SECTION 229.33—Depositary
Bank’s Responsibility for Returned Checks and Notices of Nonpayment
A. 229.33(a) Right to Assert Claim 1. This paragraph sets forth the circumstances under
which a paying bank or returning bank may be liable to a depositary
bank for failing to return a check in an expeditious manner in accordance
with sections 229.31(b) and 229.32(b) respectively.
2. This paragraph does not require a depositary
bank to establish arrangements to accept returned checks electronically,
either directly from the paying bank or indirectly from a returning
bank. Most depositary banks, however, have arrangements in place to
accept returned checks electronically. (See commentary to sections
229.31(b) and 229.32(b) for examples of direct and indirect arrangements).
3. The depositary bank has the burden of proof for demonstrating
that its arrangements for accepting returned checks electronically
are commercially reasonable. The standard allows for case-by-case
flexibility and can change over time to reflect market practices.
The standard is intended to prevent a depositary bank from establishing
electronic return arrangements that are very limited in scope or that
provide unreasonable barriers to return such that, in practice, the
depositary bank would accept only a small proportion of its returns
electronically.
B. 229.33(b) Acceptance
of Electronic Returned Checks and Electronic Notices of Nonpayment1. A depositary bank may agree directly with a returning
bank or a paying bank (or through clearinghouse rules) to accept electronic
returned checks. Likewise, a depositary bank may agree directly with
a paying bank (or through clearinghouse rules) to accept electronic
written notices of nonpayment. (See sections 229.2(ggg), 229.30(b),
and 229.31(c) and commentary thereto). The depositary bank’s acceptance
of electronic returned checks and electronic written notices of nonpayment
is governed by the depositary bank’s agreement with the banks sending
the electronic returned check or electronic written notice of nonpayment
to the depositary bank (or through the applicable clearinghouse rules).
The agreement normally would specify the electronic address or receipt
point at which the depositary bank accepts returned checks and written
notices of nonpayment electronically, as well as what constitutes
receipt of the returned checks and written notices of nonpayment.
The agreement also may specify whether electronic returned checks
must be separated from electronic checks sent for forward collection.
C. 229.33(c) Acceptance of Paper Returned
Checks and Paper Notices of Nonpayment 1. This
paragraph states where the depositary bank is required to accept paper
returned checks and paper notices of nonpayment during its banking
day. (These locations differ from locations at which a depositary
bank must accept oral notices or electronic notices. (See section
229.33(b) and (d) and commentary thereto). This paragraph is derived
from UCC 3-111, which specifies 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. In the case of returned
checks, the depositary bank does not print the check and can only
specify the place of “payment” of the returned check in its indorsement.
2. The paragraph specifies four locations at which the
depositary bank must accept paper returned checks and paper notices
of nonpayment:
a. The depositary bank must accept
paper returned checks and paper notices of nonpayment at any location
at which it requests presentment of forward collection paper checks,
such as a processing center. A depositary bank does not request presentment
of forward collection checks at a branch of the bank merely by paying
checks presented over the counter.
b. i. If
the depositary bank indorsement states the name and address of the
depositary bank, it must accept paper returned checks and paper notices
of nonpayment at the branch, head office, or other location, such
as a processing center, indicated by the address. If the address is
too general to identify a particular location, then the depositary
bank must accept paper returned checks and paper notices of nonpayment
at any branch or head office consistent with the address. If, for
example, the address is “New York, New York,” each branch in New York
City must accept paper returned checks and paper notices of nonpayment.
Accordingly, a depositary bank may limit the locations at which it
must accept paper returned checks and paper notices of nonpayment
by specifying a branch or head office in its indorsement.
ii. If no address appears
in the depositary bank’s indorsement, the depositary bank must accept
paper returned checks and paper notices of nonpayment at any branch
or head office associated with the depositary bank’s routing number.
The offices associated with the routing number of a bank are 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.
iii. If no routing number or address
appears in its indorsement, the depositary bank must accept a paper
returned check at any branch or head office of the bank. Section 229.35
and applicable industry standards require that the indorsement contain
a routing number, a name, and a location. Consequently paragraphs
(c)(1)(ii)(B) and (C) of this section apply only where the depositary
bank has failed to comply with the indorsement requirement.
3. For ease of processing, a depositary bank may require
that returning banks or paying banks returning checks to it separate
returned checks from forward collection checks being presented.
D. 229.33(d) Acceptance Oral Notices
of NonpaymentIn the case of telephone notices,
the depositary bank may not refuse to accept notices at the telephone
numbers identified in this section, but may transfer calls or use
a recording device.
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E. 229.33(e) Payment 1. As discussed in the commentary to section 229.32(e),
under this regulation a paying bank or returning bank does not obtain
credit for a returned check by charge-back but by, in effect, “presenting”
the returned check to the depositary bank. This paragraph imposes
an obligation to “pay” a returned check that is similar to the obligation
to pay a forward collection check by a paying bank, except that the
depositary bank may not return a returned check for which it is the
depositary bank. Also, certain means of payment, such as remittance
drafts, may be used only by agreement.
2. The depositary bank must pay for a returned check by
the close of the banking day on which it received the returned check.
The day on which a returned check is received is determined pursuant
to UCC 4-108, which permits the bank to establish a cut-off hour,
generally not earlier than 2 p.m. (local time of the depositary bank),
and treat checks received after that hour as being received on the
next banking day. If the depositary bank is unable to make payment
to a returning bank or paying bank on the banking day that it receives
the returned check, because the returning bank or paying bank is closed
for a holiday or because the time when the depositary bank received
the check is after the close of Fedwire, e.g., west coast banks with
late cut-off hours, payment may be made on the next banking day of
the bank receiving payment.
3. Payment must be made so that the funds are available
for use by the bank returning the check to the depositary bank on
the day the check is received by the depositary bank. For example,
a depositary bank meets this requirement if it sends a wire transfer
to the returning bank or paying bank on the day it receives the returned
check, even if the returning bank or paying bank has closed for the day.
A wire transfer should indicate the purpose of the payment.
4. The depositary bank may use a
net settlement arrangement to settle for a returned check. Banks with
net settlement agreements could net the appropriate credits and debits
for returned checks with the accounting entries for forward collection
checks if they so desired. If, for purposes of establishing additional
controls or for other reasons, the banks involved desired a separate
settlement for returned checks, a separate net settlement agreement
could be established.
5. The bank sending the returned check to the depositary
bank may agree to accept payment at a later date if, for example,
it does not believe that the amount of the returned check or checks
warrants the costs of same-day payment. Thus, a returning bank or
paying bank may agree to accept payment through an ACH credit or debit
transfer that settles the day after the returned check is received
instead of a wire transfer that settles on the same day.
6. This paragraph and this subpart
do not affect the depositary bank’s right to recover a provisional
settlement with its nonbank customer for a check that is returned.
(See also sections 229.19(c)(2)(ii), 229.33(h), and 229.35(b)).
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F. 229.33(f) Misrouted Returned Checks and Written
Notices of Nonpayment 1. This paragraph
permits a bank receiving a check or written notice of nonpayment (either
in paper form or electronic form) on the basis that it is the depositary
bank to send the misrouted returned check or written notice of nonpayment
to the correct depositary bank, if it can identify the correct depositary
bank, either directly or through a returning bank agreeing to handle
the check or written notice of nonpayment. When sending a returned
check under this paragraph, the bank receiving the misrouted check
is acting as a returning bank. Alternatively, the bank receiving the
misrouted returned check or written notice of nonpayment must send
the check or notice back to the bank from which it was received.
2. In sending a misrouted returned check, the bank to
which the returned check was misrouted (the incorrect depositary bank)
could receive settlement from the bank to which it sends the misrouted
check under section 229.33(f) (the correct depositary bank, a returning
bank that agrees to handle it, or the bank from which the misrouted
check was received). The correct depositary bank would be required
to pay for the returned check under section 229.33(e), and any other
bank to which the check is sent under this paragraph would be required
to settle for the check as a returning bank under section 229.32(e).
The bank to which the returned check was misrouted is required to
act promptly, i.e., within its midnight deadline. This paragraph does
not affect a bank’s duties under section 229.35(b).
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G. 229.33(g) Charges1. This paragraph prohibits a depositary bank from charging the equivalent
of a presentment fee for returned checks. A returning bank, however,
may charge a fee for handling returned checks. If the returning bank
receives a mixed cash letter of returned checks, which includes some
checks for which the returning bank also is the depositary bank, the
fee may be applied to all the returned checks in the cash letter.
In the case of a sorted cash letter containing only returned checks
for which the returning bank is the depositary bank, however, no fee
may be charged.
H. 229.33(h) Notification
to Customer1. This paragraph requires a
depositary bank to notify its customer of nonpayment upon receipt
of a returned check or notice of nonpayment. Notice also must be given
if a depositary bank receives a notice of recovery under section 229.35(b).
A bank that chooses to provide the notice required by section 229.33(h)
in writing may send the notice by email or facsimile if the bank sends
the notice to the email address or facsimile number specified by the
customer for that purpose. The notice to the customer required under
this paragraph also may satisfy the notice requirement of section 229.13(g)
if the depositary bank invokes the reasonable-cause exception of section
229.13(e) due to the receipt of a notice of nonpayment, provided the
notice meets all the requirements of section 229.13(g).
