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FEDERAL RESERVE BANK
OF NEW YORK
[
Circular No.
10331 ”1
January 4 , 1990
REGULATION CC
— Proposed Amendments Shortening the Time Requirements for Notices of Nonpayment
— Proposed Modifications to Reserve Bank’s Notice of Nonpayment Service
Comments Invited by February 16, 1990
To All Depository Institutions, and Others Concerned,
in the Second Federal Reserve District:
The following is quoted from the text of a statement issued by the Board of Governors of the Federal Reserve
System:
The Federal Reserve Board has issued for public comment proposed amendments to Regulation CC, which implements
the Expedited Funds Availability Act. The proposed amendments would shorten the time requirement for sending a notice
of nonpayment to a depositary bank and would make other technical and clarifying amendments to Regulation CC.
The Board also issued for public comment proposed modifications to the Federal Reserve’s notice of nonpayment
service, which would take effect only if the Board ultimately adopts an amendment to Regulation CC shortening the time
requirement for providing notice of nonpayment.
Comment on the above amendments and modifications is requested by February 16, 1990.
Printed on the following pages is the text of the Board’s proposals, which have been reprinted from the Federal
Register. Comments thereon should be submitted by February 16, 1990, and may be sent to the Board of Governors,
as specified in the notice, or to John F Sobala, Vice President, Check Processing Function of this Bank.
E.
G
era ld
C o r r ig a n ,
President.
SUPPLEMENTARY INFORMATION: On May
12CFR Part 229
[Regulation CC; Docket No. R-0679]
RiN 7 1 0 0 - A B 0 1
Availability of Funds and Collection of
Checks
AGENCY: Board of Governors of the
Federal Reserve System.
ACTION: Proposed rule.
The Board is publishing for
comment proposed amendments to its
Regulation CC, Availability of Funds
and Collection of Checks. 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 proposals include shortening the
time requirements for giving notice of
nonpayment, proposed changes to the
model forms, and other technical and
clarifying modifications to the regulation
and its Official Commentary (Appendix
E to the regulation).
Oa t e s : Comments must be submitted on
or before February 18,1990.
ADDRESSES: Comments, which should
refer to Docket No. R-0679, may be
mailed to the Board of Governors of the
Federal Reserve System, 20th and C
Streets NW„ Washington, DC 20551,
Attention: Mr. William W. Wiles,
Secretary; or may be delivered to Room
B-2223 between 8:45 a.m. and 5:00 p.m.
All comments received at the above
address will be included in the public
file and may be inspected at Room B 1122 between 8:45 a.m. and 5:15 p.m.
sum m ary:
FOR FURTHER INFORMATION CONTACT:
Louise L Roseman, Assistant Director
(202/452-3874) or Gayle Thompson,
Manager (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 information regarding
modifications to Appendix C, contact
Thomas J. Noto, Staff Attorney (202/
452-3667), or Jane E. Ahrens, Staff
Attorney (202/452-3667), Division of
Consumer and Community Affairs. For
the hearing impaired only:
Telecommunications Device for the
Deaf, Eamestine Hill or Dorothea
Thompson (202/452-3544).
13,1988, the Board adopted Regulation
CC to carry out the provisions of the
Expedited Funds Availability Act
(“Act”) (12 U.S.C. 4001-4010). The
regulation requires banks 1 to make
funds available to their customers for
withdrawal within specified time
frames, to disclose their funds
availability policies to their customers,
and to handle returned checks
expeditiously. Section 229.33(a) of the
regulation requires a paying bank to
provide notice of nonpayment of any
returned check in the amount of $2,500
or more. This notice must be received by
the depositary bank by 4:00 p.m. (local
time) on the second business day
following the banking day on which the
check was presented to the paying bank.
This requirement generally ensures that
the depositary bank would receive the
notice prior to the time it must make
funds available for withdrawal under
the temporary availability schedule.
Some banks have expressed concern
that, under the permanent availability
schedule, which becomes effective
September 1,1990, depositary banks
often would not receive notice of
nonpayment of large-dollar returned
checks prior to the time that funds must
be made available for withdrawal.
Therefore, the Board is requesting
comment on alternatives to shorten the
current time requirements for giving
notice of nonpayment In addition, the
Board is issuing proposed revisions to
the deposit deadlines for the Federal
Reserve notice of nonpayment service
that would take effect if the time
requirements for notice of nonpayment
were to be shortened. (See Docket R 0680 elsewhere in today’s Federal
Register.) Further, in response to various
questions that have been raised by
banks regarding the regulation, the
Board is issuing for comment proposed
technical and clarifying amendments.
The proposed changes to shorten the
time for giving notice of nonpayment
and the proposed technical and
1 The regulation 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
generally the bonk by. ab or through which a check
is payable and to which it is sent for collection. A
“returning bank” is a bank (other than the paying or
depositary bank) that handles a returned check or a
notice in lieu of return.
PRINTED IN NEW YORK, FROM
FEDERAL REGISTER, VOL.
3
clarifying amendments are described
below.
Section 229.2(k) Definition of
"check. "The Board has been requested
to clarify the status of ACH debit
transfers under Regulation CC. The
Board is proposing a revision to the
Commentary to the definition of "check"
to state explicitly that an ACH debit
transfer is not a check.
Section 229.2(r) Definition of "local
check." The Board adopted final rules
regarding the issuance of bank payable
through checks in July 1989. Under the
new rules, effective February 1,1991,
bank payable through checks are
required to contain the words “payable
through" followed by the name of the
payable through bank. Two sentences in
the Commentary to the definition of
"local check" refer to bank payable
through checks that do not contain a
designation of the payable through
bank. The Board proposes to delete
these sentences and to revise the
Commentary to indicate that, in the case
of bank payable through checks, the
depositary bank can rely on the first
four digits of the nine-digit routing
number of the paying bank that is
printed on the face of the check to
determine whether the check is local or
nonlocal.
Section 229.2(u) Definition of
"noncash item. ”The Board is proposing
a revision to the Commentary to
"noncash item" to clarify that if a bank
handles an item in the same manner as
it would handle a cash item, the item
does not qualify as a noncash item.
Section 229.3(a) Enforcement
agencies. As part of the Financial
Institutions Reform, Recovery, and
Enforcement Act of 1989, Congress
amended the Expedited Funds
Availability Act regarding the
enforcement agency for savings
associations. The Board is proposing a
conforming amendment to Regulation
CC to provide that the Director of the
Office of Thrift Supervision has
authority to enforce compliance with
Regulation CC by savings associations.
Section 229.13(h)(4) Availability of
deposits subject to exceptions. The
regulation provides that if a bank
invokes an exception hold under
S 229.13(b) through (f), it may extend the
availability schedule by a reasonable
period of time. Currently, the regulation
provides that a four business day
extension is a reasonable period and
that a longer extension may also be
54, NO. 240, pp. 51405-51411; 51493-51494
reasonable, but the bank has the burden
of so establishing. The four day period is
designed to provide adequate time for
the depositary bank to learn of the
nonpayment of virtually all checks that
are returned. Thus, under the temporary
schedule, a bank invoking an exception
hold under S 229.13 may normally hold
local checks until the seventh business
day after deposit and nonlocal checks
until the eleventh business day after
deposit. When the permanent schedule
becomes effective on September 1,1990,
these periods will shorten to six and
nine business days, respectively.
Because there will be no significant
payment system improvements
applicable to the return of checks before
the permanent schedule becomes
effective, it is unlikely that depositary
banks will learn of the return of many
checks subject to a $ 229.13 exception
faster they do today.* The Board,
therefore, believes it may be appropriate
to extend the reasonable hold period.
The Board is requesting comment on a
proposal to extend the reasonable hold
period from four days to five days for
local checks and from four days to six
days for nonlocal checks, thereby
retaining the existing exception hold
periods of seven and eleven days,
respectively. The Board requests
comment on whether such a change
would obviate the need to revise
disclosures and the need to extend the
reasonable hold period, based on
current returned check experience.
Section 229.18(e) Changes in policy.
The temporary schedule allows case-by
case holds under § 229.16(c) to be
imposed for up to seven business days
for nonlocal checks. Unless a longer
time is reasonable, exception holds
under $ 229.13 can be imposed for
eleven business days. If the Board does
not revise § 229.13 as discussed above,
these periods will be reduced under the
permanent schedule to five and nine
business days, respectively. Banks that
provided disclosures referencing the
longer time periods permitted under the
temporary schedule would have to
notify their consumer account-holders of
the change in accordance with
* Although the Board ia requesting comment on
whether to shorten the time within which to provide
notice of nonpayment of large-dollar checks, many
checks subject to | 229.13 exception holds are not
subject to the notice of nonpayment requirement.
$ 229.18(e). The Board proposes to revise
the Commentary to $ 229.18(e) to
provide guidance on how this change
could be disclosed. The notice must be
provided by October 1,1990. (If the
Board adopts the proposed changes to
§ 229.13(h) lengthening reasonable
exception holds, the proposed
Commentary language to § 229.18(e) as
well as the changes to the model forms
in Appendix C discussed below would
be revised accordingly.)
Section 229.19(a) When funds are
considered deposited. Under
§ 229.19(a)(5) (ii), funds deposited at an
ATM or off-premise facility after the
depositary bank’s cut-off hour of 12:00
noon or later are considered deposited
on the next banking day. The Board has
been asked whether the 12:00 noon cut
off is determined by the local time of the
ATM or off-premise facility or the local
time of the branch holding the
customer’s account.
The Commentary to the definitions of
“banking day’’ and “business day”
states, "A deposit made at an ATM or
off-premise facility (such as a remote
depository or a lock box) is considered
made at the branch holding the account
into which the deposit is made for the
purpose of determining the day of
deposit * * * The day of deposit for
such funds is determined by the banking
day at the account-holding branch at the
time the funds are received at the
ATM." Similarly, the Commentary to
fi 229.19(b) regarding availability of
funds at the start of business on a day
funds are available for withdrawal
states that the start of business is
determined by the local time of the
account-holding branch. Consistent with
these provisions, the Board proposes to
clarify that the depositary bank may
establish a cut-off hour for deposits at
ATMs or other off-premise facilities of
no earlier than 12:00 noon local time of
the account-holding branch.
Under the proposal, an East Coast
bank that permits its customers to make
deposits at ATMs nationwide may
establish a 12:00 noon Eastern Time cut
off for receipt of ATM deposits by its
customers. Thus, deposits made by
customers of the East Coast bank at
West Coast ATMs after 9:00 a.m. Pacific
Time can be considered received on the
next banking day. Conversely, a West
Coast bank must consider all deposits
made at East Coast ATMs by 3:00 p.m.
Eastern Time (12:00 noon Pacific Time)
received on that banking day.
The Board specifically requests
comment on the operational and
customer service implications of this
proposal, and whether the cut-off should
be determined by the local time of the
4
ATM, rather than the local time of the
account-holding branch. Depending on
whether the account-holding branch is
east or west of the ATM in which the
deposit is made, the earliest cut-off time
permitted under the proposal could be
either earlier or later than 12:00 noon
local time of the ATM. If the time zone
of the ATM is west of that of the
account-holding branch, the proposal
may adversely affect the customer’s
availability of funds, because the cut-off
hour for considering deposits received
on a given banking day may be earlier
than 12:00 noon local time of the ATM.
However, if the time zone of the ATM is
east of that of the account-holding
branch, the proposal would limit the
time for the ATM processor to remove
the deposits from the ATM, verify and
process them, and put them in the
forward collection stream.
Section 229.19(c) Effect on policies
of depositary' bank.The Board is
proposing a revision to the Commentary
to § 229.19(c) to clarify the relationship
between the availability schedules and
the depositary bank’s right to charge
back its customer’s account for a
returned check. The revised
Commentary would state explicitly that
the depositary bank may charge back its
customer’s account upon receipt of a
returned check or notice of nonpayment,
even if the check or notice is received
after the time by which the proceeds of
the check must otherwise be made
available for withdrawal under the
provisions of the regulation.
Section 229.30(c) Extension of
deadline. Increasingly, banks are
providing banking services to the public
on Saturdays and/or Sundays. These
days are not regarded as banking days
under Regulation CC, because Saturdays
and Sundays are not “business days,"
but they may be regarded as banking
days for the purposes of the Uniform
Commercial Code (“UCC”). Banks that
are open on Saturday may not have
couriers leaving on Saturday to deliver
returned checks, and even if they did,
the returning or depositary bank to
w hich the returned checks were sent
might not be prepared to receive or
process checks until Sunday night or
Monday morning.
Prior to the implementation of
Regulation CC. these banks could meet
a UCC Saturday night midnight deadline
for checks presented on Friday by
mailing their returned checks on
Saturday. Since the implementation of
Regulation CC, however, these banks
have been subject to expeditious return
requirements that generally may not be
met by mailing returned checks. For
checks presented on Fridays, these
banks cannot meet both a UCC
Saturday midnight deadline and the
expeditious return requirements of
Regulation CC without establishing
special courier runs on Saturday evening
to deliver returned checks to returning
or depositary banks. Such runs would
often be in addition to runs during the
day on Sunday delivering forward
collection checks to the same banks in
their capacity as collecting or paying
banks in the forward collection process.
(The Federal Reserve Banks and many
correspondent banks accept deposits on
Sunday afternoon or evening so that
mailing returns is not necessary to meet
the Sunday night midnight deadline for
Saturday presentments.)
To address this problem, the Board is
proposing to extend the Saturday night
midnight deadline if the returned checks
reach the*receiving bank by a cut-off
hour (usually on Sunday night or
Monday morning) that permits
processing during the receiving bank’s
next processing cycle for returned
checks following the Saturday midnight
deadline.
Section 229.33(a) Notice of
nonpayment This section requires a
paying bank to provide notice of
nonpayment of any returned check in
the amount of $2,500 or more. Currently,
this notice must be received by the
depositary bank by 4:00 p.m. (local time)
on the second business day following
the banking day on which the check was
presented to the paying bank. This
requirement generally ensures that the
depositary bank would receive the
notice prior to the time it must make
funds available for withdrawal under
the temporary availability schedule.
Some banks have expressed concern
that, under the permanent availability
schedule, which becomes effective
September 1,1990, depositary banks
often would not receive notice of
nonpayment of large-dollar returned
checks prior to the time that funds must
be made available for withdrawal.
Specifically, under the permanent
schedule, the first $5,000 of the deposit
of a local check must be made available
to the customer for withdrawal by the
second business day following deposit.
The amount in excess of $5,000 may be
held for a longer period of time under
the large-deposits exception (see
§ 229.13(b)). Because it generally takes
at least a day for a check to be sent from
the depositary bank to the paying bank,
the depositary bank generally would not
receive notice of nonpayment of a largedollar local check until the third
business day following deposit (which
would be the second business day
following presentment to the paying
bank). Because funds must be made
available for withdrawal before the
depositary bank has an opportunity to
learn of the return of the check, the
depositary bank is at increased risk of
loss from insolvent or fraudulent
depositors. (Generally, this problem
would not exist for nonlocal checks,
because the depositary bank would
receive notice of nonpayment of these
checks before the funds must be made
available for withdrawal under the
permanent availability schedule.)
In a recent survey on the impact of the
Expedited Funds Availability Act and
Regulation CC conducted by a number
cf depository institution trade
associations in coordination with the
Federal Reserve, approximately nine
percent of the respondents reported an
increase in fraud losses as a result of the
Act and regulation.8 Although the Board
is concerned that this percentage may
increase, the Board believes that
because banks are still adjusting to the
changes in returned check procedures
prompted by Regulation CC, further
significant operational changes to the
check return system may be premature.
Nevertheless, some bankers have
suggested shortening the time within
which notice of nonpayment must be
provided to the depositary bank.
Therefore, the Board requests comment
on whether the risks inherent in the
requirement that funds be made
available to the customer for
withdrawal prior to the time the
depositary bank has an opportunity to
learn of the return of large-dollar local
checks are sufficient to warrant
accelerating the time within which
notice of nonpayment must be provided
to the depositary bank.
If shortening the time within which
the depositary bank receives notice of
nonpayment is warranted, how early
can the paying bank initiate such notice?
Today, paying banks generally post
checks to their customers’ accounts on
the evening of the day of presentment.
In many banks, however, the decision to
return a check is not made at the time of
posting, but is dependent on subsequent
bank management review, which may
entail contacting the customer. In these
cases, the decision to return a check
unpaid may not be made until early
afternoon on the day following
presentment. Shortening the time in
which notice can be given could require
these decisions to be made earlier in the
day, particularly for West Coast paying
•Se* The 1986 Report to Congress Under the
Expedited Funds Availability Act. Board of
Governors of the Federal Reserve System. June
1989.
5
banks if notices must be given so that
they are received at East Coast
depositary banks prior to their close of
business on the day following
presentment. (A paying bank giving
notice warrants that it has returned or
will return the check.) Shortening the
time in which decisions to return checks
must be made may, in turn, increase the
number of checks returned causing other
difficulties or inconveniences for paying
banks' customers, increased risks to
depositary banks, as well as additional
burdens on the check return system.
One approach to the East Coast-West
Coast time zone problem would be to
apply the notice requirement only to
large-dollar local checks that are
returned unpaid. If the earlier notice
requirement applied only to large-dollar
local checks, rather than to both local
and nonlocal checks, the paying bank
would generally have additional time
within which to initiate the notice,
because it would not be subject to time
zone constraints. This greater flexibility
is reduced for some paying banks in the
15 check processing regions that cover
multiple time zones.
The Board requests comment on the
ability of paying banks to provide notice
of nonpayment for local and/or nonlocal
checks that would be received by the
depositary bank (1) late in the day (e.g.,
4:00 p.m. or 8:00 p.m.) on the next
business day following the banking day
on which the check is presented, or (2)
earlier than 4:00 p.m. (e.g.. 10:00 a.m. or
1:00 p.m.) on the second business day
following the banking day on which the
check is presented.
The Board also requests comment on
the extent to which shortening the time
within which notice of nonpayment
must be provided would affect the
manner by which the paying bank
provides notice. For example, some
paying banks currently rely on the
return of local checks to the depositary
bank to fulfill the notice requirement. If
the notice of nonpayment requirement
was made earlier than 2:00 p.m. on the
second business day following
presentment, paying banks could not
rely on receipt of the physical check to
satisfy the notice requirement for many
local checks, particularly local checks
not returned through a clearing house
arrangement.
In addition, the Board requests
comment on the benefits to the
depositary bank of receiving notice of
nonpayment at these earlier times. Do
depositary banks act on notices of
nonpayment promptly when they are
received, or do they defer action until
that evening’s account processing? How
promptly, and by what means (e.g., by
phone or by written notice) is the
depositor notified of the receipt of the
notice of nonpayment by the depositary
bank? If notice of nonpayment must be
provided by late in the day on the
business day following presentment
(e.g., by 8:00 p.m.) would depositary
banks have staff available at that tim„e
to accept and act on the notices? If
notices are sent to a correspondent bank
that indorses as depositary bank, would
the correspondent bank be able to relay
an earlier notice to the original
depositary bank?
Docket R-0680 in today’s Federal
Register proposes changes to the
Federal Reserve’s notice of nonpayment
service that may be adopted if the Board
were to adopt a more stringent
requirement in § 229.33 regarding the
timing of notices of nonpayment. The
Board also requests comment on the
extent to which other service providers
could continue to offer notice of
nonpayment services to facilitate
compliance by paying banks with an
earlier notice requirement.
Warrant of
Returned Check The regulation provides
that a paying or returning bank that
transfers and receives settlement for a
notice in lieu of return warrants that the
original check has not and will not be
returned. The Board has been asked to
clarify that the paying or returning bank
is warranting that the original check has
not and will not be returned for
payment, as opposed to being returned
to the depositary bank for other
purposes, such as to provide evidence of
a forgery, that do not call for payment of
the check under § 229.32. The Board
proposes to amend the Commentary
accordingly:
Section 229.34(a)
Section 229.35(a) Indorsement
Standards. Since September 1988, when
Regulation CC became effective, the
quality of indorsements has varied
widely. In some cases, banks that
handle returned checks have found
indorsements to be illegible, even
though the indorsements may meet the
informational requirements of the
regulation. There are several reasons
indorsements may be unclear, such as
very small type size, or poor imprinting
mechanisms, which may result in faint
or indistinct indorsements.
Currently under § 229.35 and
Appendix D, the duty of an indorsing
bank to apply a legible indorsement is
implied, but not explicit. The Board
believes that the requirement that an
indorsing bank should be responsible for
ensuring that its indorsement is legible
should be made explicit and is
proposing to make this duty explicit in
the regulation and the Commentary.
Section 229.36(e) Issuance of
payable through checks. In July 1989, the
Board amended Regulation CC to
require certain information to be printed
on checks payable by a bank and
payable through another bank (“bank
payable through checks”). Section
229.36(e) now requires such checks to
contain the name, address, and first four
digits of the routing number of the bank
by which the check is payable, and the
phrase "payable through” followed by
the name and address of the payable
through bank.
The Board has received inquiries as to
whether it would be permissible for a
bank that holds checking accounts and
processes checks at a central location
but that has widely-dispersed branches
to label all of its checks as “payable
through" a single branch and include the
name, address, and four-digit routing
symbol of another branch. These checks
would be payable by and through the
bank,4 and therefore the
provisions of $ 229.30(e) would not
apply. If the Board were to allow such a
practice, the result would be to lead
depositors and depositary banks to
believe mistakenly that the check is a
bank payable through check for which
availability must be assigned based on
the location of the branch whose fourdigit routing symbol appears on the
check rather than on the location of the
central office whose nine-digit routing
number is encoded on the MICR line of
the check.
The Board, therefore, is proposing an
amendment to the regulation and the
Commentary to provide that a bank is
responsible for damages under § 229.38
to the extent that a check payable by it
and not payable through another bank is
labelled as provided in § 229.36(e).
The Board
is proposing several revisions to the
model forms and clauses in Appendix C
and to the accompanying Commentary.
Several of these changes are designed to
reflect the availability periods under the
permanent schedule and the recent
revisions to the regulation regarding
payable-through checks. Other changes
are designed to provide additional
guidance regarding the disclosure of
availability times for electronic
payments or to clarify existing language.
The Commentary to Appendix C would
be revised to make clear that banks may
rely on earlier versions of the model
forms though they are encouraged to
update their forms when reordering new
supplies.
same
Appendix C Model forms.
4 “Bank” is defined in { 229.2(e) to include all of a
bank's offices in the United States. Therefore, all of
a bank's U.S. branches would be considered part of
a single bank.
6
Initial Regulatory Flexibility Analysis
The Regulatory Flexibility Act (12
U.S.C. 601-612) requires an agency to
publish an initial regulatory flexibility
analysis with any notice of proposed
rulemaking. Two of the requirements of
an initial regulatory flexibility analysis
(12 U.S.C. 603(b)), a description of the
reasons why action by the agency is
being considered and a statement of the
objectives of, and legal basis for, the
proposed rule, are contained in the
supplementary material above. The
proposed rules require no additional
reporting or record-keeping
requirements nor are there relevant
federal rules that duplicate, overlap, or
conflict with the proposed rule.
Another requirement for the initial
regulatory flexibility analysis is a
description of and, where feasible, an
estimate of the number of small entities
to which the proposed rule will apply.
The proposals will apply to all
depository institutions, regardless of
size, but should not place a significant
burden on small institutions. These
proposals are aimed primarily at
reducing risk to depositary banks under
the permanent availability schedules
and clarifying Regulation CC in
response to questions that the Board has
received from depository institutions.
The Board does not believe that
adoption of the proposals will result in
any significant economic impact on a
substantial number of small entities.
List of Subjects in 12 CFR Part 229
Banks, Banking: Federal Reserve
System.
For the reasons set out in the
preamble, 12 CFR part 229 is proposed
to be amended as follows:
PART 229—[AMENDED]
1. The authority citation for Part 229
continues to read as follows:
Authority: Title VI of Pub. L 100-86,101
Stat. 552, 635,12 U.S.C. 4001 et seq.
2. In § 229 3, paragraph (a)(2) is
revised to read as follows:
§ 229.3
Administrative enforcement.
(a) Enforcement agencies.* * *
(2)
Section 8 of the Federal Deposit
Insurance Act, by the Director of the
Office of Thrift Supervision in the case
of savings associations the deposits of
which are insured by the Federal
Deposit Insurance Corporation; and
*
*
*
*
*
3. In § 229.13, paragraph (h)(4) is
revised to read as follows:
§ 229.13
Exceptions.
*
*
*
*
*
(h)
Availability of deposits subject to
exceptions.* * *
2
( )
(4) For the purposes of paragraphs
(h)(1), (h)(2), and (h)(3) of this section,
an extension of up to five business days
for local checks and six business days
for nonlocal checks is a reasonable
period. A longer extension may be
reasonable, but the bank has the burden
of so establishing.
4. In 5 229.30, paragraph (c) is revised
to read as follows:
Appendix C— [Amended]
*
*
*
Extension of deadline.
5. In § 229.35, paragraph (a) is revised
to read as follows:
§ 229.35
Indorsements.
Indorsement standards.
(a)
A bank
(other than a paying bank) that handles
a check for collection or a returned
check shall legibly indorse the check in
accordance with the indorsement
standard set forth in appendix D to this
part.
*
*
*
*
*
6. In $ 229.36, a new sentence is added
to the end of paragraph (e) concluding
text as follows:
§ 229.36
checks.
*
*
(e)
checks.
Presentment and issuance of
*
*
*
Issuance of payable through
* * *
(1) * * *
Other Check Deposits.
*
*
*
*
*
[bank name and location
*
(c)
The
deadline for return or notice of
nonpayment under the UCC or
Regulation J (12 CFR part 210) is
extended:
(1) If a paying bank, in an effort to
expedite delivery of a returned check to
a bank, uses a means of delivery that
would ordinarily result in the returned
check being received by the bank to
which it is sent on or before the
receiving bank’s next banking day
following the otherwise applicable
deadline; this deadline is extended
further if a paying bank uses a highly
expeditious means of transportation,
even if this means of transportation
would ordinarily result in delivery after
the receiving bank’s next banking day;
or
(2) If the deadline falls on a Saturday
that is a banking day, as defined in the
UCC, for the paying bank, and the
paying bank uses a means of delivery
that would ordinarily result in the
returned check being received by the
bank to which it is sent prior to the
receiving banks’ cut-off hour for its next
processing cycle after midnight Saturday
night.
*
*
*
*
*
d. In model forms C-4, C-6, and C-7,
the second paragraph under the
subheading “Other Check Deposits" is
revised to read as follows:
*
*
*
*
*
If the first four digits of the routing number
7.
Appendix C is amended as set forth (1234 in the examples above) are [local
below:
numbers], then the check is a local check.
a. The first paragraph of model forms
Otherwise, the check is a nonlocal check.
Some checks are marked ‘payable through"
C -l, C-2, and C-3 is revised to read as
and have a four- or nine-digit number nearby
follows:
For these checks, use the four-digit number
at
]
(or the first four digits of the nine-digit
Our policy is to make funds from your
number), not the routing number on the
deposits available to you on the first business
bottom of the check, to determine if these
day after the day we receive your deposit.
checks are local or nonlocal. Our policy is to
Electronic direct deposits will be available on
make funds from local and nonlocal checks
the day we receive the deposit. Once they are
available as follows.
available, you can withdraw the funds in
*
*
*
*
*
cash and we will use the funds to pay checks
e. In model form C-5, two new
that you have written.
sentences are added at the beginning of
*
*
*
*
*
§ 229.30 Paying bank's responsibility for
return of checks.
*
* * *
* * * A bank is responsible for
damages under § 229.38 of this part to
the extent that a check payable by it
and not payable through another bank is
labelled as provided in this section.
b. In model form C-3, the heading is
revised, and under the subheading
“Longer Delays May Apply," the second
sentence of the first paragraph and the
last sentence of the last paragraph are
revised to read as follows:
C-3. Next-day availability, case-by-case
holds to statutory limits, and § 229.13
exceptions (permanent schedule).
*
*
*
*
*
•
Longer Delays M ay Apply
* * * Depending on the type of check that
you deposit, funds may not be available until
the fifth business day after the day of your
deposit. * * *
*
*
*
*
*
* * * They will generally be available no
later than the ninth business day after the
day of your deposit.
*
*
*
*
*
c. In model forms C-4, C-5, C-8, and
C-7, a new paragraph and a subheading
is added immediately preceding the
subheading “Next-Day Availability,’’
and the first sentence under the
subheading “Next-Day Availability” is
revised to read as follows:
*
*
*
*
*
Same-Day Availability
Funds from electronic direct deposits to
your account will be available on the day we
receive the deposit
Next-Day A vailability
Funds from the following deposits are
available on the first business day after the
day of your deposit:
U.S. Treasury checks that are payable to
you.
Wire transfers.
Checks drawn on
(unless
[bank name]
[any
limitations related to branches in different
states or check-processingregions]).
*
*
*
*
*
7
the second paragraph under the
subheading “Other Check Deposits" to
read as follows:
*
*
*
*
*
Other Check Deposits
*
*
*
*
*
Some checks are marked "payable
through” and have a four or nine-digit
number nearby. For these checks, use this
four-digit number (or the first four digits of
the nine-digit number), not the routing
number on the bottom of the check, to
determine if these checks are local or
nonlocal. * * *
*
*
*
*
*
f. In forms C-2, C-3, C-4, C-5, and C6, under the subheading “Special Rules
for New Accounts," the second
paragraph is deleted, and the third
paragraph is revised to read as follows:
Special Rules for New Accounts
*
*
*
*
*
Funds from electronic direct deposits into
your account will be available on the day we
receive the deposit. Funds from deposits of
cash, wire transfers, and the first $5,000 of a
day's total deposits of cashier's, certified,
teller’s. traveler’s, and federal, state and loca
government checks will be available on the
first business day after the day of your
deposit if the deposit meets certain
conditions. For example, the checks must be
payable to you (and you may have to use a
special deposit slip). The excess over $5,000
will be available on the ninth business day
after the day of your deposit If your deposit
of these checks (other than a U.S. Treasury
check) is not made in person to one of our
employees, the first $5,000 will not be
available until the second business day after
the day of your deposit.
*
*
*
*
*
g. In form C-7, under the subheading
“Special Rules for New Accounts,” the
second, third, and fourth sentences of
the first paragraph are deleted and the
second paragraph is revised to read as
follows:
Special Rules for New Accounts
*
*
*
*
*
Funds from electronic direct deposits into
your account will be available on the day we
receive the deposit. Funds from deposits of
cash, wire transfers, and the first $5,000 of a
day's total deposits of cashier’s, certified,
teller's, traveler’s, and federal, state and local
government checks will be available on the
first business day after the day of your
deposit if the deposit meets certain
conditions. For example, the checks must be
payable to you (and you may have to use a
special deposit slip). The excess over $5,000
will be available on the ninth business day
after the day of your deposit If your deposit
of these checks (other than a U.S. Treasury
check) is not made in person to one of our
employees, the first $5,000 will not be
available until the second business day after
the day of your deposit.
♦
*
*
*
*
Section 229.13 Exceptions
*
*
*
*
*
(h) Availability of deposits subject to
Exceptions. * * * This provision establishes
that an extension of up to five business days
for local checks and six business days for
nonlocal checks is reasonable. * * *
For example, assume a bank extended the
hold on a local check deposit by five business
days based on its reasonable cause to believe
that the check is uncollectible. * * *
*
*
*
*
*
Five business days for local checks and six
business days for nonlocal checks, in
addition to the time period provided in the
schedule, should provide adequate time for
the depositary bank to learn of the
nonpayment of virtually all checks that are
returned.
*
*
*
*
*
c. In the Commentary to $ 229.18, a
new paragraph is added after the last
paragraph of paragraph (e) to read as
follows:
h. In model clause C-8, the last
sentence is deleted.
i. Model clauses C-19 and C-19A are
deleted.
Section 229.18 Additional Disclosure
Requirements
Appendix E—{Amended]
(e) Changes in policy * * *
*
*
*
*
*
*
*
*
*
*
8.
Appendix E is amended as set forth In disclosing the changes (due to the
below:
implementation of the permanent schedule)
in the maximum periods for case-by-case and
a. In the Commentary to § 229.2, the
exception bolds, a bank may provide notics
first sentence of the last paragraph of
in any form that is clear and conspicuous. For
paragraph (k) is revised, the last two
example, banks could use language such as
sentences of paragraph (r) are removed
the following on account statements (or on
and a new sentence is added to the end,
inserts) to disclose the change in policy: “Our
and a new sentence is added to the end
disclosure on funds availability described
of the first paragraph of paragraph (u) as certain limited circumstances in which funds
follows:
from deposits would not be available until
Section 229.2 Definitions
*
*
*
*
*
(k) Check * * *
The definition of “check” does not include
an instrument payable in a foreign currency
(i.e., other than United States money as
defined in 31 U.S.C. 5101), a credit card draft
(i.e., a sales draft used by a merchant or a
draft generated by a bank as a result of a
cash advance), or an ACH debit
transfer. * * *
*
*
*
*
*
Local Check * *
(r)
* In these cases, the
depositary bank may rely on the first four
digits of the nine-digit routing number of the
paying bank that is printed on the face of the
check to determine whether the check is local
or nonlocal.
*
*
*
*
Noncash item.
*
(u)
* * * To qualify as a
noncash item, an item must be handled as
such and may not be handled as a cash item.
*
*
*
*
*
b. In the Commentary to § 229.13, in
paragraph (h), the second sentence of
the first paragraph, the first sentence of
the second paragraph, and the fourth
paragraph are revised to read as
follows:
the seventh or the eleventh business day
following the day of your deposit. Effective
September 1.1990, those periods will be
reduced, respectively, to five and nine
business days.”
d. In the Commentary to § 229.19, the third
sentence of the fifth paragraph of paragraph
(a) is revised, and two new sentences are
added to the end of the second paragraph of
paragraph (c) to read as follows:
Section 229.19 Miscellaneous
(a) When funds are considered
deposited. * * *
*
*
*
*
*
* * * For receipt of deposits at ATMs or
off-premise facilities, such as night
depositories or lock boxes, the depositary
bank may establish a cut-off hour of 12:00
noon or later (local time of the branch or
other location of the depositary bank at
which the account is maintained). * * *
*
*
*
*
*
Effect on policies of depositary
* * 4 (c)
* * *. For example, even if a check is
returned or a notice of nonpayment is
received after the time by which funds must
be made available for withdrawal in
accordance with this regulation, the
depositary bank may charge back the
bank.
8
customer's account for the full amount of the
check. (See 9 229.33(d) and Commentary.)
*
*
*
*
*
e. In the Commentary to § 229.30, the
heading and first two paragraphs of
paragraph (c) are revised to read as
follows:
Section 229.30 Paying Bank's Responsibility
for Return of Checks
*
*
*
*
*
Extension of deadline.
(c)
This paragraph
permits extension of the midnight deadline,
but not of the duty of expeditious return, in
two circumstances:
(1) A paying bank may have a courier that
leaves after midnight to deliver its forward
collection checks. This paragraph removes
the constraint of the midnight deadline for
returned checks if the returned check reaches
either the depositary bank or the returning
bank to which it is sent on that bank’s
banking day following the expiration of the
midnight deadline or other applicable time
for return. The extension also applies if the
check reaches the bank to which it is sent
later than the close of that bank’s banking
day, if highly expeditious means of
transportation are used. For example, a West
Coast paying bank may use this further
extension to ship a returned check by air
courier directly to an East Coast depositary
bank even if the check arrives after the close
of the depositary bank's banking day.
(2) A paying bank may observe a banking
day, as defined in the UCC, on a Saturday,
which is not a business day and therefore not
a banking day under Regulation CC. In such a
case, the UCC midnight deadline for checks
received on Friday might force the bank to
return the checks by midnight Saturday.
However, the bank may not have couriers
leaving on Saturday to carry returned checks,
and even if it did, the returning or depositary
bank to which the returned checks were sent
(“receiving bank”) might not be open until
Sunday night or Monday morning to receive
and process the checks. This paragraph
extends the midnight deadline if the returned
checks reach the receiving bank by a cut-off
hour (usually on Sunday night or Monday
morning) that permits processing during the
receiving bank's next processing cycle
following the Saturday midnight deadline.
The time limits that are extended in each
case are the paying bank's midnight deadline
in UCC sections 4-301 and 4-302 and § 210.12
of Regulation J (12 CFR 210.12). As these
extensions are designed to speed {§ 229.30 (c)
(1)), or at least not slow § 229.30(c)(2)), the
overall return of checks, no modification or
extension of the expeditious return
requirements in § 229.30(a) is required.
*
*
*
*
*
f. In the Commentary to § 229.34, the
first sentence of paragraph (a) is revised
to read as follows:
Section 229.34 Warranties by Paying Bank
and Returning Bank
(a) Warranty o f returned check. This
paragraph includes warranties that a
returned check, including a notice in lieu of
return, was returned by the paying bank, or
in the case of a check payable by a bank and
payable through another bank, the bank by
which the check is payable, within the
deadline under the UCC, Regulation J, or
S 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 a notice in
lieu of return, the original check has not been
and will not be returned for payment (see the
Commentary to § 229.30(f)). * * *
*
*
*
*
*
g. In the Commentary to $ 229.35, a
new sentence is added before the last
sentence of the first paragraph of
paragraph (a) as follows:
Section 229.35 Indorsements
(a) Indorsement standards.
* * * The
regulation places a duty on banks to ensure
that their indorsements are legible. * * *
*
*
*
*
*
h. In the Commentary to § 229.36, two
new sentences are added after the first
sentence in the second paragraph of
paragraph (e), and the second sentence
is revised to read as follows:
Section 229.36 Presentment and Issuance of
Checks
*
*
*
*
*
(e) Issuance of payable through
checks. * * *
* * * Similarly, a bank may be liable
under $ 229.38 if a check payable by it that is
not payable through another bank is labelled
as provided in this section. (All of a bank's
offices within the United States are
considered part of the same bank; see
S 229.2(e).) For example, a bank by which a
check is payable could be liable to a
depositary bank that suffers a loss, such as
lost interest or liability under subpart B, that
would not have occurred had the check, in
the case of a payable through check, met the
requirements of this paragraph, or, in the case
of a check that is not payable through
another bank, not been mislabelled. * * *
i. In the Commentary to Appendix C,
under the subheading “Modes C -l
through C-7 generally," the last
paragraph is revised and a new
paragraph is added at the end thereof to
read as follows:
Appendix C—Model Forms, Clauses, and
Notices
*
*
*
*
*
Models C -l through C-7 generally. * * *
*
*
*
*
*
While S 229.10(b) of the regulation requires
next-day availability for electronic payments,
Treasury regulations (31 CFR part 210) and
ACH association rules require that
preauthorized credits (“direct deposits”) be
made available on the day the bank receives
the funds. Model Forms C -l through C-7
reflect these rules. Wire transfers, however,
are not governed by Treasury or ACH rules,
but banks generally make funds from wire
transfers available on the first business day
following deposit. Banks with different
policies should revise the forms to reflect the
availability given in most cases for wire
transfers.
Banks that have used earlier versions of
the model forms or clauses (such as those
forms that gave Social Security benefits and
payroll payments as examples of
preauthorized credits available the day after
deposit) are protected from civil liability
under S 229.21(e). Banks are encouraged,
however, to use current versions of the forms
when reordering supplies of forms.
*
*
*
*
*
By order of the Board of Governors of the
Federal Reserve System. December 7,1989.
William W. Wiles,
Secretary of the Board.
[FR Doc. 89-29007 Filed 12-14-89; 8:45 am)
BILLING CODE 6210-01-*!
FEDERAL RESERVE SYSTEM
[Docket No. R-0640]
Proposals to Modify the Reserve
Banks’ Notice of Nonpayment Service
Board of Governors of the
Federal Reserve System .'
a c t io n : Proposed service modifications.
agency:
s u m m a r y : The Board is publishing for
comment proposals to modify the
deadlines for the notice of nonpayment
service offered by Federal Reserve
Banks. Modification of the current
deadlines may be adopted if the Board
adopts an amendment to Regulation CC
shortening the time requirement for
providing notice of nonpayment to the
depository bank.
DATE: Comments must be submitted on
or before February 16,1990.
ADDRESSES: Comments, which should
refer to Docket No. R-0680, may be
mailed to the Board of Governors of the
Federal Reserve System, 20th and C
Streets, NW-, Washington, DC 20551,
Attention: Mr. William W. Wiles,
Secretary; or may be delivered to Room
B-2223 between 8:45 a.m. and 5:00 p.m.
All comments received at the above
address will be included in the public
file and may be inspected at Room B 1122 between 8:45 ajn . and 5:15 p.m.
FOR FURTHER INFORMATION CONTACT:
Louise L Roseman, Assistant Director
(202/452-3874) or Gayle Thompson,
Manager (202/452-2934), Division of
Federal Reserve Bank Operations; or
Stephanie Martin, Attorney (202/4523198), Legal Division; for the hearing
impaired only: Telecommunications
Device for the Deaf, Eamestine Hill or
Dorothea Thompson (202/452-3544).
SUPPLEMENTARY INFORMATION:
Currently, Regulation CC requires
paying banks to provide notice of
nonpayment to the depository bank by
4:00 p.m. (local time of the depositary
bank) on the second day following
9
presentment for checks of $2,500 or
more. Although this requirement reduces
risk inherent in the return process, some
banks have expressed concern that
under the permanent availability
schedule, which becomes effective
September 1,1990, the instances in
which depository banks will not receive
notice of nonpayment of large-dollar
returned checks prior to the time that
funds must be made available for
withdrawal will increase. Specifically,
under the permanent schedule, the
$5,000 of the deposit of a local check
must be made available to the customer
for withdrawal by the second business
day following deposit Even though the
amount in excess of $5,000 can be held
for a longer period of time under the
large-deposita exception [§ 229.13(b)],
the depository bank's risk exposure may
increase because it would generally not
receive notice of nonpayment of a largedollar local check until after the first
$5,000 of the check must be made
available for withdrawal.
The Board is requesting comment on
whether the regulation should be revised
to reduce the time within which notice
of nonpayment must be provided to the
depositary bank [See Docket R-0679
elsewhere in today’s Federal Register).
The Board proposes that, if it amends
Regulation CC to reduce the time within
which notice of nonpayment must be
given, the Reserve Banks would revise
the deposit deadlines for the large-dollar
notice of nonpayment service in support
of this change. At this time, the Board is
not proposing any fee changes; however,
fees may need to be increased for
notices of nonpayment originated by
telephone or physical check if the
processing is moved into a high-cost
peak processing time. Any revised
Reserve Bank deadlines would be
structured to facilitate compliance with
the regulatory requirement for receipt of
notices of nonpayment, if the Board
adopts such an amendment. Because no
specific time requirement for depository
bank receipt of notices of nonpayment is
being proposed, following is a
discussion of how the Federal Reserve
service, might be modified to assist
banks in meeting any new requirements.
If the regulation is modified to reduce
the time within which notice must be
given to 4:00 p.m. on the business day
following the banking day on which the
check is presented to the paying bank,
the Reserve Banks would retain their
current deadlines for the notice of
nonpayment service; however, the
paying bank would be required to
provide the physical checks or
information to its Reserve Bank one day
earlier than is currently the case.
Origination method
Deadftw
W ire.......................................
12:00 noon oa duo dale.
9:00 am. on due data
Telephone call to Fed —
Origination method
Deadline
Physical check to Fed---- 9:00 am. on due data
The Board recognizes that the
deadlines for providing notice by 4:00
p.m. on the day following presentment
generally would preclude use of the
Federal Reserve notification service
based on providing use of the Federal
Reserve notification service based on
providing the Reserve Bank with the
typical check or making a telephone call
to the Reserve Bank because most
paying banks may not be able to make
their return decision and then deliver
the check or call the Reserve Bank by
9:00 a.m. on the day following
presentment.
The times for both deposit and
delivery of notices are based on local
times of the paying bank's Reserve Bank
and of the depository bank, respectively.
The 12:00 noon deadline for wire
origination is necessary because the
Federal Reserve guarantees that a wire
notice sent by a West Coast paying
bank to an East Coast depository bank
at 12:00 noon Pacific Time (PT) (3:00 p.m.
Eastern Time (ET)) would be delivered
to the depository bank by 4:00 p.m. ET.
The Reserve Banks would be unable to
guarantee delivery for notices initiated
later than 12:00 noon PT. The 9:00 a.m.
deadline for notices originated by
telephone or physical check is necessary
to allow the Federal Reserve sufficient
time to process manually the notice
information.
Alternatively, the Federal Reserve
could establish the deadlines in Eastern
Time. This could allow for later
deadlines for non-West Coast paying
banks: however, West Coast paying
banks would still be constrained by the
proposed deadlines. If the Board were to
adopt a time than 4:00 p.m. for receipt of
the notice by the depositary bank, the
deadlines could be moved to a later
time, accordingly: however, because the
Federal Reserve service is provided via
Fedwire, the cutoff for Federal Reserve
provision of the notice would provide
for receipt by the close of Fedwire,
regardless of whether the legal
requirement allowed for a later time.
This constraint generally would not
allow sufficient time for a bank located
remotely from its local Reserve Bank
office to originate notice by providing
the physical checks to the Reserve Bank.
In recognition of this, the Federal
Reserve is investigating whether
alternatives, such as fax delivery of a
copy of the physical check, could
provide a feasible service substitution
for the paying bank; however, difficulty
in producing legible facsimiles may
preclude this alternative.
If the Board adopts an amendment to
$ 229.33(a) of Regulation CC requiring
that notice of nonpayment be provided
to the depositary bank by 4:00 p.m. on
the day following presentment to the
paying bank, the Board requests
comment on whether the Federal
Reserve notice of nonpayment service
should be modified as described in the
alternatives above. In addition, the
Board requests commenters to provide
suggestions regarding alternatives for
paying banks to meet the deadline for
providing notice of nonpayment from the
physical check or via telephone call.
if the regulation were modified to
require that notice of nonpayment be
provided to the depositary bank by 10:00
a.m. on the second business day after
presentment to the paying bank, the
Board proposes to modify the notice of
nonpayment service to provide sameday notice at the following new
deadlines:
10
O rigination m ethod
W ire.............................
Telephone call to
Fed.
Physical check to
Fed.
Current deadline
12:00 noon local
tim e on due
date.
9.00 a m . local
tim e on due
date.
9:00 a m . local
tim e on due
date.
Proposed deadline
9:00 a m . Eastern
Tim e on due
date.
4:00 p.m . local
tim e on day
before due date.
12:01 a m . local
tim e on due
date.
These proposed deadlines are based
on a combination of Fedwire processing
hours and check processing flows. The
9:00 a.m. Et wire deadline allows for
information to be entered after the
opening of Fedwire so that it can be
delivered to the depositary bank by
10:00 a.m. local time. The 4:00 p.nm.
local time on the day before the due
date for telephone origination would
allow paying banks to notify the Federal
Reserve during business hours, when
staff is generally available to accept the
telephone calls. The Federal Reserve
could provide a later deadline for
receipt of the telephone notice, but this
would likely result in higher prices
because additional staff would be
necessary to handle relatively small
volumes. The 12:01 a.m. local time
deadline for receiving physical checks
from which the Federal Reserve would
provide notice is tied to existing
transportation arrangements for
delivering checks to the local Reserve
Bank office.
If the Board adopts an amendment to
Section 229.33(a) of Regulation CC
requiring that notice of nonpayment
must be provided to the depositary bank
on the second business day after
presentment to the paying ban); at 10:00
a.m., the Board requests comment on
whether the Federal Reserve notice of
nonpayment service be modified as
described above.
By order of the Board of Governors of the
Federal Reserve System, December 7,1989.
William W. Wiles,
Secretary of the Board.
[FR Doc. 89-29010 Filed 12-14-89; 8:45 am]
BILLING CODE S210-01-M
@FedFRASER