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Federal Check 21 Act

New Check 21 Act Effective October 28, 2004:
Banks No Longer Will Return Original Cancelled Checks

Consumer Union's FAQ's and Congressional Testimony on Check 21

This article is excerpted from the forthcoming 2004 Supplement to NCLC’s Consumer Banking and Payments Law, and was written by Mark Budnitz, professor at Georgia State University College of Law. That volume details the new technological developments and law changes that revolutionize the way money is taken out of consumer bank accounts, including electronic check conversions, internet banking, electronic re-presentment of bounced checks, telechecks, account aggregations, electronic benefit transfers, direct deposit of federal benefits, bank set off of bank fees, and much more.

Introduction to Check 21

New federal legislation represents a death knell to the process of banks returning original checks to consumers with their monthly statements or even when there is a problem with a particular check. Instead, if consumers want to inspect checks for forgeries or alterations or to present a canceled check as proof of payment, they usually will have to be content with a new payment instrument created by Check 21, called a “substitute check.”

The Check Clearing for the 21st Century Act, popularly known as Check 21, was enacted in October of 2003, with an effective date of October 28, 2004.1 The Act allows banks to dispense with original paper checks and instead transmit electronic images of the check through the check clearing process. If a consumer or bank anywhere along the chain insists on receiving the original paper check, the Act allows use instead of a substitute check (such as a laser printout of an electronic image).

The main goal of Check 21 is to avoid the necessity of original paper checks being physically transported all over the country and instead to facilitate the electronic transfer of an image or other information about a check. The Federal Reserve and the banking industry sought to decrease the dependence on a system relying on transport of physical paper checks, that they view as slow, costly, and inefficient.2

For consumers, the major disadvantages of the new Check 21 system are two-fold: first, it will become more difficult to spot and prove forgeries and check alterations (consumers may not have access to the original paper and ink, showing pressure points and other important clues) and, second, the speed of electronic transfers will decrease the “float” that enables consumers to keep their money in their account for a number of days until the check they have written clears. Check 21 does provide consumers certain remedies whenever use of a substitute check instead of an original check causes a monetary loss to the consumer.

Check 21 is not effective until October 28, 2004, so it is too early to tell how banks will respond to the Act. This discussion uses the Public Law section numbering for the Check 21 Act, but the Act is reprinted at Appendix I, infra, with both Public Law section numbering and anticipated United States Code numbering. The FRB has proposed regulations interpreting the Act.3 Because these proposals are the only current interpretations of Check 21, this section will refer to them. But keep in mind that these are proposed regulations and the final regulations may differ.

The Basic Statutory Scheme

Check 21 is not comprehensive legislation regulating the check collection process, nor does it require check truncation, defined as removing the original paper check from the check collection process.4 Check 21 encourages voluntary agreements among banks to accept electronic versions of checks in the check collection and clearing process. Under such agreements, each bank will agree to accept images in lieu of the original paper check. An agreement may be bilateral (between two banks) or multilateral (between more than two banks). An agreement may be pursuant to a clearinghouse’s rules.5 A financial institution may contract with an image exchange service to process check images.6

Check 21 makes these voluntary agreements between banks practical because it provides an easy alternative for a bank when a party in the check clearing process refuses to accept an electronic version of the check. Instead of locating the physical check and forwarding it to the party demanding the physical check, Check 21 allows the bank to provide a “substitute check,” which is defined as, among other things, a paper reproduction of the original check that contains an image of the front and back of the original check.7 Thus an image of the original check can be stored electronically, transferred electronically, and then printed out whenever a party so demands. By providing a practical alternative when a paper check is demanded, banks can now feel secure forwarding, not the physical check, but the electronic information.

The entity removing the original check might be a payee or other transferee. For example, a large retailer might truncate checks.8 Or it might be a collecting bank, including the depositary bank. A financial institution, for example, might truncate the check at a branch or even at an ATM. For purposes of simplification, Check 21 will be discussed here only in terms of a bank removing the original check.

When the original check is removed, only electronic information concerning a check will be transferred to the subsequent transferees in the collection process until the information reaches a party that does not agree to accept the check in electronic form. Check 21 does not directly regulate electronic check imaging or the transfer of images except to say that, if a check is truncated and an entity to whom the check is to be transferred (the “recipient”) has agreed not to demand that the transferor send an original check or a “substitute check,” the transferor can send “information relating to the original check (including data taken from the MICR line of the original check or an electronic image of the original check), whether with or without subsequent delivery of the original paper check.”9

If the drawer or any bank downstream in the collection process from the entity that truncated the check does not agree to truncation, Check 21 is triggered and specifies that the party who has not agreed is entitled only to a “substitute check,” and not the original check.10 Since the bank producing the substitute check typically does not have ready access to the original check, in effect, the Act “authorizes the creation of the substitute check from images of the front and back of the original paper check.”11

When a bank removes the original check from the process, it can send electronic images of the check to the payor bank (called the paying bank in the Act) or to another collecting bank that has agreed to accept the image. If the payor bank or other collecting bank has not agreed to accept the image, the bank may not send it an electronic image. Instead, it must send either the original or a “substitute check.” In Check 21 parlance, the bank that creates the substitute check is a “reconverting bank.”12

Check 21 remedies apply solely to losses as a result of the use of a substitute check. The Act provides a consumer right to an immediate recredit and a right to sue for certain damages but provides no additional relief when the loss is unrelated to the use of a substitute check

Check 21 differs from truncation as defined under the UCC, a process which many banks, and particularly credit unions, already are utilizing. The UCC requires that a bank include with the bank statement either the checks paid or the check numbers, amounts and dates of payment.13 Upon a consumer’s request, the bank must provide either the original canceled check or a legible copy of the check.14 For more on check truncation, see NCLC’s Consumer Banking and Payments §1.2.3.7 (2d. ed. 2002 and Supp.).

The Substitute Check

Qualifying Substitute Checks

Check 21 authorizes the creation of a a new instrument, the substitute check, which plays a crucial role in the Act. No drawer, bank, or other party can insist on receiving the original or a copy of the original check. Instead, whenever the original check is requested, banks can provide a substitute check, as long as that substitute check qualifies under the Act.15 To qualify under the Act, the substitute check must be a paper reproduction of the original check that:

  • contains an image of the front and back of the original check;
  • bears a MICR line containing all the information appearing on the MICR line of the original check or, to the extent generally applicable industry standards for substitute checks allow, only some of the information appearing on the MICR line;
  • conforms, in paper stock, dimension, and otherwise, with generally applicable industry standards for substitute checks; and
  • is suitable for automated processing in the same manner as the original check.16

The substitute check must contain a legend that states: “This is a legal copy of your check. You can use it the same way you would use the check.” The bank is not permitted to vary the words in the legend.17 As with other aspects of the check, the legend must comply with generally applicable industry standards., 18 The American National Standards Institute specifies the location of the legend on the check.

The Act’s definition of a substitute check should ensure that the substitute check looks similar to the original and can be processed in the same way as the original. The substitute check, however, does not have to look exactly like the original. For example, it does not have to be the same size as the original. Consumer advocates recommended that the law require at least a minimum size to ensure that the checks are not so small that legibility becomes an issue (especially for the elderly), regardless of what the industry standard might be. Congress rejected that position, accepting industry’s argument that it was preferable to permit banks to develop industry standards. Consequently, the dimensions of the substitute check need merely conform to generally applicable industry standards.19

In addition, a substitute check will not reflect the color or background design of the original. More importantly, if fraud is alleged, the substitute check cannot be examined by handwriting experts for pen pressure.20 In addition, fraud detection features, such as watermarks and “microprinting,” will not survive the conversion from original to image to substitute.21 A substitute check lacking these security features of the original check nevertheless meets the accuracy requirement of the Act.22

The industry uses the term “image replacement document” or IRD to describe what Check 21 refers to as a substitute check. The American National Standards Institute has established standards that specify in great detail what information an IRD must contain and where the information must be placed on the check.23 While the industry states that an IRD complying with this standard will always be a substitute check,24 it is technically more accurate to say that an IRD will always qualify as a substitute check but represents a substitute check for purposes of Check 21 only if presented when a substitute check is required.

Substitute Check Is the Legal Equivalent of the Original Check

A substitute check is “the legal equivalent of the original check for all purposes, including any provision of any Federal or State law, and for all persons” if it satisfies three requirements:

  • It must accurately represent all of the information on the front and back of the original check as of the time the original check was truncated;25
  • It must contain a legend stating: “This is a legal copy of your check. You can use it the same way you would use the original check;”26 and
  • The bank transferring the instrument must provide the substitute check warranties specified in the Act.27

Consequently, a consumer can use a substitute check as proof of payment when a company to whom the consumer owes money denies receiving payment. Unfortunately, especially in the first few years after Check 21 becomes effective, the safeguards provided by the Act’s legal equivalence rule may be largely theoretical. Businesses may not understand the legal status of the substitute check and may refuse to regard it as proof of payment.

Consumer Ability to Request an Original or a Substitute Check

Although Check 21 discourages use of the original paper check, Check 21 does not require banks or other parties that truncate checks either to retain the original paper check or to destroy that check after imaging. Consequently, the consumer should not assume that the original has been destroyed. The truncating bank may be a party to an image exchange agreement that requires the original to be retained for a designated period of time.28 Other law may require retention of original checks for a specified period of time.29 Thus in a case where the original paper check would be helpful--for example, allowing a handwriting expert to evaluate pressure points on the original paper check or to clarify a number that is blurred on the substitute check30--the consumer should at least determine if the original paper check still exists.

However, the consumer does not have an absolute right to see the original paper check. Instead, the consumer has a right only to a paper substitute check that is a reproduction of the front and back of the original. Check 21 does not require banks to provide the substitute check within any specified period of time. Other law, however, may provide the consumer with a basis for contending that it must be made available promptly.31

The consumer who receives a substitute check cannot be charged a fee for the check.32 If the substitute check is too small or blurred, it may fail to qualify as a substitute check because it does not meet “generally applicable industry standards.”33 Instead, the consumer should demand a qualifying substitute check. As described below, the failure to provide a substitute check that a consumer requests is probably actionable under the Act.34 The bank cannot seek to have the consumer waive its rights to a substitute check.35

Whether a consumer automatically receives substitute checks with monthly statements will depend on the consumer’s agreement with the bank. If the agreement is that the consumer receive only the minimum amount of information required under the UCC (check number, amount and date of payment), then the bank need not automatically provide substitute checks. In that case, under the UCC, upon the consumer’s request, the bank must provide the original, or a legible copy, of the original check. Check 21 amends this so that the bank need provide only a substitute check or another legible copy of the original. On the other hand, if the bank’s agreement with the consumer is to return the original check with the monthly statement, Check 21 authorizes the bank to provide substitute checks with the monthly statement instead.

Consumer Awareness Notices

Who Must Receive the Notice

Check 21 requires every bank to provide a notice explaining substitute checks to its new and existing consumer customers who receive original or substitute checks.36 The notice must be provided to existing customers, defined as those who are customers of a bank on the effective date of the Act (October 28, 2004).37 The notice must be provided to these customers no later than the first regularly scheduled communication with the consumer after the effective date of this Act.38 The notice must be provided to new customers at the time at which the customer relationship is initiated.39 Finally, the notice must be provided to each consumer of the bank who requests a copy of a check and receives a substitute check.40

The FRB explains that the bank must provide the notice “to each of its consumer customers who receives paid checks with his or her account statement or who otherwise receives substitute checks.”41 Consequently, the notice must be sent both to consumers who did not agree to have their checks truncated and instead receive their canceled checks with their bank statements as well as to consumers whose checks are truncated but who request substitute checks when these are created during processing of the consumer’s original checks.42 Banks cannot enter into agreements with consumers to waive the consumer’s right to this notice.43

How Notices Are Sent

The bank can send the required notices by U.S. mail or by any other means through which the consumer has agreed to receive account information.44 This would appear to allow e-mail communication if the consumer has agreed to that form of communication with the bank.

Content of the Notice

The notice must describe that a substitute check is the legal equivalent of an original check for all purposes under Federal and State law, for any other purpose, and for all persons.45 The notice must explain that a substitute check is the legal equivalent if it accurately represents all the information on the front and back of the original check as of the time at which the original check was truncated.46 The notice should state that the check also must contain a legend with the words: “This is a legal copy of your check. You can use it in the same way you would use the original check.”47 Finally, the notice must describe the consumer’s recredit rights.

A bank may provide the notices in a language other than English if the bank and consumer have agreed to a non-English notice or if the consumer requests a non-English notice.48 The non-English notice can never be made to the exclusion of an English notice, however. The bank is also required to make a complete English notice available at the consumer’s request.49

Safe Harbor for Using FRB Model Disclosures

The FRB is required to publish model forms and clauses that banks may use for these notices.50 A bank must be treated as being in compliance if it uses a model form or clause as long as it accurately describes the bank’s policies and procedures.51 However, a bank is not required to use the FRB’s model language.52

Substitute Check Warranties

General

When a paper check is converted and a substitute check is provided, the banks involved make certain warranties. These warranties have two practical implications for consumers. First, Check 21 provides certain rights for consumers to receive an expedited recredit to their account. One of two grounds for an expedited recredit is a breach of a Check 21 warranty (the other grounds is that the check was not properly charged to the consumer’s account).

The other practical significance of a breach of a Check 21 warranty is that this can lead to a larger damages recovery. In general, damages under the Act are limited to the amount of the substitute check. But when certain parties breach a Check 21 warranty, certain plaintiffs can also recover consequential damages and any other loss related to the substitute check.

The first bank that gives the warranties is the reconverting bank, the bank that creates the substitute check. The warranties are also given by any subsequent bank that transfers for consideration either the substitute check it received or an electronic or paper representation of that substitute check, including information about the check (such as the check number and amount).53

A bank does not have to do anything affirmatively to create the warranty. Those warranties attach automatically when a bank transfers, presents, or returns the substitute check.54 The bank that truncates the original check and transfers it using electronic image exchange does not make the warranties, because it has not transferred a substitute check or an electronic or paper representation of a substitute check.55 The consumer receives the warranties regardless of whether the warrantee receives the substitute check or another paper or electronic form of the substitute check or original check.56 A bank cannot disclaim these warranties or seek to have the consumer waive the right to enforce the warranties.57

Warranty of Legal Equivalency

Check 21 provides that any bank that transfers, presents, or returns a substitute check and receives consideration for the check warrants, as a matter of law, that the substitute check meets all the requirements for legal equivalence.58 This warranty is made only to the following entities:

  • all other banks to whom the substitute check is transferred;
  • the drawer;
  • the payee;
  • the depositor; and
  • any other endorser.

The FRB calls this the “legal equivalence warranty.”59

The legal equivalence warranty attaches to a specific substitute check. An original check may be changed to electronic form, then converted into substitute check, then back to electronic form, then to a second substitute check, etc. In this situation, the first reconverting bank and subsequent banks that transfer the first substitute check warrant the legal equivalence of only the first substitute check.60 When the check is then changed back to electronic form but subsequently converted into a second substitute check, the second reconverting bank and subsequent transferees of that second substitute check give warranties for both the first and second substitute checks.61

However, if the legal equivalence defect is the fault of a subsequent bank that handled the substitute check, rather than the reconverting bank that created the substitute check, that subsequent bank is liable for the breach of warranty.62 That subsequent bank is liable whether it handled the substitute as a substitute check or in some other paper or electronic form.

The practical importance of this warranty of legal equivalency is evident. As described above, one original paper check may lead to various instances of electronic encoding and the creation of multiple substitute checks, and the risk of errors occurring in encoding the amount of the check and account numbers increases with each transformation of the check. In addition, a substitute check could contain a blurry image of the original check, resulting in the consumer suffering loss because the consumer needed an accurate copy to determine the validity of a claim.63

Warranty Regarding Multiple Payment Requests

Check 21 creates a warranty that no other party will be asked to make a payment based on a check that the bank, drawee, drawer, or endorser has already paid.64 This might be called the “no multiple payment request” warranty. This warranty does not attach to any specific check. “All reconverting banks, transferring banks, and returning banks therefore provide the warranty regardless of whether the ultimate demand for double payment is based on the original check, the substitute check, or some other electronic or paper representation of the substitute or original check. This warranty is given by the banks that transfer, present, or return a substitute check, even if the demand for duplicative payment results from a fraudulent substitute check about which the warranting bank had no knowledge.”65

The importance of this warranty is easy to see. Unless the original check is destroyed immediately, there is the possibility the original check will be processed and presented for payment as well as the substitute check, resulting in a double debit. Alternatively, due to fraud or a technological glitch, several substitute checks might be produced and presented for payment resulting in a multiple debit. For example, a fraudster at one of the reconverting banks could use the electronic check information to create a second identical substitute check.66

The Expedited Consumer Recredit

1.15.6.1 General

Congress’ intent in enacting Check 21 was that consumers be protected from losses related to the creation of a substitute check, and one way Check 21 meets this intent is by creating a consumer’s right to claim an “expedited recredit:”67 This right exists if the consumer asserts in good faith the following four facts:

  1. the bank charged the consumer’s account for a substitute check that was provided to the consumer;
  2. either the check was not properly charged to the consumer’s account or the consumer has a warranty claim with respect to such substitute check (see § 15.5, supra);
  3. the consumer suffered a resulting loss; and
  4. the production of the original check or a better copy of the original check is necessary to determine the validity of any claim described in item 2.68

The recredit right apparently applies not just to checks written by consumers but also to checks deposited by a consumer where the check is returned unpaid and the consumer-depositor’s account is charged for a substitute check.

Under the Act, if the consumer makes a proper claim, the bank must investigate the claim and make any necessary recredit to the consumer’s account. If the bank needs more than ten days to investigate and resolve the complaint, the bank must recredit the consumer’s account for an amount up to $2500 while it completes its investigation. The bank must recredit any remaining balance greater than $2500 no later than 45 calendar days after the business day the consumer submits the claim. A bank cannot seek to have a consumer waive its rights to a recredit of the consumer’s account.69

Recredit Right Applies Only When Consumer Is Provided a Substitute Check

The right to recredit is conditioned on the fact that “ the bank charged the consumer’s account for a substitute check that was provided to the consumer.”70 What this means is not clear. Arguably, the consumer can claim the right to a recredit only if her bank provides her with a substitute check. That interpretation would mean a bank can avoid the recredit obligation simply by refusing to provide the consumer with the substitute check. This would be contrary to Congress’ intent, as evidenced by the FRB’s commentary on its Proposed Rule. That commentary clearly contemplates that banks will provide substitute checks upon request.71 This violation would certainly lead to an action under the Act for attorney fees and damages.72

The FRB believes that “a consumer must at some point have received a substitute check to make an expedited recredit claim.”73 However, the consumer does not have to be in possession of the substitute check when she submits a claim for a recredit.74 According to the FRB, the recredit is not available to a consumer who receives “only an image statement containing an image of a substitute check.”75 This would apply to a consumer who has agreed to have her checks truncated. Although that consumer is not entitled to a recredit, she “could seek redress under other provisions of law, such as § 229.52 or U.C.C. § 4-401.”76 However, if the consumer “originally received only an image statement but later received a substitute check, such as in response to a request for a copy of a check shown in the statement, [that consumer] could bring a claim if the other expedited recredit criteria were met.”77 Thus, the consumer always should request a copy of a check if it is not included in the statement. If the original is not available and the bank provides a substitute check, the consumer would be entitled to claim the recredit.

The Time Frame for Submitting a Claim

The consumer must submit a claim within forty calendar days after either the bank mails a periodic statement to the consumer or the substitute check is made available to the consumer, whichever is later.78 The bank is required to give the consumer an additional “reasonable amount of time” if her ability to meet the forty-day deadline is due to extenuating circumstances.79 The only circumstances specifically mentioned are extended travel and illness, but the provision uses the term “including” when listing these two examples, indicating other circumstances also could qualify.

Banks Can Require Written Claim Submissions, Explaining the Claim’s Substance

A bank can accept a claim for a recredit in any form, but the bank can require the information to be submitted in writing.80 If the bank does require a submission in writing, it must inform the consumer of that requirement and provide a location to which such a written claim should be sent.81 If the consumer has agreed to communicate with the bank electronically, the bank that requires a written submission can “permit” the consumer to submit the claim electronically.82 The FRB construes the term “permit” correctly to mean the “bank cannot require that a written claim be submitted electronically.”83 To make a claim, the consumer must:

  • explain why the substitute check was not properly charged to the consumer’s account, or the nature of her warranty claim if that is the basis of her claim;84
  • allege she suffered loss and estimate the amount of loss;
  • state the reason why production of the original check is necessary to determine the validity of the charge to the consumer’s account or the warranty claim;85 and
  • provide sufficient information to identify the substitute check and to investigate the claim.86

When Consumer Has Right to Recredit

If the consumer submits the required claim, the bank is required to recredit the consumer’s account unless the bank can meet the following two requirements:

  • It can provide to the consumer the original check or a copy of the original that accurately represents all the information on the front and back of the original check at the time the original check was truncated;87 and
  • It demonstrates to the consumer that the substitute check was properly charged to the consumer’s account

Providing a copy of the original check is not enough. The bank also must demonstrate to the consumer that the substitute check was properly charged to the account.

The bank may reject the consumer’s claim if it determines that it can meet these two conditions. The bank then must send a notice to the consumer no later than the business day following the business day on which the bank made that determination.88 The notice must explain the basis for the bank’s determination.89

The bank also must send the consumer the original check or a copy of the original check. The copy could be an image of the check or a substitute check. This original or copy must accurately represent all the information on the front and back of the check at the time the original check was truncated. If the bank relies on information or documents in addition to the original check or a copy when it denies the consumer’s request to a recredit, it must either provide the information or documents or inform the consumer that the consumer may request copies of any information or documentation on which the bank relied in reaching its conclusion.90

If the bank has not yet determined whether the claim is valid before the end of the 10th business day after the business day on which the consumer submitted the claim, the bank shall recredit the consumer’s account for the lesser of the substitute check that was charged against the consumer’s account or $2500, together with interest if the money is in an interest-bearing account.91 If the bank still has not determined whether the claim is valid, the remaining amount over $2500, together with interest, must be recredited not later than the 45th calendar day following the business day the consumer submitted the claim.92

When a bank has recredited the consumer’s account, the funds must be available to the consumer for withdrawal by the start of the next business day after the business day the bank recredited the account.93 Availability may be delayed, however, until the start of either the business day following the business day the bank determines the claim is valid or after the 45th calendar day, whichever is earliest, under circumstances in which banks fear there is an undue risk of fraud.94 These include new accounts, when the consumer’s account has had repeated overdrafts, and when the bank has reasonable grounds to believe the claim is fraudulent.

Reversing the Recredit

A bank that recredits the consumer’s account may determine that it wrongly recredited the account because the substitute check was properly charged to the account. In that situation, the bank may reverse the recredit if the bank notifies the consumer of the amount of the reversal and the date the recredit was reversed.95

The Act does not address the issue of what remedy is available if the bank made an erroneous determination and reversed the recredit. However, the Act does provide for damages if the bank fails to comply with the Act’s requirements, breaches a warranty, or otherwise causes loss to the consumer.96 Making an erroneous determination arguably is a violation of the Act (since a recredit is owed and it has not been provided), may breach a warranty, and certainly can cause loss. The consumer is in a particularly strong position to make this argument when the consumer, upon receiving the bank’s documentation to support its finding, responds by presenting evidence clearly showing the bank is wrong and the bank nevertheless refuses to restore the recredit.

Proposed FRB Model Notices to Consumer of Recredit Rights

The FRB has published proposed model notices to accompany the recredit provisions.97 Banks are not required to use the language in these models.98 Moreover, the Act does not provide banks with a safe harbor for using the models.99 Therefore a bank that uses these models is not per se in compliance with the requirements of the Act or accompanying regulations.100

Bank That Recredits Still May be Liable for Additional Damages

Check 21 provides that a bank that recredits the consumer’s account is not absolved from liability for a claim the consumer makes pursuant to some other law.101 The Act specifically mentions a consumer’s claim for wrongful dishonor under the UCC.102 The Act also mentions liability for additional damages under the Check 21 Act.103

Private Remedies

General

A private action under Check 21 can be brought in federal court or in state court but must be brought within one year of when the consumer first learns or should reasonably have learned of the facts and circumstances giving rise to the cause of action.104 However, even before this one-year period expires, if a consumer who is aware or should be aware of a claim delays in giving notice of a claim, the bank may not be liable for additional losses caused by that delay.105 A bank cannot ask the consumer to waive the right to damages or a private action under the Act.106

Check 21 sets out a complicated scheme as to the recovery of damages. Only certain consumers are eligible on certain claims to recover consequential damages from certain banks. Most other damages are limited to the amount of the substitute check. But in any case, the consumer can recover costs and attorney fees. The Act sets out these three different situations:

  • When there is a breach of a Check 21 warranty, the drawer, payee, endorser, depositor, various banks and transferees can all recover from a reconverting bank and any subsequent bank any loss incurred due to the receipt of a substitute check which is proximately caused by the breach, plus costs and reasonable attorney fees and other expenses of representation.107
  • When a loss related to a substitute check is in the absence of a breach of warranty, the drawer, payee, endorser, depositor, various banks and transferees can all recover from a reconverting bank and any subsequent bank any loss incurred due to the receipt of a substitute check, the amount of any loss up to the amount of the substitute check, plus interest and expenses including costs and reasonable attorney fees and other expenses of representation.108
  • For any other breach of warranty or Act violation, any person shall be liable to any other person in an amount of any loss, up to the amount of the substitute check, plus interest and expenses including costs and reasonable attorney fees and other expenses of representation.109

Certain Banks’ Warranty Breach Allows Certain Parties to Fully Recover Any Injury

Certain parties can recover, not just the amount of a substitute check, but for all injuries related to the use of the substitute check (plus costs, reasonable attorney fees, and other expenses of representation) for a breach of a Check 21 warranty, as set out in § 1.15.5, supra. Only a reconverting bank and subsequent banks are liable for such damages.

A reconverting bank is the one that changes a check from an electronic image to a substitute check, and it must indemnify certain parties for “any loss incurred by any recipient of a substitute check if that loss occurred due to the receipt of a substitute check instead of the original check.”110 Responsibility for the indemnity also is assumed by each bank that subsequently receives consideration for a substitute check that it transfers, presents, or returns.111 If a consumer drawer has a claim under the indemnity section and her bank provided the indemnity (credited the consumer’s account with the amount of her loss), the consumer’s bank could then pursue its indemnity claim against the bank that presented the substitute check on a theory of subrogation.112 The consumer has a duty to comply with all reasonable requests for assistance from her bank in that pursuit.113

Only certain parties may press a claim for full damages for a breach of warranty--the drawer, payee, endorser, depositor, various banks and transferees--but only for a loss occurred due to the receipt of a substitute check. The consumer must in fact have received a substitute check. The indemnity does not apply to a consumer that handled only the original check.114 It also does not apply to a consumer who handled only a paper or electronic version of the original check unless it was derived from a substitute check.115 This is consistent with the requirement that the loss must have occurred because the consumer received a substitute check instead of an original. On the other hand, a consumer does have rights under this provision when the consumer deposits someone else’s check, that check is dishonored, and what is returned to the consumer is a substitute check.116

The Commentary to the Proposed Rule provides two examples of the operation of this section on remedies for breach of warranties that are of particular relevance to consumers. One example involves a person who received a purported substitute check that did not contain the legal equivalence legend. As a result, the person could not use the item to prove she had paid the person to whom she owed money and consequently suffered a loss. Because there was no legend, there was a breach of the legal equivalence warranty. The person suffered a loss that she would not have incurred “had the original check been received instead. The person therefore could recover all damages proximately caused by the warranty breach by asserting an indemnity claim.117

A second example involves a drawer’s account that is wrongly charged for a purported substitute check because of a mistake in the MICR number field. As a result of this improper charge, the drawer’s bank dishonored and returned several subsequent checks and imposed returned check fees. The payees of those returned checks also charged the drawer fees because the checks they deposited were dishonored by the payor bank. “The drawer would have a warranty claim against any of the warranting banks, including its bank, for breach of the warranty . . . . The drawer also could assert an indemnity claim, because if the original check had been presented instead of the purported substitute check, the bank likely would not have charged the drawer’s account . . . . The drawer could recover from the indemnifying bank the amount of the erroneous charge, as well as the amount of the returned check fees charged by both the paying bank and the payees of the returned checks.”118 The drawer also could recover the erroneous returned check fees, representation expenses, and any other losses that were proximately caused by the warranty breach. If the account was interest-bearing, the drawer could recover lost interest.119

Certain Banks Have Limited Liability to Certain Parties Even When No Warranty Is Breached

Certain parties can recover any loss related to a substitute check from certain banks even if the Act is not violated and no warranty is breached, but only up to the amount of the substitute check.120 The banks liable under this provision are the reconverting bank and subsequent banks, as analyzed in § 1.15.7.2, supra. Parties that can pursue such a claim are limited to the drawer, payee, endorser, depositor, various banks and transferees, again as described in § 1.15.7.2. The parties can also recover interest and expenses, plus costs and reasonable attorney fees and other expenses of representation.

This limitation on the recovery amount should be considered in the context of a customer who never agreed to receive a substitute check in the first place. The customer is sent a substitute check anyway, suffered loss because of it, but is not permitted to recover the full amount of her loss. The FRB has provided an example to illustrate when recovery under this provision could occur. The drawer received a substitute check that did not breach either of the two warranties.121 However, the drawer suffered a loss due to the receipt of a substitute check instead of the original because she could not prove her forgery claim which required a handwriting expert to analyze pen pressure on the original check that is no longer available.

Any Person Can Sue Any Person for Breach of Warranty or an Act Violation

Any person who breaches a warranty in connection with a substitute check or fails to comply with any requirement imposed by the Act or FRB regulations shall be liable to any person for the lesser of the amount of the substitute check or the amount of loss suffered as a result of the breach or failure.122 Liability also includes interest and expenses and costs and reasonable attorney fees and other expenses of representation. This amount is further reduced by the amount a consumer receives or retains as a recredit under the consumer recredit provisions.123

In other words, even if the consumer did not receive a substitute check, or even if the bank breaching the warranty was not the reconverting bank or a subsequent bank, the consumer can still recover for a breach of warranty or an Act violation if the consumer suffered a loss. The consumer may be entitled to damages for each type of violation of the Act. The FRB provides the example of a consumer whose recovery under the recredit section is limited to a maximum of the amount of the substitute check plus interest.124 “A consumer who suffers a loss greater than the amount of the substitute check plus interest could attempt to recover the remainder of that loss by bringing a warranty, indemnity, or other claim under this subpart or other applicable law.”125

Impact of Consumer’s Negligence on Recovery

Any recovery under the Act is reduced by the amount attributable to a party whose negligence or failure to act in good faith contributed to the loss. In other words, the law incorporates a comparative negligence standard for determining the amount recoverable.126 Consumer advocates objected to this standard being applicable to consumer drawers. They contended that it is virtually impossible for any of the problems arising from substitute checks to be caused by consumers, such as double debits due to the use of substitute checks. They feared banks might resist reimbursing consumers for their losses by alleging without a reasonable basis that the consumer must have done something wrong and thus must bear at least part of the loss under the comparative negligence standard.127 In the Senate’s consideration of the conference report, Senator Sarbanes noted: “The report language in the Senate bill further clarifies that in the absence of fraud or bad faith, the comparative negligence provisions would generally not be applicable to consumer check users.”128

Relationship to Other Law and Other Remedies

The Check 21 Act supercedes inconsistent federal and state law.129 The Act specifically mentions the UCC as a state law that is superceded when inconsistent. The Act supercedes other law, however, only to the extent of the inconsistency. In all other respects, federal and state law continue to apply. Because the Act makes a substitute check the legal equivalent of the original check, other law regulating checks, such as the UCC and Regulation CC, apply to substitute checks to the extent the other law is not inconsistent with the Check 21 Act.130 Check 21 specifically singles out laws “relating to the protection of customers” in stating that other law still applies.131

Consequently, the consumer may be able to recover more adequate relief under other law. Nothing in the Act’s limitation of damages reduces the rights of a consumer or any other person under the UCC or other applicable state or federal law.132 Various sections of the Act refer to other law being available to provide a remedy to the consumer. For example, a bank providing the consumer a recredit does not free the bank from liability under other law.133 The Act specifically mentions that the bank still may be liable for wrongful dishonor under the UCC.134

When a substitute check contains an obvious forgery, the consumer does need the original check or a copy to determine that there is a forgery. Consequently, there is no recredit right, but the consumer has a remedy under the UCC if the consumer’s bank paid the check.135 A consumer who received only an image statement containing an image of a substitute check rather than the actual substitute check does not have a right to the recredit but may have an action against her bank for improper payment under the UCC.136

The Check 21 Act establishes a rule of comparative negligence that may reduce the consumer’s ability to recover for losses under the Act. The Act also provides, however, that the comparative negligence rule does not reduce the consumer’s rights under the UCC or other applicable state or federal law.137

__________________________________________

1 12 U.S.C. 5001, Pub. L. No. 108-100, 117 Stat. 1177 Oct. 28 2003) (hereinafter Check 21 Act). The statute is reprinted at NCLC’s Consumer Banking and Practice 2004 Supplement (to be released this summer), and on the Companion CD-Rom.

2 Federal Reserve Board Section-by-Section Analysis, available at www.federalreserve.gov/paymentsystems/truncation/proposed.htm (last visited on April 22, 2003).

3 69 Fed. Reg. 1470 (Jan. 8, 2004) (Availability of Funds and Collection of Checks, Proposed Rule), available at www.federalreserve.gov/paymentsystems/truncation/default.htm. The Proposed Rule is reprinted at Appx. I.2 (Supp.), infra, and on the Companion CD-Rom.

4 Check 21 Act § 3 (18) (2003).

5 The Electronic Check Clearing House Organization (ECCHO) has developed standard processing rules for the transfer of check images and sample agreements. See www.eccho.org

6 Companies offering this service include SVPCo, Endpoint Exchange, FSTC, and Viewpointe Archive Services. The Federal Reserve Banks provide FedImage Services, an image capture and archive service.

7 Check 21 Act § 3(16)(A) (2003).

8 ”A person other than a bank that creates a substitute check could transfer that check only by agreement unless and until a bank provided the substitute check warranties. For example, a nonbank that wanted to create substitute checks for the purpose of depositing such checks for collection could not deposit those substitute checks without the agreement of a depositary bank.” 69 Fed. Reg. 1495 (2004) (commentary on Proposed Rule).

9 Check 21 Act § 3(18) (2003).

10 Id.

11 Check 21-Frequently Asked Questions (FAQ) 3 (Nov. 1, 2003), at www.eccho.org (last visited on Jan. 14, 2003).

12 Check 21 Act § 3 (15) (2003).

13 U.C.C. § 4-406(a).

14 U.C.C. § 4-406(b).

15 Check 21 Act § 4 (a). “A person may deposit, present, or send for collection or return a substitute check without an agreement with the recipient, so long as a bank has made the warranties in section 5 with respect to such substitute check.” Id. “Although a person [who did not agree to receiving a substitute check] still would be entitled to receive a paper check absent agreement to the contrary, that person would be required to accept a legally equivalent substitute check in lieu of the original check.” 69 Fed. Reg. 1495 (2004) (commentary on Proposed Rule).

16 Check 21 Act § 3 (16) (2003).

17 Id.

18 Id.

19 The FRB endorses the standards established by the American National Standards Institute. The commentary on the Proposed Rule contains frequent references to those standards. E.g., 69 Fed. Reg. 1495/-/96 (2004) (commentary on Proposed Rule). According to standard ANS X9.90, Specifications for an Image Replacement Document, “images of personal-sized checks will be reduced to about 80 percent of their original size.” Id. at 1474. “Some of the endorsements [on the substitute check] will be printed in a specific area on the substitute check making them clearer to read versus regular endorsements [on the original check] that are in many cases difficult to decipher. The substitute check will be written on regular check paper stock. The difference that customers may notice is that the substitute check is approximately the size of a corporate check, the image of the original check on the substitute check has been reduced somewhat from the original size, and additional information appears on the front of the substitute check. This additional information includes information related to who truncated the original item, who converted this item into a substitute check, the legal legend as required by the Act, and optional control and security information.” Check 21-Frequently Asked Questions (FAQ) 9 (Nov. 1, 2003), at www.eccho.org (last visited on Jan. 14, 2003). The Act grants the FRB the authority to issue regulations “necessary to implement, prevent circumvention or evasion of, or facilitate compliance with the provisions of this Act. Check 21 Act § 15 (2003). The FRB can use this power to ensure that industry standards do not permit checks with unreasonably small dimensions or type.

20 See 69 Fed. Reg. 1499 (2004) (a consumer may need the original check if “pen pressure or a similar analysis were necessary to determine the genuineness of the signature”).

21 Federal Reserve Board Section-by-Section Analysis, available at www.federalreserve.gov/paymentsystems/truncation/proposed.htm (last visited on April 22, 2003).

22 69 Fed. Reg. 1495 (2004) (commentary on Proposed Rule).

23 Id. at 1474 (2004) (standard ANS X9.90, Specifications for an Image Replacement Document).

24 21-Frequently Asked Questions (FAQ) 3 (Nov. 1, 2003), at www.eccho.org (last visited on Jan. 14, 2003).

25 Check 21 Act § 4(b)(1) (2003).

26 See id. § 4(b)(2).

27 The Act does not directly require that the bank make the warranties in order for the instrument to qualify as a substitute check. The FRB, however, reads section 4(a) of the Act to intend this result. 69 Fed. Reg. 1475 (2004).

28 Check 21-Frequently Asked Questions (FAQ) 7 (Nov. 1, 2003), at www.eccho.org (last visited on Jan. 14, 2003).

29 The UCC does not require retention of the original check. It provides that if, pursuant to the customer agreement, the bank truncates checks, the bank must have the capacity to furnish the original or, if it has been destroyed, a legible copy for seven years.U.C.C. § 4-406(b).

30 69 Fed. Reg. 1499 (2004) (commentary on Proposed Rule).

31 U.C.C. § 4-406(b) provides that a customer who has agreed to truncation may request the original and within “a reasonable time,” the bank must provide the original or a legible copy.

32 69 Fed. Reg. 1495 (2004) (commentary on Proposed Rule).

33 Check 21 Act § 3(16)(C) (2003).

34 See §§ 1.15.6.2, 1.15.7, infra.

35 Check 21 Act § 14 (2003. See also 69 Fed. Reg. 1489 (2004) (§ 229.60).

36 Check 21 Act § 12(b) (2003).

37 See id. § 12 (b)[ind]1).

38 Id.

39 See id. § 12(b)(2).

40 See id. § 12(b)(4). The FRB’s Commentary on its proposed rule provides two alternatives for when the notice must be provided, presumably to encourage public comment on which is the best approach. Under one alternative, the bank would have to provide the disclosure at the time the consumer requests a copy of her check. 69 Fed. Reg. 1500 (2004) (commentary on Proposed Rule). Under the other alternative, the bank has to provide the disclosure at the time the bank provides the substitute check in response to the consumer’s request. Id.

41 69 Fed. Reg. 1500 (2004) (commentary on Proposed Rule).

42 Neither the Act nor the FRB’s Commentary actually state that the notice must be sent to a consumer who requests substitute checks, but this can be inferred from the Commentary. See Note 71. The Commentary speaks of the consumer who receives a substitute check on an occasional basis rather than the consumer who requests a substitute check.

43 Check 21 Act § 14 (2003). See also 69 Fed. Reg. 1489 (2004) (§ 229.60).

44 Check 21 Act § 12(b)(3) (2003).

45 See id. § 12(a)(1).

46 See id. § 12(a)(1)(A).

47 See id. § 12(a)(1)(B).

48 69 Fed. Reg. 1500 (2004) (commentary on Proposed Rule).

49 Id.

50 Check 21 Act § 12(c)(1) (2003). The FRB has published proposed notices. 69 Fed. Reg. 1489 (2004).

51 Check 21 Act § 12(c)(2)(A) (2003).

52 See id. § 12(c)(3).

53 69 Fed. Reg. 1496 (2004) (commentary on Proposed Rule).

54 Id.

55 Id.

56 Check 21 Act § 5 (2003). A person who handled only the original check does not receive the warranties. “[T]he warranties flow only forward to persons that receive a substitute check or something derived from [it]; they do not flow backward . . . however, a person that initially handled only the original check could become a warranty recipient if that person later received a returned substitute check or a paper or electronic representation of a substitute check that was derived from that original check.” 69 Fed. Reg. 1497 (2004) (commentary on Proposed Rule).

57 Check 21 Act § 1 4 (2003). See 69 Fed. Reg. 1489 (2004) (§ 229.60).

58 Check 21 Act § 5 (2003).

59 69 Fed. Reg. 1496 (2004) (commentary on Proposed Rule).

60 Id.

61 Id.

62 Id.

63 Id. at 1499.

64 Check 21 Act § 5 (2003). The Act uses the term “endorser.” The UCC spells it “indorser.” E.g., U.C.C. § 3-204. It is clear from the Act that the terms are intended to be synonymous.

65 69 Fed. 1496/-/97 Reg. (2004).

66 Id. at 1497.

67 Check 21 Act § 7 (2003).

68 See id. § 7(a)(1).

69 See id. § 14. See also 69 Fed. Reg. 1489 (2004) (§ 229.60).

70 69 Fed. Reg. 1489 (2004) (§ 229.60).

71 E.g., 69 Fed. Reg. 1497 (2004) (providing example of consumer who requests a copy of a substitute check and bank provides it); id. at 1498 (explaining that a substitute check could be provided to the consumer in response to the consumer’s specific request for a copy of a check); id. at 1500 (providing example of consumer who requests a copy of her checks on a case-by-case basis).

72 See § 1.15.7, infra.

73 69 Fed. Reg. 1498 (2004) (commentary on Proposed Rule).

74 Check 21 Act § 7 (h) (2003); 69 Fed. Reg. 1470 (2004) (§ 229.54 (a)(1)); id. at 1498.

75 69 Fed. Reg. 1498 (2004) (commentary on Proposed Rule).

76 Id. Section 229.52 contains the substitute check warranties. U.C.C. § 4-401 provides that the consumer drawer’s bank can charge the consumer’s account only for checks that are “properly payable.”

77 69 Fed. Reg. 1498 (2004) (commentary on Proposed Rule).

78 Check 21 Act § 7(a)(2) (2003). The FRB Commentary to the proposed rule notes that there are several possible ways the bank can deliver an account statement or a substitute check. “The time period for making a claim thus could be triggered by the mailing, in-person, or electronic delivery of an account statement or by the mailing or in-person delivery of a substitute check. In the case of a mailed statement or substitute check, the 40-day period should be calculated using the postmark on the envelope.” 69 Fed. Reg. 1498 (2004) (commentary on Proposed Rule).

79 Check 21 Act § 7(a)(3) (2003). In extenuating circumstances, the forty-day period “shall be extended. . . .” Id. “A bank must extend” the forty-day period. 69 Fed. Reg. 1498 (2004) (commentary on Proposed Rule).

80 Check 21 Act § 7(b)(2)(A) (2003).

81 69 Fed. Reg. 1499 (2004) (commentary on Proposed Rule). A bank could include the written notice requirement in the required notice of consumer awareness. Alternatively, the bank could inform the consumer at the time the consumer attempts to make an oral claim. Id.

82 Check 21 Act § 7(b)(2)(B) (2003).

83 69 Fed. Reg. 1499 (2004) (commentary on Proposed Rule).

84 Check 21 Act § 7(b) (2003). An example of an improper charge is “if the bank charged the consumer’s account for an amount different than the consumer believes he or she authorized or charged the consumer more than once for the same check, or if the check in question was a forgery or otherwise fraudulent.” 69 Fed. Reg. 1498 (2004). “The warranty in question could be a substitute check warranty described in § 229.52 or any other warranty that a bank provides with respect to a check under § 229.34, the U.C.C, or other law.” Id. Section 229.34 is part of Regulation CC and contains the warranties that a paying or returning bank makes when the paying bank decides not to pay a check. UCC §§ 4-207 and 4-208 contain the warranties that banks make when a check is being sent to the paying bank for payment.

85 Check 21 Act § 7(b) (2003). “For example, if the consumer believed that the bank charged his or her account for the wrong amount, the original check might be necessary to prove this claim if the amount of the substitute check were illegible. Similarly, if the consumer believed that his or her signature had been forged, the original check might be necessary to confirm the forgery if, for example, pen pressure or similar analysis were necessary to determine the genuineness of the signature.” 69 Fed. Reg. 1498/-/99 (2004).

86 Check 21 Act § 7 (b)(1)(D) (2003). The consumer may have to include “a copy of the allegedly defective substitute check or information related to that check, such as the number, amount, and payee.” 69 Fed. Reg. 1499 (2004). The consumer does not have to include the actual substitute check. “The consumer need not be in possession of the substitute check at the time he or she submits the claim.” Id. at 1498.

87 Check 21 Act § 7(c)(1) (2003). The copy of the original check may be an image of the original or a substitute check.

88 See id. § 7(f)(1). The bank may deliver the notice and other information by U.S. mail or any other means that the consumer has agreed to. The bank may provide a copy of a check electronically if the consumer has agreed to accept that information electronically. 69 Fed. Reg. 1489 (2004) (§ 229.58).

89 The bank’s reason for denying the claim might be that it “believes the substitute check was proper or the consumer’s warranty claim was not valid. For example, if a consumer has claimed that the bank charged its account for an improper amount, the bank denying that claim must explain why it determined that the charged amount was proper.” 69 Fed. Reg. 1499 (2004) (commentary on Proposed Rule).

90 Id. at 1499.

91 21 Act § 7(c)(2)(B)(i) (2003). Business day has same meaning as in section 602(3) of the Expedited Funds Availability Act. See id. § 3(5). Regulation CC, issued pursuant to that Act, defines business day as a calendar day other than Saturday or Sunday or certain specified holidays. 12 C.F.R. §229.2(g). The FRB has proposed to incorporate the term “banking day” from Regulation CC to make it consistent with Reg. CC. 69 Fed. Reg. 1478 (2004) (supplementary informatoin in Proposed Rule). A banking day is “that part of any business day on which an office of a bank is open to the public for carrying on substantially all of its banking functions.” 12 C.F.R. §229.2(f). As explained above, banks may require the consumer to submit her claim in writing. If it does, “the bank must compute time periods that begin with the submission of a claim from the date that the bank received the written claim . . . not the date on which the consumer placed the call [in an attempt to make an oral claim].” 69 Fed. Reg. 1499 (2004) (commentary on Proposed Rule).
The bill originally submitted by the FRB required the consumer’s bank to give a recredit no later than the business day following the banking day the consumer made a claim. The FRB acknowledged consumers suffering a double debit often would not have enough funds left in their account if the double debit involved a check in a large amount. The FRB pointed out that 97 per cent of all checks written by consumers are for $2500 or less. Banks argued that the FRB’s recredit rule would make it too easy for consumers to make baseless claims, obtain the recredit, and withdraw and abscond with the funds before the bank had determined the consumer’s claim had no merit. Congress responded with a ten-day period.

92 Check 21 Act § 7(c)(2)(B)(ii).

93 See id. § 7(d).

94 See id. § 7(d)(2). See comparable provision in Regulation CC. 12 C.F.R. § 229.13. The Act includes restrictions on a bank’s imposition of overdraft fees when the bank delays the availability of a recredit. Check 21 Act § 7(d)(3) (2003).

95 See id. §7 (e), (f)(3). The notice must be sent no later than the business day following the business day on which the bank made the recredit. See id. § 7(f)(2).

96 See § 1.15.7.3, infra.

97 69 Fed. Reg. 1490 (2004).

98 Id. at 1499.

99 Id.

100 Id.

101 Check 21 Act § 7 (g) (2003).

102 See § 1.4 of the main edition.

103 Section 6 provides for an indemnity. Section 10 is the general provision on the measure of damages.

104 Check 21 Act § 9(a) (2003).

105 See id. § 9(b).

106 See id. § 14; 69 Fed. Reg. 1489 (2004) (§ 229.60).

107 Check 21 Act § 6(b)(1) (2003).

108 id. § 6(b)(2). “However, the indemnified party might be entitled to additional damages under some other provision of law.” 69 Fed. Reg. 1498 (2004) (commentary on Proposed Rule).

109 Check 21 Act § 12(a)(1) (2003).

110 See id. § 6(a). The section provides, inter alia, that the amount of the indemnity includes costs and reasonable attorney’s fees.” See id. § 6(b)(1). See § 6(d), which limits losses when the indemnifying bank produces the original check or a copy that is “sufficient to determine whether or not a claim is valid.”

111 69 Fed. Reg. 1497 (2004) (commentary on Proposed Rule).

112 Check 21 Act § 6(e) (2003); 69 Fed. Reg. 1498 (2004) (commentary on Proposed Rule).

113 Check 21 Act § 6(e)(3) (2003); 69 Fed. Reg. 1498 (2004) (when loss is due to forgery, bank can “request from the drawer any information that the drawer might possess regarding the possible identity of the forger”).

114 69 Fed. Reg. 1498 (2004).

115 Id.

116 Check 21 Act § 5. (2003).

117 69 Fed. Reg. 1497 (2004) (commentary on Proposed Rule).

118 Id.

119 Id.

120 Check 21 Act §6(b)(2) (2003).

121 69 Fed. Reg. 1498 (2004) (commentary on Proposed Rule).

122 Check 21 Act §10(a)(1) (2003).

123 See id. § 10(a)(2).

124 69 Fed. Reg. 1498 (2004) (commentary on Proposed Rule).

125 Id.

126 Check 21 Act § 10(b).

127 Testimony of Janell Mayo Duncan, Consumers Union, before the House Financial Services Subcommittee on Financial Institutions and Consumer Credit 8 (April 8, 2003). The statute also provides that nothing in the comparative negligence provision “reduces the rights of a consumer or any other person under the Uniform Commercial Code or other applicable provision of Federal or State law.” Check 21 Act § 6 (c)(2) (2003).

128 149 Cong. Rec. S12632-04 (Oct. 15, 2003).

129 Check 21 Act § 13 (2003); 69 Fed. Reg. 1489 (2004) (§ 229.59).

130 Check 21 Act § 4(e) (2003); 69 Fed. Reg. 1496 (2004) (commentary on Proposed Rule). Because Check 21 is expected to increase the speed of check collection, the Act requires the FRB to evaluate the impact of the Act and whether the time limits established by the Expedited Funds Availability Act are still appropriate. Check 21 Act § 16 (2003).

131 See id. § 4(e) (2003).

132 See id. § 10(b)(2).

133 See id. § 7(g).

134 U.C.C. § 4-402.

135 69 Fed. Reg. 1498 (2004) (commentary on Proposed Rule). The check would not be properly payable in violation of U.C.C. § 4-401.

136 69 Fed. Reg. 1498 (2004) (commentary on Proposed Rule).

137 Check 21 Act § 6(c)(2), 10(b) (2003).

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