The Board of Governors of the Federal
Reserve System (Board) has issued this subpart pursuant to the Federal Reserve
Act, sections 11 (i) and (j) (12 U.S.C. 248 (i) and (j)), section 13 (12
U.S.C. 342), section 16 (12 U.S.C. 248(o) and 360), and section 19(f) (12
U.S.C. 464); the Expedited Funds Availability Act (12 U.S.C. 4001 et seq.);
and other laws. This subpart governs the collection of checks and other
cash and noncash items and the handling of returned checks by Federal Reserve
Banks. Its purpose is to provide rules for collecting and returning items
and settling balances.
Sec. 210.2 Definitions.
As used in this subpart, unless the context
otherwise requires: (a) Actually and finally
collected funds means cash or any other form of payment that is, or has
become, final and irrevocable.
(b) Bank includes a depository institution
as defined in section 19 of the Federal Reserve Act (12 U.S.C. 461(b)).
(c) Bank draft means a check drawn by one
bank on another bank.
(d) Banking day means the part of a day on
which a bank is open to the public for carrying on substantially all of
its banking functions.
(e) Cash items means--
(1) A check other than one classified as
a noncash item under this section; or
(2) Any other item payable on demand and
collectible at par that the Reserve Bank of the District in which the item
is payable is willing to accept as a cash item. Cash item does not include
a returned check.
(f) Check means a draft, as defined in the
Uniform Commercial Code, that is drawn on a bank and payable on demand.
Check as defined in 12 CFR 229.2(k) means an item defined as a check in
12 CFR 229.2(k) for purposes of subpart C of part 229.
(g) Item means an instrument or a promise
or order to pay money, whether negotiable or not, that is:
(1) Payable in a Federal Reserve District1
(District);
1 For purposes of this subpart, the Virgin Islands
and Puerto Rico are deemed to be in the Second District, and Guam, American
Samoa, and the Northern Mariana Islands in the Twelfth District.
(2) Sent by a sender to a Reserve Bank for
handling under this subpart; and
(3) Collectible in funds acceptable to the
Reserve Bank of the District in which the instrument is payable.
Unless otherwise indicated, item includes both a cash and a noncash item,
and includes a returned check sent by a paying or returning bank. Item does
not include a check that cannot be collected at par, or a payment order
as defined in Sec. 210.26(i) and handled under subpart B of this part.
(h) Nonbank payor means a payor of an item,
other than a bank.
(i) Noncash item means an item that a receiving
Reserve Bank classifies in its operating circulars as requiring special
handling. The term also means an item normally received as a cash item if
a Reserve Bank decides that special conditions require that it handle the
item as a noncash item.
(j) Paying bank means--
(1) The bank by which an item is payable
unless the item is payable or collectible at or through another bank and
is sent to the other bank for payment or collection;
(2) The bank at or through which an item
is payable or collectible and to which it sent for payment or collection;
or
(3) The bank whose routing number appears
on a check in magnetic characters or fractional form and to which the check
is sent for payment or collection.
(k) Returned check means a cash item or a
check as defined in 12 CFR 229.2(k) returned by a paying bank, including
a notice of nonpayment in lieu of a returned check, whether or not a Reserve
Bank handled the check for collection.
(l) Sender means any of the following that
sends an item to a Reserve Bank for forward collection:
(1) Depository institution means a depository
institution as defined in section 19(b) of the Federal Reserve Act. (12
U.S.C. 461(b))
(2) Clearing institution means:
(i) An institution that is not a depository
institution, but maintains with a Reserve Bank the balance referred to in
the first paragraph of section 13 of the Federal Reserve Act (12 U.S.C.
342); or
(ii) A corporation that maintains an account
with a Reserve Bank in conformity with Sec. 211.4 of this chapter (Regulation
K).
(3) International Organization means an international
organization for which a Reserve Bank is empowered to act as depository
or fiscal agent and maintains an account.
(4) Foreign correspondent means any of the
following for which a Reserve Bank maintains an account: a foreign bank
or banker, a foreign state as defined in section 25(b) of the Federal Reserve
Act (12 U.S.C. 632), or a foreign correspondent or agency referred to in
section 14(e) of that Act (12 U.S.C. 358).
(m) State means a State of the United States,
the District of Columbia, Puerto Rico, or a territory, possession, or dependency
of the United States.
Unless the context otherwise requires, the terms not defined herein have
the meanings set forth in 12 CFR 229.2 applicable to subpart C of part 229,
and the terms not defined herein or in 12 CFR 229.2 have the meanings set
forth in the Uniform Commercial Code.
(n) Clock hour means a time that is on the
hour, such as 1:00, 2:00, etc.
(o) Fedwire has the same meaning as that
set forth in Sec. 210.26(e).
(p) Uniform Commercial Code means the Uniform
Commercial Code as adopted in a state.
Sec. 210.3 General provisions.
(a) General. Each Reserve Bank shall receive
and handle items in accordance with this subpart, and shall issue operating
circulars governing the details of its handling of items and other matters
deemed appropriate by the Reserve Bank. The circulars may, among other things,
classify cash items and noncash items, require separate sorts and letters,
provide different closing times for the receipt of different classes or
types of items, set forth terms of services, and establish procedures for
adjustments on a Reserve Bank's books, including amounts, waiver of expenses,
and payment of interest by as-of adjustment.
(b) Binding effect. This subpart, together
with subpart C of part 229 and the operating circulars of the Reserve Banks,
are binding on all parties interested in an item handled by any Reserve
Bank.
(c) Government items. As depositaries and
fiscal agents of the United States, Reserve Banks handle certain items payable
by the United States or certain Federal agencies as cash or noncash items.
To the extent provided by regulations issued by, and arrangements made with,
the United States Treasury Department and other Government departments and
agencies, the handling of such items is governed by this subpart. The Reserve
Banks shall include in their operating circulars such information regarding
these regulations and arrangements as the Reserve Banks deem appropriate.
(d) Government senders. Except as otherwise
provided by statutes of the United States, or regulations issued or arrangements
made thereunder, this subpart and the operating circulars of the Reserve
Banks apply to the following when acting as a sender: a department, agency,
instrumentality, independent establishment, or office of the United States,
or a wholly owned or controlled Government corporation, that maintains or
uses an account with a Reserve Bank.
(e) Foreign items. A Reserve Bank also may
receive and handle certain items payable outside a Federal Reserve District,
as provided in its operating circulars. The handling of such items in a
state is governed by this subpart, and the handling of such items outside
a state is governed by the local law.
(f) Relation to other law. The provisions
of this subpart supersede any inconsistent provisions of the Uniform Commercial
Code, of any other state law, or of part 229 of this title, but only to
the extent of the inconsistency.
Subpart A--Collection of Checks and Other Items By Federal Reserve Banks
Sec. 210.4 Sending items to Reserve Banks.
(a) A sender may send any item to the Reserve
Bank with which it maintains or uses an account, but that Reserve Bank may
permit or require the sender to send direct to another Reserve Bank an item
payable within the other Reserve Bank's District.
(b) With respect to an item sent direct,
the relationships and the rights and liabilities between the sender, the
Reserve Bank of its District, and the Reserve Bank to which the item is
sent are the same as if the sender had sent the item to the Reserve Bank
of its District and that Reserve Bank had sent the item to the other Reserve
Bank.
(c) The Reserve Banks shall receive cash
items and other checks at par.
Sec. 210.5 Sender's agreement; recovery by Reserve
Bank.
(a) Sender's agreement. The warranties, authorizations,
and agreements made pursuant to this paragraph may not be disclaimed and
are made whether or not the item bears an indorsement of the sender. By
sending an item to a Reserve Bank, the sender:
(1) Authorizes the receiving Reserve Bank
(and any other Reserve Bank or collecting bank to which the item is sent)
to handle the item subject to this subpart and to the Reserve Banks' operating
circulars, and warrants its authority to give this authorization;
(2) Warrants to each Reserve Bank handling
the item that:
(i) The sender is a person entitled to enforce
the item or authorized to obtain payment of the item on behalf of a person
entitled to enforce the item; and
(ii) The item has not been altered; but this
paragraph (a)(2) does not limit any warranty by a sender or other prior
party arising under state law or under subpart C of part 229 of this title;
and
(3) Agrees to indemnify each Reserve Bank
for any loss of expense sustained (including attorneys' fees and expenses
of litigation) resulting from (i) the sender's lack of authority to make
the warranty in paragraph (a)(1) of this section; (ii) any action taken
by the Reserve Bank within the scope of its authority in handling the item;
or (iii) any warranty made by the Reserve Bank under Sec. 210.6(b) of this
subpart.
(b) Recovery by Reserve Bank. If an action
or proceeding is brought against (or if defense is tendered to) a Reserve
Bank that has handled an item, based on:
(1) The alleged failure of the sender to
have the authority to make the warranty and agreement in paragraph (a)(1)
of this section;
(2) Any action by the Reserve Bank within
the scope of its authority in handling the item; or
(3) Any warranty made by the Reserve Bank
under Sec. 210.6(b) of this subpart, the Reserve Bank may, upon entry of
a final judgment or decree, recover from the sender the amount of attorneys'
fees and other expenses of litigation incurred, as well as any amount the
Reserve Bank is required to pay because of the judgment or decree or the
tender of defense, together with interest thereon.
(c) Methods of recovery. The Reserve Bank
may recover the amount stated in paragraph (b) of this section by charging
any account on its books that is maintained or used by the sender (or if
the sender is another Reserve Bank, by entering a charge against the other
Reserve Bank through the Interdistrict Settlement Fund), if:
(1) The Reserve Bank made seasonable written
demand on the sender to assume defense of the action or proceeding; and
(2) The sender has not made any other arrangement
for payment that is acceptable to the Reserve Bank.
The Reserve Bank is not responsible for defending the action or proceeding
before using this method of recovery. A Reserve Bank that has been charged
through the Interdistrict Settlement Fund may recover from its sender in
the manner and under the circumstances set forth in this paragraph. A Reserve
Bank's failure to avail itself of the remedy provided in this paragraph
does not prejudice its enforcement in any other manner of the indemnity
agreement referred to in paragraph (a)(3) of this section.
(d) Security interest. To secure any obligation
due or to become due to a Reserve Bank by a sender or prior collecting bank
under this subpart or subpart C of part 229 of this title, the sender and
prior collecting bank, by sending an item directly or indirectly to the
Reserve Bank, grant to the Reserve Bank a security interest in all of the
sender's or prior collecting bank's assets in the possession of, or held
for the account of, the Reserve Bank. The security interest attaches when
a warranty is breached or any other obligation to the Reserve Bank is incurred.
If the Reserve Bank, in its sole discretion, deems itself insecure and gives
notice thereof to the sender or prior collecting bank, or if the sender
or prior collecting bank suspends payments or is closed, the Reserve Bank
may take any action authorized by law to recover the amount of an obligation,
including, but not limited to, the exercise of rights of set off, the realization
on any available collateral, and any other rights it may have as a creditor
under applicable law.
Sec. 210.6 Status, warranties, and liability of Reserve
Bank.
(a)(1) Status and Liability. A Reserve Bank
shall act only as agent or subagent of the owner with respect to an item.
This agency terminates not later than the time the Reserve Bank receives
payment for the item in actually and finally collected funds and makes the
proceeds available for use by the sender. A Reserve Bank may be liable to
the owner, to the sender, to a prior collecting bank, or to the depositary
bank's customer with respect to a check as defined in 12 CFR 229.2(k). A
Reserve Bank shall not have or assume any liability with respect to an item
or its proceeds except for the Reserve Bank's own lack of good faith or
failure to exercise ordinary care, except as provided in paragraph (b) of
this section and except as provided in subpart C of part 229.
(2) Reliance on routing designation appearing
on item. A Reserve Bank may present or send an item based on the routing
number or other designation of a paying bank or nonbank payor appearing
in any form on the item when the Reserve Bank receives it. A Reserve Bank
shall not be responsible for any delay resulting from its acting on any
designation, whether inscribed by magnetic ink or by other means, and whether
or not the designation acted on is consistent with any other designation
appearing on the item.
(b) Warranties and liability. By presenting
or sending an item, a Reserve Bank warrants to a subsequent collecting bank
and to the paying bank and any other payor:
(1) That the Reserve Bank is a person entitled
to enforce the item (or is authorized to obtain payment of the item on behalf
of a person who is either:
(i) Entitled to enforce the item; or
(ii) Authorized to obtain payment on behalf
of a person entitled to enforce the item); and
(2) That the item has not been altered.
The Reserve Bank also makes the warranties set forth in Sec. 229.34(c) of
this title, subject to the terms of part 229 of this title. The Reserve
Bank shall not have or assume any other liability to the paying bank or
other payor, except for the Reserve Bank's own lack of good faith or failure
to exercise ordinary care.
(c) Time for commencing action against Reserve
Bank. A claim against a Reserve Bank for lack of good faith or failure to
exercise ordinary care shall be barred unless the action on the claim is
commenced within two years after the claim accrues. A claim accrues on the
date when a Reserve Bank's alleged failure to exercise ordinary care or
to act in good faith first results in damages to the claimant. This paragraph
does not lengthen the time limit for claims under Sec. 229.38(g) of this
title (which include claims for breach of warranty under Sec. 229.34 of
this title).
Sec. 210.7 Presenting items for payment.
(a) Presenting or sending. As provided under
State law or as otherwise permitted by this section: (1) a Reserve Bank
or a subsequent collecting bank may present an item for payment or send
the item for presentment and payment; and
(2) A Reserve Bank may send an item to a
subsequent collecting bank with authority to present it for payment or to
send it for presentment and payment.
(b) Place of presentment. A Reserve Bank
or subsequent collecting bank may present an item--
(1) At a place requested by the paying bank;
(2) In the case of a check as defined in
12 CFR 229.2(k), in accordance with 12 CFR 229.36;
(3) At a place requested by the nonbank payor,
if the item is payable by a nonbank payor other than through or at a paying
bank;
(4) Under a special collection agreement
consistent with this subpart; or
(5) Through a clearinghouse and subject to
its rules and practices.
(c) Presenting or sending direct. A Reserve
Bank or subsequent collecting bank may, with respect to an item payable
in the Reserve Bank's District:
(1) Present or send the item direct to the
paying bank, or to a place requested by the paying bank; or
(2) If the item is payable by a nonbank payor
other than through a paying bank, present it direct to the nonbank payor.
Documents, securities, or other papers accompanying a noncash item shall
not be delivered to the nonbank payor before the item is paid unless the
sender specifically authorizes delivery.
(d) Item payable in another district. A Reserve
Bank receiving an item payable in another District ordinarily sends the
item to the Reserve Bank of the other District, but with the agreement of
the other Reserve Bank, may present or send the item as if it were payable
in its own District.
Sec. 210.8 Presenting noncash Items for Acceptance.
A Reserve Bank or a subsequent collecting
bank may, if instructed by the sender, present a noncash item for acceptance
in any manner authorized by law if: (a) The item provides that it must be
presented for acceptance; (b) the item is payable elsewhere than at the
residence or place of business of the payor; or (c) the date of payment
of the item depends on presentment for acceptance. Documents accompanying
a noncash item shall not be delivered to the payor upon acceptance of the
item unless the sender specifically authorizes delivery. A Reserve Bank
shall not have or assume any other obligation to present or to send for
presentment for acceptance any noncash item.
Sec. 210.9 Settlement and payment.
(a) Cash items. (1) On the day a paying bank
receives 2 a cash item directly or indirectly from a Reserve
Bank, it shall settle for the item such that the proceeds of the settlement
are available to the Reserve Bank by the close of Fedwire on that day, or
it shall return the item by the later of the close of the paying bank's
banking day or the close of Fedwire. If the paying bank fails to settle
for or return a cash item in accordance with this paragraph (a)(1), it is
accountable for the amount of the item as of the close of its banking day
or the close of Fedwire on the day it receives the item, whichever is earlier.
2 A paying bank is
deemed to receive a cash item on its next banking day if it receives the
item: (1) On a day other than a banking day
for it; or (2) On a banking day for it, but
after a ``cut-off hour'' established by it in accordance with state law.
(2)(i) On the day a paying bank receives
a cash item directly or indirectly from a Reserve Bank, it shall settle
for the item so that the proceeds of the settlement are available to the
Reserve Bank, or return the item, by the latest of:
(A) The next clock hour that is at least
one hour after the paying bank receives the item;
(B) One hour after the scheduled opening
of Fedwire; or
(C) Such later time as provided in the Reserve
Bank's operating circular.
(ii) If the paying bank fails to settle for
or return a cash item in accordance with paragraph (a)(2)(i) of this section,
it shall be subject to any applicable overdraft charges. Settlement under
paragraph (a)(2)(i) of this section satisfies the settlement requirements
of paragraph (a)(1) of this section.
(3)(i) If a paying bank closes voluntarily
on a day that is a banking day for a Reserve Bank, and the Reserve Bank
makes a cash item available to the paying bank on that day, the paying bank
shall either:
(A) On that day, settle for the item so that
the proceeds of the settlement are available to the Reserve Bank, or return
the item, by the latest of:
(1) The next clock hour that is at least
one hour after the paying bank ordinarily would have received the item;
(2) One hour after the scheduled opening
of Fedwire; or
(3) Such later time as provided in the Reserve
Bank's operating circular; or
(B) On the next day that is a banking day
for both the paying bank and the Reserve Bank, settle for the item so that
the proceeds of the settlement are available to the Reserve Bank by the
later of:
(1) One hour after the scheduled opening
of Fedwire on that day; or
(2) Such later time as provided in the Reserve
Bank's operating circular;
and compensate the Reserve Bank for the value of the float associated with
the item in accordance with procedures provided in the Reserve Bank's operating
circular.
(ii) If a paying bank closes voluntarily
on a day that is a banking day for a Reserve Bank, and the Reserve Bank
makes a cash item available to the paying bank on that day, the paying bank
is not considered to have received the item until its next banking day,
but it shall be subject to any applicable overdraft charges if it fails
to settle for or return the item in accordance with paragraph (a)(3)(i)
of this section. The settlement requirements of paragraphs (a)(1) and (a)(2)
of this section do not apply to a paying bank that settles in accordance
with paragraph (a)(3)(i) of this section.
(4)(i) If a paying bank receives a cash item
directly or indirectly from a Reserve Bank on a banking day that is not
a banking day for the Reserve Bank:
(A) The paying bank shall:
(1) Settle for the item so that the proceeds
of the settlement are available to the Reserve Bank by the close of Fedwire
on the Reserve Bank's next banking day; or
(2) Return the item by midnight of the day
it receives the item. If the paying bank fails to settle for or return a
cash item in accordance with this paragraph (a)(4)(i)(A), it shall become
accountable for the amount of the item as of the close of its banking day
on the day it receives the item.
(B) The paying bank shall:
(1) Settle for the item so that the proceeds
of the settlement are available to the Reserve Bank by one hour after the
scheduled opening of Fedwire on the Reserve Bank's next banking day or such
later time as provided in the Reserve Bank's operating circular; or
(2) Return the item by midnight of the day
it receives the item. If the paying bank fails to settle for or return a
cash item in accordance with this paragraph (a)(4)(i)(B), it shall be subject
to any applicable overdraft charges. Settlement under this paragraph (a)(4)(i)(B)
satisfies the settlement requirements of paragraph (a)(4)(i)(A) of this
section.
(ii) The settlement requirements of paragraphs
(a)(1) and (a)(2) of this section do not apply to a paying bank that settles
in accordance with paragraph (a)(4)(i) of this section.
(5) Settlement with a Reserve Bank under
paragraphs (a)(1) through (4) of this section shall be made by debit to
an account on the Reserve Bank's books, cash, or other form of settlement
to which the Reserve Bank agrees, except that the Reserve Bank may, in its
discretion, obtain settlement by charging the paying bank's reserve or clearing
account. A paying bank may not set off against the amount of a settlement
under this section the amount of a claim with respect to another cash item,
cash letter, or other claim under Sec. 229.34(c) of this title or other
law.
(6) If a cash item is unavailable for return,
the paying bank may send a notice in lieu of return as provided in Sec.
229.30(f) of this title.
(b) Noncash items. A Reserve Bank may require
the paying or collecting bank to which it has presented or sent a noncash
item to pay for the item in cash, but the Reserve Bank may permit payment
by a debit to an account on the Reserve Bank's books or by any of the following
that is in a form acceptable to the Reserve Bank: bank draft, transfer of
funds or bank credit, or any other form of payment authorized by State law.
(c) Nonbank payor. A Reserve Bank may require
a nonbank payor to which it has presented an item to pay for it in cash,
but the Reserve Bank may permit payment in any of the following that is
in a form acceptable to the Reserve Bank: cashier's check, certified check,
or other bank draft or obligation.
(d) Handling of payment. A Reserve Bank may
handle a bank draft or other form of payment it receives in payment of a
cash item as a cash item. A Reserve Bank may handle a bank draft or other
form of payment it receives in payment of a noncash item as either a cash
item or a noncash item.
(e) Liability of Reserve Bank. Except as
set forth in 12 CFR 229.35(b), a Reserve Bank shall not be liable for the
failure of a collecting bank, paying bank, or nonbank payor to pay for an
item, or for any loss resulting from the Reserve Bank's acceptance of any
form of payment other than cash authorized in paragraphs (a), (b), and (c)
of this section. A Reserve Bank that acts in good faith and exercises ordinary
care shall not be liable for the nonpayment of, or failure to realize upon,
a bank draft or other form of payment that it accepts under paragraphs (a),
(b), and (c) of this section.
Sec. 210.10 Time schedule and availability of credits
for cash items and returned checks.
(a) Each Reserve Bank shall include in its
operating circulars a time schedule for each of its offices indicating when
the amount of any cash item or returned check received by it (or sent direct
to another Reserve office for the account of that Reserve Bank) is counted
as reserves for purposes of part 204 of this chapter (Regulation D) and
becomes available for use by the sender or paying or returning bank. The
Reserve Bank shall give either immediate or deferred credit in accordance
with its time schedule to a sender or paying or returning bank other than
a foreign correspondent. A Reserve Bank ordinarily gives credit to a foreign
correspondent only when the Reserve Bank receives payment of the item in
actually and finally collected funds, but, in its discretion, a Reserve
Bank may give immediate or deferred credit in accordance with its time schedule.
(b) Notwithstanding its time schedule, a
Reserve Bank may refuse at any time to permit the use of credit given for
any cash item or returned check, and may defer availability after credit
is received by the Reserve Bank for a period of time that is reasonable
under the circumstances.
Sec. 210.11 Availability of proceeds of noncash
items; time schedule.
(a) Availability of credit. A Reserve Bank
shall give credit to the sender for the proceeds of a noncash item when
it receives payment in actually and finally collected funds (or advice from
another Reserve Bank of such payment to it). The amount of the item is counted
as reserve for purposes of part 204 of this chapter (Regulation D) and becomes
available for use by the sender when the Reserve Bank receives the payment
or advice, except as provided in paragraph (b) of this section.
(b) Time schedule. A Reserve Bank may give
credit for the proceeds of a noncash item subject to payment in actually
and finally collected funds in accordance with a time schedule included
in its operating circulars. The time schedule shall indicate when the proceeds
of the noncash item will be counted as reserve for purposes of part 204
of this chapter (Regulation D) and become available for use by the sender.
A Reserve Bank may, however, refuse at any time to permit the use of credit
given for a noncash item for which the Reserve Bank has not yet received
payment in actually and finally collected funds.
(c) Handling of payment. If a Reserve Bank
receives, in payment for a noncash item, a bank draft or other form of payment
that it elects to handle as a noncash item, the Reserve Bank shall neither
count the proceeds as reserve for purposes of part 204 of this chapter (Regulation
D) nor make the proceeds available for use until it receives payment in
actually and finally collected funds.
Sec. 210.12 Return of cash items and handling of
returned checks.
(a) Return of cash items. A paying bank that
receives a cash item directly or indirectly from a Reserve Bank, other than
for immediate payment over the counter, and that pays for the item as provided
in Sec. 210.9(a) of this subpart, may, before it has finally paid the item,
return the item in accordance with subpart C of part 229, the Uniform Commercial
Code, and its Reserve Bank's operating circular. A paying bank that receives
a cash item directly or indirectly from a Reserve Bank also may return the
item prior to settlement, in accordance with Sec. 210.9(a) and its Reserve
Bank's operating circular. The rules or practices of a clearinghouse through
which the item was presented, or a special collection agreement under which
the item was presented, may not extend these return times, but may provide
for a shorter return time.
(b) Return of checks not handled by Reserve
Banks. A paying bank that receives a check as defined in 12 CFR 229.2(k),
other than directly or indirectly from a Reserve Bank, and that determines
not to pay the check, may send the returned check to its Reserve Bank in
accordance with subpart C of part 229, the Uniform Commercial Code, and
its Reserve Bank's operating Circular. A returning bank may send a returned
check to its Reserve Bank in accordance with subpart C of part 229, the
Uniform Commercial Code, and its Reserve Bank's operating circular.
(c) Paying bank's and returning bank's agreement.
The warranties, authorizations, and agreements made pursuant to this paragraph
may not be disclaimed and are made whether or not the returned check bears
an indorsement of the paying bank or returning bank. By sending a returned
check to a Reserve Bank, the paying bank or returning bank--
(1) Authorizes the receiving Reserve Bank
(and any other Reserve Bank or returning bank to which the returned check
is sent) to handle the returned check subject to this subpart and to the
Reserve Banks' operating circulars;
(2) Makes the warranties set forth in Sec.
229.34 of this title (but this paragraph does not limit any warranty by
a paying or returning bank arising under state law); and
(3) Agrees to indemnify each Reserve Bank
for any loss or expense (including attorneys' fees and expenses of litigation)
resulting from--
(i) The paying or returning bank's lack of
authority to give the authorization in paragraph (c)(1) of this section;
(ii) Any action taken by a Reserve Bank within
the scope of its authority in handling the returned check; or
(iii) Any warranty made by the Reserve Bank
under 12 CFR 229.34.
(d) Warranties by Reserve Bank. By sending
a returned check and receiving settlement or other consideration for it,
a Reserve Bank makes the returning bank warranties as set forth in Sec.
229.34 of this title, subject to the terms of part 229 of this title. The
Reserve Bank shall not have or assume any other liability to the transferee
returning bank, to any subsequent returning bank, to the depository bank,
to the owner of the check, or to any other person, except for the Reserve
Bank's own lack of good faith or failure to exercise ordinary care as provided
in subpart C of part 229 of this title.
(e) Recovery by Reserve Bank. If an action
or proceeding is brought against (or if defense is tendered to) a Reserve
Bank that has handled a returned Check based on--
(1) The alleged failure of the paying or
returning bank to have the authority to give the authorization in paragraph
(c)(1) of this section;
(2) Any action by the Reserve Bank within
the scope of its authority in handling the returned check; or
(3) Any warranty made by the Reserve Bank
under 12 CFR 229.34,
The Reserve Bank may, upon the entry of a final judgment or decree, recover
from the paying bank or returning bank the amount of attorneys' fees and
other expenses of litigation incurred, as well as any amount the Reserve
Bank is required to pay because of the judgment or decree or the tender
of defense, together with interest thereon.
(f) Methods of recovery. The Reserve Bank
may recover the amount stated in paragraph (d) of this section by charging
any account on its books that is maintained or used by the paying or returning
bank (or, if the returning bank is another Reserve Bank, by entering a charge
against the other Reserve Bank through the Interdistrict Settlement Fund),
if--
(1) The Reserve Bank made seasonable written
demand on the paying or returning bank to assume defense of the action or
proceeding; and
(2) The paying or returning bank has not
made any other arrangement for payment that is acceptable to the Reserve
Bank.
The Reserve Bank is not responsible for defending the action or proceeding
before using this method of recovery. A Reserve Bank that has been charged
through the Interdistrict Settlement Fund may recover from the paying or
returning bank in the manner and under the circumstances set forth in this
paragraph. A Reserve Bank's failure to avail itself of the remedy provided
in this paragraph does not prejudice its enforcement in any other manner
of the indemnity agreement referred to in parapraph (c)(3) of this section.
(g) Reserve Bank's responsibility. A Reserve
Bank shall handle a returned check, or a notice of nonpayment, in accordance
with subpart C of part 229 and its operating circular. A Reserve Bank may
permit or require the paying or returning bank to send direct to another
Reserve Bank a returned check with respect to which the depositary bank
is located within the other Reserve Bank's District, in accordance with
Sec. 210.4(b).
(h) Settlement. A subsequent returning bank
or depositary bank shall settle for returned checks in the same manner and
by the same time as for cash items presented for payment under this subpart.
(i) Security interest. To secure any obligation
due or to become due to a Reserve Bank by a paying bank, returning bank,
or prior returning bank under this subpart or subpart C of part 229 of this
title, the paying bank, returning bank, and prior returning bank, by sending
a returned check directly or indirectly to the Reserve Bank, grant to the
Reserve Bank a security interest in all of the paying bank's, returning
bank's, and prior returning bank's assets in the possession of, or held
for the account of, the Reserve Bank. The security interest attaches when
a warranty is breached or any other obligation to the Reserve Bank is incurred.
If the Reserve Bank, in its sole discretion, deems itself insecure and gives
notice thereof to the paying bank, returning bank, or prior returning bank,
or if the paying bank, returning bank, or prior returning bank suspends
payments or is closed, the Reserve Bank may take any action authorized by
law to recover the amount of an obligation, including, but not limited to,
the exercise of rights of set off, the realization on any available collateral,
and any other rights it may have as a creditor under applicable law.
Sec. 210.13 Unpaid items.
(a) Right of recovery. If a Reserve Bank
does not receive payment in actually and finally collected funds for an
item, the Reserve Bank shall recover by charge-back or otherwise the amount
of the item from the sender, prior collecting bank, paying bank, or returning
bank from or through which it was received, whether or not the item itself
can be sent back. In the event of recovery from such a party, no party,
including the owner or holder of the item, shall, for the purpose of obtaining
payment of the amount of the item, have any interest in any reserve balance
or other funds or property in the Reserve Bank's possession of the bank
that failed to make payment in actually and finally collected funds.
(b) Suspension or closing of bank. A Reserve
Bank shall not pay or act on a draft, authorization to charge (including
a charge authorized by Sec. 210.9(a)(5)), or other order on a reserve balance
or other funds in its possession for the purpose of settling for items under
Sec. 210.9 or Sec. 210.12 after it receives notice of suspension or closing
of the bank making the settlement for that bank's own or another's account.
Sec. 210.14 Extension of time limits.
If a bank (including a Reserve Bank) or nonbank
payor is delayed in acting on an item beyond applicable time limits because
of interruption of communication or computer facilities, suspension of payments
by a bank or nonbank payor, war, emergency conditions, failure of equipment,
or other circumstances beyond its control, its time for acting is extended
for the time necessary to complete the action, if it exercises such diligence
as the circumstances require.
Sec. 210.15 Direct presentment of certain warrants.
If a Reserve Bank elects to present direct
to the payor a bill, note, or warrant that is issued and payable by a State
or a political subdivision and that is a cash item not payable or collectible
through a bank: (a) Sections 210.9, 210.12, and 210.13 and the operating
circulars of the Reserve Banks apply to the payor as if it were a paying
bank; (b) Sec. 210.14 applies to the payor as if it were a bank; and (c)
under Sec. 210.9 each day on which the payor is open for the regular conduct
of its affairs or the accommodation of the public is considered a banking
day.
Sec. 210.25 Authority, purpose, and scope.
(a) Authority and purpose. This subpart provides
rules to govern funds transfers through Fedwire, and has been issued pursuant
to the Federal Reserve Act--section 13 (12 U.S.C. 342), paragraph (f) of
section 19 (12 U.S.C. 464), paragraph 14 of section 16 (12 U.S.C. 248(o)),
and paragraphs (i) and (j) of section 11 (12 U.S.C. 248(i) and (j))--and
other laws and has the force and effect of federal law. This subpart is
not a funds-transfer system rule as defined in Section 4A- 501(b) of Article
4A.
(b) Scope. (1) This subpart incorporates
the provisions of Article 4A set forth in appendix B to this subpart. In
the event of an inconsistency between the provisions of the sections of
this subpart and appendix B, to this subpart, the provisions of the sections
of this subpart shall prevail.
(2) Except as otherwise provided in paragraphs
(b)(3) and (b)(4) of this section, this Subpart governs the rights and obligations
of:
(i) Federal Reserve Banks sending or receiving
payment orders;
(ii) Senders that send payment orders directly
to a Federal Reserve Bank;
(iii) Receiving ban
ks that receive payment orders directly from a Federal Reserve Bank;
(iv) Beneficiaries that receive payment for payment orders sent to
a Federal Reserve Bank by means of credit to an account maintained or used
at a Federal Reserve Bank; and
(v) Other parties to a funds transfer any
part of which is carried out through Fedwire to the same extent as if this
subpart were considered a funds-transfer system rule under Article 4A.
(3) This subpart governs a funds transfer
that is sent through Fedwire, as provided in paragraph (b)(2) of this section,
even though a portion of the funds transfer is governed by the Electronic
Fund Transfer Act, but the portion of such funds transfer that is governed
by the Electronic Fund Transfer Act is not governed by this subpart.
(4) In the event that any portion of this
Subpart establishes rights or obligations with respect to the availability
of funds that are also governed by the Expedited Funds Availability Act
or the Board's Regulation CC, Availability of Funds and Collection of Checks,
those provisions of the Expedited Funds Availability Act or Regulation CC
shall apply and the portion of this Subpart, including Article 4A as incorporated
herein, shall not apply.
(c) Operating Circulars. Each Federal Reserve
Bank shall issue an Operating Circular consistent with this Subpart that
governs the details of its funds-transfer operations and other matters it
deems appropriate. Among other things, the Operating Circular may: set cut-off
hours and funds-transfer business days; address available security procedures;
specify format and media requirements for payment orders; identify messages
that are not payment orders; and impose charges for funds- transfer services.
(d) Govenment senders, receiving banks, and
beneficiaries. Except as otherwise expressly provided by the statutes of
the United States, the parties specified in paragraphs (b)(2)(ii) through
(v) of this section include:
(1) A department, agency, instrumentality,
independent establishment, or office of the United States, or a wholly-owned
or controlled Government corporation;
(2) An international organization;
(3) A foreign central bank; and
(4) A department, agency, instrumentality,
independent establishment, or office of a foreign government, or a wholly-owned
or controlled corporation of a foreign government.
Sec. 210.26 Definitions.
As used in this subpart, the following definitions
apply:
(a) Article 4A means article 4A of the Uniform
Commercial Code as set forth in appendix B of this subpart.
(b) As of adjustment means a debit or credit,
for reserve or clearing balance maintenance purposes only, applied to the
reserve or clearing balance of a bank that either sends a payment order
to a Federal Reserve Bank, or that receives a payment order from a Federal
Reserve Bank, in lieu of an interest charge or payment.
(c) Automated clearing house transfer means
any transfer designated as an automated clearing house transfer in a Federal
Reserve Bank Operating Circular.
(d) Beneficiary's bank has the same meaning
as in Article 4A, except that:
(1) A Federal Reserve Bank need not be identified
in the payment order in order to be the beneficiary's bank; and
(2) The term includes a Federal Reserve Bank
when that Federal Reserve Bank is the beneficiary of a payment order.
(e) Fedwire is the funds-transfer system
owned and operated by the Federal Reserve Banks that is used primarily for
the transmission and settlement of payment orders governed by this subpart.
Fedwire does not include the system for making automated clearing house
transfers.
(f) Interdistrict transfer means a funds
transfer involving entries to accounts maintained at two Federal Reserve
Banks.
(g) Intradistrict transfer means a funds
transfer involving entries to accounts maintained at one Federal Reserve
Bank.
(h) Off-line bank means a bank that transmits
payment orders to and receives payment orders from a Federal Reserve Bank
by telephone orally or by other means other than electronic data transmission.
(i) Payment order has the same meaning as
in Article 4A, except that the term does not include automated clearing
house transfers or any communication designated in a Federal Reserve Bank
Operating Circular issued under this Subpart as not being a payment order.
(j) Sender's account, receiving bank's account,
and beneficiary's account mean the reserve, clearing, or other funds deposit
account at a Federal Reserve Bank maintained or used by the sender, receiving
bank, or beneficiary, respectively.
(k) Sender's Federal Reserve Bank and receiving
bank's Federal Reserve Bank mean the Federal Reserve Bank at which the sender
or receiving bank, respectively, maintains or uses an account.
Subpart B--Funds Transfers Through Fedwire
Sec. 210.27 Reliance on identifying number.
(a) Reliance by a Federal Reserve Bank on
number to identify an intermediary bank or beneficiary's bank. A Federal
Reserve Bank may rely on the number in a payment order that identifies the
intermediary bank or beneficiary's bank, even if it identifies a bank different
from the bank identified by name in the payment order, if the Federal Reserve
Bank does not know of such an inconsistency in identification. A Federal
Reserve Bank has no duty to detect any such inconsistency in identification.
(b) Reliance by a Federal Reserve Bank on
number to identify beneficiary. A Federal Reserve Bank, acting as a beneficiary's
bank, may rely on the number in a payment order that identifies the beneficiary,
even if it identifies a person different from the person identified by name
in the payment order, if the Federal Reserve Bank does not know of such
an inconsistency in identification. A Federal Reserve Bank has no duty to
detect any such inconsistency in identification.
Sec. 210.28 Agreement of sender.
(a) Payment of sender's obligation to a Federal
Reserve Bank. A sender (other than a Federal Reserve Bank), by maintaining
or using an account with a Federal Reserve Bank, authorizes the sender's
Federal Reserve Bank to obtain payment for the sender's payment orders by
debiting the amount of the payment order from the sender's account.
(b) Overdrafts. (1) A sender does not have
the right to an overdraft in the sender's account. In the event an overdraft
is created, the overdraft shall be due and payable immediately without the
need for a demand by the Federal Reserve Bank, at the earliest of the following
times:
(i) At the end of the funds-transfer business
day;
(ii) At the time the Federal Reserve Bank,
in its sole discretion, deems itself insecure and gives notice thereof to
the sender; or
(iii) At the time the sender suspends payments
or is closed.
(2) The sender shall have in its account,
at the time the overdraft is due and payable, a balance of actually and
finally collected funds sufficient to cover the aggregate amount of all
its obligations to the Federal Reserve Bank, whether the obligations result
from the execution of a payment order or otherwise.
(3) To secure any overdraft, as well as any
other obligation due or to become due to its Federal Reserve Bank, each
sender, by sending a payment order to a Federal Reserve Bank that is accepted
by the Federal Reserve Bank, grants to the Federal Reserve Bank a security
interest in all of the sender's assets in the possession of, or held for
the account of, the Federal Reserve Bank. The security interest attaches
when an overdraft, or any other obligation to the Federal Reserve Bank,
becomes due and payable.
(4) A Federal Reserve Bank may take any action
authorized by law to recover the amount of an overdraft that is due and
payable, including, but not limited to, the exercise of rights of set off,
the realization on any available collateral, and any other rights it may
have as a creditor under applicable law.
(5) If a sender, other than a government
sender described in Sec. 210.25(d), incurs an overdraft in its account as
a result of a debit to the account by a Federal Reserve Bank under paragraph
(a) of this section, the account will be subject to any applicable overdraft
charges, regardless of whether the overdraft has become due and payable.
A Federal Reserve Bank may debit a sender's account under paragraph (a)
of this section immediately on acceptance of the payment order.
(c) Review of payment orders. A sender, by
sending a payment order to a Federal Reserve Bank, agrees that for the purposes
of sections 4A- 204(a) and 4A-304 of Article 4A, a reasonable time to notify
a Federal Reserve Bank of the relevant facts concerning an unauthorized
or erroneously executed payment order is within 30 calendar days after the
sender receives notice that the payment order was accepted or executed,
or that the sender's account was debited with respect to the payment order.
Sec. 210.29 Agreement of receiving bank.
(a) Payment. A receiving bank (other than
a Federal Reserve Bank) that receives a payment order from its Federal Reserve
Bank authorizes that Federal Reserve Bank to pay for the payment order by
crediting the amount of the payment order to the receiving bank's account.
(b) Off-line banks. An off-line bank that
does not expressly notify its Federal Reserve Bank in writing that it maintains
an account for another bank warrants to that Federal Reserve Bank that the
off-line bank does not act as an intermediary bank or a beneficiary's bank
with respect to payment orders received through Fedwire for a beneficiary
that is a bank.
Sec. 210.30 Payment orders.
(a) Rejection. A sender shall not send a
payment order to a Federal Reserve Bank unless authorized to do so by the
Federal Reserve Bank. A Federal Reserve Bank may reject, or impose conditions
that must be satisfied before it will accept, a payment order for any reason.
(b) Selection of an intermediary bank. For
an interdistrict transfer, a Federal Reserve Bank is authorized and directed
to execute a payment order through another Federal Reserve Bank. A sender
shall not send a payment order to a Federal Reserve Bank that requires the
Federal Reserve Bank to issue a payment order to an intermediary bank (other
than a Federal Reserve Bank) unless that intermediary bank is designated
in the sender's payment order. A sender shall not send to a Federal Reserve
Bank a payment order instructing use by a Federal Reserve Bank of a funds-transfer
system or means of transmission other than Fedwire, unless the Federal Reserve
Bank agrees with the sender in writing to follow such instructions.
(c) Same-day execution. A sender shall not
issue a payment order that instructs a Federal Reserve Bank to execute the
payment order on a funds-transfer business day that is later than the funds-transfer
business day on which the order is received by the Federal Reserve Bank,
unless the Federal Reserve Bank agrees with the sender in writing to follow
such instructions.
Sec. 210.31 Payment by a Federal Reserve Bank to
a receiving bank or beneficiary.
(a) Payment to a receiving bank. Payment
of a Federal Reserve Bank's obligation to pay a receiving bank (other than
a Federal Reserve Bank) occurs at the earlier of the time when the amount
of the payment order is credited to the receiving bank's account or when
the payment order is sent to the receiving bank.
(b) Payment to a beneficiary. Payment by
a Federal Reserve Bank to a beneficiary of a payment order, where the Federal
Reserve Bank is the beneficiary's bank, occurs at the earlier of the time
when the amount of the payment order is credited to the beneficiary's account
or when notice of the credit is sent to the beneficiary.
Sec. 210.32 Federal Reserve Bank liability; payment
of interest.
(a) Damages. In connection with its handling
of a payment order under this subpart, a Federal Reserve Bank shall not
be liable to a sender, receiving bank, beneficiary, or other Federal Reserve
Bank, governed by this subpart, for any damages other than those payable
under Article 4A. A Federal Reserve Bank shall not agree to be liable to
a sender, receiving bank, beneficiary, or other Federal Reserve Bank for
consequential damages under section 4A-305(d) of Article 4A.
(b) Payment of interest. (1) A Federal Reserve
Bank, in its discretion, may satisfy its obligation, or that of another
Federal Reserve Bank, to pay compensation in the form of interest under
Article 4A by--
(i) Providing an as of adjustment to its
sender, its receiving bank, or its beneficiary, as provided in the Federal
Reserve Bank's Operating Circular, in an amount equal to the amount on which
interest is to be calcuated multiplied by the number of days for which interest
is to be calculated; or
(ii) Paying compensation in the form of interest
to its sender, its receiving bank, its beneficiary, or another party to
the funds transfer that is entitled to such payment, in an amount that is
calculated in accordance with section 4A-506 of Article 4A.
(2) If the sender or receiving bank that
is the recipient of an as of adjustment or an interest payment is not the
party entitled to compensation under Article 4A, the sender or receiving
bank shall pass through the benefit of the as of adjustment or interest
payment by making an interest payment, as of the day the as of adjustment
or interest payment is effected, to the party entitled to compensation.
The interest payment that is made to the party entitled to compensation
shall not be less than the value of the as of adjustment or interest payment
that was provided by the Federal Reserve Bank to the sender or receiving
bank. The party entitled to compensation may agree to accept compensation
in a form other than a direct interest payment, provided that such an alternative
form of compensation is not less than the value of the interest payment
that otherwise would be made.
(c) Nonwaiver of right of recovery. Nothing
in this subpart or any Operating Circular issued hereunder shall constitute,
or be construed as constituting, a waiver by a Federal Reserve Bank of a
cause of action for recovery under any applicable law of mistake and restitution.
Appendix A to Subpart B--Commentary
The Commentary provides background material
to explain the intent of the Board of Governors of the Federal Reserve System
(Board) in adopting a particular provision in the subpart and to help readers
interpret that provision. In some comments, examples are offered. The Commentary
constitutes an official Board interpretation of subpart B of this part.
Commentary is not provided for every provision of subpart B of this part,
as some provisions are self-explanatory.
Section 210.25--Authority, Purpose, and Scope
(a) Authority and purpose. Section 210.25(a)
states that the purpose of subpart B of this part is to provide rules to
govern funds transfers through Fedwire and recites the Board's rulemaking
authority for this subpart. Subpart B of this part is federal law and is
not a ``funds- transfer system rule,'' as defined in section 4A-501(b) of
Article 4A, Funds Transfers, of the Uniform Commercial Code (UCC), as set
forth in appendix B of this subpart. Certain provisions of Article 4A may
not be varied by a funds-transfer system rule, but under section 4A-107,
regulations of the Board and Operating Circulars of the Federal Reserve
Banks supersede inconsistent provisions of Article 4A to the extent of the
inconsistency. In addition, regulations of the Board may preempt inconsistent
provisions of state law. Accordingly, subpart B of this part supersedes
or preempts inconsistent provisions of state law. It does not affect state
law governing funds transfers that does not conflict with the provisions
of subpart B of this part, such as Article 4A, as enacted in any state,
as it applies to parties to funds transfers through Fedwire whose rights
are not governed by subpart B of this part.
(b) Scope. (1) Subpart B of this part incorporates
the provisions of Article 4A set forth in appendix B of this subpart. The
provisions set forth expressly in the sections of subpart B of this part
supersede or preempt any inconsistent provisions of Article 4A as set forth
in appendix B of this subpart or as enacted in any state. The official comments
to Article 4A are not incorporated in subpart B of this part or this Commentary
to subpart B of this part, but the official comments may be useful in interpreting
Article 4A. Because section 4A-105 refers to other provisions of the Uniform
Commercial Code, e.g., definitions in Article 1 of the UCC, these other
provisions of the UCC, as approved by the National Conference of Commissioners
on Uniform State Laws and the American Law Institute, from time to time,
are also incorporated in subpart B of this part. Subpart B of this part
applies to any party to a Fedwire funds transfer that is in privity with
a Federal Reserve Bank. These parties include a sender (bank or nonbank)
that sends a payment order directly to a Federal Reserve Bank, a receiving
bank that receives a payment order directly from a Federal Reserve Bank,
and a beneficiary that receives credit to an account that it uses or maintains
at a Federal Reserve Bank for a payment order sent to a Federal Reserve
Bank. Other parties to a funds transfer are covered by this subpart to the
same extent that this subpart would apply to them if this subpart were a
``funds-transfer system rule'' under Article 4A that selected subpart B
of this part as the governing law.
(2) The scope of the applicability of a funds-transfer
system rule under Article 4A is specified in section 4A-501(b), and the
scope of the choice of law provision is specified in section 4A-507(c).
Under section 4A-507(c), a choice of law provision is binding on the participants
in a funds-transfer system and certain other parties having notice that
the funds-transfer system might be used for the funds transfer and of the
choice of law provision. The Uniform Commercial Code provides that a person
has notice when the person has actual knowledge, receives notification or
has reason to know from all the facts and circumstances known to the person
at the time in question. (See UCC section 1-201(25).) However, under sections
4A-507(b) and 4A-507(d), a choice of law by agreement of the parties takes
precedence over a choice of law made by funds-transfer system rule.
(3) If originators, receiving banks, and
beneficiaries that are not in privity with a Federal Reserve Bank have the
notice contemplated by section 4A-507(c) or if those parties agree to be
bound by subpart B of this part, subpart B of this part generally would
apply to payment orders between those remote parties, including participants
in other funds-transfer systems. For example, a funds transfer may be sent
from an originator's bank through a funds-transfer system other than Fedwire
to a receiving bank which, in turn, sends a payment order through Fedwire
to execute the funds transfer. Similarly, a Federal Reserve Bank may execute
a payment order through Fedwire to a receiving bank that sends it through
a funds-transfer system other than Fedwire to a beneficiary's bank. In the
first example, if the originator's bank has notice that Fedwire may be used
to effect part of the funds transfer, the sending of the payment order through
the other funds-transfer system to the receiving bank will be governed by
subpart B of this part unless the parties to the payment order have agreed
otherwise. In the second example, if the beneficiary's bank has notice that
Fedwire may be used to effect part of the funds transfer, the sending of
the payment order to the beneficiary's bank through the other funds-transfer
system will be governed by subpart B of this part unless the parties have
agreed otherwise. In both cases, the other funds-transfer system's rules
would also apply to, at a minimum, the portion of these funds transfers
going through that funds-transfer system. Because subpart B of this part
is federal law, to the extent of any inconsistency, subpart B of this part
will take precedence over any funds-transfer system rule applicable to the
remote sender or receiving bank or to a Federal Reserve Bank. If remote
parties to a funds transfer, a portion of which is sent through Fedwire,
have expressly selected by agreement a law other than subpart B of this
part under section 4A-507(b), subpart B of this part would not take precedence
over the choice of law made by the agreement even though the remote parties
had notice that Fedwire may be used and of the governing law. (See 4A-507(d)).
In addition, subpart B of this part would not apply to a funds transfer
sent through another funds-transfer system where no Federal Reserve Bank
handles the funds transfer, even though settlement for the funds transfer
is made by means of a separate net settlement or funds transfer through
Fedwire.
(4) Under section 4A-108, Article 4A does
not apply to a funds transfer, any part of which is governed by the Electronic
Fund Transfer Act (15 U.S.C. 1693 et seq.). Fedwire funds transfers to or
from consumer accounts are exempt from the Electronic Fund Transfer Act
and Regulation E (12 CFR part 205). A funds transfer from a consumer originator
or a funds transfer to a consumer beneficiary could be carried out in part
through Fedwire and in part through an automated clearing house or other
means that is subject to the Electronic Fund Transfer Act or Regulation
E. In these cases, subpart B of this part would not govern the portion of
the funds transfer that is governed by the Electronic Fund Transfer Act
or Regulation E. (See Commentary to Sec. 210.26(i) ``payment order''.)
(5) Finally, section 4A-404(a) provides that
a beneficiary's bank is obliged to pay the amount of a payment order to
the beneficiary on the payment date unless acceptance of the payment order
occurs on the payment date after the close of the funds-transfer business
day of the bank. The Expedited Funds Availability Act provides that funds
received by a bank by wire transfer shall be available for withdrawal not
later than than the banking day after the business day on which such funds
are received (12 U.S.C. 4002(a)). That Act also preempts any provision of
state law that was not effective on September 1, 1989 that is inconsistent
with that Act or its implementing Regulation CC (12 CFR part 229). Accordingly,
the Expedited Funds Availability Act and Regulation CC may preempt section
4A-404(a) as enacted in any state. In order to ensure that section 4A-404(a),
or other provisions of Article 4A, as incorporated in subpart B of this
part, do not take precedence over provisions of the Expedited Funds Availability
Act, this section provides that where subpart B of this part establishes
rights or obligations that are also governed by the Expedited Funds Availability
Act or Regulation CC, the Expedited Funds Availability Act or Regulation
CC provision shall apply and subpart B of this part shall not apply.
(c) Operating Circulars. The Federal Reserve
Banks issue Operating Circulars consistent with this Subpart that contain
additional provisions applicable to payment orders sent through Fedwire.
Under section 4A-107, these Operating Circulars supersede inconsistent provisions
of Article 4A, as set forth in appendix B and as enacted in any state. These
Operating Circulars are not funds-transfer system rules, but, by their terms,
they are binding on all parties covered by this Subpart.
(d) Government senders, receiving banks,
and beneficiaries. This section clarifies that unless a statute of the United
States provides otherwise, subpart B of this part applies to governmental
entities, domestic or foreign, including foreign central banks as specified
in paragraph (b)(1) of this section.
Section 210.26--Definitions
Article 4A defines many terms (e.g., beneficiary,
intermediary bank, receiving bank, security procedure) used in this subpart.
These terms are defined or listed in sections 4A-103 through 4A-105. These
terms, such as the term bank (defined in section 4A-105(d)(2)), may differ
from comparable terms in subpart A of this part. As subpart B of this part
incorporates consistent provisions of Article 4A, it incorporates these
definitions unless these terms are expressly defined otherwise in subpart
B of this part. This subpart modifies the definitions of two Article 4A
terms, beneficiary's bank and payment order. This subpart also defines terms
not defined in Article 4A.
(a) Article 4A. Article 4A means the version
of that article of the Uniform Commercial Code set forth in appendix B of
this subpart. It does not refer to the law of any particular state unless
the context indicates otherwise. Subject to the express provisions of this
Subpart, this version of Article 4A is incorporated into this Subpart and
made federal law for transactions covered by this subpart.
(b) As of adjustments. As of adjustments
are memorandum items that affect a bank's reserve or clearing balance for
the purpose of meeting the required balance, but do not represent funds
that can be used for other purposes. As discussed in the Commentary to Sec.
210.32(b), the Federal Reserve Banks generally provide as of adjustments
as a means of effecting interest payments or charges.
(d) Beneficiary's bank. The definition of
beneficiary's bank in subpart B of this part differs from the section 4A-103(a)(3)
definition. The subpart B definition clarifies that where a Federal Reserve
Bank functions as the beneficiary's bank, it need not be identified in the
payment order as the beneficiary's bank and that a Federal Reserve Bank
that receives a payment order as beneficiary is also the beneficiary's bank
with respect to that payment order.
(e) Fedwire. Fedwire refers to the funds-transfer
system owned and operated by the Federal Reserve Banks that is governed
by this Subpart. The term does not refer to any particular computer, telecommunications
facility, or funds transfer, but to the system as a whole, which may include
transfers by telephone or by written instrument in particular circumstances.
Fedwire does not include the system used for automated clearing house transfers.
(h) Off-line bank. Most Fedwire payment orders
are transmitted electronically from a sender to a Federal Reserve Bank or
from a Federal Reserve Bank to a receiving bank. Banks transmitting payment
orders to Federal Reserve Banks electronically are often referred to as
on-line banks. Some Fedwire participants, however, transmit payment orders
to a Federal Reserve Bank or receive payment orders from a Federal Reserve
Bank orally by telephone, or, in unusual circumstances, in writing. A bank
that does not use either a terminal or a computer that links it electronically
to a terminal or computer at its Federal Reserve Bank to send payment orders
through Fedwire is an off-line bank.
(i) Payment order. (1) The definition of
payment order in subpart B of this part differs from the section 4A-103(a)(1)
definition. The subpart B definition clarifies that, for the purposes of
subpart B of this part, automated clearing house transfers and certain messages
that are transmitted through Fedwire are not payment orders. Federal Reserve
Banks and banks participating in Fedwire send various types of messages,
relating to payment orders or to other matters, through Fedwire that are
not intended to be payment orders. Under the subpart B definition, these
messages, and messages involved with automated clearing house transfers,
are not payment orders and therefore are not governed by this subpart. The
Operating Circulars of the Federal Reserve Banks specify those messages
that may be transmitted through Fedwire but that are not payment orders.
(2) In some cases, messages sent through
Fedwire, such as certain requests for credit transfer, may be payment orders
under Article 4A, but are not treated as payment orders under subpart B
because they are not an instruction to a Federal Reserve Bank to pay money.
(3) This subpart and Article 4A govern a
payment order even though the originator's or beneficiary's account may
be a consumer account established primarily for personal, family, or household
purposes. Under section 4A-108, Article 4A does not apply to a funds transfer
any part of which is governed by the Electronic Fund Transfer Act. That
Act, and Regulation E implementing it, do not apply to funds transfers through
Fedwire (see 15 U.S.C. 1693a(6)(B) and 12 CFR 205.3(b)). Thus, this Subpart
applies to all funds transfers through Fedwire even though some such transfers
involve originators or beneficiaries that are consumers. (See also Sec.
210.25(b) and accompanying Commentary.)
Section 210.27--Reliance on Identifying Number
(a) Reliance by a Federal Reserve Bank on
number to identify intermediary bank or beneficiary's bank. Section 4A-208
provides that a receiving bank, such as a Federal Reserve Bank, may rely
on the routing number of an intermediary bank or the beneficiary's bank
specified in a payment order as identifying the appropriate intermediary
bank or beneficiary's bank, even if the payment order identifies another
bank by name, provided that the receiving bank does not know of the inconsistency.
Under section 4A-208(b)(2), if the sender of the payment order is not a
bank, a receiving bank may rely on the number only if the sender had notice
before the receiving bank accepted the sender's order that the receiving
bank might rely on the number. This section provides this notice to entities
that are not banks, such as the Department of the Treasury, that send payment
orders directly to a Federal Reserve Bank.
(b) Reliance by a Federal Reserve Bank on
number to identify beneficiary. Section 4A-207 provides that a beneficiary's
bank, such as a Federal Reserve Bank, may rely on the number identifying
a beneficiary, such as the beneficiary's account number, specified in a
payment order as identifying the appropriate beneficiary, even if the payment
order identifies another beneficiary by name, provided that the beneficiary's
bank does not know of the inconsistency. Under section 4A- 207(c)(2), if
the originator is not a bank, an originator is not obliged to pay for a
payment order if the originator did not have notice that the beneficiary's
bank might rely on the identifying number and the person paid on the basis
of the identifying number was not entitled to receive payment. This section
of subpart B provides this notice to entities that are not banks, such as
the Department of the Treasury, that are originators of payment orders sent
directly by the originators to a Federal Reserve Bank, where that Federal
Reserve Bank or another Federal Reserve Bank is the beneficiary's bank (see
also section 4A- 402(b), providing that a sender must pay a beneficiary's
bank for a payment order accepted by the beneficiary's bank).
Section 210.28--Agreement of Sender
(a) Payment of sender's obligation to a Federal
Reserve Bank. When a sender issues a payment order to a Federal Reserve
Bank and the Federal Reserve Bank issues a conforming order implementing
the sender's payment order, under section 4A-403, the sender is indebted
to the Federal Reserve Bank for the amount of the payment order. A sender,
other than a Federal Reserve Bank, that maintains or uses an account at
a Federal Reserve Bank authorizes the Federal Reserve Bank to debit that
account so that the Federal Reserve Bank can obtain payment for the payment
order.
(b) Overdrafts. (1) In some cases, debits
to a sender's account will create an overdraft in the sender's account.
The Board and the Federal Reserve Banks have established policies concerning
when a Federal Reserve Bank will permit a bank to incur an overdraft in
its account at a Federal Reserve Bank. These policies do not give a bank
or other sender a right to an overdraft in its account. Subpart B clarifies
that a sender does not have a right to such an overdraft. If an overdraft
arises, it becomes immediately due and payable at the earliest of: The end
of the funds-transfer business day of the Federal Reserve Bank; the time
the Federal Reserve Bank in its sole discretion, deems itself insecure and
gives notice to the sender; or the time that the sender suspends payments
or is closed by governmental action, such as the appointment of a receiver.
In some cases, a Federal Reserve Bank extends its Fedwire operations beyond
its cut-off hour for that funds-transfer business day. For the purposes
of this section, unless otherwise specified by the Federal Reserve Bank
making such an extension, an overdraft becomes due and payable at the end
of the extended operating hours. An overdraft becomes due and payable prior
to a Federal Reserve Bank's cut-off hour if the Federal Reserve Bank deems
itself insecure and gives notice to the sender. Notice that the Federal
Reserve Bank deems itself insecure may be given in accordance with the provisions
on notice in section 1-201(27) of the UCC, in accordance with any other
applicable law or agreement, or by any other reasonable means. An overdraft
also becomes due and payable at the time that a bank is closed or suspends
payments. For example, an overdraft becomes due and payable if a receiver
is appointed for the bank or the bank is prevented from making payments
by governmental order. The Federal Reserve Bank need not make demand on
the sender for the overdraft to become due and payable.
(2) A sender must cover any overdraft and
any other obligation of the sender to the Federal Reserve Bank by the time
the overdraft becomes due and payable. By sending a payment order to a Federal
Reserve Bank, the sender grants a security interest to the Federal Reserve
Bank in any assets of the sender held by, or for the account of, the Federal
Reserve Bank in order to secure all obligations due or to become due to
the Federal Reserve Bank. The security interest attaches when the overdraft,
or other obligation of the sender to the Federal Reserve Bank, becomes due
and payable. The security interest does not apply to assets held by the
sender as custodian or trustee for the sender's customers or third parties.
Once an overdraft is due and payable, a Federal Reserve Bank may exercise
its right of set off, liquidate collateral, or take other similar action
to satisfy the overdrafting bank's obligation owed to the Federal Reserve
Bank.
(c) Review of payment orders. (1) Under section
4A-204, a receiving bank is required to refund the principal amount of an
unauthorized payment order that the sender was not obliged to pay, together
with interest on the refundable amount calculated from the date that the
receiving bank received payment to the date of the refund. The sender is
not entitled to compensation in the form of interest if the sender fails
to exercise ordinary care to determine that the order was not authorized
and to notify the receiving bank within a reasonable period of time after
the sender receives a notice that the payment order was accepted or that
the sender's account was debited with respect to the order. Similarly, under
section 4A-304, if a sender of a payment order that was erroneously executed
does not notify the bank receiving the payment order within a reasonable
time, the bank is not liable to the sender for compensation in the form
of interest on any amount refundable to the sender. Section 210.28(c) establishes
30 calendar days as the reasonable period of time for the purposes of these
provisions of Article 4A.
(2) Section 4A-505 provides that a customer
must object to a debit to its account by a receiving bank within one year
after the customer received notification reasonably identifying the payment
order. Subpart B of this part does not vary this one-year period.
Section 210.29--Agreement of Receiving Bank
(b) Off-line banks. (1) Generally, an on-line
bank receiving payment orders or advices of credit for payment orders from
a Federal Reserve Bank receives the payment orders or advices electronically
a short time after the corresponding payment orders are received by the
on-line bank's Federal Reserve Bank. An off-line bank receiving payment
orders or advices of credit from a Federal Reserve Bank does not have an
electronic connection with the Federal Reserve Bank; therefore, payment
orders or advices are transmitted either by telephone on the day the payment
order is received by the receiving bank's Federal Reserve Bank, or sent
by courier or mail along with the off-line bank's daily account statement,
on the funds-transfer business day following the day the payment order is
received by the off-line bank's Federal Reserve Bank.
(2) Under section 4A-302(a)(2), a Federal
Reserve Bank must transmit payment orders at a time and by means reasonably
necessary to allow payment to the beneficiary on the payment date, or as
soon thereafter as is feasible. Therefore, where an off-line receiving bank
is an intermediary bank or beneficiary's bank in a payment order, its Federal
Reserve Bank attempts to transmit the payment order to the off-line bank
by telephone on the day the payment order is received by the Federal Reserve
Bank. A Federal Reserve Bank can generally identify these payment orders
from the type code designated in the payment order.
(3) Under section 4A-404(b), if a payment
order instructs payment to the account of the beneficiary, the beneficiary's
bank must notify the beneficiary of the receipt of a payment order before
midnight of the next funds-transfer business day following the payment date.
Where an off-line bank is the beneficiary of a payment order, telephone
notice by a Federal Reserve Bank to the off-line bank of the receipt of
the order is not required by Article 4A because the Federal Reserve Bank
sends notice to the off-line bank by courier or mail, along with its daily
account statement, on the day after the payment order is received by its
Federal Reserve Bank. Payment orders for which an off-line bank is the beneficiary
of the order are generally designated as settlement transactions.
(4) If an off-line receiving bank maintains
an account for another bank, the off-line bank may receive payment orders
designated as settlement transactions in its capacity as beneficiary's bank
or intermediary bank. A Federal Reserve Bank cannot readily distinguish
these payment orders from settlement transactions for which the off-line
bank is the beneficiary of the order. If an off-line bank notifies its Federal
Reserve Bank that it maintains an account for another bank, the Federal
Reserve Bank will attempt to telephone the off-line bank with respect to
all settlement transactions received by such bank, whether the off-line
bank is the beneficiary, the beneficiary's bank, or an intermediary bank
in the payment order. Under this section, an off-line bank that does not
expressly notify its Federal Reserve Bank in writing that it maintains an
account for another bank warrants to that Federal Reserve Bank that it does
not act as an intermediary bank or a beneficiary's bank for a bank beneficiary
with respect to payment orders received through Fedwire.
Section 210.30--Payment Orders
(a) Rejection. (1) A sender must make arrangements
with its Federal Reserve Bank before it can send payment orders to the Federal
Reserve Bank. Federal Reserve Banks reserve the right to reject or impose
conditions on the acceptance of payment orders for any reason. For example,
a Federal Reserve Bank might reject or impose conditions on accepting a
payment order where a sender does not have sufficient funds in its account
with the Federal Reserve Bank to cover the amount of the sender's payment
order and other obligations of the sender due or to become due to the Federal
Reserve Bank. A Federal Reserve Bank may require a sender to execute a written
agreement concerning security procedures or other matters before the sender
may send payment orders to the Federal Reserve Bank.
(b) Selection of an intermediary bank. (1)
Under section 4A-302, if a receiving bank (other than a beneficiary's bank),
such as a Federal Reserve Bank, accepts a payment order, it must issue a
payment order that complies with the sender's order. The sender's order
may include instructions concerning an intermediary bank to be used that
must be followed by a receiving bank (see section 4A-302(a)(1)). If the
sender does not designate any intermediary bank in its payment order, the
receiving bank may select an intermediary bank through which the sender's
payment order can be expeditiously issued to the beneficiary's bank so long
as the receiving bank exercises ordinary care in selecting the intermediary
bank (see section 4A-302(b)).
(2) This section provides that in an interdistrict
transfer, a Federal Reserve Bank is authorized and directed to select another
Federal Reserve Bank as an intermediary bank. A sender may, however, instruct
a Federal Reserve Bank to use a particular intermediary bank by designating
that bank as the bank to be credited by that Federal Reserve Bank (or the
second Federal Reserve Bank in the case of an interdistrict transfer) in
its payment order, in which case the Federal Reserve Bank will send the
payment order to that bank if that bank receives payment orders through
Fedwire. A sender may not instruct a Federal Reserve Bank to use its discretion
to select an intermediary bank other than a Federal Reserve Bank or an intermediary
bank designated by the sender. In addition, a sender may not instruct a
Federal Reserve Bank to use a funds-transfer system or means of transmission
other than Fedwire unless the sender and the Federal Reserve Bank agree
in writing to the use of the funds-transfer system or means of transmission.
(c) Same-day execution. Generally, Fedwire
is a same-day value transfer system through which funds may be transferred
from the originator to the beneficiary on the same funds-transfer business
day. A sender may not send a payment order to a Federal Reserve Bank that
specifies an execution date or payment date later than the day on which
the payment order is issued, unless the sender of the order and the Federal
Reserve Bank agree in writing to the arrangement.
Section 210.31--Payment by a Federal Reserve Bank to a Receiving Bank or
Beneficiary
(a) Payment to a receiving bank. (1) Under
section 4A-402, when a Federal Reserve Bank executes a sender's payment
order by issuing a conforming order to a receiving bank that accepts the
payment order, the Federal Reserve Bank must pay the receiving bank the
amount of the payment order. Section 210.29(a) authorizes a Federal Reserve
Bank to make the payment by crediting the account at the Federal Reserve
Bank maintained or used by the receiving bank. Section 210.31(a) provides
that the payment occurs when the receiving bank's account is credited or
when the payment order is sent by the Federal Reserve Bank to the receiving
bank, whichever is earlier. Ordinarily, payment will occur during the funds-transfer
business day a short time after the payment order is received, even if the
receiving bank is an off-line bank. This credit is final and irrevocable
when made and constitutes final settlement under section 4A-403. Payment
does not waive a Federal Reserve Bank's right of recovery under the applicable
law of mistake and restitution (see Sec. 210.32(c)), affect a Federal Reserve
Bank's right to apply the funds to any obligation due or to become due to
the Federal Reserve Bank, or affect legal process or claims by third parties
on the funds.
(2) This section on final payment does not
apply to settlement for payment orders between Federal Reserve Banks. These
payment orders are settled by other means.
(b) Payment to a beneficiary. Section 210.31(b)
specifies when a Federal Reserve Bank makes payment to a beneficiary for
which it is the beneficiary's bank. As in the case of payment to a receiving
bank, this payment occurs at the earlier of the time that the Federal Reserve
Bank credits the beneficiary's account or sends notice of the credit to
the beneficiary, and is final and irrevocable when made.
Section 210.32--Federal Reserve Bank Liability; Payment of Interest
(a) Damages. (1) Under section 4A-305(d),
damages for failure of a receiving bank to execute a payment order that
it was obligated to execute by express agreement are limited to expenses
in the transaction and incidental expenses and interest and do not include
additional damages, including consequential damages, unless they are provided
for in an express written agreement of the receiving bank. This section
clarifies that in connection with the handling of payment orders, Federal
Reserve Banks may not agree to be liable for consequential damages under
this provision and shall not be liable for damages other than those that
may be due under Article 4A to parties governed by this subpart. Any agreement
in conflict with these provisions would not be effective, because it would
be in violation of subpart B.
(2) This section does not affect the ability
of other parties to a funds transfer to agree to be liable for consequential
damages, the liability of a Federal Reserve Bank under section 4A-404, or
the liability to parties governed by subpart B for claims not based on the
handling of a payment order under this subpart.
(b) Payment of interest. (1) Under Article
4A, a Federal Reserve Bank may be required to pay compensation in the form
of interest to another party in connection with its handling of a funds
transfer. For example, payment of compensation in the form of interest is
required in certain situations pursuant to sections 4A-204 (relating to
refund of payment and duty of customer to report with respect to unauthorized
payment order), 4A-209 (relating to acceptance of payment order), 4A-210
(relating to rejection of payment order), 4A-304 (relating to duty of sender
to report erroneously executed payment order), 4A-305 (relating to liability
for late or improper execution or failure to execute a payment order), 4A-402
(relating to obligation of sender to pay receiving bank), and 4A-404 (relating
to obligation of beneficiary's bank to pay and give notice to beneficiary).
Under section 4A-506(a), the amount of such interest may be determined by
agreement between the sender and receiving bank or by funds-transfer system
rule. If there is no such agreement, under section 4A-506(b), the amount
of interest is based on the Federal funds rate. Section 210.32(b) provides
two means by which Federal Reserve Banks may provide compensation in the
form of interest: through an as of adjustment or through an explicit interest
payment.
(2) An as of adjustment is a memorandum credit
or debit that is applied to the reserve or clearing balance of the bank
that sent the payment order to, or received the payment order from, a Federal
Reserve Bank. Federal Reserve Banks generally provide as of adjustments
to correct errors and recover float. An as of adjustment differs from a
debit or credit to an account in that it does not affect the actual balance
of the account; it only affects the balance for reserve or clearing balance
computation purposes. These adjustments affect the level of reserve or clearing
balances that the bank must fund by other means and are therefore an effective
substitute for explicit interest payments.
(3) A party that sent or received a payment
order from a Federal Reserve Bank may be unable to make use of an as of
adjustment as compensation in lieu of explicit interest. For example, if
the sender or receiving bank is not subject to reserve requirements or satisfies
its reserve requirements with vault cash, the as of adjustment could not
be used to free other balances for investment. A Federal Reserve Bank may,
in its discretion, provide compensation by an explicit interest payment
rather than through an as of adjustment. Interest would be calculated in
accordance with the procedures specified in section 4A-506(b). Similarly,
compensation in the form of explicit interest will be paid to Government
senders, receiving banks, or beneficiaries described in Sec. 210.25(d) if
they are entitled to interest under this subpart. A Federal Reserve Bank
may also, in its discretion, pay explicit interest directly to a remote
party to a Fedwire funds transfer that is entitled to interest, rather than
providing compensation to its direct sender or receiving bank.
(4) If a bank that received an as of adjustment
or explicit interest payment is not the party entitled to interest compensation
under Article 4A, the bank must pass the benefit of the as of adjustment
or explicit interest payment made to it to the party that is entitled to
compensation in the form of interest from a Federal Reserve Bank. The benefit
may be passed on either in the form of a direct payment of interest or in
the form of a compensating balance, if the party entitled to interest agrees
to accept the other form of compensation, and the value of the compensating
balance is at least equivalent to the value of the explicit interest that
otherwise would have been provided.
(c) Nonwaiver of right of recovery. Several
sections of Article 4A allow for a party to a funds transfer to make a claim
pursuant to the applicable law of mistake and restitution. Nothing in subpart
B of this part or any Operating Circular issued under subpart B of this
part waives any such claim. A Federal Reserve Bank, however, may waive such
a claim by express written agreement in order to settle litigation or for
other purposes.
Appendix B to Subpart B--Article 4A, Funds Transfers
Part 1--Subject Matter and Definitions
Section 4A-101. Short Title
This Article may be cited as Uniform Commercial
Code--Funds Transfers.
Section 4A-102. Subject Matter
Except as otherwise provided in section 4A-108, this Article applies to
funds transfers defined in section 4A-104.
Section 4A-103. Payment Order--Definitions
(a) In this Article:
(1) Payment order means an instruction of
a sender to a receiving bank, transmitted orally, electronically, or in
writing, to pay, or to cause another bank to pay, a fixed or determinable
amount of money to a beneficiary if:
(i) The instruction does not state a condition
to payment to the beneficiary other than time of payment,
(ii) The receiving bank is to be reimbursed
by debiting an account of, or otherwise receiving payment from, the sender,
and
(iii) The instruction is transmitted by the
sender directly to the receiving bank or to an agent, funds-transfer system,
or communication system for transmittal to the receiving bank.
(2) Beneficiary means the person to be paid
by the beneficiary's bank.
(3) Beneficiary's bank means the bank identified
in a payment order in which an account of the beneficiary is to be credited
pursuant to the order or which otherwise is to make payment to the beneficiary
if the order does not provide for payment to an account.
(4) Receiving bank means the bank to which
the sender's instruction is addressed.
(5) Sender means the person giving the instruction
to the receiving bank.
(b) If an instruction complying with subsection
(a)(1) is to make more than one payment to a beneficiary, the instruction
is a separate payment order with respect to each payment.
(c) A payment order is issued when it is
sent to the receiving bank.
Section 4A-104. Funds Transfer--Definitions
In this Article:
(a) Funds transfer means the series of transactions,
beginning with the originator's payment order, made for the purpose of making
payment to the beneficiary of the order. The term includes any payment order
issued by the originator's bank or an intermediary bank intended to carry
out the originator's payment order. A funds transfer is completed by acceptance
by the beneficiary's bank of a payment order for the benefit of the beneficiary
of the originator's payment order.
(b) Intermediary bank means a receiving bank
other than the originator's bank or the beneficiary's bank.
(c) Originator means the sender of the first
payment order in a funds transfer.
(d) Originator's bank means (i) the receiving
bank to which the payment order of the originator is issued if the originator
is not a bank, or (ii) the originator if the originator is a bank.
Section 4A-105. Other Definitions
(a) In this Article:
(1) Authorized account means a deposit account
of a customer in a bank designated by the customer as a source of payment
of payment orders issued by the customer to the bank. If a customer does
not so designate an account, any account of the customer is an authorized
account if payment of a payment order from that account is not inconsistent
with a restriction on the use of that account.
(2) Bank means a person engaged in the business
of banking and includes a savings bank, savings and loan association, credit
union, and trust company. A branch or separate office of a bank is a separate
bank for purposes of this Article.
(3) Customer means a person, including a
bank, having an account with a bank or from whom a bank has agreed to receive
payment orders.
(4) Funds-transfer business day of a receiving
bank means the part of a day during which the receiving bank is open for
the receipt, processing, and transmittal of payment orders and cancellations
and amendments of payment orders.
(5) Funds-transfer system means a wire transfer
network, automated clearing house, or other communication system of a clearing
house or other association of banks through which a payment order by a bank
may be transmitted to the bank to which the order is addressed.
(6) Good faith means honesty in fact and
the observance of reasonable commercial standards of fair dealing.
(7) Prove with respect to a fact means to
meet the burden of establishing the fact (section 1-201(8)).
(b) Other definitions applying to this Article
and the sections in which they appear are:
Acceptance..............................................Sec. 4A-209
Beneficiary.............................................Sec. 4A-103
Beneficiary's bank......................................Sec. 4A-103
Executed................................................Sec. 4A-301
Execution date..........................................Sec. 4A-301
Funds transfer..........................................Sec. 4A-104
Funds-transfer system rule..............................Sec. 4A-501
Intermediary bank.......................................Sec. 4A-104
Originator..............................................Sec. 4A-104
Originator's bank.......................................Sec. 4A-104
Payment by beneficiary's bank to beneficiary............Sec. 4A-405
Payment by originator to beneficiary....................Sec. 4A-406
Payment by sender to receiving bank.....................Sec. 4A-403
Payment date............................................Sec. 4A-401
Payment order...........................................Sec. 4A-103
Receiving bank..........................................Sec. 4A-103
Security procedure......................................Sec. 4A-201
Sender..................................................Sec. 4A-103
(c) The following definitions in Article
4 apply to this Article:
(d) In addition Article 1 contains general
definitions and principles of construction and interpretation applicable
throughout this Article.
Section 4A-106. Time Payment Order is Received
(a) The time of receipt of a payment order
or communication canceling or amending a payment order is determined by
the rules applicable to receipt of a notice stated in section 1-201(27).
A receiving bank may fix a cut-off time or times on a funds-transfer business
day for the receipt and processing of payment orders and communications
canceling or amending payment orders. Different cut-off times may apply
to payment orders, cancellations, or amendments, or to different categories
of payment orders, cancellations, or amendments. A cut-off time may apply
to senders generally or different cut-off times may apply to different
senders or categories of payment orders. If a payment order or communication
canceling or amending a payment order is received after the close of a
funds-transfer business day or after the appropriate cut-off time on a
funds-transfer business day, the receiving bank may treat the payment
order or communication as received at the opening of the next funds-transfer
business day.
(b) If this Article refers to an execution
date or payment date or states a day on which a receiving bank is required
to take action, and the date or day does not fall on a funds-transfer
business day, the next day that is a funds-transfer business day is treated
as the date or day stated, unless the contrary is stated in this Article.
Section 4A-107. Federal Reserve Regulations and Operating Circulars
Regulations of the Board of Governors of
the Federal Reserve System and operating circulars of the Federal Reserve
Banks supersede any inconsistent provision of this Article to the extent
of the inconsistency.
Section 4A-108. Exclusion of Consumer Transactions Governed by Federal
Law
This Article does not apply to a funds
transfer any part of which is governed by the Electronic Fund Transfer
Act of 1978 (title XX, Pub. L. 95-630, 92 Stat. 3728, 15 U.S.C. 1693 et
seq.) as amended from time to time.
Part 2--Issue and Acceptance of Payment Order
Section 4A-201. Security Procedure
Security procedure means a procedure established
by agreement of a customer and a receiving bank for the purpose of (i)
verifying that a payment order or communication amending or canceling
a payment order is that of the customer, or (ii) detecting error in the
transmission or the content of the payment order or communication. A security
procedure may require the use of algorithms or other codes, identifying
words or numbers, encryption, callback procedures, or similar security
devices. Comparison of a signature on a payment order or communication
with an authorized specimen signature of the customer is not by itself
a security procedure.
Section 4A-202. Authorized and Verified Payment Orders
(a) A payment order received by the receiving
bank is the authorized order of the person identified as sender if that
person authorized the order or is otherwise bound by it under the law
of agency.
(b) If a bank and its customer have agreed
that the authenticity of payment orders issued to the bank in the name
of the customer as sender will be verified pursuant to a security procedure,
a payment order received by the receiving bank is effective as the order
of the customer, whether or not authorized, if (i) the security procedure
is a commercially reasonable method of providing security against unauthorized
payment orders, and (ii) the bank proves that it accepted the payment
order in good faith and in compliance with the security procedure and
any written agreement or instruction of the customer restricting acceptance
of payment orders issued in the name of the customer. The bank is not
required to follow an instruction that violates a written agreement with
the customer or notice of which is not received at a time and in a manner
affording the bank a reasonable opportunity to act on it before the payment
