Availability of Funds And Collection Of Checks
Appendix E to Part 229--Commentary
Appendix E to Part 229--Commentary
1. The Board interpretations, which
are labeled ``Commentary'' and follow each section of Regulation
CC (12 CFR Part 229), provide background material to explain the
Board's intent in adopting a particular part of the regulation;
the Commentary also provides examples to aid in understanding
how a particular requirement is to work. Under section 611(e)
of the Expedited Funds Availability Act (12 U.S.C. 4010(e)), no
provision of section 611 imposing any liability shall apply to
any act done or omitted in good faith conformity with any rule,
regulation, or interpretation thereof by the Board of Governors
of the Federal Reserve System, notwithstanding the fact that after
such act or omission has occurred, such rule, regulation, or interpretation
is amended, rescinded, or determined by judicial or other authority
to be invalid for any reason. The Commentary is an ``interpretation''
of a regulation by the Board within the meaning of section 611.
II. Section 229.2 Definitions
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 Act, and to carry out the purposes of the 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.
B. 229.2(a) Account
1. The Act defines account to mean ``a
demand deposit account or similar transaction account at a depository
institution.'' The regulation defines account in terms of the
definition of transaction account in the Board's Regulation D
(12 CFR part 204). The definition of account in Regulation CC,
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 Act, which suggests that the 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 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 Deposit Accounts) are exempt from Regulation CC.
C. 229.2(b) Automated Clearinghouse (ACH)
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.
D. 229.2(c) Automated Teller Machine (ATM)
1. ATM is not defined in the Act. The
regulation defines an ATM as an electronic device 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
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.
E. 229.2(d) Available for Withdrawal
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.
F. 229.2(e) Bank
1. The 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 Articles 4 and 4A of the Uniform Commercial
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 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 Subpart
C, 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 U.C.C.
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 Subpart C, and in connection therewith,
Subpart A, the term also may 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.
G. 229.2(f) Banking Day and (g) Business Day
1. The 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 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 Bank holiday schedule (which is followed
by most large banks), and banking day 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 U.C.C. 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 U.C.C., 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
Sec. 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 cut-off hour is considered deposited on
that banking day, and a deposit received at an ATM after the ATM's
cut-off 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 deposited on that location's
next banking day. This rule for determining the day of deposit
also would 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
Sec. 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.
H. 229.2(h) Cash
1. Cash means U.S. coins and currency.
The phrase in the Act ``including Federal Reserve notes'' has
been deleted as unnecessary. (See 31 U.S.C. 5103.)
I. 229.2(i) Cashier's Check
1. The regulation adds to the second
item in the 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, such as certain 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 generally
are 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 generally is
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.
J. 229.2(j) Certified Check
1. The 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
(U.C.C. 3-409). The regulation defines certified check to include
both the Act's and U.C.C.'s definitions.
K. 229.2(k) Check
1. Check is defined in section 602(7)
of the 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
3. The Act treats drafts payable through
a bank as checks, even though under the U.C.C. the payable-through
bank is a collecting bank to make presentment and generally is
not authorized to make payment (U.C.C. 4-106(a)). The 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, bankers' acceptances, and securities.
These time items are not covered by the requirements of the 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 often are 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
Part 355.) Federal Reserve Bank checks also are 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 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 Act also gives the Board authority
to define functionally equivalent instruments as depository checks.1
Thus, the Act is intended to apply to instruments other than those
that meet the strict definition of check in section 602(7) of
the Act. Checks and warrants drawn by states and local governments
often are 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.
Section 602(11) of the
Act (12 U.S.C. 4001(11)) defines ``depository check'' as ``any
cashier's check, certified check, teller's check, and any other
functionally equivalent instrument as determined by the Board.''
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 often
are 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 generally are 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 Subpart
C, 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. The definition of check does not include
an instrument payable in a foreign currency (i.e., other than
in United States money as defined in 31 U.S.C. 5101) or 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.
L. 229.2(l) [Reserved]
M. 229.2(m) Check Processing Region
1. The 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 46 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.
N. 229.2(n) Consumer Account
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. Section 229.18(b) (notices at branch locations)
and Sec. 229.18(e) (notice of changes in policy) apply only to
consumer accounts. Section 229.13(g)(2) (one-time exception notice)
and Sec. 229.19(d) (use of calculated availability) apply only
to nonconsumer accounts.
O. 229.2(o) Depositary Bank
1. The regulation uses the term depositary
bank rather than the term receiving depository institution. Receiving
depository institution is a term unique to the Act, while depositary
bank is the term used in Article 4 of the U.C.C. and Regulation
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 because 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 Sec. 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 also
is 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.
P. 229.2(p) Electronic Payment
1. Electronic payment is defined to
mean a wire transfer as defined in Sec. 229.2(11) or an ACH credit
transfer. The 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 generally would be able to negotiate with their banks for
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.
Q. 229.2(q) Forward Collection
1. Forward collection is defined to
mean the process by which a bank sends a check to the paying bank
for payment as distinguished from the process by which the check
is returned after nonpayment. Noncash collections are not included
in the term forward collection.
R. 229.2(r) Local Check
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 the bank to which it is sent 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 Reserve
Bank 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 Sec. 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.
S. 229.2(s) Local Paying Bank
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.
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. If the branch of the depositary
bank located in one check processing region sends a check 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 Commentary on definition of paying bank.)
T. 229.2(t) Merger Transaction
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 usually must be approved under the
Bank Merger Act (12 U.S.C. 1828(c)) 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
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 Secs. 229.19(g) and 229.40.)
U. 229.2(u) Noncash Item
1. The 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 Secs. 229.30(f) and 229.31(f).)
V. 229.2(v) [Reserved]
W. 229.2(w) [Reserved]
X. 229.2(x) [Reserved]
Y. 229.2(y) [Reserved]
Z. 229.2(z) Paying Bank
1. The regulation uses this term in
lieu of the Act's ``originating depository institution.'' For
purposes of Subpart B, the term paying bank includes the payor
bank, 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 Subpart C, the term 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 Secs. 229.30 and 229.36(a),
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 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 would delay the return of these
checks, increasing the risks to depositary banks. Subpart C places
on payable-through and payable-at banks the requirements of expeditious
return 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 Subpart C 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.
AA. 229.2(aa) Proprietary ATM
1. All deposits at nonproprietary ATMs
are treated as deposits of nonlocal checks, and deposits at proprietary
ATMs generally are treated as deposits at banking offices. The
Conference Report on the 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. at 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. Because 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 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. Because
the 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.
BB. 229.2(bb) Qualified Returned Check
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 returned
check in a carrier envelope or by placing a strip on the bottom
of the returned check and encoding the envelope or strip with
the routing number of the depositary bank, the amount of the check,
and a special return identifier. Returned checks are identified
by placing a ``2'' in position 44 of the MICR line. (See American
National Standards Committee on Financial Services, Specification
for the Placement and Location of MICR Printing, X9.13 (Sept.
8, 1983) hereinafter referred to as ``ANSI X9.13-1983.'')
2. Generally, under the standard of care
imposed by Sec. 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 Sec. 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.
CC. 229.2(cc) Returning Bank
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 Sec.
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 U.C.C. 4-202(b) and is analogous to a collecting bank for
purposes of final settlement. (See Commentary to Sec. 229.35(b).)
DD. 229.2(dd) Routing Number
1. Each bank is assigned a routing number
by Thomson Financial Publishing Inc., as agent for 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 routing number of the paying bank generally is
printed in magnetic ink near the bottom of the check (the MICR
strip; see ANSI X9.13-1983). Subpart C requires depositary banks
and subsequent collecting banks to place their routing numbers
in nine- digit form in their indorsements.
EE. 229.2(ee) [Reserved]
FF. 229.2(ff) [Reserved]
GG. 229.2(gg) Teller's Check
1. Teller's check is defined in the
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, such as certain 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 generally
are 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 generally is
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.
HH. 229.2(hh) Traveler's Check
1. The 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 Sec. 229.13(a);
12 U.S.C. 4003(a)(1)(C).) The 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.
II. 229.2(ii) Uniform Commercial Code
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 U.C.C.
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.
JJ. 229.2(jj) [Reserved]
KK. 229.2(kk) Unit of General Local Government
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.
LL. 229.2(ll) Wire Transfer
1. The 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'' include 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.
MM. 229.2(mm) [Reserved]
NN. 229.2(nn) Good Faith
1. This definition of good faith derives
from U.C.C. 3-103(a)(4).
OO. 229.2(oo) Interest Compensation
1. This calculation of interest compensation
derives from U.C.C. 4A- 506(b). (See Secs. 229.34(d) and 229.36(f).)
PP. 229.2(pp) Contractual Branch
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 Secs. 229.2(s) and
229.19(a) of the regulation and the commentary to Secs. 229.2(s),
229.10(c), 229.14(a), 229.16(a), 229.18(b), and 229.19(a).
Subpart A - General
Subpart B - Availability
of Funds and Disclosure of Funds Availability Policies
Subpart C - Collection
Appendices A & B
Appendices C & D
Credit And Banking