Regulation J
Subpart A--Collection of Checks and
Other Items By Federal Reserve Banks
Sec. 210.12 Return of cash items and handling of returned checks.
(a) Return of items—(1) Return of cash items handled by Reserve Banks. A paying bank that receives a cash item from a Reserve Bank, other than for immediate payment over the counter, and that settles for the item as provided in §210.9(b) of this subpart, may, before it has finally paid the item, return the item to any Reserve Bank (unless its Administrative Reserve Bank directs it to return the item to a specific Reserve Bank) in accordance with subpart C of part 229 of this chapter (Regulation CC), the Uniform Commercial Code, and the Reserve Banks' operating circulars. A paying bank that receives a cash item from a Reserve Bank also may return the item prior to settlement, in accordance with §210.9(b) of this subpart and the Reserve Banks' operating circulars. The rules or practices of a clearinghouse through which the item was presented, or a special collection agreement under which the item was presented, may not extend these return times, but may provide for a shorter return time.
(2) Return of checks not handled by Reserve Banks. A paying bank that receives a check as defined in §229.2(k) of this chapter (Regulation CC), other than from a Reserve Bank, and that determines not to pay the check, may send the returned check to any Reserve Bank (unless its Administrative Reserve Bank directs it to send the returned check to a specific Reserve Bank) in accordance with subpart C of part 229 of this chapter (Regulation CC), the Uniform Commercial Code, and the Reserve Banks' operating circulars. A returning bank may send a returned check to any Reserve Bank (unless its Administrative Reserve Bank directs it to send the returned check to a specific Reserve Bank) in accordance with subpart C of part 229 of this chapter (Regulation CC), the Uniform Commercial Code, and the Reserve Banks' operating circulars.
(b) Handling of returned checks. (1) The following parties, in the following order, are deemed to have handled a returned check sent to a Reserve Bank under paragraph (a) of this section—
(i) The paying or returning bank;
(ii) The paying bank's or returning bank's Administrative Reserve Bank;
(iii) The Reserve Bank that receives the returned check from the paying or returning bank (if different from the paying bank's or returning bank's Administrative Reserve Bank); and
(iv) Another Reserve Bank, if any, that receives the returned check from a Reserve Bank.
(2) A Reserve Bank that is not described in paragraph (b)(1) of this section is not a party that handles a returned check and is not a returning bank with respect to a returned check.
(3) The identity and order of the parties under paragraph (b)(1) of this section determine the relationships and the rights and liabilities of the parties under this subpart, part 229 of this chapter (Regulation CC), and the Uniform Commercial Code.
(c) Paying bank's and returning bank's agreement. The warranties,
authorizations, and agreements made pursuant to this paragraph may not
be disclaimed and are made whether or not the returned check bears an
indorsement of the paying bank or returning bank. By sending a returned
check to a Reserve Bank, the paying bank or returning bank does all of
the following.
(1) Authorization to handled returned check. The paying bank or
returning bank authorizes the paying bank's or returning bank's
administrative Reserve Bank, and any other Reserve Bank or returning
bank to which the returned check is sent, to handle the returned check
(and authorizes any Reserve Bank that handles settlement for the
returned check to make accounting entries) subject to this subpart and
to the Reserve Banks' operating circulars.
(2) Warranties for all returned checks. The paying bank or
returning bank warrants to each Reserve Bank handling a returned check
that the returned check bears all indorsements applied by parties that
previously handled the returned check, in paper or electronic form, for
forward collection or return.
(3) Warranties for all returned checks that are electronic items. A
paying bank or returning bank that sends a returned check that is an
electronic item makes the returning bank warranties set forth in and
subject to the terms of Sec. 229.34 of this chapter for the electronic
item as if it were a check subject to that section.
(4) Warranties for returned checks that are electronic items that
are not representations of substitute checks. If the returned check is
an electronic item that is not a representation of a substitute check,
the paying bank or returning bank warrants to each Reserve Bank
handling the returned check that--
(i) The electronic image portion of the item accurately represents
all of the information on the front and back of the original check as
of the time that the original check was truncated; the information
portion of the item contains a record of all MICR-line information
required for a substitute check under Sec. 229.2(aaa) of this chapter;
and the item conforms to the technical standards for an electronic item
set forth in an operating circular; and
(ii) No person will receive a transfer, presentment, or return of,
or otherwise be charged for, the electronic item, the original item, or
a paper or electronic representation of the original item such that the
person will be asked to make payment based on an item it already has
paid.
(5) Paying bank or returning bank's liability to Reserve Bank. (i)
Except as provided in paragraph (c)(5)(ii) of this section, a paying
bank or returning bank agrees to indemnify each Reserve Bank for any
loss or expense (including attorneys' fees and expenses of litigation)
resulting from--
(A) The paying or returning bank's lack of authority to give the
authorization in paragraph (c)(1) of this section;
(B) Any action taken by a Reserve Bank within the scope of its
authority in handling the returned check; or
(C) Any warranty or indemnity made by the Reserve Bank under
paragraph (e) of this section or part 229 of this chapter.
(ii) A paying bank's or returning bank's liability for warranties
and indemnities that a Reserve Bank makes for a returned check that is
a substitute check, a paper or electronic representation thereof, or
any other electronic item is subject to the following conditions and
limitations--
(A) A paying bank or returning bank that sent an original check
shall not be liable for any amount that a Reserve Bank pays under
subpart D of part 229 of this chapter or under Sec. 210.12(e)(1)(iii)
of this subpart, absent the paying bank's or returning bank's agreement
to the contrary;
(B) Nothing in this subpart alters the liability under subpart D of
part 229 of this chapter of a paying bank or returning bank that sent a
substitute check or a paper or electronic representation of a
substitute check; and
(C) A paying bank or returning bank that sent an electronic item
that is not a representation of a substitute check shall not be liable
under paragraph (c)(5)(i) of this section for any amount that the
Reserve Bank pays under subpart D of part 229 of this chapter or
paragraph (e)(1)(iii) of this section that is attributable to the
Reserve Bank's own lack of good faith or failure to exercise ordinary
care.
(d) Preservation of other warranties and indemnities. Nothing in
paragraph (c) of this section limits any warranty or indemnity by a
returning bank or paying bank (or a person that handled an item prior
to that bank) arising under state law or regulation (such as the
U.C.C.), other federal law or regulation (such as part 229 of this
chapter), or an agreement with a Reserve Bank.
(e) Warranties by and liability of Reserve Bank. (1) The following
provisions apply when a Reserve Bank handles a returned check under
this subpart.
(i) Warranties for all items. The Reserve Bank warrants to the bank
to which it sends the returned check that the returned check bears all
indorsements applied by parties that previously handled the returned
check, in paper or electronic form, for forward collection or return.
(ii) Warranties for all returned checks that are electronic items.
A Reserve Bank that sends a returned check that is an electronic item
makes the returning bank warranties set forth in and subject to the terms of Sec. 229.34
of this chapter as if the electronic item were a check subject to that
section.
(iii) Warranties and indemnity for returned checks that are
electronic items that are not representations of substitute checks.
(A) If the returned check is an electronic item that is not a
representation of a substitute check, the Reserve Bank warrants to the
bank to which it sends the returned check that--
(1) The electronic image portion of the item accurately represents
all of the information on the front and back of the original check as
of the time that the original check was truncated; the information
portion of the item contains a record of all MICR-line information
required for a substitute check under Sec. 229.2(aaa) of this chapter;
and the item conforms with the technical standards for an electronic
item set forth in an operating circular; and
(2) No person will receive a transfer, presentment, or return of,
or otherwise be charged for, the electronic item, the original item, or
a paper or electronic representation of the original item such that the
person will be asked to make payment based on an item it already has
paid.
(B) If the returned check is an electronic item that is not a
representation of a substitute check--
(1) Except as provided in paragraph (e)(1)(iii)(B)(2) of this
section, the Reserve Bank agrees to indemnify the bank to which it
sends the returned check (the recipient bank) for the amount of any
losses that the bank incurs under subpart D of part 229 of this chapter
for an indemnity that the bank was required to make under subpart D of
part 229 of this chapter in connection with a substitute check later
created from the returned check.
(2) A Reserve Bank shall not be liable under paragraph
(e)(1)(iii)(B)(1) of this section for any amount that the recipient
bank pays under subpart D of part 229 of this chapter that is
attributable to the lack of good faith or failure to exercise ordinary
care of the recipient bank or a person that handled the item, in any
form, after the recipient bank.
(2) A Reserve Bank shall not have or assume any other liability to
any person except--
(i) As provided in paragraph (e)(1) of this section;
(ii) For the Reserve Bank's own lack of good faith or failure to
exercise ordinary care as provided in subpart C of part 229 of this
chapter; or
(iii) As provided in subpart D of part 229 of this chapter.
(f) Methods of recovery. (1) The Reserve Bank may recover the amount stated in paragraph (d) of this section by charging any account on its books that is maintained or used by the paying or returning bank (or by charging another returning Reserve Bank), if—
(i) The Reserve Bank made seasonable written demand on the paying or returning bank to assume defense of the action or proceeding; and
(ii) The paying or returning bank has not made any other arrangement for payment that is acceptable to the Reserve Bank.
(2) The Reserve Bank is not responsible for defending the action or proceeding before using this method of recovery. A Reserve Bank that has been charged under this paragraph (f) may recover from the paying or returning bank in the manner and under the circumstances set forth in this paragraph (f). A Reserve Bank's failure to avail itself of the remedy provided in this paragraph (f) does not prejudice its enforcement in any other manner of the indemnity agreement referred to in paragraph (c)(3) of this section.
(3) Any warranty or indemnity made by the Reserve Bank under
paragraph (e) of this section or part 229 of this chapter,
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