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Reg CC Notice of Nonpayment-Liability Calculation

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Question: 
I'm hoping you can confirm my understanding that a paying institution is liable under Reg CC 229.38(a) for failing provide notice of nonpayment for a check in the amount of $5,000 or more under 229.13(c)? The measure of damages under 229.38 is the loss incurred up to the amount of the check, less the amount of the loss that would have been incurred had the paying institution exercised ordinary care. Can you provide an example of a liability calculation in which the paying institution's notice of nonpayment is late? How does the bank of first deposit pursue a claim against the paying institution for failing to provide proper notice by the deadline? I assume this would be on a "without entry" basis by sending a demand letter to the paying institution.
Answer: 

The bank of first deposit must first attempt to collect on the dishonored check from its customer. If the bank can recover a portion of the funds from its customer, it would only be permitted to collect the difference between the check and recovery from the returning bank. Also, the returning bank is also not liable for any checks or debits that you would have paid even if the notice had been timely.

As for pursuing a claim, you can start with a letter from your attorney to the returning bank stating the facts as you see them. If the returning bank does not respond, they are essentially saying, "Sue us." In other words, you will have to prove negligence on the returning bank as well as prove damages.

229.38(g) notes that your option is to file in district court.

(g) Jurisdiction. Any action under this subpart may be brought in any United States district court, or in any other court of competent jurisdiction, and shall be brought within one year after the date of the occurrence of the violation involved.

First published on 05/19/2019

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