Full text of Federal Reserve Bank of New York Circulars : 10294. Expedited Funds Availability

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

FEDERAL RESERVE BANK
OF NEW YORK

[

Circular No. 10294 "1
April 17, 1989
I

EXPEDITED FUNDS AVAILABILITY
— Policy Statement on Delayed Disbursem ent
of Teller’s and C ashier’s Checks
— Technical Amendments to Regulation CC
To All Depository Institutions, and Others Concerned,
in the Second Federal Reserve District:

The Board of Governors of the Federal Reserve System has announced the adoption of a policy
statement discouraging the delayed disbursement of teller’s and cashier’s checks, in lieu of adopting
final amendments to Regulation CC requiring the restriction of such practices. At the same time,
the Board of Governors adopted amendments (largely technical in nature) to Regulation CC and
its Official Staff Commentary, which are designed to resolve ambiguities and facilitate compliance
with the regulation.




Following are the texts of the Board’s press releases on these matters:
D elayed D isbursem ent

The Federal Reserve Board has issued a policy statement discouraging the delayed disbursement
of teller’s checks and cashier’s checks.
The issuance of the policy statement is in lieu of adopting final amendments to Regulation CC to
restrict certain delayed disbursement practices as proposed on June 21, 1988.
Delayed disbursement is the practice of issuing checks that are payable by a bank located in a ge­
ographic area such that collection of the checks is generally delayed. This practice increases the time
and cost for a depositary bank to collect the checks. The effects of delayed disbursement are particularly
significant in the case of teller’s checks and cashier’s checks, which must be accorded next-day avail­
ability under the Expedited Funds Availability Act and Regulation CC.
Discussions with the major providers of teller’s and cashier’s check services indicate that they are
willing to make operational changes to speed the collection of checks in the markets they serve.
The Federal Reserve Board will monitor adherence to the policy and delayed disbursement practices
in general and, if abuses continue, may reconsider whether formal regulatory action may be warranted.
Technical am endm ents

The Federal Reserve Board has adopted final amendments to Regulation CC and revisions to its
Official Commentary to carry out the provisions of the Expedited Funds Availability Act.
The regulation requires banks to make funds available to their customers within specified times,
to disclose their funds availability policies to their customers, and to handle returned checks
expeditiously.
The amendments are largely technical in nature, and are designed to resolve ambiguities and fa­
cilitate banks’ compliance with the regulation.




Printed on the following pages is an excerpt from the Federal Register of April 6, regarding
the Board’s policy statement on delayed disbursement, followed by the text of the statement itself.
In addition, enclosed — for depository institutions and others who maintain sets of the Board’s reg­
ulations — are copies of the amendments to Regulation CC and its Official Staff Commentary.
Additional copies of this circular or the enclosures may be obtained from our Circulars Division
(Tel. No. 212-720-5215 or 5216).
Questions on these matters may be directed to John E Sobala, Vice President, Check Processing
Function (Tel. No. 212-720-6334).
E. G erald C orrigan ,
President.

2

Delayed Disbursement of Teller’s
Checks

12CFR Part 229
lD o c k e t N o. R -0 6 3 9 ]

Policy Statement— Delayed
Disbursement of Teller’s Checks and
Cashier’s Checks

Board of Governors of the
Federal Reserve System.

agency:

a c t io n :

Policy statement.

The Board is issuing a policy
statement regarding the delayed
disbursement of teller’s checks and
cashier's checks consistent with the
purpose of the Expedited Funds
Availability Act. The policy statement is
intended to address abuses of delayed
disbursement that may give rise to
check float while allowing for legitimate
centralized teller’s check services.

SUMMARY:

EFFECTIVE DATE:

April 10. 1989.

FOR FURTHER INFORMATION CONTACT:

Louise L. Roseman, Assistant Director
(202/452-3874), or Gayle Thompson,
Program Leader (202/452-2934). Division
of Federal Reserve Bank Operations:
Oliver Ireland' Associate General
Counsel (202/452-3625), or Stephanie
Martin, Attorney (202/452-3198), Legal
Division; for the hearing impaired only:
Telecommunications Device for the
Deaf, Eamestine Hill or Dorothea
Thompson (202/452-3544).
SUPPLEMENTARY INFORMATION:

The Delayed Disbursement Problem
Delayed disbursement is the practice
of issuing checks that are payable by,
through, or at a bank 1 located in a
geographic area such that collection of
the checks is generally delayed. In
addition to increasing the time for the
collection and return of a check, delayed
disbursement often increases the costs
to process and transport the check.
Delayed disbursement practices not
only reduce the efficiency of the check
collection system, but may also increase
the risk to the depositary bank because
the delay may result in a check being
returned after funds must be made
available for withdrawal under the
Expedited Funds Availability Act
(“Act”) and the Board's Regulation CC
(12 CFR Part 229).
' Regulation CC defines "bank” to include all
depositary institutions, including commercial banks,
savings and loan associations, and credit unions. A
depositary bank is defined as the first bank to
which a check is transferred. A paying bank is a
bank by. at, or through which a check is payable
and to which it is sent for coilection.




Although many classes of checks are
subject to delayed disbursement, the
effects of delayed disbursement are
particularly significant in the case of
teller’s checks.2 Many banks issue
teller’s checks m lieu of cashier’s checks
(i.e., checks a bank draws on itself).
These banks believe that, due to
specialization and economies of scale,
certain banks and other service
providers can perform the tracking,
reconciliation, and payment of teller's
checks at a lower cost than the issuing
bank would incur by issuing and paying
cashier's checks. In addition, in certain
cases, based on the location of the
paying bank vis-a-vis the issuing
banks,3 the issuing bank can accrue
float benefits from the delayed
disbursement of these checks.4
The Act requires a depositary bank to
provide customers with next-day
availability, under specified conditions,
for certain checks, including cashier s
checks and teller's checks, deposited in
transaction accounts. Regulation CC
extends this next-day availability
requirement to checks drawn on Federal
Reserve Banks and Federal Home Loan
Banks, because these checks have a low
risk of return and are often used as a
substitute for teller’s checks. Depending
on the location of the paying bank, a
depositary bank may not receive credit
for the check by the time funds must be
2 Regulation CC d efines a 'teller's check” as a
check provided to a customer of a bank, or acquired
from a bank for remittance purposes, that is drawn
by the bank and drawn on another bank or payable
through or at another bank. For the purposes of die
proposed amendments to Regulation CC as well as
this policy statement, "teller's check ' includes
checks drawn on a Federai Reserve Bank or a
Federal Home Loan Bank. Regulation CC defines
"cashier's check" as a check provided to a customer
of a bank, or acquired from a bank for remittance
purposes, that is drawn on the bank, is signed by an
officer or employee of the bank on behaif of the
bank as drawer, and is a direct obligation of the
bank.
3Based on a recent Federal Reserve Bank survey,
staff estimates that approximately 60 to 80 percent
of teller's and cashier's checks are deposited in a
bank that is located in the same state as the issuing
bank. Thus, when banks issue teller s checks that
are payable at a location distant from the issuing
bank, the depositary bank is also generally distant
from the paying bank.
4 !n some cases, the issuing bank does not remit
funds to the paying bank until the day of
presentment, fn other cases the issuing bank remits
funds to the paying bank before the check is
presented. Such funds may be held in a
compensating balance account by the paying bank
until the check is presented for payment. Earnings
from the compensating balance account may be
used to offset fees for teller’s check services.

3

made available to the customer for
withdrawal. Thus, the practice of
delayed disbursement permits a bank
issuing such checks to impose costs, in
terms of lost interest, on other banks
and to benefit from interest or earnings
credits earned on outstanding checks
until the checks are presented for
collection.

Previous Board Actions
Prior to enactment of the Act, the
Board’s ability to address delayed
disbursement abuses was limited to
discouraging such practices through
policy statements 5 and Federal Reserve
Bank services, such as the High-Dollar
Group Sort program. The Act authorizes
the Board to make improvements to the
check system to speed the collection
and return of checks and, thus, to
restrict delayed disbursement practices.
Specifically, the Act gives the Board
"the responsibility to regulate any
aspect of the payment system, including
the receipt, payment, collection, or
clearing of checks: and any related
function of the payment system with
respect to checks” (12 U.S.C. 4008(c)(1)).
The Act also evidences the Congress’
intent to speed the availability of funds
to bank depositors and, thus, suggests
that a reevaiuation of delayed
disbursement practices is appropriate.
In December 1987. the Board requested
public comment on proposed Regulation
CC as well as on proposals for long-term
improvements to the check collection
system (52 FR 47176, December 11,198- ).
A number of commenters on proposed
Regulation CC cited the inequity of

requiring the depositary bank to make
the proceeds of certain checks, including
teller’s checks, available for withdrawal
on the business day after deposit if the
bank cannot receive credit for the
checks by that time. Some commenters
recommended that the Board restrict the
next-day availability requirement to
checks for which the depositary bank
can receive credit by the next business
day. Such a restriction, however, would
be inconsistent with the Act.
With respect to longer term
improvement in the check collection
system, the Board requested comment
on how to address delayed
disbursement practices and the practice
of issuing teller's checks payable in a
different check processing region than
that of the issuing bank. The majority of
comments that addressed this issue
5
See policy statements issued by the Board on
January 11. 1979 and February 23.1984.

indicated that the practice of issuing
teller’s checks payable in a different
check processing region should be
eliminated. Several other commenters
(primarily providers of teller’s check
services) opposed any regulatory action
to limit the location of the paying bank.
After an analysis of the comments, the
Board issued for comment in June 1988 a
proposed amendment to Regulation CC
to restrict certain delayed disbursement
practices, with a proposed effective date
of April 1.1989 (53 FR 24093, June 27,
1988). Under the proposal, a bank that
issued teller’s checks would be required
to draw the checks on or designate the
checks payable through or at a bank
such that a depositary bank located in
the same community as the issuing bank
would generally receive credit for the
check as quickly as it would receive
credit on a check drawn on the issuing
bank.

This proposed “equivalent
availability” rule was based on the
actual check collection practices of
banks in the issuing bank's community.
The Board did not believe it was
practical to address the cases in which
teller's checks are deposited in banks
distant from the issuing bank, such that
the depositary banks are unable to
receive next-day credit for the checks,
even though the depositary banks must
make the funds available for withdrawal
on the next business day. For those
checks deposited in a bank local to the
issuing bank, the proposed rule was
designed to ensure that depositary
banks generally would receive credit for
the teller’s check by the next business
day, when the funds must be made
available for withdrawal.
Public Comment on Delayed
Disbursement Proposal
The Board received over 230 written
comments from the public, and Board
staff held numerous informal
conversations with industry
representatives regarding the effects of




the proposal. Over 75 percent of the
commenters supported the Board’s
objective to restrict the delayed
disbursement of teller’s checks;
however, commenters indicated that the
proposed rule was unclear and would be
difficult to administer. Commenters
expressed particular concerns about
how issuers of teller's checks and
providers of teller’s check services could
determine whether banks in a given
community collected checks such that
the availability of the teller’s checks
would be equivalent to the availability
the banks receive on checks drawn on
the issuing bank.
As an alternative to the proposal,
some commenters suggested that a
cutoff hour, such as a Federal Reserve
deposit deadline, be established such
that a check deposited by the depositary
bank for collection at or after the cutoff
hour would receive next-day credit.
Several commenters indicated that a
combination of Federal Reserve and
correspondent deadlines should be
referenced to determine whether an
issuing bank could issue teller’s checks
of a particular service provider. Other
commenters suggested that the delayed
disbursement problem could be
resolved, in large part, by requiring that
teller’s checks be payable locally, or be
encoded with a city routing number if
payable nonlocally.®
The Board has reviewed the public
comments received and has evaluated
alternative methods of dealing with the
delayed disbursement of teller's checks.*

* Commenters also expressed concern regarding
the proposed effective date of April 1.1969.
Commenters indicated that the proposed rule would
require many banks to replace existing teller's
check stock or to change providers of teller's check
services, thereby necessitating a longer lead time
than that provided in the proposal. In response to
these comments, the Board issued a notice that
should the Board adopt a rule restricting the
delayed disbursement of teller's checks, such a rule
would not be effective April 1.1969. as published in
the proposal. (54 FR 5495. February 3.1989).

4

It has considered the costs of delayed
disbursement on depositary banks and
the burdens on users of teller's check
services that might occur should the
Board take regulatory action. The Board
believes that by issuing a policy
statement it can avoid the rigidity of a
regulation and still address the problem
of intentional delay in the collection of
teller’s checks. The effectiveness of the
policy statement, however, will depend
on the cooperation of teller’s check
issuers and service providers.
Discussions with the major providers of
teller's check services indicated that
they are willing to make changes that
would speed the collection of checks in
markets they serve. The Board has
received commitments from a number of
major teller’s check providers to make
operational changes that would address
in large part the concerns that prompted
the Board to propose amendments to
Regulation CC to restrict the delayed
disbursement of these checks.
The Board favors cooperative
solutions that do not require rigid
regulations and that demonstrate the
industry’s willingness 1o work toward
payment system improvements.
Therefore, the Board is issuing a policy
statement in lieu of adopting a final
regulation restricting delayed
disbursement practices. The
effectiveness of the policy statement,
however, will depend on the
cooperation of teller’s check service
providers and issuers of teller’s checks.
The policy statement will be effective
immediately, but the Board recognizes
that many banks and service providers
will need a longer lead time to comply
with the policy. The Board will monitor
the industry’s adherence to the policy
statement and delayed disbursement
practices in general and, should abuses
continue, will consider formal regulatory
action.
In light of the foregoing, the Board is
issuing the following policy statement:

Board Policy Statement on Delayed Disbursem ent
of Teller’s Checks and C ashier’s Checks
Delayed disbursement is the practice of issuing checks that are payable by, through, or at a bank1
located in a geographic area such that collection of the checks is generally delayed. Although many
classes of checks are subject to delayed disbursement, the effects of delayed disbursement are par­
ticularly significant in the case of teller’s checks.12 The delayed disbursement of teller’s checks im­
poses float costs on the depositary bank, which must generally make the proceeds of these checks
available for withdrawal on the business day following deposit. In addition, delayed disbursement
often increases the costs to process and transport these checks.
The Expedited Funds Availability Act (“Act”) and Regulation CC (12 CFR Part 229) require a
depositary bank to provide customers with next-day availability, under specified conditions, for cer­
tain checks deposited in transaction accounts, including cashier’s checks3 and teller’s checks. De­
pending on the location of the paying bank, a depositary bank may not receive credit for the check
by the time funds must be made available to the customer for withdrawal. Thus, the practice of de­
layed disbursement permits a bank issuing such checks to impose costs, in terms of lost interest,
on other banks and to benefit from interest or earnings credits earned on outstanding checks until
the checks are presented for payment.
The Board recognizes that many banks that issue teller’s checks benefit from the specialization
and economies of scale of certain banks and other service providers that can perform the tracking,
reconciliation, and payment services associated with teller’s checks at a lower cost than the issuing
bank would incur by issuing and paying cashier’s checks. In addressing the delayed disbursement
problem, the Board believes that it is desirable to reduce the float created by the issuance of these
checks while at the same time minimize the disruption of efficient teller’s check services.
As a general matter, the Board believes that a depositary bank located in the same community
as the bank that issues a teller’s check should be able to receive next-day credit for the teller’s check.
The Board has determined, after review of Federal Reserve collection patterns and deposit deadlines
across the country, that depositary banks in most areas generally can receive next-day credit for
checks that are encoded with a nonlocal city routing number4 and presented in a nonlocal Federal
Reserve city. For checks that are encoded with a nonlocal RCPC or country routing number and
presented in a nonlocal check processing region, credit is generally deferred by one or two days.
The Board recognizes, however, that depositary banks located on the west coast generally may not
be able to receive next-day availability for checks presented in most nonlocal cities. In addition,
in other isolated areas of the country, next-day credit is generally not available for any check payable
by a nonlocal paying bank. The Board recognizes that banks in these areas may benefit by having
access to a centralized teller’s check service provider.
The Board believes that banks issuing teller’s checks and teller’s check service providers should
take steps to ensure that delays in the collection and return of teller’s checks are kept to a minimum:
1 Regulation CC defines “bank” to include all depository institutions, including commercial banks, savings and loan associations, and
credit unions. A depositary bank is defined as the first bank to which a check is transferred. A paying bank is a bank by, at, or through
which a check is payable and to which it is sent for collection.
2 Regulation CC defines a “teller’s check” as a check provided to a customer of a bank, or acquired from a bank for remittance purposes,
that is drawn by the bank and drawn on another bank or payable through or at another bank. For the purposes of this policy statement,
“teller’s check” includes checks drawn on a Federal Reserve Bank or a Federal Home Loan Bank.
3 Regulation CC defines “cashier’s check” as a check provided to a customer of a bank, or acquired from a bank for remittance purposes,
that is drawn on the bank, is signed by an officer or employee of the bank on behalf of the bank as drawer, and is a direct obligation
of the bank.
4 These checks are payable by banks located in the same city as a Federal Reserve office. RCPC (“Regional Check Processing Center”)
checks are payable by banks in areas designated within the territories of Federal Reserve offices but outside Federal Reserve cities. Certain
Federal Reserve regions also contain country zones, which are generally more remote from Federal Reserve cities than are RCPC zones.




5




First, the Board believes that any disbursement practice designed to extend the time needed to
collect a teller’s check is inappropriate. Although the Board believes that centralized disbursement
is economically efficient in some cases, the location of the paying bank should be chosen so as to
minimize collection time.
Second, the Board has determined that depositary banks can generally receive credit faster for
checks payable by a bank with a city routing number than for checks payable by a bank with an
RCPC or country routing number. The Board believes that teller’s check service providers that serve
issuing banks in check processing regions that are nonlocal to the paying bank should help speed
the collection and return of teller’s checks by use of a city presentment point and a city routing
number in the MICR line of its teller’s checks.
Some teller’s check service providers confine the scope of their services to a state or other limited
geographic area. Because the state or area may be divided into more than one check processing re­
gion, such service providers may use a paying bank that is nonlocal to many of their customer banks.
In addition, the state or area may contain no Federal Reserve city. The Board recognizes that it may
be impractical for such service providers to use a city presentment point.
Third, the Board believes that those teller’s check service providers that serve banks nationwide
should accept teller’s checks at more than one presentment point, particularly those providers that
serve west coast banks. For example, a teller’s check service provider that uses an east coast paying
bank could shorten collection and return times for its California customers by also providing a west
coast presentment point for teller’s checks.
The Board recognizes that similar delayed disbursement problems arise in connection with
cashier’s checks, issued by a bank with multistate branches, that depositary banks must send to a
central location for payment. The Board believes that the same general guidelines should apply to
the disbursement of cashier’s checks as apply to teller’s checks and will take further action regarding
cashier’s checks should abusive delayed disbursement practices continue to occur.
The Board will monitor the industry’s adherence to the policy statement and delayed disbursement
practices in general and, should abuses continue, will consider formal regulatory action.

6

Thursday
April 6, 1989
Vol. No. 54, No. 65
Pp. 13841-13855

Regulation CC; Docket No. R-0649
Amendments to Regulation and
Official Staff Commentary

[Enc. Cir. No. 10294]




For this Regulation to be complete, retain:
1) Regulation C C Pamphlet, effective September 1, 1988.
2) Amendments effective October 25, 1988.
3 ) This slip sheet.

12 CFR Part 229
[Docket No. R-0649; Regulation CC]

Availability of Funds and Collection of
Checks

Board of Governors of the
Federal Reserve System.
a c t io n : Final rule.

ag en cy:

The Board is adopting a
number of amendments to Regulation
CC and its Commentary (Appendix E to
Regulation CC). The regulation requires
banks to make funds available to their
customers within specified times, to
disclose their funds availability policies
to their customers, and to handle
returned checks expeditiously. Since the
publication of Regulation CC, the Board
has received numerous requests from
banks and others for clarification of
various provisions of the regulation. The
Board believes that the changes to
Regulation CC and its Official
Commentary (Appendix E) respond to
many of these questions and will aid
banks in understanding and complying
with the regulation.
EFFECTIVE DATE: The effective date for
the amendment to § 229.2(e) regarding
agencies of foreign banks and the
amendment to Appendix A is August 10.
1989. All other amendments are effective
April 10,1989.
SUMMARY:

FOR FURTHER INFORMATION CONTACT:

Louise L Roseman, Assistant Director
(202) 452-3874 or Gayle Thompson.
Program Leader (202) 452-2934 Division
of Federal Reserve Bank Operations;
Oliver I. Ireland, Associate General
Counsel (202) 452-3825 or Stephanie
Martin. Attorney (202) 4S2-339& Legal
Division; or Thoma* f. Noto, Attorney
(202) 452-3867, Division of Community
and Consumer Affairs. For the hearing
impaired o n l y , Telecommunications
Device for the Deaf. Eamestine Hill or
Dorothea Thompson (202) 452-3544.
SUPPLEMENTARY INFORMATION: On May
13.1988, the Board adopted Regulation
CC (12 CFR Part 229) to carry out the
provisions of the Expedited Funds
Availability Act (“Act”) (12 U.S.C. 40014010). See 53 FR19372 (May 27,1988).
The regulation requires banks to make
funds available to their customers
within specified times, to disclose their
funds availability policies to their
customers, and to handle returned
checks expeditiously. After the
publication of Regulation CC, the Board
received numerous requests from banks
and others for clarification of various
provisions of the regulation. In October
1988. the Board proposed changes to




Regulation CC and its Official
Commentary (Appendix EJ to respond to
many of these questions and to aid
banks in understanding and complying
with the regulation (53 FR 44343,
November 2,1988).
The Board received 63 comments on
the proposed amendments. Commenters
comprised:
Commercial banks........................ .... .......... 28
Bank holding companies.................. .......... 15
_____ 10
T ra d e a s s o c ia t io n s ...... ........... _ ........ .
Savings and loan institutions......... ................ 4
fllearingW n nse*.............................................. ................ J

Banking service corporations........... ................. 2
C red it unions,................ - --------..............
Federal Home Loan R a n k s__________ ________ 1
Law firms.™----- --------------------------------The final amendments and

substantive comments are summarized
below.
S e c ti o n 2 2 9 .2 ( D e fi n i ti o n s )

(d) A v a i l a b l e f o r w i t h d r a w a l . The
Commentary originally stated that funds
are considered to be available for
withdrawal even though they cannot be
used because they are subject to
garnishment, tax levy, or court order
restricting disbursements from the
account. The Board proposed to revise
the Commentary to make it clear that
when a bank places a hold on funds set
aside as a result of the certification of a
check, a check guaranty, purchase of a
cashier’s check, or similar transaction,
the bank has not failed to make funds
available for withdrawal.
Two commenters suggested that the
Board clarify that funds should be
considered available for withdrawal if
used by a bank in accordance with its
right of set-off or if a bank holds the
funds “m an account p r io r t o in itia t io n
of a wire transfer.” The final revision
expands on the proposed language to
make it clear that the Commentary’s list
of reasons is not exhaustive and
clarifies that banks are permitted under
the regulation to place a hold on funds
to cover a check that was certified or
purchased and not debit the account
until the check is presented for payment.
(e) B a n k . The Expedited Funds
Availability Act’s definition of
“depository institution" includes “an
office, branch, or agency of a foreign
bank located in the United States” (12
U.S.C. 4001(12)). The definition of bank
in Regulation CC, for purposes of
subpart B, originally included only
branches of foreign banks as defined in
the International Banking Act (12 U.S.C.
3101). In some cases, however, agencies
of foreign banks may hold accounts.
Accordingly, the Board proposed an
amendment to the definition of “bank,”
for purposes of subpart B, to cover

1

agencies of foreign banks that are
located in the United States. (Agencies
of foreign banks are already included in
the definition of “bank" for purposes of
subpart C.) Offices of foreign banka in
the United States that are not branches
or agencies are not permitted to hold
accounts. No substantive comments
were received on this change, and the
Board has adopted the amendment as
proposed. This amendment will become
effective 120 days following its final
adoption to provide agencies of foreign
banks sufficient time to implement the
requirements of subpart B.
In addition, the Act did not include
Edge Act corporations, agreement
corporations, and commercial lending
companies (such as banking* companies
incorporated under Article XII of the
New York Banking Law) under the
definition of “depository institution";
consequently, the Board did not subject
them to the availability and disclosure
requirements of subpart B of Regulation
CC. For purposes of subpart C, however,
the term "bank” also includes any
person engaged in the business of
banking, so that the same rules apply to
the return of checks by institutions that
do not hold “accounts” as apply to
institutions that do hold “accounts.”
Edge Act corporations, agreement
corporations, and commercial lending
companies pay and return checks and
drafts and would generally be
considered to be engaged in the
business of banking. The Board
proposed to revise the Commentary to
the definition of “bank” to clarify the
status of Edge Act and similar
corporations under the regulation. No
substantive comments were received on
this change, and the Board has adopted
the revision as proposed.
(f) B a n k i n g d a y and (g) Business day.

The Commentary to these definitions
originally stated that deposits made to
an ATM are considered made at the
branch holding the account into which
the deposit is made for the purpose of
determining the day of deposit. The
Board believes that it is appropriate to
apply this rule to deposits made at offpremise facilities, such as remote
depositories and lock boxes, as well as
at ATMs. All other deposits should be
considered made at the branch at which
the deposit is received for purposes of
determining the day of deposit. The
Board proposed to revise the
Commentary accordingly.
Many commenters requested that the
Board clarify the interaction of the
proposed Commentary to the definitions
of “banking day” and “business day”
and S 229.19(a). The commenters stated

that it was unclear under the proposed
language whether deposits to offpremise facilities would still be
considered received in accordance with
§ 22&19{a). The Board has added
language in the final revision to the
Commentary to clarify the relationship,
between the two sections.
(i)
C ashier’s check and (gg) Teller's
check. Sections 229.2(i) and (gg) of the
regulations define "cashier’s check" and
"teller’s check.” The Board has received
several inquiries as to the types of
checks that are included within these
definitions. One commenter requested
that the Board revise the Commentary tc
the definition of "teller’s check" to
include checks drawn by a nonbank and
payable through a bank. The Board has
clarified that such checks are not
considered teller’s checks under the Act.
and has expanded the Commentary to
the definitions of “teller’s check" and
"cashier’s check” to make further
clarifications.
(k) Check. The Commentary to the
definition of “check" originally stated
that a credit card draft is not considered
a check for purposes of the regulation.
The Board proposed to clarify the term
“credit card draft" by revising the
Commentary to specify that the term
includes sales drafts used by merchants
or generated by banks but excludes
checks that banks provide to their
customers as a means of accessing
credit lines without the use of credit
cards. Two commenters expressed
confusion regarding the proposed
revision, in particular as to what checks
would be excluded as "credit card
drafts." The Board has revised the
Commentary to eliminate confusion.
(u)
Noncash item. The definition of
noncash item includes an item that
would otherwise be a check, except that
it has not been preprinted or postencoded in magnetic ink with the
routing number of the paying bank.
Under the definition of "paying bank,"
published by the Board as an interim
rule on August 18,1988 (53 FR 31290)
and adopted as a final rule on
November 2,1988 (53 FR 44324), the
routing number on certain payable
through checks may no longer be that of
the paying bank for purposes of subpart
B of the regulation. The Board is revising
the Commentary to clarify that, in the
context of this definition, "paying bank”
refers to the paying bank for purposes of
subpart C. This amendment clarifies that
checks payable through a bank are not
noncash items.
(z) Paying bank. The definition of
"paying bank” originally included the
state or unit of general local government




on which a check is drawn. Some states
and local governments issue checks
drawn on themselves, but designate the
checks as payable through or at a bank.
The Board proposed to amend the
definition of paying bank to provide that
a state or unit of general local
government is a paying bank only if the
check is actually sent to the state or unit
of general local government for payment
or collection. No substantive comments
were received regarding this change,
and the Board has adopted the
amendment as proposed. The Board has
also approved a related amendment, as
proposed, to conform the warranty
provisions in § 229.34 (a) and (b) to the
definition of “paying bank."
(bb) Q ualified Returned Check. The
regulation defines a qualified returned
check ("QRC”) as one that has been
prepared for automated return to the
depositary bank by placing the check in
a carrier envelope or placing a strip on
the check and encoding the strip or
envelope in magnetic ink. Under
§ 229.31(a). a returning bank’s return
deadline is extended by one business
day if the returning bank converts a
returned check to a QRC.
Under the current regulation, returning
banks that might want to use another
technology for automating returned
check processing may not extend their
return deadline when using a
methodology other than that defined for
a QRC. The Board requested comment
on whether a broader definition of QRC
is warranted to accommodate different
technologies, whether banks would use
an alternative method of qualifying
returned checks if it were available,
whether the number of a lte r n a te
methodologies allowed should be
limited, and whether a returning bank
should be permitted to extend its return
deadline by the additional day to
prepare the returned check for
processing using another technology if
the returned check had originally been
qualified by the paying bank.
Twenty-seven commenters opposed
broadening the defintion of QRC at this
time. The reasons cited were a need for
uniformity, a need to adapt to the new
return system as it exists before
experimenting with new technologies,
and the need for careful industry study
before implementing alternative means
of creating QRCs. Six commenters
favored broadening the definition now,
but three believed the Board should do
so only in "a limited way."
Nineteen commenters opposed and
two commenters favored allowing an
extra day for a returning bank to qualify
a returned check using an alternative
technology. Some of those opposed said

2

they would favor the extra day if an
agreement was reached between the
interested banks or if it would
ultimately speed the return. Most
commenters said that they would use a
new technology in the future if it is
sufficiently studied and tested, costefficient, and available to all banks. The
final amendment does not expand the
definition of QRC nor does it allow an
extra day for qualifying a returned
check using an alternative technology.
The Board will, however, continue to
study new technologies and options for
speeding the return process and may
make further proposals in the future.
In addition, the Board proposed to
clarify the Commentary to indicate that
QRCs prepared using envelopes
preprinted with the return item identifier
may conform to the guidelines
established in Specification fo r the
Placem ent an d Location ofM ICR
Printing, X9.13 by the American

National Standards Committee on
Financial Services (Sept. 8.1983) (“ANSI
guidelines”) for the external processing
code ("EPC”) field for printing the
identifier. The ANSI guideline states
that the EPC field is located within Va
inch to the left of the routing number,
thus allowing the identifier to be in
either position 44 or position 45 on
preprinted envelopes.
The commenters generally approved
of universal standards for carrier strips
and envelopes. Several commenters
opposed the proposal that the “2 "
identifier be allowed in either position
44 or 45 because their software is
capable of reading position 44 only.
Since the publication of the proposed
amendment, the Board has learned that
the ANSI guidelines regarding the EPC
field are in the process of revision. The
Board will delay action on this
amendment until the new ANSI
standards are finalized.
(cc) Returning bank. The definition of
“returning bank” in Regulation CC
originally stated that a returning bank is
a collecting bank for purposes of U.C.C.
4—202(l)(e), which specifies a collecting
bank’s duty to notify its transferor of
delays in transit. On further
consideration, the Board did not believe
that it was necessary for Regulation CC
to require that a returning bank notify
its transferor of any loss or delay in
transit, and therefore the Board
proposed to delete this reference from
the definition.
One commenter objected to the
deletion, stating that the transferor
needs the notice for chargeback and
monitoring purposes. The Board
believes, however, that while such a
notice is necessary in the forward

collection process, when collecting
banks may be in doubt as to whether the
check will be paid, it is not as important
in the return process, when payment is
generally assured as long as the
depositary bank is solvent. A returning
bank will still be a collecting bank for
purposes of U.C.C. 4-202(2), which sets
out when a collecting bank’s action
would be considered to be seasonable,
and a returning bank is analogous to a
collecting bank for purposes of final
settlement. Therefore, the Board is
adopting the amendment to the
regulation as proposed and has added
clarifications to the Commentary
accordingly.
(kk) Unit o f general local government.
The Board has been asked whether
Indian nations are considered to be
units of general local government within
the meaning of Regulation CC. The Act
provides next-day availability for
checks drawn by a unit of general local
government. Under the Act, a unit of
general local government is defined as
any city, country, town, township,
parish, village, or other general purpose
political subdivision of a state. As
Indian nations are not subdivisions of
the states, Indian nations are not units
of general local government within the
meaning of the Act, and the Board
consequently proposed a revision to the
Commentary to make it clear that Indian
nations are not included within the
meaning of this term. No substantive
comments were received on this
revision, and the Board has adopted it
as proposed.

that has not yet been included in
Appendix A.
One commenter favored the proposal
that a bank should be able to rely on the
routing numbers published in Appendix
A for giving next-day availability to
certain checks, but suggested that
Appendix A updates have a delayed
effective date to facilitate depositary
bank programming changes. The Board
will update Appendix A periodically to
incorporate recently issued Federal
Reserve Bank and Federal Home Loan
Bank routing numbers and will allow a
lead time for banks to update their
computer systems before imposing
liability. The Board adopted the revision
as proposed.
In addition, § 229.13(a) of the
regulation requires that depositary
banks give next-day availability to
traveler’s checks when they are
deposited to new accounts; The Board
proposed to add a sentence to the
Commentary to § 229,10 that cites this
requirement, cross-referencing the new
account exception in $ 229.13. Several
commenters suggested that, to avoid
confusion regarding the proposed
language, the Commentary should
clarify that traveler’s checks are
“included in the $5000 aggregation" for
next-day availability for new accounts.
The Board has redrafted the final
revision to the Commentary to make this
clarification.
Deposits made to an employee of the
depositary bank. In most cases,

§ 229.10(c) conditions next-day
availability on the check being
Section 229.10 (N ext-D ay A vailabiiity) deposited in person to an employee of
the depositary bank. Deposits made
Certain check deposits. The
Commentary to § 229.10 originally stated through the mail or at an ATM or night
that banks are required to provide next- depository must be made available not
day availability (or two-day availability later than the second business day after
under § 229.10(c)(2)) foe Federal Reserve the banking day of deposit. Some
questions have been raised about the
Bank and Federal Home Loan Bank
meaning of the term "in person to an
checks. The Board proposed to revise
employee of the depositary bank," e.g.,
the Commentary to provide that the
whether it covers situations where a
next-day and second-day availability
bank sends a courier to the customer to
requirements apply only to checks that
pick up checks for deposit. The language
are encoded with a routing number
used by the Act is "deposited in a
listed in Appendix A to the regulation.
Banks generally must rely on the routing receiving depository institution which is
staffed by individuals employed by such
number to determine whether these
institution” (1 2 U.S.C. 4002(a)(2)), and
checks are subject to next-day
the Act defines "receiving depository
availability because the banks cannot
require the use of special deposit slips to institution” to mean “the branch of a
depository institution or the proprietary
identify them. The routing numbers
ATM in which a check is first
assigned to the Federal Reserve Banks
deposited” (12 U.S.C. 4001(20)). The
and Federal Home Loan Banks may
change from time to time, and the Board Board interprets these provisions as
requiring next-day availability only for
does not believe that banks should be
deposits made to staff of the depositary
held liable for not providing next-day
availability for a Federal Reserve Bank bank at a branch of the bank. Under
or Federal Home Loan Bank check that
§ 229.10(c)(2), second-day availability
contains a newly issued routing number would apply to deposits described in




3

this section that are made at a teller
station staffed by a person that is not an
employee of the depositary bank (e.g. a
shared staffed teller facility located in a
retail store) and to deposits picked up at
the customer’s premises by an employee
of the depositary bank. Accordingly, the
Board proposed revisions to this section
of the Commentary to make these
clarifications. One commenter requested
clarification in the Commentary as to
the day of deposit for deposits picked up
by an employee of the depositary bank
at the customer’s premises. The Board
has made this clarification in the final
revision and otherwise has adopted the
revision as proposed.
Fees for withdrawals. The
Commentary to § 229.10(c) originally
prohibited a depositary bank from
imposing a fee on a customer when the
customer withdraws funds that must be
made available under the regulation but
for which the bank has not yet received
credit. The Board intended this
provision to prevent practices designed
to discourage customers from exercising
their right to withdraw these funds in
accordance with the regulation. Banks
have expressed concern, however, that
this provision could be interpreted to
prohibit the application of account
analysis programs commonly used by
banks under which earnings credits are
computed on the basis of collected
balances. The Board believes that such
programs are generally adopted for
legitimate purposes and not for purposes
of evading the requirements of the Act.
Because of the difficulties in
distinguishing these programs from
devices to evade the requirements of the
Act, the Board proposed to delete this
provision of the Commentary.
Thirteen commenters supported the
Board’s deletion of this provision,
stating that the change will prevent
widespread confusion and operating
problems throughout the industry. Five
commenters opposed the proposal,
stating that the deletion would invite
abuses of the regulation by depositary
banks. The Board believes that the
difficulties caused by the fee for
withdrawal language to legitimate
account analysis programs outweighs
the danger of abuse of the regulation by
depositary banks. The final amendment
deletes the fee for withdrawal language,
but the Board plans to monitor the
practices of banks in this area and may
consider specific restrictions if it
determines that abuses are occurring.
Special deposit slips. The
Commentary originally stated that if a
bank.only provides special deposit slips
upon the customer’s request, the bank’s

tellers must advise customers of the
special deposit slips' availability.
Because banks indicated that this
requirement places a difficult burden on
tellers, the Board proposed to delete the
reference to the tellers’ duties. Some
commenters expressed concern that if
the Board deleted this reference,
customers would be told of the
availability of such slips only at the time
they receive their initial disclosures. The
Board is revising the Commentary to
indicate that either tellers can advise
customers of the availability of special
deposit slips, or the bank may post a
notice indicating that special deposit
slips are available upon request. The
notice may be placed, for example, at
teller windows or near or with the lobby
notice required under § 229.18(b).
Section 229.11 (Tem porary
A variability Schedule)

(c) Nonlocal checks. Under the
temporary schedule, funds deposited by
nonlocal check must be made available
for withdrawal no later than the seventh
business day following the banking day
of deposit. The Commentary originally
stated that exceptions to this rule
include deposits in accounts of banks
located outside the 48 contiguous states
and deposits made to nonproprietary
ATMs. The Board proposed to delete the
reference to nonproprietary ATM
deposits because $ 229.11(d) already
requires that all checks deposited at
nonproprietary ATMs be made
available no later than the seventh
business day following the banking day
of deposit. No substantive comments
were received on this change, and the
Board adopted the revision as proposed.
Section 229.13 (Exceptions)

(bj Large deposits. Section 229.13(b)
permits a depositary bank to extend the
hold placed on local and nonlocal check
deposits to the extent that the aggregate
amount of the deposit on any banking
day exceeds $5,000. After the final rule
was adopted, several banks asked if
there is a rule to determine what portion
of a large-dollar deposit that is
composed of both local and nonlocal
checks should be made available in
accordance with the schedule and which
checks may be held for a longer period
of time under this exception. The Board
intended to leave this determination to
the discretion of the depositary bank,
and proposed a revision to the
Commentary to clarify this point. No
substantive comments were received on
this change, and the Board has adopted
the revision as proposed.
(e)(2 ) O verdraft and returned check




fees. Originally, the last sentence of this

disclose the categories of deposits that
must be available on the first business
day after the day of deposit, state the
other categories of deposits and the time
periods that will be applicable to those
deposits, and state that the customer
may request a copy of the bank’s
schedule for when deposits of those
checks will be available for withdrawal.
No substantive comments were received
on this change, and the Board has
adopted the revision as proposed.
(c)(3) O verdraft and returned check
fees. The last sentence of this paragraph
of the regulation originally stated that
“[t]he overdraft and returned check
notice must state that the customer may
be entitled to a refund of overdraft or
Section 229.16 (Specific A va ilability
returned check fees * *
This
Policy Disclosure)
sentence, when read with the notice
The Board is clarifying two disclosure requirement in l 229.16(c)(2), could have
been interpreted to require banks to
issues that have been raised since
provide duplicate notices to their
Regulation CC took effect. These
clarifications would not require banks to customers in certain cases. The Board
proposed to amend the last sentence of
change disclosures that have already
this paragraph to read “the notice must
been printed or mailed.
state that the customer may be entitled
(a) General. Section 229.16(a) of the
to a refund of overdraft or returned
regulation requires banks to provide
check fees * * \ ” No substantive
their customers with a specific policy
comments were received on this change,
disclosure that reflects the bank's
and the Board has adopted the revision
availability policy followed in most
as proposed.
cases. The Board proposed two
revisions to the Commentary to clarify
Section 229.19 (M iscellaneous)
this provision. First, the Board proposed
(a)
When funds are considered
to clarify that if a bank discloses the
deposited. This paragraph establishes
policy it follows in most cases, it need
not disclose to some customers that they rules to determine when funds are
considered received in various
may get faster availability. In addition,
circumstances. Rules applicable to
the Board proposed to clarify that a
deposits made at staffed teller stations
bank does not violate the disclosure
requirements of the regulation if it pays differ from those that apply to deposits
made at off-premises facilities, such as
checks written on an account prior to
lock boxes or night depositories. The
the day funds in the account become
Board proposed a revision to the
available for withdrawal according to
Commentary to clarify that the rules
its disclosure. Generally, as long as
applicable to funds deposited in a
funds are not available for withdrawal
deposit box located in the lobby ot the
for all uses permitted to the customer,
bank
should be similar to the rules for
they are not "available for withdrawal"
as that term is defined in the regulation funds received at a staffed teller station.
and. generally, disclosures based on the Seven commenters favored the proposal,
time that funds are available for all uses stating that the change is reasonable in
light of customer expectations but that
are proper. No substantive comments
were received on these changes, and the the Board should clearly distinguish
between boxes inside the lobby and
Board has adopted the revisions as
boxes attached to the lobby but
proposed.
accessed from outside. Six commenters
(b) Content o f specific a va ila b ility
were opposed, explaining that for
policy disclosure. Section 229.16(b) of
security reasons, lobby boxes are not
the regulation describes the required
contents of the specific availability
emptied while the lobby is open to the
public, and consequently it is
policy disclosure. The Board proposed
to revise the Commentary to S 229.16(b) impractical to treat those deposits the
same as deposits to a teller. One
to clarify that a bank that provides
commenter suggested that a notice on
availability based on when the bank
the lobby box as to when funds will be
generally receives credit for deposited
checks need not disclose the time when considered received would be sufficient.
The final revision provides that a lobby
a check drawn on each bank will be
box deposit is treated the same as a
available for withdrawal. Instead, the
deposit to a staffed teller station, unless
Board proposed that the bank may

paragraph of the regulation stated that
“(tjhe overdraft and returned check
notice must state that the customer may
be entitled to a refund of overdraft or
returned check fees * * V This
sentence, when read with the notice
requirement of § 229.13(g), could have
been interpreted to require banks to
provide duplicate notices to their
customers in certain cases. The Board
proposed to amend the last sentence of
this paragraph to clarify that only one
notice is required. No substantive
comments were received on this change,
and the Board has adopted the
amendment as proposed.

4

the bank treats lobby box deposits the
same as deposits to night depositories
and provides a notice on the lobby box
informing customers when deposits at
the lobby box will be considered
received.
Section 229.19(a)(5)(ii) permits a bank
to establish a cut-off hour of 2:00 p.m. or
later, after which deposits may be
considered made on the following
banking day. This provision is similar to
U.C.C. 4-107. Recognizing that many
banks close before 2:00 p.m., the
Commentary notes that this provision
does not require banks to stay open
until 2:00 p.m. The language in the
Commentary raised a number of issues,
such as the effect of closing most of the
bank but leaving drive-up teller
windows open. The Board proposed a
revision to the Commentary to clarify
the effect of closing practices on cut-off
hours. The Board received one comment
regarding the provision prohibiting a
bank from considering checks accepted
at certain teller stations before 2:00 p.m.
as the next day’s deposits. The
commenter stated that prohibiting this
practice would hurt many small rural
banks that must close their teller
windows before 2:00 p.m. to meet
courier schedules. The commenter
stated that these banks would incur
greater risk by losing a day of collection
time for those deposits accepted before
2:00 p.m. but after the courier deadline.
Regulation CC, however, incorporates
the U.C.C.'s existing 2:00 p.m. cut-off
hour for over-the-counter deposits, thus
these delays already occur. The Board
has adopted the final revision as
proposed, which reflects current law
under the U.C.C.
(e) Holds on other funds. Section
229.19(e) of the regulation limits the hold
a depositary bank may place on any
funds of the customer due to a deposit to
an account covered by the regulation.
For example, for deposits made to a
customer’s checking account, if a bank
places a hold on funds in a
nontransaction account, such as certain
savings accounts, rather than the
customer’s checking account, the bank
may place such a hold only to the extent
that the funds held do not exceed the
amount of the deposit and the length of
the hold does not exceed the time
periods permitted by the regulation. This
restriction is intended to prevent
evasion of a principal purpose of the
Act, i e., to limit holds on deposits to
transaction accounts.
The regulation originally limited holds
that a bank can place on funds of the
customer if the customer cashes a check
over the counter to holds that do not




exceed the time periods prescribed in
the regulation and do not exceed the
amount of the check cashed. A number
of banks argued that, as to checks
cashed over the counter, the restriction
was overly broad because cashing a
check over the counter and placing a
hold on a nontransaction account does
not involve an "account” covered by the
Act.
The Board proposed to amend
§ 229.19(e) so that, in the case of checks
cashed over the counter, the regulation
would not limit holds placed on funds
that are not held in accounts as defined
by the regulation. The comments on the
proposal were split, four opposed and
three in favor. Those opposed stated
that the change was contrary to the
spirit of the Act and invites abuses of
hold periods. The Board believes,
however, that it is inappropriate to
regulate holds when there has not been
a deposit to or hold on an account
covered by Regulation CC. The
amendment to § 229.19(e) has been
adopted as proposed. The Board has
also clarified in the Commentary to
§ 229.19(e) that a depositary bank may
not place a hold on any account when
an on us check is cashed over the
counter, because on us checks are
considered finally paid when cashed.
Section 229.20 (Relation to State Law)

The Act (section 608,12 U.S.C. 4007)
provides that any state law in effect on
or before September 1,1989, that
provides for a shorter hold for a
category of checks than is provided
under Federal law will supersede the
federal provision. Section 229.20 of the
regulation provides for Board
determinations, upon request, of
whether state law relating to the
availability of funds is preempted by
Federal law and also provides certain
preemption standards.
In August 1988 and October 1988, the
Board adopted preemption
determinations with respect to the laws
of several states. See, for example, 53 FR
32359 (Aug. 24,1988). In formulating
those preemption determinations, the
Board adopted certain uniform
principles that will apply in all Board
preemption determinations. The Board
proposed to revise the Commentary to
§ 229.20 to incorporate these principles
for preemption determinations.
One commenter suggested that if a
state law provides for the same
availability schedules as the Federal
law but does not provide for exceptions
to the schedules, then the Federal
exceptions should apply. The Board
believes that, under the Act, such a state
law would, in effect, provide for a
5

shorter hold period than Federal law
and would therefore supersede Federal
law to the extent that the Federal
exceptions provided a longer hold
period.
One commenter argued that Federal
law should preempt state law when
state availability schedules are the same
as the Federal schedules, as well as
when state schedules are shorter. The
Act, however, states that the Federal
law shall supersede inconsistent state
law-s, and the Board believes that state
laws that are the same as the Federal
law are not inconsistent with the
Federal law. The commenter was also of
the opinion that under the Act, state law
may preempt Federal law only if the
state law applies to all federally insured
depository institutions within a state;
however, the Act provides that if state
availability schedules are shorter than
the Federal schedules, then the state
schedules shall supersede the Federal
schedules and shall apply to all
federally insured depository institutions
located within the state.
Another commenter suggested that
because the relationship between State
and Federal law is often complicated,
the Board should relieve banks from
liability due to unintentional
noncompliance due to that complex
relationship; however, such a revision
would be contrary to the Act. The Board
has adopted the revisions to this section
of the Commentary as proposed.
Section 229.30 (Paying Bank's
R esponsibility for Return o f Checks)

(a) Return o f checks. Prior to the
effective date of Regulation CC, a
paying bank usually returned a check to
the presenting bank and automatically
received a refund of any provisional
settlement it may have made. Under
Regulation CC, the paying bank must
make an expeditious return, which may
or may not involve returning the check
through the presenting bank. If the
paying bank does not return through the
presenting bank, it will receive payment
for the check from the bank to which the
check is returned (a returning bank or
the depositary bank). In these cases, any
credit given to the presenting bank is not
charged back.
In rare cases, a paying bank that
returns a check may not have settled for
the check with the presenting bank. In
s.uch cases, if the paying bank returns
the check other than through the
presenting bank, it should be required to
make prompt payment for the amount of
the check to the presenting bank. The
Board proposed to revise the
Commentary to § 229.30(a) to clarify this

point. No substantive comments were
received on this change, and the Board
has adopted the revision as
proposed. In addition, the Board has
added a cross-reference to the
Commentary to § 229.33(a) regarding a
paying bank’s duty toward a party that
has breached a presentment warranty.
(b)
Unidentifiable depositary bank,
a paying bank is unable to identify the
depositary bank, it may return the check
to any bank that handled the check for
forward collection, even if that bank has
not agreed to act as a returning bank. If
a paying bank chooses this option, it
must advise the collecting bank that it is
unable to identify the depositary bank.
The Board proposed to revise the
Commentary to provide that this notice
must be conspicuous, and that the
paying bank may not prepare the check
for automated processing.
Nine commenters opposed this
proposal, and three specifically
supported it. Those opposed stated that
if the depositary bank is unidentifiable,
the check would be returned faster if the
paying or subsequent returning bank
were allowed to qualify the returned
check with the routing number of the
prior collecting bank to which it is being
sent (and also signify on the check that
the depositary bank is unidentifiable).
The commenters stated that, under their
approach, the check would not have to
be handled manually until it rejected at
the prior collecting bank. The Board
does not believe that return times would
be shorter if the returned checks are
qualified to the prior indorser. Further,
the Board believes that in some cases
such a check would be returned to the
depositary bank later than would be the
case had the check been handled as a
raw return.
Commenters also stated that under
the proposal, the paying or returning
bank would be charged a higher raw
return fee because of another bank's
error. Five commenters claimed that
Federal Reserve Banks have been
"dumping" returned checks or? the prior
collecting bank with the clearest
indorsement without making a serious
effort to identify the depositary bank.
The commenters objected to this
practice and were concerned that the
liabilities were being shifted from the
Reserve Bank to the prior collecting
bank. One commenter suggested that the
Board establish a procedure by which
the cost of handling a returned check for
which the depositary bank is
unidentifiable is passed along to the
bank at fault.
The Board believes that these
problems are directly related to the ease




of identifying depositary banks and that
the number of returned checks for which
the depositary bank is unidentifiable
can best be reduced by improving the
quality of depositary bank
indorsements. The Federal Reserve
Banks are currently working with
depositary banks with poor-quality
ifindorsements to improve indorsement
legibility. The higher costs being
imposed on paying banks due to poor
depositary bank indorsements should be
minimized as indorsement quality
improves.
The Board further beheves that by
keeping unidentifiable depositary bank
checks in the raw processing stream,
paying and returning banks will have
incentives to make additional efforts to
identify the depositary bank. Allowing
paying or returning banks to qualify
returned checks sent to a prior indorser
would provide an incentive for the bank
to qualify returned checks to the prior
indorser to obtain the lowest per item
fee rather than to make every effort to
identify the depositary bank. In
addition, a returning bank may have
more familiarity with various depositary
bank indorsements and may be able to
determine the depositary bank, even
when the paying bank is unable to do
so. Accordingly, the Board has decided
to adopt the proposed revision
prohibiting the preparation of returned
checks for which the depositary bank is
unidentifiable for automated return.
In addition, several commenters asked
the Board to define “conspicuous
notice." The Board proposed a
conspicuous notice requirement so that
a bank that receives a returned check
will be readily able to distinguish a
check for which the depositary bank is
unidentifiable from other returned
checks. If returned checks for which the
depositary bank is unidentifiable are
received in a cash letter commingled
with other returned checks, conspicuous
notice would have to be given on each
individual check for which the
depositary bank is unidentifiable, for
example in the form of a stamp on the
check. If returned checks for which the
depositary bank is unidentifiable are
received in a separate cash letter, only
one notice would need to be given for
the entire cash letter. The final revisions
to the Commentary have been revised
accordingly.
Furthermore, the Commentary
originally stated that the sending of a
check to a bank that handles the check
for forward collection under this
paragraph, but that has not agreed to
handle returned checks expeditiously, is
not subject to the requirements for
6

expeditious return by the paying bank.
The Board proposed to delete the phrase
“but that has agreed to handle returned
checks expeditiously.” The duty of
expeditious return would not apply
when a check for which the depositary
bank is unidentifiable is sent to a prior
indorser, regardless of whether the prior
indorser agrees to handle expeditiously
returned checks in general. No
substantive comments were received on
this change, and the Board has adopted
the revision as proposed.
(f)
N otice in lieu o f return. This
paragraph originally provided that a
paying bank may send a notice of
nonpayment in lieu of the physical
check if the check is lost or artherwise
unavailable. The Board does not believe
that a check is unavailable merely
because a bank has filed it in a way that
makes its retrieval inconvenient or
difficult The Board proposed to clarify
that notice in lieu of the return of the
actual check should be permitted only
w hen a bank does not have and cannot
obtain possession of the check or must
retain possession of the check for
protest. Several commenters requested
that a legible photocopy should be the
only allowable form oil notice in lieu.
Others suggested that notices in lieu
could be discouraged by providing that
the paying bank send a fee to the
depositary bank when it sends a notice
in lieu. The Board believes that the
current requirements for the content of a
notice in lieu provide the depositary
bank with sufficient information. The
Board recognizes that the cost of
processing a notice in lieu can be higher
than the cost of processing a returned
check and has clarified the limited
situations in which a notice in lieu may
be sent. The final amendment includes
the proposed language and also clarifies
that the notice in lieu must be sent in the
same manner as other returned checks.
The final amendment makes these
changes in both §§ 229.30F(f) and
229.31(f).
Section 229.31 (Returning Bank's
R esponsibility for Return o f Checks)

(b)
Unidentifiable depositary bank.
This paragraph provides, among other
things, that a returning bank that
receives- a check from a paying bank
that could not identify the depositary
bank must return the check
expeditiously to the depositary bank if it
is able to identify the depositary bank.
The Board proposed to amend the
regulation to clarify that this
requirement also applies to checks that
a returning bank receives from another
returning bank where the prior returning

bank is not able to identify the
depositary bank.
Comments on this section were
similar to those on 8 229.30(b). One
commenter suggested that the Board
clarify that a bank must accept returns
only if it agrees to handle returns or is
the depositary bank or a prior collecting
bank. Another commenter suggested
that if a prior collecting bank is able to
identify the depositary bank by looking
at the indorsement (which would
indicate that the sender of the check had
not made a good faith effort to make the
identification), the prior collecting bank
should be able to charge the sender a
fee. One commenter asked the Board to
establish a preferred sequence for where
to send a check when the depositary
bank is unidentifiable.
Because the comments on the
proposed revisions to § 229.31(b) of the
regulation generally referenced back to
the Board’s proposal regarding the
Commentary to § 22s.30(b), they are
discussed above in that section. The
proposed changes to § 229.31(b) of the
regulation were intended to clarify that
the same rules applied to returned
checks received from a paying bank and
those received from another returning
bank. None of the comments directly
addressed this issue, and the Board has
adopted the amendment as proposed.
In addition, the Board proposed a
revision to the Commentary to
§ 229.31(b). Originally, the Commentary
stated that a returning bank may send a
check for which the depositary bank is
unknown to a returning bank that agrees
to handle "the returned check" for
expeditious return or to a prior
collecting bank, even though the prior
collecting bank does not agree to handle
“returned checks" expeditiously. The
Board proposed to change the phrase
“returned checks" to “the returned
check" to clarify that a returned check
may be sent to a prior collecting bank
even though the prior collecting bank
does not agree to handle the returned
check expeditiously. No substantive
comments were received on this change,
and the Board has adopted the revision
as proposed. In addition, the Board has
added clarifying language similar to the
language adopted in the Commentary to
§ 229.30(b) regarding conspicuous notice
and the prohibition on qualifying a
check for return if the depositary bank is
unidentifiable. The Board has also
added a cross-reference in the
Commentary to § 229.31(c).
Section 229.32 (D epositary Bank's
R esponsibility for Returned Checks)

Under § 229.32(a)(2), a depositary




bank must accept returned checks at a
location consistent with the name and
address of the depositary bank in its
indorsement on the check, or, if no
address appears in the indorsement, at a
branch or head office associated with
the routing number of the depositary
bank in its indorsement. A depositary
bank's indorsement could contain an
address that is in a different check
processing region from an address
associated with the routing number in
the indorsement. As returned checks
will be routed on the basis of the routing
number in the depositary bank’s
indorsem ent the return of checks will be
facilitated if returns can be made to an
address in the same check processing
region as the location associated with
the routing number. Therefore, the Board
proposed to amend § 229.32(a)(2) to
provide that if the address in the
depositary bank’s indorsement is not in
the same check processing region as the
address associated with the routing
number in its indorsement, the
depositary bank must accept returned
checks at a branch or head office
associated with the routing number in
the indorsement.
Three commenters opposed the
amendment, stating that it would force
changes in operating procedures, cause
a loss of efficiency, specialization, and
economy of scale, and increase
confusion and delay. Others suggested
that as long as one address is known, it
should be sufficient. One commenter
supported the amendment only if the
address associated with the routing
number is a forward presentment receipt
site.
The Board has adopted the
amendment with slight modification.
This amendment would not prevent a
bank from centralizing its check
processing operations to gain
efficiencies and economies of scale. The
Board believes that if a bank operating
in multiple check processing regions
chooses to centralize check processing
at one site, then that bank should bear
the extra cost of transporting checks to
that site. Furthermore, paying banks
generally return checks based on the
depositary bank’s routing number. A
paying bank located in the same check
processing region as the depositary
bank should have the option of sending
returned checks to the depositary bank’s
address that is associated with its
routing number in its indorsement,
rather than bearing the possibly higher
cost of delivery to a nonlocal processing
center.
Section 229.32(a) also permits
depositary banks to require that
7

returned checks be sorted separately
from forward collection checks. The
intent of this provision is to require
paying or returning banks to present
returned checks to the depositary bank
separately sorted from forward
collection checks, unless the depositary
bank agrees to take returned checks
commingled with forward collection
checks.
The Board proposed to add similar
language to the regulation and
Commentary to state that a depositary
bank may require returned checks for
which it is the depositary bank to be
separately sorted from checks for which
it is a returning bank, including those for
which it is a prior indorser. This
amendment was intended to facilitate
the handling of checks that are returned
to prior indorsers because of difficulty in
identifying the depositary bank.
Five commenters opposed requiring
separate cash letters for different types
of returns. Those who opposed the
proposal said that the benefits to the
receiving bank were outweighed by the
burden on the sending bank and that
more errors and longer delays would
result. Four commenters explicitly
supported the proposal. The Board has
found that most banks that receive
returned checks both as prior indorser
and depositary bank currently receive
these checks commingled. The Federal
Reserve Banks have received few
complaints about the commingled cash
letters. Thus, the Board has determined
that commingled return cash letters are
not causing a problem and that current
practices should be allowed to continue.
The Board has not adopted the proposed
amendment.
The Board also proposed to add a
sentence to the Commentary to
8 229.32(a) to clarify that, under
§ 229.33(d), a depositary bank receiving
a returned check or notice of
nonpayment must notify its customer by
its midnight deadline or within a
reasonable time. One commenter
suggested that the amendment should
read "must send notice to its customer”
rather than “must notify its customer."
The Board has incorporated this
suggestion in the final revision.
Section 229.33 (Notice o f Nonpayment)

(a) Requirement. This section requires
a paying bank to give notice of
nonpayment to the depositary bank if it
determines not to pay a check of $2,500
or more. The Board proposed a revision
to the Commentary to clarify that a
paying bank’s failure to give notice of
nonpayment may be offset by a

depositary bank’s breach of warranty of
title or other w arranty regarding a
check. One commenter disagreed with
the proposal, stating that the paying
bank should be responsible for failure to
give notice of nonpayment in all
instances. One rationale for the
commenter’s position is that, in some
cases, the loss to the depositary bank
would not occur but for the failure of the
paying bank to give timely notice of
nonpayment. At least one court has
agreed with the commenter’s position,
interpreting the warranty provisions of
U.C.C. 4—207(a)(1) and Regulation J to
apply only when a paying bank pays the
check and holding that a depositary
bank’s breach of presentment warranty
did not absolve the paying bank from
liability for failing to give timely notice
of nonpayment. (See First American
Savings v. M Sr I Bank, 57 U.S.L.W. 2406
(3rd Cir. 1989).)
The Board, however, believes that a
paying bank should not be responsible
to a depositary bank for failure to give
notice in a case where the depositary
bank has breached its warranty, such as
where the check has been stolen or an
indorsement forged. This position places
the loss on the bank closest in the
collection chain to party who is
responsible for the check (e.g., the
person who stole the check or forged the
indorsement). Accordingly, the Board
has adopted the amendment as
proposed and has also added similar
wording to the Commentary to
§ 229.30(a).
(d)
Notification to Customer. This
section requires a depositary bank to
notify its customer upon receipt of a
returned check or notice of nonpayment.
The Board has received several requests
from banks to clarify whether this duty
applies to all returned checks or only to
returned checks of $2,500 or more. The
Board is revising the Commentary to
clarify that this provision applies in the
case of any returned check or notice of
nonpayment, regardless of amount.
Sections 229.34 (W arranties b y Paying
Bank and Returning Bank) and 229.38
(Liability)

The Board proposed several technical
amendments that are necessary to
accommodate cases where a check is
payable by one bank but payable
through another. These amendments to
§ § 229.34 and 229.38 clarify that in cases
of payable through checks payable by a
bank, the bank by which the check is
payable, not the payable through bank,
makes the paying bank's warranties and
is liable for the condition of the back of




a check. No substantive comments were clarifying the use of the term “final
received regarding these changes, and
settlement.”
the Board is adopting the amendments
Section 229.37 (Variation b y
with slight technical modification.
Agreem ent)

Section 229.35

(Indorsements)

The Commentary to this section notes
that the Board did not adopt the rule
(a)
Indorsement standards. The
stated in U.C.C. 4-103(2), which provides
indorsement standard in § 229.35 and
that Federal Reserve regulations and
Appendix D specifies the information
operating letters, clearinghouse rules,
that must be included in a depositary
and the like have the effect of
bank’s indorsement. The standard also
agreements under the U.C.C. that apply
permits depositary banks to include
to parties that have not specifically
other identifying information in their
assented to them. The Board did not,
indorsements. Some banks have
however, intend to affect the status of
included nine-digit zip codes in their
such agreements under the U.C.C., and
indorsements. The Board believes that
the Board proposed to clarify this point
the inclusion of the nine-digit zip code
in the Commentary. No substantive
could lead paying and returning banks
to confuse the zip code with the routing comments were received regarding this
number, which also contains nine digits. change, and the Board has adopted the
revision as proposed.
In order to prevent this confusion, the
Board proposed to amend the
Appendix A (Routing Number Guide to
Commentary to § 229.35(a) to advise
Next-Day Availability Checks and
depositary banks not to include in their Local Checks)
indorsements information, such as a
The Board is updating the list of
nine-digit zip code, that could be
Federal Home Loan Bank routing
confused with required information,
numbers to include a newly-issued
such as the depositary bank's routing
routing number of the Houston Branch
number. Eight commenters specifically
of the Federal Home Loan Bank of
favored the Board's proposal to
Dallas.
discourage the use of numbers in
depositary bank indorsements that
Appendix C (Model Forms, Clauses
could be confused with routing numbers, and Notices)
such as nine-digit zip codes. One
Forms C -l through C-3 disclose that a
commenter opposed the proposal on the
bank generally provides next-day
grounds that use of the nine-digit zip
availability for all fun<ls deposited to an
code will grow over time. Another
account. Forms C-4 through C-7 list
commenter suggested that any ban on
use of nine-digit zip codes should allow social security benefits and payroll
payments as examples of preauthorized
a sufficient lead time for
implementation. The Board has adopted credits that are given next-day
the amendment as proposed. The Board availability. Under U.S. Treasury
regulations, government payroll and
is not banning the use of nine-digit zip
benefit preauthorized transfers must be
codes in indorsements but is merely
made available on the payment date.
discouraging them.
The Board also proposed revisions to ACH association rules encourage banks
to make direct deposit of payroll
the Commentary to § 229.35(a) to
payments
available to the customer on
reference the amendments to 5 229.32(a)
the payment date. The Board is adding
and to clarify that the collecting and
returning banks must indorse checks for language in the Appendix C
Commentary to the model forms to
tracing purposes. No substantive
clarify that banks that have relied on the
comments were received on these
changes, and the Board has adopted the model forms are protected from civil
liability under § 229.21(e) as to
revisions as proposed.
disclosure of electronic payments, even
(b)
Liability o f bank handling check. though social security benefits and
This paragraph originally provided that payroll payments are being made
a bank handling a check for forward
available on the same, not the next,
collection or return may have the rights business day. Banks are encouraged to
of a holder. The Board proposed to
revise their forms to reflect same-day
revise the Commentary to clarify that a availability for these electronic
bank may become a holder or a holder
payments credits when reordering new
in due course regardless of whether
stocks of forms.
prior banks have complied with the
regulation’s indorsement standards. No Final Regulatory Flexibility Act
substantive comments were received
Analysis
regarding this change, and the Board has
Two of the three requirements of a
adopted the revision as proposed and
has also added language to this section final regulatory flexibility analysis (5
8

U.S.C. 604), (1 ) a succinct statement of
the need for and the objectives of the
rule and (2 ) a summary of the issues
raised by the public comments, the
agency’s assessment of the issues, and a
statement of the changes made in the
final rule in response to the comments,
are discussed in the preamble above.
The third requirement of a final
regulatory flexibility analysis is a
description of significant alternatives to
the rule that would minimize the rule's
economic impact on small entities and
reasons why the alternatives were
rejected. These changes are primarily
clarifications to Regulation CC in
response to questions and requests for
clarification that the Board has received
since Regulation CC was adopted. The
Board considered the effect of these
revisions when developing them and
does not believe the changes will result
in any significant adverse economic
impact on a substantial number of small
entities.
One commenter stated that one of the
revisions to the Commentary to
S 229.19(a), which prohibits banks from
considering checks received before 2:00
p.m. as the next day’s deposits, would
hurt small rural banks that close their
teller windows before 2:00 p.m. to meet
courier schedules. (See discussion in
above preamble.) Under the Board’s
Commentary revision, certain remote
banks may be unable to collect checks
received for deposit close to the cut-off
hour of 2:00 p.m., and consequently such
checks may be returned later than
checks deposited in time to meet the
day’s courier schedule. It is possible that
the late return could increase the risk
that the bank will have to make funds
available before the check is returned
The Board believes that the risk
associated with possible late returns
applies only to a small number of
remote banks and is dependent on the
banks’ location, courier schedule, and
availability policy. The Board believes
that the effect of the revision on small
rural banks is minimal and that it would
not be practical to attempt to define an
exception to the cut-off hour provisions
to address these situations.
List of Subjects in 12 CFR Part 229
Banks, banking; Federal Reserve
System.
For the reasons set out in the
preamble, Title 12 , Chapter II, Part 229
of the Code of Federal Regulations is
amended as follows:
PART 229— AVAILABILITY OF FUNDS
AND COLLECTION OF CHECKS 1
1 . The

authority of Part 229 continues




depositary b ank that receives a check
for deposit v rtan account may not place
Authority: Title VI of Pub. L 100-86.101
a hold on at ly funds of the customer at
Stat. 552, 835,12 U.S.C. 4001 et seq.
the bank, w here—
2. In S 229.2. paragraphs (e)(7), (z)(5),
(1) The ar nount of funds that aTe held
and (cc) are revised to read as follows:
exceeds th '3 amount of the check; or
(ii)
The f unds are not m ade available
§ 229.2 Definitions.
for withdn iwal within the times
*
*
•
•
«
specified Ln § $ 229.10, 229.11,229.12, a i ad
(e)
‘ Bank” means—
229.13.
* * * * *
(2) A de positary bank that cashes 1 1
(7)
An “agency” or a “branch" of a check fax a customer over the count® x,
"foreign bank” as defined in section 1(b) other thar t a check draw n on the
of the International Banking Act (12
depositary bank, may n o t place a b old
U.S.C. 3101).
on funds in an account o f the custo mer
*
*
*
*
*
t it the bai ik. if—
(z) “Paying bank" means—
(1) The amount of funds that are; held
* * * * *
f ixceeds Ihe amount of the check; or
(5)
The state or unit of general local
(ii) The i funds are not made av aflabie
government on which a check is drawn f or w ithdraw al within tlae times
and to which it is sent for payment or
s pecifiecl in §§ 229.10, 220JL1, 22 9.12. and
collection2 29l13.
to read as follows:

*

*

*

*

*

*

(cc) "Returning bank” means a bank
(other than the paying or depositary
bank) handling a returned check or
notice in lieu of return. A returning bank
is also a collecting bank for purposes of
U.C.C. 4-202(2).
*

*

*

*

*

3. In § 229.13, the last sentence of
paragraph (e)(2) concluding text is
revised to read as follows:
§ 229.13
*
*

Exceptions.
*
*
*

(e)
(2 ) O verdraft and returned check fees,
* * * The notice must state that the
customer may be entitled to a refund of
overdraft or returned check fees that are
assessed if the check subject to the
exception is paid and how to obtain a
refund.
*

*

*

*

*

4. In § 229.10. the last sentence of
paragraph (c)(3) concluding text is
revised to read as follows:
§ 229.16

*

*

*

6 . In { 229.31, the iast sente' ace of
p taragra ph (b) concluding tex l is revised
t o read as follows:

§ 229.31 Returning bank’s ref jponsibiHty
fc >r retui -n of checks.

(b) l 'aideatifiabie d ep o s ita ry bank.
* a * i K returning bank thr it receives a
re turned check from a pa» ring bonk
under $ 229.30(b), or fronr i a returning
ba nk under this paragraj jh, but that is
ab le t o identify the depc /sitary bank,
m ust t hereafter return t' ,ie check
exp>ed itionsly to the de: positary bank.
*

*

it

*

*

7. If i 1 229.32, the w ord “or” is
remon ed at the end of /paragraph
(a)(2 )( ii), paragraph ( i)( 2 )(iifl is
redesi gnated as para graph (a)(2 )(iv), and
a new paragraph (a) (2)(iii) is added to
read s,s follows:
§ 229..' 12 D epositar / bank's responsibility
for re1 urned checks .
(•)***

Specific availability policy

disclosure.
*
*
*

*

( 2)

* * *

(iii) If the addr ess in the indorsement
is not in the sam e check processing
(c) * * *
regioi i as the ad dress associated with
(3) O verdraft and returned check
the ro uting nair h e r of the bank in its
fees. * * * The notice must state that
the customer may be entitled to a refund indon lemexxt or i the check, at a location
of overdraft or returned check fees that consii le n t wit} i the address in the
indon tement a nd at a branch or head
are assessed if the check subject to the
office
associa ted with the routing
delay is paid and how to obtain a
nfflnb* w in th e bank’s indorsement;
refund.
or * ” *
*
*
*
*
*
*

*

•

5. In § 229.19, paragraph (e) is revised
to read as follows:
§ 229.19 Miscellaneous.
* < / * # *

(e) H olds on other funds. (1) A
9

*

*

*

•

8 . In 5 22 J.34, paragraph (a)(1 ), (a)
conclu ding text, paragraph (b)
introdu cto ry text, (b)(1 ), and (b)
concludin; j text are revised to read as
follows:

§ 229.34 W arranties by paying and
returning bank.

i Vppendix E—[Amended]

m ade at an ATM or off-premise facility (such
as a remote depository or a lock box) is
considered made at the branch holding the
(aj W arranties. * * *
11 . The Commentary to § 229.2 is
account into which the deposit is made for
(1 ) The paying bask, or in tlv 3 case of
the purpose of determining the day of deposit
amended as follows:
i \ check payable lay a bank and payable
a. In paragraph (d), removing the last All other deposits are considered made at the
branch at which the deposit is received. For
ti trough another bask, the bank by
sentence of the second paragraph and
example, under S 229.19(a)(1), funds
w hich the check is payable, ret amed the replacing it with two new sentences.
deposited at an ATM are considered
ch eck within its (leadline under the
(d) Available for withdrawal. * * *
deposited at the time they are received at the
U.ll.C., Regulatio n J (12 CFR P a rt 210 ), or
* * * For purposes of this regulation, funds ATM. The day of deposit for such funds is
§ 21 "3.30(c) of this part;
are considered available i'or withdrawal even determined by the banking day at the
*
*
*
*
*
though they are being held by the bank to
account-holding branch at the time the funds
satisfy an obligation of the customer other
are received at the ATM. Similarly, under
Thest s warranties are not made with
than the customer's potential liability for the 8 229.19(a)(3), funds deposited to a night
respe ct to checks drawn on the 'Treasury return of the check. For example, funds are
depository, lock box, or similar facility are
of the United Stat ea, U.S. Postal Service available for withdrawal even though they
considered deposited when the funds are
money orders, or checks drawn on a
are being held by a bank to satisfy a
removed from the facility and are available
garnishment tax levy, or court order
for processing. If such a facility is not on the
state o i ' a unit of general local
premises of a branch, the day of deposit is
govemn tent that a re not payable through i restricting disbursements from the account
or to satisfy the customer’s liability arising
determined by the banking day at the
or at a h ank.
from the certification of a check, sale of a
account-holding branch. If such a facility is
(b) Wa rranty o f notice of
cashier's or teller’s check, guaranty or
on branch premises, the day of deposit is
nonpaym* a~nt Each paying bask Ulat
acceptance of a check, or similar transaction. determined by the banking day at the branch
gives a no tice of nonpaym ent waiTants
at which the deposit is received, whether or
b. In paragraph (e), revising the
to the tra a i f ere e hank, to any
not it is the account-holding branch.

subsequent trass! eree bask, to tho
depositary l'walk. «ind to the ow ner of tho
check that— •
(1) The pai ring iiank. or in the ca se af
a check pays We t y a bank and pa yable
through anoti, *r tank, the bank by
which the chet ~k i.s payable, return* id or
will return the check within its dea< dlbv»
under the U £U % Regulation J (12 CFR
Part 210}. or fi 2 2SL30(c) of this part;

l Section 229.2—{Amended]

second paragraph.
(e) Bank. * * *

d. In paragraph (i), removing the
second
sentence and replacing it with
“Bank” is defined to include depository
two new sentences, and removing the
institutions, such as commercial banks,
savings banks, savings and loan associations, last sentence and replacing it with four
and credit unions as defined in the A c t and
new sentences.

U.S. branches and agencies of foreign banks.
(i)
Cashier’s check. * * * The definition of
For purposes of Subpart B, the term does not
cashier's check includes checks provided to a
include corporations organized under section
customer of the bank in connection with
25(a) of the Federal Reserve A ct 12 U.S.C.
customer deposit account activity, such as
811-631 (Edge corporations) or corporations
account disbursements and interest
having an agreement or undertaking with the
*
*
*
•
•
payments. The definition also includes
Board under section 25 of the Federal
checks acquired from a bank by
Reserve A c t 12 U.S.C. 801-804a (agreement
These warranties i are not made wit! l
noncustomers for remittance purposes,
corporations).
For
purposes
of
subpart
C,
and
respect to checks drawn on a state <ar a
including loan disbursement checks.
in
connection
therewith.
Subpart
A
any
unit of general loi ‘.al government the it are Federal Reserve Bank, Federal Home Loan
* * * The definition excludes checks that
a bank draws on itself for other purposes,
not payable throu, ?h or at a bank.
Bank, or any other person engaged in the
such as to pay employees and vendors, and
*
*
•
*
*
business of banking is regarded as a bank.
checks issued by the bank in connection with
The phrase “any other person engaged in the
9. In f 229.38(d). the first sentence: ts
a payment service, such as a payroll or a bill­
business of banking” is derived from U.C.C.
revised to read as S oilows:
1-201(4), and is intended to cover entities that paying service. Cashier's checks are
generally sold by banks to substitute the
handle checks for collection and paym ent
§ 229.38 Liability.
bank's credit for the customer’s credit and
such as Edge and agreement corporations,
r*
*
*
*
thereby enhance the collectibility of the
commercial lending companies under 12
checks. A check issued in connection with a
U.S.C.
3101,.certain
industrial
banks,
and
(<i) Responsibility) or back of che ck.
payment service is generally provided as a
A paying bank, or in t he case of a c. leek private bankers, so that virtually all checks
will be covered by the same rules for forward convenience to the customer rather than as a
payable through the p\ lying bank ar ;d
guarantee of the check's collectibility. In
collection and return, even though thev may
addition, such checks are often more difficult
payable by another ba nk, the bank by
not be covered by the requirements of
which die check is pay. *ble, is
Subpart B. For the purposes of Subpart C. and to distinguish from other types of checks than
are cashier's checks as defined by this
in connection therewith. Subpart A, the term
responsible for damage s under
regulation.
may also include a state or a unit of general
paragraph (a) of this set “tion to the
local government to the extent that it pays
e. In paragraph (k), revising the last
extent that the condition of the chei .k
w arrants or other drafts draw n directly on
paragraph.
when issued by it or its c ustomer
the state or local government itself, and the
adversely affects the abil ity of a ba nk to w arrants or other drafts are sent to the state
indorse die check legibly . in accords mce or local government for payment or
(k) Check * * *
The definition of check does not include an
with 8 229.35. * * *
collection.
instrument payable in a foreign currency (i.e..
*
*
*
*
*
*
*
*
*
*

Appendix A—[Amended]
10 . Appendix A is amends ?d by t idding
a new routing number to the list, u n d er
die heading Federal Home L oan £ tanks,
in numerical order, as follow s:
* * * * *
1130 1750 8
•

«

*

»




•

c. In paragraphs (f) and (g), revising
the last paragraph.
(f) Banking day and (g) Business
day. * * *

The definition of "banking day" is phrased
in terms of when “an office of a bank is
open" to indicate that a bank may observe a
banking day on a per-branch basis. A deposit
10

other than in United States money as defined
in 31 U.S.C. 5101) or a credit card draft (i.e.. a
sales draft used by a merchant or a draft
generated by a bank as a result of a cash
advance). The definition of check includes a
check that a bank may supply to a customer
as a means of accessing a credit line without
the use of a credit card.

f. In paragraph (u), adding a new

sentence to the end of the second
paragraph.
(u) Noncash item. * * *
* * * (In the context of this definition,
“paying bank" refers to the paying bank as
defined for purposes of Subpart C.)
*
*
*
*
*

g. In paragraph (cc), revising the last
sentence and adding a new sentence
immediately following.
(cc) Returning bank. * * * A returning
bank is also a collecting bank for the purpose
of a collecting bank's duty to act seasonably
under U.C.C. 4-202(2) and is analogous to a
collecting bank for purposes of final
settlem ent (See Commentary to S 229.35(b).)

h. In paragraph (gg), removing the
fourth sentence and replacing it with
seven new sentences.
(gg) Teller’s check * * * The definition
does not include checks that are drawn by a
nonbank on a nonbank even if payable
through or at a bank. The definition includes
checks provided to a customer of the bank in
connection with customer deposit account
activity, such as account disbursements and
interest payments. The definition also
includes checks acquired from a bank by a
noncustomer for remittance purposes,
including loan disbursement checks. The
definition excludes checks used by the bank
to pay employees or vendors and checks
issued by the bank in connection with a
payment service, such as a payroll or a billpaying service. Teller's checks are generally
sold by banks to substitute the bank’s credit
for the customer's credit and thereby enhance
the collectibility of the checks. A check
issued in connection with a payment service
is generally provided as a convenience to the
customer rather than as a guarantee of the
check's collectibility. In addition, such checks
are often more difficult to distinguish from
other types of checks than are teller s checks
as defined by this regulation. * * *

bank, regardless of the purposes for which
the checks were issued. For all new accounts,
even if the new account exception is not
invoked, traveler's checks must be included
in the $5,000 aggregation of checks deposi ted
on any one banking day that are subject to
the next-day availability requirement. (Se.e
§ 229.13(a).)

b. Revising the heading “Deposit at
Staffed Teller Station” and the firs t
paragraph under that heading.
Deposits Made to an Employee o f the
Depositary Bank
In most cases, next-day availability of the
proceeds of checks subject to this section is
conditioned on the deposit of these checks in
person to an employee of the depositary
bank. If the deposit is not made to an
employee of the depositary bank on the
premises of such bank, the proceeds of the
deposit must be made available for
withdrawal by the start of business on the
second business day after deposit, under
paragraph (c)(2) of this section. For example,
second-day availability rather than next-day
availability would be allowed for deposits of
checks subject to this section made at a
proprietary ATM (and at a nonproprietary
ATM under the permanent schedule), night
depository, through the mail or a lock box, or
at a teller station staffed by a person that is
not an employee of the depositary bank.
Second-day availability may also be allowed
for deposits picked up by an employee of the
depositary' bank at the customer’s premises;
such deposits would be considered made
upon receipt at the branch or other location
of the depositary bank.
*
*
*
*
*

14. The Comme ntary to § 229.13(b) is
amended by addii ig a new sentence
after the second se mtence in the first
paragraph of parag raph (b) to read as
follows:
Section 229.13—Except ions
♦
*
*
*
*
(b) Large Deposits. * * * When the large
(deposit exception is appi ied to deposits
c omposed of both local a. id nonlocal checks,
the depositary bank has ti he discretion to
choose the portion of the c 'eposit to which it
applies the exception. * * *
*
*
*
*
*

15. The Commentary t o § 229.16 is
am ended by adding two i tew paragraphs
to paragraph (a) and addi. ng a new
paragraph at the end of pa ragraph (b) to
read as follows:

Sect 'ion 229.16—Specific A vau 'ability Policy
Disc Josure
(a ! GeneraL * * *
Th e disclosure must reflect tht ? policy and
pract ice of the bank regarding av ailabdity as
to me s t accounts and moot deposi ts into
those accounts. In disclos ing the a vailability
policy that it follows in most cases a bank
may p rovide a single disclosure tha t reflects
one po licy to all its transaction accc unt
custom ers, even though some of its c ustomers
may rei :eive faster availability than ti hat
reflecte d in the policy disclosure. Thu. ». a
bank ne ed not disclose to some caston 'ers
that the y receive faster availability tha, n
indicate d m the disclosure. If, however, a
bank ha; s a policy of imposing delays in
availability on any customers longer thar. ’
c. Removing the heading “Fees for
those sp» reified in its disclosure, those
W ithdrawals" and the paragraph
customer s must receive disclosures that
appearing under it.
reflect th s longer applicable availability
d. In the fifth paragraph under the
periods.
heading “Special Deposit Slips,”
A bank may disclose that funds are
revising the second sentence.
“available ? for withdrawal” on a given day
notwithsti tnding the fact that the bank uses
Special Deposit Slips
i. Adding a new paragraph (kk)
the fond* t o pay checks received before that
*
*
*
*
*
immediately following paragraph (ii).
day. For ex ample, a bank may disclose that
* * * If a bank only provides the special
its policy is to make funds available from
(kk) Unit of general local government is
deposit shps upon the request of a depositor,
deposits of local checks on the second
defined to include a city, county, parish,
however, the teller must advise the depositor business da, y following the day of deposit,
town, township, village, or other general
of the availability of the special deposit slips, even though it may use the deposited funds to
purpose political subdivision of a state. The
or the bank must post a notice advising
pay checks p >rior to the second business day;
term does not include special purpose units,
customers that the slips are available upon
the funds use “d to pay checks in this example
such as school districts, water districts, or
request. * * *
are not avail, ible for withdrawal until the
Indian nations.
second busirn ?ss day after deposit because
13.
The Commentary to § 229.11(c) is the funds are not available for all uses until
Section 229.10—{Amended]
the second bu siness day. (See the definition
12 .
The Commentary to § 229.10(c) is amended by revising the first sentence
to read as follows:
of “available 1 or withdrawal” in § 229.2(d).)
amended as follows:
(b) C ontent. of Specific Policy
a.
In paragraph (c) introductory text, Section 229.11— Temporary Availability
Disclosure. * * *
Schedule
revising the last sentence and adding
A bank that provides availability based on
*
*
*
*
*
two sentences to follow.
when the bank generally receives credit for
(c) Nonlocal checks. Under the temporary
deposited chec ks need not disclose the time
(c) Certain check deposits. * * * For the
schedule, funds deposited by nonlocal checks when a check d r awn on a specific bank will
purposes of this section, all checks drawn on
must be made available for withdrawal not
be available for withdrawal. Instead, the
a Federal Reserve Bank or a Federal Home
later than the seventh business day following bank may disclose the categories of deposits
Loan Bank that contain in the M1CR line a
the banking day the funds are deposited,
that must be available on the first business
routing number that is listed in Appendix A
except in the case of deposits in accounts of
day after the dajr of deposit (deposits subject
are subject to the next-day availability
to § 229.10) and trtate the other categories of
requirement if they are deposited in an
banks located outside the 48 contiguous
deposits and the time periods that will be
account held by a payee of the check and in
states. * * *
applicable to tho se deposits. For example, a
*
*
*
*
*
person to an em ployee of the depositary




II

bank might disclose th i» four-digit Federal
Reserve routing symbc >1 for local checks and
indicate that such che r.lts as well as certain
nonlocal checks will 1 je available for
withdrawal on the fir st or second business
day following the da y of deposit, depending
on the location of th ,e particular bank on
which the check is drawn, and disclose that
funds from all othe r checks will be available
on the second or t' nird business day. The
bank must also di sclose that the customer
may request a co py of the bank's detailed
schedule that wr >uid enable the customer t o
determine the a- irailability of any check an d
must provide si ich schedule upon request. A
change in the b ank's detailed schedule w ould
not trigger the change in policy disclcsur 3
requirement o' / § 229.18(e).

nonlocal schedule. Under the state law,
however, the two deposits would be subject
to different availability rules. In the first case,
none of the proceeds of the deposit would be
(e) Holds on other funds. * * *
subject to next-day availability: in the second
This paragraph clarifies that if a customer
case, the entire proceeds of the deposit would
deposits a check in an account (as defined in be subject to next-day availability. In this
§ .229.2(a)), the bank may not place a hold on
example, because the state law would, in
any of the customer’s funds so that the funds
some situations, permit a hold longer than the
thcit are held exceed the amount of the check maximum permitted by the Act, this
deposited or the total amount of funds held
provision of state law is inconsistent and
are not made available for withdrawal within preempted in its entirety.
the times required in this subpart. For
In addition to the differences betw een state
example, if a bank places a hold on funds in a and federal availability schedules, a number
customer’s nontransaction account, rather
of state laws contain exceptions to the state
than a transaction account, for deposits made availability schedules that are different from
tc the customer’s transaction account, the
those provided under the Act and this
ban k may place such a hold only to the
regulation. The state exceptions continue to
extent that the funds held do not exceed the
apply only in those cases where the state
»
*
*
*
*
amount of the deposit and the length of the
schedule is shorter than or equal to the
hold does not exceed the time periods
federal schedule, and then only up to the limit
Section 229.1 9—J A m e n d e d ]
permitted by this regulation.
permitted by the Regulation CC schedule.
16.
The C.omimentary to § 229.19 i s
These restrictions also apply to holds
Where a deposit is subject to a state
amended a .s folllows:
placed on funds in a customer's account (as
exception under a state schedule that is not
defined in § 229.2(a)) if a customer cashes a
preempted by Regulation CC and is also
a. Addirag a new sentence after t:he
check at a bank (other than a check drawn on subject to a federal exception, the hold on the
third sent .ence o f the first paragrap >h of
that bank) over the counter. The regulation
deposit cannot exceed the hold permissible
paragrap ,h (a) and removing the la st
does not prohibit holds that may be placed on under the federal exception in accordance
sentence 3 of the last paragraph a n d
other funds of the customer for checks cashed with Regulation CC. In such cases, only one
over the counter, to the extent that the
adding a new paragraph at the en d
exception notice is required, in accordance
transaction does not involve a deposit to an
thereof..
with S 229.13(g). This notice need only
account. A bank may not, however, place a
include the applicable federal exception as
(a) I Vhen Fund.s Are Considered
hold on any account when an on us check is
the reason the exception was invoked. For
Depot ;ited. * * * Funds deposited h a
cashed over the counter. On us checks are
those categories of checks for which the state
depor jit box is a bank lobby that is i tccessible considered finally paid when cashed (see
schedule is preempted by the federal
U.C.C. 4-213(l)(a)).
to ci> .stomers only during regular bu.* iiness
schedule, only the federal exceptions may be
hou ;s are generally considered depi jsited
17.
The Commentary to § 229.20(c) is used.
wh en placed in the lobby box; a ba nk may.
State laws that provide maximum
revised to read as follows:
availability periods for categories of deposits
ho wever, treat deposits to lobby be xes the
that are not covered by the Act would not be
Sc one as deposits to night deposits -ies (as
Section 229.20 Relation to State Law
*
*
*
*
*
preempted. Thus, state funds availability
P rovided in § 229.19(a)f3)), provide d a notice
laws that apply to funds in time and savings
• appears on the lobby box informal g the
(c) Standards fo r preemption. This section
customer when sach deposits will be
describes the standards the Board will use in deposits are not affected by the Act or this
regulation. In addition, the availability
considered received. * * *
making determinations on whether federal
schedules of several states apply to “items”
*
*
*
*
*
taw will preempt state laws governing funds
deposited to an account. The term “items"
availability. A provision of state law is
A bank is not required to remai n open until
may encompass deposits, such as
considered inconsistent with federal law if it
2:00 p.m. If a bank closes before 1 ^00 pjn..
nonnegotiable instruments, that are not
permits a depositary bank to make funds
deposits received after the closin g may be
subject to the Regulation CC availability
.vailable to a customer in a longer period of
schedules. Deposits that are not covered by
considered received on the next banking day.
ime than the maximum period permitted by
Regulation CC continue to be subject to the
Further, as $ 229.2(f) defines the term
ae Act and this regulation. For example, a
"banking day" as the portion of a business
‘ate law that permits a hold of four business state availability schedules. State laws that
day on which a bank is open to the public for
ays or longer for local checks permits a hold provide maximum availability periods for
categories of institutions that are not covered
substantially all of its banking functions, a
hat is longer than that permitted under the
by the Act would also not be preempted. For
day, or a portion of a day. is n o t necessarily a
vet and this regulation, and therefore is
example, a state law that governs money
banking day merely because d le bank is open
nconsistent and preempted. State
market mutual funds would not be affected
for only limited functions, sud 1 as keeping
availability schedules that provide for
by the Act or this regulation.
drive-in or walk-up teller wirv lows open,
availability in a shorter period of time than
Generally, state rules governing the
when the rest of the bank is c loaed to the
required under Regulation CC supersede the
disclosure or notice of availability policies
public. For example, a bsnkii ig office that
federal schedule.
applicable to accounts are also preempted, if
usually provides a M l range of banking
Under a state law, some categories of
they are different from the federal rules.
services may d o se at 1230 n oon but leave a
deposits could be available for withdrawal
Nevertheless, a state law requiring disclosure
drive-in teller window open for the limited
sooner or later than the time required by this
of funds availability policies that apply to
purpose of receiving deposit s and making
subpart, depending on the composition of the
deposits other than “accounts," such as
cash withdrawals. Under thi » e
deposit. For example, the Act and this
savings or time deposits, are not inconsistent
circumstances, the bank is c onsidered dosed
regulation (§ 229.10(c)(l)(vii)) require nextwith the Act and this subpart. Banks in these
day availability for the first $100 of the
and may consider deposits received after
states would have to follow the state
aggregate deposit of local or nonlocal checks
12:00 noon as having been r eceived on the
disclosure rules for these deposits.
on any day, and a state law could require
next banking day. The fact that a bank may
*
*
*
*
*
next-day availability for any check of $100 or
reopen for substantially alii of its banking
less
that
is
deposited.
Under
the
Act
and
this
functions after 2:00 p.m., o’r that it continues
Section 229.30—[Amended]
regulation, if either one $150 check or three
its back office operations throughout the day,
18.
The Commentary to § 229.30 is
$50 checks are deposited on a given day, $100
would not affect this resul t. A bank may not,
amended as follows:
must be made available for withdrawal on
however, close individual teller stations and
a. In paragraph (a), under the fourth
the next business day, and $50 must be made
reopen them for next-day s business before
numbered example, adding a new
available in accordance with the local or
2:00 p.m. during a bankinjg day.




b.
In paragraph (e), revising the
second paragraph and adding a third
paragraph.

12

sentence to the end of the third
paragraph and adding a new sentence to
the end of the eighth paragraph.
(a) Return o f checks. * * *
Examples
*
*

*

*

*

4. * * *

* * * If a paying bank returns a check on its
banking day of receipt without paying for the
check, as permitted under U.C.C. 4-302(a),
and receives settlement for the returned
check from a returning bank, it must promptly
pay the amount of the check to the collecting
bank from which it received the check.
* * * * *
* * * Also, a paying bank is not responsible
for failure to make expeditious return to a
party that has breached a presentment
warranty under U.C.C. 4-207(1),
notwithstanding that the paying bank has
returned the check. (See Commentary to
5 229.30(a).)
*
*
*

*

*

b. In paragraph (b), revising the fourth
sentence of the second paragraph and
adding two new sentences to
immediately follow, and revising the
first sentence of the third paragraph.
(b) Unidentifiable depositary bank. * * *
* * * A paying bank returning a check
under this paragraph to a bank that has not
agreed to handle the check expeditiously
must advise that bank that it is unable to
identify the depositary bank. This advice
must be conspicuous, such as a stamp on
each check for which the depositary bank is
unknown if such checks are commingled with
other returned checks, or, if such checks are
sent in a separate cash letter, by one notice
on the cash letter. The returned check may
not be prepared for automated return. * * *
The sending of a check to a bank that
handled the check for forward collection
under this paragraph is not subject to the
requirements for expeditious return by the
paying bank. * * *
*
*
*
*
*

c. Revising the first paragraph of
paragraph (f).
(f) Notice in Lieu o f Return. A check that is
lost or otherwise unavailable for return may
be returned by sending a legible copy of both
sides of the check or, if such a copy is not
available to the paying bank, a written notice
of nonpayment containing the information
specified in § 229.33(b). The copy or written
notice must clearly indicate it is a notice in
lieu of return and must be handled in the
same manner as other returned checks.
Notice by telephone, telegraph, or other
electronic transmission, other than a legible
facsimile or similar image transmission of
both sides of the check, does not satisfy the
requirements for a notice in lieu of return.
The requirement for a writing and 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. Notice in lieu of
return is permitted only when a bank does
not have and cannot obtain possession of the




check or must retain possession of the check
for protest. A check is not unavailable for
return if it is merely difficult to retrieve from
a filing system or from storage by a keeper of
checks in a truncation system. A notice in
lieu of return may be used by a bank
handling a returned check that has been lost
or destroyed, including when the original
returned check has been charged back as lost
or destroyed as provided in § 229.35(b). A
bank using a notice in lieu of return gives a
warranty under 8 229.34(a)(4) that the original
check has not been and will not be returned.
*
*
*
*
*
Section 229.31—[Amended]

19. The Commentary to § 229.31 is
amended as follows:
a. In paragraph (b), revising the last
sentence of the first paragraph and
revising the last paragraph.
(b) Unidentifiable depositary bank. * * * In
the limited cases where the returning bank
cannot identify the depositary bank, the
returning bank may send the returned check
to a returning bank that agrees to handle the
returned check for expeditious return under
§ 229.31(a), or it may send the returned check
to a bank that handled the check for forward
collection, even if that bank does not agree to
handle the returned check expeditiously
under § 229.31(a).
*
*
*
*
*
As in the case of a paying bank returning a
check under § 229.30(b), a returning bank
returning a check under this paragraph to a
bank that has not agreed to handle the check
expeditiously must advise that bank that it is
unable to identify the depositary bank. This
advice must be conspicuous, such as a stamp
on each check for which the depositary bank
is unknown if such checks are commingled
with other returned checks, or, if such checks
are sent in a separate cash letter, by one
notice on the cash letter. The returned check
may not be prepared for automated return.

b. In paragraph (c), revising the
parenthetical at the end of the second
paragraph.
(c) Settlement. * * *
* * * (See § 229.36(d) and Commentary to
§ 229.35(b).)
*
*
*
*
*

c. In paragraph (f), adding a new
sentence before the parenthetical
phrase.

Section 229.32 Depository Bank's
Responsibility for Returned Checks
[a) Acceptance o f returned checks. * * *
2.

* * *

(iii)
The depositary bank must accept
returned checks at the address in its
indorsement and at an address associated
with its routing number in the indorsement if
the written address in the indorsement and
the address associated with the routing
number in the indorsement are not in the
same check processing region. Under
§§ 229.30(g) and 229.31(g), a paying or
returning bank may rely on the depositary
bank’s routing number in its indorsement in
handling returned checks and is not required
to send returned checks to an address in the
depositary bank’s indorsement that is not in
the same check processing region as the
address associated with the routing number
in the indorsement.
*
*
*
*
*
Under § 229.33(d), a depositary bank
receiving a returned check or notice of
nonpayment must send notice to its customer
by its midnight deadline or within a longer
reasonable time.
*
*
*
*
*
Section 229.33—[Amended]

21. The Commentary to § 229.33 is
amended as follows:
a. In paragraph (a), adding a new
paragraph at the end thereof.
(a) Requirement. * * *
Unless the returned check is used to satisfy
the notice requirement, the requirement for
notice is independent of and does not affect
the requirements for timely and expeditious
return of the check under 8 229.30 and the
U.C.C. (See 8 229.30(a).) If a paying bank fails
both to comply with this section and to
comply with the requirements for timely and
expeditious return under 8 229.30 and the
U.C.C. and Regulation J (12 CFR Part 210), the
paying bank shall be liable under either this
section or such other requirements, but not
both. (See 8 229.38(b).) A paying bank is not
responsible for failure to give notice of
nonpayment to a party that has breached a
presentment warranty under U.C.C. 4-207(1),
notwithstanding that the paying bank may
have returned the check.
(See U.C.C. 4-207(1) and 4-302.)

b. In paragraph (d), revising the first
sentence.

(d)
Notification to Customer. This
paragraph requires a depositary bank to
notify its customer of nonpayment upon
(f)
Notice in lieu o f return. * * * Notice in receipt of a returned check or notice of
nonpayment, regardless of the amount of the
lieu of return is permitted only when a bank
check or notice. * * *
does not have and cannot obtain possession
of the check or must retain possession of the
22 . The Commentary to § 229.34(a) is
check for protest. A check is not unavailable amended by revising the first and last
for return if it is merely difficult to retrieve
sentence thereof to read as follows:
from a filing system or from storage by a
keeper of checks in a truncation system. * * * Section 229.34 Warranties by Paying Bank
and Returning Bank
20 . The Commentary to § 229.32(a) is
(a) Warranty o f returned checks. This
amended by redesignating item 2 (iii) as paragraph includes warranties that a
2 (iv), adding a new item 2 (iii), and
returned check, including a notice in lieu of
adding a new paragraph after the last
return, was returned by the paying bank, or
in the case of a check payable by a bank and
paragraph to read as follows:

13

payable through another bank, the bank by
which the check is payable, within the
deadline under the U.C.C., Regulation J, or
§ 229.30(c); that the paying or returning bank
is authorized to return the check; that the
returned check has not been materially
altered; and that, in the case of notice in lieu
of return, the original check has not and will
not be returned (see Commentary to
§ 229.30(f)). * * * These w arranties do not
apply to checks drawn on the United States
Treasury, to Postal Service money orders, or
to checks drawn on a state or a unit of
general local government that are not
payable through or at a bank (see § 229.42).
*
*
*
*
*
Section 229.35—/Amended]

23.
The Commentary to § 229.35 is
amended as follows:
a. In paragraph (a), adding two
sentences to the end of the fourth
paragraph, revising the first two
sentences in the fifth paragraph, and
adding a sentence to the end of the last
paragraph.
(a) Indorsement Standards. * * *
★
*
*
*
*
* * * Depositary' banks should not include
information that can be confused with
required information. For example, a nine­
digit zip code could be confused with the
nine-digit routing number.
A depositary bank is not required to place
a street address in its indorsement; however,
a bank may want to put an address in its
indorsement in order to limit the number of
locations at which it must accept returned
checks. In instances where this address is not
consistent with the routing number in the
indorsement, the depositary bank is required
to accept returned checks at a branch or head
office consistent with the routing number.
Banks should note, however, that § 229.32
requires a depositary bank to accept returned
checks at the location(s) it accepts forward
collection checks. * * *
*
*
*
*
*
* * * The standard requires collecting and
returning banks to indorse the check for
tracing purposes.




b. In paragraph (b), adding four
sentences to the end of the fifth
paragraph and adding a new paragraph
after the fifth paragraph.
*

(b) Liability o f bank handhng check. * ' *
* * * * *

* * * Nor does this paragraph affect a
collecting bank’s accountability under U.C.C.
4-211 (2) and (3) and 4-213(3). A collecting
bank becomes accountable upon receipt of
final settlement as provided in the foregoing
U.C.C. sections. The term “final settlement”
in §§ 229.31(c), 229.32(b), and 229.36(d) is
intended to be consistent with the use of the
term “final settlement” in the U.C.C. (e g.,
U.C.C. 4-211. 4-212, and 4-213). (See also
§ 229.2(cc) and Commentary.)
This paragraph also provides that a bank
may have the rights of a "holder” based on
the handling of the check for collection or
return. A bank may become a holder or a
holder in due course regardless of whether
prior banks have complied with the
indorsement standard in $ 229.35(a) and
Appendix D.
*
*
*
*
*

24. The Commentary to § 229.37 is
amended by revising the second
sentence of the first paragraph and
revising the second paragraph to read as
follows:
Section 229.37

Variations by Agreement

* * * To achieve consistency, the official
comment to U.C.C. 4-103(1) (which in turn
follows U.C.C. 1-201(3)) should be followed
in construing this section. * * *
The Board has not followed U.C.C. 4103(2), which permits Federal Reserve
regulations and operating letters,
clearinghouse rules, and the like to apply to
parties that have not specifically assented.
Nevertheless, this section does not affect the
status of such agreements under the Uniform
Commercial Code.
*
*
*
*
*

25. In the Commentary to § 229.38(d),
the first two sentences of the second

14

p a ra g ra p h a re re v ise d to re a d as
follow s:
Section 229.38 Liability
*
*
*
*
*
(d) Responsibility for back o f check. * * *
The paying bank or, in the case of a check
payable through the paying bank and payable
by another bank, the bank by which the
check is payable, is responsible for the
condition of the check when it is issued by it
or its customer. (It would not be responsible
for a check issued'by a person other than
such a bank or customer.) * * *
*
*
*
*
*

Appendix C—[Amended]
26.
In th e C o m m en tary to A p p en d ix C,
u n d e r th e h e a d in g “M o d els C -l T hrough
C -7 G en erally ," a n e w p a ra g ra p h is
a d d e d a fte r the fifth p a ra g ra p h to re a d
a s follow s:
*
*
*
*
*
Models C -l Through C-7 Generally
*
*
*
*
*
Banks that have used model forms C -l, C2, or C-3 or have used forms C-4, C-5, C-6, or
C-7 (which give social security benefits and
payroll payments as examples of
preauthorized credits available the day after
deposit) and that at the same time follow
Treasury regulations (31 CFR Part 210) and
ACH association rules requiring that these
credits be made available on the day the
bank receives the funds are protected from
civil liability under § 229.21(e). Such banks
are encouraged to disclose same-day
availability for those electronic payments
when reordering supplies of forms.
*
*
*
*
*

By order of the Board of Governors of the
Federal Reserve System, March 31,1989.

William W. Wiles,
Secretary o f the Board.
[FR Doc. 89-8130 Filed 4-5-80; 8:45 am)
BILLING CODE 6210-01-1*