[108th Congress Public Law 100]
[From the U.S. Government Printing Office]
[DOCID: f:publ100.108]
[[Page 117 STAT. 1177]]
Public Law 108-100
108th Congress
An Act
To facilitate check truncation by authorizing substitute checks, to
foster innovation in the check collection system without mandating
receipt of checks in electronic form, and to improve the overall
efficiency of the Nation's payments system, and for other
purposes. <<NOTE: Oct. 28, 2003 - [H.R. 1474]>>
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, <<NOTE: Check Clearing
for the 21st Century Act.>>
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This <<NOTE: 12 USC 5001 note.>> Act may be cited
as the ``Check Clearing for the 21st Century Act'' or the ``Check 21
Act''.
(b) Table of Contents.--The table of contents of this Act is as
follows:
Sec. 1. Short title; table of contents.
Sec. 2. Findings; purposes.
Sec. 3. Definitions.
Sec. 4. General provisions governing substitute checks.
Sec. 5. Substitute check warranties.
Sec. 6. Indemnity.
Sec. 7. Expedited recredit for consumers.
Sec. 8. Expedited recredit procedures for banks.
Sec. 9. Delays in an emergency.
Sec. 10. Measure of damages.
Sec. 11. Statute of limitations and notice of claim.
Sec. 12. Consumer awareness.
Sec. 13. Effect on other law.
Sec. 14. Variation by agreement.
Sec. 15. Regulations.
Sec. 16. Study and report on funds availability.
Sec. 17. Statistical reporting of costs and revenues for transporting
checks between Federal Reserve banks.
Sec. 18. Evaluation and report by the Comptroller General.
Sec. 19. Depositary services efficiency and cost reduction.
Sec. 20. Effective date.
SEC. 2. <<NOTE: 12 USC 5001.>> FINDINGS; PURPOSES.
(a) Findings.--The Congress finds as follows:
(1) In the Expedited Funds Availability Act, enacted on
August 10, 1987, the Congress directed the Board of Governors of
the Federal Reserve System to consider establishing regulations
requiring Federal reserve banks and depository institutions to
provide for check truncation, in order to improve the check
processing system.
(2) In that same Act, the Congress--
(A) provided the Board of Governors of the Federal
Reserve System with full authority to regulate all
aspects of the payment system, including the receipt,
payment, collection, and clearing of checks, and related
functions of the payment system pertaining to checks;
and
[[Page 117 STAT. 1178]]
(B) directed that the exercise of such authority by
the Board superseded any State law, including the
Uniform Commercial Code, as in effect in any State.
(3) Check truncation is no less desirable in 2003 for both
financial service customers and the financial services industry,
to reduce costs, improve efficiency in check collections, and
expedite funds availability for customers than it was over 15
years ago when Congress first directed the Board to consider
establishing such a process.
(b) Purposes.--The purposes of this Act are as follows:
(1) To facilitate check truncation by authorizing substitute
checks.
(2) To foster innovation in the check collection system
without mandating receipt of checks in electronic form.
(3) To improve the overall efficiency of the Nation's
payments system.
SEC. 3. <<NOTE: 12 USC 5002.>> DEFINITIONS.
For purposes of this Act, the following definitions shall apply:
(1) Account.--The term ``account'' means a deposit account
at a bank.
(2) Bank.--The term ``bank'' means any person that is
located in a State and engaged in the business of banking and
includes--
(A) any depository institution (as defined in
section 19(b)(1)(A) of the Federal Reserve Act);
(B) any Federal reserve bank;
(C) any Federal home loan bank; or
(D) to the extent it acts as a payor--
(i) the Treasury of the United States;
(ii) the United States Postal Service;
(iii) a State government; or
(iv) a unit of general local government (as
defined in section 602(24) of the Expedited Funds
Availability Act).
(3) Banking terms.--
(A) Collecting bank.--The term ``collecting bank''
means any bank handling a check for collection except
the paying bank.
(B) Depositary bank.--The term ``depositary bank''
means--
(i) the first bank to which a check is
transferred, even if such bank is also the paying
bank or the payee; or
(ii) a bank to which a check is transferred
for deposit in an account at such bank, even if
the check is physically received and indorsed
first by another bank.
(C) Paying bank.--The term ``paying bank'' means--
(i) the bank by which a check is payable,
unless the check is payable at or through another
bank and is sent to the other bank for payment or
collection; or
(ii) the bank at or through which a check is
payable and to which the check is sent for payment
or collection.
(D) Returning bank.--
[[Page 117 STAT. 1179]]
(i) In general.--The term ``returning bank''
means a bank (other than the paying or depositary
bank) handling a returned check or notice in lieu
of return.
(ii) Treatment as collecting bank.--No
provision of this Act shall be construed as
affecting the treatment of a returning bank as a
collecting bank for purposes of section 4-202(b)
of the Uniform Commercial Code.
(4) Board.--The term ``Board'' means the Board of Governors
of the Federal Reserve System.
(5) Business day.--The term ``business day'' has the same
meaning as in section 602(3) of the Expedited Funds Availability
Act.
(6) Check.--The term ``check''--
(A) means a draft, payable on demand and drawn on or
payable through or at an office of a bank, whether or
not negotiable, that is handled for forward collection
or return, including a substitute check and a travelers
check; and
(B) does not include a noncash item or an item
payable in a medium other than United States dollars.
(7) Consumer.--The term ``consumer'' means an individual
who--
(A) with respect to a check handled for forward
collection, draws the check on a consumer account; or
(B) with respect to a check handled for return,
deposits the check into, or cashes the check against, a
consumer account.
(8) Consumer account.--The term ``consumer account'' has the
same meaning as in section 602(10) of the Expedited Funds
Availability Act.
(9) Customer.--The term ``customer'' means a person having
an account with a bank.
(10) Forward collection.--The term ``forward collection''
means the transfer by a bank of a check to a collecting bank for
settlement or the paying bank for payment.
(11) Indemnifying bank.--The term ``indemnifying bank''
means a bank that is providing an indemnity under section 6 with
respect to a substitute check.
(12) MICR line.--The terms ``MICR line'' and ``magnetic ink
character recognition line'' mean the numbers, which may include
the bank routing number, account number, check number, check
amount, and other information, that are printed near the bottom
of a check in magnetic ink in accordance with generally
applicable industry standards.
(13) Noncash item.--The term ``noncash item'' has the same
meaning as in section 602(14) of the Expedited Funds
Availability Act.
(14) Person.--The term ``person'' means a natural person,
corporation, unincorporated company, partnership, government
unit or instrumentality, trust, or any other entity or
organization.
(15) Reconverting bank.--The term ``reconverting bank''
means--
(A) the bank that creates a substitute check; or
[[Page 117 STAT. 1180]]
(B) if a substitute check is created by a person
other than a bank, the first bank that transfers or
presents such substitute check.
(16) Substitute check.--The term ``substitute check'' means
a paper reproduction of the original check that--
(A) contains an image of the front and back of the
original check;
(B) bears a MICR line containing all the information
appearing on the MICR line of the original check, except
as provided under generally applicable industry
standards for substitute checks to facilitate the
processing of substitute checks;
(C) conforms, in paper stock, dimension, and
otherwise, with generally applicable industry standards
for substitute checks; and
(D) is suitable for automated processing in the same
manner as the original check.
(17) State.--The term ``State'' has the same meaning as in
section 3(a) of the Federal Deposit Insurance Act.
(18) Truncate.--The term ``truncate'' means to remove an
original paper check from the check collection or return process
and send to a recipient, in lieu of such original paper check, a
substitute check or, by agreement, information relating to the
original check (including data taken from the MICR line of the
original check or an electronic image of the original check),
whether with or without subsequent delivery of the original
paper check.
(19) Uniform commercial code.--The term ``Uniform Commercial
Code'' means the Uniform Commercial Code in effect in a State.
(20) Other terms.--Unless the context requires otherwise,
the terms not defined in this section shall have the same
meanings as in the Uniform Commercial Code.
SEC. 4. <<NOTE: 12 USC 5003.>> GENERAL PROVISIONS GOVERNING SUBSTITUTE
CHECKS.
(a) No Agreement Required.--A person may deposit, present, or send
for collection or return a substitute check without an agreement with
the recipient, so long as a bank has made the warranties in section 5
with respect to such substitute check.
(b) Legal Equivalence.--A substitute check shall be the legal
equivalent of the original check for all purposes, including any
provision of any Federal or State law, and for all persons if the
substitute check--
(1) accurately represents all of the information on the
front and back of the original check as of the time the original
check was truncated; and
(2) bears the legend: ``This is a legal copy of your check.
You can use it the same way you would use the original check.''.
(c) Endorsements.--A bank shall ensure that the substitute check for
which the bank is the reconverting bank bears all endorsements applied
by parties that previously handled the check (whether in electronic form
or in the form of the original paper check or a substitute check) for
forward collection or return.
(d) Identification of Reconverting Bank.--A bank shall identify
itself as a reconverting bank on any substitute check for which the bank
is a reconverting bank so as to preserve any
[[Page 117 STAT. 1181]]
previous reconverting bank identifications in conformance with generally
applicable industry standards.
(e) Applicable Law.--A substitute check that is the legal equivalent
of the original check under subsection (b) shall be subject to any
provision, including any provision relating to the protection of
customers, of part 229 of title 12 of the Code of Federal Regulations,
the Uniform Commercial Code, and any other applicable Federal or State
law as if such substitute check were the original check, to the extent
such provision of law is not inconsistent with this Act.
SEC. 5. <<NOTE: 12 USC 5004.>> SUBSTITUTE CHECK WARRANTIES.
A bank that transfers, presents, or returns a substitute check and
receives consideration for the check warrants, as a matter of law, to
the transferee, any subsequent collecting or returning bank, the
depositary bank, the drawee, the drawer, the payee, the depositor, and
any endorser (regardless of whether the warrantee receives the
substitute check or another paper or electronic form of the substitute
check or original check) that--
(1) the substitute check meets all the requirements for
legal equivalence under section 4(b); and
(2) no depositary bank, drawee, drawer, or endorser will
receive presentment or return of the substitute check, the
original check, or a copy or other paper or electronic version
of the substitute check or original check such that the bank,
drawee, drawer, or endorser will be asked to make a payment
based on a check that the bank, drawee, drawer, or endorser has
already paid.
SEC. 6. <<NOTE: 12 USC 5005.>> INDEMNITY.
(a) Indemnity.--A reconverting bank and each bank that subsequently
transfers, presents, or returns a substitute check in any electronic or
paper form, and receives consideration for such transfer, presentment,
or return shall indemnify the transferee, any subsequent collecting or
returning bank, the depositary bank, the drawee, the drawer, the payee,
the depositor, and any endorser, up to the amount described in
subsections (b) and (c), as applicable, to the extent of any loss
incurred by any recipient of a substitute check if that loss occurred
due to the receipt of a substitute check instead of the original check.
(b) Indemnity Amount.--
(1) Amount in event of breach of warranty.--The amount of
the indemnity under subsection (a) shall be the amount of any
loss (including costs and reasonable attorney's fees and other
expenses of representation) proximately caused by a breach of a
warranty provided under section 5.
(2) Amount in absence of breach of warranty.--In the absence
of a breach of a warranty provided under section 5, the amount
of the indemnity under subsection (a) shall be the sum of--
(A) the amount of any loss, up to the amount of the
substitute check; and
(B) interest and expenses (including costs and
reasonable attorney's fees and other expenses of
representation).
(c) Comparative Negligence.--
(1) In general.--If a loss described in subsection (a)
results in whole or in part from the negligence or failure to
act in good faith on the part of an indemnified party, then that
[[Page 117 STAT. 1182]]
party's indemnification under this section shall be reduced in
proportion to the amount of negligence or bad faith attributable
to that party.
(2) Rule of construction.--Nothing in this subsection
reduces the rights of a consumer or any other person under the
Uniform Commercial Code or other applicable provision of Federal
or State law.
(d) Effect of Producing Original Check or Copy.--
(1) In general.--If the indemnifying bank produces the
original check or a copy of the original check (including an
image or a substitute check) that accurately represents all of
the information on the front and back of the original check (as
of the time the original check was truncated) or is otherwise
sufficient to determine whether or not a claim is valid, the
indemnifying bank shall--
(A) be liable under this section only for losses
covered by the indemnity that are incurred up to the
time that the original check or copy is provided to the
indemnified party; and
(B) have a right to the return of any funds it has
paid under the indemnity in excess of those losses.
(2) Coordination of indemnity with implied warranty.--The
production of the original check, a substitute check, or a copy
under paragraph (1) by an indemnifying bank shall not absolve
the bank from any liability on a warranty established under this
Act or any other provision of law.
(e) Subrogation of Rights.--
(1) In general.--Each indemnifying bank shall be subrogated
to the rights of any indemnified party to the extent of the
indemnity.
(2) Recovery under warranty.--A bank that indemnifies a
party under this section may attempt to recover from another
party based on a warranty or other claim.
(3) Duty of indemnified party.--Each indemnified party shall
have a duty to comply with all reasonable requests for
assistance from an indemnifying bank in connection with any
claim the indemnifying bank brings against a warrantor or other
party related to a check that forms the basis for the
indemnification.
SEC. 7. <<NOTE: 12 USC 5006.>> EXPEDITED RECREDIT FOR CONSUMERS.
(a) Recredit Claims.--
(1) In general.--A consumer may make a claim for expedited
recredit from the bank that holds the account of the consumer
with respect to a substitute check, if the consumer asserts in
good faith that--
(A) the bank charged the consumer's account for a
substitute check that was provided to the consumer;
(B) either--
(i) the check was not properly charged to the
consumer's account; or
(ii) the consumer has a warranty claim with
respect to such substitute check;
(C) the consumer suffered a resulting loss; and
(D) the production of the original check or a better
copy of the original check is necessary to determine the
validity of any claim described in subparagraph (B).
[[Page 117 STAT. 1183]]
(2) 40-day period.--Any claim under paragraph (1) with
respect to a consumer account may be submitted by a consumer
before the end of the 40-day period beginning on the later of--
(A) the date on which the financial institution
mails or delivers, by a means agreed to by the consumer,
the periodic statement of account for such account which
contains information concerning the transaction giving
rise to the claim; or
(B) the date on which the substitute check is made
available to the consumer.
(3) Extension under extenuating circumstances.--If the
ability of the consumer to submit the claim within the 40-day
period under paragraph (2) is delayed due to extenuating
circumstances, including extended travel or the illness of the
consumer, the 40-day period shall be extended by a reasonable
amount of time.
(b) Procedures for Claims.--
(1) In general.--To make a claim for an expedited recredit
under subsection (a) with respect to a substitute check, the
consumer shall provide to the bank that holds the account of
such consumer--
(A) a description of the claim, including an
explanation of--
(i) why the substitute check was not properly
charged to the consumer's account; or
(ii) the warranty claim with respect to such
check;
(B) a statement that the consumer suffered a loss
and an estimate of the amount of the loss;
(C) the reason why production of the original check
or a better copy of the original check is necessary to
determine the validity of the charge to the consumer's
account or the warranty claim; and
(D) sufficient information to identify the
substitute check and to investigate the claim.
(2) Claim in writing.--
(A) In general.--The bank holding the consumer
account that is the subject of a claim by the consumer
under subsection (a) may, in the discretion of the bank,
require the consumer to submit the information required
under paragraph (1) in writing.
(B) Means of submission.--A bank that requires a
submission of information under subparagraph (A) may
permit the consumer to make the submission
electronically, if the consumer has agreed to
communicate with the bank in that manner.
(c) Recredit to Consumer.--
(1) Conditions for recredit.--The bank shall recredit a
consumer account in accordance with paragraph (2) for the amount
of a substitute check that was charged against the consumer
account if--
(A) a consumer submits a claim to the bank with
respect to that substitute check that meets the
requirement of subsection (b); and
(B) the bank has not--
(i) provided to the consumer--
(I) the original check; or
[[Page 117 STAT. 1184]]
(II) a copy of the original check
(including an image or a substitute
check) that accurately represents all of
the information on the front and back of
the original check, as of the time at
which the original check was truncated;
and
(ii) demonstrated to the consumer that the
substitute check was properly charged to the
consumer account.
(2) Timing of recredit.--
(A) In general.--The bank shall recredit the
consumer's account for the amount described in paragraph
(1) no later than the end of the business day following
the business day on which the bank determines the
consumer's claim is valid.
(B) Recredit pending investigation.--If the bank has
not yet determined that the consumer's claim is valid
before the end of the 10th business day after the
business day on which the consumer submitted the claim,
the bank shall recredit the consumer's account for--
(i) the lesser of the amount of the substitute
check that was charged against the consumer
account, or $2,500, together with interest if the
account is an interest-bearing account, no later
than the end of such 10th business day; and
(ii) the remaining amount of the substitute
check that was charged against the consumer
account, if any, together with interest if the
account is an interest-bearing account, not later
than the 45th calendar day following the business
day on which the consumer submits the claim.
(d) Availability of Recredit.--
(1) Next business day availability.--Except as provided in
paragraph (2), a bank that provides a recredit to a consumer
account under subsection (c) shall make the recredited funds
available for withdrawal by the consumer by the start of the
next business day after the business day on which the bank
recredits the consumer's account under subsection (c).
(2) Safeguard exceptions.--A bank may delay availability to
a consumer of a recredit provided under subsection (c)(2)(B)(i)
until the start of either the business day following the
business day on which the bank determines that the consumer's
claim is valid or the 45th calendar day following the business
day on which the consumer submits a claim for such recredit in
accordance with subsection (b), whichever is earlier, in any of
the following circumstances:
(A) New accounts.--The claim is made during the 30-
day period beginning on the business day the consumer
account was established.
(B) Repeated overdrafts.--Without regard to the
charge that is the subject of the claim for which the
recredit was made--
(i) on 6 or more business days during the 6-
month period ending on the date on which the
consumer submits the claim, the balance in the
consumer account was negative or would have become
negative if checks or other charges to the account
had been paid; or
[[Page 117 STAT. 1185]]
(ii) on 2 or more business days during such 6-
month period, the balance in the consumer account
was negative or would have become negative in the
amount of $5,000 or more if checks or other
charges to the account had been paid.
(C) Prevention of fraud losses.--The bank has
reasonable cause to believe that the claim is
fraudulent, based on facts (other than the fact that the
check in question or the consumer is of a particular
class) that would cause a well-grounded belief in the
mind of a reasonable person that the claim is
fraudulent.
(3) Overdraft fees.--No bank that, in accordance with
paragraph (2), delays the availability of a recredit under
subsection (c) to any consumer account may impose any overdraft
fees with respect to drafts drawn by the consumer on such
recredited amount before the end of the 5-day period beginning
on the date notice of the delay in the availability of such
amount is sent by the bank to the consumer.
(e) Reversal of Recredit.--A bank may reverse a recredit to a
consumer account if the bank--
(1) determines that a substitute check for which the bank
recredited a consumer account under subsection (c) was in fact
properly charged to the consumer account; and
(2) notifies the consumer in accordance with subsection
(f)(3).
(f) Notice to Consumer.--
(1) Notice if consumer claim not valid.--If a bank
determines that a substitute check subject to the consumer's
claim was in fact properly charged to the consumer's account,
the bank shall send to the consumer, no later than the business
day following the business day on which the bank makes a
determination--
(A) the original check or a copy of the original
check (including an image or a substitute check) that--
(i) accurately represents all of the
information on the front and back of the original
check (as of the time the original check was
truncated); or
(ii) is otherwise sufficient to determine
whether or not the consumer's claim is valid; and
(B) an explanation of the basis for the
determination by the bank that the substitute check was
properly charged, including a statement that the
consumer may request copies of any information or
documents on which the bank relied in making the
determination.
(2) Notice of recredit.--If a bank recredits a consumer
account under subsection (c), the bank shall send to the
consumer, no later than the business day following the business
day on which the bank makes the recredit, a notice of--
(A) the amount of the recredit; and
(B) the date the recredited funds will be available
for withdrawal.
(3) Notice of reversal of recredit.--In addition to the
notice required under paragraph (1), if a bank reverses a
recredited amount under subsection (e), the bank shall send to
the consumer, no later than the business day following the
business day on which the bank reverses the recredit, a notice
of--
(A) the amount of the reversal; and
[[Page 117 STAT. 1186]]
(B) the date the recredit was reversed.
(4) Mode of delivery.--A notice described in this subsection
shall be delivered by United States mail or by any other means
through which the consumer has agreed to receive account
information.
(g) Other Claims Not Affected.--Providing a recredit in accordance
with this section shall not absolve the bank from liability for a claim
made under any other law, such as a claim for wrongful dishonor under
the Uniform Commercial Code, or from liability for additional damages
under section 6 or 10.
(h) Clarification Concerning Consumer Possession.--A consumer who
was provided a substitute check may make a claim for an expedited
recredit under this section with regard to a transaction involving the
substitute check whether or not the consumer is in possession of the
substitute check.
(i) Scope of Application.--This <<NOTE: Applicability.>> section
shall only apply to customers who are consumers.
SEC. 8. <<NOTE: 12 USC 5007.>> EXPEDITED RECREDIT PROCEDURES FOR BANKS.
(a) Recredit Claims.--
(1) In general.--A bank may make a claim against an
indemnifying bank for expedited recredit for which that bank is
indemnified if--
(A) the claimant bank (or a bank that the claimant
bank has indemnified) has received a claim for expedited
recredit from a consumer under section 7 with respect to
a substitute check or would have been subject to such a
claim had the consumer's account been charged;
(B) the claimant bank has suffered a resulting loss
or is obligated to recredit a consumer account under
section 7 with respect to such substitute check; and
(C) production of the original check, another
substitute check, or a better copy of the original check
is necessary to determine the validity of the charge to
the customer account or any warranty claim connected
with such substitute check.
(2) 120-day period.--Any claim under paragraph (1) may be
submitted by the claimant bank to an indemnifying bank before
the end of the 120-day period beginning on the date of the
transaction that gave rise to the claim.
(b) Procedures for Claims.--
(1) In general.--To make a claim under subsection (a) for an
expedited recredit relating to a substitute check, the claimant
bank shall send to the indemnifying bank--
(A) a description of--
(i) the claim, including an explanation of why
the substitute check cannot be properly charged to
the consumer account; or
(ii) the warranty claim;
(B) a statement that the claimant bank has suffered
a loss or is obligated to recredit the consumer's
account under section 7, together with an estimate of
the amount of the loss or recredit;
(C) the reason why production of the original check,
another substitute check, or a better copy of the
original check is necessary to determine the validity of
the charge to the consumer account or the warranty
claim; and
[[Page 117 STAT. 1187]]
(D) information sufficient for the indemnifying bank
to identify the substitute check and to investigate the
claim.
(2) Requirements relating to copies of substitute checks.--
If the information submitted by a claimant bank pursuant to
paragraph (1) in connection with a claim for an expedited
recredit includes a copy of any substitute check for which any
such claim is made, the claimant bank shall take reasonable
steps to ensure that any such copy cannot be--
(A) mistaken for the legal equivalent of the check
under section 4(b); or
(B) sent or handled by any bank, including the
indemnifying bank, as a forward collection or returned
check.
(3) Claim in writing.--
(A) In general.--An indemnifying bank may, in the
discretion of the bank, require the claimant bank to
submit the information required by paragraph (1) in
writing, including a copy of the written or
electronically submitted claim, if any, that the
consumer provided in accordance with section 7(b).
(B) Means of submission.--An indemnifying bank that
requires a submission of information under subparagraph
(A) may permit the claimant bank to make the submission
electronically, if the claimant bank has agreed to
communicate with the indemnifying bank in that manner.
(c) Recredit by Indemnifying Bank.--
(1) Prompt action required.--No <<NOTE: Deadline.>> later
than 10 business days after the business day on which an
indemnifying bank receives a claim under subsection (a) from a
claimant bank with respect to a substitute check, the
indemnifying bank shall--
(A) provide, to the claimant bank, the original
check (with respect to such substitute check) or a copy
of the original check (including an image or a
substitute check) that--
(i) accurately represents all of the
information on the front and back of the original
check (as of the time the original check was
truncated); or
(ii) is otherwise sufficient to determine the
bank's claim is not valid; and
(B) recredit the claimant bank for the amount of the
claim up to the amount of the substitute check, plus
interest if applicable; or
(C) provide information to the claimant bank as to
why the indemnifying bank is not obligated to comply
with subparagraph (A) or (B).
(2) Recredit does not abrogate other liabilities.--Providing
a recredit under this subsection to a claimant bank with respect
to a substitute check shall not absolve the indemnifying bank
from liability for claims brought under any other law or from
additional damages under section 6 or 10 with respect to such
check.
(3) Refund to indemnifying bank.--If a claimant bank
reverses, in accordance with section 7(e), a recredit previously
made to a consumer account under section 7(c), or otherwise
receives a credit or recredit with regard to such substitute
[[Page 117 STAT. 1188]]
check, the claimant bank shall promptly refund to any
indemnifying bank any amount previously advanced by the
indemnifying bank in connection with such substitute check.
(d) Production of Original Check or a Sufficient Copy Governed by
Section 6(d).--If the indemnifying bank provides the claimant bank with
the original check or a copy of the original check (including an image
or a substitute check) under subsection (c)(1)(A), section 6(d) shall
govern any right of the indemnifying bank to any repayment of any funds
the indemnifying bank has recredited to the claimant bank pursuant to
subsection (c).
SEC. 9. <<NOTE: 12 USC 5008.>> DELAYS IN AN EMERGENCY.
A delay by a bank beyond the time limits prescribed or permitted by
this Act shall be excused if the delay is caused by interruption of
communication or computer facilities, suspension of payments by another
bank, war, emergency conditions, failure of equipment, or other
circumstances beyond the control of a bank and if the bank uses such
diligence as the circumstances require.
SEC. 10. <<NOTE: 12 USC 5009.>> MEASURE OF DAMAGES.
(a) Liability.--
(1) In general.--Except as provided in section 6, any person
who, in connection with a substitute check, breaches any
warranty under this Act or fails to comply with any requirement
imposed by, or regulation prescribed pursuant to, this Act with
respect to any other person shall be liable to such person in an
amount equal to the sum of--
(A) the lesser of--
(i) the amount of the loss suffered by the
other person as a result of the breach or failure;
or
(ii) the amount of the substitute check; and
(B) interest and expenses (including costs and
reasonable attorney's fees and other expenses of
representation) related to the substitute check.
(2) Offset of recredits.--The amount of damages any person
receives under paragraph (1), if any, shall be reduced by the
amount, if any, that the claimant receives and retains as a
recredit under section 7 or 8.
(b) Comparative Negligence.--
(1) In general.--If a person incurs damages that resulted in
whole or in part from the negligence or failure of that person
to act in good faith, then the amount of any liability due to
that person under subsection (a) shall be reduced in proportion
to the amount of negligence or bad faith attributable to that
person.
(2) Rule of construction.--Nothing in this subsection
reduces the rights of a consumer or any other person under the
Uniform Commercial Code or other applicable provision of Federal
or State law.
SEC. 11. <<NOTE: 12 USC 5010.>> STATUTE OF LIMITATIONS AND NOTICE OF
CLAIM.
(a) Actions Under This Act.--
(1) In general.--An action to enforce a claim under this Act
may be brought in any United States district court, or in any
other court of competent jurisdiction, before the end of the 1-
year period beginning on the date the cause of action accrues.
[[Page 117 STAT. 1189]]
(2) Accrual.--A cause of action accrues as of the date the
injured party first learns, or by which such person reasonably
should have learned, of the facts and circumstances giving rise
to the cause of action.
(b) Discharge of Claims.--Except as provided in subsection (c),
unless a person gives notice of a claim to the indemnifying or
warranting bank within 30 days after the person has reason to know of
the claim and the identity of the indemnifying or warranting bank, the
indemnifying or warranting bank is discharged from liability in an
action to enforce a claim under this Act to the extent of any loss
caused by the delay in giving notice of the claim.
(c) Notice of Claim by Consumer.--A timely claim by a consumer under
section 7 for expedited recredit constitutes timely notice of a claim by
the consumer for purposes of subsection (b).
SEC. 12. <<NOTE: Notice. 12 USC 5011.>> CONSUMER AWARENESS.
(a) In General.--Each bank shall provide, in accordance with
subsection (b), a brief notice about substitute checks that describes--
(1) how a substitute check is the legal equivalent of an
original check for all purposes, including any provision of any
Federal or State law, and for all persons, if the substitute
check--
(A) accurately represents all of the information on
the front and back of the original check as of the time
at which the original check was truncated; and
(B) bears the legend: ``This is a legal copy of your
check. You can use it in the same way you would use the
original check.''; and
(2) the consumer recredit rights established under section 7
when a consumer believes in good faith that a substitute check
was not properly charged to the account of the consumer.
(b) Distribution.--
(1) Existing customers.--With respect to consumers who are
customers of a bank on the effective date of this Act and who
receive original checks or substitute checks, a bank shall
provide the notice described in subsection (a) to each such
consumer no later than the first regularly scheduled
communication with the consumer after the effective date of this
Act.
(2) New account holders.--A bank shall provide the notice
described in subsection (a) to each consumer who will receive
original checks or substitute checks, other than existing
customers referred to in paragraph (1), at the time at which the
customer relationship is initiated.
(3) Mode of delivery.--A bank may send the notices required
by this subsection by United States mail or by any other means
through which the consumer has agreed to receive account
information.
(4) Consumers who request copies of checks.--Notice shall be
provided to each consumer of the bank that requests a copy of a
check and receives a substitute check, at the time of the
request.
(c) Model Language.--
(1) In general.--Before <<NOTE: Deadline. Publication.>> the
end of the 9-month period beginning on the date of the enactment
of this Act, the Board
[[Page 117 STAT. 1190]]
shall publish model forms and clauses that a bank may use to
describe each of the elements required by subsection (a).
(2) Safe harbor.--
(A) In general.--A bank shall be treated as being in
compliance with the requirements of subsection (a) if
the bank's substitute check notice uses a model form or
clause published by the Board and such model form or
clause accurately describes the bank's policies and
practices.
(B) Deletion or rearrangement.--A bank may delete
any information in the model form or clause that is not
required by this Act or rearrange the format.
(3) Use of model language not required.--This section shall
not be construed as requiring any bank to use a model form or
clause that the Board prepares under this subsection.
SEC. 13. <<NOTE: 12 USC 5012.>> EFFECT ON OTHER LAW.
This Act shall supersede any provision of Federal or State law,
including the Uniform Commercial Code, that is inconsistent with this
Act, but only to the extent of the inconsistency.
SEC. 14. <<NOTE: 12 USC 5013.>> VARIATION BY AGREEMENT.
(a) Section 8.--Any provision of section 8 may be varied by
agreement of the banks involved.
(b) No Other Provisions May Be Varied.--Except as provided in
subsection (a), no provision of this Act may be varied by agreement of
any person or persons.
SEC. 15. <<NOTE: 12 USC 5014.>> REGULATIONS.
The Board may prescribe such regulations as the Board determines to
be necessary to implement, prevent circumvention or evasion of, or
facilitate compliance with the provisions of this Act.
SEC. 16. <<NOTE: 12 USC 5015.>> STUDY AND REPORT ON FUNDS AVAILABILITY.
(a) Study.--In order to evaluate the implementation and the impact
of this Act, the Board shall conduct a study of--
(1) the percentage of total checks cleared in which the
paper check is not returned to the paying bank;
(2) the extent to which banks make funds available to
consumers for local and nonlocal checks prior to the expiration
of maximum hold periods;
(3) the length of time within which depositary banks learn
of the nonpayment of local and nonlocal checks;
(4) the increase or decrease in check-related losses over
the study period; and
(5) the appropriateness of the time periods and amount
limits applicable under sections 603 and 604 of the Expedited
Funds Availability Act, as in effect on the date of enactment of
this Act.
(b) Report to Congress.--Before <<NOTE: Deadline.>> the end of the
30-month period beginning on the effective date of this Act, the Board
shall submit a report to the Congress containing the results of the
study conducted under this section, together with recommendations for
legislative action.
[[Page 117 STAT. 1191]]
SEC. 17. <<NOTE: 12 USC 5016.>> STATISTICAL REPORTING OF COSTS AND
REVENUES FOR TRANSPORTING CHECKS BETWEEN RESERVE BANKS.
In the annual report prepared by the Board for the first full
calendar year after the date of enactment of this Act and in each of the
9 subsequent annual reports by the Board, the Board shall include the
amount of operating costs attributable to, and an estimate of the
Federal Reserve banks' imputed revenues derived from, the transportation
of commercial checks between Federal Reserve bank check processing
centers.
SEC. 18. <<NOTE: 12 USC 5017. Effective date.>> EVALUATION AND REPORT BY
THE COMPTROLLER GENERAL.
(a) Study.--During the 5-year period beginning on the date of the
enactment of this Act, the Comptroller General of the United States
shall evaluate the implementation and administration of this Act,
including--
(1) an estimate of the gains in economic efficiency made
possible from check truncation;
(2) an evaluation of the benefits accruing to consumers and
financial institutions from reduced transportation costs, longer
hours for accepting deposits for credit within 1 business day,
the impact of fraud losses, and an estimate of consumers' share
of the total benefits derived from this Act; and
(3) an assessment of consumer acceptance of the check
truncation process resulting from this Act, as well as any new
costs incurred by consumers who had their original checks
returned with their regular monthly statements prior to the date
of enactment of this Act.
(b) Report to Congress.--Before <<NOTE: Deadline.>> the end of the
5-year period referred to in subsection (a), the Comptroller General
shall submit a report to the Congress containing the findings and
conclusions of the Comptroller General in connection with the evaluation
conducted pursuant to subsection (a), together with such recommendations
for legislative and administrative action as the Comptroller General may
determine to be appropriate.
SEC. 19. <<NOTE: 12 USC 5018.>> DEPOSITARY SERVICES EFFICIENCY AND COST
REDUCTION.
(a) Findings.--The Congress finds as follows:
(1) The Secretary of the Treasury has long compensated
financial institutions for various critical depositary and
financial agency services provided for or on behalf of the
United States by--
(A) placing large balances, commonly referred to as
``compensating balances'', on deposit at such
institutions; and
(B) using imputed interest on such funds to offset
charges for the various depositary and financial agency
services provided to or on behalf of the Government.
(2) As a result of sharp declines in interest rates over the
last few years to record low levels, or the public debt
outstanding reaching the statutory debt limit, the Department of
the Treasury often has had to dramatically increase or decrease
the size of the compensating balances on deposit at these
financial institutions.
(3) The fluctuation of the compensating balances, and the
necessary pledging of collateral by financial institutions to
secure the value of compensating balances placed with those
institutions, have created unintended financial uncertainty for
[[Page 117 STAT. 1192]]
the Secretary of the Treasury and for the management by
financial institutions of their cash and securities.
(4) It is imperative that the process for providing
financial services to the Government be transparent, and provide
the information necessary for the Congress to effectively
exercise its appropriation and oversight responsibilities.
(5) The use of direct payment for services rendered would
strengthen cash and debt management responsibilities of the
Secretary of the Treasury because the Secretary would no longer
need to dramatically increase or decrease the level of such
balances when interest rates fluctuate sharply or when the
public debt outstanding reaches the statutory debt limit.
(6) An alternative to the use of compensating balances, such
as direct payments to financial institutions, would ensure that
payments to financial institutions for the services they provide
would be made in a more predictable manner and could result in
cost savings.
(7) Limiting the use of compensating balances could result
in a more direct and cost-efficient method of obtaining those
services currently provided under compensating balance
arrangements.
(8) A transition from the use of compensating balances to
another compensation method must be carefully managed to prevent
higher-than-necessary transitional costs and enable
participating financial institutions to modify their planned
investment of cash and securities.
(b) Authorization of Appropriations For Services Rendered by
Depositaries and Financial Agencies of the United States.--There are
authorized to be appropriated for fiscal years beginning after fiscal
year 2003 to the Secretary of the Treasury such sums as may be necessary
for reimbursing financial institutions in their capacity as depositaries
and financial agents of the United States for all services required or
directed by the Secretary of the Treasury, or a designee of the
Secretary, to be performed by such financial institutions on behalf of
the Secretary of the Treasury or another Federal agency, including
services rendered before fiscal year 2004.
(c) Orderly Transition.--
(1) In general.--As appropriations authorized in subsection
(b) become available, the Secretary of the Treasury shall
promptly begin the process of phasing in the use of the
appropriations to pay financial institutions serving as
depositaries and financial agents of the United States, and
transitioning from the use of compensating balances to fund
these services.
(2) Post-transition use limited to extraordinary
circumstances.--
(A) In general.--Following the transition to the use
of the appropriations authorized in subsection (b), the
Secretary of the Treasury may use the compensating
balances to pay financial institutions serving as
depositaries and financial agents of the United States
only in extraordinary situations where the Secretary
determines that they are needed to ensure the fiscal
operations of the Government continue to function in an
efficient and effective manner.
(B) Report.--Any use of compensating balances
pursuant to subparagraph (A) shall promptly be reported
by
[[Page 117 STAT. 1193]]
the Secretary of the Treasury to the Committee on
Financial Services of the House of Representatives and
the Committee on Banking, Housing, and Urban Affairs of
the Senate.
(3) Requirements for orderly transition.--In transitioning
to the use of the appropriations authorized in subsection (b),
the Secretary of the Treasury shall take such steps as may be
appropriate to--
(A) prevent abrupt financial disruption to the
functions of the Department of the Treasury or to the
participating financial institutions; and
(B) maintain adequate accounting and management
controls to ensure that payments to financial
institutions for their banking services provided to the
Government as depositaries and financial agents are
accurate and that the arrangements last no longer than
is necessary.
(4) Reports required.--
(A) Annual report.--
(i) In general.--For <<NOTE: Deadlines.>> each
fiscal year, the Secretary of the Treasury shall
submit a report to the Congress on the use of
compensating balances and on the use of
appropriations authorized in subsection (b) during
that fiscal year.
(ii) Inclusion in budget.--The report required
under clause (i) may be submitted as part of the
budget submitted by the President under section
1105 of title 31, United States Code, for the
following fiscal year and if so, the report shall
be submitted concurrently to the Committee on
Financial Services of the House of Representatives
and the Committee on Banking, Housing, and Urban
Affairs of the Senate.
(B) Final report following transition.--
(i) In general.--Following completion of the
transition from the use of compensating balances
to the use of the appropriations authorized in
subsection (b) to pay financial institutions for
their services as depositaries and financial
agents of the United States, the Secretary of the
Treasury shall submit a report on the transition
to the Committee on Financial Services of the
House of Representatives and the Committee on
Banking, Housing, and Urban Affairs of the Senate.
(ii) Contents of report.--The report submitted
under clause (i) shall include a detailed analysis
of--
(I) the cost of transition;
(II) the direct costs of the
services being paid from the
appropriations authorized in subsection
(b); and
(III) the benefits realized from the
use of direct payment for such services,
rather than the use of compensating
balance arrangements.
(d) Technical Amendment.--The second undesignated paragraph of
section 16 of the Federal Reserve Act (12 U.S.C. 412) is amended--
(1) in the third sentence, by inserting ``or any other asset
of a Federal reserve bank'' before the period at the end; and
(2) in the last sentence, by inserting ``, or are otherwise
held by or on behalf of,'' after ``in the vaults of''.
[[Page 117 STAT. 1194]]
(e) Effective Date.--Notwithstanding section 20, this section shall
take effect on the date of the enactment of this Act.
SEC. 20. <<NOTE: 12 USC 5001 note.>> EFFECTIVE DATE.
This Act shall take effect at the end of the 12-month period
beginning on the date of the enactment of this Act, except as otherwise
specifically provided in this Act.
Approved October 28, 2003.
LEGISLATIVE HISTORY--H.R. 1474 (S. 1334):
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HOUSE REPORTS: Nos. 108-132 (Comm. on Financial Services) and 108-291
(Comm. of Conference).
SENATE REPORTS: No. 108-79 accompanying S. 1334 (Comm. on Banking,
Housing, and Urban Affairs).
CONGRESSIONAL RECORD, Vol. 149 (2003):
June 5, considered and passed House.
June 26, considered and passed Senate, amended, in lieu of
S. 1334.
Oct. 8, House agreed to conference report.
Oct. 15, Senate agreed to conference report.
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 39 (2003):
Oct. 28, Presidential statement.
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