Availability of Funds and Collection of Checks, 16862-16976 [2011-5449]

Agencies

• FEDERAL RESERVE SYSTEM

[Federal Register Volume 76, Number 58 (Friday, March 25, 2011)]
[Proposed Rules]
[Pages 16862-16976]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-5449]



[[Page 16861]]

Vol. 76

Friday,

No. 58

March 25, 2011

Part II





Federal Reserve System





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12 CFR Part 229



Availability of Funds and Collection of Checks; Proposed Rule

Federal Register / Vol. 76 , No. 58 / Friday, March 25, 2011 / 
Proposed Rules

[[Page 16862]]


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FEDERAL RESERVE SYSTEM

12 CFR Part 229

[Regulation CC; Docket No. R-1409]
RIN No. 7100-AD68


Availability of Funds and Collection of Checks

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule, request for comment.

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SUMMARY: The Board of Governors (Board) is proposing amendments to 
facilitate the banking industry's ongoing transition to fully-
electronic interbank check collection and return, including proposed 
amendments to condition a depositary bank's right of expeditious return 
on the depositary bank agreeing to accept returned checks 
electronically either directly or indirectly from the paying bank. The 
Board also is proposing amendments to the funds availability schedule 
provisions to reflect the fact that there are no longer any nonlocal 
checks. The Board proposes to revise the model forms that banks may use 
in disclosing their funds-availability policies to their customers and 
to update the preemption determinations. Finally, the Board is 
requesting comment on whether it should consider future changes to the 
regulation to improve the check collection system, such as decreasing 
the time afforded to a paying bank to decide whether to pay a check in 
order to reduce the risk to a depositary bank of having to make funds 
available for withdrawal before learning whether a deposited check has 
been returned unpaid.

DATES: Comments on the proposed rule must be received not later than 
June 3, 2011.

ADDRESSES: You may submit comments, identified by Docket No. R-1409 and 
RIN No. 7100-AD68, by any of the following methods:
     Agency Web Site: https://www.federalreserve.gov. Follow the 
instructions for submitting comments at https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: regs.comments@federalreserve.gov. Include docket 
number in the subject line of the message.
     FAX: 202/452-3819 or 202/452-3102.
     Mail: Jennifer J. Johnson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue, 
NW., Washington, DC 20551.

    All public comments are available from the Board's Web site at 
https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, except as necessary for technical reasons. Accordingly, your 
comments will not be edited to remove any identifying or contact 
information. Public comments may also be viewed electronically or in 
paper in Room MP-500 of the Board's Martin Building (20th and C 
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Dena L. Milligan, Attorney, (202/452-
3900), Legal Division; or Joseph P. Baressi, Financial Services Project 
Leader (202/452-3959), Division of Reserve Bank Operations and Payment 
Systems; for users of Telecommunication Devices for the Deaf (TDD) 
only, contact 202/263-4869.

SUPPLEMENTARY INFORMATION: 

Background

    Regulation CC (12 CFR part 229) implements the Expedited Funds 
Availability Act (EFA Act) and the Check Clearing for the 21st Century 
Act (Check 21 Act).\1\ The Board implemented the EFA Act in subparts A, 
B, and C of Regulation CC. The EFA Act was enacted to provide 
depositors of checks with prompt funds availability and to foster 
improvements in the check collection and return processes. Subpart A of 
Regulation CC contains general information, such as definitions of 
terms. Subpart B of Regulation CC specifies availability schedules 
within which banks must make funds available for withdrawal. Subpart B 
also includes rules regarding exceptions to the schedules, disclosure 
of funds availability policies, and payment of interest. These 
provisions implement specific requirements set forth in the EFA Act. 
The provisions of subpart C were adopted by the Board pursuant to the 
authority granted to it in Sec. Sec.  609(b) and (c) of the EFA Act.\2\ 
Section 609(b) directs the Board to consider requiring that depository 
institutions and Federal Reserve Banks take certain steps to improve 
the check-processing system, such by taking steps necessary to automate 
the check-return process (Sec.  609(b)(4)).\3\ Section 609(c) grants 
the Board authority to regulate any aspect of the payment system and 
any related function of the payment system with respect to checks.\4\ 
Subpart C includes rules to speed the collection and return of checks, 
such as rules covering the expeditious return responsibilities of 
paying and returning banks, authorization of direct returns, 
notification of nonpayment of large-dollar returns, check indorsement 
standards, and same-day settlement of checks presented to the paying 
bank.
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    \1\ Expedited Funds Availability Act, 12 U.S.C. 4001 et seq.; 
Check Clearing for the 21st Century Act, 12 U.S.C. 5001 et seq.
    \2\ 12 U.S.C. 4008 (b) and (c).
    \3\ Section 609(b)(4) states that ``[i]n order to improve the 
check processing system, the Board shall consider (among other 
proposals) requiring, by regulation, that * * * the Federal Reserve 
banks and depository institutions take such actions as are necessary 
to automate the process of returning unpaid checks.'' 12 U.S.C. 
4008(b)(4).
    \4\ Section 609(c)(1) states that ``[i]n order to carry out the 
provisions of this title, the Board of Governors of the Federal 
Reserve System shall have the responsibility to regulate--(A) any 
aspect of the payment system, including the receipt, payment, 
collection, or clearing of checks.'' 12 U.S.C. 4008(c)(1).
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    Subpart C's provisions presume that banks generally handle checks 
in paper form. Since the provisions were adopted in 1988, however, 
banks have largely migrated to an electronic interbank check collection 
and return system.\5\ This migration was facilitated by the Check 21 
Act,\6\ which became effective in October 2004 and is implemented in 
subparts A and D of Regulation CC. The Check 21 Act permits banks to 
use a properly prepared substitute check in place of the original 
check, which enables banks to take the original check out of the 
collection and return process and to handle check images for much of 
the check collection and return process without having to retain the 
original check. The Check 21 Act has been a catalyst for rapid growth 
in banks' electronic handling of checks over the last 5 years. For 
example, at year-end 2005, the Reserve Banks received about 4 percent 
of checks deposited with them for collection in electronic form and 
presented approximately 28 percent of their checks in electronic 
form.\7\ In December 2010, the Reserve Banks received about 99.7 
percent of checks deposited for forward collection electronically, and 
presented about 98.4 percent of checks electronically. In addition, at 
the end of 2005 virtually all returned checks handled by the Reserve 
Banks were sent to and from the Reserve Banks in paper form. By 
December 2010, the Reserve Banks received 97.1 percent of returned 
checks

[[Page 16863]]

electronically, and delivered about 76.7 percent of returned checks to 
depositary banks electronically.\8\ Based on information from banking 
industry sources, the Board believes that these trends with respect to 
checks handled by the Reserve Banks are representative of trends 
nationwide.\9\
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    \5\ Certain provisions, such as the same-day settlement 
provisions in Sec.  229.36(f), were adopted at later times.
    \6\ Public Law 108-100, 117 Stat. 1177 (codified at 12 U.S.C. 
5001-5018) (2003).
    \7\ Prior to the Check 21 Act, the Reserve Banks presented about 
20 to 25 percent of their check volume electronically, primarily 
under MICR-presentment programs.
    \8\ The proportion of returned checks the Reserve Banks 
delivered electronically to the depositary bank increased from 28 
percent in June 2009 to 76.7 percent in December 2010. The 
proportion of depositary banks to which the Reserve Banks deliver 
returns electronically, while lower, has also increased, from 8 
percent in June 2009 to 52 percent in December 2010.
    \9\ The Electronic Check Clearing House Organization (ECCHO) 
collects data from various check-clearing intermediaries, including 
the Reserve Banks, to estimate the percent of interbank checks that 
are presented electronically. See https://www.eccho.org/check_ps.php.
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Overview of the Proposal

I. Amendments To Encourage Electronic Check Clearing and Check Return

    As a general matter, the Board believes that electronic check-
clearing and check-return methods improve the efficiency of the check 
system. Electronic methods are faster and more resilient, and, at the 
same time, they are less costly and less error prone. Despite the 
increasing number of checks presented and returned electronically, some 
banks continue to demand paper returned checks or present paper checks 
for same-day settlement under Sec.  229.36(f) of Regulation CC. The 
full benefits and cost savings of the electronic methods, however, 
cannot be realized so long as some banks continue to employ paper-
processing methods. Accordingly, under its authority provided in Sec.  
609(c) of the EFA Act, the Board is proposing amendments to subpart C 
of Regulation CC to provide incentives for depositary banks to receive, 
and paying banks to send, returned checks electronically. The Board 
also is proposing amendments to the same-day settlement provisions to 
promote electronic presentment of checks. Further, based on experience 
since the Check 21 Act became effective, the Board is proposing minor 
amendments to subpart D of Regulation CC with respect to substitute 
checks.

A. Expeditious-Return Rule

1. Current Rule
    Regulation CC currently provides that if a paying bank determines 
not to pay a check, it must return the check in an expeditious manner, 
as provided under either the ``two-day/four-day test'' (Sec.  
229.30(a)(1)), or the ``forward-collection test'' ((Sec.  
229.30(a)(2)).\10\ To meet the two-day/four-day test, a paying bank 
must send a returned local check in a manner such that the check would 
normally be received by the depositary bank not later than 4 p.m. local 
time of the depositary bank on the second business day following the 
banking day on which the check was presented to the paying bank. For 
nonlocal checks, a paying bank must send a returned check in a manner 
such that the check would normally be received by the depositary bank 
not later than 4 p.m. local time of the depositary bank on the fourth 
business day following the banking day on which the check was presented 
to the paying bank. Because there now is only one Federal Reserve Bank 
check-processing region, there are no longer any nonlocal checks, and 
the four-day test applies to a null set of checks.\11\
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    \10\ Section 229.31(a) sets forth similar tests for returning 
banks.
    \11\ A local check is a check drawn on a paying bank located in 
the same check-processing region as the depositary bank. 12 CFR 
229.2(r). A nonlocal check is a check drawn on a paying bank located 
in a different check-processing region as the depositary bank. 12 
CFR 229.2(v).
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    The forward-collection test is satisfied if a paying bank sends the 
returned check in a manner that a similarly situated bank would send a 
check (i) of similar amount as the returned check, (ii) drawn on the 
depositary bank, and (iii) deposited for forward collection in the 
similarly situated bank by noon on the banking day following the 
banking day on which the check was presented to the paying bank.\12\
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    \12\ The forward-collection test is satisfied if the paying bank 
``returns a check by means as swift as the means similarly situated 
banks would use for the forward collection of a check drawn on the 
depositary bank.'' See commentary to Sec.  229.30(a)(2).
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    When these tests were adopted in the late 1980s, the expeditious-
return standard presumed that banks could use the same modes of 
transportation for returned checks that they used for forward-
collection checks. Delivering returned checks in the same time and 
manner as forward checks would satisfy the regulation's expeditious-
return requirements. Today, by contrast, forward-check collection is 
almost entirely electronic, and the dedicated air and ground 
transportation for paper checks has largely been discontinued. Some 
depositary banks, however, continue to require that returned checks be 
delivered to them in paper form, making it difficult for paying banks 
and returning banks to meet the expeditious-return requirement. 
Accordingly, the full benefits and cost savings of electronic check-
return methods cannot be realized if paying banks and returning banks 
must incur substantial expense to deliver returned checks to the banks 
that continue to require that paper checks be returned. Moreover, as 
technology has improved, the Board understands that the initial 
implementation and ongoing costs incurred by a depositary bank to 
receive returned items electronically have decreased substantially. For 
example, the Reserve Banks now provide electronic copies of returned 
checks in .pdf files to small depositary banks, which can use the .pdf 
file to print substitute checks on their own premises if necessary. 
Compared to alternative means of receiving electronic returns, this 
approach involves only minimal upfront costs to a depositary bank, such 
as the purchase of a printer capable of double-sided printing and 
magnetic-ink toner cartridges.\13\ After printing the electronic 
copies, the depositary bank can process them in the same way it 
processes paper checks that are physically delivered to it.
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    \13\ Prior to developing the capability of providing the 
electronic .pdf copies, it may have been necessary for a depositary 
bank, or its processor, to develop systems capable of automated 
processing of incoming electronic data files (e.g., X9.100-187 
files) representing returned checks and to integrate these systems 
with the bank's other existing systems, such as the bank's demand-
deposit-account systems that maintain the bank's customer balances.
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2. Proposed Expeditious Return Requirement
    The Board believes that a fully-electronic check-return system 
benefits the nation's payment system, as well as consumers and 
businesses. Additionally, the Board believes that electronic check 
return substantially reduces risks to the check system and that the 
costs to a bank to receive returned checks electronically have markedly 
declined. Therefore, the Board believes that it is appropriate for the 
risk of non-expeditious return to rest with a depositary bank that 
chooses not to accept electronic returns. Accordingly, to encourage 
depositary banks to agree to receive returned checks electronically, 
and to avoid imposing increased cost on paying banks to return checks 
expeditiously to depositary banks that do not accept electronic 
returns, the Board proposes to amend Regulation CC to provide that a 
depositary bank would not be entitled to expeditious return unless it 
agrees to receive electronic returns directly or indirectly from the 
paying bank returning the check.\14\ The Board proposes to define a new 
term,

[[Page 16864]]

``electronic return,'' and to establish requirements for an item to 
qualify as an electronic return.\15\ Under the proposal, an electronic 
return would be treated as if it were a check for purposes of subpart C 
of the regulation (See Sec.  229.33 in the section-by-section 
analysis).\16\
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    \14\ The paying bank initiating the return would still be 
subject to the midnight deadline for all returned checks. See 
Uniform Commercial Code (UCC) Sec.  4-302.
    \15\ See proposed Sec.  229.2(v) (definition of ``electronic 
return'') in the section-by-section analysis.
    \16\ See proposed Sec.  229.34 in the section-by-section 
analysis for warranties made with respect to electronic returns.
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    Sections 229.30(a) and 229.31(a), respectively, would continue to 
set forth the general expeditious return rule for paying banks and 
returning banks. Proposed Sec. Sec.  229.30(b) and 229.31(b) would set 
forth the exceptions to the expeditious return requirements, one of 
which would be a new exception: There is no expeditious return 
requirement if the depositary bank has not agreed to accept the 
returned check electronically as described in proposed Sec.  229.32(a). 
Under proposed Sec.  229.32(a), a depositary bank may agree to receive 
an ``electronic return'' from the paying bank so as to be entitled to 
expeditious return: (1) Directly from the paying bank; (2) directly 
from a returning bank that holds itself out as willing to accept 
electronic returns directly or indirectly from the paying bank and has 
agreed to return checks expeditiously under Sec.  229.31(a); or (3) as 
otherwise agreed with the paying bank, such as through a network 
provided by a clearing house or other third party.
    The Board proposes to delete the forward-collection test for 
expeditious return from Sec. Sec.  229.30(a) and 229.31(a). This test 
was originally included because paying banks and returning banks were 
in some cases (such as that of a remote depositary bank) not able to 
meet the two-day/four-day test, and the forward-collection test 
provided that in these cases paying banks and returning banks 
nonetheless satisfied the expeditious return requirement so long as the 
returned check was delivered to the depositary bank in the same time 
and manner that a forward-collection check would be delivered to the 
bank (in its role as paying bank). Given that under the Board's 
proposal, however, a paying bank or returning bank must satisfy the 
expeditious return requirement only if the depositary bank agrees to 
receive electronic returns, a paying bank or returning bank should 
always be able to satisfy the two-day test with respect to a depositary 
bank to which the test applies. Specifically, geographic remoteness of 
a depositary bank from the paying bank should not preclude an 
electronic return from reaching the depositary bank within two business 
days of a check's presentment to the paying bank. Accordingly, the 
Board believes that the forward-collection test is not necessary in 
light of the Board's proposal.
    Additionally, because there are no longer nonlocal checks (see the 
discussion below in section III), the four-day test for expeditious 
return of a nonlocal check no longer applies to any checks, and the 
Board proposes to eliminate that test as well. Under the Board's 
proposed rule, the two-day test for expeditious return will be the only 
test in Sec. Sec.  229.30(a) and 229.31(a). Therefore, a paying bank or 
returning bank would have to send the returned check expeditiously such 
that the depositary bank would normally receive the check no later than 
4 p.m. (local time of the depositary bank) on the second business day 
following the banking day on which the check was presented to the 
paying bank.
3. Alternate Approaches Considered
    The Board requests comment on alternate approaches to revising the 
expeditious return rule to encourage electronic returns. One possible 
alternate approach would require a bank that holds itself out as a 
returning bank to accept an electronic return from any other bank that 
similarly holds itself out as a returning bank. This approach would 
ensure that even if the paying bank and depositary bank had electronic 
return agreements with different returning banks, the electronic return 
could reach the depositary bank. This approach, however, may be costly 
for returning banks to implement, because they would have to establish 
electronic return connections and agreements with every other returning 
bank. A second alternative would require an electronic return to be 
returned through the forward-collection chain (essentially reverting to 
the pre-Regulation CC rule). Some depositary banks, however, have 
arrangements under which returned checks are delivered to a different 
location than that from which the depositary bank sends its checks for 
forward collection.\17\ The second alternative might impose barriers to 
these arrangements. Both of these alternatives therefore appeared to be 
more operationally complex and costly than the proposed approach. 
Nonetheless, the Board requests comment on the desirability of these 
and other alternatives to the Board's proposal.
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    \17\ For example, a depositary bank may collect checks through a 
correspondent bank or processor, but have returned checks delivered 
directly to the depositary bank itself. Conversely, a depositary 
bank may arrange with another bank to apply the other bank's 
indorsement as the depositary-bank indorsement, such that depositary 
bank's returned checks are handled by the other bank. See Sec.  
229.35(d).
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B. Notice of Nonpayment Requirement

    Under current Sec.  229.33(a), if a paying bank determines not to 
pay a check in the amount of $2,500 or more, it must provide notice of 
nonpayment such that the notice is received by the depositary bank by 4 
p.m. (local time) on the second business day following the banking day 
on which the check was presented to the paying bank. Return of the 
check itself satisfies the notice of nonpayment requirement if the 
return meets the timeframe requirement for a notice of nonpayment. The 
current two-day timeframe for notice of nonpayment is the same as the 
two-day timeframe for expeditious return set forth in proposed 
Sec. Sec.  229.30(a) and 229.31(a). Accordingly, because a depositary 
bank should receive the returned check within the current notice-of-
nonpayment timeframe, the Board proposes to delete the notice of 
nonpayment provision as unnecessary.
    Under the Board's proposal, a depositary bank that does not agree 
to receive electronic returns from the paying bank, as specified in 
Sec.  229.32(a), will not receive expeditious return or a notice of 
nonpayment. The Board, however, believes that the proposed changes give 
depositary banks a strong incentive to make arrangements to receive 
returns electronically. The Board requests comment on whether the 
notice-of-nonpayment requirement should be retained for banks that do 
not agree to accept electronic returns in a nearly all-electronic 
environment.

C. Same-Day Settlement Rule

    Section 229.36(f) requires a paying bank to provide same-day 
settlement for checks presented in accordance with reasonable delivery 
requirements established by the paying bank and presented at a location 
designated by the paying bank and by 8 a.m. (local time of the paying 
bank) on a business day. Prior to the Regulation CC same-day settlement 
rule, which became effective in 1994, private-sector collecting banks 
sometimes (1) did not obtain settlement from the paying bank until the 
day after presentment or (2) were charged ``presentment fees'' by the 
paying bank, which the paying bank would deduct from the amount it paid 
in settlement of the checks presented to it.\18\ By contrast, under 
Sec. Sec.  13(1) and 16(13) of the Federal Reserve Act and Sec.  
210.9(b)(1) of Regulation J (12 CFR

[[Page 16865]]

part 210), the Reserve Banks obtain same-day settlement at par for 
checks presented to a paying bank before its cut-off hour, which is 
generally 2:00 p.m. or later.\19\ To reduce the competitive disparity 
between the Reserve Banks and other collecting banks, and to more 
equitably balance the bargaining power between collecting and paying 
banks, the same-day settlement rule (1) required a paying bank to 
provide same-day settlement to a private-sector collecting bank, 
provided that presentment was made by 8 a.m. in accordance with 
reasonable delivery requirements established by the paying bank and (2) 
prohibited the paying bank from deducting fees from the amount of its 
settlement for checks presented in accordance with the terms of the 
rule.\20\
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    \18\ 57 FR 46956 (Oct. 14, 1992).
    \19\ Times are stated as local time of the paying bank.
    \20\ In April 1988 the Board requested comment on a proposal 
requiring paying banks to settle on the day of presentment for 
checks presented by any bank prior to 2 p.m., i.e., the same 
timeframe as is applicable to the Reserve Banks. (53 FR 11911 (Apr. 
11, 1988)) The overwhelming majority of commenters, however, 
objected to the proposed 2 p.m. deadline because they believed that 
it would severely disrupt corporate cash management and controlled 
disbursement services, as well as paying banks' operations. See 57 
FR 46956, 46957 (Oct. 14, 1992).
    Further, in March 1998, the Board requested comment on the 
effect of the same-day settlement rule, and on whether remaining 
legal discrepancies between the Reserve Banks and private-sector 
collecting banks, such as the 8 a.m. versus 2 p.m. presentment time 
for same-day settlement, should be further reduced (63 FR 12700, 
Mar. 16, 1998). Most commenters did not believe that the six-hour 
difference in presentment deadlines or other remaining legal 
disparities were a significant impediment to the ability of private-
sector collecting banks to compete with the Reserve Banks. See 63 FR 
68701, 68703 (Dec. 14, 1998). The Board concluded that the costs 
associated with reducing the remaining legal disparities would 
outweigh any payments system efficiency gains, and therefore decided 
not to propose any specific regulatory changes.
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    As noted above, the Check 21 Act facilitated substantial changes in 
the manner in which checks are collected in the United States. In 
December 2010, the Reserve Banks received about 99.7 percent of check-
collection volume electronically, and presented about 98.4 percent of 
their volume electronically. Many paying banks that receive check 
presentments electronically have indicated that they prefer to receive 
all of their interbank check presentments electronically, so that they 
can streamline their back-office operations and eliminate the costs 
associated with processing paper-check presentments. Some collecting 
banks, however, continue to present paper checks to these paying banks 
under the Regulation CC same-day settlement rule.
    To encourage the banking industry's ongoing transition to fully-
electronic interbank check clearing, the Board proposes to allow a 
paying bank to require checks presented for same-day settlement to be 
presented electronically as ``electronic collection items.'' A paying 
bank, however, must have agreed to receive electronic collection items 
from the presenting bank under proposed Sec.  229.36(a). Similar to 
electronic returns, the Board proposes to define a new term, 
``electronic collection item,'' and to establish substantive 
requirements for an item to qualify as an electronic collection item. 
Under the proposal, the timeframes, deadlines, and settlement methods 
for same-day settlement presentments of electronic collection items 
would be the same as those currently in effect for same-day settlement 
presentments of paper checks. The proposed definition of an electronic 
collection item and the ways by which a paying bank agrees to accept 
electronic presentment items from a presenting bank are discussed more 
below in the section-by-section analysis of proposed Sec. Sec.  
229.2(s) and 229.36(a), respectively.
    The proposed rule would not preclude interbank presentment of 
checks in paper form; settlement for such presentments would be subject 
to the UCC, Sec.  229.36(d) if the paying bank has not specified that 
checks presented for same-day settlement be presented as electronic 
collection items, or Regulation J.\21\ The Board requests comment on 
the proposed modification to the same-day settlement rule.
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    \21\ See UCC 4-213 and 4-301.
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II. Electronic Items Not Derived From Checks

    The Board is aware of industry practices in which an electronic 
image of a ``check'' is created, but a check never existed in paper 
(``electronically-created items''). For example, payees collect payment 
by means of electronically-created items (i.e., items that never 
existed in paper form) that resemble images of remotely created checks. 
Similarly, the drawer's bank (the paying bank) might supply a smart-
phone application through which the drawer is able to execute a 
``handwritten'' signature on the phone's screen, and through which the 
signature is attached to an electronic ``check'' that the drawer sends 
via the Internet to the payee, for the payee's subsequent electronic 
deposit with its bank.
    An electronically-created item is not derived from an original 
paper check, and therefore it cannot be used to create a substitute 
check that meets the requirements of the Check 21 Act and Regulation 
CC.\22\ As a practical matter, a bank (including perhaps the depositary 
bank) receiving an electronically-created item cannot distinguish the 
item from any other image of a check that it receives electronically. 
The bank, nonetheless, may transfer the image as if it were an 
electronic collection item or electronic return, or produce a paper 
item that is indistinguishable from a substitute check (although not a 
valid substitute check because the item never existed in paper). A bank 
that transfers an image as if it were an electronic collection item or 
electronic return may be liable under the proposed new warranties (see 
proposed Sec.  229.34) related to electronic collection items and 
electronic returns, or may be liable for breach of the Check 21 Act's 
warranty that a substitute check accurately represents all of the 
information from the original check as of the time the original check 
was truncated. In order to protect a bank that receives an 
electronically-created item from another bank from potential liability, 
the Board proposes that any bank transferring an electronically-created 
image and related information as either an electronic collection item 
or an electronic return would make any warranty the bank would make if 
the electronically-created item were in fact an electronic collection 
item or an electronic return (in other words, as if the item were 
derived from a paper check). As discussed in the section-by-section 
analysis of proposed Sec.  229.34, the proposal would apply the same 
warranties to electronic collection items and electronic returns that 
would apply had those items been handled as paper checks (including 
remotely created checks) or substitute checks.
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    \22\ Under the terms of the Check 21 Act, a substitute check is 
a paper reproduction of an original check that contains an image of 
the front and back of the original check. Regulation CC defines 
original check as ``the first paper check issued with respect to a 
particular payment transaction.'' In the case of an electronically 
created item, there is no original check of which a substitute check 
can be a reproduction.
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    As a result of these proposed new warranties, a bank receiving a 
warranty claim related to an electronic collection item, electronic 
return, or a nonconforming substitute check could pass back its 
liability for the item to the bank from which it had received the 
electronically-created image and information. Although in some 
instances the first bank to make the warranty also may not know whether 
an image and information came from a paper instrument, the Board 
believes that that bank is in the best position to

[[Page 16866]]

know and to protect itself contractually against the risk that it did 
not.
    As noted above, a bank often cannot distinguish between electronic 
items derived from paper checks and electronically-created items. 
Therefore, under the proposal, banks might treat electronically-created 
items as if they were electronic collection items or electronic 
returns. The Board requests comment on whether, in addition to the 
proposed warranties discussed above, it should in the future consider 
making an electronically-created item subject to subpart C of 
Regulation CC as if it were a check. Such a change would result, for 
example, in the paying bank to which the item is presented being 
subject to the regulation's expeditious-return requirement. The Board 
emphasizes that the proposed warranties, as well as making 
electronically-created items subject to subpart C as if they were 
checks, would not necessarily affect any future determinations by the 
Board or the Bureau of Consumer Financial Protection as to whether such 
electronically-created items are electronic fund transfers subject to 
Regulation E (12 CFR part 205).
    The Board proposes that the existing warranties related to remotely 
created checks be extended to electronically-created items that 
resemble images of remotely created checks. As a general matter, the 
Board is not aware of reliable data regarding the prevalence of 
remotely created checks and similar electronically-created items.\23\ 
The Board requests comment on the frequency of use of these types of 
checks and items, the rate at which they are returned unpaid, and the 
extent to which payees have valid reasons to obtain payment by means of 
these items, as opposed to using an ACH debit transaction or other 
means.
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    \23\ Banks cannot readily differentiate remotely created checks 
and electronically-created items that resemble remotely created 
checks from regular checks, which makes data regarding these items 
difficult to obtain.
    In March 2008, the Reserve Banks published an estimate, based on 
visual inspection of a sample of about 35,000 checks, that about one 
percent of all checks in 2007 were remotely created. See page 33 of 
the Reserve Banks' 2007 Check Sample Study: https://www.frbservices.org/files/communications/pdf/research/2007_check_sample_study.pdf. The study's definition of the item in question 
was somewhat different than Regulation CC's definition of a remotely 
created check.
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III. Amendments Related to the Elimination of Nonlocal Checks

    In response to the continued nationwide decline in check usage and 
banks' rapidly increasing use of electronic check-clearing methods 
since the Check 21 Act, as well as to meet the cost recovery 
requirements of the Monetary Control Act of 1980, the Federal Reserve 
Banks have ceased check-processing operations at all of their check-
processing offices except one.\24\
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    \24\ In 2003, the Reserve Banks had 45 check-processing offices. 
Cleveland became the sole remaining Reserve Bank check-processing 
office on February 27, 2010. Historically, appendix A to Regulation 
CC identified each Federal Reserve Bank check-processing office and 
listed under each office the first four digits of the routing 
numbers of the depository institutions served by that office. 
Appendix A thereby helped depositary banks determine whether a 
deposited check's paying bank was local or nonlocal. In conjunction 
with the Reserve Banks' cessation of check-processing activities at 
each office, the Board published conforming amendments to appendix A 
so that the appendix accurately reflected which institutions were 
served by each remaining office. With Cleveland now the sole office, 
all paying banks' routing symbols are listed under it.
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    The EFA Act's and Regulation CC's funds-availability schedule 
differentiates between ``local checks'' and ``nonlocal checks,'' which 
are defined in terms of which ``check-processing region'' the paying 
bank is located in relative to the depositary bank.\25\ The EFA Act and 
Regulation CC define a ``check-processing region'' in terms of the 
geographical area served by a Federal Reserve Bank check-processing 
center.\26\ The Reserve Banks' office closures have had the effect of 
reducing to one the number of check-processing regions. Accordingly, 
there are no more ``nonlocal checks,'' because all paying banks and 
depositary banks are located in the same check-processing region.\27\
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    \25\ 12 CFR 229.2(r) and 229.2(v). A ``local check'' is one that 
is payable by a bank located in the same check-processing region as 
the depositary bank. By contrast, a ``nonlocal check'' is one that 
is payable by a bank located in a different check-processing region 
than the depositary bank.
    \26\ Section 602(9) of EFA Act defines check processing region 
as ``the geographical area served by a Federal Reserve bank check 
processing center or such larger area as the Board may prescribe by 
regulations.'' Section 229.2(m) defines check processing region as 
``the geographical area served by an office of a Federal Reserve 
Bank for purposes of its check-processing activities.''
    \27\ A deposit of a ``local check'' receives two-day funds 
availability under the regulation, whereas nonlocal checks received 
five-day availability. The elimination of nonlocal checks therefore 
has improved funds availability for banks' customers.
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    Because there are no more nonlocal checks, certain provisions in 
the regulation can be substantially simplified. Specifically, the Board 
proposes to delete the definitions in subpart A that relate to 
distinguishing local from nonlocal checks (specifically, the 
definitions of ``check-processing region,'' ``local check,'' ``local 
paying bank,'' ``nonlocal check,'' and ``nonlocal paying bank''), as 
well as the related portions of appendix A to the regulation. The Board 
also proposes to streamline the funds-availability and disclosure 
provisions in subpart B and to update the model funds-availability 
forms set forth in appendix C to the regulation.\28\ The Board proposes 
that a bank basing its disclosures on the models currently in the 
appendix would continue to receive a safe harbor for doing so up to 12 
months after a final rule becomes effective, provided that the 
disclosures accurately reflect the bank's policies and practices. 
Finally, the Board proposes to update the preemption determinations, 
with respect to states' funds-availability laws, that are set forth in 
appendix F to the regulation.\29\
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    \28\ The proposed updates to the model forms in appendix C are 
based on consumer testing of the forms, and are discussed in more 
detail in the section-by-section analysis below. A detailed report 
regarding the consumer testing is available on the Board's public 
Web site, https://www.federalreserve.gov, along with this proposed 
rule.
    \29\ See Regulation CC Sec.  229.20 and EFA Act Sec.  608. A 
state's funds-availability law must have been in effect on or before 
September 1, 1989, to not be preempted by the regulation.
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IV. Dodd-Frank Act Amendments

A. EFA Act Dollar Amounts

    Section 1086 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act of 2010 (Dodd-Frank Act) amends the EFA Act by 
increasing from $100 to $200 the amount of deposited funds that banks 
must make available for withdrawal by opening of business on the next 
day.\30\ The effective date of this provision of the act is the 
``designated transfer date,'' which the Secretary of the Treasury has 
determined to be July 21, 2011.\31\ This provision of the EFA Act is 
implemented in Sec.  229.10(c)(1)(vii). Additionally, the model 
disclosure forms set forth in current appendix C reflect the 
requirement that a bank must make $100 of the deposit available on the 
next business day. When the Dodd-Frank Act's increase to $200 becomes 
effective, banks should ensure that their disclosures reflect the new 
funds-availability schedule and that customers are notified of the 
changes in policy in accordance with Sec.  229.18(e). Specifically, 
effective July 21, 2011, a bank basing its funds-availability 
disclosure on current model C-3, C-4, or C-5 must ensure that its 
disclosure indicates that the first $200 (rather than $100) of a check 
deposit will be

[[Page 16867]]

available on the next business day after the day of deposit.\32\
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    \30\ See Sec.  1086(e) of the Dodd-Frank Act, Public Law 111-
203, 124 Stat. 1376 (2010).
    \31\ See Sec.  1062 of the Dodd-Frank Act. The designated 
transfer date is subject to an extension to up to 18 months after 
the Dodd-Frank Act's date of enactment.
    \32\ Per Sec.  229.18(e), a bank must provide a change-in-terms 
notice to existing consumer customers by August 21, 2011.
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    Section 1086 amends the EFA Act to require the Board, jointly with 
the Bureau of Consumer Financial Protection (Bureau), to update the 
dollar amounts to reflect inflation every five years after December 31, 
2011.\33\ These amounts include the amount of funds a depositary bank 
must make available from a deposit of a check not subject to next-day 
availability (Sec.  229.10(c)(1)(vii)), by cash or similar means (Sec.  
229.12(b)), and under the new-account and large-deposit exceptions 
(Sec. Sec.  229.13(a) and (b)). These amounts also include the EFA 
Act's damage limitations (Sec.  229.21(a)). To facilitate future 
amendments to the regulation in this regard, the proposed amendments 
minimize the number of references to specific dollar amounts. For 
example, in the future, the $100 (which increases to $200 as of the 
transfer date) mentioned above would be considered ``the minimum amount 
of a deposit that must be made available on the next day.'' The Board 
plans to seek comment on proposed methods of indexing the amounts to 
inflation jointly with the Bureau at a later date.
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    \33\ The amounts are indexed to the Consumer Price Index for 
Urban Wage Earners and Clerical Workers (CPI-W), as published by the 
Bureau of Labor Statistics (BLS), rounded to the nearest multiple of 
$25. See Sec.  1086(f) of the Dodd-Frank Act.
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B. Rule-Writing Authority

    Section 1086 also amends the Board's rule-writing authority under 
the EFA Act by making certain rule-writing authorities joint with the 
Bureau. Specifically, as of the transfer date, the Board's authority to 
implement the EFA Act's provisions (EFA Act Sec.  609(a)), reduce hold 
periods (EFA Act Sec.  603(d)(1)), establish exceptions to the funds-
availability schedule (EFA Act Sec.  604(f)), and publish model 
disclosure provisions (EFA Act Sec.  605(f)(1)) will become joint with 
the Bureau. Accordingly, after the transfer date, any rules promulgated 
pursuant to these authorities will be done so jointly with the Bureau.

C. Administrative Enforcement

    The Dodd-Frank Act eliminates the Office of Thrift Supervision as 
of July 21, 2011, the ``transfer date'' provided in Sec.  311 of the 
Dodd-Frank Act, and transfers enforcement authority for insured savings 
associations under Sec.  8 of the Federal Deposit Insurance Act to the 
Office of the Comptroller of the Currency.\34\ Accordingly, as of the 
transfer date, compliance with part 229 will be enforced by the Office 
of the Comptroller of the Currency in the case of savings associations 
with deposits insured by the Federal Deposit Insurance Corporation. The 
administrative enforcement provisions are contained in Sec.  229.3.
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    \34\ The transfer date is subject to an extension of up to 18 
months after the Dodd-Frank Act's date of enactment. See Sec.  311 
of the Dodd-Frank Act.
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V. Other Proposed Amendments

    The Board proposes other amendments to the provisions of Regulation 
CC and its commentary. These proposed changes are discussed in the 
section-by-section analysis below.

Section-by-Section Analysis

    Paragraph citations in this section-by-section analysis are as 
proposed to be renumbered, unless otherwise explicitly stated. Sections 
not discussed below are either unchanged or have only technical or 
conforming amendments. The Board requests comment on all aspects of the 
proposed rule.

I. Subpart A

A. Section 229.1--Authority and Purpose, Organization

    The Board proposes to add to Sec.  229.1(b) descriptions of the 
appendices to the regulation, as well as amendments to conform Sec.  
229.1(b) to amendments proposed in this notice.

B. Section 229.2--Definitions

    The definitions of terms in Sec.  229.2 were incorporated into the 
regulation at different times and are not currently in alphabetical 
order. The Board proposes that the paragraphs in this section be 
renumbered so that defined terms are in alphabetical order. Similarly, 
the Board proposes to renumber the paragraphs in the commentary to 
reflect the proposed renumbering.
1. Section 229.2(b)--Automated Clearinghouse (ACH) Credit Transfer
    Because the regulation uses the term ACH only within other 
definitions, the Board proposes to delete the definition of the term 
``automated clearinghouse'' and replace it with a new defined term, 
``automated clearinghouse (ACH) credit transfer.'' This phrase is used 
in the definition of electronic payment (Sec.  229.2(t)) and in the 
commentary to Sec.  229.10(b), which requires a bank to make funds 
received for deposit by an electronic payment available for withdrawal 
the next day. The Board intends no change to the regulation's substance 
by this proposed clarifying definitional change.
2. Section 229.2(c)--Automated Teller Machine or ATM
    The Board proposes to clarify that an automated teller machine 
(ATM) includes only those devices at which a person may make deposits 
by cash or paper check. For example, a remote deposit capture device 
would not be considered an ATM because a bank's customer would be 
depositing an image of the check, not the paper check, into the 
account. The Board proposes conforming amendments to the commentary of 
this section. Additionally, the Board proposes to provide an example of 
the ``other account transactions'' that may be performed at an 
automated teller machine (ATM); specifically, making cash withdrawals 
from an account.
3. Section 229.2(r)--Depositary Bank
    The Board proposes to clarify that a bank that rejects a check 
submitted for deposit is not a depositary bank. The rationale for this 
proposed change is discussed in more detail below in this section-by-
section analysis under Sec.  229.52.
4. Section 229.2(s)--Electronic Collection Item
    The Board proposes in new Sec.  229.2(s) to define the new term 
``electronic collection item'' as an electronic image of and 
information related to a check that a bank sends for forward collection 
and that a paying bank has agreed to receive under Sec.  229.36(a), and 
that is sufficient to create a substitute check.\35\ Under the proposed 
definition, the image and information must conform to American National 
Standard Specifications for Electronic Exchange of Check and Image 
Data--X9.100-187, in conjunction with its Universal Companion Document, 
(hereinafter collectively referred to as ANS X9.100-187), unless the 
parties otherwise agree.\36\ If an electronic collection item satisfies 
the requirements set forth in proposed Sec.  229.2(s), then, as stated 
in proposed Sec.  229.33, the provisions of subpart C would apply to 
the electronic collection item as if it were a check. (See proposed 
commentary to

[[Page 16868]]

Sec.  229.2(s)).\37\ Some electronic presentment agreements, however, 
may not require an image of the check. Electronic items presented under 
these agreements would not be electronic collection items because they 
are not sufficient to create a substitute check, nor would they be 
treated as checks for purposes of subpart C. The proposed commentary 
also explains that an electronic collection item that contains an image 
of the front and back of a substitute check (as opposed to an original 
check) would be an electronic representation of a substitute check, as 
that phrase is defined in proposed Sec.  229.2(hh) (current Sec.  
229.2(xx)). Not all electronic representations of substitute checks, 
however, would qualify as an electronic collection item, because, to be 
an electronic collection item, an electronic representation of a 
substitute check must contain sufficient information to create a 
substitute check.
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    \35\ The agreement to receive an electronic collection item 
could be in the form of a Federal Reserve Bank operating circular or 
a clearinghouse rule.
    \36\ X9.100-187 is available from https://www.x9.org. The UCD for 
X9.100-187 is available at https://www.checkimagecentral.org/pdf/UCD_X9_100-187-2008_Version_1.2.pdf.
    \37\ For example, a paying bank receiving presentment of an 
electronic collection item would be subject to the regulation's 
expeditious-return requirement, provided the depositary bank has 
agreed to accept electronic returns from the paying bank under Sec.  
229.32(a).
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    The Board believes that ANS X9.100-187 is the most prevalent 
industry standard for electronic images and information that will 
enable the receiving bank to create a substitute check. The Board 
recognizes, however, that certain banks may use a different standard 
and that, as is the case with many technology standards, the standard 
likely will evolve. To the extent that banks use a different standard, 
the proposed definition of electronic collection item would permit 
parties to agree to a standard other than ANS X9.100-187 and still have 
the item qualify as an electronic collection item that is treated as a 
check for purposes of subpart C, provided that the item is sufficient 
to create a substitute check. The Board requests comment on the 
proposed standard for an electronic collection item and whether any 
other standard should be specified in the regulation.
5. Section 229.2(u)--Electronic Presentment Point
    The Board proposes in new Sec.  229.2(u) to define electronic 
presentment point as the electronic location that the paying bank has 
designated for receiving electronic collection items. This point may be 
either an e-mail address or other electronic address. The Board 
requests comment on whether this definition provides enough 
specificity.
6. Section 229.2(v)--Electronic Return
    The Board proposes in new Sec.  229.2(v) to define the new term 
``electronic return'' as an electronic image of and information related 
to a check that a paying bank has determined not to pay and that a 
depositary bank has agreed to receive under Sec.  229.32(a), and that 
is sufficient to create a substitute check. The image and information 
must conform to ANS X9.100-187, unless the parties otherwise agree. The 
proposed commentary explains that if an electronic return satisfies the 
requirements set forth in Sec.  229.2(v), then the provisions of 
subpart C apply to the electronic return as if it were a check (See 
proposed Sec.  229.33).\38\
---------------------------------------------------------------------------

    \38\ Like an electronic collection item, an electronic return 
may be an electronic representation of a substitute check, but not 
all electronic representations of substitute checks would qualify as 
an electronic return.
---------------------------------------------------------------------------

    The proposed commentary to Sec.  229.2(v) explains that a 
depositary bank's agreement with a returning bank to accept .pdf files 
that are sufficient to create substitute checks would be one example of 
banks varying by agreement the regulation's requirement that an 
electronic return conform with ANS X9.100-187. By agreeing with a 
returning bank to accept an electronic return in the form of a .pdf 
file, a depositary bank would thereby be entitled to expeditious 
return. The Board requests comment on the proposed standard for an 
electronic return and whether any other standard should be specified in 
the regulation.
7. Section 229.2(w)--Electronic Return Point
    The Board proposes in new Sec.  229.2(w) to define electronic 
return point as the electronic location that the depositary bank has 
designated for receiving electronic returns. The proposed commentary 
notes that an electronic return point may be an e-mail address or other 
electronic address that a depositary bank has designated as the place 
to which electronic returns must be delivered. The Board requests 
comment on whether this definition provides enough specificity.
8. Section 229.2(hh)--Paper or Electronic Representation of a 
Substitute Check
    The Board proposes to modify the commentary to the definition of 
this term to note that an electronic representation of a substitute 
check may also be an electronic collection item or electronic return if 
the electronic representation contains sufficient information for 
creating a substitute check and conforms to ANS X9.100-187, or another 
format to which the parties agreed.
9. Section 229.2(pp)--Routing Number
    The Board proposes to add to the definition a new subparagraph 
providing that the term also includes the bank-identification number 
contained in the electronic image of or information related to a check. 
Further, the Board also proposes to move the two introductory 
paragraphs in appendix A, which provide general information about 
routing numbers, to the commentary to the definition of routing number.
10. Deleted Terms
    Check-processing region, local check, local paying bank, nonlocal 
check, and nonlocal paying bank. Because there is now only one 
nationwide check-processing region, there are no longer any nonlocal 
checks, and the definitions in the regulation implementing the 
distinctions between local and nonlocal checks are no longer necessary. 
Accordingly, the Board proposes to delete from the regulation the 
definitions of ``check-processing region (current Sec.  229.2(m)), 
``local check'' (current Sec.  229.2(r)), ``local paying bank'' 
(current Sec.  229.2(s)), and ``nonlocal paying bank'' (current Sec.  
229.2(w)), and the commentary thereto.
    Similarly situated bank. The only place the current regulation uses 
this term is in the forward-collection test for expeditious return. 
Because the Board proposes to delete that test from the regulation (as 
discussed below in this section-by-section analysis under Sec. Sec.  
229.30(a) and 229.31(a)), the regulation's definition of similarly 
situated bank is no longer necessary and the Board proposes to delete 
current Sec.  229.2(ee).

II. Subpart B

    Throughout subpart B and the commentary thereto, the Board proposes 
to eliminate all references to ``check-processing regions,'' ``local 
checks,'' ``local paying banks,'' ``nonlocal checks,'' and ``nonlocal 
paying banks.''

A. Section 229.10(c)--Next-Day Availability of Certain Check Deposits

1. Section 229.10(c)(1)(vi)
    Given that there is only one nationwide check-processing region, 
the Board proposes in Sec.  229.10(c)(1)(vi) to delete the phrase ``if 
both branches are located in the same state or check-processing 
region.'' As a result, the subparagraph would require a depositary bank 
to provide next-day availability for a check deposited in a

[[Page 16869]]

branch of the depositary bank and drawn on the same or another branch 
of the same bank.
2. Section 229.10(c)(1)(vii)
    Section 1086(e) of the Dodd-Frank Act increases from $100 to $200 
the minimum amount of funds deposited by check or checks on a given 
business day that a bank must make available by opening of business on 
the next business day pursuant to Sec.  603(a)(2)(D) of the EFA Act. 
That provision of the EFA Act is implemented in Sec.  229.10(c)(1)(vii) 
of Regulation CC, and the increase is expected to take effect on July 
21, 2011, regardless of whether the Board and the Bureau have amended 
Regulation CC. Accordingly, the Board proposes to amend the commentary 
to Sec.  229.10(c)(1)(vii) to facilitate future amendments to the 
minimum amount of a deposited check a bank must make available on the 
business day following the banking day of deposit. Specifically, the 
Board proposes to replace references to ``$100'' with references to 
``the minimum amount.'' The Board proposes to make this amendment 
throughout the commentary, as well as in the model forms.
3. Section 229.10(c)(2)
    The Board proposes to delete current Sec.  229.10(c)(2), which 
states that a depositary bank shall make funds available by the second 
business day after the banking day on which a check is deposited in the 
case of a check deposit that meets the requirements of Sec. Sec.  
229.10(c)(1)(ii), (iii), (iv), or (v), except the check is not 
deposited in person.\39\ In the absence of nonlocal checks, the checks 
described Sec.  229.10(c)(2) are subject to the same rule as the 
general rule set forth in proposed Sec.  229.12. Section 229.10(c)(2) 
is therefore no longer necessary.
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    \39\ These checks include U.S. Postal Service money orders, 
checks drawn on Federal Reserve Banks or Federal Home Loan Banks, 
checks drawn by state or local governments, or cashier's checks, 
certified checks, or teller's checks.
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B. Section 229.12--Availability Schedule

1. Proposed Sec.  229.12(a)--In General
    The Board proposes to delete current Sec.  229.12(a). It specifies 
the effective date (September 1, 1990) for Sec.  229.12 and is no 
longer necessary.
    The Board proposes that new Sec.  229.12(a) set forth the general 
funds-availability rule for deposits of checks: Unless subject to one 
of the enumerated exceptions, funds from a check deposit must be made 
available for withdrawal by the second business day following the 
banking day of deposit. Proposed new Sec.  229.12(a) is derived from 
current Sec.  229.12(b), which sets forth local check availability. In 
the absence of a distinction between local checks and nonlocal checks, 
current Sec.  229.12(b)(1), (2), (3), and (4) are subsumed within this 
general rule, and the Board proposes to delete them.\40\ Similarly, 
current Sec.  229.12(c) applies to nonlocal checks, which is now a null 
set, and the Board proposes to delete Sec.  229.12(c) and commentary 
thereto.
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    \40\ Current Sec.  229.12(b) states which checks are subject to 
second-day availability. These checks include local checks and 
checks that meet the requirements of Sec. Sec.  229.10(c)(1)(ii), 
(iii), (iv), or (v), except the check is not deposited in person.
---------------------------------------------------------------------------

2. Section 229.12(b)--Withdrawal by Cash or Similar Means
    Section 229.12(b) implements the EFA Act's permissive adjustment to 
the funds-availability rules for withdrawals by cash or similar means. 
In part, a bank may delay availability for withdrawal by cash or 
similar means by one business day, provided that the bank makes $400 of 
the deposited funds available for withdrawal not later than 5 p.m. on 
the business days on which the funds must be made available under the 
funds-available schedule. Like other amounts specified in the EFA Act, 
this $400 will be adjusted every five years for inflation. In order to 
facilitate future adjustments to the amount, the Board proposes to 
amend the commentary to Sec.  229.12(b) by replacing references to 
``$400'' with references to ``the cash withdrawal amount.'' The Board 
proposes to make similar amendments throughout the commentary and model 
forms.
3. Section 229.12(d)--Deposits at Nonproprietary ATMs
    As indicated in the EFA Act's legislative history, Congress adopted 
the five-day maximum hold on nonproprietary ATM deposits to match the 
five-day maximum hold on a nonlocal check deposit, because the 
depositary bank did not know the composition of a nonproprietary ATM 
deposit (that is, whether the deposit consisted of cash, local checks, 
nonlocal checks, etc.).\41\ In the absence of nonlocal checks, however, 
there is no longer any class of check that is subject to a maximum 
five-day hold.
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    \41\ The EFA Act conference report states that ``nonproprietary 
ATMs today do not distinguish among check deposits or between check 
and cash deposits'' (H.R. Rep. No. 261, 100th Cong., 1st Sess. 179 
(1987)).
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    EFA Act Sec.  603(d)(1) states that ``The Board shall, by 
regulation, reduce the time periods established under subsections (b), 
(c), and (e) to as short a time as possible and equal to the period of 
time achievable under the improved check clearing system for a 
receiving depository institution to reasonably expect to learn of the 
nonpayment of most items for each category of checks.'' The statute's 
legislative history recommends a quantitative benchmark for the Board 
to use to determine whether to reduce these hold periods: a receiving 
bank could reasonably expect to learn of the return of two-thirds of 
the checks in a given category before a bank must make the deposited 
funds available for withdrawal at the opening of business.\42\
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    \42\ Conference Report on H.R. 27 (H. Rept. 100-261), 100th 
Congress, 1st session, 179 (1987), pp. H6906-7.
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    As mentioned above