing when notice may be sent
instead of the original check, subject to
Regulation CC’s expeditious return
requirements. Under this interpretation,
banks would need to follow the noticein-lieu provisions of Regulation CC only
if they wished to return the check
through a route other than the forward
collection chain. As noted above, the
U.C.C. Official Comment indicates that
the U.C.C. would allow return of a
notice rather than the physical check in
the event the check is being stored in
accordance with a check retention
system.
The Board could amend the
Commentary to reflect this
interpretation of the interplay of
Regulation CC and the U.C.C. by stating
that banks could send a notice of
dishonor or nonpayment under the
provisions of U.C.C. 4–301 when they

return the notice through the forward
collection chain, as contemplated in the
U.C.C. The U.C.C. notices would be
subject to the Regulation CC expeditious
return rules. This proposal would
clarify that banks can avail themselves
of the U.C.C. rules regarding return of
notices to the same extent they could
before Regulation CC was adopted. This
interpretation, however, may not
provide relief for check truncation or
image systems if returns do not follow
the forward collection chain.
This option could also have
consequences for the depositors or
payees of the checks in that they would
receive notices of returns rather than the
original checks on a more frequent
basis. They may have difficulty
recovering from the drawers if they
cannot obtain the original checks.
Furthermore, despite the fact that the
depositary bank could charge back its
customer’s account based on the notice
in accordance with U.C.C. 4–214(a), the
customer may, as owner of the check,
ultimately have the right to possession
of the check.
Option Two. Another approach would
be for the Board to delete the Regulation
CC Commentary language that explains
when a check is unavailable for return.
Specifically, the Board could remove
the following provisions in the
Commentary to §§ 229.30(f) and
229.31(f):
Notice in lieu of return is permitted only
when a bank does not have and cannot obtain
possession of the check or must retain
possession of the check for protest. A check
is not unavailable for return if it is merely
difficult to retrieve from a filing system or
from storage by a keeper of checks in a
truncation system.

Instead of this language, the
Commentary to those sections could
indicate that notices in lieu of return are
permissible whenever they would be
permissible under the U.C.C.
The advantage of this option is that it
would liberalize the circumstances
under which banks could use notices in
lieu of return and potentially make it
easier for banks to establish electronic
check return mechanisms that feature
check truncation. The disadvantage of
this option is that it would force
depositary banks to accept notices from
banks with whom they may have no
established relationship. Under the
U.C.C. charge-back system, banks
receive returned checks or notices only
from those banks to whom they sent the
check for forward collection. Under
Regulation CC, a return could come
directly from the paying bank or from an
unfamiliar returning bank. Banks in the
past have expressed concern about the
quality of some notices of nonpayment.

Federal Register / Vol. 64, No. 36 / Wednesday, February 24, 1999 / Proposed Rules
Some have stated that they are reluctant
to charge back their customers’ accounts
on the basis of notices of nonpayment
but prefer to wait for the return of the
original check. Under this option, the
return of a notice in lieu of an original
check could become more prevalent,
and the depositary bank would have to
charge back based on that notice, as the
original check might never be returned.
Notices in the form of an electronicallyproduced check image, however, may be
more reliable than other types of notices
that describe the check, depending on
the quality of the image. This option
could also have consequences for the
depositors or payees of the checks as
discussed above under option one.
Amendment Regarding Electronic
Check Presentment Agreements
The Board is also proposing to delete
§ 229.36(c) of Regulation CC and its
associated Commentary, which states
that a bank may present a check
electronically under an agreement with
the paying bank and that the agreement
may not extend return times or
otherwise vary the provisions of
Regulation CC with respect to persons
not party to the agreement. This
provision of the regulation is subsumed
by the variation-by-agreement
provisions in § 229.37, and the Board
believes it is unnecessary and
potentially confusing to retain special
provisions regarding a particular type of
variation by agreement. The Board
proposes to add an example to the
Commentary to § 229.37 listing an
electronic check presentment agreement
as a permissible variation by agreement
under Regulation CC. Eliminating
§ 229.36(c) and its Commentary would
result in no substantive change to the
regulation regarding the validity of
electronic presentment agreements.
Initial Regulatory Flexibility Analysis
The Regulatory Flexibility Act (5
U.S.C. 603) requires an agency to
publish an initial regulatory flexibility
analysis with any notice of proposed
rulemaking. Two of the requirements of
an initial regulatory flexibility analysis,
a description of the reasons why action
by the agency is being considered and
a statement of the objectives of, and
legal basis for, the proposed rule, are
contained in the supplementary
material above. The proposed rules
require no additional reporting,
recordkeeping, or other compliance
requirements and do not overlap with
other federal rules. The proposed rule
would apply to all depository
institutions and other entities who
participate in the check collection
system, regardless of size. The Board

believes that the proposed rule could
result in depositary banks (of all sizes)
being required to accept more notices in
lieu of returned original checks and has
requested comment on the burdens
associated with that aspect of the
proposal. The Board believes, however,
that it would not be feasible to create
different check return rules for large and
small banks, and therefore no
alternatives for small banks were
considered.
List of Subjects in 12 CFR Part 229
Banks, banking, Federal Reserve
System, Reporting and recordkeeping
requirements.
For the reasons set forth in the
preamble, 12 CFR Part 229 is proposed
to be amended as set forth below:
PART 229—AVAILABILITY OF FUNDS
AND COLLECTION OF CHECKS
(REGULATION CC)
1. The authority citation for part 229
continues to read as follows:
Authority: 12 U.S.C. 4001 et seq.

2. In § 229.36, paragraph (c) is
removed and reserved.
Option one
3a. In Appendix E, under section XVI,
paragraph F.2. is revised to read as
follows:
Appendix E to Part 229—Commentary
*

*

*

*

9107

XVI. Section 229.30 Paying Bank’s
Responsibility for Return of Checks

*

*
*
F. * * *

*

*

1. * * * This paragraph adopts the
standards of U.C.C. 4–301(a) as to when a
check is unavailable for return. * * *

*

*
*
*
*
3c. In Appendix E, under section
XVII, the second and third sentences of
paragraph F.1. are removed.
End of Option Two
4. In Appendix E, under section XXII,
paragraph C. is removed and reserved.
5. In Appendix E, under section XXIII,
a new paragraph C.9. is added to read
as follows:
XXIII. Section 229.37 Variations by
Agreement

*

*
*
C. * * *

*

*

9. A presenting bank and a paying bank
may agree that presentment takes place when
the paying bank receives an electronic
transmission of information describing the
check rather than upon delivery of the
physical check. (See § 229.36(b).)

*

*

*

*

*

By order of the Board of Governors of the
Federal Reserve System, February 19, 1999.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 99–4600 Filed 2–23–99; 8:45 am]
BILLING CODE 6210–01–P

*

XVI. Section 229.30 Paying Bank’s
Responsibility for Return of Checks

DEPARTMENT OF TRANSPORTATION

*

Coast Guard

*
*
F. * * *

*

*

2. Sending a notice in lieu of return in
accordance with this section satisfies the
requirements of U.C.C. 4–301(a) to send a
notice of dishonor or nonpayment. A paying
bank could also send a notice in accordance
with U.C.C. 4–301(a) (which requires
returned checks and return notices to flow
back through the forward collection chain) if
it did not wish to avail itself of the provisions
of this section, provided that the notice met
the expeditious return requirements of this
section. Reference in the regulation and this
commentary to a returned check includes a
notice in lieu of return under this section or
a notice of dishonor or nonpayment under
U.C.C. 4–301(a) unless the context indicates
otherwise.

*

*

*

*

*

End of Option one
Option two
3b. In Appendix E to part 229, under
section XVI, paragraph F. 1. is amended
by removing the fifth and sixth
sentences and by adding a new sentence
after the fourth sentence to read as
follows:

33 CFR Part 165
[CGD01–98–170]
RIN 2121–AA97

Safety Zone: Port of New York/New
Jersey Fleet Week
Coast Guard, DOT.
Notice of Proposed rulemaking.

AGENCY:
ACTION:

The Coast Guard proposes to
establish five safety zones in New York
Harbor’s Upper Bay and the Hudson
River that will be activated annually for
the Fleet Week Parade of Ships, for Air
and Sea demonstrations, and for the
arrival or departure of the participating
U.S. Navy Aircraft or Helicopter Carrier.
This action is necessary to provide for
the safety of life on navigable waters
during the event. This action is
intended to restrict vessel traffic on a
portion of New York Harbor’s Upper
Bay and the Hudson River.
DATES: Comments must be received on
or before April 26, 1999.
SUMMARY: