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FED ERA L R ESER V E B A «
OF 1MEW YOBGC
[
C ircu lar N o . 1 0 2 0 8 11
D ecem b er 7 , 1 9 8 7
J
PROPOSALS TO IMPLEMENT THE EXPEDITED FUNDS AVAILABILITY ACT
— Proposed New Regulation CC
— Proposed Amendments to Regulation J
— Proposed New Services by Federal Reserve Banks
— Proposed Long-Term Check Collection Improvements
To the Chief Executive Officers of All Depository Institutions
in the Second Federal Reserve District, and Others Concerned:
Enclosed — for depository institutions in this District — is the text of a series of regulatory proposals designed
to implement the Expedited Funds Availability A ct, which were issued by the Board of Governors of the Federal
Reserve System by order dated December 3, 1987. In addition, enclosed is a copy of the Board’s press statement in
this matter.
The proposals include a new Regulation CC (12 C FR Part 229), which implements the A ct’s requirements
pertaining to depository institutions’ funds availability policies, and their disclosure of those policies, and amend
ments to the Board’s Regulation I, which governs Federal Reserve check collection services. The new regulation
also includes rules to expedite the return of checks, in order to limit the risk to depository Institutions of providing
prompt availability. In addition, the enclosed document includes proposed new and improved Federal Reserve check
services that are designed to assist depository institutions in meeting their obligations under the proposed new regula
tion.
All depository institutions that hold transactions accounts would be subject to the requirements of proposed
Regulation CC; institutions that do not hold transaction accounts would also be affected, but to a lesser extent. The
Expedited Funds Availability A ct becomes effective on September 1, 1988. Because of that short lead time, the
Board of Governors is providing only a 60-day public comment period and does not anticipate that it will grant any
extension of the comment deadline. Any such extension of the comment period would result in a delay in Board
approval of the final regulations and Federal Reserve services, thereby reducing the lead time available to depository
institutions to implement those requirements.
Due to the significance of these new rules to depository institutions in this District, this Bank will be conducting
seminars designed to increase understanding of the proposed changes. In this regard, details as to seminar dates,
times and locations will be announced separately.
Comments regarding these proposals must be submitted by February 8, 1988, for the Regulation CC and Regu
lation J proposals and for the proposal on Federal Reserve Bank Services. Comments on the proposal for Long-Term
Improvements to the Check Collection System must be submitted by April 8, 1988. These comments may be sent to
William W . Wiles, Secretary of the Board of Governors, as specified in the Board’s notice, or to John F. Sobala,
Vice President, Check Processing Function, at this Bank.
Because of the length of the Board’s proposals (362 pages) copies of the complete text are being sent initially to
the chief executive officer of each Institution; copies will be furnished to others upon request directed to the Circulars
Division of this Bank (Tel. No. 212-7 2 0 -5 215 or 5216).
E.
G
e r a l d
C
o r r ig a n
,
P resid en t.
FEDERAL RESERVE press release
*•
f*AL
For immediate release
‘
December 3? 1§87
The Federal Reserve Board today issued for public comment
a proposed new regulation to carry out provisions of the Expedited
Funds Availability Acto
Comment should be submitted to the Board by February 8 ,
1988o
Because of the lead time needed by banks to comply with the
new law* the Board said it would be unable to extend the time for
comment beyond the SG-day period0
The proposed regulation* designated
lo
™CCp m
would?
Spell out details of the requirements in the Act
that banks ~
defined as all depository institutions --
provide that a customer0® deposit be available for use
within stated time periods? that banks disclose their
availability policies to customers? and that banks
accrue interest on deposits not later than the day
they receive provisional credit for the deposits„
2C
Require that banks return checks in an expeditious
manner and use a standard endorsement.
Other proposals issued by the Board would amend Regulation J*
which governs Federal Reserve Bank check collection services* to conform
to the new Regulation CC and provide for new Reserve Bank services to
facilitate compliance with the new law and proposed regulation0
The Act goes into effect on September 1* 1988„
=■2“
Congress adopted the Act after expressing growing concern
about delayed availability ~
the length of time that some banks
place on checks deposited in customer accounts before funds can be
withdrawn.,
Under a temporary availability schedule written into the
law* a bank must make the proceeds of local checks available for
withdrawal by the third business day following deposit„
For example*
the proceeds of local checks deposited on a Monday must be available
for withdrawal on Thursday„
A local check is one deposited in a
bank located in the same Federal Reserve check processing region as
the paying banko
The proceeds of nonlocal checks must be made available
for withdrawal under the temporary schedule by the seventh business
day following deposit„
On September 1, 1990* these time periods will be reduced
to two business days for local checks and five business days for
nonlocal checks„
Banks are also required to provide disclosures to new
customers prior to opening an account* to existing customers* and
to any person upon request0
Disclosures also are required on
preprinted deposit slips* at branch locations* and at automated
teller machines0
The Board is also seeking public comment by April 8* 1988
on proposed longer term initiatives to improve the check system*
such as machine-readable endorsements * electronic clearing ^ones
and image processing*
f
= 3=
Under both the temporary and permanent schedules*
l
deposits by cash* electronic payments* and certain categories of
checks including Treasury checks* cashiers5 checks* certified
checks* and tellers 5 checks must be available for withdrawal on
the business day after the day of deposit0
Attached is an overview of the proposals that constitutes
the first section of the Federal Register material„
Copies of the
complete proposal are available upon request from the Federal Reserve
$
Banks and the Board's Publications Services.
A
k
Attachment
>
A
>
y
'
B oard of G overnors of t h e F ed er a l R e serv e System
PROPOSALS TO IMPLEMENT THE
EXPEDITED FUNDS AYAIL ABILITY ACT
CO NTENTS
Page Nos.
ocket No. R-0620
egulation CC — Availability of Funds and Collection of Checks
egulation I
A 1 -A 3 0 9
— Collection of Checks and Other Items
and Wire Transfers of Funds
ocket No. R-0621
i*
^deral Reserve Bank Services
B 1 -B 3 1
r
ocket No. R-0622
•oposals for Long-Term Improvements
the Check Collection System
C 1 -C 2 2
FEDERAL RESERVE
[D ocket
No®
R -0620]
R egu lation
12
A v a ila b ility
of
CC
CFR P a r t
Funds
SYSTEM
and
229
C o llectio n
R egu lation
12
C o llectio n
AGENCYs
Board
ACTIONS
Proposed
SUMMARYi
ru le
The
banks
is
CC)
Act®
The
and
that
R eg u la tio n
th eir
ru les
J ,
proposed
and
W ire
R eserve
S ystem ,,
in stitu tio n s
custom ers®
d esign ed
Board
w hich
is
a lso
governs
sets
out
d isc lo se
the
the
co llectio n
funds
of
tim e
a v a ila b ility
reg u la tio n
return
to
req u irem en ts
sp ecified
funds
new
Funds
make
to
proposed
p ro p o sin g
A -l
proposed
E xp ed ited
a cco rd in g
speed
the
a
in stitu tio n s
The
to
com ment
the
ru le
a v a ila b le
sch ed u les
The
for
d ep o sito ry
accounts
esta b lish es
Federal
im p lem en t
other
in to
to
the
p u b lish in g
to
d ep o sited
p o lic ie s
210
ru lese
Board
and
CFR P a r t
of
Checks
J
C h e c k s a n d O t h e r I terns
T r a n sfe r s o f Funds
G overnors
(R eg u la tio n
A v a ila b ility
th at
of
of
of
u np aid
amend
its
of
checks
a lso
checks®
ex istin g
and
other
-2 =
item s
the
by
new
DATEo
No
Federal
stan d ard s
Com m ents
ex ten sio n
ADDRESS §
be
su b m itted
for
comment
to
the
Board
and
C
Mr 0
d eliv ered
to
com m ents
Room
file ,
5sl5
FURTHER
Subparts
Joseph
A
of
be
Docket
of
the
Nos
Ss45
Federal
a om 0 a n d
address
at
w ill
Roo m
0620,
R eserve
BoCo
or
20551,
may
5 s QQ
be
be
All
p 0m 0
in clu d ed
B -1122
may
in
betw een
the
8?45
p 0m 0
INFORMATION
and
Re
to
Secretary;
in sp ected
1988
p ro v id ed 0
W iles,
above
8,
February
W ash in gton ,
betw een
may
be
refer
B -2223
to
CC„
NoW« f
W0
reg u la tio n
before
G overnors
S treets,
the
that
or
w ill
at
and
on
sh ou ld
W illia m
receiv ed
a 0m0 a n d
FOR
be
w hich
conform
R egu lation
tim e
of
A tten tio n s
in
to
must
20th
System ,
B anks,
proposed
Com m ents,
m ailed
p u b lic
R eserve
C
of
CONTACTS
R egu lation
A lexan d er,
For
CC
S en io r
in fo rm a tio n
and
R eg u la tio n
A ttorn ey,
Legal
reg a rd in g
J,
con tact
D iv isio n
(2 02/452= 2489)0
For
through
229 „2l
R osem an,
of
of
A ttorn ey,
§§
2 2 9 ol 0
B of
D irecto r,
through
R eg u la tio n
D iv isio n
2 2 9 a14
CC,
of
and
con tact
Federal
2 2 9 e19
L ou ise
R eserve
in fo rm a tio n
R egu lation
D iv isio n
on
CC,
of
§§
229d5
con tact
Consum er
through
G erald
and
p 0
2 2 9 e 18
H urst,
C om m unity
of
S en ior
A ffa irs
(202/45 2 = 3 6 6 7 )»
For
D ev ice
for
the
the
h earin g
D eaf,
im p aired
E a rn estin e
(202/452= 3254).
A=2
o n ly s
H ill
or
T elecom m u n ication s
D orothea
Le
Bank
(202/452= 2789)•
For
B
on
Subpart
A ssista n t
O p eration s
Subpart
in fo rm a tio n
Thompson
” 3 ”
SUPPLEMENTARY
A ct,
T itle
VI
d ep o sito ry
the
of
a v a ila b le
to
d ep o sito rs.
The
reg u la tio n s
to
w ith
check
p ro cessin g
necessary,
m andated
funds
Board
broad
p ro p o sa ls,
given
the
to
th at
so
w ith in
Board
is
today
N os.
R -0620,
resp o n sib ilities
co n sists
of
a
d eta iled
and
ru les
to
encourage
lo sses
w ill
to
the
th at
B o a r d 8s
governs
the
th eir
p rescrib e
to
the
im prove
clea red
a v a ila b ility
reg u la tio n
cla rify
the
fa c ilita te
current
return
cou ld
resu lt
Docket
current
No®
law
of
on
the
and,
if
sch ed u les
the
and
the
R -0620
Act®
make
of
w ith
w ith
(12
CFR
checks
and
other
A-3
the
No®
12
w ill
R -0620
CFR
A ct,
p rovid e
su b sta n tiv e
checks
to
m in im izin g
the
changes
210),
item s
the
a v a ila b ility
several
Part
of
a v a ila b ility
of
thus
J
th at
the
co llectio n
proposes
ser ie s
CC,
several
checks,
a
Docket
(R eg u la tio n
com p lian ce
a lso
on
R -0622,
d efin itio n s
u np aid
from
of
and
co m p lia n ce
R egu lation
co llectio n
com ment
R -0621,
under
req u irem en ts,
faster
sch ed u le s.
the
proposed
d isc lo su re
changes
the
p ro v id es
reg u la tio n s
req u estin g
its
that
a lso
be
by
to
to
in
accounts
sp ecified
Act
funds
"banks"
in to
p o lic ie s
may
other
Act®
Docket
229)
p eriod s
checks
the
as
d ep o sited
The
adopt
and
to
resp o n sib ility
A ct,
ex ercise
Part
funds
A v a ila b ility
banks
referred
a v a ila b ility
system
the
The
is
Funds
req u ires
tim e
a u th o rity
retu rn ed
by
make
w ith in
im p lem en t
Board
E xp ed ited
100-86,
to
d ep o sito rs
d isc lo se
The
(co lle ctiv ely
reg u la tio n )
to
and
L«
Pub0
in stitu tio n s
proposed
Act
INFORMATION:
by
w hich
Federal
to
-4 R eserve
in
B anks,
R egu lation
so
to
in
new
the
R eg u la tio n
p o ssib le
as
it
conform s
to
the
new
stan d ard s
adopted
CC,
Docket
ser v ic es
that
be
NOo
R -0621
offered
check
CC•
by
lo n g er-term
the
th at
Mo *
comment
Federal
co llectio n
Docket
ser v ic es
requests
the
to
R eserve
the
proposed
Banks
to
esta b lish ed
requests
Federal
im provem ents
R eserve
ru les
R -0622
on
a ssist
in
com ment
is
on
some
stu d y in g
n a t i o n Ss
check
new
as
w ell
co llectio n
system o
OVERVIEW
D elayed
p la ce
the
in
on
checks
funds
may
the
h o ld s
d ep o sited
be
C ongress
p la ced
d ep o sito rs
Banks
a v a ila b ility
that
sch ed u les
a
im pose
reflect
—
the
h o ld s
th eir
was
a
subject
a
number
banks
were
to
prom pter
rig h t
h o ld s
the
tim e
of
years0
some
b ank s!/
for
the
g ro w in g
argued
lo n g ,
access
that
of
Many
u n d u ly
responded
needed
th at
custom ers 6 a ccou n ts
many
by
have
in to
w ithdraw n
for
—
to
th eir
and
th eir
b efore
concern
th at
the
that
funds*
a v a ila b ility
co llectio n
and
return
!/
T h e p r o p o s e d R e g u l a t i o n CC t e r m i n o l o g y c o r r e s p o n d s w i t h t h e
term in o lo g y
of
the
U n iform
C om m ercial
Code,
w ith
some
m o d ifica tio n s*
“B a n k 8 i s d e f i n e d
1
to
in clu d e a l l d e p o sito r y
in stitu tio n s*
A '“p a y i n g b a n k 8 i s t h e b a n k o n w h i c h t h e c h e c k
8
i s drawn*
In t h e c a s e o f p a y a b l e t h r o u g h d r a f t s , t h e p a y a b l e
th r o u g h bank i s
th e p a y in g bank*
A '“r e t u r n i n g b a n k 1 i s
0
an
in t e r m e d ia r y bank h a n d lin g a r e t u r n e d ch ec k *
A “d e p o s i t a r y
bank*' i s t h e b a n k i n w h i c h t h e c h e c k w a s f i r s t d e p o s i t e d *
(See
§ 229*2
of
the
proposed
R eg u la tio n
CC f o r
the
com p lete
d e f i n i t i o n s o f th e s e term s*)
A“ 4
-5 -
of checks dishonored by the paying bank and provide a measure
of protection against the risk that the bank could not recover
funds
from the depositor
if those
funds had already been
withdrawn from the depositor's account.
The Congress concluded that federal legislation was
required to address delayed availability practices and passed
the Expedited Funds Availability Act (the "Act")
(Title VI of
the Competitive Equality Banking Act* enacted on August 10*
1987)o
The Act seeks to ensure prompt availability of funds
and to expedite the return of checks? the Board is directed to
issue regulations to implement the Act, which becomes effective
on September 1* 19880
The Act
requiring banks
includes
tos
(1)
specific
make
and detailed
funds
available
customers within specified time frames,
the bank receives provisional credit, and
the
Board
with
their
than the day
(3) disclose their
funds availability policy to their customers®
provide
to
(2) pay interest on
interest-bearing transaction accounts not later
provisions
provisions
little
These statutory
flexibility
in
developing rules to implement the Act's requirements0
The Act requires that cash deposits, wire transfers,
and certain check deposits that Congress believes pose little
risk
to the depositary bank,
such
cashier's checks, be made available
as Treasury checks and
for withdrawal by
business day after the day of deposit,,
the
The time when the
depositary bank must make other check deposits available for
- 6 -
withdrawal
depends
on
whether
the
"nonlocal" to the depositary bank0
deposited
in a depositary bank
check
is
"local"
or
A local check is a check
that is located
in the same
Federal Reserve check processing region as the paying bankG
nonlocal
check
is a check
deposited
in a different check
processing region than the paying bank*
48 Federal
Reserve
check
processing
A
There are a total of
offices
in the United
States, and the territory served by each office constitutes a
region 0
Under the temporary schedule that becomes effective on
September 1, 1988, a depositary bank must make the proceeds of
local checks available for withdrawal by the third business day
following
deposit;
that
is,
the proceeds
of
local
checks
deposited on a Monday must be available for withdrawal by the
following Thursday»
The depositary bank must make the proceeds
of nonlocal checks available for withdrawal by the seventh
business day following deposit;
that is, the proceeds of a
Monday deposit must be available for withdrawal by Wednesday of
a
the following week0
are reduced»
On September 1, 1990, these time periods
At that time, proceeds of local and nonlocal
checks must be available for withdrawal by the second and fifth
business day following deposit,
respectively»
Special rules
are provided for cash withdrawals, deposits at nonproprietary
automated teller machines, and deposits made in banks outside
J
the continental United States.
A”6
\
" 7 “
A lth ou gh
w ill
be
a ccelera te
retu rn ed
the
proposed
retu rn
bank
for
w ith d raw al
under
th at
w ill
in
order
a v a ila b le
been
the
esta b lish
checks
lim its
subject
to
The
a v a ila b ility
When
statu te
autom ated
th eir
lo ca tio n s
m achines®
g iv es
tim e
co llectio n
w ith in
w hich
may
one
may
a
m aking
to
has
the
th ese
account
Board
be
—
check
of
the
th at
p rior
any
m ust
p la ced
and
to
be
on
on
m ust
d ep o sita ry
A -7
system
banks
th eir
to
for
p rovid e
an
account,
request®
to
In
d ep o sit
slip s,
d ep o sits,
and
p rovid e
n o tice
a lso
a u th o rity
return
inform
p rep rin ted
make
th eir
a v a ila b le
upon
a v a ila b ility
Board
and
o p en in g
person
Banks
d isc lo se
req u ired
consum ers
th eir
the
to
not
are
req u ired
where
whenever
check
to
are
The
the
funds
Banks
custom ers
Act
the
cu stom er's
custom ers
th eir
and
d isc lo su re s
te lle r
h old
from
th at
N ev erth eless,
be
becom es
ex cep tio n s
its
to
custom ers
cu stom ers,
on
banks
d ep o sited
new
h o ld
m ust
sch ed u le
banks
in vok es
not
excep tion s®
w ithdraw al®
staffed
the
bank
system
w ill
sch ed u le
lea rn in g
req u ires
p o lic ie s
to
a
to
several
a d d itio n a l
th ese
im m ediate
d isc lo su re s
b efore
p rovid ed
the
th at
ad d itio n ,
risk
sch ed u les
custom ers
ex istin g
the
extend
on
tem porary
reduce
to
statu tory
funds
perm anent
custom ers
may
tim e
the
the
check
checks
the
C ongress
it
by
the
many
when
sch ed u les 0
ex cep tio n s,
beyond
to
p a id ,
a v a ila b ility
in crea se
to
checks,
d ep o sita ry
funds
the
m ost
the
effectiv es
in
of
to
number
at
im provem ents
a v a ila b le
made
not
the
p o lic ie s
to
in
lea rn
make
order
of
the
at
to
change®
im p rovem en ts
to
sh orten
nonpaym ent
-8 -
of checks, and thereby reduce the number of situations when the
bank will be required by law to make funds available to its
customers before it learns a check has been dishonored„
The
Board's authority is broad and general, and extends to checks
that
are not cleared
through
the Federal
Reserve
System,,
previously, the Federal Reserve generally had the authority to
regulate only those checks it collected,,
Upon enactment of
the Act,
Board
staff
formed
a
Steering Committee to develop proposals to implement the law's
requirements0
The
Steering
Committee
consists
of
representatives from three Divisions of the Board's staff and
three Federal Reserve Banksc
in developing these proposals,
the Steering Committee considered;
industry,
(1) costs to the banking
businesses, and consumers;
(2) the ability of banks
to select from several alternative approaches to comply with
the Act and the Board's regulation;
(3) the ability of the
private sector and the Federal Reserve to provide services to
expedite the return of unpaid checks; and
(4) the extent to
which the improvements to the check collection system reduce
risko
In developing the proposals, Board relied heavily on
imput from the private sector»
The Board staff discussed the
proposal with the Consumer Advisory Council and the Return I te n
r
y
Advisory Committee,
industry group*
which
is a joint Federal Reserve/banking
In addition,
the
staff met
on
over
occasions with representatives from consumer groups,
and corporate trade associations,
A“ 8
V
20
banking
and individual banks0
Two
-9 co n su ltin g
firm s
aspects
its
m ajor
the
of
Funds
Subpart
d efin es
make
ru les
in tere st.
Subpart
and
of
bank,
ind orsem en t
of
certa in
the
su ggested
been
Many o f
by
CFR
co n ta in s
for
the
return
retu rn s
other
by
and
the
means
checks
to
by
the
p ayin g
changes
w hich
the
d ep o sita ry
of
bank,
to
of
co llectio n
n o tifica tio n
the
rela ted
a lso
paym ent
the
retu rn s,
B
banks
sch ed u les,
ex p ed ite
cover
w hich
Subpart
p o lic ie s,
ru les
d ir ect
and
w ith in
to
to
subparts0
a d m in istra tiv e
sch ed u les
ru les
A v a ila b ility
three
w ith d raw al.
m ust
la rg e-d o lla r
229),
check
the
check
system 0
D efin itio n s
The
Act
little
d efin es
the
sig n ific a n t.,
The
accoun ts,
does
but
to
a
ad d itio n a l
N ev erth eless,
proposes
of
(12
ex cep tio n s
banks
standards,
A —
req u ired
have
p ro v id es
for
These
a u th o riza tio n
of
and
in clu d es
checks0
retu rn in g
CC
a v a ila b ility
C
and
Subpart
effect
in d u stry G
proposal
B sp ecifies
funds
p ayin g
co llectio n
the
b ank ing
C hecks,
reg a rd in g
of
nonpayment
of
a v a ila b le
d isc lo su re
retu rn
the
term s
Subpart
funds
in clu d es
the
assess
R egu lation
C o llectio n
en fo rcem en t.,
m ust
u n d erly in g
proposed
and
A
on
to
sector^
The
of
reta in ed
p ro p o sa ls
concepts
p riv a te
were
d efin e
d efin itio n
Act
not
number
term s,
cla r ific a tio n
of
ap p lies
two
to
p recisely
“a cco u n t"
of
in
term s
in
d ep o sits
d efin e
term s
A -9
in
of
the
the
in
the
a
many
of
w hich
reg u la tio n 0
reg u la tio n
are
tra n sa ctio n
term .
The
tra n sa ctio n
Board
account
-Id
as
described
The
Board
in
the
believes
Board’s Regulation D
that
using
the
(12
CFR 204 02 (e)) 0
transaction
account
definition in Regulation D -- a definition already
banks
--
will
regulation
proposes
avoid
and
confusion
is consistent
about
with
the
the
familiar
coverage
statute^,
of
The
to
the
Board
that the definition of 'account" exclude correspondent
“
accounts,0 that is, accounts held by a bank at another bank0
The definition of
critical
as
well
in determining whether a check
as
determining
expedite returns0
include
’paying bank8 in the regulation
’
0
payable
through
banks
for
requirements of the regulation0
drafts
that
often
are
is local or nonlocal*
the duties of the various parties
The Board proposes
used by
is
to
to define paying bank
the
purposes
As a result*
credit
unions
of
payable
and
to
the
through
insurance
companies are considered local or nonlocal checks based on the
location of the payable through b a n k 0
In addition*
the payable
through bank would be subject to the prompt return requirements
imposed on paying banks*
and thus would be required
to return
checks one or two days faster than may be the case today0
Board
believes
that
this
definition
The
most accurately reflects
the statutory requirement that schedules be based on where the
check
is sent
for
collection
through bank -- and not the
-- the location of the payable
location
which the check is drawn.
A -1 0
of
the organisation
on
-1 1 -
Subpart B -- Funds Availability and Disclosure Requirements
Availability
schedules,
,
The
proposed
regulation
reflects the availability schedules provided in the Act.
Thus,
deposits of cash and electronic payments, as well as certain
checks deposits,
government
including Treasury checks,
checks,
and
depository
checks,
state and
must
available for withdrawal on the next business
be
day.
local
made
Longer
schedules are provided for other checks, based on whether the
checks are local or nonlocal.
schedules for these checks.
The following charts depict the
The Board proposes that:
(1) the
application of the schedules to certain categories of checks be
clarified;
(2)
the schedules for certain nonlocal checks be
shortened;
(3) the holds that can be placed on deposits subject
to an exception provided
in the Act be limited; and
effect of this regulation on depositors'
(4) the
rights to withdraw
cash be clarified.
The Board proposes that certain additional categories
of
checks
not
specified
in
the
Act be subject
to
the
requirement that funds be made available on the business day
following the day of deposit.
Checks issued by Federal Reserve
Banks and Federal Home Loan Banks, as well as U.S.
Postal
Service money orders, are not explicitly addressed in the Act,
but do not present greater risk of loss to banks than do other
checks for which the Act mandates next day availability.
The Act directs the Board to reduce
the statutory
schedules for any category of checks where most of the checks
A
- l 1
Temporary Funds Availability Schedules
F ig u re
i
Illu s tra te s a v a ila b ility o f d iffe re n t ty p e s o f c h e c k s u n d e r the te m p o ra ry s c h e d u le s
1
2
T he first $ 1 0 0 of a day’s deposit m u st be m ade available for eith er cash w ithdraw al or check
w riting purposes a t th e s ta r t of th e n ext business day § 22 9 .1 0 (cX lX v ii).
F o r local checks cleared through a local clearinghouse, the remainder of the deposit must
be made available for either cash withdrawal or check writing purposes by the third
business day following the day of deposit § 229.11(bXl).
3
F o r local ch eck s cleared outside a local clearinghouse, the rem aind er of th e deposit m u st
be m ade availab le for check w riting purposes by th e th ir d business day following th e day
of deposit § 2 2 9 .1 l(b X 2 ).
4
®
6
F o r local checks cleared outside a local clearinghouse. $ 4 0 0 of th e deposit m u st be made
available for cash w ithdraw al no la te r th a n 5 :0 0 p.m . on th e day specified in the schedule.
This am ount is in addition to th e $ 1 0 0 th a t m ust be m ade available on th e business day
following th e day of deposit § 2 2 9 .1 l(b X 2 ).
T h e rem aind er of th e deposit m u st be available for cash w ithdraw al a t the s ta rt of business
on th e following day § 2 29.1 l(b X 2 ).
F o r nonlocal checks, th e rem a in d e r of th e deposit m u st be m ade available for eith er cash
w ithdraw al o r check w riting purposes by th e s e v e n th business day following th e day of
deposit § 229.11 (b X 2 ).
Permanent Funds Availability Schedules
Figure 2
illustrates availability of different types of checks deposited the same day, under the permanent schedules.
1
2
3
The first $100 of a day's deposit must be made available for either cash withdrawal or check
writing purposes at the start of the next business day § 229.10(cXlXvii).
Local checks must be made available for check writing purposes by the second business
day following deposit § 229.12(b).
Nonlocal checks must be made available for check writing purposes by the fifth business
day following deposit § 229.12(c).
4
5
$400 of the deposit must be made available for cash withdrawal no later than 5:00 p.m.
on the day specified in the schedule.This is in addition to the $100 that must be made
available on the business day following deposit § 229.12(d).
The remainder of the deposit must be made available for cash withdrawal at the start of
business the following day § 229.12(d).
F@miaiieiat Funds Availability Schedules
Figure 3
SQiostrafes availabiMfy off different types ©f checks deposited @ separate days, yanderthe permanent schedySe.
n
1
2
3
The first $100 of a day’s deposit must be made available for either cash withdrawal or check ^
writing purposes a t th e sta rt of the next business day § 229.10(cXlXvii).
Local checks m ust be m ade available for check writing purposes by the ®®oomul business
day following deposit § 229.12(b).
Nonlocal checks m ust be made available for check writing purposes by the fifth business 5
day following deposit § 229.12(c).
$40© of the deposit m ust be made available for cash withdrawal no later than 5:00 p.m.
on the day specified in the schedule. This applies to the aggregate amount of deposits that
m ust be made available on a specified day, and is in addition to the $100 th at mu st be made
available on the business day following deposit § 229.12(d).
The remainder of the deposit m ust be made available for cash withdrawal at the start of
business the following day § 229.12(d).
- 1 2 -
would be returned in a shorter period of time than provided in
the schedules .
The Board proposes
that
the
schedules
be
reduced for certain nonlocal checks that are subject to more
prompt processing and return,
where significant improvements
can be made to the Act's schedules.
The Act and regulation provide certain exceptions to
the availability schedules for higher-risk deposits0
The Act
states that the hold placed on deposits subject to an exception
"shall not exceed a reasonable period of time as determined by
the Boar do "
The Board proposes
that a bank be permitted to
extend the schedule by no more than four business days when an
exception
is
invoked,
These
four additional business days
should provide adequate time for the depositary bank to learn
of the nonpayment of virtually all checks that are returned0
In addition, the Board proposes to clarify that bank
policies limiting the amount of cash a customer may withdraw on
any given day are not affected by the Act.
Small banks have
expressed concern that the Act could be interpreted to prohibit
such policieso
These restrictions are usually due to limits on
the amount of cash that some small banks may keep on hand at
any
one
time
regulation,
for
insurance
however,
or
security
reasons c
The
would not supersede any common law or
other duty to make funds available for withdrawal by cashD
Disclosures.
The Act requires banks to disclose their
specific policy with respect to when a customer may withdraw
funds deposited
rule,
in an account,.
The regulation, as a general
requires banks to provide
A -1 2
customers
with
an
initial
-13-
disclosure of the bank’s availability policy that allows the
customer to determine when a deposit will be held and for how
long o
Numerous banks normally provide their customers with
same- or next-day availability for almost all deposits and only
impose
holds
in
special
case-by-case basis0
circumstances, determined
In many cases,
on
the banks provide
a
the
customer with notice of the delay at the time the deposit is
made c
Banks with such policies may find it difficult,
impossible,
if not
to develop a specific disclosure that would allow
the customers to determine whether a particular deposit will be
delayed and the length of the delay, as required generally by
the Acte
The nature of
precludes
such
these
a disclosure0
banks8 policy
in order
essentially
to disclose to the
customer when deposited funds will be subject to a delay in
availability,
these banks may find it necessary to discontinue
the practice of imposing holds on a case-by-case basis,
and
instead begin routinely to delay availability on specific types
of checks
policy)o
the
(essentially adopting an automatic or blanket delay
The Board believes that such a result would not be in
interest of bank
customers»
Also,
banks
would
incur
substantial costs not only in making disclosures, but also in
developing and implementing new availability policies0
A “ 13
-14-
The
Board
proposes
that
the
regulation
include
alternative disclosure requirements for banks that only delay
availability beyond the nest business day on a case-by-cas@
basis0
meet
Banks with case-=by~case policies would be permitted to
the initial disclosure requirements by disclosing that,
while their policy is to give same or nest-day availability,
the bank may at times impose longer delays»
in other words,
the bank need not adopt and disclose a policy that allows the
customer to determine whether a specific check is going to be
delayed prior to presenting the check for deposito
chooses
to take advantage
of
this
A bank that
alternative must
still
provide availability within the time limits established by the
regulationo
in addition, at any time a deposit is held, the
bank must give a notice to the customer that indicates when the
deposited funds will be available for withdrawal•
This notice
need not give a specific reason for the delay, unless the hold
will exceed the time periods in the schedules»
Relation to state lawc
laws
supersede
availability o
federal
law
One reading
The Act provides
if
of
they
result
this provision
in
that state
faster
is that any
exception to a state availability schedule that is narrower
than the federal law must be viewed as superseding the federal
exceptionso
The Board believes
that this result is unwieldy
and results in a complex set of legal rules 0
Therefore,
the
Board proposes that exceptions to a state availability schedule
that address the same situation as the federal exceptions be
A-14
-15-
preempted
even
if
circumstances,
deposito
the
exception
might,
under
some
result in faster availability of a particular
However, if state law provides for a shorter hold for
a certain category of checks than
is provided under federal
law,
supersede
that
state
requirement
will
the
federal
provision 0
Subpart C -- Regulatory Initiatives to Expedite Returns
In contrast
to the high-speed automated processing
involved in the forward collection of checks, the check return
system is a slow, labor intensive operation.
generally involves manual processing
inspection
of
the
indorsements on
machine-readable information,
should be sento
that
The return system
relies
the check,
to determine
on visual
rather
where
In contrast to checks handled
than
the return
for forward
collection, which are processed on high-speed equipment at a
rate of 100,000 per hour, returned checks are processed at a
rate of only 1,000 per hour»
transported by mail, rather
their
trip to
in addition, returns are often
than by courier,
the depositary bank 0
further slowing
Finally,
a check
is
generally returned through each of the banks that collected the
check, although this may not be the most efficient path to
route the return0
Under the current check collection system, many checks
that are returned would not be received by the depositary bank
until
after
the
time
funds must
temporary schedules in the Act0
A-15
be
available
under
the
The number of returned checks
-1 6 -
that do not reach the depositary bank before funds must be made
available under the Act will increase with the implementation
of the permanent schedules in 1990 „
Currently, according to a
study by the Bank Administration institute (BAI), the average
time for a check to be collected and returned is 6„8 calendar
dayso
Approximately 40 percent of returned checks take seven
days or longer to complete the collection and return cycle and
15 percent take 10 days or longere
(Return Items Study, Final
Report, prepared for the Bank Administration institute by j e D*
Carreker and Associates,
Inc0 (May 1985)
"BAI STUDY")
Under
the temporary schedules, the proceeds of local checks must be
available for withdrawal on or before the third business day
after deposit and the proceeds of nonlocal
checks must be
available for withdrawal on or before the seventh business day
after deposit,.
Under the permanent schedule, proceeds of local
checks must be available for withdrawal on or before the second
business day after deposit and proceeds of nonlocal checks must
be available for withdrawal on or before the fifth business day
after deposit,.
Approximately one-third of the checks handled
by the Federal Reserve Banks would be considered nonlocal under
the Acte
It is difficult to relate the data collected by the
BAI to the statutory schedules because the BAI data are based
on
calendar
days
rather
than
business
days
and
differentiate between local and nonlocal checks *
do not
Nevertheless,
it is clear that large numbers of checks will be returned after
A “ 16
-17-
funds must be made available for withdrawal under the schedules
in the Act*
The requirement
to make funds available for
withdrawal before many checks are returned exposes banks to
risks if the proceeds of check deposits are withdrawn and the
checks are subsequently returned*
make
Further* the requirement to
funds available for withdrawal before some checks are
likely
to be
recognition
returned
of
may
these risks*
encourage
check
the Act provides
fraud.
for
in
certain
exceptions to the statutory schedules and* in section 609(b)*
provides that the Board shall consider a number of proposals to
improve the check processing system to speed the collection and
return
of
checks*
(12
U.S.C*
4008(b))*
Further*
section 609(c) of the Act (12 U.S.C. 4008(c)) provides that?
(C)
REGULATORY RESPONSIBILITY OF BOARD
FOR PAYMENT SYSTEM* —
(1)
RESPONSIBILITY FOR PAYMENT
SYSTEM. — In order to carry out the
provisions of this title* the Board of
Governors of the Federal Reserve System
shall have the responsibility to
regulate —
(A) any aspect of the payment
system* including the receipt*
payment, collection* or clearing
of checks? and
(B) any related function of
the payment system with respect to
checks•
(2)
REGULATIONS. —
The Board
shall prescribe such regulations as it
may determine to be appropriate to
carry out its responsibility under
paragraph (1).
A-17
-18-
Under this Board authority, the Board believes that it
is appropriate to propose changes to the way that checks are
collected and returned by both the Federal Reserve Banks and
other banking institutions in order to speed the collection and
return of checks and to improve the efficiency of the check
collection
system.
Subpart C
of
the
regulation
contains
proposed rules designed to reduce the risk to depositary banks
resulting from the prompt
Act.
In many cases,
availability
requirements
of
the
these regulations modify provisions of
state law applicable to the collection of checks, including the
Uniform Commercial Code as enacted in the various states.
proposals in Subpart C;
bank;
(2)
expand
the
(1) expedite returns to the depositary
requirements
for
notification
of
large-dollar returned checks; and
(3) provide banks with
ability
returned
to
reduce
The
the number
of
checks.
the
These
proposals are accomplished by modifying duties of the paying
bank, returning bank(s), and the depositary bank in the return
process.
in arriving at these proposals, the Board considered
each of the proposals listed for Board consideration in the
Act.
Section 609(b) of the Act (12 U.S.C. 4008 (b)) provides
■
that s
(b)
REGULATIONS
RELATING
TO
IMPROVEMENT OF CHECK PROCESSING SYSTEM. -in order to improve the check processing
A- 1 8
-19-
system, the Board shall consider (among
other proposals) requiring, by regulation,
that -(1)
depository institutions be
charged based upon notification that a
check or similar instrument will be
presented for payment?
(2) the Federal Reserve banks and
depositary institutions provide for
check truncation?
(3)
depository institutions be
provided incentives to return items
promptly to the depository institution
of first deposit?
(4) the Federal Reserve banks and
depository institutions take such
actions as are necessary to automate
the process of returning unpaid checks,
(5)
each depository institution
and Federal Reserve bank —
(A) place its endorsement,
and other notations specified in
regulations of the Board, on
checks in the positions specified
in such regulations? and
(B) take such actions as are
necessary to -(i) automate the process
of reading endorsements? and
(ii) eliminate
sary endorsements?
unneces
(6) within one business day after
an originating depository institution
is presented a check (for more than
such minimum amount as the Board may
prescribe) -(A)
such
originating
depository institution determine
whether it will pay such check? and
A -19
-20-
(B)
if such originating
depository institution determines
that it will not pay such check *
such
originating
depository
institution directly notify the
receiving depository institution
of such determination?
(7) regardless of where a check
is cleared initially, all returned
checks be eligible to be returned
through the Federal Reserve System?
(8)
Federal Reserve banks and
depository institutions participate in
the development and implementation of
an electronic clearinghouse process to
the extent the Board determines,
pursuant
to
the
study
under
subsection (£), that such a process is
feasible? and
(9)
originating
depository
institutions be permitted to return
unpaid checks directly to, and obtain
reimbursement for such checks directly
from,
the
receiving
depository
institution «
,
The proposals contained in Subpart C either implement
or are closely related to many of the proposals listed in the
Act, and the Board is studying many of the other proposals as
potential
system,
longer-term
improvements
to
the check
collection
The Board°s proposals are more fully described below0
Expediting
returns„
A
number
of
the
regulatory
proposals are designed to speed the return of checks to the
depositary bank0
return
Today,
the paying
is limited to dispatching
A=20
bank“s duty of prompt
a returned
check
by
its
-21-
"midnight dead 1ine. "U
The proposal places an additional duty
on the paying bank to return the check to the depositary bank
in a manner similar to the efficient manner used to collect a
check deposited in the paying bank and drawn on the depositary
banko
Generally, the paying bank would be required to dispatch
returns
using
the means of transportation used to dispatch
checks for forward collection0
(This duty is similar to the
third proposal listed in the Acto)
To facilitate prompt returns,
the paying bank would
not be required to return a check to the bank that presented
ito
Instead, the paying bank could return a check directly to
the depositary
bank or
to a Reserve
providing check return serviceso
Bank
or other
bank
To encourage direct returns,
the depositary bank would be required to pay for returns on the
day of receipto
(This proposal
is similar
to the ninth
proposal listed in the Act0)
Today,
many banks
do not dispatch
checks by courier with the checks
forward collection,
instead,
if the courier
their
returned
that are being sent for
leaves
after
midnighto
they mail their returns by their midnight deadline in
order to meet their legal responsibility under the BoCeC®, but
2/ The Uniform Commercial Code requires a paying bank to
dispatch checks it is returning unpaid by midnight of the next
banking day following the banking day on which the checks were
presented for payment0
A -21
=2 2”
by doing so delay the completion of the return process•
proposed regulation encourages the use of couriers
The
to handle
returned checks by allowing banks to dispatch returns after
midnight if the returns will be received by the nest bank that
day.
The proposed regulation
banks
that are similar
imposes duties on returning
to the duties
banks to expedite the return process0
imposed on the paying
A returning bank must
handle a returned check as expeditiously as a check handled for
forward collectione
One way to speed the return process is to prepare the
returned
check
equipmento
for
Returned
automated
processing
by
high-speed
checks can be automated by either the
paying bank or returning bank by placing
the return
in a
carrier envelope or by placing a strip on the bottom of the
check,
and encoding the envelope or strip with
the routing
number of the depositary bank, the amount of the check, and a
special returned check identifier0
Automated returns allow for
far more efficient processing by returning banks„
The proposed
regulation facilitates the preparation by returning banks of
automated returned checks by providing an additional business
day to the bank's time for prompt return 0
(This proposal is
similar to the fourth proposal listed in the Act.)
One of
returns
the obstacles
is
lack
the
indorsements.
of
to
efficient
uniformity
processing
of
in depositary banks8
Today, clerks often have difficulty determining
A=22
-23-
the bank to which the check will be returned.
The indorsements
on the back of the check are often faint# blurred#
and overlapping,,
Under
the proposal#
incomplete#
this difficulty would
increase since many checks will not be returned through
the
same banks that handled the checks during forward collection.
The determination of a remote depositary bank would often be
difficult
if its indorsement were not readily distinguishable
from the other indorsements on the check0
Therefore#
the proposal requires the depositary bank
to provide specific information in its indorsement#
its nine-digit routing number0
In addition#
including
the depositary
bank’s indorsement must be readily identifiable through the use
of a unique color ink and by placement in a specified area on
the back of the check0
the same color#
Subsequent indorsements may not be in
or be placed in the same location as the
indorsement of the depositary bank.
(This proposal is similar
to the fifth proposal listed in the Act®)
Notification of nonpayment.
Even with improvements to
the check return system# the depositary bank will not receive
all returned checks by the time it must make the proceeds
available
to the customer
bank’s risk
Therefore#
provide
is larger
for withdrawal®
in the case of large-dollar returns®
the Board proposes
notification
The depositary
of
to require paying
nonpayment
returned checks®
A-23
for
all
banks
to
large-dollar
-24-
Notification of large-dollar returns
is now required
only for those checks collected through the Federal Reserve,,
The proposal expands the large-dollar notification requirement
to include all checks of $2,500 or more,
regardless of the
channel though which they were cleared.
In addition,
the
proposal reduces the time period within which notification must
be providedo
Under the proposal, the paying bank must ensure
that notification is received by the depositary bank by 4;00
p®nw (local time of depositary bank) on the second business day
following presentment,,
Federal Reserve regulations currently
require notice to be received by midnight on the third business
day following presentment®
(This proposal is similar to the
sixth proposal listed in the Act®)
Reducing the volume of returns,
The Board proposes
extending the paying bank8 midnight deadline for low-doliar
s
checks,,
Over one-half of all returned checks are in amounts of
$100 or less.
Many depositary banks routinely redeposit that
portion of these returns that are returned due to insufficient
or
uncollected
funds
(or
direct
the
redeposit the checks on their behalf)
paymento
checks
Federal
Reserve
to
in an effort to obtain
On average, over 60 percent of
these
are paid on the second presentment®
redeposited
A significant
number of returned checks could be eliminated entirely if the
paying
bank held low-dollar checks several days beyond
midnight deadline®
its
This concept has received the long-standing
support of several banking industry trade groups®
A-24
The proposal
-25-
permits a paying bank to hold checks of $100 or less for two
business days beyond its midnight deadline
in an effort to
secure payment®
Regulation J Amendments
Changes are also proposed to Regulation J so that it
conforms
to
Subpart C«
the
proposed
requirements
of
Regulation CC,
Regulation J governs the collection and return of
checks by Federal Reserve Banks®
Proposed Federal Reserve Bank Services (Docket No® R-Q621)
Returned check
services®
in order to achieve the
objectives of the proposed regulatory requirements to speed the
return of checks,
if is essential that the Federal Reserve
Banks and private-sector correspondent banks provide new return
services®
services
The Board proposes a wide array of Reserve Bank
to
requirements®
facilitate
The
Board
bank
compliance
anticipates
that
with
these
a number
of
correspondent banks will offer similar services®
Several of the proposed service changes are designed
to facilitate direct returns permitted in proposed Regulation
CC®
Under the proposal, Reserve Banks would accept and process
any returned check?
today the Federal Reserve only accepts
returned checks that it collected®
The Federal Reserve would
return checks directly to the local depositary bank, bypassing
any intermediary collecting banks in the indorsement chain®
A
depositary bank may designate its correspondent bank or service
bureau as the location to which the Federal Reserve should send
A-25
-26 -=
that bank's returns0
Reducing the number of banks handling a
returned check will shorten the length of time required for the
return
process0
The
Federal
Reserve
Bank
of
Dallas
is
conducting a pilot program of the direct return process, which
indicates that, in the case of 43 percent of local returned
checks handled by the Bank, at least one collecting bank in the
forward collection indorsement chain is bypassed by delivering
the return directly to the depositary bank0
(This proposal is
similar to the seventh proposal listed in the Act0)
Reserve
returned checks.
Banks
would
accelerate their processing of
New returned
check
deposit deadlines
are
proposed that are similar to the deadlines for checks handled
for forward collection,.
By September 1988, local returns will
be processed on an overnight basis and dispatched with
forward collection checks the next morning0
the
In contrast, today
the returns are processed during the day and dispatched one day
latero
Nonlocal
returns
that
have
been
automated
for
high-speed processing by the paying bank or a prior returning
bank will be processed and dispatched to the second Reserve
Bank office on the night of the day the Reserve Bank received
thema
Most other nonlocal returns will be automated by the
Reserve Bank and sent to the second Reserve Bank office the
following nighte
process
Today,
both Reserve Bank offices
the returned check,
manually
which adds an extra day to the
return process0
A -26
“ 27 =
Currently,
the Federal
price returned checks*
are
incorporated
feeso
Reserve does not explicitly
instead, the costs of handling returns
in the Reserve
Banks'
The Board is proposing to price
forward collection
returns
explicitly,
imposing returned check
fees on the paying or returning bank
depositing
the Federal
returns
with
Reserve®
Under
this
proposal, return costs cannot be recovered through the Reserve
Banks0 forward collection fees as they are today,
since some
returned checks handled by the Federal Reserve will not follow
the same route that they followed in the process of collection,
and
thus may not be subject to the Reserve Banks'
collection f e e s 0
In addition, paying and returning banks could
deposit returned checks with the Federal Reserve
ways
that result in different costs being
Reserve Bank®
forward
For example,
in various
incurred
by
the
automated returns would be less
expensive for the Federal Reserve to handle than nonautomated
returns®
returned
Reserve Banks would
checks
that
have
initially charge
been
prepared
for
a fee
for
automated
processing similar to that charged for similar checks handled
in forward collection®
A higher fee would be charged for
returns that require manual processing®
that
the charge
for
returned
checks
"raw"
The Board estimates
that
require
manual
processing will range from $Q®25 to $1®00®
The proposal
also addresses
modifications
to
the
Reserve Banks' notification services for large^dollar returns®
Reserve Banks will offer sam@“day notification services for all
A“ 27
-28-
large-dollar
checks
to facilitate
bank compliance with
the
proposed requirements to provide notice of nonpayment for all
large-dollar
checks within shorter
time periods0
The Board
proposes that beginning on January 1, 1989, any depositary bank
that has
Reserve
an on-line electronic connection with
be required
to
receive
large-dollar
the Federal
notifications
electronically„
Cost
of
proposed
services,
Reserve
Banks
have
provided preliminary estimates of the costs of offering the
proposed new returned check services.
the proposed
capital
initiatives
expenditure
additional
1988
$15,000,Q00o
of
would
They have projected that
require
approximately
operating
an additional
$15,000,000,
expenditures
of
1988
and
approximately
The costs of providing these services will be
recovered by the Reserve Banks through the fees assessed for
the serviceso
Truncation and extended MICR capture services.
Board proposes expansion of the Federal Reserve's
pilot
program
to a permanent
service,,
The
truncation
In truncation,
the
physical checks are not delivered to the paying bank? instead,
the
MXCR-line
information
on
the checks
is captured
presented to the paying bank electronically.
and
The benefits of
truncation include expeditious check processing and return and
a reduction in the number of times the paper check is handled0
Truncation may also create savings in transportation costs, and
storage, equipment, and personnel costs for the paying bankc
A-28
"2 9 "
Initially, it is proposed that the Reserve Banks offer
truncation services to interested local paying bankse
the benefits of truncation
earlier
in
the
However,
increase as checks are truncated
collection process,
believes that after more experience
Therefore,
is gained,
the Board
Reserve Banks
will be able to provide inter-bank truncation services;
that
is, truncation at the Federal Reserve Bank of first deposit*
One Reserve Bank is now engaged in inter-bank truncation on a
pilot basis under the rules of the National Association for
Check Safekeeping„
(The truncation proposal is similar to the
first and second proposals listed in the Act0)
The Board also proposes a service that offers many of
the same benefits of truncation without stopping the flow of
the paper
check -- the extended MICR capture service0
Under
this service, which is now provided on a pilot program basis,
Reserve Banks would deliver payment information by electronic
transmission or
magnetic
tape,
provide returned
check
and
retrieval services, and deliver the checks to the paying bank
several days later using less time-critical transportation0
Extended MICR capture would provide
the paying bank
and its customers an opportunity to test all aspects of the
truncation services without giving up receipt of the physical
checko
The benefits of extended MICR capture are not as great
as those of truncation; however, extended MICR would serve as a
stepping stone for developing broader acceptance of truncation.
A"29
-30-
For a further discussion of these services see Docket
R-6021* Federal Reserve Bank Services0
Longer-term
initiatives
addition to these proposed
cheeks*
which
would be
(Docket
No,
R-0622)0
initiatives to expedite
In
returned
implemented by September 1988*
the
Federal Reserve is also exploring various new technologies to
improve the check system in the longer term*
One such effort
involves testing of digitized image processing in a high-speed
environment
to
determine
the
feasibility
of
using
this
technology to transmit check images to the paying bank and the
depositary bank*
and also as a substitute for microfilming
checks•
Further* the Board is requesting comment on a variety
of
initiatives*
including?
(1)
machine-readable
depositary
bank
the
feasibility
indorsement*
of
a
possibly
by
inclusion of a bar code of the nine-digit routing number*
to
facilitate further automation of returned check processing;
the feasibility of an electronic clearinghouse concept;
(2)
(3) the
feasibility of establishing electronic clearing zones* in which
all banks
in a specified area
agree
to accept
electronic
presentment of their checks; (4) further actions that should be
considered to address delayed disbursement practices of certain
corporations and banks;
(5) an alternative method of preparing
returned checks for automated processing that does not require
the MICR-encoding of the returned check with the amount and
routing number of the depositary bank;
and
(6) concepts
for
several potential future Federal Reserve services to depositary
A-30
-3 1 -
banks, specifically, a service to ascertain the authenticity of
cashier's,
certified,
and teller's checks and a service to
communicate information regarding returned checks to depositary
banks prior
electronic
to
the physical delivery of the checks 0
clearing-house
proposal
is based
on
(The
the eighth
proposal listed in the Act*)
Impact of the proposal
Cost
impacts
The requirements of the Act and the
proposed regulation will result in several benefits
public*
to
the
Transaction account customers will be given specific
information
on
withdrawal,
which
accounts*
when
funds
should
will
help
be
them
made
available
better
manage
for
their
in addition, many customers will gain earlier access
to their
funds*
However,
it is difficult to quantify these
benefits.
The overall cost impact on the banking industry may be
quite
significant*
The disclosure
and
funds
availability
provisions in the Act may result in higher operating expenses,
lost investment income due to earlier withdrawal of collected
balances, and increased bad check losses*
it is also difficult
to estimate the cost impact of these changes*
On the other
hand,
the
improvements to the check
collection system may actually reduce overall bank costs*
proposed
regulations
The
would change the duties of the paying
bank, returning banks, and depositary bank, and would require
modifications
to the operations of each bank
A-31
in the return
-32-
process .
Initially, these new initiatives may increase costs0
Some of these costs are one-time transition costs# such as the
costs to the depositary bank to modify its check processing
equipment to comply with the new standard indorsement«
costs are ongoing#
Other
such as costs for expedited handling of
returns at returning banks*
However#
the proposals
in the aggregate have
the
potential for substantial longer-term cost reductions in the
return process®
Returns will be received by the depositary
bank more quickly than they are today# reducing the bank's risk
from providing prompt availability of funds to its customers©
The number of returns may be significantly reduced due to the
authority granted to paying banks to extend
deadline
for
small-dollar
returns©
The
their midnight
regulation's
availability and disclosure requirements may also result
reduced
returns
because
funds may be made available
in
for
withdrawal sooner and customers would know more precisely when
they may withdraw funds from their accounts©
would encourage more direct exchange
reducing
the number of
return process©
should#
over
of
The proposal
returned
checks#
intermediary banks involved in the
Most importantly# the new indorsement standard
the
long
term#
reduce
the cost of return
processing by facilitating the more efficient processing of
returns®
Future enhancements to the indorsement standard would
allow all parties in the check collection system to automate
completely their return processing®
A-32
-33“
Competitive impacts
the development of
An important factor considered in
the regulatory
framework
for
expedited
returns and related Reserve Bank services was the impact on
competition
in the check collection system0
The public has
benefited from the competitive environment that has
existed
between the Federal Reserve and correspondent banks, and among
correspondent banks in providing check
collection
services0
The Board has sought to ensure that the proposed regulatory
requirements
and
Federal
Reserve
service
offerings
were
designed to provide options to banks in the return process and
to facilitate a competitive environment®
Although
proposals —
a number
of
the
Reserve
Bank
services
such as acceptance of any returned checks, the
explicit pricing of returns and corresponding decrease in the
forward collection fees* and direct return by the Federal
Reserve
to
the
depositary
bank
—
may have
significant
competitive implications, it is difficult to determine what
that impact would be®
collection
fees
could
For example, lower Federal Reserve check
make
the
Reserve
Banks8 forward
collection check services more attractive, and acceptance of
all returns could increase return volume®
On the other hand, a
bank that uses the Federal Reserve for both forward collection
and return services may experience an increase in its total
charges for check services®
in addition,
the acceptance of
universal returns by the Federal Reserve has the potential to
result in a reduction of Federal Reserve forward collection
A-33
-34-
check volume, since returns are often viewed as nuisance items
in
the
collection
process
that have
deterred
banks
from
competing for forward collection volume0
Correspondent
banks
will
have
the opportunity
to
compete with the Federal Reserve in providing returned check
serviceso
collect
For example, approximately 4,000 banks that do not
checks
through
the Federal
Reserve
returned checks to their Reserve Bank0
currently mail
Under this proposal,
these paying banks may deliver these returned checks along with
their
forward collection checks to their correspondent bank,
rather
their
than establishing separate
returns
result
in
transportation
to the Federal Reserve0
additional
volume
of
to deliver
This practice could
returned
checks
for
correspondents 0
For a further discussion of
Docket
R-6G22,
proposals
these
initiatives
see
for Long-Term Improvements to the
Check Collection System»
Educational Efforts
During
Banks
plan
to
understanding
implications
comment on
issueso
the public comment
conduct
of
of
seminars
depository
the Act
the Board°s
period,
designed
to
institutions
and better
proposed
Federal
Reserve
increase
regarding
the
the
prepare
the public to
regulations
and operating
Reserve Banks will sponsor another series of seminars
after approval of the final regulations by the Board to assist
the industry in preparing for the regulatory and operational
A-34
-35-
changes to be effective on September 1, 1988e
In addition,
Federal Reserve staff is working closely with various industry
groups as they prepare to offer similar
seminars
to their
constituencies.
Smnmary of Proposals
The Board is issuing for public comment the following
proposals to implement the provisions of the Expedited Funds
Availability Act?
(1)
Docket
R-0620,
Proposed
Regulation
CC
and
Amendments to Regulation J, which
(a)
- requires banks to provide for availability
of deposits within specified time periods, to disclose their
availability policies to customers,
and to begin
to accrue
interest on deposits to accounts not later than the day they
receive provisional credit for the deposits? and
(b)
checks,
requires banks to expedite the return of
including authorizing direct return, and requires the
depositary bank to use a standard indorsement,
This docket also includes amendments to Regulation j,
which governs the collection of checks by Federal Reserve Bank
so that it conforms to the proposed rules to expedite
the
return of checks0
(2)
which
Docket R-0621,
proposes
Reserve
Bank
Federal
services
Reserve
to
Bank
Services,
facilitate
bank
compliance with the proposed requirements to expedite returns
A-35
-36-
and improve the check collection system, including expansion of
Reserve
Bank
check
truncation
and
extended
MICR
capture
services from pilot programs to permanent services0
(3)
Improvements
Docket
R-0622,
Proposals
to the Check Collection System,
for
Long-Term
which requests
public comment on longer-term initiatives to improve the check
system *
Effect of the proposals on the Check Collection System
The following is an explanation of the current process
for returning checks and a description of the responsibilities
of paying,
future,
returning,
and depositary banks now and in the
if the Board's proposals are adopted®
This overview
should assist the reader in better understanding the impact of
the proposed changes to expedite the return of checks on paying
banks, returning banks, and depositary banks®
In contrast to the forward collection process,
the
returned check process is a slow, relatively labor intensive,
and costly operation®
The BAI study concluded that, while the
forward collection process takes an average of 1®6 days to
complete, the return process takes an average of 5 ®2 days®
The
BAI study found that, during the return process, the average
returned check is handled by 3 ®4 banks?
the paying bank,
average of 1 e returning banks, and the depositary bank®
4
an
Even
though less than one percent (the study estimated 0o86 percent)
of all checks are returned, the absolute volume of returns (the
study estimated 350 million annually) is relatively large®
A-36
-37 -
Both correspondent banks and Federal Reserve offices
frequently
act as returning
depositary banks
banks
between
in the return process.
the paying
and
Correspondent banks
may route forward collection checks for payment either through
the Federal Reserve or through private channels„
Thus, the
return process currently may include one or more correspondents
and the Federal Reserve before the returned check reaches the
depositary bank®
The more
intermediate processing
steps
a
returned check must pass through on its route to the depositary
bank, the greater the probability that additional time will be
necessary to complete the process0
Many
checks are collected
arrangements,
arrangementso
clearinghouses,
and
through
local
direct
clearing
exchange
Such arrangements consist of two or more banks
agreeing to exchange checks drawn on each otherc
There are
many such arrangements, and they are a very efficient and fast
means of collecting and returning certain checks•
check processes
of local clearinghouses
unaffected by the Board's proposals,
should
The returned
be largely
although the individual
participants are subject to the provisions of the A c t 0
The paying Bank
Currents
Today, the paying bank's principal duty when
dishonoring a check is to assure timely dispatch of the check
back
to the presenting
Reserve's
Regulation J
bank0
The U 9CoC®
specify
that
and
the Federal
the paying
bank
must
dispatch a check it has determined not to pay by midnight of
A-37
-38 =
the banking day following the day the paying bank received the
check for payment (the "midnight deadline").
This obligation
may be satisfied by dispatching the returned check by courier
or UoSo- mailo
The return of checks presented
for
payment
through clearinghouses is usually subject to the rules of the
clearinghouse and these checks are dispatched accordingly,,
Typically*
throughout the day?
paying
banks
receive checks
from correspondents*
or though a clearinghouse0
for payment
the Federal Reserve*
checks received on a Monday* for
example* would be posted to customers0 accounts on Monday night
and any checks that are not to be paid
(due to insufficient
funds* account closed* etc®) are rejected from the system and
reports are prepared for management review*
The decision to
actually return a check can be made automatically as a matter
of bank policy or following review by management on Tuesday0
The checks to be returned are then sent by courier with
the
bank0s forward collection checks* by mail or courier to other
collecting banks* or by messenger
to the clearinghouse©
The
return process in this example must begin by midnight Tuesday
to conform to the U®C®C®
Because the return process must begin
by midnight* many paying banks return checks by mail when a
courier leaving after midnight would be faster®
If a check to
be returned was presented by the Federal Reserve and is $2*500
or more* the paying bank is also obligated to provide notice of
return to the depositary bank by midnight of the third banking
day following receipt
(Thursday in this example)•
A - 38
Receipt of
“ 39“
the physical check by the depositary bank within
this time
frame would fulfill this notification requiremento
Many paying banks currently receive checks from more
than one collecting bank
and,
therefore,
checks to each of those banks 0
dispatch
returned
If the paying bank does not
deposit checks for collection with the bank to which
it is
returning checks, these checks are usually returned through the
mail®
In some cases, mail
is also used by paying banks to
transport returns to the bank
collection
midnight
checks
in order
deadline,,
The
to which it sends its forward
to ensure compliance
paying
bank
currently
with
has
the
little
incentive to make an effort to speed the return process and is
generally not concerned
about
the return process
after
a
returned check has been dispatched timely0
proposed 0
A major impetus for change in the role of
the paying bank will be the responsibility placed on the paying
bank
by § 229o30 of the proposed regulation„
This section
states that the return process must be accomplished
0expeditious
0
manner,0 thus providing
0
paying bank to take
checks®
under
steps
to speed
the
the
incentive
in an
to
the
flow of returned
this proposed new duty, once the paying bank
decides not to pay a check,
the paying bank must dispatch
returned checks with the same speed and diligence that it would
dispatch forward collection checks, received for deposit before
noon on the banking day after the day of presentment of the
returned check®
This means that a check
A“ 39
presented
to the
-40-
paying bank on Monday that is not paid must be dispatched as
quickly as a check deposited in that bank on Tuesday morning
that is drawn on the depositary bankc
The Federal Reserve
would provide new deadlines for deposit of returned checks and
other new or enhanced services, which would assist paying banks
in meeting the proposed new duties•
Some of the changes
in the return process from the
perspective of the paying bank are anticipated to be §
lo
In many cases, paying banks will dispatch returns
by the same manner, and at the same time, as they
send
forward
usually mean
collection
that
courier rather
checks0
returns will
than mail®
This
be
will
sent
via
The paying bank will
be required to meet the deposit deadlines
and
sorting requirements set by any returning bank to
which the returned check is sent0
2o
Additional options
returnso
will be available
to send
Returns would not be required to follow
the indorsement chain through which the check was
originally collected0
bank
could
returning
multiple
return
bank
This means that the paying
all
rather
presenting
checks
than
banks®
to
a
sending
single
them
to
Paying banks could
return checks to the depositary bank or to a bank
agreeing
to
process
A-40
returns,
including
the
-41-
Federal
Reserve*
identify
the
indorsement*
If
the
paying
bank
cannot
bank
from
the
depositary
it may find it necessary to send
that returned check back to the presenting bankD
The Federal Reserve would accept returned checks
from all paying banks and explicitly charge for
this service*
Other returning banks are likely
to establish similar services0
3*
Under
checks
would
the
proposal*
for
$100
normally
or
less*
return*
business
days
deadline
without
additional
using
beyond
the
example
which
may
be
above*
a paying
held
bank
for
two
the paying bank's midnight
the
paying
liability*
The
bank
incurring
paying
bank
must
attempt to obtain payment on the day the check
actually
returned0
this
If
widely
procedure
implemented
is
expected
is
by
paying
banks*
to
reduce
the total number of checks that would be
returned unpaid*
4*
Paying banks will have the option to prepare a
returned
check
for
high-speed equipment*
automated
processing
by
This option will be used
only when the paying bank is sending the returned
check to a returning bank*
The bank can produce
a ''qualified returned check2 (QRC) by enclosing a
6
returned check in a carrier envelope or attaching
A -4 1
-42-
a strip to the bottom of the check, and encoding
the carrier or strip with the nine-digit routing
number of the depositary bank, a special returned
check
identifier,
and the amount of the check 0
By creating QRCs, the paying bank
facilitates
expeditious return of the check to the depositary
banko
Preparation of QRCs by paying banks also
reduces
the cost of the overall return process
because returning banks will be able to handle
these
checks
more
efficiently,,
To encourage
paying banks to prepare QRCs, the Federal Reserve
will provide
later
deposit deadlines at lower
prices for QRCs than for returned checks that are
not
qualifiedo
The
Board
believes
that
correspondent banks will adopt a similar strategy,,
5o
Paying
banks
will
be
required
to
provide
notification of nonpayment on all returned checks
of $2,500 or more, regardless of the channel of
collection,
today,.
at an earlier
time
than
required
Notifications will have to be received by
the depositary bank by 4s00 poin0 (local time) on
the second business day following presentment of
a check to the paying bankG
This means that if a
decision is made to return a check of $2,500 or
more that was presented on Monday,
bank
must
ensure
A -42
that
the
the paying
notification
is
“43“
received by the depositary bank no later
4s00 p 0m 0 WednesdayQ
provide
than
The Federal Reserve will
timely notification
to the depositary
bank provided that the message is originated by
Fedwire by noon on the due date or
that
the
physical returned check or a telephone message is
given to the Federal Reserve by 9s00 a 0 0 on the
m
due dateQ
Returning Banks, including Federal Reserve Banks
Currente
Returning banks currently receive returned
checks from paying banks and from other returning banks,
and
subsequently send those returned checks to depositary banks and
to other returning banks0
Banks that act as collecting banks
during the forward collection process also act as returning
banks during the return processe
Generally, a returning bank
receives a returned check from the bank to which it sent the
check for collection or payment.,
the returned
check
to its prior
The returning bank then sends
indorsee
In sending the
returns to its prior indorser, returning banks are under a duty
similar
returned
to the duty applicable to paying banks to dispatch
checks
by
the
midnight
deadline0
One
of
the
advantages to the practice of returning through the indorsement
chain is that parties in the return process have established
account
relationships
collection process®
that
were
used
during
the
The payment for the returned
forward
check
is
typically a reversal of the payment made during the forward
collection process0
A-43
-44-
The Federal Reserve functions as a returning bank in
the current return process only for checks that it handled in
the forward collection process•
The Federal Reserve receives
returned checks from paying banks and sends them to depositary
banks and other returning banks0
Approximately 43 percent of
the returns currently handled by the Federal Reserve are sent
to correspondent banks acting as returning banks <
,
Federal
Reserve
regions,
where
correspondent
In some
banking
is
particularly active, the Federal Reserve office currently sends
well
over
50
percent
of
the
returns
it
handles
to
correspondents in their role as returning banks®
proposed„
Under the proposal, returning banks will be
held to a standard similar to paying banks®
That is, returning
banks must handle returned checks in an "expeditious manner",
i®ee, returned checks must be processed and dispatched in the
same general manner as forward collection checks®
This means
that returning banks must process returned checks in a much
shorter time frame than is typical today®
Federal
Reserve
Banks
will
establish
new deposit
deadlines for returned checks that closely parallel those for
forward collection checks®
It is expected that other returning
banks will also establish new deposit deadlines for returned
checks®
While these deadlines need not be the same as for
checks received for forward collection,
returning banks
may
wish to establish these deadlines so as to permit paying or
other returning banks to send returned checks to them on the
A-44
-45 =
same courier as forward collection checks«
Returning banks may
return a check directly to the depositary bank or to another
returning bank as long as the route chosen for the return is
expeditious.
Generally*
it would not be expeditious
for a
returning bank to send returned checks to another returning
bank
if it sends
forward
collection
checks
drawn on
that
depositary bank directly to the depositary bank®
Returning banks would have
required*
the option*
to convert returns to QRGs0
but not be
If a returning bank
chooses to prepare a QRC* it may take a day to do so beyond the
time when the check would otherwise have been dispatched,,
extra day is not available when returning
directly
An
to the
depositary bank* because preparation of a QRC would not speed
the return of such checks•
It is anticipated that one of the most significant
changes in the return processing system for non=Federal Reserve
returning banks will be the effect of the Federal Reserve’
s
direct return policy,,
send
Federal Reserve offices will no longer
returned checks to other non-Federal Reserve returning
banks®
This potential shift in volume
current
Federal
Reserve
return
volume)
(about 43 percent of
could
significantly
reduce the number of returned checks that are handled by these
returning banks0
The Depositary Bank
Current,
The depositary bank receives returned checks
from both paying and returning banks®
A-45
Generally*
a returned
-46is
check
received
forw ard
from
co llectio n s
n o tifica tio n s
of
nonpaym ent
through
cu rren tly
red ep o eit
because
sig n ifica n t
a
second
the
the
return
a ssist
and,
and
the
banks
bank
for
receiv e
$2,5 0 0
Some
or
more
d ep o sita ry
checks
th ese
for
checks
the
the
because
in
want
p rior
to
d elay
in
and
banks
co llectio n
are
p a id
the
banks
in
may
w ith
d ep o sit
upon
risk
the
to
corporate
have
the
to
of
banks
on
fo llo w
lo ss
to
may b e
d ela y
is
due
new
leg ib le
g rea tly
the
d ep o sita ry
p ro m p tly 0
may
m od ify
have
som e
to
eq u ip m en t0
corporate
the
th at
custom er
check
the
To
in sta ll
custom ers
acco rd in g
in d orsem en t
the
d ep o sita ry
re lie v ed
to
p la ce
im provem ents
w ill
return
in d orsem en t
F a ilu re
if
to
bank
banks
to
proposed
id en tify in g
the
need
to
com p lete,
d ep o sita ry
work
the
the
a
d ep o sita ry
b an k 's
requirem enfc
cr itic a l
im p rin tin g
re tu rn in g
retu rn
is
p ro cessin g
to
in crea se
p a y in g
fo llo w in g
and
stan d ard 0
may
By
retu rn in g
d ep o sita ry
new
check
check,
p la tes
b an k 's
the
standard,
may
checks
standard
for
the
in d orsem en t
p la ce
on
and
th erefore,
w ith
encode
to
a lso
returned
of
d ep o sita ry
of
R eserve0
d ep o sita ry
process0
on
p a y in g
com ply
The
stan d ard
ind orsem en t
Some
checks
p ro p o rtio n
in d orsem en t
in d orsem en t
new
the
banks
on
Federal
by
p resen tm en t,,
standard
bank
used
lo w -d o lla r
Proposed„
in
bank
D ep o sita ry
co llected
a
the
a
of
bank
lia b ility
nonstandard
ind orsem en t o
D ep o sita ry
banks
w ith
w hich
the
banks
may
receiv e
d ep o sita ry
bank
A-46
retu rn s
from
retu rn in g
cu rren tly
does
not
have
a
-47-
forward check collection relat .ionsh ip 0
will,
for
directly
the first
from
time,
begin
Many depositary banks
receiving
the Federal Reserve0
returned
checks
If the depositary bank
requests courier delivery of its returned checks at a location
where the Federal Reserve does not currently provide courier
service,
the
depositary
bank
may
be
charged
for
the
transpor tat ion 0
Some depositary banks that currently are charged by a
returning
bank
for
returned
checks
returned checks without a per
will
begin
item charge0
receiving
Depositary banks
must pay, in same-day funds, for returned checks on the day the
checks are receivedo
If paying banks and returning banks that
return checks directly do not wish to receive same-day payment
by wire transfer, cash, or Federal Reserve net settlement, or
if the paying or returning bank does not maintain an account
relationship with the depositary bank, the banks may agree as
to the form of payment 0
The form of payment may be a check or
an ACH paymento
Depositary banks that have an on-line connection with
the Federal Reserve will have
to receive notifications
of
nonpayment through that terminal after January 1, 1989.
It
is
anticipated
that
depositary
banks
will
experience fewer returns, faster receipt of those checks that
are returned, and more comprehensive notification of nonpayment
on large-dollar returned cheeks*,
It is also anticipated that
fewer returns will be redeposited for collection by depositary
A-47
-48banks
because
sm a ll-d o lla r
some
p ayin g
checks
for
an
banks
extra
w ill
two
have
days
to
reta in ed
attem pt
the
to
secure
paym ent 0
RB6ULATIQH CC
SECT!OM°BY—SBCTICM ANALYSIS
The
analysis
Board
with
the
commentary on
intends
final
UoSoCo
commenters
and
a
section-by-section
that will be an official
will
be
an official
the meaning of section 611(e)
§ 4010(e))0
to address
include
regulation
the regulation
interpretation within
(12
to
Accordingly,
the
Board
Board
of the Act
requests
issues raised by the commentary as well
as making comments on the regulation itself*
Subpart A —
General
Section 229P1
T h is
th is
Authority and purposeg organisation
sectio n
reg u la tio n
reg u la tio n
is
p ro v id es
the
a
B oard 's
d escrip tio n
a u th o rity
of
how
to
adopt
the
orga n ized *
Section 229o2
This
regulationo
and
su m m arizes
Definitions
section
For
defines
the most part,
the
terms
used
in
the
terms are defined as they are
in section 602 of the Expedited Funds Availability Act
(12 UoSoCo 4001)o
The Board is, however, proposing changes
for
the sake of clarity or to conform the terminology to that which
is familiar to the banking industry and defining
not defined
in the Act*
terms
that are
The Board proposes to incorporate by
reference the definitions of the Uniform commercial Code where
A==48
”49a p p ro p ria te,
CFR
self
Part
co n tin u in g
210) e
Some
ex p la n a to ry
a p ra ctic e
of
and
the
adopted
R eg u la tio n
th erefore
are
for
C C 8s
not
R eg u la tio n
J
d efin itio n s
d iscu ssed
(12
are
in
th is
"a
demand
com m entary*
A ccou nt»
d ep o sit
The
account
d ep o sito ry
d efin es
or
accounts
in
account"
204)*
w ith
Thus
in clu d in g
money
m arket
Board
the
ap ply
p arty
th at
because
A ct,
o n ly
to
accounts
CC
68t r a n s a c t i o n
R eg u la tio n
account"
CC
found
th at
th at
are
are
covered
A“ 49
to
the
the
in
even
(12
to
to
(see
though
ex clu d e
demand
Act
is
The
th ese
d ep o sits
in ten d ed
u n lim ited
for
d efin itio n
of
D,
d ep o sits,
to
th ird
proposed
12
but
pow ers*
R eg u la tio n
ex clu d es
o b lig a tio n s
ap p lies
paym ent
p erm it
from
D
d ep o sits,
d efin itio n
d efin itio n
2 0 4 .2 ( a ) (1 )(v i i ) ),
but
th at
that
The
R egu lation
sa v in g s
referen ce
d iffer s
nondocum entary
accoun ts
the
of
powers
a p p ro p ria te
su ggests
transfers*
R egu lation
is
a
reg u la tio n
accoun ts,
party
at
paym ent
or
d ep o sit
it
of
w hich
p arty
th ird
account
d efin itio n
d efin itio n
d ep o sits
lim ited
b eliev es
accounts
in
have
the
B o a r d Ss
th ird
tim e
mean
proposed
of
the
the
general
cover
may
The
in
to
tra n sa ctio n
term s
not
they
account
sim ila r
"account"
Part
does
d efin es
in stitu tio n * "
" tra n sa ctio n
CFR
Act
as
the
such
CFR
not
represented
under
R egu lation
by
Do
as
=50 =
The
Board
also
proposes
to exempt
inter-bank
deposits and accounts from Regulation CCo
Automated clearinghouse
define
automated
processes
circular
by
The Board proposes to
clearinghouse
debit
established
(ACH)0
and
a
credit
Federal
governing
as
a
facility
transfers
Reserve
automated
under
Bank
rules
operating
clearinghouse
the rules of an ACH association0
that
items or
ACH credit
transfers
are included in the definition of “electronic paymento"
The reference to “credit transfers0 and
0
“debit
transfers8 is not meant to refer to the corresponding
0
credit and debit entries
transaction,
credit
that
are
part
of
the same
but the kinds of ACH payments0
transfer,
the
originator
orders
In an ACH
that
its
account be debited and another account ereditedo
an ACH debit
authorization,
transfer,
the
originator,
orders
another
account
with
In
prior
to be debited
and its account to be ereditedo
A
facility
that handles
only
"wire transfers"
(defined elsewhere) would not be an ACH,
organizations,
for
example,
the
New
although some
York
clearing
House, operate both an ACH and a wire transfer network0
Automated
teller machine
Acto
Board proposes
The
A=50
(ATM)
to
is not defined in the
define
an
ATM
as
an
-Sielectronic
or
mechanical
device
at which
a natural
person may make deposits to accounts by cash ©r check
and
perform
other
transactions *
terminals 0 machines
depositories*
and
that only
Point-of-sale
dispense
lobby deposit boxes
cash*
night
are not ATMs
within the meaning of the proposed definition,
because
they
do
not
accept deposits
either
(point-of-sale
terminals) or because they only accept deposits
depositories)
Deposits
treated
and cannot
to night
as
branches
depositories
deposits
of
the
perform other
at
the
depositary
and
transactions»
lobby boxes
teller
banks
(night
windows
where
of
they
are
the
are
located for the purpose of determining when funds must
be made available for withdrawal®
Available
what
it
for
withdrawal0
means
withdrawal„"
for
funds
The Act does
to
Savailable
8
Under
the proposal*
use actually
depositor0®
agreement
include
when
0available for withdrawal/8 it means that
0
funds may be put to any use for which
may
for
The Board proposes to define this phrase
in order to clarify the Act®
funds become
be
not define
and
account
with
payment
the depositor
finally collected funds
under
the
bank®
of
checks
the
depositor0s
Examples
drawn
on
of
electronic payments* and cash withdrawals®
A -5 1
account
such
the
in the
uses
account*
-52-
Bank»
The Act uses the term '"depository institution,,'"
which it defines by reference to section 19(b)(1)
(A)(i)-(vi)
of
the Federal
46l(b)(1)(A)(i)-(vi))o
Reserve Act
(12 U.S.Co
The Board proposes to use the
term "bank,"' a term that conforms to the usage the
Board has previously adopted in Regulation J e
"Bank"
is also the operative term in Article 4 of the Uniform
Commercial Code0
"Bank""
is
defined
to
include
depository
institutions, as defined in the Act, and UoS« branches
of foreign banksc
Unless
otherwise
specified,
the
term
bank
includes all of a bank's offices in the United States0
Banking day and Business daye
The Act defines only
"business day" and that only as any day excluding
Saturdays,
Sundays,
and
legal
holidayse
"Legal
holiday," however, is not defined, and the variety of
local
holidays,
together with the practice of some
banks to close midweek, makes the Act's
difficult to apply0
definition
The Board believes that two kinds
of business days are relevanto
First, when dealing
with the day a deposit is made or a bank's duty to
perform some action (such as returning a check), the
focus should be on a day that the bank is actually
A -5 2
-53-
open for businesso
Second, when counting days
for
purposes of determining when funds must be available
under the regulation or for the time limits banks must
meet in returning checks, there would be confusion and
uncertainty in trying to follow the schedule of a
particular bank, and there is less need to identify a
day when a particular bank is open0
act
as
intermediaries
Federal
(large
Reserve
follow
schedule,,
Banks)
Accordingly,
two definitions?
Most banks that
correspondents
the
same
and
holiday
the Board proposes to adopt
"business day1 is defined to follow
'
the standard Federal Reserve holiday schedule (which
is followed by most large banks) , and ’banking day" is
“
defined to mean a business day on which a bank is open
for substantially all of its banking activities0
The
definition
of banking
day
follows
the
definition of banking day in U.C.Co § 4-104(1) (c), but
changes
it by defining a banking day in terms of a
"business day0"
Thus, if a bank is open on Saturday,
Saturday might be a banking day for purposes of the
UoCoCo, but it would not be a banking day for purposes
of Regulation CC because Saturday is never a "business
day" under the regulation0
Under the proposal, a bank may observe a banking
day on a per branch basis„
The fact that one branch
is open to the public for substantially all of its
A-53
-5 4 -
banking business does not necessarily mean
day is a banking day for other branches•
that
that
For deposits
made at an ATM*
if the branch of the depositary bank
that
account
holds
deposit
the
of
the
person
making
the
is open for substantially all of its banking
activities
on
the
day
of
deposit*
that
day
is
considered a banking day for that deposit.
Cash
means
the Act
UoSo
coins
"including
and currency®
Federal
deleted as unnecessary®
Cashier 8s check G
second
item
check"
the
in
The
the
language*
Reserve
The phrase in
notes"
has
been
(See 3 1 U.S.C. 5 1 0 3 ® )
Board
Act's
"on
proposes
to add
definition
of
behalf
the
of
to the
"cashier's
bank
as
drawer*0 to clarify that the term "cashier's check" is
8
intended to cover only cheeks
that
a bank
draws
on
itself•
Certified check®
one
to which
The Act defines a certified check as
a bank has certified
that the drawer's
signature is genuine and that the bank has set aside
funds to pay the check®
Under
the Uniform commercial
Code* certification of a check means
agreement
(UoCoCo
that
it will
§§ 3 = 4 1 0 *
honor
3-411).
A~54
the bank's signed
the check as presented
The
Board
proposes
to
-55-
define "certified check" to include both the Act's and
UoCoCo's definitionso
Check
is defined in the Act as a negotiable demand
draft drawn on or payable through an office of a
depository institution located in the United States,
excluding noncash iterns.
The Act also mandates prompt
availability for drafts drawn on the UoSo Treasury and
state
governmentso
The
Board
proposes
to define
"check" to include these items as well,,
principal and interest payments on federal debt
instruments
are often paid with checks drawn on a
Federal Reserve Bank as fiscal agent of the United
States,
and
these
"fiscal
agency
checks"
are
indistinguishable from other checks drawn on Federal
Reserve Bankse
Federal Reserve checks are also used
by some banks as substitutes for cashier's checks and
therefore are analogous to depository checks under the
regulation«
Similarly, savings and loan associations
often use checks drawn on Federal Home Loan Banks as
substitutes for cashier’s checks0
The Board proposes
to treat checks drawn on Federal Home Loan Banks and
Federal Reserve Banks in the same manner as it treats
depository checks,,
The Act treats drafts payable through a bank as
checks,
even
though
under
A-55
the UoC.Co
the payable
“ 56 =
through bank is a collecting bank to make presentment
and
is
generally
not authorized
(UoCoC® § 3-120) o
are
payable
at
to make payment
The Act does not address items that
a bank .3/
For purposes of
this
regulation, the Board proposes to treat both payable
through and payable at demand drafts as payable by the
bank designated as the payable through or payable at
bank®
The Board believes that treating demand drafts
payable
at
a bank
as
checks
will
not
have
a
substantial effect on the operations of payable at
banks — • by far the largest proportion of payable at
items
are not negotiable demand drafts, but
items , such
as
commercial
bankers9 acceptances,
and
time
paper * bonds, notes,
securities®
These
time
items are not covered by the requirements of the Act
or of this regulation®
through drafts
{The treatment of payable
is discussed
connection with the
in greater
d efin itio n s
of
" lo ca l
detail
in
check6 and
'
"paying bank.3)
6
The O X e C o p r o v i d e s a l t e r n a t i v e t r e a t m e n t f o r payable at
items (UeC*Cc § 3 - 1 2 1 ) ®
In 32 s t a t e s ,
the p a y a b l e a t bank,
like the payable t h r o u g h b a n k , i s n o t a u t h o r i s e d t o pay the
item solely because i t i s d e s i g n a t e d a s t h e p a y a b l e at bank®
In 1 8 states, the D i s t r i c t o f C o l u m b i a , a n d t h e U 8S e Virgin
Islands, a n item t h a t i s p a y a b l e a t a b a n k i s treated a s a
draft drawn on t h a t b a n k ®
Thus, under current law, a large
number of payable a t i t e m s a r e t r e a t e d as drafts drawn on the
payable a t b a n k ®
3/
A -5 6
-57-
The Board proposes to include negotiable demand
drafts, or warrants, drawn on a state government in
the definition of checks
The Board has not proposed
to address checks drawn on local governments
under
paragraph (3) in the definition of check because it is
not aware of any local government that draws drafts
directly on itself*
If any commenter Is aware of a
local government that draws drafts directly on itselfe
it should include this information in its comment*
The Board proposes to treat U*S* Postal Service
money
orders
as
checks even though
Service regulations
under postal
they are not negotiable*
The
Board does not propose to provide specific rules for
other types of money orders?
these instruments are
generally drawn on or payable through or payable at
banks and are treated as checks on that basis*
The Board proposes to treat nonnegotiable cash
items as checks for purposes of Subpart C*
The Board
requests comment on how to treat cash items drawn on
entities that are not banks
regulation
for purposes of
this
(for example private banks and industrial
banks) *
Check clearinghouse association follows the definition
in the Act* but makes it clear that using the premises
of a Federal Reserve Bank to exchange checks does not
A - 57
= 58 =
constitute the handling of checks for collection by
the Reserve Bank e
several
This provision was added because
clearinghouses
meet
at
Reserve
Banks
to
exchange checks among their members0
The Act defines a clearinghouse as serving
local
area,
including a metropolitan areaQ"
clearinghouses
Clearing
House
(for example,
Association),
the California
however,
"a
Some
Bankers
cover
wide
areas, including whole states that are served by more
than one Federal Reserve office«
The members of these
clearinghouses may not all be “local paying banks" as
contemplated by the Acts
on
how
to
treat
geographic areas,
The Board requests comment
clearinghouses
covering
large
and whether all participants in a
clearinghouse should be regarded as local paying banks
with respect to all other clearinghouse participants
regardless of whether they are all located in the same
check processing region0
Check processing region„
The Act defines this term as
"the geographic area served by a Federal Reserve bank
check processing center or such larger area as the
Board
may prescribe
by
regulations,,"
proposes to adopt as the relevant check
regions
those
The
Board
processing
territories served by one of the 48
Federal Reserve head offices, branches, or regional
A-58
-5 9 -
cheek processing centers0
Appendix
A lists all the
Federal Reserve offices and gives the Federal Reserve
routing
symbols
territory,,
associated
with
each
office
The definition of check processing region
is key to determining whether a check is considered
local or nonlocal ®
Depositary bank0
rather
than
The Board proposes to use this term
the
ins ti tut ion o6
1
term
“receiving
‘
depository
"Receiving depository institution" is a
term unique to the Act* while "depositary bank" is the
term
used
in
Regulation J e
Article
4
of
the
"Depositary bank"
is
UoCoC®
and
therefore more
familiar to the banking industry than is the Act's
terminologyo
A depositary bank includes the bank in which the
check is first deposited®
check
If a customer deposits a
in its account at a bank*
depositary bank with respect
to
that bank
the check 0
is the
If a
foreign bank sends checks to its U®S0 correspondent
bank for forward collection* the UoS® correspondent is
the depositary bank®
A bank may act as both the depositary bank and
the paying bank with respect to a check* if the check
is drawn on* payable at* or payable through the bank
in which it was deposited,,
A -5 9
“60”
A bank is also considered a depositary bank with
respect to checks it receives as payee*
For example*
a bank is a depositary bank with respect to checks it
receives for loan repayment* although these checks are
not deposited in an account at the bank*
Depository check
is defined in the Act to include
cashier’s checks*
certified checks*
teller’s checks*
"and any other functionally equivalent instrument as
determined by the Board0"
The Board does not propose
to include any other instruments in this definition*
Electronic payment is defined to mean a wire transfer
or an ACH credit transfer*
The Act makes no mention
of ACH transfers* but the Board believes
that ACH
credit transfers have some of the characteristics of
wire transfers and should
be
treated
in the same
manner as wire transfers*
ACH debit transfers* even
though they may be transmitted electronically* are not
defined as electronic payments because the receiver of
an ACH debit transfer has the right to return the
transfer* which would reverse the credit given to the
originator*
Thus* ACH debit transfers are more like
checks
wire
than
transfers*
Further*
those
that
receive funds by originating ACH debit transfers are
primarily
large
corporate
A”6Q
customers
who
would
-61g en era lly
prom pt
be
a b le
to
co llectio n
d efin ed
to
a
mean
check
returned
after
ro u tin g
in
th eir
banks
for
ink
s t r i p 00;
C om m ittee
on
P lacem en t
(Septo
8*
A
are
see
the
F in a n cia l
and
1983)
drawn
p ayin g
on
lo ca l
by
number
bottom
of
check
on*
is
are
p ayab le
bank0
a
A bank
check
a
in
person
referen ce
is
of
the
the
p rin ted
check
(the
Standards
S p ecifica tio n
MICR
can
to
g en era lly
N a tio n a l
h erein a fter
as
c o lle c tio n 0"
S erv ices*
L ocation
the
is
bank
co llectio n s
check
A m erican
It
paym ent
con seq u en tly*
rou tin g
near
w hich
number
check;
checks
num ber0
by
lo ca l
ro u tin g
lo ca l
w hich
a
Co
d ep o sita ry
for
“forw ard
a
a
Noncash
as
at
Subpart
bank
process
term
in
by w hich
nonpaym ent
the
m a g n etic
0 MIC R
0
the
d efin ed
a
used
p ayin g
the
on
d eterm in e
th e
p ayab le
id en tify in g
term
process
is
or
rely
a
in
check
through*
may
the
from
in clu d ed
Local
is
to
d istin g u ish ed
not
w ith
a v a ila b ility o
Forward
sends
n eg o tia te
p rin tin g*
referred
to
for
the
X9C 3
1
as
“A N S I
X9 o 1 3 = 1 9 8 3 80) o
A check*
but
p ayable
p a y in g
how
the
such
as
through
banks*
check
one
is
a
lo ca l
a
check
drawn
n o n lo ca l
and
one
co llected 0
A -61
on
bank*
lo ca l
cou ld
n o n lo ca l*
T his
a
have
bank
two
d ep en d in g
d efin itio n
a llo w s
on
“ 62=
the depositary bank to rely on the routing number on
the
cheek*
generally
routing number*
the
payable
in determining
through
whether
b a n k ss
the check
is
local or nonlocalo
Appendix A is a list of routing numbers arranged
by Federal
Reserve
Bank
office to enable persons to
determine whether or not a check is locale
Local
paying
bank
which a check
is defined
is sent for
as a paying
bank
forward collection
to
located
in the same check processing region as the branch or
proprietary ATM of the depositary bankQ
(See comments
on definition of 'paying bank"Q)
“
Moncash item0
that noncash
The Act's definition of
items are excluded*
"check" states
and defines noncash
items as checks to which another document
is attached
or
Under
the
items
as
accompanied
Act*
"noncash
determined
proposes
Federal
by
by
item"
the
to define
Reserve
special
also
includes
Board's
Banks'
other
regulations»
"noncash
item"
in terms
items»
qualify
Board
of
The proposal
the
also
item to include checks that consist of
more than a single thickness of paper
that
The
uniform operating circular on
the collection of noncash
defines noncash
instructions *
for
handling
A“ 6 2
by
(except checks
automated
check
-63-
processing
equipment* e 0g 0 those placed' in carrier
envelopes) and checks that have not been preprinted or
post=encoded in magnetic characters with the paying
bank°s routing numbers
A photocopy of a check is neither a check nor a
noncash
item*
but may be treated as either»
Federal Reserve Banks generally agree
The
to handle a
properly prepared photocopy of a check as a check if
it contains
a
guarantee
of
authenticity
and
an
indemnity by the depositary bank or a collecting bank0
Paying banko
lieu
of
the
The Board proposes to use this term in
Actss
"originating
depository
institution*" and to define it* as in Regulation J
(12 CFR Part 210)* to include the payor bank*
the
payable at bank* and the payable through bankQ
Under other provisions of the proposal* a bank
designated as a "payable
through
bank"
would
be
responsible for performing all of the duties (payment*
return* notice* etc„) of the payor bank and within the
same time frames«
The Board believes that the Act
makes a clear connection between availability and the
time it takes for checks to be cleared and returned0
Allowing the payable through bank additional time to
forward checks to the payor* and await return or pay
instructions from the payor* would delay the return of
A“ 6 3
=■ 64-
these
checks, increasing
the risks
to depositary
bank s 0
Federal
Reserve Banks
and Federal Home Loan
Banks are also treated as paying banks with respect to
checks drawn on them, even though they are not defined
as "banks" in the regulation0
A state government that
issues warrants drawn on itself would also be a paying
bank for purposes of the regulation, and thus would be
subject to the paying bank's duties under Subpart Co
proprietary ATM0
deposits
at
deposits
of
Under
the temporary schedule,
nonproprietary
nonlocal
ATMs
checks
are
and
treated
deposits
all
like
at
proprietary ATMs are generally treated like deposits
at banking offices0
indicates
that
The Conference Report on the Act
the special
deposits
received
provided
because
through
availability
rules
for
nonproprietary
ATMs
are
"nonproprietary ATMs today do not
distinguish among check deposits or between cheek and
cash deposits"
Sesso at 179
(HeRo RepG No0 261, 100th CongQ, 1st
(1987))o
Thus,
during
the
temporary
schedule, a deposit of any combination of cash and
checks at a nonproprietary ATM may be treated like a
deposit of nonlocal
checks, because the depositary
bank does not know the makeup of
consequently
the deposit
and
is unable to place different holds on
A-64
-65-
cash, local check, and nonlocal check deposits made at
the ATMe
A colloquy between Senators Proxmire and Dodd
during the floor debate on the Competitive Equality
Banking Act
(133 Cong0 Rece S11289
(Auge 4,
1987))
indicated that whether a bank operates the ATM is the
primary criterion to determining whether
proprietary
to that bank»
the ATM is
Since a bank should be
capable of ascertaining the composition of deposits
made to an ATM operated by that bank, an exception to
the availability schedules is not warranted for these
deposits.
The Board believes that generally ATMs are owned
or operated
by one bank
and should be considered
proprietary to that bank, even if deposits can be made
by customers of other banks at that ATMC
the Act also
includes
location
as
a
Nonetheless,
factor
in
determining whether an ATM that is neither owned nor
operated by a bank is proprietary to that banke
the
Board
has
included,
as
criteria
for
Thus,
what
constitutes a proprietary ATM, an ATM located on the
premises of the bank -- either inside the branch or on
its outside wall*,
Since
the Act also defines
a
proprietary ATM as one that is "in close proximity" to
the bank, the Board proposes to define an ATM located
within 50 feet of a bank to be proprietary to that
A -65
-66-
bank o
The Board believes that the statutory proximity
test was designed to apply to situations where it
would appear to the depositor that the ATM was run by
its bank, because of the proximity of the ATM to the
banko
The Board believes that ATMs located within 50
feet of a banking office would be presumed proprietary
to that bank unless they are clearly identified as
being owned or operated by another bank0
The Board proposes to limit the applicability of
this
definition
considered
to
by
be
stating
that
proprietary
unaffiliated bank 0
to
an
ATM
more
is not
than
one
If more than one bank meets the
criteria set forth in the definition, the ATM will be
considered proprietary to the bank that satisfies the
criterion stated in the lowest numbered
paragraph0
Thus, generally an ATM will be proprietary to the bank
that owns or operates it 0
the owns or operates
If more than one bank meets
criterion,
the ATM shall be
considered proprietary to the bank that operates itc
Qualified returned check,
The proposal provides for
the return of checks to the depositary bank by the
paying bank by the same general means used for forward
collection of a check from the depositary bank to the
paying banke
to
prepare
One way to speed the return process is
the
returned
A-66
check
for
automated
- 6 7 -
processing0
Returned
checks
can be automated
by
either the paying bank or a returning bank by placing
the return in a carrier envelope or by placing a strip
on the bottom of the return, and encoding the envelope
or strip with
the routing number of the depositary
bank, the amount of the check, and a special return
identifiers
Returns may be identified by placing a
82 8 in position 44 of
1 1
the MICR line0
X9 .13-1983o) < Generally,
under
(See ANSI
the standard of care
imposed by § 229c38, a paying or returning bank would
be liable for any damages incurred due to misencoding
of the routing number,
the amount of the check or
return identifier on a qualified returned check unless
the error was due to problems with
bank°s
indorsements
§ 229s38(c)o)
contain
the
(See
also
discussion
A qualified returned
elements
of
a
check
the depositary
check
drawn
of
need
on
not
the
depositary bank, such as the name of the depositary
bank,' as is required under the direct return provision
of U o C s © § 4-212(2)o
C
Because indorsements on carrier
envelopes will not appear on a returned check itself,
banks will wish to retain carrier envelopes with their
check records0
Returning bank
is defined to mean any bank
(including
a Federal Reserve Bank or a Federal Home Loan Bank,
but excluding the paying bank)
A -67
handling a returned
“ 6 8 -
check
under
Subpart Co
that
the
return procedures
established
in
A returning bank may or may not be a bank
handled
the
returned
check
in
the forward
collection process,,
Routing number0
Each
bank
is assigned
a routing
number by Rand McNally & CoQ as agent for the American
Bankers
Association
The
routing number takes two
forms; a fractional form and a nine-digit form0
A
paying bank is identified by both the fractional form
routing number
(which normally appears
right hand corner of the check)
form
in the upper
and the nine-digit
(which is printed in magnetic ink in a strip
along the bottom of the check).
require banks
to place
their
Subpart C proposes to
routing
numbers
in
nine-digit form in their indorsements•
Uniform commercial Code
is defined as the version of
the Code adopted by the individual states0
Citations
in the regulation are to the official text published
by the Code's sponsors,
Wire transfer „
authority
The Act delegates to the Board the
to define the term "wire transfer."
The
Board proposes to define wire transfer as an order to
a bank to pay a fixed or determinable amount of money
A-68
°69“
to a beneficiaryG
The order
must
unconditionally
permit the bank receiving the wire transfer to pay the
beneficiary0
A wire transfer may be transmitted by
electronic or other means•
computer“to-computer
telegrams
links,
on-line
terminals,
(including TWX, TELEX, or similar methods of
communication),
methods.
"Electronic means" include
telephone
calls,
or
other
similar
The Board believes that Fedwire (the Federal
Reserve's wire
transfer
network),
CHIPS
(Clearing
House inter-bank Payments System, operated by the New
York Clearing House), and book transfers among banks
or within one bank would be covered by this definition,,
Subpart B ~
Availability of Funds
Section 229ol0
(a)
Next-day availability for certain deposits
Cash
deposits,
,
The
Act
provides
next-day
availability for cash deposits to accounts at a depositary bank
"staffed by individuals employed by such institution0“2/
its proposal,
the Board has eliminated
this
condition
In
for
receipt of next-day availability for cash deposits as well as
3/ Nothing in this regulation or in the Act affects terms of
account arrangements, such as negotiable order of withdrawal
accounts, that require prior notice of withdrawal0 See 12
CFR 204 o2 (e) (2) .
A-69
-70-
for
checks
subject
paragraph (c)0
to
Current
next-day
availability
under
law generally provides for next-day
availability for cash deposits,,
(See UoCoC® § 4-213(5),)
The
Board is not aware of any impediments to providing next-day
availability for cash deposits received at a proprietary ATM,
night depository, lobby deposit box, or through the mail, but
requests comment on any problems this requirement may pose for
depositary bankse
This provision, as well as other provisions
subpart governing
the availability
in this
of funds, provides that
funds must be made available for withdrawal not later than a
specified number of "business days" following the "banking day"
on which the funds are deposited,,
Thus, a deposit is only
considered made on a banking day, i0e 0, a day that the bank is
open to the public for carrying on substantially all of its
banking functions•
For example, if a deposit is made at an ATM
on a Saturday, Sunday, or other day on which the bank is closed
to the public,
the deposit is considered received on that
bank's next banking dayG
Nevertheless,
"business days"
are
used to determine the number of days following the banking day
of deposit that funds must be available for withdrawal,.
example,
For
if a deposit of a local check were made on a Monday
under the temporary schedule, which calls for availability on
the third business day after deposit,
funds must be made
available on Thursday regardless of whether the bank was closed
on Wednesday
for other
than a standard
legal holiday as
specified in the definition of "business dayeM
A - 70
-71Under this provision, cash deposited in an account on
a Monday, except for cash deposited at a nonproprietary ATM,
must become available for withdrawal by the start of business
on Tuesdayc
(b)
Electronic payments.
The Act provides next-day
availability for funds received for deposit by wire transfer,,
The regulation uses the term "electronic payment," rather than
"wire transfer," because the Board is proposing that ACH credit
transfers
also
be
accorded
next™ day
availability®
(See
discussion of definition of "electronic payment®"
)
The
Act
requires
that
funds
be
available
for
withdrawal not later than the business day following the day a
wire
transfer
is received®
This provision
constitutes receipt of an electronic payment®
of
this section,
receipt
funds generally
funds®
what
For the purposes
is determined by when
receives payment in finally collected
finally collected
clarifies
the bank
For
example,
are received for an ACH
credit transfer when they are posted to the receiving bank's
account on the settlement day®
In the case of Fedwire, the
bank receives finally collected funds at the time the payment
is made®
(See 12 CFR 210.36®)
This provision establishes when an electronic payment
is considered received®
The "to the extent" language in the
provision is intended to address cases where a participant on a
private network fails to settle, and the bank receives finally
settled funds representing only a partial amount of the payment®
A-71
“ 7 2“
(c)
Government
checks,
depository
checks,
drawn on the depositary bank, and certain other checks»
The
Act generally requires that funds be made available on the
business day following deposit for Treasury checks, state and
local government checks, depository checks, and "on us" checks
under
specified
conditions0
One condition
next-day availability placed on
local government checks,
to
receipt
Treasury checks,
of
state and
and depository checks is that
the
check must be "endorsed only by the person to whom it was
issuedo"
The Act could be interpreted to include a check that
has been indorsed in blank and deposited into an account of a
third party that is not named as payee „
The Board believes
that such a check presents greater risks than a check deposited
by the payee and,
therefore, proposes that funds should be
available on the business day following deposit only if the
check "is deposited in an account of a payee of the check»"
The
Board
is
proposing
to
require
next-day
availability for additional types of checks not addressed in
the Acto
Under the proposal, checks drawn on a Federal Reserve
Bank or a Federal Home Loan Bank and UoS. Postal Service money
orders
must
be
made available on
the next business
day
following deposit if the check is deposited in an account of a
payee of the check„
A check deposited in a branch of the depositary bank,
and drawn on the same or another branch of the same bank, must
be made available at the start of the next business day if both
A-72
5
I
______ __________________
checks
“ 73-
branches
are
located
in
the
same
state or
the same check
processing region0
The Act and proposed regulation also require that $100
of the aggregate deposit by check (s) or checks on any one
banking day be made available on the next business dayQ
example,
For
if $70 were deposited in an account by check(s) on a
Monday, the entire $70 must be available for withdrawal at the
start of business on Tuesday,,
on a Monday,
check(s)
If
$200 were deposited
by
the Act requires that $100 of the funds
be available for withdrawal at the start of business on Tuesday,,
Under
the Act,
a depositary bank may require the use
of a special deposit slip as a condition to providing next-day
availability
included
for certain types of checks,,
in the Act because a number
This condition was
of banks
determine
the
availability of their customers” check deposits in an automated
manner
by
reading
the
deposited checks „
MICR-encoded
routing
number
on
the
Using these procedures, a bank can determine
whether a check is a local or nonlocal check • is a check drawn
on
the Treasury,
a Federal Reserve Bank, a Federal Home Loan
Bank, or a branch of the depositary bank; or
Service money order0
The bank cannot require a special deposit
slip for these checkse
distinguish whether
The bank, however, would not be able to
the check was a state or local government
check or a depository check by reading
number,
other
because
checks
these
drawn
is a U 0S 0 Postal
on
checks bear
the MlCR-encoded routing
the same routing number as
the same bank
that
are not
accorded
A-7 3
A
&
= 74-=
next-day availability„
Therefore, a bank may require a special
deposit slip for these checks0
The regulation specifies that,
if a bank decides to
require the use of a special deposit slip as a condition to
granting next-day availability and the deposit slip that must
be used is different from the bank's regular deposit slips, the
bank must either provide the special slips to its customers or
inform its customers how such slips may be obtained and make
the slips reasonably available to the customers•
Providing
customers with an order form for the special deposit slips and
allowing sufficient time for the customer to order and receive
the slips before this condition is imposed,
requirement may be metD
is one way this
If a bank provides deposit slips in
its branches for use by its customers, it should also provide
the special deposit slips in the branches0
requires
the customer
to segregate
If the bank simply
the checks
subject
to
next-day availability and indicate on a regular deposit slip
that government
t
checks and/or
depository checks
are being
deposited, the bank should so instruct its customers0
Section 229011
Temporary schedule
(a)
Effective date0
must be accorded next-day
availability,
checks, other
then those that
are categorized
as
either local or nonlocal, with different availability schedules
attached to each0
These schedules will become effective on
September 1, 1988, and will be superseded by more stringent
schedules on September 1, 1990®
A - 74
h
h
-
(b)
Local
75
-
checkSo
This paragraph sets forth the
maximum hold period that can be placed on local checks during
the temporary schedule*
The regulation refers to the day on
which funds must be available
for withdrawal
as within a
specified number of business days after deposit, rather than
after a specified number
provided in the Act*
of
intervening business
days,
as
A depositary bank must make funds from
the deposit of a local check available on the third business
day following the banking day on which the check is deposited*
This requirement corresponds to the two intervening business
days specified in the Act*
Thus, under the temporary schedule,
a local check deposited on a Monday must be available
withdrawal on
Thursday,
for
except in the case of deposits at
nonproprietary ATMs and deposits to accounts in banks located
outside the 48 contiguous states*
The
Act
provides
a
further
adjustment
availability rules for cash withdrawals*
schedule,
the Act provides
that
funds
to
the
During the temporary
from
local
checks
collected outside a check clearinghouse arrangement need not be
available for cash withdrawal
specified in the schedule*
until 5:00 p 0m 0 on
the day
This special rule does not apply to
deposits of nonlocal checks under the temporary schedule.
At
5s00 p em 0, $400 of the deposit must be made available for cash
withdrawal*
This $400 is in addition to the first $100 of a
day's deposit,
which must be made available for withdrawal,
including cash withdrawal, at the start of business on the next
A-75
i
I
“ 76-
business day following deposit0
The remainder of the funds
must be available for cash withdrawal at the start of business
on the business day following the business day specified in the
schedule.
--
The Act recognizes that the $400 that must be provided
on the day specified in the schedule may exceed a bank's daily
ATM cash withdrawal limit, and explicitly provides that the Act
does not supersede the bank's policy in this regardo
believes
that
The Board
the rationale for accommodating a bank's ATM
withdrawal limit also applies to other cash withdrawal limits
established by
relation
that bank0
between
over-the-counter
a
bank's
cash
In the proposed regulation,
cash
withdrawals
withdrawal
as
well
limit
as
the
(for
ATM cash
withdrawals) and the requirements of this subpart is addressed
in § 229 o19 (c) (4) o
;
The Board believes that the Congress
included
this
special cash rule to provide a depositary bank with additional
time to learn of the nonpayment of a check before it must make
funds available to its customer0
local check on a Monday,
paying bank,
Thursday
If a customer deposits a
and that check is returned by the
the depositary bank may receive the check on
(the day funds must be made
available
under
the ,
temporary schedule), but would most likely not receive the
return by the opening of business on Thursday, even with? the
payments
improvements
regulation*,
proposed
Subpart C
of
.
this
i
(
Checks written by the customer that are presented
A-76
I
in
= 77 =
to the depositary bank on Thursday are typically not posted to
the customer's account until late Thursday nighto
that have been
received
on
that day are debited
customer's account before these checks are posted0
Any returns
to the
Thus,
for
the purpose of checks written by the customer, the fact that a
return is not received until sometime during the day on which
funds must be made available does not increase the bank's
risko
However,
significantly
the depositary bank's
risk
does
increase
if the customer withdraws the funds in cash,
because the withdrawal may occur before the return is received
and postedo
The intent of the special cash withdrawal rule is
to minimize this risk to the depositary bankQ
For this rule to minimize the depositary bank's risk,
it must apply not only
to cash withdrawals,
but also
to
withdrawals by other means that result in an irrevocable debit
to the customer's account or commitment to pay by the bank on
the customer's behalf during the day„
Thus, the Board proposes
to expand the cash withdrawal rule to also include withdrawals
by electronic payment, issuance of a depository check, or other
irrevocable commitment to pay,
on-line point-of-sale debit®
such as authorization
of an
The cash withdrawal rule does not
apply to checks and other provisional debits presented to the
bank for payment that the bank has the right to return0
The regulation provides that Treasury checks and DoS®
Postal Service money orders be treated as local checks, where
the conditions to receiving next-day availability are not met®
A-7 7
t
-78-
These checks are
treated as local checks because they are
payable at any Federal Reserve office0
Thus* under this rule a
Treasury check or a postal money order that is indorsed and
deposited in an account not held by the payee must be made
available in accordance with the schedule for local checks.
Other types of checks described in § 229ol0(c)* such as checks
drawn on a Federal Reserve Bank or Federal Home Loan Bank*
state and local government checks* and depository checks*
for
which next-day availability does not apply (e.g„* because they
were not deposited in an account of a payee of the check) * are
treated as either local or nonlocal checks* depending on the
check processing region in which they are payable,,
(c)
Nonlocal checks,
Under the temporary schedule*
funds deposited by nonlocal checks must be made available for
withdrawal not later than the seventh business day following
the banking day the funds are deposited* except in the case of
deposits at nonproprietary ATMs or in accounts of banks located
outside the 48 contiguous states0
Thus* funds from a nonlocal
check deposited on a Monday must be available for withdrawal by
Wednesday of the following week,,
The Act does not establish a
special rule for cash withdrawals for nonlocal checks under the
temporary schedule,,
Therefore*
full
deposit
amount
of
the
subject
becomes
to § 229el9(c)*
available
for
the
cash
withdrawal on the business day specified in the schedule,,
Section 603(d)(1) of the Act
(12 UoSe e 4002(d)(1))
C
requires the Board to reduce the statutory schedules for any
A=78
-79-
category of checks where most of those checks would be returned
in a shorter period of time than provided
The conferees
indicated
that
in the schedules«
"if the new system makes it
possible for two-thirds of the items of a category of checks to
meet this test in a shorter period of time, then the Federal
Reserve must shorten the schedules accordinglyQ"
H sR e Rep®
No, 261, 100th Cong0, 1st Sesse at 179 (1987)•
Reduced schedules are proposed for certain nonlocal
checks, where significant improvements can be made to the Act's
schedulese
Specifically,
checks deposited
shorter schedules are provided for
in banks located in certain Federal Reserve
cities and drawn on banks located
Reserve
cities,
where
in certain other Federal
transportation arrangements allow for
faster collection and return,
in addition,
shorter schedules
are proposed for checks drawn on certain banks that are served
by two Federal Reserve offices, and certain checks deposited in
and drawn on banks in the New York City metropolitan area,
where the proximity of the Federal Reserve offices facilitates
faster clearing and return of these checks.
Appendix B-l sets
forth
the specific
reduction of
schedules applicable to banks located in each check processing
region.
(d)
Deposits
at
nonproprietary
ATMs«
The
provides a special rule for deposits made at nonproprietary
ATMs o
During the temporary schedule,
a depositary bank may
treat all deposits made by its customers at a nonproprietary
A-79
Act
“ 80”
ATM as though the deposits were nonlocal checks» A deposit at
a nonpropr.ietary ATM on a Monday,
including a deposit by cash
or
be
checks
that
would
otherwise
subject
to next-day
availability, must be made available for withdrawal not later
than Wednesday of the following weekQ
This
rule
proprietary ATMs0
does
not
apply
to
deposits
made
at
Availability of deposits at proprietary ATMs
is governed by the same rules as deposits made directly at
branches of depositary bankse
(e)
Extension of schedule for certain deposits
Alaska, Hawaii, Puerto Rico, and the U oS 0 Virgin lslands0
The
Act provides an extension of the availability schedules for
banks located in Alaska, Hawaii, Puerto Rico, and the U 0S 0
Virgin
islands0
The schedules
for
local
checks,
nonlocal
checks, and deposits at nonproprietary ATMs are extended by one
business day for checks deposited to accounts in banks located
in these jurisdictions that are drawn on or payable at or
through a paying bank not located in the same jurisdiction as
the depositary bank0
For example, a check deposited in a bank
in Hawaii and drawn on a San Francisco paying bank must be made
available for withdrawal not later than the fourth business day
following deposits
This extension does not apply to deposits
that must be made available for withdrawal on the next business
day o
The Congress did not provide this extension of the
schedules to checks drawn on a paying bank located in Alaska,
A “80
in
-81-
Hawaii, Puerto Rico, or the U eS„ Virgin islands and deposited
in an account at a depositary bank
stateso
in
the 48 contiguous
Therefore, a check deposited in a San Francisco bank
drawn on a Hawaii paying bank must be made available
withdrawal not
later
for
than the third business day following
deposit 0
The availability rules of § 229ell are illustrated in
Figure l c
Section 229ol2
(a)
supersede
Permanent schedule
Effective dateP
The permanent
schedule will
the temporary schedule on September 1, 1990«
The
Board requests comment on whether the permanent schedule should
be made effective on an earlier datec
(b)
Local
becomes effective,
Postal
Service
availability
checksa
the
permanent
schedule
local checks and Treasury checks and UoS«
money
under
When
orders
not
§ 229olQ(c)
subject
to
next-day
must be made available
for
withdrawal not later than the second business day following
deposito
Exceptions
are made
for withdrawals
by cash
or
similar means, deposits at nonproprietary ATMs, and deposits in
banks
located outside the 48 contiguous states0
Thus,
the
proceeds of a local check deposited on a Monday must be made
available for withdrawal on Wednesday0
(c)
Nonlocal checks 0
Under the permanent schedule,
the time period for availability of nonlocal checks is also
reduced.
Nonlocal checks must be made available for withdrawal
A -81
A
1
■ =82“
not later than the fifth business day following deposit, i0e 0,
proceeds of a nonlocal check deposited on a Monday must be made
available for withdrawal on the following Monday,,
Adjustments
are made to the schedule for withdrawals by cash or similar
means, deposits at nonproprietary ATMs, and deposits in banks
located outside the 48 contiguous states0
As described in the discussion of § 2290ll(c),
the
Board is required to shorten the schedules for any category of
check
where most of
those checks
can be returned to the
depositary bank in a shorter period of time than provided in
the schedule,.
Appendix B sets forth the reductions to the
schedule for certain nonlocal checks0
(d)
Time period adjustment for withdrawal by cash or
similar means0
Unlike the temporary schedule, the Act applies
the special cash withdrawal rule to both local and nonlocal
checks under the permanent schedule„
regulation
implementing
this
rule
The Board’s proposed
is
described
in
discussion of the temporary schedule at § 2290ll(b)0
permanent
schedule,
if the proceeds
the
In the
of local and nonlocal
checks become available for withdrawal on the same business
day, the withdrawal limitation applies to the aggregate amount
of the fundSo
(e)
Deposits at nonproprietary ATMs„
provides a limited exception to the permanent
deposits at nonproprietary ATMs0
This provision
schedule
for
Cash and checks subject to
next-day availability under § 229ol0 that are deposited in an
A -8 2
=83 =
account
at
a nonproprietary
ATM
must
be
available
for
withdrawal not later than the second business day following the
banking day on which the deposit was made0
Other deposits at
nonproprietary ATMs must be made available in accordance with
the schedule in the regulation applicable to the category of
check being depositedo
Section 603 ( ) (4) of the Act directs the Board to
e
"establish and maintain a dialogue" with banks and ATM vendors
regarding the ability of ATM systems to communicate to the
depositary bank
nonproprietary
the composition
ATMC
The
Board
of a deposit
requests
made
comment
at
on
a
how
depositary banks plan to comply with the availability schedules
for deposits made at nonproprietary ATMs under the permanent
schedule„
(f)
Extension
of
schedule
for certain
deposits
Alaska^ Hawaii^ Puerto Rico, and the U 0S 0 Virgin lslands0
extension
of
the
located
in Alaska
Islands
under
permanent
availability
schedules
„Hawaii „Puerto
the
schedule
Rico,
temporary
schedule
becomes
effective0
provided
and
to
the UoSo
also applies
Explanation
The
banks
Virgin
when
of
the
this
provision is provided in the discussion of § 229oXX{d)0
The availability rules of § 229cl2 are illustrated in
Figures 2 and 3o
Section 229013
Exceptions
While certain safeguard exceptions
new accounts and checks
the bank
A=83
(such as those for
has reasonable cause
to
in
-84“
believe are
uncollectible)
are established in the Act,
the
Congress gave the Board the discretion to determine whether
certain
other
should
Specifically,
regulations,,
exceptions
the
be
Act
included
gives
in
the
these
Board
the
authority to establish exceptions to the schedules for large or
redeposited checks and for accounts that have been repeatedly
overdrawno
These exceptions do not apply to checks or other
deposits that must be accorded next-day availability
under
§ 229 ol 0 o
Although proposed improvements to the check collection
system will accelerate the return of most checks, many checks
will not be returned to the depositary bank by the time funds
must be made available
schedule
—
a number
for withdrawal under
that will
permanent schedule is adopted0
likely
the temporary
increase when
the
in order to reduce risk to
depositary banks, the Board believes that it is appropriate to
adopt the exceptions to the schedules permitted by the Act in
the regulation to allow the bank to extend the time within
which it is required to make funds available,,
The exceptions
provided in this section apply to the schedules for local and
nonlocal checks during the temporary and permanent schedules,
and, in some cases, to the next-day availability requirement
for certain check deposits0
The Act also gives the Board the authority to suspend
the
schedules
for
any
classification
of
checks,
if the
schedules result in an unacceptable level of fraud losses0
A “84
The
-85 =
Board
will
adopt
authority,
if
regulations
and
when
to implement
circumstances
this
statutory
requiring
its
implementation arise0
(a)
New accountso
the availability
The Act provides an exception to
schedule for new accounts,
An account is
defined as a new account during the first 30 calendar days
after
the account has been establishedo
However,
customer opening the account has an established
if
the
transaction
account relationship with the bank, or has had an established
transaction
calendar
account relationship with
days
of
opening
the
other
the
bank
account,
within
the
30
newly
established account would not be subject to this exceptione
Thus,
if a customer that has had one account with a
bank for more than 30 days opens a second account with that
bank,
that customer would not be considered a new depositor
during the first 30-day period following the establishment of
the second accounto
If a customer’s account was closed and another account
established as a successor to the original account (due, for
example, to the theft of checks or a debit card used to access
the original account), the customer would not be considered a
new depositor with regard to the successor account,
assuming
the original account relationship is at least 30 days old0
Similarly,
if a customer closed an established
account
and
opens a separate account within 30 days, the new account is not
A -8 5
-86-
subject to this exception, if the closed account was at least
30 days old„
A customer that has a joint account at a depositary
bank and subsequently establishes an individual account with
that bank would not be a new depositor,
assuming the joint
account relationship is at least 30 days oldQ
If a customer establishes an account with a depositary
bank
with which
relationship,
it has no other current or recent account
that customer is considered a new depositor and
may be subject to the new account exception for the first 30
days of the account
period,
relationship,,
During
the new account
the schedules for local and nonlocal checks do not
apply, but deposits received by cash and electronic payment
must
be
§ 299o10®
given
next-day
availability
in
accordance
with
The first $5,000 of funds deposited to a new account
on any one banking day by Treasury checks,
checks drawn on
Federal Reserve Banks or Federal Home Loan Banks, U 0So Postal
Service money orders,
state and local government checks, and
depository checks must be made available for withdrawal at the
start of business on the following business day„
Funds in
excess of the first $5,000 deposited by these types of checks
on a banking day must be available for withdrawal not later
than at the start of business on
the ninth
following the banking day of deposito
accounts only,
travelers checks
checks o
A-8 6
business
day
For the purposes of new
are treated
as depository
“87 -
(b)
Large deposits. A depositary bank may extend the
,
hold placed on local and nonlocal check deposits only to the
extent that the amount of the aggregate deposit on any banking
day exceeds $5,000o
While the first $5,000 of a day's deposit
is subject to the availability provided for local or nonlocal
checks,
the amount in excess of $5,000 may be held for an
additional four business days,
as provided
in § 2290l3(h)„
Deposits by cash, electronic payment, or checks that must be
granted next-day availability under
the regulation
are not
subject to this exception for large deposits0
Where
a customer
depositary bank,
has
multiple
accounts
with
a
the bank may apply the large-dollar deposit
exception to the aggregate deposits to all of the customer's
accounts,
if the holders of the accounts to be aggregated are
the same.,
Thus, a depositary bank may aggregate the deposits
made to two separate accounts at that bank held by the same
individual„ A bank, however, may not aggregate the deposits of
an individual and a joint account for the purpose of applying
the large-dollar deposit exception, because the holders of the
accounts are not the same0 Aggregation of deposits to multiple
accounts is proposed because the Board believes that the risk
to the depositary bank
associated
with
large deposits
is
similar regardless of how the deposits are allocated among the
customer's accounts0
(c)
Redeposited checks,
The Act gives the Board the
authority to promulgate an exception to the schedule for checks
A ~8 7
"88 =
that have been returned unpaid and redeposited0
The proposal
provides such an exception for checks that have been returned
unpaid and redeposited by the customer or the depositary bank0
The Board proposes this exception because there is an
increased risk to the depositary bank that checks that have
been
returned
presented
once
will
be
uncollectible
to the paying bank
a second
when
time0
they are
The Board,
however, does not believe that this increased risk is present
for
checks
that
indorsemento
have
been
returned
due
to
a
missing
Thus, the exception being proposed does not apply
to checks returned unpaid
due
to missing
indorsements
and
redeposited after the missing indorsement has been obtained, if
the reason for return stamp on the check states that it was
returned due to a missing indorsement0
For the same reasons,
this exception does not apply to a check returned because it
was postdated
(future dated), if it is no longer postdated when
redeposited.
in the
indorsements
cases
of
both
and postdated checks,
checks
with
miss ing
the time for making
the
funds available begins to run again as of the date of redeposito
(d)
Repeated overdrafts«
,
The Act gives the Board the
authority to establish an exception for “deposit accounts which
have been overdrawn
repeatedly„8
0
While
indicate how this rule should operate,
the Act does not
the conferees stated
that they
believe that a reasonable definition would
be one that specifies that an account (or a
successor account) be overdrawn at least on
A -88
-89-
3 separate and distinct occasions within any
6 month period.,
The funds availability
schedule would not apply to any such account
for a period of six months following the
last occasion involved0
HoRo Rep. NOo 261, 100th Cong0 1st Sess0 at 181, (1987) ,
The proposed regulation generally adopts this standard
for determining the accounts that are subject to the repeated
overdraft exception,,
The Board proposes that,
if on
three
instances in any six-month period any account or combination of
accounts of the customer goes from a positive balance to a
negative balance, or would have done so if checks or other
charges against the account were paid rather than returned, the
exception would apply,
Any
three consecutive banking days
during which the account had a negative balance
due
to a
continuing overdraft, or would have had a negative balance due
to the presentment of additional checks on any of the three
days, are considered part of the same instance.
If the account
has or would have had a negative balance for more than three
consecutive banking days, each consecutive three banking-day
period constitutes a separate instance.
Thus,
an overdraft
continuing for four banking days is two instances.
The Board
requests comment on this approach to determining whether an
account is subject to the repeated overdraft exception.
The exception relates not only to accounts subject to
check overdrafts, but also accounts subject to check or other
debit items (such as ACH debits or point of sale transactions)
A-89
-90“
of amounts in excess of available funds, regardless of whether
the items were paid or returned unpaid0
The exception excludes
accounts with overdraft lines of credit, unless the credit line
has been exceeded,
(e)
Reasonable cause
to doubt collectibility0
depositary bank may extend the hold placed on
funds
in a
customer's account from the deposit of a local or nonlocal
check, a check drawn on a Federal Reserve Bank or Federal Home
Loan Bank, or a depository check, if the bank has reasonable
cause to believe the check is uncollectible„
For example, if
the bank received a notification from the paying bank that a
check was not paid and is being returned to the depositary
bank,
the depositary bank would have a basis to apply this
exceptiono
The exception could be invoked even if the notice
were incomplete,
if the bank had reasonable cause to believe
that the notice applied to a particular check.
The fact that a
check is deposited more than six months after the date on the
check
is a reasonable
indication
that the
check
may
be
uncollectible, because under UoCoC, § 4-404 a bank has no duty
to its customer to pay a check that is more than six months
old o
A bank could also reasonably conclude that a check being
deposited is uncollectible based on its reasonable belief that
the depositor
is engaging
in kiting activity0
Reasonable
belief as to the insolvency of the drawer or drawee may also
trigger this exception.,
Other facts may give a bank reasonable
cause to doubt the collectibility of a check 0
A - 90
The Board does
A
-91-
not intend to provide a comprehensive list of the cases in
which this exception may be invoked.,
If this 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 uncollectible0
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 apply the reasonable cause
exception based on the race or national origin of the depositor.
If a depositary bank
invokes
this exception with
respect to a particular check and does not provide a written
notice to its customer 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
finally paid by the paying bank and these charges would not
have occurred had the exception not been invoked,
(f)
Emergency
conditions.
Certain
emergency
conditions may arise that delay the collection or return of
checks,
or delay
accounts.
the processing
and updating of customer
In the circumstances specified in this paragraph,
the depositary bank may extend the holds that are placed on
A - 91
-92-
deposits of local and nonlocal checks that are affected by such
delays,
if
the
bank
exercises
such
diligence
as
the
circumstances require,,
(g)
Notice of exception.
If
a depositary
invokes any of the safeguard exceptions to the schedules listed
above, other than the new account exception,
and extends the
hold
permitted
on
a deposit beyond
the time periods
in
§§ 229 ol0, 229 011, and 229d2, it must provide a notice to its
customer stating the reason the exception was invoked and the
day funds will be available for withdrawal,,
The requirement
that the notice state the day the
funds shall be made available may be satisfied if the date the
deposit is received and the number of days until funds are
available
for
withdrawal
are
provided
in
the
notice0
Appendix C contains a model form of this exception notice0
For deposits made in person to an employee of the
depositary bank,
the notice generally must be given to the
customer at the time of deposit,,
deposits
received
at
an
ATM,
For other deposits, such as
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.
Notice to the customer 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»
A-92
In these cases,
bank
“9 3 ”
the bank must mail the notice to the depositor as soon as
practicable, but not later than the business day following the
day the facts become known.
The Board has clarified in the
regulation when a depositary bank is deemed to have knowledge
of the facts upon which the determination is madeD
A bank is
deemed to have knowledge when the facts are brought to the
attention of the 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,,
If the depositary bank extends the hold placed on a
deposxc due to an emergency condition, the regulation provides
that 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.
(h)
Availability of deposits subject to exceptions.
Section 604(f) of the Act
(12 U.S.Co 4003(f))
provides that
holds placed on deposits subject to an exception
the new account exception)
(other than
"shall not exceed a reasonable
period of time as determined by the Boardo"
If a depositary
bank
new
invokes
any
exception
other
than
the
account
exception, the bank may extend the period of time within which
funds must be made available
under
A ” 93
the schedule
by
four
-94-
business days.
With respect to checks subject to the next-day
availability requirement, the depositary bank may extend the
time
funds must be made available
for withdrawal by four
business days beyond the delay that would have been applicable
had the checks not been subject to the next-day availability
requirement
Thus,
for depository checks,
state and
local
government checks, and checks drawn on Federal Reserve Banks or
Federal Home Loan Banks, the four business days are added to
the local or nonlocal schedule that would apply based on the
location of the paying bank0
Under an improved check collection system, these four
business days, 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 .
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 four business days following
the end of the emergency0
Section 229C14
Payment of interest
(a)
in
general.
depositary bank begin accruing
This
interest on
section
requires
that a
interest-bearing
accounts not later than the day on which the depositary bank
receives provisional credit for the funds deposited,,
"account"
includes
only
transaction
accounts,
Because
other
interest-bearing accounts of the depositary bank, such as money
A-94
-95-
market deposit accounts, savings deposits, and time deposits,
are not subject to this requirement.
The Board intends the
term interest to refer to payments to or for the account of any
depositor as compensation for the use of funds, but to exclude
the absorption of expenses
incident
to providing a normal
banking function or its forbearance from charging a fee in
connection with such a service.
(See 12 CFR 217.2(d).)
It may be difficult for a depositary bank to track
which day the depositary bank receives provisional credit for
specific checks in order to accrue interest properly on the
account to which the check is depositedo
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.
interest
The Board proposes that, for the purpose of the
accrual
requirement,
a
bank
may
rely
on
an
availability schedule from its Federal Reserve Bank, Federal
Home Loan
Bank,
depositary bank
or correspondent
receives
in determining when
provisional
credit.
A bank
the
that
accrues interest from the day of deposit, or from the day
following deposit, meets this payment of interest requirement.
(b)
an exemption
Special rule for credit unions.
from the payment of interest requirements
The Act provides
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 provisional credit for those deposits,
A-95
-96-
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*18(f)*
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 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«
The Act limits this exemption to credit unions; other
types of depository institutions must comply with the payment
of interest requirements*
In addition, credit unions that now
compute interest from the day of deposit or day of provisional
credit should not change their existing practices in order to
avoid compliance with the requirement that interest accrue from
the day of provisional credit*
(c)
Exception
for checks
returned
provision is based on section 606(c) of the Act
unpaid*
This
(12 UoS.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*
Section 229P15
(a)
General disclosure requirements
Form of disclosures*
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
A - 96
-97-=
conspicuous manner, be in writing, and, in most cases, be in a
form the customer may keeps
The required disclosures at branch
locations, at ATMs, and on preprinted deposit slips need not be
in a form that the customer may keep*
The
regulation
requires
that
the
availability
disclosures be grouped together and not contain any information
that is not directly related to the disclosures required by
this
subpart *
required
Therefore,
availability
banks
may
disclosures
not
with
intersperse
other
the
account
disclosures or include other account information that is not
related to their availability policy within the text of the
required disclosures0
Banks may, however, include information
related to their availability policies»
For example,
a bank
may include a notice to their customers stating that, even
though the bank has made funds available, the customer is still
responsible if there is a problem with the deposit, such as the
return of a deposited check0
The regulation does not require that the disclosures
be segregated from other account terms and conditions•
Banks
may include the required disclosures in a booklet or pamphlet
that sets out the terms and conditions of the bank's accounts0
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»
(b)
paragraph
requires
Uniform reference to day of availability0
banks
to disclose
A ”97
their
availability
This
-98-
policies to customers in a uniform manner0
Banks that delay
availability must disclose when deposited funds are available
for
withdrawal
by stating
the business day on which
customer may begin to withdraw funds«
the
The business day funds
will be available must be disclosed as "on 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), through the business day on which
the customer may begin to withdraw funds0
For example,
an
institution that imposes delays of four intervening business
days for nonlocal checks must describe those checks as being
available "on the fifth business day after"
deposito
the day of the
This requirement is intended to enable customers to
compare more
easily
the availability policies of different
banks and minimize the possibility of confusion
about
the
policies of various banks0
(c)
Multiple accounts and multiple account-holders„
This paragraph clarifies that banks need not provide multiple
disclosures under the regulation,,
customer
A single disclosure to a
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 regulation0
(d)
provides
Dormant or inactive
accounts,
This
paragraph
that banks need not provide disclosure of
A-9 8
their
-99-
specific availability policy to accounts that are dormant or
inactive, and thus do not receive mailings from the bank.
Board
believes
that
this
provision
will
avoid
The
imposing
significant costs on banks, while not significantly reducing
the protections of the law,
--
disclosures
at
The other disclosure requirements
locations where deposits may be made,
disclosures at ATMs,
and disclosures on preprinted deposit
slips -- should ensure that these customers are made aware of
the possibility of delays in availability, if they choose to
use
the dormant or
inactive
account
in the
future.
The
regulation also requires that the customer be given a full
statement of the bank's availability policy upon an oral or
written requests
Section 229ol6
Content of specific availability policy
Disclosure
(a)
Specific availability policy disclosure.
section describes the information that must be disclosed by
banks to comply with §§ 229,17 and 229ol8(d)
requiring that
banks furnish a notice of their
specific policy regarding
availability of deposited funds.
The information that must be
disclosed by banks will vary considerably depending
bank's particular availability policy.
upon
a
For example, a bank
that does not delay availability beyond the next business day
need simply disclose that deposited funds will be available for
withdrawal on the business day following the banking day of
deposit,
the bank's business days,
A-99
and when deposits
are
This
-100-
considered received.,
On the other hand, a bank that routinely
delays availability on a blanket basis up to the maximum time
allowed under the federal law -- that is, automatically imposes
delays on most check deposits,
with the length of the delay
determined by the type and routing number of the check being
deposited — - must provide a more complex disclosure..
These
r
latter banks must provide all of the information set forth in
this section,
including
the types of deposits
that will be
subject to delays, how the customer can determine the type of
deposit being made, and the corresponding length of any delay.
The bank is also required to include a brief summary of its
policy at the beginning of the disclosure and to describe any
circumstances
schedules
when actual
disclosed0
availability may
Such
circumstances
vary
the
arise,
would
from
for
example, when the bank invoked one of the exceptions set forth
in the statute and regulation„
(b
)
Alternate
case-by-case hold policies0
disclosure
for
banks
that
The Board believes that numerous
banks currently do not routinely delay the availability of
deposited fundsQ
Normally, these banks provide customers with
immediate or next-day availability for deposited funds,
and
impose delays only in special circumstances -- determined on a
case-by-case basis.
with
Often these banks provide the customer
notice of any delay at the time the deposit is madeQ
Banks with case-by-case hold policies
difficult,
if not impossible,
may
find
it
to develop a disclosure that
A-100
have
-101-
tells the customer specifically when a deposit will be subject
to a delay
--
in fact,
the nature
of the bank's policy
essentially precludes such a disclosure,
In order to be able
to give a specific notice to the customer of when deposited
funds will be subject to a delay in availability, as required,
for example, before opening new accounts,
these banks may find
it necessary to discontinue the practice of imposing holds on a
case-by-case
basis
and
instead
begin
routinely
availability on specific types of checks
an automatic or blanket delay policy)0
to delay
(essentially adopting
The Board believes that
such a result would be adverse to many bank customers.
banks
would
disclosures,
incur
but
substantial
also
costs
in developing
not
and
only
Also,
in making
implementing
new
availability policies„
Accordingly,
this paragraph allows banks that delay
availability of deposited funds on a case-by-case basis to
continue the practice by setting forth a disclosure alternative
for such bankso
Banks with case-by-case hold policies must
still
specific
provide
disclosure
a
need
paragraph (a) 0
not
policy
disclosure;
be as detailed
Specifically,
as
these
but,
their
that required by
banks
need
not
give
disclosures that allow customers to determine when a hold, in
fact, will be placed on a deposit.
In addition to disclosure
of their specific availability policy, banks with case-by-case
hold policies must give customers a notice when availability of
funds from a deposit will be delayed.
A-101
The bank must give the
-102-
notice at the time of the deposit,
d irectly
to a bank employee 0
if the deposit
is made
If the deposit was not made
directly to a bank employee -- for example, if the deposit were
by mail —
the bank must send customers a notice on the day the
deposit is received.
delay
is
being
availableo
This notice must indicate both
imposed
and
the
day
the
funds will
that a
be
By requiring that banks provide a notice of delay
■ ■
r
at the time a deposit is made, the Board intends to ensure that
customers will know with specificity when deposited funds that
are being delayed will be available„
In some situations a bank employee accepting a deposit
from a customer may not know whether a deposit will, in fact,
be held, but knows that the deposit needs to be reviewed by
another bank employee that is unavailable at that time0
The
regulation includes special rules to avoid placing the bank in
the position of refusing to accept the deposit, or requiring
the customer to wait for notice of whether the deposit will be
subject
to a delay*
A bank may notify the customer
that
availability of funds will be delayed after the time of the
deposit,
employee,
even though the deposit was made directly to a bank
if two conditions are met*
First,
the bank must
notify the customer at the time of the deposit that the deposit
may be subject to a delay*
Second, the bank must notify the
customer on the day of the deposit if a delay is imposed and
tell
the customer
withdrawal*
The
the
day
funds
bank
may
not
A-102
will
meet
be
this
available
for
notification
-103-
requirement by mailing a notice to the customer; the customer
must receive the notice of the delay on the day of the deposit»
A bank that imposes holds on a case-by-case basis is
still
subject
subpart.
to
the
availability
requirements
of
this
If the bank imposes a hold on a particular deposit
that is not longer than the availability required by §§ 229.11
or 229.12 for local and nonlocal checks,
the reason for the
hold need not be based on the exceptions provided in § 229.13 .
If the hold exceeds the time periods permitted under §§ 229.11
or 229.12, however, it must be based on an exception provided
in § 229.13, and the bank must comply with the § 229.13 notice
and time requirements.
Section 229.17
(a)
Initial disclosures
Notice for new accounts.
This paragraph requires
banks to provide a notice of their availability policy to all
potential customers prior
to opening an account.
The Board
believes that the requirement of a notice prior to opening an
account
requires
banks
to
provide
disclosures
accepting any deposit to open an account.
prior
to
If a bank, however,
receives a written request by mail from a person asking that an
account be opened that includes an initial deposit,
may open
the account provided the bank mails the required
disclosures to the customer not later
following
the bank
the banking day on which
deposit.
A-103
than the business day
the bank receives the
-104-
(b)
Existing accounts.
This section requires banks
to send a notice of their specific policy with respect to the
availability
of
deposited
funds
to
all
existing account
customers in the first scheduled mailing to customers occurring
after
September 1, 1988.
The notice must be sent not later
than October 31, 1988 (60 days after the effective date of the
law).
Thus, banks must include a notice in the first statement
mailing to customers after September 1, 1988, unless the bank
has provided a notice to its customers of its availability
policy that meets the requirements of § 229.16 prior
to the
mailing of this statement.
Banks may not furnish the required notice to customers
by including the notice with promotional material, such as a
solicitation for health or hospitalization insurance,
unless
that material is included with the account statement.
A bank
is permitted to provide the notice by furnishing the customer
with a booklet or pamphlet
conditions of
the
however,
then direct
must
bank's
that describes
accounts
the terms
generally.
The
and
bank,
the customer's attention to the
disclosures required by this section of the regulation by, for
example, use of a special insert or a letter.
Section 229a18
(a)
Additional disclosure requirements
Notice on deposit slips.
This paragraph requires
banks that delay availability on deposits to include a notice
on all preprinted deposit slips furnished to customers•
This
notice must indicate that deposited checks may not be available
A -1 04
-105 -
for
immediate
withdrawal.
The notice
is required only on
preprinted deposit slips -- those printed with the customer's
account number and name,
A bank need not include the notice on
those special deposit slips that are used to identify deposits
that will be available the next business day after deposit
under § 229 ,10 (c) 0
(b)
Notice
at
branch
locations.
This paragraph
describes the statutory requirement that a bank post a notice
of availability policies pertaining to consumer accounts at
each location where its employees receive consumer deposits.
The
notice
that
is required must
specifically state
the
availability periods for the various deposits that may be made
to consumer accounts,
A notice need not be posted at each
teller window, but the notice must be posted in a place where
consumers seeking to make deposits will likely see it before
making their deposit.
For example, the notice might be posted
in the lobby at the point where the line forms for teller
service,
A notice is also required
drive-through teller windows.
to be posted
at any
The notice need not be provided
at locations where consumer deposits are not accepted,
(c)
Notice at or on ATMs.
the required notices for ATMs,
automated teller machine,
This paragraph sets forth
An owner or operator of an
at which deposits may be made that
may be subject to delays in availability, must post or provide
a notice at each ATM location or on each ATM,
This notice may
be posted on a sign, may be shown on the screen, or may be
A-l 05
-106“
included on the deposit envelopes that must be used to make
deposits
into the machine.
This disclosure must be given
before the customer has made the deposito
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.
If an ATM is nonproprietary with respect to some users
of
the ATM,
a notice must be provided at
the ATM that
identifies the bank(s) for which the ATM is proprietary,
and
that deposited funds may not be available until the seventh
business day after the day of deposito
(d)
Disclosure upon requestQ
This paragraph requires
banks to provide written notice of their specific availability
policy
to any person upon
requesto
that person's oral or written
This provision does not contain a time period within
which such notice shall be given, but it should be sent within
a reasonable period of time following receipt of the request.
(e)
Changes in policies.
This paragraph sets forth
the Act's requirement that banks send notice to their customers
when they change their availability policies.
must
send
a notice
at
least
30
calendar
Generally, banks
days
before
implementing any change in their availability policy.
change
results
example,
in faster
availability of deposits
--
If the
for
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
A-106
-107-
noticee
The bank must, however,
within 30 calendar days after
send notice of the change
the change is implemented.
A
change-.in-terms 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 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.
(f)
Notice
of
interest
payment
policyc
Th is
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 deposited0
(The interest
payment requirement is set forth in § 2290
l4(a)0)
union
is required
to describe
The credit
its policy with respect to
accrual of interest or dividends on deposits0
Section 229ol9
(a)
Miscellaneous
When deposits are considered madeP
The
time
funds must be made available under the regulation is determined
by the day the deposit is made0
This paragraph provides that a
deposit mailed to the depositary bank is considered made when
it is received by the depositary bankc
provides
This paragraph also
that a deposit received on a day that the bank is
closed, or after the bank's cut-off hour, is considered made on
the next banking day„
Different cut-offs may be established
for different types of deposits 0
A-107
For example,
a bank may
-
establish
a
2:00
p 0m cut-off
,„
depos its, but a later
transfers o
depos its
108
cut-off
Different cut-offs
received
at different
-
for
the receipt
of check
for
the
of
receipt
wire
may also be established for
locationso
For
example, a
different cut-off time may be established for ATM depos its than
for over-the-counter deposits.
However, no cut-off hour can be
earlier than 2:00 p om 0 local t.ime0
(b)
Availability at start of business day0
Except
for withdrawals governed by the special rule for withdrawal by
cash or
similar
means
set
forth
in
§§ 229ell(b) (2)
and
if funds must be made available for withdrawal on a
229ol2(d),
business day, the funds must be available for withdrawal by the
later of 7:00 a„m0 or the time the depositary bank's teller
facilities,
including
transactions,,
Thus,
ATMs,
are
available
for
customer
if a bank has no ATMs and its branch
facilities are available for customer transactions beginning at
9:00
a 0 0, funds must be available for customer withdrawal
m
beginning at 9:00 a 0 0
m
If the bank, however, has ATMs that are
available 24 hours a day, rather than establishing 12:01 a.m0
as the start of the business day, this paragraph sets 7:00 a 0m 0
as the start of the day with respect to ATM withdrawals0
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 day0
(c)
Effect on policies
of depositary bankQ
This
subpart establishes the maximum hold that may be placed on
A-108
-1 0 9 -
customer deposits o
to its customers
subpart.
A depositary bank may provide availability
in a shorter time than prescribed in this
A depositary bank may also adopt different
funds
availability policies for different segments of its customer
base, as long as each policy meets
regulations.
corporate
policies
in the
For example, a bank may differentiate between its
and consumer
for
the schedules
customers,
its consumer
or
customers
may
based
adopt
different
on whether
the
customer has an overdraft line of credit associated with the
accoun t.
This regulation does not affect a depositary bank's
right to accept or reject a check for deposito
If a check is
accepted for deposit and subsequently returned,
the depositary
bank has the right to charge-back its customer's account, or to
recover the amount of the check from the customer if sufficient
funds are not in the customer's account to cover the amount of
the returned check„
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 regulation
available
for
states
that a bank must make
up to $400
cash withdrawals no later than 5:00 p 0 0 on
m
specific business days, if a bank does not participate in an
ATM system and does not have any teller windows open at or
after 5:00 p.m., the bank need not join an ATM system or keep
offices open„
The bank complies with this regulation if the
A -1 0 9
- 1 1 0 -
funds that are required to be available for cash withdrawal at
5s00 p.m. on a particular day are available for withdrawal at
the start of business on the following day0
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*
The special cash withdrawal rule in the Act recognizes
that the $400 that must be made available for cash withdrawal
by 5;00 p 0m 0 on the day specified in the schedule may exceed a
bank's daily ATM cash withdrawal limit and explicitly provides
that the Act does not
regard.
supersede
a bank's policy
in this
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
customer's deposit that must be made
available
for
cash
withdrawal.
Even though the Act clearly provides that the bank's
ATM
withdrawal
availability
available,
limit
rules on
is not
the day
superseded
by
funds must
the
first
federal
be
made
the Act does not specifically apply this rule to
withdrawals made 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 and to other types of
A -1 1 0
-111-
cash withdrawal.
A number of small credit unions, due to lack
of secure facilities, keep no cash on hand and hence offer no
cash
withdrawal
capability
to
their
customers.
Other
institutions limit the amount of cash on their premises due to
bonding requirements and consequently reserve
the right
to
limit the amount of cash each customer can withdraw on a given
day.
Nothing in the regulation is intended to prevent a bank
from limiting the amount of cash withdrawals if the bank has a
policy limiting the amount of cash that may be withdrawn, and
that policy is applied equally to all customers of the bank, is
based on security 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 hold has expired.
This limitation
could apply to staffed teller facilities as well as ATMs.
The
regulation, however, does not authorize such policies if they
are otherwise prohibited by statutory,
regulatory, or common
law o
(d)
Use of calculated availability.
may provide availability to their
Depositary banks
nonconsumer
accounts,
or
determine the day from which interest must accrue on those
accounts, on a calculated availability basis.
availability,
a
specified
percentage of
Under calculated
funds
from check
deposits may be made available to the customer on the next
business
day,
with
subsequent days.
the remaining percentage deferred until
The determination of
the
percentage
of
deposited funds that will be made available each day is based
A-lll
- 1 1 2 -
on the customer's typical deposit mix.
Use of calculated
availability is permitted in order to determine when interest
must be paid on deposited funds only if, on average,
the
calculated availability results in interest being computed from
the time provisional credit is actually received on the average
deposit of the nonconsumer customer.
(e)
accounts.
Limitation on placing holds on certain funds in
Section 607 (d)
of
the Act
(12 U.S.C.
4006 (d))
provides that once funds are available for withdrawal under the
Act,
such
funds
shall not be
frozen
subsequent deposit of additional
available
designed
for
withdrawal.
to prevent
evasion
solely due
checks
that are not yet
This provision of
of
the
to the
Act's
the Act
is
availability
requirements.
The
regulation
clarifies
that,
if
the
customer
deposits a check, the bank may place a hold on any of the
customer's funds to the extent that the funds held do not
exceed the amount of the check deposited, and the funds that
are held are made available for withdrawal within the times
required in this subpart.
If a customer cashes over-the-counter a check drawn on
another bank, the bank may hold funds in the customer's account
for the amount of the check,
as long as the hold does not
exceed the hold that could be placed on that check, if the
check had been deposited in the account.
A-112
-1 1 3 -
(f)
Employee
training
and
compliance.
The
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 Act,
and
to establish and
maintain procedures reasonably designed to assure and monitor
employee compliance with such requirements,
This provision provides guidance to banks regarding
their employee training and compliance requirements,
Each bank
must provide a statement of the requirements of this subpart to
all employees that perform duties that relate to the bank's
compliance with these requirements.
Banks must also establish
procedures to ensure compliance with these requirements
provide
these procedures
to the employees
responsible
and
for
carrying them out.
In addition, a bank must conduct an audit
at
to determine
least
annually
its
compliance with
the
procedures it established.
Section 229.20
Relation to state law
(a)
that
govern
in general. A number of states have enacted laws
when
banks
in those states must make
available to their customers.
funds
The Act provides that any state
law in effect on September 1, 1989,
prompt availability than provided
that provides
in this
for more
regulation
will
supersede the time periods in the Act and the regulation.
Conference
Report on
the Act clarifies
this
provision
The
by
stating that any state law enacted on or before September 1,
1989, may supersede
federal lav/ to the extent that the law
A -1 1 3
-114-
relates
to
the
withdrawal.
time
funds
must
be
made
available
for
H.R. Rep. No. 261, 100th Cong. 1st Sess. at 182
(1987).
Thus, if a state wishes to adopt a law governing funds
availability,
it must do so by September 1, 1989.
Laws adopted
after that date will not supersede federal law, even if they
provide
for
shorter
under federal law.
availability periods than are provided
If a state that has a law governing funds
availability in effect before September 1, 1989 amends its law
after that date, the amendment will not supersede federal law.
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 their holds on whether
the check being
deposited is drawn on an in-state or out-of-state institution.
If a state is located in 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.
state
Thus, the
schedule would supersede the federal schedule to the
extent that it applies to in-state, nonlocal checks.
The 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.
This provision subjects federally chartered institutions only
to those provisions of state law governing the time funds must
A-114
-115-
be available
chartered
for withdrawal;
institutions
Federally chartered
to
it does not subject federally
state
institutions
disclosure
requirements*
will be subject
to state
availability requirements on September 1, 1988, when the Act
becomes effective*
(b)
Preemption of inconsistent law,
This paragraph
reflects the statutory provision that other provisions of state
law are preempted that are inconsistent with federal law,
(c)
Preemption determinations.
The Board will issue
preemption determinations upon the request of an
party in a state.
interested
The determinations will relate only to the
provisions of Subpart B; generally the Board will not issue
individual preemption determinations regarding the relation of
state UoCoC, provisions to the requirements of Subpart C,
(d)
Standards for preemption.
The Board has proposed
certain standards that will be used in making determinations on
whether
federal law will preempt state laws governing funds
availability in effect prior to September 1, 1989,
State law
will be considered inconsistent with federal law if it provides
for a longer hold than is provided for under federal law.
State law will also be deemed inconsistent, and thus
will be preempted,
if it provides for an exception to its
availability schedule that addresses the same situation as the
federal exception, but in a different manner.
For example,
if
a state provides an exception to its schedules to address risk
related to large-dollar checks or large-dollar deposits that is
A-115
- 1 1 6 -
different from the federal exception for deposits in excess of
$5/000,
the state exception
exception.
is preempted
by
the
federal
Thus, a state law that provides an exception for
checks of $2,500 or greater would be preempted by the federal
large-dollar deposit exception,
(e)
Procedures
for preemption determinations.
provision sets forth the information that must be included in a
request by an interested party for a preemption determination
by the Board,
Given the short lead time between spring 1988,
when the Board anticipates that it will finalize this proposed
regulation, and the September 1, 1988 effective date, the Board
will accept requests for preemption determinations before the
regulation becomes final.
If an interested party requests a
preemption determination prior to the final approval of this
regulation, the comparison of the state law provisions with the
provisions of the Act and regulation should be based on the
requirements of this proposed regulation.
Section 229,21
(a)
Civil liability
Civil liability.
This paragraph sets forth the
statutory penalties for failure to comply with the requirements
of this subpart,
(b)
Class action awards.
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.
A-116
This
-1 1 7 -
(c)
from
Bona fide errors,
liability
under
requirement of
this
A depositary bank is shielded
section
this subpart
for
a violation
of a
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.
Examples of what constitutes, and does not
constitute, a bona fide error are provided,.
(d)
Jur isdiction.
This
paragraph
provides
the
jurisdiction and statute of limitations for civil actions for
violations of this subpart,
(e)
Reliance
on
Board
rulings .
This
provision
shields banks from civil liability if they act in good faith in
reliance on any rule, regulation,
or interpretation
of
the
Board, even if it were subsequently determined to be invalid,,
Banks may rely on the commentary to this regulation, which will
be issued as an official Board interpretation, as well as on
the regulation itselfo
(f)
Exclus ions c This
provision
clarifies
that
liability under this § 229 „21 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)
Record retention,
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.
A -1 1 7
-1 1 8 -
Subpart C —
Collection of Checks
Section 229,30
Paying Bank8 Responsibility for Return of
s
Checks
(a)
Return of checks or notice of nonpayment
paragraph requires a paying bank that determines not to pay a
check to return the check more expeditiously than is currently
required,,
Generally,
transportation
method
the
paying
and banks
bank
may
for return
use
that
the same
it would
ordinarily use for forward collection of checks and satisfy the
requirement of an "expeditious" return, provided that the bank
selected to process the return agrees to handle the return
under
the standards for returning
banks
in § 229,31,
The
paying bank's normal method of sending a check for collection
would not be expeditious, however, if it is materially slower
than that of other banks of similar size in its community.
In
effect, the paying bank acts as an agent or subagent of the
depositary bank in selecting the means of return.
The paying bank must handle,
route,
and transport a
check being returned in a way that returns the check back to
the depositary bank in a manner designed to be at least as fast
as the paying bank would collect a forward collection check (1)
of similar amount,
(2) drawn on the depositary bank,
and
(3)
received by the paying bank for forward collection before noon
on the banking day following the banking day of presentment of
the returned check.
This section refers to similarly situated
banks to indicate a general minimum community standard,
A -1 1 8
A
This
-1 1 9 -
similarly situated bank is defined as a bank of similar asset
size, in the same community and with similar check payments
activity as a paying or returning bank.
For example, a paying
bank returning a check has similar payments activity to other
banks that handle similar volumes of checks
for collection0
The Board believes that under this standard banks that use
inefficient means of handling returned checks will have to
improve
their
procedures.
Under
this standard,
ordinarily
paying banks may not use less efficient means of routing or
transporting
returned
checks
than
they
use
for
forward
collection checks.
A number of examples will illustrate the application
of this duty to paying banks.
First, 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 deliver the returned check to the depositary
bank by Wednesday, which would be the same day it would deliver
a forward collection check drawn on the depositary bank that
the paying bank received for deposit by noon on Tuesday.
Second, if a check is presented to a paying bank on
Monday and the depositary bank is a bank in another city, but
the paying bank ordinarily sends its forward collection checks
drawn on the depositary bank direct to the depositary bank,
ordinarily the paying bank would be expected
returned
check
to
the
depositary
A -1 1 9
bank
with
to send
the
the
forward
- 1 2 0 -
collection checks drawn on the depositary bank that the paying
bank received for deposit early on Tuesday.
Third, if a check is presented to a paying bank on
Monday and the paying bank would ordinarily collects forward
collection checks drawn on the depositary bank by sending the
forward collection checks
to a correspondent or a Federal
Reserve
the paying bank
Bank by courier,
could
send the
returned check to its correspondent or Federal Reserve Bank
provided that the correspondent has agreed to handle returned
check under the standards established for returning banks in
§ 229 „31®
the
The paying bank must deliver the returned check to
correspondent
or
Federal
Reserve
Bank
by
the
correspondent's or Federal Reserve Bank's cut-off hour
returned checks
that corresponds
to
its cut-off hour
for
for
forward collection checks drawn on the depositary bank that the
paying bank received for deposit early on Tuesday.
A returned
check cut-off hour corresponds to a forward collection cut-off
hour if it applies to checks destined for the same banks and
has
similar
sorting
requirements„
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 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
A -1 2 0
as a qualified
- 1 2 1 -
re turned check.
Where forward collection checks are delivered
by courier to the correspondent or the Federal Reserve Bank,
mailing returned checks would not meet the duty established by
this section for paying banks.
Fourth, 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 other
banks of similar size and handling similar volumes of checks
for collection in the paying bank's community use a courier to
deliver checks to their correspondent or Federal Reserve Bank,
the paying bank would have to send its returned checks by
courier to its correspondent or Federal Reserve Bank.
(The
Board believes that these situations will be unusual.)
The dollar amount of the returned check has a bearing
on how it must be returned.
Thus, if the paying bank presents
large dollar checks drawn on the depositary bank directly to
the depositary bank, but uses the Federal Reserve to collect
small dollar
checks,
the ordinarily paying bank would be
expected to send its large dollar returns directly to the
depositary bank but could use the Federal Reserve for its small
dollar returns.
In meeting
the requirements of
this section,
the
paying bank is responsible for its own actions but not for
those of the depositary bank or returning banks.
For example,
if the paying bank starts the return of the check in a timely
manner but return is delayed by a returning bank, generally the
paying bank has met its requirements (
See § 229.38).
A -1 2 1
- 1 2 2 -
The paying bank is free to use alternate methods of
return if the 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„
The paying bank
is
authorized to route the returned check in a variety of ways:
lo
It may send the returned check to the bank that
presented the check or through the clearinghouse
through which
it was presented
as currently
required by section 4-301(4) of the U.C.C.;
20
It may send the returned check directly to the
depositary bank, bypassing intermediaries;
3o
It may send the returned check, to any returning
bank willing to handle the returned check under
the standards established for returning banks in
§ 229.31; or
4 c
It may send the returned check
to a Federal
Reserve Bank, whether or not the Federal Reserve
Bank
handled
collection.
the
check
(Docket
during
No.
forward
R-0621
discusses
proposed Reserve Bank services to enable paying
banks
to
return
checks
through
the Federal
Reserve Banks.)
If the paying bank elects to return the check directly
to the depositary bank,
it is not necessarily required
return the check to the branch of first deposit.
A -1 2 2
to
The check may
123-
be returned to the depositary bank at any location permitted
under § 229.32.
Except
for
the
exceptions
discussed
below,
this
section does not relieve a paying bank from the requirement for
timely return
and 4-302
(i.e,, midnight deadline)
of the U.C.C.,
which
under sections 4-301
continue to apply.
Under
section 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
deadlineQ
Under
section 3-418 of the U»C.Co,
constitutes payment and would be
due
final in favor
courseor a person who has
position
late return
of a holder in
in good faithchanged his
in reliance on the payment.
Thus,
retaining
this
requirement gives the paying bank an additional incentive to
make a prompt return,
•This regulation creates a number of exceptions
to the
paying bank's midnight deadline in the U.C.C»;
1,
Under § 229,30 (a), a paying bank may satisfy the
UoCoC, midnight deadline by sending notice of
nonpayment;
2,
Under § 229.30(b),
a paying bank may extend the
midnight deadline for small-dollar checks; and
3,
Under § 229.30(c),
a paying bank may extend the
midnight deadline
in a good
expedite delivery.
A -1 2 3
faith
effort
to
-1 2 4 -
If the paying bank cannot start return of the check
soon enough to comply with this section, it may send a notice
of
nonpayment
that
meets
the
requirements
of
§ 229»33,
including the timeliness of the notice, and the notice may be
given on checks of less than $2, 500 .
The liability section of this regulation
provides
that
a
paying
bank
is
not
subject
to
( 229038)
§
both
"accountability" for missing th e midnight deadline under the
UoCoCo and liability for missin<g the timeliness requirements of
this regulation.
This
paragraph
directly
provisions of the U.C.C.,
affects
the
following
and may affect other sections or
provisions?
10
Section 4-212(2),
in that direct return by the
paying bank is now permitted in all jurisdictions
even though not all jurisdictions have adopted
this optional provision„
Also the paying bank
does not have to create a draft on the depositary
bank „
2o
Section 4-301(4),
in
that
in
addition
to
returning a check through a clearinghouse or to
the presenting or last collecting bank, a paying
bank
may
return
depositary bank,
a
returned
check
to
the
to a returning bank, or to a
Federal Reserve Bank0
A -1 2 4
-1 2 5 -
3.
Section 4-301(1), in that time limits specified
in
that
section
additional
may
be
requirement
shortened
to make
by
the
an expeditious
return.
The Board requests comment on:
1.
Whether
the duty of the paying bank should be
stated in a more concrete manner, such as that a
paying bank must return
reaches
the
depositary
a check
bank
on
so that
the
it
second
business day following the day of presentment for
local checks and the third business day following
the day of presentment for nonlocal checks;
2.
Whether
paying
banks
should
be
required
to
prepare qualified returned checks for all checks
being returned through a returning bank; and
3o
Whether the option allowing a paying bank to send
notice of nonpayment should be retained as an
effective alternative
to expeditious return of
the actual check.
(See also
the discussion
of returning banks' duties under
§ 229.31.)
(b)
Extension of deadline for small-dollar checks.
Over one half of all returned checks are in amounts of $100 or
less.
due
Today, many of these returned checks that are returned
to
insufficient
or
uncollected
funds
redeposited in an effort to obtain payment.
A -1 2 5
are
routinely
On average, over
-1 2 6 -
60 per cent of these redeposited checks are paid on the second
presentment*,
Thus, a significant number of checks returned
today would not be returned if the paying bank could hold the
check
for
an
additional period of
time without becoming
accountable for it under section 4-302 of the UoC.C.
If the
drawer of the check funds its account shortly after the paying
bank's midnight deadline, the paying bank could pay it at that
time and avoid
the necessity of returning
possible subsequent representment„
the check
and
This paragraph permits the
paying bank to hold small-dollar checks (under $100) to achieve
this efficiency,.
The extension is not limited to checks drawn
on insufficient funds and could be used by the paying bank to
hold checks to be returned
for other
reasons,,
The Board
believes that this extension of the time for return will help
to reduce the number of returned checks, thereby allowing the
remaining returned checks to be handled more efficiently.
This extension applies to the
time
for return or
notice of nonpayment under § 229.30(a) as well as the paying
bank's midnight deadline under the U.C.C. §§ 4-301 and 4-302.
The
paying
bank
may
extend
these
time
limits
on
a
check-by-check basis; that is, it need not treat all checks
under $100 the same.
This provision allows the paying bank to
extend the time limits by one day rather than two days.
A
one-day extension may be operationally easier to implement than
a two-day extension.
provision
This right to extend is similar
(section 4-108(1)(b))
to a
in a proposed revision of the
A -1 2 6
-1 2 7 -
U.C.C.
being
developed
by
the
National
Conference
of
Commissioners on Uniform State Laws ("NCCUSL" .£/
)
If the paying bank elects to extend its deadline for
return, it must reexamine the basis on which the check was not
paid as of the day on which
notice of nonpayment.
reexamination
under
it returns the check or sends
The bank need not pay the check on
this
provision,
however,
original basis for nonpayment no longer exists.
even
if the
If the paying
bank did not comply with the requirements of this section, such
as the requirement to review its initial decision to return the
check, it could be accountable for the amount of the check for
exceeding the time for return under U.C.C. § 4-301, § 210.12 of
Regulation J (12 CFR 210.12), or this section.
The requirement
to reexamine the original decision not to pay is similar to a
provision in draft section 4-402(2) of the NCCUSL proposal.
This small-dollar extension may be used by the paying
bank in combination with the extension for expedited delivery
( 229.30 (c) ) .
§
4/ The NCCUSL is the organization responsible for drafting and
revising the Uniform Commercial Code.
It has commissioned an
effort to draft amendments to U.C.C. Articles 3 and 4, which
address many of the issues raised in Regulation CC. The NCCUSL
proposal has been helpful in drafting this regulation and the
commentary to the regulation refers to the parallel provisions
in the NCCUSL proposal. The NCCUSL proposal referred to is the
draft prepared for the NCCUSL meeting on July 31 - August 7,
1987. This proposal has not been approved by the Commissioners
on Uniform State Laws.
A -1 2 7
-1 2 8 “
This paragraph
4-302 of the U.C.C,
directly affects
sections 4-301 and
(and § 210*12 of Regulation J,
12 CFR
210 *12) at the option of the paying bank for checks of $100 or
less and may affect other sections,,
(c)
Extension of deadline for expedited delivery,
,
Many paying banks do not dispatch their returned checks by
courier with the checks that are sent for forward collection if
the courier leaves after midnight*
Instead,
they mail their
returns by their midnight deadline in order to meet their legal
responsibility under the U»C.Cof but by doing so delay the
completion of the return process*
This paragraph removes the
constraint of the midnight deadline if the check reaches the
either the depositary bank or the returning bank to which it is
sent on
the banking day
following
the expiration of the
midnight deadline or other applicable time for return*
The
extension also applies if the check reaches the bank to which
it is sent later than the close of that bank's banking day, if
highly expeditious means of
transportation
are used*
For
example, west coast banks may use this further extension to
ship returned checks by air courier directly to east coast
banks even if the checks arrive after the close of the east
coast banks' banking day*
The time limits that the paying bank may extend are
the paying bank’ midnight deadline in sections 4-301 and 4-302
s
of the U.CoCo
(and § 210*12 of Regulation J, 12 CFR 210*12) and
A -1 2 8
-1 2 9 “
the time for the start of return in § 229.30(a).
The paying
bank may use this provision to add to the extended midnight
deadline for checks of $100 or less in § 229.30(b)
regulation.
of this
Even if the return deadlines are not extended, the
paying bank satisfies its midnight deadline under the U.C.C. by
dispatching
returned
checks
to
another
bank
by courier,
including a courier under contract with the paying bank, prior
to expiration of the midnight deadline.
This paragraph directly affects sections 4-301
4-302 of the U.CoC.
and
(and § 210.12 of Regulation J, 12 CFR
210.12) to the extent that this paragraph applies by its terms
and may affect other provisions.
(d)
Identification of returned check.
Most paying
banks currently use some form of stamp indicating the reason
for return.
particular
This paragraph makes this practice mandatory.
form of stamp
is required;
No
but the stamp must
indicate the reason for return.
(e)
this
Depositary bank without accounts.
regulation
apply
only
transaction-type "accounts."
to
"checks"
The Act and
deposited
in
Thus, a depositary bank with only
time or savings accounts need not comply with the availability
requirements of Subpart B.
Collecting banks will not have
couriers delivering checks to these depositary banks because
they
do
not
have
checks
drawn
on
them
to
present.
Consequently# the costs of using a courier or other expedited
means to deliver returned checks directly to the depositary
A -1 2 9
-1 3 0 -
bank may not
be
requirement of
justified*,
§ 229.30 (a)
Thus,
the
expedited
return
does not apply to checks being
returned to banks that do not hold accounts.
The paying bank's
midnight deadline in sections 4-301 and 4-302 of the U.C.C.
(and § 210.12 of Regulation J, 12 CFR 210.12) would continue to
apply to these checks.
Returning banks would also be required
to act on such checks within their midnight deadline.
Further,
in order to avoid complicating the process of return of checks
generally,
standard
banks without accounts
indorsement,
and
are
their
required
checks
are
to use
returned
the
by
returning banks and paid for by the depositary bank under the
same
rules as checks deposited
in other
banks,
with
the
exception of the expeditious return requirements of §§ 229.30
and 229.31.
(f)
Notice in lieu of return.
A check that is lost
or otherwise unavailable for return may be returned by sending
a notice of nonpayment complying with § 229.33 that clearly
indicates it is a substitute for the returned check.
However,
the time and amount limits of § 229.33 do not apply to a notice
in lieu of return.
The
indication
that
the notice is a
substitute for the returned check is necessary so that the
returning and depositary banks are informed that the notice
carries value.
The requirement of this section supersedes the
requirement of section 4-301(1)
and
information
nonpayment.
required
of
a
of the U.C.C. as to the form
notice
of
dishonor
or
A photocopy of the returned check would constitute
A -1 3 0
“ 131
a notice in lieu of return if identified as such*
Reference in
the regulation and this commentary to a returned check includes
a notice
in lieu of
return unless
the context
indicates
otherwise.
The notice
in lieu of return
is subject
to the
provisions of § 229*30 and is treated like a returned check for
settlement purposes*
If the original check was over $2,500,
the notice of nonpayment under § 229*33 is still required, but
may be satisfied by the notice in lieu of return if the notice
in lieu meets the time and information requirements of § 229*33*
The Board requests comment on whether any additional
information would be desirable on the notice in lieu of return
to make it useful to the depositary bank,
and whether
the
transmission of an electronic notice in lieu of return could
cause accounting problems for the returning
and depositary
banks that must settle for these notices as they settle for
returned checks*
(g)
Reliance on routing number*
and Appendix D require that the depositary bank
Although § 229*35
indorsement
contain its nine-digit routing number, it is possible that a
returned check will bear the routing number of the depositary
bank
in fractional,
eight-digit, nine-digit, or other form*
The routing number may also be in regular ink or, especially on
qualified
returned
items,
in magnetic ink*
This paragraph
permits paying banks to rely on the routing number of
depositary bank as it appears on the check
A -1 3 1
the
(in the depositary
-1 3 2 -
bank's indorsement or in magnetic characters on a qualified
returned check) when it is received by the paying bank„
If there are inconsistent routing numbers, the paying
bank may rely on any routing number designating the depositary
banko
That is, the paying bank is not required to resolve the
inconsistency prior to processing the check „
The paying bank
remains subject to the requirement to act in good faith and use
ordinary care under § 229„38(a)0
Section 229031
Returning bank°s responsibility for return of
checks
(a)
checks
Return of checks,
,
established
by
this
section
are
The standards for return of
similar
requirements on paying banks in § 229<,30(a)„
to
the
A returning bank
must handle a returned check or notice of nonpayment in the
same manner that it (or a similarly situated collecting bank)
would handle a similar check for forward collection.,
case of a paying bank,
As in the
a similarly situated bank is one of
similar asset size and check payments activity in the same
community,,
For a returning bank,
another bank has similar
payments activity if it handles a similar volume of checks for
collection,,
In effect,
the returning bank is an agent or
subagent of the paying bank and a subagent of the depositary
bank „
Under
this
section,
a returning bank must accept
returned checks including both qualified and other
checks
("raw returns")
returned
at the same general times and process
A -1 3 2
133-
them according to the same general schedules as checks handled
for forward collection,.
Thus, a returning bank generally must
process even raw returns on an overnight basis,
unless
it
extends its time limit by one day to convert the raw return to
a qualified returned check
as provided
in § 229o31(b)0
A
returning bank may establish earlier cut-off hours for receipt
of returned checks than it established for receipt of forward
collection checks provided that the cut-off hour for returned
checks is not earlier than 2:00 p.m.
The returning bank also
may set different sorting requirements for returned checks than
those applicable to other checks0
Thus, a returning bank need
not accept returned checks as late in the day as it accepts
forward collection checks and may set an earlier cut-off hour
to allow extra processing
time
for returns,,
All returned
checks received by that cut-off hour on that banking day must
be processed and dispatched by the returning bank by the time
that it would dispatch forward collection checks received at
that
time on
the same banking day that are drawn on the
depositary bank0
Generally, the returning bank should send the
returned checks by the same route and by the same means of
transportation used for forward collection of checks that are
drawn on the depositary bank0
The Board requests comment on
whether the 2:00 p,ms limit on the cut-off hours established by
returning
banks
is adequate to avoid delays in the return
process or whether a later limit is necessary in order
ensure the expeditious handling of returns,
A -1 3 3
to
-134-
A number of examples will illustrate the application
of this duty to returning banks,,
First, if a returning bank
receives a returned check by its cut-off hour for returned
checks on Monday and the depositary bank and the returning bank
are participants in the same clearinghouse, the returning bank
should deliver the returned check to the depositary bank in a
clearinghouse exchange on Tuesday, which would be the same day
that it would deliver a forward collection check drawn on the
depositary bank and received by the returning bank at the same
time on Monday.
Second, if a returning bank receives a returned check
by
its cut-off hour for returned checks on Monday and the
depositary bank is a bank in another city, but the returning
bank ordinarily sends its forward collection checks drawn on
the depositary bank direct to the depositary bank, ordinarily
the returning bank would be expected to send the returned check
to the depositary bank with forward collection checks drawn on
the
depositary
bank
received
by
the
returning bank
for
collection at the same time on Monday0
Third,
if a returning bank receives a returned check
by its cut-off hour on Monday, and the returning bank would
ordinarily collect
forward
collection checks drawn on
the
depositary bank by sending the forward collection checks to a
correspondent
returning
bank
correspondent
or
a
Federal Reserve Bank by courier,
could
or
send
Federal
the
returned
Reserve Bank,
A-134
check
provided
to
the
its
that the
-1 3 5 -
correspondent has agreed to handle the returned check under the
standards
established for returning banks in this § 229.31.
The returning bank must deliver the check to the correspondent
or Federal Reserve
Reserve
Bank's
Bank by the correspondent's or Federal
cut-off
hour
for
returned
checks
that
corresponds to its cut-off hour for forward collection checks
drawn on the depositary bank and received by the returning bank
for
collection
at
the
same
time on Monday.
However,
a
returning bank may take a day to convert a check to a qualified
returned
check.
Where
the
forward collection checks
are
delivered by courier, mailing the returned checks would not
meet the duty established by this section for returning banks.
The returning bank may convert the returned check to a
qualified returned check and thus extend its time limits under
§ 229.31 (b) by one day* but may not satisfy its duty to return
in an expeditious manner by substituting a notice of nonpayment
for the returned check.
A returning bank must handle a notice
in lieu of return within the same time limits as for returned
checks o
The returning bank is authorized to route the returned
check in a variety of ways:
1.
It may send the returned check to the bank that
had
sent
the
check
to
it
during
forward
collection
(if the returning bank handled the
check
forward
for
collection)
required by U.C.C. § 4-212?
A -1 3 5
as
currently
"1 3 6 “
2q
It may send the returned
check directly
to the
depositary bank?
30
It may send the returned check to any returning
bank
willing
to handle the returned check under
the
standards
established
for
returning
banks
under this § 229031? or
4o
It may
send
the
returned
check
to
a
Federal
Reserve Bank*, whether or not the Federal Reserve
Bank handled the check during forward collection,,
If
the
returning
bank
elects to return the returned
check directly to the depositary bank*
it is not
return the check to the branch of first deposit®
required
to
The returned
check may be returned to the depositary bank at any location
permitted under § 229„32o
In
meeting
the
requirements
of
this
section*
the
returning bank Is responsible for Its own actions but not those
of the paying bank*
other returning banks*
bank®
if the paying bank has delayed the start of
For example*
the return process*
returning
but
the
returning bank
or
the depositary
acts
timely*
the
bank has satisfied the requirements of this section
even if the delayed return results in a loss to the depositary
banko
(See § 229e38o)
A“ 1 36
“ 137™
The
returning
Board
banks
by
recognizes
that
the
this section will
changes at returning banks0
duty
imposed
on
require operational
If the returning bank accepts
returns as late in the day as it accepts forward collection
checks*
the duty established by this section could require
returning banks to process unsorted* raw returns in only a few
hours unless the returning bank creates a qualified returned
check* in which case it will have a day to create the qualified
returned check.
The Board considered alternate approaches to
expediting the return of checkso
Under one alternative* the
paying bank would have to convert all returns sent to returning
banks into qualified returned checks*
This alternative might
result in faster returns in some cases*
This requirement would
impose burdens on paying banks* including many small banks that
may
be
ill-equipped
for
the
conversion
process.
This
alternative would facilitate compliance for returning banks at
the expense of paying banks*
The Board does not believe that
the benefits in terms of reduction in risk to depositary banks
and reductions in processing requirements on returning banks*
clearly warrant the increased burden on paying banks*
A second alternative would be to rely on the incentive
for prompt
charge-back*
return created by the removal of the right of
Currently*
banks
returning
checks
often
charge-back prior collecting banks9 accounts even before the
checks reach the prior collecting banks*
Under the proposal*
payment is made for returned checks upon their delivery to the
A -1 3 7
-1 3 8 -
depositary bank.
incentive
Therefore a paying or returning bank has an
to send
expeditiouslyo
returned checks
to the depositary bank
Under this alternative, a returning bank's time
to process and dispatch returns would be limited only by its
midnight deadline,.
This alternative would
also reduce
the
burden on returning banks but would result in fewer checks
being returned to depositary banks before funds must be made
available for withdrawal under the Act„
The Board requests
comment on whether the proposal strikes the appropriate balance
between the interests of depositary banks in receiving prompt
returns and the burdens imposed on paying and returning banks.
This
paragraph
directly
provisions of the U.C.C.,
affects
the
following
and may affect other sections or
provisions s
1.
Section 4-212(2),
returning
bank
in that direct return by the
is
now
permitted
in
all
jurisdictions even though not all jurisdictions
have adopted this optional provision;
2o
Section 4-202(2),
to
the
extent
that
this
subsection states a shorter time limit for action
than the midnight deadline,,
(b)
checks o
Extension
of deadline
for
qualified
returned
This paragraph authorizes the returning bank to extend
its time limits to prepare a check for automated handling
quali fied returned check) .
automated
handling
A returned check prepared
(a
for
will be handled by subsequent returning
A -1 3 8
-139-
banks more
efficiently
handled manuallyQ
than a returned
check
that
must
be
This paragraph gives a returning bank a day
beyond the time otherwise required to handle the returned check
to prepare a qualified returned checks
If the returning bank
is sending the returned check direct to
the depositary bank,
this
day
is
not
available
because
preparing
a qualified
returned check will not expedite handling by other banks0
Board
recognizes
that
returning
banks may have difficulty in
identifying those returned checks that
extension,.
The
Board
requests
The
are eligible
comment on whether
for
this
returning
banks should be permitted a day to create qualified returns for
checks returned directly to depositary banks0
banks
also
because
banks,
of
may
wish
they will
to
be handled
the extension
the
longer
prepare
time
qualified
at a lower
Although paying
returned
cost by
checks
returning
is not available to paying banks because
that
checko
Ordinarily,
check
to a qualified
a paying
paying
banks
returned
bank
has
will be
check
to dispatch the
able
at any
to convert
time
after
a
the
determination is made to return the check until late in the day
following
presentment,
while
a
returning
returned checks late on one day and
bank
be expected
may
receive
to dispatch
them early the next morning„
This paragraph directly affects
midnight
deadline
in section 4-202(2)
of
the
returning
the UoCoCo
bank°s
and may
affect other sections or provisions,,
(c)
Acceptance
by collecting
banko
This paragraph
provides that a collecting bank may not refuse to accept
A -1 3 9
the
-1 4 0 -
return of a check that it handled for forward collection
This
is consistent with section 3-414 of the U „ C 6Co, which requires
an
indorser
to take
up a check that has been dishonored,.
Further, if a paying bank cannot identify the depositary bank,
return of the check to the presenting bank may be its most
expeditious means of return, as each bank in the collection
chain should be best able to identify the bank sending the
check to ito
(d)
Settlement.
Under the U eC 6 0, a collecting bank
C
receives settlement for a check when it is presented to the
paying bank0
The paying bank may recover the payment when the
paying bank returns the check to the presenting bank0
Under
this regulation, however, the paying bank may return the check
directly to the depositary bank or through returning banks that
did not handle the check for forward collection,,
On these more
efficient return paths, the paying bank does not recover the
payment made to the presenting bank0
Thus,
this paragraph
requires the returning bank to settle for a returned check
(either with the paying bank or another returning bank) in the
same way that it would settle for a similar check for forward
collection,,
Thus,
any
returning bank,
handled
check
for
forward
the
including one
collection,
may
that
provide
availability for returned checks pursuant to an availability
schedule as it does for forward collection checks.
uniformity,
To achieve
this paragraph applies even if the returning bank
handled the check for forward collection,,
A - 140
Under § 229„32(b),
-141-
provisional credits between banks for the forward collection of
the check become final upon expiration of the time for payment
for a returned check by the depositary bank.
A special rule applies to checks returned by insolvent
banks „
(See § 229.39 (a).)
This paragraph affects section 4-212(1) of the U.C.C.
in that a paying or collecting bank does not have a right to
charge-back
against
the
bank
from which
it received
the
returned check, although it is entitled to settlement if it
returns the returned check to that bank, and may affect other
sections or provisions.
(e)
Charges.
This paragraph permits any returning
bank, even one that handled the check for forward collection,
to impose a fee on the paying bank for its service in handling
a returned check.
The depositary bank may not charge such a
fee to a prior returning bank,
(f)
Reliance on routing number.
This paragraph is
similar to § 229.30(g) and permits a returning bank to rely on
routing numbers
appearing on a returned check.
(See the
comment to § 229.30(g).
)
(g)
Depositary bank without accounts.
This paragraph
is similar to § 229.30(e) and relieves a returning bank of its
obligation to make expeditious return to a depositary bank that
does
not
maintain
any
accounts.
(
See
the
comment
to
§ 229.30(e).
)
(h)
similar
Notice
in lieu of return.
to § 229.30(f)
and authorizes
A -1 4 1
This paragraph is
a returning
bank
to
-1 4 2 -
originate a notice in lieu of return if the returned check is
unavailable for return0
Section 229o32
(See the comment to § 229..30 (f) e)
Depositary b a n k as responsibility for returned
checks
(a)
Acceptance of returned checks.
This regulation
seeks to encourage direct returns by paying and returning banks
and may result
in a number
of banks
sending
checks
to
depositary banks with no preexisting arrangements as to where
the returned checks should be deliveredo
This paragraph states
where the depositary bank is required to accept returned checks
and written notices of nonpayment
from
locations
at
electronic notices.)
which
(These locations differ
a depositary
bank
must
accept
It is derived from section 3-504(2)
of
the UoCoCo, which specifies that presentment for payment may be
made at the place specified in the instrument or, if there are
none, at the place of business of the party to pay.
In the
case of returned checks, the depositary bank does not print the
check and can only specify the place of "payment" of the
returned check in its indorsement.
The paragraph specifies four locations at which the
depositary bank must accept returned checkss
lo
If the depositary bank indorsement states the
name and address of the depositary bank, it must
accept returned
checks at the branch or head
office indicated by the address.,
If the address
is too general to identify a particular branch or
A -1 4 2
“ 143-=
the head office then the depositary bank must
accept
returned
checks
at any branch or head
office, consistent with the address,,
example,
If,
for
the address was "New York, New York,"
each branch in New York City must accept returned
checks•
2o
The address may be a processing center0
If no address appears in the depositary bank's
indorsement,
the
depositary
bank must accept
returned checks at any branch or head office
associated
number,
with
the depositary bank's
routing
The offices associated with the routing
number of a bank are found in a publication of
Rand McNally, Key to Routing Numbers, which lists
a city and state address for each routing number,
3.
If no routing number or address appears in its
indorsement,
the depositary bank must accept a
returned check at any branch or head office of
the
bank.
§ 229,35
The
and
indorsement
Appendix D
requirement
requires
that
of
the
indorsement contain both a routing number, name,
and location.
Consequently,
this provision,
as
well as provision (2) , only applies where the
depositary bank has failed to comply with
responsibility for indorsement.
A -1 4 3
its
-144-
4a
In addition to (1),
(2), or
(3), the depositary
bank must accept returned checks at the location
at which it accepts checks as a paying bank.
(b)
Payment.
As
discussed
in
the
comment
§ 229.31(e), under this regulation, a paying or returning bank
does not obtain credit for a returned check by charge-back but
by, in effect, presenting the returned check to the depositary
bank.
This paragraph imposes an obligation to "pay" a returned
check that is similar to payment of a check, except that the
depositary bank may not return a returned check for which it is
the depositary bank and certain means of payment
such as
remittance drafts can only be used with the agreement of the
returning banko
The depositary bank must pay for a returned check by
the close of the banking day on which it received the returned
check.
The day on which a returned check is received is
determined pursuant
to section 4-107 of
the U.C.C.,
which
permits the bank to establish a cut-off hour, generally not
earlier than 2s00 p.m., and treat checks received after that
hour as being received on the next banking day.
Payment must be made so that the funds are available
for use by the bank returning the check to the depositary bank
on the day the check is received by the depositary bank.
For
example, a depositary bank meets this requirement if it wire
transfers funds to the Federal Reserve or correspondent bank
account of the returning bank on the day it receives the
A-144
to
-145“
returned check, even if the returning bank has closed for the
day or net settles with the returning bank on that day®
Banks
with current Federal Reserve net settlement agreements could
net the appropriate credits and debits for returned checks with
the accounting entries for cash items if they so desired®
If,
for purposes of establishing additional control or to establish
a new settlement arrangement,
separate
settlement
for
the banks involved desired a
returned
checks,
a separate net
settlement agreement would have to be established with
the
local Federal Reserve office®
If payment
is not made,
the
depositary
bank
is
accountable, i0e«, liable, to the paying or returning bank for
the amount of the returned check®
If the returned check is
returned to a bank that is not the depositary bank, that bank
has no obligation to pay under this paragraph, but must pay for
the check as a returning bank would pay for the check -- it
should handle the misrouted item as indicated in § 229®32(d)e
A returning bank may agree to accept payment at a later date
if, for example, it does not believe that the amount of the
returned check or checks warrants
payment®
the costs of same day
Thus, a returning bank may agree to accept payment
through an automated clearinghouse credit or debit that settles
the day after the returned check is received instead of a wire
transfer that settles on the same day®
A“ 145
-146-
This paragraph is similar to draft section 4-301(5) of
the
NCCUSL
proposal,
which
in turn
section 4-212(2) of the U„CoCo
is based on optional
concerning direct
return of
checks o
The Board requests comment on whether a penalty is
required to ensure that payment is made as required by this
paragrapho
(c)
Recovery
by
depositary bank
from collecting
bank. A depositary bank may not have received full provisional
settlement for the check when it was sent for collection or may
have received no settlement at all0
When the depositary bank
pays the returning bank for the returned check, it will have
lost the difference between what it paid the returning bank and
what it received from the bank to which it sent the check for
forward collection.,
This paragraph permits the depositary bank
to recover the difference from the bank that did not make full
settlement.
This rule applies whether the depositary bank sold
the check to the next bank or merely transferred it to that
bank as an agent for collection.,
(d)
Misrouted
returned
checks.
Today
a
bank
receiving a misrouted returned check often sends the check back
to the party that sent it so that party can research it and
identify the correct bank*
This paragraph attempts to hasten
the process by requiring a bank that received the misrouted
returned check to send it to the correct depositary bank if it
can identify the correct depositary bank.,
Failing that, the
bank receiving the misrouted returned check would return it to
A-146
“■147 -
the
returning or paying bank sending the check to it*
In
either case the bank to which the returned check was misrouted
could
receive
settlement
for the check.
If the check was
originally received "free/' that is# without a charge for the
check# the bank incorrectly receiving the check would have to
return the check# without a charge# to the bank from which it
came.
Section 229033
Notice of nonpayment
(a)
different
provided
Requiremento
functions
for must
in
this
Notice of nonpayment serves several
regulation#
but
each
notice
follow the general requirements of this
section s
lo
The paying bank may send a notice of nonpayment
as a way of meeting its duty to initiate return
under § 229®30o
If the notice is used to comply
with § 229o30# nevertheless it must be provided
within
the
section0
time
limits
prescribed
by
this
This notice carries no value and does
not relieve the paying bank of the requirement to
return the check;
29
The paying bank must send a notice of nonpayment
complying with this section if it decides not to
pay a check of $2 #500 or more®
The notice
carries no value# and the check itself must be
returned; and
30
A paying or returning bank may send notice in
lieu of return if the check itself is unavailable
A -1 4 7
-1 4 8-
for
return
under
regardless of
§§ 229o30(£)
and
229o31(h)
the amount of the checko
This
notice is subject to the content requirements of
L
this section but to the timing requirements of
§§ 229o30 and 229031 rather than this section*,
The notice in lieu of return carries value and
substitutes for the returned check itself, which
is not returnedo
Because these notices are used
when the check cannot be returned, they must be
used
if the paying or
returning bank
is to
recover its settlement for the checko
The notice of nonpayment is modeled after the notice
required by Regulation J (12 CFR 210o12) except the notice in
this
regulation
is
required even
if the check were not
collected through a Federal Reserve Bank, and the time limit
for providing notice to the depositary bank is shorter by one
business day«
Under this section, the paying bank must ensure
that the notice is received by the depositary bank by 4s00 p em 0
on the second business day following presentments
Regulation J
currently requires the notice to be received by midnight of the
third banking day following presentments
Draft section 4-304
of the NCCUSL proposal contains a similar provision on notice
of nonpaymento
The Board requests comment on whether notices should
be required for checks of $2,500 and over or $5,000 and over0
-1 4 9 -
(b)
Content
of
notices.
,
The
content
specified
follows the content currently required under Regulation J„
the paying bank cannot identify the depositary bank,
If
it should
send the notice of nonpayment to the first collecting bank in
the forward collection process that it can
identify.,
This
paragraph also provides that, in the case of written notices,
the name and routing number of the depositary bank are required.
(c)
Acceptance
of
notice„
This
follows current practice under Regulation J D
written notice,
the depositary bank
paragraph
also
In the case of a
is required to accept
notices at the locations specified in § 229„32(a)o
In the case
of telephone notices, the bank may not refuse to accept notices
at these numbers but may transfer calls,
or use a recording
device.
(d)
Charge-back.
This paragraph adopts the view of
Appliance Buyers Credit Corp v„ Prospect National Bank, 708
F.2d 290
(7th Cir„ 1983)
that sending a returned check or
notice of nonpayment to the depositary bank's customer in a
timely manner is not a condition precedent to charge-back
the
customer's
section 4-212(2)
account
by
the
depositary
bank.
of the NCCUSL proposal contains
to
Draft
a similar
provision«
(e)
Cancellation of notice. This paragraph follows a
,
similar provision in Regulation J,
The Board requests comment
on whether other provisions from Regulation J on notice of
nonpayment should be adopted in this regulation.,
A -1 4 9
-1 5 0 -
Section 229.34
(a)
Warranty by paying bank and returning bank
Warranty.
This
paragraph
incorporates
the
warranties of timely return in § 210.12(b) of Regulation J (12
CFR
210.12(b))
and adds the warranties that the paying or
returning bank is authorized to return the check and that the
returned check has not been materially altered.
(b)
warranties
Damages.
in
This paragraph
§ 229.34(a)
the
adopts
warranty
for
the new
damages
of
section 4-207(3) of the U.C.C.
(c)
Tender of defense.
This paragraph adopts for
this regulation the vouching-in provisions of section 3-803 of
the UoC.Cc or section 210.5 of Regulation J (12 CFR 210.5).
Section 229.35
Indorsements
(a)
Indorsement
standards.
One
of
the
major
difficulties in returning a check is reading the indorsements
of the depositary and collecting banks, and obtaining useful
information from them.
blurred,
Current indorsements are often faint,
incomplete and overlapping.
The indorsement standards
in Appendix D address indorsement problems by specifying the
information the indorsement must contain and its location and
ink color.
Depositary,
collecting
and
returning
banks
are
required to place their indorsements on checks as specified in
Appendix D.
checks,
checks.
In order to avoid confusion in routing returned
paying
banks
are not required to indorse returned
The regulation^
indorsement requirements adopt the
components of the standards developed, but not finally adopted,
A -1 5 0
-1 5 1 -
by The American National Standards Institute
working
group,
processing
("ANSI"),,
comprised of representatives of banks,
equipment
manufacturers,
and
other
An ANSI
check
interested
parties adopted those standards over the past two years.
This
regulation does not incorporate the ANSI standard by reference,
however,
but requires that indorsements have these particular
elements.
For
many
banks,
compliance
with
the
indorsement
standard would entail replacement of indorsement plates and/or
stamps.
For some banks additional changes may be necessary*
collecting bank may indorse checks deposited by
customers
on encoding
equipment
using
A
its retail
the depositary bank
indorsement required by this regulation, and apply its transit
indorsement to checks sent by its respondents on its high-speed
equipment.
applying
(This
both
section does
a depositary
bank
indorsement on the same check.)
need
not prohibit
a bank
indorsement
and
Alternatively,
from
transit
the bank may
to apply two different indorsements on its high-speed
equipment:
the depositary bank indorsement, where
depositary bank,
it is the
and a transit indorsement when it acts as a
collecting bank.
Second,
prior
where a corporation encodes its own checks
to deposit,
indorsement
high-speed
and
the corporation
the
equipment.
bank
applies
Under
the
often
its
applies
its
own
indorsement on
its
proposal,
either
the
corporation or the depositary bank must apply the depositary
A -1 5 1
-1 5 2 -
bank indorsement®
For lock-box locations or corporations that
deposit into multiple depositary banks, either the corporation
or lock-box depositor would have to apply the depositary bank
indorsements to the checks being collected by each bank, or the
depositary bank must apply its depositary bank indorsement®
Third,
high-speed
sorters
may not be
capable of placing a depositary bank
location specified by the standard®
to indorse on other equipment,
immediately
indorsement
in
the
Depositary banks may wish
such as encoding
equipment®
When depositary bank indorsements are applied on high-speed
equipment, banks are encouraged to use special ink and include
the
information
required
by
the
standard
even
if
the
indorsements are not placed in the correct location initially®
Fourth, the proposed standard, following the approach
developed by ANSI, requires all depositary bank indorsements to
avoid the carbon band location®
An indorsement placed over a
carbon band often would not be legible®
This restriction will
make it more difficult for depositary banks to comply with the
location requirements of the standard®
An alternative approach
is to shift the burden to the paying bank whose customers use
checks with carbon bands®
Under this approach, the paying bank
either would have to stop issuing carbon band checks or select
a carbon technique that would not interfere with reading the
depositary bank indorsement®
required
Further, the paying bank might be
to qualify all carbon band returns as qualified
A -1 5 2
“
■153-
re turned checks rather than depositing these returns raw with
an intermediary.
The Board requests comment on how these problems might
be minimized.
In addition,
the Board
requests comment on
whether the indorsement standard should restrict placement of
the
indorsement
in
the
carbon
band
area,
and
what
responsibilities should be placed on paying banks that issue
carbon band checksc
As discussed in connection with § 229038 on liability,
failure to follow these indorsements standards may relieve a
paying or returning bank of liability for delay in returning a
check where the delay is due to the failure to use the proper
indorsement.
(b)
U.CoCo,
Contract of indorser.
Under section 3-414 of the
an indorser engages that upon dishonor he will take up
the instrument*
When a check is sent for forward collection,
the collection process
results
in a chain of indorsements
extending from the depositary bank through the collecting and
presenting banks to the paying bank*
This section extends the
indorsement chain through the paying bank to the returning
banks and would permit each to recover from prior indorsers if
the paying or returning bank were unable to obtain payment for
the
returned check
from the depositary bank.
Under
this
section, in the event of the depositary bank's insolvency, the
bank that accepted the check for forward collection from the
A-153
-1 5 4 -
depositary bank would ultimately be responsible for the check
as the next prior indorser, as is the case under U.C.C. § 3-414.
Section 229036
Presentment of checks and delivery of returned
______checks
(a)
Payable
through
and payable at checks.
regulation defines a payable though or payable at bank
The
(which
could be designated the collectible through or collectible at
bank)
under
as a paying bank.
this
regulation,
The duties imposed on a paying bank
such
as
the
expeditious
return
requirements of § 229.30(a), are imposed on a payable through
or payable at bank.
This paragraph treats payable through and
payable at banks as payor banks under the U.C.C. for purposes
of time for return or notice of dishonor,,
This
treatment
substantially shortens the time for return of these checks and
may have a significant effect, for example, on credit unions
using payable
through
share drafts and insurance companies
using payable through drafts.
(b)
Receipt at bank office or processing center0
The
provision seeks to facilitate efficient presentment of checks
to
promote
early
return or notice of nonpayment
to the
depositary bank and clarifies the law as to the effect of
presentment by routing number.
This paragraph differs from
§ 229.32(b) because presentment of checks differs from delivery
of returned checks.
The paragraph specifies four locations at which the
paying bank must accept presentment of checks?
A -1 5 4
-1 5 5 -
If the check specifies the name and address of a
branch or head office, the check may be presented
by delivery to that office,,
too general
If the address is
to identify a particular
office,
presentment may be made at any office consistent
with the address,
For example, if the address is
"San Francisco, California," each office in San
Francisco
must
designation
of
accept
an
presentment.
address
on
the
The
check
is
generally in the control of the paying bank.
If the check specifies the name of the paying
bank
but
no
address,
the
presentment at any office.
bank
must accept
Thus,
there
is a
trade off for a paying bank between specifying a
particular address on a check and simply stating
the name of the bank to encourage wider currency
for the check.
existing
This provision is consistent with
section 3-504(2)
of the U.C.C.,
which
states that presentment for payment may be made
at the place specified in the instrument, or, if
there are none, at the place of business of the
party to pay.
and address
Presentment according to the name
(if any) on a check would generally
be made by individuals,
banks.
rather than collecting
Collecting banks generally rely on the
routing number.
A -1 5 5
-1 5 6 -
3.
Presentment may also be made at an office of the
paying bank associated with the routing number on
the
check.
routing
The
number
office
of
a
associated
bank
is
publication of Rand McNally,
with
found
Key
in
the
a
to Routing
Numbers, which lists a city and state address for
each
routing
number0
Checks
are
generally
handled by collecting banks on the basis of the
routing
number
in magnetic
characters
(or
in
fractional form if the magnetic characters are
obliterated)
on
the
check,
printed name or address0
rather
than
the
The definition of a
paying bank in § 229«2 includes a bank designated
by routing number, whether or not there is a name
on the check,
and whether or not any name is
consistent with the routing number.
There is no
requirement in the regulation that the name and
address agree with the address associated with
the routing number on the check.
A bank may
generally control the use of its routing number,
just as it does the use of its name.
associated
with
the routing
processing center.
number
The address
may be a
In some cases, a paying bank
may have several offices in the city associated
with the routing number.
In such a case,
it
would not be reasonable or efficient to require
A -1 5 6
-1 5 7 -
the presenting bank to sort the checks by more
specific branch addresses that might be printed
on the checks, and to deliver the checks to each
brancho
Generally,
a collecting
bank
deliver all checks to one location*
would
In cases
where checks are delivered to a branch other than
the branch on which they may be drawn,
computer
and courier communication among branches should
permit
the paying
bank
to
quickly
determine
whether to pay the check.
4o
In addition, delivery of checks may be made, and
presentment
is
considered
to
occur,
at
a
location, such as a processing center, requested
by the paying bank*
This is the way most checks
are presented by banks
today*
This provision
would adopt the common law rule of a number of
legal decisions that the processing center acts
as
the
agent
of
the paying
bank
to accept
presentment and to begin the time for processing
of the check*
(c)
(See also U„C8C 0 § 4-204(3)*)
Truncation.
Truncation is a procedure
the physical check is held by the depositary or collecting bank
and the information from the check is transmitted to the paying
bank*
This
process
has
the
potential
of
improving
the
efficiency of check processing, but use of truncation has been
limited,
partly because
of uncertainties about whether the
A -1 5 7
in which
“ 158”
UoCoCo permits it without the agreement of all parties0
This
paragraph allows truncation by agreement with the paying bank;
however,
prior
such agreement may not prejudice the
parties
to
the
check. For
example,
interests of
a truncation
agreement may not extend the paying bank's time for return,,
Such an extension could damage the depositary bank, which must
make
funds
availability
available
to
schedules „
its
Draft
customers
under
mandatory
section 4-109 of the NCCUSL
proposal has similar provisions on "electronic presentment."
Section 229P37
Under
Inquiry to paying bank
§ 229o10, a depositary bank must make
funds
available for cashier's, certified, and teller's checks on the
business day after the banking day of deposit,,
Because these
checks cannot be presented and returned before funds must be
available for withdrawal,
some depositary banks may want to
obtain assurance from the paying bank that the checks are not
fraudulent^
This paragraph requires the paying bank to respond
to telephone inquiries with available information about the
check.
With respect to teller's checks, the drawing bank must
also respond to inquiries from the depositary bank.
The Board requests comment on;
1.
Whether
this
is
a workable
proposed or whether
arrangement
it should be revised,
example, to guarantee the information;
A-158
as
for
-1 5 9 -
2.
What standard of promptness should be placed on
paying
and
drawing
banks
in
responding
to
inquiries;
3.
Whether
the paying bank should be permitted to
charge for providing information; and
4.
Whether
this
requirement
should be limited to
checks over a certain dollar amount,,
Section 229.38
Liability
(a)
Standard of care; liability; measure of damages.
The standard of care established by this section applies to any
bank
covered
regulation.
by
the
requirements
of
Subpart C
of
the
Thus, it applies to a paying bank under §§ 229.30,
229.33, and 229.37; to a returning bank under § 229.31;
depositary
bank
under
§§ 229.32
and
229.33;
to
to a
a bank
erroneously receiving a returned check or notice of nonpayment
as depositary bank under § 229.32(d); and a bank indorsing a
check under § 229.35.
The standard of care is similar to the
standard imposed by sections 1-203 and 4-103(1) of the U.C.C.
A bank not meeting this standard of care is liable to
the depositary bank, the owner of the check, or another party
to the check.
The measure of damages
stated derives
from
sections 4-103(5) and 4-202(3) of the U.CoC.
This paragraph also states that it does not affect a
paying bank’ liability to its customer.
s
Under section 4-402
of the U.C.C. , for example, a paying bank is liable to its
customer for wrongful dishonor, which is different from failure
A -1 5 9
-160-
to exercise ordinary care
and has a different measure
of
damages.
The Board
liability
under
requests
this
comment
paragraph
on
whether
a bank's
should be limited
to the
depositary bank and owner of the check.
(b)
Paying bank's
failure
to make timely return.
Section 229.30(a) imposes requirements on the paying bank for
expeditious return of a check and leaves in place the U,C,Co
time limits, which may allow return at a different time.
This
paragraph clarifies that the paying bank could be liable for
failure to meet either standard but not for failure to meet
both.
The regulation intends to preserve the paying bank's
"accountability" for missing its midnight deadline under the
U®C®Ce, a concept that is not incorporated in this regulation,
but may be useful in other circumstances,
(c)
establishes
Comparative
a
"pure"
negligence«
,
comparative
This
negligence
liability under Subpart C of this regulation.
paragraph
standard
for
This comparative
negligence rule may have particular application where a paying
or returning bank delays
in returning a check because of
difficulty in identifying the depositary bank.
will illustrate liability in such cases.
is assumed
that the
depositary bank after
returned
check
it has made
is
Two examples
In each example, it
received
by
the
funds available to its
customer, that it may no longer recover the funds from its
customer, and that the inability to recover the funds from the
A -160
-161-
customer is due to a delay in returning the check contrary to
the standards established by §§ 229.30(a) or 229.31(a).
First,
if a depositary bank fails to use the indorsement required by
this regulation and a paying or returning bank is delayed in
returning the check because additional time is required
to
identify the depositary bank or find its routing number, the
paying or returning bank's liability to the depositary bank
would be reduced or eliminated.
Second,
if the depositary bank
uses
the standard
indorsement but that indorsement is obscured by a subsequent
collecting bank's indorsement and a paying or returning bank is
delayed
in returning the check because additional time was
required to identify the depositary bank or find its routing
number, the paying or returning bank may not be liable to the
depositary
bank
negligence.
because
the delay
was
not
due
to
its
However, the collecting bank may be liable to the
depositary bank to the extent that its negligence in indorsing
the check caused the paying or returning bank's delay.
(d)
certain
Timeliness of action.
delays.
It
incorporates
This paragraph excuses
the
standard
of
section 4-108(2) of the U.C.C. with the addition of "failure of
equipment" and "interruption of computer facilities" as causes
of delay.
was
The addition of these two causes makes explicit what
previously
generally
accepted
under
the
U.C.C.
Draft
section 4-108(2) of the NCCUSL proposal makes a similar change.
A-161
-162-
(e)
Exclusion.
This paragraph provides
that
the
civil liability and class action provisions, particularly the
punitive damage provisions of sections 611(a) and 611(b) of the
Act (12 UoS.Co 4010(a)
and
(b) ) do not apply to regulatory
provisions adopted to improve the efficiency of the payments
mechanismo
Allowing punitive damages for delays in the return
of checks where no actual damages are incurred would only
encourage litigation and provide little or no benefit to the
check collection systemQ
(f)
from
Bona fide errors„
liability
requirement of
under
A depositary bank is shielded
this section
this subpart
for a violation of a
if it can demonstrate,
by
a
preponderance of evidence, that the violation resulted from a
bona fide error and that it maintains procedures designed to
avoid
such errors»
An error
in legal
judgment does not
constitute a bona fide error0
(g)
Jurisdiction,
This
section
provides
the
jurisdiction and statute of limitations for civil actions for
violations of this subpart.
(h)
Reliance
on
Board
rulings.
This
provision
shields banks from civil liability if they act in good faith in
reliance on any rule,
regulation, or interpretation of
the
Board, even if it were subsequently determined to be invalido
Banks may rely on the commentary to this regulation, which will
be issued as an official Board interpretation, as well as on
the regulation itself»
A-162
-1 6 3 -
Section 229 „39
Insolvency of bank
If a paying bank fails without having made provisional
settlement with the presenting bank for checks presented, it or
its trustee could theoretically return the checks directly to
the depositary bank or through a returning bank other than the
presenting bank under § 229 o30(a)„
This situation would result
in the paying bank, or its estate, receiving value for returned
checks for which it never gave value,,
inequity and
depositary,
similar
results
This section avoids this
involving
and returning banks.
failed
collecting,
This section is similar to
the insolvency provisions from section 4-214 of the U.C.C,
Section 229a40
Relation to state law
This section specifies that state law relating to the
collection of checks is only preempted to the extent that it is
inconsistent with this regulation,,
not a complete
Thus,
this regulation is
replacement for state laws relating to the
collection or return of checks.
Section 229*41
Exclusions
Checks drawn upon the account of the United States
Treasury, or indorsed by the Treasury, and U „S 0 Postal Service
money orders are excluded from the coverage of the expeditious
return requirements of Subpart C of this regulation,,
APPENDIX A —
This
Routing Number Guide to Local Checks
appendix
lists
the routing numbers
considered local to each check processing region,,
A -1 6 3
that are
The numbers
-1 6 4 -
in the Appendix represent the first four numbers of the routing
numbers of paying banks in each region.
APPENDIX B —
Time Period Adjustments for Nonlocal Checks
The Act directs the Board to reduce the statutory
schedules for any category of checks where most of those checks
can be returned, under an improved check collection and return
system,
in a shorter period of time
schedule,,
Appendix B describes,
than provided
by routing
in the
number,
those
categories of checks for which reduced schedules apply,,
The
time period adjustments are listed by check processing region,
so that a bank need only refer to the region(s) in which it has
offices to determine those adjustments that are applicable to
that banko
In a number of cases, the reduced schedules only
apply to banks located in the same city as the Federal Reserve
check processing office,,
The routing numbers of the banks to
which these reductions apply are providedo
In other cases, the
reductions would apply to all banks located in the region,,
The proposed reductions
by
each
Federal
Reductions
Reserve
are proposed
Bank
in schedules were determined
check
processing
office,,
for certain nonlocal checks,
where
significant improvements can be made to the Act’s schedules,,
For the most part, shorter schedules are provided for:
lo
Checks deposited
in banks
located
in certain
Federal Reserve cities and drawn on banks located
in certain other Federal Reserve cities,0
A -1 6 4
-1 6 5 -
20
Checks drawn on certain banks that are served by
two Federal Reserve Bank offices; and
3o
Checks deposited in and drawn on banks in the New
York City metropolitan area, where the proximity
of the Federal Reserve Bank offices facilitates
faster clearing and return of these checks.
Appendix B-l provides the reductions to the nonlocal
schedule that are applicable during the temporary schedule,,
Appendix B-2 provides the reductions that will be applicable
when the permanent schedule becomes effective,,
APPENDIX C —
Model Forms
Appendix C contains thirteen model forms that may be
used by banks to meet their disclosure responsibilities under
the regulation. Each form is designed for a particular use, as
indicated in the titles identifying each form.
Information to
be inserted by a bank using the forms is highlighted by the use
of parentheses and bold type.
Although use of the model forms is not required, banks
using them properly will be deemed to be in compliance with the
regulation with regard to the particular disclosures.
Banks
may make certain changes in the format or content of the forms
and delete any disclosures that are inapplicable without losing
the Act's protection from liability.
The rearrangement of the
model forms may not be so extensive as to affect the substance,
clarity,
Banks
or meaningful
making
revisions
sequence of
with
the forms and clausese
that effect
A -1 6 5
will
lose
their
-1 6 6-
protection from civil liability,,
Acceptable changes include,
for examples
Using "customer" and "bank" instead of pronouns„
°
Not using bold type for headings.
0
Incorporating
certain
state
"plain
English"
requirements.
0
Deleting inapplicable disclosures by whiting out,
blocking
out,
crossing
out,
leaving
blanks,
checking a box for applicable items, or circling
applicable items0
Banks are cautioned against using the attached forms
without reviewing their own policies and practices
current
state
and
federal
law regarding
required for availability of specific
bank's
use of a model
compliance
with
disclosures
policy0
form will
the Act and
the
the time periods
types of checks,,
result
A
in its being in
the regulation
actually correspond
and
only
to the bank's
if
the
availability
Shorter time periods for availability may always be
substituted,
and,
in fact, may be required under applicable
state lawe
Models C-l through C-7 generally,
,
These forms are models for
the specific policy disclosure described in § 229e16 of the
regulation.
The forms were designed to accommodate a variety
of availability practices (within the regulation's maximum time
periods) o
Models
03
and
04
A -1 6 6
reflect
the
alternative
-167-
disclosure for banks with case-by-case hold policies described
in § 229.16(b)0
Model C-l.
Use of this form is appropriate when a bank's
policy is to make funds from any type of deposit available to
customers the day after the deposit is made, with no holds
placed on deposited funds.
Model C-2o
Use of this form is appropriate when a bank's
policy is to make funds from any type of deposit available the
day after the deposit is made, except that the bank would take
advantage of the regulation's new account and other exceptions
in § 229.13o
Under the special rules for new accounts section,
a bank should insert, where indicated, its outside limit for
availability of deposits other than those deposits into new
accounts that are available on the next business day.
The
requirements referred to with regard to the checks that receive
next-day availability when deposited in new accounts are those
requirements outlined in § 229.10(c)(1)
—
specifically,
that
the checks be deposited into an account of the payee and, in
some cases, be made with a special deposit slip0
Model C-3o
Use of this form is appropriate when a bank's
policy is to routinely make funds from all types of deposits
available the day after the deposit is made, but occasionally
to delay availability on a particular deposito
A bank using
this form is assumed not to exercise either the new account or
safeguard exceptions in § 229.13 of the regulation.
A-167
As
a
-168“
result,
the
delays
imposed
may
not
be
longer
than
the
applicable maximums in §§ 229,11 and 229,12 of the regulation.
Model C-4.
Use of this form is appropriate when a bank has the
same policy as described under Model C-3, except that a bank
using
this
form would
take
advantage
of
the
safeguard
exceptions found in § 229,13,
Model C-5,
Use of this form is appropriate when a bank's
policy is to impose delays to the full extent allowed by the
schedules and exceptions in the regulation.
The disclosure of
availability for local checks and that the bank limits the
customer's cash withdrawals to $400 on the third business day
after deposit assumes that the bank is not a member
clearinghouse,
of
a
(Banks that are members of a clearinghouse may
restrict cash withdrawals until the fourth business day only as
to non-clearinghouse local checks.)
In making this disclosure,
a bank must insert a time after which the customer may withdraw
up to $400,
A bank may not, under the regulation, insert a
time of day later than 5:00 p.m.
Model C-6,
Use of this form is appropriate for a bank with the
same policy as outlined under Model C-5,
between
the
availability
forms
policy
is
that
for
a chart
local
and
The only difference
showing
nonlocal
the
bank's
checks
is
substituted for the narrative material in Model C-5 regarding
the availability times for local and nonlocal checks.
Model C-7o
Use of this form is appropriate when a bank's
policy is to delay availability based on the deposit categories
A-168
-169”
{nest-day
deposits
availability
items,
local
at automated teller machines)
the delay periods are shorter
under
and
the
regulations
(The
except that the pertinent
than
form
time
nonlocal
in the regulation,
the maximum
is
checks,
times
identical
limits
have
but
allowed
to Model 0 5
been
deleted
and
reminders for inserting the information added®)
Model 0 8 o
Use
of
this
form satisfies
requirement of § 229®13(g)
a hold based on
The
form may
placed on more
check
than one
to
to
the availability
indicate
check
that a hold
in a deposit0
must be described separately,
apply to the checks,
written
notice
of the regulation when a bank places
an exception
be modified
the
and,
schedules.
is being
However,
each
if different reasons
a separate reason must be given
for each
hold placedo
Model 0 9 «
Use of this form satisfies the notice requirement
of § 229 ®16 (b) (2) when a bank with a case-by-case hold policy
imposes a delay on a deposit®
specific reason
This notice does not require a
for the hold®
(A specific reason
only when an exception hold is placed®
Model Q l Q o
bank's
See Model 0 8 ) ®
Use of this form satisfies the notice requirement
of § 229®18(b),
the
is required
notice at branch
actual
availability
locations®
policy
is
The form assumes
the
same as
the
schedules in the regulation®
Model O i l ®
Use of this form satisfies the notice requirements
for preprinted deposit slips under
A “ 1 69
§ 229®18(a)
and the notice
-1 7 0 -
requirements
at proprietary automated teller machines under
§ 229 old (c) (1) o
facilities
in
It may also be used at dr ive==through
lieu
Model c~8
of
requirements of § 2290l8(b)0
to
satisfy
the
teller
notice
The bracketed material is not
required on preprinted deposit slips0
Model C ”120 Use of this form satisfies the notice requirements
of § 229018 (c)(2) for nonproprietary automated teller machines0
Model C°139
Use of this form, incorporated as part of a credit
union’s specific
policy
disclosure,
requirement under § 229e
14(b)
satisfies
the
notice
for credit unions not accruing
interest from the date of provisional credito
This disclosure
is only an example based on a hypothetical policyQ
jypPEMDIX D —
indorsement Standards
This appendix provides the indorsement standards for
depositary
banks
and
transit
banks0
It
includes
rules
regarding the content, location, and color of the indorsements0
Initial Regulatory Flexibility Analysis
Of the items required to be contained in an initial
regulatory flexibility analysis by 5 UoSoCo 603(b), the first
(8a description of the reasons why action by the agency is
8
being considered9) and the second (8a succinct statement of the
8
8
objectives of, and legal basis for,
the proposed rule8) are
8
found elsewhere in this preamble.
The proposed rule contains a number of requirements
that are also described elsewhere in the preamble0
A -1 7 0
The Board
-171-
proposes that all of these requirements be applicable to all
banks and other entities subject to the rule regardless of
size0
The Board considered exempting very small banks, those
that fall below the threshold for filing reports of deposit
under
the Board's Regulation D
(12 CFR Part 204)
(currently
those with deposits of less than $2„9 million) from the rule's
requirements0
However,
the Act does not provide an exemption
according to the size of bank; all banks, regardless of size,
that maintain transaction“type accounts are required to provide
availability
to
their
depositors
according
to
the Act's
schedules, and all banks must make the required disclosures to
their customers«
in order to minimize the risks arising from
these requirements,
subject
to
Subpart C e
all banks,
the expedited
regardless of size,
return procedures
must
established
be
by
Exemption of small banks from these requirements
would mean that checks drawn on small banks would continue to
be returned by the current inefficient manual processing of
returns leading to increased losses for depositary banks that
accept for deposit checks drawn on small banks •
The Board
believes that the availability schedules and the expeditious
return of checks can be made to work only if all banks are
subject to the same rules.
The Board does not believe that the proposed
would
impose
reporting
or
recordkeeping
burdens
on
rule
small
institutions that require specialized professional skills not
available
to
themD
Many small
A -1 7 1
institutions,
particularly
“ 172-
credit unions,
disclosure,
are not subject
to the Act's availability,
and payment of interest requirements, due to the
fact that they do not hold transactions accounts.
The Act does
provide relief for certain credit unions that are subject to
the Act,
generally
sophisticated
those
operations,
accrual of interest.
provisions
that
that
from
are
very
the
small
requirement
and
lack
regarding
The proposed regulations contain other
will
facilitate
compliance
with
Act's
requirements for small institutions, particularly pertaining to
their disclosure responsibilities.
REGULATION J AMENDMENTS
The Board
Subpart A
proposes
amendments to its Regulation J,
(12 CFR Part 210) Collection of Checks
and Other
Items and Wire Transfers of Fund, governing the collection of
checks by Federal Reserve Banks, so that it conforms to the
proposed
Regulation CC,
Subpart C.
Under
the
proposed
amendments, Federal Reserve Banks would accept for handling all
returned checks, including checks (as defined in Regulation CC)
not handled by Federal Reserve Banks for forward collection.
Federal Reserve Banks, like other returning banks, would handle
returned checks in accordance with Regulation CC, Subpart C.
The details of their returned check services would be set forth
in uniform Federal Reserve Bank operating circulars,
currently the case.
as
is
These details will include availability
A -1 7 2
-173-
schedules, cut-off hours, charges, and provisions governing the
handling of notices of nonpayment.
Except as required to conform it to Regulation CC,
Regulation J would
remain
unchanged.
It would continue to
govern the handling of items by Reserve
Banks
for
collection, including both cash and noncash items.
forward
Most of the
terms currently defined in Regulation J, such as "sender" and
"cash item," would continue to apply only to forward collection
of items through Reserve Banks.
is proposed
A new term,
"returned check"
to include all checks subject to Regulation CC
(including cash items and other
checks)
that are returned
through Federal Reserve Banks.
A new paragraph
has
been added
to § 210.7(b)
to
provide that when Reserve Banks present checks as defined in
§ 229.2
of
Regulation CC,
they
may
make
presentment
in
accordance with Regulation CC.
Section 210.2 has been revised to refer generally to
Regulation CC for the terms governing the handling of returned
checks.
Also included in § 210.12 are provisions governing the
handling of returned checks that parallel other provisions in
Regulation J.
These include the agreement of a bank sending a
returned check to a Federal Reserve Bank, provisions governing
tender
of
defense
of
warranty
claims,
and
authorizing direct sends of returned checks.
a
provision
Section 210.12(g)
provides that automatic charge agreements covering cash items
also will be used to settle for returned checks.
A -173
The Board
-174-
proposes to delete the provision of § 21CK12
notice of nonpayment
for
checks of
that requires
$2,500 or more0
Regulation J notice requirement currently covers only
The
those
checks collected through a Federal Reserve Bank0 As the Board
is proposing a similar notice requirement in Regulation CC that
would
cover all checks,
the Regulation J notice requirement
would be redundant.
At a later date, to avoid confusion between different
definitions of
terms
in Regulation J and
Regulation CC,
a
further revision of Regulation J may be desirable0
As the Regulation J amendments merely conform that
regulation to Regulation CC,
the same concerns that led the
Board not to exempt small entities from Regulation J justify
not incorporating similar exemptions for small entities into
Regulation J.
List of Subjects in 12 CFR Part 210 and 229
Banks, banking,* Federal Reserve System,,
For the reasons set out in the preamble, Title 12, Chapter II
of the Code of Federal Regulations is proposed to be amended as
follows o
lo
Part 229 is added to read as follows:
A -174
-175-
PART 229 - AVAILABILITY OF FUNDS AND COLLECTION OF CHECKS
Subpart A - General
229.1
Authority and purpose; organization.
229.2
Definitions.
229.3
Administrative enforcement.
Subpart B - Availability of Funds and Disclosure of Funds
Availability Policies
229 .10
Next day availability.
229 .11
Temporary availability schedule.
229 .12
Permanent availability schedule.
229 .13
Exceptions.
229 .14
Payment of interest.
229 ,15
.
General disclosure requirements.
229 ,16
.
Content of specific availability policy disclosure.
229,.17
Initial disclosures.
.
229 ,18
Additional disclosure requirements.
A -175
-176-
229.19
Miscellaneous.
229.20
Relation to state law.
229.21
Civil liability.
Subpart C - Collection of Checks
229.30
Paying bank's responsibility for return of checks.
229.31
Returning bank's responsibility for return of checks
229.32
Depositary bank's responsibility for returned checks
229.33
Notice of nonpayment.
229.34
Warranties by paying and returning banks.
229.35
Indorsements.
229.36
Presentment of checks.
229.37
Inquiry to paying bank.
229.38
Liability.
229.39
Insolvency of bank.
229.40
Relation to state law.
229 .41
Exclusions.
A -176
-177-
APPENDICES
Appendix
to Part 229 —
Routing Number Guide to Local Checks
Appendix B -1 to Part 229 —
Reduction of Schedules for Certain
Nonlocal Checks Under the Temporary
Schedule
Appendix B -2 to Part 229 -- Reduction of Schedules for Certain
Nonlocal Checks Under the Permanent
Schedule
Appendix C to Part 229 —
Model Disclosure Forms
Appendix D to Part 229 -- Indorsement Standards
Author itys
Title VI of Pub. L* 100-86, 101 Stat* 552, 635,
12 U.S.C. 4001 et seq.
A -177
-178-
Subpart A —
§ 229ol
General
Authority and purpose- organization.
(a) Authority and purpose»
This part (Regulation CC;
12 CFR Part 229) is issued by the Board of Governors of the
Federal Reserve System
("Board")
to implement the Expedited
Funds Availability Act ("Act"), which is contained in Title VI
of Public Law lQ0-86o
(b) Organization»
This part is divided into subparts
and appendices as followss
(1)
Subpart A contains general information*
It
sets forth -(i)
The
authority,
purpose,
and
organization;
(ii) Definition of terms; and
(iii)
Authority
for
administrative
enforcement of this part's provisions0
(2)
Subpart B of
this
part
contains
rules
regarding the duty of banks to make funds deposited
into accounts available for withdrawal,
temporary
and
permanent
availability
including both
schedules.
Subpart B of this part also contains rules regarding
exceptions
to
the
schedules,
disclosure of
availability policies, payment of interest,
funds
liability
of banks for failure to comply with Subpart B of this
part, and other matters*
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(3)
Subpart C of this part contains rules to
expedite the collection and return of checks by banks.
These rules cover
the direct return of checks, the
manner in which the paying bank and returning banks
must
return
checks
to
the
depositary
bank,
notification of nonpayment by the paying bank,
rules
regarding indorsements and presentment, the liability
of banks for failure to comply with Subpart C of this
part, and other matters*
§ 229e2
Definitions.,
As used
in this part,
unless the context requires
otherwise:
"Account"
means
a deposit
as defined
in 12 CFR
2 0 4 o2(a)(1 ) (i) that is a transaction account as described
CFR 204 e (e) o
2
in 12
"Account" generally includes accounts at a bank
from which the account holder is permitted to make transfers or
withdrawals by negotiable or transferable instrument, payment
order of withdrawal, telephone transfer, electronic payment, or
other
similar
means
for the purpose of making payments or
transfers to third persons or others, or from which the account
holder may make third party payments at an ATM, remote service
unit, or other electronic device,
the
term
described
does
not
in 12 CFR
include
including by debit card, but
savings
204o2(d)(2)
even
A “ 1 79
deposits
though
or accounts
such
accounts
-180 -
permit third party transfers0
An account may be in the form
of __
(1) A demand deposit account,
(2) A negotiable order of withdrawal account,
(3) A share draft account,
(4) An automatic transfer accounts or
(5) Any other transaction account described in 12
CFR 204 9 (e) that are not time or savings deposits
2
under 12 CFR Part 2040
"Account" does not include an account where the account holder
is a bank,
"Automated clearinghouse" or "ACH" means a facility
that
processes
debit
and
credit
transfers
under
rules
established by a Federal Reserve Bank operating circular on
automated clearinghouse items or under rules of an automated
clearinghouse association,,
"Automated
teller
machine"
or
"ATM"
means
an
electronic or mechanical device at which a natural person may
make deposits by cash or check to accounts and perform other
transactions e
"Available
for
withdrawal"
with
respect
to funds
deposited means available for any use generally permitted to
the depositor
for actually and finally collected funds under
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-181-
the bank’s account agreement or policies, such as for payment
of
checks
drawn
on
the
account,
electronic
payments,
withdrawals by cash, and transfers between accounts.
"Bank" means -(1)
An "insured bank" as defined in section 3 of
the Federal Deposit Insurance Act (12 UoS®C0 1813) or
a bank that is eligible to apply to become an insured
bank under section 5 of that Act (12 U®Ss
C« 1815) ;
(2)
A
"mutual
savings bank"
as
defined
section 3 of the Federal Deposit Insurance Act
in
(12
U.SoCc 1813);
(3)
A "savings bank" as defined in section 3 of
the Federal Deposit Insurance Act (12 U 0S 0
C® 1813);
(4)
An
"insured credit
union" as defined in
section 101 of the Federal Credit Union Act (12 U sS eC 0
1752)
or a credit union that is eligible to make
application to become an insured credit union under
section 201 of that Act (12 U„S0C. 1781);
(5)
A "member" as defined in section 2 of the
Federal Home Loan Bank Act (12 UoS„Co 1422);
(6)
An
section 401
1724)
"insured
institution"
defined
of the National Housing Act
or an institution
application
as
to become
that
(12 U.SoCo
is eligible
an insured
to make
institution under
section 403 of that Act (12 U®S®C0 1726); or
A -181
in
“1 8 2 “
A "branch" of a "foreign bank" as defined in
(7)
of
section 1(b)
U ©S © o 3101)
C
that
is located
the
international
Bank ing Act
(12
/
in the United
States©
Unless
otherwise
specified, the term ’bank" includes all of a bank's offices in
’
the United States.
"Banking day" means that part of any business day on
which an office of a bank is open to the public for carrying on
substantially all of its banking functions©
"Business day" means a calendar
day other
than
a
Saturday or a Sunday, January 1, the third Monday in January,
the third Monday in February, the last Monday in May, July 4,
the first Monday
in September,
the second Monday in October,
November 11, the fourth Thursday in November, or December 25„
If January 1, July 4, November 11, or December 25 fall on a
Sunday, the next Monday is not a business day©
"Cash" means United States coins and currency©
"Cashier's check" means a check that is -()
1
Drawn on a bank;
(2)
Signed by an officer or employee of the bank
on behalf of the bank as drawer ; and
(3)
A direct obligation of the bank0
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"Certified check" means a check with respect to which
the drawee bank certifies by signature
on the check
officer or other authorized employee of
the bank that--
(1)
(i) The signature of
of an
the drawer on the check
is genuine; and
(ii) The bank has set aside funds that —
(A)
Are equal to the amount of the
check, and
(B)
Will be used to pay the check ;
or
(2)
The bank will pay the check upon presentment„
"Check" means -(1)
A
negotiable
demand draft drawn
on or
payable through or at an office of a bank;
(2)
A negotiable demand draft drawn on
the
Treasury of the United States;
(3)
A negotiable demand draft drawn on a state
government;
(4)
A negotiable demand draft drawn on a Federal
Reserve Bank;
(5)
A negotiable demand draft drawn on a Federal
Home Loan Bank;
(6)
A United States Postal Service money order;
(7)
A traveler's checke
or
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The term "check" does not include a noncash item,
A draft may
be a "check" even though it is described on its face by another
term, such as "money order."
For purposes of Subpart C of this
part, the term "check" also includes a demand draft of the type
described above that is nonnegotiable»
"Check
arrangement
by
specified area®
clearinghouse
which
association"
participants
exchange
means
checks
any
in
a
The term "check clearinghouse association" may
include arrangements using the premises of a Federal Reserve
Bank , but
it does not include the handling of checks for
forward collection or return by a Federal Reserve Bank*
"Check processing region" means the geographical area
served by an office of a Federal Reserve Bank for purposes of
its check processing activities®
"Consumer account" means any account used primarily
for personal, family, or household purposes®
"Depositary bank" means the first bank to which a
check is transferred even though it is also the paying bank or
the payee®
For the purposes of Subpart C of this part,
the
term also includes a Federal Reserve Bank or a Federal Home
Loan Bank to which a check is transferred by a person other
than a bank®
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-185-
"Depository check" means a cashier's check, certified
check, or teller's check *
"Electronic payment" means a wire transfer or an ACH
credit transfer,
"Forward collection" means the process by which
a
depositary bank sends a check on a cash basis to the paying
bank for payment,
"Local check" means a check drawn on or payable
through or at a local paying bank,
on
A depositary bank may rely
the routing number that appears on a check in magnetic
characters to determine whether a check is a local check,.
Appendix A to this part lists the routing numbers that are
considered local to each check processing region,
"Local paying bank" means a paying bank to which a
check is sent for forward collection that is located in the
same check processing region as the branch or proprietary ATM
of the depositary bank in which that check was deposited,
"Noncash item" means an item that would otherwise be a
check, except that —
(1)
A passbook,
certificate, or other document
is attached?
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(2)
It is accompanied by special instructions,
such as a request for special advice of payment or
d ishonor ?
(3)
It consists of more than a single thickness
of paper, except a check that qualifies for handling
by automated check processing equipment; or
(4)
It has not been preprinted or post-encoded
in magnetic characters with the routing number of the
paying banke
"Nonlocal check" means a check payable by, through, or
at a nonlocal paying banke
"Nonlocal paying bank" means a paying bank that is not
a local paying bank with respect to the depositary banke
"Nonproprietary ATM"
means
an ATM that
is not a
proprietary ATMe
"Notice of nonpayment" means the notice of nonpayment
given as provided in § 229,33•
"Participant" means a bank that —
(1)
is located in the geographic area served by
a check clearinghouse association; and
A -186
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(2)
checks
Both
through
collects
and
receives
the check,.
clearinghouse
for
payment
association
either directly or through an intermediarye
"Paying bank" means -(1)
The bank by which a check is payable, unless
the check is payable at or through another bank and is
sent to the other bank for payment or collection*
(2)
payable
The bank at or
and
to which
it
through which a check is
is sent
for payment or
collection;
(3)
The bank whose routing number appears on a
check in magnetic characters or in fractional form and
to which the check is sent for payment or collection*
(4)
The Federal Reserve Bank or Federal
Home
Loan Bank by which a check is payable; or
(5)
The state on which a check is drawn,
"Proprietary ATM" means an ATM that is -(1)
Owned
or
operated
by,
or
operated
exclusively for, the depositary bank;
(2)
Located on
the
premises
(including
the
outside wall) of the depositary bank; or
(3)
Within
50
feet of
the premises
of
the
depositary bank.
An ATM is not considered to be proprietary to more than one
unaffiliated bank.
If the criteria provided in paragraphs (1)
A -187
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through
(3) of this definition are met by more than one bank
with respect to any ATM, the ATM will be proprietary to the
bank that satisfies the criterion stated in the lowest numbered
paragraph in this definition0
If more than one bank meets the
owned
of
or
operated
definition,
criterion
paragraph (1)
of
this
the ATM is considered proprietary to the bank that
operates ite
“Qualified
returned
check8 means
'
a check
that
is
prepared for handling by automated check processing equipment
for return to the depositary bank0
a
qualified returned check
must be encoded in magnetic ink with the routing number of the
depositary bank, the dollar amount of the check, and a return
identifier in the form of a 2 in position 44 of the American
National Standard Specifications for Placement and Location of
MICR Printing,
X9e
13
(Septo 8, 1983).
A qualified
returned
check need not contain other elements of a check drawn on the
depositary bank, such as the name of the depositary bank0
“Returning bank" means a bank
(other than the paying
or depositary bank but including a Federal Reserve Bank or
Federal Home Loan Bank) handling a returned check or notice in
lieu of return.
A -188
-189-
"Routing number" means -(1)
The number printed on the face of a check in
fractional
form
or
in
magnetic
characters
that
identifies a paying bank; or
(2)
The number
in a bank's
indorsement,
in
fractional or nine-digit form.
"Similarly situated
bank"
means
size, located in the same community,
a bank of similar
and with similar check
payments activities as the paying bank or returning bank.
"State"
means
a state,
the District of Columbia,
Puerto Rico, or the U.S. Virgin islands.
"Teller's check" means a cheek drawn by a bank on
another bank.
"Traveler's check" means an instrument for the payment
of money that -(1)
is designated
"traveler's check" or
on
its
face by the
term
by any substantially similar
term or is commonly known and marketed as a traveler's
check by a corporation or bank that is an issuer of
traveler's checks;
A- 1 8 9
-190-
(2)
whole
Is in the sum of ten dollars
multiple
dollars
thereof
if less
than
($10) or a
one
hundred
($100), or in the sum of one hundred dollars
($100) or a whole multiple thereof;
(3)
provides for a specimen signature of the
purchaser to be completed at the time of purchase; and
(4)
provides
for
a countersignature of
the
purchaser to be completed at the time of negotiations
"Uniform Commercial Code,"
the Uniform Commercial
Code as
"Code," or "UoCoCo" means
adopted
in a state0
For
purposes of uniform citation, all citations to the UoC®Co in
this part will refer to the official Text as approved from time
to
time
by
the American
Law
institute
and
the National
Conference of Commissioners on Uniform State Laws•
"United
States"
means
the
states,
including
the
District of Columbia, the UoSe Virgin Islands, and Puerto Rico0
"Unit of general local government" means any city,
county,
parish,
town,
township,
village,
purpose political subdivision of a state0
or other
The term does not
include special purpose units of government,
districts or water districts•
A- 1 9 0
general
such as school
-191-
"Wire transfer" means an order to a bank transmitted
by electronic or other means to pay a fixed or determinable
amount of money to a beneficiary if the bank receiving the
order is unconditionally permitted to pay the beneficiary upon
receipt or on a day stated in the orderc
Unless
the context requires otherwise, the terms not
defined in this section have the meanings set forth
in the
U.CoC.
§ 229e3
Administrative enforcement,,
(a)
Enforcement agenciese
Compliance with this part
is enforced under -(1)
Section 8 of the Federal Deposit Insurance
Act (12 U.S»C. 1818) in the case of -(i)
National banks by the Comptroller of
the Currency;
(ii)
Member banks of the Federal Reserve
System (other than national banks) by the Board;
and
(iii)
Banks insured by the Federal Deposit
Insurance Corporation (other than members of the
Federal Reserve System) by the Board of Directors
of the Federal Deposit insurance Corporation;
(2)
Section 5(d) of the Home Owners Loan Act of
1933 (12 U.S.C. 1464(d)), section 407 of the National
A -191
^192-
Housing Act (12 U 9S sC* 1730) , and section 17 of the
Federal Home Loan Bank Act (12 IKS.Co 1437), by the
Federal Home Loan Bank Board
through
the
Federal
Savings
(acting directly or
and
Loan
Insurance
Corporation) in the case of any institution subject to
those provisions; and
(3)
The Federal Credit Union Act (12 UoSoC 1751
et seqe) by the National Credit Union Administration
Board with respect to any federal credit union or
insured credit union*
(b)
Additional powers*
(1)
For
the purposes of the exercise by any
agency referred to in paragraph (a) of this section of
its powers
paragraph,
under
under
any
statute
a violation of
this Act
referred to in that
any requirement
imposed
is deemed to be a violation of a
requirement imposed under that statute*
(2)
provision
In
addition
of
law
to
its
specifically
powers
under
referred
to
any
in
paragraph (a) of this section, each of the agencies
referred
to in that paragraph
may
exercise,
for
purposes of enforcing compliance with any requirement
imposed under this part, any other authority conferred
on it by law*
(c)
Enforcement by the Board*
(1)
Except to the extent that enforcement of the
requirements imposed under this part is specifically
A-1 9 2
■ =193 ”
committed to some other government agency, the Board
shall enforce such requirements®
(2) If the Board determines that
(i) Any bank that is not a bank described in
paragraph (a) of this section, or
(ii)
Any
other
person
subject
to
the
authority of the Board under the Act and this
par t,
has failed to comply with any requirement imposed by
this part, the Board may issue an order prohibiting
any bank,
any Federal
Reserve Bank, or any other
person subject to the authority of the Board
from
engaging in any activity or transaction that directly
or
indirectly
person
involves
(including
involving
the
such
noncomplying
bank
any
activity
or
receipt,
payment,
collection,
or
transaction
and
clearing of checks and any related function of the
payment system with respect to checks)e
Sebpart B —
Availability of Funds and Disclosure of Fends
Availability Policies
§ 229©I©
day availability®
(a)
cash deposits® A bank shall make funds deposited
in an account by cash available for withdrawal not later than
A ”19 3
-194-
the business day after the banking day on which the cash is
deposited.
(b)
Electronic payments, -(1)
In
general
A
bank
shall
make
funds
received for deposit in an account by an electronic
payment available for withdrawal not later than the
business day after the banking day on which the bank
received the funds.
(2)
When an electronic payment is receivede
An
electronic payment is received when, and to the extent
that,
the bank receiving
the payment has
received
payment in actually and finally collected funds for
the electronic payment®
(c)
Government
checks,
depository
checks,
checks
drawn on the depositary bank, and certain other checks®
(1)
A depositary bank shall make funds deposited
in an account by check available for withdrawal not
later than the business day after the banking day on
which the funds are deposited, in the case of —
(i)
A check drawn on the Treasury of the
United States and deposited in an account held by
a payee of the check;
(ii)
A U •S o Postal
Service money order
deposited in an account held by a payee of the
money order;
A -194
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(iii)
A check drawn on a Federal Reserve
Bank or Federal Home Loan Bank and deposited
in
an account held by a payee of the cheeky
(iv)
A check drawn by a state or a unit of
general local government and deposited -(A) In an account held by a payee of
the check y
(B) In a depositary bank located in the
state
that issued
state
as
the
the check, or the same
unit
of
general
local
government that issued the cheeky and
(C) With a
such
special deposit
slips are required by the
slip,
if
depositary
bank under paragraph (c)(2) of this sectiony
(v)
A depository check deposited -(A) In an account held by a payee of
the cheeky and
(B) With a
such
special deposit
slips are required by the
slip,
if
depositary
bank under paragraph (c)(2) of this sectiony
(vi)
A check deposited in a branch of the
depositary bank and drawn on the same or another
branch
located
of
the same bank
in the same
state or
processing regiony and,
A -195
if both branches are
the same check
-196-
(vii)
The lesser of $100 or the aggregate
deposited on any one banking day by check or
checks
other
than
checks
subject
to
paragraph (c)(1) (i) through (vi) of this sect.ione
( )
2
Special deposit slip6
(i)
As a condition
to making
available for withdrawal on
the funds
the next business
day, a depositary bank may require that a state
or local government check or a depository check
be deposited with a special deposit slip that
identifies the type of check0
(ii)
If a depositary bank requires the use
of a special deposit slip, the bank must either
provide
the
special
deposit
slips
to
its
customers or inform its customers how the slips
may be prepared or obtained and make the slips
reasonably ava.ilablee
§ 2 2 9 oil
Temporary availability schedule0
(a)
schedule
Effective
contained
in
dates
this
The
section
temporary
is
availability
effective
September 1, 1988, through August 31, 199Q0
from
For the permanent
availability schedule, which is effective September 1, 1990,
see § 229 e12 ®
(b)
Local checkso
(1)
in generalo
A depositary bank shall make
funds deposited in an account by a check available for
A -196
-197-
withdrawal not later than the third business day following the
banking day on which funds are deposited, in the case of
(i
)
A local check;
(ii)
A check drawn on the Treasury of the
United States that is not subject to next day
availability under § 229*10 (c); and
(iii)
that
A U.S, Postal
is not subject
Service money order
to next day availability
under § 229 *10 (c)*
(2)
Time period
cash or similar means*
adjustment for withdrawal by
A depositary bank may extend
by one business day the time that funds deposited in
an account by
a
local
check
are
available
for
withdrawal by cash or similar means unless the check
is drawn on a paying bank that is a participant in the
same check clearinghouse association as the depositary
bank*
Similar
means
include
electronic
payment,
issuance of a depository check, or other irrevocable
commitment to pay, but do not include the granting of
provisional credit to a bank, Federal Reserve Bank, or
Federal Home Loan Bank that presents a check
depositary bank
for
payment*
The depositary
to the
bank
shall, however, make $400 of these funds available for
withdrawal by cash or similar means not later than
5z00 p*me on the business day on which the funds are
available
under
paragraph (b)(1)
A -197
of
this section*
"198"
This $400 is in addition to the $100 available under
§ 229 .10 (c)(1) (vii) „
(o)
Nonlocal checks .
(1)
A depositary bank shall make funds deposited
in an account by a nonlocal
withdrawal
check
available
for
not later than the seventh business day
following the banking day on which funds are deposited.
(2)
Nonlocal checks specified in Appendix B-l to
this part must be made available for withdrawal not
later than the times prescribed in that Appendix0
(d)
bank
shall
Deposits at nonproprietary ATMs.
make
funds
deposited
in
an
A depositary
account
at
a
nonproprietary ATM by cash or check available for withdrawal
not later than the seventh business day following the banking
day on which the funds are deposited»
(e)
Extension of schedule for certain deposits in
Alaska, Hawaii, Puerto Rico, and the U sS e Virgin islands.
The
depositary bank may extend the time periods set forth in this
section by one business day in the case of any deposit that
is —
(1)
Deposited in an account at a branch of a
depositary bank
located
in Alaska,
Hawaii,
Puerto
Rico, or the UoS„ virgin islands,” and
(2)
Deposited by a check drawn on or payable at
or through a paying bank not located in the same state
as the depositary banko
A -198
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| 229*12
Permanent availability schedule*
(a)
Effective
date*
The
permanent
availability
schedule contained in this section is effective September 1,
1990*
(b)
Local checks*
A depositary bank shall make funds
deposited in an account by a check available for withdrawal not
later than the second business day following the banking day on
which funds are deposited, in the case of —
(1)
A local check;
(2)
A check drawn on the Treasury of the United
States that is not subject to next day availability
under § 229*10(c); and
(3)
A UoS. Postal Service money order
that is
not subject to next day availability under § 229o
l0(c)o
(c)
Nonlocal checks„
(1)
in an
A depositary bank shall make funds deposited
account by a nonlocal
withdrawal
not
later
than
check
the
fifth
available
business
for
day
following the banking day on which funds are deposited*
(2)
Nonlocal checks specified in Appendix B-2 to
this part must be made available for withdrawal not
later than the times prescribed in that Appendix*
(d)
Time period adjustment for withdrawal by cash or
similar means.
A depositary bank may extend by one business
day the time that funds deposited in an account are available
for withdrawal by cash or similar means.
A -19 9
Similar means include
-200-
electrontc payment,
depository
commitment
but
to
pay,
do
check,
not
provisional credit to a bank,
or other
include
irrevocable
the granting
a Federal Reserve Bank,
of
or a
Federal Home Loan Bank that presents a check to the depositary
bank for payments
A depositary bank shall, however,
make $400
of these funds available for withdrawal not later than 5:00
p.m. on the business day on which the funds are available under
paragraphs (b)
and
(c) of
this
section*
This $400 is in
addition to the $100 available under § 229.10(c)(1)(vii).
(e)
Deposits
at
nonproprietary
ATMs.
The
requirements of §§ 229.10 and 229.12 apply to deposits made at
nonproprietary ATMs, except that the depositary bank shall make
funds deposited in an account at a nonproprietary ATM by cash
or by a check described in § 229.10(c) available for withdrawal
not later than the second business day following the banking
day on which the deposit is made.
(f)
Extension of schedule for certain deposits
Alaska, Hawaii, Puerto Rico, and the U.S. Virgin Islands.
in
The
depositary bank may extend the time periods set forth in this
section by one business day in the case of any deposit, other
than a deposit described in § 229.10, that is —
(1)
Deposited
depositary bank
in an account at a branch of a
located
in Alaska,
Rico, or the U.S. virgin islands; and
A -200
Hawaii,
Puerto
20 1 -
(2)
Deposited by check drawn on or payable at or
through a paying bank not located in the same state as
the depositary bank.
§ 229.13
Exceptions.
(a)
New accounts.
(1)
A deposit in a new account —
(i
)
Is subject
§ 229.10(a)
and
to
the
requirements
(b) to make funds from deposits
by cash and electronic payments
withdrawal on
in
available
the business .day following
for
the
banking day of deposit?
(ii)
Is subject
to the requirements of
§ 229.10 (c) (1) (i through
)
(v) only with respect
to the first $5,000 of funds deposited on any one
banking day? but the amount of the deposit in
excess
of
$5,000
shall
be
available
for
withdrawal not later than the ninth business day
following
the banking
day on which funds are
deposited; and
(iii)
is not subject to the availability
requirements of §§ 229.10 (c)(1)(vi) and
(vii),
229.11, and 229.12.
For
purposes of
this paragraph,
depository checks
subject to § 229.10(c)(1)(v) include traveler's checks.
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=202“
(2)
An account
is considered
a new account
during the first 30 calendar days after the account is
establishedo
account
days
An account
is not considered
a new
if the customer has had, within 30 calendar
before
the
account
is
established,
another
account at the depositary bank for at least 30 days*
(b)
Large deposits0
Sections 229cll and 229*12 do
not apply to the aggregate amount of deposits by one or more
checks that is in excess of $5,000 on any one banking day*
For
customers that have multiple accounts at a depositary bank, the
bank may apply this exception to the aggregate deposits to all
accounts of the customer if all of the holders of each account
are the same*
A depositary bank may not aggregate the deposits
in an individual and a joint account for the purpose of this
exception *
(c)
Redeposited checks,
Sections 229*11 and 229*12
do not apply to a check that has been returned unpaid and
redeposited
by
the customer
or
the depositary bank*
This
exception does not apply -(1)
To a check that has been returned due to a
missing indorsement and redeposited after the missing
indorsement has
been obtained,
if the reason
for
return stamp on the check states that it was returned
due to a missing indorsement; or
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“203-
(2)
To a check that has been returned because it
was postdated,
if the check
is no longer postdated
when redeposited0
(d)
Repeated
overdrafts.
If
any
account
or
combination of accounts of a depositary bank's customer has
been repeatedly overdrawn,
then for a period of six months
after the last such instance, §§ 229.11 and 229.12 do not apply
to
any
of
the
accounts.
"repeatedly overdrawn"
An
account may be considered
if there
have
been
three
or
more
instances within a given six-month period in which the balance
of the account has gone, or would have gone if checks or other
charges to the account had been paid, from positive
(or zero)
to negative.
Periods of up to three consecutive banking
days
during
an account is negative due to overdrafts,
or
which
during which additional checks or other charges to the account
are returned
or
instance.
separate instance occurs
A
rejected,
are considered part of the same
if an account has
a
negative balance for more than three consecutive banking days
or if charges or checks are rejected or returned over a period
of longer than three consecutive banking days.
(e)
Reasonable cause to doubt collectibility.
(1)
In general.
Sections 229.10(c)(1)(iii) and
(v), 229.11, and 229.12 do not apply with respect to
any check deposited in an account at a depositary bank
if the bank has reasonable cause to believe that the
check
is
uncollectible
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from
the
paying
bank.
=204-
Reasonable cause to believe a check
requires
the existence of facts that would cause a
well-grounded
person o
that
belief
in the mind of a reasonable
Such belief shall not be based on the fact
the check
deposited
reason
is uncollectible
is of a particular
by a particular
for
the bank's
class
belief
class
or
is
of persons•
that
the
The
check
is
uncollectible shall be included in the notice required
under paragraph (g) of this section*
(2)
Overdraft fees 0
not assess
any
fee
for
any
The depositary bank shall
subsequent
overdraft
(including the use of a line of credit) or return of a
check or other unpaid charge, if -(i)
The depositary bank has extended
the
period between the time when funds are deposited
in an account by check and when those funds are
made available for withdrawal
beyond
the
time
periods provided in §§ 229 ,10 (c) (1) (iii) and (v),
229*11, and 229012 based on the bank's
belief
that the check is uncollectible;
(i)
.i
The depositor was not provided with
the written notice required under paragraph (g)
of
this
section
with
respect
to
such
determination at the time the deposit was made;
(iii)
The overdraft or return of the check
or other unpaid charge would not have occurred
A -204
-
205
”
except for the fact that the funds so deposited
were not available but would have been available
if the exception were not invoked? and
(iv)
The
check
was
finally paid by the
paying bank,
(f)
Emergency conditions.
Sections 229.11 and 229.12
do not apply to funds deposited by check in a depositary bank
in the case of -(1)
An
interruption
of
communications
or
computer or other equipment facilities;
(2)
A suspension of payments by another bank;
( )
3
A war ; or
(4)
An emergency condition beyond the control of
the depositary bank,
if
the depositary
bank
exercises
such
diligence
as
the
circumstances require.
(g)
Notice of exception.
(1)
In general.
If a depositary bank extends
the times for availability beyond those provided
in
§§ 229.10 (c) (1) (i
.ii) and (v), 229.11, or 229.12, based
on
the application of an
paragraphs (b)
through
(f)
exception
of
this
contained
section,
in
the
depositary bank shall provide notice to the customer
of ”=
(i) The reason the exception was invoked; and
A ” 205
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(ii) The day the funds will be available for
withdrawal*
exception
unless
the
emergency
conditions
in paragraph (f) of this section has
been invoked and the depositary
bank
in good
faith does not know* at the time notice must be
provided*
the duration
consequently*
of
the emergency
and*
when the funds will be available
for withdrawalo
(2)
Timing
of not ice „
The notice
shall
provided as follows -(i)
In the case of a deposit made in person
to an employee
depositary
of
bank
the
depositary
shall
provide
bank*
the
the notice
in
writing to the depositor at the time of deposit„
(ii)
In the case of any other deposit* or
if the facts upon which the determination of the
applicability
of
an
exception
paragraphs (b) through
contained
in
( ) of this section to any
f
deposit only become known to the depositary bank
after
the
time
notice
paragraph (g) (2) (i)
of
is
required
this
depositary bank shall mail
under
section*
the
the notice
to
the
depositor
as soon as practicable* but not later
than
first
the
calendar
day
depositary
business
the
bank*
day
facts become
or
A-206
the
following
known
deposit
is
the
to the
made*
be
-207 -
whichever
is
later,
paragraph (g)(2)(iii)
depositary bank
this
to
section*
The
is deemed to have knowledge of
the facts upon which
when
of
subject
the determination
is made
the facts are brought to the attention of
the person(s)
in the depositary bank responsible
for making the determination, and, in any event,
from the time when the facts would
brought
to
their
attention
have
if the bank
been
had
exercised due diligence.
(iii)
If
the
availability of
funds
delayed under the emergency conditions exception
provided
in paragraph
(f) of this section,
the
depositary bank is not required to provide notice
if
the funds
subject
to the exception become
available for withdrawal before the notice must
be
sent
under
paragraph (g) (2) (ii) of
this
section <
>
(3)
Record retention.
retain a record,
A depositary bank shall
in accordance with § 229.21(g), of
each notice provided pursuant to its application of
the reasonable cause exception under paragraph (e) of
this sectiono
(h)
Availability of deposits subject to exceptions.
(1)
through
If an exception contained in paragraphs (b)
( ) of this section applies, not more than
e
A-207
is
-208-
four business days shall be added to any time period
established under §§ 229*11 and 229*12*
(2)
If a depositary bank
invokes an exception
contained in this section with respect to a check that
is
subject
to
§ 229 *10 (c) (1} (i)
through
(v) , the
depositary bank shall make the funds available
for
withdrawal not later than four business days after the
day the funds would have become available
had
the
check been subject to §§ 229.11 or 229*12.
(3)
of
If the exception contained in paragraph (f)
this section applies,
the depositary bank shall
make the funds available for withdrawal not more than
four business days after the emergency has ceased or
the
period
established
in
§§ 229.11
and
229.12,
whichever is later*
|
229 ol4
Payment of interest*
(a)
accrue
In general*
interest
or
dividends
on
interest-bearing account not later
A depositary bank shall begin to
funds
deposited
in
an
than the business day on
which the depositary bank receives provisional credit for the
funds, except as provided in paragraphs (b) and
section.
(c) of this
For the purposes of this section, the depositary bank
may rely on the availability schedule of its Federal Reserve
Bank,
Federal
Home
Loan
Bank,
or
correspondent
bank
to
determine the time provisional credit is actually received.
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(b)
Special rule for credit unIons.
Paragraph (a) of
this section does not apply to any account at a credit union
described in section 19(b)(1)(A)(vi) of the Federal Reserve Act
(12 U «S„C. 4 61(b)(1) (A)(vi)), if the credit union -(1)
at
a
Begins the accrual of interest or dividends
later
date
than
the
date
paragraph (a) of this section
described
with
respect
in
to all
funds# including cash# deposited in the account? and
(2)
payment
Provides notice of its interest or dividend
policy
in
the
manner
required
under
§ 229*18 (f)*
(c)
Exception
for
checks
returned
unpaid*
This
subpart does not require a bank to pay interest or dividends on
funds deposited by a check that is returned unpaid*
§ 229,15
General disclosure requirements®
(a)
Form of disclosures®
A bank shall make the
disclosures required by this subpart clearly and conspicuously
in writing.
Disclosures# other than those posted at branches
and ATMs and printed on deposit slips# must be in a form that
the customer may keep.
(1)
and
The disclosures shall be grouped together
shall not contain any information not directly
related to the disclosures required by this subpart.
(2)
The disclosures#
if contained in a document
that sets forth other account terms and conditions#
A-209
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shall
be highlighted
within
the document
by,
for
example, use of a separate heading,,
(b)
Uniform reference to day of ava i.labil 1ty.
In its
disclosure, a bank shall describe funds as being available "on
the _____
business day after" the day of deposit,,
calculation,
the
first business
day
is
the
in this
business
day
following the banking day the deposit was received, and the
last business day is the day on which
the funds
are made
available.
(c)
Multiple accounts and multiple account-holders.
A bank need not give multiple disclosures to a customer that
holds multiple accounts if the accounts are subject to the same
availability
policies„
Similarly,
a bank
need
not
give
separate disclosures to each customer on a jointly held account
if the bank gives the disclosures to one of the primary account
holders 0
(d)
Dormant or
inactive accounts,
A bank need not
give availability disclosures to holders of dormant or inactive
accounts.
§ 229*16
Content of specific availability policy disclosure,
(a)
Specific availability policy disclosure, To meet
,
the requirements of a specific availability policy disclosure
under
§§ 229,17
and
229,l8(d),
a bank
shall
disclosure describing when funds deposited
A-210
provide
a
in an account are
un
available for withdrawal*
Unless the bank has a case-by-case
hold policy as discussed in paragraph (b) of this section,
bank must enable the customer
particular
deposit
will
be
the
to determine when funds for a
available
by
disclosing
the
following, as applicable;
(1)
A summary of the bank's general availability
policy•
(2) A description of the categories of deposits
used by the bank when it delays availability (such as
local and nonlocal checks) , and how to determine the
category of a particular deposit;
(3) A description
corresponding
of
the availability
period
to each of the categories of deposits,
including a description of the bank's business days
and when a deposit is considered received; and
(4) A description of any exceptions to the bank's
availability
schedules,
including any special rules
that may apply to deposits
ATMs,
made at nonproprietary
to certain types of deposits or accounts
(such
as new accounts), and to cash withdrawals,,
(b)
Alternative
disclosure
for
banks
that
have
case-by°case hold policies,
(1)
for
If a bank generally makes funds available
withdrawal
by
the business
day
following
the
banking day funds are deposited, the bank may give the
A-211
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following
disclosures
to
meet
the
disclosure
requirements under §§ 229„17 and 229018 (d);
(i)
A
summary
of
the
bank's
general
availability policy,*
(ii)
cases
A statement that the bank may in some
delay
the
time
funds are available for
withdrawal and the maximum delay
that may be
imposed;
(iii)
forth
A description of the exceptions set
in § 229d3
that
the bank reserves
the
right to invoke, if any, and the maximum delay
that may be imposed under the exceptions; and
(iv)
A statement that the bank will notify
the customer if funds deposited in the customer's
account will not be available for withdrawal on
the business day following the banking day of
deposit o
(2)
A
bank
that
provides
the
disclosures
required by paragraph (b) of this section instead of
paragraph ( )
a
of
this
section,
shall also provide
customers with a notice at the time a deposit subject
to a delay under paragraph (b) (1) (ii) of this section
is madeo
The notice shall state that availability of
the deposit is being delayed and indicate the day the
funds will be available
A-212
for
withdrawal.
If
the
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deposit was not made in person to an employee of the
depositary bank,
customer,
the notice may be mailed
to
the
provided the notice is sent on the banking
day the deposit is made.
if the decision to delay a
deposit made in person to a bank employee
is made
after the time of deposit, a delay may be imposed only
if --
(i
.)
The customer was told at the time of
the deposit that the particular deposit may be
subject to a delay; and
(ii)
The bank
notifies
the customer
by
close of business on the day of the deposit that
a delay has been
imposed and of the day funds
will be available for withdrawal.
§ 229 e17
>
Initial disclosures.
(a)
account,
Disclosure to new accountse
Before opening an
a bank shall provide a potential customer with the
applicable specific availability policy disclosure described in
§ 22 9 .16 o
(b)
Disclosure to existing accounts.
(1) in the first regularly scheduled mailing to
customers after September 1, 1988, but not later than
October 31,
1988,
a bank
shall
send
to existing
customers the applicable specific availability policy
disclosure described in § 229.16, unless the bank has
A-213
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previously
given
disclosures
that
meet
the
requirements of that section*
(2)
If
the
disclosure
paragraph (b) (1) of this section
required
by
is included with a
disclosure of other account terms and conditions,
bank
must direct
the customer's
attention
availability disclosures by, for example,
the
to the
the use of
an insert or a letter*
(3) The disclosure required by paragraph
(b)(1)
of this section may not be included in a mailing of
promotional material, such as a solicitation for a new
product or service, unless the mailing also includes
the customer's account statement*
§ 229*18
Additional disclosure requirements*
(a)
availability
Notice on deposit slips*
on
deposits
shall
slips provided
that delays
include on all preprinted
deposit slips furnished to its customers
deposit
A bank
to customers
(other than special
under
§ 229*10(c)), a
notice that deposited checks may not be available for immediate
withdrawal.
(b)
Notice at branch locations*
A bank shall post in
a conspicuous place at each branch location where its employees
receive deposits to consumer accounts a notice that sets forth
the time
periods
applicable
to
the availability of
deposited in a consumer account*
A - 214
funds
-215-
(c )
Notice at or on ATMs,
,
(1) The owner or operator of one or more ATMs
shall post or provide a notice at each ATM location
that funds deposited in the ATM may not be available
for immediate withdrawal,
(2) If an ATM is considered nonproprietary as to
certain customers making deposits at the ATM, the bank
to which the ATM is proprietary shall be identified at
or on the ATM, and a notice posted or provided that
funds may not be available until the seventh business
day after deposit.
(d)
upon
oral
Disclosure upon request,
or
written
request,
a
A bank shall provide,
notice
containing
the
applicable specific availability policy disclosure described in
§ 229.16.
(e)
Changes in policy.
A bank shall send a notice to
customers at least 30 days before implementing a change to the
bank's availability policy, except that a change that expedites
the availability of funds shall be disclosed not later than 30
days after implementation,,
(f)
Notice of interest payment policy.
If a credit
union begins to accrue interest or dividends on all deposits
made in an interest-bearing account,
at a later
including cash deposits,
time than the day specified
in § 229.14(a),
any
notice required to be provided under §§ 229.17 or 229.18(d)
A - 215
-216-
shall contain an explanation of when the credit union begins to
accrue interest or dividends on the funds.
§ 229.19
Miscellaneous.
(a)
When deposits
are considered made.
For
the
purposes of this part-(1)
A deposit mailed to the depositary bank is
considered made when it is received by the depositary
bank? and
(2)
A deposit is considered made on the next
banking day, in the case of a deposit that is made -(i)
On a day that is not a banking day for
the depositary bank? or
(ii)
After
a cut-off hour
set
by
the
depositary bank for the receipt of deposits of
2 s00 p.m. or later.
Different cut-off hours may
be established for receipt of different types of
deposits, or receipt of deposits
at different
locations.
(b)
Availability at start of business day.
Except as
otherwise provided in §§ 229.11 (b) (2) and 229.12 (d), if any
provision of this subpart requires that funds be made available
for
withdrawal
on
any business day,
the
funds shall be
available for withdrawal by the later of —
(1)
7 1 00 a.m. (local time)? or
A-216
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(2)
facilities
The
time
the
depositary
bank's
teller
(including ATMs) are available for customer
account withdrawals .
(c)
Effect on policies of depositary bank.
does not —
(1)
Prohibit a depositary bank from making funds
available to a customer for withdrawal
in a shorter
period of time than the time required by this part;
(2)
Affect a depositary bank's right -(i)
To accept or reject a check for deposit;
(ii)
To revoke any provisional settlement
made by the depositary bank with respect to a
check accepted by the bank for deposit; to charge
back the depositor’ account for the amount of a
s
check based on the return of the check or receipt
of a notice of nonpayment of the check; or to
claim a refund of such provisional credit; and
(iii)
To charge back funds made available
to its customer
for an electronic payment
for
which
has not received payment
in
the
bank
actually and finally collected funds;
(3)
otherwise
Require
to make
a depositary
its
bank
facilities
to open or
available
for
customer transactions on a given business day; or
(4)
Supersede any policy of a depositary bank
that limits the amount of cash a customer may withdraw
A -217
This part
-218-
from its account at an ATM or a staffed teller station
on any one day, if that policy —
(i)
Is applied without
discrimination
to
all customers of the bank;
(ii)
Is not dependent on the time the funds
have been deposited
in the account, as long as
the funds have been on deposit
for
the
time
period specified in §§ 229,10, 229.11, or 229.12;
and
(iii)
Is related to security requirements
or bonding limitations of the depositary bank.
(d)
Use of calculated availability.
A depositary
bank may provide availability to, and begin to accrue interest
on, its non-consumer accounts based on a sample of checks that
represents the average composition of the customer's deposits,
provided that the terms for availability or interest payment
based on the sample are equivalent to or more prompt than the
availability and interest payment requirements of this part.
(e)
accounts.
Limitation on placing holds on certain funds in
A depositary bank that receives a check for deposit
in an account or purchases a check for cash, other than a check
drawn on that bank and presented over the counter for payment
in cash, may place a hold on any funds of the customer at the
bank, if -(1)
The amount of funds that are held do not
exceed the amount of the check, and
A-218
-219-
(2)
The funds are made available for withdrawal
within the times specified in §§ 229.10, 229.11, and
229.12 .
(f)
Employee training and compliance.
(1)
detailing
Each
bank
shall
the requirements
provide
a
statement
of this subpart to all
employees who perform duties that relate to the bank's
compliance with the requirements of this subpart.
(2)
Each
bank
shall establish
procedures
to
ensure that the bank complies with the requirements of
this subpart,
and shall
provide each
employee
who
performs duties subject to the requirements of this
subpart with a statement of the procedures applicable
to that employee.
(3)
shall
Not less than once each year,
conduct an
each
bank
internal review to determine its
employees 8 compliance with the procedures established
in paragraph (f)(2) of this section.
§ 229.20
Relation to state law.
(a)
In general.
Any law or regulation of any state
in effect on or before September 1, 1989, that requires funds
deposited in an account at a bank chartered by the state to be
made available for withdrawal in a shorter time than the time
provided in Subparts A and B of this part shall --
A-219
- 2 2 0 -
(1)
supersede
the provisions
of
the Act and
Subparts A and B to the extent the provisions relate
to the time by which funds deposited or received for
deposit in an account are available for withdrawal; and
(2)
Apply to all federally insured banks located
within the state.
No amendment
to a state
law or
regulation
governing
the
availability of funds that becomes effective after September 1,
1989, shall supersede the Act and Subparts A and B of this
part,
but unamended provisions of state law shall remain in
effect.
(b)
provided
Preemption
in paragraph (a)
of
inconsistent
of
this
Subparts A and B of this part
law.
section,
Except
the
Act
as
and
supersede any provision of
inconsistent state law.
(c)
Preemptidn
determinations.
determine,
upon the request of any state,
interested
party,
whether
The
Board
bank,
shall
or other
the Act and this subpart preempt
state laws relating to the availability of funds.
(d)
Standards for preemption.
A state law in effect
on or before September 1, 1989, is not inconsistent with the
Act and this part if it requires that funds shall be available
in a shorter period of time than the time provided
subpart.
in this
inconsistency with the Act may exist when state law —
(1)
Provides that funds deposited in an account
by cash, electronic payment, or a particular category
A-220
-2 2 1 "
of check may be available for withdrawal in a longer
period of time than provided in this subpart; or
(2)
deposited
Provides an exception
in
an
account
must
to the
be
time
available
funds
for
withdrawal for the same general class of deposit or
that addresses the same type of risk as an exception
provided in this subpart, but the time allowed for the
exception, or the exception itself, is different from
the exception provided in this subparto
(e)
Procedures
for preemption determinations.
request for a determination shall include the following -(1)
question,
A copy of the full text of the state law in
including any implementing
regulations
or
judicial interpretations of that law; and
(2)
with
A comparison of the provisions of state law
the corresponding
Subparts A and B of
provisions
this part,
in the Act and
together
with
a
discussion of the reasons why specific provisions of
state law are either consistent or inconsistent with
corresponding sections of the Act and Subparts A and B
of this parto
§ 229 02l
Civil liability,
(a)
Civil liability.
Any depositary bank that fails
to comply with any requirement imposed under this subpart or
any provision of state law that supersedes any provision of
A-221
Any
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this
subpart with respect to any person
is liable to that
person in an amount equal to the sum of -(1)
Any actual damage sustained by that person
as a result of the failure;
(2)
Such
additional
amount
as the court may
allow, except that -(i)
In the case of an individual action,
liability under this paragraph
shall not be less
than $100 nor greater than $1,000; and
(ii)
In the case of a class action
(A
)
No
minimum
recovery
shall
be
applicable to each member of the class; and
(B)
The
total
recovery
under
this
paragraph in any class action or series of
class
actions
arising
out
of
the
same
failure to comply by the same depositary
bank shall not be more than the lesser of
$500,000 or 1 percent of the net worth of
the depositary bank involved; and,
(3)
enforce
In the case of a successful
the
foregoing
liability,
action
to
the costs of the
action, together with a reasonable attorney's fee as
determined by the court.
(b)
Class action awards.
In determining the amount
of any award in any class action, the court shall consider,
among other relevant factors --
A-222
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(1)
The amount of any damages awarded;
(2)
The frequency and persistence of failures of
compliance;
(3)
The resources of the depositary bank;
(4)
The number of persons adversely affected; and
(5)
The
extent
to
which
the
failure
of
compliance was intentional.
(c)
Bona fide errors.
(1)
General
rule.
A depositary bank is not
liable in any action brought under this section for a
violation
of this
subpart
if the depositary bank
demonstrates by a preponderance of the evidence that
the violation was not intentional and resulted from a
bona fide error, notwithstanding the maintenance of
procedures reasonably adapted to avoid any such error.
(2)
include
Examples.
clerical,
Examples of a bona fide error
calculation,
computer
malfunction
and programming, and printing errors, except that an
error of legal judgment with respect to the depositary
bank's obligation under
this subpart
is not a bona
fide error .
(d)
Jur isdiction .
Any action under this section may
be br ought in any United States district court, or in any other
cour t of competent jurisdiction, within one year after the date
of th e occurrence of the violation involved.
A-223
-224-
(e)
Reliance on Board rulings.
No provision of this
subpart imposing any liability shall apply to any act done or
omitted in good faith in conformity with any rule* regulation*
or interpretation thereof by the Board* regardless of whether
such rule, regulation* or interpretation is amended* rescinded*
or determined by judicial or other authority to be invalid for
any reason after the act or omission has occurred.
(f)
Exclusions.
This section does not apply
to
claims that arise under Subpart C or to actions for wrongful
dishonor e
(g)
Record retention.
(1)
A bank shall retain evidence of compliance
with the requirements imposed by this subpart for not
less than two years.
Records may be stored by use of
microfiche,
microfilm*
capable
accurately
of
magnetic*
retaining
or
and
other
methods
reproducing
information.
(2)
If a bank has actual notice that it is being
investigated,
or
is
subject
to
an
enforcement
proceeding by an agency charged with monitoring that
bank's compliance with the Act and this subpart, or
has been served with notice of an action filed under
tbis section, it shall retain the records pertaining
to the action or proceeding pending final disposition
of the matter* unless an earlier time is allowed by
order of the agency or court.
A-224
” 225"
Subpart C —
§ 229*30 —
(a)
Collection of Checks
Paying bank's responsibility for return of checks*
Return of checks or notice of nonpayment*
If the
paying bank determines not to pay a check, it shall return the
check
or provide notice of nonpayment
manner*
manner
in
an
expeditious
The paying bank returns the check in an expeditious
if it sends the returned check in a manner
that a
similarly situated bank would normally handle a checks
(1)
Of similar amount as the returned check,
(2)
Drawn on the depositary bank, and
(3)
Deposited
for
forward collection
in the
similarly situated bank before noon on the banking day
following the banking day on which the returned check
was presented to the paying bank.
Subject to the requirement for expeditious return, the paying
bank may send the returned check to the bank that presented the
check being returned, to the depositary bank, or to any other
bank
(including a Federal Reserve Bank or Federal Home Loan
Bank) agreeing to handle the check for return to the depositary
bank as expeditiously as it would handle a forward collection
check drawn on the depositary bank as specified in § 229.31.
The paying bank may,
but is not required to, convert the
returned check to a qualified returned check.
The paying bank
provides notice of nonpayment in an expeditious manner if it
A-2 25
-226-
provides
notice of nonpayment with
respect
to the check,
regardless of amount,
in accordance with § 229 o33, and also
returns
a reasonably
the check
in
prompt
manner0
This
paragraph does not affect a paying bank's responsibility for
timely return
under
the
U.C.C.
or
Regulation J
(12 CFR
Part 210) o
(b)
Extension of deadline for small-dollar checks.
A
paying bank, in an effort to avoid dishonor of a check in an
amount of $100 or less, may extend the time for return or
notice of nonpayment under the U.C.C., Regulation J
(12 CFR
Part 210), or paragraphs (a) or (c) of this section by not more
than two business days without liability to or discharge of any
other party.
If the paying bank extends such times,
it shall
review the factors on which a decision to pay or return is
based on the business day on which
it returns the check or
sends notice of nonpayment.
(c)
paying bank,
Extension of deadline for expedited delivery.
A
in an effort to expedite delivery of a returned
check to a bank, may extend the time for return or notice of
nonpayment under the U.C.C.,
and paragraphs (a) or
Regulation J
(b) of this section,
(12 CFR Part 210)
provided that the
expedited method of delivery would ordinarily result in the
returned check being received by the bank to which it is sent
on or before
that bank's next banking day
following
the
otherwise applicable time for return or such later time as
would
result
from the use of highly expeditious means of
transpor tation„
A-226
-22 1 -
(d)
A paying
Identification of returned check.
bank
returning a check shall clearly indicate on the face of the
check that it is a returned check and the reason for return.
(e)
expeditious
Depositary
return
bank
without
requirements
of
accounts.
paragraph
(a)
The
of
this
section do not apply to checks deposited in a depositary bank
that does not maintain accounts.
(f)
Notice
in lieu of return.
If
a
check
is
unavailable for return by a paying bank, the bank may send in
its place a notice of nonpayment in accordance with § 229.33,
without regard to the time or amount limits.
The notice shall
clearly state that it constitutes a notice in lieu of return.
A notice
in lieu of return
subject to the time
is considered a returned check
limits of
this
section
and
to other
requirements of this subpart.
(g)
Reliance on routing number.
A paying bank may
return a returned check based on any routing number designating
the depositary bank appearing on the returned check
in the
depositary bank's indorsement.
§ 229..31
Returning bank's responsibility for return of
checks o
(a)
and return
Return of checks.
a returned
check
A returning bank shall handle
in an expeditious manner.
A
returning bank returns a check in an expeditious manner if it
A-227
-228-
sends the returned check in a manner that a similarly sit:ua te
bank wou Id normally handle a check —
(1)
he
Of simila r amount as t ' returned check,
(2)
Drawn on the depositary bank, and
Rece ived
(3)
for
forward
collection
by
the
similarly situated bank at the t :
i me the returnin g ba
received the return ed check 0
A return ing bank may set a cut-off hour
checks
re turned
check s received
cu t-off hour
that
for
is ea rlier
forward
than its; cut-off hour
collection,
is not earlier
than
2 %00
requirement for expeditious return,
return
the returned check
for the receipt of
provided
p0 0
m
that
the
Subject to the
the returning
bank
may
to the immediate prior collecting
bank that had sent the check to the returning bank
forward collection,
for
during
to the depositary bank, or to any other
bank (including a Federal Reserve Bank or a Federal Home Loan
Bank) agreeing to handle the returned check as expeditiously as
it would
handle
a forward
collection
depositary bank as specified
check
in this section,,
drawn on
the
The returning
bank may convert the returned check to a qualified returned
check .
(b)
check „
Extension of deadline
for qualified
returned
A returning bank, in order to convert a returned check
to a qualified returned check, may extend by one business day
the time for return under
the U.CcCo,
Regulation J
Part 210), and paragraph (a) of this section,,
A-228
(12 CFR
A returning bank
"229-
may not, however,
extend these times when it is returning a
check directly to the depositary bank.
(c)
Acceptance by collecting bank.
A bank
that
handled a check during forward collection may not refuse to
handle that check as a returned check.
(d)
Settlement. A returning bank shall settle with a
bank sending a returned check
to it for return by the same
means that it settles or would settle with the sending bank for
a check received for forward collection drawn on the depositary
bank.
The settlement shall become final upon the expiration of
the time for payment by the depositary bank as provided in
§ 229.32 (b) .
(e)
Charges.
A returning bank may impose a charge on
a bank sending a returned check for handling the returned check.
(f)
Reliance on routing number. A returning bank may
return a returned check based on any routing number designating
the depositary bank appearing on the returned check
in the
depositary bank 's indorsement or in magnetic characters on a
qualified returned check.
(g)
Depositary
bank
without
accounts.
The
expeditious return requirement of paragraph (a) of this section
does not apply to checks deposited with a depositary bank that
does not maintain accounts.
(h)
Notice
in lieu of return.
unavailable for return,
If
a
check
is
the returning bank may send in its
A-229
“ 2 3 0-
place notice of nonpayment in accordance with § 229.33, without
regard
to the time or amount limits of that section.
The
notice shall clearly state that it constitutes a notice in lieu
of return and is considered a returned check subject to the
requirements of this subpart.
§ 229„32
Depositary bank's responsibility for returned
checks.
(a)
shall
accept
Acceptance of returned checks. A depositary bank
returned
checks
and
written
notices
of
nonpayment --■
(1)
At any branch or head office consistent with
the name and address of the bank in its indorsement on
the check;
(2)
If no address appears in the indorsement, at
any branch or head office associated with the routing
number of the bank in its indorsement on the check;
(3)
If no routing number or address appears in
its indorsement on the check, at any branch or head
office of the bank; and
(4)
At any location at which the bank accepts
checks as a paying bank.
(b)
payment.
A depositary bank becomes accountable
for the amount of a returned check
return)
(or notice in lieu of
at the close of the banking day on which it receives
the check or notice
("payment date").
A-230
Prior to that time the
-231-
depositary bank shall pay the bank returning the check to it
(the paying or returning bank) for the amount of the check by -(1)
Debit to an account of the depositary bank
on the books of the returning or paying bank,
(2)
Cash,
(3)
Wire transfer, or
(4)
Any other form of payment acceptable to the
returning or paying bank,
provided that the proceeds of such payment are available to the
returning or paying bank in cash or by credit to an account of
the returning or paying bank on or as of the payment date.
If
the payment date is not a banking day for the returning or
paying bank, payment shall be made by the next day that is a
banking day for the returning or paying bank.
credit
between
banks
(including
Federal Home Loan Banks)
Federal
for the check
Any provisional
Reserve
arising
Banks
and
during
the
forward collection of the check shall become final upon the
expiration of the time for payment by the depositary bank.
(c)
bank .
Recovery
If, during the forward
by
depositary bank
collection
from collecting
of a check,
the
depositary bank did not receive full provisional settlement for
the check, the depositary bank may recover
check from the bank
for the returned
(including a Federal Reserve Bank or a
Federal Home Loan Bank) to which it sent the check for forward
collection the amount of any payment the depositary bank made
A-231
” 232 -
to the bank returning the check for the returned check,
less
any settlement the depositary bank received0
(d)
nonpayment„
Misrouted
returned
checks
and
notices
If a bank receives a returned check or notice of
nonpayment on the basis that it is the depositary bank, and the
bank determines that it is not the depositary bank with respect
to the check or notice, it shall identify the depositary bank
and,
thereafter,
as a returning bank,
check or notice to the depositary bank0
forward the returned
If the bank cannot
identify the depositary bank, it shall, as a returning bank,
send the returned check or notice to the bank from which it
received the check or notice =
,
§ 229033
Notice of nonpayment „
(a)
Requirement.
If a paying bank determines not to
pay a check in the amount of $2,500 or more, it shall provide
notice of nonpayment such that it is received by the depositary
bank by 4:00 p sr u (local time) on the second business day
r
following the banking day on which the check was received by
the paying bankQ
If the day the paying bank is required to
provide notice to the depositary bank is not a banking day for
the depositary bank, receipt of notice on the depositary bank's
next banking day constitutes timely notice•
Notice may be
provided by any reasonable means, including the returned check,
a writing
Fedwire,
(including a photocopy of the check),
telex,
or
other
form of
A ” 232
telegraph.
telephone,
Notice
of
of
-233-
nonpayment initiated under § 229.30 or § 229.31 shall also be
given as provided in this section, but no more than one notice
is required for a single check.
(b)
Content of notice.
Notice must include the:
(1)
(2)
Name of the payee (s);
(3)
Amount;
(4)
bank
Name and routing number of the paying bank;
Date of the indorsement of the depositary
(or if given to a collecting bank other than the
depositary bank,
the date of
indorsement
of
the
collecting bank and the name, routing number, and date
of indorsement of any prior collecting bank and the
depositary bank);
(5)
Account number of the depositor (s) in the
depositary bank;
(6)
Branch name or number of the depositary bank
from its indorsement;
(7)
Trace number associated with the indorsement
of the depositary bank; and
(8)
Reason for return.
The notice may include other information from the check that
may be useful in identifying the check being returned and the
depositor, and, in the case of a written notice, must include
the name and routing number of the depositary bank from its
indorsement.
The notice need not include information that the
bank cannot determine with reasonable certainty from the check
A-233
-234-
itself through the exercise of ordinary care and good faith.
If the paying bank is not sure of a piece of information,
may, but is not required to,
question marks.
it
identify the information with
If the paying bank
cannot
identify
the
depositary bank, it should send the notice of nonpayment to the
first bank that it can identify that handled the check during
forward collection.
(c)
Acceptance of notice.
The depositary bank shall
accept notices during its banking day at the general purpose
telephone or telegraph number of its head office or of the
branch designated in the indorsement,
at the number of its
return item unit, at any other number held out by the bank for
receipt of notice of nonpayment, and, in the case of written
notice, as specified in § 229.32(a).
(d)
Charge-back.
If the depositary bank receives a
returned check (or notice of nonpayment) and fails to send the
returned check or notice of nonpayment to its customer within
the time and manner provided in the U.C.C., it may charge-back
the amount of any credit given for the check to its customer's
account, but is liable to the customer for any loss resulting
from
any
delay
sufficient
in charging-back
information
to
allow
if
the notice
contains
the
depositary
bank
to
charge-back.
(e)
notice
Cancellation of notice.
of nonpayment and
If a paying bank gives
subsequently determines to pay a
check, the paying bank shall provide a second notice as soon as
A-234
-235-
reasonably possible,
indicating that it is a second notice
cancelling a previous notice and containing all the information
in the original notice0
§ 229 034
Warranties by paying bank and returning bank.
(a)
Warranties.
Each paying bank or returning bank
that transfers a returned check and receives a settlement or
other consideration for it warrants to the transferee returning
bank, to any subsequent returning bank, to the depositary bank,
and to the owner of the check, that;
(1)
The paying bank returned the check
timely
under the U.C.C., Regulation J (12 CFR Part 210), or
§ 229*30 of this part;
(2)
It is authorized to return the check; and
(3)
The returned check has not been materially
altered„
(b)
Damages.
Damages for breach of these warranties
shall not exceed the consideration received by the paying or
returning bank plus finance charges and expenses related to the
returned check, if any8
(c)
Tender of defense,
,
If a returning bank is sued
for breach of a warranty under this section, it may give a
prior returning bank or the paying bank written notice of the
itigation, and the bank notified may then give similar notice
to any other prior returning bank or the paying bank 0
If the
notice states that the paying or returning bank notified may
A~2 3 5
-2 36-
come in and defend and that if the paying or returning bank
notified does not do so / it will in any action against it by
the paying or returning bank giving the notice be bound by any
determination
of
fact common
to the two litigations,
then
unless after reasonable receipt of the notice the paying or
returning bank notified does come in and defend, it is so bound.
§ 229.35
Indorsements.
(a)
Indorsement standards.
A bank, a Federal Reserve
Bank, or a Federal Home Loan Bank, other
than a paying bank
that handles a check during forward collection or a returned
check,
shall
indorse
the
check
in
accordance
with
the
indorsement standard set forth in Appendix D to this part.
(b)
Contract of indorser. A paying bank or returning
bank makes the contract of an indorser and may have the rights
of a holder with respect to each returned check it handles.
§ 229 o36 —
Presentment of checks.
(a)
Presentment of checks,
A check payable at or
through a paying bank is considered to be drawn on that bank
for purposes of determining the time for return or notice of
nonpayment by the paying bank under the U.C.C., Regulation J
(12 CFR Part 210), and this part.
(b)
Receipt at bank office or processing center.
check is considered received by the paying bank when
rece ived s
A-236
it is
A
-237-
(1)
At any branch or head office if the bank is
identified on the check by name wi thout address,
(2)
At any branch or head office consistent with
the name and address of the bank on the check,
(3)
At any address of the bank associated with
the routing number of the bank on the check, whether
in magnetic characters or in fractional form, or
(4)
At a location to which delivery is requested
by the paying bank.
(c)
Tr uncation„
A bank,
Federal Reserve Bank, or
Federal Home Loan Bank may present a check to a paying bank by
transmission of information describing the check in accordance
with an agreement with the paying bank.
A truncation agreement
may not extend return times or otherwise vary the requirements
of this part with respect to parties interested in the check
that are not party to the agreement.
§ 229 037
Inquiry to paying bank.
A paying bank shall respond promptly to a telephone or
telegraph
whether
inquiry
from a depositary bank with
respect
to
a depository check drawn upon it has been issued,
certified, or payment stopped thereon, or whether it has been
paid,
returned,
or notice of nonpayment given,
and confirm
information on the face of the check including the amount and
payee.
With respect to a teller's check,
the drawing bank
shall respond promptly to a telephone or telegraph inquiry from
A -237
■=238 =
a depositary bank with respect to whether a teller's check has
been issued, or payment has been stopped thereon, and confirm
information on the face of the check, including the amount and
payeeQ
A paying or drawing
bank does not agree to pay the
check by responding to such an inquiry0
§ 229 038
Liability0
(a)
Standard of carer liability; measure of damages,
A bank shall exercise ordinary care and act in good faith
complying with the requirements of this subparto
in
A bank that
fails to exercise ordinary care or act in good faith under this
subpart may be liable to the depositary bank, the owner of a
check, or another party to the check,
The measure of damages
for failure to exercise ordinary care is the amount of the loss
incurred, up to the amount of the check, reduced by the amount
of the loss that party would have incurred even if the bank had
exercised ordinary car@0
A bank
that fails to act in good
faith under this subpart may be liable for other damages,
any, suffered by the party as a proximate consequence0
if
Subject
to a bank’ duty to exercise ordinary care or act in good faith
s
in choosing the means of return or notice of nonpayment,
bank
the
is not liable for the insolvency, neglect, misconduct,
mistake, or default of another bank or person, or for loss or
destruction
of
a check
possession of others.
or notice
in transit or
in the
This section does not affect a paying
bank’ liability to its customer under the U.CcCo
s
A=2 38
References
-2 3 9-
to "bank" in this section include a Federal Reserve Bank and
Federal Home Loan Bank.
(b)
Paying bank's failure to make timely return.
If
a paying bank fails both to comply with § 229.30 and to comply
with
the requirement of timely return under
Regulation J
(12 CFR Part 210)
the U.C.C.
or
in connection with a single
nonpayment of a check, the paying bank shall be liable under
either § 229.30 or such other provision, but not both.
(c)
Comparative negligence.
If a person,
including a
bank, Federal Reserve Bank, or Federal Home Loan Bank, fails to
exercise ordinary care or act in good faith under this subpart
in indorsing a check
( 229.35) or accepting a returned check
§
or notice (§§ 229.32(a) and 229.33(c)), or otherwise,
the loss
incurred by that person under § 229.38(a) shall be diminished
in proportion
to the amount of negligence
or
bad
faith
attributable to that person,
(d)
Timeliness of action.
If a bank,
a Federal
Reserve Bank, or a Federal Home Loan Bank is delayed in acting
beyond the time limits set forth in this subpart because of
interruption
of
communication
or
computer
facilities,
suspension of payments by a bank, war, emergency conditions,
failure
of
equipment,
or
other
circumstances
beyond
its
control, its time for acting is extended for the time necessary
to complete the action, if it exercises such diligence as the
circumstances require.
A-239
-2 4 0-
(e)
Exclusion.
Section 229 .21
of
this part and
§ 611(a) and (b) of the Act (12 U.S.C. 4010(a) and (b)) do not
apply to this subpart.
(f)
Bona fide errors.
action brought
under
A bank is not liable
in any
this section for a violation of this
subpart if the bank demonstrates by a -preponderance of evidence
that the violation was not intentional and resulted from a bona
fide error,
notwithstanding
the
maintenance
reasonably adapted to avoid any such error.
of
procedures
An error of legal
judgment with respect to a bank’ obligation under this subpart
s
is not a bona fide error.
(g)
Jur isdiction.
Any action under this section may
be brought in any United States district court, or in any other
court of competent jurisdiction, within one year after the date
of the occurrence of the violation involved.
(h)
Reliance on Board rulings.
No provision of this
subpart imposing any liability shall apply to any act done or
omitted in good faith in conformity with any rule, regulation,
or interpretation thereof by the Board, regardless of whether
such rule, regulation, or interpretation is amended, rescinded,
or determined by judicial or other authority to be invalid for
any reason after such act or omission has occurred.
§ 229.39
Insolvency of bank.
(a)
or
coming
Duty of receiver.
into,
A check or returned check in,
the possession of a paying,
A-240
collecting,
“241-
depositary, or returning bank that suspends payment and which
check
is not finally paid shall be returned by the receiver,
trustee, or agent in charge of the closed bank to the bank or
customer that transferred the check to the closed bank.
(b)
Preference against paying or a depositary bank s
If a paying or depositary bank finally pays a check or returned
check and suspends payment without making a settlement for the
check with its customer or the prior bank, which settlement is
or becomes final, the customer or prior bank has a preferred
claim against the paying or depositary bank.
(
c) Preference against collecting or returning bank.
If a collecting or returning bank receives settlement from a
subsequent bank for a check or returned check, which settlement
is or becomes final, and suspends payments without making a
settlement for the check with the prior bank, which
is or
becomes final, the prior bank has a preferred claim against the
collecting or returning bank,
(d)
Final payment of provisional settlement.
If a
paying bank gives, or a collecting bank gives or receives, a
provisional
settlement
for a check or returned
check
and
thereafter suspends payment, the suspension does not prevent or
interfere with the settlement becoming final if such finality
occurs automatically upon the lapse of a certain time or the
happening of certain events,,
A -241
-242-
§ 229.40
Relation to state law.
The
provisions
of
this
subpart
supersede
any
inconsistent provisions of the U.C.C. as adopted in any state,
or of any other state law, but only to the extent of the
inconsistency.
§ 22904l
Exclusions.
The expeditious return requirements of this subpart do
not apply to a check drawn upon the account of the United
States Treasury, to a check indorsed by, or for credit to the
United States Treasury, or to a U.S. Postal Service money order.
A -242
APPENDIX A
Routing Number Guide to Local Checks
Each bank is assigned a routing number by Rand McNally
& COe, as agent for the American Bankers Association,
routing number
nine-digit form,
takes
two
forms:
a fractional
The
form and a
A paying bank is normally identified on the
face of a check by its routing number in both the fractional
form (which generally appears in the upper right-hand corner of
the check)
and
the nine-digit
form
(which
is printed
in
magnetic ink in a strip along the bottom of the check) e
The first four digits of the nine-digit routing number
and the denominator of the fractional routing number form the
"Federal Reserve routing symbol," which identifies the Federal
Reserve District, the Federal Reserve office, and the clearing
arrangements used by the paying bank,
Funds Availability Act and
Because the Expedited
Regulation CC define
local
and
nonlocal checks in terms of the Federal Reserve office serving
the paying bank, it is possible to determine whether a check is
local or nonlocal by reference to the Federal Reserve routing
symbol •
The following
symbols
associated
depositary bank
is a list of Federal Reserve routing
with
each
Federal
Reserve
office,
A
should refer to the routing numbers listed
below for the Federal Reserve office that serves the territory
in which the branch of deposit is located,
checks with these
Federal Reserve routing symbols are considered local checks.
A-243
- 2 -
First Federal Reserve District
(Federal Reserve Bank of Boston)
Head Office
Windsor Locks Office
Lewiston Office
0110
0111
2111
0112
2112
1 /
2110 2/
0113
2113
0114
2114
0115
2115
0116
0118
2118
0119
2119
0211
2211
2116
0117
2117
Second Federal Reserve District
(Federal Reserve Bank of New York)
Head Office
Buffalo Branch
0210
0220
2220
0211 3/
2211
0215
2215
0216
2216
0260
2260
Cranford Office
0212
2212
0223
2223
1/ The first two digits identify the Federal Reserve
Districto
Thus 01 identifies the First Federal Reserve
District (Boston), and 12 identifies the Twelfth District (San
Francisco)»
2/ Adding 2 to the first digit denotes a thrift institution.
Thus 21 identifies a thrift in the First District, and 32
denotes a thrift in the Twelfth District.
3/ Banks in Fairfield County, Connecticut are members of the
Federal Reserve Bank of New York and therefore have Second
District routing numbers.
Their checks, however, are processed
by the Windsor Locks office. Thus, checks drawn on banks with
0211 or 2211 routing numbers wuold not be local checks for
Second District depositary banks.
A°244
-3 -
Jericho Office
0214
2 214
0280
2280
0219
2219
Utica
0213
2 213
Office
Third Federal Reserve District
(Federal Reserve Bank of Philadelphia)
Head Office
0310
2310
0360
2360
0311
2311
0312
2312
0313
2313
0319
2319
Fourth Federal Reserve District
(Federal Reserve Bank of Cleveland)
Head Office
0410
2410
0412
2412
Cincinnati Branch
0420
2420
0421
2421
0422
2422
0423
2423
Columbus Office
0440
2440
0441
2441
0442
2442
A-245
Pittsburgh Branch
0430
2430
0432
2432
0433
2433
0434
2434
-4-
Fifth Federal Reserve District
(Federal Reserve Bank of Richmond)
Head Office
0510
2510
0514
2514
Baltimore Branch
0520
2520
0521
2521
0522
2522
0540
2540
0550
2550
0560
2560
0570
2570
Columbia Office
0532
2532
0539
2539
Charleston Office0515
2515
0519
2519
Charlotte
0530
2530
0531
2531
Sixth Federal Reserve District
(Federal Reserve Bank of Atlanta)
Head Office
0610
2610
0611
2611
0612
2612
0613
2613
Nashville Branch
0640
2640
0641
2641
0642
2642
Birmingham Branch
0620
2620
0621
2621
0622
2622
New Orleans Branch
0650
2650
0651
2651
0652
2652
0653
2653
0654
2654
0655
2655
A-246
Jacksonville Branch
0630
2630
0631
2631
0632
2632
Miam
0660
2660
0670
2670
- 5 -
Seventh
Federal
Reserve
D is tric t
(Federal Reserve Bank of Ch icago)
Head Office
0710
2710
0711
2711
0712
2712
0719
2719
Detroit Branch
0720
2720
0724
2724
Ind ianapolis Office
.
0740
2740
0749
2749
Des Moines Office
0730
2730
0739
2739
Milwaukee Office
0750
2750
0759
2759
Eighth Federal Reserve District
(Federal Reserve Bank of Ste Louis)
Head Office
0810
2810
0812
2812
0815
2815
0819
2819
0865
2865
Little Rock Branch
0820
2820
0829
2829
Memphis Branch
0840
2840
0841
2841
0842
2842
0843
2843
Ninth Federal Reserve District
(Federal Reserve Bank of Minneapolis)
Head Office
0910
2910
0911
2911
0912
2912
Helena Branch
0920
2920
0921
2921
0929
2929
A-247
Louisville Branch
0813
2813
0830
2830
0839
2839
0863
2863
- 6 -
Head Office
(Continued)
0913
2913
0914
2914
0915
2915
0960
2960
0918
2918
0919
2919
Tenth Federal Reserve District
(Federal Reserve Bank of Kansas City)
Head Office
Denver Branch
1010
1020
3010
1011
3011
3020
1021
3021
1012
1022
3012
1019
3019
3022
1023
3023
1070
3070
Oklahoma City Branch
1030
3030
1031
3031
1039
3039
Omaha Branch
1040
3040
1041
3041
1049
3049
Eleventh Federal Reserve District
(Federal Reserve Bank of Dallas)
Head Office
1110
3110
1113
3113
1111
3111
1119
3119
El Paso Branch
1120
3120
1122
3122
1123
3123
1163
3163
A-248
Houston Branch
1130
3130
1131
3131
-7 -
San Antonio Branch
1140
3140
1149
3149
Twelfth Federal Reserve District
(Federal Reserve Bank of San Francisco)
Head Office
Los Angeles Branch
1210
1220
3210
1214
3214
1221
3220
3221
1211
1222
3211
3222
1223
3223
1224
3224
1212
3212
1213
3213
Salt Lake City Branch
1240
3240
1241
3241
1242
3242
1243
3243
Portland Branch
1230
3230
1231
3231
1232
3232
1233
3233
Seattle Branch
1250
3250
1251
3251
1252
3252
A - 249
Appendix B-l
Reduction of Schedules for Certain Nonlocal Checks
Under the Temporary Schedule
A d e p o s i t a r y bank that is l o c a t e d in the f o l l o w i n g c h e c k p r o c e s s i n g
t e r r i t o r i e s s h a l l m a k e funds d e p o s i t e d in an a c c o u n t by a n o n l o c a l
c h e c k d e s c r i b e d b e l o w a v a i l a b l e for w i t h d r a w a l n o t later than the
n u m b e r of b u s i n e s s d ays f o l l o w i n g the b a n k i n g d a y on w hich funds are
d e p o s i t e d , as s p e c i f i e d b e l o w *
Federal
Reserve
N u m b e r of b u s i n e s s days
f o l l o w i n g the b a n k i n g day
f unds are d e p o s i t e d _______
Office
Boston
Depositary
0 210
0 260
2260
0280
banks
0 310
2310
0360
2 360
(0110, 2110)
0 710
2710
to:
5 business
days
3 business
days
3 business
d ays
3 business
days
Windsor Locks
0211
2211
Lewiston
None
sgew York
Depositary banks
(0210,0280,0260,2260)
0 214
2214
0219
2219
to:
jer icho
0210
0 280
0260
2260
A-250
-
Federal
Reserve
2
-
Number o f
fo llo w in g
funds a r e
O ffic e
b u s in e s s days
the b a n k in g day
d e p o s i t e d ________
Cranford
0210
0260
0280
2260
3 business days
Buffalo
None
Utica
3 business days
0210
0280
Ph iladelph ia
Depositary banks (0310,2310,0360,2360) to:
0110
2110
0210
0260
2260
0220
2220
0410
2410
0420
2420
0430
2430
0440
2440
0510
0519
2519
0520
2520
0530
2530
0530
2539
0610
2610
0620
2620
0630
2630
0640
2640
0650
2650
0660
2660
0710
2710
0720
2720
0730
2730
0740
2740
0750
2750
0810
2810
5 business days
0830
2830
0840
2840
0910
2910
0960
2960
1010
3010
1020
3020
1040
3040
A-251
3
Federal
Reserve
Number o f
fo llo w in g
funds a r e
O ffic e
b u s in e s s days
t h e b a n k i n g day
d e p o s i t e d ________
Cleveland
Depositary banks (0410,2410) to:
0110
2110
0210
0260
2260
0280
0220
2220
0310
2310
0360
2360
0420
2420
0430
2430
0440
2420
0510
2510
0519
2519
0520
2520
0530
2530
0539
2539
0610
2610
0620
2620
0630
2630
0640
2640
0650
2650
0660
2660
0710
2710
0720
2720
0730
2730
0740
2740
0750
2750
0810
2810
0820
2820
0830
2830
0840
2840
0910
2910
0960
2960
0920
2920
1010
3010
1020
3020
1030
3030
1040
3040
1110
3110
1130
3130
1120
3120
1140
3140
1210
3210
1220
3220
1223
3223
1230
3230
1240
3240
1250
3250
Cincinnati
Depos itary banks (0420,2420
0110
2110
0210
0260
2260
0280
0220
2220
0310
2310
0360
2360
0410
2410
0430
2430
0440
2440
0520
2520
0530
2530
0539
2539
0610
2610
0620
2620
0630
2630
0640
2640
0650
2650
0660
2660
5 business days
to:
0740
2740
0750
2750
0810
2810
0820
2820
0830
2830
0840
2840
0910
2910
0960
2960
0920
2920
1040
3040
1110
3110
1120
3120
1130
3130
1140
3140
1240
3240
1210
3210
1220
3220
1223
3223
A -252
5 business days
- 4
Federal
Reserve
Number o f
fo llo w in g
funds a re
O ffic e
b u s i n e s s days
t h e b a n k i n g day
d e p o s i t e d ________
Cincinnati Con't .
0510
2510
0519
2519
0710
2710
0720
2720
0730
2730
1010
3010
1020
3020
1030
3030
Columbus
Depos itary banks (0440,2440
0110
2110
0210
0260
2260
0280
0220
2220
0310
2310
0360
2360
0410
2410
0420
2420
0430
2430
0510
2510
0519
2519
0520
2520
0530
2530
0539
2539
0610
2610
0620
2620
0630
2630
0640
2640
0650
2650
0660
2660
0710
2710
0720
2720
0730
2730
0740
2740
0750
2750
0810
2810
0820
2820
0830
2830
0840
2840
0910
2910
0960
2960
0920
2920
1010
3010
1020
3020
1030
3030
Pittsburgh
Depositary banks (0430 ,2430
0520
2520
0110
2110
0220
2220
0519
2519
0530
0740
2740
0830
2830
0750
2750
0910
2910
0960
0610
2610
0620
2620
0640
2640
0650
2650
0660
A-253
1230
3230
1240
3240
1250
3250
il
1040
3040
5 business days
1110
3110
1120
3120
1130
3130
1140
3140
1240
3240
1120
3210
1220
3220
1223
3223
1230
3230
1240
3240
1250
3250
l•
5 business days
5
Federal
Reserve
Number o f
fo llo w in g
funds a r e
O ffic e
b u s in e s s days
th e b a n k in g day
d e p o s i t e d ________
Pittsburgh con 11 .
2530
0710
2710
0420
2420
0410
2410
0440
2440
0730
2730
0720
0539
2539
0630
2630
0820
2820
0920
2920
1030
3130
2960
0310
2310
0360
2360
0510
2510
0810
2810
0210
0260
0280
1110
3110
1120
3120
1130
3130
1140
3140
1210
2660
0840
2840
1010
3010
1020
3020
1040
3040
1240
3240
1220
3220
1223
3223
1230
3230
1250
3250
3210
Richmond
Depos itar y banks (0510/2510
0110
2110
0210
0260
2260
0280
0220
2220
0310
2310
0360
2360
0410
2410
0420
2420
0430
2430
0440
2440
0515
0520
2520
0530
2530
0531
2531
0539
2539
0610
2610
0620
2620
0630
2630
0640
2640
0650
2650
0660
2660
0710
0740
2740
0750
2750
0810
2810
0820
2820
0830
2830
0840
2840
0910
2910
0960
2960
1010
3010
1020
3020
1030
to:
1040
3040
5 business days
1110
3110
1120
3120
1130
3130
1140
3140
A-254
f
6
Federal
Reserve
Number o f
fo llo w in g
funds a re
O ffic e
b u s i n e s s days
th e b a n k in g day
d e p o s i t e d ________
Richmond Con't.
2515
0519
2519
2710
0720
2720
0730
2730
3030
Baltimore
Depos itary banks (0520,2520
0110
2110
0210
0260
2260
0280
0220
2220
0310
2310
0360
2360
0410
2410
0420
2420
0430
2430
0440
2440
0510
2510
0519
2519
0820
2820
1030
3030
1110
3110
1120
3120
0530
2530
0539
2539
0610
2610
0620
2620
0630
2630
0640
2640
0650
2650
0660
2660
0710
2710
0720
2720
0730
2730
0740
2740
0750
2750
0810
2810
0820
2820
0830
2830
0840
2840
0910
2910
0960
2960
0920
1010
3010
1020
3020
1030
3030
1130
3130
1140
3140
1210
1220
3220
1230
3230
1250
3250
to:
1040
3040
1110
3110
1120
3120
1130
3130
1140
3140
1210
3210
1220
3220
1223
3223
1230
3230
1240
3240
1250
3250
A -255
5 business days
- 7
Federal
Reserve
Number o f
fo llo w in g
funds a r e
O ffic e
b u s in e s s days
t h e b a n k in g day
d e p o s i t e d ________
Charlotte
Depositary banks (0530,2530) to:
0110
2110
0210
0260
2260
0280
0220
2220
0310
2310
0360
2360
0410
2410
0420
2420
0430
2430
0440
2440
0510
2510
0519
2519
0520
2520
0532
0539
2539
0610
2610
0620
2620
0630
2630
0640
2640
0650
2650
0660
2660
0710
2710
0720
2720
0730
2730
0740
2740
0750
2750
0810
2810
0820
2820
0830
2830
0840
2840
0910
2910
0960
2960
1010
3010
1020
3020
1030
3030
Columbia
Depositary banks (0539,2539
0110
2110
0210
0260
2260
0280
0220
2220
0310
2310
0360
2360
0410
2410
0420
2420
0430
2430
0520
2520
0530
2530
0610
2610
0620
2620
0630
2630
0640
2640
0650
2650
0660
2660
0710
2710
0740
2740
0750
2750
0810
2810
0820
2820
0830
2830
0840
2840
0910
2910
0960
2960
1010
3010
1040
3040
5 business days
1110
3110
1120
3120
1130
3130
1140
3140
1210
3210
1220
3220
1223
3223
1230
3230
1240
3240
1250
3250
to:
1040
3040
1110
3110
1120
3120
1130
3130
1140
3140
A-256
5 business days
8
Federal
Reserve
Number o f
fo llo w in g
funds a r e
O ffic e
b u s in e s s days
t h e b a n k i n g day
d e p o s i t e d ________
Columbia Con 't.
0440
2440
0510
2510
0519
2519
0720
2720
0730
2730
1020
3020
1030
3030
Charleston
Depositary banks (0519,2519) to:
0110
2110
0210
0260
2260
0280
0220
2220
0310
2310
0360
2360
0410
2410
0420
2420
0430
2430
0440
2440
0510
2510
0520
2520
0530
2530
0539
2539
0610
2610
0620
2620
0630
2630
0640
2640
0650
2650
0660
2660
0710
2710
0720
2720
0730
2730
0740
2740
0750
2750
0810
2810
0830
2830
0840
2840
0910
2910
0960
2960
1010
3010
1020
3020
Atlanta
Depositary banks (0610,2610
0110
2110
0210
0260
2260
0280
0220
0520
2520
0530
2530
0539
2539
0620
0740
2740
0750
2750
0810
2810
0820
1040
3040
5 business days
1110
3110
1120
3120
1130
3130
1140
3140
1240
3240
to :
1040
3040
1110
3110
1120
3120
1130
A-257
5 business days
9
Number of
following
funds are
Federal Reserve Office
b u s in e s s days
th e b a n k in g day
d e p o s i t e d ________
Atlanta Con't „
2220
0310
2310
0360
2360
0410
2410
0420
2420
0430
2430
0440
2440
0510
2510
0519
2519
2620
0630
2630
0640
2640
0650
2650
0660
2660
0710
2710
0720
2720
0730
2730
2820
0830
2830
0840
2840
0910
2910
0960
2960
0920
2920
1010
3010
1020
3020
1030
3030
3130
1140
3140
1210
3210
1220
3220
1223
3223
1230
3230
1240
3240
1250
3250
Birmingham
Depos itary banks (0620,2620) to:
0110
2110
0210
0260
2260
0280
0220
2220
0310
2310
0360
2360
0410
2410
0420
2420
0430
2430
0440
2440
0510
2510
0519
2519
0520
2520
0530
2530
0539
2539
0610
2610
0630
2630
0640
2640
0650
2650
0660
2660
0710
2710
0720
2720
0730
2730
0740
2740
0750
2750
0810
2810
0820
2820
0830
2830
0840
2840
0910
2910
0960
2960
0920
2920
1010
3010
1020
3020
1030
3030
1040
3040
1110
3110
1120
3120
1130
3130
1140
3140
1210
3210
1220
3220
1223
3223
1230
3230
1240
3240
1250
3250
A-258
5 business days
10
Number o f
fo llo w in g
funds a re
Federal Reserve Office
Jacksonville
Depos itary banks (0630,2630
0110
2110
0210
0260
2260
0280
0220
2220
0310
2310
0360
2360
0410
2410
0420
2420
0430
2430
0440
2440
0510
2510
0519
2519
0520
2520
0530
2530
0539
2539
0610
2610
0620
2620
0640
2640
0650
2650
0660
2660
0710
2710
0720
2720
0730
2730
0740
2740
0750
2750
0810
2810
0820
2820
0830
2830
0840
2840
0910
2910
0960
2960
0920
2920
1010
3010
1020
3020
1030
3030
Miami
Depos itary banks (0660,2660
0220
2220
0410
2410
0420
2420
0430
2430
0510
2510
0519
2519
0110
2110
0210
0260
2260
0280
0539
2539
0710
2710
0730
2730
0740
2740
0750
2750
0810
2810
0820
2820
0440
2440
0520
2520
0830
2830
0910
2910
0960
2960
0920
2920
1010
3010
1030
3030
1040
3040
1110
3110
0620
2620
b u s in e s s days
t h e b a n k i n g day
d e p o s i t e d ________
to:
1040
3040
1110
3110
1120
3120
1130
3130
1140
3140
to:
1120
3120
1130
3130
1140
3140
1210
3210
1220
3220
1223
3223
1230
3230
1240
3240
1250
3250
A -259
5 business days
11
Federal
Reserve
Number o f
fo llo w in g
funds a r e
O ffic e
b u s i n e s s days
t h e b a n k i n g day
d e p o s i t e d ________
Miami Con't.
0310
2310
0360
2360
0530
2530
0610
2610
0630
2630
0640
2640
0650
2650
0720
2720
0840
2840
1020
3020
Nashville
0613
2613
3 business days
Depos itary banks (0640,2640) to:
0610
2610
0620
2620
0630
2630
0650
2650
0660
2660
0530
2530
0840
2840
0539
2539
5 business days
New Orleans
Depos itar y banks (0650 /2650 ) to:
0110
2110
0210
0260
2260
0280
0220
2220
0310
2310
0360
2360
0410
2410
0420
2420
0430
2430
0440
2440
0520
2520
0530
2530
0539
2539
0610
2610
0620
2620
0630
2630
0640
2640
0710
2710
0720
2720
0730
2730
0740
2740
0750
2750
0810
2810
0820
2820
0830
2830
0840
2840
0910
2910
0960
2960
0920
2920
1010
3010
1040
3040
1110
3110
1120
3120
1130
3130
1140
3140
1210
3210
1220
3220
1223
3223
1230
3230
1240
3240
A-260
5 business days
12
Federal
Reserve
Number o f
fo llo w in g
funds a re
O ffic e
b u s in e s s days
t h e b a n k i n g day
d e p o s ited
New Orleans Con 't e
0510
2510
0519
2519
1020
3020
1030
3030
1250
3250
Chicago
None
Detroit
Depos itary banks (0720,1720
0110
2110
0210
0260
2260
0280
0220
2220
0310
2310
0360
2360
0410
2410
0420
2420
0430
2430
0440
2440
0510
2510
0519
2519
0520
2520
0530
2530
0539
2539
0610
2610
0620
2620
0630
2630
0640
2640
0650
2650
0660
2660
0710
2710
0730
2730
0740
2740
0750
2750
0810
2810
0820
2820
0830
2830
0840
2840
0910
2910
0960
2960
0920
2920
1010
3010
1020
3020
1030
3030
to:
1040
3040
5 business days
1110
3110
1120
3120
1130
3130
1140
3140
1210
3210
1220
3220
1223
3223
1230
3230
1240
3240
1250
3250
Bes Moines
None
Indianapolis
Depositary Banks (0740,2740
0110
2110
0210
0520
2520
0530
0750
2750
0810
to:
1040
3040
1110
A-261
5 business days
- 13
Federal
Reserve
Number o f
fo llo w in g
funds a re
O ffic e
b u s i n e s s days
t h e b a n k i n g day
d e p o s i t e d ________
Indianapolis Con*t.
0260
2260
0280
0220
2220
0310
2310
0360
2360
0410
2410
0420
2420
0430
2430
0440
2440
0510
2510
0519
2519
2530
05 39
2539
0610
2610
0620
2620
0630
2630
0640
2640
0650
2650
0660
2660
0710
2710
0720
2720
0730
2730
2810
0820
2820
0830
2830
0840
2840
0910
2910
0960
2960
0920
2920
1010
3010
1020
3020
1030
3030
3110
1120
3120
1130
3130
1140
3140
1210
3210
122 0
3220
1223
3223
1230
3230
1240
3240
1250
3250
Milwaukee
Depositary banks (0750, 2750
0110
2110
0210
0260
2260
0280
0220
2220
0310
2310
0360
2360
0410
2410
0420
2420
0430
2430
0440
2440
0510
2510
0519
2519
0520
2520
0530
2530
0539
2539
0610
2610
0620
2620
0630
2630
0640
2640
0650
2650
0660
2660
0710
2710
0720
2720
0730
2730
0740
2740
0810
2810
0820
2820
0830
2830
0840
2840
0910
2910
0960
2960
0920
2920
1010
3010
1020
3020
1030
3030
to:
1040
3040
1110
3110
1120
3120
1130
3130
1140
3140
1210
3210
1220
3220
1223
3223
1230
3230
1240
3240
1250
3250
A°262
5 business days
14
Federal
Reserve
Number o f
fo llo w in g
funds a r e
O ffic e
b u s in e s s days
t h e b a n k i n g day
d e p o s i t e d ________
St. Louis
Depositary banks (0810, 2810) to:
0110
2110
0210
0260
2260
0280
0220
2220
0310
2310
0360
2360
0410
2410
0420
2420
0430
2430
0440
2440
0510
2510
0519
2519
0520
2520
0530
2530
0539
2539
0610
2610
0620
2620
0630
2630
0640
2640
0650
2650
0660
2660
0710
2710
0720
2720
0730
2730
0740
2740
0750
2750
0820
2820
0830
2830
0840
2840
0910
2910
0960
2960
0920
2920
1010
3010
1020
3020
1030
3030
Little Rock
Depositary banks (0820,2820
0110
2110
0210
0260
2260
0280
0220
2220
0310
2310
0360
2360
0410
2410
0420
2420
0430
2430
0520
2520
0530
2530
0539
2539
0610
2610
0620
2620
0630
2630
0640
2640
0650
2650
0660
2660
0740
2740
0750
2750
0810
2810
0830
2830
0840
2840
0910
2910
0960
2960
0920
2920
1010
3010
1040
3040
5 business days
1110
3110
1120
3120
1130
3130
1140
3140
1210
3210
1220
3220
1223
3223
1230
3230
1240
3240
1250
3250
to:
1040
3040
1110
3110
1120
3120
1130
3130
1140
3140
1210
3210
1220
3220
1223
3223
1230
3230
A-263
5 business days
15
Federal
Reserve
Numbe r o f
fo llo w in g
funds a r e
O ffic e
b u s in e s s days
th e b a n k in g day
d e p o s i t e d ________
Little Rock Con't ©
0440
2440
0510
2510
0519
2519
0710
2710
0720
2720
0730
2730
1020
3020
1030
3030
Louisville
Depos itary banks (0830, 2830
0110
2110
0210
0260
2260
0280
0220
2220
0310
2310
0360
2360
0410
2410
0420
2420
0430
2430
0440
2440
0510
2510
0519
2519
0520
2520
0530
2530
0539
2539
0610
2610
0620
2620
0630
2630
0640
2640
0650
2650
0660
2660
0710
2710
0720
2720
0730
2730
0740
2740
0750
2750
0810
2810
0820
2820
0840
2840
0910
2910
0960
2960
0920
2920
1010
3010
1020
3020
1030
3030
1240
3240
1250
3250
to:
1040
3040
5 business days
1110
3110
1120
3120
1130
3130
1140
3140
1210
3210
1220
3220
1223
3223
1230
3230
1240
3240
1250
3250
Memph is
Depositary banks (0840, 2840)
0110
2110
0210
0260
2260
0280
0310
2310
0360
2360
0610
2610
0710
2710
0810
2810
1010
3010
1110
3110
0720
2720
0730
2730
0740
2740
0750
2750
0810
2810
1040
3040
1120
3120
1130
3130
1140
3140
1240
3240
A-264
5 business days
16
Federal
Reserve
Numbe r o f
fo llo w in g
funds a r e
O ffic e
b u s in e s s days
th e b a n k in g day
d e p o s i t e d ________
Memphis Con*t.
0410
2410
0510
2510
0220
2220
0420
2420
0430
2430
0440
2440
0519
2519
0520
2520
0530
2530
0530
2539
0620
2620
0630
2630
0640
2640
0650
2650
0660
2660
0820
2820
0840
2840
0910
2910
0960
2960
1010
3010
1020
3020
1030
3030
Minneapolis
Depositary banks (0910,2910, 0960,2960)
0110
2110
0210
0260
2260
0280
0220
2220
0310
2310
0360
2360
0410
2410
0420
2420
0430
2430
0440
2440
0510
2510
0519
2519
0520
2520
0530
2530
0539
2539
0610
2610
0620
2620
0630
2630
0640
2640
0650
2650
0660
2660
0710
2710
0720
2720
0730
2730
0740
2740
0750
2750
0810
2810
0820
2820
0830
2830
0840
2840
0920
2920
1010
3010
1020
3020
1030
3030
1040
3040
1110
3110
1120
3120
1130
3130
1140
3140
1210
3210
1220
3220
1223
3223
1230
3230
1240
3240
1250
3250
A-265
5 business days
17
Federal
Reserve
Number o f
fo llo w in g
funds a re
O ffic e
b u s i n e s s days
t h e b a n k i n g day
d e p o s i t e d ________
Helena
None
Kansas City
0865
2865
Depositary banks (1010,3010) to:
0110
2110
0210
0260
2260
0280
0220
2220
0310
2310
0360
2360
0410
2410
0420
2420
0430
2430
0440
2440
0510
2510
0519
2519
0520
2520
0530
2530
0539
2539
0610
2610
0620
2620
0630
2630
0640
2640
0650
2650
0660
2660
0710
2710
0720
2720
0730
2730
0740
2740
0750
2750
0810
2810
0820
2820
0830
2830
0840
2840
0910
2910
0960
2960
0920
2920
1020
3020
1030
3030
1040
3040
5 business days
1110
3110
1120
3120
1130
3130
1140
3140
1210
3210
1220
3220
1223
3223
1230
3230
1240
3240
1250
3250
Denver
None
Oklahoma City
Depositary banks (1030,3030
0110
2110
0210
0260
2260
0280
0520
2520
0530
2530
0539
2539
0740
2740
0750
2750
0810
2810
to:
1040
3040
1110
3110
1120
3120
A-266
5 business days
18
Federal
Reserve
Number o f
fo llo w in g
funds a re
O ffic e
b u s in e s s days
th e b a n k in g day
d e p o s i t e d ________
Oklahoma City Con 11,
0220
2220
0310
2310
0360
2360
0410
2410
0420
2420
0430
2430
0440
2440
0510
2510
0519
2519
0610
2610
0620
2620
0630
2630
0640
2640
0650
2650
0660
2660
0710
2710
0720
2720
0730
2730
0820
2820
0830
2830
0840
2840
0910
2910
0960
2960
0920
2920
1010
3010
1020
3020
Omaha
Depos itary banks (1040,3040
0110
2110
0210
0260
2260
0280
0220
2220
0310
2310
0360
2360
0410
2410
0420
2420
0430
2430
0440
2440
0510
2510
0519
2519
0520
2520
0530
2530
0539
2539
0610
2610
0620
2620
0630
2630
0640
2640
0650
2650
0660
2660
0710
2710
0720
2720
0730
2730
0740
2740
0750
2750
0810
2810
0820
2820
0830
2830
0840
2840
0910
2910
0960
2960
0920
2920
1010
3010
1020
3020
1030
3030
1130
3130
1140
3140
1210
3210
1220
3220
1223
3223
1230
3230
1240
3240
1250
3250
i
to:
1120
3120
1130
3130
1140
3140
1210
3210
1220
3220
1223
3223
1230
3230
1240
3240
1250
3250
A =267
5 business days
19
Federal
Reserve
Number o f
fo llo w in g
funds a re
O ffic e
b u s i n e s s days
t h e b a n k i n g day
d e p o s i t e d ________
Dallas
Depositary banks (1110,3110) toi l
0110
2110
0210
0260
2260
0280
0220
2220
0310
2310
0360
2360
0410
2410
0420
2420
0430
2430
0440
2440
0510
2510
0519
2519
0520
2520
0530
2530
0539
2539
0610
2610
0620
2620
0630
2630
0640
2640
0650
2650
0660
2660
0710
2710
0720
2720
0730
2730
0740
2740
0750
2750
0810
2810
0820
2820
0830
2830
0840
2840
0910
2910
0960
2960
0920
2920
1010
3010
1020
3020
1030
3030
Houston
Depos itary banks (1130,3110
0110
2110
0210
0260
2260
0280
0220
2220
0310
2310
0360
2360
0410
2410
0420
2420
0430
2430
0520
2520
0530
2530
0539
2539
0610
2610
0620
2620
0630
2630
0640
2640
0650
2650
0660
2660
0740
2740
0750
2750
0810
2810
0820
2820
0830
2830
0840
2840
0910
2910
0960
2960
0920
2920
1120
5 business days
3120
1130
3130
1140
3140
1210
3210
1220
3220
1223
3223
1230
3230
1240
3240
1250
3250
1l
1110
3110
1120
3120
1140
3140
1210
3210
1220
3220
1223
3223
1230
3230
1240
3240
1250
3250
A-268
5 business days
20
Federal Reserve
Houston
0 440
2440
0510
2510
0 519
2519
Office
C o n 't .
0710
2710
0 720
2 720
0 730
2 730
San A n t o n i o
D e p o s i tary b a n k s
0110
2 110
0 2 10
0260
2 2 60
0 2 80
0 2 20
2220
0 310
2 3 10
0 360
2360
0410
2410
0 4 20
2 4 20
0430
2 430
0440
2440
0 5 10
2510
0519
2519
Number of business days
following the banking day
funds are deposited_______
0 520
2520
0 530
2530
0 539
2539
0 610
2610
0 620
2 620
0 630
2630
0 640
2640
0650
2650
0 660
2 660
0 710
2710
0720
2720
0730
2730
El Paso
Depositary banks
1010
3010
1020
3020
1030
3030
(1140,3140
0740
2740
0 750
2750
0810
2810
0820
2820
0 830
2830
0 840
2840
0910
2910
0960
2960
1010
3010
1020
3 020
1030
3030
(1120,3120
to:
1040
3040
5 business
day s
5 business
days
1110
3110
1120
3 120
1130
3 130
1140
3140
1210
3 210
1220
3220
1 223
3223
1230
3230
1240
3 240
1250
3 2 50
to:
0110
2 110
0210
0 260
2260
0 280
0 2 20
2220
0520
2520
0530
2 530
0539
2539
0 610
2610
0740
2740
0750
2750
0810
2810
0820
2 820
1040
3040
0310
0 620
0830
1210
1110
3110
1130
3130
1140
3140
=269
21
Federal
Reserve Office
El
Number of business days
following the banking day
funds are deposited _______
C o n 't .
Paso
2310
0360
2360
0410
2410
0 420
2420
0 430
2 430
0440
2 440
0510
2510
0519
2519
San
2 620
0630
2630
0640
2640
0650
2 650
0 660
2660
0710
2710
0720
2720
0730
2730
2830
0840
2840
0910
2910
0960
2960
0920
2920
1010
3010
1020
3 020
1030
3030
3210
1220
3220
1223
3223
1230
3230
1 240
3240
1250
3 250
Francisco
- None
Less A n g e l e s
N one
Portland
5 business
Salt
days
5 business
1250
3250
days
Lake City
None
Seattle
Depositary
banks
(1250,3250)
to?
1230
3230
A°270
Reduction
A p p e n d i x B~2
of S c h e d u l e s for C e r t a i n N o n l o c a l
O n d e r the p e r m a n e n t S c h e d u l e
Checks
A d e p o s i t a r y b ank that is l o c a t e d in the f o l l o w i n g c h e c k p r o c e s s i n g
t e r r i t o r i e s s h a l l make funds d e p o s i t e d in an a c c o u n t by a n o n l o c a l
c h e c k d e s c r i b e d b e l o w a v a i l a b l e for w i t h d r a w a l n o t l ater than the
n u m b e r of b u s i n e s s days f o l l o w i n g the b a n k i n g d a y on w h i c h funds are
d e p o s i t e d , as s p e c i f i e d b e l o w .
Federal
Reserve
Windsor
N u m b e r of b u s i n e s s days
f o l l o w i n g the b a n k i n g day
f u n d s are d e p o s i t e d _______
Of f i c e
Locks
0211
2211
M e w Y o rk
Depositary
3 business
banks
3 business
(0210,0280,0260,2260)
0214
2 2 14
0219
2219
days
days
to:
o
Jericho
3 business
days
3 business
days
3 business
0210
days
0 2 80
0 260
2260
Cranford
0210
0 260
0 280
2260
Utica
0210
0 280
A-271
2
Federal Reserve
Number of business days
following the banking day
funds are dep o s i t e d _______
Office
Mashville
3 business
days
3 business
0613
2613
days
Kansas City
0865
2 865
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273
Appendix C - Model Forms
Specific Policy Disclosures
C-l
Where bank gives next-day availability and places
no holds
C-2
Where bank gives next-day availability and places
holds on safeguard and new account exceptions
bases
C-3
Where bank gives next-day availability and places
holds to statutory limits on local and nonlocal
checks, but only on a case-by-case basis, and
places no holds on safeguard or new account
exceptions bases
C-4
Where bank gives next-day availability and places
holds to statutory limits on local and nonlocal
checks, but only on a case-by-case basis, and
places holds on safeguard exceptions basis but not
on new account exception basis)
C-5
Where bank places holds to statutory limits on all
statutory categories of deposits
C-6
Where bank places holds to statutory limits on all
statutory categories of deposits (includes chart)
C-7
Where bank places holds on all statutory
categories of deposits, but for less than the
statutory limits
Other Notices
C-8
Notice of exception
C-9
Notice of hold (bank gives next-day availability
and places holds to statutory limits on local and
nonlocal checks, but only on a case-by-case basis)
C-10
Notice at branch locations
C-ll
Notice at proprietary automated teller machines,
drive-in teller facilities, and on preprinted
deposit slips
C--12
Notice at a bank's automated teller machines that
may be used for deposits by customers of other
banks
C-13
Interest payment policy insert in specific policy
disclosure
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C-l —
holds
Where bank gives next-day availability and places no
YOUR ABILITY TO WITHDRAW FUNDS AT (bank name and location)
Our policy is to allow you to withdraw funds deposited
into your account on the next business day after the day we
receive your deposit.
Every day except Saturday, Sunday,
and a federal holiday is a business day.
Your deposit will
be considered received, however, only on a day we are open
for business.
For example, if you deposit on Thanksgiving,
we consider the deposit made on Friday, the next day we are
open for business.
And if you make your deposit after (time
of day) on any given business day, we consider it made on
the next business day.
Please remember that even after we have made funds
available to you, and you have withdrawn the funds, you are
still responsible for checks you deposit that are returned
to us unpaid and for any other problems involving your
deposit.
If you have any questions, contact your branch manager.
A -274
275
C-2 — Where bank gives next-day availability and places
holds on safeguard and new account exceptions bases
YOUR ABILITY TO WITHDRAW FUNDS AT (bank name and location)
Our policy is to allow you to withdraw funds deposited
into your account on the next business day after the day we
receive your deposit. Every day except Saturday, Sunday,
and a federal holiday is a business day. Your deposit will
be considered received, however, only on a day we are open
for business. For example, if you deposit on Thanksgiving,
we consider the deposit made on Friday, the next day we are
open for business. * And if you make your deposit after (time
of day) on any given business day, we consider it made on
the next business day.
Please remember that even after we have made funds
available to you, and you have withdrawn the' funds, you are
still responsible for checks you deposit that are returned
to us unpaid and for any other problems involving your
deposit.
1
■If you have any questions, contact your -branch manager.
LONGER DELAYS MAY
APPLY
We may delay your ability to withdraw funds deposited
by check into your account an additional number of days for
these reasons:
If we believe the check you are depositing is
uncollectible.
If you make deposits in any one day that exceed $5,000.
If you redeposit a check that has been returned unpaid.
If you have overdrawn your account three or more times
in the last six months.
We will notify you if we do this, and tell you when you
will be able to withdraw the funds.
(We will delay for no
more than four additional business days.)
SPECIAL RULES FOR NEW ACCOUNTS
If your account has been open 30 days or less, we may
further limit your ability to withdraw funds deposited by
check, but only during the first 30 days.
You may still withdraw funds on the next business day
after the day of your deposit if you made the deposit in
cash or by wire transfer. You also have next-day
availability for the following deposits (if they meet
certain requirements); government checks, cashier's checks,
certified checks, teller's checks, or traveler's checks.
However, your withdrawals of these check deposits are
A -275
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276
-
limited to the first $5,000 of a day's total deposits.
(The
rest is available on the ninth business day after the day of
deposit.)
For all other check deposits, you may withdraw the
deposited funds after (number) business days.
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277
C-3 — Where bank gives next-day availability and places
holds to statutory limits on local and nonlocal checks, but
only on a case-by-case basis, and places no holds on
safeguard or new account exceptions bases
YOUR ABILITY TO WITHDRAW FUNDS AT (bank name and location)
Our policy is to allow you to withdraw funds deposited
into your account on the next business day after the day we
receive your deposit.
Every day except Saturday, Sunday,
and a federal holiday is a business day.
Your deposit will
be considered received, however, only on a day we are open
for business.
For example, if you deposit on Thanksgiving,
we consider the deposit made on Friday, the next day we are
open for business.
And if you make your deposit after (time
of day) on any given business day, we consider it made on
the next business day.
Please remember that even after we have made funds
available to you, and you have withdrawn the funds, you are
still responsible for checks you deposit that are returned
to us unpaid and for any other problems involving your
deposit.
If you have any questions, contact your branch manager.
LONGER DELAYS MAY APPLY
In some cases, we may find it necessary to delay your
ability to withdraw funds deposited into your account by
check beyond the next business day.
When we do extend the delay, you may not withdraw -either in cash or by writing checks to others -- more than
the first $100 of the deposit until the hold expires.
The
length of the delay will vary with the type of check you are
depositing.
It may last as long as seven business days
after the day of your deposit (counting the business day
after the day of deposit as day one).
Any time we decide to delay your ability to withdraw
funds beyond the next business day, we will notify you at
the time of your deposit, and we will specify the date on
which you can begin to withdraw these funds.
(If your
deposit was made other than directly to a bank employee, we
will notify you by mail the day after we receive the
deposit.)
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278
C-4 — Where bank gives nest-day availability and places
holds to statutory limits on local and nonlocal checks, but
only on a case-by-case basis„ and places holds on safeguard
exceptions basisB but not on new account exception basis
YOUR ABILITY TO WITHDRAW FUNDS AT (bank name and location)
Our policy is to allow you to withdraw funds deposited
into your account on the next business day after the day we
receive your deposit. Every day except Saturday, Sunday,
and a federal holiday is a business day. Your deposit will
be considered received, however, only on a day we are open
for business. For example, if you deposit on Thanksgiving,
we consider the deposit made on Friday, the next day we are
open for business. And if you make your deposit after (time
©f day) on any given business day, we consider it made on
the next business day.
Please remember that even after we have made funds
available to you, and you have withdrawn the funds, you are
still responsible for checks you deposit that are returned
to us unpaid and for any other problems involving your
deposit.
If you have any questions, contact your branch manager.
LOHGER DELAYS MAY APPLY
In some cases, we may find it necessary to delay your
ability to withdraw funds deposited into your account by
check beyond the next business day.
When we do extend the delay, you may not withdraw -either in cash or by writing checks to others -- more than
the first $100 of the deposit until the hold expires. The
length of the delay will vary with the type of check you are
depositing.
It may last as long as seven business days
after the day of your deposit (counting the business day
after the day of deposit as day one).
Any time we decide to delay your ability to withdraw
funds beyond the next business day, we will notify you at
the time of your deposit, and we will specify the date on
which you can begin to withdraw these funds,
(If your
deposit was made other than directly to a bank employee, we
will notify you by mail the day after we receive the
deposit.)
We may also delay your ability to withdraw funds
deposited by check into your account an additional number of
days for these reasons:
If we believe the check you are depositing is
uncollectible.
If you make deposits in any one day that exceed $5,000.
If you redeposit a check that has been returned unpaid.
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279
If you have overdrawn your account three or more times
in the last six months.
Again, we will notify you if we do this, and tell you
when you will be able to withdraw the funds. (We will delay
for no more than four additional business days.)
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280
C-5 — Where bank places holds to statutory limits on all
statutory categories of deposits
YOUR ABILITY TO WITHDRAW FUNDS AT (bank name and location)
Our policy is to delay your ability to withdraw funds
that you deposit by check into your account.
The length of
the delay varies, and is explained below.
When we delay
your ability to withdraw funds from a deposit, you may not
withdraw the funds in cash, and we will not pay checks you
write on your account by using these funds.
Please remember that even after we have made funds
available to you, and you have withdrawn the funds, you are
still responsible for checks you deposit that are returned
to us unpaid and for any other problems involving your
deposit.
If you have any questions, contact your branch manager.
DETERMINING AVAILABILITY OF YOUR DEPOSIT
When we delay your ability to withdraw funds, the
length of the delay is counted in business days from the day
of your deposit.
Every day except Saturday, Sunday, and a
federal holiday is a business day.
Your deposit will be
considered received, however, only on a day we are open for
business.
For example, if you deposit on Thanksgiving, we
consider the deposit made on Friday, the next day we are
open for business.
And if you make your deposit after (time
of day) on any given business day, we consider it made on
the next business day.
1.
Nest-Day Availability
You may withdraw the first $100 ©f any deposit of
checks on the next business day after the day of your
deposit.
In addition, you may withdraw the entire amount of the
following deposits on the next business day after the
business day of your deposit:
Cash.
Mire transfers, including preauthorized credits, such
as social security benefits and payroll payments.
Checks drawn on ns, that is, drawn on the (bank name)
unless (any limitations related to branches In
different states or check processing regions).
United States government checks payable to you.
State and local government checks if they are payable
to you and if you use a special deposit slip available
from (where the form may be obtained).
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281
Cashier's,, certified^ or teller's checks If they
are payable to you and if you use a special
deposit slip available from (where the form may be
obtained).
2.
Availability of Other Check Deposits
Your ability to withdraw deposits other than those
listed above depends on whether your check is local or
nonlocal.
To determine whether the check you want to deposit is a
local or a nonlocal check, look at its bank location number.
This Is the number printed on the lower-left-hand corner of
the checks
-—- 19
—
Pay to the
order of_____________ _____________ [$
_______________________________________ dollars
(Bank Name
and Location)
—
1234567890
—
------------
------------- -------------
0000000000 000
-bank location number
If the first four digits of the bank location number
(1234 in the above example) are (bank's local routing
numbers), then the check is drawn on a bank that is located
In the same check-processing region as us, and we consider
it a local check. If the first four digits of the bank
location number of the check you are depositing are not
listed above, then the check is drawn on a bank outside our
check-processing region and we consider It a nonlocal check.
Local checks deposited into your account will be
available to pay any checks you have written to others
starting on the third business day after the business day of
your deposit.
(The first $100 of any checks deposited may
be withdrawn on the business day following the day of
deposit.) Also, you may withdraw up to $400 of the deposit
in cash at or after (time no later than 5s©0 p.a.) on the
third business day after the business day of your deposit if
your check is a local check. You may withdraw the remaining
amount on the fourth business day after the day of your
deposit.
For example, if you deposit a local check of $600 on a
Monday, $100 of the deposit is available Tuesday, and the
rest is available to pay checks written to others on
Thursday. At or after (tine no later than 5sG0 p.m.) on
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282
Thursday you may withdraw up to $400 of the deposit in cash,
and the rest is available for cash withdrawal on Friday.
Nonlocal checks deposited into your account will be
available to pay any checks you have written to others
starting on the seventh business day after the business day
of your deposit.
Also, you may withdraw the funds from the
deposit in cash on that day.
For example, if you deposit a nonlocal check on a
Monday, the funds from the deposit are available for
withdrawal or to pay checks written to others on Wednesday
of the next week.
3.
Deposits at Automated Teller Machines
You may not withdraw funds from any deposits, whether
cash or checks, made at automated teller machines we do not
own or operate until the seventh business day after the
business day of your deposit.
LONGER DELAYS MAY APPLY
We may delay your ability to withdraw funds deposited
by check into your account an additional number of days for
these reasons;
If we believe the check being deposited is
uncollectible.
If you make deposits in any one day that exceed $5,000.
If you redeposit a check that has been returned unpaid.
If you have overdrawn your account three or more times
in the last six months.
We will notify you if we do this, and tell you when you
will be able to withdraw the funds.
(We will delay for no
more than four additional business days.)
SPECIAL RULES FOR NEW ACCOUNTS
If your account has been open 30 days or less, we may
further limit your ability to withdraw funds deposited by
check, but only during the first 30 days.
You may still withdraw funds on the next business day
after the day of your deposit if you made the deposit in
cash or by wire transfer.
You also have next-day
availability for the following deposits (if they meet
certain requirements): government checks, cashier's checks,
certified checks, teller's checks, or traveler's checks.
However, your withdrawals of these check deposits are
limited to the first $5,000 of a day's total deposits.
(The
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283
r e s t i s a v a i l a b l e on t h e n i n t h b u s in e s s d a y a f t e r t h e d a y ©£
d e p o s ito )
F o r a l l o t h e r c h e c k d e p o s i t s , you may w it h d r a w t h e
d e p o s i t e d fu n d s a f t e r (n u m b e r) b u s in e s s d a y s .
A-283
284
C-6 — Where bank places holds to statutory limits on all
statutory categories of deposits (includes chart)
YOUR ABILITY TO WITHDRAW FUK1BS AT (bank name and location)
Our policy is to delay your ability to withdraw funds
that you deposit by check into your account.
The length of
the delay varies, and is explained below.
When we delay
your ability to withdraw funds on a deposit, you may not
withdraw the funds in cash and we will not pay checks you
write on your account by using these funds.
Please remember that even after we have made funds
available to you, and you have withdrawn the funds, you are
still responsible for checks you deposit that are returned
to us unpaid and for any other problems involving your
deposit.
If you have any questions, contact your branch manager.
DETERMINIHG AVAILABILITY OF YOUR DEPOSIT
When we delay your ability to withdraw funds, the
length of the delay is counted in business days from the day
of your deposit.
Every day except Saturday, Sunday, and a
federal holiday is a business day.
Your deposit will be
considered received, however, only on a day we are open for
business.
For example, if you deposit on Thanksgiving, we
consider the deposit made on Friday, the next day we are
open for business.
And if you make your deposit after (time
of day) on any given business day, we consider it made on
the next business day.
1.
Next-Day Availability
You may withdraw the first §100 of any deposit of
checks on the next business day after the day of your
deposit.
In addition, you may withdraw the entire amount of the
following deposits on the next business day after the
business day of your deposit:
Cash.
Wire transfers, including preauthorized credits, such
as social security benefits and payroll payments.
Checks drawn on ns, that is, drawn on the (bank name)
unless (any limitations related to branches in
different states or check processing regions).
United States government checks payable to you.
State and local government checks if they are payable
to you and if you use a special deposit slip available
from (where the form may be obtained).
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285
Cashier's, certified^ or -teller's checks if they are
payable to you and if you use a special deposit slip
available from (where the fona may be obtained)
2.
Availability of Other Check Deposits
To determine when funds deposited by check will be
available to pay any checks you have written to others or
for withdrawal, look at the check's bank location number.
This is the number printed on the lower-left-hand corner of
the check:
--- 19----Pay to the
order of__
1$________
dollars
(Bank Name
and Location)
1 2 3 4 !> 67890
0 0 0 0 0 0 0 0 0 0 000
—---------b a n k l o c a t i o n num ber
Once you have determined the bank location number, look
at the first four digits of that number. The following
chart can show you the availability time for your deposit:
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286
Bank location number
(first four digits)
o n the check being
deposited
When funds
are available
Example % when
funds are available if a deposit
is made ©n a
Monday
(local bank
numbers)
3rd business day
to pay checks
written to others
and $400 cash
for withdrawal at
or after (time no
later than 5s00
Pfl - )
-f i
Thursday (third
day after the
deposit)
4th business day
for rest of cash
or to pay checks
Friday (fourth
day after the
deposit)
7th business day
Next Wednesday
(the week
following the
deposit)
All other bank
numbers
Deposits at automated teller machines that we do not own or
operate, whether cash or check deposits, will not be
available for withdrawal until the seventh business day
after the date of deposit. (For example, a deposit you mad®
on Monday of this week will not be available for withdrawal
until Wednesday of next week.)
LOMGER DELAYS MAY APPLY
We may delay your ability to withdraw funds deposited
by check into your account an additional number of days for
these reasons;
If we believe the check you are depositing is
uncollectible.
If you make deposits in any one day that exceed $5,000.
If you redeposit a check that has been returned unpaid.
If you have overdrawn your account three or more times
in the last six months.
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287
We will notify you if we do this, and tell you when you
will be able to withdraw.
(We will delay for no more than
four additional business days.)
SPECIAL RULES FOR NEW ACCOUNTS
If your account has been open 30 days or less, we may
further limit your ability to withdraw funds deposited by
check, but only during the first 30 days.
You may still withdraw funds on the next business day
after the day of your deposit if you made deposit in cash or
by wire transfer.
You also have next-day availability for
the following deposits (if they meet certain requirements):
government checks, cashier's checks, certified checks,
teller's checks, or traveler's checks.
However, your
withdrawals of these check deposits are limited to the first
$5,000 of a day's total deposits.
(The rest is available on
the ninth business day after the day of deposit.)
For all other check deposits, you may withdraw the
deposited funds after (number) business days.
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288
0- 7 — Where bank places holds ©n all statutory categories
©£ deposits , but for less time than the statutory Ha l t s
YOUR ABILITY TO WITHDRAW FUNDS AT fbank name and location)
Our policy is to delay your ability to withdraw funds
that you deposit by check into your account. The length of
the delay varies, and is explained below. When we delay
your ability to withdraw funds, you may not withdraw the
funds in cash, and we will not pay checks you write on your
account by using these funds.
Please remember that even after we have made funds
available to you, and you have withdrawn the funds, you are
still responsible for checks you deposit that are returned
to us unpaid and for any other problems involving your
deposit.
If you have any questions, contact your branch manager.
DETERMINING AVAILABILITY OF YOUR DEPOSIT
When we delay your ability to withdraw funds, the
length of the delay is counted in business days from the day
of your deposit. Every day except Saturday, Sunday, and a
federal holiday is a business day. Your deposit will be
considered received, however, only on a day we are open for
business. For example, if you deposit on Thanksgiving, we
consider the deposit made on Friday, the next day we are
©pen for business. And if you make your deposit after (time
©f day) on any given business day, we consider it made on
the next business day.
1-
Next-Day Avallability
You may withdraw the first $100 ©£ any deposit of
checks on the next business day after the day of your
deposit.
In addition, you may withdraw the entire amount of the
following deposits on the next business day after the
business day of your deposit:
Cash.
Mire transfers,, including preauthorised credits, such
as social security benefits and payroll payments.
Checks drawn on us, that is, drawn on the (bank name)
unless (any limitations related to branches in
different states or check processing regions).
United States government checks payable to you.
State and local government checks if they are payable
to you and if you use a special deposit slip available
from (where the fore may be obtained).
A - 2 88
289
Cashier's, certified,, or teller's checks if they are
payable to you and if you use a special deposit slip
available from (where the fora may be obtained).
2.
Availability of Other Check Deposits
Your ability to withdraw deposits other than those
listed above depends on whether your check is local or
nonlocal.
To determine whether the check you want to deposit is a
local or a nonlocal check, look at its bank location number.
This is the number printed on the lower-left-hand corner of
the check:
--- -19. .
.
Pay to the
order of
i$________
dollars
(Bank Name
and Location)
1234®567890
0000000000 000
— - —bank location number
—
If the first four digits of the bank location number
(1234 in the above example) are (bank's local routing
numbers), then the check is drawn on a bank that is located
in the same check-processing region as us, and we consider
it a local check. If the first four digits of the bank
location number of the check you are depositing are not
listed above, then the check is drawn on a bank outside our
check- processing region and we consider it a nonlocal
check.
Local checks deposited into your account will be
available to pay any checks you have written to others
starting on (date).
(The first $100 of any checks deposited
may be withdrawn on the business day following the day of
deposit.) Also, you may withdraw (amount) of the deposit in
cash at or after (time no later than 5:00 p.m.) on (date) if
your check is a local check. You may withdraw the remaining
amount on (date).
For example, if you deposit a local check of $600 on a
Monday, $100 of the deposit is available Tuesday, and the
rest is available to pay checks written to others on (day).
At or after (time no later than 5:00 p.m.) (amount) of the
deposit in cash, and the rest is available for cash
withdrawal on (day).
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Nonlocal checks deposited into your account will be
available to pay any checks you have written to others
starting on (date).
Also, you may withdraw the funds from
the deposit in cash on that day.
For example, if you deposit a nonlocal check on a
Monday, the funds from the deposit are available for
withdrawal or to pay checks written to others on (day).
3.
Deposits at Automated Teller Machines
You may not withdraw funds from any deposits, whether
cash or checks, made at automated teller machines we do not
own or operate until (date).
LONGER DELAYS MAY APPLY
We may delay your ability to withdraw funds deposited
by check into your account an additional number of days for
these reasons:
If we believe the check being deposited is
uncollectible.
If you make deposits in any one day that exceed $5,000.
If you redeposit a check that has been returned unpaid.
If you have overdrawn your account three or more times
in the last six months.
We will notify you if we do this, and tell you when you
will be able to withdraw the funds.
(We will delay for no
more than four additional business days.)
SPECIAL RULES FOR Nm
ACCOUNTS
If your account has been open 30 days or less, we may
further limit your ability to withdraw funds deposited by
check, but only during the first 30 days.
You may still withdraw funds on the next business day
after the day of your deposit if you made the deposit in
cash or by wire transfer.
You also have next-day
availability for the following deposits (if they meet
certain requirements): government checks, cashier's checks,
certified checks, teller's checks, or traveler's checks.
However, your withdrawals of these check deposits are
limited to the first $5,000 of a day's total deposits.
(The
rest is available on the ninth business day after the day of
deposit.)
A -290
For all other check deposits, you may withdraw the
deposited funds after (number) business days.
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292
C-8 —
Hotice of exception
Exception Hold Motice
(Date hold is placed)
We are placing a hold on the following checks deposited on
(date). These funds will be available to you (number ©f
business days) business days after the date the deposit was
made. Please remember that even after we have made funds
available to you, and you have withdrawn the funds, you are
still responsible for checks that you deposit that are
returned to us unpaid and for any other problems involving
your deposit.
(description of items including amount and payee)
We placed the hold for the following reasons:
- - The check you deposited has been returned unpaid and
- i
--- is being redeposited.
I —| Your account has been overdrawn three or more times
-L— — ' in the last six months.
— — i The checks you deposited on this day exceed $5,000.
---- (This hold applies only to the amount over $5,000.)
*
-I — | We believe the check may be uncollectible for the
•
--- ' following reasons;
If you have any questions regarding this notice you may call
(tel ephone m m b e r ).
A -292
293
C-9 __ notice of hold (bank gives ne^t-day availability and
places holds to statutory limits on local and nonlocal
checkss but only on a case-by-case basis)
Motice of Hold
Date of deposit
(
today"s date).
Amount of deposit (amount).
We are placing a hold on this deposit. These funds will be
available to you on Cdate). Please remember that even after
we have made funds available to you, and you have withdrawn
the funds9 you are still responsible for checks that you
deposit that are returned to use unpaid and for any other
problems involving your deposit.
A -293
294
C-10 -- Notice at branch locations
FUNDS AVAILABILITY POLICY
Description
of Deposit
When Funds Can Be
Withdrawn By Cash
or Check
Cash* wire transfers* checks
on us unless (any limitation
related to branches in
different check processing
regions), governments
cashier's* certified, or
teller's checks
The business day after
the day of deposit
Local checks
The third business
day after the day
of deposit
Nonlocal checks
The seventh business
day after the day
of deposit
A -294
295
C-ll — Notice at proprietary automated teller machines9
drive-in teller facilities*, and on preprinted deposit slips
AVAILABILITY OF DEPOSITS
Notice: Deposits may not be available for immediate
withdrawal.
[Please refer to the bank's rules
governing funds availability for details.]
A -295
0-12 — Notice at a bank's automated teller machines
that may be used for deposits by customers of other banks
AVAILABILITY OF DEPOSITS
Motiea j If your
of bank)s funds
available until
day of deposit,
governing funds
account is at a bank other than (name
deposited by cash or check may not be
the seventh business day following the
Please refer to your bank's rules
availability for details.
A -296
297
C-13 — Interest payment policy insert in specific policy
disclosure
INTEREST PAYMENT POLICY
If we receive a deposit to your account on or before
the tenth of the months you begin earning interest on the
deposits, whether it was a deposit of cash or checks, on the
first day of the month. If we receive the deposit after the
tenth of the months you begin earning interest on the
deposit as of the first of the following month. For
example9 a deposit made on June 7 earns interest from June
1„ while a deposit made on June 17 earns interest from July
1.
A-297
APPENDIX D
Indorsement Standards
l o
The depositary bank shall
indorse a check according to the
following specifications§
°The indorsement shall contain —
- the
bank°s
nine-digit
routing
number,
set
off
arrows at each end of the number and pointing
by
toward
the number;
- the bank°s name/location?
- the indorsement date?
®The indorsement may also contain —
- an optional branch identification?
- an optional trace/sequence number?
- other optional information provided
of
such
information
does
not
readibility of the indorsemento
A-298
that the inclusion
interfere
with
the
-2 -
° The
indorsement
shall
be w r i t t e n
in d a r k
purple
inke
°The indorsement shall be placed on the back of the check
in the following locations
- a
block-style
indorsement,
encoder or microfilmer,
the
area
3 ®0 inches
such
as
applied
shall be wholly
to 4®5
inches
by
an
contained
in
from the leading
edge of the check.1/
~ A
linear-=style
indorsement,
reader/sorter, shall
number
such
be placed
is wholly contained
as
so
applied
that
the
by
a
routing
in the area 3 oO inches to
4o5 inches from the leading edge of the check .
- The indorsement shall not be placed
band,
a
extending along
height
of
0*625
the bottom edge of the check to
inches,
carbonized band location,
check
in a line
in the MICR clear
between
nor
in
extending
1*4
inches
the
one™write
the length of the
and
1*9
inches
above the bottom edge of the check®
U
The leading edge is defined as the right side of the check
looking at it from the front®
See American National Standards
Committee on Financial Services,
Specification for the
Placement and Location of MICR Printing, X 9*13®
A°299
-3-
2.
Each
subsequent
identifiability
indorsement
0
and
bank
indorser
legibility
of
shall
the
protect
depositary
the
bank
by:
including only
arrows),
the
its nine-digit routing number
indorsement
date,
and
an
(without
optional
trace/sequence number?
9
using an ink color other than purple?
6
staying clear of the
area
3 90 inches
to 4®5
inches
from the leading edge of the check specified
for
the
depositary bank indorsement
3o
All
other
indorsing
parties,
protect the identifiability
bank
and
e » g e corporations,
legibility of
should
the depositary
indorsement by staying clear of the area 3*0 inches to 4®5
inches
from the leading edge of
the
check
specified
for
the
depositary bank indorsement
4o
All depositary banks shall work with corporate
arrange
that corporate payee
nine-digit
routing
depositing
the
number
check
and
of
indorsements
the
bank
include
in
the co rp ora ti on^
that banko
A-300
which
indorsers to
the name and
they
are
account number at
-301-
2o
Part 210 is amended as follows?
Part 210 —
Regulation J (Collection of Checks and Other items
and Wire Transfer of Funds)
aQ
The authority citation for Part 210 is revised to
read as follows?
Authority?
Federal Reserve Act, section 13 (12 UoSoCo
342), section 11(i) (12 U.S*Co 248(i)), section 16
248(o)
and 360), and section 19(f)
(12 U,SoC»
(12 UoS*C0 464)? and the
Expedited Funds Availability Act (12 UoS.C, 4001 et seg.) e
b0
§ 210.1
Section 210*1 is revised to read as follows?
Authority, purpose, and scope*
The Board of Governors of the Federal Reserve System
("Board")
has
Reserve Act,
UeSsC*
issued this
section 13
subpart
to
the Federal
(12 U 0SoC* 342), section 11(i) (12
248(i)), section 16
section 19(f)
pursuant
(12 U sS*Co 248(o)
and
360),
and
(12 U 0S 0C® 464)? the Expedited Funds Availability
Act (12 UoSeCo 4001 et seq, ? and other laws*
)
This subpart
governs the collection of checks and other cash and noncash
items by Federal Reserve Banks 0
Its purpose
is to provide
rules for collecting items and settling balances*
Co
paragraph
In § 2lOa2, paragraph (e)
at
paragraph (j)
the
is
end
of
revised,
and
paragraph (g)
paragraphs (k)
redesignated
A“ 3 0 1
the undesignated
are
and
revised,
(1)
are
-302“
as paragraphs (1) and (m) , a new paragraph (k)
redesignated
paragraph (1)
is revised,
is added,
the
and the undesignated
paragraph at the end of § 2l0o2 is revised to read as followss
§ 210©2
*
Definitionso
*
*
(e)
*
*
"Cash item" means
(1)
a check other
than one classified
as a
noncash item under this section; or
(2)
any
other
collectible at par
item
that
payable
on
the Reserve
demand
Bank
of
and
the
District in which the item is payable is willing to
accept as a cash itemQ
"Cash item" does not include a returned checke
*
*
&
•
k
(g)
*
•
k
*
&
Unless
includes both cash and noncash
otherwise
ind icated, "item"
items and a returned check,
whether or not sent by a sender,3
☆
&
*
&
(j)
&
"Paying bank" means -(1)
The bank by which an item is payable unless
the item is payable or
collectible
at or
through
another bank and is sent to the other bank for payment
or collection;
(2)
payable or
The bank at or through which an item is
collectible
and
payment or collection;
A-302
to which
it sent
for
-303"
(3)
The bank whose routing number appears on a
check in magnetic characters or fractional form and to
which the check is sent for payment or collection; or
(4)
The state on which a check described in 12
CFR 229 o2 is drawn *
*
*
*
(k)
*
*
“Returned check" means a cash item or a check as
defined in 12 CFR 229 «2 returned by a paying bank, including a
notice of nonpayment in lieu of a returned cash item or check,
whether or not a Reserve Bank handled the check for collection,,
*
*
*
*
(l)
*
*
*
*
Sender does not include a paying bank
with respect to a returned check*
*
*
*
*
*
Unless the context otherwise requires,
herein have
the meanings set forth
the terms not defined
in 12 CFR 229 *2 and the
terms not defined herein or in 12 CFR 22902 have the meanings
set forth in the Uniform Commercial Code „
d9
Paragraph (b) of section 210® 7 is amended to read
as follows e
§ 2X0o7
*
*
presenting items for payment„
*
(b)
*
*
Place
of
presentment»
A
Reserve
Bank
or
subsequent collecting bank may present an item —
(1)
At a place requested by the paying bank;
A™ 3 0 3
” 304"
(2)
In the case of a check as defined in 12 CFR
229 02 f in accordance with 12 CFR 229*36;
(3)
At a place requested by the nonbank payor,
if the item is payable by a nonbank payor other than
through or at a paying bank;
(4)
Under
a
special
collection
agreement
consistent with this subpart; or
(5)
Through a clearinghouse and subject to its
rules and practices*
*
*
*
e.
| 210©10
&
*
Section 210*10 is revised to read as follows:
Time schedule and availability of credits for cash
items and returned checks•
(a)
Each Reserve Bank shall include in its operating
circulars a time schedule for each of its offices indicating
when the amount of any cash item or returned check received by
it (or sent direct to another Reserve office for the account of
that Reserve Bank)
is counted as reserves
Part 204 of this chapter
for use by the sender®
for purposes
of
(Regulation D) and becomes available
The Reserve Bank shall give either
immediate or deferred credit
in accordance with
its time
schedule to a sender other than a foreign correspondent©
A
Reserve Bank ordinarily gives credit to a foreign correspondent
only when the Reserve Bank receives payment of the item in
actually and finally collected funds, but, in its discretion, a
A-3G4
-305-
Reserve
Bank
may
give
immediate
or
deferred
credit
in
accordance with its time schedules
(b)
notwithstanding its time schedule, a Reserve Bank
may refuse at any time to permit the use of credit given for
any cash item or returned check for which the Reserve Bank has
not yet received payment in actually and finally collected
funds *
fe
§ 210.12
Section 210,12 is revised to read as follows:
Return of cash items and handling of returned
checks,
(a)
Return of cash
items»
A
paying
bank
that
receives a cash item directly or indirectly from a Reserve
Bank* other than for immediate payment over the counter,
that pays
for
and
the item as provided in § 210,9 {a) of this
subpart, may, before it has finally paid the item, return the
item, or if the item is unavailable for return, send notice of
nonpayment
in lieu of the
item,
to
its Reserve Bank
in
accordance with the Uniform commercial Code and Subpart C of
Part 229 and its Reserve Bank's operating circular.
The rules
or practices of a clearinghouse through which the item was
presented, or a special collection agreement under which the
item was presented, may not extend these return times, but may
provide for a shorter return time,
(b)
Return of checks not handled by Reserve Banks,
paying bank that receives a check as defined in 12 CFR 229,2,
A-305
A
-306-
other than directly or indirectly from a Reserve Bank, and that
determines not to pay the check, may send the returned check or
notice of nonpayment in lieu of the returned check to its
Reserve Bank in accordance with Subpart C of Part 229 and its
Reserve Bank's operating circular.
A returning bank may send a
returned check to its Reserve Bank in accordance with Subpart C
of Part 229 and its Reserve Bank's operating circular0
(c)
Paying bank's and returning bank's agreement«
sending a returned check to a Reserve Bank, the paying bank or
returning bank —
(1)
Authorizes the receiving Reserve Bank
(and
any other Reserve Bank or returning bank to which the
returned check is sent) to handle the returned check
subject to this subpart and to the Reserve Banks'
operating circulars;
(2)
Makes the warranties set forth
in 12
CFR
Agrees to indemnify each Reserve Bank
for
229o34; and
(3)
any
loss or expense
(including attorneys 8 fees and
expenses of litigation) resulting from —
(i)
authority
The paying or returning bank's lack of
to
give
the
authorization
in
paragraph (c)(1) of this section;
(ii)
Any action taken by a Reserve
Bank
within the scope of its authority in handling the
returned check; or
A - 306
By
-307 ™
(iii)
Any warranty made by the Reserve Bank
under 12 CFR 229e34e
(d)
Recovery by Reserve
Bank0
if an action
or
proceeding is brought against (or if defense is tendered to) a
Reserve Bank that has handled a returned check based on ~
(1)
The
returning bank
alleged
failure
to have
of
the
paying
or
the authority to give the
authorization in paragraph (c)(1) of this section;
(2)
Any action by the Reserve Bank within the
scope of its authority in handling the returned check;
or
(3)
Any warranty made by the Reserve Bank under
12 CFR 229 e34*
the Reserve Bank may, upon the entry of a final judgment or
decree,
recover from the paying bank or returning bank
amount of attorneys'
fees and other expenses
of
the
litigation
incurred* as well as any amount the Reserve Bank is required to
pay
under
the
judgment or decree*
together
with
interest
thereon0
(e)
Methods of recovery0
The
Reserve
Bank
may
recover the amount stated in paragraph (d) of this section by
charging any account on its books that is maintained or used by
the paying or returning bank
(or if the sender
is another
Reserve Bank* by entering a charge against the other
Bank through the interdistrict Settlement Fund)* if —
A-307
Reserve
-308 -
(1)
demand
The Reserve Bank
on
the paying
or
made
seasonable
written
returning bank to assume
defense of the action or proceeding? and
(2)
The paying or returning bank has not made
any other arrangement for payment that is acceptable
to the Reserve Bank0
The Reserve Bank is not responsible for defending the
action or proceeding before using this method of recovery0
Reserve Bank that has been charged through
A
the Interdistrict
Settlement Fund may recover from the paying or returning bank
in the manner and under the circumstances set forth
paragraph.
remedy
A Reserve Bank’ failure to avail itself of the
s
provided
enforcement
in this
in this paragraph
does not
prejudice
its
in any other manner of the indemnity agreement
referred to in paragraph (c)(3) of this section,,
(f)
A Reserve Bank shall handle a returned check, or
a notice of nonpayment,
in accordance
Part 229 and its operating circular0
with
Subpart C
of
A Reserve Bank may permit
or require the paying bank to send direct to another
Reserve
Bank a returned check with respect to which the depositary bank
is located within
the other
Reserve
Bank’s
District,
in
accordance with § 2l0o4(b)o
(g)
A subsequent returning bank or depositary bank
shall settle for returned checks in the same manner as for cash
items presented for payment„
A” 3 0 8
-309-
go
Section 210.15 is deleted.
By order of the Board of Governors of the Federal
Reserve System, December
3, 1987.
William W. Wiles
Secretary of the Board
A=309
FEDERAL RESERVE SYSTEM
(Docket NOo R-0621)
Federal Reserve Bank Services
AGENCY: Board of Governors of the Federal Reserve System*
ACTIONi
Request for comment „
SUMMARYs
The Board is requesting comment on a proposal for
the Federal Reserve Banks to offer several new services to
depository institutions*
These services will assist
depository institutions in complying with the new rules for
the collection and return of checks that the Board is* in
Docket No* R-0620* proposing to adopt to implement the
Expedited Funds Availability Act*
DATEi
Comments must be submitted on or before February 8, 1988*
No extension of time for comments will be provided*
ADDRESS ?
Comments* which should refer to Docket No* R-0621*
may be mailed to the Board of Governors of the Federal
Reserve System* 20th and C Streets* N 0 0* Washington* D.C,
W
20551* Attentions
Mr, William W a Wiles* Secretary? or may
be delivered to Room B-2223 between 8s45 a*mo and 5s00 p.m.
All comments received at the above address will be included
in the public comments file* and may be inspected in Room
B-1122 between 8?45 a em e and 5?15 p 0m 0
FOR FURTHER INFORMATION CONTACT?
Steven 0 o App* Manager
(202/452-3760)? Thomas C s Luck* Senior Analyst
(202/452-3935) ? or Gayle Thompson* Senior Analyst
B-l
2
( 2 0 2 / 4 5 2 - 2 9 3 4 ) t D i v i s i o n of F e d e r a l R e s e r v e B a n k Oper a t i o n s .
F o r the h e a r i n g i m p a i r e d onlyt
Telecommunications Device
for the D e a f f E r n e s t i n e R i l l o r D o r o t h e a T h o m p s o n
(202/452-3254).
S U P P L E M E N T A L INFORMATIONs
Act,
T i t l e V I of Pub. Lo
depository institutions
The E x p e d i t e d F u n d s A v a i l a b i l i t y
100-86,
r e q u i r e s b a n k s and o t h e r
( c o l l ectively r e f e r r e d to as
" b a n k s ” 1) to m a k e funds d e p o s i t e d into a c c o u n t s a v a i l a b l e to
d e p o s i t o r s w i t h i n t i m e p e r i o d s s p e c i f i e d b y the A c t a nd to
disclose
funds a v a i l a b i l i t y p o l i c i e s to t h e i r d e p o sitors.
T he B o a r d is g i v e n r e s p o n s i b i l i t y to a d o p t r e g u l a t i o n s to
i m p l e m e n t the Act.
T h e A c t also p r o v i d e s t he B o a r d w i t h
b r o a d a u t h o r i t y to a d o p t r e g u l a t i o n s to i m p r o v e the c h e c k
p r o c e s s i n g s y s t e m so t hat c h e c k s m a y be c l e a r e d and,
necessary,
if
r e t u r n e d w i t h i n the funds a v a i l a b i l i t y s c h e d u l e s
m a n d a t e d b y t he Act.
T he p r o p o s e d R e g u l a t i o n CC t e r m i n o l o g y c o r r e s p o n d s w i t h
the t e r m i n o l o g y o f the U n i f o r m C o m m e r c i a l Code, w i t h some
modifications.
B a n k Is d e f i n e d to i n c l u d e a ll d e p o s i t o r y
institutions.
A p a y i n g b a n k is the b a n k on w h i c h the c h e c k
is drawn.
In the cas e of p a y a b l e t h r o u g h drafts, the
p a y a b l e t h r o u g h b a n k is the p a y i n g bank.
A returning bank
is an i n t e r m e d i a r y b a n k h a n d l i n g a r e t u r n e d check.
A
d e p o s i t a r y b a n k is the b a n k in w h i c h the c h e c k w a s first
deposited.
(See s e c t i o n 229.2 o f the p r o p o s e d r e g u l a t i o n
for the c o m p l e t e d e f i n i t i o n s o f these terms.)
B-2
3
The Board is today requesting comment on a series
of proposals, Docket Nos. R-0620, R-Q621, and R-QS22, that
will exercise its responsibilities under the Act.
Docket
No. R-0620 consists of a proposed regulation (Regulation CC,
12 CFR Part 229) that will clarify the definitions of the
Act, provide detailed rules to facilitate compliance with
the availability and disclosure requirements, and make
several substantive changes to the current law on the
collection of checks to encourage faster return of unpaid
checks, thus minimizing the losses that could result from
compliance with the availability schedules.
Docket No.
R-0620, also proposes several amendments to the Board®s
current Regulation J (12 CFR Part 210), which governs the
collection of checks and other items by Federal Reserve
Banks, so that it conforms to the new standards adopted in
Regulation CC.
This docket. No. K-0621 Federal Reserve Bank
Services, requests comment on proposed new services to be
offered by the Federal Reserve Banks to assist banks and
other depository institutions to comply with the new check
collection rules established in Regulation CC.
Docket No.
R-0622 Proposals for Long-Term Improvements to the Check
Collection System, requests comment on some possible
services that the Federal Reserve are studying as well as
B-3
4 -
longer-term improvements to the nation's check collection
system,,
Commenters should review the overview material
contained in Docket N o 0 R-0620 Regulation CC, which provides
background on these proposals„
The Federal Reserve System is a major provider of
check collection services to banks, and the 48 Federal
Reserve check processing offices currently handle about 150
million returned checks annually.
In contrast to the
forward collection process, the return item process is a
slow, relatively labor intensive, and costly operation»
A
brief description of the current process can be found in the
overview material contained in Docket No» R-0620, Regulation
CC0
Under current procedures, most returned checks will
not reach the depositary bank before it must make funds
available to its customers according to the availability
schedules mandated by the Expedited Funds Availability Act
(12 UoSoCo 4002)o
To reduce the risk to depositary banks,
the Federal Reserve is proposing new responsibilities for
paying banks to return checks expeditiously„
The Federal
Reserve has also developed new services to enable paying
banks to meet these new responsibilities0
B-4
5
In developing these services, considerable emphasis
was placed on assuring that banks would have available
several alternative approaches to comply with the provisions
of the proposed regulationse
A number of new and enhanced
services that will increase the speed of the return process
are proposed by the Federal Reserve, including direct
returns, universal returns, expedited processing of
nonautomated returns, high-speed processing of automated
returns, and improved notification services„
In addition,
the Federal Reserve is proposing to implement truncation and
Extended MICE (Magnetic Ink Character Recognition) services„
It is anticipated that private sector check collection
service providers will also develop similar or other
innovative check services.
PROPOSED FEDERAL RESERVE RAWK SERVICES
Direct Returns
One of the constraints to the speed of the current
return item process is the number of returning banks that
process a check during its trip from the paying bank back to
the depositary bank*
Returned checks handled by the Federal
Reserve generally are returned to the bank that originally
deposited the check with the Federal Reserve,
B-5
Thusp if the
6
Federal Reserve originally received a check for deposit from
a correspondent bank, and that check is returned, the
Federal Reserve will send that return to the correspondent.
That correspondent will, in turn, send the return to its
indorser, most likely the depositary bank.
It is important
to expedite this return process when the Act becomes
effective.
Experience with a pilot program conducted by the
Federal Reserve Bank of Dallas has shown that the return
process can be completed more promptly if the number of
returning banks can be minimized and the returned check is
sent directly to the depositary bank.
The Federal Reserve is proposing to return checks
directly to the depositary bank, or its agent by
September 1, 1988? bypassing other returning banks in the
indorsement chain.
The objective of this proposal is to
speed the return process by reducing the number of banks
that must handle a returned check.
Experience with the Dallas pilot program Indicates
that the direct return process would reduce the average
return time by approximately one^half day for returns
processed by the Federal Reserve, with greater improvements
for checks that currently take the longest to return— those
with multiple intermediary bank indorsers,
A survey of over
18,000 returned checks at 12 Federal Reserve offices
B-6
7
revealed that 43 percent of all returned checks were handled
by one or more correspondents during forward collection.
Bypassing these correspondents by directly returning checks
to the depositary bank would reduce return times by a day or
more.
The proposed direct return procedure will be more
costly for the Federal Reserve because of the additional
endpoints to which returned checks must be sorted and
deliveredo
The Federal Reserve may sort returns to an
estimated 26,000 endpoints under a direct return procedure,
in contrast to 5,600 today~-an increase of nearly 370
percent.
The Federal Reserve's transportation expenses for
delivery of returned checks could also increase
substantially if delivery of returns were made via courier
to all depositary banks„
The Federal Reserve delivers to
approximately 10,500 endpoints via courier today and
anticipates that most returns can be delivered via this
transportation„
Recognizing the desirability of providing prompt
return of checks to depositary banks while seeking to
minimize increases in transportation costs, the Board
proposes the followings
A
depositary bank may receive returned checks from
the Federal Reserve, at no charge, at a location
B-7
8
where the Federal Reserve currently delivers the
bank5s forward collection checks^ or at a location
where the Federal Reserve currently provides courier
delivery, or at another designated location through
the U 0Sc mail.
A depositary bank that wishes its returned checks
delivered by courier to a location where the Federal
Reserve does not currently provide courier service
may be charged for newly instituted transportation.
The Board requests comment on the proposal for Federal
Reserve offices to deliver returned checks directly to the
depositary bank.
Comment is also requested on the proposed
guidelines for delivery of returned checks by courier.
Universal Returns
Currently, unpaid checks are sent back to the
presenting bank.
In order to assist paying banks in meeting
the new requirements for prompt return (See Regulation CC 12
CFR 229o30(a) Docket No. R-Q620), the Federal Reserve is
proposing to accept from paying banks by September
1,
1988,
all returned checks regardless of whether or not the checks
were originally collected through the Federal Reserve.
Paying banksf of course? would not be obligated to send any
returned checks to the Federal Reserve.
It is anticipated
that most returned checks originally cleared through private
B°8
9
clearing arrangements would continue to be exchanged
directly by the clearing participants.
Expedited Processing of Returns
Most Federal Reserve offices now receive returned
checks during the late evening/early morning hours and
process the checks during the daytime hours.
Dispatch of
the returned checks is generally made on the next available
transportation to indorsers and other Federal Reserve
offices.
Thus? returned checks received by the Federal
Reserve can be in the possession of the Federal Reserve for
up to a day before being sent to the previous indorser„
The Federal Reserve is proposing to establish by
September 1, 1988, returned check deposit deadlines at
Federal Reserve offices, supported by expanded processing
capabilities, such that local returned checks can, in most
instances, be returned to the depositary bank the day
following dispatch by the paying banko
The objective of
this proposal is to provide for overnight processing and
dispatch of returned checks similar to current processing
and presentment time frames for forward collection checks.
Deadlines for deposit of returned checks will
correspond as closely as possible to forward collection
deadlines in order to minimize transportation costs to
paying banks.
Each Federal Reserve office will offer at
B~9
10
least one deposit deadline for all raw returned checks
deposited intermixed„
The earliest deadline for a mixed
return letter will be 8s00 p„m0
Deposits of raw returned
checks at later deadlines, typically at midnight, may have
to be presorted into separate local and nonlocal return
letters prior to deposit with the Federal Reserve.
Paying
and returning banks will also have the opportunity to
fine-sort returns by depositary bank in order to obtain
later deposit deadlines and lower fees*
Fees for processing raw local returned checks are
projected to be in the range of $0o25 to $0O75 per return.
Fees will be the same for all types of local returns, i 0e 0,
city/regional/country, but fees may vary at different
deposit deadlines•
Fees for nonlocal raw returned checks
are projected to be in the range of $0o30 to $lo00 per
returno
The higher range for nonlocal checks reflects the
cost of processing at two Federal Reserve offices as well as
transportation costs between the two offices0
Fees for
returned checks that have been fine-sorted prior to deposit
with the Federal Reserve will be the same as fees for
forward collection fine-sorted deposits„
Fees for automated returns or qualified returned
checks (QRC) initially are expected to be the same as the
fees for regular forward collection checks of the same typeQ
B - 1 0
11
In addition, for both raw and qualified returned checks, a
return letter fee similar to the cash letter fees imposed on
forward collection checks would be assessed.
The
implementation of explicit fees for returned checks will
most likely result in a reduction in Federal Reserve prices
for forward collection checks.
The Reserve Banks may offer deposit options under
which paying banks would place the depositary bank's routing
number on the face of the returned check before sending it
to the Federal Reserve.
Fees and deadlines would be set to
reflect the additional preparations performed by the paying
bank.
The Board requests comment on the impact of the
proposed deadline and fee changes on the operations of
banks.
In addition, the Board would appreciate specific
comments on the proposed deposit option wherein paying banks
would place the nine-digit routing number of the depositary
bank on the face of the returned check.
High-Speed Processing of Returned Checks
One proposed method of handling returned checks
more efficiently is to prepare returned checks for
high-speed processing as early as possible In the return
cycle.
This can be done by placing the dishonored check in
a carrier envelope or putting a strip across the bottom of
B-ll
12
the returned check and encoding on the envelope or strip the
nine^digit routing number of the depositary bank, the amount
of the check, and a returned check identifier„
To reduce
possible error and the resulting liability, banks qualifying
returned checks probably would use a check-digit algorithm
to verify the accuracy of the routing number encoded on the
envelope or strip.
The Board includes the following information to
provide commenters with the background necessary to evaluate
this proposed solution.
From November 1985 to February
1986, the American Bankers Association and the Federal
Reserve, with the cooperation of many banks, conducted a
test of a qualified returned check system, proposed by
Valley National Bank, Phoenix, Arizona*,
As proposed, the
paying bank deciding to return a check would qualify the
returned check and place it into the outgoing collection
work.
This collection path would be independent of the path
chosen by the depositary bank to collect the check being
returned*,
Credit would be passed as if the returned check
were being collected through the forward collection process„
The test provided data that indicated that the QRC procedure
would be successful in speeding the flow of the returned
check to the depositary bank.
A complete analysis of the
test program and its results is available from the Secretary
of the Board at the address indicated in the caption.
B-12
13
The benefits that can be derived from using the QRC
system include more timely delivery of returned checks to
the depositary bank,, elimination of manual handling at
intermediary processorsF use of the most efficient
high-speed process to move the returned check to the
depositary bank, and a reduction in the use of mail to
transport returned checks to the depositary bank or a
returning bankD
These benefits can be accrued with a
minimal investment in new equipment since most of the
equipment used for this procedure is readily available and
in use at many banks•
Even though the test program results indicated that
benefits could be gained from implementation of such a
procedure, various concerns prohibited banks from
implementing the system at the end of the test period„
One
of the key barriers to successful implementation of the QRC
process was the fact that three jurisdictions have not
adopted an optional provision of the U 0C 0C„ that allows the
paying bank to send returned checks directly to the
depositary bank.
The proposed Regulation CC, section
229o30(a) overrides any conflicting state law and allows
banks in all jurisdictions to return checks directly to the
depositary bank or to an intermediary bank or processor that
was not in the original collection chain.
B-13
14
Another concern for the paying bank is how to
identify and easily determine the depositary bank and its
nine-digit routing number among all the varying sizes and
descriptions of indorsements on the back of the check„
Frequently, the depositary bank will not be one of the
correspondent banks with whose indorsement a bank's return
item personnel are familiar0
This problem is being
addressed in the proposed Regulation CC, section 229035,
which provides a mandatory indorsement standard for the
depositary bank and subsequent indorsers8
In addition, the industry was concerned about
special handling of returned checks as opposed to forward
collection checks0
The most efficient way of processing
returned checks through a high-speed system is to intermix
returned checks with forward collection checksc
On the
other hand, extra risks may be associated with processing
returned checks intermixed with forward collection checks.
In addition, discussions with the industry have indicated
that most depositary banks would prefer to have their
returned checks presented to them separately from the checks
drawn on themQ
This would allow banks to Identify their
returned checks earlier and take action as quickly as
possible in the event that the hold period for one of the
checks being returned is about to expire0 With this in
B-14
15
mind; the Board proposes that the processing of returned
checks via the QRC process be kept separate from the
processing of forward collection checks.
By September 1, 1988; the Federal Reserve offices
will accept returned checks that have been prepared using
the QRC process.
In addition, the Federal Reserve will
qualify raw returns If this will speed up the return
process.
For the most part; only nonlocal returns will be
qualified? however; some Federal Reserve offices may qualify
local returns when this is the most efficient way for that
office to process the returns„
Qualified returned checks
handled by the Federal Reserve will not be intermixed with
forward collection checks unless the depositary bank agrees
that the returns be included in its Federal Reserve cash
letter„
Proposed fees and deposit deadlines for handling
QRCs will be the same as the fees for handling checks
deposited for collection.
If the return process were to
result in a higher reject rate; need a higher level of
controls than the collection process; or otherwise prove to
be more costly; the fees for QRCs may be increased.
All deposit deadlines for checks deposited for
forward collection; Including those for fine-sort deposits;
will be open for qualified returned checks, subject to the
B-15
16
same sorting instructions.
Of course, if returns are
fine-sorted? it would not be necessary for the paying or
returning bank to qualify the returns before depositing in
this manner because the checks will be delivered to the
fine-sort endpoint without further processing0
Use of the QRC process will be optional for paying
and returning banks.
Preparing returned checks for
high-speed processing would not always be the most
cost-effective or efficient alternative•
Checks that are
returned through returning banks would most likely be
returned more quickly if qualified early in the return
cycl@o
It is anticipated that other methods of handling
returns expeditiously will develop.
One Reserve Bank is
investigating the possibility of using electronics in the
return process (See Docket R-Q622 ^ Proposals for Long-Term
Improvements to the Check Collection System)„
The Board requests comment on the use of the QRC
process for expediting the handling of returned checks by
returning banks.
Specifically*. the Board requests comment
on the likelihood of paying banks initiating this process„
Rf©tifioafci©im o£ fflcmp&ymenfc
Under Regulation J (12 CFR Part 210)
,
a paying
bank is required to send notification of nonpayment to the
B-16
17
depositary bank for returned checks of $2500 or more that
were collected through the Federal Reserve by midnight of
the third banking day following presentment.
This
requirement provides depositary banks with an early warning
that a large^dollar check is being returned.
Although the current large-dollar notification
program does lessen the amount of risk inherent in the
return process, depositary banks are still exposed to
significant areas of risk.
Since the current notification
requirements apply only to checks collected through the
Federal Reserve,, depositary banks may not receive notice of
return on all large-dollar returned checks.
In addition,
the current time frame for notification allows three banking
days following presentment before the depositary bank is
given notice of return.
Earlier notification deadlines
would allow the depositary bank to learn of nonpayment of a
greater percentage of checks before funds must be made
available for withdrawal.
Proposed Regulation CC requires notification for
all large-=dollar checks and shortens the time period within
which notification must be provided (12 CFR Part 229.33).
Large-doXXar notification will now be required for all
checks of $2500 or more# regardless of whether they were
collected through the Federal Reserve.
B-17
The proposed rule
18
requires that notification be received by the depositary
bank by 4s00 p 0m 0 local time, on the second business day
following presentment? receipt of the physical check would
satisfy this requirement.
This proposal allows depositary
banks to receive notice of nonpayment more than one day
earlier than is currently the case.
The Federal Reserve is proposing several changes to
its notification services in support of the new regulation„
Beginning
on
September X, 1988, a same^day notification
service will be offered, and new deadlines for the
initiation of notification through the Federal Reserve will
be established,,
The Federal Reserve will warrant that it
will provide notification to the depositary bank on the same
day that it receives instructions that are in accordance
with these new deadlines»
The proposed new deadlines and fees for
notification are as follows:
Origination
Method
Current
Deadline
Proposed
Deadline
Wire
12 noon on
due date
12 noon on
due date
$1.75
Telephone
Call to Fed
12 noon on
day before
due date
9 ?00 a i i on
oro
due date
$4.25
Physical
Check to Fed
12 noon on
day before
due date
9 s00 a,m,on
due date
$5.25
Fee
notices will be delivered the same day as received0
B - 18
19
The Board proposed that, beginning on January 1,
1989, any depositary bank that has an on-line electronic
connection with the Federal Reserve will be required to
receive all notices from the Federal Reserve over their
electronic connection or over an electronic connection to a
designated third party.
(This does not include electronic
connections used solely for tape transmission of ACH items.)
This may require banks to add a terminal in their check
operation or to establish procedures to transmit
notification information from other departments, such as
funds transfer, to the check department.
This requirement
should ensure that their notifications are received more
accurately and timely.
Truncation
While the services previously described make
significant improvements in the time it takes to return an
unpaid check, electronic services may provide more
improvements.
The Act directs the Federal Reserve to
consider several electronic alternatives to improve the
check processing system, including check truncation.
The
Board proposes to allow Reserve Banks to begin offering
truncation services that would improve the forward
collection and return process.
B “ 19
20
During 1985, the Federal Reserve implemented a
truncation pilot at four Reserve Banks„
By the end of 1986,
two additional Reserve Banks were participating in the pilot
program,,
The objectives of the pilot included developing,,
testing, and refining the Federal Reserve’s ability tos
(1) provide local storage and retrieval services to paying
banks?
(2) participate in a pilot,of the National
Association for Check Safekeeping (NACS), which offers the
potential benefits of truncating eligible checks earlier in
the collection stream? and (3) work with NACS
representatives to expand the NACS program to include all
types of checks.
includes
(1)
Ultimately, pilot experience would
evaluation of the truncation concept, (2)
examination of the operational and legal issues surrounding
truncation, and (3) determining the appropriate role of the
Federal Reserve System in providing full truncation services
or services which support it.
Under the first phase of the pilot--truncating for
local paying banks, the Reserve Bank serving the paying bank
captures the entire MICR-Xine, including the nine-digit
routing number, account number, check number, and dollar
amount.
Checks rejected during high-speed processing are
included on the MICR output file.
All MICR-captured checks
are microfilmed, and unique sequence numbers are inserted
B-2Q
21
into the MICR file and printed on both the microfilm and the
physical check„
These sequence numbers facilitate Reserve
Bank processing of returned checks and retrieval requests„
The Reserve Bank delivers the captured MICR-line data and
related totals to the paying bank or its agent on magnetic
tape or by data transmission, as requested by the paying
banko
Under this service, the presentment time for the
paying bank is based on the time of receipt of electronic
presentment because the paying bank does not receive the
physical paper checks.
The Reserve Bank stores the physical
checks and microfilm for a negotiated period, usually 90
days and seven years respectively, after which time they are
destroyed.
After receipt of the MICR data, the paying bank
processes and posts the MICR data to the appropriate
customer accounts.
If a decision is made to dishonor a
check, the paying bank notifies the Reserve Bank no later
than the published deadline on the business day following
the day the MICR data are presented.
The Reserve Bank
retrieves the physical checks and initiates the return
process to the depositary banka
The paying bank may also
request retrieval services such as information from a
truncated check, a photocopy of a check, or the original
physical check (provided the request is received before the
check has been destroyed)„
B-21
-
22
-
The Reserve Banks developed a standard pricing
structure and a common set of pricing principles„
Local
pricing is used to reflect the different processing costs at
each officeo
With minor adjustments* these prices have
remained in effect throughout the pilot program.
The fee
structure contains a basic per item fee and separate fees
for return items (initiated by telephone or automated
means)* retrievals* fine-sort fee processing* and
over-the-counter processing.
Reject reentry and
microfilming costs are part of the basic per item fee* while
large-dollar notification costs are part of the return item
feeD
It is anticipated that fees at most Reserve offices
will approximate those in the pilot0
Fee ranges at the six
pilot Reserve Banks are as followss
Basic per item
--Via tape
$0o011
-
$0,020
--Via transmission
$0 0014
-
$0,025
Return item
—
Telephone
$1.60
-
$2.80
—
Automated
$1.35
-
$2.30
$1.00
-
$2.00
$0.00
-
$2 o00
Retrieval per item
Fine Sort
-- Per Package
B-22
23
—
$0,006
-
$0.02
$0.50
-
$0.50
$0,014
Per item
—
$0,018
Over-the-counter
—
Per Package
-- Per item
As of October 1987, seven commercial banks, one
savings and loan association, and three credit unions were
participating in the pilot program,,
Total truncation volume
during the pilot exceeds 1.3 million checks per montho
Approximately 2 percent of the checks require reject
reentry, 0.3 percent are returned, and retrieval requests
are received on 0.1 percent of the checks.
The truncation
participants® reaction to the service has been positive,
processing costs have been lower than expected, and the
quality of service has met expectations.
One Reserve Bank began truncating NACS-eligible
checks in September 1987.
Plans are underway for other
pilot Reserve Banks to join NAGS and begin truncating
NACS-eligible checks as soon as possible.
In addition, the
Federal Reserve is working closely with NAGS, the National
Automated Clearing House Association (NACHA)
,
the American
National Standards Institute (ANSI), and other related
groups to expand the NAGS program to include all types of
checks, to make any necessary modifications to the TRC
format (and TRX in the future) on the ACH, and to obtain a
B-23
24
special truncation indicator to be placed on the MXCR-line
of checks that will be eligible for truncation earlier in
the collection cycle.
These efforts are necessary to make
the operation of a national truncation program feasible and
cost effective.
Nationwide truncation has many benefits including
expediting returned checks, reducing the number of physical
handlings of paper checks, and accelerating the collection
of nonlocal checks for depositary banks.
In addition*
truncation produces other benefits, including savings in
transportation costs* float, storage costs for paying banks,
and equipment and personnel costs for paying banks•
Truncation also provides a natural transition from paper to
electronic payments«
Several problems that presented barriers to
truncation have been addressede
These issues include
improperly payable checks* presentment problems* and check
retrieval and return responsibilities.
Improperly payable checks such as stale checks*
altered checks* postdated checks* and checks with missing or
forged drawerBs signatures raise legal issues because the
paying bank will make its decision to pay the check without
without seeing the physical check.
According to the U 0C 0C 0*
liability for these checks may not be passed along to the
B “ 24
25
paying b a n k ’s customer because the check is not properly
payable, except in the case of a stale check paid in good
faith.
For altered checks, if the paying bank or its agent
was not responsible for the alteration,
it may recoup its
loss in a warranty action against the indorser.
For
postdated checks and checks with missing or forged drawer’s
signatures, the paying bank will assume the risk.
It should
be noted that, to minimize this risk, paying banks may
establish dollar caps so that large-dollar checks are not
truncated.
No losses have been reported thus far in the
pilot.
Presentment is a condition precedent to both a
drawer’s and an indorser’s secondary liability.
proposed Regulation CC, section 229.36(c)
The
allows banks to
present checks to a paying bank by transmission of
information describing the check in accordance with an
agreement with the paying bank.
The Reserve Bank, exercising ordinary care, will
act as agent of the paying bank only and cannot grant
retrieval requests from the paying b a n k ’s customers.
The
truncating Reserve Bank as agent of the paying bank will
return the check to itself as collecting bank.
Based on the benefits that can be achieved by a
nationwide truncation program, the Federal Reserve proposes
B“ 25
26
to make the truncation service a permanent component of the
check collection services at the Reserve Banks.
It is
anticipated that, as more paying banks begin to issue some
type of truncation^eligible check, most Reserve offices
would begin to offer a truncation service, first on a local
level, truncating checks for local paying banks.
The
Reserve Banks would expand into truncation for nonlocal
paying banks as the NACS rules and procedures become more
fully developed.
The Board requests comment on the proposed Federal
Reserve truncation service and adaptation of the NACS rules
for the nationwide program,
gst@nd©d MICE Capture Service
The Board is proposing to allow Reserve Banks to
begin offering a service that provides the benefits of
truncation without actually stopping the flow of the paper
check®
This extended MICE capture service is currently a
Federal Reserve pilot program that combines several existing
payor bank servicesr including MICE capture, reject reentry,
and electronic data delivery®
Reserve Banks deliver payment
information by transmission or magnetic tape to paying banks
that have requested the service, while retaining the checks
at the Reserve Bank office for several days®
The Reserve
Bank office provides paying banks with return and retrieval
B -26
27
services identical to the truncation service.
The return
service eliminates the transportation delay between the
paying bank and the Federal Reserve, permitting faster
return of some checks, particularly nonlocal checks0
The
paper checks are subsequently delivered to the paying bank
using less time-critical transportation„
Enhancements to
this service include optional microfilming and the inclusion
of checks presented in fine-sort packages.
Extended MICE capture provides the paying bank a
chance to test most aspects of the truncation service
without giving up receipt of the physical checks.
The
benefits of extended MICR capture are not as great as those
of truncation? however, extended MICE capture serves as a
stepping stone for developing a broader acceptance of
truncation«
The obvious disadvantage to the service is
having the paper check continue to flow through the clearing
process to the Federal Reserve office serving the paying
bank before being converted to electronic form.
The Federal
Reserve is conducting a study on an electronic clearinghouse
concept that may offer the ability to convert to electronics
earlier in the collection process fSee Docket R-H622
Proposals for Long-Term Improvement to the Check Collection
System! .
B-27
28
The fee structure adopted for the extended MICR
capture service includes a per item fee that includes reject
reentry, return item fees
(telephone and automated),
retrieval fees, optional fine-sort per item and daily fixed
fees, and optional microfilming fees*
The basic per item
fee varies depending on whether the presentment is made via
transmission or magnetic tape.
Similar to truncation, a
standard fee structure and a common set of pricing
principles have been developed for extended MICR capture0
It is anticipated that fees at most Reserve offices
will approximate those in the pilot program.
Ranges for
fees used in the pilot are as follows?
$0,006 - $0,012
Basic per item
Return Item
—
Telephone
$1.60
- $2.10
—
Automated
$1.35
- $1.60
$1.00
- $1.50
Retrievals
Fine Sort
Per item
—
$0,006 - $0,012
Fixed daily fee
$2.00
Microfilm per item
- $5.00
$0,006 - $0.01
pricing is used to reflect the different processing
costs at each Reserve Bank office.
B-28
In addition to the above
29
fees* during the pilot program the Reserve Banks have
assessed a fixed fee per day that includes the first wx5
S
number of checks before the basic per item fee begins to be
assessedo
The Federal Reserve is evaluating the merit of
the fixed fee and may consider modifying the fee structure
to eliminate the fixed fee*
Competitive Issues
An important factor considered in the development
of the regulatory framework for expedited returns and
related Reserve Bank services was the impact on competition
in the check collection systeirto
The public has benefited
from the competitive environment that has existed between
the Federal Reserve and correspondent banks, and among
correspondent banks in proving check collection services.
The Board has sought to ensure that the proposed regulatory
requirements, and Federal Reserve service offerings* were
designed to provide options to banks in the return process*
and to facilitate a competitive environment„
Although a number of the Reserve Bank service
proposals— such as acceptance of any returned cheeky the
explicit pricing of returns and corresponding decrease in
the forward collection fees* and direct return by the
Federal Reserve to the depositary bank— may have significant
competitive implications* it is difficult to determine what
B=29
30
the impact would be.
For example,, lower Federal Reserve
check collection fees could make the Reserve B a n k s 5 forward
collection check services more attractive and acceptance of
all returns could increase return volume.
On the other
hand, a bank that uses the Federal Reserve for both forward
collection and return services may experience an increase in
its total charges for check services.
In addition, the
acceptance of universal returns by the Federal Reserve has
the potential to result in a reduction of Federal Reserve
forward collection check volume, since returns are often
viewed as nuisance items in the collection process that have
deterred banks from competing for forward collection volume.
Correspondent banks will have the opportunity to
compete with the Federal Reserve in providing returned check
services.
For example, approximately 4,000 banks that do
not collect checks through the Federal Reserve currently
mail returned checks to their Reserve Banks.
Under the
proposed Regulation CC, section 229.30, these paying banks
may deliver these returned checks along with their forward
collection checks to their correspondent bank, rather than
establishing separate transportation to deliver their
returns to the Federal Reserve.
This practice could result
in additional volume of returned checks for correspondents.
B-30
31
In this regard, the Board requests comment on
whether there are any returned check services or other
procedural changes for returning banks that the Federal
Reserve has not proposed that might assist the returning
bank in providing returned check services.
Board of Governors of the
Federal
Reserve System
December 3, 1987
William W Q Wiles
Secretary of the Board
B-31
FED ERA L
RESERVE
SYSTEM
(Docket N o o R-0622)
Proposals for Long-Term Improvements
to the Check Collection System
AGENCY?
Board of Governors of the Federal Reserve Systenu
ACTION?
Request for comment.
SUMMARY?
The Board is requesting comment on several studies
that are being undertaken that have the potential to provide
for substantial long-run improvements to the check system0
DATE?
Comments must be submitted on or before
ADDRESS?
April 8, 1988c
Comments, which should refer to Docket No» R-0622,
may be mailed to the Board of Governors of the Federal
Reserve System, 20th and C Streets, N„Wo, Washington, D 0C 0
20551, Attention?
Mr* William W« Wiles, Secretary? or may
be delivered to Room B-2223 between 8?45 a am 0 and 5:00 p 6m 0
All comments received at the above address will be included
in the public file, and may be inspected in Room B-1122
between 8?45 a 6m G and 5?15 p.m.
FOR FURTHER INFORMATION CONTACT?
Steven O* App, Manager,
(202/452-3760)? Brada W G Panther, Analyst
Nalini T» Rogers, Analyst
(202/452-3801)? Division of
Federal Reserve Bank Operations«
only?
(202/452-2831)? or
For the hearing impaired
Telecommunications Device for the Deaf, Ernestine
Hill or Dorothea Thompson
SUPPLEMENTARY INFORMATION?
(202/452-3254) .
The Expedited Funds Availability
Act, Title VI of P u b 0 L* 100-86, requires banks and other
C-l
2
depository institutions (collectively referred to as
?banksml) to make funds deposited into accounts available to
9
depositors within time periods specified by the Act and to
disclose funds availability policies to their depositors„
The Board is given responsibility to adopt regulations to
implement the Act.
The Act also provides the Board with
broad authority to adopt regulations to improve the check
processing system so that checks may be cleared and* if
necessaryr returned within the funds availability schedules
mandated by the Act.
The Board is today requesting comment on a series
of proposals, Docket Nos. R-Q620, R-0621, and R-0622, that
will exercise its responsibilities under the Act.
No. R-0620 Regulation CC
Docket
consists of a proposed regulation
(Regulation CC, 12 CFR Part 229) that will clarify the
The proposed Regulation CC terminology corresponds with
the terminology of the Uniform Commercial Code, with some
modificationso Bank is defined to include all depository
institutions. A paying bank is the bank on which the check
is drawn. In the case of payable through drafts, the
payable through bank is the paying bank. A returning bank
is an intermediary bank handling a returned check. A
depositary bank is the bank in which the check was first
deposited.
(See section 229.2 of the proposed regulation
for the complete definitions of these terms.)
0 2
3
definitions of the Act, provide detailed rules to facilitate
compliance with the availability and disclosure require^
ments, and make several substantive changes to the current
law on the collection of checks to encourage faster return
of unpaid checks, thus minimizing the losses that could
result from compliance with the availability schedules.
Docket Mo* R-0820 also proposes several amendments to the
Board's current Regulation J (12 CFR Part 210), which
governs the collection of checks and other items by Federal
Reserve Banks, so that it conforms to the new standards
adopted in Regulation CCo
Docket NOo R-0621 Federal Reserve Bank Services
requests comment on proposed new services to be offered by
the Federal Reserve Banks to assist in the new check
collection rules established in Regulation CC3
This docket, Noa K-0622, requests comment on some
possible services that the Federal Reserve is studying as
well as longer-term improvements to the nation's check
collection system,,
Commenters should review the overview material
contained in Docket No, R-062Q Regulation
CC,
which provides
background on these proposals.
The Federal Reserve will continue to investigate
improvements to enhance the speed, the efficiency, and the
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quality of the entire check system*
To this end, several
projects are underway that address the need to plan for
future innovationso
Several of these concepts, including
bar-code indorsements, electronic clearinghouses, and
electronic clearing zones are described within this Federal
Register notice*
In addition, this notice describes the
Federal Reserve’s continuous study of the impact certain
disbursement practices have on the check system.
requests comment on these studies.
The Board
This notice also
provides information on the Federal Reserve’s ongoing
exploration of digitized image processing*
PROPOSALS FOR LONG-TERM XMPRO¥EMENTS
TO THE CHECK COLLECTION SYSTEM
Bar-Code Indorsements
The Federal Reserve has recently begun to explore
possible approaches to machine-readable indorsements and
automated returned check handling*
Machine-readable
indorsements represent a substantial Improvement over
human-readable indorsements because they have the potential
to automate fully the returned check process*
In the
near-term, these indorsements could facilitate the automated
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preparation of qualified returned checks (QRCs)
2
and thereby
enable more returns to reach the depositary bank in an
expedited manner.
In addition* these indorsements would
reduce the cost of handling returns for paying banks and
returning banks.
For these reasons? the Federal Reserve
initiated a study on machine-readable indorsements.
The first step of this study was to develop a
comprehensive list of possible technologies for
machine-readable indorsements.
Four technologies* MXCR*
OCR* bar-code* and magnetic strip* were selecteda
Each was
evaluated on the following characteristics! performance
(information density* speed for reading and writing* error
rates)? functions (the size of character set* whether or not
it is observable/erasable/human-readable* whether it
provides an audit trail* and whether information can be
added at a later date by another party)? institutional
considerations (familiarity to banking industry* vendor base
of support* existence of industry standards)j and expected
future cost and performance trends„
Bar-code was chosen as
the most promising technology to investigate»
Qualified returned checks are checks that are prepared
for automated processing on high-speed equipment* by
encoding the routing number of the depositary bank* the
amount of the check* and a return identifier on a carrier
envelop© or on a strip attached to the check0
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Several scenarios were developed to outline how
bar-code indorsements could be applied by the depositary
bank and used by the paying bank to automate the creation of
QRCSo
The bar-code itself would be limited to the
nine-digit routing number of the depositary bank? with other
information in the indorsement in human-readable form to
facilitate the handling of exception items.
In order to
read the bar-code indorsements, paying banks could scan a
hand wand, linked to a computer^ across each indorsement and
generate the routing number for encoding on the strip or the
carrier envelope for each returned cheeky or for inclusion
in an electronic file that would accompany the returns to
the depositary bank (See discussion on "Speedy Return
Plan") o
Alternatively, encoding equipment and/or reject
processing equipment could be modified to read the bar-code
routing number and the MICE amount^ and encode this
information on either a strip or a carrier envelope.
The
technology to read bar-code indorsements on high-speed
reader/sorters also exists, which could eliminate the need
for strips or envelopes, although this approach is currently
very costlyo
Another issue under study is the depositary bank's
responsibility to place the bar-code indorsement on the
checko
The depositary bank could add bar-codes to the
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indorsement plates located on the encoding machines.
Printing of the bar-code by this methods however, has a
drawback because the position of the bar-code may not be
very precise, which increases the difficulty and the expense
of machine-reading
indorsement.
(as opposed to hand wand reading) of the
Another disadvantage is that the designated
space may not accommodate additional future uses of
bar-code, which banks and equipment manufacturers may
develop.
Alternative locations are being investigated that
could accommodate an expanded use of the bar-code?
specifically, the top front edge of the check, or the lower
back edge just behind the MICR-line could be used.
Although
encoding equipment would need to be modified to print in
these alternative locations, these areas of a check are
attractive because they should be relatively free of clutter
and, therefore, allow for improved read rates.
It has also
been suggested that read rates might be further improved by
selecting a fluorescent ink for the machine-readable
indorsement.
The Federal Reserve is interested in selecting an
approach to machine-readable indorsements that has the
capability to improve other check handling procedures.
The
bar-code indorsement concept has been reviewed with several
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groups of industry representatives and equipment vendors who
have been involved with developing an approach to sorting
returns on high-speed reader/sorters„
Based on these
discussions, the acceptability of bar-code technology
appears to be quite higho
The Federal Reserve intends to
continue discussions with equipment vendors and banking
industry representatives to investigate further the
usefulness of bar-code indorsements and to develop technical
specifications„
The Board requests comment on the concept of
bar-code indorsements and on how quickly the Federal Reserve
should proceed in the study and implementation of this new
technology.
Specifically? the Board requests comment on the
following issues?
1 0 Although the Federal Reserve study has designated bar
code as the most promising machine-readable technology^
would the industry prefer other forms of machinereadable indorsements?
2 0 Would the banking industry have other uses for bar-code
technologyt besides identification of the depositary
bank?
How much space would be required for the
necessary information?
3 0 What location is preferable for the bar-code
indorsement?
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4 „ What specific bar-code is preferable for banking
industry use?
5 0 Are there any outstanding issues in defining a bar-code
standard indorsement (other than information content,
choice of coding language, location on the check, print
quality, and ink specifications) that have not been
addressed?
Digitized Image Processing
In 1985, the Federal Reserve initiated a multi-year
research and development effort to explore digitized image
processing technology.
Prior to 1985, image processing had
been discussed widely in the financial industry as a
technology that might bring significant productivity and
quality improvements to the check collection system.
This
technology had been adopted in numerous lock-box operations,
but otherwise had been largely untested in check processing.
The first phase of the research and development
project demonstrated the technical feasibility of high-speed
image capture of one side of a check in a laboratory
environment.,
The second phase is intended to demonstrate in
prototype form a fully functioning high-speed image
processing system that will capture images, process and
compress the image data, and store this data for later
retrieval and analysis.
This phase will be undertaken in
laboratory conditions with a limited volume of checks.
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As planned, phase three would move the testing from
the laboratory to a Federal Reserve site.
This phase will
involve testing of large quantities of checks to determine
performance consistency.
Two specific applications that could benefit from
digitized image processing are government check processing
and returned check processing„
The government check
application was selected for the initial laboratory
demonstration for several reasons.
Firsts it is a very
demanding application for both rate of capture and image
quality, and will provide a rigorous test of the technology0
It is also the Federal Reserved primary application for
microfilm, and one purpose of the program is to determine
whether an image processing system would be a superior and
cost-effective substitute for microfilm.
Returned check processing is another application
for which image processing might be practical.
To make
significant improvements In return times, new technologies
will be required.
The System hopes to further automate and
accelerate the processing of the physical returned check.
Image processing may prove to be a viable means to transmit
images of returned checks electronicallyg particularly for
large-dollar checks.
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The Federal Reserve will share results of this
research with the financial industry.
Potential benefits to
the industry include information on the general feasibility
of the capture and compression technologies used to capture
check images and handle the resultant data at high speeds,
methods to measure the quality of images (such as exist
today for microfilm)
t
and methods and standards to assure
the exchange of images among banks®
Electronic Clearing loses
The Board has encouraged proposals on how to
expedite the return process from both the industry and the
Federal Reserve Banks.
A proposal that is being developed
by the Federal Reserve Bank of Minneapolis is based on the
concepts tested in the Federal Reserve truncation and
extended MICE programs®
This proposal could expedite the check collection
and return processes by converting specified geographic
areas into electronic check clearing
zones*
This would be
particularly beneficial to those banks located far from
their local Federal Reserve office®
Under this proposal,
all banks in a specified area would agree to receive all
their checks by electronic presentment of the MICR^line
data®
The checks would be held at either the Federal
Reserve, correspondent bankf or the depositary bank until
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the returns were identified.
The paying bank would then
transmit the information on those returned checks to the
presenting bank. Under this system, the physical returned
checks could be made available to the depositary bank one or
more days in advance of the current process.
The electronic clearing zone concept differs from
extended MICE capture services, in that* in an electronic
clearing zone, all banks in a specified geographic region
accept electronic presentments, which may allow for later
deposit deadlines for collecting checks drawn on these
endpoints, thereby improving availability for collecting
banks 0
The success of this electronic check clearing zone
concept depends on the willingness of all banks in a given
area to participate.
In addition, the costs of electronic
presentment may be allocated to both the paying bank and the
collecting bank because both benefit.
benefits from reduced operating costs.
The paying bank
The collecting bank
benefits from improved availability because deposit
deadlines would be later for electronic clearing zones.
The Board requests comment on the electronic
clearing zone concept, and specifically on methods of
allocating costs between paying and collecting banks.
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Electronic Clearinghouse
Section 609(f) of the Expedited Funds Availability
Act (12 UoSoCo 4008(f)) requires the Federal Reserve to
report to the Congress on the feasibility of the electronic
clearinghouse concept by May 1988.
An electronic
clearinghouse is an electronic message service through which
checks are electronically presented- for collection and
returno
The Federal Reserve is currently discussing the
electronic clearinghouse concept with experts in
telecommunications technology and plans to request further
information from other specialists and industry trade
groups «
The Board requests comment on the feasibility of
electronic clearinghouses and on the information that should
be included in the May 1988 report to the Congress®
Improveaents to the Forward Collection Process
The BoardSs proposals, for the most part, have
focused on improvements to the returned check process®
The
Congress also directed the Board to explore further
improvements to the forward collection process over the
longer term®
The Board has identified certain practices
that may be inconsistent with the intent of the Congress and
the Expedited Funds Availability Act®
These practices
include corporations engaging in arrangements that prolong
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the time required to collect and, consequently, return their
check disbursementso
This occurs, for example, when a
corporation located on the East Coast issues checks drawn on
a bank located on the West Coast to make payments to other
East Coast organizations„
The payment at one location of
traveler's checks that are issued on a nationwide basis
poses similar problems0
The issuance by a bank of teller's
checks that are drawn on another bank located in a different
Federal Reserve check processing region is a further
example.
There are certain problems inherent with these
practices0
These checks generally take longer to clear and
return, which may increase the risk of loss to depositary
bankso
These checks are typically more expensive to collect
because of the distance they must travel to reach the paying
banke
Float costs may also increase for depositary banks
that must provide funds availability prior to receiving
provisional credit in those cases where next-day
availability must be granted,,
In addition, these practices
result in a larger proportion of checks being considered
nonlocal for the purposes of granting availability, thus
delaying the time the proceeds of these checks must be made
available to the customer for withdrawal0
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The Federal Reserve System has been concerned with
the problems related to delayed disbursement for several
yearso
For instance, the Board issued a policy statement on
January 11, 1979, that expressly discouraged the banking
industry from designing, promoting, or otherwise offering
services intended to delay final settlement and which expose
recipients to greater than ordinary risk0 65 Federal Reserve
Bulletin 140, February 1979c
On February 23, 1984, the
Board issued another policy statement that further
discouraged the use of arrangements that result in a delay
in the collection and final settlement of checks.
This
policy statement stated that the Board intended to monitor
such actions and, if abuses continued, would pursue
appropriate action.
3“1506 o6 o
1 Federal Reserve Regulatory Service,
In conjunction with this statement, the Board
implemented the High~Dollar Group Sort Program to reduce the
level of float and speed the collection of checks.
49 FR
7293 (February 28, 1984) .
Given the intent of the Congress to expedite the
check collection and return systems and the fact that
depositary banks will be exposed to additional risk of loss
and increased float costs associated with these practices,
the Board requests comment on suggested actions it should
consider regarding these practices, in general.
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additionv the Board requests specific comment on the
practice of issuing teller0s checks payable in a different
check processing region than the issuing bankD
An additional disbursement issue concerns the
treatment of traveler0s checks under the Acto
The Act
requires next-day availability of travelers checks deposited
in a new account„
During this period^ the depositary bank
may incur additional float costs, because funds may be
withdrawn prior to the time the bank receives provisional
credit.
The Board requests comment on whether issuers of
8000-series travelerDs checks should be required to
designate multiple paying locations, in order to expedite
the collection of these checks„
Mew Federal Reserve Services Under Consideration
Based on discussions with industry groups„ the
Board is aware that implementation of the Act may provide an
opportunity for new services to develop to serve the needs
of banks , particularly depositary banks„
The Federal
Reserve is not proposing specific new services at this time*,
but requests comment on preliminary concepts of possible new
services«
,
Depository Check Authenticity.
The Expedited Funds
Availability Act requires banks to make the proceeds of
depository checks (cashier5s checks^ certified checks„ and
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teller's checks) available for withdrawal by the opening of
business on the business day following deposit*
These
checks are not subject to the exception provided in the Act
for large-dollar deposits*
Some banks may be concerned with
the risk associated with accepting large-dollar depository
checks* since they will not learn of nonpayment of these
checks before funds must be made available for withdrawal*
Depositary checks can be forged* altered or otherwise
defective* and* in some cases* may be subject to a stop
payment order*
A depositary bank may want to determine
whether a depository check is authentic before it makes the
proceeds available for withdrawal*
Proposed Regulation CC (12 CFR 229*37) requires
paying banks to respond to telephone inquiries from the
depositary bank regarding whether a depository check has
been issued* certified* subject to a stop payment order* or
whether it has been paid or returned*
In addition* the
paying bank must verify information on the check* such as
the amount and payee*
With respect to teller's checks* the
drawing bank must also respond to inquiries from the
depositary bank*
The depositary bank could obtain
information pertaining to the check by contacting the
issuing bank directly or by using a service provided by a
third party* such as the one being considered by the Federal
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Reserve.
Under this service, the depositary bank would
telephone the Federal Reserve, which would in turn contact
the issuing bank for information on the depository check0
The Federal Reserve would then relay the information to the
depositary bank.
The need for a more sophisticated means of
communication will be dependent on the volume associated
with this service.
There are a number of issues to be considered
before such a service could be implemented.
In order to
respond to inquiries from a depositary bank or a third
party, such as the Federal Reserve, banks would have to
maintain records of depository checks issued.
Docket R-062Q
Regulation CC requests comment on whether this is a workable
arrangement, whether paying banks should be permitted to
charge for this service, and whether the service should be
limited to checks over a certain dollar amount.
With respect to the authenticity service under
consideration, the Board requests comment on the demand for
such a service by banks and the features and limitations
such a service might encompass.
C o m m a icat ion of return item information to
depositary banks prior to physical delivery of the checks.
Despite the improvements to the returned check process being
proposed, a number of returned checks will not be received
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by the depositary bank in sufficient time to take action
before the proceeds of the check are available for customer
withdrawal.
In these cases, depositary banks may desire
information pertaining to returned checks before the physi
cal checks are delivered.
Physical transportation limita
tions between the Federal Reserve office and the depositary
bank may be offset by the use of telecommunications
facilities to transmit returned check data to the depositary
bank.
The Federal Reserve is considering a series of new
services to provide information early in the day to
depositary banks about returned checks that will not be
delivered to the depositary bank until later that day orf in
some cas®sf the following daye
It is expected that
depositary banks would request this service primarily for
selected returns that impose greater risk on the depositary
bank®
Information on this returns could be communicated by
phone f wir@r date transmission, or facsimilef if available.
Facsimile transmission equipment could be used to
enhance and speed the flow of returned check information
between banks without involving the Federal Reserve«
additionf facsimile could
s e rv e
as an alternative seans of
meeting the notification requirement*
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The Board requests comment on whether there is any
interest in* or demand for* these services from the Federal
Reserveo
The
Speedy Return PI a ' °
n°
An alternative to the qualified returned check
(QRC) method of high-speed return processing has been
proposed by a task force comprised of representatives from
the Cleveland Federal Reserve District and local industry
representatives.
This proposal* named the ”Speedy Return
Plan*” is based on using high-speed equipment to process
returned checks.
The first step in this process is to
capture MICR data for each returned check to create a data
file.
On-line entry is used to add the depositary bank5s
nine-digit routing number to the file.
A final high-speed
sort uses the data from the file to sort the checks by
depositary bank.
This high-speed sort allows banks to sort
returned checks to an increased number of endpoints during a
shorter period of time.
From a longer-term perspective* included in the
Speedy Return Plan is the concept of electronically
capturing rhe depositary bank5s machine-readable
indorsement information at either the paying bank or the
first Federal Reserve office.
This captured indorsement
information would be electronically merged with the actual
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item file for immediate and final sorting of returns at the
returning bank or Federal Reserve office.
This data would
be electronically transmitted through all intermediaries
back to the depositary bank along with the returned checks.
Similar to the QRC process, this proposal significantly
decreases the costs and required processing windows for
return operations because only one bank would have to
decipher and record the depositary bank5s indorsement.,
The
advantage of the Speedy Return Plan is that banks can avoid
the use of strips or carrier envelopes by electronically
matching the nine-digit routing number of the depositary
bank with the MICR=lin@ of the check«
The Speedy Return Plan concept raises a number of
issueso
All banks and Federal Reserve offices using this
plan would need to adopt the necessary high-speed returned
check technology.
Compatibility among automation systems tc
facilitate receipt and transmission of the electronic data
files must also be considered.
This proposal is still in
preliminary review by the Board and other Federal Reserve
Districts.
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The Board requests comment on the Speedy Return
Plan^ particularly on the concept of depositing returns with
their corresponding electronic files in order to expedite
the return collection process.
Board of Governors of the
Federal Reserve System
December 3 r 1987
William W> Wiles
Secretary of the Board
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@FedFRASER