SECTION 229.36—Presentment
and Issuance of Checks
A. 229.36(a)
Receipt of Electronic Checks 1. A paying
bank may agree to accept presentment of electronic checks. (See section 229.2(ggg) and commentary thereto). The paying bank’s acceptance
of such electronic checks is governed by the paying bank’s agreement
with the bank sending the electronic check to the paying bank. The
terms of these agreements are determined by the parties and may include,
for example, the electronic address or electronic receipt point at
which the paying bank agrees to accept electronic checks, as well
as when presentment occurs. The agreement also may specify whether
electronic checks sent for forward collection must be separated from
electronic returned checks.
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B. 229.36(b) Receipt of Paper Checks 1. The
paragraph specifies four locations at which the paying bank must accept
presentment of paper checks. Where the check is payable through a
bank and the check is sent to that bank, the payable-through bank
is the paying bank for purposes of this subpart, regardless of whether
the paying bank must present the check to another bank or to a nonbank
payor for payment.
a. Delivery of paper checks may be made, and presentment
is considered to occur, at a location (including a processing center)
requested by the paying bank. This provision adopts the common law
rule that the processing center acts as the agent of the paying bank
to accept presentment and to begin the time for processing of the
check. (See also UCC 4-204(c)). If a bank designates different
locations for the presentment of forward collection paper checks bearing
different routing numbers, for purposes of this paragraph it requests
presentment of paper checks bearing a particular routing number only
at the location designated for receipt of forward collection paper
checks bearing that routing number.
b. If the check specifies the name and address of a branch
or head office, or other location (such as a processing center), the
paper check may be delivered to that office or other location. If
the address is too general to identify a particular office, delivery
may be made at any office consistent with the address. For example,
if the address is “San Francisco, California,” each office in San
Francisco must accept presentment of paper checks. The designation
of an address on the check generally is in the control of the paying
bank.
c. i. Delivery of a paper
check may be made at an office of the bank associated with the routing
number on the check. In the case of a substitute check, delivery may
be made at an office of the bank associated with the routing number
in the electronic check from which it was derived. The office associated
with the routing number of a bank is found in American Bankers
Association Key to Routing Numbers, published by an agent of the
American Bankers Association, which lists a city and state address
for each routing number. Paper checks generally are handled by collecting
banks on the basis of the nine-digit routing number contained in the
MICR line (or on the basis of the fractional form routing number if
the MICR line is obliterated) on the check, rather than the printed
name or address. The definition of a paying bank in section 229.2(z)
includes a bank designated by routing number, whether or not there
is a name on the check, and whether or not any name is consistent
with the routing number. Where a check is payable by one bank, but
payable through another, the routing number is that of the payable-through
bank, not that of the payor bank. In these cases, the payor bank has
selected the payable-through bank as the point through which presentment
of paper checks is to be made.
ii. There is no requirement in the regulation
that the name and address on the check agree with the address associated
with the routing number on the check. A bank generally may control
the use of its routing number, just as it does the use of its name.
The address associated with the routing number may be a processing
center.
iii. In
some cases, a paying bank may have several offices in the city associated
with the routing number. In such case, it would not be reasonable
or efficient to require the presenting bank to sort paper checks by
more specific branch addresses that might be printed on the checks,
and to deliver paper checks to each branch. A collecting bank normally
would deliver all paper checks to one location. In cases where paper
checks are delivered to a branch other than the branch on which they
may be drawn, computer and courier communication among branches should
permit the paying bank to determine quickly whether to pay the check.
d. If the paper check specifies the name of the paying
bank but no address, the bank must accept delivery at any office.
Where delivery is made by a person other than a bank, or where the
routing number is not readable, delivery will be made based on the
name and address of the paying bank on the check. If there is no address,
delivery may be made at any office of the paying bank. This provision
is consistent with UCC 3-111, which states that presentment for payment
may be made at the place specified in the instrument, or, if there
is none, at the place of business of the party to pay.
2. This paragraph may affect UCC
3-111 to the extent that the UCC requires presentment to occur at
a place specified in the instrument.
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C. 229.36(c) Liability of Bank during Forward Collection 1. This paragraph makes settlement between banks
during forward collection final when made, subject to any deferment
of credit, just as settlements between banks during the return of
checks are final. In addition, this paragraph clarifies that this
change does not affect the liability scheme under UCC 4-201 during
forward collection of a check. That UCC section provides that, unless
a contrary intent clearly appears, a bank is an agent or subagent
of the owner of a check, but that Article 4 of the UCC applies even
though a bank may have purchased an item and is the owner of it. This
paragraph preserves the liability of a collecting bank to prior collecting
banks and the depositary bank’s customer for negligence during the
forward collection of a check under the UCC, even though this paragraph
provides that settlement between banks during forward collection is
final rather than provisional. Settlement by a paying bank is not
considered to be final payment for the purposes of UCC 4-215(a)(2)
or (3), because a paying bank has the right to recover settlement
from a returning bank or depositary bank to which it returns a check
under this subpart. Other provisions of the UCC not superseded by
this subpart, such as section 4-202, also continue to apply to the
forward collection of a check and may apply to the return of a check.
(See definition of returning bank in section 229.2(cc)).
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D. 229.36(d) Same-Day Settlement 1. This paragraph governs settlement for presentment
of paper checks. Settlement for presentment of electronic checks is
governed by the agreement of the parties. (See section 229.36(a)
and commentary thereto). This paragraph provides that, under certain
conditions, a paying bank must settle with a presenting bank for a
paper check on the same day the paper check is presented in order
to avail itself of the ability to return the paper check on its next
banking day under UCC 4-301 and 4-302. This paragraph does not apply
to paper checks presented for immediate payment over the counter.
Settling for a paper check under this paragraph does not constitute
final payment of the paper check under the UCC. This paragraph does
not supersede or limit the rules governing collection and return of
paper checks through Federal Reserve Banks that are contained in subpart
A of Regulation J (12 CFR part 210).
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2. Presentment
Requirements
a. Location and time.
i. For presented paper checks to qualify for mandatory
same-day settlement, information accompanying the paper checks must indicate
that presentment is being made under this paragraph—e.g. “these checks
are being presented for same-day settlement”—and must include a demand
for payment of the total amount of the checks together with appropriate
payment instructions in order to enable the paying bank to discharge
its settlement responsibilities under this paragraph. In addition,
the paper check or checks must be presented at a location designated
by the paying bank for receipt of paper checks for same-day settlement
by 8 a.m. local time of that location. The designated presentment
location must be a location at which the paying bank would be considered
to have received a paper check under section 229.36(b). The paying
bank may not designate a location solely for presentment of paper
checks subject to settlement under this paragraph; by designating
a location for the purposes of section 229.36(d), the paying bank
agrees to accept paper checks at that location for the purposes of
section 229.36(b).
ii. If the paying bank does not designate a presentment
location, it must accept presentment of paper check for same-day settlement
at any location identified in section 229.36(b), i.e., at an address
of the bank associated with the routing number on the check, at any
branch or head office if the bank is identified on the check by name
without address, or at a branch, head office, or other location consistent
with the name and address of the bank on the check if the bank is
identified on the check by name and address. A paying bank and a presenting
bank may agree that paper checks will be accepted for same-day settlement
at an alternative location or that the cut-off time for same-day settlement
be earlier or later than 8 a.m. local time of the presentment location.
iii. In the case of a paper check payable through a bank
but payable by another bank, this paragraph does not authorize direct
presentment to the bank by which the paper check is payable. The requirements
of same-day settlement under this paragraph would apply to a payable-through
or payable-at bank to which the paper check is sent for payment or
collection.
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b. Reasonable delivery requirements. A paper
check is considered presented when it is delivered to and payment
is demanded at a location specified in paragraph (d)(1). Ordinarily,
a presenting bank will find it necessary to contact the paying bank
to determine the appropriate presentment location and any delivery
instructions. Further, because presentment might not take place during
the paying bank’s banking day, a paying bank may establish reasonable
delivery requirements to safeguard the paper checks presented, such
as use of a night depository. If a presenting bank fails to follow
reasonable delivery requirements established by the paying bank, it
runs the risk that it will not have presented the paper checks. However,
if no reasonable delivery requirements are established or if the paying
bank does not make provisions for accepting delivery of checks during
its non-business hours, leaving the paper checks at the presentment
location constitutes effective presentment.
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c. Sorting
of checks. A paying bank may require that paper checks presented
to it for same-day settlement be sorted separately from other forward
collection paper checks it receives as a collecting bank or paper
returned checks it receives as a returning bank or depositary bank.
For example, if a bank provides correspondent check collection services
and receives unsorted paper checks from a respondent bank that include
paper checks for which it is the paying bank and that would otherwise
meet the requirements for same-day settlement under this section,
the collecting bank need not make settlement in accordance with paragraph
(d)(3). If the collecting bank receives sorted paper checks from its
respondent bank, consisting only of paper checks for which the collecting
bank is the paying bank and that meet the requirements for same-day
settlement under this paragraph, the collecting bank may not charge
a fee for handling those paper checks and must make settlement in
accordance with this paragraph.
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3. Settlement
a. If a bank presents a paper check in accor dance
with the time and location requirements for presentment under paragraph
(d)(1), the paying bank either must settle for the paper check on
the business day it receives the paper check without charging a presentment
fee or return the paper check prior to the time for settlement. (This
return deadline is subject to extension under section 229.31(g).)
The settlement must be in the form of a credit to an account designated
by the presenting bank at a Federal Reserve Bank (e.g., a Fedwire
transfer), unless the presenting bank agrees with the paying bank
to accept settlement in another form (e.g., credit to an account of
the presenting bank at the paying bank or debit to an account of the
paying bank at the presenting bank). The settlement must occur by
the close of Fedwire on the business day the paper check is received
by the paying bank. Under the provisions of section 229.34(c), a settlement
owed to a presenting bank may be set off by adjustments for previous
settlements with the presenting bank. (See also section 229.39(d)).
b. Paper checks that are presented after the 8 a.m. (local
time of the location at which the paper checks are presented) presentment
deadline for same-day settlement and before the paying bank’s cut-off
hour are treated as if they were presented under other applicable
law and settled for or returned accordingly. However, for purposes
of settlement only, the presenting bank may require the paying bank
to treat such paper checks as presented for same-day settlement on
the next business day in lieu of accepting settlement by cash or other
means on the business day the paper checks are presented to the paying
bank. Paper checks presented after the paying bank’s cut-off hour
or on non-business days, but otherwise in accordance with this paragraph,
are considered presented for same-day settlement on the next business
day.
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4. Closed Paying Bank
a. There may be certain business days that are not banking days for
the paying bank. Some paying banks may continue to settle for paper
checks presented on these days (e.g., by opening their back office
operations). In other cases, a paying bank may be unable to settle
for paper checks presented on a day it is closed. If the paying bank
closes on a business day and paper checks are presented to the paying
bank in accordance with paragraph (d)(1), the paying bank is accountable
for the paper checks unless it settles for or returns the paper checks
by the close of Fedwire on its next banking day. In addition, paper
checks presented on a business day on which the paying bank is closed
are considered received on the paying bank’s next banking day for
purposes of the UCC midnight deadline (UCC 4-301 and 4-302) and this
regulation’s expeditious return and notice of nonpayment provisions.
b. If the paying bank is closed on a business day voluntarily,
the paying bank must pay interest compensation, as defined in section
229.2(oo), to the presenting bank for the value of the float associated
with the paper check from the day of the voluntary closing until the
day of settlement. Interest compensation is not required in the case
of an involuntary closing on a business day, such as a closing required
by state law. In addition, if the paying bank is closed on a business
day due to emergency conditions, settlement delays and interest compensation
may be excused under section 229.38(e) or UCC 4-109(b).
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5. Good Faith
Under section 229.38(a),
both the presenting bank and paying bank are held to a standard of
good faith, defined in section 229.2(nn) to mean honesty in fact and
the observance of reasonable commercial standards of fair dealing.
For example, designating a presentment location or changing presentment
locations for the primary purpose of discouraging banks from presenting
paper checks for same-day settlement might not be considered good
faith on the part of the paying bank. Similarly, presenting a large
volume of paper checks without prior notice could be viewed as not
meeting reasonable commercial standards of fair dealing and therefore
may not constitute presentment in good faith. In addition, if banks,
in the general course of business, regularly agree to certain practices related
to same-day settlement, it might not be considered consistent with
reasonable commercial standards of fair dealing, and therefore might
not be considered good faith, for a bank to refuse to agree to those
practices if agreeing would not cause it harm.
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6. UCC Sections Affected
This paragraph
directly affects the following provisions of the UCC and may affect
other sections or provisions:
a. Section 4-204(b)(1),
in that a presenting bank may not send a paper check for same-day
settlement directly to the paying bank, if the paying bank designates
a different location in accordance with paragraph (d)(1).
b. Section 4-213(a), in that the
medium of settlement for paper checks presented under this paragraph
is limited to a credit to an account at a Federal Reserve Bank and
that, for paper checks presented after the deadline for same-day settlement
and before the paying bank’s cut-off hour, the presenting bank may
require settlement on the next business day in accordance with this
paragraph rather than accept settlement on the business day of presentment
by cash.
c. Section 4-301(a), in that, to preserve the ability
to exercise deferred posting, the time limit specified in that section
for settlement or return by a paying bank on the banking day a paper
check is received is superseded by the requirement to settle for paper
checks presented under this paragraph by the close of Fedwire.
d. Section 4-302(a), in that, to avoid accountability,
the time limit specified in that section for settlement or return
by a paying bank on the banking day a paper check is received is superseded
by the requirement to settle for paper checks presented under this
paragraph by the close of Fedwire.
