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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
Credit
And Banking Laws Menu
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