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FEDERAL RESERVE BANK OF N E W YORK rCircular No. 7 2 7 4 ~[ L November 20, 1973 -f PROPOSED REVISION OF REGULATION J Electronic Transfer of Funds T o A ll Banks, and O thers Concerned, in the Second Federal R eserv e D istrict: Following is the text of a statement issued November 19 by the Board o f Governors o f the Federal Reserve System: The Board of Governors of the Federal Reserve System today invited comment on the basic structure of the nation’s payments mechanism, and the appropriate roles of the Federal Reserve and other institu tions in it. The comment was solicited in connection with proposed regulatory changes concerning the frame work for the use of the Federal Reserve’s inter-regional electronic funds transfer network. Thus, com ment may be addressed not only to the technical details of the proposal but also to issues arising from electronic funds transfer, such as ownership and operation, conditions of access and payment of the costs of such a system. The technical proposal is the latest in a series of steps aimed at reducing reliance on checks for handling money payments. It is intended to delineate the legal rights and responsibilities of the parties to electronic transfer of funds using Federal Reserve facilities. The proposal would expand the Board’s Regulation J, which currently governs the use of Federal Reserve facilities to collect checks. It is an outgrowth of the Board’s policy statement issued on June 18, 1971, in which the Board gave high priority to modernizing the nation’s payments mechanism, including development, in the interests of an efficient, low cost payments system, of an electronic substitute for making payments by check. Written comment on the proposed legal framework for electronic funds transfer will be received by the Board through March 8, 1974. The lengthy period for comment— 120 days— was given to accom m o date comment not only on the specifics of the proposed changes in Regulation J, but also upon broader issues such as: (1) The appropriate roles in the ownership and operation of an electronic payments system— includ ing adjuncts thereto— of (a) the Federal Reserve System, (b ) other public bodies, and (c) individual or groups of private institutions, including commercial banks, automated clearing houses, credit card com panies, thrift institutions, credit unions, the “ bank wire,” and other institutions or organizations such as those specified in the attached proposal; (2) The extent and conditions of access to the electronic funds transfer system by various kinds of depository institutions, and of other financial institutions, as well as the terms of access; (3) How the cost of electronic funds transfer should be allocated, including such questions as whether the Federal Reserve should charge for the use of its facilities; if so, against whom should the charges be levied, whether they should cover all costs, and whether reserves maintained by member banks should be taken into account in any fee schedule which might differentiate between Federal Reserve member and nonmember institutions. The Board’s efforts to modernize the payments mechanism are based on estimates that check volume is increasing at a rate that will double the total check volume during the next decade, from the current estimate of 26 billion items yearly. Unless there is a large scale transition to electronic funds transfer, the growth in check usage may eventually impede the flow of funds in the economy and make the use of checks slow and expensive. Under section 16 of the Federal Reserve A ct (12 U.S.C. 2 4 8 (o )), the Board of Governors is author ized to promulgate regulations governing the transfer of funds through Federal Reserve Banks, their branches, and regional facilities. Since the inception of wire transfers of funds— a forerunner of modem electronic funds transfers— some 50 years ago, such transfers have been regulated by instructions issued by the Board to the Federal Reserve Banks, and by Federal Reserve Bank operating- circulars issued to member banks. The current proposal would expand the Board’s Regulation J, which currently governs the collec tion of checks through the Federal Reserve. The existing Regulation J would become Subpart A of the expanded regulation. T w o new sections, dealing with electronic transfer of funds, propose rules under which Reserve Banks could accept and deliver both credit and debit transfers of funds by wire, over the Federal Reserve’s national communications network. Subpart B would codify, in regulation form, current practices in the forwarding of credits— that is, the sending of funds from one point to another— for member banks and their customers over Federal Reserve communications. T o forward credits, a member bank authorizes the Federal Reserve to deduct an amount from its reserve account, and to credit that amount to another commercial bank. Present wire transfer volumes in most Reserve Banks have already exceeded a level at which manual processing is feasible. Displacement of such low speed manual operations by high speed processing is nearing completion. Subpart C proposes the legal framework within which member banks and their customers would use Federal Reserve facilities to collect funds electronically from another commercial bank (as they now use other Federal Reserve facilities for the collection of funds moved by check)— a procedure that does not now exist. The proposed process would thus duplicate— electronically and generally within a single business day— what a check accomplishes in a period of several days. The new procedure would involve: (a) A request initiated by a member bank that the Federal Reserve use its facilities to collect an amount— by wire, usually the same day— from another bank; (b) Immediate credit given by the Federal Reserve to the requesting bank’s reserve account of the amount it wishes to collect from another bank; and (c ) Use of the Federal Reserve’s communications facilities to notify the commercial bank from which the amount is to be collected that the Federal Reserve is deducting the amount from the bank’s reserve account. In this process, both the credit given to the bank requesting collection, and the debiting of the pay ing bank’s account with the Federal Reserve, would be subject to reversal, within prescribed time limits, if the amount could not be collected. Printed on the following pages is the text o f the proposed revision o f Regulation J. Com ments thereon should be submitted by March 8, 1974, and may be sent to our Payment Systems Department. A lfred H ayes , President. 2 (Reg. J) COLLECTION OF CHECKS AND OTHER ITEMS AND TRANSFERS OF FUNDS Under Section 16 of the Federal Reserve Act (12 U.S.C. 2 4 8 (o )), the Board of Governors is author ized to promulgate regulations governing the trans fer of funds through Federal Reserve Banks, their Branches, and regional facilities. Since the inception of wire transfers of funds— a forerunner of modern electronic fund transfers— some 50 years ago, such transfers have been regulated only by instructions issued by the Board to the Federal Reserve Bank and by Federal Reserve Bank operating circulars issued to member banks. In the past, telegraphic transfers of funds have been initiated primarily by means of an oral or written communication from the transferor bank and manually processed through Reserve Banks for subsequent delivery to the transferee bank. Present wire transfer volumes in most Reserve Banks have already exceeded a level at which manual process ing is feasible. Displacement of such low speed manual operations by high speed electronic process ing is nearing completion. The context in which the proposed regulation is presented is set forth in the Board’s statement of policy issued on June 18, 1971, (57 Federal Reserve Bulletin, June, 1971 at 546-547). In that statement the Board assigned a high priority to the improve ment of the nation’s payments mechanism and to the development of an electronic substitute for an overburdened check collection system. The Board is currently considering the promulga tion of regulations relating to this matter in the form hereinafter set forth, which will be consistent with the expanding use of electronic funds trans fers as a substitute for checks. This regulation is intended to delineate the legal rights and responsi bilities of the parties and the procedures to be used henceforth for such funds transfers within the Fed eral Reserve System. At the same time, as the processing of check volume becomes increasingly costly to the economy, and as the technology of funds transfers enters a new phase, the Board takes this opportunity to solicit comments on the basic structure of the nation’s payments mechanism, in cluding the role of the Federal Reserve System and other institutions. T o aid in the consideration of further action in this area by the Board, interested persons are given the opportunity herein, for a period of 120 days, to submit relevant data, views, or arguments. The Board wishes to encourage the widest possible participation in this process and may extend the period if circumstances warrant. In addition to comment on the specific proposal contained in the regulation, and in recognition of the fact that Regulation J is but one part of a system which has broad economic and financial implications, the Board invites comments on other issues concerning electronic funds transfers, including: The proposed new rules are in the form of an amendment to Regulation J. The present provisions relating to check collections would become Subpart A of the Regulation. The rules regarding electronic transfers of funds through Federal Reserve facilities would be designated as Subpart B and Subpart C of the Regulation, dealing, respectively, with the transfers of credits and debits. The rules regarding collection of checks and other items, contained in Subpart A , would not apply to the processing of electronic items. 1. W hat are the appropriate roles in the owner ship and operation of the various components and adjuncts of an electronic funds transfer system of (a) the Federal Reserve System; (b ) other public bodies; and (c ) private insti tutions or groups thereof, including: commer cial banks; automated clearing houses operated by clearing house associations or other asso ciations of commercial banks; bank or non bank credit card com panies; savings and loan associations; mutual savings banks; credit unions; the “ bank wire” ; and non-depository institutions such a s : communication utilities or companies, electronic equipment vendors or service bureaus, and vendors generally whose convenience or other credit extension may cause them to act as “ concentrators” or other wise to affect the flow of money payments. Under the proposed regulation, a request for trans fer of funds through a Reserve Bank initiated by one bank (the “ transferor” ) for credit to another bank (the “ transferee” ) contained in certain ap proved media, would be referred to as a “ credit item” in Subpart B. An instruction for the pay ment of money by a “ payor” bank, initiated by a “ payee” bank, contained in approved media, is designated as a “ debit item” under Subpart C. The regulation would specify the terms and conditions under which such items would be processed for member banks by the Reserve Banks. 3 2. W hat should be the extent and conditions of access to the funds transfer system by various depository institutions? Should other financial or nonfinancial institutions have access to the system ? If so, on what terms? Sec. 210.10 T r a n s fe r s of Item s 210.12 R e tu r n o f c ash ite m s 210.13 C h a r g e b a c k o f u n p a id cash ite m s a n d n o n 210.14 T i m e li n e s s o f a ction 210.15 E f fe c t p r e se n tm e n t of B— T ran sfers of F u n d s — C red it 210.50 A u t h o r it y a n d s c o p e 210.51 D e fin itio n s 210.52 G e n e r a l p r o v isio n s 210.53 A p p r o v e d m ed ia fo r issu a n c e , t r a n s m is s io n 210.54 T r a n s f e r o r ’s a g r e e m e n t 210.55 T r a n s f e r e e ’s a g r e e m e n t 210.56 Is s u a n c e o f tr a n sfe r ite m s an d tele p h o n ic or r e c o r d in g o f tra n sfe r ite m s r e q u e sts fo r tra n sfe rs o f fu n d s 210.57 H a n d lin g o f tra n sfe r ite m s a n d te le p h o n ic 210.58 T i m e lim its 210.59 A d v i c e o f cred it 210.60 Is s u a n c e an d h a n d lin g o f r e q u e sts fo r r e v o re q u e sts ca tio n and o f tra n sfe r ite m s and te le p h o n ic r eq u ests S u b p a r t A — C o l l e c t io n 210.61 of C hecks F in a l p a y m e n t, rig h t to w ith d r a w o r fu n d s 210.62 and Item s T im e lin e s s o f a ctio n 210.63 L ia b ilit y o f a F e d e r a l R e s e r v e B a n k 210.64 O p e r a t in g c irc u la rs Sec. S ubpart C— T ran sfer s of F u n d s — D e b it 210.1 Authority and scope 210.2 Definitions 210.3 General provisions 210.70 Sending of items to Federal Reserve Banks 210.71 G e n e r a l p r o v is io n s 210.5 Sender’s agreement 210.72 D e fin itio n s 210.6 Status and warranties of Federal Reserve Bank 210.73 R e c e ip t o f d e b it ite m s 210.74 H a n d lin g o f d e b it ite m s Presentment for payment 210.75 O r d e r in g b a n k ’s a g r e e m e n t Presentment of noncash items for accep tance 210.76 Federal Reserve Bank agreement 210.77 Paym ent Remittance and payment 210.78 T i m e sc h e d u le 210.4 210.7 210.8 210.9 c ertain Sec. 2. The Table of Contents of Part 210 would be changed to read as fo llo w s : ther d irect T r an sfers F u n d s .” O of O p e r a tin g le tte rs S ubpart 1. The title of Part 210 would be changed to read: O th er A v a i la b il i t y o f p r o c e e d s o f n o n c a s h ite m s 210.16 T o implement its proposal, the Board is consider ing amending Regulation J [12 C FR Part 210] as set forth b e lo w : and 210.11 w a r ra n ts Any material should be submitted in writing to the Secretary, Board of Governors of the Federal Reserve System, W ashington, D. C. 20551, to be received not later than March 8, 1974. Such mate rial will be made available for inspection and copy ing upon request, except as provided in Section 261.6(a) of the Board’s Rules Regarding Avail ability of Information. C h eck s a n d a v a ila b ility o f cred its c a sh ite m s This notice is published pursuant to section 553(b) of Title 5, United States Code, and section 262.2(a) of the Rules of Procedure of the Board of Gov ernors. of sc h e d u le w ith r e sp e c t to cash ite m s 3. H ow the cost o f electronic funds transfers should be allocated, including such questions as whether the Federal Reserve should charge for any use of its transfer facilities; if so, against whom should the charges be levied, whether they should cover all costs, and whether reserves maintained by member banks should be taken into account in any fee schedule which might differentiate between Federal R e serve member and nonmember institutions? “ C o lle c tio n T im e T r an sfer s Sec. 4 A u t h o r it y an d sc o p e u se Sec. 210.79 Return 210.80 Chargeback 210.81 Timeliness of action 210.82 Liability of a Federal Reserve Bank 210.83 Operating circulars (b ) The term “ instrument for the payment of money” means any writing evidencing a right to the payment of money, addressed by one person to another, and contained in or on any medium approved by § 210.53 of this Subpart for the issu ance, transmission or recording of transfer items. (c) The term “ transferor” means a member bank, a corporation which maintains an account with a Federal Reserve Bank in conformity with the re quirements of §211.7 of Part 211 of this Chapter (Regulation K ), a Federal Reserve Bank, an inter national organization, or a foreign correspondent, or other institution authorized by a Federal Re serve Bank, to issue or send a transfer item to a Federal Reserve Bank, or to request a Federal Reserve Bank by telephone to debit its account and transfer funds to a designated transferee. 3. Part 210 would be amended by inserting im mediately before §210.1 a heading reading: “ S u b p a r t A — C o l l e c t i o n o f C h e c k s a n d O t h e r I t e m s .” 4. Paragraph (a) of § 210.2 would be amended, but without change in footnotes, to read as fo llo w s: (a) The term “ item” means any instrument for the payment of money, whether negotiable or not, which is payable in a Federal Reserve district,1 is sent by a sender or a nonbank depositor to a Federal Reserve Bank for handling under this Part, and is collectible in funds acceptable to the Federal Re serve Bank of the district in which the instrument is payable; except that the term does not include any check which cannot be collected at par,2 nor does it include any item as defined in § 210.51(a) of this Part. (d) The term “ transferee” means a member bank, a corporation which maintains an account with a Federal Reserve Bank in conformity with the re quirements of §211.7 of Part 211 of this Chapter (Regulation K ), a Federal Reserve Bank, an international organization, or a foreign correspond ent, or other institution maintaining an account on the books of a Federal Reserve Bank, which is designated in a transfer item or telephonic request to receive the amount thereof. 5. Part 210 would be amended to change the words “ this Part” wherever they occur in §§210.1210.16 to read “ this Subpart.” (e) The term “ beneficiary” means a person, firm or corporation (other than the transferee) desig nated in a transfer item or telephonic request to receive the amount thereof for his or its own use by credit to an account maintained with the trans feree or otherwise from the transferee. 6. Part 210 would be amended by adding after §210.16 the follow ing: S ubpart B— T ransfers T of F u n d s — C r e d it ran sfers §210.50— Authority and scope (f) The term “ transfer item” means either (i) an item issued by a transferor (other than a Federal Reserve Bank) to a Federal Reserve Bank for a debit to an account of the transferor at such Federal Reserve Bank and for a credit to a trans feree named in such item, or (ii) an item issued by a Federal Reserve Bank to another Federal Reserve Bank for credit to such other Federal Reserve Bank or any other transferee. Pursuant to the provisions of paragraph 1 of section 13 of the Federal Reserve Act, as amended (12 U.S.C. §342), paragraph (f) of section 19 of the Federal Reserve A ct (12 U.S.C. §464), para graph 14 of section 16 of the Federal Reserve Act (12 U.S.C. § 2 4 8 (o )), paragraphs (i) and ( j) of section 11 of the Federal Reserve A ct (12 U.S.C. § 248(i) and ( j ) ) , and other provisions of law, the Board of Governors of the Federal Reserve System has promulgated this Subpart governing the hand ling by Federal Reserve Banks of transfer items and telephonic requests for transfers of funds (here inafter referred to as telephonic requests). (g ) The term “ international organization” means any international organization for which the Fed eral Reserve Banks are empowered to act as de positaries or fiscal agents subject to regulation by the Board of Governors of the Federal Reserve System and for which a Federal Reserve Bank has opened and is maintaining an account. § 210.51— Definitions As used in this Subpart, unless the context other wise requires: (h) The term “ foreign correspondent” means any of the following for which a Federal Reserve Bank has opened and is maintaining an account: a foreign bank or banker, or foreign state as defined in section (a) The term “ item” means any instrument for the payment of money, issued, transmitted or re ceived in accordance with this Subpart. 5 25(b ) of the Federal Reserve A ct (12 U.S.C. §632), or a foreign correspondent or agency refetred to in section 14(e) of that Act (12 U.S.C. § 358). (i) The terms “ nonbank transferor” and “ non bank transferee” respectively mean any department, agency, instrumentality, independent establishment, or office of the United States, or any corporation other than a transferor or a transferee, which main tains or uses an account with a Federal Reserve Bank. Except as may otherwise be provided by any applicable statutes of the United States or regulations issued or arrangements made there under, the provisions o f this Subpart and of the operating circulars of the Federal Reserve Banks applicable to a transferor or to a transferee, as the case may be, are applicable respectively to a nonbank transferor, and to a nonbank transferee. § 210.52— General provisions In order to afford to the banks of the country a direct, expeditious, and economical system for the transfer of funds, each Federal Reserve Bank, in accordance with the terms and conditions set forth in this Subpart, shall receive, process and act upon transfer items and telephonic requests and, where appropriate, shall itself issue transfer items and telephonic requests; and the provisions of this Subpart and the operating circulars of the Federal Reserve Banks shall be binding upon transferors and transferees. § 210.55— Transferee’s agreement (a) A transferee, other than a Federal Reserve Bank, designated in a transfer item or telephonic request to receive the amount thereof, by its action in maintaining or using an account at a Federal Reserve Bank, shall be deemed to authorize that Federal Reserve Bank to execute a transfer of funds to it by making corresponding credit entries on its books. (b ) A transferee, other than a Federal Reserve Bank, receiving from a Federal Reserve Bank the amount of a transfer item or of a telephonic request and an advice of credit which designates a bene ficiary to receive the amount, shall be deemed to agree (1) that it will promptly credit said bene ficiary’s account or otherwise make the amount of the transfer item or telephonic request available to the beneficiary for withdrawal or other u se; and (2) that, if it is unable to do so because of circumstances beyond its control, it will give prompt notice of the facts to the Federal Reserve Bank from which it received such amount. § 210.53— Approved media for issuance, transmission or recording of transfer items A transfer item may be contained in any one of the follow ing m edia: (a) a letter, memorandum or other similar writ ing; §210.56— Issuance of transfer items and telephonic (b ) a telegram (including T W X , T E L E X and any similar form of communications) ; and requests for transfer of funds (a) Any transferor, other than a Federal Reserve Bank, may, in accordance with the provisions of this Subpart and the operating circulars of the Federal Reserve Bank with which it maintains or uses an account, issue transfer items and telephonic re quests to that Federal Reserve Bank for the transfer of funds to transferees for their own use or the use of beneficiaries: Provided, That each transferor shall maintain with such Federal Reserve Bank a daily net balance sufficient to cover the transfers of funds debited to its account. (c ) any form o f communication, other than voice, which is registered upon, or is in form suitable for being registered upon, magnetic tape, disc or any other medium designed to capture and contain in durable form conventional signals used for the electronic communication of messages. § 210.54— Transferor’s agreement By its action in issuing and sending any transfer item, contained in any of the media specified in § 210.53, to a Federal Reserve Bank, or by its action in telephonically requesting a Federal Re serve Bank to transfer funds to a designated trans feree, a transferor shall be deem ed: (1) to authorize said Federal Reserve Bank to apply a corresponding debit to its account; (2) to authorize said Federal Reserve Bank to handle and act upon the transfer item or telephonic request and the Federal Reserve Bank at which the transferee’s account is main tained to handle and act upon a transfer item or telephonic request of equivalent import, in accord ance with the provisions of this Subpart and the operating circulars of such Federal Reserve Banks; and (3) to agree that that such provisions shall, insofar as they are made applicable thereto, govern the relationships between such transferor and such Federal Reserve Banks. (b ) Any Federal Reserve Bank may, in accor dance with the provisions of this Subpart, issue transfer items or telephonic requests to another 6 Federal Reserve Bank for its own use or the use of any other transferee or any beneficiary. consummation on the day of receipt and may include therein a schedule of time limits during which it will receive transfer items and telephonic requests for consummation on the next business day. (c ) If, at any time during a Federal Reserve Bank’s business day, a transferor does not have a daily net balance sufficient to cover the transfers of funds debited to its account at the Federal Reserve Bank during that day, that Federal Reserve Bank shall have a security interest in any or all assets of such transferor in its possession. (b) Unless otherwise instructed, each Federal Reserve Bank handling transfer items and tele phonic requests will use its best efforts to effect the transfers of funds to the designated transferees on the day of receipt: Provided, That such items and requests reach the Federal Reserve Bank not later than the time shown in its schedule of time limits, except that no representation shall be made by a Federal Reserve Bank to the effect that transfers will be consummated on the day requested. (d) The Federal Reserve Banks may, from time to time, establish in their operating circulars the minimum or maximum dollar amounts, or both, which will be transferred without charge upon receipt of a transfer item or telephonic request and may also impose reasonable service charges for transfers of funds below any such minimum so established. (c) In emergency or other unusual circumstances, a Federal Reserve Bank may, in its discretion, re ceive after the hours shown in its schedule of time limits transfer items and telephonic requests for consummation on that business day, but only upon the understanding, in the case of an interoffice or interdistrict transfer, that completion of each re quested transfer shall be discretionary with the office at which the transferee’s account is main tained. § 210.57— Handling of transfer items and telephonic requests (a) W here the transferor and the transferee main tain or use accounts at the same office of a Federal Reserve Bank, such office receiving a transfer item or telephonic request shall execute a transfer of funds by making corresponding debit and credit entries to those accounts. § 210.59— Advices of credit and debit (b ) W here the transferor and the transferee do not maintain or use accounts at the same office of a Federal Reserve Bank, the office first receiving the transfer item or telephonic request shall debit the transferor’s account in the amount to be trans ferred and shall, as a transferor, issue a transfer item or telephonic request of equivalent import to the office at which the transferee’s account is main tained ; and that office shall execute a transfer of funds to the transferee by making corresponding debit and credit entries. (a) W ritten advice of credit in respect of an executed transfer of funds shall be given to the transferee by the Federal Reserve Bank with which it maintains or uses an account or, when the trans feror or transferee has so requested, immediate advice of credit shall be given to the transferee by telegraph, telephone, or other form of electronic telecommunications. Immediate advice may also be given where, in the judgment of said Federal Reserve Bank, the nature of the transaction or the amount involved justifies such an action. (c ) W hen a Federal Reserve Bank having in due time received a transfer item or telephonic request subsequently obtains knowledge that, for whatever reason, it will be unable to effectuate a transfer of funds to the transferee on the day requested, said Federal Reserve Bank shall, within a reasonable time thereafter, notify the transferor of the delay. (b ) W ritten advice of debit in respect of a trans fer of funds shall be given to the transferor by the Federal Reserve Bank with which it maintains or uses an account where funds have been transferred, pursuant to a telephonic request, to a transferee for the account of a beneficiary. Immediate advice of debit (in lieu of written advice) may be given by telegraph, telephone, or other form of electronic telecommunications where, in the judgment of said Federal Reserve Bank, the nature of the transaction or the amount involved justifies such action. If, within 10 business days of the transferor following receipt of the advice of debit, the transferor fails to send to said Federal Reserve Bank written objec tion to such debit, the transferor shall be deemed to have approved the debit. § 210.58— T im e limits (a) Each Federal Reserve Bank shall include in its operating circulars a schedule of the time limits showing, with respect to interdistrict, interoffice, and intraoffice transfers of funds, the hours on each business day during which it will receive from trans ferors transfer items and telephonic requests for 7 § 210.60— Issuance and handling of requests item, the transferee’s Federal Reserve Bank shall return the funds described in the request for revo cation to the transferor; or for revocation of transfer items and telephonic requests (ii) if the Federal Reserve Bank’s request for revocation is received later than the time specified in subdivision (i) of this subparagraph, transferee’s Federal Reserve Bank, at the transferor’s request, shall send a request to the transferee that it return the funds described in the request for revocation to the transferor. (a ) A ny transferor including a Federal Reserve Bank that has issued a transfer item or a telephonic request may issue to the Federal Reserve Bank with which it maintains or uses an account a request for revocation of such transfer item or telephonic request. A Federal Reserve Bank shall handle a request for revocation in accordance with the provisions of its operating circulars and this Subpart. (d) T o correct an erroneous or otherwise ir regular transfer of funds, a Federal Reserve Bank, upon its own initiative or at the request of another Federal Reserve Bank, may send a request to the transferee to return funds previously transferred to it. (b ) Intraoffice revocation. Where the transferor in cluding a Federal Reserve Bank and transferee maintain or use accounts at the same Federal Reserve Bank, that Federal Reserve Bank upon receipt of a request for revocation : § 210.61— Final payment, right to withdraw or use funds (1) shall cancel the transfer item or telephonic request, if the request for revocation is received at such time and in such manner as to afford that Federal Reserve Bank a reasonable opportunity to act prior to the final payment of the transfer item or telephonic request in question; or (a) A transfer item or telephonic request issued by a transferor is finally paid at the time an advice of credit is sent or telephoned to the transferee by a Federal Reserve Bank. (b ) Subject to the right of a Federal Reserve Bank to apply the transferred funds to an obliga tion owed to the Federal Reserve Bank by the transferee, credit given by a Federal Reserve Bank for a transfer of funds to the transferee’s account becomes available for withdrawal as of right by the transferee upon the sending or telephoning of an advice of credit by the Federal Reserve Bank. (2) at the transferor’s request, shall send a request to the. transferee that it return the funds described in the request for revocation to the transferor, if the request for revocation is received later than the time specified in subparagraph (1) of this paragraph. (c ) Interdistrict and interoffice revocation. Where the transferor and transferee do not maintain accounts at the same Federal Reserve Bank or at the same Federal Reserve office, the transferor’s Federal Reserve Bank upon receipt of a request for revoca § 210.62— Timeliness of action tion : (1) shall cancel the transferor’s transfer item or telephonic request, if the request for revocation is received at such time and in such manner as to afford it a reasonable opportunity to act prior to issuing its own transfer item or telephonic request; or (2) at the transferor’s request, shall issue a re quest for revocation of its transfer item or telephonic request to the Federal Reserve Bank at which the transferee’s account is maintained, if the request for revocation is received later than the time spec ified in subparagraph (1) of this paragraph; and (i) if the Federal Reserve Bank’s request for revocation is received at such time and in such manner as to afford the transferee’s Federal Reserve Bank a reasonable opportunity to act prior to final payment of the Federal Reserve Bank’s transfer 8 If, because of interruption of communications facilities, war, emergency conditions or other cir cumstances beyond its control, a Federal Reserve Bank shall be delayed beyond the time limits pro vided in this Subpart or in the Bank’s operating circulars or by the applicable law of any State in taking any action with respect to a transfer item or a telephonic request, including but not limited to making corresponding credit and debit entries on its books, sending appropriate advice of credit to the transferee and otherwise making funds avail able for withdrawal or other use, or, where neces sary, effectively transmitting a transfer item or telephonic request of equivalent import to the Federal Reserve Bank at which the transferee’s account is maintained, the time of such Bank for taking or completing such action, as limited by this Subpart or by the operating circulars, or by the applicable law of any State, thereby delayed shall be extended for such time after the cause of the delay ceases to operate as shall be necessary to take or complete the action, provided the Bank exercises such diligence as the circumstances require. item or telephone request issued to it by the trans feror’s Federal Reserve Bank at the request of the transferor. § 210.63— Liability of a Federal Reserve Bank §210.64— Operating circulars (a) A Federal Reserve Bank, in connection with the matters specified in this Subpart or its operating circulars, shall not have, nor shall it assume, any responsibility to a transferee, a beneficiary, or any other party, except its immediate transferor nor shall a Federal Reserve Bank have or assume any li ability except for its own or another Federal Reserve Bank’s lack of good faith or failure to exercise ordinary care, and, except as herein pro vided, a Federal Reserve Bank shall not be liable for the insolvency, neglect, misconduct, mistake, or default of another bank or person, including a transferor. Each Federal Reserve Bank shall issue operating circulars (sometimes referred to as operating letters or bulletins), not inconsistent with this Subpart, governing the details of its funds transfer operation and containing such provisions as are required or permitted by this Subpart. (b) Subject to the limitations on liability here inabove stated, where a Federal Reserve Bank’s conduct, notwithstanding its exercise of good faith and ordinary care, results in a failure to credit the amount of a transfer item or telephonic request to the account of a transferee on the day requested, unless otherwise instructed at the time notice is given the transferor, the Federal Reserve Bank shall complete the transfer on the next business day with debits and credits posted to the appropriate accounts as of the day the transfer was to have been consummated. (c) Subject to the limitations on liability here inabove stated, if the failure to credit the amount of the transfer item or telephonic request to the account of the transferee resulted from a failure on the part of any Federal Reserve Bank to exercise ordinary care or to act in good faith, the transferor shall have the right to recover from the Federal Reserve Bank with which it maintains or uses an account any damages proximately caused by such failure: Provided, however, That whether any conse quential damages are proximately caused by the Federal Reserve Bank’s failure to exercise ordinary care or lack of good faith is a question of fact to be determined in each case. (d) The Federal Reserve Bank at which the account of the transferee is maintained shall be deemed to agree to indemnify the Federal Reserve Bank at which the transferor’s account is main tained for any loss or expense sustained (including but not limited to attorneys’ fees and expense of litigation) as a result of the transferee’s Federal Reserve Bank’s failure to exercise ordinary care or to act in good faith with respect to a transfer S ubpart C— T ran sfers of F un ds— D e b it T ransfers §210.70— Authority and scope Pursuant to the provisions of section 13 of the Federal Reserve Act, as amended (12 U.S.C. §342), paragraph (f) of section 19 of the Federal Reserve Act (12 U.S.C. §464), section 16 of the Federal Reserve A ct (12 U.S.C. § 2 4 8 (o ); 12 U.S.C. §360), paragraphs (i) and (j) of section 11 of the Federal Reserve A ct (12 U.S.C. § 248(i) and ( j ) ) , and other provisions of law, the Board of Governors of the Federal Reserve System has promulgated this Sub part governing the handling by Federal Reserve Banks of debit items. §210.71— General provisions In order to provide for the efficient and economical transfer of bank balances on the books of the Federal Reserve Banks and as a means of improving the nation’s payments mechanism, the Board of Governors of the Federal Reserve System has pro mulgated this Subpart. Each Federal Reserve Bank, in accordance with the terms and conditions set forth in this Subpart, shall receive, process, and act upon debit items in accordance with the terms and conditions set forth in this Subpart, and the provi sions of this Subpart and applicable operating cir culars of the Federal Reserve Banks shall be binding upon ordering banks and payor banks. § 210.72— Definitions As used in this Subpart, unless the context other wise requires: (a) The term “ ordering bank” means a member bank issuing and sending a debit item to the Federal Reserve Bank with which it maintains an account. (b ) The term “ payor bank” means the bank des ignated in a debit item as the bank by which the amount of the item is payable and which is located in a Federal Reserve District.5 (c ) The term “ debit item” means an instrument for the payment of money, contained in any of the media approved by § 210.53 of Subpart B of this Regulation, for payment by a payor bank and for credit to the ordering bank, which is issued and sent by an ordering bank to a Federal Reserve Bank for handling under this Subpart. (d) The term “ State” means any State of the United States, the District of Columbia, or Puerto Rico, or any territory, possession or dependency of the United States. transfer it to the payor bank over the Federal Re serve telecommunications network or by any other means selected by such Federal Reserve Bank. (c) W here the ordering bank and payor bank are not located in the same Federal Reserve territory, the Federal Reserve office first receiving the debit item will transfer it over the Federal Reserve System telecommunications network to the Federal Reserve office of the territory within which the payor bank is located, and such other Federal Reserve office will transfer the debit item to the payor bank over the Federal Reserve telecommuni cations network or by any other means selected by such Federal Reserve office. (e) The term “ banking day” means any day dur ing which a bank is open to the public for carrying on substantially all its banking functions. §210.75— Ordering bank’s agreement (f) The term “ wire” graph, and cable. For purposes of this section, the term “ ordering bank” includes a Federal Reserve Bank sending a debit item to another Federal Reserve Bank. includes telephone, tele (a) By its action in sending any debit item to a Federal Reserve Bank, an ordering bank shall be deemed to authorize said Federal Reserve Bank and the Federal Reserve Bank in whose district the debit item is payable to handle and act upon the debit item, in accordance with the provisions of this Subpart and the applicable operating circulars of such Federal Reserve Banks. §2 1 0 .7 3 — Receipt of debit items (a) A debit item may be contained in any of the media approved by §210.53 of Subpart B that is acceptable to the Federal Reserve Bank handling the debit item and shall be deemed to be the same debit item notwithstanding that the medium in which it is contained may change during its handling or return under this Subpart. (b ) An ordering bank shall be deemed to warrant to each Federal Reserve Bank handling the debit item : (1) that it is authorized to give the authority specified in paragraph (a) of this section, and (2) that it is authorized to obtain transfer of the funds in the manner called for by the debit item ; and such ordering bank shall be deemed to agree to indem nify each such Federal Reserve Bank for any loss or expense sustained (including but not limited to attorney’s fees and expenses of litigation) resulting from the failure of such ordering bank to have the authority to give such authority and warranties or resulting from any action taken by the Federal Reserve Bank within the scope of its authority in handling the debit item. (b ) An ordering bank may, if permitted by the Federal Reserve Bank with which it maintains an account, telephone a debit item issued by the order ing bank to such Federal Reserve Bank. Such tele phone message may be recorded by such Federal Reserve Bank. (c ) Unless otherwise agreed, a Federal Reserve Bank shall receive debit items only from the head office of an ordering bank and shall send debit items only to the head office of a payor bank. §210.74— H andling of debit items (a) An ordering bank may, in accordance with the provisions of this Subpart and the applicable operating circulars of the Federal Reserve Bank with which it maintains an account, issue and send debit items to that Federal Reserve Bank. (b ) W here the ordering bank and payor bank are located in the same Federal Reserve territory, the Federal Reserve Bank receiving the debit item will 5 F or the purposes o f this Subpart, the V irgin Islands and Puerto R ico shall be deemed to be in or o f the Second Federal Reserve D istrict and Guam and Am erican Samoa shall be deemed to be in or of the Tw elfth Federal Reserve District. 10 (c ) W henever any action or proceeding is brought in any court against a Federal Reserve Bank, based upon the alleged failure of such ordering bank to have the authority to give the authority and war ranties specified in paragraphs (a) and (b ) of this section, or upon any action taken by the Federal Reserve Bank within the scope of its authority in handling such a debit item, or upon any warranty or authority with respect thereto made by the Fed eral Reserve Bank consistently with §210.76 of this Subpart, the Federal Reserve Bank may, upon the ing day, unless prior to such time, it pays for the item as herein provided. Payment therefor shall be effected on such day of receipt by a debit to an account on the books of a Federal Reserve Bank. If the banking day on which an item is received by a payor bank is not a banking day for the Federal Reserve Bank from which the item was received, any payment made hereunder shall be effected on the banking day of both such Federal Reserve Bank and such payor bank next follow ing the day of receipt of such item. entry of a final judgment or decree in such action or proceeding', recover from the ordering bank the amount of attorney’s fees and other expenses of litigation actually incurred, and, in addition, any amount required to be paid by the Federal Reserve Bank under such judgment or decree, together with interest thereon, by charging the amount thereof to any account of the ordering bank maintained on the books of the Federal Reserve Bank (or if the order ing bank is another Federal Reserve Bank, by enter ing a charge therefor against such other Federal Reserve Bank), provided only (1) that the Federal Reserve Bank shall have made reasonable demand on the ordering bank in writing to assume the defense of the action or proceeding, and (2) that the ordering bank shall not have made any other provision acceptable to the Federal Reserve Bank for the payment of such amount. A Federal Reserve Bank against which any such charge has been en tered may recover from the ordering bank, in any case herein provided, as if the action or proceeding against the Federal Reserve Bank which entered the charge had been brought against it. The failure of any Federal Reserve Bank to avail itself of the remedy provided by this paragraph shall not prej udice the enforcement by it in any other manner of the indemnity agreement referred to in paragraph (b ) of this section. § 210.78— T im e schedule (a) Each Federal Reserve Bank shall include in its operating circulars a time schedule showing when the amount of any debit item received by it will be counted as reserve for the purposes of Part 204 of this Chapter (Regulation D ) and become available for withdrawal or other use by the ordering bank. The ordering bank will be given either immediate credit or deferred credit for such amount in accor dance with such time schedule. Notwithstanding the provisions of its time schedule, a Federal Re serve Bank may in its discretion refuse at any time to permit the withdrawal or other use of credit given for any debit item for which the Federal Reserve Bank has not yet received payment in actually and finally collected funds. (b ) A Federal Reserve Bank will use its best efforts to transmit debit items on the day of receipt: Provided, That the debit item is received by a Fed eral Reserve Bank not later than the time shown in the time schedule referred to in paragraph (a) of this section, except that no representation shall be made by a Federal Reserve Bank to the effect that debit items will be transmitted on the day of receipt. §21 0 .7 6 — Federal Reserve Bank agreement By its action in transferring any debit item, a Federal Reserve Bank shall be deemed to warrant to the payor bank and to any other Federal Reserve Bank handling such debit item that it is authorized to obtain payment of the funds called for by the debit item, but otherwise such a Federal Reserve Bank shall not have, and shall not be deemed to assume, any liability to such payor bank or Federal Reserve Bank except for its own lack of good faith or failure to exercise ordinary care. § 210.79— Return (a) A payor bank that receives a debit item from a Federal Reserve Bank and that pays for such debit item as provided in this Subpart shall have the right to recover any payments so made if, before it has finally paid the debit item, it returns the debit item before the close of business of its bank ing day next following the banking day of receipt. In accordance with the provisions of this Subpart and the applicable operating circulars of the Fed eral Reserve Banks, debit items shall be returned to the Federal Reserve Bank from which they were received in a form acceptable to such Federal R e serve Bank, and in the same medium in which they were received by the payor bank unless the payor bank obtains the written authority of such Federal Reserve Bank to return debit items in another § 210.77— Payment A payor bank becomes accountable for the amount of each debit item received by it from a Federal Reserve Bank at the close of the payor bank’s bank ing day on which the debit item was so received 6 if it retains such item after the close of such bank 6 A debit item received by a payor bank shall be deemed to have been received by the bank on its next banking day if the item is received under one o f the follow ing circum stances: (1 ) on a day other than a banking day for it, or ( 2 ) on a banking day for it, but (a ) after its regular banking hours, or ( b ) after a “ cut-off hour” established by the Federal Reserve Bank of the district in which the payor bank is located, or ( c ) during afternoon or evening periods when it is open for limited func tions only. 11 §210.81 — Timeliness of action medium specified in § 210.53 of Subpart B. In the event such medium is other than, by the Federal Reserve telecommunications network to the Reserve Bank, wire advice of nonpayment shall be given as to any debit item of $1,000 or over. If, because of interruption of communication facil ities, suspension of payments by another bank, war, emergency conditions or other circumstances beyond its control, any bank (including a Federal Reserve (b ) A ny payor bank which receives a credit or Bank) shall be delayed beyond the time limits provided in this Subpart or the operating circulars obtains a refund for the amount of any payment of the Federal Reserve Banks, or prescribed by the made by it in respect of a debit item received by it applicable law of any State in taking any action from a Federal Reserve Bank shall be deemed with respect to a debit item, the time of such bank, (1) to warrant to such Federal Reserve Bank, to as limited by this Subpart or the operating circulars any other Federal Reserve Bank handling the item of the Federal Reserve Banks, or the applicable law and to the ordering bank that it took all action of any State, for taking or completing the action necessary to entitle it to recover such payment thereby delayed shall be extended for such time within the time or times limited therefor by the after the cause of the delay ceases to operate as provisions of this Subpart, and (2) to agree to shall be necessary to take or complete the action, indemnify any such Federal Reserve Bank for any provided that the bank exercises such diligence as loss or expense sustained (including but not limited the circumstances require. to attorneys’ fees and expenses of litigation) result ing from its action in giving such credit or making §210.82 — Liability of a Federal Reserve Bank such refund, or in making any charge to, or obtain ing any refund from, the ordering bank. N o Federal A Federal Reserve Bank will act only as agent Reserve Bank shall have any responsibility for of its ordering bank, or of a Federal Reserve Bank determining whether the action hereinabove referred transmitting debit items to it, with respect to the to was timely. handling of debit items under this Subpart. A Fed eral Reserve Bank will not act as the agent or subagent of nor shall it assume any responsibility to any other person. A Federal Reserve Bank, in connection with the matters specified in this Sub part or its operating circulars, shall not have, nor shall it assume, any liability to an ordering bank, or another Federal Reserve Bank, except for its own lack of good faith or failure to exercise ordinary care. § 210.80— Chargeback If a Federal Reserve Bank does not receive pay ment in actually and finally collected funds for any debit item for which it gave credit, the amount of such item shall be charged back to the party re ceiving such credit. If such a chargeback is made to the account of an ordering bank, such ordering bank shall not have any right of recourse upon, interest in, or right of payment from, any reserve account or other funds or property of the payor bank in the possession of a Federal Reserve Bank. No authorization to charge upon any reserve ac count or other funds or property in the possession of a Federal Reserve Bank, issued for the purpose of paying for any debit item handled under the terms of this Subpart, will be acted upon after receipt by such Federal Reserve Bank of notice of suspension or closing of the bank making the payment for its own or another’s account. §210.83 — Operating circulars Each Federal Reserve Bank shall issue operating circulars (sometimes referred to as operating letters or bulletins), not inconsistent with this Subpart, governing the details of its debit item operation and containing such provisions as are required or per mitted by this Subpart. * * * By order of the Board of Governors, N ovem ber 15, 1973. 12
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