1. U.S. Code
  2. title 12
  3. chapter 50
  4. § 5012

Collapse to view only § 5012. Effect on other law

§ 5001. Findings; purposes
(a) FindingsThe Congress finds as follows:
(1) In the Expedited Funds Availability Act [12 U.S.C. 4001 et seq.], enacted on August 10, 1987, the Congress directed the Board of Governors of the Federal Reserve System to consider establishing regulations requiring Federal reserve banks and depository institutions to provide for check truncation, in order to improve the check processing system.
(2) In that same Act, the Congress—
(A) provided the Board of Governors of the Federal Reserve System with full authority to regulate all aspects of the payment system, including the receipt, payment, collection, and clearing of checks, and related functions of the payment system pertaining to checks; and
(B) directed that the exercise of such authority by the Board superseded any State law, including the Uniform Commercial Code, as in effect in any State.
(3) Check truncation is no less desirable in 2003 for both financial service customers and the financial services industry, to reduce costs, improve efficiency in check collections, and expedite funds availability for customers than it was over 15 years ago when Congress first directed the Board to consider establishing such a process.
(b) PurposesThe purposes of this chapter are as follows:
(1) To facilitate check truncation by authorizing substitute checks.
(2) To foster innovation in the check collection system without mandating receipt of checks in electronic form.
(3) To improve the overall efficiency of the Nation’s payments system.
(Pub. L. 108–100, § 2, Oct. 28, 2003, 117 Stat. 1177.)

CITE AS: 12 USC 5001

§ 5002. DefinitionsFor purposes of this chapter, the following definitions shall apply:
(1) Account
(2) BankThe term “bank” means any person that is located in a State and engaged in the business of banking and includes—
(A) any depository institution (as defined in section 461(b)(1)(A) of this title);
(B) any Federal reserve bank;
(C) any Federal home loan bank; or
(D) to the extent it acts as a payor—
(i) the Treasury of the United States;
(ii) the United States Postal Service;
(iii) a State government; or
(iv) a unit of general local government (as defined in section 4001(24) of this title).
(3) Banking terms
(A) Collecting bank
(B) Depositary bankThe term “depositary bank” means—
(i) the first bank to which a check is transferred, even if such bank is also the paying bank or the payee; or
(ii) a bank to which a check is transferred for deposit in an account at such bank, even if the check is physically received and indorsed first by another bank.
(C) Paying bankThe term “paying bank” means—
(i) the bank by which a check is payable, unless the check is payable at or through another bank and is sent to the other bank for payment or collection; or
(ii) the bank at or through which a check is payable and to which the check is sent for payment or collection.
(D) Returning bank
(i) In general
(ii) Treatment as collecting bank
(4) Board
(5) Business day
(6) CheckThe term “check”—
(A) means a draft, payable on demand and drawn on or payable through or at an office of a bank, whether or not negotiable, that is handled for forward collection or return, including a substitute check and a travelers check; and
(B) does not include a noncash item or an item payable in a medium other than United States dollars.
(7) ConsumerThe term “consumer” means an individual who—
(A) with respect to a check handled for forward collection, draws the check on a consumer account; or
(B) with respect to a check handled for return, deposits the check into, or cashes the check against, a consumer account.
(8) Consumer account
(9) Customer
(10) Forward collection
(11) Indemnifying bank
(12) MICR line
(13) Noncash item
(14) Person
(15) Reconverting bankThe term “reconverting bank” means—
(A) the bank that creates a substitute check; or
(B) if a substitute check is created by a person other than a bank, the first bank that transfers or presents such substitute check.
(16) Substitute checkThe term “substitute check” means a paper reproduction of the original check that—
(A) contains an image of the front and back of the original check;
(B) bears a MICR line containing all the information appearing on the MICR line of the original check, except as provided under generally applicable industry standards for substitute checks to facilitate the processing of substitute checks;
(C) conforms, in paper stock, dimension, and otherwise, with generally applicable industry standards for substitute checks; and
(D) is suitable for automated processing in the same manner as the original check.
(17) State
(18) Truncate
(19) Uniform Commercial Code
(20) Other terms
(Pub. L. 108–100, § 3, Oct. 28, 2003, 117 Stat. 1178.)

CITE AS: 12 USC 5002

§ 5003. General provisions governing substitute checks
(a) No agreement required
(b) Legal equivalence
A substitute check shall be the legal equivalent of the original check for all purposes, including any provision of any Federal or State law, and for all persons if the substitute check—
(1) accurately represents all of the information on the front and back of the original check as of the time the original check was truncated; and
(2) bears the legend: “This is a legal copy of your check. You can use it the same way you would use the original check.”
(c) Endorsements
(d) Identification of reconverting bank
(e) Applicable law
(Pub. L. 108–100, § 4, Oct. 28, 2003, 117 Stat. 1180.)

CITE AS: 12 USC 5003

§ 5004. Substitute check warranties
A bank that transfers, presents, or returns a substitute check and receives consideration for the check warrants, as a matter of law, to the transferee, any subsequent collecting or returning bank, the depositary bank, the drawee, the drawer, the payee, the depositor, and any endorser (regardless of whether the warrantee receives the substitute check or another paper or electronic form of the substitute check or original check) that—
(1) the substitute check meets all the requirements for legal equivalence under section 5003(b) of this title; and
(2) no depositary bank, drawee, drawer, or endorser will receive presentment or return of the substitute check, the original check, or a copy or other paper or electronic version of the substitute check or original check such that the bank, drawee, drawer, or endorser will be asked to make a payment based on a check that the bank, drawee, drawer, or endorser has already paid.
(Pub. L. 108–100, § 5, Oct. 28, 2003, 117 Stat. 1181.)

CITE AS: 12 USC 5004

§ 5005. Indemnity
(a) Indemnity
(b) Indemnity amount
(1) Amount in event of breach of warranty
(2) Amount in absence of breach of warranty
In the absence of a breach of a warranty provided under section 5004 of this title, the amount of the indemnity under subsection (a) shall be the sum of—
(A) the amount of any loss, up to the amount of the substitute check; and
(B) interest and expenses (including costs and reasonable attorney’s fees and other expenses of representation).
(c) Comparative negligence
(1) In general
(2) Rule of construction
(d) Effect of producing original check or copy
(1) In general
If the indemnifying bank produces the original check or a copy of the original check (including an image or a substitute 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 is otherwise sufficient to determine whether or not a claim is valid, the indemnifying bank shall—
(A) be liable under this section only for losses covered by the indemnity that are incurred up to the time that the original check or copy is provided to the indemnified party; and
(B) have a right to the return of any funds it has paid under the indemnity in excess of those losses.
(2) Coordination of indemnity with implied warranty
(e) Subrogation of rights
(1) In general
(2) Recovery under warranty
(3) Duty of indemnified party
(Pub. L. 108–100, § 6, Oct. 28, 2003, 117 Stat. 1181.)

CITE AS: 12 USC 5005

§ 5006. Expedited recredit for consumers
(a) Recredit claims
(1) In generalA consumer may make a claim for expedited recredit from the bank that holds the account of the consumer with respect to a substitute check, if the consumer asserts in good faith that—
(A) the bank charged the consumer’s account for a substitute check that was provided to the consumer;
(B) either—
(i) the check was not properly charged to the consumer’s account; or
(ii) the consumer has a warranty claim with respect to such substitute check;
(C) the consumer suffered a resulting loss; and
(D) the production of the original check or a better copy of the original check is necessary to determine the validity of any claim described in subparagraph (B).
(2) 40-day periodAny claim under paragraph (1) with respect to a consumer account may be submitted by a consumer before the end of the 40-day period beginning on the later of—
(A) the date on which the financial institution mails or delivers, by a means agreed to by the consumer, the periodic statement of account for such account which contains information concerning the transaction giving rise to the claim; or
(B) the date on which the substitute check is made available to the consumer.
(3) Extension under extenuating circumstances
(b) Procedures for claims
(1) In generalTo make a claim for an expedited recredit under subsection (a) with respect to a substitute check, the consumer shall provide to the bank that holds the account of such consumer—
(A) a description of the claim, including an explanation of—
(i) why the substitute check was not properly charged to the consumer’s account; or
(ii) the warranty claim with respect to such check;
(B) a statement that the consumer suffered a loss and an estimate of the amount of the loss;
(C) the reason why production of the original check or a better copy of the original check is necessary to determine the validity of the charge to the consumer’s account or the warranty claim; and
(D) sufficient information to identify the substitute check and to investigate the claim.
(2) Claim in writing
(A) In general
(B) Means of submission
(c) Recredit to consumer
(1) Conditions for recreditThe bank shall recredit a consumer account in accordance with paragraph (2) for the amount of a substitute check that was charged against the consumer account if—
(A) a consumer submits a claim to the bank with respect to that substitute check that meets the requirement of subsection (b); and
(B) the bank has not—
(i) provided to the consumer—(I) the original check; or(II) a copy of the original check (including an image or a substitute check) that accurately represents all of the information on the front and back of the original check, as of the time at which the original check was truncated; and
(ii) demonstrated to the consumer that the substitute check was properly charged to the consumer account.
(2) Timing of recredit
(A) In general
(B) Recredit pending investigationIf the bank has not yet determined that the consumer’s claim is valid before the end of the 10th business day after the business day on which the consumer submitted the claim, the bank shall recredit the consumer’s account for—
(i) the lesser of the amount of the substitute check that was charged against the consumer account, or $2,500, together with interest if the account is an interest-bearing account, no later than the end of such 10th business day; and
(ii) the remaining amount of the substitute check that was charged against the consumer account, if any, together with interest if the account is an interest-bearing account, not later than the 45th calendar day following the business day on which the consumer submits the claim.
(d) Availability of recredit
(1) Next business day availability
(2) Safeguard exceptionsA bank may delay availability to a consumer of a recredit provided under subsection (c)(2)(B)(i) until the start of either the business day following the business day on which the bank determines that the consumer’s claim is valid or the 45th calendar day following the business day on which the consumer submits a claim for such recredit in accordance with subsection (b), whichever is earlier, in any of the following circumstances:
(A) New accounts
(B) Repeated overdraftsWithout regard to the charge that is the subject of the claim for which the recredit was made—
(i) on 6 or more business days during the 6-month period ending on the date on which the consumer submits the claim, the balance in the consumer account was negative or would have become negative if checks or other charges to the account had been paid; or
(ii) on 2 or more business days during such 6-month period, the balance in the consumer account was negative or would have become negative in the amount of $5,000 or more if checks or other charges to the account had been paid.
(C) Prevention of fraud losses
(3) Overdraft fees
(e) Reversal of recreditA bank may reverse a recredit to a consumer account if the bank—
(1) determines that a substitute check for which the bank recredited a consumer account under subsection (c) was in fact properly charged to the consumer account; and
(2) notifies the consumer in accordance with subsection (f)(3).
(f) Notice to consumer
(1) Notice if consumer claim not validIf a bank determines that a substitute check subject to the consumer’s claim was in fact properly charged to the consumer’s account, the bank shall send to the consumer, no later than the business day following the business day on which the bank makes a determination—
(A) the original check or a copy of the original check (including an image or a substitute check) that—
(i) 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
(ii) is otherwise sufficient to determine whether or not the consumer’s claim is valid; and
(B) an explanation of the basis for the determination by the bank that the substitute check was properly charged, including a statement that the consumer may request copies of any information or documents on which the bank relied in making the determination.
(2) Notice of recreditIf a bank recredits a consumer account under subsection (c), the bank shall send to the consumer, no later than the business day following the business day on which the bank makes the recredit, a notice of—
(A) the amount of the recredit; and
(B) the date the recredited funds will be available for withdrawal.
(3) Notice of reversal of recreditIn addition to the notice required under paragraph (1), if a bank reverses a recredited amount under subsection (e), the bank shall send to the consumer, no later than the business day following the business day on which the bank reverses the recredit, a notice of—
(A) the amount of the reversal; and
(B) the date the recredit was reversed.
(4) Mode of delivery
(g) Other claims not affected
(h) Clarification concerning consumer possession
(i) Scope of application
(Pub. L. 108–100, § 7, Oct. 28, 2003, 117 Stat. 1182.)

CITE AS: 12 USC 5006

§ 5007. Expedited recredit procedures for banks
(a) Recredit claims
(1) In generalA bank may make a claim against an indemnifying bank for expedited recredit for which that bank is indemnified if—
(A) the claimant bank (or a bank that the claimant bank has indemnified) has received a claim for expedited recredit from a consumer under section 5006 of this title with respect to a substitute check or would have been subject to such a claim had the consumer’s account been charged;
(B) the claimant bank has suffered a resulting loss or is obligated to recredit a consumer account under section 5006 of this title with respect to such substitute check; and
(C) production of the original check, another substitute check, or a better copy of the original check is necessary to determine the validity of the charge to the customer account or any warranty claim connected with such substitute check.
(2) 120-day period
(b) Procedures for claims
(1) In generalTo make a claim under subsection (a) for an expedited recredit relating to a substitute check, the claimant bank shall send to the indemnifying bank—
(A) a description of—
(i) the claim, including an explanation of why the substitute check cannot be properly charged to the consumer account; or
(ii) the warranty claim;
(B) a statement that the claimant bank has suffered a loss or is obligated to recredit the consumer’s account under section 5006 of this title, together with an estimate of the amount of the loss or recredit;
(C) the reason why production of the original check, another substitute check, or a better copy of the original check is necessary to determine the validity of the charge to the consumer account or the warranty claim; and
(D) information sufficient for the indemnifying bank to identify the substitute check and to investigate the claim.
(2) Requirements relating to copies of substitute checksIf the information submitted by a claimant bank pursuant to paragraph (1) in connection with a claim for an expedited recredit includes a copy of any substitute check for which any such claim is made, the claimant bank shall take reasonable steps to ensure that any such copy cannot be—
(A) mistaken for the legal equivalent of the check under section 5003(b) of this title; or
(B) sent or handled by any bank, including the indemnifying bank, as a forward collection or returned check.
(3) Claim in writing
(A) In general
(B) Means of submission
(c) Recredit by indemnifying bank
(1) Prompt action requiredNo later than 10 business days after the business day on which an indemnifying bank receives a claim under subsection (a) from a claimant bank with respect to a substitute check, the indemnifying bank shall—
(A) provide, to the claimant bank, the original check (with respect to such substitute check) or a copy of the original check (including an image or a substitute check) that—
(i) 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
(ii) is otherwise sufficient to determine the bank’s claim is not valid; and
(B) recredit the claimant bank for the amount of the claim up to the amount of the substitute check, plus interest if applicable; or
(C) provide information to the claimant bank as to why the indemnifying bank is not obligated to comply with subparagraph (A) or (B).
(2) Recredit does not abrogate other liabilities
(3) Refund to indemnifying bank
(d) Production of original check or a sufficient copy governed by section 5005(d)
(Pub. L. 108–100, § 8, Oct. 28, 2003, 117 Stat. 1186.)

CITE AS: 12 USC 5007

§ 5008. Delays in an emergency

A delay by a bank beyond the time limits prescribed or permitted by this chapter shall be excused if the delay is caused by interruption of communication or computer facilities, suspension of payments by another bank, war, emergency conditions, failure of equipment, or other circumstances beyond the control of a bank and if the bank uses such diligence as the circumstances require.

(Pub. L. 108–100, § 9, Oct. 28, 2003, 117 Stat. 1188.)

CITE AS: 12 USC 5008

§ 5009. Measure of damages
(a) Liability
(1) In generalExcept as provided in section 5005 of this title, any person who, in connection with a substitute check, breaches any warranty under this chapter or fails to comply with any requirement imposed by, or regulation prescribed pursuant to, this chapter with respect to any other person shall be liable to such person in an amount equal to the sum of—
(A) the lesser of—
(i) the amount of the loss suffered by the other person as a result of the breach or failure; or
(ii) the amount of the substitute check; and
(B) interest and expenses (including costs and reasonable attorney’s fees and other expenses of representation) related to the substitute check.
(2) Offset of recredits
(b) Comparative negligence
(1) In general
(2) Rule of construction
(Pub. L. 108–100, § 10, Oct. 28, 2003, 117 Stat. 1188.)

CITE AS: 12 USC 5009

§ 5010. Statute of limitations and notice of claim
(a) Actions under this chapter
(1) In general
(2) Accrual
(b) Discharge of claims
(c) Notice of claim by consumer
(Pub. L. 108–100, § 11, Oct. 28, 2003, 117 Stat. 1188.)

CITE AS: 12 USC 5010

§ 5011. Consumer awareness
(a) In generalEach bank shall provide, in accordance with subsection (b), a brief notice about substitute checks that describes—
(1) how a substitute check is the legal equivalent of an original check for all purposes, including any provision of any Federal or State law, and for all persons, if the substitute check—
(A) accurately represents all of the information on the front and back of the original check as of the time at which the original check was truncated; and
(B) bears the legend: “This is a legal copy of your check. You can use it in the same way you would use the original check.”; and
(2) the consumer recredit rights established under section 5006 of this title when a consumer believes in good faith that a substitute check was not properly charged to the account of the consumer.
(b) Distribution
(1) Existing customers
(2) New account holders
(3) Mode of delivery
(4) Consumers who request copies of checks
(c) Model language
(1) In general
(2) Safe harbor
(A) In general
(B) Deletion or rearrangement
(3) Use of model language not required
(Pub. L. 108–100, § 12, Oct. 28, 2003, 117 Stat. 1189.)

CITE AS: 12 USC 5011

§ 5012. Effect on other law

This chapter shall supersede any provision of Federal or State law, including the Uniform Commercial Code, that is inconsistent with this chapter, but only to the extent of the inconsistency.

(Pub. L. 108–100, § 13, Oct. 28, 2003, 117 Stat. 1190.)

CITE AS: 12 USC 5012

§ 5013. Variation by agreement
(a) Section 5007
(b) No other provisions may be varied
(Pub. L. 108–100, § 14, Oct. 28, 2003, 117 Stat. 1190.)

CITE AS: 12 USC 5013

§ 5014. Regulations

The Board may prescribe such regulations as the Board determines to be necessary to implement, prevent circumvention or evasion of, or facilitate compliance with the provisions of this chapter.

(Pub. L. 108–100, § 15, Oct. 28, 2003, 117 Stat. 1190.)

CITE AS: 12 USC 5014

§ 5015. Study and report on funds availability
(a) Study
In order to evaluate the implementation and the impact of this chapter, the Board shall conduct a study of—
(1) the percentage of total checks cleared in which the paper check is not returned to the paying bank;
(2) the extent to which banks make funds available to consumers for local and nonlocal checks prior to the expiration of maximum hold periods;
(3) the length of time within which depositary banks learn of the nonpayment of local and nonlocal checks;
(4) the increase or decrease in check-related losses over the study period; and
(5) the appropriateness of the time periods and amount limits applicable under sections 4002 and 4003 of this title, as in effect on October 28, 2003.
(b) Report to Congress
(Pub. L. 108–100, § 16, Oct. 28, 2003, 117 Stat. 1190.)

CITE AS: 12 USC 5015

§ 5016. Statistical reporting of costs and revenues for transporting checks between reserve banks

In the annual report prepared by the Board for the first full calendar year after October 28, 2003, and in each of the 9 subsequent annual reports by the Board, the Board shall include the amount of operating costs attributable to, and an estimate of the Federal Reserve banks’ imputed revenues derived from, the transportation of commercial checks between Federal Reserve bank check processing centers.

(Pub. L. 108–100, § 17, Oct. 28, 2003, 117 Stat. 1191.)

CITE AS: 12 USC 5016

§ 5017. Evaluation and report by the Comptroller General
(a) Study
During the 5-year period beginning on October 28, 2003, the Comptroller General of the United States shall evaluate the implementation and administration of this chapter, including—
(1) an estimate of the gains in economic efficiency made possible from check truncation;
(2) an evaluation of the benefits accruing to consumers and financial institutions from reduced transportation costs, longer hours for accepting deposits for credit within 1 business day, the impact of fraud losses, and an estimate of consumers’ share of the total benefits derived from this chapter; and
(3) an assessment of consumer acceptance of the check truncation process resulting from this chapter, as well as any new costs incurred by consumers who had their original checks returned with their regular monthly statements prior to
(b) Report to Congress
(Pub. L. 108–100, § 18, Oct. 28, 2003, 117 Stat. 1191.)

CITE AS: 12 USC 5017

§ 5018. Depositary services efficiency and cost reduction
(a) FindingsThe Congress finds as follows:
(1) The Secretary of the Treasury has long compensated financial institutions for various critical depositary and financial agency services provided for or on behalf of the United States by—
(A) placing large balances, commonly referred to as “compensating balances”, on deposit at such institutions; and
(B) using imputed interest on such funds to offset charges for the various depositary and financial agency services provided to or on behalf of the Government.
(2) As a result of sharp declines in interest rates over the last few years to record low levels, or the public debt outstanding reaching the statutory debt limit, the Department of the Treasury often has had to dramatically increase or decrease the size of the compensating balances on deposit at these financial institutions.
(3) The fluctuation of the compensating balances, and the necessary pledging of collateral by financial institutions to secure the value of compensating balances placed with those institutions, have created unintended financial uncertainty for the Secretary of the Treasury and for the management by financial institutions of their cash and securities.
(4) It is imperative that the process for providing financial services to the Government be transparent, and provide the information necessary for the Congress to effectively exercise its appropriation and oversight responsibilities.
(5) The use of direct payment for services rendered would strengthen cash and debt management responsibilities of the Secretary of the Treasury because the Secretary would no longer need to dramatically increase or decrease the level of such balances when interest rates fluctuate sharply or when the public debt outstanding reaches the statutory debt limit.
(6) An alternative to the use of compensating balances, such as direct payments to financial institutions, would ensure that payments to financial institutions for the services they provide would be made in a more predictable manner and could result in cost savings.
(7) Limiting the use of compensating balances could result in a more direct and cost-efficient method of obtaining those services currently provided under compensating balance arrangements.
(8) A transition from the use of compensating balances to another compensation method must be carefully managed to prevent higher-than-necessary transitional costs and enable participating financial institutions to modify their planned investment of cash and securities.
(b) Authorization of appropriations for services rendered by depositaries and financial agencies of the United States
(c) Orderly transition
(1) In general
(2) Post-transition use limited to extraordinary circumstances
(A) In general
(B) Report
(3) Requirements for orderly transitionIn transitioning to the use of the appropriations authorized in subsection (b), the Secretary of the Treasury shall take such steps as may be appropriate to—
(A) prevent abrupt financial disruption to the functions of the Department of the Treasury or to the participating financial institutions; and
(B) maintain adequate accounting and management controls to ensure that payments to financial institutions for their banking services provided to the Government as depositaries and financial agents are accurate and that the arrangements last no longer than is necessary.
(4) Reports required
(A) Annual report
(i) In general
(ii) Inclusion in budget
(B) Final report following transition
(i) In general
(ii) Contents of reportThe report submitted under clause (i) shall include a detailed analysis of—(I) the cost of transition;(II) the direct costs of the services being paid from the appropriations authorized in subsection (b); and(III) the benefits realized from the use of direct payment for such services, rather than the use of compensating balance arrangements.
(d) Omitted
(e) Effective date
(Pub. L. 108–100, § 19, Oct. 28, 2003, 117 Stat. 1191.)

CITE AS: 12 USC 5018