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Regulation CC
Availability Of Funds And Collection Of Checks - Appendix E

XXV. Section 229.39 Insolvency of Bank

A. Introduction

     1. These provisions cover situations where a bank becomes insolvent during collection or return and are derived from U.C.C. 4-216. They are intended to apply to all banks.

B. 229.39(a) Duty of Receiver

     1. This paragraph requires a receiver of a closed bank to return a check to the prior bank if it does not pay for the check. This permits the prior bank, as holder, to pursue its claims against the closed bank or prior indorsers on the check.

C. 229.39(b) Preference Against Paying or Depositary Bank

     1. This paragraph gives a bank a preferred claim against a closed paying bank that finally pays a check without settling for it or a closed depositary bank that becomes obligated to pay a returned check without settling for it. If the bank with a preferred claim under this paragraph recovers from a prior bank or other party to the check, the prior bank or other party to the check is subrogated to the preferred claim.

D. 229.39(c) Preference Against Paying, Collecting, or Depositary Bank

     1. This paragraph gives a bank a preferred claim against a closed collecting, paying, or returning bank that receives settlement but does not settle for a check. (See Commentary to Sec. 229.35(b) for discussion of prior and subsequent banks.) As in the case of Sec. 229.39(b), if the bank with a preferred claim under this paragraph recovers from a prior bank or other party to the check, the prior bank or other party to the check is subrogated to the preferred claim.

E. 229.39(d) Preference Against Presenting Bank

     1. This paragraph gives a paying bank a preferred claim against a closed presenting bank in the event that the presenting bank breaches an amount or encoding warranty as provided in Sec. 229.34(c)(1) or (3) and does not reimburse the paying bank for adjustments for a settlement made by the paying bank in excess of the value of the checks presented. This preference is intended to have the effect of a perfected security interest and is intended to put the paying bank in the position of a secured creditor for purposes of the receivership provisions of the Federal Deposit Insurance Act and similar provisions of state law.

F. 229.39(e) Finality of Settlement

     1. This paragraph provides that insolvency does not interfere with the finality of a settlement, such as a settlement by a paying bank that becomes final by expiration of the midnight deadline.

XXVI. Section 229.40 Effect on Merger Transaction

     A. When banks merge, there is normally a period of adjustment required before their operations are consolidated. To allow for this adjustment period, the regulation provides that the merged banks may be treated as separate banks for a period of up to one year after the consummation of the transaction. The term merger transaction is defined in Sec. 229.2(t). This rule affects the status of the combined entity in a number of areas in this subpart. For example:
     1. The paying bank's responsibility for expeditious return (Sec. 229.30).
     2. The returning bank's responsibility for expeditious return (Sec. 229.31).
     3. Whether a returning bank is entitled to an extra day to qualify a return that will be delivered directly to a depositary bank that has merged with the returning bank (Sec. 229.31(a)).
     4. Where the depositary bank must accept returned checks (Sec. 229.32(a)).
     5. Where the depositary bank must accept notice of nonpayment (Sec. 229.33(c)).
     6. Where a paying bank must accept presentment of checks (Sec. 229.36(b)).

XXVII. Section 229.41 Relation to State Law

      A. This section specifies that state law relating to the collection of checks is preempted only to the extent that it is inconsistent with this regulation. Thus, this regulation is not a complete replacement for state laws relating to the collection or return of checks.

XXVIII. Section 229.42 Exclusions

     A. Checks drawn on the United States Treasury, U.S. Postal Service money orders, and checks drawn on states and units of general local government that are presented directly to the state or unit of general local government and that are not payable through or at a bank are excluded from the coverage of the expeditious-return, notice-of-nonpayment, and same-day settlement requirements of subpart C of this part. Other provisions of this subpart continue to apply to the checks. This exclusion does not apply to checks drawn by the U.S. government on banks.

XXIX. Section 229.43 Checks Payable in Guam, American Samoa, and the Northern Mariana Islands

A. 229.43(a) Definitions

     1. Bank offices in Guam, American Samoa, and the Northern Mariana Islands (which Regulation CC defines as Pacific island banks) do not meet the definition of bank in Sec. 229.2(e) because they are not located in the United States. Some checks drawn on Pacific island banks (defined as Pacific island checks) bear U.S. routing numbers and are collected and returned by banks in the same manner as checks payable in the U.S.

B. 229.43(b) Rules Applicable to Pacific Island Checks

     1. When a bank handles a Pacific island check as if it were a check as defined in Sec. 229.2(k), the bank is subject to certain provisions of Regulation CC, as provided in this section. Because the Pacific island bank is not a bank as defined in Sec. 229.2(e), it is not a paying bank as defined in Sec. 229.2(z) (unless otherwise noted in this section). Pacific island banks are not subject to the provisions of Regulation CC.
     2. A bank may agree to handle a Pacific island check as a returned check under Sec. 229.31 and may convert the returned Pacific island check to a qualified returned check. The returning bank is not, however, subject to the expeditious-return requirements of Sec. 229.31. The returning bank may receive the Pacific island check directly from a Pacific island bank or from another returning bank. As a Pacific island bank is not a paying bank under Regulation CC, Sec. 229.31(c) does not apply to a returning bank settling with the Pacific island bank.
     3. A depositary bank that handles a Pacific island check is not subject to the provisions of subpart B of Regulation CC, including the availability, notice, and interest accrual requirements, with respect to that check. If, however, a bank accepts a Pacific island check for deposit (or otherwise accepts the check as transferee) and collects the Pacific island check in the same manner as other checks, the bank is subject to the provisions of Sec. 229.32, including the provisions regarding time and manner of settlement for returned checks in Sec. 229.32(b), in the event the Pacific island check is returned by a returning bank. If the depositary bank receives the returned Pacific island check directly from the Pacific island bank, however, the provisions of Sec. 229.32(b) do not apply, because the Pacific island bank is not a paying bank under Regulation CC. The depositary bank is not subject to the notice of nonpayment provisions in Sec. 229.33 for Pacific island checks.
     4. Banks that handle Pacific island checks in the same manner as other checks are subject to the indorsement provisions of Sec. 229.35. Section 229.35(c) eliminates the need for the restrictive indorsement ``pay any bank.'' For purposes of Sec. 229.35(c), the Pacific island bank is deemed to be a bank.
     5. Pacific island checks will often be intermingled with other checks in a single cash letter. Therefore, a bank that handles Pacific island checks in the same manner as other checks is subject to the transfer warranty provision in Sec. 229.34(c)(2) regarding accurate cash letter totals and the encoding warranty in Sec. 229.34(c)(3). A bank that acts as a returning bank for a Pacific island check is not subject to the warranties in Sec. 229.34(a). Similarly, because the Pacific island bank is not a ``bank'' or a ``paying bank'' under Regulation CC, Sec. 229.34(b), (c)(1), and (c)(4) do not apply. For the same reason, the provisions of Sec. 229.36 governing paying bank responsibilities such as place of receipt and same-day settlement do not apply to checks presented to a Pacific island bank, and the liability provisions applicable to paying banks in Sec. 229.38 do not apply to Pacific island banks. Section 229.36(d), regarding finality of settlement between banks during forward collection, applies to banks that handle Pacific island checks in the same manner as other checks, as do the liability provisions of Sec. 229.38, to the extent the banks are subject to the requirements of Regulation CC as provided in this section, and Secs. 229.37 and 229.39 through 229.42.

XXX. Appendix C--Model Availability Policy Disclosures, Clauses, and Notices

A. Introduction

     1. Appendix C contains model disclosures, clauses, and notices that may be used by banks to meet their disclosure responsibilities under the regulation. Banks using the models properly will be in compliance with the regulation's disclosure requirements.
     2. Information that must be inserted by a bank using the models is italicized within parentheses in the text of the models. Optional information is enclosed in brackets.
     3. Banks may make certain changes to the format or content of the models, including deleting material that is inapplicable, without losing the Act's protection from liability for banks that use the models properly. For example, if a bank does not have a cut- off hour prior to it's closing time, or if a bank does not take advantage of the Sec. 229.13 exceptions, it may delete the references to those provisions. Changes to the models may not be so extensive as to affect the substance, clarity, or meaningful sequence of the models. Acceptable changes include, for example:
      a. Using ``customer'' and ``bank'' instead of pronouns.
      b. Changing the typeface or size.
     c. Incorporating certain state law ``plain English'' requirements.
     4. Shorter time periods for availability may always be substituted for time periods used in the models.
     5. Banks may also add related information. For example, a bank may indicate that although funds have been made available to a customer and the customer has withdrawn them, the customer is still responsible for problems with the deposit, such as checks that were deposited being returned unpaid. Or a bank could include a telephone number to be used if a customer has an inquiry regarding a deposit.
     6. Banks are cautioned against using the models without reviewing their own policies and practices, as well as state and federal laws regarding the time periods for availability of specific types of checks. A bank using the models will be in compliance with the Act and the regulation only if the bank's disclosures correspond to its availability policy.
     7. Banks that have used earlier versions of the models (such as those models that gave Social Security benefits and payroll payments as examples of preauthorized credits available the day after deposit, or that did not address the cash withdrawal limitation) are protected from civil liability under Sec. 229.21(e). Banks are encouraged, however, to use current versions of the models when reordering or reprinting supplies.

B. Model Availability Policy Disclosures, Models C-1 Through C-5

     1. Models C-1 through C-5 generally.
     a. Models C-1 through C-5 are models for the availability policy disclosures described in Sec. 229.16. The models accommodate a variety of availability policies, ranging from next-day availability to holds to statutory limits on all deposits. Model C-3 reflects the additional disclosures discussed in Secs. 229.16 (b) and (c) for banks that have a policy of extending availability times on a case- by-case basis.
     b. As already noted, there are several places in the models where information must be inserted. This information includes the bank's cut-off times, limitations relating to next-day availability, and the first four digits of routing numbers for local banks. In disclosing when funds will be available for withdrawal, the bank must insert the ordinal number (such as first, second, etc.) of the business day after deposit that the funds will become available.
     c. Models C-1 through C-5 generally do not reflect any optional provisions of the regulation, or those that apply only to certain banks. Instead, disclosures for these provisions are included in Models C-6 through C-11A. A bank using one of the model availability policy disclosures should also consider whether it must incorporate one or more of Models C-6 through C-11A.
     d. While Sec. 229.10(b) requires next-day availability for electronic payments, Treasury regulations (31 CFR part 210) and ACH association rules require that preauthorized credits (''direct deposits'') be made available on the day the bank receives the funds. Models C-1 through C-5 reflect these rules. Wire transfers, however, are not governed by Treasury or ACH rules, but banks generally make funds from wire transfers available on the day received or on the business day following receipt. Banks should ensure that their disclosures reflect the availability given in most cases for wire transfers.
     2. Model C-1 Next-day availability. A bank may use this model when its policy is to make funds from all deposits available on the first business day after a deposit is made. This model may also be used by banks that provide immediate availability by substituting the word ``immediately'' in place of ``on the first business day after the day we receive your deposit.''
     3. Model C-2 Next-day availability and Sec. 229.13 exceptions. A bank may use this model when its policy is to make funds from all deposits available to its customers on the first business day after the deposit is made, and to reserve the right to invoke the new account and other exceptions in Sec. 229.13. In disclosing that a longer delay may apply, a bank may disclose when funds will generally be available based on when the funds would be available if the deposit were of a nonlocal check.
     4. Model C-3 Next-day availability, case-by-case holds to statutory limits, and Sec. 229.13 exceptions. A bank may use this model when its policy, in most cases, is to make funds from all types of deposits available the day after the deposit is made, but to delay availability on some deposits on a case-by-case basis up to the maximum time periods allowed under the regulation. A bank using this model also reserves the right to invoke the exceptions listed in Sec. 229.13. In disclosing that a longer delay may apply, a bank may disclose when funds will generally be available based on when the funds would be available if the deposit were of a nonlocal check.
     5. Model C-4 Holds to statutory limits on all deposits. A bank may use this model when its policy is to impose delays to the full extent allowed under Sec. 229.12 and to reserve the right to invoke the Sec. 229.13 exceptions. In disclosing that a longer delay may apply, a bank may disclose when funds will generally be available based on when the funds would be available if the deposit were of a nonlocal check. Model C-4 uses a chart to show the bank's availability policy for local and nonlocal checks and Model C-5 uses a narrative description. 6. Model C-5 Holds to statutory limits on all deposits. A bank may use this model when its policy is to impose delays to the full extent allowed under Sec. 229.12 and to reserve the right to invoke the Sec. 229.13 exceptions. In disclosing that a longer delay may apply, a bank may disclose when funds will generally be available based on when the funds would be available if the deposit were of a nonlocal check.

C. Model Clauses, Models C-6 Through C-11A

     1. Models C-6 through C-11A generally. Certain clauses like those in the models must be incorporated into a bank's availability policy disclosure under certain circumstances. The commentary to each clause indicates when a clause similar to the model clause is required.
     2. Model C-6 Holds on other funds (check cashing). A bank that reserves the right to place a hold on funds already on deposit when it cashes a check for a customer, as addressed in Sec. 229.19(e), must incorporate this type of clause in its availability policy disclosure.
     3. Model C-7 Holds on other funds (other account). A bank that reserves the right to place a hold on funds in an account of the customer other than the account into which the deposit is made, as addressed in Sec. 229.19(e), must incorporate this type of clause in its availability policy disclosure.
     4. Model C-8 Appendix B availability (nonlocal checks). A bank in a check processing region where the availability schedules for certain nonlocal checks have been reduced, as described in Appendix B of Regulation CC, must incorporate this type of clause in its availability policy disclosure. Banks using Model C-5 may insert this clause at the conclusion of the discussion titled ``Nonlocal checks.''
     5. Model C-9 Automated teller machine deposits (extended holds). A bank that reserves the right to delay availability of deposits at nonproprietary ATMs until the fifth business day following the date of deposit, as permitted by Sec. 229.12(f), must incorporate this type of clause in its availability policy disclosure. A bank must choose among the alternative language based on how it chooses to differentiate between proprietary and nonproprietary ATMs, as required under Sec. 229.16(b)(5).
     6. Model C-10 Cash withdrawal limitation. A bank that imposes cash withdrawal limitations under Sec. 229.12 must incorporate this type of clause in its availability policy disclosure. Banks reserving the right to impose the cash withdrawal limitation and using Model C-3 should disclose that funds may not be available until the sixth (rather than fifth) business day in the first paragraph under the heading ``Longer Delays May Apply.''
     7. Model C-11 Credit union interest payment policy. A credit union subject to the notice requirement of Sec. 229.14(b)(2) must incorporate this type of clause in its availability policy disclosure. This model clause is only an example of a hypothetical policy. Credit unions may follow any policy for accrual provided the method of accruing interest is the same for cash and check deposits.
     8. Model C-11A Availability of funds deposited at other locations. A clause similar to Model C-11A should be used if a bank bases the availability of funds on the location where the funds are deposited (for example, at a contractual or other branch located in a different check processing region). Similarly, a clause similar to Model C-11A should be used if a bank distinguishes between local and non-local checks (for example, a bank using model availability policy disclosure C-4 or C-5), and accepts deposits in more than one check processing region.

D. Model Notices, Models C-12 Through C-21

     1. Model Notices C-12 through C-21 generally. Models C-12 through C-21 provide models for the various notices required by the regulation. A bank that cashes a check and places a hold on funds in an account of the customer (see Sec. 229.19(e)) should modify the model hold notice accordingly. For example, the bank could replace the word ``deposit'' with the word ``transaction'' and could add the phrase ``or cashed'' after the word ``deposited.''
     2. Model C-12 Exception hold notice. This model satisfies the written notice required under Sec. 229.13(g) when a bank places a hold based on a Sec. 229.13 exception. If a hold is being placed on more than one check in a deposit, each check need not be described, but if different reasons apply, each reason must be indicated. A bank may use the actual date when funds will be available for withdrawal rather than the number of the business day following the day of deposit. A bank must incorporate in the notice the material set out in brackets if it imposes overdraft or returned check fees after invoking the reasonable cause exception under Sec. 229.13(e).
     3. Model C-13 Reasonable cause hold notice. This notice satisfies the written notice required under Sec. 229.13(g) when a bank invokes the reasonable cause exception under Sec. 229.13(e). The notice provides the bank with a list of specific reasons that may be given for invoking the exception. If a hold is being placed on more than one check in a deposit, each check must be described separately, and if different reasons apply, each reason must be indicated. A bank may disclose its reason for doubting collectibility by checking the appropriate reason on the model. If the ``Other'' category is checked, the reason must be given. A bank may use the actual date when funds will be available for withdrawal rather than the number of the business day following the day of deposit. A bank must incorporate in the notice the material set out in brackets if it imposes overdraft or returned check fees after invoking the reasonable cause exception under Sec. 229.13(e).
     4. Model C-14 One-time notice for large deposit and redeposited check exception holds. This model satisfies the notice requirements of Sec. 229.13(g)(2) concerning nonconsumer accounts.
     5. Model C-15 One-time notice for repeated overdraft exception hold. This model satisfies the notice requirements of Sec. 229.13(g)(3).
     6. Model C-16 Case-by-case hold notice. This model satisfies the notice required under Sec. 229.16(c)(2) when a bank with a case- by-case hold policy imposes a hold on a deposit. This notice does not require a statement of the specific reason for the hold, as is the case when a Sec. 229.13 exception hold is placed. A bank may specify the actual date when funds will be available for withdrawal rather than the number of the business day following the day of deposit when funds will be available. A bank must incorporate in the notice the material set out in brackets if it imposes overdraft fees after invoking a case-by-case hold.
     7. Model C-17 Notice at locations where employees accept consumer deposits and Model C-18 Notice at locations where employees accept consumer deposits (case-by-case holds). These models satisfy the notice requirement of Sec. 229.18(b). Model C-17 reflects an availability policy of holds to statutory limits on all deposits, and Model C-18 reflects a case-by-case availability policy.
     8. Model C-19 Notice at automated teller machines. This model satisfies the ATM notice requirement of Sec. 229.18(c)(1).
     9. Model C-20 Notice at automated teller machines (delayed receipt). This model satisfies the ATM notice requirement of Sec. 229.18(c)(2) when receipt of deposits at off-premises ATMs is delayed under Sec. 229.19(a)(4). It is based on collection of deposits once a week. If collections occur more or less frequently, the description of when deposits are received must be adjusted accordingly.
     10. Model C-21 Deposit slip notice. This model satisfies the notice requirements of Sec. 229.18(a) for deposit slips.
 

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

 

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