Title 12--Banks and Banking

CHAPTER II--FEDERAL RESERVE SYSTEM

PART 229--AVAILABILITY OF FUNDS AND COLLECTION OF CHECKS (REGULATION CC)

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Sec. 229.1 Authority and purpose; organization.
    

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                           Subpart A--General
 
    (a) Authority and purpose. This part (Regulation CC; 12 CFR part 
229) is issued by the Board of Governors of the Federal Reserve System 
(Board) to implement the Expedited Funds Availability Act (Act) (title 
VI of Pub. L. 100-86, 101 Stat. 552, 635), as amended by section 1001 of 
the Cranston-Gonzalez National Affordable Housing Act of 1990 (Pub. L. 
101-625, 104 Stat. 4079, 4424) and sections 212(h), 225, and 227 of the 
Federal Deposit Insurance Corporation Improvement Act of 1991 (Pub. L. 
102-242, 105 Stat. 2236, 2303, 2307).
    (b) Organization. This part is divided into subparts and appendices 
as follows--
    (1) Subpart A contains general information. It sets forth--
    (i) The authority, purpose, and organization;
    (ii) Definition of terms; and
    (iii) Authority for administrative enforcement of this part's 
provisions.
    (2) Subpart B of this part contains rules regarding the duty of 
banks to make funds deposited into accounts available for withdrawal, 
including availability schedules. Subpart B of this part also contains 
rules regarding exceptions to the schedules, disclosure of funds 
availability policies, payment of interest, liability of banks for 
failure to comply with Subpart B of this part, and other matters.
    (3) Subpart C of this part contains rules to expedite the collection 
and return of checks by banks. These rules cover the direct return of 
checks, the manner in which the paying bank and returning banks must 
return checks to the depositary bank, notification of nonpayment by the 
paying bank, indorsement and presentment of checks, same-day settlement 
for certain checks, the liability of banks for failure to comply with 
subpart C of this part, and other matters.

[53 FR 19433, May 27, 1988, as amended at 57 FR 36598, Aug. 14, 1992; 57 
FR 46972, Oct. 14, 1992; Reg. CC, 60 FR 51670, Oct. 3, 1995]

Sec. 229.2 Definitions.
     

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                           Subpart A--General

    As used in this part, unless the context requires otherwise:
    (a) Account means a deposit as defined in 12 CFR 204.2(a)(1)(i) that 
is a transaction account as described in 12 CFR 204.2(e). As defined in 
these sections, account generally includes accounts at a bank from which 
the account holder is permitted to make transfers or withdrawals by 
negotiable or transferable instrument, payment order of withdrawal, 
telephone transfer, electronic payment, or other similar means for the 
purpose of making payments or transfers to third persons or others. 
Account also includes accounts at a bank from which the account holder 
may make third party payments at an ATM, remote service unit, or other 
electronic device, including by debit card, but the term does not 
include savings deposits or accounts described in 12 CFR 204.2(d)(2) 
even though such accounts permit third party transfers. An account may 
be in the form of--
    (1) A demand deposit account,

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    (2) A negotiable order of withdrawal account,
    (3) A share draft account,
    (4) An automatic transfer account, or
    (5) Any other transaction account described in 12 CFR 204.2(e).
    Account does not include an account where the account holder is a 
bank, where the account holder is an office of an institution described 
in paragraphs (e)(1) through (e)(6) of this section or an office of a 
foreign bank as defined in section 1(b) of the International Banking Act 
(12 U.S.C. 3101) that is located outside the United States, or where the 
direct or indirect account holder is the Treasury of the United States.
    (b) Automated clearinghouse or ACH means a facility that processes 
debit and credit transfers under rules established by a Federal Reserve 
Bank operating circular on automated clearinghouse items or under rules 
of an automated clearinghouse association.
    (c) Automated teller machine or ATM means an electronic device at 
which a natural person may make deposits to an account by cash or check 
and perform other account transactions.
    (d) Available for withdrawal with respect to funds deposited means 
available for all uses generally permitted to the customer for actually 
and finally collected funds under the bank's account agreement or 
policies, such as for payment of checks drawn on the account, 
certification of checks drawn on the account, electronic payments, 
withdrawals by cash, and transfers between accounts.
    (e) Bank means--
    (1) An insured bank as defined in section 3 of the Federal Deposit 
Insurance Act (12 U.S.C. 18I3) or a bank that is eligible to apply to 
become an insured bank under section 5 of that Act (12 U.S.C. 1815);
    (2) A mutual savings bank as defined in section 3 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813);
    (3) A savings bank as defined in section 3 of the Federal Deposit 
Insurance Act (12 U.S.C. 1813);
    (4) An insured credit union as defined in section 101 of the Federal 
Credit Union Act (12 U.S.C. 1752) or a credit union that is eligible to 
make application to become an insured credit union under section 201 of 
that Act (12 U.S.C. 1781);
    (5) A member as defined in section 2 of the Federal Home Loan Bank 
Act (12 U.S.C. 1422);
    (6) A savings association as defined in section 3 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813) that is an insured depository 
institution as defined in section 3 of that Act (12 U.S.C. 1813(c)(2)) 
or that is eligible to apply to become an insured depository institution 
under section 5 of that Act (12 U.S.C. 1815); or
    (7) An agency or a branch of a foreign bank as defined in section 
l(b) of the International Banking Act (12 U.S.C. 3101).

For purposes of subpart C of this part and, in connection therewith, 
this subpart A, the term bank also includes any person engaged in the 
business of banking, as well as a Federal Reserve Bank, a Federal Home 
Loan Bank, and a state or unit of general local government to the extent 
that the state or unit of general local government acts as a paying 
bank. Unless otherwise specified, the term bank includes all of a bank's 
offices in the United States, but not offices located outside the United 
States.
    (f) Banking day means that part of any business day on which an 
office of a bank is open to the public for carrying on substantially all 
of its banking functions.
    (g) Business day means a calendar day other than a Saturday or a 
Sunday, January 1, the third Monday in January, the third Monday in 
February, the last Monday in May, July 4, the first Monday in September, 
the second Monday in October, November 11, the fourth Thursday in 
November, or December 25. If January 1, July 4, November 11, or December 
25 fall on a Sunday, the next Monday is not a business day.
    (h) Cash means United States coins and currency.
    (i) Cashier's check means a check that is--
    (1) Drawn on a bank;
    (2) Signed by an officer or employee of the bank on behalf of the 
bank as drawer;
    (3) A direct obligation of the bank; and

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    (4) Provided to a customer of the bank or acquired from the bank for 
remittance purposes.
    (j) Certified check means a check with respect to which the drawee 
bank certifies by signature on the check of an officer or other 
authorized employee of the bank that--
    (1) (i) The signature of the drawer on the check is genuine; and
    (ii) The bank has set aside funds that--
    (A) Are equal to the amount of the check, and
    (B) Will be used to pay the check; or
    (2) The bank will pay the check upon presentment.
    (k) Check means--
    (1) A negotiable demand draft drawn on or payable through or at an 
office of a bank;
    (2) A negotiable demand draft drawn on a Federal Reserve Bank or a 
Federal Home Loan Bank;
    (3) A negotiable demand draft drawn on the Treasury of the United 
States;
    (4) A demand draft drawn on a state government or unit of general 
local government that is not payable through or at a bank;
    (5) A United States Postal Service money order; or
    (6) A traveler's check drawn on or payable through or at a bank.
    The term check does not include a noncash item or an item payable in 
a medium other than United States money. A draft may be a check even 
though it is described on its face by another term, such as money order. 
For purposes of subpart C, and in connection therewith, subpart A, of 
this part, the term check also includes a demand draft of the type 
described above that is nonnegotiable.
    (l) [Reserved]
    (m) Check processing region means the geographical area served by an 
office of a Federal Reserve Bank for purposes of its check processing 
activities.
    (n) Consumer account means any account used primarily for personal, 
family, or household purposes.
    (o) Depositary bank means the first bank to which a check is 
transferred even though it is also the paying bank or the payee. A check 
deposited in an account is deemed to be transferred to the bank holding 
the account into which the check is deposited, even though the check is 
physically received and indorsed first by another bank.
    (p) Electronic payment means a wire transfer or an ACH credit 
transfer.
    (q) Forward collection means the process by which a bank sends a 
check on a cash basis to the paying bank for payment.
    (r) Local check means a check payable by or at a local paying bank, 
or a check payable by a nonbank payor and payable through a local paying 
bank.
    (s) Local paying bank means a paying bank that is located in the 
same check-processing region as the physical location of the branch, 
contractual branch, or proprietary ATM of the depositary bank in which 
that check was deposited.
    (t) Merger transaction means--
    (1) A merger or consolidation of two or more banks; or
    (2) The transfer of substantially all of the assets of one or more 
banks or branches to another bank in consideration of the assumption by 
the acquiring bank of substantially all of the liabilities of the 
transferring banks, including the deposit liabilities.
    (u) Noncash item means an item that would otherwise be a check, 
except that--
    (1) A passbook, certificate, or other document is attached;
    (2) It is accompanied by special instructions, such as a request for 
special advice of payment or dishonor;
    (3) It consists of more than a single thickness of paper, except a 
check that qualifies for handling by automated check processing 
equipment; or
    (4) It has not been preprinted or post-encoded in magnetic ink with 
the routing number of the paying bank.
    (v) Nonlocal check means a check payable by, through, or at a 
nonlocal paying bank.
    (w) Nonlocal paying bank means a paying bank that is not a local 
paying bank with respect to the depositary bank.
    (x) Nonproprietary ATM means an ATM that is not a proprietary ATM.
    (y) [Reserved]
    (z) Paying bank means--

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    (1) The bank by which a check is payable, unless the check is 
payable at another bank and is sent to the other bank for payment or 
collection;
    (2) The bank at which a check is payable and to which it is sent for 
payment or collection;
    (3) The Federal Reserve Bank or Federal Home Loan Bank by which a 
check is payable;
    (4) The bank through which a check is payable and to which it is 
sent for payment or collection, if the check is not payable by a bank; 
or
    (5) The state or unit of general local government on which a check 
is drawn and to which it is sent for payment or collection.

For purposes of subpart C, and in connection therewith, subpart A, 
paying bank includes the bank through which a check is payable and to 
which the check is sent for payment or collection, regardless of whether 
the check is payable by another bank, and the bank whose routing number 
appears on a check in fractional or magnetic form and to which the check 
is sent for payment or collection.
    (aa) Proprietary ATM means an ATM that is--
    (1) Owned or operated by, or operated exclusively for, the 
depositary bank;
    (2) Located on the premises (including the outside wall) of the 
depositary bank; or
    (3) Located within 50 feet of the premises of the depositary bank, 
and not identified as being owned or operated by another entity.
    If more than one bank meets the owned or operated criterion of 
paragraph (aa)(1) of this section, the ATM is considered proprietary to 
the bank that operates it.
    (bb) Qualified returned check means a returned check that is 
prepared for automated return to the depositary bank by placing the 
check in a carrier envelope or placing a strip on the check and encoding 
the strip or envelope in magnetic ink. A qualified returned check need 
not contain other elements of a check drawn on the depositary bank, such 
as the name of the depositary bank.
    (cc) Returning bank means a bank (other than the paying or 
depositary bank) handling a returned check or notice in lieu of return. 
A returning bank is also a collecting bank for purposes of UCC 4-202(b).
    (dd) Routing number means--
    (1) The number printed on the face of a check in fractional form on 
in nine-digit form; or
    (2) The number in a bank's indorsement in fractional or nine-digit 
form.
    (ee) Similarly situated bank means a bank of similar size, located 
in the same community, and with similar check handling activities as the 
paying bank or returning bank.
    (ff) State means a state, the District of Columbia, Puerto Rico, or 
the U.S. Virgin Islands.
    (gg) Teller's check means a check provided to a customer of a bank 
or acquired from a bank for remittance purposes, that is drawn by the 
bank, and drawn on another bank or payable through or at a bank.
    (hh) Traveler's check means an instrument for the payment of money 
that--
    (1) Is drawn on or payable through or at a bank;
    (2) Is designated on its face by the term traveler's check or by any 
substantially similar term or is commonly known and marketed as a 
traveler's check by a corporation or bank that is an issuer of 
traveler's checks;
    (3) Provides for a specimen signature of the purchaser to be 
completed at the time of purchase; and
    (4) Provides for a countersignature of the purchaser to be completed 
at the time of negotiation.
    (ii) Uniform Commercial Code, Code, or U.C.C. means the Uniform 
Commercial Code as adopted in a state.
    (jj) United States means the states, including the District of 
Columbia, the U.S. Virgin Islands, and Puerto Rico.
    (kk) Unit of general local government means any city, county, 
parish, town, township, village, or other general purpose political 
subdivision of a state. The term does not include special purpose units 
of government, such as school districts or water districts.
    (ll) Wire transfer means an unconditional order to a bank to pay a 
fixed or determinable amount of money to a beneficiary upon receipt or 
on a day stated in the order, that is transmitted by electronic or other 
means through

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Fedwire, the Clearing House Interbank Payments System, other similar 
network, between banks, or on the books of a bank. Wire transfer does 
not include an electronic fund transfer as defined in section 903(6) of 
the Electronic Fund Transfer Act (15 U.S.C. 1693a(6)).
    (mm) Fedwire has the same meaning as that set forth in 
Sec. 210.26(e) of this chapter.
    (nn) Good faith means honesty in fact and observance of reasonable 
commercial standards of fair dealing.
    (oo) Interest compensation means an amount of money calculated at 
the average of the Federal Funds rates published by the Federal Reserve 
Bank of New York for each of the days for which interest compensation is 
payable, divided by 360. The Federal Funds rate for any day on which a 
published rate is not available is the same as the published rate for 
the last preceding day for which there is a published rate.
    (pp) Contractual branch, with respect to a bank, means a branch of 
another bank that accepts a deposit on behalf of the first bank.
    (qq) Unless the context requires otherwise, the terms not defined in 
this section have the meanings set forth in the U.C.C.

[53 FR 19433, May 27, 1988, as amended at 53 FR 31292, Aug. 18, 1988; 53 
FR 44324, Nov. 2, 1988; Reg. CC, 54 FR 13850, Apr. 6, 1989; 57 FR 46972, 
Oct. 14, 1992; 58 FR 2, Jan. 4, 1993; 60 FR 51670, Oct. 3, 1995; 62 FR 
13809, Mar. 24, 1997]

Sec. 229.3 Administrative enforcement.
     

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                           Subpart A--General

    (a) Enforcement agencies. Compliance with this part is enforced 
under--
    (1) Section 8 of the Federal Deposit Insurance Act (12 U.S.C. 1818 
et seq.) in the case of--
    (i) National banks, and Federal branches and Federal agencies of 
foreign banks, by the Office of the Comptroller of the Currency;
    (ii) Member banks of the Federal Reserve System (other than national 
banks), and offices, branches, and agencies of foreign banks located in 
the United States (other than Federal branches, Federal agencies, and 
insured State branches of foreign banks), by the Board; and
    (iii) Banks insured by the Federal Deposit Insurance Corporation 
(other than members of the Federal Reserve System) and insured State 
branches of foreign banks, by the Board of Directors of the Federal 
Deposit Insurance Corporation;
    (2) Section 8 of the Federal Deposit Insurance Act, by the Director 
of the Office of Thrift Supervision in the case of savings associations 
the deposits of which are insured by the Federal Deposit Insurance 
Corporation; and
    (3) The Federal Credit Union Act (12 U.S.C. 1751 et seq.) by the 
National Credit Union Administration Board with respect to any federal 
credit union or credit union insured by the National Credit Union Share 
Insurance Fund.

The terms used in paragraph (a)(1) of this section that are not defined 
in this part or otherwise defined in section 3(s) of the Federal Deposit 
Insurance Act (12 U.S.C. 1813(s)) shall have the meaning given to them 
in section 1(b) of the International Banking Act of 1978 (12 U.S.C. 
3101).
    (b) Additional powers. (1) For the purposes of the exercise by any 
agency referred to in paragraph (a) of this section of its powers under 
any statute referred to in that paragraph, a violation of any 
requirement imposed under the Act is deemed to be a violation of a 
requirement imposed under that statute.
    (2) In addition to its powers under any provision of law 
specifically referred to in paragraph (a) of this section, each of the 
agencies referred to in that paragraph may exercise, for purposes of 
enforcing compliance with any requirement imposed under this part, any 
other authority conferred on it by law.
    (c) Enforcement by the Board. (1) Except to the extent that 
enforcement of the requirements imposed under this part is specifically 
committed to some other government agency, the Board shall enforce such 
requirements.
    (2) If the Board determines that--
    (i) Any bank that is not a bank described in paragraph (a) of this 
section; or
    (ii) Any other person subject to the authority of the Board under 
the Act and this part,

has failed to comply with any requirement imposed by this part, the 
Board may issue an order prohibiting any bank, any Federal Reserve Bank, 
or

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any other person subject to the authority of the Board from engaging in 
any activity or transaction that directly or indirectly involves such 
noncomplying bank or person (including any activity or transaction 
involving the receipt, payment, collection, and clearing of checks, and 
any related function of the payment system with respect to checks).

[53 FR 19433, May 27, 1988, as amended by Reg. CC, 55 FR 21855, May 30, 
1990; 57 FR 36600, Aug. 14, 1992]

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 Subpart B--Availability of Funds and Disclosure of Funds Availability 
                                Policies
 
    (a) Cash deposits. (1) A bank shall make funds deposited in an 
account by cash available for withdrawal not later than the business day 
after the banking day on which the cash is deposited, if the deposit is 
made in person to an employee of the depositary bank.
    (2) A bank shall make funds deposited in an account by cash 
available for withdrawal not later than the second business day after 
the banking day on which the cash is deposited, if the deposit is not 
made in person to an employee of the depositary bank.
    (b) Electronic payments--(1) In general. A bank shall make funds 
received for deposit in an account by an electronic payment available 
for withdrawal not later than the business day after the banking day on 
which the bank received the electronic payment.
    (2) When an electronic payment is received. An electronic payment is 
received when the bank receiving the payment has received both--
    (i) Payment in actually and finally collected funds; and
    (ii) Information on the account and amount to be credited.
    A bank receives an electronic payment only to the extent that the 
bank has received payment in actually and finally collected funds.
    (c) Certain check deposits--(1) General rule. A depositary bank 
shall make funds deposited in an account by check available for 
withdrawal not later than the business day after the banking day on 
which the funds are deposited, in the case of--
    (i) A check drawn on the Treasury of the United States and deposited 
in an account held by a payee of the check;
    (ii) A U.S. Postal Service money order deposited--
    (A) In an account held by a payee of the money order; and
    (B) In person to an employee of the depositary bank.
    (iii) A check drawn on a Federal Reserve Bank or Federal Home Loan 
Bank and deposited--
    (A) In an account held by a payee of the check; and
    (B) In person to an employee of the depositary bank;
    (iv) A check drawn by a state or a unit of general local government 
and deposited--
    (A) In an account held by a payee of the check;
    (B) In a depositary bank located in the state that issued the check, 
or the same state as the unit of general local government that issued 
the check;
    (C) In person to an employee of the depositary bank; and
    (D) With a special deposit slip or deposit envelope, if such slip or 
envelope is required by the depositary bank under paragraph (c)(3) of 
this section.
    (v) A cashier's, certified, or teller's check deposited--
    (A) In an account held by a payee of the check;
    (B) In person to an employee of the depositary bank; and
    (C) With a special deposit slip or deposit envelope, if such slip or 
envelope is required by the depositary bank under paragraph (c)(3) of 
this section.
    (vi) A check deposited in a branch of the depositary bank and drawn 
on the same or another branch of the same bank if both branches are 
located in the same state or the same check processing region; and,
    (vii) The lesser of--
    (A) $100, or
    (B) The aggregate amount deposited on any one banking day to all 
accounts of the customer by check or checks not subject to next-day 
availability under paragraphs (c)(1) (i) through (vi) of this section.
    (2) Checks not deposited in person. A depositary bank shall make 
funds deposited in an account by check or checks available for 
withdrawal not

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later than the second business day after the banking day on which funds 
are deposited, in the case of a check deposit described in and that 
meets the requirements of paragraphs (c)(1) (ii), (iii), (iv), and (v), 
of this section, except that it is not deposited in person to an 
employee of the depositary bank.
    (3) Special deposit slip. (i) As a condition to making the funds 
available for withdrawal in accordance with this section, a depositary 
bank may require that a state or local government check or a cashier's, 
certified, or teller's check be deposited with a special deposit slip or 
deposit envelope that identifies the type of check.
    (ii) If a depositary bank requires the use of a special deposit slip 
or deposit envelope, the bank must either provide the special deposit 
slip or deposit envelope to its customers or inform its customers how 
the slip or envelope may be prepared or obtained and make the slip or 
envelope reasonably available.

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 Subpart B--Availability of Funds and Disclosure of Funds Availability 
                                Policies

    (a) Effective date. The availability schedule contained in this 
section is effective September 1, 1990.
    (b) Local checks and certain other checks. Except as provided in 
paragraphs (d), (e), and (f) of this section, a depository bank shall 
make funds deposited in an account by a check available for withdrawal 
not later than the second business day following the banking day on 
which funds are deposited, in the case of--
    (1) A local check;
    (2) A check drawn on the Treasury of the United States that is not 
governed by the availability requirements of Sec. 229.10(c);
    (3) A U.S. Postal Service money order that is not governed by the 
availability requirements of Sec. 229.10(c); and
    (4) A check drawn on a Federal Reserve Bank or Federal Home Loan 
Bank; a check drawn by a state or unit of general local government; or a 
cashier's, certified, or teller's check; if any check referred to in 
this paragraph (b)(4) is a local check that is not governed by the 
availability requirements of Sec. 229.10(c).
    (c) Nonlocal checks--(1) In general. Except as provided in 
paragraphs (d), (e), and (f) of this section, a depositary bank shall 
make funds deposited in an account by a check available for withdrawal 
not later than the fifth business day following the banking day on which 
funds are deposited, in the case of--
    (i) A nonlocal check; and
    (ii) A check drawn on a Federal Reserve Bank or Federal Home Loan 
Bank; a check drawn by a state or unit of general local government; a 
cashier's, certified, or teller's check; or a check deposited in a 
branch of the depositary bank and drawn on the same or another branch of 
the same bank, if any check referred to in this paragraph (c)(1)(ii) is 
a nonlocal check that is not governed by the availability requirements 
of Sec. 229.10(c).
    (2) Nonlocal checks specified in appendix B-2 to this part must be 
made available for withdrawal not later than the times prescribed in 
that Appendix.
    (d) Time period adjustment for withdrawal by cash or similar means. 
A depositary bank may extend by one business day the time that funds 
deposited in an account by one or more checks subject to paragraphs (b), 
(c), or (f) of this section are available for withdrawal by cash or 
similar means. Similar means include electronic payment, issuance of a 
cashier's or teller's check, or certification of a check, or other 
irrevocable commitment to pay, but do not include the granting of credit 
to a bank, a Federal Reserve Bank, or a Federal Home Loan Bank that 
presents a check to the depositary bank for payment. A depositary bank 
shall, however, make $400 of these funds available for withdrawal by 
cash or similar means not later than 5:00 p.m. on the business day on 
which the funds are available under paragraphs (b), (c), or (f) of this 
section. This $400 is in addition to the $100 available under 
Sec. 229.10(c)(1)(vii).
    (e) Extension of schedule for certain deposits in Alaska, Hawaii, 
Puerto Rico, and the U.S. Virgin Islands. The depositary bank may extend 
the time periods set forth in this section by one business day in the 
case of any deposit, other than a deposit described in Sec. 229.10, that 
is--

[[Page 482]]

    (1) Deposited in an account at a branch of a depositary bank if the 
branch is located in Alaska, Hawaii, Puerto Rico, or the U.S. Virgin 
Islands; and
    (2) Deposited by a check drawn on or payable at or through a paying 
bank not located in the same state as the depositary bank.
    (f) Deposits at nonproprietary ATMs. A depositary bank shall make 
funds deposited in an account at a nonproprietary ATM by cash or check 
available for withdrawal not later than the fifth business day following 
the banking day on which the funds are deposited.

[53 FR 19433, May 27, 1988, as amended by Reg. CC, 55 FR 50818, Dec. 11, 
1990; 56 FR 7801, Feb. 26, 1991; 56 FR 66343, Dec. 23, 1991; 57 FR 
36601, Aug. 14, 1992; 60 FR 51670, Oct. 3, 1995]

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 Subpart B--Availability of Funds and Disclosure of Funds Availability 
                                Policies

    (a) New accounts. For purposes of this paragraph, checks subject to 
Sec. 229.10(c)(1)(v) include traveler's checks.
    (1) A deposit in a new account--
    (i) Is subject to the requirements of Sec. 229.10 (a) and (b) to 
make funds from deposits by cash and electronic payments available for 
withdrawal on the business day following the banking day of deposit or 
receipt;
    (ii) Is subject to the requirements of Sec. 229.10(c)(1) (i) through 
(v) and Sec. 229.10(c)(2) only with respect to the first $5,000 of funds 
deposited on any one banking day; but the amount of the deposit in 
excess of $5,000 shall be available for withdrawal not later than the 
ninth business day following the banking day on which funds are 
deposited; and
    (iii) Is not subject to the availability requirements of 
Secs. 229.10(c)(1)(vi) and (vii) and 229.12.
    (2) An account is considered a new account during the first 30 
calendar days after the account is established. An account is not 
considered a new account if each customer on the account has had, within 
30 calendar days before the account is established, another account at 
the depositary bank for at least 30 calendar days.
    (b) Large deposits. Sections 229.10(c) and 229.12 do not apply to 
the aggregate amount of deposits by one or more checks to the extent 
that the aggregate amount is in excess of $5,000 on any one banking. 
day. For customers that have multiple accounts at a depositary bank, the 
bank may apply this exception to the aggregate deposits to all accounts 
held by the customer, even if the customer is not the sole holder of the 
accounts and not all of the holders of the accounts are the same.
    (c) Redeposited checks. Sections 229.10(c) and 229.12 do not apply 
to a check that has been returned unpaid and redeposited by the customer 
or the depositary bank. This exception does not apply--
    (1) To a check that has been returned due to a missing indorsement 
and redeposited after the missing indorsement has been obtained, if the 
reason for return indication on the check states that it was returned 
due to a missing indorsement; or
    (2) To a check that has been returned because it was post dated, if 
the reason for return indicated on the check states that it was returned 
because it was post dated, and if the check is no longer postdated when 
redeposited.
    (d) Repeated overdrafts. If any account or combination of accounts 
of a depositary bank's customer has been repeatedly overdrawn, then for 
a period of six months after the last such overdraft, Secs. 229.10(c) 
and 229.12 do not apply to any of the accounts. A depositary bank may 
consider a customer's account to be repeatedly overdrawn if--
    (1) On six or more banking days within the preceding six months, the 
account balance is negative, or the account balance would have become 
negative if checks or other charges to the account had been paid; or
    (2) On two or more banking days within the preceding six months, the 
account balance is negative, or the account balance would have become 
negative, in the amount of $5,000 or more, if checks or other charges to 
the account had been paid.
    (e) Reasonable cause to doubt collectibility--(1) In general. 
Sections 229.10(c) and 229.12 do not apply to a check deposited in an 
account at a depositary bank if the depositary bank has reasonable cause 
to believe that the check is uncollectible from the paying bank. 
Reasonable cause to believe a check is uncollectible requires the 
existence of

[[Page 483]]

facts that would cause a well-grounded belief in the mind of a 
reasonable person. Such belief shall not be based on the fact that the 
check is of a particular class or is deposited by a particular class of 
persons. The reason for the bank's belief that the check is 
uncollectible shall be included in the notice required under paragraph 
(g) of this section.
    (2) Overdraft and returned check fees. A depositary bank that 
extends the time when funds will be available for withdrawal as 
described in paragraph (e)(1) of this section, and does not furnish the 
depositor with written notice at the time of deposit shall not assess 
any fees for any subsequent overdrafts (including use of a line of 
credit) or return of checks of other debits to the account, if--
    (i) The overdraft or return of the check would not have occurred 
except for the fact that the deposited funds were delayed under 
paragraph (e)(1) of this section; and
    (ii) The deposited check was paid by the paying bank.

Notwithstanding the foregoing, the depositary bank may assess an 
overdraft or returned check fee if it includes a notice concerning 
overdraft and returned check fees with the notice of exception required 
in paragraph (g) of this section and, when required, refunds any such 
fees upon the request of the customer. The notice must state that the 
customer may be entitled to a refund of overdraft or returned check fees 
that are assessed if the check subject to the exception is paid and how 
to obtain a refund.
    (f) Emergency conditions. Sections 229.10(c) and 229.12 do not apply 
to funds deposited by check in a depositary bank in the case of--
    (1) An interruption of communications or computer or other equipment 
facilities;
    (2) A suspension of payments by another bank;
    (3) A war; or
    (4) An emergency condition beyond the control of the depositary 
bank,

if the depositary bank exercises such diligence as the circumstances 
require.
    (g) Notice of exception--(1) In general. Subject to paragraphs 
(g)(2) and (g)(3) of this section, when a depositary bank extends the 
time when funds will be available for withdrawal based on the 
application of an exception contained in paragraphs (b) through (e) of 
this section, it must provide the depositor with a written notice.
    (i) The notice shall include the following information--
    (A) The account number of the customer;
    (B) The date of the deposit;
    (C) The amount of the deposit that is being delayed;
    (D) The reason the exception was invoked; and
    (E) The time period within which the funds will be available for 
withdrawal.
    (ii) Timing of notice. The notice shall be provided to the depositor 
at the time of the deposit, unless the deposit is not made in person to 
an employee of the depositary bank, or, if the facts upon which a 
determination to invoke one of the exceptions in paragraphs (b) through 
(e) of this section to delay a deposit only become known to the 
depositary bank after the time of the deposit. If the notice is not 
given at the time of the deposit, the depositary bank shall mail or 
deliver the notice to the customer as soon as practicable, but no later 
than the first business day following the day the facts become known to 
the depositary bank, or the deposit is made, whichever is later.
    (2) One-time exception notice. In lieu of providing notice pursuant 
to paragraph (g)(1) of this section, a depositary bank that extends the 
time when the funds deposited in a nonconsumer account will be available 
for withdrawal based on an exception contained in paragraph (b) or (c) 
of this section may provide a single notice to the customer that 
includes the following information--
    (i) The reason(s) the exception may be invoked; and
    (ii) The time period within which deposits subject to the exception 
generally will be available for withdrawal.

This one-time notice shall be provided only if each type of exception 
cited in the notice will be invoked for most check deposits in the 
account to which the exception could apply. This notice shall be 
provided at or prior to the time notice must be provided under paragraph 
(g)(1)(ii) of this section.

[[Page 484]]

    (3) Notice of repeated overdrafts exception. In lieu of providing 
notice pursuant to paragraph (g)(1) of this section, a depositary bank 
that extends the time when funds deposited in an account will be 
available for withdrawal based on the exception contained in paragraph 
(d) of this section may provide a notice to the customer for each time 
period during which the exception will be in effect. The notice shall 
include the following information--
    (i) The account number of the customer;
    (ii) The fact that the availability of funds deposited in the 
customer's account will be delayed because the repeated overdrafts 
exception will be invoked;
    (iii) The time period within which deposits subject to the exception 
generally will be available for withdrawal; and
    (iv) The time period during which the exception will apply.

This notice shall be provided at or prior to the time notice must be 
provided under paragraph (g)(1)(ii) of this section and only if the 
exception cited in the notice will be invoked for most check deposits in 
the account.
    (4) Emergency conditions exception notice. When a depositary bank 
extends the time when funds will be available for withdrawal based on 
the application of the emergency conditions exception contained in 
paragraph (f) of this section, it must provide the depositor with notice 
in a reasonable form and within a reasonable time given the 
circumstances. The notice shall include the reason the exception was 
invoked and the time period within which funds shall be made available 
for withdrawal, unless the depositary bank, in good faith, does not know 
at the time the notice is given the duration of the emergency and, 
consequently, when the funds must be made available. The depositary bank 
is not required to provide a notice if the funds subject to the 
exception become available before the notice must be sent.
    (5) Record retention. A depositary bank shall retain a record, in 
accordance with Sec. 229.21(g), of each notice provided pursuant to its 
application of the reasonable cause exception under paragraph (e) of 
this section, together with a brief statement of the facts giving rise 
to the bank's reason to doubt the collectibility of the check.
    (h) Availability of deposits subject to exceptions. (1) If an 
exception contained in paragraphs (b) through (f) of this section 
applies, the depositary bank may extend the time periods established 
under Secs. 229.10(c) and 229.12 by a reasonable period of time.
    (2) If a depositary bank invokes an exception contained in 
paragraphs (b) through (e) of this section with respect to a check 
described in Sec. 229.10(c)(1) (i) through (v) or Sec. 229.10(c)(2), it 
shall make the funds available for withdrawal not later than a 
reasonable period after the day the funds would have been required to be 
made available had the check been subject to 229.12.
    (3) If a depositary bank invokes an exception under paragraph (f) of 
this section based on an emergency condition, the depositary bank shall 
make the funds available for withdrawal not later than a reasonable 
period after the emergency has ceased or the period established in 
Secs. 229.10(c) and 229.12, whichever is later.
    (4) For the purposes of this section, a ``reasonable period'' is an 
extension of up to one business day for checks described in 
Sec. 229.10(c)(1)(vi), five business days for checks described in 
Sec. 229.12(b) (1) through (4), and six business days for checks 
described in Sec. 229.12(c) (1) and (2) or Sec. 229.12(f). A longer 
extension may be reasonable, but the bank has the burden of so 
establishing.

[53 FR 19433, May 27, 1988, as amended by Reg. CC, 54 FR 13850, Apr. 6, 
1989; Reg. CC, 55 FR 21855, May 30, 1990; 57 FR 3279, Jan. 29, 1992; 57 
FR 36598, Aug. 14, 1992; 60 FR 51671, Oct. 3, 1995; Reg. CC, 62 FR 
13809, Mar. 24, 1997]

Return to top

 Subpart B--Availability of Funds and Disclosure of Funds Availability 
                                Policies
 
    (a) In general. A depositary bank shall begin to accrue interest or 
dividends on funds deposited in an interest-bearing account not later 
than the business day on which the depositary bank receives credit for 
the funds. For the purposes of this section, the depositary bank may--
    (1) Rely on the availability schedule of its Federal Reserve Bank, 
Federal Home Loan Bank, or correspondent

[[Page 485]]

bank to determine the time credit is actually received; and
    (2) Accrue interest or dividends on funds deposited in interest-
bearing accounts by checks that the depositary bank sends to paying 
banks or subsequent collecting banks for payment or collection based on 
the availability of funds the depositary bank receives from the paying 
or collecting banks.
    (b) Special rule for credit unions. Paragraph (a) of this section 
does not apply to any account at a bank described in Sec. 229.2(e)(4), 
if the bank--
    (1) Begins the accrual of interest or dividends at a later date than 
the date described in paragraph (a) of this section with respect to all 
funds, including cash, deposited in the account; and
    (2) Provides notice of its interest or dividend payment policy in 
the manner required under Sec. 229.16(d).
    (c) Exception for checks returned unpaid. This subpart does not 
require a bank to pay interest or dividends on funds deposited by a 
check that is returned unpaid.

Return to top

 Subpart B--Availability of Funds and Disclosure of Funds Availability 
                                Policies
 
    (a) Form of disclosures. A bank shall make the disclosures required 
by this subpart clearly and conspicuously in writing. Disclosures, other 
than those posted at locations where employees accept consumer deposits 
and ATMs and the notice on preprinted deposit slips, must be in a form 
that the customer may keep. The disclosures shall be grouped together 
and shall not contain any information not related to the disclosures 
required by this subpart. If contained in a document that sets forth 
other account terms, the disclosures shall be highlighted within the 
document by, for example, use of a separate heading.
    (b) Uniform reference to day of availability. In its disclosure, a 
bank shall describe funds as being available for withdrawal on ``the 
__________ business day after'' the day of deposit. In this calculation, 
the first business day is the business day following the banking day the 
deposit was received, and the last business day is the day on which the 
funds are made available.
    (c) Multiple accounts and multiple account holders. A bank need not 
give multiple disclosures to a customer that holds multiple accounts if 
the accounts are subject to the same availability policies. Similarly, a 
bank need not give separate disclosures to each customer on a jointly 
held account.
    (d) Dormant or inactive accounts. A bank need not give availability 
disclosures to a customer that holds a dormant or inactive account.

Return to top

 Subpart B--Availability of Funds and Disclosure of Funds Availability 
                                Policies
 
    (a) General. To meet the requirements of a specific availability 
policy disclosure under Secs. 229.17 and 229.18(d), a bank shall provide 
a disclosure describing the bank's policy as to when funds deposited in 
an account are available for withdrawal. The disclosure must reflect the 
policy followed by the bank in most cases. A bank may impose longer 
delays on a case-by-case basis or by invoking one of the exceptions in 
Sec. 229.l3, provided this is reflected in the disclosure.
    (b) Content of specific availability policy disclosure. The specific 
availability policy disclosure shall contain the following, as 
applicable--
    (1) A summary of the bank's availability policy;
    (2) A description of any categories of deposits or checks used by 
the bank when it delays availability (such as local or nonlocal checks); 
how to determine the category to which a particular deposit or check 
belongs; and when each category will be available for withdrawal 
(including a description of the bank's business days and when a deposit 
is considered received);\1\
---------------------------------------------------------------------------

    \1\ A bank that distinguishes in its disclosure between local and 
nonlocal checks based on the routing number on the check must disclose 
that certain checks, such as some credit union share drafts that are 
payable by one bank but payable through another bank, will be treated as 
local or nonlocal checks based upon the location of the bank by which 
they are payable and not on the basis of the location of the bank whose 
routing number appears on the check. A bank that makes funds from 
nonlocal checks available for withdrawal within the time periods 
required for local checks under Secs. 229.12 and 229.13 is not required 
to provide this disclosure on payable-through checks to its customers. 
The statement concerning payable-through checks must describe how the 
customer can determine whether these checks will be treated as local or 
nonlocal, or state that special rules apply to such checks and that the 
customer may ask about the availability of these checks.

---------------------------------------------------------------------------

[[Page 486]]

    (3) A description of any of the exceptions in Sec. 229.13 that may 
be invoked by the bank, including the time following a deposit that 
funds generally will be available for withdrawal and a statement that 
the bank will notify the customer if the bank invokes one of the 
exceptions;
    (4) A description, as specified in paragraph (c)(1) of this section, 
of any case-by-case policy of delaying availability that may result in 
deposited funds being available for withdrawal later than the time 
periods stated in the bank's availability policy; and
    (5) A description of how the customer can differentiate between a 
proprietary and a nonproprietary ATM, if the bank makes funds from 
deposits at nonproprietary ATMs available for withdrawal later than 
funds from deposits at proprietary ATMs.
    (c) Longer delays on a case-by-case basis--(1) Notice in specific 
policy disclosure. A bank that has a policy of making deposited funds 
available for withdrawal sooner than required by this subpart may extend 
the time when funds are available up to the time periods allowed under 
this subpart on a case-by-case basis, provided the bank includes the 
following in its specific policy disclosure--
    (i) A statement that the time when deposited funds are available for 
withdrawal may be extended in some cases, and the latest time following 
a deposit that funds will be available for withdrawal;
    (ii) A statement that the bank will notify the customer if funds 
deposited in the customer's account will not be available for withdrawal 
until later than the time periods stated in the bank's availability 
policy; and
    (iii) A statement that customers should ask if they need to be sure 
about when a particular deposit will be available for withdrawal.
    (2) Notice at time of case-by-case delay--(i) In general. When a 
depositary bank extends the time when funds will be available for 
withdrawal on a case-by-case basis, it must provide the depositor with a 
written notice. The notice shall include the following information--
    (A) The account number of the customer;
    (B) The date of the deposit;
    (C) The amount of the deposit that is being delayed; and
    (D) The day the funds will be available for withdrawal.
    (ii) Timing of notice. The notice shall be provided to the depositor 
at the time of the deposit, unless the deposit is not made in person to 
an employee of the depositary bank or the decision to extend the time 
when the deposited funds will be available is made after the time of the 
deposit. If notice is not given at the time of the deposit, the 
depositary bank shall mail or deliver the notice to the customer not 
later than the first business day following the banking day the deposit 
is made.
    (3) Overdraft and returned check fees. A depositary bank that 
extends the time when funds will be available for withdrawal on a case-
by-case basis and does not furnish the depositor with written notice at 
the time of deposit shall not assess any fees for any subsequent 
overdrafts (including use of a line of credit) or return of checks or 
other debits to the account, if--
    (i) The overdraft or return of the check or other debit would not 
have occurred except for the fact that the deposited funds were delayed 
under paragraph (c)(1) of this section; and
    (ii) The deposited check was paid by the paying bank.
    Notwithstanding the foregoing, the depositary bank may assess an 
overdraft or returned check fee if it includes a notice concerning 
overdraft and returned check fees with the notice required in paragraph 
(c)(2) of this section and, when required, refunds any such fees upon 
the request of the customer. The notice must state that the customer may 
be entitled to a refund of overdraft or returned check fees that are 
assessed if the check subject to the delay is paid and how to obtain a 
refund.
    (d) Credit union notice of interest payment policy. If a bank 
described in Sec. 229.2(e)(4) begins to accrue interest or

[[Page 487]]

dividends on all deposits made in an interest-bearing account, including 
cash deposits, at a later time than the day specified in Sec. 229.14(a), 
the bank's specific policy disclosures shall contain an explanation of 
when interest or dividends on deposited funds begin to accrue.

[53 FR 19433, May 27, 1988, as amended at 53 FR 31292, Aug. 18, 1988; 53 
FR 44324, Nov. 2, 1988; Reg. CC, 54 FR 13850, Apr. 6, 1989; 60 FR 51671, 
Oct. 3, 1995; Reg. CC, 62 FR 13810, Mar. 24, 1997]

Return to top

 Subpart B--Availability of Funds and Disclosure of Funds Availability 
                                Policies
 
    Before opening a new account, a bank shall provide a potential 
customer with the applicable specific availability policy disclosure 
described in Sec. 229.16.

[Reg. CC, 60 FR 51671, Oct. 3, 1995]

Return to top

 Subpart B--Availability of Funds and Disclosure of Funds Availability 
                                Policies

    (a) Deposit slips. A bank shall include on all preprinted deposit 
slips furnished to its customers a notice that deposits may not be 
available for immediate withdrawal.
    (b) Locations where employees accept consumer deposits. A bank shall 
post in a conspicuous place in each location where its employees receive 
deposits to consumer accounts a notice that sets forth the time periods 
applicable to the availability of funds deposited in a consumer account.
    (c) Automated teller machines. (1) A depositary bank shall post or 
provide a notice at each ATM location that funds deposited in the ATM 
may not be available for immediate withdrawal.
    (2) A depositary bank that operates an off-premises ATM from which 
deposits are removed not more than two times each week, as described in 
Sec. 229.19(a)(4), shall disclose at or on the ATM the days on which 
deposits made at the ATM will be considered received.
    (d) Upon request. A bank shall provide to any person, upon oral or 
written request, a notice containing the applicable specific 
availability policy disclosure described in Sec. 229.l6.
    (e) Changes in policy. A bank shall send a notice to holders of 
consumer accounts at least 30 days before implementing a change to the 
bank's availability policy regarding such accounts, except that a change 
that expedites the availability of funds may be disclosed not later than 
30 days after implementation.

Return to top

 Subpart B--Availability of Funds and Disclosure of Funds Availability 
                                Policies

    (a) When funds are considered deposited. For the purposes of this 
subpart--
    (1) Funds deposited at a staffed facility, ATM, or contractual 
branch are considered deposited when they are received at the staffed 
facility, ATM, or contractual branch;
    (2) Funds mailed to the depositary bank are considered deposited on 
the day they are received by the depositary bank;
    (3) Funds deposited to a night depository, lock box, or similar 
facility are considered deposited on the day on which the deposit is 
removed from such facility and is available for processing by the 
depositary bank;
    (4) Funds deposited at an ATM that is not on, or within 50 feet of, 
the premises of the depositary bank are considered deposited on the day 
the funds are removed from the ATM, if funds normally are removed from 
the ATM not more than two times each week; and
    (5) Funds may be considered deposited on the next banking day, in 
the case of funds that are deposited--
    (i) On a day that is not a banking day for the depositary bank; or
    (ii) After a cut-off hour set by the depositary bank for the receipt 
of deposits of 2:00 p.m. or later, or, for the receipt of deposits at 
ATMs, contractual branches, or off-premise facilities, of 12:00 noon or 
later. Different cut-off hours later than these times may be established 
for the receipt of different types of deposits, or receipt of deposits 
at different locations.
    (b) Availability at start of business day. Except as otherwise 
provided in Sec. 229.12(d), if any provision of this subpart requires 
that funds be made available for withdrawal on any business day, the 
funds shall be available for withdrawal by the later of:
    (1) 9:00 a.m. (local time of the depositary bank); or
    (2) The time the depositary bank's teller facilities (including 
ATMs) are available for customer account withdrawals.

[[Page 488]]

    (c) Effect on policies of depositary bank. This part does not--
    (1) Prohibit a depositary bank from making funds available to a 
customer for withdrawal in a shorter period of time than the time 
required by this subpart;
    (2) Affect a depositary bank's right--
    (i) To accept or reject a check for deposit;
    (ii) To revoke any settlement made by the depositary bank with 
respect to a check accepted by the bank for deposit, to charge back the 
customer's account for the amount of a check based on the return of the 
check or receipt of a notice of nonpayment of the check, or to claim a 
refund of such credit; and
    (iii) To charge back funds made available to its customer for an 
electronic payment for which the bank has not received payment in 
actually and finally collected funds;
    (3) Require a depositary bank to open or otherwise to make its 
facilities available for customer transactions on a given business day; 
or
    (4) Supersede any policy of a depositary bank that limits the amount 
of cash a customer may withdraw from its account on any one day, if that 
policy--
    (i) Is not dependent on the time the funds have been deposited in 
the account, as long as the funds have been on deposit for the time 
period specified in Secs. 229.10, 229.12, or 229.13; and
    (ii) In the case of withdrawals made in person to an employee of the 
depositary bank--
    (A) Is applied without discrimination to all customers of the bank; 
and
    (B) Is related to security, operating, or bonding requirements of 
the depositary bank.
    (d) Use of calculated availability. A depositary bank may provide 
availability to its nonconsumer accounts based on a sample of checks 
that represents the average composition of the customer's deposits, if 
the terms for availability based on the sample are equivalent to or more 
prompt than the availability requirements of this subpart.
    (e) Holds on other funds. (1) A depositary bank that receives a 
check for deposit in an account may not place a hold on any funds of the 
customer at the bank, where--
    (i) The amount of funds that are held exceeds the amount of the 
check; or
    (ii) The funds are not made available for withdrawal within the 
times specified in Secs. 229.10, 229.12, and 229.13.
    (2) A depositary bank that cashes a check for a customer over the 
counter, other than a check drawn on the depositary bank, may not place 
a hold on funds in an account of the customer at the bank, if--
    (i) The amount of funds that are held exceeds the amount of the 
check; or
    (ii) The funds are not made available for withdrawal within the 
times specified in Secs. 229.10, 229.12, and 229.13.
    (f) Employee training and compliance. Each bank shall establish 
procedures to ensure that the bank complies with the requirements of 
this subpart, and shall provide each employee who performs duties 
subject to the requirements of this subpart with a statement of the 
procedures applicable to that employee.
    (g) Effect of merger transaction. (1) In general. For purposes of 
this subpart, except for the purposes of the new accounts exception of 
Sec. 229.13(a), and when funds are considered deposited under 
Sec. 229.19(a), two or more banks that have engaged in a merger 
transaction may be considered to be separate banks for a period of one 
year following the consummation of the merger transaction.
    (2) Merger transactions on or after July 1, 1998, and before March 
1, 2000. If banks have consummated a merger transaction on or after July 
1, 1998, and before March 1, 2000, the merged banks may be considered 
separate banks until March 1, 2001.

[Reg. CC, 53 FR 19433, May 27, 1988, as amended by 54 FR 13850, Apr. 6, 
1989; 60 FR 51671, Oct. 3, 1995; 62 FR 13810, Mar. 24, 1997; 64 FR 
14577, Mar. 26, 1999]

Return to top

 Subpart B--Availability of Funds and Disclosure of Funds Availability 
                                Policies

    (a) In general. Any provision of a law or regulation of any state in 
effect on or before September 1, 1989, that requires funds deposited in 
an account at a bank chartered by the state to be made available for 
withdrawal in a shorter time than the time provided in

[[Page 489]]

subpart B, and, in connection therewith, subpart A, shall--
    (1) Supersede the provisions of the Act and subpart B, and, in 
connection therewith, subpart A, to the extent the provisions relate to 
the time by which funds deposited or received for deposit in an account 
are available for withdrawal; and
    (2) Apply to all federally insured banks located within the state.

No amendment to a state law or regulation governing the availability of 
funds that becomes effective after September 1, 1989, shall supersede 
the Act and subpart B, and, in connection therewith, subpart A, but 
unamended provisions of state law shall remain in effect.
    (b) Preemption of inconsistent law. Except as provided in paragraph 
(a), the Act and subpart B, and, in connection therewith, subpart A, 
supersede any provision of inconsistent state law.
    (c) Standards for preemption. A provision of a state law in effect 
on or before September 2, 1989, is not inconsistent with the Act, or 
subpart B, or in connection therewith, subpart A, if it requires that 
funds shall be available in a shorter period of time than the time 
provided in this subpart. Inconsistency with the Act and subpart B, and 
in connection therewith, subpart A, may exist when state law--
    (1) Permits a depositary bank to make funds deposited in an account 
by cash, electronic payment, or check available for withdrawal in a 
longer period of time than the maximum period of time permitted under 
subpart B, and, in connection therewith, subpart A; or
    (2) Provides for disclosures or notices concerning funds 
availability relating to accounts.
    (d) Preemption determinations. The Board may determine, upon the 
request of any state, bank, or other interested party, whether the Act 
and subpart B, and, in connection therewith, subpart A, preempt 
provisions of state laws relating to the availability of funds.
    (e) Procedures for preemption determinations. A request for a 
preemption determination shall include the following--
    (1) A copy of the full text of the state law in question, including 
any implementing regulations or judicial interpretations of that law; 
and
    (2) A comparison of the provisions of state law with the 
corresponding provisions in the Act and subparts A and B of this part, 
together with a discussion of the reasons why specific provisions of 
state law are either consistent or inconsistent with corresponding 
sections of the Act and subparts A and B of this part.
    A request for a preemption determination shall be addressed to the 
Secretary, Board of Governors of the Federal Reserve System.

Return to top

 Subpart B--Availability of Funds and Disclosure of Funds Availability 
                                Policies
 
    (a) Civil liability. A bank that fails to comply with any 
requirement imposed under subpart B, and in connection therewith, 
subpart A, of this part or any provision of state law that supersedes 
any provision of subpart B, and in connection therewith, subpart A, with 
respect to any person is liable to that person in an amount equal to the 
sum of--
    (1) Any actual damage sustained by that person as a result of the 
failure;
    (2) Such additional amount as the court may allow, except that--
    (i) In the case of an individual action, liability under this 
paragraph shall not be less than $100 nor greater than $1,000; and
    (ii) In the case of a class action--
    (A) No minimum recovery shall be applicable to each member of the 
class; and
    (B) The total recovery under this paragraph in any class action or 
series of class actions arising out of the same failure to comply by the 
same depositary bank shall not be more than the lesser of $500,000 or 1 
percent of the net worth of the bank involved; and
    (3) In the case of a successful action to enforce the foregoing 
liability, the costs of the action, together with a reasonable 
attorney's fee as determined by the court.
    (b) Class action awards. In determining the amount of any award in 
any class action, the court shall consider, among other relevant 
factors--
    (1) The amount of any damages awarded;
    (2) The frequency and persistence of failures of compliance;

[[Page 490]]

    (3) The resources of the bank;
    (4) The number of persons adversely affected; and
    (5) The extent to which the failure of compliance was intentional.
    (c) Bona fide errors--(1) General rule. A bank is not liable in any 
action brought under this section for a violation of this subpart if the 
bank demonstrates by a preponderance of the evidence that the violation 
was not intentional and resulted from a bona fide error, notwithstanding 
the maintenance of procedures reasonably adapted to avoid any such 
error.
    (2) Examples. Examples of a bona fide error include clerical, 
calculation, computer malfunction and programming, and printing errors, 
except that an error of legal judgment with respect to the bank's 
obligation under this subpart is not a bona fide error.
    (d) Jurisdiction. Any action under this section may be brought in 
any United States district court or in any other court of competent 
jurisdiction, and shall be brought within one year after the date of the 
occurrence of the violation involved.
    (e) Reliance on Board rulings. No provision of this subpart imposing 
any liability shall apply to any act done or omitted in good faith in 
conformity with any rule, regulation, or interpretation thereof by the 
Board, regardless of whether such rule, regulation, or interpretation is 
amended, rescinded, or determined by judicial or other authority to be 
invalid for any reason after the act or omission has occurred.
    (f) Exclusions. This section does not apply to claims that arise 
under subpart C of this part or to actions for wrongful dishonor.
    (g) Record retention. (1) A bank shall retain evidence of compliance 
with the requirements imposed by this subpart for not less than two 
years. Records may be stored by use of microfiche, microfilm, magnetic 
tape, or other methods capable of accurately retaining and reproducing 
information.
    (2) If a bank has actual notice that it is being investigated, or is 
subject to an enforcement proceeding by an agency charged with 
monitoring that bank's compliance with the Act and this subpart, or has 
been served with notice of an action filed under this section, it shall 
retain the records pertaining to the action or proceeding pending final 
disposition of the matter, unless an earlier time is allowed by order of 
the agency or court.

Return to top

                     Subpart C--Collection of Checks
 
    (a) Return of checks. If a paying bank determines not to pay a 
check, it shall return the check in an expeditious manner as provided in 
either paragraph (a)(1) or (a)(2) of this section.
    (1) Two-day/four-day test. A paying bank returns a check in an 
expeditious manner if it sends the returned check in a manner such that 
the check would normally be received by the depositary bank not later 
than 4:00 p.m. (local time of the depositary bank) of--
    (i) The second business day following the banking day on which the 
check was presented to the paying bank, if the paying bank is located in 
the same check processing region as the depositary bank; or
    (ii) The fourth business day following the banking day on which the 
check was presented to the paying bank, if the paying bank is not 
located in the same check processing region as the depositary bank.

If the last business day on which the paying bank may deliver a returned 
check to the depositary bank is not a banking day for the depositary 
bank, the paying bank meets the two-day/four-day test if the returned 
check is received by the depositary bank on or before the depositary 
bank's next banking day.
    (2) Forward collection test. A paying bank also returns a check in 
an expeditious manner if it sends the returned check in a manner that a 
similarly situated bank would normally handle a check--
    (i) Of similar amount as the returned check;
    (ii) Drawn on the depositary bank; and
    (iii) Deposited for forward collection in the similarly situated 
bank by noon on the banking day following the banking day on which the 
check was presented to the paying bank.

[[Page 491]]


Subject to the requirement for expeditious return, a paying bank may 
send a returned check to the depositary bank, or to any other bank 
agreeing to handle the returned check expeditiously under 
Sec. 229.31(a). A paying bank may convert a check to a qualified 
returned check. A qualified returned check must be encoded in magnetic 
ink with the routing number of the depositary bank, the amount of the 
returned check, and a ``2'' in position 44 of the MICR line as a return 
identifier, in accordance with the American National Standard 
Specifications for Placement and Location of MICR Printing, X9.13 (Sept. 
1983). This paragraph does not affect a paying bank's responsibility to 
return a check within the deadlines required by the U.C.C., Regulation J 
(12 CFR part 210), or Sec. 229.30(c).
    (b) Unidentifiable depositary bank. A paying bank that is unable to 
identify the depositary bank with respect to a check may send the 
returned check to any bank that handled the check for forward collection 
even if that bank does not agree to handle the check expeditiously under 
Sec. 229.31(a). A paying bank sending a returned check under this 
paragraph to a bank that handled the check for forward collection must 
advise the bank to which the check is sent that the paying bank is 
unable to identify the depositary bank. The expeditious return 
requirements in Sec. 229.30(a) do not apply to the paying bank's return 
of a check under this paragraph.
    (c) Extension of deadline. The deadline for return or notice of 
nonpayment under the U.C.C. or Regulation J (12 CFR part 210), or 
Sec. 229.36(f)(2) is extended to the time of dispatch of such return or 
notice of nonpayment where a paying bank uses a means of delivery that 
would ordinarily result in receipt by the bank to which it is sent--
    (1) On or before the receiving bank's next banking day following the 
otherwise applicable deadline, for all deadlines other than those 
described in paragraph (c)(2) of this section; this deadline is extended 
further if a paying bank uses a highly expeditious means of 
transportation, even if this means of transportation would ordinarily 
result in delivery after the receiving bank's next banking day; or
    (2) Prior to the cut-off hour for the next processing cycle (if sent 
to a returning bank), or on the next banking day (if sent to the 
depositary bank), for a deadline falling on a Saturday that is a banking 
day (as defined in the applicable U.C.C.) for the paying bank.
    (d) Identification of returned check. A paying bank returning a 
check shall clearly indicate on the face of the check that it is a 
returned check and the reason for return.
    (e) Depositary bank without accounts. The expeditious return 
requirements of paragraph (a) of this section do not apply to checks 
deposited in a depositary bank that does not maintain accounts.
    (f) Notice in lieu of return. If a check is unavailable for return, 
the paying bank may send in its place a copy of the front and back of 
the returned check, or, if no such copy is available, a written notice 
of nonpayment containing the information specified in Sec. 229.33(b). 
The copy or notice shall clearly state that it constitutes a notice in 
lieu of return. A notice in lieu of return is considered a returned 
check subject to the expeditious return requirements of this section and 
to the other requirements of this subpart.
    (g) Reliance on routing number. A paying bank may return a returned 
check based on any routing number designating the depositary bank 
appearing on the returned check in the depositary bank's indorsement.

[53 FR 19433, May 27, 1988, as amended at 53 FR 31292, Aug. 18, 1988; 
Reg. CC, 55 FR 21855, May 30, 1990; 57 FR 46972, Oct. 14, 1993; Reg. CC, 
62 FR 13810, Mar. 24, 1997]

Return to top

                     Subpart C--Collection of Checks

    (a) Return of checks. A returning bank shall return a returned check 
in an expeditious manner as provided in either paragraph (a)(1) or 
(a)(2) of this section.
    (1) Two-day/four-day test. A returning bank returns a check in an 
expeditious manner if it sends the returned check in a manner such that 
the check would normally be received by the depositary bank not later 
than 4:00 p.m. (local time) of--
    (i) The second business day following the banking day on which the 
check

[[Page 492]]

was presented to the paying bank if the paying bank is located in the 
same check processing region as the depositary bank; or
    (ii) The fourth business day following the banking day on which the 
check was presented to the paying bank if the paying bank is not located 
in the same check processing region as the depositary bank.


If the last business day on which the returning bank may deliver a 
returned check to the depositary bank is not a banking day for the 
depositary bank, the returning bank meets this requirement if the 
returned check is received by the depositary bank on or before the 
depositary bank's next banking day.
    (2) Forward collection test. A returning bank also returns a check 
in an expeditious manner if it sends the returned check in a manner that 
a similarly situated bank would normally handle a check--
    (i) Of similar amount as the returned check;
    (ii) Drawn on the depositary bank; and
    (iii) Received for forward collection by the similarly situated bank 
at the time the returning bank received the returned check, except that 
a returning bank may set a cut-off hour for the receipt of returned 
checks that is earlier than the similarly situated bank's cut-off hour 
for checks received for forward collection, if the cut-off hour is not 
earlier than 2:00 p.m.

Subject to the requirement for expeditious return, the returning bank 
may send the returned check to the depositary bank, or to any bank 
agreeing to handle the returned check expeditiously under 
Sec. 229.31(a). The returning bank may convert the returned check to a 
qualified returned check. A qualified returned check must be encoded in 
magnetic ink with the routing number of the depositary bank, the amount 
of the returned check, and a ``2'' in position 44 of the MICR line as a 
return identifier, in accordance with the American National Standard 
Specification for Placement and Location of MICR Printing, X9.13 (Sept. 
1983). The time for expeditious return under the forward collection 
test, and the deadline for return under the U.C.C. and Regulation J (12 
CFR part 210), are extended by one business day if the returning bank 
converts a returned check to a qualified returned check. This extension 
does not apply to the two-day/four-day test specified in paragraph 
(a)(1) of this section or when a returning bank is returning a check 
directly to the depositary bank.
    (b) Unidentifiable depositary bank. A returning bank that is unable 
to identify the depositary bank with respect to a returned check may 
send the returned check to--
    (1) Any collecting bank that handled the check for forward 
collection if the returning bank was not a collecting bank with respect 
to the returned check; or
    (2) A prior collecting bank, if the returning bank was a collecting 
bank with respect to the returned check;

even if that collecting bank does not agree to handle the returned check 
expeditiously under Sec. 229.31(a). A returning bank sending a returned 
check under this paragraph must advise the bank to which the check is 
sent that the returning bank is unable to identify the depositary bank. 
The expeditious return requirements in paragraph (a) of this section do 
not apply to return of a check under this paragraph. A returning bank 
that receives a returned check from a paying bank under Sec. 229.30(b), 
or from a returning bank under this paragraph, but that is able to 
identify the depositary bank, must thereafter return the check 
expeditiously to the depositary bank.
    (c) Settlement. A returning bank shall settle with a bank sending a 
returned check to it for return by the same means that it settles or 
would settle with the sending bank for a check received for forward 
collection drawn on the depositary bank. This settlement is final when 
made.
    (d) Charges. A returning bank may impose a charge on a bank sending 
a returned check for handling the returned check.
    (e) Depositary bank without accounts. The expeditious return 
requirements of paragraph (a) of this section do not apply to checks 
deposited with a depositary bank that does not maintain accounts.
    (f) Notice in lieu of return. If a check is unavailable for return, 
the returning

[[Page 493]]

bank may send in its place a copy of the front and back of the returned 
check, or, if no copy is available, a written notice of nonpayment 
containing the information specified in Sec. 229.33(b). The copy or 
notice shall clearly state that it constitutes a notice in lieu of 
return. A notice in lieu of return is considered a returned check 
subject to the expeditious return requirements of this section and to 
the other requirements of this subpart.
    (g) Reliance on routing number. A returning bank may return a 
returned check based on any routing number designating the depositary 
bank appearing on the returned check in the depositary bank's 
indorsement or in magnetic ink on a qualified returned check.

[53 FR 19433, May 27, 1988, as amended at 53 FR 31292, Aug. 18, 1988; 
Reg. CC, 54 FR 13850, Apr. 6, 1989]

Return to top

                      Subpart C--Collection of Checks

    (a) Acceptance of returned checks. A depositary bank shall accept 
returned checks and written notices of nonpayment
    (1) At a location at which presentment of checks for forward 
collection is requested by the depositary bank; and
    (2) (i) At a branch, head office, or other location consistent with 
the name and address of the bank in its indorsement on the check;
    (ii) If no address appears in the indorsement, at a branch or head 
office associated with the routing number of the bank in its indorsement 
on the check;
    (iii) If the address in the indorsement is not in the same check 
processing region as the address associated with the routing number of 
the bank in its indorsement on the check, at a location consistent with 
the address in the indorsement and at a branch or head office associated 
with the routing number in the bank's indorsement; or
    (iv) If no routing number or address appears in its indorsement on 
the check, at any branch or head office of the bank.

A depositary bank may require that returned checks be separated from 
forward collection checks.
    (b) Payment. A depositary bank shall pay the returning or paying 
bank returning the check to it for the amount of the check prior to the 
close of business on the banking day on which it received the check 
(``payment date'') by--
    (1) Debit to an account of the depositary bank on the books of the 
returning or paying bank;
    (2) Cash;
    (3) Wire transfer; or
    (4) Any other form of payment acceptable to the returning or paying 
bank;

provided that the proceeds of the payment are available to the returning 
or paying bank in cash or by credit to an account of the returning or 
paying bank on or as of the payment date. If the payment date is not a 
banking day for the returning or paying bank or the depositary bank is 
unable to make the payment on the payment date, payment shall be made by 
the next day that is a banking day for the returning or paying bank. 
These payments are final when made.
    (c) Misrouted returned checks and written notices of nonpayment. If 
a bank receives a returned check or written notice of nonpayment on the 
basis that it is the depositary bank, and the bank determines that it is 
not the depositary bank with respect to the check or notice, it shall 
either promptly send the returned check or notice to the depositary bank 
directly or by means of a returning bank agreeing to handle the returned 
check expeditiously under Sec. 229.31(a), or send the check or notice 
back to the bank from which it was received.
    (d) Charges. A depositary bank may not impose a charge for accepting 
and paying checks being returned to it.

[53 FR 19433, May 27, 1988, as amended by Reg. CC, 54 FR 13850, Apr. 6, 
1989]

Return to top

                     Subpart C--Collection of Checks
 
    (a) Requirement. If a paying bank determines not to pay a check in 
the amount of $2,500 or more, it shall provide notice of nonpayment such 
that the notice is received by the depositary bank by 4:00 p.m. (local 
time) on the second business day following the banking day on which the 
check was presented to the paying bank. If the

[[Page 494]]

day the paying bank is required to provide notice is not a banking day 
for the depositary bank, receipt of notice on the depositary bank's next 
banking day constitutes timely notice. Notice may be provided by any 
reasonable means, including the returned check, a writing (including a 
copy of the check), telephone, Fedwire, telex, or other form of 
telegraph.
    (b) Content of notice. Notice must include the--
    (1) Name and routing number of the paying bank;
    (2) Name of the payee(s);
    (3) Amount;
    (4) Date of the indorsement of the depositary bank;
    (5) Account number of the customer(s) of the depositary bank;
    (6) Branch name or number of the depositary bank from its 
indorsement;
    (7) Trace number associated with the indorsement of the depositary 
bank; and
    (8) Reason for nonpayment.

The notice may include other information from the check that may be 
useful in identifying the check being returned and the customer, and, in 
the case of a written notice, must include the name and routing number 
of the depositary bank from its indorsement. If the paying bank is not 
sure of an item of information, it shall include the information 
required by this paragraph to the extent possible, and identify any item 
of information for which the bank is not sure of the accuracy with 
question marks.
    (c) Acceptance of notice. The depositary bank shall accept notices 
during its banking day--
    (1) Either at the telephone or telegraph number of its return check 
unit indicated in the indorsement, or, if no such number appears in the 
indorsement or if the number is illegible, at the general purpose 
telephone or telegraph number of its head office or the branch indicated 
in the indorsement; and
    (2) At any other number held out by the bank for receipt of notice 
of nonpayment, and, in the case of written notice, as specified in 
Sec. 229.32(a).
    (d) Notification to customer. If the depositary bank receives a 
returned check or notice of nonpayment, it shall send notice to its 
customer of the facts by midnight of the banking day following the 
banking day on which it received the returned check or notice, or within 
a longer reasonable time.
    (e) Depositary bank without accounts. The requirements of this 
section do not apply to checks deposited in a depositary bank that does 
not maintain accounts.

Return to top

                     Subpart C--Collection of Checks
 
    (a) Warranties. Each paying bank or returning bank that transfers a 
returned check and receives a settlement or other consideration for it 
warrants to the transferee returning bank, to any subsequent returning 
bank, to the depositary bank, and to the owner of the check, that--
    (1) The paying bank, or in the case of a check payable by a bank and 
payable through another bank, the bank by which the check is payable, 
returned the check within its deadline under the U.C.C., Regulation J 
(12 CFR part 210), or Sec. 229.30(c) of this part;
    (2) It is authorized to return the check;
    (3) The check has not been materially altered; and
    (4) In the case of a notice in lieu of return, the original check 
has not and will not be returned.

These warranties are not made with respect to checks drawn on the 
Treasury of the United States, U.S. Postal Service money orders, or 
checks drawn on a state or a unit of general local government that are 
not payable through or at a bank.
    (b) Warranty of notice of nonpayment. Each paying bank that gives a 
notice of nonpayment warrants to the transferee bank, to any subsequent 
transferee bank, to the depositary bank, and to the owner of the check 
that--
    (1) The paying bank, or in the case of a check payable by a bank and 
payable through another bank, the bank by which the check is payable, 
returned or will return the check within its deadline under the U.C.C., 
Regulation J (12 CFR part 210), or Sec. 229.30(c) of this part;
    (2) It is authorized to send the notice; and
    (3) The check has not been materially altered.

[[Page 495]]


These warranties are not made with respect to checks drawn on a state or 
a unit of general local government that are not payable through or at a 
bank.
    (c) Warranty of settlement amount, encoding, and offset. (1) Each 
bank that presents one or more checks to a paying bank and in return 
receives a settlement or other consideration warrants to the paying bank 
that the total amount of the checks presented is equal to the total 
amount of the settlement demanded by the presenting bank from the paying 
bank.
    (2) Each bank that transfers one or more checks or returned checks 
to a collecting, returning, or depositary bank and in return receives a 
settlement or other consideration warrants to the transferee bank that 
the accompanying information, if any, accurately indicates the total 
amount of the checks or returned checks transferred.
    (3) Each bank that presents or transfers a check or returned check 
warrants to any bank that subsequently handles it that, at the time of 
presentment or transfer, the information encoded after issue in magnetic 
ink on the check or returned check is correct.
    (4) If a bank settles with another bank for checks presented, or for 
returned checks for which it is the depositary bank, in amount exceeding 
the total amount of the checks, the settling bank may set off the excess 
settlement amount against subsequent settlements for checks presented, 
or for returned checks for which it is the depositary bank, that it 
receives from the other bank.
    (d) Damages. Damages for breach of these warranties shall not exceed 
the consideration received by the bank that presents or transfers a 
check or returned check, plus interest compensation and expenses related 
to the check or returned check, if any.
    (e) Tender of defense. If a bank is sued for breach of a warranty 
under this section, it may give a prior bank in the collection or return 
chain written notice of the litigation, and the bank notified may then 
give similar notice to any other prior bank. If the notice states that 
the bank notified may come in and defend and that failure to do so will 
bind the bank notified in an action later brought by the bank giving the 
notice as to any determination of fact common to the two litigations, 
the bank notified is so bound unless after seasonable receipt of the 
notice the bank notified does come in and defend.
    (f) Notice of claim. Unless a claimant gives notice of a claim for 
breach of warranty under this section to the bank that made the warranty 
within 30 days after the claimant has reason to know of the breach and 
the identity of the warranting bank, the warranting bank is discharged 
to the extent of any loss caused by the delay in giving notice of the 
claim.

[53 FR 19433, May 27, 1988, as amended by Reg. CC, 54 FR 13850, Apr. 6, 
1989; 57 FR 46972, Oct. 14, 1992; 62 FR 13810, Mar. 24, 1997]

Return to top

                     Subpart C--Collection of Checks

    (a) Indorsement standards. A bank (other than a paying bank) that 
handles a check during forward collection or a returned check shall 
legibly indorse the check in accordance with the indorsement standard 
set forth in appendix D to this part.
    (b) Liability of bank handling check. A bank that handles a check 
for forward collection or return is liable to any bank that subsequently 
handles the check to the extent that the subsequent bank does not 
receive payment for the check because of suspension of payments by 
another bank or otherwise. This paragraph applies whether or not a bank 
has placed its indorsement on the check. This liability is not affected 
by the failure of any bank to exercise ordinary care, but any bank 
failing to do so remains liable. A bank seeking recovery against a prior 
bank shall send notice to that prior bank reasonably promptly after it 
learns the facts entitling it to recover. A bank may recover from the 
bank with which it settled for the check by revoking the settlement, 
charging back any credit given to an account, or obtaining a refund. A 
bank may have the rights of a holder with respect to each check it 
handles.
    (c) Indorsement by a bank. After a check has been indorsed by a 
bank, only a bank may acquire the rights of a holder--
    (1) Until the check has been returned to the person initiating 
collection; or

[[Page 496]]

    (2) Until the check has been specially indorsed by a bank to a 
person who is not a bank.
    (d) Indorsement for depositary bank. A depositary bank may arrange 
with another bank to apply the other bank's indorsement as the 
depositary bank indorsement, provided that any indorsement of the 
depositary bank on the check avoids the area reserved for the depositary 
bank indorsement as specified in appendix D. The other bank indorsing as 
depositary bank is considered the depositary bank for purposes of 
subpart C of this part.

[53 FR 19433, May 27, 1988, as amended by Reg. CC, 55 FR 21855, May 30, 
1990]

Return to top

                     Subpart C--Collection of Checks 

    (a) Payable through and payable at checks. A check payable at or 
through a paying bank is considered to be drawn on that bank for 
purposes of the expeditious return and notice of nonpayment requirements 
of this subpart.
    (b) Receipt at bank office or processing center. A check is 
considered received by the paying bank when it is received:
    (1) At a location to which delivery is requested by the paying bank;
    (2) At an address of the bank associated with the routing number on 
the check, whether in magnetic ink or in fractional form;
    (3) At any branch or head office, if the bank is identified on the 
check by name without address; or
    (4) At a branch, head office, or other location consistent with the 
name and address of the bank on the check if the bank is identified on 
the check by name and address.
    (c) [Reserved]
    (d) Liability of bank during forward collection. Settlements between 
banks for the forward collection of a check are final when made; 
however, a collecting bank handling a check for forward collection may 
be liable to a prior collecting bank, including the depositary bank, and 
the depositary bank's customer.
    (e) Issuance of payable-through checks. (1) A bank that arranges for 
checks payable by it to be payable through another bank shall require 
that the following information be printed conspicuously on the face of 
each check:
    (i) The name, location, and first four digits of the nine-digit 
routing number of the bank by which the check is payable; and
    (ii) The words ``payable through'' followed by the name of the 
payable-through bank.
    (2) A bank is responsible for damages under Sec. 229.38 to the 
extent that a check payable by it and not payable through another bank 
is labelled as provided in this section.
    (f) Same-day settlement. (1) A check is considered presented, and a 
paying bank must settle for or return the check pursuant to paragraph 
(f)(2) of this section, if a presenting bank delivers the check in 
accordance with reasonable delivery requirements established by the 
paying bank and demands payment under this paragraph (f)--
    (i) At a location designated by the paying bank for receipt of 
checks under this paragraph (f) that is in the check processing region 
consistent with the routing number encoded in magnetic ink on the check 
and at which the paying bank would be considered to have received the 
check under paragraph (b) of this section or, if no location is 
designated, at any location described in paragraph (b) of this section; 
and
    (ii) By 8 a.m. on a business day (local time of the location 
described in paragraph (f)(1)(i) of this section).

    A paying bank may require that checks presented for settlement 
pursuant to this paragraph (f)(1) be separated from other forward-
collection checks or returned checks.
    (2) If presentment of a check meets the requirements of paragraph 
(f)(1) of this section, the paying bank is accountable to the presenting 
bank for the amount of the check unless, by the close of Fedwire on the 
business day it receives the check, it either:
    (i) Settles with the presenting bank for the amount of the check by 
credit to an account at a Federal Reserve Bank designated by the 
presenting bank; or
    (ii) Returns the check.
    (3) Notwithstanding paragraph (f)(2) of this section, if a paying 
bank closes on a business day and receives presentment of a check on 
that day in accordance with paragraph (f)(1) of this section, the paying 
bank is accountable to

[[Page 497]]

the presenting bank for the amount of the check unless, by the close of 
Fedwire on its next banking day, it either:
    (i) Settles with the presenting bank for the amount of the check by 
credit to an account at a Federal Reserve Bank designated by the 
presenting bank; or
    (ii) Returns the check.

    If the closing is voluntary, unless the paying bank settles for or 
returns the check in accordance with paragraph (f)(2) of this section, 
it shall pay interest compensation to the presenting bank for each day 
after the business day on which the check was presented until the paying 
bank settles for the check, including the day of settlement.

[Reg. CC, 53 FR 19433, May 27, 1988, as amended by 54 FR 32047, Aug. 4, 
1989; 55 FR 21855, May 30, 1990; 57 FR 46972, Oct. 14, 1992; 60 FR 
51671, Oct. 3, 1995; 62 FR 13810, Mar. 24, 1997; 64 FR 59613, Nov. 3, 
1999]

Return to top

                     Subpart C--Collection of Checks

    The effect of the provisions of subpart C may be varied by 
agreement, except that no agreement can disclaim the responsibility of a 
bank for its own lack of good faith or failure to exercise ordinary 
care, or can limit the measure of damages for such lack or failure; but 
the parties may determine by agreement the standards by which such 
responsibility is to be measured if such standards are not manifestly 
unreasonable.

Return to top

                     Subpart C--Collection of Checks

    (a) Standard of care; liability; measure of damages. A bank shall 
exercise ordinary care and act in good faith in complying with the 
requirements of this subpart. A bank that fails to exercise ordinary 
care or act in good faith under this subpart may be liable to the 
depositary bank, the depositary bank's customer, the owner of a check, 
or another party to the check. The measure of damages for failure to 
exercise ordinary care is the amount of the loss incurred, up to the 
amount of the check, reduced by the amount of the loss that party would 
have incurred even if the bank had exercised ordinary care. A bank that 
fails to act in good faith under this subpart may be liable for other 
damages, if any, suffered by the party as a proximate consequence. 
Subject to a bank's duty to exercise ordinary care or act in good faith 
in choosing the means of return or notice of nonpayment, the bank is not 
liable for the insolvency, neglect, misconduct, mistake, or default of 
another bank or person, or for loss or destruction of a check or notice 
of nonpayment in transit or in the possession of others. This section 
does not affect a paying bank's liability to its customer under the 
U.C.C. or other law.
    (b) Paying bank's failure to make timely return. If a paying bank 
fails both to comply with Sec. 229.30(a) and to comply with the deadline 
for return under the U.C.C., Regulation J (12 CFR part 210), or 
Sec. 229.30(c) in connection with a single nonpayment of a check, the 
paying bank shall be liable under either Sec. 229.30(a) or such other 
provision, but not both.
    (c) Comparative negligence. If a person, including a bank, fails to 
exercise ordinary care or act in good faith under this subpart in 
indorsing a check (Sec. 229.35), accepting a returned check or notice of 
nonpayment (Secs. 229.32(a) and 229.33(c)), or otherwise, the damages 
incurred by that person under Sec. 229.38(a) shall be diminished in 
proportion to the amount of negligence or bad faith attributable to that 
person.
    (d) Responsibility for certain aspects of checks--(1) A paying bank, 
or in the case of a check payable through the paying bank and payable by 
another bank, the bank by which the check is payable, is responsible for 
damages under paragraph (a) of this section to the extent that the 
condition of the check when issued by it or its customer adversely 
affects the ability of a bank to indorse the check legibly in accordance 
with Sec. 229.35. A depositary bank is responsible for damages under 
paragraph (a) of this section to the extent that the condition of the 
back of a check arising after the issuance of the check and prior to 
acceptance of the check by it adversely affects the ability of a bank to 
indorse the check legibly in accordance with Sec. 229.35. Responsibility 
under this paragraph shall be treated as negligence of the paying or 
depositary bank for purposes of paragraph (c) of this section.

[[Page 498]]

    (2) Responsibility for payable through checks. In the case of a 
check that is payable by a bank and payable through a paying bank 
located in a different check processing region than the bank by which 
the check is payable, the bank by which the check is payable is 
responsible for damages under paragraph (a) of this section, to the 
extent that the check is not returned to the depositary bank through the 
payable through bank as quickly as the check would have been required to 
be returned under Sec. 229.30(a) had the bank by which the check is 
payable--
    (i) Received the check as paying bank on the day the payable through 
bank received the check; and
    (ii) Returned the check as paying bank in accordance with 
Sec. 229.30(a)(1).

Responsibility under this paragraph shall be treated as negligence of 
the bank by which the check is payable for purposes of paragraph (c) of 
this section.
    (e) Timeliness of action. If a bank is delayed in acting beyond the 
time limits set forth in this subpart because of interruption of 
communication or computer facilities, suspension of payments by a bank, 
war, emergency conditions, failure of equipment, or other circumstances 
beyond its control, its time for acting is extended for the time 
necessary to complete the action, if it exercises such diligence as the 
circumstances require.
    (f) Exclusion. Section 229.21 of this part and section 611 (a), (b), 
and (c) of the Act (12 U.S.C. 4010 (a), (b), and (c)) do not apply to 
this subpart.
    (g) Jurisdiction. Any action under this subpart may be brought in 
any United States district court, or in any other court of competent 
jurisdiction, and shall be brought within one year after the date of the 
occurrence of the violation involved.
    (h) Reliance on Board rulings. No provision of this subpart imposing 
any liability shall apply to any act done or omitted in good faith in 
conformity with any rule, regulation, or interpretation thereof by the 
Board, regardless of whether the rule, regulation, or interpretation is 
amended, rescinded, or determined by judicial or other authority to be 
invalid for any reason after the act or omission has occurred.

[53 FR 19433, May 27, 1988, as amended by Reg. CC, 54 FR 13850, Apr. 6, 
1989; 54 FR 32047, Aug. 4, 1989]

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                     Subpart C--Collection of Checks

    (a) Duty of receiver. A check or returned check in, or coming into, 
the possession of a paying, collecting, depositary, or returning bank 
that suspends payment, and which is not paid, shall be returned by the 
receiver, trustee, or agent in charge of the closed bank to the bank or 
customer that transferred the check to the closed bank.
    (b) Preference against paying or depositary bank. If a paying bank 
finally pays a check, or if a depositary bank becomes obligated to pay a 
returned check, and suspends payment without making a settlement for the 
check or returned check with the prior bank that is or becomes final, 
the prior bank has a preferred claim against the paying bank or the 
depositary bank.
    (c) Preference against collecting, paying, or returning bank. If a 
collecting, paying, or returning bank receives settlement from a 
subsequent bank for a check or returned check, which settlement is or 
becomes final, and suspends payments without making a settlement for the 
check with the prior bank, which is or becomes final, the prior bank has 
a preferred claim against the collecting or returning bank.
    (d) Preference against presenting bank. If a paying bank settles 
with a presenting bank for one or more checks, and if the presenting 
bank breaches a warranty specified in Sec. 229.34(c) (1) or (3) with 
respect to those checks and suspends payments before satisfying the 
paying bank's warranty claim, the paying bank has a preferred claim 
against the presenting bank for the amount of the warranty claim.
    (e) Finality of settlement. If a paying or depositary bank gives, or 
a collecting, paying, or returning bank gives or receives, a settlement 
for a check or returned check and thereafter suspends payment, the 
suspension does not prevent or interfere with the settlement becoming 
final if such finality occurs automatically upon the lapse of

[[Page 499]]

a certain time or the happening of certain events.

[Reg. CC, 53 FR 19433, May 27, 1988, as amended at 57 FR 46973, Oct. 14, 
1992; Reg. CC, 62 FR 13810, Mar. 24, 1997]

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                     Subpart C--Collection of Checks 

    (a) In general. For purposes of this subpart, two or more banks that 
have engaged in a merger transaction may be considered to be separate 
banks for a period of one year following the consummation of the merger 
transaction.
    (b) Merger transactions on or after July 1, 1998, and before March 
1, 2000. If banks have consummated a merger transaction on or after July 
1, 1998, and before March 1, 2000, the merged banks may be considered 
separate banks until March 1, 2001.

[Reg. CC, 53 FR 19433, May 27, 1988, as amended at 64 FR 14577, Mar. 26, 
1999]

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                     Subpart C--Collection of Checks
 
    The provisions of this subpart supersede any inconsistent provisions 
of the U.C.C. as adopted in any state, or of any other state law, but 
only to the extent of the inconsistency.

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                     Subpart C--Collection of Checks
 
    The expeditious-return (Secs. 229.30(a) and 229.31(a)), notice-of-
nonpayment (Sec. 229.33), and same-day settlement (Sec. 229.36(f)) 
requirements of this subpart do not apply to a check drawn upon the 
United States Treasury, to a U.S. Postal Service money order, or to a 
check drawn on a state or a unit of general local government that is not 
payable through or at a bank.

[Reg. CC, 62 FR 13810, Mar. 24, 1997]

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                     Subpart C--Collection of Checks

    (a) Definitions. The definitions in Sec. 229.2 apply to this 
section, unless otherwise noted. In addition, for the purposes of this 
section--
    (1) Pacific island bank means an office of an institution that would 
be a bank as defined in Sec. 229.2(e) but for the fact that the office 
is located in Guam, American Samoa, or the Northern Mariana Islands;
    (2) Pacific island check means a demand draft drawn on or payable 
through or at a Pacific island bank, which is not a check as defined in 
Sec. 229.2(k).
    (b) Rules applicable to Pacific island checks. To the extent a bank 
handles a Pacific island check as if it were a check defined in 
Sec. 229.2(k), the bank is subject to the following sections of this 
part (and the word ``check'' in each such section is construed to 
include a Pacific island check)--
    (1) Sec. 229.31, except that the returning bank is not subject to 
the requirement to return a Pacific island check in an expeditious 
manner;
    (2) Sec. 229.32;
    (3) Sec. 229.34(c)(2), (c)(3), (d), and (e);
    (4) Sec. 229.35; for purposes of Sec. 229.35(c), the Pacific island 
bank is deemed to be a bank;
    (5) Sec. 229.36(d);
    (6) Sec. 229.37;
    (7) Sec. 229.38(a) and (c) through (h);
    (8) Sec. 229.39(a), (b), (c) and (e); and
    (9) Secs. 229.40 through 229.42.

[Reg. CC, 62 FR 13810, Mar. 24, 1997]

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