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Regulation
CC
Availability Of Funds And Collection Of Checks - Appendix E
XVIII. Section 229.32 Depositary Bank's Responsibility for Returned
Checks
A. 229.32(a) Acceptance of Returned Checks
1. This regulation seeks to encourage
direct returns by paying and returning banks and may result in
a number of banks sending checks to depositary banks with no preexisting
arrangements as to where the returned checks should be delivered.
This paragraph states where the depositary bank is required to
accept returned checks and written notices of nonpayment under
Sec. 229.33. (These locations differ from locations at which a
depositary bank must accept electronic notices.) It is derived
from U.C.C. 3-111, which specifies that presentment for payment
may be made at the place specified in the instrument or, if there
is none, at the place of business of the party to pay. In the
case of returned checks, the depositary bank does not print the
check and can only specify the place of ``payment'' of the returned
check in its indorsement.
2. The paragraph specifies four locations
at which the depositary bank must accept returned checks:
a. The depositary bank must accept
returned checks at any location at which it requests presentment
of forward collection checks such as a processing center. A depositary
bank does not request presentment of forward collection checks
at a branch of the bank merely by paying checks presented over
the counter.
b. i. If the depositary bank indorsement
states the name and address of the depositary bank, it must accept
returned checks at the branch, head office, or other location,
such as a processing center, indicated by the address. If the
address is too general to identify a particular location, then
the depositary bank must accept returned checks at any branch
or head office consistent with the address. If, for example, the
address is ``New York, New York,'' each branch in New York City
must accept returned checks.
ii. If no address appears in the depositary
bank's indorsement, the depositary bank must accept returned checks
at any branch or head office associated with the depositary bank's
routing number. The offices associated with the routing number
of a bank are found in American Bankers Association Key to Routing
Numbers, published by Thomson Financial Publishing Inc., which
lists a city and state address for each routing number.
iii. The depositary bank must accept
returned checks at the address in its indorsement and at an address
associated with its routing number in the indorsement if the written
address in the indorsement and the address associated with the
routing number in the indorsement are not in the same check processing
region. Under Secs. 229.30(g) and 229.31(g), a paying or returning
bank may rely on the depositary bank's routing number in its indorsement
in handling returned checks and is not required to send returned
checks to an address in the depositary bank's indorsement that
is not in the same check processing region as the address associated
with the routing number in the indorsement.
iv. If no routing number or address appears
in its indorsement, the depositary bank must accept a returned
check at any branch or head office of the bank. The indorsement
requirement of Sec. 229.35 and Appendix D requires that the indorsement
contain a routing number, a name, and a location. Consequently,
this provision, as well as paragraph (a)(2)(ii) of this section,
only applies where the depositary bank has failed to comply with
the indorsement requirement.
3. For ease of processing, a depositary
bank may require that returning or paying banks returning checks
to it separate returned checks from forward collection checks
being presented.
4. Under Sec. 229.33(d), a depositary
bank receiving a returned check or notice of nonpayment must send
notice to its customer by its midnight deadline or within a longer
reasonable time.
B. 229.32(b) Payment
1. As discussed in the commentary to
Sec. 229.31(c), under this regulation a paying or returning bank
does not obtain credit for a returned check by charge-back but
by, in effect, presenting the returned check to the depositary
bank. This paragraph imposes an obligation to ``pay'' a returned
check that is similar to the obligation to pay a forward collection
check by a paying bank, except that the depositary bank may not
return a returned check for which it is the depositary bank. Also,
certain means of payment, such as remittance drafts, may be used
only with the agreement of the returning bank.
2. The depositary bank must pay for a
returned check by the close of the banking day on which it received
the returned check. The day on which a returned check is received
is determined pursuant to U.C.C. 4- 108, which permits the bank
to establish a cut-off hour, generally not earlier than 2:00 p.m.,
and treat checks received after that hour as being received on
the next banking day. If the depositary bank is unable to make
payment to a returning or paying bank on the banking day that
it receives the returned check, because the returning or paying
bank is closed for a holiday or because the time when the depositary
bank received the check is after the close of Fedwire, e.g., west
coast banks with late cut-off hours, payment may be made on the
next banking day of the bank receiving payment.
3. Payment must be made so that the funds
are available for use by the bank returning the check to the depositary
bank on the day the check is received by the depositary bank.
For example, a depositary bank meets this requirement if it sends
a wire transfer of funds to the returning or paying bank on the
day it receives the returned check, even if the returning or paying
bank has closed for the day. A wire transfer should indicate the
purpose of the payment.
4. The depositary bank may use a net
settlement arrangement to settle for a returned check. Banks with
net settlement agreements could net the appropriate credits and
debits for returned checks with the accounting entries for forward
collection checks if they so desired. If, for purposes of establishing
additional controls or for other reasons, the banks involved desired
a separate settlement for returned checks, a separate net settlement
agreement could be established.
5. The bank sending the returned check
to the depositary bank may agree to accept payment at a later
date if, for example, it does not believe that the amount of the
returned check or checks warrants the costs of same-day payment.
Thus, a returning or paying bank may agree to accept payment through
an ACH credit or debit transfer that settles the day after the
returned check is received instead of a wire transfer that settles
on the same day.
6. This paragraph and this subpart do
not affect the depositary bank's right to recover a provisional
settlement with its nonbank customer for a check that is returned.
(See also Secs. 229.19(c)(2)(ii), 229.33(d) and 229.35(b).)
C. 229.32(c) Misrouted Returned Checks
1. This paragraph permits a bank receiving
a check on the basis that it is the depositary bank to send the
misrouted returned check to the correct depositary bank, if it
can identify the correct depositary bank, either directly or through
a returning bank agreeing to handle the check expeditiously under
Sec. 229.30(a). In these cases, the bank receiving the check is
acting as a returning bank. Alternatively, the bank receiving
the misrouted returned check must send the check back to the bank
from which it was received. In either case the bank to which the
returned check was misrouted could receive settlement for the
check. The depositary bank would be required to pay for the returned
check under Sec. 229.32(b), and any other bank to which the check
is sent under this paragraph would be required to settle for the
check as a returning bank under Sec. 229.31(c). If the check was
originally received ``free,'' that is, without a charge for the
check, the bank incorrectly receiving the check would have to
return the check, without a charge, to the bank from which it
came. The bank to which the returned check was misrouted is required
to act promptly but is not required to meet the expeditious return
requirements of Sec. 229.31(a); however, it must act within its
midnight deadline. This paragraph does not affect a bank's duties
under Sec. 229.35(b).
D. 229.32(d) Charges
1. This paragraph prohibits a depositary
bank from charging the equivalent of a presentment fee for returned
checks. A returning bank, however, may charge a fee for handling
returned checks. If the returning bank receives a mixed cash letter
of returned checks, which includes some checks for which the returning
bank also is the depositary bank, the fee may be applied to all
the returned checks in the cash letter. In the case of a sorted
cash letter containing only returned checks for which the returning
bank is the depositary bank, however, no fee may be charged.
XIX. Section 229.33 Notice of Nonpayment
A. 229.33(a) Requirement
1. Notice of nonpayment as required
by this section and written notice in lieu of return as provided
in Secs. 229.30(f) and 229.31(f) serve different functions. The
two kinds of notice, however, must meet the content requirements
of this section. The paying bank must send a notice of nonpayment
if it decides not to pay a check of $2,500 or more. A paying bank
may rely on an amount encoded on the check in magnetic ink to
determine whether the check is in the amount of $2,500 or more.
The notice of nonpayment carries no value, and the check itself
(or the notice in lieu of return) must be returned. The paying
bank must ensure that the notice of nonpayment is received by
the depositary bank by 4:00 p.m. local time on the second business
day following presentment. A bank identified by routing number
as the paying bank is considered the paying bank under this regulation
and would be required to create a notice of nonpayment even though
that bank determined that the check was not drawn by a customer
of that bank. (See Commentary to the definition of paying bank
in Sec. 229.2(z).)
2. The paying bank should not send a
notice of nonpayment until it has finally determined not to pay
the check. Under Sec. 229.34(b), by sending the notice the paying
bank warrants that it has returned or will return the check. If
a paying bank sends a notice and subsequently decides to pay the
check, the paying bank may mitigate its liability on this warranty
by notifying the depositary bank that the check has been paid.
3. Because the return of the check itself
may serve as the required notice of nonpayment, in many cases
no notice other than the return of the check will be necessary.
For example, in many cases the return of a check through a clearinghouse
to another participant of the clearinghouse will be made in time
to meet the time requirements of this section. If the check normally
will not be received by the depositary bank within the time limits
for notice, the return of the check will not satisfy the notice
requirement. In determining whether the returned check will satisfy
the notice requirement, the paying bank may rely on the availability
schedules of returning banks as the time that the returned check
is expected to be delivered to the depositary bank, unless the
paying bank has reason to know the availability schedules are
inaccurate.
4. Unless the returned check is used
to satisfy the notice requirement, the requirement for notice
is independent of and does not affect the requirements for timely
and expeditious return of the check under Sec. 229.30 and the
U.C.C. (See Sec. 229.30(a).) If a paying bank fails both to comply
with this section and to comply with the requirements for timely
and expeditious return under Sec. 229.30 and the U.C.C. and Regulation
J (12 CFR part 210), the paying bank shall be liable under either
this section or such other requirements, but not both. (See Sec.
229.38(b).) A paying bank is not responsible for failure to give
notice of nonpayment to a party that has breached a presentment
warranty under U.C.C. 4-208, notwithstanding that the paying bank
may have returned the check. (See U.C.C. 4-208 and 4-302.)
B. 229.33(b) Content of Notices
1. This paragraph provides that the
notice must at a minimum contain eight elements which are specifically
enumerated. In the case of written notices, the name and routing
number of the depositary bank also are required.
2. If the paying bank cannot identify
the depositary bank from the check itself, it may wish to send
the notice to the earliest collecting bank it can identify and
indicate that the notice is not being sent to the depositary bank.
The collecting bank may be able to identify the depositary bank
and forward the notice, but is under no duty to do so. In addition,
the collecting bank may actually be the depositary bank.
C. 229.33(c) Acceptance of Notice
1. In the case of a written notice,
the depositary bank is required to accept notices at the locations
specified in Sec. 229.32(a). In the case of telephone notices,
the bank may not refuse to accept notices at the telephone numbers
identified in this section, but may transfer calls or use a recording
device. Banks may vary by agreement the location and manner in
which notices are received.
D. 229.33(d) Notification to Customer
1. This paragraph requires a depositary
bank to notify its customer of nonpayment upon receipt of a returned
check or notice of nonpayment, regardless of the amount of the
check or notice. This requirement is similar to the requirement
under the U.C.C. as interpreted in Appliance Buyers Credit Corp.
v. Prospect National Bank, 708 F.2d 290 (7th Cir. 1983), that
a depositary bank may be liable for damages incurred by its customer
for its failure to give its customer timely advice that it has
received a notice of nonpayment. Notice also must be given if
a depositary bank receives a notice of recovery under Sec. 229.35(b).
The notice to the customer required under this paragraph also
may satisfy the notice requirement of Sec. 229.13(g) if the depositary
bank invokes the reasonable cause exception of Sec. 229.13(e)
due to the receipt of a notice of nonpayment, provided the notice
meets the other requirements of Sec. 229.13(g).
Subpart A - General
Subpart B -
Availability of Funds and Disclosure of Funds Availability Policies
Subpart C -
Collection of Checks
Appendices A
& B
Appendices C
& D
Appendix F
Credit
And Banking Laws Menu
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