§ 229.31 Paying bank's responsibility for return of checks and notices of nonpayment.
(a) Return of checks.
(1) Subject to the requirement of expeditious return under paragraph (b) of this section, a paying bank may send a returned check to the depositary bank, to any other bank agreeing to handle the returned check, or as provided in paragraph (a)(2) of this section.
(2) A paying bank that is unable to identify the depositary bank with respect to a check may send the returned check to any bank that handled the check for forward collection and must advise the bank to which the check is sent that the paying bank is unable to identify the depositary bank.
(3) A paying bank may convert a check to a qualified returned check. A qualified returned check shall be encoded in magnetic ink with the routing number of the depositary bank, the amount of the returned check, and a “2” in the case of an original check (or a “5” in the case of a substitute check) in position 44 of the qualified return MICR line as a return identifier. A qualified returned original check shall be encoded in accordance with ANS X9.13, and a qualified returned substitute check shall be encoded in accordance with ANS X9.100–140.
(4) Except as provided in paragraph (g) of this section, this section does not affect a paying bank's responsibility to return a check within the deadlines required by the UCC or Regulation J (12 CFR part 210).
(b) Expeditious return of checks.
(1) Except as provided in paragraph (d) of this section, if a paying bank determines not to pay a check, it shall return the check in an expeditious manner such that the check would normally be received by the depositary bank not later than 2 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.
(2) If the second business day following the banking day on which the check was presented to the paying bank is not a banking day for the depositary bank, the paying bank satisfies the expeditious return requirement if it sends the returned check in a manner such that the depositary bank would normally receive the returned check not later than 2 p.m. (local time of the depositary bank) on the depositary bank's next banking day.
(c) Notice of nonpayment.
(1) If a paying bank determines not to pay a check in the amount of $5,000 or more, it shall provide notice of nonpayment such that the notice would normally be received by the depositary bank not later than 2 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. If the day the paying bank is required to provide notice is not a banking day for the depositary bank, receipt of notice not later than 2 p.m. (local time of the depositary bank) on the depositary bank's next banking day constitutes timely notice. Notice may be provided by any reasonable means, including the returned check, a writing (including a copy of the check), or telephone.
(2)
(i) To the extent available to the paying bank, notice must include the information contained in the check's MICR line when the check is received by the paying bank, as well as—
(A) Name of the payee(s);
(B) Amount;
(C) Date of the indorsem*nt of the depositary bank;
(D) The bank name, routing number, and trace or sequence number associated with the indorsem*nt of the depositary bank; and
(E) Reason for nonpayment.
(ii) If the paying bank is not sure of the accuracy of an item of information, it shall include the information required by this paragraph to the extent possible, and identify any item of information for which the bank is not sure of the accuracy.
(iii) The notice may include other information from the check that may be useful in identifying the check being returned and the customer.
(d) Exceptions to the expeditious return of checks and notice of nonpayment requirements. The expeditious return and notice of nonpayment requirements of paragraphs (b) and (c) of this section do not apply if—
(1) The check is deposited in a depositary bank that is not subject to subpart B of this part; or
(2) A paying bank is unable to identify the depositary bank with respect to the check.
(e) Identification of returned check. A paying bank returning a check shall clearly indicate on the front of the check that it is a returned check and the reason for return. If the paying bank is returning a substitute check or an electronic returned check, the paying bank shall include this information such that the information would be retained on any subsequent substitute check.
(f) Notice in Lieu of Return. If a check is unavailable for return, the paying bank may send in its place a copy of the front and back of the returned check, or, if no such copy is available, a written notice of nonpayment containing the information specified in paragraph (c)(2) of this section. The copy or written notice shall clearly state that it constitutes a notice in lieu of return. A notice in lieu of return is considered a returned check subject to the requirements of this subpart.
(g) Extension of deadline. The deadline for return or notice of dishonor or nonpayment under the UCC or Regulation J (12 CFR part 210), or § 229.36(d)(3) and (4) is extended to the time of dispatch of such return or notice if the depositary bank (or the receiving bank, if the depositary bank is unidentifiable) receives the returned check or notice—
(1) On or before the depositary bank's (or receiving bank's) next banking day following the otherwise applicable deadline by the earlier of the close of that banking day or a cutoff hour of 2 p.m. (local time of the depositary bank or receiving bank) or later set by the depositary bank (or receiving bank) under UCC 4–108, for all deadlines other than those described in paragraph (g)(2) of this section; or
(2) Prior to the cut-off hour for the next processing cycle (if sent to a returning bank), or on the next banking day (if sent to the depositary bank), for a deadline falling on a Saturday that is a banking day (as defined in the UCC) for the paying bank.
(h) Payable-through and payable-at checks. A check payable at or through a paying bank is considered to be drawn on that bank for purposes of the expeditious return and notice of nonpayment requirements of this subpart.
(i) Reliance on routing number. A paying bank may return a returned check based on any routing number designating the depositary bank appearing on the returned check in the depositary bank's indorsem*nt.
[82 FR 27579, June 15, 2017]
As an expert in banking regulations and procedures, I bring a wealth of knowledge and experience to the discussion of § 229.31, specifically focusing on the paying bank's responsibility for the return of checks and notices of nonpayment. I have a comprehensive understanding of the regulations outlined in this section, drawing on my expertise in financial systems and payment processes.
Let's break down the key concepts mentioned in the provided article:
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Return of Checks (§ 229.31(a)):
- Identification of Depositary Bank: A paying bank may send a returned check to the depositary bank or any other bank agreeing to handle it. If the paying bank cannot identify the depositary bank, it may send the check to any bank that handled it for forward collection.
- Qualified Returned Check: A paying bank can convert a check to a qualified returned check, encoded with specific information, including the routing number of the depositary bank, amount, and return identifier.
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Expeditious Return of Checks (§ 229.31(b)):
- Timeline: If a paying bank decides not to pay a check, it must return the check expeditiously, ensuring the depositary bank receives it by 2 p.m. (local time of the depositary bank) on the second business day following the day the check was presented.
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Notice of Nonpayment (§ 229.31(c)):
- Amount Requirement: If a paying bank decides not to pay a check of $5,000 or more, it must provide notice of nonpayment to the depositary bank by 2 p.m. on the second business day following the day the check was presented.
- Information in Notice: The notice must include information from the check's MICR line, payee's name, amount, date of the depositary bank's indorsem*nt, bank name, routing number, trace/sequence number, and reason for nonpayment.
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Exceptions and Extensions (§ 229.31(d) to (g)):
- Exceptions: The expeditious return and notice of nonpayment requirements do not apply in certain cases, such as when the depositary bank is not subject to subpart B or when the paying bank cannot identify the depositary bank.
- Identification of Returned Check: The paying bank must clearly indicate on the front of the returned check that it is a returned check and state the reason for return.
- Notice in Lieu of Return: If a check is unavailable for return, the paying bank may send a copy of the check or a written notice of nonpayment.
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Extension of Deadline (§ 229.31(g)):
- Conditions for Extension: The deadline for return or notice of nonpayment is extended if the depositary bank receives the returned check or notice within specific timelines.
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Other Considerations (§ 229.31(h) to (i)):
- Payable-Through and Payable-At Checks: Checks payable at or through a paying bank are considered drawn on that bank for expeditious return and notice of nonpayment requirements.
- Reliance on Routing Number: A paying bank may return a check based on any routing number designating the depositary bank in the depositary bank's indorsem*nt.
In summary, this section outlines the detailed responsibilities, timelines, and procedures that paying banks must adhere to when returning checks and providing notices of nonpayment, with considerations for exceptions and extensions in certain scenarios.
