SECTION
229.2—Definitions
A. Background 1. Section 229.2 defines the terms used in the regulation.
For the most part, terms are defined as they are in section 602 of
the Expedited Funds Availability Act (12 U.S.C. 4001). The Board has
made a number of changes for the sake of clarity, to conform the terminology
to that which is familiar to the banking industry, to define terms
that are not defined in the EFA Act, and to carry out the purposes
of the EFA Act. The Board also has incorporated by reference the definitions
of the Uniform Commercial Code where appropriate. Some of Regulation
CC’s definitions are self-explanatory and therefore are not discussed
in this commentary.
9-031
1. The EFA Act defines account to mean “a
demand deposit account or similar transaction account at a depository
institution.” The regulation defines account, for purposes
other than subpart D, in terms of the definition of transaction
account in the Board’s Regulation D (12 CFR 204). This definition
of account, however, excludes certain deposits, such as nondocumentary
obligations (see 12 CFR 204.2(a)(1)(vii)), that are covered
under the definition of transaction account in Regulation D.
The definition applies to accounts with general third-party payment
powers but does not cover time deposits or savings deposits, including
money market deposit accounts, even though they may have limited third-party
payment powers. The Board believes that it is appropriate to exclude
these accounts because of the reference to demand deposits in the
EFA Act, which suggests that the EFA Act is intended to apply only
to accounts that permit unlimited third-party transfers.
2. The term account also
differs from the definition of transaction account in Regulation
D because the term account refers to accounts held at banks.
Under subparts A and C, the term bank includes not only any depository institution, as defined in the EFA Act, but also any
person engaged in the business of banking, such as a Federal Reserve
Bank, a Federal Home Loan Bank, or a private banker that is not subject
to Regulation D. Thus accounts at these institutions benefit from
the expeditious-return requirements of subpart C.
3. Interbank deposits, including accounts of
offices of domestic banks or foreign banks located outside the United
States, and direct and indirect accounts of the United States Treasury
(including Treasury General Accounts and Treasury Tax and Loan deposits)
are exempt from subpart B and, in connection therewith, subpart A.
However, interbank deposits are included as accounts for purposes
of subparts C and D and, in connection therewith, subpart A.
4. The Check 21 Act defines account to mean any deposit account at a bank. Therefore, for purposes of
subpart D and, in connection therewith, subpart A, account means
any deposit, as that term is defined by section 204.2(a)(1)(i) of
Regulation D, at a bank. Many deposits that are not accounts for purposes
of the other subparts of Regulation CC, such as savings deposits,
are accounts for purposes of subpart D.
9-032
1. The
Board has defined automated clearinghouse as a facility that
processes debit and credit transfers under rules established by a
Federal Reserve Bank operating circular governing automated clearinghouse
items or the rules of an ACH association. ACH credit transfers are
included in the definition of electronic payment.
2. The reference to “debit and credit
transfers” does not refer to the corresponding debit and credit entries
that are part of the same transaction, but to different kinds of ACH
payments. In an ACH credit transfer, the originator orders that its
account be debited and another account credited. In an ACH debit transfer,
the originator, with prior authorization, orders another account to
be debited and the originator’s account to be credited.
3. A facility that handles only
wire transfers (defined elsewhere) is not an ACH.
9-033
1. ATM is not defined in the EFA Act. The regulation
defines an ATM as an electronic device located in the United States
at which a natural person may make deposits to an account by cash
or check and perform other account transactions. Point-of-sale terminals,
machines that only dispense cash, night depositories, and lobby deposit
boxes are not ATMs within the meaning of the definition, either because
they do not accept deposits of cash or checks (e.g., point-of-sale
terminals and cash dispensers) or because they only accept deposits
(e.g., night depositories and lobby boxes) and cannot perform other
transactions. A lobby deposit box or similar receptacle in which written
payment orders or deposits may be placed is not an ATM.
2. A facility may be an ATM within
this definition even if it is a branch under state or federal law,
although an ATM is not a branch as that term is used in this regulation.
9-034
1. Under this definition, when funds become available
for withdrawal, the funds may be put to all uses for which the customer
may use actually and finally collected funds in the customer’s account
under the customer’s account agreement with the bank. Examples of
such uses include payment of checks drawn on the account, certification
of checks, electronic payments, and cash withdrawals. Funds are available
for these uses notwithstanding provisions of other law that may restrict
the use of uncollected funds (e.g., 18 U.S.C. 1004; 12 U.S.C. 331).
2. If a bank makes funds available to a customer for a
specific purpose (such as paying checks that would otherwise overdraw
the customer’s account and be returned for insufficient funds) before
the funds must be made available under the bank’s policy or this regulation,
it may nevertheless apply a hold consistent with this regulation to
those funds for other purposes (such as cash withdrawals). For purposes
of this regulation, funds are considered available for withdrawal
even though they are being held by the bank to satisfy an obligation
of the customer other than the customer’s potential liability for
the return of the check. For example, a bank does not violate its
obligations under this subpart by holding funds to satisfy a garnishment,
tax levy, or court order restricting disbursements from the account,
or to satisfy the customer’s liability arising from the certification
of a check, sale of a cashier’s or teller’s check, guaranty or acceptance
of a check, or similar transaction to be debited from the customer’s
account.
9-035
1. The EFA Act uses the term depository institution, which
it defines by reference to section 19(b)(1)(A)(i) through (vi) of
the Federal Reserve Act (12 U.S.C. 461(b)(1)(A)(i) through (vi)).
This regulation uses the term bank, a term that conforms to
the usage the Board has previously adopted in Regulation J. Bank is also used in article 4 of the Uniform Commercial Code.
2. Bank is defined to include
depository institutions, such as commercial banks, savings banks,
savings and loan associations, and credit unions as defined in the
EFA Act, and U.S. branches and agencies of foreign banks. For purposes
of subpart B, the term does not include corporations organized under
section 25A of the Federal Reserve Act, 12 U.S.C. 611-631 (Edge corporations)
or corporations having an agreement or undertaking with the Board
under section 25 of the Federal Reserve Act, 12 U.S.C. 601-604a (agreement
corporations). For purposes of subparts C and D, and in connection
therewith, subpart A, any Federal Reserve Bank, Federal Home Loan
Bank, or any other person engaged in the business of banking is regarded
as a bank. The phrase any other person engaged in the business
of banking is derived from UCC 1-201(4), and is intended to
cover entities that handle checks for collection and payment, such
as Edge and agreement corporations, commercial lending companies under
12 U.S.C. 3101, certain industrial banks, and private bankers, so
that virtually all checks will be covered by the same rules for forward
collection and return, even though they may not be covered by the
requirements of subpart B. For the purposes of subparts C and D, and
in connection therewith, subpart A, the term may also include a state
or a unit of general local government to the extent that it pays warrants
or other drafts drawn directly on the state or local government itself,
and the warrants or other drafts are sent to the state or local government
for payment or collection.
3. Unless otherwise specified, the term bank includes
all of a bank’s offices in the United States. The regulation does
not cover foreign offices of U.S. banks.
4. For purposes of subpart D and, in connection therewith,
subpart A, the term bank also includes the Treasury of the
United States and the United States Postal Service to the extent that
they act as paying banks because the Check 21 Act includes these two
entities in the definition of the term bank to the extent that
they act as payors.
9-036
1. The EFA Act defines business day as any day excluding Saturdays, Sundays, and legal
holidays. Legal holiday, however, is not defined, and the variety
of local holidays, together with the practice of some banks to close
midweek, makes the EFA Act’s definition difficult to apply. The Board
believes that two kinds of business days are relevant. First, when
determining the day when funds are deposited or when a bank must perform
certain actions (such as returning a check), the focus should be on
a day that the bank is actually open for business. Second, when counting
days for purposes of determining when funds must be available under
the regulation or when notice of nonpayment must be received by the
depositary bank, there would be confusion and uncertainty in trying
to follow the schedule of a particular bank, and there is less need
to identify a day when a particular bank is open. Most banks that
act as intermediaries (large correspondents and Federal Reserve Banks)
follow the same holiday schedule. Accordingly, the regulation has
two definitions: business day generally follows the standard
Federal Reserve holiday schedule (which is followed by most large
banks), and bankingday is defined to mean that part of a business
day on which a bank is open for substantially all of its banking activities.
2. The definition of banking day corresponds to
the definition of banking day in UCC 4-104(a)(3), except that
a banking day is defined in terms of a business day. Thus, if a bank
is open on Saturday, Saturday might be a banking day for purposes
of the UCC, but it would not be a banking day for purposes of Regulation
CC because Saturday is never a business day under the regulation.
3. The definition of banking day is phrased in
terms of when “an office of a bank is open” to indicate that a bank
may observe a banking day on a per-branch basis. A deposit made at
an ATM or off-premise facility (such as a remote depository or a lock
box) is considered made at the branch holding the account into which
the deposit is made for the purpose of determining the day of deposit.
All other deposits are considered made at the branch at which the
deposit is received. For example, under section 229.19(a)(1), funds
deposited at an ATM are considered deposited at the time they are
received at the ATM. On a calendar day that is a banking day for the
branch or other location of the depositary bank at which the account
is maintained, a deposit received at an ATM before the ATM’s cutoff
hour is considered deposited on that banking day, and a deposit received
at an ATM after the ATM’s cutoff hour is considered deposited on the
next banking day of the branch or other location where the account
is maintained. On a calendar day that is not a banking day for the
account-holding location, all ATM deposits are considered received
on that location’s next banking day. This rule for determining the
day of deposit would also apply to a deposit to an off-premise facility,
such as a night depository or lock box, which is considered deposited
when removed from the facility and available for processing under
section 229.19(a)(3). If an unstaffed facility, such as a night depository
or lock box, is on branch premises, the day of deposit is determined
by the banking day at the branch at which the deposit is received,
whether or not it is the branch at which the account is maintained.
9-037
1. Cash means U.S. coins and currency. The phrase in the EFA
Act including Federal Reserve notes has been deleted as unnecessary.
(See 31 U.S.C. 5103.)
9-038
1. The regulation
adds to the second item in the EFA Act’s definition of cashier’s
check the phrase, on behalf of the bank as drawer, to clarify
that the term cashier’s check is intended to cover only checks
that a bank draws on itself. The definition of cashier’s check includes checks provided to a customer of the bank in connection
with customer deposit-account activity, such as account disbursements
and interest payments. The definition also includes checks acquired
from a bank by noncustomers for remittance purposes, including loan-disbursement
checks. Cashier’s checks provided to customers or others are often
labeled as “cashier’s check,” “officer’s check,” or “official check.”
The definition excludes checks that a bank draws on itself for other
purposes, such as to pay employees and vendors, and checks issued
by the bank in connection with a payment service, such as a payroll
or a bill-paying service. Cashier’s checks are generally sold by banks
to substitute the bank’s credit for the customer’s credit and thereby
enhance the collectibility of the checks. A check issued in connection
with a payment service is generally provided as a convenience to the
customer rather than as a guarantee of the check’s collectibility.
In addition, such checks are often more difficult to distinguish from
other types of checks than are cashier’s checks as defined by this
regulation.
9-039
1. The EFA Act defines a certified check as
one to which a bank has certified that the drawer’s signature is genuine
and that the bank has set aside funds to pay the check. Under the
Uniform Commercial Code, certification of a check means the bank’s
signed agreement that it will honor the check as presented (UCC 3–409).
The regulation defines certified check to include both the
EFA Act’s and UCC’s definitions.
9-040
1. Check is defined
in section 602(7) of the EFA Act as a negotiable demand draft drawn
on or payable through an office of a depository institution located
in the United States, excluding noncash items. The regulation includes
six categories of instruments within the definition of check.
2. The first category is negotiable demand drafts drawn
on or payable through or at an office of a bank. As the definition
of bank includes only offices located in the United States,
this category is limited to checks drawn on or payable through or
at a banking office located in the United States.
3. The EFA Act treats drafts payable through
a bank as checks, even though under the UCC the payable-through bank
is a collecting bank to make presentment and is generally not authorized
to make payment (UCC 4-106(a)). The EFA Act does not expressly address
items that are payable at a bank. This regulation treats both payable-through
and payable-at demand drafts as checks. The Board believes that treating
demand drafts payable at a bank as checks will not have a substantial
effect on the operations of payable at banks—by far the largest proportion
of payable-at items are not negotiable demand drafts, but time items,
such as commercial paper, bonds, notes, banker’s acceptances, and
securities. These time items are not covered by the requirements of
the EFA Act or this regulation. (The treatment of payable-through drafts is
discussed in greater detail in connection with the definitions of local check and paying bank.)
4. The second category is checks drawn on Federal Reserve
Banks and Federal Home Loan Banks. Principal and interest payments
on federal debt instruments are often paid with checks drawn on a
Federal Reserve Bank as fiscal agent of the United States, and these
fiscal-agency checks are indistinguishable from other checks drawn
on Federal Reserve Banks. (See 31 CFR 355.) Federal Reserve
Bank checks are also used by some banks as substitutes for cashier’s
or teller’s checks. Similarly, savings and loan associations often
use checks drawn on Federal Home Loan Banks as teller’s checks. The
definition of check includes checks drawn on Federal Home Loan
Banks and Federal Reserve Banks because in many cases they are the
functional equivalent of Treasury checks or teller’s checks.
5. The third and fourth categories
of instrument included in the definition of
check refer to
government checks. The EFA Act refers to checks drawn on the U.S.
Treasury, even though these instruments are not drawn on or payable
through an office of a depository institution, and checks drawn by
state and local governments. The EFA Act also gives the Board authority
to define functionally equivalent instruments as depository checks.
1 Thus, the EFA Act is intended to apply to instruments
other than those that meet the strict definition of
check in
section 602(7) of the EFA Act. Checks and warrants drawn by states
and local governments are often used for the purposes of making unemployment-compensation
payments and other payments that are important to the recipients.
Consequently, the Board has expressly defined
check to include
drafts drawn on the U.S. Treasury and drafts or warrants drawn by
a state or a unit of general local government on itself.
6. The fifth category of instrument
included in the definition of check is U.S. Postal Service
money orders. These instruments are defined as checks because they
are often used as a substitute for checks by consumers, even though
money orders are not negotiable under Postal Service regulations.
The Board has not provided specific rules for other types of money
orders; these instruments are generally drawn on or payable through
or payable at banks and are treated as checks on that basis.
7. The sixth and final category
of instrument included in the definition of check is traveler’s
checks drawn on or payable through or at a bank. Traveler’s check is defined in paragraph (hh) of this section.
8. Finally, for the purposes of subparts C
and D, and in connection therewith, subpart A, the definition of check includes nonnegotiable demand drafts because these instruments
are often handled as cash items in the forward-collection process.
9. A substitute check as defined in section 229.2(aaa)
is a check for purposes of Regulation CC and the UCC, even if that
substitute check does not meet the requirements for legal equivalence
set forth in section 229.51(a).
10. The definition of check does not include an
instrument payable in foreign currency (i.e., other than in United
States money as defined in 31 U.S.C. 5101), a credit card draft (i.e.,
a sales draft used by a merchant or a draft generated by a bank as
a result of a cash advance), or an ACH debit transfer. The definition
of check includes a check that a bank may supply to a customer
as a means of accessing a credit line without the use of a credit
card.
9-041
[Reserved]
9-042
1. The EFA Act defines this term as “the
geographic area served by a Federal Reserve bank check processing
center or such larger area as the Board may prescribe by regulations.”
The Board has defined check-processing region as the territory
served by one of the Federal Reserve head offices, branches,
or regional check-processing centers. Appendix A includes a list of
routing numbers arranged by Federal Reserve Bank office. The definition
of check-processing region is key to determining whether a
check is considered local or nonlocal.
9-043
1. Consumer account is defined as an account used primarily for personal, family, or
household purposes. An account that does not meet the definition of consumer account is a nonconsumer account. Both consumer and
nonconsumer accounts are subject to the requirements of this regulation,
including the requirement that funds be made available according to
specific schedules and that the bank make specified disclosures of
its availability policies. A clearing account maintained at a bank
directly by a brokerage firm is not a consumer account, even if the
account is used to pay checks drawn by consumers using the funds in
that account. The bank’s relationship is with the brokerage firm,
and the account is used by the brokerage firm to facilitate the clearing
of its customers’ checks. Because for purposes of Regulation CC the
term account includes only deposit accounts, a consumer’s revolving-credit
relationship or other line of credit with a bank is not a consumer
account, even if the consumer draws on such credit lines by using
a check. Section 229.18(b) (Notices at Branch Locations) and section
229.18(e) (Notice of Changes in Policy) apply only to consumer accounts.
Section 229.13(g)(2) (One-Time Exception Notice) and section 229.19(d)
(Use of Calculated Availability) apply only to nonconsumer accounts.
9-044
1. The regulation uses the term depositary bank rather than the term receiving depository institution. Receiving depository institution is a term unique to the EFA
Act, while depositary bank is the term used in article 4 of
the UCC and Regulation J.
2. A depositary bank includes the bank in which the check
is first deposited. If a foreign office of a U.S. or foreign bank
sends checks to its U.S. correspondent bank for forward collection,
the U.S. correspondent is the depositary bank since foreign offices
of banks are not included in the definition of bank.
3. If a customer deposits a check
in its account at a bank, the customer’s bank is the depositary bank
with respect to the check. For example, if a person deposits a check
into an account at a nonproprietary ATM, the bank holding the account
into which the check is deposited is the depositary bank even though
another bank may service the nonproprietary ATM and send the check
for collection. (Under section 229.35 the depositary bank may agree
with the bank servicing the nonproprietary ATM to have the servicing
bank place its own indorsement on the check as the depositary bank.
For the purposes of subpart C, the bank applying its indorsement as
the depositary-bank indorsement on the check is the depositary bank.)
4. For purposes of subpart B, a bank may act as both the
depositary bank and the paying bank with respect to a check, if the
check is payable by the bank in which it was deposited, or if the
check is payable by a nonbank payor and payable through or at the
bank in which it was deposited. A bank is also considered a depositary
bank with respect to checks it receives as payee. For example, a bank
is a depositary bank with respect to checks it receives for loan repayment,
even though these checks are not deposited in an account at the bank.
Because these checks would not be “deposited to accounts,” they would
not be subject to the availability or disclosure requirements of subpart
B.
9-045
1. Electronic payment is defined to mean a
wire transfer as defined in section 229.2(ll) or an ACH credit
transfer. The EFA Act requires that funds deposited by wire transfer
be made available for withdrawal on the business day following deposit
but expressly leaves the definition of the term wire transfer to
the Board. Because ACH credit transfers frequently involve important
consumer payments, such as wages, the regulation requires that funds
deposited by ACH credit transfers be available for withdrawal on the
business day following deposit.
2. ACH debit transfers, even though they may be transmitted
electronically, are not defined as electronic payments because the
receiver of an ACH debit transfer has the right to return the transfer,
which would reverse the credit given to the originator. Thus, ACH
debit transfers are more like checks than wire transfers. Further,
bank customers that receive funds by originating ACH debit transfers
are primarily large corporations, which would generally be able to
negotiate with their banks for prompt availability.
3. A point-of-sale transaction would not be
considered an electronic payment unless the transaction was effected
by means of an ACH credit transfer or wire transfer.
9-046
1. Forward collection is defined to mean the process by which
a bank sends a check to the paying bank for collection, including
sending the check to an intermediary collecting bank for settlement,
as distinguished from the process by which the check is returned unpaid.
Noncash collections are not included in the term forward collection.
9-047
1. Local check is defined as a check payable by
or at a local paying bank, or, in the case of nonbank payors, payable
through a local paying bank. A check payable by a local bank but payable
through a nonlocal bank is a local check. Conversely, a check payable
through a local bank but payable by a nonlocal bank is a nonlocal
check. Where two banks are named on a check and neither is designated
as a payable-through bank, the check is considered payable by either
bank and may be considered local or nonlocal depending on which bank
it is sent to for payment. Generally, the depositary bank may rely
on the routing number to determine whether a check is local or nonlocal.
Appendix A includes a list of routing numbers arranged by Federal
ReserveBank Office to assist persons in determining whether or not
such a check is local. If, however, a check is payable by one bank
but payable through another bank, the routing number appearing on
the check will be that of the payable-through bank, not the paying
bank. Many credit union share drafts and certain other checks payable
by banks are payable through other banks. In such cases, the routing
number cannot be relied on to determine whether the check is local
or nonlocal. For payable-through checks that meet the labeling requirements
of section 229.36(e), the depositary bank may rely on the four-digit
routing symbol of the paying bank that is printed on the face of the
check as required by that section, e.g., in the title plate, but not
on the first four digits of the payable-through bank’s routing number
printed in magnetic ink in the MICR line or in fractional form, to
determine whether the check is local or nonlocal.
9-048
1. Local paying bank is defined as a paying bank located in
the same check-processing region as the branch, contractual branch,
or proprietary ATM of the depositary bank. For example, a check deposited
at a contractual branch would be deemed local or nonlocal based on
the location of the contractual branch with respect to the location
of the paying bank.
Examples
a. If a check that is payable by a bank that is located
in the same check-processing region as the depositary bank is payable
through a bank located in another check-processing region, the check
is considered local or nonlocal depending on the location of the bank
by which it is payable even if the check is sent to the nonlocal bank
for collection.
b. The location of the depositary bank is determined by
the physical location of the branch or proprietary ATM at which a
check is deposited, regardless of whether the deposit is made in person,
by mail, or otherwise. For example, if the branch of the depositary
bank located in one check-processing region sends a check that was
deposited at that branch to the depositary bank’s central facility
in another check-processing region, and the central facility is in
the same check-processing region as the paying bank, the check is
still considered nonlocal. (See the commentary on definition
of paying bank.)
c. If a person deposits a check to an account by mailing
or otherwise sending the check to a facility or office that is not
a bank, the check is considered local or nonlocal depending on the
location of the bank whose indorsement appears on the check as the
depositary bank.
9-049
1. Merger transaction is a term used in subparts
B and C in connection with transition rules for merged banks. It encompasses
mergers, consolidations, and purchase/assumption transactions of the
type that must usually be approved under the Bank Merger Act (12 U.S.C.
1828) or similar statutes; it does not encompass acquisitions of a
bank under the Bank Holding Company Act (12 U.S.C. 1842) where an
acquired bank maintains its separate corporate existence.
2. Regulation CC adopts a one-year
transition period for banks that are party to a merger transaction
during which the merged banks will continue to be treated as separate
entities. (See sections 229.19(g) and 229.40.)
9-050
1. The
EFA Act defines the term check to exclude noncash items, and
defines noncash items to include checks to which another document
is attached, checks accompanied by special instructions, or any similar
item classified as a noncash item in the Board’s regulation. To qualify
as a noncash item, an item must be handled as such and may not be
handled as a cash item by the depositary bank.
2. The regulation’s definition of noncash item also
includes checks that consist of more than a single thickness of paper
(except checks that qualify for handling by automated check-processing
equipment, e.g., those placed in carrier envelopes) and checks that
have not been preprinted or post-encoded in magnetic ink with the
paying bank’s routing number as well as checks with documents attached
or accompanied by special instructions. (In the context of this definition, paying bank refers to the paying bank as defined for purposes
of subpart C.)
3. A check that has been preprinted or post-encoded with
a routing number that has been retired (e.g., because of a merger)
for at least three years is a noncash item unless the current number
is added for processing purposes by placing the check in an encoded
carrier envelope or adding a strip to the check.
4. Checks that are accompanied by special instructions
are also noncash items. For example, a person concerned about whether
a check will be paid may request the depositary bank to send a check
for collection as a noncash item with an instruction to the paying
bank to notify the depositary bank promptly when the check is paid
or dishonored.
5. For purposes of forward collection, a copy of a check
is neither a check nor a noncash item, but may be treated as either.
For purposes of return, a copy is generally a notice in lieu of return.
(See sections 229.30(f) and 229.31(f).)
[Reserved]
[Reserved]
[Reserved]
[Reserved]
9-052
1. The
regulation uses this term in lieu of the EFA Act’s originating
depository institution . For purposes of all subparts of Regulation
CC, the term paying bank includes the bank by which a check
is payable, the payable-at bank to which a check is sent, or, if the
check is payable by a nonbank payor, the bank through which the check
is payable and to which it is sent for payment or collection. For
purposes of subparts C and D, the term paying bank also includes
the payable-through bank and the bank whose routing number appears
on the check, regardless of whether the check is payable by a different
bank, provided that the check is sent for payment or collection to
the payable-through bank or the bank whose routing number appears
on the check.
2. Under section 229.31, a bank designated as a payable-through
bank or payable-at bank and to which the check is sent for payment
or collection is responsible for the expedited return of checks and
notice of nonpayment requirements of subpart C. The payable-through
or payable-at bank may contract with the payor with respect to its
liability in discharging these responsibilities. The Board believes
that the EFA Act makes a clear connection between availability and
the time it takes for checks to be cleared and returned. Allowing
the payable-through bank additional time to forward checks to the
payor and await return or pay instructions from the payor may delay
the return of these checks, increasing the risks to depositary banks.
Subpart C of this part requires payable-through and payable-at banks
to return a check expeditiously based on the time the payable-through
or payable-at bank received the check for forward collection.
3. If a check is sent for forward
collection based on the routing number, the bank associated with the
routing number is a paying bank for the purposes of subparts C and
D requirements, including notice of nonpayment, even if the check
is not drawn by a customer of that bank or the check is fraudulent.
4. The phrase and to which [the check] is sent for
payment or collection includes sending not only the physical check,
but information regarding the check under a truncation arrangement.
5. Federal Reserve Banks and Federal Home Loan Banks are
also paying banks under all subparts of the regulation with respect
to checks payable by them, even though such banks are not defined
as banks for purposes of subpart B.
6. In accordance with the Check 21 Act, for purposes of
subpart D and, in connection therewith, subpart A, paying bank includes the Treasury of the United States or the United States
Postal Service with respect to a check payable by that entity and
sent to that entity for payment or collection, even though the Treasury
and Postal Service are not defined as banks for purposes of subparts
B and C. Because the Federal Reserve Banks act as fiscal agents for
the Treasury and the U.S. Postal Service and in that capacity are
designated as presentment locations for Treasury checks and U.S. Postal
Service money orders, a Treasury check or U.S. Postal Service money
order presented to a Federal Reserve Bank is considered to be presented
to the Treasury or U.S. Postal Service, respectively.
9-053
1. All deposits at nonproprietary ATMs are treated as deposits of
nonlocal checks and deposits at proprietary ATMs are generally treated
as deposits at banking offices. The conference report on the EFA Act
indicates that the special availability rules for deposits received
through nonproprietary ATMs are provided because “nonproprietary ATMs
today do not distinguish among check deposits or between check and
cash deposits” (H.R. Rep. No. 261, 100th Cong., 1st Sess. 179 (1987)).
Thus, a deposit of any combination of cash and checks at a nonproprietary
ATM may be treated as if it were a deposit of nonlocal checks, because
the depositary bank does not know the makeup of the deposit and consequently
is unable to place different holds on cash, local check, and nonlocal
check deposits made at the ATM.
2. A colloquy between Senators Proxmire and Dodd during
the floor debate on the Competitive Equality Banking Act (133 Cong.
Rec. S11289 (Aug. 4, 1987)) indicates that whether a bank operates
the ATM is the primary criterion in determining whether the ATM is
proprietary to that bank. Since a bank should be capable of ascertaining
the composition of deposits made to an ATM operated by that bank,
an exception to the availability schedules is not warranted for these
deposits. If more than one bank meets the owns-or-operates criterion,
the ATM is considered proprietary to the bank that operates it. For
the purpose of this definition, the bank that operates an ATM is the
bank that puts checks deposited into the ATM into the forward-collection
stream. An ATM owned by one or more banks, but operated by a nonbank
servicer, is considered proprietary to the bank or banks that own
it.
3. The EFA Act also includes location as a factor in determining
whether an ATM that is either owned or operated by a bank is proprietary
to that bank. The definition of proprietary ATM includes an ATM located
on the premises of the bank, either inside the branch or on its outside
wall, regardless of whether the ATM is owned or operated by that bank.
Since the EFA Act also defines a proprietary ATM as one that is “in
close proximity” to the bank, the regulation defines an ATM located
within 50 feet of a bank to be proprietary to that bank unless it
is identified as being owned or operated by another entity. The Board
believes that the statutory proximity test was designed to apply to
situations where it would appear to the depositor that the ATM is
run by his or her bank, because of the proximity of the ATM to the
bank. The Board believes that an ATM located within 50 feet of a banking
office would be presumed proprietary to that bank unless it is clearly
identified as being owned or operated by another entity.
9-054
1. Subpart C requires the paying bank and returning bank(s)
to return checks in an expeditious manner. The banks may meet this
responsibility by returning a check to the depositary bank by the
same general means used for forward collection of a check from the
depositary bank to the paying bank. One way to speed the return process
is to prepare the returned check for automated processing. Returned
checks can be automated by either the paying bank or a returning bank
by placing the return in a carrier envelope or by placing a strip
on the bottom of the return, and encoding the envelope or strip with
the routing number of the depositary bank, the amount of the check,
and a special return identifier. Qualified returned checks are identified
by placing a “2” in the case of an original check (or a “5” in the
case of a substitute check) in position 44 of the qualified-return
MICR line as a return identifier in accordance with American National
Standard Specifications for Placement and Location of MICR Printing,
X9.13 (hereinafter “ANS X9.13”) for original checks or American National
Standard Specifications for an Image Replacement Document—IRD, X9.100-140
(hereinafter “ANS X9.100-140”) for substitute checks.
2. Generally, under the standard of care imposed
by section 229.38, a paying or returning bank would be liable for
any damages incurred due to misencoding of the routing number, the
amount of the check, or return identifier on a qualified returned
check unless the error was due to problems with the depositary bank’s
indorsement. (See also discussion of section 229.38(c).) A
qualified returned check that contains an encoding error would still
be a qualified returned check for purposes of the regulation.
3. A qualified returned check need
not contain the elements of a check drawn on the depositary bank,
such as the name of the depositary bank. Because indorsements and
other information on carrier envelopes or strips will not appear on
a returned check itself, banks will wish to retain carrier envelopes
and/or microfilm or other records of carrier envelopes or strips with
their check records.
9-055
1. Returning bank is defined
to mean any bank (excluding the paying bank and the depositary bank)
handling a returned check. A returning bank may or may not be a bank
that handled
the returned check in the forward-collection process. A returning
bank includes a bank that agrees to handle a returned check for expeditious
return to the depositary bank under section 229.31(a). A returning
bank is also a collecting bank for the purpose of a collecting bank’s
duty to exercise ordinary care under UCC 4-202(b) and is analogous
to a collecting bank for purposes of final settlement. (See the commentary to section 229.35(b).)
9-056
1. Each bank is assigned
a routing number by an agent of the American Bankers Association.
The routing number takes two forms—a fractional form and a nine-digit
form. A paying bank is identified by both the fractional form routing
number (which normally appears in the upper right hand corner of the
check) and the nine-digit form. The nine-digit form of the routing
number of the paying bank generally is printed in magnetic ink near
the bottom of the check (the MICR line; see ANS X9.13). In
the case of an electronic check, the routing number of the paying
bank is contained in the electronic image of the check (in nine-digit
form and fractional form) and in the electronic information related
to the check (in nine-digit form). When a check is payable by one
bank but payable through another bank, the routing number appearing
on the check is that of the payable-through bank, not the payor bank.
Industry standards require depositary banks, subsequent collecting
banks, and returning banks to place their routing numbers in nine-digit
form in their indorsements. (See section 229.35 and commentary
thereto).
[Reserved]
[Reserved]
9-057
1. Teller’s check is defined in the EFA Act
to mean a check issued by a depository institution and drawn on another
depository institution. The definition in the regulation includes
not only checks drawn by a bank on another bank, but also checks payable
through or at a bank. This would include checks drawn on a nonbank,
as long as the check is payable through or at a bank. The definition
does not include checks that are drawn by a nonbank on a nonbank even
if payable through or at a bank. The definition includes checks provided
to a customer of the bank in connection with customer deposit-account
activity, such as account disbursements and interest payments. The
definition also includes checks acquired from a bank by a noncustomer
for remittance purposes, including loan-disbursement checks. The definition
excludes checks used by the bank to pay employees or vendors and checks
issued by the bank in connection with a payment service, such as a
payroll or a bill-paying service. Teller’s checks are generally sold
by banks to substitute the bank’s credit for the customer’s credit
and thereby enhance the collectibility of the checks. A check issued
in connection with a payment service is generally provided as a convenience
to the customer rather than as a guarantee of the check’s collectibility.
In addition, such checks are often more difficult to distinguish from
other types of checks than are teller’s checks as defined by this
regulation. (See also the commentary on the definition of cashier’s check.)
9-058
1. The EFA Act and regulation require that
traveler’s checks be treated as cashier’s, teller’s, or certified
checks when a new depositor opens an account. (See section
229.13(a); 12 U.S.C. 4003(a)(1)(C).) The EFA Act does not define traveler’s check.
2. One element of the definition states that a traveler’s
check is “drawn on or payable through or at a bank.” Sometimes traveler’s
checks that are not issued by banks do not have any words on them
identifying a bank as drawee or paying agent, but instead bear unique routing
numbers with an 8000 prefix that identifies a bank as paying agent.
3. Because a traveler’s check is payable by, at, or through
a bank, it is also a check for purposes of this regulation. When not
subject to the next-day availability requirement for new accounts,
a traveler’s check should be treated as a local or nonlocal check
depending on the location of the paying bank. The depositary bank
may rely on the designation of the paying bank by the routing number
to determine whether local or nonlocal treatment is required.
9-059
1. Uniform Commercial Code is defined as the version
of the code adopted by the individual states. For purposes of uniform
citation, all citations to the UCC in this part refer to the official
text as approved by the American Law Institute and the National Conference
of Commissioners on Uniform State Laws.
[Reserved]
9-059.1
1. Unit of general local government is defined to include a city, county, parish, town, township, village,
or other general-purpose political subdivision of a state. The term
does not include special-purpose units, such as school districts,
water districts, or Indian nations.
9-060
1. The EFA
Act delegates to the Board the authority to define the term wire
transfer. The regulation defines wire transfer as an unconditional
order to a bank to pay a fixed or determinable amount of money to
a beneficiary upon receipt or on a day stated in the order that is
transmitted by electronic or other means over certain networks or
on the books of banks and that is used primarily to transfer funds
between commercial accounts. Unconditional means that no condition,
such as presentation of documents, must be met before the bank receiving
the order is to make payment. A wire transfer may be transmitted by
electronic or other means. “Electronic means” includes computer-to-computer
links, on-line terminals, telegrams (including TWX, TELEX, or similar
methods of communication), telephone calls, or other similar methods.
Fedwire (the Federal Reserve’s wire transfer network), CHIPS (Clearing
House Interbank Payments System, operated by the New York Clearing
House), and book transfers among banks or within one bank are covered
by this definition. Credits for credit and debit card transactions
are not wire transfers. The term wire transfer excludes electronic fund transfers as that term is defined by the Electronic
Fund Transfer Act.
[Reserved]
9-061
1. This definition of good faith derives from UCC
3-103(a)(4).
1. This calculation
of interest compensation derives from UCC 4A-506(b). (See sections 229.34(e) and 229.36(f).)
1. When one bank arranges for another bank to accept deposits on
its behalf, the second bank is a contractual branch of the first bank.
For further discussion of contractual-branch deposits and related
disclosures, see sections 229.2(s) and 229.19(a) of the regulation
and the commentary to sections 229.2(s), 229.10(c), 229.14(a), 229.16(a),
229.18(b), and 229.19(a).
[Reserved]
[Reserved]
[Reserved]
[Reserved]
[Reserved]
9-062
1. Information in the MICR line of a check must be printed
in accordance with ANS X9.13 for original checks and in accordance
with ANS X9.100-140 for substitute checks, and must be contained in
electronic checks in accordance with ANS X9.100-187. These standards
could vary the requirements for printing the MICR line, such as by
indicating circumstances under which the use of magnetic ink is not
required. Banks that exchange checks electronically may agree to other
standards for including MICR line information in the checks that they
exchange electronically.
1. The definition of original check distinguishes the first
paper check signed or otherwise authorized by the drawer to effect
a particular payment transaction from a substitute check or other
paper or electronic representation that is derived from an original
check or substitute check. There is only one original check for any
particular payment transaction. However, multiple substitute checks
could be created to represent that original check at various points
in the check-collection and -return process.
9-062.1
1. Receipt of a paper or
electronic representation of a substitute check does not trigger indemnity
or expedited recredit rights, although the recipient nonetheless could
have a warranty claim or a claim under other check law with respect
to that document or the underlying payment transaction. A paper or
electronic representation of a substitute check would include a representation
of a substitute check that was drawn on an account, as well as a representation
of a substitute traveler’s check, credit card check, or other item
that meets the substitute check definition. The following examples
illustrate the scope of the definition.
Examples
a. A bank receives electronic presentment of
a substitute check that has been converted to electronic form and
charges the customer’s account for that electronic item. The periodic
account statement that the bank provides to the customer includes
information about the electronically presented substitute check in
a line-item list describing all the checks the bank charged to the
customer’s account during the previous month. The electronic file
that the bank received for presentment and charged to the customer’s
account would be an electronic representation of a substitute check,
and the line item appearing on the customer’s account statement would
be a paper representation of a substitute check.
b. A paying bank receives and settles for a
substitute check and then realizes that its settlement was for the
wrong amount. The paying bank sends an adjustment request to the presenting
bank to correct the error. The adjustment request is not a paper or
electronic representation of a substitute check under the definition
because it is not being handled for collection or return as a check.
Rather, it is a separate request that is related to a check. As a
result, no substitute-check warranty, indemnity, or expedited recredit
rights attach to the adjustment.
[Reserved]
9-062.2
1. A substitute check is “created” when and where a paper reproduction
of an original check that meets the requirements of section 229.2(aaa)
is physically printed. A bank is a reconverting bank if it creates
a substitute check directly or if another person by agreement creates
a substitute check on the bank’s behalf. A bank also is a reconverting
bank if it is the first bank that receives a substitute check created
by a nonbank and transfers, presents, or returns that substitute check
or, in lieu thereof, the first paper or electronic representation
of such substitute check.
Examples
a. Bank A, by agreement, sends an electronic check file
for collection to Bank B. Bank B chooses to use that file to print
a substitute check that meets the requirements of section 229.2(aaa).
Bank B is the reconverting bank as of the time it prints the substitute
check.
b. Company A, which is not a bank, by agreement receives
check information electronically from Bank A. Bank A becomes the reconverting
bank when Company A prints a substitute check on behalf of Bank A
in accordance with that agreement.
c. A depositary bank’s customer, which is a nonbank business,
receives a check for payment, truncates that original check, and creates
a substitute check to deposit with its bank. The depositary bank receives
that substitute check from its customer and is the first bank to handle
the substitute check. The depositary bank becomes the reconverting
bank as of the time that it transfers or presents the substitute check
(or in lieu thereof the first paper or electronic representation of
the substitute check) for forward collection.
d. A bank is the payable-through bank for checks
that are drawn on a nonbank payor, which is the bank’s customer. When
the customer decides not to pay a check that is payable through the
bank, the customer creates a substitute check for purposes of return.
The payable-through bank becomes the reconverting bank when it returns
the substitute check (or in lieu thereof the first paper or electronic
representation of the substitute check) to a returning bank or the
depositary bank.
e. A paying bank returns a substitute check to the depositary
bank, which in turn gives that substitute check back to its nonbank
customer. That customer then redeposits the substitute check for collection
at a different bank. Because the substitute check was already transferred
by a bank, the second depositary bank does not become a reconverting
bank when it transfers or presents that substitute check for collection.
2. In some cases there will be one or more banks between
the truncating bank and the reconverting bank.
Example
A depositary bank truncates the
original check and sends an electronic representation of the original
check for collection to an intermediary bank. The intermediary bank
sends the electronic representation of the original check to the presenting
bank, which creates a substitute check to present to the paying bank.
The presenting bank is the reconverting bank.
3. A check could move from electronic form to substitute-check
form several times during the collection and return process. It therefore
is possible that there could be multiple substitute checks, and thus
multiple reconverting banks, with respect to the same underlying payment.
9-062.3
1. A paper reproduction of an original check could include a reproduction created directly from the original
check or a reproduction of the original check that is created from
some other source that contains an image of the original check, such
as an electronic representation of an original check or substitute
check, or a previous substitute check.
2. Because a substitute check must be a piece of paper,
an electronic file or electronic check image that has not yet been
printed in accordance with the substitute check definition
is not a substitute check.
3. Because a substitute check must be a representation
of a check, a paper reproduction of something that is not a check
cannot be a substitute check. For example, a savings bond or a check drawn
on a non-U.S. branch of a foreign bank cannot be reconverted to a
substitute check.
4. As described in section 229.51(b) and the commentary
thereto, a reconverting bank is required to ensure that a substitute
check contains all indorsements applied by previous parties that handled
the check in any form. Therefore, the image of the original check
that appears on the back of a substitute check would include indorsements
that were physically applied to the original check before an image
of the original check was captured. An indorsement that was applied
physically to the original check after an image of the original check
was captured would be conveyed as an electronic indorsement (see paragraph 3 of the commentary to section 229.35(a)). The back of
the substitute check would contain a physical representation of any
indorsements that were applied electronically to the check after an
image of the check was captured but before creation of the substitute
check.
Example
Bank
A, which is the depositary bank, captures an image of an original
check, indorses it electronically and, by agreement, transmits to
Bank B an electronic image of the check accompanied by the electronic
indorsement. Bank B then creates a substitute check to send to Bank
C. The back of the substitute check created by Bank B must contain
a representation of the indorsement previously applied electronically
by Bank A and Bank B’s own indorsement. (For more information on indorsement
requirements, see section 229.35, appendix D, and the commentary
thereto).
5. Some substitute checks will not be created directly
from the original check, but rather will be created from a previous
substitute check. The back of a subsequent substitute check will contain
an image of the full length of the back of the previous substitute
check. ANS X9.100-140 requires preservation of the full length of
the back of the previous substitute check in order to preserve previous
indorsements and reconverting-bank identifications. By contrast, the
front of a subsequent substitute check will not contain an image of
the entire previous substitute check. Rather, the image field of the
subsequent substitute check will contain the image of the front of
the original check that appeared on the previous substitute check
at the time the previous substitute check was converted to electronic
form. The portions of the front of the subsequent substitute check
other than the image field will contain information applied by the
subsequent reconverting bank, such as its reconverting bank identification,
the MICR line, the legal-equivalence legend, and optional security
information.
Examples
a. The back of a subsequent substitute check would contain the following
indorsements, all of which would be preserved through the image of
the back of the previous substitute check: (1) the indorsements that
were applied physically to the original check before an image of the
original check was captured; (2) a physical representation of indorsements
that were applied electronically to the original check after an image
of the original check was captured but before creation of the first
substitute check; and (3) indorsements that were applied physically
to the previous substitute check. In addition, the reconverting bank
for the subsequent substitute check must overlay onto the back of
that substitute check a physical representation of any indorsements
that were applied electronically after the previous substitute check
was converted to electronic form but before creation of the subsequent
substitute check.
b. Because information could have been physically added
to the image of the front of the original check that appeared on the
previous substitute check, the original check image that appears on
the front of a subsequent substitute check could contain information
in addition to that which appeared on the original check at the time
it was truncated.
6. The MICR line applied to a substitute check must contain
information in all fields of the MICR line that were encoded on the
original check at any time before an image of the original check was
captured. This includes all the MICR-line information that was preprinted
on the original check, plus any additional information that was added
to the MICR line before the image of the original check was captured (for
example, the amount of the check). The information in each field of
the substitute check’s MICR line must be the same information as in
the corresponding field of the MICR line of the original check, except
as provided by ANS X9.100-140 (unless the Board by rule or order determines
that a different standard applies). Industry standards may not, however,
vary the requirement that a substitute check at the time of its creation
must bear a full-field MICR line.
7. ANS X9.100-140, provides that a substitute check must
have a “4” in position 44 and that a qualified returned substitute
check must have a “4” in position 44 of the forward-collection MICR
line as well as a “5” in position 44 of the qualified return MICR
line. The “4” and “5” indicate that the document is a substitute check
so that the size of the check image remains constant throughout the
collection and return process, regardless of the number of substitute
checks created that represent the same original check (see also sections 229.30(a)(2) and 229.31(a)(2) and the commentary thereto
regarding requirements for qualified returned substitute checks).
An original check generally has a blank position 44 for forward collection.
Because a reconverting bank must encode position 44 of a substitute
check’s forward collection MICR line with a “4,” the reconverting
bank must vary any character that appeared in position 44 of the forward-collection
MICR line of the original check. A bank that misencodes or fails to
encode position 44 at the time it attempts to create a substitute
check has failed to create a substitute check. A bank that receives
a properly encoded substitute check may further encode that item but
does so subject to the encoding warranties in Regulation CC and the
UCC.
8. A substitute check’s MICR line could contain information
in addition to the information required at the time the substitute
check is created. For example, if the amount field of the original
check was not encoded and the substitute check therefore did not,
when created, have an encoded amount field, the MICR line of the substitute
check later could be amount-encoded.
9. A bank may receive a substitute check that contains
a MICR-line variation but nonetheless meets the MICR-line replication
requirements of section 229.2(aaa)(2) because that variation is permitted
by ANS X9.100-140. If such a substitute check contains a MICR-line
error, a bank that receives it may, but is not required to, repair
that error. Such a repair must be made in accordance with ANS X9.100-140
for repairing a MICR line, which generally allows a bank to correct
an error by applying a strip that may or may not contain information
in all fields encoded on the check’s MICR line. A bank’s repair of
a MICR-line error on a substitute check is subject to the encoding
warranties in Regulation CC and the UCC.
10. A substitute check must conform to all the generally
applicable industry standards for substitute checks set forth in ANS
X9.100-140, which incorporates other industry standards by reference.
Thus, multiple substitute check images contained on the same page
of an account statement are not substitute checks.
9-062.4
1. A “copy” or a “sufficient copy” as defined in 229.2(bbb)
must be a paper reproduction of a check, unless the parties sending
and receiving the copy otherwise agree. Therefore, an electronic image
of a check is not a “copy” or a “sufficient copy” absent an agreement
to that effect. If a customer has agreed to receive such information
electronically, however, a bank that is required to provide a copy
or sufficient copy may satisfy that requirement by providing an electronic
image. (See section 229.58).
2. A sufficient copy, which is used to resolve claims
related to the receipt of a substitute check, must be a copy of the
original check.
3. A bank under section 229.53(b)(3) may limit its liability
for an indemnity claim and under sections 229.54(e)(2) and 229.55(c)(2)
may respond to an expedited recredit claim by providing the claimant
with a copy of a check that accurately represents all of the information
on the front and back of the original check as of the time the original
check was truncated or that otherwise is sufficient to determine the
validity of the claim against the bank.
Examples
a. A copy of an original check that accurately
represents all the information on the front and back of the original
check as of the time of truncation would constitute a sufficient copy
if that copy resolved the claim. For example, if resolution of the
claim required accurate payment and indorsement information, an accurate
copy of the front and back of a legible original check (including
but not limited to a substitute check) would be a sufficient copy.
b. A copy of the original check that does not accurately
represent all the information on both the front and back of the original
check also could be a sufficient copy if such copy contained all the
information necessary to determine the validity of the relevant claim.
For instance, if a consumer received a substitute check that contained
a blurry image of a legible original check, the consumer might seek
an expedited recredit because his or her account was charged for $1,000,
but he or she believed that the check was written for only $100. If
the amount that appeared on the front of the original check was legible,
an accurate copy of only the front of the original check that showed
the amount of the check would be sufficient to determine whether or
not the consumer’s claim regarding the amount of the check was valid.
9-062.5
1. Under sections 229.52 and 229.53,
a bank is responsible for the warranties and indemnity when it transfers,
presents, or returns a substitute check (or a paper or electronic
representation thereof) for consideration. Drawers and other nonbank
persons that receive checks from a bank are not transferees that receive
consideration as those terms are defined in the UCC. However, the
Check 21 Act clearly contemplates that such nonbank persons that receive
substitute checks (or representations thereof) from a bank will receive
the warranties and indemnity from all previous banks that handled
the check. To ensure that these parties are covered by the substitute
check warranties and indemnity in the manner contemplated by the Check
21 Act, section 229.2(ccc) incorporates the UCC definitions of the
terms transfer and consideration by reference and expands
those definitions to cover a broader range of situations. Delivering
a check to a nonbank that is acting on behalf of a bank (such as a
third-party check processor or presentment point) is a transfer of
the check to that bank.
Examples
a. A paying bank pays a substitute check and then provides
that paid substitute check (or a representation thereof) to a drawer
with a periodic statement. Under the expanded definitions, the paying
bank thereby transfers the substitute check (or representation thereof)
to the drawer for consideration and makes the substitute-check warranties
described in section 229.52. A drawer that suffers a loss due to receipt
of a substitute check may have warranty, indemnity, and, if the drawer
is a consumer, expedited-recredit rights under the Check 21 Act and
subpart D. A drawer that suffers a loss due to receipt of a paper
or electronic representation of a substitute check would receive the
substitute-check warranties but would not have indemnity or expedited-recredit
rights.
b. The expanded definitions also operate such that a paying
bank that pays an original check (or a representation thereof) and
then creates a substitute check to provide to the drawer with a periodic
statement transfers the substitute check for consideration and thereby
provides the warranties and indemnity.
c. The expanded definitions ensure that a bank that receives
a returned check in any form and then provides a substitute check
to the depositor gives the substitute-check warranties and indemnity
to the depositor.
d. The expanded definitions apply to substitute checks
representing original checks that are not drawn on deposit accounts,
such as checks used to access a credit card or a home-equity line
of credit.
9-062.6
1. Truncate means to remove the original check
from the forward-collection or return process and to send in lieu
of the original check either a substitute check or, by agreement,
information relating to the original check. Truncation does not include
removal of a substitute check from the check-collection or return
process.
1. A bank is a truncating bank if it truncates
an original check or if it is the first bank to transfer, present,
or return another form of an original check that was truncated by
a person that is not a bank.
Example
a. A bank’s customer that is a nonbank business
receives a check for payment and deposits either a substitute check
or an electronic representation of the original check with its depositary
bank instead of the original check. That depositary bank is the truncating
bank when it transfers, presents, or returns the substitute check
or electronic representation in lieu of the original check. That bank
also would be the reconverting bank if it were the first bank to transfer,
present, or return a substitute check that it received from (or created
from the information given by) its nonbank customer (see section
229.2(yy) and the commentary thereto).
2. A truncating bank does not make the subpart D warranties
and indemnity unless it also is the reconverting bank. Therefore,
a bank that truncates the original check and sends an electronic file
to a collecting bank does not provide subpart D protections to the
recipient of that electronic item. However, a recipient of an electronic
item may protect itself against losses associated with that item by
agreement with the truncating bank.
9-062.7
1. A check authorized by a consumer over the telephone
that is not created by the paying bank and bears a legend on the signature
line, such as “Authorized by Drawer,” is an example of a remotely
created check. A check that bears the signature applied, or purported
to be applied, by the person on whose account the check is drawn is
not a remotely created check. A typical forged check, such as a stolen
personal check fraudulently signed by a person other than the drawer,
is not covered by the definition of a remotely created check.
2. The term signature as used in this definition
has the meaning set forth at UCC 3-401. The term applied by refers to the physical act of placing the signature on the check.
3. The definition of a remotely created check differs
from the definition of a remotely created consumer item under
the UCC. A remotely created check may be drawn on an account held
by a consumer, corporation, unincorporated company, partnership, government
unit or instrumentality, trust, or any other entity or organization.
A remotely created consumer item under the UCC, however, must be drawn
on a consumer account.
4. Under Regulation CC (12 CFR 229), the term check includes a negotiable demand draft drawn on or payable through or
at an office of a bank. In the case of a payable-through or payable-at
check, the signature of the person on whose account the check is drawn
would include the signature of the payor institution or the signatures
of the customers who are authorized to draw checks on that account,
depending on the arrangements between the payable-through or payable-at
bank, the payor institution, and the customers.
5. The definition of a remotely created
check includes a remotely created check that has been reconverted
to a substitute check.
1. Banks often enter into agreements
under which a check may be transferred, returned, or presented electronically
instead of transferring, returning, or presenting the paper check.
For example, an agreement may provide that either an electronic image
of the check or electronic information related to the check may be sent instead
of the paper check. In order to satisfy Regulation CC’s definition
of “electronic check” (or “electronic returned check”), however, both
the electronic image of the check and electronic information derived
from the check must be sent. A sending bank and receiving bank may
also agree, for example, that instead of sending the electronic check
or electronic returned check directly to the receiving bank, the electronic
check or electronic returned check may be sent to an intermediary
that stores the electronic check or electronic returned check on the
receiving bank’s behalf and makes the electronic check or electronic
returned check available for the receiving bank to retrieve.
2. A sending bank must have an agreement
with the receiving bank in order to send an electronic check instead
of a paper check. The agreement to receive an electronic check or
electronic returned check may be either bilateral or through a Federal
Reserve Bank operating circular, clearinghouse rule, or other interbank
agreement. (See UCC 4-110).
3. ANS X9.100-187 is the most prevalent industry standard
for electronic checks and electronic returned checks that will enable
banks to create substitute checks. Multiple standards, however, exist
that would enable a bank to create a substitute check from an electronic
check. Therefore, the banks exchanging electronic checks may agree
that a different standard applies to electronic checks exchanged between
the two banks. Additionally, banks that exchange checks electronically
may agree to transfer, present, or return only electronic images of
checks or only electronic information related to checks. In these
situations, the sending bank and receiving bank will have agreed to
a different standard as ANS X9.100-187 requires both an electronic
image and electronic information.
4. Electronic checks and electronic returned checks as
defined in Regulation CC are subject to subpart C, except as otherwise
provided in that subpart. (See section 229.30 and commentary
thereto).
1. Electronically-created
items are also sometimes referred to in the industry as “electronic
payment orders” or “EPOs.”
2. Because an electronically-created item as defined in
Regulation CC never existed in paper form, it does not meet the definition
of “electronic check” in section 229.2(ggg) and therefore an electronically-created
item cannot be used to create a substitute check that is the legal
equivalent of the original paper check.
3. An electronically-created item can resemble an electronic
image of a paper check or an electronic image of a remotely created
check. (See section 229.2(fff) (definition of remotely created
check)).
Examples
a. A
corporate customer of a bank, rather than printing and mailing a paper
check to a payee, electronically creates an image that looks like
an image of the corporate customer’s paper checks and emails the image
to the payee.
b. A consumer uses a smart-phone application through which
the consumer provides the payee name, amount, and the consumer’s signature.
The application electronically sends this information, appearing formatted
as a check, to the payee.
c. A consumer calls his utility company to make an emergency
bill payment, and provides his bank account information. The utility
company uses this information to create an electronically-created
item and deposits the electronically-created item with its bank to
obtain payment from the consumer.
