COMMENTARY

b. If the returning bank elects to send the returned check directly to the depositary bank, it is not required to send the check to the branch of the depositary bank that first handled the check. A paper returned check may be sent to the depositary bank at any physical location permitted under section 229.33(b).

b. If, on the other hand, the returning bank itself handled the check for forward collection, it may send the returned check to a collecting bank that was prior to it in the forward-collection process, which will be better able to identify the depositary bank. If there are no prior collecting banks, the returning bank must research the collection of the check and identify the depositary bank.

c. The returning bank’s return of a check under this paragraph is subject to the requirement to use ordinary care under UCC 4-202(b). (See definition of returning bank in section 229.2(cc)).

d. As in the case of a paying bank returning a check under section 229.31(a)(2), a returning bank returning a check under section 229.32(a)(2) must advise the bank to which it sends the returned check that it is unable to identify the depositary bank. This advice must be conspicuous, such as a stamp on the check or a notice on the cash letter. The returned check may not be prepared as a qualified return. In the case of an electronic returned check, the advice requirement may be satisfied as agreed to by the parties.

3. A returning bank agrees to handle a returned check if it—

a. Publishes or distributes availability schedules for the return of returned checks and accepts the returned check for return;

b. Handles a returned check for return that it did not handle for forward collection;

c. Agrees with the paying bank or returning bank to handle electronic returned checks sent by that bank; or

d. Otherwise agrees to handle a returned check.

4. Cut-off hours. A returning bank may establish earlier cut-off hours for receipt of returned checks than for receipt of forward collection checks, but, unless the sending bank and returning bank agree otherwise, the cut-off hour for returned checks may not be earlier than 2 p.m. (local time of the returning bank). The returning bank also may set different sorting requirements for returned checks than those applicable to other checks. Thus, a returning bank may allow itself more processing time for returns than for forward collection checks.

5. Qualified returned checks. A qualified returned check will be handled by subsequent returning banks more efficiently than a raw return. The qualified returned check must include the routing number of the depositary bank, the amount of the check, and a return identifier encoded on the check in magnetic ink. A check that is converted to a qualified returned check must be encoded in accordance with ANS X9.13 for original checks or ANS X9.100-140 for substitute checks. If the returning bank makes an encoding error in creating a qualified returned check, it may be liable under section 229.38 for losses caused by any negligence or under section 229.34(c)(3) for breach of an encoding warranty.

6. Responsibilities of returning bank. In meeting the requirements of this section, the returning bank is responsible for its own actions, but not those of the paying bank, other returning banks, or the depositary bank. (See UCC 4-202(c) regarding the responsibility of collecting banks).

7. UCC sections affected. Section 229.32 directly affects UCC Section 4-214(a) and may affect other sections or provisions. (See UCC 4-202(b)). Section 4-214(a) is affected in that settlement for returned checks is made under section 229.32(e) and not by chargeback of provisional credit.

2. A returning bank that agrees to handle a returned check (see commentary to section 229.32(a)) is subject to the expeditious return requirement with respect to the returned check except as provided in section 229.32(c)).

3. Two-day test. As in the case of a paying bank, a returning bank’s return of a returned check is expeditious if it is sent in a manner such that the depositary bank would normally receive the returned check by 2 p.m. (local time of the depositary bank) of the second business day after the banking day on which the check was presented to the paying bank. Although a returning bank will not have firsthand knowledge of the day on which a check was presented to the paying bank, returning banks may, by agreement, allocate with paying banks liability for late return based on the delays caused by each. Paying banks and returning banks are subject to the expeditious return rule, however, under section 229.33(a) a paying or returning bank may be liable to a depositary bank for failing to return a check in an expeditious manner only if the depositary bank has arrangements in place such that the paying bank or returning bank could return a returned check to the depositary bank electronically by commercially reasonable means. The depositary bank has the burden of proof for demonstrating that its arrangements are commercially reasonable.

4. Example. Returning Bank A does not have an agreement to send electronic returned checks to the depositary bank but has an agreement to send electronic returned checks to Returning Bank B, which, in turn, has an agreement to send electronic returned checks to the depositary bank. If a check is presented to the paying bank on Monday, each returning bank would need to send the returned check in a manner such that the depositary bank normally would receive the returned check by 2 p.m. (local time of the depositary bank) on Wednesday.

2. Depositary bank not subject to subpart B. This paragraph is similar to section 229.31(d)(1) and relieves a returning bank of its obligation to make expeditious return to a depositary bank that does not hold “accounts” under subpart B of this regulation or is not a “depository institution” within the meaning of the EFA Act. (See commentary to section 229.31(d)).

3. Unidentifiable depositary bank. A returning bank is not subject to the expeditious return requirements of section 229.32(b) in handling a returned check for which the paying bank cannot identify the depositary bank.

4. Misrouted returned check. A returning bank is not subject to the expeditious return requirements of section 229.32(b) in handling a misrouted returned check pursuant to section 229.33(f). A bank acting as a returning bank because it received a returned check on the basis that it was the depositary bank and sends the misrouted returned check to the correct depositary bank, directly or through subsequent returning banks, is similarly not subject to the expeditious return requirements of section 229.32(b). (See commentary to section 229.33(f)).

2. Any returning bank, including one that handled the check for forward collection, may provide availability for returned checks pursuant to an availability schedule as it does for forward collection checks. These settlements by returning banks, as well as settlements between banks made during the forward collection of a check, are considered final when made subject to any deferment of availability. (See section 229.36(c) and commentary to section 229.35(b)).

3. A returning bank may vary the settlement method it uses by agreement with paying banks or other returning banks. Special rules apply in the case of insolvency of banks. (See section 229.39). If payment cannot be obtained from a depositary bank or returning bank because of its insolvency or otherwise, recovery can be had by returning banks, paying banks, and collecting banks from prior banks on this basis of the liability of prior banks under section 229.35(b).

4. This paragraph affects UCC 4-214(a) in that a paying bank or collecting bank does not ordinarily have a right to charge back against the bank from which it received the returned check, although it is entitled to settlement if it returns the returned check to that bank, and may affect other sections or provisions. Under section 229.36(c), a bank collecting a check remains liable to prior collecting banks and the depositary bank’s customer under the UCC.