Title 12--Banks and Banking

CHAPTER II--FEDERAL RESERVE SYSTEM

PART 210--COLLECTION OF CHECKS AND OTHER ITEMS BY FEDERAL RESERVE BANKS AND FUNDS TRANSFERS THROUGH FEDWIRE (REGULATION J)

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Sec. 210.1 Authority, scope and purpose.
    

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    The Board of Governors of the Federal Reserve System (Board) has 
issued this subpart pursuant to the Federal Reserve Act, sections 11 (i) 
and (j) (12 U.S.C. 248 (i) and (j)), section 13 (12 U.S.C. 342), section 
16 (12 U.S.C. 248(o) and 360), and section 19(f) (12 U.S.C. 464); the 
Expedited Funds Availability Act (12 U.S.C. 4001 et seq.); and other 
laws. This subpart governs the collection of checks and other cash and 
noncash items and the handling of returned checks by Federal Reserve 
Banks. Its purpose is to provide rules for collecting and returning 
items and settling balances.

[53 FR 21984, June 13, 1988, as amended at Reg. J, 59 FR 22965, May 4, 
1994]

Sec. 210.2 Definitions.
     

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    As used in this subpart, unless the context otherwise requires:
    (a) Account means an account with reserve or clearing balances on 
the books of a Federal Reserve Bank. A subaccount is an informational 
record of a subset of transactions that affect an account and is not a 
separate account.
    (b) Actually and finally collected funds means cash or any other 
form of payment that is, or has become, final and irrevocable.
    (c) Administrative Reserve Bank with respect to an entity means the 
Reserve Bank in whose District the entity is located, as determined 
under the procedure described in Sec. 204.3(b)(2) of this chapter 
(Regulation D), even if the entity is not otherwise subject to that 
section.
    (d) Bank means any person engaged in the business of banking. A 
branch or separate office of a bank is a separate bank to the extent 
provided in the Uniform Commercial Code.
    (e) Bank draft means a check drawn by one bank on another bank.
    (f) Banking day means the part of a day on which a bank is open to 
the public for carrying on substantially all of its banking functions.
    (g) Cash item means --

[[Page 257]]

    (1) A check other than one classified as a noncash item under this 
section; or
    (2) Any other item payable on demand and collectible at par that the 
Reserve Bank that receives the item is willing to accept as a cash item. 
Cash item does not include a returned check.
    (h) Check means a draft, as defined in the Uniform Commercial Code, 
that is drawn on a bank and payable on demand. Check as defined in 12 
CFR 229.2(k) means an item defined as a check in 12 CFR 229.2(k) for 
purposes of subpart C of part 229.
    (i) Item means an instrument or a promise or order to pay money, 
whether negotiable or not, that is:
    (1) Payable in a Federal Reserve District \1\ (District);
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    \1\ For purposes of this subpart, the Virgin Islands and Puerto Rico 
are deemed to be in the Second District, and Guam, American Samoa, and 
the Northern Mariana Islands in the Twelfth District.
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    (2) Sent by a sender to a Reserve Bank for handling under this 
subpart; and
    (3) Collectible in funds acceptable to the Reserve Bank of the 
District in which the instrument is payable.

Unless otherwise indicated, item includes both a cash and a noncash 
item, and includes a returned check sent by a paying or returning bank. 
Item does not include a check that cannot be collected at par, or a 
payment order as defined in Sec. 210.26(i) and handled under subpart B 
of this part.

    (j) Nonbank payor means a payor of an item, other than a bank.
    (k) Noncash item means an item that a receiving Reserve Bank 
classifies in its operating circulars as requiring special handling. The 
term also means an item normally received as a cash item if a Reserve 
Bank decides that special conditions require that it handle the item as 
a noncash item.
    (l) Paying bank means--
    (1) The bank by which an item is payable unless the item is payable 
or collectible at or through another bank and is sent to the other bank 
for payment or collection;
    (2) The bank at or through which an item is payable or collectible 
and to which it sent for payment or collection; or
    (3) The bank whose routing number appears on a check in magnetic 
characters or fractional form and to which the check is sent for payment 
or collection.
    (m) Returned check means a cash item or a check as defined in 12 CFR 
229.2(k) returned by a paying bank, including a notice of nonpayment in 
lieu of a returned check, whether or not a Reserve Bank handled the 
check for collection.
    (n) Sender means any of the following that sends an item to a 
Reserve Bank for forward collection:
    (1) Depository institution means a depository institution as defined 
in section 19(b) of the Federal Reserve Act. (12 U.S.C. 461(b))
    (2) Clearing institution means:
    (i) An institution that is not a depository institution, but 
maintains with a Reserve Bank the balance referred to in the first 
paragraph of section 13 of the Federal Reserve Act (12 U.S.C. 342); or
    (ii) A corporation that maintains an account with a Reserve Bank in 
conformity with Sec. 211.4 of this chapter (Regulation K).
    (3) International Organization means an international organization 
for which a Reserve Bank is empowered to act as depository or fiscal 
agent and maintains an account.
    (4) Foreign correspondent means any of the following for which a 
Reserve Bank maintains an account: a foreign bank or banker, a foreign 
state as defined in section 25(b) of the Federal Reserve Act (12 U.S.C. 
632), or a foreign correspondent or agency referred to in section 14(e) 
of that Act (12 U.S.C. 358).
    (o) State means a State of the United States, the District of 
Columbia, Puerto Rico, or a territory, possession, or dependency of the 
United States.

Unless the context otherwise requires, the terms not defined herein have 
the meanings set forth in 12 CFR 229.2 applicable to subpart C of part 
229, and the terms not defined herein or in 12 CFR 229.2 have the 
meanings set forth in the Uniform Commercial Code.
    (p) Clock hour means a time that is on the hour, such as 1:00, 2:00, 
etc.
    (q) Fedwire has the same meaning as that set forth in 
Sec. 210.26(e).

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    (r) Uniform Commercial Code means the Uniform Commercial Code as 
adopted in a state.

[45 FR 68634, Oct. 16, 1980, as amended at 46 FR 42059, Aug. 19, 1981; 
51 FR 21744, June 16, 1986; 53 FR 21984, June 13, 1988; 57 FR 46955, 
Oct. 14, 1992; Reg. J, 59 FR 22965, May 4, 1994; 62 FR 48171, Sept. 15, 
1997]

Sec. 210.3 General provisions.
     

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    (a) General. Each Reserve Bank shall receive and handle items in 
accordance with this subpart, and shall issue operating circulars 
governing the details of its handling of items and other matters deemed 
appropriate by the Reserve Bank. The circulars may, among other things, 
classify cash items and noncash items, require separate sorts and 
letters, provide different closing times for the receipt of different 
classes or types of items, provide for instructions by an Administrative 
Reserve Bank to other Reserve Banks, set forth terms of services, and 
establish procedures for adjustments on a Reserve Bank's books, 
including amounts, waiver of expenses, and payment of interest by as-of 
adjustment.
    (b) Binding effect. This subpart, together with subpart C of part 
229 and the operating circulars of the Reserve Banks, are binding on all 
parties interested in an item handled by any Reserve Bank.
    (c) Government items. As depositaries and fiscal agents of the 
United States, Reserve Banks handle certain items payable by the United 
States or certain Federal agencies as cash or noncash items. To the 
extent provided by regulations issued by, and arrangements made with, 
the United States Treasury Department and other Government departments 
and agencies, the handling of such items is governed by this subpart. 
The Reserve Banks shall include in their operating circulars such 
information regarding these regulations and arrangements as the Reserve 
Banks deem appropriate.
    (d) Government senders. Except as otherwise provided by statutes of 
the United States, or regulations issued or arrangements made 
thereunder, this subpart and the operating circulars of the Reserve 
Banks apply to the following when acting as a sender: a department, 
agency, instrumentality, independent establishment, or office of the 
United States, or a wholly owned or controlled Government corporation, 
that maintains or uses an account with a Reserve Bank.
    (e) Foreign items. A Reserve Bank also may receive and handle 
certain items payable outside a Federal Reserve District, as provided in 
its operating circulars. The handling of such items in a state is 
governed by this subpart, and the handling of such items outside a state 
is governed by the local law.
    (f) Relation to other law. The provisions of this subpart supersede 
any inconsistent provisions of the Uniform Commercial Code, of any other 
state law, or of part 229 of this title, but only to the extent of the 
inconsistency.

[45 FR 68634, Oct. 16, 1980, as amended at 51 FR 21744, June 16, 1986; 
53 FR 21984, June 13, 1988; Reg. J, 59 FR 22965, May 4, 1994; 62 FR 
48171, Sept. 15, 1997]

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    (a) Sending of items. A sender, other than a Reserve Bank, may send 
any item to any Reserve Bank, whether or not the item is payable within 
the Reserve Bank's District, unless the sender's Administrative Reserve 
Bank directs the sender to send the item to a specific Reserve Bank.
    (b) Handling of items. (1) The following parties, in the following 
order, are deemed to have handled an item that is sent to a Reserve Bank 
for collection--
    (i) The initial sender
    (ii) The initial sender's Administrative Reserve Bank
    (iii) The Reserve Bank that receives the item from the initial 
sender (if different from the initial sender's Administrative Reserve 
Bank); and
    (iv) Another Reserve Bank, if any, that receives the item from a 
Reserve Bank.
    (2) A Reserve Bank that is not described in paragraph (b)(1) of this 
section is not a party that handles an item and is not a collecting bank 
with respect to an item.
    (3) The identity and order of the parties under paragraph (b)(1) of 
this section determine the relationships and the rights and liabilities 
of the parties under this subpart, part 229 of this

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chapter (Regulation CC), and the Uniform Commercial Code. An initial 
sender's Administrative Reserve Bank that is deemed to handle an item is 
also deemed to be a sender with respect to that item. The Reserve Banks 
that are deemed to handle an item are deemed to be agents or subagents 
of the owner of the item, as provided in Sec. 210.6(a) of this subpart.
    (c) Checks received at par. The Reserve Banks shall receive cash 
items and other checks at par.

[Reg. J, 62 FR 48171, Sept. 15, 1997]

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    (a) Sender's agreement. The warranties, authorizations, and 
agreements made pursuant to this paragraph may not be disclaimed and are 
made whether or not the item bears an indorsement of the sender. By 
sending an item to a Reserve Bank, the sender:
    (1) Authorizes the sender's Administrative Reserve Bank and any 
other Reserve Bank or collecting bank to which the item is sent to 
handle the item (and authorizes any Reserve Bank that handles settlement 
for the item to make accounting entries), subject to this subpart and to 
the Reserve Banks' operating circulars, and warrants its authority to 
give this authorization;
    (2) Warrants to each Reserve Bank handling the item that:
    (i) The sender is a person entitled to enforce the item or 
authorized to obtain payment of the item on behalf of a person entitled 
to enforce the item; and
    (ii) The item has not been altered; but this paragraph (a)(2) does 
not limit any warranty by a sender or other prior party arising under 
state law or under subpart C of part 229 of this title; and
    (3) Agrees to indemnify each Reserve Bank for any loss of expense 
sustained (including attorneys' fees and expenses of litigation) 
resulting from (i) the sender's lack of authority to make the warranty 
in paragraph (a)(1) of this section; (ii) any action taken by the 
Reserve Bank within the scope of its authority in handling the item; or 
(iii) any warranty made by the Reserve Bank under Sec. 210.6(b) of this 
subpart.
    (b) Recovery by Reserve Bank. If an action or proceeding is brought 
against (or if defense is tendered to) a Reserve Bank that has handled 
an item, based on:
    (1) The alleged failure of the sender to have the authority to make 
the warranty and agreement in paragraph (a)(1) of this section;
    (2) Any action by the Reserve Bank within the scope of its authority 
in handling the item; or
    (3) Any warranty made by the Reserve Bank under Sec. 210.6(b) of 
this subpart, the Reserve Bank may, upon entry of a final judgment or 
decree, recover from the sender the amount of attorneys' fees and other 
expenses of litigation incurred, as well as any amount the Reserve Bank 
is required to pay because of the judgment or decree or the tender of 
defense, together with interest thereon.
    (c) Methods of recovery. (1) The Reserve Bank may recover the amount 
stated in paragraph (b) of this section by charging any account on its 
books that is maintained or used by the sender (or by charging a Reserve 
Bank sender), if--
    (i) The Reserve Bank made seasonable written demand on the sender to 
assume defense of the action or proceeding; and
    (ii) The sender has not made any other arrangement for payment that 
is acceptable to the Reserve Bank.
    (2) The Reserve Bank is not responsible for defending the action or 
proceeding before using this method of recovery. A Reserve Bank that has 
been charged under this paragraph (c) may recover from its sender in the 
manner and under the circumstances set forth in this paragraph (c). A 
Reserve Bank's failure to avail itself of the remedy provided in this 
paragraph (c) does not prejudice its enforcement in any other manner of 
the indemnity agreement referred to in paragraph (a)(3) of this section.
    (d) Security interest. When a sender sends an item to a Reserve 
Bank, the sender and any prior collecting bank grant to the sender's 
Administrative Reserve Bank a security interest in all of their 
respective assets in the possession of, or held for the account of, any

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Reserve Bank to secure their respective obligations due or to become due 
to the Administrative Reserve Bank under this subpart or subpart C of 
part 229 of this chapter (Regulation CC). The security interest attaches 
when a warranty is breached or any other obligation to the Reserve Bank 
is incurred. If the Reserve Bank, in its sole discretion, deems itself 
insecure and gives notice thereof to the sender or prior collecting 
bank, or if the sender or prior collecting bank suspends payments or is 
closed, the Reserve Bank may take any action authorized by law to 
recover the amount of an obligation, including, but not limited to, the 
exercise of rights of set off, the realization on any available 
collateral, and any other rights it may have as a creditor under 
applicable law.

[45 FR 68634, Oct. 16, 1980, as amended at 51 FR 21745, June 16, 1986; 
Reg. J, 59 FR 22965, May 4, 1994; 62 FR 48171, Sept. 15, 1997]

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    (a)(1) Status and liability. A Reserve Bank that handles an item 
shall act as agent or subagent of the owner with respect to the item. 
This agency terminates when a Reserve Bank receives final payment for 
the item in actually and finally collected funds, a Reserve Bank makes 
the proceeds available for use by the sender, and the time for 
commencing all actions against the Reserve Bank has expired. A Reserve 
Bank shall not have or assume any liability with respect to an item or 
its proceeds except--
    (i) For the Reserve Bank's own lack of good faith or failure to 
exercise ordinary care;
    (ii) As provided in paragraph (b) of this section; and
    (iii) As provided in subpart C of part 229 of this chapter 
(Regulation CC).
    (2) Reliance on routing designation appearing on item. A Reserve 
Bank may present or send an item based on the routing number or other 
designation of a paying bank or nonbank payor appearing in any form on 
the item when the Reserve Bank receives it. A Reserve Bank shall not be 
responsible for any delay resulting from its acting on any designation, 
whether inscribed by magnetic ink or by other means, and whether or not 
the designation acted on is consistent with any other designation 
appearing on the item.
    (b) Warranties and liability. (1) By presenting or sending an item, 
a Reserve Bank warrants to a subsequent collecting bank and to the 
paying bank and any other payor--
    (i) That the Reserve Bank is a person entitled to enforce the item 
(or is authorized to obtain payment of the item on behalf of a person 
who is either entitled to enforce the item or authorized to obtain 
payment on behalf of a person entitled to enforce the item); and
    (ii) That the item has not been altered.
    (2) The Reserve Bank also makes the warranties set forth in 
Sec. 229.34(c) of this chapter, subject to the terms of part 229 of this 
chapter (Regulation CC). The Reserve Bank shall not have or assume any 
other liability to the paying bank or other payor, except for the 
Reserve Bank's own lack of good faith or failure to exercise ordinary 
care.
    (c) Time for commencing action against Reserve Bank. A claim against 
a Reserve Bank for lack of good faith or failure to exercise ordinary 
care shall be barred unless the action on the claim is commenced within 
two years after the claim accrues. A claim accrues on the date when a 
Reserve Bank's alleged failure to exercise ordinary care or to act in 
good faith first results in damages to the claimant. This paragraph does 
not lengthen the time limit for claims under Sec. 229.38(g) of this 
title (which include claims for breach of warranty under Sec. 229.34 of 
this title).

[45 FR 68634, Oct. 16, 1980, as amended at 51 FR 21745, June 16, 1986; 
53 FR 21984, June 13, 1988; Reg. J, 59 FR 22966, May 4, 1994; 62 FR 
48172, Sept. 15, 1997]

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    (a) Presenting or sending. As provided under State law or as 
otherwise permitted by this section: (1) a Reserve Bank or a subsequent 
collecting bank may present an item for payment or send the item for 
presentment and payment; and
    (2) A Reserve Bank may send an item to a subsequent collecting bank 
with authority to present it for payment or

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to send it for presentment and payment.
    (b) Place of presentment. A Reserve Bank or subsequent collecting 
bank may present an item--
    (1) At a place requested by the paying bank;
    (2) In the case of a check as defined in 12 CFR 229.2(k), in 
accordance with 12 CFR 229.36;
    (3) At a place requested by the nonbank payor, if the item is 
payable by a nonbank payor other than through or at a paying bank;
    (4) Under a special collection agreement consistent with this 
subpart; or
    (5) Through a clearinghouse and subject to its rules and practices.
    (c) Presenting or sending direct. A Reserve Bank or subsequent 
collecting bank may, with respect to an item that may be sent to the 
paying bank or nonbank payor in the Reserve Bank's District--
    (1) Present or send the item direct to the paying bank, or to a 
place requested by the paying bank; or
    (2) If the item is payable by a nonbank payor other than through a 
paying bank, present it direct to the nonbank payor. Documents, 
securities, or other papers accompanying a noncash item shall not be 
delivered to the nonbank payor before the item is paid unless the sender 
specifically authorizes delivery.
    (d) Item sent to another district. A Reserve Bank receiving an item 
that may be sent to a paying bank or nonbank payor in another District 
ordinarily sends the item to the Reserve Bank of the other District, but 
with the agreement of the other Reserve Bank, may present or send the 
item as if it were sent to a paying bank or nonbank payor in its own 
District.

[45 FR 68634, Oct. 16, 1980, as amended at 53 FR 21985, June 13, 1988; 
62 FR 48172, Sept. 15, 1997]

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    (a) A Reserve Bank or a subsequent collecting bank may, if 
instructed by the sender, present a noncash item for acceptance in any 
manner authorized by law if--
    (1) The item provides that it must be presented for acceptance;
    (2) The item may be presented elsewhere than at the residence or 
place of business of the payor; or
    (3) The date of payment of the item depends on presentment for 
acceptance.
    (b) Documents accompanying a noncash item shall not be delivered to 
the payor upon acceptance of the item unless the sender specifically 
authorizes delivery. A Reserve Bank shall not have or assume any other 
obligation to present or to send for presentment for acceptance any 
noncash item.

[62 FR 48172, Sept. 15, 1997]

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    (a) Settlement through Administrative Reserve Bank. A paying bank 
shall settle for an item under this subpart with its Administrative 
Reserve Bank, whether or not the paying bank received the item from that 
Reserve Bank. A paying bank's settlement with its Administrative Reserve 
Bank is deemed to be settlement with the Reserve Bank from which the 
paying bank received the item. A paying bank may settle for an item 
using any account on a Reserve Bank's books by agreement with its 
Administrative Reserve Bank, any other Reserve Bank holding the 
settlement account, and the account-holder. The paying bank remains 
responsible for settlement if the Reserve Bank holding the settlement 
account does not, for any reason, obtain settlement in that account.
    (b) Cash items--(1) Settlement obligation. On the day a paying bank 
receives \2\ a cash item from a Reserve Bank, it shall settle for the 
item such that the proceeds of the settlement are available to its 
Administrative Reserve Bank by the close of Fedwire on that day, or it 
shall return the item by the later of the close of its banking day or 
the close of Fedwire. If the paying bank fails to settle for or return a 
cash item in accordance with this paragraph

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(b)(1), it is accountable for the amount of the item as of the close of 
its banking day or the close of Fedwire on the day it receives the item, 
whichever is earlier.
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    \2\ A paying bank is deemed to receive a cash item on its next 
banking day if it receives the item--
    (1) On a day other than a banking day for it; or
    (2) On a banking day for it, but after a ``cut-off hour'' 
established by it in accordance with state law.
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    (2) Time of settlement. (i) On the day a paying bank receives a cash 
item from a Reserve Bank, it shall settle for the item so that the 
proceeds of the settlement are available to its Administrative Reserve 
Bank, or return the item, by the latest of--
    (A) The next clock hour that is at least one hour after the paying 
bank receives the item;
    (B) 9:30 a.m. Eastern Time; or
    (C) Such later time as provided in the Reserve Banks' operating 
circulars.
    (ii) If the paying bank fails to settle for or return a cash item in 
accordance with paragraph (b)(2)(i) of this section, it shall be subject 
to any applicable overdraft charges. Settlement under paragraph 
(b)(2)(i) of this section satisfies the settlement requirements of 
paragraph (b)(1) of this section.
    (3) Paying bank closes voluntarily. (i) If a paying bank closes 
voluntarily so that it does not receive a cash item on a day that is a 
banking day for a Reserve Bank, and the Reserve Bank makes the cash item 
available to the paying bank on that day, the paying bank shall either--
    (A) On that day, settle for the item so that the proceeds of the 
settlement are available to its Administrative Reserve Bank, or return 
the item, by the latest of the next clock hour that is at least one hour 
after it ordinarily would have received the item, 9:30 a.m. Eastern 
Time, or such later time as provided in the Reserve Banks' operating 
circulars; or
    (B) On the next day that is a banking day for both the paying bank 
and the Reserve Bank, settle for the item so that the proceeds of the 
settlement are available to its Administrative Reserve Bank by 9:30 a.m. 
Eastern Time on that day or such later time as provided in the Reserve 
Banks' operating circulars and compensate the Reserve Bank for the value 
of the float associated with the item in accordance with procedures 
provided in the Reserve Bank's operating circular.
    (ii) If a paying bank closes voluntarily so that it does not receive 
a cash item on a day that is a banking day for a Reserve Bank, and the 
Reserve Bank makes the cash item available to the paying bank on that 
day, the paying bank is not considered to have received the item until 
its next banking day, but it shall be subject to any applicable 
overdraft charges if it fails to settle for or return the item in 
accordance with paragraph (b)(3)(i) of this section. The settlement 
requirements of paragraphs (b)(1) and (b)(2) of this section do not 
apply to a paying bank that settles in accordance with paragraph 
(b)(3)(i) of this section.
    (4) Reserve Bank closed. (i) If a paying bank receives a cash item 
from a Reserve Bank on a banking day that is not a banking day for the 
Reserve Bank, the paying bank shall--
    (A) Settle for the item so that the proceeds of the settlement are 
available to its Administrative Reserve Bank by the close of Fedwire on 
the Reserve Bank's next banking day, or return the item by midnight of 
the day it receives the item (if the paying bank fails to settle for or 
return a cash item in accordance with this paragraph (b)(4)(i)(A), it 
shall become accountable for the amount of the item as of the close of 
its banking day on the day it receives the item); and
    (B) Settle for the item so that the proceeds of the settlement are 
available to its Administrative Reserve Bank by 9:30 a.m. Eastern Time 
on the Reserve Bank's next banking day or such later time as provided in 
the Reserve Bank's operating circular, or return the item by midnight of 
the day it receives the item. If the paying bank fails to settle for or 
return a cash item in accordance with this paragraph (b)(4)(i)(B), it 
shall be subject to any applicable overdraft charges. Settlement under 
this paragraph (b)(4)(i)(B) satisfies the settlement requirements of 
paragraph (b)(4)(i)(A) of this section.
    (ii) The settlement requirements of paragraphs (b)(1) and (b)(2) of 
this section do not apply to a paying bank that settles in accordance 
with paragraph (b)(4)(i) of this section.
    (5) Manner of settlement. Settlement with a Reserve Bank under 
paragraphs (b) (1) through (4) of this section shall be made by debit to 
an account on the Reserve Bank's books, cash, or other

[[Page 263]]

form of settlement to which the Reserve Bank agrees, except that the 
Reserve Bank may, in its discretion, obtain settlement by charging the 
paying bank's account. A paying bank may not set off against the amount 
of a settlement under this section the amount of a claim with respect to 
another cash item, cash letter, or other claim under Sec. 229.34(c) of 
this chapter (Regulation CC) or other law.
    (6) Notice in lieu of return. If a cash item is unavailable for 
return, the paying bank may send a notice in lieu of return as provided 
in Sec. 229.30(f) of this chapter (Regulation CC).
    (c) Noncash items. A Reserve Bank may require the paying or 
collecting bank to which it has presented or sent a noncash item to pay 
for the item in cash, but the Reserve Bank may permit payment by a debit 
to an account maintained or used by the paying or collecting bank on a 
Reserve Bank's books or by any of the following that is in a form 
acceptable to the collecting Reserve Bank: bank draft, transfer of funds 
or bank credit, or any other form of payment authorized by State law.
    (d) Nonbank payor. A Reserve Bank may require a nonbank payor to 
which it has presented an item to pay for it in cash, but the Reserve 
Bank may permit payment in any of the following that is in a form 
acceptable to the Reserve Bank: cashier's check, certified check, or 
other bank draft or obligation.
    (e) Handling of payment. A Reserve Bank may handle a bank draft or 
other form of payment it receives in payment of a cash item as a cash 
item. A Reserve Bank may handle a bank draft or other form of payment it 
receives in payment of a noncash item as either a cash item or a noncash 
item.
    (f) Liability of Reserve Bank. Except as set forth in 12 CFR 
229.35(b), a Reserve Bank shall not be liable for the failure of a 
collecting bank, paying bank, or nonbank payor to pay for an item, or 
for any loss resulting from the Reserve Bank's acceptance of any form of 
payment other than cash authorized in paragraphs (b), (c), and (d) of 
this section. A Reserve Bank that acts in good faith and exercises 
ordinary care shall not be liable for the nonpayment of, or failure to 
realize upon, a bank draft or other form of payment that it accepts 
under paragraphs (b), (c), and (d) of this section.

[45 FR 68634, Oct. 16, 1980, as amended at 49 FR 4200, Feb. 3, 1984; 51 
FR 21745, June 16, 1986; 53 FR 21985, June 13, 1988; 57 FR 46955, Oct. 
14, 1992; Reg. J, 59 FR 22966, May 4, 1994; 62 FR 48172, Sept. 15, 1997]

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    (a) Each Reserve Bank shall include in its operating circulars a 
time schedule for each of its offices indicating when the amount of any 
cash item or returned check received by it is counted as reserves for 
purposes of part 204 of this chapter (Regulation D) and becomes 
available for use by the sender or paying or returning bank. The Reserve 
Bank that holds the settlement account shall give either immediate or 
deferred credit to a sender, a paying bank, or a returning bank (other 
than a foreign correspondent) in accordance with the time schedule of 
the receiving Reserve Bank. A Reserve Bank ordinarily gives credit to a 
foreign correspondent only when the Reserve Bank receives payment of the 
item in actually and finally collected funds, but, in its discretion, a 
Reserve Bank may give immediate or deferred credit in accordance with 
its time schedule.
    (b) Notwithstanding its time schedule, a Reserve Bank may refuse at 
any time to permit the use of credit given by it for any cash item or 
returned check, and may defer availability after credit is received by 
the Reserve Bank for a period of time that is reasonable under the 
circumstances.

[62 FR 48173, Sept. 15, 1997]

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    (a) Availability of credit. A Reserve Bank shall give credit to the 
sender for the proceeds of a noncash item when it receives payment in 
actually and finally collected funds (or advice from another Reserve 
Bank of such payment to it). The amount of the item is counted as 
reserve for purposes of part 204 of this chapter (Regulation D) and 
becomes available for use by the sender when the Reserve Bank receives 
the payment or advice, except as provided in paragraph (b) of this 
section.

[[Page 264]]

    (b) Time schedule. A Reserve Bank may give credit for the proceeds 
of a noncash item subject to payment in actually and finally collected 
funds in accordance with a time schedule included in its operating 
circulars. The time schedule shall indicate when the proceeds of the 
noncash item will be counted as reserve for purposes of part 204 of this 
chapter (Regulation D) and become available for use by the sender. A 
Reserve Bank may, however, refuse at any time to permit the use of 
credit given by it for a noncash item for which the Reserve Bank has not 
yet received payment in actually and finally collected funds.
    (c) Handling of payment. If a Reserve Bank receives, in payment for 
a noncash item, a bank draft or other form of payment that it elects to 
handle as a noncash item, the Reserve Bank shall neither count the 
proceeds as reserve for purposes of part 204 of this chapter (Regulation 
D) nor make the proceeds available for use until it receives payment in 
actually and finally collected funds.

[45 FR 68634, Oct. 16, 1980, as amended at 62 FR 48173, Sept. 15, 1997]

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    (a) Return of items--(1) Return of cash items handled by Reserve 
Banks. A paying bank that receives a cash item from a Reserve Bank, 
other than for immediate payment over the counter, and that settles for 
the item as provided in Sec. 210.9(b) of this subpart, may, before it 
has finally paid the item, return the item to any Reserve Bank (unless 
its Administrative Reserve Bank directs it to return the item to a 
specific Reserve Bank) in accordance with subpart C of part 229 of this 
chapter (Regulation CC), the Uniform Commercial Code, and the Reserve 
Banks' operating circulars. A paying bank that receives a cash item from 
a Reserve Bank also may return the item prior to settlement, in 
accordance with Sec. 210.9(b) of this subpart and the Reserve Banks' 
operating circulars. The rules or practices of a clearinghouse through 
which the item was presented, or a special collection agreement under 
which the item was presented, may not extend these return times, but may 
provide for a shorter return time.
    (2) Return of checks not handled by Reserve Banks. A paying bank 
that receives a check as defined in Sec. 229.2(k) of this chapter 
(Regulation CC), other than from a Reserve Bank, and that determines not 
to pay the check, may send the returned check to any Reserve Bank 
(unless its Administrative Reserve Bank directs it to send the returned 
check to a specific Reserve Bank) in accordance with subpart C of part 
229 of this chapter (Regulation CC), the Uniform Commercial Code, and 
the Reserve Banks' operating circulars. A returning bank may send a 
returned check to any Reserve Bank (unless its Administrative Reserve 
Bank directs it to send the returned check to a specific Reserve Bank) 
in accordance with subpart C of part 229 of this chapter (Regulation 
CC), the Uniform Commercial Code, and the Reserve Banks' operating 
circulars.
    (b) Handling of returned checks. (1) The following parties, in the 
following order, are deemed to have handled a returned check sent to a 
Reserve Bank under paragraph (a) of this section--
    (i) The paying or returning bank;
    (ii) The paying bank's or returning bank's Administrative Reserve 
Bank;
    (iii) The Reserve Bank that receives the returned check from the 
paying or returning bank (if different from the paying bank's or 
returning bank's Administrative Reserve Bank); and
    (iv) Another Reserve Bank, if any, that receives the returned check 
from a Reserve Bank.
    (2) A Reserve Bank that is not described in paragraph (b)(1) of this 
section is not a party that handles a returned check and is not a 
returning bank with respect to a returned check.
    (3) The identity and order of the parties under paragraph (b)(1) of 
this section determine the relationships and the rights and liabilities 
of the parties under this subpart, part 229 of this chapter (Regulation 
CC), and the Uniform Commercial Code.
    (c) Paying bank's and returning bank's agreement. The warranties, 
authorizations, and agreements made pursuant to this paragraph may not 
be disclaimed and are made whether or not the returned check bears an

[[Page 265]]

indorsement of the paying bank or returning bank. By sending a returned 
check to a Reserve Bank, the paying bank or returning bank--
    (1) Authorizes the paying or returning bank's Administrative Reserve 
Bank, and any other Reserve Bank or returning bank to which the returned 
check is sent, to handle the returned check (and authorizes any Reserve 
Bank that handles settlement for the returned check to make accounting 
entries) subject to this subpart and to the Reserve Banks' operating 
circulars;
    (2) Makes the warranties set forth in Sec. 229.34 of this title (but 
this paragraph does not limit any warranty by a paying or returning bank 
arising under state law); and
    (3) Agrees to indemnify each Reserve Bank for any loss or expense 
(including attorneys' fees and expenses of litigation) resulting from--
    (i) The paying or returning bank's lack of authority to give the 
authorization in paragraph (c)(1) of this section;
    (ii) Any action taken by a Reserve Bank within the scope of its 
authority in handling the returned check; or
    (iii) Any warranty made by the Reserve Bank under 12 CFR 229.34.
    (d) Warranties by Reserve Bank. By handling a returned check under 
this subpart, a Reserve Bank makes the returning bank warranties as set 
forth in Sec. 229.34 of this chapter, subject to the terms of part 229 
of this chapter (Regulation CC). The Reserve Bank shall not have or 
assume any other liability to the transferee returning bank, to any 
subsequent returning bank, to the depository bank, to the owner of the 
check, or to any other person, except for the Reserve Bank's own lack of 
good faith or failure to exercise ordinary care as provided in subpart C 
of part 229 of this title.
    (e) Recovery by Reserve Bank. If an action or proceeding is brought 
against (or if defense is tendered to) a Reserve Bank that has handled a 
returned Check based on--
    (1) The alleged failure of the paying or returning bank to have the 
authority to give the authorization in paragraph (c)(1) of this section;
    (2) Any action by the Reserve Bank within the scope of its authority 
in handling the returned check; or
    (3) Any warranty made by the Reserve Bank under 12 CFR 229.34,

The Reserve Bank may, upon the entry of a final judgment or decree, 
recover from the paying bank or returning bank the amount of attorneys' 
fees and other expenses of litigation incurred, as well as any amount 
the Reserve Bank is required to pay because of the judgment or decree or 
the tender of defense, together with interest thereon.
    (f) Methods of recovery. (1) The Reserve Bank may recover the amount 
stated in paragraph (d) of this section by charging any account on its 
books that is maintained or used by the paying or returning bank (or by 
charging another returning Reserve Bank), if----
    (i) The Reserve Bank made seasonable written demand on the paying or 
returning bank to assume defense of the action or proceeding; and
    (ii) The paying or returning bank has not made any other arrangement 
for payment that is acceptable to the Reserve Bank.
    (2) The Reserve Bank is not responsible for defending the action or 
proceeding before using this method of recovery. A Reserve Bank that has 
been charged under this paragraph (f) may recover from the paying or 
returning bank in the manner and under the circumstances set forth in 
this paragraph (f). A Reserve Bank's failure to avail itself of the 
remedy provided in this paragraph (f) does not prejudice its enforcement 
in any other manner of the indemnity agreement referred to in paragraph 
(c)(3) of this section.
    (g) Reserve Bank's responsibility. A Reserve Bank shall handle a 
returned check, or a notice of nonpayment, in accordance with subpart C 
of part 229 and its operating circular.
    (h) Settlement. A subsequent returning bank or depositary bank shall 
settle with its Administrative Reserve Bank for returned checks in the 
same manner and by the same time as for cash items presented for payment 
under this subpart. Settlement with its Administrative Reserve Bank is 
deemed to be settlement with the Reserve Bank from which the returning 
bank or depositary bank received the item.
    (i) Security interest. When a paying or returning bank sends a 
returned check

[[Page 266]]

to a Reserve Bank, the paying bank, returning bank, and any prior 
returning bank grant to the paying bank's or returning bank's 
Administrative Reserve Bank a security interest in all of their 
respective assets in the possession of, or held for the account of, any 
Reserve Bank, to secure their respective obligations due or to become 
due to the Administrative Reserve Bank under this subpart or subpart C 
of part 229 of this chapter (Regulation CC). The security interest 
attaches when a warranty is breached or any other obligation to the 
Reserve Bank is incurred. If the Reserve Bank, in its sole discretion, 
deems itself insecure and gives notice thereof to the paying bank, 
returning bank, or prior returning bank, or if the paying bank, 
returning bank, or prior returning bank suspends payments or is closed, 
the Reserve Bank may take any action authorized by law to recover the 
amount of an obligation, including, but not limited to, the exercise of 
rights of set off, the realization on any available collateral, and any 
other rights it may have as a creditor under applicable law.

[53 FR 21985, June 13, 1988, as amended at Reg. J, 59 FR 22966, May 4, 
1994; 62 FR 48173, Sept. 15, 1997]

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    (a) Right of recovery. If a Reserve Bank does not receive payment in 
actually and finally collected funds for an item, the Reserve Bank shall 
recover by charge-back or otherwise the amount of the item from the 
sender, prior collecting bank, paying bank, or returning bank from or 
through which it was received, whether or not the item itself can be 
sent back. In the event of recovery from such a party, no party, 
including the owner or holder of the item, shall, for the purpose of 
obtaining payment of the amount of the item, have any interest in any 
reserve balance or other funds or property in the Reserve Bank's 
possession of the bank that failed to make payment in actually and 
finally collected funds.
    (b) Suspension or closing of bank. A Reserve Bank shall not pay or 
act on a draft, authorization to charge (including a charge authorized 
by Sec. 210.9(a)(5)), or other order on a reserve balance or other funds 
in its possession for the purpose of settling for items under Sec. 210.9 
or Sec. 210.12 after it receives notice of suspension or closing of the 
bank making the settlement for that bank's own or another's account.

[Reg. J, 59 FR 22966, May 4, 1994]

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    If a bank (including a Reserve Bank) or nonbank payor is delayed in 
acting on an item beyond applicable time limits because of interruption 
of communication or computer facilities, suspension of payments by a 
bank or nonbank payor, 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.

[Reg. J, 59 FR 22967, May 4, 1994]

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    If a Reserve Bank elects to present direct to the payor a bill, 
note, or warrant that is issued and payable by a State or a political 
subdivision and that is a cash item not payable or collectible through a 
bank: (a) Sections 210.9, 210.12, and 210.13 and the operating circulars 
of the Reserve Banks apply to the payor as if it were a paying bank; (b) 
Sec. 210.14 applies to the payor as if it were a bank; and (c) under 
Sec. 210.9 each day on which the payor is open for the regular conduct 
of its affairs or the accommodation of the public is considered a 
banking day.

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    Source: 55 FR 40801, Oct. 5, 1990, unless otherwise noted.


    (a) Authority and purpose. This subpart provides rules to govern 
funds transfers through Fedwire, and has been issued pursuant to the 
Federal Reserve Act--section 13 (12 U.S.C. 342), paragraph (f) of 
section 19 (12 U.S.C. 464), paragraph 14 of section 16 (12 U.S.C. 
248(o)), and paragraphs (i) and (j) of section 11 (12 U.S.C. 248(i) and 
(j))--and other laws and has the force and

[[Page 267]]

effect of federal law. This subpart is not a funds-transfer system rule 
as defined in Section 4A-501(b) of Article 4A.
    (b) Scope. (1) This subpart incorporates the provisions of Article 
4A set forth in appendix B to this subpart. In the event of an 
inconsistency between the provisions of the sections of this subpart and 
appendix B, to this subpart, the provisions of the sections of this 
subpart shall prevail.
    (2) Except as otherwise provided in paragraphs (b)(3) and (b)(4) of 
this section, this Subpart governs the rights and obligations of:
    (i) Federal Reserve Banks sending or receiving payment orders;
    (ii) Senders that send payment orders directly to a Federal Reserve 
Bank;
    (iii) Receiving banks that receive payment orders directly from a 
Federal Reserve Bank;
    (iv) Beneficiaries that receive payment for payment orders sent to a 
Federal Reserve Bank by means of credit to an account maintained or used 
at a Federal Reserve Bank; and
    (v) Other parties to a funds transfer any part of which is carried 
out through Fedwire to the same extent as if this subpart were 
considered a funds-transfer system rule under Article 4A.
    (3) This subpart governs a funds transfer that is sent through 
Fedwire, as provided in paragraph (b)(2) of this section, even though a 
portion of the funds transfer is governed by the Electronic Fund 
Transfer Act, but the portion of such funds transfer that is governed by 
the Electronic Fund Transfer Act is not governed by this subpart.
    (4) In the event that any portion of this Subpart establishes rights 
or obligations with respect to the availability of funds that are also 
governed by the Expedited Funds Availability Act or the Board's 
Regulation CC, Availability of Funds and Collection of Checks, those 
provisions of the Expedited Funds Availability Act or Regulation CC 
shall apply and the portion of this Subpart, including Article 4A as 
incorporated herein, shall not apply.
    (c) Operating Circulars. Each Federal Reserve Bank shall issue an 
Operating Circular consistent with this Subpart that governs the details 
of its funds-transfer operations and other matters it deems appropriate. 
Among other things, the Operating Circular may: set cut-off hours and 
funds-transfer business days; address available security procedures; 
specify format and media requirements for payment orders; identify 
messages that are not payment orders; and impose charges for funds-
transfer services.
    (d) Govenment senders, receiving banks, and beneficiaries. Except as 
otherwise expressly provided by the statutes of the United States, the 
parties specified in paragraphs (b)(2)(ii) through (v) of this section 
include:
    (1) A department, agency, instrumentality, independent 
establishment, or office of the United States, or a wholly-owned or 
controlled Government corporation;
    (2) An international organization;
    (3) A foreign central bank; and
    (4) A department, agency, instrumentality, independent 
establishment, or office of a foreign government, or a wholly-owned or 
controlled corporation of a foreign government.

[55 FR 40801, Oct. 5, 1990; 55 FR 47428, Nov. 13, 1990]

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    As used in this subpart, the following definitions apply:
    (a) Article 4A means article 4A of the Uniform Commercial Code as 
set forth in appendix B of this subpart.
    (b) As of adjustment means a debit or credit, for reserve or 
clearing balance maintenance purposes only, applied to the reserve or 
clearing balance of a bank that either sends a payment order to a 
Federal Reserve Bank, or that receives a payment order from a Federal 
Reserve Bank, in lieu of an interest charge or payment.
    (c) Automated clearing house transfer means any transfer designated 
as an automated clearing house transfer in a Federal Reserve Bank 
Operating Circular.
    (d) Beneficiary's bank has the same meaning as in Article 4A, except 
that:
    (1) A Federal Reserve Bank need not be identified in the payment 
order in order to be the beneficiary's bank; and
    (2) The term includes a Federal Reserve Bank when that Federal 
Reserve Bank is the beneficiary of a payment order.

[[Page 268]]

    (e) Fedwire is the funds-transfer system owned and operated by the 
Federal Reserve Banks that is used primarily for the transmission and 
settlement of payment orders governed by this subpart. Fedwire does not 
include the system for making automated clearing house transfers.
    (f) Interdistrict transfer means a funds transfer involving entries 
to accounts maintained at two Federal Reserve Banks.
    (g) Intradistrict transfer means a funds transfer involving entries 
to accounts maintained at one Federal Reserve Bank.
    (h) Off-line bank means a bank that transmits payment orders to and 
receives payment orders from a Federal Reserve Bank by telephone orally 
or by other means other than electronic data transmission.
    (i) Payment order has the same meaning as in Article 4A, except that 
the term does not include automated clearing house transfers or any 
communication designated in a Federal Reserve Bank Operating Circular 
issued under this Subpart as not being a payment order.
    (j) Sender's account, receiving bank's account, and beneficiary's 
account mean the reserve, clearing, or other funds deposit account at a 
Federal Reserve Bank maintained or used by the sender, receiving bank, 
or beneficiary, respectively.
    (k) Sender's Federal Reserve Bank and receiving bank's Federal 
Reserve Bank mean the Federal Reserve Bank at which the sender or 
receiving bank, respectively, maintains or uses an account.

[55 FR 40801, Oct. 5, 1990; 55 FR 47428, Nov. 13, 1990]

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    (a) Reliance by a Federal Reserve Bank on number to identify an 
intermediary bank or beneficiary's bank. A Federal Reserve Bank may rely 
on the number in a payment order that identifies the intermediary bank 
or beneficiary's bank, even if it identifies a bank different from the 
bank identified by name in the payment order, if the Federal Reserve 
Bank does not know of such an inconsistency in identification. A Federal 
Reserve Bank has no duty to detect any such inconsistency in 
identification.
    (b) Reliance by a Federal Reserve Bank on number to identify 
beneficiary. A Federal Reserve Bank, acting as a beneficiary's bank, may 
rely on the number in a payment order that identifies the beneficiary, 
even if it identifies a person different from the person identified by 
name in the payment order, if the Federal Reserve Bank does not know of 
such an inconsistency in identification. A Federal Reserve Bank has no 
duty to detect any such inconsistency in identification.

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    (a) Payment of sender's obligation to a Federal Reserve Bank. A 
sender (other than a Federal Reserve Bank), by maintaining or using an 
account with a Federal Reserve Bank, authorizes the sender's Federal 
Reserve Bank to obtain payment for the sender's payment orders by 
debiting the amount of the payment order from the sender's account.
    (b) Overdrafts. (1) A sender does not have the right to an overdraft 
in the sender's account. In the event an overdraft is created, the 
overdraft shall be due and payable immediately without the need for a 
demand by the Federal Reserve Bank, at the earliest of the following 
times:
    (i) At the end of the funds-transfer business day;
    (ii) At the time the Federal Reserve Bank, in its sole discretion, 
deems itself insecure and gives notice thereof to the sender; or
    (iii) At the time the sender suspends payments or is closed.
    (2) The sender shall have in its account, at the time the overdraft 
is due and payable, a balance of actually and finally collected funds 
sufficient to cover the aggregate amount of all its obligations to the 
Federal Reserve Bank, whether the obligations result from the execution 
of a payment order or otherwise.
    (3) To secure any overdraft, as well as any other obligation due or 
to become due to its Federal Reserve Bank, each sender, by sending a 
payment order to a Federal Reserve Bank that is accepted by the Federal 
Reserve Bank, grants

[[Page 269]]

to the Federal Reserve Bank a security interest in all of the sender's 
assets in the possession of, or held for the account of, the Federal 
Reserve Bank. The security interest attaches when an overdraft, or any 
other obligation to the Federal Reserve Bank, becomes due and payable.
    (4) A Federal Reserve Bank may take any action authorized by law to 
recover the amount of an overdraft that is due and payable, including, 
but not limited to, the exercise of rights of set off, the realization 
on any available collateral, and any other rights it may have as a 
creditor under applicable law.
    (5) If a sender, other than a government sender described in 
Sec. 210.25(d), incurs an overdraft in its account as a result of a 
debit to the account by a Federal Reserve Bank under paragraph (a) of 
this section, the account will be subject to any applicable overdraft 
charges, regardless of whether the overdraft has become due and payable. 
A Federal Reserve Bank may debit a sender's account under paragraph (a) 
of this section immediately on acceptance of the payment order.
    (c) Review of payment orders. A sender, by sending a payment order 
to a Federal Reserve Bank, agrees that for the purposes of sections 4A-
204(a) and 4A-304 of Article 4A, a reasonable time to notify a Federal 
Reserve Bank of the relevant facts concerning an unauthorized or 
erroneously executed payment order is within 30 calendar days after the 
sender receives notice that the payment order was accepted or executed, 
or that the sender's account was debited with respect to the payment 
order.

[55 FR 40801, Oct. 5, 1990, as amended at 57 FR 46956, Oct. 14, 1992]

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    (a) Payment. A receiving bank (other than a Federal Reserve Bank) 
that receives a payment order from its Federal Reserve Bank authorizes 
that Federal Reserve Bank to pay for the payment order by crediting the 
amount of the payment order to the receiving bank's account.
    (b) Off-line banks. An off-line bank that does not expressly notify 
its Federal Reserve Bank in writing that it maintains an account for 
another bank warrants to that Federal Reserve Bank that the off-line 
bank does not act as an intermediary bank or a beneficiary's bank with 
respect to payment orders received through Fedwire for a beneficiary 
that is a bank.

[55 FR 40801, Oct. 5, 1990; 55 FR 47428, Nov. 13, 1990]

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    (a) Rejection. A sender shall not send a payment order to a Federal 
Reserve Bank unless authorized to do so by the Federal Reserve Bank. A 
Federal Reserve Bank may reject, or impose conditions that must be 
satisfied before it will accept, a payment order for any reason.
    (b) Selection of an intermediary bank. For an interdistrict 
transfer, a Federal Reserve Bank is authorized and directed to execute a 
payment order through another Federal Reserve Bank. A sender shall not 
send a payment order to a Federal Reserve Bank that requires the Federal 
Reserve Bank to issue a payment order to an intermediary bank (other 
than a Federal Reserve Bank) unless that intermediary bank is designated 
in the sender's payment order. A sender shall not send to a Federal 
Reserve Bank a payment order instructing use by a Federal Reserve Bank 
of a funds-transfer system or means of transmission other than Fedwire, 
unless the Federal Reserve Bank agrees with the sender in writing to 
follow such instructions.
    (c) Same-day execution. A sender shall not issue a payment order 
that instructs a Federal Reserve Bank to execute the payment order on a 
funds-transfer business day that is later than the funds-transfer 
business day on which the order is received by the Federal Reserve Bank, 
unless the Federal Reserve Bank agrees with the sender in writing to 
follow such instructions.

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    (a) Payment to a receiving bank. Payment of a Federal Reserve Bank's 
obligation to pay a receiving bank (other than a Federal Reserve Bank) 
occurs at the earlier of the time when the amount of the payment order 
is credited to the receiving bank's account or

[[Page 270]]

when the payment order is sent to the receiving bank.
    (b) Payment to a beneficiary. Payment by a Federal Reserve Bank to a 
beneficiary of a payment order, where the Federal Reserve Bank is the 
beneficiary's bank, occurs at the earlier of the time when the amount of 
the payment order is credited to the beneficiary's account or when 
notice of the credit is sent to the beneficiary.

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    (a) Damages. In connection with its handling of a payment order 
under this subpart, a Federal Reserve Bank shall not be liable to a 
sender, receiving bank, beneficiary, or other Federal Reserve Bank, 
governed by this subpart, for any damages other than those payable under 
Article 4A. A Federal Reserve Bank shall not agree to be liable to a 
sender, receiving bank, beneficiary, or other Federal Reserve Bank for 
consequential damages under section 4A-305(d) of Article 4A.
    (b) Payment of interest. (1) A Federal Reserve Bank, in its 
discretion, may satisfy its obligation, or that of another Federal 
Reserve Bank, to pay compensation in the form of interest under Article 
4A by--
    (i) Providing an as of adjustment to its sender, its receiving bank, 
or its beneficiary, as provided in the Federal Reserve Bank's Operating 
Circular, in an amount equal to the amount on which interest is to be 
calcuated multiplied by the number of days for which interest is to be 
calculated; or
    (ii) Paying compensation in the form of interest to its sender, its 
receiving bank, its beneficiary, or another party to the funds transfer 
that is entitled to such payment, in an amount that is calculated in 
accordance with section 4A-506 of Article 4A.
    (2) If the sender or receiving bank that is the recipient of an as 
of adjustment or an interest payment is not the party entitled to 
compensation under Article 4A, the sender or receiving bank shall pass 
through the benefit of the as of adjustment or interest payment by 
making an interest payment, as of the day the as of adjustment or 
interest payment is effected, to the party entitled to compensation. The 
interest payment that is made to the party entitled to compensation 
shall not be less than the value of the as of adjustment or interest 
payment that was provided by the Federal Reserve Bank to the sender or 
receiving bank. The party entitled to compensation may agree to accept 
compensation in a form other than a direct interest payment, provided 
that such an alternative form of compensation is not less than the value 
of the interest payment that otherwise would be made.
    (c) Nonwaiver of right of recovery. Nothing in this subpart or any 
Operating Circular issued hereunder shall constitute, or be construed as 
constituting, a waiver by a Federal Reserve Bank of a cause of action 
for recovery under any applicable law of mistake and restitution.

                   Appendix A to Subpart B--Commentary
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    The Commentary provides background material to explain the intent of 
the Board of Governors of the Federal Reserve System (Board) in adopting 
a particular provision in the subpart and to help readers interpret that 
provision. In some comments, examples are offered. The Commentary 
constitutes an official Board interpretation of subpart B of this part. 
Commentary is not provided for every provision of subpart B of this 
part, as some provisions are self-explanatory.

              Section 210.25--Authority, Purpose, and Scope

    (a) Authority and purpose. Section 210.25(a) states that the purpose 
of subpart B of this part is to provide rules to govern funds transfers 
through Fedwire and recites the Board's rulemaking authority for this 
subpart. Subpart B of this part is federal law and is not a ``funds-
transfer system rule,'' as defined in section 4A-501(b) of Article 4A, 
Funds Transfers, of the Uniform Commercial Code (UCC), as set forth in 
appendix B of this subpart. Certain provisions of Article 4A may not be 
varied by a funds-transfer system rule, but under section 4A-107, 
regulations of the Board and Operating Circulars of the Federal Reserve 
Banks supersede inconsistent provisions of Article 4A to the extent of 
the inconsistency. In addition, regulations of the Board may preempt 
inconsistent provisions of state law. Accordingly, subpart B of this 
part supersedes or preempts inconsistent provisions of state law. It 
does not affect state law governing funds transfers that does not 
conflict with the provisions of subpart B of this part, such as Article 
4A, as enacted in any state, as it applies to parties to funds transfers 
through Fedwire whose

[[Page 271]]

rights are not governed by subpart B of this part.
    (b) Scope. (1) Subpart B of this part incorporates the provisions of 
Article 4A set forth in appendix B of this subpart. The provisions set 
forth expressly in the sections of subpart B of this part supersede or 
preempt any inconsistent provisions of Article 4A as set forth in 
appendix B of this subpart or as enacted in any state. The official 
comments to Article 4A are not incorporated in subpart B of this part or 
this Commentary to subpart B of this part, but the official comments may 
be useful in interpreting Article 4A. Because section 4A-105 refers to 
other provisions of the Uniform Commercial Code, e.g., definitions in 
Article 1 of the UCC, these other provisions of the UCC, as approved by 
the National Conference of Commissioners on Uniform State Laws and the 
American Law Institute, from time to time, are also incorporated in 
subpart B of this part. Subpart B of this part applies to any party to a 
Fedwire funds transfer that is in privity with a Federal Reserve Bank. 
These parties include a sender (bank or nonbank) that sends a payment 
order directly to a Federal Reserve Bank, a receiving bank that receives 
a payment order directly from a Federal Reserve Bank, and a beneficiary 
that receives credit to an account that it uses or maintains at a 
Federal Reserve Bank for a payment order sent to a Federal Reserve Bank. 
Other parties to a funds transfer are covered by this subpart to the 
same extent that this subpart would apply to them if this subpart were a 
``funds-transfer system rule'' under Article 4A that selected subpart B 
of this part as the governing law.
    (2) The scope of the applicability of a funds-transfer system rule 
under Article 4A is specified in section 4A-501(b), and the scope of the 
choice of law provision is specified in section 4A-507(c). Under section 
4A-507(c), a choice of law provision is binding on the participants in a 
funds-transfer system and certain other parties having notice that the 
funds-transfer system might be used for the funds transfer and of the 
choice of law provision. The Uniform Commercial Code provides that a 
person has notice when the person has actual knowledge, receives 
notification or has reason to know from all the facts and circumstances 
known to the person at the time in question. (See UCC section 1-
201(25).) However, under sections 4A-507(b) and 4A-507(d), a choice of 
law by agreement of the parties takes precedence over a choice of law 
made by funds-transfer system rule.
    (3) If originators, receiving banks, and beneficiaries that are not 
in privity with a Federal Reserve Bank have the notice contemplated by 
section 4A-507(c) or if those parties agree to be bound by subpart B of 
this part, subpart B of this part generally would apply to payment 
orders between those remote parties, including participants in other 
funds-transfer systems. For example, a funds transfer may be sent from 
an originator's bank through a funds-transfer system other than Fedwire 
to a receiving bank which, in turn, sends a payment order through 
Fedwire to execute the funds transfer. Similarly, a Federal Reserve Bank 
may execute a payment order through Fedwire to a receiving bank that 
sends it through a funds-transfer system other than Fedwire to a 
beneficiary's bank. In the first example, if the originator's bank has 
notice that Fedwire may be used to effect part of the funds transfer, 
the sending of the payment order through the other funds-transfer system 
to the receiving bank will be governed by subpart B of this part unless 
the parties to the payment order have agreed otherwise. In the second 
example, if the beneficiary's bank has notice that Fedwire may be used 
to effect part of the funds transfer, the sending of the payment order 
to the beneficiary's bank through the other funds-transfer system will 
be governed by subpart B of this part unless the parties have agreed 
otherwise. In both cases, the other funds-transfer system's rules would 
also apply to, at a minimum, the portion of these funds transfers going 
through that funds-transfer system. Because subpart B of this part is 
federal law, to the extent of any inconsistency, subpart B of this part 
will take precedence over any funds-transfer system rule applicable to 
the remote sender or receiving bank or to a Federal Reserve Bank. If 
remote parties to a funds transfer, a portion of which is sent through 
Fedwire, have expressly selected by agreement a law other than subpart B 
of this part under section 4A-507(b), subpart B of this part would not 
take precedence over the choice of law made by the agreement even though 
the remote parties had notice that Fedwire may be used and of the 
governing law. (See 4A-507(d)). In addition, subpart B of this part 
would not apply to a funds transfer sent through another funds-transfer 
system where no Federal Reserve Bank handles the funds transfer, even 
though settlement for the funds transfer is made by means of a separate 
net settlement or funds transfer through Fedwire.
    (4) Under section 4A-108, Article 4A does not apply to a funds 
transfer, any part of which is governed by the Electronic Fund Transfer 
Act (15 U.S.C. 1693 et seq.). Fedwire funds transfers to or from 
consumer accounts are exempt from the Electronic Fund Transfer Act and 
Regulation E (12 CFR part 205). A funds transfer from a consumer 
originator or a funds transfer to a consumer beneficiary could be 
carried out in part through Fedwire and in part through an automated 
clearing house or other means that is subject to the Electronic Fund 
Transfer Act or Regulation E. In these cases, subpart B of this part 
would not govern the portion of the

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funds transfer that is governed by the Electronic Fund Transfer Act or 
Regulation E. (See Commentary to Sec. 210.26(i) ``payment order''.)
    (5) Finally, section 4A-404(a) provides that a beneficiary's bank is 
obliged to pay the amount of a payment order to the beneficiary on the 
payment date unless acceptance of the payment order occurs on the 
payment date after the close of the funds-transfer business day of the 
bank. The Expedited Funds Availability Act provides that funds received 
by a bank by wire transfer shall be available for withdrawal not later 
than than the banking day after the business day on which such funds are 
received (12 U.S.C. 4002(a)). That Act also preempts any provision of 
state law that was not effective on September 1, 1989 that is 
inconsistent with that Act or its implementing Regulation CC (12 CFR 
part 229). Accordingly, the Expedited Funds Availability Act and 
Regulation CC may preempt section 4A-404(a) as enacted in any state. In 
order to ensure that section 4A-404(a), or other provisions of Article 
4A, as incorporated in subpart B of this part, do not take precedence 
over provisions of the Expedited Funds Availability Act, this section 
provides that where subpart B of this part establishes rights or 
obligations that are also governed by the Expedited Funds Availability 
Act or Regulation CC, the Expedited Funds Availability Act or Regulation 
CC provision shall apply and subpart B of this part shall not apply.
    (c) Operating Circulars. The Federal Reserve Banks issue Operating 
Circulars consistent with this Subpart that contain additional 
provisions applicable to payment orders sent through Fedwire. Under 
section 4A-107, these Operating Circulars supersede inconsistent 
provisions of Article 4A, as set forth in appendix B and as enacted in 
any state. These Operating Circulars are not funds-transfer system 
rules, but, by their terms, they are binding on all parties covered by 
this Subpart.
    (d) Government senders, receiving banks, and beneficiaries. This 
section clarifies that unless a statute of the United States provides 
otherwise, subpart B of this part applies to governmental entities, 
domestic or foreign, including foreign central banks as specified in 
paragraph (b)(1) of this section.

                       Section 210.26--Definitions

    Article 4A defines many terms (e.g., beneficiary, intermediary bank, 
receiving bank, security procedure) used in this subpart. These terms 
are defined or listed in sections 4A-103 through 4A-105. These terms, 
such as the term bank (defined in section 4A-105(d)(2)), may differ from 
comparable terms in subpart A of this part. As subpart B of this part 
incorporates consistent provisions of Article 4A, it incorporates these 
definitions unless these terms are expressly defined otherwise in 
subpart B of this part. This subpart modifies the definitions of two 
Article 4A terms, beneficiary's bank and payment order. This subpart 
also defines terms not defined in Article 4A.
    (a) Article 4A. Article 4A means the version of that article of the 
Uniform Commercial Code set forth in appendix B of this subpart. It does 
not refer to the law of any particular state unless the context 
indicates otherwise. Subject to the express provisions of this Subpart, 
this version of Article 4A is incorporated into this Subpart and made 
federal law for transactions covered by this subpart.
    (b) As of adjustments. As of adjustments are memorandum items that 
affect a bank's reserve or clearing balance for the purpose of meeting 
the required balance, but do not represent funds that can be used for 
other purposes. As discussed in the Commentary to Sec. 210.32(b), the 
Federal Reserve Banks generally provide as of adjustments as a means of 
effecting interest payments or charges.
    (d) Beneficiary's bank. The definition of beneficiary's bank in 
subpart B of this part differs from the section 4A-103(a)(3) definition. 
The subpart B definition clarifies that where a Federal Reserve Bank 
functions as the beneficiary's bank, it need not be identified in the 
payment order as the beneficiary's bank and that a Federal Reserve Bank 
that receives a payment order as beneficiary is also the beneficiary's 
bank with respect to that payment order.
    (e) Fedwire. Fedwire refers to the funds-transfer system owned and 
operated by the Federal Reserve Banks that is governed by this Subpart. 
The term does not refer to any particular computer, telecommunications 
facility, or funds transfer, but to the system as a whole, which may 
include transfers by telephone or by written instrument in particular 
circumstances. Fedwire does not include the system used for automated 
clearing house transfers.
    (h) Off-line bank. Most Fedwire payment orders are transmitted 
electronically from a sender to a Federal Reserve Bank or from a Federal 
Reserve Bank to a receiving bank. Banks transmitting payment orders to 
Federal Reserve Banks electronically are often referred to as on-line 
banks. Some Fedwire participants, however, transmit payment orders to a 
Federal Reserve Bank or receive payment orders from a Federal Reserve 
Bank orally by telephone, or, in unusual circumstances, in writing. A 
bank that does not use either a terminal or a computer that links it 
electronically to a terminal or computer at its Federal Reserve Bank to 
send payment orders through Fedwire is an off-line bank.
    (i) Payment order. (1) The definition of payment order in subpart B 
of this part differs from the section 4A-103(a)(1) definition. The 
subpart B definition clarifies that, for the

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purposes of subpart B of this part, automated clearing house transfers 
and certain messages that are transmitted through Fedwire are not 
payment orders. Federal Reserve Banks and banks participating in Fedwire 
send various types of messages, relating to payment orders or to other 
matters, through Fedwire that are not intended to be payment orders. 
Under the subpart B definition, these messages, and messages involved 
with automated clearing house transfers, are not payment orders and 
therefore are not governed by this subpart. The Operating Circulars of 
the Federal Reserve Banks specify those messages that may be transmitted 
through Fedwire but that are not payment orders.
    (2) In some cases, messages sent through Fedwire, such as certain 
requests for credit transfer, may be payment orders under Article 4A, 
but are not treated as payment orders under subpart B because they are 
not an instruction to a Federal Reserve Bank to pay money.
    (3) This subpart and Article 4A govern a payment order even though 
the originator's or beneficiary's account may be a consumer account 
established primarily for personal, family, or household purposes. Under 
section 4A-108, Article 4A does not apply to a funds transfer any part 
of which is governed by the Electronic Fund Transfer Act. That Act, and 
Regulation E implementing it, do not apply to funds transfers through 
Fedwire (see 15 U.S.C. 1693a(6)(B) and 12 CFR 205.3(b)). Thus, this 
Subpart applies to all funds transfers through Fedwire even though some 
such transfers involve originators or beneficiaries that are consumers. 
(See also Sec. 210.25(b) and accompanying Commentary.)

             Section 210.27--Reliance on Identifying Number

    (a) Reliance by a Federal Reserve Bank on number to identify 
intermediary bank or beneficiary's bank. Section 4A-208 provides that a 
receiving bank, such as a Federal Reserve Bank, may rely on the routing 
number of an intermediary bank or the beneficiary's bank specified in a 
payment order as identifying the appropriate intermediary bank or 
beneficiary's bank, even if the payment order identifies another bank by 
name, provided that the receiving bank does not know of the 
inconsistency. Under section 4A-208(b)(2), if the sender of the payment 
order is not a bank, a receiving bank may rely on the number only if the 
sender had notice before the receiving bank accepted the sender's order 
that the receiving bank might rely on the number. This section provides 
this notice to entities that are not banks, such as the Department of 
the Treasury, that send payment orders directly to a Federal Reserve 
Bank.
    (b) Reliance by a Federal Reserve Bank on number to identify 
beneficiary. Section 4A-207 provides that a beneficiary's bank, such as 
a Federal Reserve Bank, may rely on the number identifying a 
beneficiary, such as the beneficiary's account number, specified in a 
payment order as identifying the appropriate beneficiary, even if the 
payment order identifies another beneficiary by name, provided that the 
beneficiary's bank does not know of the inconsistency. Under section 4A-
207(c)(2), if the originator is not a bank, an originator is not obliged 
to pay for a payment order if the originator did not have notice that 
the beneficiary's bank might rely on the identifying number and the 
person paid on the basis of the identifying number was not entitled to 
receive payment. This section of subpart B provides this notice to 
entities that are not banks, such as the Department of the Treasury, 
that are originators of payment orders sent directly by the originators 
to a Federal Reserve Bank, where that Federal Reserve Bank or another 
Federal Reserve Bank is the beneficiary's bank (see also section 4A-
402(b), providing that a sender must pay a beneficiary's bank for a 
payment order accepted by the beneficiary's bank).

                   Section 210.28--Agreement of Sender

    (a) Payment of sender's obligation to a Federal Reserve Bank. When a 
sender issues a payment order to a Federal Reserve Bank and the Federal 
Reserve Bank issues a conforming order implementing the sender's payment 
order, under section 4A-403, the sender is indebted to the Federal 
Reserve Bank for the amount of the payment order. A sender, other than a 
Federal Reserve Bank, that maintains or uses an account at a Federal 
Reserve Bank authorizes the Federal Reserve Bank to debit that account 
so that the Federal Reserve Bank can obtain payment for the payment 
order.
    (b) Overdrafts. (1) In some cases, debits to a sender's account will 
create an overdraft in the sender's account. The Board and the Federal 
Reserve Banks have established policies concerning when a Federal 
Reserve Bank will permit a bank to incur an overdraft in its account at 
a Federal Reserve Bank. These policies do not give a bank or other 
sender a right to an overdraft in its account. Subpart B clarifies that 
a sender does not have a right to such an overdraft. If an overdraft 
arises, it becomes immediately due and payable at the earliest of: The 
end of the funds-transfer business day of the Federal Reserve Bank; the 
time the Federal Reserve Bank in its sole discretion, deems itself 
insecure and gives notice to the sender; or the time that the sender 
suspends payments or is closed by governmental action, such as the 
appointment of a receiver. In some cases, a Federal Reserve Bank extends 
its Fedwire operations beyond its cut-off hour for that funds-transfer 
business day. For the purposes of this section, unless otherwise 
specified by the

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Federal Reserve Bank making such an extension, an overdraft becomes due 
and payable at the end of the extended operating hours. An overdraft 
becomes due and payable prior to a Federal Reserve Bank's cut-off hour 
if the Federal Reserve Bank deems itself insecure and gives notice to 
the sender. Notice that the Federal Reserve Bank deems itself insecure 
may be given in accordance with the provisions on notice in section 1-
201(27) of the UCC, in accordance with any other applicable law or 
agreement, or by any other reasonable means. An overdraft also becomes 
due and payable at the time that a bank is closed or suspends payments. 
For example, an overdraft becomes due and payable if a receiver is 
appointed for the bank or the bank is prevented from making payments by 
governmental order. The Federal Reserve Bank need not make demand on the 
sender for the overdraft to become due and payable.
    (2) A sender must cover any overdraft and any other obligation of 
the sender to the Federal Reserve Bank by the time the overdraft becomes 
due and payable. By sending a payment order to a Federal Reserve Bank, 
the sender grants a security interest to the Federal Reserve Bank in any 
assets of the sender held by, or for the account of, the Federal Reserve 
Bank in order to secure all obligations due or to become due to the 
Federal Reserve Bank. The security interest attaches when the overdraft, 
or other obligation of the sender to the Federal Reserve Bank, becomes 
due and payable. The security interest does not apply to assets held by 
the sender as custodian or trustee for the sender's customers or third 
parties. Once an overdraft is due and payable, a Federal Reserve Bank 
may exercise its right of set off, liquidate collateral, or take other 
similar action to satisfy the overdrafting bank's obligation owed to the 
Federal Reserve Bank.
    (c) Review of payment orders. (1) Under section 4A-204, a receiving 
bank is required to refund the principal amount of an unauthorized 
payment order that the sender was not obliged to pay, together with 
interest on the refundable amount calculated from the date that the 
receiving bank received payment to the date of the refund. The sender is 
not entitled to compensation in the form of interest if the sender fails 
to exercise ordinary care to determine that the order was not authorized 
and to notify the receiving bank within a reasonable period of time 
after the sender receives a notice that the payment order was accepted 
or that the sender's account was debited with respect to the order. 
Similarly, under section 4A-304, if a sender of a payment order that was 
erroneously executed does not notify the bank receiving the payment 
order within a reasonable time, the bank is not liable to the sender for 
compensation in the form of interest on any amount refundable to the 
sender. Section 210.28(c) establishes 30 calendar days as the reasonable 
period of time for the purposes of these provisions of Article 4A.
    (2) Section 4A-505 provides that a customer must object to a debit 
to its account by a receiving bank within one year after the customer 
received notification reasonably identifying the payment order. Subpart 
B of this part does not vary this one-year period.

               Section 210.29--Agreement of Receiving Bank

    (b) Off-line banks. (1) Generally, an on-line bank receiving payment 
orders or advices of credit for payment orders from a Federal Reserve 
Bank receives the payment orders or advices electronically a short time 
after the corresponding payment orders are received by the on-line 
bank's Federal Reserve Bank. An off-line bank receiving payment orders 
or advices of credit from a Federal Reserve Bank does not have an 
electronic connection with the Federal Reserve Bank; therefore, payment 
orders or advices are transmitted either by telephone on the day the 
payment order is received by the receiving bank's Federal Reserve Bank, 
or sent by courier or mail along with the off-line bank's daily account 
statement, on the funds-transfer business day following the day the 
payment order is received by the off-line bank's Federal Reserve Bank.
    (2) Under section 4A-302(a)(2), a Federal Reserve Bank must transmit 
payment orders at a time and by means reasonably necessary to allow 
payment to the beneficiary on the payment date, or as soon thereafter as 
is feasible. Therefore, where an off-line receiving bank is an 
intermediary bank or beneficiary's bank in a payment order, its Federal 
Reserve Bank attempts to transmit the payment order to the off-line bank 
by telephone on the day the payment order is received by the Federal 
Reserve Bank. A Federal Reserve Bank can generally identify these 
payment orders from the type code designated in the payment order.
    (3) Under section 4A-404(b), if a payment order instructs payment to 
the account of the beneficiary, the beneficiary's bank must notify the 
beneficiary of the receipt of a payment order before midnight of the 
next funds-transfer business day following the payment date. Where an 
off-line bank is the beneficiary of a payment order, telephone notice by 
a Federal Reserve Bank to the off-line bank of the receipt of the order 
is not required by Article 4A because the Federal Reserve Bank sends 
notice to the off-line bank by courier or mail, along with its daily 
account statement, on the day after the payment order is received by its 
Federal Reserve Bank. Payment orders for which an off-line bank is the 
beneficiary of the order are generally designated as settlement 
transactions.
    (4) If an off-line receiving bank maintains an account for another 
bank, the off-line bank may receive payment orders designated as 
settlement transactions in its capacity as

[[Page 275]]

beneficiary's bank or intermediary bank. A Federal Reserve Bank cannot 
readily distinguish these payment orders from settlement transactions 
for which the off-line bank is the beneficiary of the order. If an off-
line bank notifies its Federal Reserve Bank that it maintains an account 
for another bank, the Federal Reserve Bank will attempt to telephone the 
off-line bank with respect to all settlement transactions received by 
such bank, whether the off-line bank is the beneficiary, the 
beneficiary's bank, or an intermediary bank in the payment order. Under 
this section, an off-line bank that does not expressly notify its 
Federal Reserve Bank in writing that it maintains an account for another 
bank warrants to that Federal Reserve Bank that it does not act as an 
intermediary bank or a beneficiary's bank for a bank beneficiary with 
respect to payment orders received through Fedwire.

                     Section 210.30--Payment Orders

    (a) Rejection. (1) A sender must make arrangements with its Federal 
Reserve Bank before it can send payment orders to the Federal Reserve 
Bank. Federal Reserve Banks reserve the right to reject or impose 
conditions on the acceptance of payment orders for any reason. For 
example, a Federal Reserve Bank might reject or impose conditions on 
accepting a payment order where a sender does not have sufficient funds 
in its account with the Federal Reserve Bank to cover the amount of the 
sender's payment order and other obligations of the sender due or to 
become due to the Federal Reserve Bank. A Federal Reserve Bank may 
require a sender to execute a written agreement concerning security 
procedures or other matters before the sender may send payment orders to 
the Federal Reserve Bank.
    (b) Selection of an intermediary bank. (1) Under section 4A-302, if 
a receiving bank (other than a beneficiary's bank), such as a Federal 
Reserve Bank, accepts a payment order, it must issue a payment order 
that complies with the sender's order. The sender's order may include 
instructions concerning an intermediary bank to be used that must be 
followed by a receiving bank (see section 4A-302(a)(1)). If the sender 
does not designate any intermediary bank in its payment order, the 
receiving bank may select an intermediary bank through which the 
sender's payment order can be expeditiously issued to the beneficiary's 
bank so long as the receiving bank exercises ordinary care in selecting 
the intermediary bank (see section 4A-302(b)).
    (2) This section provides that in an interdistrict transfer, a 
Federal Reserve Bank is authorized and directed to select another 
Federal Reserve Bank as an intermediary bank. A sender may, however, 
instruct a Federal Reserve Bank to use a particular intermediary bank by 
designating that bank as the bank to be credited by that Federal Reserve 
Bank (or the second Federal Reserve Bank in the case of an interdistrict 
transfer) in its payment order, in which case the Federal Reserve Bank 
will send the payment order to that bank if that bank receives payment 
orders through Fedwire. A sender may not instruct a Federal Reserve Bank 
to use its discretion to select an intermediary bank other than a 
Federal Reserve Bank or an intermediary bank designated by the sender. 
In addition, a sender may not instruct a Federal Reserve Bank to use a 
funds-transfer system or means of transmission other than Fedwire unless 
the sender and the Federal Reserve Bank agree in writing to the use of 
the funds-transfer system or means of transmission.
    (c) Same-day execution. Generally, Fedwire is a same-day value 
transfer system through which funds may be transferred from the 
originator to the beneficiary on the same funds-transfer business day. A 
sender may not send a payment order to a Federal Reserve Bank that 
specifies an execution date or payment date later than the day on which 
the payment order is issued, unless the sender of the order and the 
Federal Reserve Bank agree in writing to the arrangement.

Section 210.31--Payment by a Federal Reserve Bank to a Receiving Bank or 
                               Beneficiary

    (a) Payment to a receiving bank. (1) Under section 4A-402, when a 
Federal Reserve Bank executes a sender's payment order by issuing a 
conforming order to a receiving bank that accepts the payment order, the 
Federal Reserve Bank must pay the receiving bank the amount of the 
payment order. Section 210.29(a) authorizes a Federal Reserve Bank to 
make the payment by crediting the account at the Federal Reserve Bank 
maintained or used by the receiving bank. Section 210.31(a) provides 
that the payment occurs when the receiving bank's account is credited or 
when the payment order is sent by the Federal Reserve Bank to the 
receiving bank, whichever is earlier. Ordinarily, payment will occur 
during the funds-transfer business day a short time after the payment 
order is received, even if the receiving bank is an off-line bank. This 
credit is final and irrevocable when made and constitutes final 
settlement under section 4A-403. Payment does not waive a Federal 
Reserve Bank's right of recovery under the applicable law of mistake and 
restitution (see Sec. 210.32(c)), affect a Federal Reserve Bank's right 
to apply the funds to any obligation due or to become due to the Federal 
Reserve Bank, or affect legal process or claims by third parties on the 
funds.

[[Page 276]]

    (2) This section on final payment does not apply to settlement for 
payment orders between Federal Reserve Banks. These payment orders are 
settled by other means.
    (b) Payment to a beneficiary. Section 210.31(b) specifies when a 
Federal Reserve Bank makes payment to a beneficiary for which it is the 
beneficiary's bank. As in the case of payment to a receiving bank, this 
payment occurs at the earlier of the time that the Federal Reserve Bank 
credits the beneficiary's account or sends notice of the credit to the 
beneficiary, and is final and irrevocable when made.

   Section 210.32--Federal Reserve Bank Liability; Payment of Interest

    (a) Damages. (1) Under section 4A-305(d), damages for failure of a 
receiving bank to execute a payment order that it was obligated to 
execute by express agreement are limited to expenses in the transaction 
and incidental expenses and interest and do not include additional 
damages, including consequential damages, unless they are provided for 
in an express written agreement of the receiving bank. This section 
clarifies that in connection with the handling of payment orders, 
Federal Reserve Banks may not agree to be liable for consequential 
damages under this provision and shall not be liable for damages other 
than those that may be due under Article 4A to parties governed by this 
subpart. Any agreement in conflict with these provisions would not be 
effective, because it would be in violation of subpart B.
    (2) This section does not affect the ability of other parties to a 
funds transfer to agree to be liable for consequential damages, the 
liability of a Federal Reserve Bank under section 4A-404, or the 
liability to parties governed by subpart B for claims not based on the 
handling of a payment order under this subpart.
    (b) Payment of interest. (1) Under Article 4A, a Federal Reserve 
Bank may be required to pay compensation in the form of interest to 
another party in connection with its handling of a funds transfer. For 
example, payment of compensation in the form of interest is required in 
certain situations pursuant to sections 4A-204 (relating to refund of 
payment and duty of customer to report with respect to unauthorized 
payment order), 4A-209 (relating to acceptance of payment order), 4A-210 
(relating to rejection of payment order), 4A-304 (relating to duty of 
sender to report erroneously executed payment order), 4A-305 (relating 
to liability for late or improper execution or failure to execute a 
payment order), 4A-402 (relating to obligation of sender to pay 
receiving bank), and 4A-404 (relating to obligation of beneficiary's 
bank to pay and give notice to beneficiary). Under section 4A-506(a), 
the amount of such interest may be determined by agreement between the 
sender and receiving bank or by funds-transfer system rule. If there is 
no such agreement, under section 4A-506(b), the amount of interest is 
based on the Federal funds rate. Section 210.32(b) provides two means by 
which Federal Reserve Banks may provide compensation in the form of 
interest: through an as of adjustment or through an explicit interest 
payment.
    (2) An as of adjustment is a memorandum credit or debit that is 
applied to the reserve or clearing balance of the bank that sent the 
payment order to, or received the payment order from, a Federal Reserve 
Bank. Federal Reserve Banks generally provide as of adjustments to 
correct errors and recover float. An as of adjustment differs from a 
debit or credit to an account in that it does not affect the actual 
balance of the account; it only affects the balance for reserve or 
clearing balance computation purposes. These adjustments affect the 
level of reserve or clearing balances that the bank must fund by other 
means and are therefore an effective substitute for explicit interest 
payments.
    (3) A party that sent or received a payment order from a Federal 
Reserve Bank may be unable to make use of an as of adjustment as 
compensation in lieu of explicit interest. For example, if the sender or 
receiving bank is not subject to reserve requirements or satisfies its 
reserve requirements with vault cash, the as of adjustment could not be 
used to free other balances for investment. A Federal Reserve Bank may, 
in its discretion, provide compensation by an explicit interest payment 
rather than through an as of adjustment. Interest would be calculated in 
accordance with the procedures specified in section 4A-506(b). 
Similarly, compensation in the form of explicit interest will be paid to 
Government senders, receiving banks, or beneficiaries described in 
Sec. 210.25(d) if they are entitled to interest under this subpart. A 
Federal Reserve Bank may also, in its discretion, pay explicit interest 
directly to a remote party to a Fedwire funds transfer that is entitled 
to interest, rather than providing compensation to its direct sender or 
receiving bank.
    (4) If a bank that received an as of adjustment or explicit interest 
payment is not the party entitled to interest compensation under Article 
4A, the bank must pass the benefit of the as of adjustment or explicit 
interest payment made to it to the party that is entitled to 
compensation in the form of interest from a Federal Reserve Bank. The 
benefit may be passed on either in the form of a direct payment of 
interest or in the form of a compensating balance, if the party entitled 
to interest agrees to accept the other form of compensation, and the 
value of the compensating balance is at least equivalent to the value of 
the explicit interest that otherwise would have been provided.

[[Page 277]]

    (c) Nonwaiver of right of recovery. Several sections of Article 4A 
allow for a party to a funds transfer to make a claim pursuant to the 
applicable law of mistake and restitution. Nothing in subpart B of this 
part or any Operating Circular issued under subpart B of this part 
waives any such claim. A Federal Reserve Bank, however, may waive such a 
claim by express written agreement in order to settle litigation or for 
other purposes.

[55 FR 40801, Oct. 5, 1990; 55 FR 47428, Nov. 13, 1990]

          Appendix B to Subpart B--Article 4A, Funds Transfers
Return to top
                 Part 1--Subject Matter and Definitions

                       Section 4A-101. Short Title

    This Article may be cited as Uniform Commercial Code--Funds 
Transfers.

                     Section 4A-102. Subject Matter

    Except as otherwise provided in section 4A-108, this Article applies 
to funds transfers defined in section 4A-104.

               Section 4A-103. Payment Order--Definitions

    (a) In this Article:
    (1) Payment order means an instruction of a sender to a receiving 
bank, transmitted orally, electronically, or in writing, to pay, or to 
cause another bank to pay, a fixed or determinable amount of money to a 
beneficiary if:
    (i) The instruction does not state a condition to payment to the 
beneficiary other than time of payment,
    (ii) The receiving bank is to be reimbursed by debiting an account 
of, or otherwise receiving payment from, the sender, and
    (iii) The instruction is transmitted by the sender directly to the 
receiving bank or to an agent, funds-transfer system, or communication 
system for transmittal to the receiving bank.
    (2) Beneficiary means the person to be paid by the beneficiary's 
bank.
    (3) Beneficiary's bank means the bank identified in a payment order 
in which an account of the beneficiary is to be credited pursuant to the 
order or which otherwise is to make payment to the beneficiary if the 
order does not provide for payment to an account.
    (4) Receiving bank means the bank to which the sender's instruction 
is addressed.
    (5) Sender means the person giving the instruction to the receiving 
bank.
    (b) If an instruction complying with subsection (a)(1) is to make 
more than one payment to a beneficiary, the instruction is a separate 
payment order with respect to each payment.
    (c) A payment order is issued when it is sent to the receiving bank.

               Section 4A-104. Funds Transfer--Definitions

    In this Article:
    (a) Funds transfer means the series of transactions, beginning with 
the originator's payment order, made for the purpose of making payment 
to the beneficiary of the order. The term includes any payment order 
issued by the originator's bank or an intermediary bank intended to 
carry out the originator's payment order. A funds transfer is completed 
by acceptance by the beneficiary's bank of a payment order for the 
benefit of the beneficiary of the originator's payment order.
    (b) Intermediary bank means a receiving bank other than the 
originator's bank or the beneficiary's bank.
    (c) Originator means the sender of the first payment order in a 
funds transfer.
    (d) Originator's bank means (i) the receiving bank to which the 
payment order of the originator is issued if the originator is not a 
bank, or (ii) the originator if the originator is a bank.

                    Section 4A-105. Other Definitions

    (a) In this Article:
    (1) Authorized account means a deposit account of a customer in a 
bank designated by the customer as a source of payment of payment orders 
issued by the customer to the bank. If a customer does not so designate 
an account, any account of the customer is an authorized account if 
payment of a payment order from that account is not inconsistent with a 
restriction on the use of that account.
    (2) Bank means a person engaged in the business of banking and 
includes a savings bank, savings and loan association, credit union, and 
trust company. A branch or separate office of a bank is a separate bank 
for purposes of this Article.
    (3) Customer means a person, including a bank, having an account 
with a bank or from whom a bank has agreed to receive payment orders.
    (4) Funds-transfer business day of a receiving bank means the part 
of a day during which the receiving bank is open for the receipt, 
processing, and transmittal of payment orders and cancellations and 
amendments of payment orders.
    (5) Funds-transfer system means a wire transfer network, automated 
clearing house, or other communication system of a clearing house or 
other association of banks through which a payment order by a bank may 
be transmitted to the bank to which the order is addressed.
    (6) Good faith means honesty in fact and the observance of 
reasonable commercial standards of fair dealing.
    (7) Prove with respect to a fact means to meet the burden of 
establishing the fact (section 1-201(8)).

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    (b) Other definitions applying to this Article and the sections in 
which they appear are:
Acceptance...................................................Sec. 4A-209
Beneficiary..................................................Sec. 4A-103
Beneficiary's bank...........................................Sec. 4A-103
Executed.....................................................Sec. 4A-301
Execution date...............................................Sec. 4A-301
Funds transfer...............................................Sec. 4A-104
Funds-transfer system rule...................................Sec. 4A-501
Intermediary bank............................................Sec. 4A-104
Originator...................................................Sec. 4A-104
Originator's bank............................................Sec. 4A-104
Payment by beneficiary's bank to beneficiary.................Sec. 4A-405
Payment by originator to beneficiary.........................Sec. 4A-406
Payment by sender to receiving bank..........................Sec. 4A-403
Payment date.................................................Sec. 4A-401
Payment order................................................Sec. 4A-103
Receiving bank...............................................Sec. 4A-103
Security procedure...........................................Sec. 4A-201
Sender.......................................................Sec. 4A-103
    (c) The following definitions in Article 4 apply to this Article:

Clearing house................................................Sec. 4-104
Item..........................................................Sec. 4-104
Suspends payments.............................................Sec. 4-104
    (d) In addition Article 1 contains general definitions and 
principles of construction and interpretation applicable throughout this 
Article.

             Section 4A-106. Time Payment Order is Received

    (a) The time of receipt of a payment order or communication 
canceling or amending a payment order is determined by the rules 
applicable to receipt of a notice stated in section 1-201(27). A 
receiving bank may fix a cut-off time or times on a funds-transfer 
business day for the receipt and processing of payment orders and 
communications canceling or amending payment orders. Different cut-off 
times may apply to payment orders, cancellations, or amendments, or to 
different categories of payment orders, cancellations, or amendments. A 
cut-off time may apply to senders generally or different cut-off times 
may apply to different senders or categories of payment orders. If a 
payment order or communication canceling or amending a payment order is 
received after the close of a funds-transfer business day or after the 
appropriate cut-off time on a funds-transfer business day, the receiving 
bank may treat the payment order or communication as received at the 
opening of the next funds-transfer business day.
    (b) If this Article refers to an execution date or payment date or 
states a day on which a receiving bank is required to take action, and 
the date or day does not fall on a funds-transfer business day, the next 
day that is a funds-transfer business day is treated as the date or day 
stated, unless the contrary is stated in this Article.

   Section 4A-107. Federal Reserve Regulations and Operating Circulars

    Regulations of the Board of Governors of the Federal Reserve System 
and operating circulars of the Federal Reserve Banks supersede any 
inconsistent provision of this Article to the extent of the 
inconsistency.

 Section 4A-108. Exclusion of Consumer Transactions Governed by Federal 
                                   Law

    This Article does not apply to a funds transfer any part of which is 
governed by the Electronic Fund Transfer Act of 1978 (title XX, Pub. L. 
95-630, 92 Stat. 3728, 15 U.S.C. 1693 et seq.) as amended from time to 
time.

              Part 2--Issue and Acceptance of Payment Order

                   Section 4A-201. Security Procedure

    Security procedure means a procedure established by agreement of a 
customer and a receiving bank for the purpose of (i) verifying that a 
payment order or communication amending or canceling a payment order is 
that of the customer, or (ii) detecting error in the transmission or the 
content of the payment order or communication. A security procedure may 
require the use of algorithms or other codes, identifying words or 
numbers, encryption, callback procedures, or similar security devices. 
Comparison of a signature on a payment order or communication with an 
authorized specimen signature of the customer is not by itself a 
security procedure.

         Section 4A-202. Authorized and Verified Payment Orders

    (a) A payment order received by the receiving bank is the authorized 
order of the person identified as sender if that person authorized the 
order or is otherwise bound by it under the law of agency.
    (b) If a bank and its customer have agreed that the authenticity of 
payment orders issued to the bank in the name of the customer as sender 
will be verified pursuant to a security procedure, a payment order 
received by the receiving bank is effective as the order of the 
customer, whether or not authorized, if (i) the security procedure is a 
commercially reasonable method of providing security against 
unauthorized payment orders, and (ii) the bank proves that it accepted 
the payment order in good faith and in compliance with the security 
procedure and any written agreement or instruction of the customer 
restricting acceptance of payment orders issued in the name of the 
customer. The bank is not required to follow an instruction that 
violates a written agreement with the customer or notice of which is

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not received at a time and in a manner affording the bank a reasonable 
opportunity to act on it before the payment order is accepted.
    (c) Commercial reasonableness of a security procedure is a question 
of law to be determined by considering the wishes of the customer 
expressed to the bank, the circumstances of the customer known to the 
bank, including the size, type, and frequency of payment orders normally 
issued by the customer to the bank, alternative security procedures 
offered to the customer, and security procedures in general use by 
customers and receiving banks similarly situated. A security procedure 
is deemed to be commercially reasonable if (i) the security procedure 
was chosen by the customer after the bank offered, and the customer 
refused, a security procedure that was commercially reasonable for that 
customer, and (ii) the customer expressly agreed in writing to be bound 
by any payment order, whether or not authorized, issued in its name and 
accepted by the bank in compliance with the security procedure chosen by 
the customer.
    (d) The term sender in this Article includes the customer in whose 
name a payment order is issued if the order is the authorized order of 
the customer under subsection (a), or it is effective as the order of 
the customer under subsection (b).
    (e) This section applies to amendments and cancellations of payment 
orders to the same extent it applies to payment orders.
    (f) Except as provided in this section and in section 4A-203(a)(1), 
rights and obligations arising under this section or section 4A-203 may 
not be varied by agreement.

   Section 4A-203. Unenforceability of Certain Verified Payment Orders

    (a) If an accepted payment order is not, under section 4A-202(a), an 
authorized order of a customer identified as sender, but is effective as 
an order of the customer pursuant to section 4A-202(b), the following 
rules apply:
    (1) By express written agreement, the receiving bank may limit the 
extent to which it is entitled to enforce or retain payment of the 
payment order.
    (2) The receiving bank is not entitled to enforce or retain payment 
of the payment order if the customer proves that the order was not 
caused, directly or indirectly, by a person (i) entrusted at any time 
with duties to act for the customer with respect to payment orders or 
the security procedure, or (ii) who obtained access to transmitting 
facilities of the customer or who obtained, from a source controlled by 
the customer and without authority of the receiving bank, information 
facilitating breach of the security procedure, regardless of how the 
information was obtained or whether the customer was at fault. 
Information includes any access device, computer software, or the like.
    (b) This section applies to amendments of payment orders to the same 
extent it applies to payment orders.

 Section 4A-204. Refund of Payment and Duty of Customer To Report with 
                  Respect to Unauthorized Payment Order

    (a) If a receiving bank accepts a payment order issued in the name 
of its customer as sender which is (i) not authorized and not effective 
as the order of the customer under section 4A-202, or (ii) not 
enforceable, in whole or in part, against the customer under section 4A-
203, the bank shall refund any payment of the payment order received 
from the customer to the extent the bank is not entitled to enforce 
payment and shall pay interest on the refundable amount calculated from 
the date the bank received payment to the date of the refund. However, 
the customer is not entitled to interest from the bank on the amount to 
be refunded if the customer fails to exercise ordinary care to determine 
that the order was not authorized by the customer and to notify the bank 
of the relevant facts within a reasonabl