(a) Warranties with respect to electronic checks and electronic returned
checks.
(1) Each bank that transfers or presents
an electronic check or electronic returned check and receives a settlement
or other consideration for it warrants that—
(i) The
electronic image accurately represents all of the information on the
front and back of the original check as of the time that the original
check was truncated and the electronic information includes an accurate
record of all MICR line information required for a substitute check
under section 229.2(aaa) and the amount of the check, and
(ii) No person will receive
a transfer, presentment, or return of, or otherwise be charged for
an electronic check or electronic returned check, the original check,
a substitute check, or a paper or electronic representation of a substitute
check such that the person will be asked to make payment based on
a check it has already paid.
(2) Each bank that makes the warranties
under paragraph (a)(1) of this section makes the warranties to—
(i) In the case of transfers for collection or presentment, the transferee
bank, any subsequent collecting bank, the paying bank, and the drawer;
and
(ii) In the
case of transfers for return, the transferee returning bank, any subsequent
returning bank, the depositary bank, and the owner.
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(b) Transfer and presentment
warranties with respect to a remotely created check.
(1) A bank that transfers or presents a
remotely created check and receives a settlement or other consideration
warrants to the transferee bank, any subsequent collecting bank, and
the paying bank that the person on whose account the remotely created
check is drawn authorized the issuance of the check in the amount
stated on the check and to the payee stated on the check. For purposes
of this paragraph (b)(1), “account” includes an account as defined
in section 229.2(a) as well as a credit or other arrangement that
allows a person to draw checks that are payable by, through, or at
a bank.
(2) If a paying
bank asserts a claim for breach of warranty under paragraph (b)(1)
of this section, the warranting bank may defend by proving that the
customer of the paying bank is precluded under UCC 4-406, as applicable,
from asserting against the paying bank the unauthorized issuance of
the check.
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(c) Settlement
amount, encoding, and offset warranties.
(1) Each bank that presents one or more
checks to a paying bank and in return receives a settlement or other
consideration warrants to the paying bank that the total amount of
the checks presented is equal to the total amount of the settlement
demanded by the presenting bank from the paying bank.
(2) Each bank that transfers
one or more checks or returned checks to a collecting bank, returning
bank, or depositary bank and in return receives a settlement or other
consideration warrants to the transferee bank that the accompanying
information, if any, accurately indicates the total amount of the
checks or returned checks transferred.
(3) Each bank that presents or transfers
a check or returned check warrants to any bank that subsequently handles
it that, at the time of presentment or transfer, the information encoded
after issue regarding the check or returned check is accurate. For
purposes of this paragraph, the information encoded after issue regarding
the check or returned check means any information that could be encoded
in the MICR line of a paper check.
(4) If a bank settles with another bank
for checks presented, or for returned checks for which it is the depositary
bank, in an amount exceeding the total amount of the checks,
the settling bank may set off the excess settlement amount against
subsequent settlements for checks presented, or for returned checks
for which it is the depositary bank, that it receives from the other
bank.
(d) Returned check warranties.
(1) Each paying bank or returning bank
that transfers a returned check and receives a settlement or other
consideration for it warrants to the transferee returning bank, to
any subsequent returning bank, to the depositary bank, and to the
owner of the check, that—
(i) The paying bank, or in the case
of a check payable by a bank and payable through another bank, the
bank by which the check is payable, returned the check within its
deadline under the UCC or section 229.31(g) of this part;
(ii) It is authorized to
return the check;
(iii) The check has not been materially altered; and
(iv) In the case of a notice in lieu
of return, the check has not and will not be returned.
(2) These warranties are
not made with respect to checks drawn on the Treasury of the United
States, U.S. Postal Service money orders, or checks drawn on a state
or a unit of general local government that are not payable through
or at a bank.
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(e) Notice
of nonpayment warranties.
(1) Each paying bank that gives a notice
of nonpayment warrants to the transferee bank, to any subsequent transferee
bank, to the depositary bank, and to the owner of the check that—
(i) The paying bank, or in the case of a check payable by a bank
and payable through another bank, the bank by which the check is payable,
returned or will return the check within its deadline under the UCC
or section 229.31(g) of this part;
(ii) It is authorized to send the notice;
and
(iii) The check
has not been materially altered.
(2) These warranties are not made with
respect to checks drawn on the Treasury of the United States, U.S.
Postal Service money orders, or check drawn on a state or a unit of
general local government that are not payable through or at a bank.
(f) Remote deposit
capture indemnity.
(1) The indemnity described in paragraph
(f)(2) of this section is provided by a depositary bank that—
(i) Is a
truncating bank under section 229.2(eee)(2) because it accepts deposit
of an electronic image or other electronic information related to
an original check;
(ii) Does not receive the original check;
(iii) Receives settlement or other consideration
for an electronic check or substitute check related to the original
check; and
(iv) Does
not receive a return of the check unpaid.
(2) A bank described in paragraph
(f)(1) of this section shall indemnify, as set forth in section 229.34(i),
a depositary bank that accepts the original check for deposit for
losses incurred by that depositary bank if the loss is due to the
check having already been paid.
(3) A depositary bank may not make an indemnity
claim under paragraph (f)(2) of this section if the original check
it accepted for deposit bore a restrictive indorsement inconsistent
with the means of deposit.
(g) Indemnities with respect to electronically-created
items. Each bank that transfers or presents an electronically-created
item and receives a settlement or other consideration for it shall
indemnify, as set forth in section 229.34(i), each transferee bank,
any subsequent collecting bank, the paying bank, and any subsequent
returning bank against losses that result from the fact that—
(1) The electronic image or electronic
information is not derived from a paper check;
(2) The person on whose account the electronically-created
item is drawn did not authorize the issuance of the item in the amount stated
on the item or to the payee stated on the item (for purposes of this
paragraph (g)(2), “account” includes an account as defined in section
229.2(a) as well as a credit or other arrangement that allows a person
to draw checks that are payable by, through, or at a bank); or
(3) A person receives
a transfer, presentment, or return of, or otherwise is charged for
an electronically-created item such that the person is asked to make
payment based on an item or check it has already paid.
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(h) Damages. Damages for
breach of the warranties in this section shall not exceed the consideration
received by the bank that presents or transfers a check or returned
check, plus interest compensation and expenses related to the check
or returned check, if any.
(i) Indemnity amounts.
(1) The amount of the indemnity in paragraphs
(f)(2) and (g) of this section shall not exceed the sum of—
(i) The amount
of the loss of the indemnified bank, up to the amount of the settlement
or other consideration received by the indemnifying bank; and
(ii) Interest and expenses
of the indemnified bank (including costs and reasonable attorney’s
fees and other expenses of representation).
(2) (i)
If a loss described in paragraph (f)(2) or (g) of this section results
in whole or in part from the indemnified bank’s negligence or failure
to act in good faith, then the indemnity amount described in paragraph
(i)(1) of this section shall be reduced in proportion to the amount
of negligence or bad faith attributable to the indemnified bank.
(ii) Nothing in this
paragraph (i)(2) affects the rights of a person under the UCC or other
applicable provision of state or federal law.
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(j) Tender of defense. If a bank is sued for breach of a warranty or for indemnity under
this section, it may give a prior bank in the collection or return
chain written notice of the litigation, and the bank notified may
then give similar notice to any other prior bank. If the notice states
that the bank notified may come in and defend and that failure to
do so will bind the bank notified in an action later brought by the
bank giving the notice as to any determination of fact common to the
two litigations, the bank notified is so bound unless after seasonable
receipt of the notice the bank notified does come in and defend.
(k) Notice of claim. Unless a claimant gives notice of a claim for breach of warranty
or for indemnity under this section to the bank that made the warranty
or indemnification within 30 days after the claimant has reason to
know of the breach or facts and circumstances giving rise to the indemnity
and the identity of the warranting or indemnifying bank, the warranting
or indemnifying bank is discharged to the extent of any loss caused
by the delay in giving notice of the claim.
