(a) Return of items.
(1) Return of cash items handled by Reserve Banks. A paying bank that receives a cash item from a Reserve Bank, other
than for immediate payment over the counter, and that settles for
the item as provided in section 210.9(b), may, before it has finally
paid the item, return the item to any Reserve Bank (unless its Administrative
Reserve Bank directs it to return the item to a specific Reserve Bank)
in accordance with subpart C of part 229 of this chapter (Regulation
CC), the Uniform Commercial Code, and the Reserve Banks’ operating
circulars. A paying bank that receives a cash item from a Reserve
Bank also may return the item prior to settlement, in accordance with
section 210.9(b) and the Reserve Banks’ operating circulars. The rules
or practices of a clearinghouse through which the item was presented,
or a special collection agreement under which the item was presented,
may not extend these return times, but may provide for a shorter return
time.
9-800
(2) Return
of checks not handled by Reserve Banks. A paying bank that receives
a check, other than from a Reserve Bank, and that determines not to
pay the check, may send the returned check to any Reserve Bank (unless
its Administrative Reserve Bank directs it to send the returned check
to a specific Reserve Bank) in accordance with subpart C of part 229
of this chapter (Regulation CC), the Uniform Commercial Code, and
the Reserve Banks’ operating circulars. A returning bank may send
a returned check to any Reserve Bank (unless its Administrative Reserve
Bank directs it to send the returned check to a specific Reserve Bank)
in accordance with subpart C of part 229 of this chapter (Regulation
CC), the Uniform Commercial Code, and the Reserve Banks’ operating circulars.
9-800.1
(b) Handling of returned checks.
(1) The following parties,
in the following order, are deemed to have handled a returned check
sent to a Reserve Bank under paragraph (a) of this section:
(i) the paying or returning bank;
(ii) the paying bank’s or returning
bank’s administrative Reserve Bank;
(iii) the Reserve Bank that receives the returned check from the
paying or returning bank (if different from the paying bank’s or returning
bank’s administrative Reserve Bank); and
(iv) another Reserve Bank, if any, that
receives the returned check from a Reserve Bank.
(2) A Reserve Bank that is not described
in paragraph (b)(1) of this section is not a person that handles a
returned check and is not a returning bank with respect to a returned
check.
(3) The identity and order
of the parties under paragraph (b)(1) of this section determine the
relationships and the rights and liabilities of the parties under
this subpart, part 229 of this chapter (Regulation CC), and the Uniform
Commercial Code.
9-801
(c) Paying bank’s and returning bank’s agreement. The warranties,
indemnities, authorizations, and agreements made pursuant to this
paragraph (c) may not be disclaimed and are made whether or not the
returned check bears an indorsement of the paying bank or returning
bank. By sending a returned check to a Reserve Bank, the paying bank
or returning bank does all of the following.
(1) Authorization
to handle returned check. The paying bank or returning bank authorizes
the paying bank’s or returning bank’s Administrative Reserve Bank,
and any other Reserve Bank or returning bank to which the returned
check is sent, to handle the returned check (and authorizes any Reserve
Bank that handles settlement for the returned check to make accounting
entries) subject to this subpart and to the Reserve Banks’ operating
circulars.
(2) Warranties for all returned checks. The
paying bank or returning bank warrants to each Reserve Bank handling
a returned check that the returned check bears all indorsements applied
by parties that previously handled the returned check for forward
collection or return.
(3) Warranties and indemnities as set forth in Regulation
CC. As applicable and unless otherwise provided, a paying bank
or returning bank makes to each Reserve Bank that handles the returned
check all the warranties and indemnities set forth in and subject
to the terms of subparts C and D of part 229 of this chapter (Regulation
CC).
(4) Paying bank or returning bank’s liability to Reserve Bank.
(i) Except as provided
in paragraph (c)(4)(ii) and (iii) of this section, a paying bank or
returning bank agrees to indemnify each Reserve Bank for any loss
or expense (including attorneys’ fees and expenses of litigation)
resulting from—
(A) The
paying or returning bank’s lack of authority to give the authorization
in paragraph (c)(1) of this section;
(B) Any action taken by a Reserve Bank within the scope of its authority
in handling the returned check; or
(C) Any warranty or indemnity made by the Reserve Bank under paragraph
(e) of this section or part 229 of this chapter.
(ii) A paying bank’s or returning
bank’s liability for warranties and indemnities that a Reserve Bank
makes for a returned check that is a substitute check, a paper or
electronic representation thereof, or an electronic returned check
is subject to the following conditions and limitations—
(A) A paying bank or returning bank that
sent an original returned check shall not be liable for any amount
that a Reserve Bank pays under subpart D of part 229 of this chapter,
or under section 229.34 of this chapter with respect to an electronic
returned check, absent the paying bank’s or returning bank’s agreement to
the contrary; and
(B) Nothing in this
subpart alters the liability under subpart D of part 229 of this chapter
of a paying bank or returning bank that sent a substitute check or
a paper or electronic representation of a substitute check or under
section 229.34 of this chapter of a paying bank or returning bank
that sent an electronic returned check; and
(iii) A paying bank or returning bank
shall not be liable for any amount that the Reserve Bank pays under
this subpart or part 229 of this chapter that is attributable to the
Reserve Bank’s own lack of good faith or failure to exercise ordinary
care.
(d) Paying bank or returning bank’s liability under other law. Nothing
in paragraph (c) of this section limits any warranty or indemnity
by a returning bank or paying bank (or a person that handled an item
prior to that bank) arising under state law or regulation (such as
the UCC), other federal law or regulation (such as part 229 of this
chapter), or an agreement with a Reserve Bank.
9-801.1
(e) Warranties by and liability of Reserve Bank.
(1) Warranties and indemnities. The following
provisions apply when a Reserve Bank handles a returned check under
this subpart.
(i) Warranties for all items. The Reserve Bank
warrants to the bank to which it sends the returned check that the
returned check bears all indorsements applied by parties that previously
handled the returned check for forward collection or return.
(ii) Warranties
and indemnities as set forth in Regulation CC. As applicable
and unless otherwise provided, the Reserve Bank makes all the warranties
and indemnities set forth in and subject to the terms of subparts
C and D of part 229 of this chapter (Regulation CC).
(2) Indemnity
for substitute check created from electronic returned check.
(i) Except as provided
in paragraph (e)(2)(ii) of this section, the Reserve Bank shall indemnify
the bank to which it transfers or presents an electronic returned
check (the recipient bank) for the amount of any losses that the recipient
bank incurs under subpart D of part 229 of this chapter (Regulation
CC) for an indemnity that the recipient bank was required to make
under subpart D of part 229 of this chapter in connection with a substitute
check later created from the electronic returned check.
(ii) The Reserve Bank shall not be liable
under paragraph (e)(2)(i) of this section for any amount that the
recipient bank pays under subpart D of part 229 of this chapter that
is attributable to the lack of good faith or failure to exercise ordinary
care of the recipient bank or a person that handled the item, in any
form, after the recipient bank.
(3) Liability
of Reserve Bank. A Reserve Bank shall not have or assume any
other liability to any person except—
(i) For the Reserve Bank’s own lack
of good faith or failure to exercise ordinary care;
(ii) As provided in this paragraph (e);
and
(iii) As provided in subparts
C and D of part 229 of this chapter (Regulation CC).
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(f) Recovery by Reserve Bank.
(1) A Reserve Bank that has
handled a returned check may recover as provided in paragraph (f)(2)
of this section if an action or proceeding is brought against (or
if defense is tendered to) the Reserve Bank based on—
(i) The alleged failure of the paying
bank or returning bank to have the authority to give the authorization
in paragraph (c)(1) of this section;
(ii) Any action by the Reserve Bank
within the scope of its authority in handling the returned check;
or
(iii) Any warranty or indemnity
made by the Reserve Bank under paragraph (e) of this section or part 229
of this chapter; and
(2) Upon entry of a final judgment or decree in an action or proceeding
described in paragraph (f)(1) of this section, a Reserve Bank may
recover from the paying bank or returning bank the amount of attorneys’
fees and other expenses of litigation incurred, as well as any amount
the Reserve Bank is required to pay because of the judgment or decree
or the tender of defense, together with interest thereon.
9-803
(g) Methods of recovery.
(1) The Reserve Bank may recover the amount
stated in paragraph (f) of this section by charging any account on
its books that is maintained or used by the paying bank or returning
bank (or by charging another returning Reserve Bank), if—
(i) The Reserve Bank made seasonable
written demand on the paying bank or returning bank to assume defense
of the action or proceeding; and
(ii) The paying bank or returning bank has not made any other arrangement
for payment that is acceptable to the Reserve Bank.
(2) The Reserve Bank is not responsible
for defending the action or proceeding before using this method of
recovery. A Reserve Bank that has been charged under this paragraph
(g) may recover from the paying or returning bank in the manner and
under the circumstances set forth in this paragraph (g).
(3) A Reserve Bank’s failure to avail itself
of the remedy provided in this paragraph (g) does not prejudice its
enforcement in any other manner of the indemnity agreement referred
to in paragraph (c)(4) of this section.
9-804
(h) Reserve Bank’s responsibility. A Reserve
Bank shall handle a returned check, or a notice of nonpayment, in
accordance with subpart C of part 229 and its operating circular.
(i) Settlement. A subsequent returning bank or depositary bank shall settle with
its administrative Reserve Bank for returned checks in the same manner
and by the same time as for cash items presented for payment under
this subpart. Settlement with its administrative Reserve Bank is deemed
to be settlement with the Reserve Bank from which the returning bank
or depositary bank received the item.
9-804.1
(j) Security interest. When a paying or returning bank sends a returned
check to a Reserve Bank, the paying bank, returning bank, and any
prior returning bank grant to the paying bank’s or returning bank’s
administrative Reserve Bank a security interest in all of their respective
assets in the possession of, or held for the account of, any Reserve
Bank, to secure their respective obligations due or to become due
to the administrative Reserve Bank under this subpart or subpart C
of part 229 of this chapter (Regulation CC). The security interest
attaches when a warranty is breached or any other obligation to the
Reserve Bank is incurred. If the Reserve Bank, in its sole discretion,
deems itself insecure and gives notice thereof to the paying bank,
returning bank, or prior returning bank, or if the paying bank, returning
bank, or prior returning bank suspends payments or is closed, the
Reserve Bank may take any action authorized by law to recover the
amount of an obligation, including, but not limited to, the exercise
of rights of set off, the realization on any available collateral,
and any other rights it may have as a creditor under applicable law.
